<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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
and have been subject to such filing requirements for the past 90 days.
As of October 30, 1998, there were 82,015,931 shares of Globalstar
Telecommunications Limited common stock outstanding.
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<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>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests................ $ -- $303,089
Ordinary partnership interests............................ 583,890 297,417
Ordinary partnership warrants............................. 11,956 12,210
-------- --------
Total assets...................................... $595,846 $612,716
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Interest payable.......................................... $ -- $ 1,679
Convertible preferred equivalent obligations ($310,000
principal amount)......................................... -- 301,410
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, $1.00 par value, 600,000,000 shares
authorized (82,012,029 and 30,638,152 issued and
outstanding at September 30, 1998 and December 31,
1997, respectively).................................... 82,012 30,638
Paid-in capital........................................... 588,866 318,643
Warrants.................................................. 11,956 12,210
Accumulated deficit....................................... (86,988) (51,864)
-------- --------
Total shareholders' equity........................ 595,846 309,627
-------- --------
Total liabilities and shareholders' equity........ $595,846 $612,716
======== ========
</TABLE>
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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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Equity in net loss applicable to ordinary
partnership interests of Globalstar, L.P........ $14,555 $ 7,278 $ 35,124 $ 17,981
Dividend income on Globalstar, L.P. redeemable
preferred partnership interests................. -- (5,301) (22,197) (15,902)
Interest expense on convertible preferred
equivalent obligations.......................... -- 5,301 22,197 15,902
------- ------- -------- --------
Net loss.......................................... $14,555 $ 7,278 $ 35,124 $ 17,981
======= ======= ======== ========
Net loss per share -- basic and diluted........... $ 0.18 $ 0.12 $ 0.48 $ 0.33
======= ======= ======== ========
Weighted average shares outstanding -- basic
and diluted..................................... 82,008 61,266 72,973 54,082
======= ======= ======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
-------- ---------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(35,124) $ (17,981)
Equity in net loss applicable to ordinary partnership
interests of
Globalstar, L.P. ...................................... 35,124 17,981
Increase in redemption value of redeemable preferred
partnership interests.................................. (351) (789)
Dividends accrued on redeemable preferred partnership
interests.............................................. 1,679 --
Amortization of convertible preferred equivalent
obligations costs...................................... 351 789
Change in operating liability:
Interest payable....................................... (1,679) --
-------- ---------
Net cash provided by (used in) operating activities....... -- --
-------- ---------
Investing activities:
Purchase of ordinary partnership interests in
Globalstar, L.P. ..................................... (1,093) (140,910)
Purchase of warrants in Globalstar, L.P. .............. -- (12,210)
-------- ---------
Net cash used in investing activities..................... (1,093) (153,120)
-------- ---------
Financing activities:
Net proceeds from issuance of common stock upon
exercise of options
and warrants......................................... 1,093 23
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
Proceeds from exercise of GTL rights................... -- 29,976
-------- ---------
Net cash provided by financing activities................. 1,093 153,120
-------- ---------
Net increase (decrease) in cash and cash equivalents...... -- --
Cash and cash equivalents, beginning of period............ -- --
-------- ---------
Cash and cash equivalents, end of period.................. $ -- $ --
======== =========
Noncash transactions:
Conversion of redeemable preferred partnership interests
and related dividend make-whole payment into ordinary
partnership interests.................................. $320,250
========
Common stock issued upon conversion of convertible
preferred equivalent obligations and related interest
make-whole payment..................................... $320,250
========
</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 and nine months ended
September 30, 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 40 million shares of common stock (as adjusted for
two-for-one stock splits) 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, which is
building and will operate a worldwide, low-earth orbit satellite-based wireless
digital telecommunications system.
At September 30, 1998, GTL held 34.8% of the ordinary partnership interests
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 September 30,
1998 was $86,988,000.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share
In 1997, GTL adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"). The adoption of SFAS 128 had no effect on
reported net loss per share. Diluted weighted average shares outstanding
excludes the assumed conversion of GTL's 6 1/2% Convertible Preferred Equivalent
Obligations due 2006 (the "CPEOs"), prior to their conversion, see Note 4, and
excludes the assumed exercise of outstanding options and warrants as their
effect would have been anti-dilutive due to GTL's net losses. Accordingly, basic
and diluted weighted average shares outstanding are based on the weighted
average common shares outstanding during the three and nine months ended
September 30, 1998 and 1997.
Comprehensive Income
Effective January 1, 1998, GTL adopted Statement of Financial Accounting
Standards 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. REDEMPTION AND CONVERSION OF CPEO'S
On April 30, 1998, GTL redeemed all of its outstanding CPEOs, $310 million
aggregate principal amount. As of April 30, 1998, all the holders of the CPEOs
had converted their holdings into 20,123,230 shares of GTL common stock (as
adjusted for two-for-one stock split, see Note 5). As a result of such
conversion, Globalstar's Redeemable Preferred Partnership Interests ("RPPIs")
were converted into 4,769,230 Globalstar ordinary partnership interests. In
connection with the redemption, GTL issued 539,322 additional shares of GTL
common stock (as adjusted for two-for-one stock split, see Note 5) in
satisfaction of a required interest make-whole payment. A corresponding dividend
make-whole payment was also made by Globalstar for which an additional 134,830
Globalstar 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.
5. SHAREHOLDERS' EQUITY
Stock Split
On June 8, 1998, GTL issued a two-for-one stock split to shareholders of
record as of May 29, 1998 in the form of a 100% stock dividend. Accordingly, all
GTL share and per share amounts, excluding the balance sheet, have been restated
to reflect the two-for-one stock split. Prior to the stock split, GTL's equity
securities and convertible securities were represented by equivalent Globalstar
partnership interests on an approximate two-for-one basis. Globalstar's
partnership interests were not affected by the GTL stock split and, accordingly,
GTL's equity securities are now 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 and to
authorize 10,000,000 GTL preferred shares, $.01 par value per share.
Purchase of Globalstar Partnership Interests
On July 6, 1998, Loral Space & Communications Ltd. ("Loral"), the managing
general partner of Globalstar, purchased 4.2 million Globalstar ordinary
partnership interests (corresponding to approximately 16.8 million shares of GTL
common stock) from certain founding service providers for $420 million in cash.
The founding service providers participating in this transaction have deposited
half of their proceeds ($210 million) into escrow accounts to be used for the
purchase of Globalstar gateways and user terminals. Concurrently, entities
advised by or associated with Soros Fund Management L.L.C. ("Soros") purchased
8.4 million shares of GTL common stock owned by Loral for $245 million in cash.
As a result of these transactions, Loral's fully diluted ownership in
Globalstar increased from approximately 38% to 42% and Soros owns GTL shares
equating to approximately 4% of Globalstar. Soros acquired from Loral shares of
GTL common stock, which are restricted for U.S. securities law purposes. With
respect to such shares, GTL has agreed to file a shelf registration statement
and have such registration statement declared effective within one year from the
closing date.
5
<PAGE> 7
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PARTNERSHIP INTEREST DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 236,296 $ 464,154
Insurance proceeds receivable............................. 190,500 --
Production gateways and user terminals.................... 88,331 24,124
Other current assets...................................... 16,225 5,502
---------- ----------
Total current assets.............................. 531,352 493,780
Property and equipment, net............................... 4,325 2,574
Globalstar System under construction:
Space segment.......................................... 1,361,590 1,252,569
Ground segment......................................... 585,538 374,344
---------- ----------
1,947,128 1,626,913
Deferred costs and other assets........................... 55,585 25,786
---------- ----------
Total assets...................................... $2,538,390 $2,149,053
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 10,596 $ 1,272
Payable to affiliates..................................... 78,514 105,357
Vendor financing liability................................ 58,448 --
Accrued expenses.......................................... 8,627 8,312
Accrued interest.......................................... 44,006 28,869
---------- ----------
Total current liabilities......................... 200,191 143,810
Deferred revenues........................................... 20,711 23,652
Vendor financing liability, net of current portion.......... 276,876 197,723
Deferred interest payable................................... 448 420
11 3/8% Senior notes payable ($500,000 principal amount).... 478,569 475,579
11 1/4% Senior notes payable ($325,000 principal amount).... 306,122 303,641
10 3/4% Senior notes payable ($325,000 principal amount).... 320,826 320,311
11 1/2% Senior notes payable ($300,000 principal amount).... 288,218 --
Commitments and contingencies (Notes 4, 5, 6 and 8)
Redeemable preferred partnership interests, $310,000
redemption value (none and 4,769,230 outstanding at
September 30, 1998 and December 31, 1997, respectively)... -- 303,089
Ordinary partners' capital:
Ordinary partnership interests (58,178,930 and
52,319,076 outstanding at September 30, 1998 and
December 31, 1997, respectively)...................... 617,527 368,618
Warrants............................................... 28,902 12,210
---------- ----------
Total ordinary partners' capital.................. 646,429 380,828
---------- ----------
Total liabilities and partners' capital........... $2,538,390 $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 INTEREST DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 23, 1994
SEPTEMBER 30, SEPTEMBER 30, (COMMENCEMENT OF
------------------ ------------------- OPERATIONS) TO
1998 1997 1998 1997 SEPTEMBER 30, 1998
------- ------- -------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Development costs.............. $18,285 $20,013 $ 51,943 $47,823 $240,706
Marketing, general and
administrative.............. 10,817 6,237 30,199 17,790 98,785
Loss from launch failure......... 17,315 -- 17,315 -- 17,315
------- ------- -------- ------- --------
Total operating
expenses............. 46,417 26,250 99,457 65,613 356,806
Interest income.................. 4,462 6,690 14,282 13,799 54,918
------- ------- -------- ------- --------
Net loss......................... 41,955 19,560 85,175 51,814 301,888
Preferred distribution and
related increase in redeemable
preferred partnership
interests...................... -- 5,300 22,197 15,901 60,722
------- ------- -------- ------- --------
Net loss applicable to ordinary
partnership interests.......... $41,955 $24,860 $107,372 $67,715 $362,610
======= ======= ======== ======= ========
Net loss per ordinary partnership
interest -- basic and
diluted........................ $ 0.72 $ 0.48 $ 1.93 $ 1.34
======= ======= ======== =======
Weighted average ordinary
partnership interests
outstanding -- basic and
diluted........................ 58,178 52,317 55,697 50,520
======= ======= ======== =======
</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
NINE MONTHS ENDED MARCH 23, 1994
SEPTEMBER 30, (COMMENCEMENT OF
--------------------- OPERATIONS) TO
1998 1997 SEPTEMBER 30, 1998
--------- --------- ------------------
<S> <C> <C> <C>
Operating activities:
Net loss.................................................. $ (85,175) $ (51,814) $ (301,888)
Loss from launch failure.................................. 17,315 -- 17,315
Deferred revenues......................................... (2,941) -- 20,711
Stock compensation transactions........................... 964 969 2,571
Depreciation and amortization............................. 1,243 702 3,496
Changes in operating assets and liabilities:
Production gateways and user terminals.................. (64,207) (19,625) (88,331)
Other current assets.................................... (10,723) (5,741) (16,225)
Other assets............................................ (2,205) (699) (3,018)
Accounts payable........................................ 9,840 (1,708) 11,041
Payable to affiliates................................... 31,733 3,286 31,556
Accrued expenses........................................ 315 (2,721) 8,627
--------- --------- -----------
Net cash used in operating activities....................... (103,841) (77,351) (314,145)
--------- --------- -----------
Investing activities:
Globalstar System under construction...................... (528,030) (533,564) (2,154,943)
Payable to affiliates for Globalstar System under
construction............................................ (58,576) 44,062 38,158
Capitalized interest accrued.............................. 26,767 25,273 71,530
Accounts payable.......................................... (516) 1,160 (953)
Vendor financing liability................................ 137,601 55,776 335,324
--------- --------- -----------
Cash used for Globalstar System........................... (422,754) (407,293) (1,710,884)
Purchases of property and equipment....................... (2,994) (1,049) (7,806)
Deferred FCC license costs................................ (627) (1,376) (8,734)
Purchases of investments.................................. -- -- (126,923)
Maturity of investments................................... -- -- 126,923
--------- --------- -----------
Net cash used in investing activities....................... (426,375) (409,718) (1,727,424)
--------- --------- -----------
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
Net proceeds from issuance of $325,000 10 3/4% Senior
Notes................................................... -- -- 320,197
Net proceeds from issuance of $300,000 11 1/2% Senior
Notes................................................... 287,552 -- 287,552
Deferred financing costs.................................. -- -- (2,125)
Proceeds of capital subscriptions receivable.............. -- -- 282,441
Payment of accrued capital raising costs.................. -- -- (2,400)
Sale of ordinary partnership interests.................... 19,843 140,910 346,523
Sale of redeemable preferred partnership interests to
GTL..................................................... -- -- 299,500
Distributions on redeemable preferred partnership
interests............................................... (5,037) (15,112) (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 financing activities................... 302,358 815,948 2,277,865
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents........ (227,858) 328,879 236,296
Cash and cash equivalents, beginning of period.............. 464,154 21,180 --
--------- --------- -----------
Cash and cash equivalents, end of period.................... $ 236,296 $ 350,059 $ 236,296
========= ========= ===========
Noncash transactions:
Payable to affiliates..................................... $ 9,308
===========
Accrual of capital raising costs.......................... $ 2,400
===========
Deferred FCC license costs................................ $ 2,235
===========
Insurance proceeds receivable from launch failure......... $ 190,500 $ 190,500
========= ===========
Warrants issued in exchange for debt guarantee............ $ 22,601
===========
Increase in redemption value of preferred partnership
interests............................................... $ 351 $ 789 $ 3,940
========= ========= ===========
Ordinary partnership interests distributed upon conversion
of preferred partnership interests and related dividend
make-whole payment........................................ $ 320,250 $ 320,250
========= ===========
Warrants issued to China Telecom to acquire ordinary
partnership interests..................................... $ 31,917 $ 31,917
========= ===========
</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 nine months ended
September 30, 1998 are not necessarily indicative of the results to be expected
for the full year. These condensed consolidated financial statements should be
read in conjunction with 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 efforts to the
construction, launch, licensing and testing of the Globalstar System and
establishing its business. Globalstar's planned principal operations have not
commenced and, accordingly, Globalstar is a development stage company as defined
in Statement of Financial Accounting Standards No. 7 "Accounting and Reporting
by Development Stage Enterprises."
Globalstar may encounter problems, delays and expenses, many of which may
be beyond Globalstar's control. These may include, but are not limited to,
launch delays and launch failures (see Note 4), in-orbit failures, 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.
Production Gateways and User Terminals
Production gateways and user terminal costs represent amounts associated
with financing by Globalstar to assist in the deployment of the gateways and
user terminals. Globalstar expects to recoup such costs upon acceptance by the
service providers of the gateways and user terminals.
Earnings Per Ordinary Partnership Interest
In 1997, Globalstar adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"). The adoption of SFAS 128 had no effect
on reported net loss per ordinary partnership interest. Diluted weighted average
ordinary partnership interests outstanding excludes the assumed conversion of
the Redeemable Preferred Partnership Interests (the "RPPIs") prior to their
conversion, see Note 7, and
9
<PAGE> 11
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excludes the assumed issuance of ordinary partnership interests upon exercise of
GTL's outstanding options and warrants as their effect would have been
anti-dilutive due to Globalstar's net losses. 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 three and nine months ended
September 30, 1998 and 1997.
Comprehensive Income
Effective January 1, 1998, Globalstar adopted Statement of Financial
Accounting Standards 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 period amounts to
the current period presentation.
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
As of October 30, 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 is approximately $3.3 billion. 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.
On September 9, 1998, a malfunction of a Zenit 2 rocket, launched from the
Baikonur cosmodrome in Kazakhstan, resulted in the loss of 12 Globalstar
satellites. A $17.3 million loss from the launch failure was recorded in the
third quarter of 1998, which reflects the value of the satellites and related
capitalized costs, net of insurance proceeds receivable of $190.5 million.
Globalstar activated its contingency launch plan and expects to initiate
commercial service with at least 32 satellites in orbit in the third quarter of
1999.
In addition, in order to accelerate the deployment of gateways around the
world, Globalstar has agreed to help finance approximately $80 million of the
cost of up to 32 of the initial 38 gateways. The contract for the 38 gateways is
approximately $337 million. In December 1997, Globalstar ordered 40,000 fixed
access terminals from Ericsson for $84 million. Further, 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.
As of October 30, 1998, Globalstar had raised or received commitments for
approximately $2.9 billion. Although Globalstar believes it will be able to
obtain the remaining funds required prior to initiation of commercial service in
September 1999 of approximately $600 million, there can be no assurance that
such funds will be available on favorable terms or on a timely basis, if at all.
10
<PAGE> 12
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 added to the
outstanding principal balance. Beginning on January 1, 2000, Globalstar will
make eight equal quarterly principal payments. The final payment including all
unpaid interest is due October 1, 2001.
6. SENIOR NOTES
In May 1998, Globalstar sold $300 million principal amount of its 11 1/2%
Senior Notes due 2005 under terms generally consistent with Globalstar's
existing senior notes. The 11 1/2% Senior Notes may not be redeemed prior to
June 2003 and are subject to a prepayment premium prior to June 2001. Interest
is paid semi-annually. The 11 1/2% Senior Notes rank pari passu with all of
Globalstar's existing senior notes.
7. REDEMPTION AND CONVERSION OF CPEOS AND RPPIS
On April 30, 1998, GTL redeemed all of its outstanding Convertible
Preferred Equivalent Obligations ("CPEOs"), $310 million aggregate principal
amount. As of April 30, 1998, all the holders of the CPEOs converted their
holdings into 20,123,230 shares of GTL common stock (as adjusted for two-for-one
stock split, see Note 8). As a result of such conversion, Globalstar's RPPIs
were converted into 4,769,230 ordinary partnership interests. In connection with
the redemption, GTL issued 539,322 additional shares of GTL common stock (as
adjusted for two-for-one stock split, see Note 8) in satisfaction of a required
interest make-whole payment. A corresponding dividend make-whole payment was
also made by Globalstar for which an additional 134,830 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.
8. ORDINARY PARTNERS' CAPITAL
Capital Contribution
In April 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"),
through a subsidiary, exercised a warrant to acquire 937,500 Globalstar ordinary
partnership interests for an aggregate purchase price of $18,750,000. In
addition, China Telecom has a warrant to acquire an additional 937,500
Globalstar ordinary partnership interests for an aggregate purchase price of
$18,750,000 after commencement of service. Globalstar had previously granted
these warrants 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.
The fair value of the warrants issued to China Telecom was approximately $31.9
million and has been recorded in the accompanying balance sheet in deferred
costs and other assets. The fair value of the warrants will be amortized over
7 1/2 years, the expected life of the first generation of satellites.
GTL Two-For-One Stock Split
On June 8, 1998, GTL, a general partner of Globalstar, issued a two-for-one
stock split of its common stock in the form of a 100% stock dividend. The stock
dividend was paid to shareholders of record as of May 29, 1998. Prior to the
stock split, GTL's equity securities and convertible securities were represented
by equivalent Globalstar partnership interests on an approximate two-for-one
basis. Globalstar's partnership interests were not affected by the GTL stock
split and, accordingly, GTL's equity securities and convertible
11
<PAGE> 13
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
securities are now represented by equivalent Globalstar partnership interests on
an approximate four-for-one basis.
Purchase of Globalstar Partnership Interests
On July 6, 1998, Loral, the managing general partner of Globalstar,
purchased 4.2 million Globalstar ordinary partnership interests (corresponding
to approximately 16.8 million shares of GTL common stock) from certain founding
service providers for $420 million in cash. The founding service providers
participating in this transaction have deposited half of their proceeds ($210
million) into escrow accounts to be used for the purchase of Globalstar gateways
and user terminals. Concurrently, entities advised by or associated with Soros
Fund Management L.L.C. ("Soros") purchased 8.4 million shares of GTL common
stock owned by Loral for $245 million in cash.
As a result of these transactions, Loral's fully diluted ownership in
Globalstar increased from approximately 38% to 42% and Soros owns GTL shares
equating to approximately 4% of Globalstar. The shares of GTL common stock
acquired by Soros are restricted for U.S. securities law purposes. With respect
to such shares, GTL has agreed to file a shelf registration statement and have
such registration statement declared effective within one year from the closing
date.
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
discussed in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, and elsewhere in this Form 10-Q, are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In
addition, from time to time, Globalstar and or GTL or their representatives have
made or may make forward-looking statements, orally or in writing. Such
forward-looking statements may be included in, but are not limited to, various
filings made by Globalstar and or GTL with the Securities and Exchange
Commission, press releases or oral statements made by or with the approval of an
authorized executive officer of Globalstar and or GTL. Actual results could
differ materially from those projected or suggested in any forward-looking
statements as a result of a wide variety of factors or conditions. All
forward-looking statements involve risks and uncertainties, many of which may be
beyond Globalstar's and or GTL's control. These may include, but are not limited
to, problems relating to technical development and deployment of the system,
testing, regulatory compliance, manufacturing and assembly, the competitive and
regulatory environment in which Globalstar will operate, marketing problems and
costs and expenses that may exceed current estimates. See the section of GTL's
and Globalstar's registration statement on Form S-4 (File No. 333-57749),
entitled "Risk Factors."
GTL is a general partner of Globalstar and has no other business. GTL's
sole asset is its investment in Globalstar and GTL's results of operations
reflect its share of the results of operations of Globalstar on an equity
accounting basis.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $464.2 million at December 31,
1997 to $236.3 million at September 30, 1998. The net decrease is primarily a
result of expenditures for the Globalstar System of $422.8 million, and net cash
used in operating activities of $103.8 million, including financing of
production gateways and user terminals totaling $64.2 million, offset by the net
proceeds from the sale of Globalstar's 11 1/2% Senior Notes due 2005 totaling
$287.6 million and the proceeds from the sale of partnership interests to China
Telecom of $18.8 million.
Current liabilities increased from $143.8 million at December 31, 1997 to
$200.2 million at September 30, 1998, primarily as a result of the
classification of a portion of vendor financing due within one year and the
timing of payments to Globalstar contractors and accrued interest on the senior
notes.
On February 14, 1998, Globalstar launched its first four satellites and
launched four additional satellites on April 24, 1998. On September 9, 1998,
however, a malfunction of a Zenit 2 rocket, launched from the Baikonur
cosmodrome in Kazakhstan, resulted in the loss of 12 Globalstar satellites.
Globalstar activated its contingency launch plan and expects to initiate
commercial service with at least 32 satellites in orbit in the third quarter of
1999. The revised plan is under contract and provides additional assurance of
successful satellite deployment through greater flexibility and redundant
capacity, reducing Globalstar's dependence on any one launcher and further
reducing risk.
Through September 30, 1998, Globalstar incurred costs of approximately $2.4
billion for the design and construction of the space and ground segments. Costs
incurred to date during fiscal year 1998 were approximately $580 million.
As of October 30, 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 is approximately $3.3 billion, which includes the delay of three months
in the initiation of commercial service is at a cost of approximately $100
million, representing the additional interest and operating expenses directly
attributable to the delay, the estimated costs for revisions to Globalstar's
launch plan of approximately $140 million, and the cost of eight additional
spare satellites already under construction by SS/L of $180 million (previously
classified as additional satellite spares in the condensed consolidated
financial statements). In addition to expenditures for operating costs, working
capital
13
<PAGE> 15
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, in order to accelerate the deployment of gateways around the
world, Globalstar has agreed to help finance approximately $80 million of the
cost of up to 32 of the initial 38 gateways. The contract for the 38 gateways is
approximately $337 million. 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 such costs upon acceptance by the service providers of the gateways and
user terminals.
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 added to the
outstanding principal balance. Beginning January 1, 2000, Globalstar will make
eight equal quarterly principal payments. The final payment including all unpaid
interest is due October 1, 2001.
In April 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"),
through a subsidiary, exercised, a warrant to acquire 937,500 Globalstar
ordinary partnership interests for an aggregate purchase price of $18,750,000.
In addition, China Telecom has a warrant to acquire an additional 937,500
Globalstar ordinary partnership interests for an aggregate purchase price of
$18,750,000 after commencement of service. Globalstar had previously granted
these warrants 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.
As of October 30, 1998, Globalstar had raised or received commitments for
approximately $2.9 billion. Globalstar believes that its current capital, vendor
financing commitments and the availability of the Globalstar credit agreement
($250 million available at September 30, 1998) are sufficient to fund its
requirements for the baseline system into the first quarter of 1999. Globalstar
intends to raise the remaining funds required prior to the initiation of
commercial service in September 1999 of approximately $600 million from a
combination of sources including: high yield debt issuance (which may include an
equity component), equity issuance, 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 30, 1998, GTL redeemed all of its outstanding CPEOs, $310 million
aggregate principal amount. As of April 30, 1998, all the holders of the CPEOs
had converted their holdings into 20,123,230 shares of GTL common stock (as
adjusted for two-for-one stock split). As a result of such conversion,
Globalstar's RPPIs were converted into 4,769,230 Globalstar ordinary partnership
interests. In connection with the redemption, GTL issued 539,322 additional
shares of GTL common stock (as adjusted for two-for-one stock split) in
satisfaction of a required interest make-whole payment. A corresponding dividend
make-whole payment was also made by Globalstar for which an additional 134,830
Globalstar ordinary partnership interests were issued. Dividend payments and
related increase in RPPIs were $0 and $22.2 million for the three and nine
months ended September 30, 1998, respectively, and $5.3 million and $15.9
million for the three and nine months ended September 30, 1997, respectively.
The interest make-whole payment and related dividend make-whole payment were
recorded as interest expense and dividends, by GTL and Globalstar, respectively.
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.
On July 6, 1998, Loral, the managing general partner of Globalstar,
purchased 4.2 million Globalstar ordinary partnership interests (corresponding
to approximately 16.8 million shares of GTL common stock)
14
<PAGE> 16
from certain founding service providers for $420 million in cash. The founding
service providers participating in this transaction have deposited half of their
proceeds ($210 million) into escrow accounts to be used for the purchase of
Globalstar gateways and user terminals. Concurrently, entities advised by or
associated with Soros Fund Management L.L.C. ("Soros") purchased 8.4 million
shares of GTL common stock owned by Loral for $245 million in cash. As a result
of these transactions, Loral's fully diluted ownership in Globalstar increased
from approximately 38% to 42% and Soros owns GTL shares equating to
approximately 4% of Globalstar. With respect to such shares, the GTL common
stock acquired by Soros are restricted for U.S. securities law purposes, and for
which GTL has agreed to file a shelf registration statement and have such
registration statement declared effective within one year from the closing date.
RESULTS OF OPERATIONS
Globalstar is a development stage partnership and has not commenced
commercial operations. For the period March 23, 1994 (commencement of
operations) to September 30, 1998, Globalstar has recorded cumulative net losses
applicable to ordinary partnership interests of $362.6 million. The net loss
applicable to ordinary partnership interests for the nine months ended September
30, 1998 increased to $107.4 million as compared to $67.7 million for the nine
months ended September 30, 1997. The net loss for the nine months ending
September 30, 1998, increased primarily as a result of the launch failure,
increased activity in the development of Globalstar user terminals and increased
in-house engineering and marketing expenses. The net loss applicable to ordinary
partnership interests for the three months ended September 30, 1998 increased to
$42.0 million as compared to $24.9 million for the three months ended September
30, 1997, primarily as a result of the launch failure. Globalstar is expending
significant funds for the construction, launch, testing and deployment of the
Globalstar System and expects such losses to continue until commencement of
commercial operations.
Globalstar has earned interest income of $54.9 million on cash balances and
short-term investments since commencement of operations. Interest income during
the nine months ended September 30, 1998 was $14.3 million as compared to $13.8
million for the nine months ended September 30, 1997, a result of higher average
cash balances available for investment during the current period. Interest
income during the three months ended September 30, 1998 was $4.5 million as
compared to $6.7 million for the three months ended September 30, 1997, a result
of lower average cash balances available for investment during the third quarter
of 1998.
Operating Expenses. Development costs during the nine months ended
September 30, 1998 were $51.9 million as compared to $47.8 million for the nine
months ended September 30, 1997. Development costs increased as a result of
increased activity in the development of Globalstar user terminals and in-house
engineering. Development costs during the three months ended September 30, 1998
were $18.3 million as compared to $20.0 million for the three months ended
September 30, 1997. The decrease is a result of timing of invoices received from
Qualcomm for the development of user terminals.
Marketing, general and administrative expenses were $30.2 million and $17.8
million for the nine months ended September 30, 1998 and 1997, respectively and
were $10.8 million and $6.2 million for the three months ended September 30,
1998 and 1997, respectively. The increases in marketing, general and
administrative expenses for both periods is primarily the result of an increase
in the number of employees and an increase in marketing costs as Globalstar
gears up for operations.
On September 9, 1998, a malfunction of a Zenit 2 rocket, resulted in the
loss of 12 Globalstar satellites. A $17.3 million loss on the launch failure was
recorded in the third quarter of 1998, which reflects the value of the
satellites and related capitalized costs, net of insurance proceeds receivable
of $190.5 million.
15
<PAGE> 17
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 user terminals and certain technologies under a cost sharing
arrangement with Qualcomm. Globalstar will not record depreciation expense on
the Globalstar System under construction until the commencement of commercial
operations, as assets are placed into service.
Income Taxes. Globalstar is organized as a limited partnership. As such,
no income tax provision or benefit is included in the accompanying financial
statements since U.S. income taxes are the responsibility of its partners.
Generally, taxable income or loss, deductions and credits of Globalstar will be
passed through to its partners.
OTHER MATTERS
New 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.
Impact of Year 2000 Issue
Globalstar's Year 2000 Program is proceeding on schedule. The Year 2000
Issue is the result of computer programs which were written using two digits
rather than four to signify a year (i.e., the year 1997 is denoted as "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.
Globalstar, has implemented a Year 2000 program (the "Year 2000 Program")
for its internal products, system and equipment, as well as for key vendor
supplied products, system and equipment. As part of the Year 2000 Program, the
Globalstar is assessing the Year 2000 capabilities of, among other things, its
satellites, ground equipment, research and development activities, and facility
management systems. The Year 2000 Program consists of the following phases:
Inventory of Year 2000 items, Assessment (including prioritization), Remediation
(including modification, upgrading and replacement), Testing and Auditing. This
five-step program is divided into six major sections covering both information
and non-information technology systems: 1) business systems, 2) technical
systems, 3) products and services, 4) imbedded hardware/firmware, and 5) vendor
supplied products. To date, Globalstar has completed approximately 95% of the
inventory phase and approximately 25% of its assessment phase. Globalstar
expects to complete the first four phases, through the testing phase, of the
Year 2000 Program during the second quarter of 1999, which is prior to it's
anticipated in-service date of Globalstar. The fifth phase, the audit phase, is
expected to commence in January of 1999 and continue through the third quarter
of 1999 to accommodate re-audits if deemed necessary.
Both internal and external resources are being utilized to execute
Globalstar's plan. The program to address Year 2000 has been underway since July
1997. The incremental costs incurred to date for this effort by Globalstar was
approximately $200,000. Based on the efforts of Globalstar and its operating
affiliates to date, Globalstar anticipates additional incremental expenses of
approximately $1.1 million will be incurred to substantially complete the
effort.
Based upon the accomplishments to date, no contingency plans are expected
to be needed. As risks are identified, contingency plans will be developed and
implemented as necessary. However, because of the
16
<PAGE> 18
progress achieved to date and Globalstar's expectations that its Year 2000
program will be substantially complete in the second quarter of calendar 1999,
Globalstar believes adequate time will be available to insure alternatives can
be developed, assessed and implemented prior to a Year 2000 issue having a
material negative impact on its operations of Globalstar. However, there can be
no assurance that such modifications and conversions, if required, will be
completed on a timely basis.
The cost of the program and the dates on which Globalstar believes it will
substantially complete Year 2000 modifications are based on management's best
estimates. Such estimates were derived using software surveys and programs to
evaluate calendar date exposures and numerous assumptions of future events,
including the continued availability of certain resources, third-party Year 2000
readiness and other factors. Because none of these estimates can be guaranteed,
actual results could differ materially and adversely from those anticipated.
Specific factors that might cause an adjustment of costs are: number of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, the ability to validate supplier certification and similar
uncertainties.
Globalstar's failure to remediate a material Year 2000 problem could result
in an interruption or failure of certain basic business operations. These
failures could materially and adversely effect Globalstar's results of
operations, liquidity and financial condition. Globalstar and its operating
affiliates are also assessing the Year 2000 readiness of its key third-party
suppliers. Information requests have been distributed to such suppliers and
replies are being evaluated. If the risk is deemed material, on-site visits to
suppliers will be conducted to verify the adequacy of the information received.
However, due to the general uncertainty of the Year 2000 problem, including
uncertainty with regard to third-party suppliers, Globalstar is unable to
determine at this time whether the consequences of Year 2000 failures will have
an adverse material impact on Globalstar's results of operations, liquidity or
financial condition. Globalstar's Year 2000 Program is expected to have
considerably reduced Globalstar's level of exposure in regard to third-party
supplier Year 2000 problems.
17
<PAGE> 19
PART II -- OTHER INFORMATION
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
<TABLE>
<CAPTION>
DATE OF REPORT DESCRIPTION
- -------------- -----------
<S> <C>
September 9, 1998 Item 5 Other Events -- Globalstar announces launch
failure
September 22, 1998 Item 5 Other Events -- Globalstar revises launch
strategy
</TABLE>
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
GLOBALSTAR TELECOMMUNICATIONS LIMITED
--------------------------------------
Registrant
Nicholas C. Moren
--------------------------------------
Treasurer
(Principal Financial Officer)
and
Registrant's Authorized Officer
GLOBALSTAR L.P.
--------------------------------------
Steven Wright
--------------------------------------
Chief Financial Officer
(Principal Financial Officer)
and
Registrant's Authorized Officer
Date: November , 1998
19
<PAGE> 1
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIOS)
GLOBALSTAR TELECOMMUNICATIONS LIMITED
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
Earnings:
Net loss................................................. $(35,124) $(17,981)
Add:
Equity in loss applicable to ordinary partnership
interests of Globalstar, L.P..................... 35,124 17,981
Interest expense.................................... 22,197 15,902
-------- --------
Earnings available to cover fixed charges(1)............... $ 22,197 $ 15,902
======== ========
Fixed charges -- interest expense.......................... $ 22,197 $ 15,902
======== ========
Ratio of earnings to fixed charges......................... 1X 1X
======== ========
</TABLE>
- ---------------
(1) The earnings of GTL available to cover fixed charges, consisted 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>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
Net loss................................................... $ (85,175) $ (51,814)
Dividends on redeemable preferred partnership interests.... (22,197) (15,901)
Capitalized Interest....................................... (130,706) (60,747)
--------- ---------
Deficiency of earnings to cover fixed charges.............. $(238,078) $(128,462)
========= =========
</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 September 30, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000933401
<NAME> GLOBALSTAR TELECOMMUNICATIONS LTD.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 595,846
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 82,012
<OTHER-SE> 513,834
<TOTAL-LIABILITY-AND-EQUITY> 595,846
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,197
<INCOME-PRETAX> (35,124)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35,124)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,124)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</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 September 30,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001037927
<NAME> GLOBALSTAR L.P.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 236,296
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 531,352
<PP&E> 1,951,453
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,538,390
<CURRENT-LIABILITIES> 200,191
<BONDS> 1,393,735
0
0
<COMMON> 646,429
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,538,390
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 99,457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (85,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> (85,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,372)
<EPS-PRIMARY> (1.93)
<EPS-DILUTED> (1.93)
</TABLE>
