<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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: 13-3759024
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 31, 1999, there were 82,202,122 shares of Globalstar
Telecommunications Limited common stock outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <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
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>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests................ $ 340,109 $ --
Dividends receivable...................................... 3,500 --
Ordinary partnership interests............................ 523,467 568,394
Ordinary partnership warrants............................. 11,568 12,034
--------- ---------
Total assets........................................... $ 878,644 $ 580,428
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Dividends payable......................................... $ 3,500 $ --
Commitments and contingencies (Note 4)
Shareholders' equity:
8% Convertible redeemable preferred stock, $.01 par value,
10,000,000 shares authorized (6,999,900 issued and
outstanding at September 30, 1999), $350 million
redemption value....................................... 340,109 --
Common stock, $1.00 par value, 600,000,000 shares
authorized (82,196,315 and 82,016,679 issued and
outstanding at September 30, 1999 and December 31,
1998, respectively).................................... 82,196 82,017
Paid-in capital............................................. 591,940 588,802
Warrants.................................................... 11,568 12,034
Accumulated deficit......................................... (150,669) (102,425)
--------- ---------
Total shareholders' equity............................. 875,144 580,428
--------- ---------
Total liabilities and shareholders' equity............. $ 878,644 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Equity in net loss applicable to ordinary
partnership interests of Globalstar, L.P.......... $16,769 $14,555 $ 48,244 $ 35,124
Dividend income on Globalstar, L.P. redeemable
preferred partnership interests................. (7,129) -- (21,819) (22,197)
Interest expense on convertible preferred
equivalent obligations.......................... -- -- 2,510 22,197
------- ------- -------- --------
Net loss.......................................... 9,640 14,555 28,935 35,124
Preferred dividends on 8% convertible redeemable
preferred stock and accretion to redemption
value........................................... 7,129 -- 19,309 --
------- ------- -------- --------
Net loss applicable to common shareholders........ $16,769 $14,555 $ 48,244 $ 35,124
======= ======= ======== ========
Net loss per share -- basic and diluted........... $ 0.20 $ 0.18 $ 0.59 $ 0.48
======= ======= ======== ========
Weighted average shares outstanding -- basic
and diluted..................................... 82,062 82,008 82,035 72,973
======= ======= ======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
--------- -------------
<S> <C> <C>
Operating activities:
Net loss.................................................... $ (28,935) $(35,124)
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P........................... 48,244 35,124
Accretion to redemption value of redeemable preferred
partnership interests.................................. (339) (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 operating activities............ 15,470 --
--------- --------
Investing activities:
Purchase of ordinary partnership interests in Globalstar,
L.P.................................................... (2,846) (1,093)
Purchase of redeemable preferred partnership interests in
Globalstar, L.P........................................ (339,775) --
--------- --------
Net cash used in investing activities................ (342,621) (1,093)
--------- --------
Financing activities:
Net proceeds from issuance of common stock upon exercise
of options and warrants................................ 2,846 1,093
Proceeds from issuance of 8% convertible redeemable
preferred stock........................................ 339,775 --
Payment of dividends related to preferred stock........... (15,470) --
--------- --------
Net cash provided by financing activities............ 327,151 1,093
--------- --------
Net increase (decrease) in cash and cash equivalents........ -- --
Cash and cash equivalents, beginning of period.............. -- --
--------- --------
Cash and cash equivalents, end of period.................... $ -- $ --
========= ========
Non-cash transactions:
Conversion of redeemable preferred partnership interests
and related dividend make-whole payment into ordinary
partnership interests.................................. $ 5 $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 nine months ended
September 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 September 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 September 30, 1999 was $150,669,000.
GTL's equity securities and convertible securities are represented by
equivalent Globalstar partnership interests on an approximate four-for-one
basis.
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 nine months ended September 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 15.0 million and 13.9 million common shares for the three
and nine months ended September 30, 1999, respectively, the assumed exercise of
outstanding options and warrants into 7.9 million and 5.7 million common shares
for the three months ended September 30, 1999 and 1998, respectively, and into
6.9 million and 5.7 million common shares for the nine months ended September
30, 1999 and 1998, respectively, and the assumed conversion, prior to actual
conversion in April 1998, of GTL's Convertible Preferred Equivalent Obligations
into 8.9 million common shares for the nine months ended September 30, 1998, 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 nine months
ended September 30, 1999 and 1998.
5
<PAGE> 7
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 September 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. CREDIT FACILITY
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 pledged certain assets to support the transaction. Loral received
consideration for its guarantee in the form of warrants to purchase an aggregate
of 3,450,000 Globalstar partnership interests (equivalent to approximately
13,800,000 shares of common stock of GTL).
6
<PAGE> 8
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PARTNERSHIP INTEREST DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 171,343 $ 56,739
Insurance proceeds receivable............................. -- 28,500
Production gateways and user terminals.................... 126,733 145,509
Other current assets...................................... 4,323 5,540
---------- ----------
Total current assets................................... 302,399 236,288
Property and equipment, net................................. 5,411 4,958
Globalstar System under construction:
Space segment............................................. 2,072,705 1,678,514
Ground segment............................................ 954,769 686,848
---------- ----------
3,027,474 2,365,362
Additional spare satellites................................. 22,488 --
Deferred financing costs.................................... 163,935 15,845
Other assets................................................ 48,404 47,572
---------- ----------
Total assets........................................... $3,570,111 $2,670,025
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 8,243 $ 14,240
Payable to affiliates..................................... 405,511 216,542
Vendor financing liability................................ 170,343 127,180
Accrued expenses.......................................... 17,753 11,679
Accrued interest.......................................... 45,509 31,549
---------- ----------
Total current liabilities.............................. 647,359 401,190
Deferred revenues........................................... 25,811 25,811
Vendor financing liability, net of current portion.......... 250,034 243,990
Deferred interest payable................................... 582 458
Term Loan B notes payable ($300,000 principal amount)....... 300,000 --
11 3/8% Senior notes payable ($500,000 principal amount).... 479,692 479,566
11 1/4% Senior notes payable ($325,000 principal amount).... 307,190 306,949
10 3/4% Senior notes payable ($325,000 principal amount).... 321,122 320,997
11 1/2% Senior notes payable ($300,000 principal amount).... 289,066 288,663
Commitments and contingencies (Notes 4, 6 and 8)
Partners' capital:
8% redeemable preferred partnership interests (6,999,900
outstanding at September 30, 1999), $350 million
redemption value....................................... 340,109 --
Ordinary partnership interests (58,225,002 and 58,180,093
outstanding at September 30, 1999 and December 31,
1998, respectively).................................... 439,532 573,421
Warrants.................................................. 169,614 28,980
---------- ----------
Total partners' capital................................ 949,255 602,401
---------- ----------
Total liabilities and partners' capital................ $3,570,111 $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
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 23, 1994
SEPTEMBER 30, SEPTEMBER 30, (COMMENCEMENT OF
------------------ -------------------- OPERATIONS) TO
1999 1998 1999 1998 SEPTEMBER 30, 1999
------- ------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Development costs............... $21,803 $18,285 $ 78,856 $ 51,943 $353,872
Marketing, general and
administrative............. 20,067 10,817 42,860 30,199 154,562
Loss from launch failure...... -- 17,315 -- 17,315 17,315
------- ------- -------- -------- --------
Total operating expenses... 41,870 46,417 121,716 99,457 525,749
Interest income................. 833 4,462 4,908 14,282 62,685
------- ------- -------- -------- --------
Net loss........................ 41,037 41,955 116,808 85,175 463,064
Preferred distributions on
redeemable preferred
partnership interests and
accretion to redemption
value......................... 7,129 -- 21,819 22,197 82,541
------- ------- -------- -------- --------
Net loss applicable to ordinary
partnership interests......... $48,166 $41,955 $138,627 $107,372 $545,605
======= ======= ======== ======== ========
Net loss per ordinary
partnership interest -- basic
and diluted................... $ 0.83 $ 0.72 $ 2.38 $ 1.93
======= ======= ======== ========
Weighted average ordinary
partnership interests
outstanding -- basic and
diluted....................... 58,191 58,178 58,185 55,697
======= ======= ======== ========
</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
NINE MONTHS ENDED MARCH 23, 1994
SEPTEMBER 30, (COMMENCEMENT OF
---------------------- OPERATIONS) TO
1999 1998 SEPTEMBER 30, 1999
--------- --------- ------------------
<S> <C> <C> <C>
Operating activities:
Net loss................................................... $(116,808) $ (85,175) $ (463,064)
Loss from launch failure................................... -- 17,315 17,315
Deferred revenues.......................................... -- (2,941) 25,811
Stock compensation transactions............................ 1,280 964 4,171
Depreciation and amortization.............................. 1,704 1,243 5,672
Changes in operating assets and liabilities
Other current assets..................................... 1,217 (1,199) (4,323)
Other assets............................................. (35) (2,205) (10,616)
Accounts payable......................................... (6,753) 9,840 5,168
Payable to affiliates.................................... 51,366 31,733 131,077
Accrued expenses......................................... 2,574 315 14,253
--------- --------- -----------
Net cash used in operating activities.................. (65,455) (30,110) (274,536)
--------- --------- -----------
Investing activities:
Globalstar System under construction....................... (662,112) (528,030) (3,235,289)
Insurance proceeds from launch failure..................... 28,500 -- 190,500
Payable to affiliates for Globalstar System under
construction............................................. 115,115 (58,576) 242,638
Capitalized interest accrued............................... 21,557 26,767 83,092
Accounts payable and other transactions.................... 897 (516) 3,216
Vendor financing liability................................. 49,207 137,601 420,377
--------- --------- -----------
Cash used for Globalstar System............................ (446,836) (422,754) (2,295,466)
Production gateways and user terminals..................... 18,776 (73,731) (126,733)
Additional spare satellites................................ (22,488) -- (22,488)
Payables to affiliates for additional spare satellites..... 22,488 -- 22,488
Purchases of property and equipment........................ (2,157) (2,994) (11,083)
Deferred FCC license costs................................. (797) (627) (9,796)
Purchases of investments................................... -- -- (126,923)
Maturity of investments.................................... -- -- 126,923
--------- --------- -----------
Net cash used in investing activities.................. (431,014) (500,106) (2,443,078)
--------- --------- -----------
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
Proceeds from issuance of $300,000 Term Loan B............. 300,000 -- 291,298
Deferred financing costs................................... (13,568) -- (6,991)
Proceeds from capital subscriptions receivable............. -- -- 282,441
Payment of accrued capital raising costs................... -- -- (2,400)
Sale of ordinary partnership interests..................... 2,846 19,843 349,388
Sale of redeemable preferred partnership interests to
GTL...................................................... 339,775 -- 639,275
Distributions on redeemable preferred partnership
interests................................................ (17,980) (5,037) (58,000)
Prepaid interest on redeemable preferred partnership
interests................................................ -- -- 47
Borrowings under long-term revolving credit facility....... 75,000 -- 246,000
Repayment of borrowings under long-term revolving credit
facility................................................. (75,000) -- (246,000)
--------- --------- -----------
Net cash provided by financing activities.............. 611,073 302,358 2,888,957
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents........ 114,604 (227,858) 171,343
Cash and cash equivalents, beginning of period.............. 56,739 464,154 --
--------- --------- -----------
Cash and cash equivalents, end of period.................... $ 171,343 $ 236,296 $ 171,343
========= ========= ===========
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............. $ 141,000 $ 163,601
========= ===========
Accretion to redemption value of preferred partnership
interests................................................ $ 339 $ 351 $ 4,279
========= ========= ===========
Ordinary partnership interests distributed upon conversion
of redeemable preferred partnership interests and related
dividend make-whole payment.............................. $ 5 $ 320,250 $ 320,255
========= ========= ===========
Warrants issued to China Telecom to acquire ordinary
partnership interests.................................... $ 31,917 $ 31,917
========= ===========
Dividends accrued.......................................... $ 3,500 $ 3,500
========= ===========
Supplemental Information:
Interest paid.............................................. $ 113,502 $ 93,348 $ 310,422
========= ========= ===========
</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 nine months ended
September 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."
On October 11, 1999, the Company announced a phased roll-out of service in
regions of the world covered by its first nine gateways. By the end of 1999,
Globalstar expects to have a total of nine gateways in operation. All of the 38
gateways on order have been manufactured and are ready for installation.
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
partnership interest. Due to Globalstar's net losses for the three and nine
months ended September 30, 1999 and 1998, diluted weighted average ordinary
partnership interests outstanding excludes the weighted average effect of the
assumed conversion of the 8%
10
<PAGE> 12
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Redeemable Preferred Partnership Interests ("RPPI's") into 3.8 million and 3.5
million ordinary partnership interests for the three and nine months ended
September 30, 1999, and the assumed issuance of ordinary partnership interests
upon exercise of GTL's outstanding options and warrants into 5.2 million and 2.4
million ordinary partnership interests for the three months ended September 30,
1999 and 1998, respectively, and into 3.4 million and 2.8 million ordinary
partnership interests for the nine months ended September 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 2.1
million ordinary partnership interests for the nine months ended September 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 nine months ended
September 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
During 1999, Globalstar incurred $509 million for the design, construction
and deployment of the space and ground segments ("System Cost"), $153 million
for capitalized interest (including $26 million of non-cash interest), and $139
million of pre-operating losses. Through September 30, 1999, Globalstar incurred
costs of $2.59 billion for the System Cost, $438 million for capitalized
interest (including $82 million of non-cash interest) and $546 million of
pre-operating losses. Globalstar's estimated costs through December 31, 1999,
are $2.66 billion for the System Cost, $490 million for capitalized interest
(including $100 million of non-cash interest) and $677 million of pre-operating
losses. In addition, further expenditures on system software for the improvement
of system functionality beyond those planned for the start of service, for an
additional eight spare satellites (for which the cost and payment terms have not
been finalized with Space Systems/Loral, Inc., a subsidiary of Loral) and
financing that Globalstar is providing to the service providers for the purchase
of gateways, fixed access terminals and handsets, are estimated to be $493
million, of which $149 million has been incurred as of September 30, 1999 and
$220 million is expected to be incurred as of December 31, 1999. However,
Globalstar expects to receive $231 million from the service providers, as
repayment of financing provided to them for the purchase of gateways, fixed
access terminals and handsets. Net funds raised or committed through September
30, 1999 total $4.2 billion, including $500 million of vendor financing from
Qualcomm (of which the last $100 million will be drawn during 2000), for which
the terms of $400 million are still being finalized. In consideration for the
additional vendor financing, Qualcomm is expected to receive warrants to
purchase Globalstar partnership interests similar to that received by Loral (see
Note 8). Of the total net funds raised or committed through September 30, 1999,
$250 million must be repaid as early as June 30, 2000, unless it is extended or
refinanced. Additional financing will be required if service revenues are
insufficient to cover cash interest and operating costs estimated to be
approximately $125 million per quarter. 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.
11
<PAGE> 13
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PAYABLES TO AFFILIATES
Payables to affiliates is comprised of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Qualcomm................................... $301,275 $120,606
SS/L....................................... 96,292 92,242
Other affiliates........................... 7,944 3,694
-------- --------
$405,511 $216,542
======== ========
</TABLE>
6. VENDOR FINANCING LIABILITY
At September 30, 1999, the long term 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 continue to defer commencement
of repayment of the $90 million (see Note 4).
7. ORDINARY PARTNERS' CAPITAL
8% Redeemable Preferred Partnership Interests
On January 21, 1999, Globalstar sold to GTL seven 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.
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 September 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.
12
<PAGE> 14
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GTL's equity securities and convertible securities are represented by
equivalent Globalstar partnership interests on an approximate four-for-one
basis.
8. CREDIT FACILITY
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. As of September 30, 1999, Globalstar had drawn down the $300 million
Term Loan B. On November 12, 1999, Globalstar drew down the $100 million Term
Loan A.
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 stock of the
guarantors and the Telstar 6 and Telstar 7 satellites. 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 13.8 million 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 the following Management's Discussion and Analysis of Results of
Operations and Financial Condition of the Company are not historical facts, but
are "forward-looking statements," as that term is defined in the Private
Securities Litigation Reform Act of 1995. In addition, the Company or its
representatives have made and may continue to make forward-looking statements,
orally or in writing, in other contexts, such as in reports filed with the SEC,
press releases or statements made with the approval of an authorized executive
officer of the Company. These forward-looking statements can be identified by
the use of forward-looking terminology such as "believes," "expects," "plans,"
"may," "will," "would," "could," "should," "anticipates," "estimates,"
"project," "intend," or "outlook" or the negative of these words or other
variations of these words or other comparable words, or by discussion of
strategy that involve risks and uncertainties. These forward-looking statements
are only predictions, and actual events or results may differ materially as a
result of a wide variety of factors and conditions, many of which are beyond
Globalstar's and/or GTL's control. Some of these factors and conditions include:
(i) the harshness of the space environment in which Globalstar's satellites
operate; (ii) governmental or regulatory changes; (iii) access to scarce launch
vehicle resources and risk of launch failures; (iv) as a development-stage
company Globalstar may continue to lose money, have negative cash flow, require
additional money and suffer delays in meeting its targets; (v) severe
competition in our industry; and (vi) Globalstar owes significant amounts of
money. For a detailed discussion of these factors and conditions, please refer
to the periodic reports that Globalstar and GTL file with the SEC. In addition,
Globalstar and GTL operate in an industry sector where securities values may be
volatile and may be influenced by economic and other factors beyond Globalstar's
and/or GTL's control.
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 increased from $56.7 million at December 31, 1998
to $171.3 million at September 30, 1999. The net increase is primarily the
result of the net proceeds from the sale of Globalstar's 8% redeemable preferred
partnership interests ("8% RPPIs") totaling $339.8 million, the proceeds from
the August 5, 1999 credit agreement in the amount of $300.0 million, and
proceeds from the sale of production gateways and user terminals of $18.8
million mostly offset by the net expenditures for the Globalstar System of
$446.8 million, net cash used in operating activities of $65.5 million,
distributions on redeemable preferred partnership interests of $18.0 million and
payment of debt offering costs of $13.6 million.
Current liabilities increased from $401.2 million at December 31, 1998 to
$647.4 million at September 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 affiliates.
On October 11, 1999, the Company announced a phased roll-out of service in
regions of the world covered by its first nine gateways. By the end of 1999,
Globalstar expects to have a total of nine gateways in operation. All of the 38
gateways on order have been manufactured and are ready for installation.
From January 1, to October 31, 1999, Globalstar had nine successful
launches, of four satellites each, aboard a combination of Soyuz and Delta
launch vehicles, bringing the total number of satellites in orbit to 44.
Globalstar had previously launched its first two groups of four satellites each
in 1998. The first 40 Globalstar satellites have reached their final orbital
positions and are currently being used to test system functionality and to
support Service Provider friendly user trials in preparation for the start of
service. Four of the launched satellites are expected to reach their final
orbital positions in December of 1999. As of October 31, 1999, in addition to
the 44 satellites already in orbit, Globalstar had four completed satellites on
hand and four more in final integration and test. Globalstar's current launch
plan includes two launches of four satellites each, using a
14
<PAGE> 16
Soyuz and a Delta rocket. According to the plan, Globalstar will launch a total
of 52 satellites (including four in-orbit spares) by January 2000.
During 1999, Globalstar incurred $509 million for the design, construction
and deployment of the space and ground segments ("System Cost"), $153 million
for capitalized interest (including $26 million of non-cash interest), and $139
million of pre-operating losses. Through September 30, 1999, Globalstar incurred
costs of $2.59 billion for the System Cost, $438 million for capitalized
interest (including $82 million of non-cash interest) and $546 million of
pre-operating losses. Globalstar's estimated costs through December 31, 1999,
are $2.66 billion for the System Cost, $490 million for capitalized interest
(including $100 million of non-cash interest) and $677 million of pre-operating
losses. In addition, further expenditures on system software for the improvement
of system functionality beyond those planned for the start of service, for an
additional eight spare satellites (for which the cost and payment terms have not
been finalized with Space Systems/Loral, Inc., a subsidiary of Loral) and
financing that Globalstar is providing to the service providers for the purchase
of gateways, fixed access terminals and handsets, are estimated to be $493
million, of which $149 million has been incurred as of September 30, 1999 and
$220 million is expected to be incurred as of December 31, 1999. However,
Globalstar expects to receive $231 million from the service providers, as
repayment of financing provided to them for the purchase of gateways, fixed
access terminals and handsets. Net funds raised or committed through September
30, 1999 total $4.2 billion, including $500 million of vendor financing from
Qualcomm (of which the last $100 million will be drawn during 2000), for which
the terms of $400 million are still being finalized. In consideration for the
additional vendor financing, Qualcomm is expected to receive warrants to
purchase Globalstar partnership interests similar to that received by Loral (see
below). Of the total net funds raised or committed through September 30, 1999,
$250 million must be repaid as early as June 30, 2000, unless it is extended or
refinanced. Additional financing will be required if service revenues are
insufficient to cover cash interest and operating costs estimated to be
approximately $125 million per quarter. 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 January 21, 1999, Globalstar sold to GTL seven 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 development, construction and deployment of the
Globalstar System.
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.
15
<PAGE> 17
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. As of September 30, 1999, Globalstar had drawn down the $300 million
Term Loan B. On November 12, 1999, Globalstar drew down the $100 million Term
Loan A.
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 stock of the
guarantors and the Telstar 6 and Telstar 7 satellites. 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 September 30, 1999, Globalstar has recorded cumulative net losses
applicable to ordinary partnership interests of $545.6 million. The net loss
applicable to ordinary partnership interests for the nine months ended September
30, 1999 increased to $138.6 million from $107.4 million for the nine months
ended September 30, 1998. The net loss applicable to ordinary partnership
interests for the three months ended September 30, 1999 increased to $48.2
million from $42.0 million for the three months ended September 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. The increases
for the three and nine months in 1999 would have been higher, if not for the
loss on launch failure of $17.3 million in 1998. 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 $62.7 million on cash balances and
short-term investments since commencement of operations. Interest income was
$4.9 million and $14.3 million for the nine months ended September 30, 1999 and
1998, respectively and $0.8 million and $4.5 million for the three months ended
September 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 nine months ended September
30, 1999 were $78.9 million as compared to $51.9 million for the nine months
ended September 30, 1998. Development costs for the three months ended September
30, 1999 were $21.8 million as compared to $18.3 million for the three months
ended September 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 $42.9 million
from $30.2 million for the nine months ended September 30, 1999 and 1998,
respectively and to $20.1 from $10.8 million for the three months ended
September 30, 1999 and 1998, respectively. Marketing, general and administrative
expenses increased primarily as a result of increased marketing costs in
anticipation of the start of service.
16
<PAGE> 18
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. 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 September 30, 1999, Globalstar has completed 99%
of the Inventory Phase and 96% of the Assessment Phase. Globalstar expects to
complete all phases of its Year 2000 Program during the fourth quarter of 1999,
prior to the anticipated in-service date of Globalstar.
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 September 30, 1999
for this effort were approximately $1.2 million. Based on its efforts to date,
Globalstar anticipates additional incremental expenses of approximately $140,000
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 during the fourth quarter of 1999. The
Company believes that adequate time will be available to ensure that its
contingency plans are 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 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, the ability of
vendors to meet specific commitments 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. Ongoing assessments are made by
Globalstar regarding the Year 2000 readiness of its key third-party suppliers.
Information requests are distributed to such suppliers and replies are
evaluated. When the risk is deemed material, on-site visits to suppliers are
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
ITEM 5. OTHER EVENTS
On October 28, 1999, the Company announced that Dr. Gregory J. Clark would
leave his position as Vice Chairman effective December 1, 1999.
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
<TABLE>
<CAPTION>
DATE OF REPORT DESCRIPTION
-------------- -----------
<S> <C>
August 5, 1999 Item 5 -- Other Events Globalstar Credit Agreement
</TABLE>
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
Vice President and Chief Financial
Officer
(Principal Financial Officer)
and Registrant's Authorized Officer
Date: November 12, 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>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Earnings:
Net loss................................................... $(28,935) $(35,124)
Add:
Equity in loss applicable to ordinary partnership
interests of Globalstar, L.P..................... 48,244 35,124
Interest expense...................................... 2,510 22,197
-------- --------
Earnings available to cover fixed charges(1)............... $ 21,819 $ 22,197
======== ========
Fixed charges(2)........................................... $ 21,819 $ 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>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Net loss................................................... $(116,808) $ (85,175)
Dividends on redeemable preferred partnership interests.... (21,819) (22,197)
Capitalized interest....................................... (153,293) (130,706)
--------- ---------
Deficiency of earnings to cover fixed charges and
distributions on redeemable preferred partnership
interests................................................ $(291,920) $(238,078)
========= =========
</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
NINE MONTHS ENDED SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 878,644
<CURRENT-LIABILITIES> 3,500
<BONDS> 0
0
340,109
<COMMON> 82,196
<OTHER-SE> 452,839
<TOTAL-LIABILITY-AND-EQUITY> 878,644
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,510
<INCOME-PRETAX> (28,935)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28,935)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,244)
<EPS-BASIC> (0.59)
<EPS-DILUTED> (0.59)
</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 NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001037927
<NAME> GLOBALSTAR LP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 171,343
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 302,399
<PP&E> 3,061,045
<DEPRECIATION> 5,672
<TOTAL-ASSETS> 3,570,111
<CURRENT-LIABILITIES> 647,359
<BONDS> 1,697,070
0
340,109
<COMMON> 609,146
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,570,111
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 121,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (116,808)
<INCOME-TAX> 0
<INCOME-CONTINUING> (116,808)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (138,627)
<EPS-BASIC> (2.38)
<EPS-DILUTED> (2.38)
</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>
SEPTEMBER 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.
See notes to condensed balance sheets.
<PAGE> 2
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED BALANCE SHEETS
1. The unaudited interim financial information as of September 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 September
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 September 30, 1999, suspended losses
representing LQSS's unrecognized equity in Globalstar's net losses aggregated
approximately $150,827,000.
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.
In August 1999, Globalstar issued Loral and certain subsidiaries of Loral
warrants to purchase an aggregate of 3,450,000 Globalstar partnership interests
at an exercise price of $91.00 per partnership interest. The warrants were
issued in consideration for the guarantee by Loral and such subsidiaries under a
$500 million credit agreement entered into by Globalstar. Assuming all reserved
interests had been issued at September 30, 1999, and the assumed exercise of
outstanding options and warrants into 6.5 million Globalstar ordinary
partnership interests, LQSS's direct interest in Globalstar's ordinary
partnership interests would have decreased to 26.3%.
<PAGE> 1
EXHIBIT 99.2
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 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.
See notes to condensed balance sheets.
<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 September 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. CREDIT FACILITY
In August 1999, Globalstar completed a $500 million credit facility with
Bank of America. GCC is a guarantor of the credit facility.
