<PAGE> 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 JUNE 30, 1997
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.
GLOBALSTAR CAPITAL CORPORATION
3200 ZANKER ROAD
PO BOX 640670
SAN JOSE, CA 95164
COMMISSION FILE NUMBERS: 333-25461
333-25461-01
JURISDICTION OF INCORPORATION: DELAWARE
IRS IDENTIFICATION NUMBERS: 13-3759824
13-3876323
The registrants have filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
or such shorter period as the registrants were required to file such reports and
have been subject to such filing requirements for the past 90 days or such
shorter period.
As of July 31, 1997, there were 30,632,972 shares of Globalstar
Telecommunications Limited common stock outstanding.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
GLOBALSTAR TELECOMMUNICATIONS LIMITED
CONDENSED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests........................ $302,563 $ 302,037
Ordinary partnership interests.................................... 310,823 158,038
Ordinary partnership warrants..................................... 12,210 22,601
--------- ---------
Total assets.............................................. $625,596 $ 482,676
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Interest payable.................................................. $ 1,679 $ 1,679
Convertible preferred equivalent obligations ($310,000 principal
amount)........................................................... 300,884 300,358
Commitments and contingencies (Note 5)
Shareholders' equity:
Common stock, $1.00 par value, 200,000,000 and 60,000,000 shares
authorized (30,632,972 and 10,000,000 issued and outstanding)
at June 30, 1997 and December 31, 1996, respectively........... 30,633 10,000
Paid-in capital................................................... 318,605 175,750
Warrants.......................................................... 12,210 22,601
Accumulated deficit............................................... (38,415) (27,712)
--------- ---------
Total shareholders' equity..................................... 323,033 180,639
--------- ---------
Total liabilities and shareholders' equity................ $625,596 $ 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 SIX MONTHS ENDED
------------------- --------------------
JUNE JUNE JUNE
30, 30, JUNE 30, 30,
1997 1996 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
Equity in net loss applicable to ordinary
partnership interests of Globalstar, L.P......... $ 6,323 $ 3,942 $ 10,703 $ 7,224
Dividend income on Globalstar, L.P. redeemable
preferred partnership interests.................. (5,301) (5,295) (10,601) (6,719)
Interest expense on convertible preferred
equivalent obligations........................... 5,301 5,295 10,601 6,719
-------- -------- -------- --------
Net loss........................................... $ 6,323 $ 3,942 $ 10,703 $ 7,224
======== ======== ======== ========
Net loss per share................................. $ 0.21 $ 0.20 $ 0.42 $ 0.36
======== ======== ======== ========
Weighted average shares used in computing net loss
per share........................................ 29,788 20,000 25,245 20,000
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements.
2
<PAGE> 4
GLOBALSTAR TELECOMMUNICATIONS LIMITED
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $ (10,703) $ (7,224)
Equity in net loss of Globalstar, L.P............................ 10,703 7,224
Increase in redemption value of redeemable preferred partnership
interests..................................................... (526) (332)
Dividends accrued on redeemable preferred partnership interests
in excess of cash received.................................... -- (1,676)
Amortization of convertible preferred equivalent obligations
issue costs................................................... 526 332
Change in operating liability:
Interest payable.............................................. -- 1,676
--------- ---------
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.... (140,887) --
Purchase of redeemable preferred partnership interests in
Globalstar, L.P............................................... -- (299,500)
--------- ---------
Net cash used in investing activities.............................. (153,097) (299,500)
--------- ---------
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 --
Proceeds from exercise of GTL rights............................. 29,976 --
Payment of debt offering costs................................... -- (10,500)
Sale of convertible preferred equivalent obligations............. -- 310,000
--------- ---------
Net cash provided by financing activities.......................... 153,097 299,500
--------- ---------
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 and six months ended June 30, 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 20,000,000 shares of common stock (as adjusted for
two-for-one stock split, see Note 3) resulting in net proceeds of $185,750,000.
Effective February 22, 1995, the Company purchased 21.3% of the ordinary
partnership interests of 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 June 30, 1997, GTL held 29.3% of the ordinary partnership interests and
100% of the Redeemable Preferred Partnership Interests in Globalstar, see Note
4. 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 June 30, 1997
was $38,415,000.
3. SHAREHOLDERS' EQUITY
On May 28, 1997, GTL issued a two-for-one stock split to shareholders of
record on May 12, 1997 in the form of a 100% stock dividend. Accordingly, all
GTL share and per share amounts have been restated to reflect the stock split.
Prior to the two-for-one stock split, GTL's equity securities and convertible
securities were represented by equivalent Globalstar partnership interests on a
one-for-one basis. Globalstar's partnership interests were not affected by the
GTL stock split and, accordingly, GTL's equity securities and convertible
securities are now represented by equivalent Globalstar partnership interests on
a two-for-one basis.
4. EXERCISE OF THE GUARANTEE WARRANTS AND THE GTL RIGHTS
On March 25, 1997, holders of warrants issued in connection with the
Globalstar credit agreement exercised warrants to purchase 8,370,636 shares of
GTL common stock for $13.25 per share (as adjusted for two-for-one stock split,
see Note 3). GTL received proceeds of approximately $110.9 million. On May 5,
1997, GTL received approximately $30.0 million as a result of the exercise of
rights issued to shareholders to purchase 2,262,336 shares of GTL common stock
for $13.25 per share (as adjusted for two-for-one stock split, see Note 3). GTL
used the proceeds from the warrants and rights to purchase 5,316,486 Globalstar
ordinary partnership interests for $26.50 per interest, increasing GTL's
holdings of Globalstar's ordinary partnership interests from 10,000,000 (21.3%)
to 15,316,486 (29.3%).
4
<PAGE> 6
GLOBALSTAR TELECOMMUNICATIONS LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
5. 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 2,064,500 shares of GTL common stock (as adjusted for
two-for-one stock split, see Note 3) 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 warrants are exercisable on or after February 19, 1998 at a price of
$34.787 per share (as adjusted for two-for-one stock split, see Note 3) 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.
On June 13, 1997, Globalstar sold $325 million principal amount of 11 1/4%
Senior Notes due 2004 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 June 2002 and are subject to a prepayment premium prior to
2004. Interest on the notes is paid semi-annually.
The indentures for the notes contain 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.
Globalstar will use the net proceeds of approximately $786 million from the
offerings, for the construction and deployment of the Globalstar System.
5
<PAGE> 7
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except partnership interest data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 557,632 $ 21,180
Other current assets............................................. 7,161 606
---------- --------
Total current assets..................................... 564,793 21,786
Property and equipment, net........................................ 1,665 1,720
Globalstar System Under Construction:
Space segment.................................................... 933,998 730,513
Ground segment................................................... 242,826 160,520
---------- --------
1,176,824 891,033
Additional satellite spares........................................ 46,388 --
Deferred FCC license costs......................................... 9,149 8,690
Deferred financing costs........................................... 17,104 19,577
Other assets....................................................... 380 107
---------- --------
Total assets............................................. $1,816,303 $942,913
========== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable................................................. $ 2,233 $ 4,401
Payable to affiliates............................................ 89,795 63,937
Accrued expenses................................................. 4,635 6,929
Accrued interest on senior notes payable......................... 22,852 --
---------- --------
Total current liabilities................................ 119,515 75,267
Deferred revenues.................................................. 23,652 23,652
Vendor financing liability......................................... 168,523 130,694
Borrowings under long-term revolving credit facility............... -- 96,000
Interest payable on long-term revolving credit facility............ 402 77
Commitments and contingencies (Note 7) Senior notes payable
($825,000 principal amount)...................................... 775,573 --
Redeemable preferred partnership interests (4,769,230 outstanding
$310,000 redemption value)....................................... 302,563 302,037
Ordinary partners' capital:
Ordinary partnership interests (52,316,486 and 47,000,000
outstanding at June 30, 1997 and December 31, 1996,
respectively)................................................. 413,865 292,585
Warrants......................................................... 12,210 22,601
---------- --------
Total ordinary partners' capital.............................. 426,075 315,186
---------- --------
Total liabilities and partners' capital.................. $1,816,303 $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, except per interest data)
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 23, 1994
JUNE 30, JUNE 30, (COMMENCEMENT OF
------------------ ------------------ OPERATIONS) TO
1997 1996 1997 1996 JUNE 30, 1997
------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Development costs..................... $16,569 $13,763 $27,810 $25,140 $154,095
Marketing, general and
administrative..................... 5,212 3,689 11,553 7,713 54,546
------- ------- ------- ------- --------
Total operating expenses...... 21,781 17,452 39,363 32,853 208,641
Interest income......................... 4,814 3,079 7,109 4,528 27,260
------- ------- ------- ------- --------
Net loss................................ 16,967 14,373 32,254 28,325 181,381
Preferred distribution and related
increase in redeemable preferred
partnership interests................. 5,300 5,295 10,601 6,719 27,924
------- ------- ------- ------- --------
Net loss applicable to ordinary
partnership interests................. $22,267 $19,668 $42,855 $35,044 $209,305
======= ======= ======= ======= ========
Net loss per ordinary partnership
interest.............................. $ 0.43 $ 0.42 $ 0.86 $ 0.75
======= ======= ======= =======
Weighted average interests used in
computing net loss per ordinary
partnership interest.................. 51,894 47,000 49,622 47,000
======= ======= ======= =======
</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
SIX MONTHS ENDED MARCH 23, 1994
JUNE 30, (COMMENCEMENT OF
--------------------- OPERATIONS) TO
1997 1996 JUNE 30, 1997
--------- --------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................. $ (32,254) $ (28,325) $ (181,381)
Deferred revenues........................................................ -- 1,739 23,652
Stock compensation transactions.......................................... 647 -- 964
Depreciation and amortization............................................ 2,922 2,981 9,293
Changes in operating assets and liabilities:
Other current assets................................................... (6,555) (84) (7,161)
Other assets........................................................... (273) -- (380)
Accounts payable....................................................... (1,110) 2,828 2,108
Payable to affiliates.................................................. 4,005 (4,849) 5,316
Accrued expenses....................................................... (2,294) (1,480) 4,635
--------- --------- -----------
Net cash used in operating activities...................................... (34,912) (27,190) (142,954)
--------- --------- -----------
Investing activities:
Globalstar System under construction..................................... (284,158) (223,496) (1,175,191)
Payable to affiliates for Globalstar System under construction........... 21,853 27,172 75,679
Capitalized interest payable............................................. 23,177 -- 23,254
Accounts payable......................................................... (1,058) 237 (383)
Vendor financing liability............................................... 37,829 39,844 168,523
--------- --------- -----------
Cash used for Globalstar System.......................................... (202,357) (156,243) (908,118)
Additional satellite spares.............................................. (46,388) -- (46,388)
Purchases of property and equipment...................................... (394) (457) (3,336)
Deferred FCC license costs............................................... (459) (743) (6,914)
Purchases of investments................................................. -- -- (126,923)
Maturity of investments.................................................. -- -- 126,923
--------- --------- -----------
Net cash used in investing activities...................................... (249,598) (157,443) (964,756)
--------- --------- -----------
Financing activities:
Net proceeds from issuance of $500,000 11 3/8% Senior Notes.............. 472,090 -- 472,090
Proceeds from warrants issued in connection with $500,000 11 3/8% Senior
Notes.................................................................. 12,210 -- 12,210
Net proceeds from issuance of $325,000 11 1/4% Senior Notes.............. 301,850 -- 301,850
Proceeds from exercise of warrants....................................... 140,887 -- 140,887
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................ -- 299,500 299,500
Distributions on redeemable preferred partnership interests.............. (10,075) (4,758) (24,908)
Prepaid interest on redeemable preferred partnership interests........... -- 47 47
Borrowings under long-term revolving credit facility..................... 65,000 10,000 171,000
Repayment of borrowings under long-term revolving credit facility........ (161,000) (10,000) (171,000)
--------- --------- -----------
Net cash provided by financing activities.................................. 820,962 294,539 1,665,342
--------- --------- -----------
Net increase in cash and cash equivalents.................................. 536,452 109,906 557,632
Cash and cash equivalents, beginning of period............................. 21,180 71,602 --
--------- --------- -----------
Cash and cash equivalents, end of period................................... $ 557,632 $ 181,508 $ 557,632
========= ========= ===========
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.......... $ 526 $ 3,063
========= ===========
Increase in carrying value of senior notes............................... $ 1,633 $ 1,633
========= ===========
</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 and six months ended
June 30, 1997 are not necessarily indicative of the results to be expected for
the full year. It is suggested that these consolidated financial statements be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the 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 early December 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 condensed consolidated financial statements reflect
the operations of Globalstar from that date.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Globalstar is devoting substantially all of its present efforts to the
design, licensing, construction, testing and financing of the Globalstar System,
and establishing its business. Its planned principal operations have not
commenced. Accordingly, Globalstar is a development stage company as defined in
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 $500 million and $325 million principal amount
Senior Notes at 11 3/8% and 11 1/4% per annum, respectively. Globalstar is
increasing the carrying value of the senior notes payable to their ultimate
redemption value.
Reclassifications
Certain reclassifications have been made to conform prior amounts to the
current period 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 June 30, 1997, Globalstar's budget 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 requirement for the
project by more than five percent.
In addition, Globalstar has agreed to purchase from SS/L eight additional
spare satellites at a cost estimated at $175 million. Further, in order to
accelerate the deployment of gateways around the world Globalstar has agreed to
finance approximately $80 million of the cost of up to 32 of the 35 gateways
ordered by Globalstar service providers. Globalstar expects to recover its
investment in this gateway financing program from the resale of the gateways to
service providers.
Actual amounts may vary from these estimates 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.
At June 30, 1997, Globalstar has raised or received commitments for
approximately $2.3 billion in equity, debt and vendor financing. 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. PARTNERSHIP INTERESTS
On May 28, 1997, GTL issued a two-for-one stock split. Prior to the
two-for-one stock split, GTL's equity securities and convertible securities were
represented by equivalent Globalstar partnership interests on a one-for-one
basis. Globalstar's partnership interests were not affected by the GTL stock
split and, accordingly, GTL's equity securities and convertible securities are
now represented by equivalent Globalstar partnership interests on a two-for-one
basis.
6. EXERCISE OF GUARANTEE WARRANTS AND GTL RIGHTS
On March 25, 1997, holders of warrants issued in connection with the
Globalstar credit agreement exercised warrants to purchase 8,370,636 shares of
GTL common stock for $13.25 per share (as adjusted for two-for-one stock split,
see Note 5). GTL received proceeds of approximately $110.9 million. On May 5,
1997, GTL received proceeds of approximately $30.0 million as a result of the
exercise of rights to purchase 2,262,336 shares of GTL common stock for $13.25
per share (as adjusted for two-for-one stock split, see Note 5). GTL used the
proceeds from the warrants and the rights to purchase 5,316,486 Globalstar
ordinary partnership interests for $26.50 per interest, increasing GTL's
holdings of Globalstar's ordinary partnership interests from 21.3% to 29.3%.
10
<PAGE> 12
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. 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 2,064,500 shares of GTL common stock (as adjusted for
two-for-one stock split, see Note 5) 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 warrants are exercisable on or after February 19, 1998 at a price of
$34.787 per share (as adjusted for two-for-one stock split, see Note 5) 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.
On June 13, 1997, Globalstar sold $325 million principal amount of 11 1/4%
Senior Notes due 2004 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 June 2002 and are subject to a prepayment premium prior to
2004. Interest on the notes is payable semi-annually.
The indentures for the $500 million and $325 million principal amount
Senior Notes contain 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.
Globalstar will use the net proceeds of approximately $786 million from the
offerings 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.
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 June 30, 1997, cash and cash equivalents increased to $557.6 million
from $21.2 million at December 31, 1996. The net increase is a result of the net
proceeds of $773.9 million received from issuance of Globalstar's 11 1/4% and
$11 3/8% Senior Notes, $12.2 million received from the sale of warrants to GTL
and, $140.9 million received from the exercise of the Guarantee Warrants and GTL
Rights by GTL, offset by expenditures for the Globalstar System Under
Construction of $202.4 million, expenditures for the additional spare satellites
of $46.4 million, net cash used in operating activities of $34.9 million,
preferred distributions on the RPPIs of $10.1 million and net repayments of debt
of $96.0 million.
Accounts payable, payables to affiliates and accrued expenses and interest
have increased by $44.2 million from $75.3 million at December 31, 1996 to
$119.5 million at June 30, 1997, as a result of the timing of payments to
Globalstar contractors and accrued interest on the senior notes.
Through June 30, 1997, Globalstar incurred costs of approximately $1.3
billion for the design and construction of the space and ground segments. Costs
incurred to date during fiscal year 1997 were approximately $315 million.
Globalstar's budget 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 also agreed to purchase from SS/L eight additional spare
satellites at a cost estimated at $175 million. Further, in order to accelerate
the deployment of gateways around the world, Globalstar has agreed to finance
approximately $80 million of the cost of up to 32 of the 35 gateways ordered by
Globalstar service providers. Globalstar expects to recover its investment in
this gateway financing program from the resale of the gateways to service
providers.
As of June 30, 1997, Globalstar had raised or received commitments for
approximately $2.3 billion. Globalstar believes that its current capital, vendor
financing commitments and the availability of the Globalstar Credit Agreement
are sufficient to fund its requirements into the second quarter of 1998.
Globalstar intends to raise the remaining funds required from a combination of
sources including; debt issuance (which may include an equity component),
financial support from the Globalstar partners, projected service provider
payments, projected net service revenues from initial operations and anticipated
payments from the sale of gateways and Globalstar subscriber terminals. Although
Globalstar believes it will be able to
12
<PAGE> 14
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 June
30, 1997, Globalstar has recorded cumulative net losses applicable to ordinary
partnership interests of $209.3 million. The net loss applicable to ordinary
partnership interests for the six months ended June 30, 1997 increased to $42.9
million as compared to $35.0 million for the six months ended June 30, 1996. The
net loss increased primarily as a result of a full quarter's distribution on the
RPPIs during the first quarter of 1997, versus a distribution for a one month
period during the first quarter of 1996, as the RPPIs were issued in March 1996,
increased activity in the development of Globalstar user terminals, and
increased in-house engineering and marketing efforts. The net loss applicable to
ordinary partnership interests for the three months ended June 30, 1997
increased to $22.3 million from $19.7 million in the prior year primarily due to
increased activity in the development of Globalstar user terminals and
Globalstar's continuing in-house engineering and marketing efforts. Globalstar
is expending significant funds for the design, construction, testing and
deployment of the Globalstar System and expects such losses to continue until
commencement of commercial operations.
Globalstar has earned interest income of $27.3 million on cash balances and
short term investments since commencement of operations. Interest income during
the six months ended June 30, 1997 was $7.1 million as compared to $4.5 million
for the six months ended June 30, 1996. Interest income during the three months
ended June 30, 1997 was $4.8 million as compared to $3.1 million for the three
months ended June 30, 1996. Interest income for the current period increased as
a result of higher average cash balances outstanding during the first and second
quarters of 1997.
Operating Expenses. Development costs during the six months ended June 30,
1997 was $27.8 million as compared to $25.1 million for the six months ended
June 30, 1996. Development costs during the three months ended June 30, 1997 was
$16.6 million as compared to $13.8 million for the three months ended June 30,
1996. Development costs for the current period increased as a result of
increased activity in the development of Globalstar user terminals.
Marketing, general and administrative expenses were $11.6 million and $7.7
million for the six months ended June 30, 1997 and 1996, respectively.
Marketing, general and administrative expenses were $5.2 million and $3.7
million for the three months ended June 30, 1997 and 1996, respectively. The
increase in marketing, general and administrative expenses is primarily the
result of an increase in the number of 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 or loss per interest of
GTL or Globalstar, respectively.
13
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 2(c). CHANGES IN SECURITIES
On June 13, 1997, Globalstar, L.P. sold $325 million principal amount of
11 1/4% Senior Notes due 2004 in a Rule 144A private offering. The initial
purchasers of the Notes were Bear, Stearns, & Co. Inc., Lehman Brothers Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation, and the price to investors
was 95.384% of the principal amount of the Notes to yield 12 1/4% to maturity.
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>
April 8, 1997 Item 5 -- GTL declares two-for-one stock split.
May 16, 1997 Item 5 -- Globalstar service providers place orders for 35
gateways.
June 13, 1997 Item 5 -- Globalstar issues $325 million of 11 1/4% Senior
Notes in a private offering.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
GLOBALSTAR TELECOMMUNICATIONS LIMITED
GLOBALSTAR, L.P.
GLOBALSTAR CAPITAL CORPORATION
-------------------------------------------
Registrants
Nicholas C. Moren
-------------------------------------------
Treasurer
(Principal Financial Officer)
and
Registrants' Authorized Officer
Date: August 13, 1997
14
<PAGE> 1
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIOS
(In thousands, except ratios)
GLOBALSTAR TELECOMMUNICATIONS LIMITED
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six months
ended
June 30, 1997
-------------
<S> <C>
Earnings:
Net loss $ (10,703)
Add:
Equity in loss of Globalstar, L.P. 10,703
Interest expense 10,601
-----------
Earnings available to cover fixed charges(1) $ 10,601
===========
Fixed charges - interest expense $ 10,601
===========
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
Six months (Commencement of
ended operations) to
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Net loss $ (32,254) $ (181,381)
Preferred distribution and related increase in Redeemable
Preferred Preferred Partnership Interests (10,601) $ (27,924)
----------- -----------
Deficiency of earnings to cover fixed charges $ (42,855) $ (209,305)
=========== ===========
</TABLE>
18
<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 June 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000933401
<NAME> GLOBALSTAR TELECOMMUNICATIONS LIMITED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 625,596
<CURRENT-LIABILITIES> 1,679
<BONDS> 0
300,884
0
<COMMON> 30,633
<OTHER-SE> 292,400
<TOTAL-LIABILITY-AND-EQUITY> 625,596
<SALES> 0
<TOTAL-REVENUES> (103)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,600
<INCOME-PRETAX> (10,703)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,730)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,703)
<EPS-PRIMARY> (.42)<F1>
<EPS-DILUTED> (.42)
<FN>
<F1>Adjusted for two-for-one stock split effective May 28, 1997. Prior financial
data schedules have not been restated.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary consolidated financial information extracted from
the financial statements of Globalstar, L.P. for the quarter ended
June 30, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001037927
<NAME> GLOBALSTAR, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 557,632
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,161
<PP&E> 1,223,749
<DEPRECIATION> 587
<TOTAL-ASSETS> 1,816,303
<CURRENT-LIABILITIES> 119,515
<BONDS> 775,573
0
302,563
<COMMON> 426,075
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,816,303
<SALES> 0
<TOTAL-REVENUES> 7,109
<CGS> 39,363
<TOTAL-COSTS> 39,363
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (32,254)
<INCOME-TAX> 0
<INCOME-CONTINUING> (32,254)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,855)
<EPS-PRIMARY> (.86)
<EPS-DILUTED> (.86)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary consolidated financial information extracted from
the financial statements of Globalstar Capital Corporation for the quarter
ended June 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001037991
<NAME> GLOBALSTAR CAPITAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1
<TOTAL-LIABILITY-AND-EQUITY> 1
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
