<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 MARCH 31, 1998
GLOBALSTAR TELECOMMUNICATIONS LIMITED
CEDAR HOUSE
41 CEDAR AVENUE
HAMILTON HM12, BERMUDA
TELEPHONE: (441) 295-2244
COMMISSION FILE NUMBER 0-25456
JURISDICTION OF INCORPORATION: BERMUDA
IRS IDENTIFICATION NUMBER: 13-3795510
------------------------
GLOBALSTAR, L.P.
3200 ZANKER ROAD
SAN JOSE, CA 95134
TELEPHONE: (408) 933-4000
COMMISSION FILE NUMBER: 333-25461
JURISDICTION OF INCORPORATION: DELAWARE
IRS IDENTIFICATION NUMBER: 13-3759824
The registrants have filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
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 May 1, 1998, there were 40,988,702 shares of Globalstar
Telecommunications Limited common stock outstanding.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests................ $303,352 $303,089
Ordinary partnership interests............................ 290,529 297,417
Ordinary partnership warrants............................. 12,155 12,210
-------- --------
Total assets...................................... $606,036 $612,716
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Interest payable.......................................... $ 1,679 $ 1,679
Convertible preferred equivalent obligations ($310,000
principal amount)......................................... 301,673 301,410
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, $1.00 par value, 200,000,000 shares
authorized (30,651,649 shares and 30,638,152 shares
issued and outstanding at March 31, 1998 and December
31, 1997, respectively)................................ 30,652 30,638
Paid-in capital........................................... 319,031 318,643
Warrants.................................................. 12,155 12,210
Accumulated deficit....................................... (59,154) (51,864)
-------- --------
Total shareholders' equity............................. 302,684 309,627
-------- --------
Total liabilities and shareholders' equity........ $606,036 $612,716
======== ========
</TABLE>
- ---------------
Note: The December 31, 1997 balance sheet has been derived from audited
financial statements at that date.
See notes to condensed financial statements.
1
<PAGE> 3
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P.............................. $ 7,290 $ 4,380
Dividend income on Globalstar, L.P. redeemable preferred
partnership interests..................................... (5,300) (5,300)
Interest expense on convertible preferred equivalent
obligations............................................... 5,300 5,300
------- -------
Net loss.................................................... $ 7,290 $ 4,380
======= =======
Net loss per share -- basic and diluted..................... $ 0.24 $ 0.21
======= =======
Weighted average shares outstanding -- basic and diluted.... 30,641 20,652
======= =======
Pro forma net loss per share for two-for-one stock split
(see Note 4) -- basic and diluted......................... $ 0.12 $ .011
======= =======
</TABLE>
See notes to condensed financial statements.
2
<PAGE> 4
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(7,290) $ (4,380)
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P. ......................... 7,290 4,380
Increase in redemption value of redeemable preferred
partnership interests.................................. (263) (263)
Amortization of convertible preferred equivalent
obligation costs....................................... 263 263
------- ---------
Net cash provided by (used in) operating activities......... -- --
------- ---------
Investing activities:
Purchase of ordinary partnership interests in Globalstar,
L.P.................................................... (347) (110,911)
Purchase of warrants in Globalstar, L.P................... -- (12,210)
------- ---------
Net cash used in investing activities....................... (347) (123,121)
------- ---------
Financing activities:
Net proceeds from issuance of common stock upon exercise
of options and warrants................................ 347 --
Proceeds from issuance of warrants in connection with sale
of Globalstar, L.P.'s 11 3/8% Senior Notes............. -- 12,210
Proceeds from exercise of guarantee warrants.............. -- 110,911
------- ---------
Net cash provided by financing activities................... 347 123,121
------- ---------
Net increase (decrease) in cash and cash equivalents........ -- --
Cash and cash equivalents, beginning of period.............. -- --
------- ---------
Cash and cash equivalents, end of period.................... $ -- $ --
======= =========
Supplemental information:
Interest paid during the period........................... $ 5,037 $ 5,037
======= =========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 5
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements have been prepared
by Globalstar Telecommunications Limited ("GTL") pursuant to the rules of the
Securities and Exchange Commission ("SEC") and, in the opinion of GTL, include
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to SEC rules. GTL believes that the
disclosures made are adequate to keep the information presented from being
misleading. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the latest Annual Report on
Form 10-K for GTL and Globalstar, L.P. ("Globalstar").
2. ORGANIZATION AND BUSINESS
On November 23, 1994, GTL was incorporated as an exempted company under the
Companies Act 1981 of Bermuda. On February 14, 1995, GTL completed an initial
public offering of 20,000,000 shares of common stock resulting in net proceeds
of $185,750,000. Effective February 22, 1995, GTL purchased 21.3% of the
ordinary partnership interests of Globalstar, L.P. (a development stage limited
partnership), with the net proceeds of the initial public offering. GTL's
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America.
GTL's sole business is acting as a general partner of Globalstar, a
development stage limited partnership, which is building and will operate a
worldwide, low-earth orbit satellite-based wireless digital telecommunications
system.
At March 31, 1998, GTL held 29.3% of the ordinary partnership interests and
100% of the Redeemable Preferred Partnership Interests ("RPPI's") in Globalstar.
GTL accounts for its investment in Globalstar on the equity method, recognizing
its allocated share of net loss in the period incurred. GTL's allocated share of
Globalstar's net loss applicable to ordinary partnership interests from the
period February 22, 1995 through March 31, 1998 was $59,154,000.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share
In 1997, Financial Accounting Standards Board Statement No. 128, "Earnings
per Share" (SFAS 128") replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. The adoption of
SFAS 128 had no effect on reported net loss per share. Due to GTL's net losses
for the quarters ended March 31, 1998 and 1997, respectively, diluted weighted
average shares outstanding excludes the assumed conversion of GTL's 6 1/2%
Convertible Preferred Equivalent Obligations due 2006 (the "CPEOs") and the
assumed exercise of outstanding options and warrants as their effect would have
been anti-dilutive. Accordingly, basic and diluted weighted average shares
outstanding is based on the weighted average common shares outstanding during
the quarters ended March 31, 1998 and 1997.
Comprehensive Income
Effective January 1, 1998, GTL adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). During the
periods presented, GTL had no changes in equity from transactions or other
events and circumstances from non-owner sources. Accordingly, a statement of
comprehensive loss has not been provided as comprehensive loss equals net loss
for all periods presented.
4
<PAGE> 6
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUBSEQUENT EVENTS
Redemption and Conversion of CPEOs
On March 31, 1998 (the "Call Date"), GTL called for the redemption on April
30, 1998 of all its outstanding CPEOs, $310 million aggregate principal amount.
As of April 30, 1998, all the holders of the CPEOs had converted their holdings
into 10,061,615 shares of GTL common stock. As a result of such conversion,
Globalstar's RPPIs were converted into ordinary partnership interests. In
connection with the redemption, GTL issued 269,660 additional shares of GTL
common stock in satisfaction of a required interest make-whole payment totaling
approximately $16.6 million. A corresponding dividend make-whole payment was
also made by Globalstar for which additional ordinary partnership interests were
issued. Prior to the conversion, interest on the CPEOs and, correspondingly,
dividends on the RPPIs, were payable quarterly at the rate of 6 1/2% per annum.
The conversion of the CPEOs and the related RPPIs will result in annual cash
savings of approximately $20.1 million.
Purchase of Globalstar Partnership Interests
On April 24, 1998, Loral Space and Communications ("Loral") announced a
series of transactions which, if completed, will have the effect of (1)
increasing Loral's fully diluted ownership in Globalstar to approximately 42%,
(2) establishing a Globalstar service provider fund of $210 million for
reinvestment in the Globalstar project through the purchase of Globalstar
gateways and user terminals and (3) the acquisition by entities advised by or
associated with Soros Fund Management L.L.C. ("Soros") of 4.2 million shares of
GTL common stock currently held by Loral. The GTL shares proposed to be acquired
by Soros represent an indirect ownership in Globalstar of approximately 4%.
In connection with the proposed series of transactions, GTL has agreed to
provide a shelf-registration for the shares sold to Soros within one year after
the purchase.
The consummation of these transactions is contingent upon the completion of
an equity financing by Loral and the satisfaction of all requirements under the
Globalstar partnership agreements and applicable laws and regulations.
GTL Two-For-One Stock Split
On April 27, 1998, the Board of Directors of GTL, approved a two-for-one
stock split of its common stock in the form of a stock dividend. The stock
dividend will be paid on June 8, 1998 to shareholders of record as of May 29,
1998. GTL's equity securities and convertible securities are currently
represented by equivalent Globalstar partnership interests on an approximate
two-for-one basis. Globalstar's partnership interests will not be affected by
the GTL stock split and, accordingly, GTL's equity securities and convertible
securities will be represented by equivalent Globalstar partnership interests on
an approximate four-for-one basis. At GTL's annual meeting on April 28, 1998,
the shareholders approved a proposal to increase the number of GTL authorized
common shares, $1.00 par value, to 600 million shares.
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,
1998 1997
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 291,931 $ 464,154
Other current assets...................................... 29,335 29,626
---------- ----------
Total current assets.............................. 321,266 493,780
Property and equipment, net................................. 2,908 2,574
Globalstar system under construction:
Space segment............................................. 1,274,083 1,153,344
Ground segment............................................ 444,037 374,344
---------- ----------
1,718,120 1,527,688
Additional satellite spares and user terminals.............. 122,509 99,225
Deferred FCC license costs.................................. 10,551 10,342
Deferred financing costs.................................... 13,394 14,631
Other assets................................................ 1,168 813
---------- ----------
Total assets...................................... $2,189,916 $2,149,053
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 14,672 $ 1,272
Payable to affiliates..................................... 80,276 105,357
Vendor financing liability, current portion............... 45,599 --
Accrued expenses.......................................... 5,423 8,312
Accrued interest on senior notes.......................... 32,525 28,869
---------- ----------
Total current liabilities......................... 178,495 143,810
Deferred revenues........................................... 23,652 23,652
Vendor financing liability.................................. 225,860 197,723
Deferred interest payable................................... 429 420
11 3/8% Senior notes payable ($500,000 principal amount).... 476,576 475,579
11 1/4% Senior notes payable ($325,000 principal amount).... 304,468 303,641
10 3/4% Senior notes payable ($325,000 principal amount).... 320,483 320,311
Commitments and contingencies (Notes 4, 5 and 6)
Redeemable preferred partnership interests (4,769,230
outstanding, $310,000 redemption value)................... 303,352 303,089
Ordinary partners' capital:
Ordinary partnership interests (52,325,825 and 52,319,076
outstanding at March 31, 1998 and December 31, 1997,
respectively).......................................... 344,446 368,618
Warrants.................................................. 12,155 12,210
---------- ----------
Total ordinary partners' capital....................... 356,601 380,828
---------- ----------
Total liabilities and partners' capital........... $2,189,916 $2,149,053
========== ==========
</TABLE>
- ---------------
Note: The December 31, 1997 balance sheet has been derived from audited
consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
6
<PAGE> 8
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per ordinary partnership interest data)
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
THREE MONTHS ENDED (COMMENCEMENT OF
-------------------------------- OPERATIONS) TO
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1998
-------------- -------------- ----------------
<S> <C> <C> <C>
Operating expenses:
Development costs............................ $16,490 $11,241 $205,253
Marketing, general and administrative........ 8,271 6,341 76,857
------- ------- --------
Total operating expenses............. 24,761 17,582 282,110
Interest income................................ 5,165 2,295 45,801
------- ------- --------
Net loss....................................... 19,596 15,287 236,309
Preferred distributions and related increase in
redeemable preferred partnership interests... 5,300 5,301 43,825
------- ------- --------
Net loss applicable to ordinary partnership
interests.................................... $24,896 $20,588 $280,134
======= ======= ========
Net loss per ordinary partnership
interest -- basic and diluted................ $ 0.48 $ 0.44
======= =======
Weighted average ordinary partnership interests
outstanding -- basic and diluted............. 52,321 47,326
======= =======
</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
THREE MONTHS ENDED MARCH 23, 1994
MARCH 31, (COMMENCEMENT OF
---------------------- OPERATIONS) TO
1998 1997 MARCH 31, 1998
--------- --------- ----------------
<S> <C> <C> <C>
Operating activities:
Net loss.................................................. $ (19,596) $ (15,287) $ (236,309)
Deferred revenues......................................... -- -- 23,652
Stock compensation transactions........................... 322 318 1,929
Depreciation and amortization............................. 347 236 2,600
Changes in operating assets and liabilities:
Other current assets.................................... 291 (299) (29,335)
Other assets............................................ (355) (27) (1,168)
Accounts payable........................................ 1,327 (319) 2,528
Payable to affiliates................................... 5,994 (3,202) 5,817
Accrued expenses........................................ (2,889) (1,298) 5,423
--------- --------- -----------
Net cash used in operating activities....................... (14,559) (19,878) (224,863)
--------- --------- -----------
Investing activities:
Globalstar System under construction...................... (190,432) (137,636) (1,718,120)
Payable to affiliates for Globalstar System under
construction............................................ (31,075) (3,299) 65,659
Capitalized interest accrued.............................. 6,898 9,160 51,661
Accounts payable.......................................... 12,073 (529) 11,636
Vendor financing liability................................ 73,736 25,354 271,459
--------- --------- -----------
Cash used for Globalstar System........................... (128,800) (106,950) (1,317,705)
Additional satellite spares and user terminals............ (23,284) (28,348) (122,509)
Purchases of property and equipment....................... (681) (750) (5,493)
Deferred FCC license costs................................ (209) (217) (8,316)
Purchases of investments.................................. -- -- (126,923)
Maturity of investments................................... -- -- 126,923
--------- --------- -----------
Net cash used in investing activities....................... (152,974) (136,265) (1,454,023)
--------- --------- -----------
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
Net proceeds from issuance of $325,000 10 3/4% Senior
Notes................................................... -- -- 320,197
Deferred financing costs.................................. -- -- (2,125)
Proceeds of capital subscriptions receivable.............. -- -- 282,441
Payment of accrued capital raising costs.................. -- -- (2,400)
Sale of partnership interests to GTL...................... 347 110,911 327,027
Sale of redeemable preferred partnership interests to
GTL..................................................... -- -- 299,500
Distributions on redeemable preferred partnership
interests............................................... (5,037) (5,037) (40,020)
Prepaid interest on redeemable preferred partnership
interests............................................... -- -- 47
Borrowings under long-term revolving credit facility...... -- 65,000 171,000
Repayment of borrowings under long-term revolving credit
facility................................................ -- (161,000) (171,000)
--------- --------- -----------
Net cash provided by (used in) financing activities......... (4,690) 494,174 1,970,817
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents........ (172,223) 338,031 291,931
Cash and cash equivalents, beginning of period.............. 464,154 21,180 --
--------- --------- -----------
Cash and cash equivalents, end of period.................... $ 291,931 $ 359,211 $ 291,931
========= ========= ===========
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 $ 263 $ 3,852
========= ========= ===========
Supplemental Information:
Interest paid during the period........................... $ 28,613 $ 1,704 $ 77,655
========= ========= ===========
</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,
1998 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 latest Annual Report on Form 10-K for Globalstar
Telecommunications Limited ("GTL") and Globalstar.
2. ORGANIZATION AND BUSINESS
Globalstar, founded by Loral Space & Communications Ltd. ("Loral") and
QUALCOMM Incorporated ("Qualcomm"), is building and will operate a worldwide,
low-earth orbit satellite-based wireless digital telecommunications system (the
"Globalstar System").
Globalstar, a Delaware limited partnership with a December 31 fiscal year
end, was formed in November 1993. It had no activities until March 23, 1994,
when it received capital subscriptions for $275 million and commenced
operations. The accompanying condensed consolidated financial statements reflect
the operations of Globalstar from that date.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Globalstar is devoting substantially all of its 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
SFAS 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.
Earnings Per Ordinary Partnership Interest
In 1997, Financial Accounting Standards Board Statement No. 128, "Earnings
per Share" ("SFAS 128") replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. The adoption of
SFAS 128 had no effect on reported net loss per ordinary partnership interest.
Due to Globalstar's net losses for the quarters ended March 31, 1998 and 1997,
respectively, diluted weighted average ordinary partnership interests
outstanding excludes the assumed conversion of Redeemable Preferred Partnership
Interests ("RPPIs") and the assumed issuance of ordinary partnership interests
upon exercise of GTL's outstanding options and warrants as their effect would
have been anti-dilutive. Accordingly, basic and diluted weighted average
ordinary partnership interests outstanding is based on net loss applicable to
ordinary partnership interests and the weighted average ordinary partnership
interests outstanding during the quarters ended March 31, 1998 and 1997.
9
<PAGE> 11
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Comprehensive Income
Effective January 1, 1998, Globalstar adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS
130"). During the periods presented, Globalstar had no changes in ordinary
partners capital from transactions or other events and circumstances from
non-owner sources. Accordingly, a statement of comprehensive loss has not been
provided as comprehensive loss equals net loss for all periods presented.
Reclassifications
Certain reclassifications have been made to conform prior amounts to the
current period presentation.
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
Total System Cost
In April 1998, Globalstar's budgeted expenditures for the design,
construction and deployment of the Globalstar System to commence commercial
service, including working capital, cash interest on borrowings and operating
expenses increased to approximately $2.8 billion, reflecting revised cost
estimates from Qualcomm and other increased Globalstar expenditures. In addition
to expenditures for operating costs, working capital and debt service,
Globalstar anticipates additional expenditures on system software for the
improvement of system functionality and the addition of new features beyond
those planned for the commencement of commercial service.
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 initial 38
gateways. In December 1997, Globalstar ordered 40,000 fixed access terminals
from Ericsson for $84 million. Globalstar has also agreed to finance
approximately $67 million of the cost of handsets. Globalstar expects to recoup
the amounts so financed following the acceptance by the service providers of the
gateways, fixed access terminals and handsets.
As of April 27, 1998, Globalstar had raised or received commitments for
approximately $2.6 billion, including the vendor financing agreements.
Globalstar intends to raise the remaining funds required for the Globalstar
System 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
phones. 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.
5. VENDOR FINANCING LIABILITY
On March 4, 1998, Qualcomm entered into a deferred payment agreement with
Globalstar providing $100 million of vendor financing. The deferred payments
will accrue interest at a rate of 5.75% per annum, and will be capitalized to
principal quarterly. Globalstar will make eight equal principal payments on a
quarterly basis commencing on January 1, 2000 with final payment due October 1,
2001 accompanied by all then unpaid accrued interest.
6. SUBSEQUENT EVENTS
Capital Contribution from ChinaSat
On April 21, 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"),
through a subsidiary, exercised, an option to acquire 937,500 Globalstar
ordinary partnership interests for an aggregate purchase price of $18,750,000.
In addition, China Telecom has an option to acquire an additional 937,500
Globalstar ordinary partnership interests for an aggregate purchase price of
$18,750,000. Globalstar had previously
10
<PAGE> 12
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
granted these options to China Telecom in connection with service provider
arrangements in China under which China Telecommunications Broadcast Satellite
Corporation ("ChinaSat") will act as the sole distributor of Globalstar service
in China.
Redemption and Conversion of CPEOs and RPPIs
On March 31, 1998 (the "Call Date"), GTL called for the redemption on April
30, 1998 of all its outstanding Convertible Preferred Equivalent Obligations
("CPEOs"), $310 million aggregate principal amount. As of April 30, 1998, all
the holders of the CPEOs had converted their holdings into 10,061,615 shares of
GTL common stock. As a result of such conversion, Globalstar's RPPIs were
converted into ordinary partnership interests. In connection with the
redemption, GTL issued 269,660 additional shares of GTL common stock in
satisfaction of a required interest make-whole payment totaling approximately
$16.6 million. A corresponding dividend make-whole payment was also made by
Globalstar for which additional ordinary partnership interests were issued.
Prior to the conversion, interest on the CPEOs and, correspondingly, dividends
on the RPPIs, were payable quarterly at the rate of 6 1/2% per annum. The
conversion of the CPEOs and the related RPPIs will result in annual cash savings
of approximately $20.1 million.
Purchase of Globalstar Partnership Interests
On April 24, 1998, Loral announced a series of transactions which, if
completed, will have the effect of (1) increasing Loral's fully diluted
ownership in Globalstar to approximately 42%, (2) establishing a Globalstar
service provider fund of $210 million for reinvestment in the Globalstar project
through the purchase of Globalstar gateways and user terminals and (3) the
acquisition by entities advised by or affiliated with Soros Fund Management
L.L.C. ("Soros") of 4.2 million shares of GTL common stock currently held by
Loral. The GTL shares proposed to be acquired by Soros represent an indirect
ownership in Globalstar of approximately 4%.
Loral has agreed to purchase 4.2 million partnership interests in
Globalstar from its original service provider partners. Partners participating
in this transaction will reinvest one-half of their proceeds, or $210 million in
the aggregate, into the Globalstar project by establishing an escrow account to
be used solely for the purchase of Globalstar gateways and handsets.
Concurrently, Soros will purchase from Loral 4.2 million shares of GTL common
stock that Loral currently owns.
In connection with the proposed series of transactions, GTL has agreed to
provide a shelf-registration for the shares sold to Soros within one year after
the purchase.
The consummation of these transactions is contingent upon the completion of
an equity financing by Loral and the satisfaction of all requirements under the
Globalstar partnership agreements and applicable laws and regulations.
GTL Two-For-One Stock Split
On April 27, 1998, the Board of Directors of GTL, general partner of
Globalstar, approved a two-for-one stock split of its common stock in the form
of a stock dividend. The stock dividend will be paid on June 8, 1998 to
shareholders of record as of May 29, 1998. GTL's equity securities and
convertible securities are currently represented by equivalent Globalstar
partnership interests on an approximate two-for-one basis. Globalstar's
partnership interests will not be affected by the GTL stock split and,
accordingly, GTL's equity securities and convertible securities will be
represented by equivalent Globalstar partnership interests on an approximate
four-for-one basis. At GTL's annual meeting on April 28, 1998, the shareholders
approved a proposal to increase the number of GTL authorized common shares,
$1.00 par value, to 600 million shares.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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, 1998, cash and cash equivalents decreased to $291.9 million
from $464.2 million at December 31, 1997. The net decrease is a result of
expenditures for the Globalstar System of $128.8 million, expenditures for the
additional spare satellites and user terminals of $23.3 million, net cash used
in operating activities of $14.6 million and preferred distributions on the
Redeemable Preferred Partnership Interests of $5.0 million.
Current liabilities increased by $34.7 million from $143.8 million at
December 31, 1997 to $178.5 million at March 31, 1998, primarily as a result of
the classification of a portion of the vendor financing due within one year to
current liabilities.
Through March 31, 1998, Globalstar incurred costs of approximately $1.9
billion for the design and construction of the space and ground segments. Costs
incurred to date during fiscal year 1998 were approximately $207 million.
On February 14, 1998, Globalstar launched its first four satellites and
launched four additional satellites on April 24, 1998. Globalstar expects to
begin commercial service in early 1999 following the launch of 36 additional
satellites during 1998. The remaining 12 satellites, including eight in-orbit
spares, will be launched in the first half of 1999.
In April 1998, Globalstar's budgeted expenditures for the design,
construction and deployment of the Globalstar System to commence commercial
service, including working capital, cash interest on borrowings and operating
expenses increased to approximately $2.8 billion, reflecting revised cost
estimates from Qualcomm and other increased Globalstar expenditures. In addition
to expenditures for operating costs, working capital and debt service,
Globalstar anticipates additional expenditures on system software for the
improvement of system functionality and the addition of new features beyond
those planned for the commencement of commercial service.
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 initial 38
gateways. In December 1997, Globalstar ordered 40,000 fixed access terminals
from Ericsson for $84 million. Globalstar has also agreed to finance
approximately $67 million of the cost of handsets. Globalstar expects to recoup
the amounts so financed following the acceptance by the service providers of the
gateways, fixed access terminals and handsets.
Globalstar and Globalstar service providers entered into contracts with
Qualcomm, Ericsson OMC Limited and Telital S.p.A. for the initial manufacture
and delivery of approximately 300,000 production handheld and fixed access
terminals.
On March 4, 1998, Qualcomm entered into a deferred payment agreement with
Globalstar providing $100 million of vendor financing. The deferred payments
will accrue interest at a rate of 5.75% per annum, and will be capitalized to
principal quarterly. Globalstar will make eight equal principal payments on a
quarterly basis commencing on January 1, 2000 with final payment due October 1,
2001 accompanied by all then unpaid accrued interest.
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
As of April 27, 1998, Globalstar had raised or received commitments for
approximately $2.6 billion. Globalstar believes that its current capital, vendor
financing commitments and the availability of the Globalstar credit agreement
($250 million available at March 31, 1998) are sufficient to fund its
requirements into the fourth 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
obtain these additional funds, there can be no assurance that such funds will be
available on favorable terms or on a timely basis, if at all.
On April 21, 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"),
through a subsidiary, exercised, an option to acquire 937,500 Globalstar
ordinary partnership interests for an aggregate purchase price of $18,750,000.
In addition, China Telecom has an option to acquire an additional 937,500
Globalstar ordinary partnership interests for an aggregate purchase price of
$18,750,000. Globalstar had previously granted these options to China Telecom in
connection with service provider arrangements in China under which China
Telecommunications Broadcast Satellite Corporation ("ChinaSat") will act as the
sole distributor of Globalstar service in China.
On March 31, 1998 (the "Call Date"), GTL called for the redemption on April
30, 1998 of all its outstanding CPEOs, $310 million aggregate principal amount.
As of April 30, 1998, all the holders of the CPEOs had converted their holdings
into 10,061,615 shares of GTL common stock. As a result of such conversion,
Globalstar's RPPIs were converted into ordinary partnership interests. In
connection with the redemption, GTL issued 269,660 additional shares of GTL
common stock in satisfaction of a required interest make-whole payment totaling
approximately $16.6 million. A corresponding dividend make-whole payment was
also made by Globalstar for which additional ordinary partnership interests were
issued. Prior to the conversion, interest on the CPEOs and, correspondingly,
dividends on the RPPIs, were payable quarterly at the rate of 6 1/2% per annum.
The conversion of the CPEOs and the related RPPIs will result in annual cash
savings of approximately $20.1 million.
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, 1998, Globalstar has recorded cumulative net losses applicable to ordinary
partnership interests of $280.1 million. The net loss applicable to ordinary
partnership interests for the three months ended March 31, 1998 increased to
$24.9 million as compared to $20.6 million for the three months ended March 31,
1997. The net loss increased primarily as a result of increased activity in the
development of Globalstar user terminals, and increased 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 $45.8 million on cash balances and
short term investments since commencement of operations. Interest income during
the three months ended March 31, 1998 was $5.2 million as compared to $2.3
million for the three months ended March 31, 1997. Interest income for the
current period increased as a result of higher average cash balances outstanding
during the first quarter of 1998.
Operating Expenses. Development costs during the three months ended March
31, 1998 were $16.5 million as compared to $11.2 million for the three months
ended March 31, 1997. Development costs for the current period increased as a
result of increased activity in the development of Globalstar user terminals and
in-house engineering.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Marketing, general and administrative expenses were $8.3 million and $6.3
million for the three months ended March 31, 1998 and 1997, respectively. The
increase in marketing, general and administrative expenses is primarily the
result of an increase in the number of employees as compared to the first
quarter of 1997 as Globalstar gears up for operations and increased marketing
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
Effective January 1, 1998, Globalstar adopted the Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS
130"). The requirements of SFAS 130 had no effect on the financial statements
presented.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"), and in February 1998, issued Statement No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS
131 establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas and major customers. SFAS 132 expands and standardizes the
disclosure requirements for pensions and other postretirement benefits.
Globalstar is required to adopt SFAS 131 and SFAS 132 in 1998 and the financial
statements of Globalstar will reflect the appropriate disclosures.
YEAR 2000 ISSUE
Globalstar is evaluating the potential effect on its information processing
systems to determine what actions will be necessary or appropriate in connection
with the "Year 2000 Issue." The Year 2000 Issue is the result of computer
programs which were written using two digits rather than four to signify a year
(i.e., the year 1997 is denoted "97" and not "1997"). Computer programs written
using only two digits may recognize the year 2000 as the year 1900. This could
result in a system failure or miscalculations causing disruption of operations.
It is not known at this time what modifications, if any, will be required. All
costs associated with any modification will be expensed as incurred. In
addition, Globalstar has requested, and will continue to seek, information from
third-party entities on which it relies, certifying that their computer systems
will not negatively affect its operations. No assurance can be given that there
will not be some unforeseen issue, in particular, in connection with third
parties' systems, that may materially affect Globalstar's operations.
14
<PAGE> 16
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 28, 1998, 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 of GTL. The votes were as follows:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Bernard L. Schwartz......................................... 22,879,321 90,069
Gregory J. Clark............................................ 22,880,488 88,902
Michael P. DeBlasio......................................... 22,880,266 89,124
Sir Ronald Grierson......................................... 22,876,572 92,818
Robert B. Hodes............................................. 22,877,316 92,074
E. John Peett............................................... 22,875,386 94,004
Michael B. Targoff.......................................... 22,879,998 89,392
A. Robert Towbin............................................ 22,880,620 88,770
</TABLE>
(2) The proposal to increase the number of authorized common shares,
$1.00 par value, of Globalstar Telecommunications Limited from 200,000,000
to 600,000,000 was ratified. The votes were as follows:
<TABLE>
<S> <C>
For.............................................. 21,044,830
Against.......................................... 1,891,936
Abstentions...................................... 32,624
</TABLE>
(3) The proposal to authorize and create 10,000,000 preference shares,
par value $.01 per share, of Globalstar Telecommunications Limited (the
"Preferred Stock") and to amend the bye-laws to authorize the Board of
Directors to establish the rights, preferences and designations of such
Preferred Stock was ratified. The votes were as follows:
<TABLE>
<S> <C>
For.............................................. 12,250,163
Against.......................................... 3,200,895
Abstentions...................................... 43,263
</TABLE>
(4) The proposal to approve amendments to GTL's bye-laws (i) to
provide that stock distributions may be approved by the Board of Directors,
(ii) to fix the maximum number of directors at fifteen (15) and to provide
that directors may fill any vacancy on the Board and (iii) to provide that
directors' fees shall be determined by the Board was ratified. The votes
were as follows:
<TABLE>
<S> <C>
For.............................................. 22,095,905
Against.......................................... 830,693
Abstentions...................................... 42,792
</TABLE>
(5) The proposal to the appointment of Deloitte & Touche LLP as
independent auditors for the year ending December 31, 1998 was ratified.
The votes were as follows:
<TABLE>
<S> <C>
For.............................................. 22,866,517
Against.......................................... 78,368
Abstentions...................................... 24,505
</TABLE>
15
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit 12 -- Statement Regarding Computation of Ratios
Exhibit 27 -- Financial Data Schedules
(b) Reports on Form 8-K
None
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.
------------------------------------------
Registrants
Nicholas C. Moren
-----------------------------------------------------------------------
Treasurer
(Principal Financial Officer)
and
Registrants' Authorized Officer
Date: May 14, 1998
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 THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Earnings:
Net loss.................................................. $(7,290) $(4,380)
Add:
Equity in loss applicable to ordinary partnership
interest of Globalstar............................ 7,290 4,380
Interest expense..................................... 5,300 5,300
------- -------
Earnings available to cover fixed charges(1)................ $ 5,300 $ 5,300
======= =======
Fixed charges -- interest expense........................... $ 5,300 $ 5,300
======= =======
Ratio of earnings to fixed charges.......................... 1x 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>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Net loss.................................................... $(19,596) $(15,287)
Dividends on redeemable preferred partnership interests..... (5,300) (5,301)
Capitalized interest........................................ (39,483) (12,260)
-------- --------
Deficiency of earnings to cover fixed charges............... $(64,379) $(32,848)
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary consolidated financial information extracted from
the financial statements of Globalstar Telecommunications Limited for the
quarter ended March 31, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 606,036
<CURRENT-LIABILITIES> 1,679
<BONDS> 0
0
301,673
<COMMON> 30,651
<OTHER-SE> 272,033
<TOTAL-LIABILITY-AND-EQUITY> 606,036
<SALES> 0
<TOTAL-REVENUES> 5,300
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,300
<INCOME-PRETAX> (7,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,290)
<EPS-PRIMARY> (0.24)<F1>
<EPS-DILUTED> (0.24)
<FN>
<F1>Note: The adoption of SFAS 128 had no effect on reported earnings per share
for the quarter ended March 31, 1997.
</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 March 31,
1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 291,931
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 321,266
<PP&E> 1,846,122
<DEPRECIATION> 2,600
<TOTAL-ASSETS> 2,189,916
<CURRENT-LIABILITIES> 178,495
<BONDS> 1,101,527
0
303,352
<COMMON> 356,601
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,189,916
<SALES> 0
<TOTAL-REVENUES> 5,165
<CGS> 24,761
<TOTAL-COSTS> 24,761
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (19,596)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,596)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,896)
<EPS-PRIMARY> (0.48)<F1>
<EPS-DILUTED> (0.48)
<FN>
<F1>Note: The adoption of SFAS 128 had no effect on reported earnings per share
for the quarter ended March 31, 1997.
</FN>
</TABLE>
