<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 JUNE 30, 1999
GLOBALSTAR TELECOMMUNICATIONS LIMITED
CEDAR HOUSE
41 CEDAR AVENUE
HAMILTON HM12, BERMUDA
TELEPHONE: (441) 295-2244
COMMISSION FILE NUMBER 0-25456
JURISDICTION OF INCORPORATION: BERMUDA
IRS IDENTIFICATION NUMBER: 13-3795510
GLOBALSTAR, L.P.
3200 ZANKER ROAD
SAN JOSE, CA 95134
TELEPHONE: (408) 933-4000
COMMISSION FILE NUMBER: 333-25461
JURISDICTION OF INCORPORATION: DELAWARE
IRS IDENTIFICATION NUMBER: 13-3759824
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 July 31, 1999, there were 82,031,576 shares of Globalstar
Telecommunications Limited common stock outstanding.
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<PAGE> 2
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Part I. FINANCIAL INFORMATION
Globalstar Telecommunications Limited (A General Partner
of Globalstar L.P.).................................... 2
Globalstar, L.P. (A development stage limited
partnership)........................................... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 14
Part II. OTHER INFORMATION
Submission of Matters to a Vote of Security Holders....... 19
Exhibits and Reports of Form 8-K.......................... 19
</TABLE>
1
<PAGE> 3
PART I
FINANCIAL INFORMATION
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests................ $ 339,980 $ --
Dividends receivable...................................... 3,500 --
Ordinary partnership interests............................ 536,969 568,394
Ordinary partnership warrants............................. 12,034 12,034
--------- ---------
Total assets........................................... $ 892,483 $ 580,428
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Dividends payable......................................... $ 3,500 $ --
Commitments and contingencies (Note 4 and 5)
Shareholders' equity:
8% Convertible redeemable preferred stock, $.01 par value,
10,000,000 shares authorized (6,999,900 issued and
outstanding at June 30, 1999), $350 million redemption
value.................................................. 339,980 --
Common stock, $1.00 par value, 600,000,000 shares
authorized (82,026,576 and 82,016,679 issued and
outstanding at June 30, 1999 and December 31, 1998,
respectively).......................................... 82,027 82,017
Paid-in capital............................................. 588,842 588,802
Warrants.................................................... 12,034 12,034
Accumulated deficit......................................... (133,900) (102,425)
--------- ---------
Total shareholders' equity............................. 888,983 580,428
--------- ---------
Total liabilities and shareholders' equity............. $ 892,483 $ 580,428
========= =========
</TABLE>
- ---------------
NOTE:The December 31, 1998 balance sheet has been derived from audited financial
statements at that date.
See notes to condensed financial statements.
2
<PAGE> 4
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity in net loss applicable to ordinary
partnership interests of Globalstar, L.P....... $15,777 $ 13,279 $ 31,475 $ 20,569
Dividend income on Globalstar, L.P. redeemable
preferred partnership interests................ (9,940) (16,897) (14,690) (22,197)
Interest expense on convertible preferred
equivalent obligations......................... 2,510 16,897 2,510 22,197
------- -------- -------- --------
Net loss......................................... 8,347 13,279 19,295 20,569
Preferred dividends on 8% convertible redeemable
preferred stock and accretion to redemption
value.......................................... 7,430 -- 12,180 --
------- -------- -------- --------
Net loss applicable to common shareholders....... $15,777 $ 13,279 $ 31,475 $ 20,569
======= ======== ======== ========
Net loss per share -- basic and diluted.......... $ 0.19 $ 0.18 $ 0.38 $ 0.30
======= ======== ======== ========
Weighted average shares outstanding -- basic and
diluted........................................ 82,024 75,399 82,021 68,380
======= ======== ======== ========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 5
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 1998
--------- --------
<S> <C> <C>
Operating activities:
Net loss.................................................. $ (19,295) $(20,569)
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P........................... 31,475 20,569
Accretion to redemption value of redeemable preferred
partnership interests.................................. (210) (351)
Dividends accrued on redeemable preferred partnership
interests.............................................. (3,500) 1,679
Amortization of convertible preferred equivalent
obligation issue costs................................. -- 351
Change in operating liability:
Interest payable....................................... -- (1,679)
--------- --------
Net cash provided by (used in) operating
activities.......................................... 8,470 --
--------- --------
Investing activities:
Purchase of ordinary partnership interests in Globalstar,
L.P.................................................... (45) (947)
Purchase of redeemable preferred partnership interests in
Globalstar, L.P........................................ (339,775) --
--------- --------
Net cash used in investing activities................ (339,820) (947)
--------- --------
Financing activities:
Net proceeds from issuance of common stock upon exercise
of options and warrants................................ 45 947
Proceeds from issuance of 8% convertible redeemable
preferred stock........................................ 339,775 --
Payment of dividends related to preferred stock........... (8,470) --
--------- --------
Net cash provided by financing activities............ 331,350 947
--------- --------
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
========= ========
Common stock issued upon conversion of the 8% convertible
redeemable preferred stock............................. $ 5 $ --
========= ========
Supplemental information:
Interest paid during the period........................... $ 2,510 $ 5,038
========= ========
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 6
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by Globalstar Telecommunications Limited ("GTL") pursuant to the rules
of the Securities and Exchange Commission ("SEC") and, in the opinion of GTL,
include all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to SEC rules. GTL believes that the
disclosures made are adequate to keep the information presented from being
misleading. The results of operations for the three and six months ended June
30, 1999 are not necessarily indicative of the results to be expected for the
full year. These condensed financial statements should be read in conjunction
with GTL's audited financial statements and notes thereto included in the latest
Annual Report on Form 10-K for GTL and Globalstar, L.P. ("Globalstar").
2. ORGANIZATION AND BUSINESS
On November 23, 1994, GTL was incorporated as an exempted company under the
Companies Act 1981 of Bermuda. GTL's financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America.
GTL's sole business is acting as a general partner of Globalstar, which is
building and will operate a worldwide, low-earth orbit satellite-based wireless
digital telecommunications system.
At June 30, 1999, GTL held 34.8% of the outstanding ordinary partnership
interests and 100% of the outstanding 8% Redeemable Preferred Partnership
Interests ("8% RPPIs") (see Note 4) of Globalstar. GTL accounts for its
investment in Globalstar on the equity method, recognizing its allocated share
of net losses in the period incurred. GTL's allocated share of Globalstar's net
losses applicable to ordinary partnership interests from the period February 22,
1995 through June 30, 1999 was $133,900,000.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share
GTL follows Statement of Financial Accounting Standards No. 128, Earnings
per Share ("SFAS 128") in presenting basic and diluted earnings per share. Due
to GTL's net losses for the three and six months ended June 30, 1999 and 1998,
diluted weighted average common shares outstanding excludes the weighted average
effect of the assumed conversion of GTL's 8% Convertible Redeemable Preferred
Stock into 15.1 million and 13.4 million common shares for the three and six
months ended June 30, 1999, respectively, the assumed exercise of outstanding
options and warrants into 6.7 million and 5.7 million common shares for the
three months ended June 30, 1999 and 1998, respectively, and into 6.4 million
and 5.7 million common shares for the six months ended June 30, 1999 and 1998,
respectively, and the assumed conversion, prior to actual conversion in April
1998, of GTL's Convertible Preferred Equivalent Obligations into 6.7 million and
13.4 million common shares for the three and six months ended June 30, 1998,
respectively, as their effect would have been anti-dilutive. Accordingly, basic
and diluted net loss per share is based on the net loss applicable to common
shareholders' and the weighted average common shares outstanding for the three
and six months ended June 30, 1999 and 1998.
4. SHAREHOLDERS' EQUITY
8% Convertible Redeemable Preferred Stock
On January 21, 1999, GTL sold 7 million shares (face amount of $50 per
share) of 8% Convertible Redeemable Preferred Stock due 2011 (the "Preferred
Stock"). The Preferred Stock has an aggregate
5
<PAGE> 7
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
liquidation preference equal to its $350 million aggregate redemption value and
a mandatory redemption date of February 15, 2011. Dividends accrue at 8% per
annum and are payable quarterly. The Preferred Stock is convertible into shares
of GTL common stock at a conversion price of $23.2563 per share, subject to
adjustment for certain antidilution events. As of June 30, 1999, the Preferred
Stock was convertible into 15,049,470 shares of GTL common stock. Loral Space &
Communications Ltd. ("Loral") purchased 3 million shares ($150 million face
amount) of the Preferred Stock issued, in order to maintain its prior percentage
ownership interest in Globalstar.
The Preferred Stock has limited voting rights. With respect to dividend
rights and rights upon liquidation, winding up and dissolution, the Preferred
Stock ranks senior to common stock and to all other future series of preferred
stock or other class of capital stock of GTL, the terms of which do not
expressly provide that such series or class ranks senior to or on parity with
the Preferred Stock. Prior to its mandatory redemption date, the Preferred Stock
is redeemable (at a premium which declines over time) by GTL beginning in
February 2002 (or beginning in February 2000 if GTL's stock price exceeds
certain defined price ranges). Payments due on the Preferred Stock may be made
in cash, GTL common stock or a combination of both at the option of GTL. In the
event accrued and unpaid dividends accumulate to an amount equal to six
quarterly dividends, holders of the majority of the outstanding shares of
Preferred Stock will be entitled to elect additional members to GTL's Board of
Directors.
GTL used the net proceeds of approximately $340 million to purchase 7
million units (face amount of $50 per unit) of Globalstar's 8% RPPIs having
terms substantially similar to those of the Preferred Stock.
5. SUBSEQUENT EVENT
In August 1999, Globalstar completed a $500 million credit facility with
Bank of America. The credit facility is guaranteed by two subsidiaries of Loral,
which will pledge certain assets to support the transaction. Loral will receive
consideration for its guarantee in the form of Globalstar equity warrants.
6
<PAGE> 8
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PARTNERSHIP INTEREST DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 54,759 $ 56,739
Insurance proceeds receivable............................. -- 28,500
Production gateways and user terminals.................... 135,313 145,509
Other current assets...................................... 5,158 5,540
---------- ----------
Total current assets................................... 195,230 236,288
Property and equipment, net................................. 5,301 4,958
Globalstar System under construction:
Space segment............................................. 1,929,281 1,678,514
Ground segment............................................ 851,563 686,848
---------- ----------
2,780,844 2,365,362
Additional spare satellites................................. 3,348 --
Deferred financing costs.................................... 13,372 15,845
Other assets................................................ 48,100 47,572
---------- ----------
Total assets........................................... $3,046,195 $2,670,025
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 13,541 $ 14,240
Payable to affiliates..................................... 307,142 216,542
Vendor financing liability................................ 163,967 127,180
Accrued expenses.......................................... 14,752 11,679
Accrued interest.......................................... 31,549 31,549
---------- ----------
Total current liabilities.............................. 530,951 401,190
Deferred revenues........................................... 25,811 25,811
Vendor financing liability, net of current portion.......... 239,430 243,990
Deferred interest payable................................... 476 458
11 3/8% Senior notes payable ($500,000 principal amount).... 479,650 479,566
11 1/4% Senior notes payable ($325,000 principal amount).... 307,110 306,949
10 3/4% Senior notes payable ($325,000 principal amount).... 321,080 320,997
11 1/2% Senior notes payable ($300,000 principal amount).... 288,931 288,663
Commitments and contingencies (Notes 4, 5 and 7)
Partners' capital:
8% redeemable preferred partnership interests (6,999,900
outstanding at June 30, 1999), $350 million redemption
value.................................................. 339,980 --
Ordinary partnership interests (58,182,567 and 58,180,093
outstanding at June 30, 1999 and December 31, 1998,
respectively).......................................... 483,796 573,421
Warrants.................................................. 28,980 28,980
---------- ----------
Total partners' capital................................ 852,756 602,401
---------- ----------
Total liabilities and partners' capital................ $3,046,195 $2,670,025
========== ==========
</TABLE>
- ---------------
NOTE: The December 31, 1998 balance sheet has been derived from audited
consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
7
<PAGE> 9
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER INTEREST DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23,
1994
THREE MONTHS ENDED SIX MONTHS ENDED (COMMENCEMENT
JUNE 30, JUNE 30, OF OPERATIONS)
------------------- ----------------- TO JUNE 30,
1999 1998 1999 1998 1999
-------- -------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Development costs.................................... $26,345 $17,169 $57,053 $33,658 $332,069
Marketing, general and administrative................ 10,820 11,111 22,793 19,382 134,495
Loss from launch failure............................. -- -- -- -- 17,315
------- ------- ------- ------- --------
Total operating expenses.......................... 37,165 28,280 79,846 53,040 483,879
Interest income........................................ 1,762 4,656 4,075 9,820 61,852
------- ------- ------- ------- --------
Net loss............................................... 35,403 23,624 75,771 43,220 422,027
Preferred distributions on redeemable preferred
partnership interests and accretion to redemption
value................................................ 9,940 16,897 14,690 22,197 75,412
------- ------- ------- ------- --------
Net loss applicable to ordinary partnership
interests............................................ $45,343 $40,521 $90,461 $65,417 $497,439
======= ======= ======= ======= ========
Net loss per ordinary partnership interest -- basic and
diluted.............................................. $ 0.78 $ 0.71 $ 1.55 $ 1.20
======= ======= ======= =======
Weighted average ordinary partnership interests
outstanding -- basic and diluted..................... 58,182 56,705 58,181 54,525
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
8
<PAGE> 10
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
SIX MONTHS ENDED MARCH 23, 1994
JUNE 30, (COMMENCEMENT OF
---------------------- OPERATIONS) TO
1999 1998 JUNE 30, 1999
--------- --------- ----------------
<S> <C> <C> <C>
Operating activities:
Net loss................................................... $ (75,771) $ (43,220) $ (422,027)
Loss from launch failure................................... -- -- 17,315
Deferred revenues.......................................... -- -- 25,811
Stock compensation transactions............................ 786 643 3,677
Depreciation and amortization.............................. 1,122 773 5,090
Changes in operating assets and liabilities:
Other current assets..................................... 382 (968) (5,158)
Other assets............................................. (56) (2,198) (10,637)
Accounts payable......................................... (4,813) 2,923 10,042
Payable to affiliates.................................... 27,273 24,910 106,367
Accrued expenses......................................... (427) (1,569) 11,252
--------- --------- -----------
Net cash used in operating activities.................. (51,504) (18,706) (258,268)
--------- --------- -----------
Investing activities:
Globalstar System under construction....................... (415,482) (381,334) (2,988,659)
Insurance proceeds from launch failure..................... 28,500 -- 190,500
Payable to affiliates for Globalstar System under
construction............................................. 63,327 (38,464) 191,975
Capitalized interest accrued............................... 3,087 9,560 64,622
Accounts payable........................................... 4,114 (199) 2,991
Vendor financing liability................................. 32,227 120,545 403,397
--------- --------- -----------
Cash used for Globalstar System............................ (284,227) (289,892) (2,135,174)
Production gateways and user terminals..................... 10,196 (40,282) (135,313)
Additional spare satellites................................ (3,348) -- (3,348)
Purchases of property and equipment........................ (1,465) (2,330) (10,391)
Deferred FCC license costs................................. (472) (423) (9,471)
Purchases of investments................................... -- -- (126,923)
Maturity of investments.................................... -- -- 126,923
--------- --------- -----------
Net cash used in investing activities.................. (279,316) (332,927) (2,293,697)
--------- --------- -----------
Financing activities:
Net proceeds from issuance of $500,000 11 3/8% Senior
Notes.................................................... -- -- 472,090
Proceeds from warrants issued in connection with $500,000
11 3/8% Senior Notes..................................... -- -- 12,210
Net proceeds from issuance of $325,000 11 1/4% Senior
Notes.................................................... -- -- 301,850
Net proceeds from issuance of $325,000 10 3/4% Senior
Notes.................................................... -- -- 320,197
Net proceeds from issuance of $300,000 11 1/2% Senior
Notes.................................................... -- 287,552 287,552
Deferred financing costs................................... -- -- (2,125)
Proceeds from capital subscriptions receivable............. -- -- 282,441
Payment of accrued capital raising costs................... -- -- (2,400)
Sale of ordinary partnership interests..................... 45 -- 346,587
Sale of redeemable preferred partnership interests to
GTL...................................................... 339,775 19,697 639,275
Distributions on redeemable preferred partnership
interests................................................ (10,980) (5,037) (51,000)
Prepaid interest on redeemable preferred partnership
interests................................................ -- -- 47
Borrowings under long-term revolving credit facility....... -- -- 171,000
Repayment of borrowings under long-term revolving credit
facility................................................. -- -- (171,000)
--------- --------- -----------
Net cash provided by financing activities.............. 328,840 302,212 2,606,724
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents........ (1,980) (49,421) 54,759
Cash and cash equivalents, beginning of period.............. 56,739 464,154 --
--------- --------- -----------
Cash and cash equivalents, end of period.................... $ 54,759 $ 414,733 $ 54,759
========= ========= ===========
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
===========
Accretion to redemption value of preferred partnership
interests................................................ $ 210 $ 351 $ 4,150
========= ========= ===========
Ordinary partnership interests distributed upon conversion
of redeemable 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
========= ===========
Dividends accrued.......................................... $ 3,500 $ 3,500
========= ===========
8% redeemable preferred partnership interests converted
into ordinary partnership interests...................... $ 5 $ 5
========= ===========
Supplemental Information:
Interest paid.............................................. $ 81,789 $ 64,732 $ 278,709
========= ========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
9
<PAGE> 11
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Globalstar, L.P. ("Globalstar") pursuant to the rules of the
Securities and Exchange Commission ("SEC") and, in the opinion of Globalstar,
include all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to SEC rules. Globalstar believes that
the disclosures made are adequate to keep the information presented from being
misleading. The results of operations for the three and six months ended June
30, 1999 are not necessarily indicative of the results to be expected for the
full year. These condensed consolidated financial statements should be read in
conjunction with Globalstar's audited consolidated financial statements and
notes thereto included in the latest Annual Report on Form 10-K for Globalstar
Telecommunications Limited ("GTL") and Globalstar.
2. ORGANIZATION AND BUSINESS
Globalstar, founded by Loral Space & Communications Ltd. ("Loral") and
QUALCOMM Incorporated ("Qualcomm"), is building and will operate a worldwide,
low-earth orbit satellite-based wireless digital telecommunications system (the
"Globalstar(TM) System").
Globalstar, a Delaware limited partnership with a December 31 fiscal year
end, was formed in November 1993. It had no activities until March 23, 1994,
when it received capital subscriptions for $275 million and commenced
operations. The accompanying condensed consolidated financial statements reflect
the operations of Globalstar from that date.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Globalstar is devoting substantially all of its efforts to the launch,
licensing, construction and testing of the Globalstar System, and establishing
its business. Globalstar's planned principal operations have not commenced and,
accordingly, Globalstar is a development stage company as defined in Statement
of Financial Accounting Standards No. 7 "Accounting and Reporting by Development
Stage Enterprises."
Globalstar may encounter problems, delays and expenses, many of which may
be beyond Globalstar's control. These may include, but are not limited to,
launch delays and launch failures, in-orbit failures, problems related to
technical development of the system, testing, regulatory compliance,
manufacturing and assembly, having user terminals available in sufficient
quantities, the competitive and regulatory environment in which Globalstar will
operate, marketing problems and costs and expenses that may exceed current
estimates. There can be no assurance that substantial delays in any of the
foregoing matters would not delay Globalstar's achievement of profitable
operations.
Earnings Per Ordinary Partnership Interest
Globalstar follows Statement of Financial Accounting Standards No. 128,
Earnings per Share ("SFAS 128") in presenting basic and diluted earnings per
interest. Due to Globalstar's net losses for the three and six months ended June
30, 1999 and 1998, diluted weighted average ordinary partnership interests
outstanding excludes the weighted average effect of the assumed conversion of
the 8% Redeemable Preferred Partnership Interests ("RPPI's") into 3.8 million
and 3.3 million ordinary partnership interests for the three and six months
ended June 30, 1999, respectively, and the assumed issuance of ordinary
partnership interests upon exercise of GTL's outstanding options and warrants
into 2.6 million and 2.5 million ordinary partnership interests for the three
months ended June 30, 1999 and 1998, respectively, and into 2.5 million and 2.8
million
10
<PAGE> 12
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ordinary partnership interests for the six months ended June 30, 1999 and 1998,
respectively, and the assumed conversion, prior to the actual conversion in
April 1998, of the 6 1/2% redeemable preferred partnership interests into 1.6
million and 3.2 million ordinary partnership interests for the three and six
months ended June 30, 1998, respectively, as their effect would have been
anti-dilutive. Accordingly, basic and diluted net loss per ordinary partnership
interest are based on the net loss applicable to ordinary partnership interests
and the weighted average ordinary partnership interests outstanding for the
three and six months ended June 30, 1999 and 1998.
Reclassifications
Certain reclassifications have been made to conform prior period amounts to
the current period presentation.
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
Through June 30, 1999, Globalstar incurred costs of approximately $2.9
billion for the design, development, construction and deployment of the space
and ground segments, not including financing costs. Costs incurred during 1999
were approximately $379.2 million. As of June 30, 1999, Globalstar's budgeted
expenditures were $3.17 billion for the design, development, construction and
deployment of the Globalstar System to start service in several regions of the
world beginning this fall and $340 million for budgeted financing costs. In
addition to expenditures for operating costs and debt service, Globalstar
anticipates further expenditures on system software for the improvement of
system functionality and the addition of new features beyond those planned for
the start of service. Substantial additional financing will be required if there
are delays in the start of service and, in any event, after the start of service
and before positive cash flow is achieved. 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.
Globalstar has agreed to purchase from Space Systems/Loral ("SS/L", a
subsidiary of Loral) eight additional spare satellites for which the cost and
payment terms have not as yet been negotiated. It is anticipated that
approximately $100 million will be expended for these spare satellites by the
start of service.
As of June 30, 1999, Globalstar has raised or received commitments for
approximately $3.8 billion (See Note 7). Globalstar intends to raise the
remaining funds required, of approximately $100 million, by the start of service
in the fall of 1999, from financial support from the Globalstar partners.
5. VENDOR FINANCING LIABILITY
At June 30, 1999, the current portion of vendor financing liability
includes $90 million of interest bearing deferred billings due to SS/L which
were scheduled for repayment in 20 quarterly installments beginning on March 31,
1999. Globalstar is in negotiations with SS/L to defer commencement of repayment
of the $90 million.
6. ORDINARY PARTNERS' CAPITAL
8% Redeemable Preferred Partnership Interests
On January 21, 1999, Globalstar sold to GTL 7 million units (face amount of
$50 per unit) of 8% RPPIs in Globalstar, in connection with GTL's offering of 7
million shares (face amount of $50 per share) of 8% Convertible Redeemable
Preferred Stock due 2011 (the "Preferred Stock"). Dividends on the 8% RPPIs and
the Preferred Stock accrue at 8% per annum and are payable quarterly. Globalstar
is using the funds for the construction and deployment of the Globalstar System.
11
<PAGE> 13
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Preferred Stock is convertible into shares of GTL common stock at a
conversion price of $23.2563 per share, subject to adjustment for certain
antidilution events. As of June 30, 1999, the Preferred Stock was convertible
into 15,049,470 shares of GTL common stock. Loral purchased 3 million shares
($150 million face amount) of the Preferred Stock issued, in order to maintain
its prior percentage ownership interest in Globalstar.
The Preferred Stock has limited voting rights. With respect to dividend
rights and rights upon liquidation, winding up and dissolution, the Preferred
Stock ranks senior to common stock and to all other future series of preferred
stock or other class of capital stock of GTL, the terms of which do not
expressly provide that such series or class ranks senior to or on parity with
the Preferred Stock. Prior to its mandatory redemption date, the Preferred Stock
is redeemable (at a premium which declines over time) by GTL beginning in
February 2002 (or beginning in February 2000 if GTL's stock price exceeds
certain defined price ranges). Payments due on the Preferred Stock may be made
in cash, GTL common stock or a combination of both at the option of GTL. In the
event accrued and unpaid dividends accumulate to an amount equal to six
quarterly dividends, holders of the majority of the outstanding shares of
Preferred Stock will be entitled to elect additional members to GTL's Board of
Directors.
The 8% RPPIs rank senior to ordinary partnership interests and have terms
substantially similar to the Preferred Stock. However, they are subordinate to
all existing and future liabilities of Globalstar, and cash distributions
thereon are limited to the amount of the partnership capital accounts that are
maintained for such interests. The 8% RPPIs will convert to ordinary partnership
interests upon any conversion of the Preferred Stock into GTL common stock.
Payments due on the 8% RPPIs may be made in cash, Globalstar ordinary
partnership interests or a combination of both at the option of Globalstar.
7. SUBSEQUENT EVENT
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks for the build-out of the Globalstar system. The credit
agreement provides for a $100 million three-year revolving credit facility
("Revolver"), a $100 million three-year term loan ("Term Loan A") and a $300
million four-year term loan ("Term Loan B"). The Term Loan facilities are
subject to an amortization payment schedule as follows: the Term Loan A facility
requires payments of 10% of the principal amount on each of January 15, 2001,
March 31, 2001, June 30, 2001, September 30, 2001 and December 31, 2001, 15% of
the principal amount on each of March 31, 2002 and June 30, 2002 and a final
payment of 20% of the principal amount on August 15, 2002; the Term Loan B
facility requires payments of 1% of the principal amount on each of January 15,
2001 and June 30, 2001, a payment of 15% of the principal amount on June 30,
2002, a payment of 25% of the principal amount on March 31, 2003 and a final
payment of 58% of the principal amount on August 15, 2003. All amounts
outstanding under the Revolver are due and payable on August 15, 2002.
Borrowings under the facilities bear interest, at Globalstar's option, at
various rates based on margins over the lead bank's base rate or the London
Interbank Offer Rate ("LIBOR") for periods of one to six months. Globalstar pays
a commitment fee on the unused portion of the facilities. The credit agreement
contains customary financial covenants that commence March 31, 2001, including,
minimum revenue thresholds, maintenance of consolidated net worth, interest
coverage ratios and maximum leverage ratios. In addition, the credit agreement
contains customary limitations on indebtedness, liens, contingent obligations,
fundamental changes, asset sales, dividends, investments, optional payments and
modification of subordinated and other debt instruments and transactions with
affiliates.
The credit facility is guaranteed by Loral SatCom Ltd. and Loral Satellite,
Inc., wholly owned subsidiaries of Loral. The guarantee is secured by the pledge
of certain assets of Loral and its subsidiaries, including the Telstar 6 and
Telstar 7 satellites and the stock of the guarantors. The guarantee agreement
contains customary financial covenants of the guarantors, including maintenance
of a minimum collateral
12
<PAGE> 14
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
coverage ratio and maintenance of a combined minimum net worth and combined
EBITDA. In addition, the guarantee agreement contains customary limitations on
indebtedness, liens, fundamental changes, asset sales, dividends (except that
the guarantors may pay dividends to their parents provided that combined
aggregate cash on hand at the guarantors is at least equal to $50 million and
the guarantors hold an intercompany note due from Loral for at least $100
million), investments, capital expenditures, creating liens other than those
created pursuant to the guarantee and transactions with affiliates.
In consideration for the guarantee, Loral and certain Loral subsidiaries
received warrants to purchase an aggregate of 3,450,000 Globalstar partnership
interests (equivalent to approximately 13,800,000 shares of common stock of GTL)
at an exercise price of $91.00 per partnership interest (equivalent to $22.75
per share of GTL common stock, the average of the high and low trading prices of
GTL common stock on August 5, 1999, the closing date of the credit facility).
The warrants vest in stages (provided that the guarantee is then in effect): 50%
on February 5, 2000, 25% on August 5, 2000 and the remaining 25% on August 5,
2001. The warrants are immediately exercisable after vesting and have a
seven-year term. Globalstar may call the warrants after August 5, 2001 if the
market price of GTL common stock exceeds $45.50 for a certain period. After
giving effect to the issuance of the warrants, Loral's interest in Globalstar on
a fully-diluted basis increased from 42% to 45%.
13
<PAGE> 15
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, launch delays and launch failures, in-orbit failures, problems relating to
technical development and deployment of the system, testing, regulatory
compliance, manufacturing and assembly, having user terminals available in
sufficient quantities, the competitive and regulatory environment in which
Globalstar will operate, marketing problems and costs and expenses that may
exceed current estimates. See the section of GTL's and Globalstar's most recent
Annual Report on Form 10-K entitled "Certain Factors That May Affect Future
Results" and GTL's registration statements on Form S-3 (File Nos. 333-75677 and
333-83239), 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. Therefore, matters discussed in this section address the
financial condition and results of operations of Globalstar.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $56.7 million at December 31, 1998
to $54.8 million at June 30, 1999. The net decrease is primarily the result of
the net expenditures for the Globalstar System of $284.2 million, net cash used
in operating activities of $51.5 million and distributions on redeemable
preferred partnership interests of $11.0 million, mostly offset by the net
proceeds from the sale of Globalstar's 8% redeemable preferred partnership
interests ("8% RPPIs") totaling $339.8 million.
Current liabilities increased from $401.2 million at December 31, 1998 to
$531.0 million at June 30, 1999, primarily as a result of the reclassification
of a portion of vendor financing due within one year and the timing of payments
to Globalstar contractors.
The Company plans to begin a regional roll-out of service in the fall of
1999 with a minimum of eight gateways in operation. By the end of 1999,
Globalstar expects to have a total of at least 14 gateways in operation. All of
the 38 gateways on order have been manufactured and are ready for installation.
From January 1, to July 31, 1999, Globalstar had six successful launches,
of four satellites each, aboard a combination of Soyuz and Delta launch
vehicles, bringing the total number of satellites in orbit to 32. Globalstar had
previously launched its first two groups of four satellites each in 1998. The
first 26 Globalstar satellites have reached their final orbital positions and
are currently being used to test basic system functionality, including the
system's inter-satellite handoff capabilities. The latest four satellites are
expected to reach their final orbital positions and will begin operations
testing in August 1999 and two satellites are intentionally drifting and are
expected to reach their final orbital positions in August and October of 1999.
As of July 1999, in addition to the 32 satellites already in orbit, Globalstar
had eight completed satellites on hand and 12 more in final integration and
test. For the remainder of 1999, Globalstar's current launch plan includes five
additional launches of four satellites each, using a mix of Delta and Soyuz
rockets. According to the plan, Globalstar will deploy a minimum of 32
satellites by the fall of 1999 and a total of 52 satellites (including four
in-orbit spares) by the end of 1999.
14
<PAGE> 16
Through June 30, 1999, Globalstar incurred costs of approximately $2.9
billion for the design, development, construction and deployment of the space
and ground segments, not including financing costs. Costs incurred during 1999
were approximately $379.2 million. As of June 30, 1999, Globalstar's budgeted
expenditures were $3.17 billion for the design, development, construction and
deployment of the Globalstar System to start service and $340 million for
budgeted financing costs. In addition to expenditures for operating costs, and
debt service, Globalstar anticipates further expenditures on system software for
the improvement of system functionality and the addition of new features beyond
those planned for the start of service. Globalstar expects to achieve positive
cash flow in the third quarter of 2000. Substantial additional financing will be
required if there are delays in the start of service and, in any event, after
the start of service and before positive cash flow is achieved. 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.
Globalstar has agreed to purchase from Space Systems/Loral eight additional
spare satellites for which the cost and payment terms have not as yet been
negotiated. It is anticipated that approximately $100 million will be expended
for these spare satellites by the start of service in the fall of 1999.
On January 21, 1999, Globalstar sold to GTL 7 million units (face amount of
$50 per unit) of 8% RPPIs, in connection with GTL's offering of 7 million shares
(face amount of $50 per share) of 8% Convertible Redeemable Preferred Stock due
2011 (the "Preferred Stock"). The Preferred Stock is convertible into shares of
GTL common stock at a conversion price of $23.2563 per share. Loral Space &
Communication Ltd. ("Loral") purchased 3 million shares or $150 million face
amount of the $350 million of the Preferred Stock offered, to maintain its
ownership percentage. Dividends on the 8% RPPIs and the Preferred Stock accrue
at 8% per annum and are payable quarterly. Globalstar is using the funds for the
construction and deployment of the Globalstar System.
As of June 30, 1999, Globalstar has raised or received commitments for
approximately $3.8 billion. Globalstar intends to raise the remaining funds
required, of approximately $100 million, by the start of service in the fall of
1999, from financial support from the Globalstar partners.
In July 1999, Globalstar and GTL filed a shelf registration statement with
the SEC covering up to $500 million of securities. Under the registration
statement, Globalstar may, from time to time, offer debt securities, which may
be either senior or subordinated or secured or unsecured and GTL may, from time
to time, offer shares of common stock, preferred stock or warrants, all at
prices and on terms to be determined at the time of the offering. Proceeds from
any offering would be used for general corporate purposes, which may include
refinancing of outstanding indebtedness.
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks for the build-out of the Globalstar system. The credit
agreement provides for a $100 million three-year revolving credit facility
("Revolver"), a $100 million three-year term loan ("Term Loan A") and a $300
million four-year term loan ("Term Loan B"). The Term Loan facilities are
subject to an amortization payment schedule as follows: the Term Loan A facility
requires payments of 10% of the principal amount on each of January 15, 2001,
March 31, 2001, June 30, 2001, September 30, 2001 and December 31, 2001, 15% of
the principal amount on each of March 31, 2002 and June 30, 2002 and a final
payment of 20% of the principal amount on August 15, 2002; the Term Loan B
facility requires payments of 1% of the principal amount on each of January 15,
2001 and June 30, 2001, a payment of 15% of the principal amount on June 30,
2002, a payment of 25% of the principal amount on March 31, 2003 and a final
payment of 58% of the principal amount on August 15, 2003. All amounts
outstanding under the Revolver are due and payable on August 15, 2002.
Borrowings under the facilities bear interest, at Globalstar's option, at
various rates based on margins over the lead bank's base rate or the London
Interbank Offer Rate ("LIBOR") for periods of one to six months. Globalstar pays
a commitment fee on the unused portion of the facilities. The credit agreement
contains customary financial covenants that commence March 31, 2001, including,
minimum revenue thresholds, maintenance of consolidated net worth, interest
coverage ratios and maximum leverage ratios. In addition, the credit agreement
contains customary limitations on indebtedness, liens, contingent obligations,
fundamental changes, asset sales, dividends, investments, optional payments and
modification of subordinated and other debt instruments and transactions with
affiliates.
15
<PAGE> 17
The credit facility is guaranteed by Loral SatCom Ltd. and Loral Satellite,
Inc., wholly owned subsidiaries of Loral. The guarantee is secured by the pledge
of certain assets of Loral and its subsidiaries, including the Telstar 6 and
Telstar 7 satellites and the stock of the guarantors. The guarantee agreement
contains customary financial covenants of the guarantors, including maintenance
of a minimum collateral coverage ratio and maintenance of a combined minimum net
worth and combined EBITDA. In addition, the guarantee agreement contains
customary limitations on indebtedness, liens, fundamental changes, asset sales,
dividends (except that the guarantors may pay dividends to their parents
provided that combined aggregate cash on hand at the guarantors is at least
equal to $50 million and the guarantors hold an intercompany note due from Loral
for at least $100 million), investments, capital expenditures, creating liens
other than those created pursuant to the guarantee and transactions with
affiliates.
In consideration for the guarantee, Loral and certain Loral subsidiaries
received warrants to purchase an aggregate of 3,450,000 Globalstar partnership
interests (equivalent to approximately 13,800,000 shares of common stock of GTL)
at an exercise price of $91.00 per partnership interest (equivalent to $22.75
per share of GTL common stock, the average of the high and low trading prices of
GTL common stock on August 5, 1999, the closing date of the credit facility).
The warrants vest in stages (provided that the guarantee is then in effect): 50%
on February 5, 2000, 25% on August 5, 2000 and the remaining 25% on August 5,
2001. The warrants are immediately exercisable after vesting and have a
seven-year term. Globalstar may call the warrants after August 5, 2001 if the
market price of GTL common stock exceeds $45.50 for a certain period. After
giving effect to the issuance of the warrants, Loral's interest in Globalstar on
a fully-diluted basis increased from 42% to 45%.
RESULTS OF OPERATIONS
Globalstar is a development stage partnership and has not commenced
commercial operations. For the period March 23, 1994 (commencement of
operations) to June 30, 1999, Globalstar has recorded cumulative net losses
applicable to ordinary partnership interests of $497.4 million. The net loss
applicable to ordinary partnership interests for the six months ended June 30,
1999 increased to $90.5 million from $65.4 million for the six months ended June
30, 1998. The net loss applicable to ordinary partnership interests for the
three months ended June 30, 1999 increased to $45.3 million from $40.5 million
for the three months ended June 30, 1998. The net loss for both periods
increased primarily as a result of increased activity in the development of
Globalstar user terminals, increased in-house engineering and an increase in
marketing, general and administrative costs. Globalstar is expending significant
funds for the development, construction, launch, testing and deployment of the
Globalstar System and expects such losses to continue through the start of
service.
Globalstar has earned interest income of $61.9 million on cash balances and
short-term investments since commencement of operations. Interest income was
$4.1 million and $9.8 million for the six months ended June 30, 1999 and 1998,
respectively and $1.8 million and $4.7 million for the three months ended June
30, 1999 and 1998, respectively. The decrease in interest income during both
periods was a result of lower average cash balances available for investment
during 1999.
Operating Expenses. Development costs for the six months ended June 30,
1999 were $57.1 million as compared to $33.7 million for the six months ended
June 30, 1998. Development costs for the three months ended June 30, 1999 were
$26.3 million as compared to $17.2 million for the three months ended June 30,
1998. Development costs increased as a result of increased activity in the
development of Globalstar user terminals and in-house engineering.
Marketing, general and administrative expenses increased to $22.8 million
for the six months ended June 30, 1999, from $19.4 million for the six months
ended June 30, 1998, due to increased headcount and operating costs. Marketing,
general and administrative expenses decreased to $10.8 million from $11.1
million for the three months ended June 30, 1999 and 1998, respectively.
Depreciation. Globalstar capitalizes all costs, including interest as
applicable, associated with the design, construction and deployment of the
Globalstar System, except costs associated with the development of the
Globalstar user terminals and certain technologies under a cost sharing
arrangement with Qualcomm.
16
<PAGE> 18
Globalstar will not record depreciation expense on the Globalstar System under
construction until the commencement of commercial operations, as assets are
placed into service.
Income Taxes. Globalstar is organized as a limited partnership. As such,
no income tax provision or benefit is included in the accompanying financial
statements since U.S. income taxes are the responsibility of its partners.
Generally, taxable income or loss, deductions and credits of Globalstar will be
passed through to its partners.
TAXATION
GTL will be subject to US federal, state and local corporate income tax on
its share of Globalstar's income that is effectively connected with the conduct
of a trade or business in the United States ("US income") and will be required
to file federal, state and local income tax returns with respect to such US
income. In addition, any portion of GTL's income from sources outside the US,
realized through Globalstar or otherwise, may be subject to taxation by certain
foreign countries. However, the extent to which these countries may require GTL
or Globalstar to pay tax or to make payments in lieu of tax cannot be determined
in advance.
YEAR 2000
The Year 2000 Issue is the result of computer programs which were written
using two digits rather than four to signify a year (i.e., the year 1999 is
denoted as "99" and not "1999"). Computer programs written using only two digits
may recognize the year 2000 as the year 1900. This could result in a system
failure or miscalculations causing disruption of operations.
Globalstar has implemented a Year 2000 program (the "Year 2000 Program")
for its internal products, system and equipment, as well as for key vendor
supplied products, systems and equipment. As part of the Year 2000 Program,
Globalstar is assessing the Year 2000 capabilities of, among other things, its
satellites, ground equipment, research and development activities, and facility
management systems. The Year 2000 Program consists of the following phases:
Inventory of Year 2000 items, Assessment (including prioritization), Remediation
(including modification, upgrading and replacement), Testing and Auditing. This
five-step program is divided into five major sections covering both information
and non-information technology systems: 1) business systems, 2) technical
systems, 3) imbedded hardware/firmware, 4) products and services, and 5)
vendor-supplied services. As of June 30, 1999, Globalstar has completed
approximately 98% of the Inventory Phase and 70% of the Assessment Phase.
Globalstar expects to complete the first four phases, through the Testing Phase,
of the Year 2000 Program during the third quarter of 1999, prior to the
anticipated in-service date of Globalstar. The fifth phase, the Audit Phase,
commenced in January 1999 and is expected to 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 by Globalstar through June 30, 1999 for
this effort were approximately $950,000. Based on its efforts to date Globalstar
anticipates additional incremental expenses of approximately $390,000 will be
incurred to substantially complete the effort.
As an added safeguard against the possibility that a Year 2000 related
issue will adversely affect the Company's ability to continue operations,
contingency plans are being developed under the assumption that worst case
scenarios are encountered in critical areas. Emphasis is being placed upon the
action to be taken if there is discontinuance of services and/or lack of
delivery of compliant products from third party suppliers, including utilities
which provide power, water, fuel and telecommunications. Baseline contingency
plans are expected to be completed prior to the end of the third quarter of
1999. The Company believes that adequate time will be available to ensure
alternatives can be developed, assessed and implemented prior to a Year 2000
issue having a material negative impact on the operations of the Company.
However, there can be no assurances that such plans, if required, will be
completed on a timely basis.
17
<PAGE> 19
The cost of the program and the dates on which Globalstar believes it will
substantially complete Year 2000 modifications are based on management's best
estimates. Such estimates were derived using software surveys and programs to
evaluate calendar date exposures and numerous assumptions of future events,
including the continued availability of certain resources, third-party Year 2000
readiness and other factors. Because none of these estimates can be guaranteed,
actual results could differ materially and adversely from those anticipated.
Specific factors that might cause an adjustment of costs are: number of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, the ability to validate supplier certification 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 is 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. In addition, Globalstar has commenced
discussions with its service providers to determine the status of their Year
2000 capabilities. However, due to the general uncertainty of the Year 2000
problem, including uncertainty with regard to third-party suppliers and service
providers, especially those in developing countries, Globalstar is unable to
determine at this time whether the consequences of Year 2000 failures will have
an adverse material impact on Globalstar's results of operations, liquidity or
financial condition. There can be no assurance that the Company's Year 2000
Program will be successful in avoiding any interruption or failure of certain
basic business operations, which may have a material adverse effect on the
Company's results of operations or financial position.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Globalstar has not yet determined the impact that the
adoption of SFAS 133 will have on its earnings or financial position. Globalstar
is required to adopt SFAS 133 on January 1, 2001.
18
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 18, 1999, 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................................... 57,626,390 186,687
Gregory J. Clark...................................... 57,638,657 174,420
Michael P. DeBlasio................................... 57,643,400 169,677
Douglas G. Dwyre...................................... 57,640,014 173,063
Sir Ronald Grierson................................... 57,620,290 192,787
Robert B. Hodes....................................... 57,626,090 186,987
E. John Peett......................................... 57,641,456 171,621
Michael B. Targoff.................................... 57,640,010 173,067
A. Robert Towbin...................................... 57,640,090 172,987
</TABLE>
(2) The proposal to increase the number of authorized preference
shares, $1.00 par value, of Globalstar Telecommunications Limited (the
"Preferred Stock") from 10,000,000 to 20,000,000 was ratified. The votes
were as follows:
<TABLE>
<S> <C>
For......................................................... 33,461,385
Against..................................................... 3,822,447
Broker non-votes............................................ 20,403,796
Abstentions................................................. 125,449
</TABLE>
(3) The proposal to amend the Company's 1994 Stock Option Plan to
increase the number of common shares, $1.00 par value, of the Company (the
"Common Stock") available for issuance from 2,500,000 to 5,000,000 was
ratified. The votes were as follows:
<TABLE>
<S> <C>
For......................................................... 54,364,221
Against..................................................... 3,297,051
Abstentions................................................. 151,805
</TABLE>
(4) The proposal to the appointment of Deloitte & Touche LLP as
independent auditors for the year ending December 31, 1999 was ratified.
The votes were as follows:
<TABLE>
<S> <C>
For......................................................... 57,584,622
Against..................................................... 140,093
Abstentions................................................. 88,362
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit 12 -- Statement Regarding Computation of Ratios
Exhibit 27 -- Financial Data Schedules
Exhibit 99.1 -- Financial Statements for Loral Qualcomm Satellite Services,
L.P.
Exhibit 99.2 -- Financial Statements for Globalstar Capital Corporation
(b) Reports on Form 8-K
None
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
GLOBALSTAR TELECOMMUNICATIONS LIMITED
Registrant
/s/ RICHARD J. TOWNSEND
--------------------------------------
Richard J. Townsend
Vice President and Chief Financial
Officer
(Principal Financial Officer)
and Registrant's Authorized Officer
GLOBALSTAR, L.P.
/s/ STEPHEN WRIGHT
--------------------------------------
Stephen Wright
Chief Financial Officer
(Principal Financial Officer)
and Registrant's Authorized Officer
Date: August 13, 1999
20
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
Exhibit 12 -- Statement Regarding Computation of Ratios
Exhibit 27 -- Financial Data Schedules
Exhibit 99.1 -- Financial Statements for Loral Qualcomm Satellite Services,
L.P.
Exhibit 99.2 -- Financial Statements for Globalstar Capital Corporation
</TABLE>
<PAGE> 1
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIOS)
(UNAUDITED)
GLOBALSTAR TELECOMMUNICATIONS LIMITED
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Earnings:
Net loss.................................................. $(19,295) $(20,569)
Add:
Equity in loss applicable to ordinary partnership
interests of Globalstar, L.P........................ 31,475 20,569
Interest expense....................................... 2,510 22,197
-------- --------
Earnings available to cover fixed charges(1)................ $ 14,690 $ 22,197
======== ========
Fixed charges(2)............................................ $ 14,690 $ 22,197
======== ========
Ratio of earnings to fixed charges and preferred stock
dividends................................................. 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.
(2) Fixed charges include interest expense and preferred dividends and related
increase to redemption value of such preferred stock.
GLOBALSTAR, L.P.
DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
AND DISTRIBUTIONS ON REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Net loss.................................................... $ (75,771) $ (43,220)
Dividends on redeemable preferred partnership interests..... (14,690) (22,197)
Capitalized interest........................................ (95,268) (81,434)
--------- ---------
Deficiency of earnings to cover fixed charges and
distributions on redeemable preferred partnership
interests................................................. $(185,729) $(146,851)
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary consolidated financial information extracted from
the financial statements of Globalstar L.P. for the quarter ended June 30, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001037927
<NAME> GLOBALSTAR LP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 54,759
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 195,230
<PP&E> 2,794,583
<DEPRECIATION> 5,090
<TOTAL-ASSETS> 3,046,195
<CURRENT-LIABILITIES> 530,951
<BONDS> 1,396,771
0
339,980
<COMMON> 512,776
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,046,195
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 79,846
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (75,771)
<INCOME-TAX> 0
<INCOME-CONTINUING> (75,771)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (90,461)
<EPS-BASIC> (1.55)
<EPS-DILUTED> (1.55)
</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 June 30, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000933401
<NAME> GLOBALSTAR TELECOMMUNICATION LIMITED
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 892,483
<CURRENT-LIABILITIES> 3,500
<BONDS> 0
0
339,980
<COMMON> 82,027
<OTHER-SE> 466,976
<TOTAL-LIABILITY-AND-EQUITY> 892,483
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,510
<INCOME-PRETAX> (19,295)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,475)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS:
Investment in Globalstar, L.P. ............................. $ -- $ --
---------- ----------
Total assets................................................ $ -- $ --
========== ==========
PARTNERS' CAPITAL:
Partners' Capital:
Partnership interests (18,000 interests outstanding)...... $ -- $ --
---------- ----------
Total partners' capital..................................... $ -- $ --
========== ==========
</TABLE>
- ---------------
NOTE:The December 31, 1998 balance sheet has been derived from audited financial
statements at that date.
<PAGE> 2
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The unaudited interim financial information as of June 30, 1999 has been
prepared on the same basis as the audited balance sheets. In the opinion of
management, such unaudited information includes all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of financial
position for the interim period presented.
2. ORGANIZATION AND BACKGROUND
Loral/Qualcomm Satellite Services, L.P. ("LQSS") was formed in November
1993 as a Delaware limited partnership with a December 31 fiscal year end. The
general partner of LQSS is Loral/Qualcomm Partnership, L.P. ("LQP"), a limited
partnership whose general partner is Loral General Partner, Inc. ("LGP"), a
subsidiary of Loral Space & Communications Ltd., a Bermuda company ("Loral") and
whose limited partners include a subsidiary of QUALCOMM Incorporated
("Qualcomm").
LQSS's only activity is acting as the managing general partner of
Globalstar, L.P. ("Globalstar"), a development stage limited partnership, which
was founded to design, construct and operate a worldwide, low-earth orbit
satellite-based wireless digital telecommunications system (the "Globalstar(TM)
System"). The Globalstar System's world-wide coverage is designed to enable its
service providers to extend modern telecommunications services to millions of
people who currently lack basic telephone service and to enhance wireless
communications in areas underserved or not served by existing or future cellular
systems, providing a telecommunications solution in parts of the world where the
build-out of terrestrial systems cannot be economically justified. At June 30,
1999, LQSS held a 30.9% interest in Globalstar's outstanding ordinary
partnership interests.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Globalstar, L.P.
LQSS accounts for its investment in Globalstar using the equity method of
accounting. Under this method, LQSS recognizes its allocated share of
Globalstar's net loss, for each period since its initial investment in March
1994. The difference between LQSS's initial investment in Globalstar and its
interest in Globalstar's ordinary partnership capital, at that time, is
attributable to certain intangible assets contributed to Globalstar for
development of the Globalstar System; this difference will be accreted by LQSS
on a ratable basis upon Globalstar's commencement of commercial services. During
1995, LQSS's investment in Globalstar was reduced to zero. Accordingly, LQSS has
discontinued providing for its allocated share of Globalstar's net losses, and
will recognize a liability as a result of its general partner status in
Globalstar only in the event that Globalstar's losses result in an aggregate
ordinary partners' capital deficiency. At June 30, 1999, suspended losses
representing LQSS's unrecognized equity in Globalstar's net losses aggregated
approximately $135,930,000.
4. INVESTMENT IN GLOBALSTAR
On January 21, 1999, Globalstar sold to GTL $350 million face amount of 8%
redeemable preferred partnership interests ("8% RPPI's") in connection with
GTL's offering of $350 million of 8% Convertible Redeemable Preferred Stock due
2011 (the "Preferred Stock"). Conversion of the 8% RPPIs would result in the
issuance of 3,762,368 interests, subject to adjustment for certain antidilution
events. Assuming all such reserved interests had been issued at June 30, 1999,
LQSS's direct interest in Globalstar's ordinary partnership interests would have
decreased to 27.9%.
<PAGE> 1
EXHIBIT 99.2
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Receivable from parent...................................... $1,000 $1,000
====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
Commitments and contingencies (Note 2 and 3)
Shareholder's equity
Common stock, par value $.10; 1,000 shares authorized, 100
shares issued and outstanding.......................... $ 10 $ 10
Paid-in capital........................................... 990 990
------ ------
$1,000 $1,000
====== ======
</TABLE>
- ---------------
NOTE:The December 31, 1998 balance sheet has been derived from audited financial
statements at that date.
<PAGE> 2
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED BALANCE SHEETS
1. The unaudited interim financial information as of June 30, 1999 has been
prepared on the same basis as the audited balance sheet. In the opinion of
management, such unaudited information includes all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of financial
position for the interim period presented.
2. ORGANIZATION
Globalstar Capital Corporation ("GCC"), a wholly-owned subsidiary of
Globalstar, L.P. ("Globalstar"), was formed on July 24, 1995 for the primary
purpose of serving as a co-issuer and co-obligator with respect to certain debt
obligations of Globalstar.
3. GLOBALSTAR 8% REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
On January 21, 1999, Globalstar sold to GTL $350 million face amount of 8%
redeemable preferred partnership interests ("8% RPPI's") in connection with
GTL's offering of $350 million of 8% Convertible Redeemable Preferred Stock due
2011 (the "Preferred Stock"). Such preferred partnership interests are
subordinate to the borrowings to which GCC is a guarantor.
4. SUBSEQUENT EVENT
In August 1999, Globalstar completed a $500 million credit facility with
Bank of America. GCC, a wholly-owned subsidiary of Globalstar, is a guarantor of
the credit facility.
