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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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, CALIFORNIA 95134
TELEPHONE: (408) 933-4000
COMMISSION FILE NUMBER: 333-25461
JURISDICTION OF INCORPORATION: DELAWARE
IRS IDENTIFICATION NUMBER: 13-3759024
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
GLOBALSTAR TELECOMMUNICATIONS LIMITED NASDAQ NATIONAL MARKET
COMMON STOCK, $1.00 PAR VALUE
</TABLE>
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.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants'
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
As of March 15, 2000, there were 96,900,599 shares of Globalstar
Telecommunications Limited common stock outstanding, and the aggregate market
value of such shares (based on the closing price on the Nasdaq National Market)
held by non-affiliates of Globalstar Telecommunications Limited was
approximately $1.4 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Globalstar Telecommunications Limited's 2000 definitive proxy
statement (to be filed no later than 120 days after the end of the registrants'
fiscal years) are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
THE COMPANY
OVERVIEW
On November 23, 1994, Globalstar Telecommunications Limited ("GTL" or "the
Company") was incorporated as an exempted company under the Companies Act 1981
of Bermuda. On February 14, 1995, GTL completed an initial public offering of
40,000,000 shares of common stock. Effective February 22, 1995, GTL purchased
10,000,000 ordinary partnership interests from Globalstar, L.P. ("Globalstar"),
a development stage limited partnership. At December 31, 1999, GTL owned
approximately 36.6% of Globalstar's outstanding ordinary partnership interests
and 100% of the outstanding 8% convertible redeemable preferred partnership
interests ("8% RPPIs") and 100% of the outstanding 9% convertible redeemable
preferred partnership interests ("9% RPPIs") of Globalstar, and its sole
business is acting as a general partner in Globalstar.
Globalstar was founded by Loral Space & Communications Ltd. ("Loral"), a
Bermuda company, and QUALCOMM Incorporated ("Qualcomm"). Globalstar is a
Delaware limited partnership whose managing general partner is Loral/QUALCOMM
Satellite Services, L.P. ("LQSS"); the general partner of LQSS is Loral/QUALCOMM
Partnership, L.P. ("LQP"), a Delaware limited partnership, the partners of which
are subsidiaries of Loral and Qualcomm. The managing general partner of LQP is
Loral General Partner, Inc., a subsidiary of Loral. As of December 31, 1999,
Loral owned approximately 41% of Globalstar.
Globalstar has selected strategic partners whose marketing, operating and
technical expertise will enhance Globalstar's capabilities. These partners are
playing key roles in the construction, operation and marketing of the Globalstar
system. Globalstar's founding partners are Loral and Qualcomm, the leading
supplier of code division multiple access, also known as CDMA, digital
telecommunications technology. Globalstar's other strategic partners are:
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TELECOMMUNICATIONS TELECOMMUNICATIONS EQUIPMENT AND
SERVICE PROVIDERS AEROSPACE SYSTEMS MANUFACTURERS
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- - Vodafone AirTouch - Alcatel
- - China Telecom (Hong Kong) Group Ltd. - Alenia Spazio S.p.A
- - Dacom Corporation - DaimlerChrysler Aerospace A.G.
- - Elsacom - Hyundai Electronics Industries Co.
- - TE.SA.M Ltd.
- Space Systems/Loral, Inc.
- QUALCOMM Incorporated
</TABLE>
Under Globalstar's agreements with its service providers, these partners
are the exclusive providers of Globalstar service within their assigned
territory and will retain their exclusivity as long as they meet minimum
performance goals. Under these agreements, Globalstar acts as a wholesaler of
capacity on its space segment to its service providers. Globalstar has assigned
the largest service territories to its founding strategic partners, including
France Telecom, Vodafone AirTouch, ChinaSat, Elsacom and Dacom.
RECENT DEVELOPMENTS
In the first quarter of 2000, Globalstar service providers commenced
commercial service and as of February 29, 2000, there were 14 gateways available
for service covering 78 countries, and Globalstar began its transition from a
development stage entity to an operating limited partnership.
In February 2000, GTL sold 8,050,000 shares of common stock in a public
offering. The purchase price was $35 per share, yielding net proceeds of
approximately $268.5 million to the Company. GTL used the proceeds to purchase
1,987,654 ordinary partnership interests in Globalstar. Globalstar plans to use
the proceeds for general corporate purposes, including the acceleration of
Globalstar's roll-out through increased support of service provider marketing
activities and the funding of promotional discounts; the development of new
features; or potential repayment of debt.
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On February 8, 2000, Globalstar successfully launched four satellites
aboard a Delta 2 rocket, bringing the total number of satellites in orbit to 52.
This launch completes Globalstar's launch campaign, with a constellation of 48
satellites and four in-orbit spares.
BUSINESS SEGMENT
Globalstar operates in one industry segment, global mobile telephone
service.
BUSINESS
OVERVIEW
Globalstar owns and operates a satellite constellation that forms the
backbone of a global telecommunications network designed to serve virtually
every populated area of the world. Globalstar's worldwide, low-earth orbit
("LEO") satellite-based digital telecomminications system (the "Globalstar(TM)
System"), uses Qualcomm's patented CDMA technology to provide high-quality
mobile and fixed telephone service to customers who live, work or travel beyond
the reach of adequately developed communications networks. Qualcomm has agreed
that Globalstar will be the only provider of mobile satellite services to which
it will license its patented CDMA technology.
The Globalstar System is designed to offer a cost-effective communications
solution for areas underserved or unserved by existing telecommunications
infrastructures. Globalstar mobile phones are simple to use -- just like
ordinary cellular telephones -- and are among the smallest, lightest and least
expensive satellite phones currently available. These phones are multimode,
functioning as cellular phones where terrestrial cellular service is available
and as satellite phones where cellular service is not available. Globalstar
phones provide this multimode capability without separate modules or plug-ins.
Globalstar pay phones and fixed wireless phones for business and residential use
provide basic telephone service in rural villages and at remote industrial and
residential sites.
Globalstar phones have familiar features such as phone book, voicemail,
short messaging service, and, in some service areas, call forwarding. Globalstar
plans to introduce additional features this year, including data calls, Internet
access through data packet switching, email and fax capability, caller ID and
position location. Globalstar's utilization of Qualcomm's CDMA technology should
enable it to swiftly adopt future improvements as this industry-leading wireless
technology evolves. In addition, because the intelligence of the Globalstar
system is located on the ground, future enhancements are easily implemented.
Globalstar's full constellation has been launched and all satellites are
performing normally. Based on our experience to date, we expect Globalstar
satellites to have a useful life of 10 years, rather than our original
expectation of 7 1/2 years. The Globalstar satellites use a simple, traditional
"bent pipe" design, amplifying and reflecting received signals directly back to
earth, with no intersatellite links. Gateways owned and operated by Globalstar
service providers then connect customer calls through the existing public
telephone network. As a result, the Globalstar System will complement and
extend, rather than bypass, the existing telephone network infrastructure.
According to industry sources, more than 80% of the world's land mass is
not covered by cellular service. Globalstar believes, based on market research,
that its addressable market -- those who live, work or regularly travel to areas
underserved or unserved by existing telecommunications infrastructure and who
desire and have the ability to pay for telephone service such as that offered by
Globalstar -- is approximately 40 million potential customers. We expect that
Globalstar's first generation system will have a system capacity of
approximately 7 million subscribers, less than one fifth of Globalstar's
potential addressable market. In fact, because of the limited spectrum available
for use by mobile satellite services like Globalstar, the combined capacity of
Globalstar and the other existing and announced mobile satellite service systems
are capable of serving only a portion of this market.
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Globalstar's original consortium of 12 leading international
telecommunications service providers and manufacturers has grown into an
international organization with marketing channels in 131 countries and
agreements with over 220 local service providers. Globalstar-supported
cooperative advertising is creating brand awareness globally and within selected
market segments, while sales channels are focused both on the mass market as
well as targeted market segments, including:
- government, including police, emergency and military users;
- commercial freight and fishing vessels, cruise ships and recreational
boats;
- truck drivers and business travelers;
- the forestry, mining, oil and gas and other natural resource industries;
- wilderness guides and outdoor enthusiasts;
- agribusiness; and
- utilities.
Globalstar's service providers have an existing customer base of more than
100 million cellular customers from which they intend to identify for direct
marketing efforts those who work in, or frequently travel to, or through, areas
without cellular service.
Loral and Qualcomm founded the Globalstar project in 1991 when they merged
their visions of creating a low-earth-orbit satellite-based global
telecommunications system. This partnership brought together Loral, one of the
world's premier satellite systems manufacturers, and Qualcomm, the pioneer of
CDMA telecommunications technology, the spectrum-efficient, high-quality
protocol that has since become an important wireless industry standard
worldwide.
Globalstar was formed in 1994. Subsequently, manufacturers such as Alcatel,
Alenia and Daimler-Benz, as well as service providers including France Telecom,
Vodafone AirTouch, ChinaSat, Elsacom and Dacom, joined as strategic partners.
Globalstar assigned large territories to its strategic partners as part of their
initial investments in the project. Within these territories, these partners are
the exclusive providers of Globalstar service and will retain their exclusivity
as long as they meet minimum performance goals. Under these agreements,
Globalstar acts as a wholesaler of capacity on its space segment to its service
providers, who will pay on average approximately $0.47 per minute of usage.
In 1995, Globalstar received a license from the Federal Communications
Commission (the "FCC") to construct and launch its satellite constellation and
thereafter completed its initial public offering. Globalstar began its satellite
launch campaign in 1998, launching 52 satellites by February 2000.
In the first quarter of 2000, the Globalstar system commenced commercial
operations and as of February 29, 2000 there were 14 gateways available for
service covering 78 countries. By the end of 2000, we expect 27 or more gateways
to be available for service, covering approximately 131 countries.
As of February 29, 2000, service providers were providing billable service
in 20 countries, including Austria, Argentina, Brazil, Canada, Greece, Italy,
South Korea, Switzerland and the United States. By the end of 2000, a total of
approximately 120 countries are expected to be in billable operations.
SERVICE LAUNCH ACTIVITIES
Globalstar's strategy has been to use its experienced telecommunications
service provider partners to provide a marketing organization with depth and
expertise in each local market that the system serves. These service provider
partners have begun intensive marketing campaigns and are adopting multifaceted,
locally oriented strategies to serve their markets. A number of Globalstar
service providers recently agreed in principle to make advance purchases of
Globalstar airtime for approximately $20 million, after giving effect to a 25%
promotional discount.
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A recent understanding among all the principal Globalstar service providers
should result in a uniform retail pricing structure for Globalstar service
throughout most of the world. Although service providers will retain flexibility
to meet local conditions, domestic Globalstar calls will on average cost between
$1.00 and $1.50 per minute. The total cost of most international calls,
including third party costs of connection through the public network, will
generally be between $1.50 and $2.99 per minute, depending upon distance and
local competitive factors.
Globalstar and the Globalstar service providers spent approximately $12
million on brand-building advertising in 1999 and plan to spend an additional
$55 million in 2000, of which $20 million will come from service providers as
contributions to a cooperative advertising program.
In most local markets they serve, the service providers have created
partnerships with local cellular carriers to support the terrestrial cellular
capabilities of our multimode phones and established distribution networks
appropriate to the markets in question. This means that responsibility for
selling Globalstar service in nearly every one of its markets will rest with
distributors with extensive experience with the relevant local market conditions
and regulatory environments. Globalstar's service providers will also be in a
position to market Globalstar service to their current customer base of more
than 100 million cellular subscribers alongside their existing products and
services.
Globalstar's service providers intend to adapt their marketing efforts to
the needs, characteristics and opportunities within each of the markets in which
they operate. In some cases, this will mean making phones available through the
same sales channels used to market cellular service to consumers. In other
cases, they will use industry-specific sales channels to address high-demand
market segments.
Globalstar service providers have identified a number of key segments of
the addressable marketplace characterized by early expressions of interest in
obtaining the service and by the potential for heavy usage of satellite airtime
estimated to range between several hundred and 1,000 minutes per phone per
month. These include:
Government. Because of its security, clarity, reliability and
ubiquity, Globalstar service meets the needs of military, law enforcement
and emergency response users, such as fire and ambulance services. During
Globalstar's user trials, one of its service providers responded to a
request from the Italian government to supply phones to support their
peacekeeping units in Kosovo. Globalstar service providers have also
provided phones for use in France, when high winds toppled cellular towers.
Maritime. Globalstar service is or will be available in the coastal
and inland waterways where most maritime traffic is focused, as well as
over many trans-oceanic routes, such as the North Atlantic. Globalstar
maritime phones, which will be available in commercial quantities in the
second quarter of 2000, will offer a compact, cost-effective, high-quality
alternative to existing maritime satellite services. Commercial freight and
fishing vessels and private boats will be important markets for Globalstar.
Cruise lines will be of particular interest, because of the potential for
high-volume usage of multiple on-board phones by passengers who need to
address business or family needs.
Transportation. Truck drivers have a continuous need to contact
dispatchers and destinations, and need to react to changing business
demands and weather conditions. In the developing world, neither cellular
service nor pay phones are available for vast portions of frequently
traveled routes. Even in the United States, only 50% of the land mass is
covered by cellular service. Business travelers in such areas have similar
requirements, which our service providers hope to address quickly by
equipping rental cars and corporate fleets.
Natural Resources. We believe that there is substantial unmet demand
for telecommunications services to support the field operations of the
forestry, mining, oil and gas and other natural resource industries. Most
of these operations take place in remote locations where a large, permanent
telecommunications infrastructure is uneconomic.
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Outdoor Enthusiasts. Our service providers hope to make Globalstar
phones part of the basic equipment of wilderness guides and outfitters,
addressing the growing market for adventure and eco-tourism, as well as the
hunting, fishing and mountaineering markets.
Agribusiness. Large plantations, ranches and other agricultural
businesses in countries like Australia, Brazil and Argentina typically lie
beyond the range of current or planned cellular service, and should find
Globalstar service valuable to coordinate their operations.
Utilities. Utility companies worldwide need to maintain right-of-way
across long distances in territories that are often vast and remote.
Globalstar phones will enable them to monitor and deploy their resources
more efficiently.
Globalstar's service providers have an existing customer base of more than
100 million cellular customers from which they intend to identify for direct
marketing efforts those who work in, or frequently travel to, or through, areas
without cellular service.
THE GLOBALSTAR SYSTEM
The Globalstar system consists of a space segment, owned by Globalstar, a
ground segment, owned by Globalstar's service providers, and a user segment,
comprised of the telephones owned or leased by end users.
Satellite Constellation. The Globalstar space segment consists of:
- 52 low-earth-orbit satellites, including four spares, currently in orbit
and functional;
- Eight additional on-ground spare satellites that are being constructed;
and
- Two state-of-the art satellite and network operations control centers.
Globalstar's launch campaign is now complete. The satellites in orbit have
experienced no material anomalies, and, based upon our experience, their
estimated life has been raised to 10 years, a 33% increase over our original
expectation of 7 1/2 years. This reflects both the manufacturing and systems
integration skills of Space Systems/Loral and the other contractors involved,
and Globalstar's simple, bent-pipe satellite design. This technology choice kept
the satellites simple and inexpensive, with the intelligence of the system
accessible on the ground in the Globalstar gateways and control centers.
The design of Globalstar's orbital planes keeps two to four satellites
overhead at all times from any point on the earth's surface, other than for the
northern and southern latitudes. Space Systems/Loral's patented system design
works with Qualcomm's CDMA technology to permit dynamic selection of the
strongest signal available from all satellites in view, a technique we refer to
as path diversity, resulting in superior call clarity and a low incidence of
dropped calls. As the satellites and the user change positions, satellites are
added and dropped seamlessly from the call.
Gateways. Globalstar satellites relay calls to earth through Globalstar
gateways, which in turn connect the calls through the existing public telephone
network. As a result, the Globalstar system will complement and extend, rather
than bypass, the existing telephone network infrastructure. Gateway facilities
include large antennas that send and receive signals to and from the satellites,
sophisticated call processing equipment that connects calls to the local public
telephone network and the software that implements the system's features and
supports billing. These facilities, designed and manufactured by Qualcomm, are
owned and operated by the Globalstar service providers.
Each gateway serves a large geographic area. For example, three gateways
will together cover the United States and Canada from Anchorage to Florida and
San Diego to Newfoundland. Qualcomm has manufactured and shipped 38 gateways,
which, when installed, will provide coverage of approximately 80% of the world's
land mass. Gateway field testing began in October 1998, with hundreds of test
calls passing through each installed gateway daily.
As of February 29, 2000, 22 gateways have been installed, of which 14 were
available for service covering 78 countries. The remaining eight installed
gateways are in the commissioning and testing process. By the end
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of 2000, Globalstar expects to have 27 or more of these gateways available for
service, covering approximately 131 countries.
Globalstar service providers have, or expect to have, full local regulatory
approval to commence service as soon as their gateways become operational. Their
technical personnel have received training from Qualcomm on the operation and
maintenance of the gateways and will receive continuous support from the
system's network operations control centers.
Globalstar Phones. Globalstar supports handheld mobile phones, pay phones,
fixed phones for business and residential use and car and maritime adapter kits.
Globalstar mobile phones are as simple to use as ordinary cellular telephones
and are among the smallest, lightest and least expensive satellite phones
currently available. Globalstar phones are multimode and function as cellular
phones where terrestrial cellular service is available and as satellite phones
where cellular service is not available. Globalstar phones provide this
multimode capability without separate modules or plug-ins. The same Globalstar
phone will work anywhere in the world that is served by a Globalstar gateway.
Globalstar phones have familiar features such as phone book, voicemail,
short messaging service, and, in some service areas, call forwarding. Globalstar
plans to introduce additional features this year, including data calls up to
9600 bits per second, Internet access through data packet switching, email and
fax capability, caller ID and position location. Globalstar's utilization of
Qualcomm's CDMA technology should enable it to swiftly adopt future improvements
as this industry-leading wireless technology evolves.
Three manufacturers produce mobile phones for Globalstar: Qualcomm,
Ericsson and Telit. Qualcomm offers a tri-mode unit, that works on AMPS (the
analog standard), CDMA digital and Globalstar. The Ericsson and Telit phones
support both Globalstar and the digital cellular GSM protocol currently used
throughout Europe and in many other countries.
These manufacturers are expected to have an aggregate production capability
of up to 39,000 phones per month by May 2000, 46,000 by June 2000, and 60,000 by
the third quarter of 2000. The manufacturers have informed us, moreover, that
they have the capability of rapidly multiplying these production rates if
warranted by demand, by adding additional shifts or by opening additional
production lines. We expect mobile phones generally to retail for between $1,300
and $1,500, and fixed phones for approximately $2,500. A plan is currently being
discussed with the manufacturers and service providers which would reduce the
retail price of the mobile phone by approximately $400.
Globalstar pay phones and fixed wireless phones for business and
residential use provide basic telephone service in rural villages and at remote
industrial and residential sites. Qualcomm and Ericsson are producing fixed
Globalstar phones for areas without wireline telephone service. These pay phones
are commercially available and are able to accommodate tokens, debit and credit
cards.
EXPENDITURES AND COMMITMENTS
Globalstar expects to spend $325 million on system software, for eight
additional spare satellites and for financing that Globalstar is providing to
the service providers for the purchase of gateways, fixed access terminals and
handsets (of which $231 million is expected to be received from the service
providers as repayment of such financing). In addition, cash interest, preferred
dividends and operating costs are expected to be approximately $125 million per
quarter in 2000. Globalstar raised $268.5 million through the sale of equity
interests in February 2000. Globalstar believes that its cash on hand ($329
million at February 29, 2000), available credit under its two bank facilities
and vendor financing arrangements (approximately $425 million at February 29,
2000), service revenues and other anticipated cash inflows will be sufficient to
fund its cash outflows for 2000, provided that its $250 million credit facility
is renegotiated. If Globalstar cannot renegotiate its $250 million credit
facility, it believes it will be able to obtain additional funds. There can be
no assurance, however, that such funds will be available on favorable terms or
on a timely basis, if at all.
Qualcomm Incorporated ("Qualcomm") has agreed to provide Globalstar $500
million of vendor financing (for which the terms of $400 million are still being
finalized). In connection with this agreement,
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Qualcomm is expected to receive warrants to purchase Globalstar partnership
interests comparable to those received by Loral pursuant to Loral's guarantee of
Globalstar's $500 million credit facility (see Liquidity and Capital Resources).
Globalstar, a development stage company, has incurred costs (excluding
depreciation and amortization) of $182 million, $145 million and $87 million for
the years ended December 31, 1999, 1998 and 1997, respectively. Globalstar had
total assets of $3.8 billion, $2.7 billion and $2.1 billion as of December 31,
1999, 1998 and 1997, respectively.
QUALITY ASSURANCE
Each element of the Globalstar System, as well as the system as a whole,
has been subjected to rigorous and extensive testing. The satellites have been
tested in orbit since February 1998, with the first over-the-air phone call made
in May 1998. Over 10,000 test calls per day pass though Globalstar's San Diego
test-bed gateway alone, with well over one million test calls made over the
system to date. The system's overall performance meets or exceeds all
specifications, even with the satellite beam loaded to full projected capacity,
and end-to-end testing has assured us that all system elements work together
under a wide variety of usage conditions. Call completion rates exceed 90%, with
excellent voice quality. Calls lasting more than one hour confirm the
effectiveness of the system's soft hand-off from satellite to satellite.
CUSTOMER CARE
Globalstar's service providers bring sophisticated, experienced customer
care organizations to the Globalstar System from their existing wireless
operations, and Globalstar is building on that core capability in several ways.
Globalstar has established a program to train the personnel at both the service
provider and distributor level who in turn will train the representatives who
will interface with customers in their respective organizations. One hundred ten
people have already graduated from these programs. Globalstar has also
established a central customer support center in San Jose, California accessible
to service providers by phone or through its secure web site.
REGULATION
United States FCC Regulation. The FCC is the United States agency with
jurisdiction over commercial uses of the radio frequency spectrum. All
commercial mobile satellite services ("MSS") systems such as Globalstar must
obtain an authorization from the FCC to provide MSS services in assigned
spectrum segments in the United States. The FCC may also adopt from time to time
rules applicable to MSS systems, which may impose constraints on the operation
of Globalstar satellites, subscriber terminals and/or gateway earth stations.
The Globalstar System requires regulatory authorization for two pairs of
frequencies: user links (from the user to the satellites, and vice versa) and
feeder links (from the gateways to the satellites, and vice versa). On January
31, 1995, the FCC authorized the construction, launch and operation of the
Globalstar System and assigned bands of the radio frequency spectrum for the
user links. A modification of this authorization on November 19, 1996 assigned
feeder link frequencies. This license is held by L/Q Licensee, a subsidiary of
Loral Qualcomm Partnership, L.P. ("LQP") which has agreed to use the FCC license
exclusively for the benefit of Globalstar. The FCC license grants authority to
construct, launch and operate the Globalstar System with user links in the 1.6
and 2.4 GHz bands, consistent with the United States band plan for MSS Above 1
GHz Systems, and feeder link frequencies in the 5 and 7 GHz bands. These feeder
link frequencies were allocated internationally for non-geostationary MSS feeder
links at the 1995 World Radiocommunication Conference, and the FCC assigned them
for use by Globalstar in the United States in accordance with this international
allocation. However, use of the feeder link frequencies remains subject to any
applicable restrictions, which may be promulgated in an FCC proceeding to adopt
the international allocations into the U.S. Table of Frequency Allocations. The
FCC initiated such a proceeding on August 4, 1998.
LQP's MSS application was one of six considered concurrently by the FCC. On
January 31, 1995, Motorola Satellite Communications, Inc. and TRW Inc. also were
granted FCC licenses for systems providing
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MSS Above 1 GHz Service. One of the three remaining applicants withdrew and, on
June 30, 1997, the applications of Mobile Communications Holdings, Inc. ("MCHI")
and Constellation Communications, Inc. ("Constellation") were granted. The FCC
staff's decisions granting these licenses to MCHI and Constellation have been
appealed to the full FCC, and these appeals remain pending. Subsequently, in
January 1998, TRW voluntarily returned its MSS Above 1 GHz authorization to the
FCC for cancellation.
The FCC license only authorizes the construction, launch and operation of
the Globalstar System's satellite constellation. Separate authorizations must be
obtained from the FCC for operation of gateways and Globalstar phones in the
United States. AirTouch, the exclusive Globalstar service provider in the United
States, has received a license for the Texas gateway, and its application for a
license for Globalstar phones has been granted, although a petition for
reconsideration remains pending. One of Globalstar's three manufacturers has
obtained equipment authorization for Globalstar phones. Applications by the
other two are pending.
Globalstar operates on an international basis, but the FCC license only
authorizes construction and launch of the system for operation in the United
States. Even though the Globalstar System is licensed to operate in the United
States by the FCC, in order to provide MSS service in other countries,
Globalstar or its service providers must obtain the required regulatory
authorizations in those countries. There can be no assurance that the required
regulatory authorizations will be obtained in every country in which Globalstar
proposes to operate, or that they will be obtained in a timely manner, or that,
if granted, they will authorize MSS service on the same terms as the U.S.
license. Failure or delay in obtaining licenses for the Globalstar System in
other countries or grant of licenses on substantially different terms and
conditions would have an adverse effect on the operation of Globalstar.
The operation of Globalstar in the assigned user links and feeder links
must be coordinated with licensees of other existing radio services operating in
these bands in accordance with FCC and international rules and policies. Such
coordination may adversely affect the usefulness of the frequencies for
Globalstar operations.
As a CDMA system, Globalstar must coordinate its operations in the United
States with other licensed users in its band. The FCC's band plan provides that
up to four CDMA systems and one TDMA system may be licensed to operate in the
1.6 GHz and 2.4 GHz user links, but the FCC did not adopt specific guidelines
for coordination among licensed systems. L/Q Licensee, MCHI and Constellation
are all authorized to construct their systems using CDMA technology, and so,
must coordinate use of the spectrum assigned for CDMA systems. The FCC has
adopted rules to permit satellite services to be provided within the United
States by satellites authorized by foreign countries. If a foreign satellite
system were authorized to operate in the United States using frequencies
assigned to Globalstar, additional coordination obligations may be required.
In granting the applications of MCHI and Constellation, the FCC noted that
protection requirements imposed upon U.S.-licensed MSS above 1 GHz service
systems for the Russian Glonass aeronautical radionavigation system operating
below 1610 MHz might call into question the premises for the FCC's determination
that five systems can be accommodated in the available spectrum for user uplinks
at 1.6 GHz. It stated that if regulatory measures taken for protection of
Glonass diminish the amount of spectrum available to CDMA systems operating at
1.6 GHz, it would consider whether MCHI and Constellation should bear the
principal burden of any operating constraints. The National Telecommunications
and Information Administration has proposed to the FCC out-of-band emissions
limits for protection of Glonass and Global Positioning System which would be
applicable to mobile earth stations operating in the 1.6 GHz band. These
proposals were incorporated by the FCC into a notice of proposed rulemaking
released March 5, 1999. Globalstar's operations conform with the proposed
limits.
In the orders granting licenses to MCHI and Constellation, the FCC
authorized these two applicants to use the 7 GHz frequencies for feeder
downlinks also assigned to Globalstar. In so doing, the FCC noted that it may
not be feasible for Globalstar, MCHI and Constellation to share the 6875-7075
MHz band. The FCC made the feeder downlink assignments of both MCHI and
Constellation subject to the condition that before commencing operation, MCHI
and Constellation must demonstrate that they can feasibly share the spectrum
with all other persons or organizations with full or conditional authority to
use any part of this band for feeder downlinks in the United States.
Constellation was also authorized to use the same 5 GHz frequencies (5091-
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<PAGE> 10
5250 MHz) as Globalstar for its feeder uplinks. Globalstar must coordinate use
of these feeder link frequencies with those MSS licensees which are authorized
to use the same frequencies.
On January 9, 1997, the FCC adopted rules which make available 300 MHz of
bandwidth in the 5 GHz band, including frequencies from 5150 to 5250 MHz, for
use by unlicensed devices for wireless high speed data services. The FCC adopted
rules which are designed to ensure that these devices do not cause harmful
interference with licensed services using these bands, such as MSS feeder links.
In the November 1996 order modifying the Globalstar license, the FCC stated that
Globalstar gateway earth station licenses may be subject to sharing with
unlicensed transmitters in accordance with rules adopted in this proceeding. On
June 24, 1998, the FCC issued its order on reconsideration affirming its January
1997 decision. However, in its order on reconsideration, the FCC declined to
raise the power limits for these devices. Globalstar believes that the rules, as
adopted, will not have an adverse effect on the usefulness of these bands for
MSS feeder links.
The rules and policies adopted for MSS Above 1 GHz Service in the Order
were challenged in a judicial appeal. The U.S. Court of Appeals for the D.C.
Circuit dismissed the appeal of the FCC's rules on September 3, 1997; the court,
however, left open the possibility of future review of certain aspects of those
rules. In the event that the FCC were to be judicially required to reconsider
its licensing procedures, there is a risk that the FCC would reprocess the MSS
applicants and adopt a different licensing procedure. Under these circumstances,
there can be no assurance that the FCC would not use an auction procedure to
award licenses. If the FCC were to use an auction procedure, there can be no
assurance that Globalstar or its affiliates would be willing or able to outbid
other applicants to obtain a license for the spectrum needed to operate the
Globalstar System. In addition, even if Globalstar or its affiliates were
successful in obtaining an MSS license in the spectrum auction, the increased
cost and expenses incurred in bidding for the license would adversely affect
Globalstar. Three petitions for reconsideration and/or clarification of the
Order regarding issues related to protection requirements for Glonass remain
pending at the FCC.
Applicable statutes and regulations permit a judicial appeal of the grant
of the FCC license in order to seek reversal of the FCC's decision to grant the
license. Petitions for reconsideration and an application for review of the
order granting the Globalstar license were filed and have been denied. Two
judicial appeals of the order resolving these petitions have been filed and
remain pending. There can be no assurance that such appeals will not be granted,
or that the court will take timely action. If such an appeal were successful,
there can be no assurance that on remand the FCC would not decide to deny the
application for the Globalstar System, or that on remand the FCC would take
action on the application in a timely manner.
International Coordination. The Globalstar System proposes to operate in
frequencies which were allocated on an international basis for MSS user links
and MSS feeder links. Globalstar is required to engage in international
coordination procedures with other proposed MSS systems under the aegis of the
International Telecommunications Union ("ITU").
As of March 1, 2000, Globalstar and ICO Global Communications had virtually
completed coordination of their feeder links. Globalstar will also be required
to coordinate the use of its feeder links and any other foreign system which has
similar plans. Both a Russian and a Brazilian LEO MSS system have filed with the
ITU their intention to use the same feeder link spectrum as Globalstar. There
can be no assurance that such coordination will not adversely affect the use of
these bands by Globalstar.
Pursuant to the Intelsat and Inmarsat treaties, international satellite
operators are required to demonstrate that they will not cause economic or
technical harm to Inmarsat or Intelsat and to coordinate with Intelsat and
Inmarsat under obligations imposed on United States satellite systems by
international treaties. Globalstar has successfully completed the required
coordination with both Intelsat and Inmarsat.
Regulation of Service Providers. In order to operate gateway earth
stations, including the user uplink frequency, the Globalstar service provider
in each country will be required to obtain a license from that country's
telecommunications authority. In addition, the Globalstar service provider will
need to enter into appropriate interconnection and financial settlement
agreements with local and interexchange telecommunications providers.
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United States International Traffic in Arms Regulations. The United States
International Traffic in Arms Regulations under the United States Arms Export
Control Act authorize the President of the United States to control the export
and import of articles and services that can be used in the production of arms.
Among other things, these regulations limit the ability to export certain
articles and related technical data to certain nations. The scope of these
regulations is very broad and extends to certain spacecraft, including certain
satellites, associated ground equipment, and technical data. Certain information
involved in the performance of Globalstar's operations may fall within the scope
of these regulations. As a result, Globalstar may have to obtain an export
authorization or restrict access by foreign companies who are Globalstar service
providers to that information.
Other Export Regulation. Globalstar's operations are subject to certain
regulations of the U.S. Treasury Department's Office of Foreign Assets Control
(i.e., financial transactions) and the U.S. Commerce Department's Bureau of
Export Administration (i.e., export of gateways and Globalstar phones). There
can be no assurance that such regulations will not adversely affect or delay
Globalstar's operations.
RESEARCH AND DEVELOPMENT
Globalstar has entered into a contract with Qualcomm whereby Qualcomm is
performing certain development tasks related to the Globalstar System. In
addition, Globalstar is performing certain in-house engineering tasks that are
classified as development costs. Total development costs incurred for the years
ended December 31, 1999, 1998 and 1997 were $94 million, $86 million, and $62
million, respectively.
PATENTS AND PROPRIETARY RIGHTS
In connection with the Globalstar System, Globalstar's design and
development efforts have yielded 26 patents issued and 32 patents pending in the
United States, as well as 22 patents issued and 142 patents pending
internationally for various aspects of communication satellite system design and
implementation of CDMA technology relating to the Globalstar System. Qualcomm
has obtained more than 300 issued patents and more than 800 patents pending in
the United States applicable to Qualcomm's implementation of CDMA. The issued
patents cover, among other things, Globalstar's process of combining signals
received from multiple satellites to improve the signal received and minimize
call fading.
There can be no assurance that any of the pending patent applications by
Globalstar will be issued. Moreover, because the U.S. patent application process
is confidential, there can be no assurance that third parties, including
competitors of Globalstar, do not have patents pending that could result in
issued patents which Globalstar would infringe. In such an event, Globalstar
could be required to redesign its system or satellite, as the case may be, or
pay royalties to obtain a license, which could increase cost or delay
implementation of the system or construction of the satellite, as the case may
be.
FOREIGN OPERATIONS
At December 31, 1999, 1998 and 1997, Globalstar had substantially all of
its long-lived assets located in the United States with the exception of its
in-orbit satellites. See "Certain Factors that May Affect Future
Results -- Globalstar faces risks inherent in foreign operations" and
"-- Globalstar faces special risks by doing business in developing markets and
faces currency risks" for a discussion of the risks related to operating
internationally.
EMPLOYEES
As of December 31, 1999, Globalstar had approximately 320 full-time
employees, none of whom is subject to any collective bargaining agreement.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This annual report on Form 10-K contains forward-looking statement 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
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amended. In addition, from time to time, Globalstar or GTL or their
representatives have made or may make forward-looking statements, orally or in
writing. They can be identified by the use of forward-looking words such as
"believes", "expects", "plans", "may", "will", "should", or "anticipates" or
their negatives or other variations of these words or other comparable words, or
by discussions of strategy that involve risks and uncertainties. Such
forward-looking statements may be included in, but are not limited to, various
filings made by Globalstar 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 or GTL. We warn you that forward-looking
statements are only predictions. Actual events or results may differ materially
as a result of risks that we face, including those presented below. The
following are representative of factors that could affect the outcome of the
forward-looking statements.
THE GLOBALSTAR SYSTEM HAS JUST COMMENCED OPERATIONS AND WE CANNOT PREDICT
CUSTOMER DEMAND FOR THE SERVICE.
Since telephone systems using low-earth orbit satellites are a new
commercial technology, we cannot predict demand for Globalstar's service. The
first company to launch service in this industry, Iridium L.L.C., filed for
bankruptcy in August 1999. More recently, Iridium announced that it was
terminating commercial service on March 17, 2000 and that it was commencing the
process of liquidating its assets. If Globalstar fails to generate sufficient
cash flow from operations through the marketing efforts of its service
providers, it will be unable to fund its operating costs or service its debt.
GLOBALSTAR DEPENDS ON SERVICE PROVIDERS TO MARKET ITS SERVICE AND IMPLEMENT
IMPORTANT PARTS OF ITS SYSTEM AND ON OTHER THIRD PARTIES TO COMPLETE ITS SYSTEM.
Globalstar depends on independent service providers to supply ground
equipment and user terminals and to market Globalstar service in each country
where it plans to operate, and we cannot be sure that these service providers
will be successful. We expect that these service providers will operate in 125
countries, many of which have developing economies. Globalstar's strategy of
focusing on areas that lack basic telephone service exposes it to the risk that
customers in these countries will not be able to afford the service.
Globalstar currently has no service provider for several important regions
and countries, including India, Malaysia, Indonesia, the Philippines and other
parts of Southeast Asia. If Globalstar cannot enlist suitable service providers
in these territories, it will not be able to offer service in those areas.
Globalstar service providers could fail to obtain local partners; acquire,
install or adequately maintain and operate the Globalstar gateways; or obtain
the regulatory licenses needed for service in their countries. If Globalstar is
unable to offer service in any particular region or country, it will not benefit
from the potential demand in that region or country.
Some Globalstar partners and other third parties are building parts of the
Globalstar system. The failure of these partners or other parties to perform as
expected could delay the roll-out of Globalstar's commercial service and
increase Globalstar's costs.
GLOBALSTAR FACES RISKS INHERENT IN FOREIGN OPERATIONS.
Globalstar expects that most of its business will be conducted outside the
United States. International operations are subject to changes in domestic and
foreign government regulations and telecommunications standards, tariffs or
taxes and other trade barriers. Political, economic or social instability or
other developments, including currency fluctuations, could also adversely affect
Globalstar's operations. In addition, Globalstar's contracts may be governed by
foreign law or enforceable only in foreign jurisdictions. As a result,
Globalstar may find it hard to enforce its rights under these agreements if
there is a dispute.
GLOBALSTAR HAS SUBSTANTIAL DEBT THAT CONTAINS COVENANTS RESTRICTING ITS
ACTIVITIES.
Globalstar has $1.45 billion principal amount of senior notes outstanding
as of December 31, 1999. Globalstar also has an undrawn $250 million credit
facility, which it expects to draw down, expiring on June 30, 2000, unless it is
renegotiated. In addition, Globalstar has incurred and expects to incur an
aggregate of approximately $800 million of vendor financing and payment
deferrals, the terms for $400 million of which
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are being finalized. Globalstar established a $500 million credit facility on
August 5, 1999 that is comprised of a $100 million three-year revolving credit
facility, a $100 million three-year term loan and a $300 million four-year term
loan. Payments of principal are required at various times during the existence
of the facility, with the first payment due January 15, 2001. As of December 31,
1999, $400 million of term loans were outstanding under this credit facility.
Globalstar will depend on its cash flow from future operations to service this
debt. Any failure to develop a revenue stream quickly may adversely affect
Globalstar's ability to service these debt obligations.
Covenants contained in the credit agreements, the indentures governing the
senior notes and future debt instruments will limit Globalstar's options for
dealing with business issues. The credit agreements, indentures and future debt
instruments will also limit Globalstar's ability to pay dividends on its
partnership interests. If the credit agreements' guarantees expire, their
financial covenants will impose additional limitations on Globalstar's ability
to incur new debt. We cannot be sure that these restrictions and Globalstar's
debt will not materially and adversely affect Globalstar's ability to finance
its future operations or capital needs or to engage in other business
activities. They may also require Globalstar to issue equity on terms which
dilute our existing shareholders.
A failure to comply with the terms of the credit agreements, the indentures
or other agreements could result in an event of default under those agreements.
This in turn could permit acceleration of the related debt and result in a
default under other debt instruments.
Because GTL is a general partner of Globalstar, GTL is jointly and
severally liable with the other general partner for the recourse debt and other
recourse obligations of Globalstar to the extent Globalstar is unable to pay
such debts.
GLOBALSTAR MAY REQUIRE ADDITIONAL FINANCING.
Globalstar expects to spend $325 million on system software, for eight
additional spare satellites, and for financing that Globalstar is providing to
the service providers for the purchase of gateways, fixed access terminals and
handsets (of which $231 million is expected to be received from the service
providers as repayment of such financing). In addition, cash interest, preferred
dividends and operating costs are expected to be approximately $125 million per
quarter in 2000. Globalstar raised $268.5 million through the sale of GTL common
stock in February 2000. Globalstar believes that its cash on hand ($329 million
at February 29, 2000), available credit under its two bank facilities and vendor
financing arrangements (approximately $425 million at February 29, 2000),
service revenues and other anticipated cash inflows will be sufficient to fund
its cash outflows for 2000, provided that its $250 million credit facility is
renegotiated. If Globalstar cannot renegotiate its $250 million credit facility,
it believes it will be able to obtain additional funds. There can be no
assurance, however, that such funds will be available on favorable terms or on a
timely basis, if at all. In addition, financing in future periods will depend
upon various factors that cannot be predicted or that may be beyond Globalstar's
control, such as funds from operations, repayment of financing provided to the
service providers, the maturity of debt and the ability to refinance.
GLOBALSTAR MAY ENCOUNTER DELAYS AND INCREASED COSTS.
A number of factors may cause delay in Globalstar's achievement of revenues
and positive cash flow. These factors, many of which are beyond Globalstar's
control, include:
- regulatory delays;
- delays in integrating Globalstar's system into the land-based
telecommunications networks;
- delays in constructing additional gateways by service providers;
- delays in integrating or testing the local ground segments of the system
by Globalstar vendors;
- inadequate marketing effort by service providers; and
- slower-than-anticipated consumer acceptance.
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GLOBALSTAR'S SATELLITES HAVE A LIMITED LIFE AND MAY FAIL PREMATURELY.
Globalstar's satellites have performed well in orbit and have certain
redundant systems in case of failure. However, in-orbit failure may result from
various causes, including:
- component failure;
- loss of power or fuel;
- inability to control positioning of the satellite;
- solar and other astronomical events; and
- space debris.
Repair of satellites in space is not feasible. Factors that affect the
useful lives of Globalstar's satellites include the quality of construction,
gradual degradation of solar panels and the durability of components. Random
failure of satellite components may result in damage to or loss of a satellite
before the end of its expected life. Because Globalstar has a large
constellation and will have a number of spare satellites, Globalstar currently
does not intend to insure its satellites against in-orbit failures.
The first-generation Globalstar satellites were originally expected to
operate for a minimum of seven and one-half years. We do not know how long the
first generation constellation will actually last, although we now expect, based
on the limited operational experience to date, a 10-year lifespan. Globalstar
plans to use funds from operations and, possibly, proceeds from additional
financings, to deploy a second generation of satellites. However, enough money
might not be available when needed, leaving Globalstar without a
second-generation constellation.
Globalstar launched four in-orbit spare satellites on February 8, 2000,
thus completing its scheduled launch campaign. Any subsequent launches of
replacement satellites will be subject to the risk of launch failure.
GLOBALSTAR FACES SPECIAL RISKS BY DOING BUSINESS IN DEVELOPING MARKETS AND FACES
CURRENCY RISKS.
Globalstar's largest potential markets are in developing countries or
regions that are substantially underserved and are not expected to be served by
existing telecommunications systems. Developing countries are more likely than
industrialized countries to experience market, currency and interest
fluctuations and may have higher inflation. In addition, these countries present
risks relating to government policy, price and wage, exchange control, tax
related and social instability, expropriation and other economic, political and
diplomatic conditions.
Although Globalstar anticipates that it will receive payments from its
service providers in U.S. dollars, limited availability of U.S. currency in some
local markets may prevent a service provider from making payments in U.S.
dollars. In addition, exchange rate fluctuations may affect Globalstar's ability
to control the prices charged for its services.
GLOBALSTAR'S BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS.
Globalstar's operations are and will continue to be subject to United
States and foreign regulation. Globalstar's system must be authorized in each of
the markets in which its service providers intend to provide service. Globalstar
and its service providers may not be able to obtain or retain all regulatory
approvals needed for operations. Regulatory changes, such as those resulting
from judicial decisions and/or adoption of treaties, legislation or regulation
in countries where Globalstar intends to operate, may also significantly affect
Globalstar's business.
Glonass, the Russian global navigation satellite system, operates worldwide
in frequency bands adjacent to and including spectrum authorized for use by
Globalstar and other systems for user uplinks. Glonass has proposed to migrate
to lower frequencies. This migration could have an adverse effect on
Globalstar's use of its authorized frequencies. While we do not expect this to
have a material adverse effect upon Globalstar's capacity, Glonass's actions may
reduce Globalstar's capacity in some markets.
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GLOBALSTAR FACES INTENSE COMPETITION FROM BOTH DIRECT AND INDIRECT COMPETITORS,
AND ADDITIONAL DIRECT COMPETITORS PLAN TO ENTER THE MARKET SOON.
ICO Global Communications has proposed a similar worldwide system and has
filed a request with the Federal Communications Commission to operate in the
United States in a different frequency band than that used by Globalstar.
Because ICO Global's investors include many state-owned telecommunications
monopolies, ICO Global could receive preferential treatment in the local
licensing process in those countries. While ICO Global has filed for bankruptcy,
an announced financing package from a group led by Craig McCaw makes it likely
that ICO Global will complete its system and compete with Globalstar in the
future.
If Constellation Communications, Inc. and Mobile Communications Holdings,
Inc., which have held licenses from the Federal Communications Commission since
July 1997, attract financing, build their systems and begin operations, they
will become direct competitors as well.
In addition to competing for investment capital, subscribers and service
providers in markets all over the world, the mobile satellite services systems,
including Globalstar, also compete with each other for the limited spectrum
available for mobile satellite services operations. CDMA systems such as
Globalstar, Constellation and Mobile Communications Holdings permit multiple
systems to operate within the same frequency band. To the extent that Globalstar
is required to share this frequency band with these other systems, Globalstar's
available capacity will be reduced.
Existing fixed satellite systems, including those of American Mobile
Satellite Corporation, Comsat Corporation's Planet-1, and Inmarsat, and proposed
systems, including those of PT Asia Cellular Satellites and Thuraya, Satellite
Communications Company, also provide, or are intended to provide, competing
service on a regional basis at potentially lower costs.
Technological advances and a continuing trend toward strategic alliances in
the telecommunications industry could give rise to significant new competitors.
Satellite-based telecommunications systems are characterized by high
up-front costs and relatively low operating costs. Several systems are being
proposed and, while the proponents of these systems believe that there will be
significant demand for their services, actual demand will not become known until
such systems are operational. If the capacity of Globalstar and competing
systems exceeds demand, price competition could be intense.
NEW TECHNOLOGIES AND THE EXPANSION OF LAND-BASED SYSTEMS MAY REDUCE DEMAND FOR
GLOBALSTAR'S SERVICE.
The extension of land-based telecommunications services to regions
currently underserved or not served by wireline or cellular services may reduce
demand for Globalstar service in those regions. If these land-based
telecommunications services are built more quickly than Globalstar anticipates,
demand for Globalstar's service may be reduced sooner than Globalstar now
assumes.
Globalstar may also face competition in the future from companies using new
technologies and new satellite systems. The space and communications industries
are subject to rapid advances and innovations in technology. New technology
could render Globalstar obsolete or less competitive by satisfying consumer
demand in more attractive ways or through the introduction of incompatible
standards. In addition, Globalstar depends on technologies developed by third
parties, and we cannot be certain that these technologies will continue to be
available to Globalstar on a timely basis or on reasonable terms.
GLOBALSTAR COULD FACE LIABILITY BASED ON ALLEGED HEALTH RISKS.
There has been adverse publicity concerning alleged health risks associated
with the use of portable hand-held telephones which have transmitting antennae.
Because hand-held Globalstar telephones will use on average lower power to
transmit signals than traditional cellular telephones, Globalstar does not
believe that proposed new guidelines from the Federal Communications Commission
will require any significant modifications of its system or of its hand-held
telephones. Even so, we cannot be certain that these guidelines, or any
associated health issues, will not have an adverse effect on Globalstar's
business.
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GLOBALSTAR RELIES ON KEY PERSONNEL.
Globalstar needs highly qualified personnel. Except for Mr. Bernard L.
Schwartz, GTL's Chairman and Chief Executive Officer and the Chief Executive
Officer and Chairman of the General Partners' Committee of Globalstar, none of
GTL's or Globalstar's officers has an employment contract with GTL, Globalstar
or its managing general partner. In addition, neither GTL nor Globalstar
maintains "key man" life insurance. The departure of any of the key executives
could have an adverse effect on Globalstar's business.
THE YEAR 2000 PROBLEM COULD CAUSE COMPLICATIONS.
As of March 2000, Globalstar's computer systems and software programs are
functioning properly. However, there is still a possibility that some computer
systems and software programs may not function properly later in the year 2000
and beyond because of a once common programming standard which used two digits
instead of four digits to signify a year. This problem is often referred to as
the "Year 2000" problem.
If Globalstar is unable to fix a serious Year 2000 problem, there could be
an interruption or failure of Globalstar's operations. Likewise, if Globalstar's
suppliers or service providers are unable to fix a material Year 2000 problem, a
resulting interruption or failure of their business could hurt Globalstar, as
would a failure of the public telephone network in any country where Globalstar
operates.
GLOBALSTAR AND OTHER COMPANIES INVOLVED IN GLOBALSTAR'S SYSTEM HAVE POTENTIAL
CONFLICTS OF INTEREST WHICH COULD RESULT IN DECISIONS ADVERSE TO GLOBALSTAR'S
INTERESTS.
Potential conflicts of interest include the following:
- Globalstar partners, or their affiliates, are suppliers of the major
parts of the Globalstar system. They also manufacture the system elements
which will be sold to service providers and subscribers.
- Globalstar is dependent upon the management skills of Loral and
technologies developed by Loral and others.
- Partners and affiliates of Globalstar, including companies affiliated
with or controlled by Loral, will be among Globalstar's main customers.
Accordingly, they may have conflicts of interest with respect to the
terms of Globalstar's service provider agreements.
- If Globalstar is unable to offer its service to a service provider on
competitive terms in a particular country or region, the service
provider, which may be a partner of Globalstar's, may act as a service
provider to a competing system in that region or country while at the
same time serving as a Globalstar service provider in other markets.
- Globalstar is currently managed by a committee of its general partners, a
majority of the representatives on which may be designated by Loral,
which in turn owns Space Systems/Loral, Inc., a prime contractor of
Globalstar.
A CHANGE OF CONTROL OF GTL OR REDUCTION IN GTL'S OWNERSHIP OF GLOBALSTAR COULD
RESULT IN GTL HAVING TO PAY ADDITIONAL TAXES AND BECOMING SUBJECT TO ONEROUS
REQUIREMENTS UNDER THE INVESTMENT COMPANY ACT.
If either of the following occurs, GTL will become a limited partner in
Globalstar and will no longer appoint representatives to serve on its committee
of general partners:
- a change of control of GTL at a time when GTL owns less than 50% of the
Globalstar partnership interests outstanding, including changes in GTL's
board of directors; or
- a sale or other disposition of partnership interests following which
GTL's equity interest is reduced to less than 5%, without prior approval
by the managing general partner of Globalstar or by the limited partners
of Globalstar.
If GTL were to become a limited partner in Globalstar, GTL could be deemed
to be an investment company under the Investment Company Act of 1940. If this
happened, GTL would become subject to the registration and other requirements of
that law. In order to register, GTL might be required to reincorporate as
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a domestic U.S. corporation and would thereafter be subject to U.S. tax on our
worldwide income. GTL currently intends to conduct its operations so as to avoid
being deemed an investment company under the Investment Company Act.
ITEM 2. PROPERTIES
Globalstar currently has two leases covering approximately 132,700 square
feet of office space in San Jose, California. One lease is for 106,200 square
feet of space. This lease expires on December 31, 2008. Globalstar has two
options to extend the initial term of this lease for five years each. The second
lease, for 26,500 square feet expires January 31, 2001. Globalstar has an option
to renew this lease for one year. In addition, Globalstar leases 12,000 square
feet for its back-up GOCC in El Dorado Hills, California. The lease expires in
November 2006 with options to renew for up to an additional six years.
Management is pursuing additional facilities space in 2000 to accommodate
growth.
ITEM 3. LEGAL PROCEEDINGS
Neither Globalstar nor GTL is a party to any pending legal proceedings
material to its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(A) MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock is traded on the Nasdaq National Market
("Nasdaq") under the symbol "GSTRF." The following table presents the reported
high and low sale prices of the Company's common stock as reported on Nasdaq.
The sale prices for the common stock have been adjusted to reflect the two-for-
one stock splits effected in the form of 100% stock dividends paid to the
shareholders on May 28, 1997 and June 8, 1998.
<TABLE>
<CAPTION>
MARKET PRICE
--------------------------
1999 1998
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Quarter ended:
March 31,.............................................. $24 1/2 $12 5/8 $37 1/8 $19
June 30,............................................... 24 1/2 13 1/2 36 1/8 25 3/4
September 30,.......................................... 33 20 1/2 28 1/8 9 5/8
December 31,........................................... 49 1/2 19 22 1/8 8 5/16
</TABLE>
Except for dividend payments by the Company on its 8% Series A Convertible
Redeemable Preferred Stock issued in January 1999 and 9% Series B Convertible
Redeemable Preferred Stock issued in December 1999 and distributions by
Globalstar on its 8% RPPIs issued in January 1999 and 9% RPPIs issued in
December 1999, the Company and Globalstar do not currently anticipate paying any
dividends or distributions (other than to the extent that Globalstar's payment
of GTL's operating expenses related to Globalstar would be treated as a
distribution) prior to commencement of operations and achievement of positive
cash flow. GTL has not declared or paid any cash dividends on its common stock,
and Globalstar has not made any distributions on its ordinary partnership
interests. GTL is a holding company, the sole asset of which is its partnership
interests in Globalstar; GTL has no independent means of generating revenues.
Globalstar will pay GTL's operating expenses related to Globalstar; such
expenses are not expected to be material. To the extent permitted by applicable
law and the agreements relating to its indebtedness, Globalstar intends to
distribute to its partners, including GTL, its net cash received from
operations, less amounts required to repay outstanding indebtedness, satisfy
other liabilities and fund capital expenditures and contingencies (including
funds required for design, construction and deployment of the second-generation
satellite constellation). Globalstar's credit agreements and the indentures
related to its senior notes restrict the ability of Globalstar to pay cash
distributions on its ordinary partnership interests. Cash distributions by
Globalstar may also be restricted by future debt covenants. GTL intends to
promptly distribute as dividends to the holders of its common stock the
distributions made to it by Globalstar, less any amounts required to be retained
for the payment of taxes, for repayment of any liabilities, and to fund
contingencies.
(B) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of February 29, 2000, there were 1,189 holders of record of GTL's Common
Stock.
(C) RECENT SALES OF UNREGISTERED SECURITIES
On December 8, 1999, GTL sold $150 million face amount of 9% Series B
Convertible Redeemable Preferred Stock due 2011 in a private offering pursuant
to Rule 144A and Regulation D under the Securities Act of 1933. The initial
purchasers were Bear, Stearns & Co. Inc., Banc of America Securities LLC, Lehman
Brothers Inc. and C.E. Unterberg, Towbin. Underwriting discounts and other costs
for this offering were approximately $4 million. The price to the initial
purchasers was 97.25% of the face amount of the preferred stock. The preferred
stock is convertible at the option of the holder, initially at the conversion
price of $25.9569 per share.
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ITEM 6. SELECTED FINANCIAL DATA
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999(2) 1998(1) 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Equity in net loss applicable to
ordinary partnership interests of
Globalstar, L.P.................. $ 81,861 $ 50,561 $ 24,152 $ 15,080 $ 12,632
Net loss........................... 32,151 50,561 24,152 15,080 12,632
Net loss applicable to common
shareholders..................... 81,861 50,561 24,152 15,080 12,632
Net loss per share -- basic and
diluted(3)....................... 0.99 0.67 0.43 0.38 0.32
CASH FLOW DATA:
Provided by operating activities... 22,470
Used in investing activities....... 488,309 1,112 153,140 299,500 185,750
Provided by equity transactions.... 465,839 1,112 153,140 185,750
Provided by borrowings............. 299,500
Dividends paid per common share
RATIO OF EARNINGS TO FIXED
CHARGES.......................... 1x 1x 1x 1x N/A
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in Globalstar, L.P...... $1,034,902 $580,428 $612,716 $482,676 $173,118
Total assets....................... 1,034,902 580,428 612,716 482,676 173,118
Convertible preferred equivalent
obligations(4)................... 301,410 300,358
Shareholders' equity............... 1,031,579 580,428 309,627 180,639 173,118
Shareholders' equity per common
share(3)......................... 7.46 7.08 5.05 4.52 4.33
</TABLE>
- ---------------
(1) Includes GTL's proportionate share of Globalstar's $17.3 million loss from
launch failure.
(2) Includes GTL's proportionate share of Globalstar's $29.9 million loss from
the write-off of excess launch vehicle deposits.
(3) Restated to reflect two-for-one stock splits in May 1997 and June 1998. The
1999 balance excludes the redemption value of the 8% Series A and 9% Series
B preferred stock.
(4) All convertible preferred equivalent obligations were converted into common
stock in 1998.
18
<PAGE> 20
GLOBALSTAR, L.P.
(In thousands, except per partnership interest amounts)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
(COMMENCEMENT
OF OPERATIONS) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------------------------
1999 1999(2) 1998(3) 1997 1996 1995
----------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses.............. 590,538 186,505 146,684 88,071 61,025 80,226
Interest income................. 63,918 6,141 17,141 20,485 6,379 11,989
Net loss applicable to ordinary
partnership interests......... 639,562 232,584 151,740 88,788 71,969 68,237
Net loss per weighted average
ordinary partnership interest
outstanding -- basic and
diluted....................... 3.99 2.69 1.74 1.53 1.50
Cash distributions per ordinary
partnership interest..........
OTHER DATA:
Deficiency of earnings to cover
fixed charges(1).............. 466,369 330,475 184,683 81,869 N/A
CASH FLOW DATA:
Used in operating activities.... 265,657 56,576 24,958 68,615 51,756 38,368
Used in investing activities.... 2,734,313 721,733 682,884 622,004 379,130 280,345
Provided by partners' capital
transactions.................. 1,361,649 463,329 14,825 132,990 284,714 318,630
Provided by (used in) other
financing activities.......... 1,765,996 386,432 287,552 998,137 95,750 (1,875)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(4)........ $ 173,921 $ 56,739 $ 464,154 $ 21,180 $ 71,602
Globalstar System under
construction...................... 3,181,189 2,302,333 1,626,913 891,033 400,257
Total assets........................ 3,781,459 2,670,025 2,149,053 942,913 505,391
Vendor financing liability,
including current portion......... 393,795 371,170 197,723 130,694 42,219
Long-term debt...................... 1,799,111 1,396,175 1,099,531 96,000
Redeemable preferred partnership
interests(5)...................... 303,089 302,037
Partners' capital................... 1,028,329 602,401 380,828 315,186 386,838
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges is not meaningful as Globalstar is in
the development stage and, accordingly, has incurred operating losses.
(2) The results of operations for 1999 include a $29.9 million loss from the
write-off of excess launch vehicle deposits.
(3) The results of operations for 1998 include a $17.3 million loss from launch
failure.
(4) Includes restricted cash of $46.2 million and $0.5 million for 1999 and
1998, respectively, received from service providers for the purchase of
gateways.
(5) All outstanding redeemable preferred partnership interests as of December
31, 1997 were converted to ordinary partnership interests in April 1998.
19
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Globalstar Telecommunications Limited ("GTL" or the "Company") is a holding
company that acts as a general partner of Globalstar, L.P. ("Globalstar") and
has no other business. A subsidiary of Loral Space & Communications Ltd.
("Loral") serves as the managing general partner of Globalstar. The Company's
sole asset is its investment in Globalstar and GTL's results of operations
reflect its share of the results of operations of Globalstar on an equity
accounting basis. Therefore, matters discussed in this section address the
financial condition and results of operations of Globalstar.
Except for the historical information contained herein, the matters
discussed in the following Management's Discussion and Analysis of Financial
Condition and Results of Operations 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, Globalstar and GTL 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 either Globalstar or GTL. 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 the
Globalstar's or GTL's control. Some of these factors and conditions include: (i)
Globalstar has just commenced commercial service and there can be no prediction
of customer demand for service; (ii) dependence on service providers to market
Globalstar service and implement important parts of its system and on third
parties to complete its system; (iii) Globalstar has substantial debt; (iv)
Globalstar may require additional financing; (v) satellites may fail
prematurely; (vi) severe competition in the telecommunications industry; and
(vii) Globalstar is subject to regulation. 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 operates in an industry sector
where securities values may be volatile and may be influenced by economic and
other factors beyond Globalstar's control.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, including restricted cash, increased from $56.7
million at December 31, 1998 to $173.9 million at December 31, 1999. The net
increase is primarily the result of the net proceeds from the sale of
Globalstar's 8% convertible redeemable preferred partnership interests ("8%
RPPIs") totaling $339.8 million, the sale of Globalstar's 9% convertible
redeemable preferred partnership interests ("9% RPPIs") totaling $145.6 million,
the net proceeds from term loans of $386.4 million and net proceeds from
production gateways and user terminals of $30.5 million, partially offset by the
net expenditures for the Globalstar System of $656.9 million, net cash used in
operating activities of $56.6 million, distributions on redeemable preferred
partnership interests of $25.0 million, and expenditures for additional spare
satellites of $36.0 million.
Current liabilities increased from $401.2 million at December 31, 1998 to
$671.3 million at December 31, 1999, primarily as a result of the timing of
payments to Globalstar contractors, primarily to Qualcomm Incorporated
("Qualcomm").
In the first quarter of 2000, Globalstar service providers commenced
commercial operations and as of February 29, 2000, there were 14 gateways
available for service covering 78 countries. All of the 38 gateways on order
have been manufactured and are ready for installation. By the end of 2000, 27 or
more gateways are anticipated to be available for service, covering
approximately 131 countries.
From January 1, 1999 to February 8, 2000, Globalstar had 11 successful
launches of four satellites each, aboard a combination of Soyuz and Delta launch
vehicles, bringing the total number of satellites in orbit to 52 (including four
in-orbit spares). As of February 8, 2000, all 52 Globalstar satellites had been
launched, the majority of which were being used to test system functionality, to
support service provider friendly user trials, and to provide commercial
service. Globalstar has secured from SS/L twelve month call up orders for two
additional Delta launch vehicles. The total future commitment for these launch
vehicles is $84 million plus
20
<PAGE> 22
escalation of 3% per year. If these launch vehicles are not used by year end
2003, Globalstar will incur a termination charge of $15.9 million.
Globalstar expects to spend $325 million on system software, for eight
additional spare satellites and for financing that Globalstar is providing to
the service providers for the purchase of gateways, fixed access terminals and
handsets (of which $231 million is expected to be received from the service
providers as repayment of such financing). In addition, cash interest, preferred
dividends and operating costs are expected to be approximately $125 million per
quarter in 2000. Globalstar raised $268.5 million through the sale of GTL common
stock in February 2000. Globalstar believes that its cash on hand ($329 million
at February 29, 2000), available credit under its two bank facilities and vendor
financing arrangements (approximately $425 million at February 29, 2000),
service revenues and other anticipated cash inflows will be sufficient to fund
its cash outflows for 2000, provided that its $250 million credit facility is
renegotiated. If Globalstar cannot renegotiate its $250 million credit facility,
it believes it will be able to obtain additional funds. There can be no
assurance, however, that such funds will be available on favorable terms or on a
timely basis, if at all.
Qualcomm has agreed to provide Globalstar $500 million of vendor financing
(for which the terms of $400 million are still being finalized). In connection
with this agreement, Qualcomm is expected to receive warrants to purchase
Globalstar partnership interests comparable to those received by Loral pursuant
to Loral's guarantee of Globalstar's $500 million credit facility (see below).
SS/L has provided $330 million of billings deferred under its construction
contracts with Globalstar, comprised of: $105 million of orbital incentives, of
which $44 million was repaid by Globalstar in 1999 and $61 million is expected
to be repaid in 2000; $90 million of vendor financing which bears interest at
LIBOR plus 3% and is repayable over five years commencing in 2001; and $134
million of non-interest bearing vendor financing, due over five years in equal
monthly installments, commencing in 2000. SS/L's subcontractors have assumed
$116 million of such financing.
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 seven
million shares (face amount of $50 per share) of 8% Convertible Redeemable
Preferred Stock due 2011 (the "8% Preferred Stock"). The 8% Preferred Stock is
convertible into shares of GTL common stock at a conversion price of $23.2563
per share. Loral purchased three million shares or $150 million face amount of
the 8% Preferred Stock offered. Dividends on the 8% RPPIs and the 8% Preferred
Stock accrue at 8% per annum and are payable quarterly.
On June 30, 1999 and November 29, 1999, 100 and 2,603,605 shares of 8%
Preferred Stock, respectively, were converted into 215 and 5,597,693 shares of
GTL common stock, respectively. As a result of such conversions, the 8% RPPIs
were converted into 1,382,178 Globalstar ordinary partnership interests. In
connection with the November 29, 1999 conversion, GTL agreed to issue 924,324
additional shares of GTL common stock representing the equivalent of the
dividend pre-payments to which the holders would have been entitled if a
redemption had been made. A corresponding dividend make-whole payment was also
made by Globalstar for which an additional 231,081 Globalstar ordinary
partnership interests were issued. Such make-whole payments are reflected as
dividend income in the accompanying statement of operations.
In July 1999, Globalstar and GTL filed a shelf registration statement (the
"Shelf Registration Statement") with the SEC covering up to $500 million of
securities. Under the Shelf 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.
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"). As of December 31, 1999, Globalstar
had drawn down the $300 million Term Loan B and $100 million Term Loan A,
bearing interest at 9.57% and 9.07%, respectively. The Term
21
<PAGE> 23
Loan facilities require payments of $56 million in 2001, $95 million in 2002 and
$249 million in 2003. All amounts outstanding under the Revolver (none
outstanding at December 31, 1999) 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 stock of the
guarantors and the Telstar 6 and Telstar 7 satellites. In consideration for the
guarantee, valued at $141 million, 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). 50% of
the warrants vested in February 2000. Assuming the guarantee remains in effect,
an additional 25% will vest in August 2000 with the remaining 25% vesting in
August 2001. The warrants expire in 2006. Globalstar may call the warrants after
August 5, 2001 if the market price of GTL common stock exceeds $45.50 for a
certain period.
On December 2, 1999, Globalstar sold to GTL three million units (face
amount of $50 per unit) of 9% RPPIs in connection with GTL's offering of 3
million shares (face amount of $50 per share) of 9% Series B Convertible
Redeemable Preferred Stock due 2011 (the "9% Preferred Stock"). The 9% Preferred
Stock is convertible into shares of GTL common stock at a conversion price of
$25.9569 per share. Dividends on the 9% RPPIs and the 9% Preferred Stock accrue
at 9% per annum and are payable quarterly. Globalstar is using the funds for the
continued deployment of the Globalstar System.
In February 2000, GTL sold 8,050,000 shares of its common stock to the
public under the Shelf Registration Statement. GTL used the net proceeds from
the offering of approximately $268.5 million to purchase 1,987,654 ordinary
partnership interests in Globalstar. Globalstar intends to use the offering
proceeds for general corporate purposes, which may include the acceleration of
Globalstar's roll-out through increased support for service provider marketing
activities and the funding of promotional discounts; development of new service
features; and possible repayment of debt.
RESULTS OF OPERATIONS
Comparison of Results for the Years Ended December 31, 1999 and 1998
Globalstar is a development stage partnership that commenced commercial
operations in the first quarter of 2000. For the period March 23, 1994
(commencement of operations) to December 31, 1999, Globalstar has recorded
cumulative net losses applicable to ordinary partnership interests of $639.6
million. The net loss applicable to ordinary partnership interests for 1999
increased to $232.6 million as compared to $151.7 million for 1998. The net loss
for 1999 increased primarily as a result of the write-off of $29.9 million of
non-refundable launch deposits no longer needed to complete the launch campaign,
increased distributions on preferred partnership interests due to the issuance
of both the 8% and 9% RPPIs in 1999, increased marketing expenses as Globalstar
prepares for commencement of commercial operations and lower interest income
during the year.
Globalstar earned interest income of $63.9 million on cash and cash
equivalent balances since commencement of operations. Interest income for 1999
was $6.1 million as compared to $17.1 million for 1998, as a result of lower
average cash balances available for investment during 1999.
22
<PAGE> 24
Operating Expenses. Development costs represent the development of
Globalstar user terminals and Globalstar's continuing in-house engineering. For
1999, these costs were $94.3 million as compared to $86.3 million for 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 were $62.3 million and $43.1
million for 1999 and 1998, respectively. The increase in marketing, general and
administrative expense is primarily the result of an increase in the number of
employees and an increase in marketing costs as Globalstar gears up for
operations.
As of December 31, 1999, Globalstar had launched its constellation of 48
satellites, and on February 8, 2000, four spare satellites were launched. As a
result of the successful launch campaign during 1999, Globalstar does not
anticipate using all the excess launch vehicle capacity it had contracted for
and, accordingly recorded a charge of $29.9 million. As of December 31, 1999,
Globalstar has a remaining deposit balance of approximately $45 million relating
to backup launch capacity supporting three additional launches, that will be
used to launch spare satellites or written off when such excess capacity is no
longer required.
Depreciation. Globalstar has capitalized 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 start recording depreciation expense
on the Globalstar System under construction in the first quarter of 2000, 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 consolidated financial
statements of Globalstar, 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.
Transition From a Development Stage Entity to an Operating Entity
In the first quarter of 2000, Globalstar commenced commercial operations
and began the transition from a development stage entity to an operating entity.
Prior to the first quarter of 2000, Globalstar devoted substantially all of its
efforts to the design, development and construction of the Globalstar System and
preparation for commercial operations. In the year 2000, Globalstar's operations
will focus on operating the Globalstar System and the provisioning of global
wireless telecommunications.
As a result of this transition, Globalstar's financial statements will
change significantly. Globalstar has previously capitalized all costs, including
interest, associated with the development of the Globalstar System. Globalstar
capitalized interest of $233.8 million, $178.7 million and $95.9 million during
1999, 1998 and 1997, respectively. In 2000, Globalstar will commence
depreciation of the Globalstar System, and will start expensing interest costs
incurred, except for the amount associated with the construction of the eight
additional spare satellites and ground segment improvements.
Comparison of Results for the Years Ended December 31, 1998 and 1997
The net loss applicable to ordinary partnership interests for 1998
increased to $151.7 million as compared to $88.8 million for 1997. The net loss
for 1998 increased primarily as a result of the launch failure, increased
activity in the development of Globalstar user terminals and increased in-house
engineering and marketing expenses.
Interest income for 1998 was $17.1 million as compared to $20.5 million for
1997, as a result of lower average cash balances available for investment during
the current period.
Operating Expenses. For 1998, development costs were $86.3 million as
compared to $62.5 million for 1997. Development costs increased as a result of
increased activity in the development of Globalstar user terminals and in-house
engineering.
23
<PAGE> 25
Marketing, general and administrative expenses were $43.1 million and $25.6
million for 1998 and 1997, respectively. The increases in marketing, general and
administrative expenses are primarily the result of an increase in the number of
employees and an increase in marketing costs.
On September 9, 1998, a malfunction of a Zenit 2 rocket resulted in the
loss of 12 Globalstar satellites. A $17.3 million loss on the launch failure was
recorded in the third quarter of 1998, which reflects the cost of the launch
vehicle, satellites and related capitalized costs, net of insurance proceeds of
$190.5 million. This amount is presented as launch related costs in the
statements of operations.
TAXATION
The Company will be subject to U.S. federal, state and local corporate tax
on its share of Globalstar's income that is effectively connected with the
conduct of a trade or business in the United States ("U.S. Income") and will be
required to file federal, state and local income tax returns with respect to
such U.S. Income. The Company expects, based on Globalstar's description of its
proposed activities, that most of the Company's income will be from sources
outside the United States and that such income will not be effectively connected
with the conduct of a trade or business within the United States ("Foreign
Income"). Thus, the Company believes that there generally will be no U.S. taxes
on its share of Globalstar's Foreign Income. The U.S. Treasury Department is,
however, engaged in a project to draft and propose regulations that will
determine how the Company will be taxed in the United States on its share of
Globalstar's income. The outcome of the regulation project cannot be predicted.
The Treasury Department may adopt final regulations that characterize a
substantial portion of the Company's income as derived from U.S. sources and as
effectively connected with a U.S. trade or business so as to subject that income
to regular U.S. federal income tax and a 30% branch profits tax.
In addition, any portion of the Company's income from sources outside the
United States, realized through Globalstar or otherwise, may be subject to
taxation by certain foreign countries. The extent to which these countries may
require the Company or Globalstar to pay tax or to make payments in lieu of tax
cannot be determined in advance. However, based upon our review of current tax
laws, including applicable international tax treaties of certain countries that
we believe to be among our key potential markets, we expect that a significant
portion of our worldwide income will not be subject to tax by the foreign
countries from which we derive our income. To the extent that Globalstar bears a
higher foreign tax because any holder of its ordinary partnership interests
(including the Company) is not subject to United States tax on its share of
Globalstar's foreign income, the additional foreign tax will be specially
allocated to such partner and will reduce amounts distributed by Globalstar to
such partner with respect to the ordinary partnership interests held by such
partner.
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.
24
<PAGE> 26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999 and 1998, the fair value of Globalstar's long-term
debt and interest bearing vendor financing (collectively, "long-term
obligations") was estimated to be $1.5 billion and $1.3 billion, respectively,
using quoted market prices or, in the case of vendor financing and term-loans
with variable interest rates, recorded value. The long-term obligations carrying
value exceeded fair value by $510 million and $334 million as of December 31,
1999 and 1998, respectively. Market risk on long-term obligations is estimated
as the potential increase in annual interest expense resulting from a
hypothetical one percent increase in interest rates and amounted to $16 million
and $15 million for 1999 and 1998, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
25
<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information required for this item is presented in GTL's 2000 definitive
proxy statement which is incorporated herein by reference.
EXECUTIVE OFFICERS OF GTL
The following table sets forth information concerning the executive
officers of GTL and Globalstar as of March 1, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bernard L. Schwartz.................. 74 Chairman and Chief Executive Officer
Eric J. Zahler....................... 49 Vice Chairman
Anthony J. Navarra................... 52 President
Michael P. DeBlasio.................. 63 Senior Vice President
William Adler........................ 53 Vice President and Assistant Secretary
Jeanette Clonan...................... 51 Vice President -- Communications and Investor
Relations
Avi Katz............................. 41 Vice President and Secretary
Nicholas C. Moren.................... 53 Vice President and Treasurer
Harvey B. Rein....................... 46 Vice President and Controller
Thomas B. Ross....................... 70 Vice President -- Government Relations
Richard J. Townsend.................. 49 Vice President and Chief Financial Officer
Stephen C. Wright.................... 43 Vice President
</TABLE>
EXECUTIVE OFFICERS OF GLOBALSTAR
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bernard L. Schwartz.................. 74 Chief Executive Officer and Chairman of the General
Partners' Committee
Eric J. Zahler....................... 49 Vice Chairman of the General Partners' Committee
Anthony J. Navarra................... 52 President
William Adler........................ 53 Vice President, Legal and Regulatory Affairs
Gloria Everett....................... 56 Senior Vice President, Operations
Megan Fitzgerald..................... 39 Senior Vice President, Space Operations
Joel Schindall....................... 58 Senior Vice President, Systems Development
Robert A. Wiedeman................... 61 Vice President, Systems and Regulatory Engineering
Stephen C. Wright.................... 43 Vice President and Chief Financial Officer
</TABLE>
Mr. Schwartz has been Chief Executive Officer and Chairman of the General
Partners' Committee of Globalstar since 1994. Mr. Schwartz has also been the
Chairman and Chief Executive Officer of GTL since 1995, and has served as
director of GTL since 1994. Mr. Schwartz has been the Chairman and Chief
Executive Officer of Loral since March 1996 and had been Chairman and Chief
Executive of Loral Corporation ("Old Loral") since 1972. He has been Chairman of
the Board of Directors of SS/L since February 1991. He is also Chairman and
Chief Executive Officer of K&F Industries, Inc., as well as a director of
Reliance Group Holdings, Inc. and certain of its subsidiaries, Sorema
International Holding N.V. and First Data Corporation. Mr. Schwartz is also a
Trustee of New York University Medical Center.
26
<PAGE> 28
Mr. Zahler has been Vice Chairman of the General Partners' Committee of
Globalstar and Vice Chairman of GTL since February 2000. Prior to that, Mr.
Zahler had been Vice President and Secretary of GTL since May 1996. Mr. Zahler
has been President and Chief Operating Officer of Loral since February 2000.
Prior to that, Mr. Zahler was Executive Vice President of Loral since October
1999 and Senior Vice President of Loral since February 1998. Prior to that, he
was Vice President, Secretary and General Counsel of Loral since March 1996 and
had been Vice President and General Counsel of Old Loral since 1992. Prior to
that time, he was a partner in the law firm of Fried, Frank, Harris, Shriver &
Jacobson.
Mr. Navarra has been President of Globalstar since September 1999 and
President of GTL since February 2000. Prior to that, Mr. Navarra was acting
Chief Operating Officer of Globalstar since March 1999 and Executive Vice
President of GTL since 1999. Mr. Navarra had been Vice President of GTL since
1995 and Executive Vice President, Strategic Development of Globalstar since
March 1994. He was Executive Vice President, Business Development at Loral
Aerospace Corp. from 1992 to 1994.
Mr. DeBlasio has been Senior Vice President and Director of GTL since May
1996. Mr. DeBlasio has been First Senior Vice President of Loral since February
1998 and Senior Vice President and Chief Financial Officer of Loral since March
1996 and had been Senior Vice President, Finance and Chief Financial Officer of
Old Loral since 1979. Mr. DeBlasio is also a director of SS/L.
Mr. Adler has been Vice President of Legal and Regulatory Affairs of
Globalstar since January 1996 and Assistant Secretary of GTL since May 1996. He
was a partner with Fleischman and Walsh, L.L.P. from May 1994 to November 1995,
specializing in domestic and international telecommunications law, regulation
legislation and policy. Prior to that, he was the Executive Director of Federal
Regulatory Relations with Pacific Telesis Group.
Ms. Clonan has been Vice President, Communications and Investor Relations
of GTL since March 1998. Ms. Clonan has also been Vice President, Communications
and Investor Relations of Loral since November 1996. Prior to that, Ms. Clonan
was Director -- Corporate Communications from June 1996. Prior to that, Ms.
Clonan was Vice President -- Corporate Relations of Jamaica Water Securities
since September 1992.
Mr. Katz has been Vice President and Secretary of GTL since November 1999
and Assistant Secretary of GTL since August 1997. Mr. Katz has been Vice
President, General Counsel and Secretary of Loral since November 1999 and Vice
President, Deputy General Counsel and Assistant Secretary of Loral since
February 1998. Prior to that, Mr. Katz was Deputy General Counsel and Assistant
Secretary since August 1997 and Associate General Counsel and Assistant
Secretary since July 1996. Prior to that, Mr. Katz was an associate in the law
firm of Willkie Farr & Gallegher since 1987.
Mr. Moren has been Vice President and Treasurer of GTL since 1995. Mr.
Moren has been Senior Vice President of Loral since February 1998 and Vice
President and Treasurer of Loral since March 1996 and had been Vice President
and Treasurer of Old Loral since April 1991.
Mr. Rein has been Vice President and Controller of GTL since May 1996. Mr.
Rein has been Vice President and Controller of Loral since April 1996 and had
been Assistant Controller of Old Loral since 1985.
Mr. Ross has been Vice President, Government Relations of GTL since
November 1996. From June 1995 to November 1996, Mr. Ross was Vice President,
Communications of GTL. Mr. Ross has also been Vice President, Government
Relations of Loral since November 1996. From April 1996 to November 1996, Mr.
Ross was Vice President, Communications of Loral. From April 1994 to May 1995,
he served at the White House as Special Assistant to the President and Senior
Director of Public Affairs for the National Security Council.
Mr. Townsend has been Vice President and Chief Financial Officer of GTL
since March 1999. Since October 1998, he has been Senior Vice President and
Chief Financial Officer of Loral. Prior to that, Mr. Townsend was Corporate
Controller and Director of Strategy for ITT Industries since 1997. Prior to
that, he was Vice President of Finance Worldwide Industries for IBM and various
other financial management positions with IBM since April 1979.
27
<PAGE> 29
Mr. Wright has been Vice President and Chief Financial Officer of
Globalstar since January 1996 and Vice President of GTL since May 1996. He was a
Production Director from April 1995 to December 1995 at SS/L. Prior to that
time, he was a Business Manager at SS/L.
Ms. Everett has been Senior Vice President of Globalstar since February
1998. Prior to that time, she was Vice President, Network Engineering and
Operations, with AirTouch Communications.
Ms. Fitzgerald has been Senior Vice President, Space Operations, of
Globalstar since November 1999 and Vice President for Satellite Constellation
Establishment since September 1997. Ms. Fitzgerald has been with Globalstar
since June 1994 and prior to that time she was Director, Commercial Programs
Marketing and New Business Development with Lockheed Martin Missiles & Space.
Dr. Schindall has been Senior Vice President of Systems Development for
Globalstar since May 1997. Prior to that time, Dr. Schindall was Vice President
of Systems Applications for Globalstar since May 1994. Prior to that time, he
was President of Conic, a division of Old Loral.
Mr. Wiedeman has been Vice President of Systems and Regulatory Engineering
for Globalstar since March 1994. Prior to that time, he was Vice President of
Loral Aerospace Corp.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under Items 11, 12 and 13 is presented in GTL's 2000
definitive proxy statement (to be filed no later than 120 days after the end of
Globalstar's and GTL's fiscal years) which is incorporated herein by reference.
28
<PAGE> 30
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Financial Statements............................... F-1
Globalstar Telecommunications Limited (A General Partner of
Globalstar, L.P.)
Independent Auditors' Report.............................. F-2
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Shareholders' Equity........................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
Globalstar, L.P. (A development stage limited partnership)
Independent Auditors' Report.............................. F-16
Consolidated Balance Sheets............................... F-17
Consolidated Statements of Operations..................... F-18
Consolidated Statements of Ordinary Partners' Capital and
Subscriptions Receivable............................... F-19
Consolidated Statements of Cash Flows..................... F-21
Notes to Consolidated Financial Statements................ F-22
Globalstar Capital Corporation (a Wholly-Owned Subsidiary of
Globalstar, L.P.)
Independent Auditors' Report.............................. *
Balance Sheets............................................ *
Notes to Balance Sheets................................... *
Loral/Qualcomm Satellite Services, L.P. (a General Partner
of Globalstar, L.P.)
Independent Auditors' Report.............................. **
Balance Sheets............................................ **
Notes to Balance Sheets................................... **
</TABLE>
- ---------------
* Filed as Exhibit 99.1
** Filed as Exhibit 99.2
(a) 3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
<C> <S>
3.1 Memorandum of Association of Globalstar Telecommunications
Limited(1)
3.2 Bye-Laws of Globalstar Telecommunications Limited, as
amended, and including Schedule III annexed thereto
regarding the 8% Series A Convertible Redeemable Preferred
Shares due 2011(10)
3.3 Schedule IV to the Bye-laws of Globalstar Telecommunications
Limited regarding the 9% Series B Convertible Redeemable
Preferred Shares due 2001(11)
4.1 Indenture dated as of February 15, 1997 relating to
Globalstar's and Globalstar Capital Corporation's 11 3/8%
Senior Notes due 2004(2)
4.2 Indenture dated as of June 1, 1997 relating to Globalstar's
and Globalstar Capital Corporation's 11 1/4% Senior Notes
due 2004(3)
4.3 Indenture dated as of October 15, 1997 relating to
Globalstar's and Globalstar Capital Corporation's 10 3/4%
Senior Notes due 2004(4)
4.4 Indenture dated as of May 20, 1998 relating to Globalstar's
and Globalstar Capital Corporation's 11 1/2% Senior Notes
due 2005(5)
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
<C> <S>
10.1 Amended and Restated Agreement of Limited Partnership of
Globalstar L.P., dated as of January 26, 1999, among
Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services,
Inc., Dacom Corporation, Dacom International, Inc., Hyundai
Corporation, Hyundai Electronics Industries Co., Ltd.,
Loral/DASA Globalstar, L.P., Loral Space & Communications
Ltd., San Giorgio S.p.A., Telesat Limited, TE. SA. M., and
Vodafone Satellite Services Limited(10)
10.1.2 Amendment dated as of December 8, 1999 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(11)
10.1.3 Amendment dated as of February 1, 2000 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(*)
10.2 Subscription Agreements by and between Globalstar, L.P., and
each of AirTouch Communications, Alcatel Spacecom, Loral
General Partner, Inc., Hyundai/Dacom and Vodastar Limited(1)
10.3 Subscription Agreement by and between Globalstar, L.P. and
Loral/Qualcomm Satellite Services, L.P.(1)
10.4 Subscription Agreement by and between Globalstar, L.P. and
Finmeccanica S.p.A.(1)
10.5 Subscription Agreement by and between Globalstar, L.P. and
China Telecommunications Broadcast Satellite Corporation(10)
10.6 Form of Service Provider Agreements by and between
Globalstar, L.P. and each of AirTouch Satellite Services,
Inc., Finmeccanica S.p.A., Loral Globalstar, L.P.,
Loral/DASA Globalstar, L.P., Hyundai/Dacom, TE. SA. M., and
Vodastar Limited(1)
10.7 Development Agreement by and between Qualcomm Incorporated
and Globalstar, L.P.(1)
10.8 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(1)
10.9 Contract for the Development of Certain Portions of the
Ground Operations Control Center between Globalstar and
Loral Western Development Laboratories(1)
10.10 Contract for the Development of Satellite Orbital Operations
Centers between Globalstar and Loral Aerosys, a division of
Loral Aerospace Corporation(1)
10.11 1994 Stock Option Plan(6)+)
10.12 Amendment to 1994 Stock Option Plan(7)+)
10.12.2 Amendment No. 2 to 1994 Stock Option Plan(* +)
10.13 Revolving Credit Agreement dated as of December 15, 1995, as
amended on March 25, 1996, among Globalstar, certain banks
parties thereto and Chemical Bank, as Administrative
Agent(2)
10.14 Second Amendment to Revolving Credit Agreement dated July
31, 1997 among Globalstar, certain banks parties thereto and
The Chase Manhattan Bank, as Administrative Agent(4)
10.15 Third Amendment to Revolving Credit Agreement dated as of
October 15, 1997 among Globalstar, certain banks parties
thereto and The Chase Manhattan Bank, as Administrative
Agent(4)
10.16 Fourth Amendment to Revolving Credit Agreement dated as of
November 13, 1998 among Globalstar, certain banks parties
thereto and The Chase Manhattan Bank, as Administrative
Agent(10)
10.17 Exchange and Registration Rights Agreement, dated as of
December 31, 1994, among Globalstar, L.P. and AirTouch
Satellite Services, Inc., Finmeccanica S.p.A., Loral
Globalstar, L.P., Loral/DASA Globalstar, L.P.,
Hyundai/Dacom, TE. SA. M., and Vodastar Limited(1)
10.18 Amendment to the Exchange and Registration Rights Agreement,
dated as of April 8, 1998, among Globalstar, L.P.,
Globalstar Telecommunications Limited and Telesat
Limited(10)
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
<C> <S>
10.19 Warrant Agreement dated as of February 19, 1997 relating to
Warrants to purchase 4,129,000 shares of Common Stock of
Globalstar Telecommunications Limited(2)
10.20 Registration Rights Agreement dated February 19, 1997
relating to Globalstar's 11 3/8% Senior Notes due 2004 and
the Company's Warrants to purchase 4,129,000 shares of
Common Stock issued in connection therewith(2)
10.21 Registration Rights Agreement dated June 13, 1997 relating
to Globalstar's and Globalstar Capital Corporation's 11 1/4%
Senior Notes due 2004(3)
10.22 Registration Rights Agreement dated October 29, 1997
relating to Globalstar's and Globalstar Capital
Corporation's 10 3/4% Senior Notes due 2004(4)
10.23 Registration Rights Agreement dated May 20, 1998 relating to
Globalstar's and Globalstar Capital Corporation's 11 1/2%
Senior Notes due 2005(5)
10.24 Registration Rights Agreement dated as of July 6, 1998
relating to 8,400,000 shares of Common Stock by and among
Globalstar Telecommunications Limited, Loral Space &
Communications Ltd., Quantum Partners LDC, Quasar Strategic
Partners LDC and Quantum Industrial Partners LDC.(8)
10.25 Exchange Agreement dated as of September 28, 1998 relating
to 717,600 shares of Common Stock by and between Loral Space
& Communications Ltd., DACOM Corporation and DACOM
International, Inc.(9)
10.26 Registration Rights Agreement dated as of January 26, 1999
relating to the Company's 8% Convertible Redeemable
Preferred Stock(10)
10.27 Credit Agreement dated August 5, 1999 among Globalstar,
L.P., Bank of America, National Association, as
Administration Agent, Banc of America Securities LLC, as
Sole Lead Arranger and Sole Book Manager, Credit Lyonnais,
New York Branch, as Syndication Agent and Lehman Commercial
Paper Inc., as Documentation Agent(12)
10.28 Registration Rights Agreement dated December 8, 1999
relating to GTL's 9% Series B Preferred Stock due 2011(11)
12 Statement Regarding Computation of Ratios(*)
21 List of Subsidiaries of the Registrant(*)
23 Consent of Deloitte & Touche LLP(*)
27 Financial Data Schedule (EDGAR only)(*)
99.1 Financial Statements for Globalstar Capital Corporation*
99.2 Financial Statements for Loral/Qualcomm Satellite Services,
L.P.*
</TABLE>
- ---------------
(1) Incorporated by reference to GTL's Registration Statement on Form S-1 (No.
33-86808).
(2) Incorporated by reference to the GTL's and Globalstar's Annual Report on
Form 10-K for the Year Ended December 31, 1996.
(3) Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-25461).
(4) Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-41229).
(5) Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-57749).
(6) Incorporated by reference to the GTL Registration Statement on Form S-3
(No. 333-6477).
(7) Incorporated by reference to the GTL's and Globalstar's Annual Report on
Form 10-K for the Year Ended December 31, 1997.
(8) Incorporated by reference to Schedule 13D filed by Loral Space &
Communications Ltd. on August 3, 1998.
(9) Incorporated by reference to Schedule 13D filed by Loral Space &
Communications Ltd. on February 10, 1999.
(10) Incorporated by reference to GTL's and Globalstar's Annual Report on Form
10-K for the Year Ended December 31, 1998.
(11) Incorporated by reference from GTL's and Globalstar's Current Report on
Form 8-K filed on December 21, 1999.
(12) Incorporated by reference to GTL and Globalstar's Current Report on Form
8-K filed on August 6, 1999.
(*) Filed herewith.
(+) Management compensation plan.
31
<PAGE> 33
(b) REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
DATE OF REPORT DESCRIPTION
- -------------- -----------
<S> <C>
December 2, 1999 -- Item 5 -- Other Events GTL offering of $150 million convertible
preferred stock
December 21, 1999 -- Item 5 -- Other Events GTL sale of $150 million convertible preferred
stock
</TABLE>
32
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GLOBALSTAR TELECOMMUNICATIONS LIMITED
By: /s/ BERNARD L. SCHWARTZ
------------------------------------
Bernard L. Schwartz
(Chairman of the Board and
Chief Executive Officer)
Date: March 29, 2000
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ BERNARD L. SCHWARTZ Chairman of the Board and March 29, 2000
- ------------------------------------------- Chief Executive Officer
Bernard L. Schwartz
/s/ DOUGLAS DWYRE Director March 29, 2000
- -------------------------------------------
Douglas Dwyre
/s/ SIR RONALD GRIERSON Director March 29, 2000
- -------------------------------------------
Sir Ronald Grierson
/s/ ROBERT B. HODES Director March 29, 2000
- -------------------------------------------
Robert B. Hodes
/s/ E. JOHN PEETT Director March 29, 2000
- -------------------------------------------
E. John Peett
/s/ MICHAEL B. TARGOFF Director March 29, 2000
- -------------------------------------------
Michael B. Targoff
/s/ A. ROBERT TOWBIN Director March 29, 2000
- -------------------------------------------
A. Robert Towbin
/s/ MICHAEL P. DEBLASIO Director March 29, 2000
- -------------------------------------------
Michael P. DeBlasio
/s/ RICHARD J. TOWNSEND Principal Financial Officer March 29, 2000
- -------------------------------------------
Richard J. Townsend
/s/ HARVEY B. REIN Principal Accounting Officer March 29, 2000
- -------------------------------------------
Harvey B. Rein
</TABLE>
33
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on March 29, 2000.
GLOBALSTAR, L.P.
By: Loral/QUALCOMM Satellite Services,
L.P., its General Partner
By: Loral/QUALCOMM Partnership, L.P.,
its General Partner
By: Loral General Partner, Inc., its
General Partner
By: /s/ BERNARD L. SCHWARTZ
------------------------------------
Bernard L. Schwartz
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the general
partner of the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ BERNARD L. SCHWARTZ Chairman of the Board and March 29, 2000
- ------------------------------------------- Chief Executive Officer
Bernard L. Schwartz
/s/ ERIC J. ZAHLER Director March 29, 2000
- -------------------------------------------
Eric J. Zahler
/s/ AVI KATZ Director March 29, 2000
- -------------------------------------------
Avi Katz
</TABLE>
34
<PAGE> 36
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Globalstar Telecommunications Limited (A General Partner of
Globalstar, L.P.)
Independent Auditors' Report.............................. F-2
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Shareholders' Equity........................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
Globalstar, L.P. (A development stage limited partnership)
Independent Auditors' Report.............................. F-16
Consolidated Balance Sheets............................... F-17
Consolidated Statements of Operations..................... F-18
Consolidated Statements of Ordinary Partners' Capital and
Subscriptions Receivable............................... F-19
Consolidated Statements of Cash Flows..................... F-21
Notes to Consolidated Financial Statements................ F-22
</TABLE>
F-1
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF GLOBALSTAR TELECOMMUNICATIONS LIMITED:
We have audited the accompanying balance sheets of Globalstar
Telecommunications Limited (a Bermuda company and a General Partner of
Globalstar, L.P.) as of December 31, 1999 and 1998 and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Globalstar Telecommunications Limited as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
San Jose, California
February 22, 2000
F-2
<PAGE> 38
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- --------
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests................ $ 358,968 $ --
Dividends receivable...................................... 3,323
Ordinary partnership interests............................ 661,072 568,394
Ordinary partnership warrants............................. 11,539 12,034
---------- --------
Total assets...................................... $1,034,902 $580,428
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Dividends payable......................................... $ 3,323 $ --
Commitments and contingencies (Note 4) Shareholders' equity:
Preference shares, $.01 par value, 20,000,000 shares
authorized:
8% Series A convertible redeemable preferred stock,
(4,396,295 shares outstanding at December 31, 1999,
$220 million redemption value)........................ 213,393
9% Series B convertible redeemable preferred stock
(3,000,000 shares outstanding at December 31, 1999,
$150 million redemption value)........................ 145,575
Common stock, $1.00 par value, 600,000,000 shares
authorized (88,742,794 and 82,016,679 shares
outstanding at December 31, 1999 and 1998,
respectively).......................................... 88,743 82,017
Paid-in capital........................................... 756,615 588,802
Warrants.................................................. 11,539 12,034
Accumulated deficit....................................... (184,286) (102,425)
---------- --------
Total shareholders' equity........................ 1,031,579 580,428
---------- --------
Total liabilities and shareholders' equity........ $1,034,902 $580,428
========== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 39
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P. ........................... $ 81,861 $ 50,561 $ 24,152
Dividend income on Globalstar, L.P. redeemable preferred
partnership interests.................................... (52,220) (22,197) (21,202)
Interest expense on convertible preferred equivalent
obligations.............................................. 2,510 22,197 21,202
-------- -------- --------
Net loss................................................... 32,151 50,561 24,152
Preferred dividends on convertible redeemable preferred
stock.................................................... 49,710 -- --
-------- -------- --------
Net loss applicable to common shareholders................. $ 81,861 $ 50,561 $ 24,152
======== ======== ========
Net loss per share -- basic and diluted.................... $ 0.99 $ 0.67 $ 0.43
======== ======== ========
Weighted average shares outstanding -- basic and diluted... 82,668 75,252 55,924
======== ======== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 40
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
CONVERTIBLE
REDEEMABLE
PREFERRED STOCK COMMON STOCK
------------------ ---------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL
------ --------- ------ ------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997... 10,000 $10,000 $175,750 $ 22,601 $ (27,712) $ 180,639
Exercise of warrants....... 4,185 4,185 129,327 (22,601) 110,911
Exercise of rights......... 1,131 1,131 28,845 29,976
Stock split................ 15,317 15,317 (15,317)
Exercise of stock
options.................. 5 5 38 43
Warrants issued in
connection with
Globalstar, L.P.'s
11 3/8% Senior Notes..... 12,210 12,210
Net loss................... (24,152) (24,152)
------ ------- -------- -------- --------- ----------
Balance, December 31,
1997..................... 30,638 30,638 318,643 12,210 (51,864) 309,627
Exercise of warrants....... 33 33 1,180 (176) 1,037
Conversion of convertible
preferred equivalent
obligations and stock
issued on related
make-whole interest
payment.................. 10,331 10,331 309,919 320,250
Stock split................ 40,997 40,997 (40,997)
Exercise of stock
options.................. 18 18 57 75
Net loss................... (50,561) (50,561)
------ ------- -------- -------- --------- ----------
Balance, December 31,
1998..................... 82,017 82,017 588,802 12,034 (102,425) 580,428
Exercise of warrants....... 163 163 3,097 (495) 2,765
Issuance of 8% Series A
convertible redeemable
preferred stock.......... 7,000 $ 339,775 339,775
Conversion of 8% Series A
convertible redeemable
preferred stock and
related make-whole
dividend payment......... (2,604) (126,382) 6,522 6,522 143,777 (23,917)
Issuance of 9% Series B
convertible redeemable
preferred stock.......... 3,000 145,575 145,575
Exercise of stock
options.................. 41 41 153 194
Dividends on convertible
redeemable preferred
stock.................... (25,793) (25,793)
Stock compensation
transactions for the
benefit of Globalstar.... 20,786 20,786
Net loss................... (32,151) (32,151)
------ --------- ------ ------- -------- -------- --------- ----------
Balance, December 31,
1999..................... 7,396 $ 358,968 88,743 $88,743 $756,615 $ 11,539 $(184,286) $1,031,579
====== ========= ====== ======= ======== ======== ========= ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 41
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss.................................................. $ (32,151) $ (50,561) $ (24,152)
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P. .......................... 81,861 50,561 24,152
Accretion to redemption value of redeemable preferred
partnership interests................................... (351) (1,052)
Dividends accrued on redeemable preferred partnership
interests............................................... (3,323) 1,679
Amortization of convertible preferred equivalent
obligations issue costs................................. 351 1,052
Dividend income on Globalstar, L.P. make-whole payment on
conversion of 8% redeemable preferred partnership
interests............................................... (23,917)
Change in operating liability:
Interest payable........................................ (1,679)
--------- --------- ---------
Net cash provided by operating activities................. 22,470 -- --
--------- --------- ---------
Investing activities:
Purchase of ordinary partnership interests in
Globalstar, L.P. ..................................... (2,959) (1,112) (140,930)
Purchase of 8% redeemable preferred partnership
interests in Globalstar, L.P. ........................ (339,775)
Purchase of 9% redeemable preferred partnership
interests in Globalstar, L.P. ........................ (145,575)
Purchase of warrants in Globalstar, L.P. ............... (12,210)
--------- --------- ---------
Net cash used in investing activities..................... (488,309) (1,112) (153,140)
--------- --------- ---------
Financing activities:
Net proceeds from issuance of common stock upon exercise
of options and warrants............................... 2,959 1,112 43
Proceeds from issuance of 8% Series A convertible
redeemable preferred stock............................ 339,775
Proceeds from issuance of 9% Series B convertible
redeemable preferred stock............................ 145,575
Payment of preferred stock dividends.................... (22,470)
Proceeds from issuance of warrants in connection with
sale of Globalstar, L.P.'s 11 3/8% Senior Notes....... 12,210
Proceeds from exercise of guarantee warrants............ 110,911
Proceeds from exercise of GTL rights.................... 29,976
--------- --------- ---------
Net cash provided by financing activities................. 465,839 1,112 153,140
--------- --------- ---------
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 payments into ordinary
partnership interests................................. $ 150,299 $ 320,250
========= =========
Common stock issued upon conversion of convertible
preferred securities and related interest and dividend
make-whole payments................................... $ 150,299 $ 320,250
========= =========
Stock compensation transactions for the benefit of
Globalstar............................................ $ 20,786
=========
Supplemental information:
Interest paid during the year............................. $ 2,510 $ 5,037 $ 20,150
========= ========= =========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 42
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
On November 23, 1994, Globalstar Telecommunications Limited ("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, L.P.
("Globalstar"), a development stage limited partnership as of December 31, 1999,
which in January 2000 began operating a low-earth orbit satellite-based wireless
digital telecommunications system (the "Globalstar 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.
In the first quarter of 2000, Globalstar commenced commercial operations
and began the transition from a development stage entity to an operating entity.
Prior to the first quarter of 2000, Globalstar devoted substantially all of its
efforts to the design, development and construction of the Globalstar System and
preparation for commercial operations. In 2000, Globalstar operations will focus
on operating the Globalstar System and the provisioning of global wireless
telecommunications services.
Globalstar operates in one industry segment, global mobile telephone
service.
Loral Space & Communications Ltd. ("Loral"), through a subsidiary and
intermediate limited partnerships, is the managing general partner of
Globalstar. As of December 31, 1999, Loral owned 24,782,997 (approximately 41%)
ordinary partnership interests of Globalstar, including interests attributable
to 8,363,630 shares of GTL's outstanding common stock.
As of December 31, 1999, GTL owned 21,906,823 (36.6%) of Globalstar's
59,844,323 outstanding ordinary partnership interests, 100% of the outstanding
8% convertible redeemable preferred partnership interests (the "8% RPPIs") and
100% of the outstanding 9% convertible redeemable preferred partnership
interests (the "9% RPPIs") (see Note 5). As GTL's investment in Globalstar is
GTL's only asset, GTL is dependent upon Globalstar's success and achievement of
profitable operations for the recovery of its investment. Globalstar is a
development stage limited partnership which may encounter problems, delays and
expenses, many of which may be beyond Globalstar's control. These may include,
but are not limited to, in-orbit failures, problems related to technical
development of the system, testing, regulatory compliance, 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 and affect the recoverability of GTL's investment. All
expenses necessary to maintain GTL's operations are borne by Globalstar.
Pursuant to other equity arrangements entered into by Globalstar (in which
GTL is not a participant), Globalstar has reserved additional ordinary
partnership interests for issuance for outstanding warrants issued to China
Telecom to purchase Globalstar ordinary partnership interests (937,500
interests) and warrants issued to Loral as consideration for the guarantee of
Globalstar's $500 million credit facility (3,450,000 interests).
In addition, Qualcomm Incorporated ("Qualcomm") has agreed to provide
Globalstar $500 million of vendor financing (for which the terms of $400 million
are still being finalized). In connection with the agreement, Qualcomm is
expected to receive a number of warrants to purchase Globalstar partnership
F-7
<PAGE> 43
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND BUSINESS -- (CONTINUED)
interests comparable to those received by Loral pursuant to Loral's guarantee of
Globalstar's $500 million credit facility (see above).
The issuance and exercise of such warrants would further dilute GTL's
interest in Globalstar's ordinary partnership interests.
In each of 1998 and 1997, GTL issued two-for-one stock splits to
shareholders in the form of 100% stock dividends. Accordingly, all GTL share and
per share amounts, excluding the balance sheet and statement of stockholders'
equity have been restated to reflect the stock splits (see Note 6).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Globalstar, L.P.
GTL accounts for its investment in Globalstar's ordinary partnership
interests on the equity basis, recognizing its allocated share of net loss for
each period since its initial investment on February 22, 1995. This investment
includes the fair value of warrants received or acquired from Globalstar in 1996
and 1997 and the 8% RPPIs and 9% RPPIs (see Notes 3, 4 and 5). The excess
carrying value of this investment over GTL's interest in Globalstar's total
partners' capital was $612 million as of December 31, 1999. Amortization of this
excess will begin in 2000, on a straight-line basis over 20 years.
Stock Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," ("SFAS 123") GTL accounts for
stock-based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25").
Income Taxes
GTL is incorporated in Bermuda. Bermuda does not have an income, profits or
capital gains tax. As a partner in Globalstar, however, GTL will be subject to
U.S. federal, state and local income taxation at regular corporate rates plus an
additional 30% "branch profits" tax on its share of Globalstar's income that is
effectively connected with the conduct of a trade or business in the U.S. and
may be subject to tax in some foreign jurisdictions on portions of its share of
the partnership's foreign source income. Commencing with its investment in
Globalstar, GTL has been allocated its proportionate share of partnership tax
losses. The ultimate realizability of these tax loss carryforwards is dependent
upon the ability of Globalstar to generate U.S. income, subject to certain other
restrictions imposed by the U.S. Internal Revenue Code. Accordingly, no
provision for Bermuda or U.S. income tax expense or benefit is included in GTL's
Statements of Operations.
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 years ended December 31, 1999, 1998 and 1997,
diluted weighted average common shares outstanding excludes the weighted average
effect of the assumed conversion of GTL's 8% Series A Convertible Redeemable
Preferred Stock (the "8% Preferred Stock") into 13.7 million common shares for
1999 (see Note 5), the assumed conversion of GTL's 9% Series B Convertible
Redeemable Preferred Stock (the "9% Preferred Stock") into 0.5 million common
shares for 1999 (see Note 5), the assumed exercise of outstanding options and
warrants, using the treasury
F-8
<PAGE> 44
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
stock method, into 7.3 million, 5.8 million and 8.5 million common shares for
1999, 1998 and 1997, respectively, and the assumed conversion, prior to actual
conversion in April 1998, of GTL's Convertible Preferred Equivalent Obligations
into 6.7 million and 20.1 million common shares for 1998 and 1997, 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 1999, 1998 and 1997.
Comprehensive Income
During the periods presented, GTL had no changes in equity from
transactions or other events and circumstances from non-owner sources.
Accordingly, a statement of comprehensive loss has not been provided.
3. REDEMPTION OF CONVERTIBLE PREFERRED EQUIVALENT OBLIGATIONS AND CONVERSION OF
REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
During 1996, GTL issued 6.2 million shares of its 6 1/2% Convertible
Preferred Equivalent Obligations due 2006, par value $50 per share (the
"CPEOs"). The net proceeds of $299.5 million were used by GTL to purchase
4,769,230 of 6 1/2% convertible redeemable preferred partnership interests
("6 1/2% RPPIs") in Globalstar. Costs incurred in connection with the issuance
of the CPEOs were netted against the proceeds of the offering. Interest expense
included accretion of the carrying value of the CPEOs and dividend income
included accretion of the carrying value of the 6 1/2 RPPIs to their redemption
value prior to their conversion.
On April 30, 1998, GTL redeemed all of its outstanding CPEOs. As of April
30, 1998, all the holders of the CPEOs had converted their holdings into
20,123,230 shares of GTL common stock. As a result of such conversion, the
6 1/2% RPPIs were converted into 4,769,230 Globalstar ordinary partnership
interests. In connection with the redemption, GTL issued 539,322 additional
shares of GTL common stock in satisfaction of a required interest make-whole
payment. A corresponding dividend make-whole payment was also made by Globalstar
for which an additional 134,830 Globalstar ordinary partnership interests were
issued. Such make-whole payments are reflected as dividend income and interest
expense in the accompanying statements of operations. On May 10, 1999,
Globalstar paid the holders of the 6 1/2% RPPIs $2.51 million for unpaid
dividends during the period March 1, 1998 to the conversion date.
4. SENIOR NOTE WARRANTS
On February 13, 1997, GTL and Globalstar sold units consisting of $500
million aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004
and warrants to purchase 4,129,000 shares of GTL common stock in a private
offering. GTL was allocated $12,210,000 of the offering proceeds for these
warrants which were used to purchase warrants for Globalstar's ordinary
partnership interests.
As of December 31, 1999, there were outstanding warrants to purchase
3,906,524 shares of GTL common stock which were exercisable at a price of
$17.394 per share and expire on February 15, 2004. Any proceeds from the
exercise of the warrants will be used to purchase Globalstar ordinary
partnership interests.
5. SHAREHOLDERS' EQUITY
Common Stock
In May 1997 and June 1998, GTL issued two-for-one stock splits in the form
of 100% stock dividends. Accordingly, all GTL share and per share amounts,
excluding the balance sheets and statements of
F-9
<PAGE> 45
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY -- (CONTINUED)
shareholders' equity, have been restated to reflect the two-for-one stock
splits. Prior to the stock splits, GTL's equity securities and convertible
securities were represented by equivalent Globalstar partnership interests on an
approximate one-for-one basis. Globalstar's partnership interests were not
affected by the GTL stock splits and, accordingly, GTL's equity securities and
convertible securities are now represented by equivalent Globalstar partnership
interests on an approximate four-for-one basis.
Partners in Globalstar have the right to exchange their ordinary
partnership interests into common stock of GTL on an approximate one-for-four
basis following Globalstar's commencement of service date and after at least two
consecutive quarters of positive net income, subject to certain annual
limitations. GTL has reserved approximately 153.7 million shares for this
purpose.
Shelf Registration
In July 1999, Globalstar and GTL filed a shelf registration statement (the
"Shelf Registration Statement") with the SEC covering up to $500 million of
securities. Under the Shelf 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 (see Note 7).
8% Preferred Stock
On January 21, 1999, GTL sold seven million shares (face amount of $50 per
share) of 8% Preferred Stock which have 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 8% 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. Loral purchased 3 million shares ($150 million face amount)
of the 8% Preferred Stock issued, in order to maintain its prior percentage
ownership interest in Globalstar. GTL used the net proceeds of approximately
$340 million to purchase seven million units (face amount of $50 per unit) of
Globalstar's 8% RPPIs having terms substantially similar to those of the 8%
Preferred Stock.
The 8% Preferred Stock has limited voting rights. With respect to dividend
rights and rights upon liquidation, winding up and dissolution, the 8% Preferred
Stock ranks parri passu with the 9% Preferred Stock and 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 8% Preferred Stock. Prior to its
mandatory redemption date, the 8% 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 8% 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 8% Preferred Stock will be entitled to
elect additional members to GTL's Board of Directors.
On June 30, 1999 and November 29, 1999, 100 and 2,603,605 shares of 8%
Preferred Stock, respectively, were converted into 215 and 5,597,693 shares of
GTL common stock, respectively. As a result of such conversions, the 8% RPPIs
were converted into 1,382,178 Globalstar ordinary partnership interests. In
connection with certain of the conversions, GTL agreed to issue 924,324
additional shares of GTL common stock representing the equivalent of the
dividend pre-payments to which the holders would have been entitled if a
redemption had been made. A corresponding dividend make-whole payment was also
made by Globalstar
F-10
<PAGE> 46
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY -- (CONTINUED)
for which an additional 231,081 Globalstar ordinary partnership interests were
issued. Such make-whole payments are reflected as dividend income in the
accompanying statements of operations. The remaining shares of 8% Preferred
Stock outstanding at December 31, 1999 were convertible into 9,451,837 shares of
GTL common stock.
9% Preferred Stock
On December 2, 1999, GTL sold three million shares (face amount of $50 per
share) of 9% Preferred Stock. The 9% Preferred Stock has an aggregate
liquidation preference equal to its $150 million aggregate redemption value and
a mandatory redemption date of December 1, 2011. Dividends accrue at 9% per
annum and are payable quarterly. The 9% Preferred Stock is convertible into
shares of GTL common stock at a conversion price of $25.9569 per share, subject
to adjustment for certain antidilution events. GTL used the net proceeds of
approximately $145 million to purchase three million units (face amount of $50
per unit) of Globalstar's 9% RPPIs having terms substantially similar to those
of the 9% Preferred Stock. As of December 31, 1999, the outstanding shares of 9%
Preferred Stock were convertible into 5,778,810 shares of GTL common stock.
The 9% Preferred Stock has limited voting rights. With respect to dividend
rights and rights upon liquidation, winding up and dissolution, the 9% Preferred
Stock ranks parri passu with the 8% Preferred Stock and senior to common stock
and to all other future series of preferred stock, unless otherwise specified,
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 9%
Preferred Stock. Prior to its mandatory redemption date, the 9% Preferred Stock
is redeemable (at a premium which declines over time) by GTL beginning in
December 2002 (or beginning in December 2000 if GTL's stock price exceeds
certain defined price ranges). Payments due on the 9% 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 9%
Preferred Stock will be entitled to elect additional members to GTL's Board of
Directors.
Guarantee Warrants
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Globalstar Credit Agreement") with a group of banks. Lockheed
Martin Corporation ("Lockheed Martin"), Space Systems/ Loral, Inc. ("SS/L"), a
subsidiary of Loral, and certain Globalstar partners guaranteed $206.3 million,
$11.7 million and $32.0 million of the Globalstar Credit Agreement,
respectively. In addition, Loral agreed to indemnify Lockheed Martin for any
liability in excess of $150 million. In exchange for the guarantee and
indemnity, GTL issued warrants to purchase 16,741,272 shares of GTL common stock
at $6.625 per share as follows: Loral and SS/L 4,550,088 warrants, Lockheed
Martin 10,044,760 warrants and certain Globalstar partners 2,146,424 warrants.
As part of this transaction, Globalstar issued to GTL, warrants to purchase an
additional 1,131,168 ordinary partnership interests of Globalstar. In addition,
GTL distributed to the holders of its common stock rights to subscribe for and
purchase 4,524,672 GTL shares for a price of $6.625 per share of which Loral
received rights to purchase 636,688 shares and Loral agreed to purchase all
shares not purchased upon exercise of the rights. In March 1997, the warrants to
purchase 16,741,272 shares of GTL common stock were exercised for proceeds of
approximately $110.9 million. In May 1997, GTL shareholders exercised the rights
to purchase 4,524,672 shares of GTL common stock (including 700,696 shares
purchased by Loral) for $6.625 per share for proceeds of $30.0 million. GTL used
the total proceeds of $140.9 million to purchase 5,316,486 Globalstar ordinary
partnership interests for $26.50 per interest.
F-11
<PAGE> 47
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY -- (CONTINUED)
Stock Option Arrangements
Officers, directors and employees of Globalstar are eligible to participate
in GTL's 1994 Stock Option Plan (the "Plan"), which provides for nonqualified
and incentive stock options. The Plan is administered by a stock option
committee (the "Committee"), appointed by GTL's Board of Directors. The
Committee determines the option price, exercise date and the expiration date of
each option (provided no option shall be exercisable after ten years from the
date of grant). Proceeds received by GTL for options exercised will in turn be
used to purchase Globalstar ordinary partnership interests under an approximate
four-for-one exchange arrangement.
As described in Note 2, GTL accounts for its employee stock-based
compensation using the intrinsic value method in accordance with APB 25, and its
related interpretations. Accordingly, no compensation expense based on the fair
value method has been recognized in GTL's financial statements for employee
stock-based compensation.
SFAS No. 123 requires the disclosure of pro forma net income and earnings
per share as though GTL had adopted the fair value method. Under SFAS 123, the
fair value of stock-based awards to employees is calculated through the use of
option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from GTL's stock option awards. These
models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. GTL's calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions: expected life, six to
twelve months following vesting; stock volatility, 50% for 1999 and 30% for 1998
and 1997; risk free interest rates, 4.4% to 6.6% based on date of grant; and no
dividends during the expected term. GTL's calculations are based on a multiple
option valuation approach and forfeitures are recognized as they occur. If the
computed fair values of the 1999, 1998, and 1997 awards had been amortized to
Globalstar's expense over the vesting period of the awards, GTL's pro forma net
loss applicable to common shareholders and the related loss per share would have
been $83,567,000 or $1.01 per diluted share in 1999, $51,415,000 or $0.68 per
diluted share in 1998 and $24,837,000 or $0.44 per diluted share in 1997.
F-12
<PAGE> 48
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY -- (CONTINUED)
A summary of the status of the GTL stock option plan for the years ended
December 31, 1999, 1998 and 1997 is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1997......................... 924,800 $ 9.21
Granted (weighted average fair value of $7.10 per
share)............................................... 527,800 21.97
Forfeited.............................................. (58,800) 11.16
Exercised.............................................. (10,360) 4.16
--------- ------
Outstanding at December 31, 1997....................... 1,383,440 14.03
Granted (weighted average fair value of $5.73 per
share)............................................... 810,400 19.42
Forfeited.............................................. (54,000) 18.56
Exercised.............................................. (18,150) 4.16
--------- ------
Outstanding at December 31, 1998....................... 2,121,690 16.06
Granted (weighted average fair value of $10.98 per
share)............................................... 2,821,500 22.79
Forfeited.............................................. (258,300) 19.87
Exercised.............................................. (41,090) 4.71
--------- ------
Outstanding at December 31, 1999....................... 4,643,800 $20.03
========= ======
Options exercisable at December 31, 1999............... 584,433 $11.72
========= ======
Options exercisable at December 31, 1998............... 291,890 $ 7.83
========= ======
Options exercisable at December 31, 1997............... 95,240 $ 4.16
========= ======
</TABLE>
The options generally expire ten years from the date of grant and become
exercisable over the period stated in each option, generally ratably over a
five-year period. All options granted were non-qualified stock options with an
exercise price equal to fair market value at the date of grant. During 1999, the
Company granted stock options to certain non-employees to purchase 579,400
shares of GTL common stock. The fair value of such options totaled approximately
$20,786,000, has been recorded as additional investment in Globalstar and is
being amortized by Globalstar over the vesting period. The fair value
attributable to the unvested portion of such options is subject to adjustment
based upon the future value of GTL's common stock. As of December 31, 1999,
286,600 shares of common stock were available for future grant under the Plan.
F-13
<PAGE> 49
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY -- (CONTINUED)
The following table summarizes information about GTL's outstanding stock
options at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------ -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
- -------------------- --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$4.16......................... 329,300 5.69 $ 4.16 234,900 $ 4.16
$12.59 to $19.38.............. 1,027,100 7.70 13.80 246,200 13.54
$20.63 to $30.28.............. 3,287,400 9.15 23.57 103,333 24.54
--------- -------
4,643,800 8.59 $20.03 584,433 $11.72
========= =======
</TABLE>
Stock Option Transactions
GTL and Globalstar have agreed that upon the exercise of options under the
GTL 1994 Stock Option Plan by optionees who are employees of Globalstar or any
of its controlling entities, Globalstar will issue to GTL one Globalstar
ordinary partnership interest for approximately every four shares of common
stock issued to the optionee. During 1999, 1998 and 1997, GTL purchased 10,273,
4,538 and 2,590 Globalstar ordinary partnership interests, respectively, with
the proceeds from the issuance of the common stock pursuant to GTL option
exercises.
6. INCOME TAXES
As a partner in Globalstar, GTL has been allocated its proportionate share
of partnership tax losses. To the extent that these losses are effectively
connected with the conduct of a trade or business in the U.S., they will be
available as a carryforward to offset GTL's share of Globalstar's income that
may be subject to U.S. tax in the future. As of December 31, 1999, GTL had
approximately $117.4 million of such effectively connected losses available for
carryforward which expire at varying dates from 2010 through 2019.
Since the ultimate realizability of these tax loss carryforwards is
dependent upon the ability of Globalstar to generate sufficient U.S. income in
the future, GTL has established a 100% valuation allowance against the deferred
tax asset related to these loss carryforwards. Accordingly, no income tax
expense or benefit is included in GTL's statements of operations and net
deferred taxes are zero at December 31, 1999 and 1998.
7. SUBSEQUENT EVENT
On February 1, 2000, GTL sold 8,050,000 shares of common stock in a public
offering under the Shelf Registration Statement. The purchase price was $35 per
share, yielding net proceeds of approximately $268.5 million to the Company. GTL
used the proceeds to purchase 1,987,654 ordinary partnership interests in
Globalstar. Globalstar plans to use the proceeds for general corporate purposes
which may include the acceleration of Globalstar's roll-out through increased
support of service provider marketing activities and the funding of promotional
discounts; the development of new features; or potential repayment of debt.
F-14
<PAGE> 50
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30,(1) DEC. 31,(2)
--------- -------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1999:
Equity in net loss applicable to
ordinary Partnership interests of
Globalstar........................... $15,698 $15,777 $16,769 $33,617
Net loss............................... 10,948 8,347 9,640 3,216
Net loss applicable to common
shareholders......................... 15,698 15,777 16,769 33,617
Net loss per share -- basic and
diluted.............................. 0.19 0.19 0.20 0.41
1998:
Equity in net loss applicable to
ordinary partnership interests of
Globalstar........................... $ 7,290 $13,279 $14,555 $15,437
Net loss............................... 7,290 13,279 14,555 15,437
Net loss applicable to common
shareholders......................... 7,290 13,279 14,555 15,437
Net loss per share -- basic and
diluted.............................. 0.12 0.18 0.18 0.19
</TABLE>
- ---------------
(1) Results of operations for the quarter ended September 30, 1998, include
GTL's proportionate share of Globalstar's $17.3 million loss from launch
failure.
(2) Results of operations for the quarter ended December 31, 1999, include GTL's
proportionate share of Globalstar's $29.9 million write-off of excess launch
vehicle deposits.
F-15
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
To the Partners of Globalstar, L.P.:
We have audited the accompanying consolidated balance sheets of Globalstar,
L.P. (a development stage limited partnership) and its subsidiaries
(collectively, the "Partnership") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, partners' capital and
subscriptions receivable and cash flows for each of the three years in the
period ended December 31, 1999 and cumulative. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Partnership at December 31,
1999 and 1998, and the results of its operations and its cash flows for the
periods stated above in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 22, 2000
F-16
<PAGE> 52
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
(In thousands, except partnership interests)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 127,675 $ 56,223
Restricted cash........................................... 46,246 516
Insurance proceeds receivable............................. 28,500
Production gateways and user terminals.................... 114,980 145,509
Other current assets...................................... 4,001 5,540
---------- ----------
Total current assets............................... 292,902 236,288
Property and equipment, net................................. 5,128 4,958
Globalstar System under construction:
Space segment............................................. 2,109,275 1,615,485
Ground segment............................................ 1,071,914 686,848
---------- ----------
3,181,189 2,302,333
Additional spare satellites................................. 53,467
Deferred financing costs.................................... 151,873 15,845
Other assets................................................ 96,900 110,601
---------- ----------
Total assets....................................... $3,781,459 $2,670,025
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 10,908 $ 14,240
Payable to affiliates..................................... 468,536 216,542
Vendor financing liability................................ 137,484 127,180
Accrued expenses.......................................... 20,841 11,679
Accrued interest.......................................... 33,533 31,549
---------- ----------
Total current liabilities.......................... 671,302 401,190
Deferred revenues........................................... 25,811 25,811
Vendor financing liability, net of current portion.......... 256,311 243,990
Deferred interest payable................................... 595 458
Term loans payable.......................................... 400,000
Senior notes payable ($1,450,000 aggregate principal
amount)................................................... 1,399,111 1,396,175
Commitments and contingencies (Notes 3, 5, 6, 7, 8, 12 and
14)
Partners' capital:
8% Series A convertible redeemable preferred partnership
interests (4,396,295 interests outstanding at December
31, 1999, $220 million redemption value)............... 213,393
9% Series B convertible redeemable preferred partnership
interests (3,000,000 interests outstanding at December
31, 1999, $150 million redemption value)............... 145,575
Ordinary partnership interests (59,844,323 and
58,180,093 interests outstanding at December 31, 1999
and 1998, respectively)................................ 516,530 573,421
Unearned compensation................................... (16,754)
Warrants................................................ 169,585 28,980
---------- ----------
Total partners' capital............................ 1,028,329 602,401
---------- ----------
Total liabilities and partners' capital............ $3,781,459 $2,670,025
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE> 53
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per ordinary partnership interest amounts)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23,1994
YEARS ENDED DECEMBER 31, (COMMENCEMENT
------------------------------- OF OPERATIONS) TO
1997 1998 1999 DECEMBER 31, 1999
------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Operating expenses:
Development costs........................ $62,478 $ 86,253 $ 94,313 $369,329
Marketing, general and administrative.... 25,593 43,116 62,279 173,981
Launch related costs (Note 5)............ 17,315 29,913 47,228
------- -------- -------- --------
Total operating expenses......... 88,071 146,684 186,505 590,538
Interest income............................ 20,485 17,141 6,141 63,918
------- -------- -------- --------
Net loss................................... 67,586 129,543 180,364 526,620
Preferred distributions on redeemable
preferred partnership interests and
accretion to redemption value............ 21,202 22,197 52,220 112,942
------- -------- -------- --------
Net loss applicable to ordinary partnership
interests................................ $88,788 $151,740 $232,584 $639,562
======= ======== ======== ========
Net loss per ordinary partnership
interest -- basic and diluted............ $ 1.74 $ 2.69 $ 3.99
======= ======== ========
Weighted average ordinary partnership
interests outstanding -- basic and
diluted.................................. 50,981 56,323 58,341
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE> 54
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL AND
SUBSCRIPTIONS RECEIVABLE
(in thousands)
PARTNERS' CAPITAL
<TABLE>
<CAPTION>
CONVERTIBLE
REDEEMABLE
PREFERRED ORDINARY
PARTNERSHIP PARTNERSHIP UNEARNED
INTERESTS INTERESTS COMPENSATION WARRANTS TOTAL
----------- ----------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Capital subscription, March 23, 1994
General partner (18,000 interests)........... $ 50,000 $ 50,000
Limited partner (18,000 interests)........... 225,000 225,000
Cost of raising capital........................ (2,400) (2,400)
Net losses -- pre-capital subscription period:
Year ended December 31, 1993................. (11,510) (11,510)
January 1, 1994 to March 22, 1994............ (6,872) (6,872)
Net loss applicable to ordinary partnership
interests -- March 23, 1994 (commencement of
operations) to December 31, 1994............. (26,244) (26,244)
Capital subscription, December 31, 1994 (1,000
limited partnership interests)............... 18,750 18,750
--------- --------- -------- -------- ----------
Capital balances, December 31, 1994............ 246,724 246,724
Sale of general partnership interests to GTL,
February 22, 1995 (10,000 interests)......... 185,750 185,750
Warrant agreement in connection with debt
guarantee.................................... $22,601 22,601
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1995.... (68,237) (68,237)
--------- --------- -------- -------- ----------
Capital balances -- December 31, 1995.......... 364,237 22,601 386,838
Stock compensation transactions by managing
general partner for the benefit of
Globalstar................................... 317 317
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1996.... (71,969) (71,969)
--------- --------- -------- -------- ----------
Capital balances -- December 31, 1996.......... 292,585 22,601 315,186
Exercise of warrants in March 1997 (5,316
interests)................................... 163,488 (22,601) 140,887
Warrant agreement in connection with issuance
of senior notes.............................. 12,210 12,210
Stock compensation transactions by managing
general partner for the benefit of
Globalstar................................... 1,290 1,290
Sale of ordinary partnership interests in
connection with GTL stock option exercises (3
interests)................................... 43 43
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1997.... (88,788) (88,788)
--------- --------- -------- -------- ----------
Capital balances -- December 31, 1997.......... 368,618 12,210 380,828
Exercise of warrants (15 interests)............ 1,213 (176) 1,037
Stock compensation transactions by managing
general partner for the benefit of
Globalstar................................... 1,284 1,284
Sale of ordinary partnership interests in
connection with GTL stock option exercises (5
interests)................................... 75 75
Conversion of redeemable preferred partnership
interests into ordinary partnership interests
and related dividend make-whole
payment -- April 1998 (4,904 interests)...... 320,250 320,250
</TABLE>
F-19
<PAGE> 55
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL AND
SUBSCRIPTIONS RECEIVABLE -- (CONTINUED)
(in thousands)
<TABLE>
<CAPTION>
CONVERTIBLE
REDEEMABLE
PREFERRED ORDINARY
PARTNERSHIP PARTNERSHIP UNEARNED
INTERESTS INTERESTS COMPENSATION WARRANTS TOTAL
----------- ----------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Warrants issued to China Telecom to acquire
ordinary partnership interests............... 31,917 31,917
Exercise of warrants by China Telecom -- April
1998 (937 interests)......................... 33,721 (14,971) 18,750
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1998.... (151,740) (151,740)
--------- --------- -------- -------- ----------
Capital balances -- December 31, 1998.......... 573,421 28,980 602,401
Sale of 8% Series A convertible redeemable
preferred partnership interests -- January
1999......................................... $ 339,775 339,775
Exercise of warrants (41 interests)............ 3,260 (495) 2,765
Stock compensation transactions by managing
general partner for the benefit of
Globalstar................................... 1,154 1,154
Sale of ordinary partnership interests in
connection with GTL stock option exercises
(10 interests)............................... 194 194
Conversion of 8% Series A convertible
redeemable preferred partnership interests
into ordinary partnership interests and
related dividend make-whole payment -- June &
November 1999 (1,613 interests).............. (126,382) 150,299 23,917
Warrants issued for ordinary partnership
interests in exchange for debt guarantee..... 141,100 141,100
Sale of 9% Series B convertible redeemable
preferred partnership interests -- December
1999......................................... 145,575 145,575
Unearned compensation.......................... 20,786 (20,786)
Amortization of unearned compensation.......... .......... 4,032 4,032
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1999.... (232,584) (232,584)
--------- --------- -------- -------- ----------
Capital balances -- December 31, 1999.......... $ 358,968 $ 516,530 $(16,754) $169,585 $1,028,329
========= ========= ======== ======== ==========
SUBSCRIPTIONS RECEIVABLE
Capital subscriptions:
March 23, 1994............................... $ 275,000 $ 275,000
December 31, 1994............................ 18,750 18,750
--------- ----------
Total subscriptions.......................... 293,750 293,750
--------- ----------
Cash received................................ (148,661) (148,661)
Credit for pre-capital subscription costs.... (11,309) (11,309)
--------- ----------
(159,970) (159,970)
--------- ----------
Subscriptions receivable, December 31,
1994....................................... 133,780 133,780
Cash received.............................. (133,780) (133,780)
--------- ----------
Subscriptions receivable, December 31, 1995,
1996, 1997, 1998 and 1999.................. $ -- $ --
========= ==========
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE> 56
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
YEARS ENDED DECEMBER 31, (COMMENCEMENT
---------------------------------- OF OPERATIONS) TO
1997 1998 1999 DECEMBER 31, 1999
---------- --------- --------- -----------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss................................................... $ (67,586) $(129,543) $(180,364) $ (526,620)
Launch related costs....................................... 17,315 29,913 47,228
Deferred revenues.......................................... 2,159 25,811
Stock compensation transactions............................ 1,290 1,284 5,186 8,077
Depreciation and amortization.............................. 1,016 1,730 2,312 6,280
Changes in operating assets and liabilities:
Other current assets..................................... (507) (4,427) 1,539 (4,001)
Other assets............................................. (706) (9,768) (2,951) (13,532)
Accounts payable......................................... (2,017) 13,654 (7,120) 4,801
Payable to affiliates.................................... (1,488) 79,271 89,070 168,781
Accrued expenses......................................... 1,383 3,367 5,839 17,518
---------- --------- --------- -----------
Net cash used in operating activities................ (68,615) (24,958) (56,576) (265,657)
---------- --------- --------- -----------
Investing activities:
Globalstar System under construction....................... (710,991) (941,014) (880,980) (3,391,128)
Insurance proceeds from launch failure..................... 162,000 28,500 190,500
Payable to affiliates for Globalstar System under
construction............................................. 42,908 31,914 145,441 272,964
Capitalized interest accrued............................... 39,552 16,757 23,697 85,232
Accounts payable........................................... (1,112) (686) 3,788 6,107
Vendor financing liability................................. 67,029 173,447 22,625 393,795
---------- --------- --------- -----------
Cash used for Globalstar System............................ (562,614) (557,582) (656,929) (2,442,530)
Advances for production gateways and user terminals........ (32,642) (127,856) (23,179) (183,677)
Cash receipts for production gateways and user terminals... 4,129 10,860 53,708 68,697
Receipt and use of restricted cash......................... (2,466) 1,950 (45,730) (46,246)
Additional spare satellites................................ (53,467) (53,467)
Payables to affiliates for additional spare satellites..... 17,483 17,483
Purchases of property and equipment........................ (1,870) (4,114) (2,482) (11,408)
Other assets............................................... (24,889) (5,250) (9,939) (72,968)
Deferred FCC license costs................................. (1,652) (892) (1,198) (10,197)
Purchases of investments................................... (126,923)
Maturity of investments.................................... 126,923
---------- --------- --------- -----------
Net cash used in investing activities................ (622,004) (682,884) (721,733) (2,734,313)
---------- --------- --------- -----------
Financing activities:
Net proceeds from issuance of $500,000, 11 3/8% Senior
Notes.................................................... 472,090 472,090
Proceeds from warrants issued in connection with $500,000,
11 3/8% Senior Notes..................................... 12,210 12,210
Net proceeds from issuance of $325,000 11 1/4% Senior
Notes.................................................... 301,850 301,850
Net proceeds from issuance of $325,000 10 3/4% Senior
Notes.................................................... 320,197 320,197
Net proceeds from issuance of $300,000 11 1/2% Senior
Notes.................................................... 287,552 287,552
Proceeds from issuance of $100,000 Term Loan A............. 100,000 100,000
Proceeds from issuance of $300,000 Term Loan B............. 300,000 300,000
Deferred financing costs................................... (13,568) (15,693)
Proceeds from capital subscriptions receivable............. 282,441
Payment of accrued capital raising costs................... (2,400)
Sale of ordinary partnership interests..................... 140,930 19,862 2,959 349,501
Sale of 8% Series A convertible redeemable preferred
partnership interests to GTL............................. 339,775 639,275
Sale of 9% Series B convertible redeemable preferred
partnership interests to GTL............................. 145,575 145,575
Distributions on redeemable preferred partnership
interests................................................ (20,150) (5,037) (24,980) (65,000)
Prepaid interest on redeemable preferred partnership
interests................................................ 47
Borrowings under long-term revolving credit facility....... 65,000 75,000 246,000
Repayment of borrowings under long-term revolving credit
facility................................................. (161,000) (75,000) (246,000)
---------- --------- --------- -----------
Net cash provided by financing activities............ 1,131,127 302,377 849,761 3,127,645
---------- --------- --------- -----------
Net increase (decrease) in cash and cash equivalents........ 440,508 (405,465) 71,452 127,675
Cash and cash equivalents, beginning of period............. 21,180 461,688 56,223
---------- --------- ---------
Cash and cash equivalents, end of period................... $ 461,688 $ 56,223 $ 127,675 $ 127,675
========== ========= ========= ===========
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.............................................. $ 1,052 $ 351 $ 3,940
========== ========= ===========
Ordinary partnership interests distributed upon
conversion of redeemable preferred partnership
interests and related dividend make-whole payments..... $ 320,250 $ 150,299 $ 470,549
========= ========= ===========
Warrants issued to China Telecom to acquire ordinary
partnership interests.................................. $ 31,917 $ 31,917
========= ===========
Dividends accrued........................................ $ 3,323 $ 3,323
========= ===========
Stock compensation transactions issued by GTL on behalf
of Globalstar.......................................... $ 20,786 $ 20,786
========= ===========
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE> 57
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Globalstar, L.P. ("Globalstar"), a Delaware limited partnership with a
December 31 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 financial statements reflect the
operations of the Partnership from that date.
The managing general partner of Globalstar is Loral/QUALCOMM Satellite
Services, L.P. ("LQSS"). The general partner of LQSS is Loral/QUALCOMM
Partnership, L.P. ("LQP"), a Delaware limited partnership comprised of
subsidiaries of Loral Space & Communications Ltd., a Bermuda company (and with
its subsidiaries "Loral") and QUALCOMM Incorporated ("Qualcomm"). The managing
general partner of LQP is Loral General Partner, Inc. ("LGP"), a subsidiary of
Loral. As of December 31, 1999, Loral owned 24,782,997 (approximately 41%) of
the ordinary partnership interests of Globalstar, including interests
attributable to 8,363,630 shares of Globalstar Telecommunications Limited
("GTL") outstanding common stock.
Globalstar was founded to design, construct and operate a worldwide,
low-earth orbit ("LEO") satellite-based wireless digital telecommunications
system (the "Globalstar System"). The Globalstar System's worldwide 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. On January 31, 1995, the U.S. Federal Communications Commission
("FCC") granted the necessary license to a wholly-owned subsidiary of LQP to
construct, launch and operate the Globalstar System. LQP has agreed to use such
license for the exclusive benefit of Globalstar.
On November 23, 1994, GTL was incorporated as an exempted company under the
Companies Act 1981 of Bermuda. GTL's sole business is acting as a general
partner of Globalstar. On February 14, 1995, GTL completed an initial public
offering of 40,000,000 shares of common stock resulting in net proceeds of
$185,750,000. Effective February 22, 1995, GTL purchased 10,000,000 partnership
interests from Globalstar with the net proceeds of the initial public offering.
The partners in Globalstar have the right to convert their partnership interests
into shares of GTL common stock on an approximate one-for-four basis following
the Full Constellation Date, as defined, of the Globalstar System and after at
least two consecutive reported fiscal quarters of positive net income, subject
to certain annual limitations. As of December 31, 1999, GTL owned 21,906,823
(36.6%) of Globalstar's outstanding ordinary partnership interests and 100% of
the outstanding 8% and 9% convertible redeemable preferred partnership
interests.
Globalstar operates in one industry segment, global mobile telephone
service.
In each of 1998 and 1997, GTL issued two-for-one stock splits to
shareholders in the form of 100% stock dividends. Accordingly, all GTL share and
per share amounts, have been restated to reflect the stock splits (see Note 11).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Since Globalstar was founded it has devoted substantially all of its
efforts to the deployment, launch, licensing, construction and testing of the
Globalstar System, and establishing its business, including preparation for
commercial operations. As of December 31, 1999, Globalstar's planned principal
operations had not commenced and accordingly, Globalstar was a development stage
company as defined in Statement of Financial Accounting Standards No. 7,
Accounting and Reporting by Development Stage Enterprises.
F-22
<PAGE> 58
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
In the first quarter of 2000, Globalstar commenced commercial operations
and began the transition from a development stage entity to an operating entity.
In 2000, Globalstar operations will focus on operating the Globalstar System and
the provisioning of global wireless telecommunications services.
Globalstar may encounter problems, delays and expenses, many of which may
be beyond Globalstar's control. These may include, but are not limited to
in-orbit failures, problems related to technical development of the system,
testing, regulatory compliance, 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 (see Note 5).
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of expenses reported for the period. Actual results
could differ from estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Globalstar
and its wholly-owned subsidiaries, including Globalstar Capital Corporation. All
intercompany accounts and transactions are eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less.
Restricted Cash
Restricted cash consists of payments received from service providers for
the purchase of gateways. These funds are restricted and must be remitted to
Qualcomm in accordance with the gateway purchase agreement between Globalstar
and Qualcomm (see Note 3).
Concentration of Credit Risk
Financial instruments which potentially subject Globalstar to
concentrations of credit risk are cash and cash equivalents. Globalstar's cash
and cash equivalents are maintained with high-credit-quality financial
institutions. The creditworthiness of such institutions is generally substantial
and management believes that its credit evaluation, approval and monitoring
processes mitigate potential credit risks.
Property and Equipment
Property and equipment are stated at historical cost, less accumulated
depreciation. Depreciation is provided using the straight-line method over the
estimated useful lives of the respective assets, as follows:
<TABLE>
<S> <C>
Furniture, fixtures & equipment 3 to 8 years
Leasehold improvements Shorter of lease term or the
estimated useful lives of the
improvements
</TABLE>
F-23
<PAGE> 59
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Globalstar System Under Construction
The Globalstar System under construction includes costs for the design,
manufacture, test, launch and launch insurance for 52 low-earth orbit
satellites, including four in-orbit spare satellites (the "Space Segment"), and
ground and satellite operations control centers, gateways and user terminals
(the "Ground Segment").
Globalstar will depreciate the Space Segment and the Ground Segment over
periods of up to 10 years from the commencement of service in the first quarter
of 2000. Losses from unsuccessful launches and in-orbit failures of Globalstar's
satellites, net of insurance proceeds, are recorded in the period incurred (see
Note 5).
Costs incurred related to the development of certain technologies, pursuant
to a cost sharing arrangement included in Globalstar's contract with Qualcomm,
and for the engineering and development of user terminals, are charged to
operations as incurred.
The carrying value of the Globalstar System is reviewed for impairment
whenever events or changes in circumstances indicate that the recorded value of
the Space Segment and Ground Segment, taken as a whole, may not be recoverable.
The Company looks to current and future undiscounted cash flows, excluding
financing costs, as primary indicators of recoverability. If an impairment is
determined to exist, any related impairment loss is calculated based on fair
value.
Deferred Financing Costs and Interest
Deferred financing costs represent costs incurred in obtaining long-term
credit facilities and the estimated fair value of warrant agreements issued in
connection with the guarantee of these facilities (see Note 7). Such costs are
being amortized over the terms of the credit facilities as interest. Total
amortization of deferred financing costs for the years ended December 31, 1999,
1998 and 1997 was approximately $18.6 million, $4.9 million and $4.9 million,
respectively. Accumulated amortization totaled $33.7 million and $15.0 million
at December 31, 1999 and 1998, respectively.
Interest costs incurred during the construction of the Globalstar System
are capitalized. Total interest costs capitalized for the years ended December
31, 1999, 1998 and 1997 was approximately $233.8 million, $178.7 million and
$95.9 million, respectively.
Other Assets
Other assets primarily includes the fair value of warrants issued to China
Telecom (see Note 11) and expenditures, including license fees, legal fees and
direct engineering and other technical support, for obtaining the required FCC
licenses. Such amounts will be amortized over periods of up to 10 years, the
expected life of the first generation satellites. As of December 31, 1999,
Globalstar had long term deposits of approximately $45 million relating to
backup launch capacity supporting three additional launches, that will be used
to launch spare satellites or written off when such excess capacity is no longer
required.
Deferred Revenues
Advance payments from Globalstar strategic partners to secure exclusive
rights to Globalstar service territories are deferred. These advance payments
are recoverable by the service providers, through credits against a portion of
the service fees payable to Globalstar, after the commencement of service.
F-24
<PAGE> 60
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Vendor Financing
Globalstar's contracts with Space Systems/Loral, Inc. ("SS/L"), a
subsidiary of Loral, and Qualcomm call for a portion of the contract price to be
deferred as vendor financing and to be repaid, over as long as a five-year
period, commencing upon various dates (see Note 6). Amounts deferred as vendor
financing are recorded as incurred.
Notes Payable
Interest accrues on the $500 million, $325 million, $325 million and $300
million principal amount senior notes at 11 3/8%, 11 1/4%, 10 3/4% and 11 1/2%
per annum, respectively. Globalstar is increasing the carrying value of the
senior notes payable to their ultimate redemption value.
Preferred Partnership Distributions
Distributions are accrued on redeemable preferred partnership interests at
the stated rate per annum. Distributions are recorded as reductions against the
ordinary partnership capital accounts (see Notes 10 and 11).
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") Globalstar accounts for
stock-based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25").
Net (Loss) Income Allocation
Net losses are allocated among the partners in proportion to their
percentage interests until the adjusted capital account of a partner is reduced
to zero, then in proportion to, and to the extent of, positive adjusted capital
account balances and then to the general partners.
Net income is allocated among the partners in proportion to, and to the
extent of, the distributions made to the partners from distributable cash flow
for the period, as defined, then in proportion to and to the extent of negative
adjusted capital account balances and then in accordance with percentage
interests.
Under the terms of the Globalstar's partnership agreement, adjusted
partners' capital accounts are calculated in accordance with the principles of
U.S. Treasury regulations governing the allocation of taxable income and loss
including adjustments to reflect the fair market value (including intangibles)
of partnership assets upon certain capital transactions including a sale of
partnership interests. Such adjustments are not permitted under generally
accepted accounting principles and, accordingly, are not reflected in the
accompanying consolidated financial statements.
Income Taxes
Globalstar was organized as a Delaware limited partnership. As such, no
income tax provision (benefit) is included in the accompanying consolidated
financial statements since U.S. income taxes are the responsibility of its
partners. Generally, taxable income (loss), deductions and credits of Globalstar
will be passed proportionately through to its partners.
F-25
<PAGE> 61
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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
ordinary partnership interest. Due to Globalstar's net losses for the years
ended December 31, 1999, 1998 and 1997, diluted weighted average ordinary
partnership interests outstanding excludes the weighted average effect of the
assumed conversion of the 8% convertible redeemable preferred partnership
interests (the "8% RPPIs") into 3.4 million ordinary partnership interests for
1999, the assumed conversion of the 9% convertible redeemable preferred
partnership interests (the "9% RPPIs") into 0.1 million ordinary partnership
interests for 1999, the assumed issuance of ordinary partnership interests upon
exercise of Globalstar warrants and GTL's outstanding options and warrants,
using the treasury stock method, into 4.2 million, 2.6 million and 2.8 million
ordinary partnership interests for 1999, 1998, and 1997, respectively, and the
assumed conversion, prior to the actual conversion in April 1998, of the 6 1/2%
convertible redeemable preferred partnership interests (the "6 1/2% RPPIs") into
1.6 million and 4.8 million ordinary partnership interests for 1998 and 1997,
respectively (see Note 10) 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 1999, 1998 and
1997.
Comprehensive Income
During the periods presented, Globalstar had no changes in ordinary
partner's capital from transactions or other events and circumstances from
non-owners sources. Accordingly, a statement of comprehensive loss has not been
provided.
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.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
3. PRODUCTION GATEWAYS AND USER TERMINALS
In order to accelerate the deployment of gateways around the world,
Globalstar has agreed to help finance approximately $80 million of the cost of
up to 32 of the initial 38 gateways. The contracts for the 38 gateways aggregate
approximately $345 million. Ericsson, Qualcomm and Telit are in the process of
manufacturing approximately 300,000 handheld and fixed user terminals under
contracts totaling $375 million from Globalstar and its service providers.
Globalstar has agreed to finance approximately $151 million of the cost of these
handheld and fixed user terminals. Globalstar expects to recoup such costs upon
the acceptance by the service providers of the gateways and user terminals.
Amounts reflected in the consolidated balance sheets represent the amounts
financed under the above contracts as of December 31, 1999 and 1998.
F-26
<PAGE> 62
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements................................... $ 2,129 $ 1,546
Furniture and office equipment........................... 9,231 7,380
------- -------
11,360 8,926
Accumulated depreciation and amortization................ (6,232) (3,968)
------- -------
$ 5,128 $ 4,958
======= =======
</TABLE>
Globalstar's property and equipment is located in the U.S. Depreciation and
amortization expense for the years ended December 31, 1999, 1998 and 1997 was
$2.3 million, $1.7 million, and $1.0 million, respectively.
5. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
The Space Segment
Globalstar has a contract with SS/L, a limited partner of LQSS, to design,
manufacture, test and launch 56 satellites, which as of December 31, 1999, was
substantially complete. The price of the contract consisted of three parts, the
first for non-recurring work at a price not to exceed $117.1 million, the second
for recurring work at a fixed price of $15.6 million per satellite (including
certain performance incentives of up to approximately $1.9 million per
satellite) and the third for launch services and insurance. In addition,
Globalstar purchased from SS/L eight replacement satellites at a cost of $180
million due to the launch failure noted below.
On September 9, 1998, a malfunction of a Zenit 2 rocket resulted in the
loss of 12 Globalstar satellites. A $17.3 million loss from the launch failure
was recorded in the third quarter of 1998, which reflects the value of the
satellites and related capitalized costs, net of insurance proceeds. This loss
is included in launch related costs in the accompanying statements of
operations.
Globalstar also has agreed to purchase from SS/L eight additional spare
satellites for $132 million. As of December 31, 1999, $53.5 million has been
expended for these spare satellites. Globalstar has secured from SS/L twelve
month call up orders for two additional Delta launch vehicles. The total future
commitment for these launch vehicles is $84 million plus escalation of 3% per
year. If these launch vehicles are not used by the end of 2003, Globalstar will
incur a termination charge of $15.9 million.
As of December 31, 1999, Globalstar had launched its constellation of 48
satellites and four spare satellites were launched on February 8, 2000. As a
result of the successful launch campaign during 1999, Globalstar does not
anticipate using all the excess launch vehicle capacity it had contracted for
and, accordingly recorded a charge of $29.9 million in the fourth quarter. This
charge is included in launch related costs in the accompanying statements of
operations.
SS/L has entered into fixed-price subcontracts aggregating approximately
$853 million, with certain of Globalstar's direct or indirect limited partners.
Some of these contracts are subject to adjustment.
Globalstar's space segment contract with SS/L calls for a portion of the
contract price to be deferred as vendor financing (see Note 6).
F-27
<PAGE> 63
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. GLOBALSTAR SYSTEM UNDER CONSTRUCTION -- (CONTINUED)
THE GROUND SEGMENT
Globalstar entered into a contract with Qualcomm providing for the design,
development, manufacture, installation, testing and maintenance of four
gateways, two ground operations control centers and 300 pre-production
subscriber terminals. The contract provides for reimbursement to Qualcomm,
subject to a cap for certain joint development efforts, for contract costs
incurred, plus a 12% fee thereon. As of December 31, 1999, costs billed under
this arrangement, before giving effect to contract payment deferrals (see Note
6) were approximately $1.04 billion and the efforts required to commence service
were substantially complete. Remaining activities under this contract are
comprised of maintenance efforts and further expenditures on system software for
the improvement of system functionality beyond that planned for the start of
service.
Globalstar will receive from Qualcomm or its licensee(s) a payment of
approximately $400,000 for each installed gateway sold to a Globalstar service
provider. In addition, Globalstar will receive a payment of up to $10 on each
Globalstar user terminal sold, until Globalstar funding of that design has been
recovered.
Globalstar has an agreement with Lockheed Martin Corporation ("Lockheed
Martin") for the development and delivery of two satellite operations control
centers and 33 telemetry and command units for the Globalstar System. The fixed
contract price is approximately $37.8 million and is substantially complete as
of December 31, 1999. Globalstar owns all intellectual property produced under
this contract.
ADDITIONAL SYSTEM COSTS
Globalstar expects to spend $325 million on system software, for eight
additional spare satellites and for financing that Globalstar is providing to
the service providers for the purchase of gateways, fixed access terminals and
handsets, (of which $231 million is expected to be received from the service
providers, as repayment of financing). In addition, cash interest, preferred
dividends and operating costs are expected to be approximately $125 million per
quarter in 2000. Globalstar raised $268.5 million through the sale of GTL common
stock in February 2000. Globalstar believes that its cash on hand, available
credit under its two bank facilities and vendor financing arrangements, service
revenues and other anticipated cash inflows will be sufficient to cover its
expected cash outflows for 2000, provided that its $250 million credit facility
is renegotiated. If Globalstar cannot renegotiate its $250 million credit
facility, it believes it will be able to obtain additional funds. There can be
no assurance, however, that such funds will be available on favorable terms or
on a timely basis, if at all.
6. VENDOR FINANCING LIABILITY
SS/L has provided $330 million of billings deferred under its construction
contracts with Globalstar, comprised of: $105 million of orbital incentives, of
which $44 million was repaid by Globalstar in 1999 and $61 million is expected
to be repaid in 2000; $90 million of vendor financing which bears interest at
LIBOR plus 3% and is repayable over five years commencing in 2001; and $134
million of non-interest bearing vendor financing, due over five years in equal
monthly installments, commencing in 2000. SS/L's subcontractors have assumed
$116 million of such financing.
On March 4, 1998, Qualcomm entered into a deferred payment agreement with
Globalstar providing for $100 million of vendor financing. The deferred payments
accrue interest at a rate of 5.75% per annum, which is added to the outstanding
principal balance quarterly. Qualcomm has agreed to provide Globalstar with an
additional $400 million in vendor financing for which the terms are still being
finalized. In consideration for the additional vendor financing, Qualcomm is
expected to receive warrants to purchase Globalstar partnership
F-28
<PAGE> 64
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. VENDOR FINANCING LIABILITY -- (CONTINUED)
interests similar to that received by Loral in connection with the guarantee
provided under Globalstar's $500 million credit agreement (see Note 7).
Globalstar was to commence repayment of the $100 million vendor financing in
January 2000, however, the $100 million of vendor financing is being
incorporated into the $400 million of additional vendor financing, for which the
repayment terms are still being negotiated.
7. CREDIT FACILITIES
$250 Million Credit Agreement
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "$250 million Credit Agreement") with a group of banks. Lockheed
Martin, Qualcomm, SS/L and another Globalstar partner have guaranteed $206.3
million, $21.9 million, $11.7 million and $10.1 million of the Globalstar Credit
Agreement, respectively. In addition, Loral agreed to indemnify Lockheed Martin
for any liability in excess of $150 million. The $250 million Credit Agreement
provides that Globalstar may select loans at varying interest rates, including
the Eurodollar rate plus 5/8%. Globalstar pays a commitment fee on the unused
portion. The Globalstar Credit Agreement contains covenants requiring Globalstar
to meet certain financial ratios including minimum net worth of $200 million and
limits additional indebtedness and the payment of cash distributions. The $250
Million Credit Agreement expires on June 30, 2000, unless it is renegotiated
(none outstanding as of December 31, 1999 and 1998).
In exchange for the guarantee and indemnity, GTL issued warrants to
purchase 16,741,272 shares of GTL common stock at $6.625 per share as follows:
Loral and SS/L 4,550,088 warrants, Lockheed Martin 10,044,760 warrants, Qualcomm
1,468,524 warrants and another Globalstar partner 677,900 warrants. As part of
this transaction, Globalstar issued GTL warrants to purchase an additional
1,131,168 ordinary partnership interests of Globalstar. In addition, GTL
distributed to the holders of its common stock rights to subscribe for and
purchase 4,524,672 GTL shares for a price of $6.625 per share of which Loral
received rights to purchase 636,688 shares and Loral agreed to purchase all
shares not purchased upon exercise of the rights. In March 1997, the warrants to
purchase 16,741,272 shares of GTL common stock were exercised for proceeds of
approximately $110.9 million. In May 1997, GTL shareholders exercised the rights
to purchase 4,524,672 shares of GTL common stock (including 700,696 shares
purchased by Loral) for $6.625 per share for proceeds of $30.0 million. GTL used
the total proceeds of $140.9 million to purchase 5,316,486 Globalstar ordinary
partnership interests for $26.50 per interest.
In addition, Globalstar also agreed to pay to Loral and the other
guaranteeing partners a fee equal to 1.5% per annum of the average quarterly
amount outstanding under the Globalstar Credit Agreement (the "Guarantee Fee").
Payment of the Guarantee Fee, classified as deferred interest payable in
Globalstar's balance sheet, is being deferred and subordinated, with interest at
LIBOR plus 3%, until after the termination date of the $250 million Credit
Agreement. Globalstar's managing general partner may also defer payment of such
fee if it determines that such deferral is necessary to comply with the terms of
any applicable credit agreement or indenture.
$500 Million Credit Agreement
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks. The credit agreement provides for a $100 million
three-year revolving credit facility ("Revolver"), a $100 million
F-29
<PAGE> 65
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CREDIT FACILITIES -- (CONTINUED)
three-year term loan ("Term Loan A") and a $300 million four-year term loan
("Term Loan B"). The following table presents the future repayment schedule for
Term Loan A and Term Loan B (in thousands):
<TABLE>
<CAPTION>
TERM TERM
LOAN A LOAN B
-------- --------
<S> <C> <C>
2000............................................ $ -- $ --
2001............................................ 50,000 6,000
2002............................................ 50,000 45,000
2003............................................ -- 249,000
-------- --------
Total future payments........................... $100,000 $300,000
======== ========
</TABLE>
All amounts outstanding under the Revolver (none outstanding at December
31, 1999) 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. Borrowings outstanding at December
31, 1999 bear interest at 9.07% and 9.57% for Term Loan A and Term Loan B,
respectively. 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 stock of the
guarantors and the Telstar 6 and Telstar 7 satellites. In consideration for the
guarantee, valued at $141.1 million, 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). 50% of the warrants vested in February
2000. Assuming the guarantee remains in effect, an additional 25% will vest in
August 2000 with the remaining 25% vesting in August 2001. The warrants expire
in 2006. Globalstar may call the warrants after August 5, 2001 if the market
price of GTL common stock exceeds $45.50 for a defined period.
8. COMMITMENTS
Globalstar leases its primary facility from Lockheed Martin under a
non-cancelable operating lease expiring in 2008. The lease contains renewal
options for up to an additional ten years. The following table presents the
future minimum lease payments required under operating leases that have an
initial lease term in excess of one year (in thousands):
<TABLE>
<S> <C>
2000..................................................... $ 3,833
2001..................................................... 3,910
2002..................................................... 4,004
2003..................................................... 3,097
2004..................................................... 3,166
Thereafter............................................... 13,113
-------
Total minimum lease payments............................. $31,123
=======
</TABLE>
F-30
<PAGE> 66
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS -- (CONTINUED)
Rent expense for the years ended December 31, 1999, 1998 and 1997, was
approximately $4.1 million, $3.1 million, and $1.8 million, respectively.
Included in rent expense are payments to Lockheed Martin of $2.9 million, $2.7
million, and $1.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
9. SENIOR NOTES AND WARRANTS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
11 3/8% Senior notes payable ($500,000 principal
amount)............................................ $ 480,567 $ 479,566
11 1/4% Senior notes payable ($325,000 principal
amount)............................................ 307,884 306,949
10 3/4% Senior notes payable ($325,000 principal
amount)............................................ 321,263 320,997
11 1/2% Senior notes payable ($300,000 principal
amount)............................................ 289,397 288,663
---------- ----------
$1,399,111 $1,396,175
========== ==========
</TABLE>
In February 1997, GTL and Globalstar sold units consisting of $500 million
aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004 and
warrants to purchase 4,129,000 shares of GTL common stock in a private offering.
GTL was allocated $12,210,000 of the offering proceeds for these warrants which
were used to purchase warrants for Globalstar's ordinary partnership interests.
The notes may not be redeemed prior to February 2002 and are subject to a
prepayment premium prior to 2004. The effective interest rate on this note is
13.33%. Interest is paid semi-annually.
As of December 31, 1999, there were outstanding warrants to purchase
3,906,524 shares of GTL common stock, exercisable at a price of $17.394 per
share, which expire on February 15, 2004. Any proceeds from the exercise of the
warrants will be used to purchase Globalstar ordinary partnership interests.
In June 1997, Globalstar sold $325 million principal amount of 11 1/4%
Senior Notes due 2004 in a private offering. The notes may not be redeemed prior
to June 2002 and are subject to a prepayment premium prior to 2004. The
effective interest rate on this note is 13.57%. Interest is paid semi-annually.
In October 1997, Globalstar sold $325 million principal amount of 10 3/4%
Senior Notes due 2004 in a private offering. The notes may not be redeemed prior
to November 2002 and are subject to a prepayment premium prior to 2004. The
effective interest rate on this note is 11.63%. Interest is paid semi-annually.
In May 1998, Globalstar sold $300 million principal amount of 11 1/2%
Senior Notes due 2005 in a private offering. The notes may not be redeemed prior
to June 2003 and are subject to a prepayment premium prior to 2005. The
effective interest rate on this note is 13.12%. Interest is paid semi-annually.
The senior notes rank pari passu with each other and with all of
Globalstar's other existing senior indebtedness. The indentures for the notes
contain certain covenants that among other things limit the ability of
Globalstar to incur additional debt, issue preferred stock, or pay dividends and
certain distributions. In certain limited circumstances involving a change of
control of Globalstar, as defined, each note is redeemable at the option of the
holder for 101% of the principal amount plus accrued interest.
10. CONVERSION OF REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
During 1996, GTL purchased 4,769,230 6 1/2% RPPIs in Globalstar using the
net proceeds of $299.5 million from GTL's sale of its Convertible Preferred
Equivalent Obligations (the "CPEOs").
F-31
<PAGE> 67
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CONVERSION OF REDEEMABLE PREFERRED PARTNERSHIP INTERESTS -- (CONTINUED)
On April 30, 1998, GTL redeemed all of its CPEOs, $310 million aggregate
principal amount. As of April 30, 1998, all the holders of the CPEOs converted
their holdings into 20,123,230 shares of GTL common stock. As a result of such
conversion, Globalstar's 6 1/2% RPPIs were converted into 4,769,230 ordinary
partnership interests. In connection with the redemption, GTL issued 539,322
additional shares of GTL common stock in satisfaction of a required interest
make whole payment. A corresponding dividend make-whole payment was also made by
Globalstar for which an additional 134,830 ordinary partnership interests were
issued. On May 10, 1999, Globalstar paid the holders of the 6 1/2% RPPIs $2.51
million for unpaid dividends during the period March 1, 1999 to the conversion
date.
11. ORDINARY PARTNERS' CAPITAL
Initial Capital Subscriptions
Prior to the commencement of Globalstar's operations on March 23, 1994,
Loral and Qualcomm undertook independent efforts at their own risk to explore
the feasibility of a Globalstar-type system. Efforts to develop the Globalstar
System were formalized with the initial funding of Globalstar on March 23, 1994
through capital subscriptions of $50,000,000 for 18,000,000 general partner
interests and $225,000,000 for an aggregate of 18,000,000 limited partner
interests. In connection with the initial capital subscriptions, the partners of
Globalstar agreed to reimburse Loral and Qualcomm for certain expenditures
totaling $18,382,000 incurred related to such efforts from January 1, 1993
through March 22, 1994. These expenditures included development costs and
marketing, general and administrative expenses related to the Globalstar System.
In addition, costs of $2,235,000 were incurred in connection with the FCC
license application. The aggregate expenditures by Loral and Qualcomm of
$20,617,000 were reimbursed through a credit of $11,309,000 issued to the
general partner as a reduction of its required capital subscription payment and
a payment to Qualcomm of $9,308,000. The reimbursed expenses of $18,382,000 have
been charged to partners' capital as of the date of the capital subscription
agreement and allocated to the partners' capital accounts in accordance with the
partnership agreement. The $2,235,000 of costs relating to the FCC license
application are included in other assets in the accompanying balance sheet.
Capital Contribution
In April 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"),
through a subsidiary, exercised a warrant to acquire 937,500 Globalstar ordinary
partnership interests for $18,750,000. In addition, China Telecom has a warrant
to acquire an additional 937,500 Globalstar ordinary partnership interests for
$18,750,000 after commencement of service in China. Globalstar had previously
granted these warrants to China Telecom in connection with service provider
arrangements in China under which China Telecommunications Broadcast Satellite
Corporation ("ChinaSat") will act as the sole distributor of Globalstar service
in China. The fair value of the warrants issued to China Telecom was
approximately $31.9 million and has been recorded in the accompanying balance
sheet in other assets and will be amortized over the expected life of the first
generation of satellites, commencing on the date China Telecom commences
service.
8% Series A Convertible 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% Series A
Convertible Redeemable Preferred Stock due 2011 (the "8% Preferred Stock").
Dividends on
F-32
<PAGE> 68
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ORDINARY PARTNERS' CAPITAL -- (CONTINUED)
the 8% RPPIs and the 8% 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.
On June 30, 1999 and November 29, 1999, 100 and 2,603,605 shares of 8%
Preferred Stock, respectively, were converted into 215 and 5,597,693 shares of
GTL common stock, respectively. As a result of such conversions, the 8% RPPIs
were converted into 1,382,178 Globalstar ordinary partnership interests. In
connection with certain of the conversions, GTL agreed to issue 924,324
additional shares of GTL common stock representing the equivalent of the
dividend pre-payments to which the holders would have been entitled if a
redemption had been made. A corresponding dividend make-whole payment was also
made by Globalstar for which an additional 231,081 Globalstar ordinary
partnership interests were issued.
The 8% 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 December 31, 1999, the outstanding 8% Preferred Stock
was convertible into 9,451,837 shares of GTL common stock. Loral purchased 3
million shares ($150 million face amount) of the 8% Preferred Stock issued, in
order to maintain its prior percentage ownership interest in Globalstar.
The 8% Preferred Stock has limited voting rights. With respect to dividend
rights and rights upon liquidation, winding up and dissolution, the 8% Preferred
Stock ranks parri passu with the 9% Preferred Stock and 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 8% Preferred Stock. Prior to its
mandatory redemption date, the 8% 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 8% 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 8% Preferred Stock will be entitled to
elect additional members to GTL's Board of Directors.
The 8% RPPIs rank senior parri passu with the 9% RPPIs and senior to
ordinary partnership interests and have terms substantially similar to the 8%
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 8% Preferred Stock into GTL common stock. As of December 31,
1999, the outstanding 8% RPPIs were convertible into 2,333,772 ordinary
partnership interests. 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.
9% Series B Convertible Redeemable Preferred Partnership Interests
On December 2, 1999, Globalstar sold to GTL three million units (face
amount of $50 per unit) of 9% RPPIs in Globalstar, in connection with GTL's
offering of 3 million shares (face amount of $50 per share) of 9% Series B
Convertible Redeemable Preferred Stock due 2011 (the "9% Preferred Stock").
Dividends on the 9% RPPIs and the 9% Preferred Stock accrue at 9% per annum and
are payable quarterly. Globalstar is using the funds for the construction and
deployment of the Globalstar System.
The 9% Preferred Stock is convertible into shares of GTL common stock at a
conversion price of $25.9569 per share, subject to adjustment for certain
antidilution events. As of December 31, 1999, the outstanding 9% Preferred Stock
was convertible into 5,778,810 shares of GTL common stock.
F-33
<PAGE> 69
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ORDINARY PARTNERS' CAPITAL -- (CONTINUED)
The 9% Preferred Stock has limited voting rights. With respect to dividend
rights and rights upon liquidation, winding up and dissolution, the 9% Preferred
Stock ranks parri passu with the 8% Preferred Stock and 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 9% Preferred Stock. Prior to its
mandatory redemption date, the 9% Preferred Stock is redeemable (at a premium
which declines over time) by GTL beginning in December 2002 (or beginning in
December 2000 if GTL's stock price exceeds certain defined price ranges).
Payments due on the 9% 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 9% Preferred Stock will be entitled to
elect additional members to GTL's Board of Directors.
The 9% RPPIs rank parri passu with the 8% RPPIs and senior to ordinary
partnership interests and have terms substantially similar to the 9% 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 9%
RPPIs will convert to ordinary partnership interests upon any conversion of the
9% Preferred Stock into GTL common stock. As of December 31, 1999, the
outstanding 9% RPPIs were convertible into 1,426,860 ordinary partnership
interests. Payments due on the 9% RPPIs may be made in cash, Globalstar ordinary
partnership interests or a combination of both at the option of Globalstar.
GTL Stock Splits
In May 1997 and June 1998, GTL issued two-for-one stock splits of its
common stock in the form of 100% stock dividends. Accordingly, all GTL share and
per share amounts have been restated to reflect the stock splits. Prior to the
stock splits, GTL's equity securities and convertible securities were
represented by equivalent Globalstar partnership interests on an approximate
one-for-one basis. Globalstar's partnership interests were not affected by the
GTL stock splits and, accordingly, GTL's equity securities and convertible
securities are now represented by equivalent Globalstar partnership interests on
an approximate four-for-one basis.
Shelf Registration
In July 1999, Globalstar and GTL filed a shelf registration statement (the
"Shelf Registration Statement") with the SEC covering up to $500 million of
securities. Under the Shelf 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 (see Note 16).
Stock Option Arrangements
Officers and employees of Globalstar are eligible to participate in GTL's
1994 Stock Option Plan (the "Plan"), which provides for nonqualified and
incentive stock options. The Plan is administered by a stock option committee
(the "Committee"), appointed by the GTL Board of Directors. The Committee
determines the option price, exercise date and the expiration date of each
option (provided no option shall be exercisable after ten years from the date of
grant). Proceeds received by GTL for options exercised will be used to purchase
Globalstar ordinary partnership interests under an approximate four-for-one
exchange arrangement.
Globalstar issued 10,273, 4,538 and 2,590 ordinary partnership interests
during 1999, 1998 and 1997, respectively, in exchange for proceeds from GTL
option exercises.
F-34
<PAGE> 70
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ORDINARY PARTNERS' CAPITAL -- (CONTINUED)
On September 14, 1995, Loral, in its capacity as managing general partner,
granted certain of its officers options to purchase 560,000 shares of the GTL
common stock owned by Loral at an exercise price of $5.00 per share. The
exercise price was greater than the market price at grant date. These options
are immediately exercisable, of which 240,000 options were exercised in 1998,
and expire 12 years from date of grant.
In October 1996 and in January 1998, Loral, in its capacity as managing
general partner, granted certain of its officers options to purchase 608,000 and
20,000 shares, respectively, of GTL common stock owned by Loral at a price $6.34
and $12.50 below market price on the grant date. These options vest over a three
year period and expire 10 years from date of grant; 41,090 options were
exercised in 1999 and no options were cancelled during 1999 and 1998.
Loral granted options of Loral common stock to certain officers and
employees of Globalstar as follows: April 1996, 94,000 shares at $10.50 per
share, of which 13,200 shares were exercised in 1998 and 1997; April 1997, 5,000
shares at $13.75 per share, of which 1,000 shares were exercised and 4,000
shares were cancelled in 1998; February 1998, 2,000 shares at $24.44 per share,
October 1998, 600 shares at $13.50 per share and December 16, 1999, 30,000
shares at $16.00 per share.
As described in Note 2, Globalstar accounts for its employee stock-based
compensation using the intrinsic value method in accordance with APB 25,
Accounting for Stock Issued to Employees and its related interpretations.
Accordingly, no compensation expense has been recognized in Globalstar's
consolidated financial statements for employee stock-based compensation; except
for $1,154,000, $1,284,000, $1,290,000 of compensation expense in 1999, 1998,
and 1997, respectively, related to the below market option grants issued by
Loral. In addition, during 1999, GTL granted stock options to certain
non-employees of Globalstar to purchase 579,400 shares of GTL common stock. The
fair value of such options totaled approximately $20,786,000 and is being
amortized by Globalstar over the vesting period. The fair value attributable to
the unvested portion of such options is subject to adjustment based upon the
future value of GTL's common stock.
SFAS 123 requires the disclosure of pro forma net income and earnings per
share as if Globalstar adopted the fair value method. Under SFAS 123, the fair
value of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from Globalstar's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. Globalstar's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions: expected life,
six to twelve months following vesting; stock volatility, 50% for 1999, 30% for
1998 and 1997; risk free interest rates, 4.4% to 6.6% based on date of grant;
and no dividends during the expected term. Globalstar's calculations are based
on a multiple option valuation approach and forfeitures are recognized as they
occur. If the computed fair values of the 1999, 1998 and 1997 awards had been
amortized to expense over the vesting period of the awards, the pro forma net
loss applicable to ordinary partnership interests and related loss per interest
would have been $237,245,000 or $4.07 per ordinary partnership interest in 1999,
$154,303,000 or $2.74 per ordinary partnership interest in 1998 and, $91,324,000
or $1.79 per ordinary partnership interest in 1997.
F-35
<PAGE> 71
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ORDINARY PARTNERS' CAPITAL -- (CONTINUED)
A summary of the status of the GTL stock option plan for the years ended
December 31, 1999, 1998 and 1997 is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1997......................... 924,800 $ 9.21
Granted (weighted average fair value of $7.10 per
share)............................................... 527,800 21.97
Forfeited.............................................. (58,800) 11.16
Exercised.............................................. (10,360) 4.16
--------- ------
Outstanding at December 31, 1997....................... 1,383,440 14.03
Granted (weighted average fair value of $5.73 per
share)............................................... 810,400 19.42
Forfeited.............................................. (54,000) 18.56
Exercised.............................................. (18,150) 4.16
--------- ------
Outstanding at December 31, 1998....................... 2,121,690 16.06
Granted (weighted average fair value of $10.98 per
share)............................................... 2,821,500 22.79
Forfeited.............................................. (258,300) 19.87
Exercised.............................................. (41,090) 4.71
--------- ------
Outstanding at December 31, 1999....................... 4,643,800 $20.03
========= ======
Options exercisable at December 31, 1999............... 584,433 $11.72
========= ======
Options exercisable at December 31, 1998............... 291,890 $ 7.83
========= ======
Options exercisable at December 31, 1997............... 95,240 $ 4.16
========= ======
</TABLE>
The options generally expire ten years from the date of grant and become
exercisable over the period stated in each option, generally ratably over a
five-year period. All options granted were non-qualified stock options with an
exercise price equal to fair market value at the date of grant. As of December
31, 1999, 286,600 shares of common stock were available for future grant under
the Plan.
The following table summarizes information about GTL's outstanding stock
options at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------ -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
- -------------------- --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$4.16......................... 329,300 5.69 $ 4.16 234,900 $ 4.16
$12.59 to $19.38.............. 1,027,100 7.70 13.80 246,200 13.54
$20.63 to $30.28.............. 3,287,400 9.15 23.57 103,333 24.54
--------- -------
4,643,800 8.59 $20.03 584,433 $11.72
========= =======
</TABLE>
F-36
<PAGE> 72
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENSIONS AND OTHER EMPLOYEE BENEFITS
Pensions
Prior to April 23, 1996, Globalstar employees were eligible to participate
in the employee benefit plans of Old Loral. Globalstar was charged for the
actual costs of these benefits which for the period March 23, 1994, through
December 31, 1995, amounted to $1.0 million, including $0.2 million relating to
pensions and retiree health care and life insurance benefits. In April 1996,
separate pension, post-retirement health care and life insurance and employee
savings plans were established by Globalstar.
The Company maintains a pension plan and a supplemental retirement plan.
These plans are defined benefit pension plans and members in certain locations
may contribute to the pension plan in order to receive enhanced benefits.
Eligibility for participation in these plans varies and benefits are based on
members' compensation and years of service. The Company's funding policy is to
fund the pension plan in accordance with the Internal Revenue Code and
regulations thereon and to fund the supplemental retirement plan on an actuarial
basis, including service cost and amortization amounts. Plan assets are
generally invested in U.S. government and agency obligations and listed stocks
and bonds.
Other Benefits
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees and dependents.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for the Company's pension plan.
These benefits are funded primarily on a pay-as-you-go basis with the retiree
generally paying a portion of the cost through contributions, deductibles and
coinsurance provisions.
F-37
<PAGE> 73
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED)
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December 31,
1999 and 1998, and a statement of the funded status as of December 31, 1999 and
1998, respectively.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
1999 1998 1999 1998
------- ------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation
Obligation at January 1.......................... $ 6,348 $5,172 $889 $ 838
Service cost..................................... 567 415 83 66
Interest cost.................................... 504 419 64 61
Participant contributions........................ 86 84 7 12
Actuarial (gain) loss............................ (896) 258 (208) (67)
Benefit payments................................. -- -- (21) (21)
------- ------ ---- -----
Obligation at December 31........................ 6,609 6,348 814 889
------- ------ ---- -----
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1........... 5,815 4,808 34 32
Actual return on plan assets..................... 2,442 923 5 2
Employer contributions........................... -- -- 10 9
Participant contributions........................ 86 84 7 12
Benefit payments................................. -- -- (21) (21)
------- ------ ---- -----
Fair value of plan assets at December 31......... $ 8,343 $5,815 $ 35 $ 34
------- ------ ---- -----
Funded status
Funded status at December 31..................... 1,734 (533) 778 (855)
Unrecognized (gain) loss......................... (2,909) (171) (249) 497
------- ------ ---- -----
Net amount recognized in accrued liabilities..... $(1,175) $ (704) $529 $(358)
======= ====== ==== =====
</TABLE>
The following table provides the components of net periodic benefit cost
for the plans for the years ended December 31, 1999, 1998 and 1997, respectively
(in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost.......................... $568 $415 $334 $ 83 $ 66 $ 39
Interest cost......................... 504 419 347 63 61 49
Expected return on plan assets........ (563) (461) (393) (3) (3) (3)
Amortization of net (gain) loss....... (38) (40) (40) 38 39 36
---- ---- ---- ---- ---- ----
Net periodic benefit cost............. $471 $333 $248 $181 $163 $121
==== ==== ==== ==== ==== ====
</TABLE>
The principal actuarial assumptions were:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 8.00% 7.00% 7.25%
Expected return on plan assets.............................. 9.50% 9.50% 9.50%
Rate of compensation increase............................... 4.25% 4.25% 4.50%
</TABLE>
F-38
<PAGE> 74
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED)
Actuarial assumptions used a health care cost trend rate of 8.05%
decreasing gradually to 5.25% by 2003. Assumed health care cost trend rates have
a significant effect on the amounts reported for the health care plans. A 1%
change in assumed health care cost trend rates for 1999 would have the following
effects:
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total service and interest cost components
of net periodic postretirement health care benefit
cost............................................... $ 33,000 $ (25,000)
Effect on the health care component of the
accumulated postretirement benefit obligation...... 130,000 (104,000)
</TABLE>
Employee Savings Plan
In April 1996, Globalstar adopted an employee savings plan which provides
that Globalstar match the contributions of participating employees up to a
designated level. Under this plan, the matching contributions in Loral common
stock, GTL common stock or cash were approximately $587,000, $460,000 and
$350,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
13. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
fair value.
The carrying amounts of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. The fair value of vendor
financing approximates its carrying amount due to the lack of market quotations
and the nature of such financing. The fair value of the Senior Notes is based on
market quotations. The fair value of the term loans in based on their carrying
value, due to their short-term variable interest rates.
The estimated fair values of Globalstar's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $127,675 $127,675 $ 56,223 $ 56,223
Restricted cash......................... 46,246 46,246 516 516
Vendor financing........................ 393,795 393,795 371,170 371,170
10 3/4% Senior notes.................... 321,263 195,000 320,997 230,800
11 1/4% Senior notes.................... 307,884 201,500 306,949 240,500
11 3/8% Senior notes.................... 480,567 310,000 479,566 370,000
11 1/2% Senior notes.................... 289,397 183,000 288,663 220,900
Term Loan A............................. 100,000 100,000
Term Loan B............................. 300,000 300,000
</TABLE>
14. RELATED PARTY TRANSACTIONS
In addition to the transactions described in Notes 3, 5, 6, 7, 8, 9, 10, 11
and 12, Globalstar has a number of other transactions with its affiliates.
Globalstar believes that the arrangements are as favorable to Globalstar as
could be obtained from unaffiliated parties. The following describes these
related-party transactions.
F-39
<PAGE> 75
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTY TRANSACTIONS -- (CONTINUED)
Globalstar has granted to SS/L an irrevocable, royalty-free, non-exclusive
license to use certain intellectual property expressly developed in connection
with the SS/L agreement provided that SS/L will not use, or permit others to
use, such license for the purpose of engaging in any business activity that
would be in material competition with Globalstar. Globalstar has similarly
agreed that it will not license such intellectual property if it will be used
for the purpose of designing or building satellites that would be in competition
with SS/L.
Globalstar has granted to Qualcomm an irrevocable, non-exclusive, worldwide
perpetual license to intellectual property owned by Globalstar in the Ground
Segment and developed pursuant to the Qualcomm agreement. Qualcomm may, pursuant
to such grant, use the intellectual property for applications other than the
Globalstar System provided that Qualcomm may not for a period of three years
after its withdrawal as a strategic partner or prior to the third anniversary of
the Full Constellation Date, whichever is earlier, engage in any business
activity that would be in competition with the Globalstar System. The grant of
intellectual property to Qualcomm described above is generally royalty free.
Under certain specified circumstances, however, Qualcomm will be required to pay
a 3% royalty fee on such intellectual property.
A support agreement was entered into among Qualcomm, Loral and Globalstar
pursuant to which Qualcomm agreed to assist Globalstar and SS/L with
Globalstar's system design, support Globalstar and Loral with respect to various
regulatory matters, and assist Globalstar and Loral in their marketing efforts
with respect to Globalstar. As of December 31, 1998, this effort was complete.
For the years ended December 31, 1998 and 1997, Qualcomm has received
approximately $187,000, and $894,000, respectively, for costs incurred in
rendering such support and assistance.
Globalstar has entered into agreements with certain limited partners, for
approximately $6.3 million under which, Globalstar will provide for the
integration and testing of the Globalstar System at certain of the partners'
gateways.
Globalstar has entered into consulting agreements with certain limited
partners. Costs incurred under these arrangements for the years ended December
31, 1998 and 1997, were approximately $309,000, and $143,000, respectively.
There were no costs incurred under these arrangements during 1999.
Qualcomm has agreed to grant at least one vendor a nonexclusive worldwide
license to use Qualcomm's intellectual property to manufacture and sell gateways
to Globalstar's service providers. The foregoing license would be granted by
Qualcomm to one or more such vendors on reasonable terms and conditions, which
will in any event not provide for royalty fees in excess of 7% of a gateway's
sales price (not including the approximately $400,000 per gateway in recoupment
expenses payable to Globalstar). Thus far, no other vendor has committed to
manufacture gateways. Qualcomm has granted a license to manufacture Globalstar
Phones to Ericsson and Telit and has also agreed to grant a similar license to
at least one additional qualified manufacturer to enable it to manufacture and
sell the Globalstar Phones to service providers.
Subsidiaries of Loral have formed joint ventures with partners which have
executed service provider agreements granting the joint ventures exclusive
rights to provide Globalstar service to users in Brazil, Canada, and Mexico as
long as specified minimum levels of subscribers are met. Similar exclusive
service provider agreements have been entered into with certain of Globalstar's
limited partners for specific countries. These service providers will receive
certain discounts from Globalstar's expected pricing schedule generally over a
five-year period. Globalstar has also agreed to provide Qualcomm, under certain
circumstances, with capacity on the Globalstar System for its OmniTRACS services
at its most favorable rates and to grant to Qualcomm the exclusive right to
utilize the Globalstar System to provide OmniTRACS-like services.
F-40
<PAGE> 76
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTY TRANSACTIONS -- (CONTINUED)
Globalstar has granted to Hyundai Electronics Industries Co., Ltd.
("Hyundai") certain rights, including certain sub-contract rights with respect
to its satellite constellation and the right, at Hyundai's election, to act as
Globalstar's exclusive licensee authorized to manufacture and sell Globalstar
Phones in South and North Korea.
Total receivables from affiliates and amounts financed under the production
gateway and user terminal contracts is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
SS/L................................................... $ 21 $
Loral Space & Communications........................... 15,413 13,038
Other affiliates....................................... 20,726 31,054
------- -------
$36,160 $44,092
======= =======
</TABLE>
Payables and vendor financing due to affiliates is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
SS/L................................................... $346,537 $358,207
Qualcomm............................................... 501,647 225,811
Other affiliates....................................... 14,147 3,694
-------- --------
862,331 587,712
Less, current portion.................................. 606,020 343,722
-------- --------
Long-term portion...................................... $256,311 $243,990
======== ========
</TABLE>
Upon finalization of the terms of the additional Qualcomm vendor financing,
approximately $308 million of current payables to affiliates as of December 31,
1999, will be reclassified to long-term vendor financing.
Total purchases from affiliates is as follows: (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
SS/L........................................... $512,815 $514,262 $404,715
Qualcomm....................................... 350,565 379,151 253,783
Loral Space & Communications................... 4,183 2,157 3,421
Other affiliates............................... 12,688 2,473 1,226
-------- -------- --------
$880,251 $898,043 $663,145
======== ======== ========
</TABLE>
Upon Globalstar's commencement of service and upon receipt of revenue, LQP,
the general partner of LQSS, will receive a managing partner's allocation equal
to 2.5% of Globalstar's revenues up to $500 million plus 3.5% of revenues in
excess of $500 million. Loral and Qualcomm ultimately will receive 80% and 20%,
respectively, of such distribution. Should Globalstar incur a net loss in any
year following commencement of operations, the allocation for that year will be
reduced by 50% and LQP will reimburse Globalstar for allocation payments, if
any, received in any prior quarter of such year, sufficient to reduce its
management allocation for the year to 50%. No allocations have been made to
date. The managing partners allocation may
F-41
<PAGE> 77
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTY TRANSACTIONS -- (CONTINUED)
be deferred (with interest at 4% per annum) in any quarter in which Globalstar
would report negative cash flow from operations if the Managing Partners
allocation were made.
15. REGULATORY MATTERS
Globalstar and its operations are, and will be, subject to substantial U.S.
and international regulation, including required regulatory approvals in each
country in which Globalstar intends to provide service. Globalstar's business
may be significantly affected by regulatory activities.
16. SUBSEQUENT EVENT
On February 1, 2000, GTL sold 8,050,000 shares of common stock in a public
offering under the Shelf Registration Statement. The purchase price was $35 per
share, yielding net proceeds of approximately $268.5 million to GTL. GTL used
the proceeds to purchase 1,987,654 ordinary partnership interests in Globalstar.
Globalstar plans to use the proceeds for general corporate purposes, which may
include the acceleration of Globalstar's roll-out through increased support of
service provider marketing activities and the funding of promotional discounts;
the development of new features; or potential repayment of debt.
F-42
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
<C> <S>
3.1 Memorandum of Association of Globalstar Telecommunications
Limited(1)
3.2 Bye-Laws of Globalstar Telecommunications Limited, as
amended, and including Schedule III annexed thereto
regarding the 8% Series A Convertible Redeemable Preferred
Shares due 2011(10)
3.3 Schedule IV to the Bye-laws of Globalstar Telecommunications
Limited regarding the 9% Series B Convertible Redeemable
Preferred Shares due 20011(11)
4.1 Indenture dated as of February 15, 1997 relating to
Globalstar's and Globalstar Capital Corporation's 11 3/8%
Senior Notes due 2004(2)
4.2 Indenture dated as of June 1, 1997 relating to Globalstar's
and Globalstar Capital Corporation's 11 1/4% Senior Notes
due 2004(3)
4.3 Indenture dated as of October 15, 1997 relating to
Globalstar's and Globalstar Capital Corporation's 10 3/4%
Senior Notes due 2004(4)
4.4 Indenture dated as of May 20, 1998 relating to Globalstar's
and Globalstar Capital Corporation's 11 1/2% Senior Notes
due 2005(5)
10.1 Amended and Restated Agreement of Limited Partnership of
Globalstar L.P., dated as of January 26, 1999, among
Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services,
Inc., Dacom Corporation, Dacom International, Inc., Hyundai
Corporation, Hyundai Electronics Industries Co., Ltd.,
Loral/ DASA Globalstar, L.P., Loral Space & Communications
Ltd., San Giorgio S.p.A., Telesat Limited, TE. SA. M., and
Vodafone Satellite Services Limited(10)
10.1.2 Amendment dated as of December 8, 1999 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(11)
10.1.3 Amendment dated as of February 1, 2000 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(*)
10.2 Subscription Agreements by and between Globalstar, L.P., and
each of AirTouch Communications, Alcatel Spacecom, Loral
General Partner, Inc., Hyundai/Dacom and Vodastar Limited(1)
10.3 Subscription Agreement by and between Globalstar, L.P. and
Loral/Qualcomm Satellite Services, L.P.(1)
10.4 Subscription Agreement by and between Globalstar, L.P. and
Finmeccanica S.p.A.(1)
10.5 Subscription Agreement by and between Globalstar, L.P. and
China Telecommunications Broadcast Satellite Corporation(10)
10.6 Form of Service Provider Agreements by and between
Globalstar, L.P. and each of AirTouch Satellite Services,
Inc., Finmeccanica S.p.A., Loral Globalstar, L.P.,
Loral/DASA Globalstar, L.P., Hyundai/Dacom, TE. SA. M., and
Vodastar Limited(1)
10.7 Development Agreement by and between Qualcomm Incorporated
and Globalstar, L.P.(1)
10.8 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(1)
10.9 Contract for the Development of Certain Portions of the
Ground Operations Control Center between Globalstar and
Loral Western Development Laboratories(1)
10.10 Contract for the Development of Satellite Orbital Operations
Centers between Globalstar and Loral Aerosys, a division of
Loral Aerospace Corporation(1)
10.11 1994 Stock Option Plan(6)+)
10.12 Amendment to 1994 Stock Option Plan(7)+)
10.12.2 Amendment No. 2 to 1994 Stock Option Plan(*+)
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
<C> <S>
10.13 Revolving Credit Agreement dated as of December 15, 1995, as
amended on March 25, 1996, among Globalstar, certain banks
parties thereto and Chemical Bank, as Administrative
Agent(2)
10.14 Second Amendment to Revolving Credit Agreement dated July
31, 1997 among Globalstar, certain banks parties thereto and
The Chase Manhattan Bank, as Administrative Agent(4)
10.15 Third Amendment to Revolving Credit Agreement dated as of
October 15, 1997 among Globalstar, certain banks parties
thereto and The Chase Manhattan Bank, as Administrative
Agent(4)
10.16 Fourth Amendment to Revolving Credit Agreement dated as of
November 13, 1998 among Globalstar, certain banks parties
thereto and The Chase Manhattan Bank, as Administrative
Agent(10)
10.17 Exchange and Registration Rights Agreement, dated as of
December 31, 1994, among Globalstar, L.P. and AirTouch
Satellite Services, Inc., Finmeccanica S.p.A., Loral
Globalstar, L.P., Loral/DASA Globalstar, L.P.,
Hyundai/Dacom, TE. SA. M., and Vodastar Limited(1)
10.18 Amendment to the Exchange and Registration Rights Agreement,
dated as of April 8, 1998, among Globalstar, L.P.,
Globalstar Telecommunications Limited and Telesat
Limited(10)
10.19 Warrant Agreement dated as of February 19, 1997 relating to
Warrants to purchase 4,129,000 shares of Common Stock of
Globalstar Telecommunications Limited(2)
10.20 Registration Rights Agreement dated February 19, 1997
relating to Globalstar's 11 3/8% Senior Notes due 2004 and
the Company's Warrants to purchase 4,129,000 shares of
Common Stock issued in connection therewith(2)
10.21 Registration Rights Agreement dated June 13, 1997 relating
to Globalstar's and Globalstar Capital Corporation's 11 1/4%
Senior Notes due 2004(3)
10.22 Registration Rights Agreement dated October 29, 1997
relating to Globalstar's and Globalstar Capital
Corporation's 10 3/4% Senior Notes due 2004(4)
10.23 Registration Rights Agreement dated May 20, 1998 relating to
Globalstar's and Globalstar Capital Corporation's 11 1/2%
Senior Notes due 2005(5)
10.24 Registration Rights Agreement dated as of July 6, 1998
relating to 8,400,000 shares of Common Stock by and among
Globalstar Telecommunications Limited, Loral Space &
Communications Ltd., Quantum Partners LDC, Quasar Strategic
Partners LDC and Quantum Industrial Partners LDC.(8)
10.25 Exchange Agreement dated as of September 28, 1998 relating
to 717,600 shares of Common Stock by and between Loral Space
& Communications Ltd., DACOM Corporation and DACOM
International, Inc.(9)
10.26 Registration Rights Agreement dated as of January 26, 1999
relating to the Company's 8% Convertible Redeemable
Preferred Stock(10)
10.27 Credit Agreement dated August 5, 1999 among Globalstar,
L.P., Bank of America, National Association, as
Administration Agent, Banc of America Securities LLC, as
Sole Lead Arranger and Sole Book Manager, Credit Lyonnais,
New York Branch, as Syndication Agent and Lehman Commercial
Paper Inc., as Documentation Agent(12)
10.28 Registration Rights Agreement dated December 8, 1999
relating to GTL's 9% Series B Preferred Stock due 2011(11)
12 Statement Regarding Computation of Ratios(*)
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
<C> <S>
21 List of Subsidiaries of the Registrant(*)
23 Consent of Deloitte & Touche LLP(*)
27 Financial Data Schedule (EDGAR only)(*)
99.1 Financial Statements for Globalstar Capital Corporation*
99.2 Financial Statements for Loral/Qualcomm Satellite Services,
L.P.*
</TABLE>
- ---------------
(1)Incorporated by reference to GTL's Registration Statement on Form S-1 (No.
33-86808).
(2)Incorporated by reference to the GTL's and Globalstar's Annual Report on
Form 10-K for the Year Ended December 31, 1996.
(3)Incorporated by reference to Globalstar's Registration Statement on Form S-4
(No. 333-25461).
(4)Incorporated by reference to Globalstar's Registration Statement on Form S-4
(No. 333-41229).
(5)Incorporated by reference to Globalstar's Registration Statement on Form S-4
(No. 333-57749).
(6)Incorporated by reference to the GTL Registration Statement on Form S-3 (No.
333-6477).
(7)Incorporated by reference to the GTL's and Globalstar's Annual Report on
Form 10-K for the Year Ended December 31, 1997.
(8)Incorporated by reference to Schedule 13D filed by Loral Space &
Communications Ltd. on August 3, 1998.
(9)Incorporated by reference to Schedule 13D filed by Loral Space &
Communications Ltd. on February 10, 1999.
(10)Incorporated by reference to GTL's and Globalstar's Annual Report on Form
10-K for the Year Ended December 31, 1998.
(11)Incorporated by reference from GTL's and Globalstar's Current Report on
Form 8-K filed on December 21, 1999.
(12)Incorporated by reference to GTL and Globalstar's Current Report on Form
8-K filed on August 6, 1999.
(*) Filed herewith.
(+) Management compensation plan.
<PAGE> 1
AMENDMENT
to the
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
of
GLOBALSTAR, L.P.
AMENDMENT (this "Amendment"), dated as of February 1, 2000 to the
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of GLOBALSTAR, L.P., a
Delaware limited partnership ("Globalstar" or the "Partnership"), dated as of
January 26, 1999 (the "Partnership Agreement"), by and among LORAL/QUALCOMM
SATELLITE SERVICES, L.P., a Delaware limited partnership ("LQSS"), GLOBALSTAR
TELECOMMUNICATIONS LIMITED, a Bermuda company ("GTL") and the limited partners
signatories thereto as set forth on the signature pages hereto (collectively,
the "Limited Partners" and together with LQSS and GTL, the "Partners"), as
amended on December 8, 1999.
WHEREAS, GTL is making an offering (the "Common Stock Offering") of
8,050,000 shares of common stock, par value $1.00 per share (the "Common
Stock").
WHEREAS, the Partnership requires additional capital to accomplish
its purposes; and
WHEREAS, it is in the best interest of the Partnership to acquire
such additional capital by contribution from GTL of the proceeds of the Common
Stock Offering and for the Partnership to issue to GTL ordinary partnership
interests in connection therewith.
NOW, THEREFORE, the Partners, in consideration of the premises and
their mutual agreements as hereinafter set forth, do hereby agree to amend the
Partnership Agreement as follows:
1. AMENDMENT TO SECTION 2.1. Section 2.1 of the Partnership Agreement is
hereby amended as follows:
The definition of "Authorized Partnership Interests" set forth in Section
2.1 shall be deleted and replaced in its entirety with the following:
"Authorized Partnership Interests" means the sum of (i) 55,448,837
Partnership Interests, (ii) 4,769,231 Partnership Interests, (iii) the
number of Ordinary Partnership Interests issuable upon exercise of the
warrants issuable to certain Partners or Affiliates thereof and to GTL in
connection with the guarantee of the Partnership's obligations under the
Globalstar Credit Agreement, (iv) the number of Series A Preferred
Partnership Interests issued to GTL in connection with GTL's offering of
the Series A Preferred Stock, including as a result of the exercise by
the purchasers thereof of the option to purchase additional shares
thereof under the purchase agreement relating thereto, (v) the number of
Series B Preferred Partnership Interests issuable to GTL in connection
with GTL's offering of the Series B Preferred Stock Offering, including
as a result of the exercise by the purchasers thereof of the option to
purchase additional
<PAGE> 2
shares thereof under the purchase agreement relating thereto, (vi) the
number of Ordinary Partnership Interests issuable upon conversion or
exchange of the Series A Preferred Partnership Interests or Series B
Preferred Partnership Interests or in satisfaction of any distribution,
make-whole or redemption payment thereon, (vii) the number of Ordinary
Partnership Interests issuable upon exercise of the warrants issuable to
certain Partners of Globalstar, L.P., Loral/Qualcomm Satellite Services,
L.P. or Loral/Qualcomm Partnership, L.P. or Affiliates thereof in
connection with the guarantee of the Partnership's obligations under the
$500 million credit agreement with Bank of America and the other lenders
parties thereto, (viii) the number of Ordinary Partnership Interests
issuable upon exercise of the Warrants issuable to Qualcomm Incorporated
and its Affiliates in connection with up to $500 million of vendor
financing provided by Qualcomm Incorporated to the Partnership, (ix) the
number of Ordinary Partnership Interests or PPIs that may be issued in
connection with an offering of common stock, preferred stock, OPIs, PPIs,
or any other equity interests of GTL or the Partnership, in an aggregate
offering amount equal to the difference between 300 million and the gross
proceeds of the Series B Preferred Stock Offering including Ordinary
Partnership Interests issuable upon conversion or exchange of any PPIs
issued in connection with such offering, or in satisfaction of any
distribution, distribution make-whole payment, or redemption payment
thereon and (x) the number of Ordinary Partnership Interests issuable to
GTL in connection with the Common Stock Offering; provided, however, that
any greater number of Authorized Partnership Interests may be authorized
from time to time with the Consent of the Partners.
2. DEFINED TERMS. Capitalized terms used herein not otherwise defined
shall have the meanings set forth in the Partnership Agreement, as amended.
3. AMENDMENT TO SCHEDULE A. Schedule A to the Partnership Agreement is
hereby amended, as of the date hereof, as revised by the Managing General
Partner to reflect the issue of OPIs to GTL in connection with the Common Stock
Offering.
4. EFFECTIVENESS. This Amendment shall become effective as of the date
set forth above and when GTL shall have contributed the proceeds of the Common
Stock Offering to the Partnership and the Partnership shall have issued the
Ordinary Partnership Interests to GTL.
5. COUNTERPARTS. This Amendment may be executed in counterparts, all of
which together shall constitute one agreement binding on all the parties hereto.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly
executed and delivered by their respective duly authorized officer as of the day
and year first above written.
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
by LORAL/QUALCOMM PARTNERSHIP, L.P.
its General Partner
by LORAL GENERAL PARTNER, INC.
its General Partner
By: /s/Eric J. Zahler
-------------------------------
Name: Eric J. Zahler
Title: Executive Vice President
GLOBALSTAR TELECOMMUNICATIONS LIMITED
By: /s/Eric J. Zahler
-------------------------------
Name: Eric J. Zahler
Title: Vice President
Limited Partners:
AIRTOUCH SATELLITE SERVICES, INC.
DACOM CORPORATION
DACOM INTERNATIONAL, INC.
HYUNDAI CORPORATION
HYUNDAI ELECTRONICS INDUSTRIES CO., LTD.
LORAL/DASA GLOBALSTAR, L.P.
LORAL SPACE & COMMUNICATIONS LTD.
SAN GIORGIO S.p.A.
TELESAT LIMITED
TE. SA. M.
VODASTAR CELLULAR LIMITED
VODAFONE SATELLITE SERVICES LIMITED
BY : LORAL/QUALCOMM SATELLITE SERVICES, L.P.
by LORAL/QUALCOMM PARTNERSHIP, L.P.
its General Partner
by LORAL GENERAL PARTNER, INC.
its General Partner
By: /s/Eric J. Zahler
-------------------------------
Name: Eric J. Zahler as Attorney-in-Fact
<PAGE> 1
AMENDMENT NO. 2 TO THE
GLOBALSTAR TELECOMMUNICATONS LIMITED
1994 STOCK OPTION PLAN
The Globalstar Telecommunications Limited 1994 Stock Option Plan
(the "Plan") is hereby amended as follows:
1. The first sentence of Section 3 of the Plan is amended to read
as follows:
"The total number of shares of Common Stock which shall
be subject to Options granted under the Plan shall not exceed
5,000,000, subject to adjustment as provided in Section 7
hereof."
<PAGE> 1
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIOS
GLOBALSTAR TELECOMMUNICATIONS LIMITED
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Earnings:
Net loss................................................. $(32,151) $(50,561) $(24,152)
Add:
Equity in loss applicable to ordinary partnership
interests of Globalstar, L.P. ................... 81,861 50,561 24,152
Interest expense.................................... 2,510 22,197 21,202
-------- -------- --------
Earnings available to cover fixed charges(1)............... $ 52,220 $ 22,197 $ 21,202
======== ======== ========
Fixed charges -- interest expense and preferred
dividends................................................ $ 52,220 $ 22,197 $ 21,202
======== ======== ========
Ratio of earnings to fixed charges......................... 1x 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.
<PAGE> 2
GLOBALSTAR, L.P.
DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net loss................................................ $(180,364) $(129,543) $ (67,586)
Dividends on redeemable preferred partnership
interests............................................. (52,220) (22,197) (21,202)
Capitalized interest.................................... (233,785) (178,735) (95,895)
--------- --------- ---------
Deficiency of earnings to cover fixed charges........... $(466,369) $(330,475) $(184,683)
========= ========= =========
</TABLE>
<PAGE> 1
Exhibit 21
GLOBALSTAR, L.P.
As of February 29, 2000, active subsidiaries, all 100% owned directly or
indirectly (except as noted below) consist of the following:
GLOBALSTAR CAPITAL CORPORATION DELAWARE
GLOBALTRAK PTY AUSTRALIA
GLOBALSTAR SERVICES COMPANY, INC. DELAWARE
GLOBALSTAR CORPORATION DELAWARE
GLOBALSTAR OFFSHORE CO MAURITIUS
<PAGE> 1
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in Registration Statement Nos.
333-06477, 333-22063, 333-25457, 333-67731, 333-75677, 333-83239 and 333-96145
on Form S-3 and Nos. 333-29447 and 333-91143 on Form S-8 of Globalstar
Telecommunications Limited of our reports dated February 22, 2000, on the
financial statements of Globalstar Telecommunications Limited, the consolidated
financial statements of Globalstar, L.P. and the balance sheets of Globalstar
Capital Corporation and Loral/Qualcomm Satellite Services, L.P. appearing in
this Annual Report on Form 10-K of Globalstar Telecommunications Limited and
Globalstar, L.P. for the year ended December 31, 1999.
Deloitte & Touche LLP
San Jose, California
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Globalstar Telecommunications Limited for the year ended
December 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000933401
<NAME> GLOBALSTAR TELECOMMUNICATIONS LIMITED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,034,902
<CURRENT-LIABILITIES> 3,323
<BONDS> 0
0
358,968
<COMMON> 88,743
<OTHER-SE> 583,868
<TOTAL-LIABILITY-AND-EQUITY> 1,034,902
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,510
<INCOME-PRETAX> (32,151)
<INCOME-TAX> 0
<INCOME-CONTINUING> (32,151)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,861)
<EPS-BASIC> (0.99)
<EPS-DILUTED> (0.99)
</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 year ended December 31, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001037927
<NAME> GLOBALSTAR LP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 127,675
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 292,902
<PP&E> 3,239,784
<DEPRECIATION> 6,232
<TOTAL-ASSETS> 3,781,459
<CURRENT-LIABILITIES> 671,302
<BONDS> 1,799,111
0
358,968
<COMMON> 516,530
<OTHER-SE> 152,831
<TOTAL-LIABILITY-AND-EQUITY> 3,781,459
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 186,505
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (180,364)
<INCOME-TAX> 0
<INCOME-CONTINUING> (180,364)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (232,584)
<EPS-BASIC> (3.99)
<EPS-DILUTED> (3.99)
</TABLE>
<PAGE> 1
Exhibit 99.1
Independent Auditors' Report
To the Stockholder of Globalstar Capital Corporation:
We have audited the accompanying balance sheets of Globalstar Capital
Corporation (a wholly-owned subsidiary of Globalstar, L.P.) as of December 31,
1999 and 1998. These balance sheets are the responsibility of the Company's
management. Our responsibility is to express an opinion on these balance sheets
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits of the balance sheets provide a reasonable basis for our
opinion.
In our opinion, such balance sheets present fairly, in all material
respects, the financial position of Globalstar Capital Corporation as of
December 31, 1999 and 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 22, 2000
<PAGE> 2
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
------ ------
<S> <C> <C>
ASSETS
Receivable from Parent ................................................ $1,000 $1,000
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Commitments and contingencies (Note 2) ................................
Stockholder's equity ..................................................
Common stock, par value $.10; 1,000 shares authorized, issued
and outstanding ................................................ $ 10 $ 10
Paid-in capital ....................................................... 990 990
------ ------
$1,000 $1,000
====== ======
</TABLE>
See notes to balance sheets.
2
<PAGE> 3
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS
1. ORGANIZATION
Globalstar Capital Corporation ("Globalstar Capital"), 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-obligor with respect to
certain debt obligations of Globalstar.
2. COMMITMENTS AND CONTINGENCIES
Globalstar Capital is a co-obligor on the following Globalstar borrowings:
11 3/8% $500 MILLION SENIOR NOTES DUE 2004
In February, 1997, Globalstar sold $500 million principal amount of
11 3/8% Senior Notes due 2004 in a private offering. The notes are senior in
right of payment to Globalstar's 8% Convertible Redeemable Preferred
Partnership Interests and 9% Convertible Redeemable Preferred Partnership
Interests (collectively, the "RPPI's"), may not be redeemed prior February 2002
and are subject to a prepayment premium prior to 2004. Interest is paid
semi-annually.
11 1/4% $325 MILLION SENIOR NOTES DUE 2004
In June, 1997, Globalstar sold $325 million principal amount of 11 1/4%
Senior Notes due 2004 in a private offering. The notes are senior in right of
payment to Globalstar's RPPI's, may not be redeemed prior to June 2002 and are
subject to a prepayment premium prior to 2004. Interest is paid semi-annually.
10 3/4% $325 MILLION SENIOR NOTES DUE 2004
In October, 1997, Globalstar sold $325 million principal amount of 10 3/4%
Senior Notes due 2004 in a private offering. The notes are senior in right of
payment to Globalstar's RPPI's, may not be redeemed prior to November 2002 and
are subject to a prepayment premium prior to 2004. Interest is paid
semi-annually.
11 1/2% $300 MILLION SENIOR NOTES DUE 2005
In May, 1998, Globalstar sold $300 million principal amount of 11 1/2%
Senior Notes due 2005 in a private offering. The notes are senior in right of
payment to Globalstar's RPPI's, may not be redeemed prior to June 2003 and are
subject to a prepayment premium prior to 2005. Interest is paid semi-annually.
3
<PAGE> 4
GLOBALSTAR CAPITAL CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS -- (CONTINUED)
The 11 3/8% Senior Notes, the 11 1/4% Senior Notes, the 10 3/4% Senior
Notes, and the 11 1/2% Senior Notes rank pari passu with each other and with all
of Globalstar's other existing senior indebtedness. The indentures for the notes
contain certain covenants that, among other things, limit the ability of
Globalstar to incur additional debt, issue preferred stock, or pay dividends
and certain distributions. In certain limited circumstances involving a change
of control of Globalstar, as defined, each note is redeemable at the option of
the holder for 101% of the principal amount plus accrued interest.
Globalstar Capital is a guarantor of a $250 million credit agreement
between Globalstar and a group of banks ("$250 Million Credit Agreement"), and a
$500 million credit agreement between Globalstar and a group of banks ("$500
Million Credit Agreement"), which was entered into during 1999. At December 31,
1999, and 1998, there were no borrowings outstanding under the $250 Million
Credit Agreement and at December 31, 1999, there were borrowings of $400 million
outstanding under the $500 Million Credit Agreement.
3. GLOBALSTAR CONVERTIBLE REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
In January 1999, Globalstar sold to Globalstar Telecommunications Limited
("GTL") $350 million face amount of 8% convertible redeemable preferred
partnership interests in connection with GTL's offering of $350 million of 8%
Series A Convertible Redeemable Preferred Stock due 2011.
In December 1999, Globalstar sold to GTL $150 million face amount of 9%
convertible redeemable preferred partnership interests in connection with GTL's
offering of $150 million of 9% Series B Convertible Redeemable Preferred Stock
due 2011.
At December 31, 1999, $370 million aggregate face amount of the RPPI's were
outstanding which are subordinate to the Senior Notes described in Note 2.
4
<PAGE> 1
Exhibit 99.2
INDEPENDENT AUDITORS' REPORT
To the Partners of Loral/Qualcomm Satellite Services, L.P.:
We have audited the accompanying balance sheets of Loral/Qualcomm Satellite
Services, L.P. (a General Partner of Globalstar, L.P.) as of December 31, 1999
and 1998. These balance sheets are the responsibility of the Partnerships'
management. Our responsibility is to express an opinion on these balance sheets
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits of the balance sheets provide a reasonable basis for our
opinion.
In our opinion, such balance sheets present fairly, in all material
respects, the financial position of Loral/Qualcomm Satellite Services, L.P. as
of December 31, 1999 and 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 22, 2000
<PAGE> 2
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
December 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS:
Investment in Globalstar, L.P. ......................... $ -- $ --
----------- ------------
Total assets ........................................... $ -- $ --
=========== ============
PARTNERS' CAPITAL:
Partnership interests (18,000 interests outstanding) .... $ -- $ --
----------- ------------
Total partners' capital ................................. $ -- $ --
=========== ============
</TABLE>
See notes to balance sheets.
2
<PAGE> 3
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS
1. 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, a development stage limited partnership as of December 31, 1999,
which in January 2000 began operating a low-earth orbit satellite-based
wireless digital telecommunications system (the "Globalstar 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 December 31, 1999, LQSS held a 30.1% interest in Globalstar's
outstanding ordinary partnership interests. As LQSS's investment in Globalstar
is LQSS's only asset, LQSS is dependent upon Globalstar's success and
achievement of profitable operations for the recovery of its investment.
Globalstar is a development stage limited partnership which may encounter
problems, delays and expenses, many of which may be beyond Globalstar's
control. These may include, but are not limited to, in-orbit failures, problems
related to technical development of the system, testing, regulatory compliance,
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
3
<PAGE> 4
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS -- (CONTINUED)
operations and affect the recoverability of LQSS's investment. All expenses
necessary to maintain LQSS's operations are borne by Globalstar.
While it is not anticipated that LQSS will incur any direct obligations
for borrowed money or any other liabilities, it will, as a general partner of
Globalstar, be jointly and severally liable for all liabilities of Globalstar
other than those that are by contract made expressly non-recourse to
Globalstar's general partners or otherwise guaranteed. Limited partners in LQSS
do not, in general, have such joint and several liability.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN GLOBALSTAR, L.P.
LQSS accounts for its investment in Globalstar ordinary partnership
interests on the equity basis, recognizing its allocated share of 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 ($87.5 million at December 31, 1999) will be accreted
by LQSS beginning in 2000, on a straight-line basis over 20 years 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 December 31, 1999, suspended losses
representing LQSS's unrecognized equity in Globalstar's net losses aggregated
approximately $179,457,000.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of expenses reported for the period. Actual results
could differ from estimates.
NET (LOSS) INCOME ALLOCATION
The partnership agreements of LQSS and Globalstar provide that net losses
of each partnership are allocated among the partners with positive adjusted
capital account balances in accordance with their relative percentage interests
until the adjusted capital account balances of all partners are zero. Any
further net loss is allocated to the general partner.
Net income of each partnership is allocated among the partners in
proportion to, and to the extent of, distributions made to the partners out of
receipts for the period, as defined, then in proportion to and to the extent of
negative adjusted capital account balances and then in accordance with
percentage interests.
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<PAGE> 5
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS - (CONTINUED)
Under the terms of the partnership agreements, adjusted partners' capital
accounts are calculated in accordance with the principles of U.S. Treasury
Regulations governing the allocation of taxable income and loss including
adjustments to reflect the fair market value (including intangibles) of
partnership assets upon certain capital transactions including a sale of
partnership interests. Such adjustments are not permitted under generally
accepted accounting principles and, accordingly, are not reflected in the
accompanying financial statements.
INCOME TAXES
LQSS was organized as a Delaware limited partnership. As such, no income
tax provision (benefit) is included in the accompanying financial statements
since U.S. income taxes are the responsibility of its partners. Generally,
taxable income (loss), deductions and credits of LQSS will be passed
proportionately through to its partners.
3. INVESTMENT IN GLOBALSTAR
On March 23, 1994, LQSS entered into a subscription agreement to acquire
18,000,000 general ordinary partnership interests in Globalstar for
$50,000,000. LQSS paid $38,691,000 in cash during 1994 and 1995 and received a
credit of $11,309,000 against its capital subscription, as compensation for
certain costs incurred by the partners of its general partner, LQP. As of
December 31, 1999, Globalstar had 39,906,823 general and 19,937,500 limited
ordinary partnership interests outstanding.
On February 14, 1995, GTL completed an initial public offering of
40,000,000 shares of common stock, resulting in net proceeds of $185,750,000,
which were used to purchase 10,000,000 ordinary general partnership interests
in Globalstar. LQSS and the other partners in Globalstar have the right to
exchange their ordinary partnership interests into shares of GTL common stock
on an approximate one-for-four basis following the Full Coverage Date, as
defined, of the Globalstar System and after two consecutive quarters of
positive net income, subject to certain annual limitations. GTL has reserved
approximately 153.7 million shares for this purpose.
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<PAGE> 6
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS -- (CONTINUED)
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "250 Million Credit Agreement") with a group of banks. Lockheed
Martin, Qualcomm, SS/L and another Globalstar partner have guaranteed $206.3
million, $21.9 million, $11.7 million and $10.1 million of the Globalstar Credit
Agreement, respectively. In addition, Loral agreed to indemnify Lockheed Martin
for any liability in excess of $150 million.
On August 5, 1999, Globalstar entered into a $500 million credit agreement
("$500 Million Credit Agreement") with a group of banks for the build-out of the
Globalstar System of which $400 million was outstanding as of December 31, 1999.
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, valued at $141.1 million, Loral and certain Loral subsidiaries
received warrants to purchase an aggregate of 3,450,000 Globalstar partnership
interests at an exercise price of $91.00 per partnership interest.
Pursuant to other equity arrangements entered into by Globalstar (in which
LQSS is not a participant), at December 31, 1999, Globalstar has reserved
additional ordinary partnership interests for issuance for: exercise of warrants
to purchase GTL common stock issued in connection with Globalstar's 11-3/8%
Senior Notes due 2004 (976,631 interests), exercise of a warrant issued to China
Telecom to purchase Globalstar ordinary partnership interests (937,500
interests), warrants issued to Loral as consideration for the guarantee of
Globalstar's $500 Million Credit Agreement (3,450,000 interests), conversion of
outstanding 8% and 9% convertible redeemable preferred partnership interests
(3,760,632 interests), and interests reserved for issuance under GTL's 1994
stock option plan (1,160,950 interests).
In addition, Qualcomm has agreed to provide Globalstar $500 million of
vendor financing (for which the terms of $400 million are still being
finalized). In connection with the agreement, Qualcomm is expected to receive a
number of warrants to purchase Globalstar partnership interests comparable to
those received by Loral pursuant to Loral's guarantee of Globalstar's $500
Million Credit Agreement. Globalstar may also elect to make the preferred
distribution on its outstanding 8% and 9% convertible redeemable preferred
partnership interests in ordinary partnership interests versus cash.
On February 1, 2000, GTL sold 8,050,000 shares of common stock in a public
offering. The purchase price was $35 per share, yielding net proceeds of
approximately $268.5 million to GTL. GTL used the proceeds to purchase 1,987,654
ordinary partnership interests in Globalstar. This issuance of ordinary
partnership interests diluted and the issuance and exercise or conversion of any
of the above securities would further dilute LQSS's interest in Globalstar's
ordinary partnership interests.
<PAGE> 7
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO BALANCE SHEETS - (CONTINUED)
4. PARTNERS' CAPITAL
On March 23, 1994, LQSS received capital subscriptions of $50,000,000 for
a 42.2% general partnership interest and 57.8% limited partnership interests,
representing all issued and outstanding partnership interests. Of these capital
subscriptions, $38,691,000 was received in cash during 1994 and 1995 and a
capital subscription credit of $11,309,000 was issued to the general and
limited partners as compensation for expenditures incurred by Loral and
Qualcomm from January 1, 1993 through March 22, 1994, relating to the Globalstar
System. LQSS was in turn granted a credit against its capital subscription
payable to Globalstar for the same amount.
5. RELATED PARTY TRANSACTIONS
GLOBALSTAR MANAGING PARTNER'S ALLOCATION
Commencing with the initiation of Globalstar's services in the first
quarter of 2000, LQSS will receive a managing partner's allocation equal to 2.5%
of Globalstar's revenues up to $500 million, plus 3.5% of revenues in excess of
$500 million. This managing partner's allocation will be distributed to LQSS's
general partner, LQP. Should Globalstar incur a net loss in any year following
commencement of services, the allocation for that year will be reduced by 50%
and Globalstar will be reimbursed for allocation payments, if any, made in any
prior quarter of such year, sufficient to reduce the management allocation for
such year to 50%. No allocations have been received to date. The allocation may
be deferred (with interest 4% per annum) in any quarter in which Globalstar
would report negative cash flow from operations if the allocation were made.
7
