<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
GLOBALSTAR TELECOMMUNICATIONS LIMITED
CEDAR HOUSE
41 CEDAR AVENUE
HAMILTON HM12, BERMUDA
TELEPHONE: (441) 295-2244
COMMISSION FILE NUMBER 0-25456
JURISDICTION OF INCORPORATION: BERMUDA
IRS IDENTIFICATION NUMBER: 13-3795510
GLOBALSTAR, L.P.
3200 ZANKER ROAD
SAN JOSE, CA 95134
TELEPHONE: (408) 933-4000
COMMISSION FILE NUMBER: 333-25461
JURISDICTION OF INCORPORATION: DELAWARE
IRS IDENTIFICATION NUMBER: 13-3759024
The registrants have filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
and have been subject to such filing requirements for the past 90 days.
As of July 21, 2000, there were 96,911,740 shares of Globalstar
Telecommunications Limited common stock outstanding.
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<PAGE> 2
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Globalstar Telecommunications Limited (A General Partner of
Globalstar L.P.).......................................... 2
Globalstar, L.P............................................. 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Part II. OTHER INFORMATION
Submission of Matters to a Vote of Security Holders......... 19
Exhibits and Reports of Form 8-K............................ 20
</TABLE>
1
<PAGE> 3
PART I
FINANCIAL INFORMATION
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests................ $ 358,967 $ 358,968
Dividends receivable...................................... 3,323 3,323
Ordinary partnership interests............................ 727,360 661,072
Ordinary partnership warrants............................. 11,268 11,539
---------- ----------
Total assets......................................... $1,100,918 $1,034,902
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Dividends payable......................................... $ 3,323 $ 3,323
Commitments and contingencies
Shareholders' equity:
Preference shares, $.01 par value, 20,000,000 shares
authorized:
8% Series A convertible redeemable preferred stock,
(4,396,295 shares outstanding, $220 million redemption
value)................................................ 213,393 213,393
9% Series B convertible redeemable preferred stock,
(2,999,990 and 3,000,000 shares outstanding at June
30, 2000 and December 31, 1999, respectively, $150
million redemption value)............................. 145,574 145,575
Common stock, $1.00 par value, 600,000,000 shares
authorized (96,911,740 and 88,742,794 shares
outstanding at June 30, 2000 and December 31, 1999,
respectively).......................................... 96,912 88,743
Paid-in capital........................................... 1,001,132 756,615
Warrants.................................................. 11,268 11,539
Accumulated deficit....................................... (370,684) (184,286)
---------- ----------
Total shareholders' equity............................. 1,097,595 1,031,579
---------- ----------
Total liabilities and shareholders' equity........... $1,100,918 $1,034,902
========== ==========
</TABLE>
---------------
NOTE: The December 31, 1999 balance sheet has been derived from audited
financial statements at that date.
See notes to condensed financial statements.
2
<PAGE> 4
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
2000 1999 2000 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P. ....................... $83,811 $15,777 $166,013 $31,475
Amortization of excess carrying value in Globalstar,
L.P. ................................................ 10,701 20,385
Dividend income on Globalstar, L.P. redeemable
preferred partnership interests...................... 7,771 9,940 15,280 14,690
Interest expense on convertible preferred
equivalent obligations............................... 2,510 2,510
------- ------- -------- -------
Net loss............................................... 86,741 8,347 171,118 19,295
Preferred dividends on convertible redeemable preferred
stock................................................ 7,771 7,430 15,280 12,180
------- ------- -------- -------
Net loss applicable to common shareholders............. $94,512 $15,777 $186,398 $31,475
======= ======= ======== =======
Net loss per share -- basic and diluted................ $ 0.98 $ 0.19 $ 1.95 $ 0.38
======= ======= ======== =======
Weighted average shares outstanding -- basic and
diluted.............................................. 96,911 82,024 95,557 82,021
======= ======= ======== =======
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 5
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(171,118) $ (19,295)
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P. ......................... 166,013 31,475
Amortization of excess carrying value in Globalstar,
L.P. .................................................. 20,385
Accretion to redemption value of redeemable preferred
partnership interests.................................. (210)
Dividends accrued on redeemable preferred partnership
interests.............................................. (3,500)
--------- ---------
Net cash provided by operating activities................. 15,280 8,470
--------- ---------
Investing activities:
Purchase of ordinary partnership interests in Globalstar,
L.P. .................................................. (270,367) (45)
Purchase of 8% redeemable preferred partnership interests
in Globalstar, L.P..................................... (339,775)
--------- ---------
Net cash used in investing activities..................... (270,367) (339,820)
--------- ---------
Financing activities:
Net proceeds from issuance of common stock upon exercise
of options and warrants................................ 1,896 45
Net proceeds from sale of common stock.................... 268,471
Proceeds from issuance of 8% Series A convertible
redeemable preferred stock............................. 339,775
Payment of preferred stock dividends...................... (15,280) (8,470)
--------- ---------
Net cash provided by financing activities................. 255,087 331,350
--------- ---------
Net increase (decrease) in cash and cash equivalents........
Cash and cash equivalents, beginning of period..............
--------- ---------
Cash and cash equivalents, end of period.................... $ -- $ --
========= =========
Noncash transactions:
Change in fair value of stock compensation for the benefit
of Globalstar.......................................... $ (17,953) $
========= =========
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 6
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared by Globalstar Telecommunications Limited ("GTL" or the "Company")
pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in
the opinion of GTL, include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of financial position, results of
operations and cash flows as of and for the periods presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to SEC rules. GTL believes
that the disclosures made are adequate to keep the information presented from
being misleading. The results of operations for the three and six months ended
June 30, 2000 are not necessarily indicative of the results to be expected for
the full year. These financial statements should be read in conjunction with
GTL's audited financial statements and notes thereto included in the latest
Annual Report on Form 10-K for GTL and Globalstar, L.P. ("Globalstar").
2. ORGANIZATION AND BUSINESS
GTL's sole business is acting as a general partner of Globalstar. 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 commenced commercial service in the first quarter of 2000, and
subscriber revenues to date have been lower than originally anticipated. If
Globalstar fails to rapidly and significantly improve its market penetration
rates and revenues, it will be unable to fund its operating costs or service its
debt, unless additional financing can be obtained, as to which there can be no
assurance. If Globalstar is unable to obtain sufficient funds to pay for its
debt service, Globalstar will be in default under its debt facilities.
As of June 30, 2000, GTL held 38.7% of the 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") of
Globalstar. GTL accounts for its investment in Globalstar on the equity method,
recognizing its allocated share of net losses in the period incurred based on
the ordinary partnership interests it owns.
GTL's equity securities and convertible securities are represented by
equivalent Globalstar partnership interests on an approximate four-for-one
basis.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share
Due to GTL's net losses for the three and six months ended June 30, 2000
and 1999, diluted weighted average common shares outstanding excludes: (i) the
weighted average effect of the assumed conversion of GTL's 8% Series A
convertible redeemable preferred stock (the "8% Preferred Stock") into 9.5
million and 15.1 million common shares for the three months ended June 30, 2000
and 1999, respectively, and into 9.5 million and 13.4 million common shares for
the six months ended June 30, 2000 and 1999, respectively; (ii) the assumed
conversion of GTL's 9% Series B convertible redeemable preferred stock (the "9%
Preferred Stock") into 5.8 million common shares for both the three and six
months ended June 30, 2000; and (iii) the assumed exercise of outstanding
options and warrants, using the treasury stock method, into 9.1 million and 6.7
million common shares for the three months ended June 30, 2000 and 1999,
respectively, and into 8.9 million and 6.4 million common shares for the six
months ended June 30, 2000 and 1999, respectively as their effect would have
been anti-dilutive. Accordingly, basic and diluted net loss per share is based
on the net
5
<PAGE> 7
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
loss applicable to common shareholders' and the weighted average common shares
outstanding for the three and six months ended June 30, 2000 and 1999,
respectively.
Investment in Globalstar, L.P.
GTL's investment in Globalstar includes the excess carrying value over
GTL's interest in Globalstar's total partners' capital. Such excess totaled $855
million at June 30, 2000, including an increase of $243 million during the first
quarter of 2000, resulting primarily from the additional investment in
Globalstar's ordinary partnership interests discussed in Note 4. In connection
with Globalstar's commencement of commercial operations, GTL began amortizing
this excess in January 2000 over a period of 20 years. Accumulated amortization
as of June 30, 2000 was $20.4 million.
Comprehensive Loss
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.
4. SHAREHOLDERS' EQUITY
On February 1, 2000, GTL sold 8,050,000 shares of common stock in a public
offering under its shelf registration statement. The sale yielded 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 is
using 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.
5. GLOBALSTAR CREDIT FACILITIES
$250 Million Credit Agreement
On June 30, 2000, Globalstar's $250 million credit facility with The Chase
Manhattan Bank became due, and was thereupon repaid in full by its guarantors,
including Lockheed Martin Corporation ("Lockheed Martin"), Qualcomm, DASA and
SS/L, who had previously received warrants for GTL common stock in consideration
of their guarantee. Pursuant to the relevant agreements entered into in 1996,
Globalstar issued three-year notes in the amounts of $206.3 million, $21.9
million, $11.7 million and $10.1 million to Lockheed Martin, Qualcomm, SS/L and
DASA, respectively, in satisfaction of their subrogation rights. The notes are
due on June 30, 2003 and bear interest, on a deferred basis, at a rate of LIBOR
plus 3%.
On June 30, 2000, Loral Space & Communications Ltd. ("Loral") paid $56.3
million on a net basis to Lockheed Martin in satisfaction of its obligation to
indemnify Lockheed Martin for liability in excess of $150 million under Lockheed
Martin's guarantee of Globalstar's $250 million credit facility. Accordingly,
Loral is entitled to receive notes in respect thereof.
Lockheed Martin, however, has rejected the notes it received and is instead
asking Globalstar to issue new securities with additional rights and enhanced
value, without waiving its claim that it is entitled to receive an immediate
cash reimbursement by Globalstar of its $150 million payment to the bank
lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant
agreements, but is, nonetheless, in discussions with Lockheed Martin to resolve
the dispute.
6
<PAGE> 8
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
If the dispute is not resolved, Globalstar cannot be sure that if the
matter were litigated the court would agree with Globalstar's interpretation of
the agreements. Moreover, if as a result of this dispute, a holder of Globalstar
public bonds claimed a cross default under the applicable indentures, and a
court ruled against Globalstar, the maturity date of the bonds would be
accelerated. Management believes, however, that a court would agree with
Globalstar's interpretation of the relevant agreements.
$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 three-year
term loan ("Term Loan A") and a $300 million four-year term loan ("Term Loan
B"). As of June 30, 2000, all amounts under the $500 million credit agreement
were drawn.
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.
One of these covenants would require, among other things, that Globalstar
have revenues of $100 million for the 12 month period ended March 31, 2001.
Globalstar's revenues for the quarter ended June 30, 2000, the first three
months of this period, were $708,000. Unless Globalstar can satisfy this
covenant or obtain waivers or amendments from a majority of the bank lenders,
Globalstar will be in default under its debt facilities and Globalstar's lenders
and bondholders would have the right to accelerate payment of their loans to
Globalstar.
7
<PAGE> 9
GLOBALSTAR, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PARTNERSHIP INTERESTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- -------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 414,846 $ 127,675
Restricted cash........................................... 48,640 46,246
Accounts receivable, net of allowance of $57 at June 30,
2000.................................................... 814
Production gateways and user terminals.................... 165,676 114,980
Other current assets...................................... 10,802 4,001
---------- ----------
Total current assets.................................... 640,778 292,902
Property and equipment:
Globalstar System, net.................................... 2,983,049
Other property and equipment, net......................... 4,722 5,128
---------- ----------
2,987,771 5,128
Globalstar System under construction:
Space segment............................................. 2,109,275
Ground segment............................................ 50,679 1,071,914
---------- ----------
50,679 3,181,189
Additional spare satellites................................. 112,316 53,467
Deferred financing costs.................................... 169,444 151,873
Other assets................................................ 98,401 96,900
---------- ----------
Total assets............................................ $4,059,389 $3,781,459
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of debt................................... $ 36,000 $
Accounts payable.......................................... 11,147 10,908
Payable to affiliates..................................... 144,276 468,536
Vendor financing liability................................ 115,812 137,484
Accrued expenses.......................................... 13,151 20,841
Accrued interest.......................................... 35,193 33,533
---------- ----------
Total current liabilities.......................... 355,579 671,302
Deferred revenues........................................... 34,418 25,811
Vendor financing liability, net of current portion.......... 643,012 256,311
Deferred interest payable................................... 595
Revolving credit facility................................... 100,000
Term loans payable.......................................... 364,000 400,000
Notes payable............................................... 206,300
Notes payable to affiliates................................. 43,700
Senior notes payable ($1,450,000 aggregate principal
amount)................................................... 1,403,388 1,399,111
Commitments and contingencies (Notes 4 and 6)
Partners' capital:
8% Series A convertible redeemable preferred partnership
interests (4,396,295 interests outstanding, $220 million
redemption value)....................................... 213,393 213,393
9% Series B convertible redeemable preferred partnership
interests (2,999,990 and 3,000,000 interests outstanding
at June 30, 2000 and December 31, 1999, respectively,
$150 million redemption value).......................... 145,574 145,575
Ordinary partnership interests (61,861,714 and 59,844,323
interests outstanding at June 30, 2000 and December 31,
1999, respectively)..................................... 336,410 516,530
Unearned compensation..................................... (1,773) (16,754)
Warrants.................................................. 215,388 169,585
---------- ----------
Total partners' capital................................. 908,992 1,028,329
---------- ----------
Total liabilities and partners' capital................. $4,059,389 $3,781,459
========== ==========
</TABLE>
---------------
NOTE: The December 31, 1999 balance sheet has been derived from audited
consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
8
<PAGE> 10
GLOBALSTAR, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER ORDINARY PARTNERSHIP INTEREST AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Gross revenue:
Service.......................................... $ 483 $ $ 660 $
Royalty income................................... 317 788
-------- ------- -------- -------
Total gross revenue................................... 800 1,448
Less, discounts and promotions on service
revenue........................................ (92) (131)
-------- ------- -------- -------
Net revenue........................................... 708 1,317
-------- ------- -------- -------
Operating expenses:
Operations....................................... 36,415 26,345 76,065 57,053
Marketing, general and administrative............ 15,237 10,243 31,258 21,671
Depreciation and amortization.................... 80,850 577 161,018 1,122
-------- ------- -------- -------
Total operating expenses....................... 132,502 37,165 268,341 79,846
-------- ------- -------- -------
Operating loss........................................ 131,794 37,165 267,024 79,846
Interest income....................................... 3,843 1,762 6,841 4,075
Interest expense...................................... 80,994 157,391
-------- ------- -------- -------
Net loss.............................................. 208,945 35,403 417,574 75,771
Preferred distributions on redeemable preferred
partnership interests............................... 7,771 9,940 15,280 14,690
-------- ------- -------- -------
Net loss applicable to ordinary partnership
interests........................................... $216,716 $45,343 $432,854 $90,461
======== ======= ======== =======
Net loss per ordinary partnership interest -- basic
and diluted......................................... $ 3.50 $ 0.78 $ 7.04 $ 1.55
======== ======= ======== =======
Weighted average ordinary partnership interests
outstanding -- basic and diluted.................... 61,862 58,182 61,527 58,181
======== ======= ======== =======
</TABLE>
See notes to condensed consolidated financial statements.
9
<PAGE> 11
GLOBALSTAR, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- --------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(417,574) $(75,771)
Deferred revenues......................................... 8,607
Amortization of unearned compensation..................... (2,923) 786
Depreciation and amortization............................. 161,018 1,122
Non-cash interest......................................... 32,622
Changes in operating assets and liabilities:
Accounts receivable..................................... (814)
Other current assets.................................... (6,801) 382
Other assets............................................ (2,523) (56)
Accounts payable........................................ 4,025 (4,813)
Payable to affiliates................................... 38,282 27,273
Accrued expenses........................................ (7,690) (427)
Accrued interest and other.............................. 1,065
--------- --------
Net cash used in operating activities................. (192,706) (51,504)
--------- --------
Investing activities:
Globalstar System....................................... (11,133) (415,482)
Insurance proceeds from launch failure.................. 28,500
Payable to affiliates for Globalstar System............. (25,138) 63,327
Capitalized interest accrued............................ 3,087
Accounts payable........................................ (3,786) 4,114
Vendor financing liability.............................. 33,504 32,227
--------- --------
Cash used for Globalstar System......................... (6,553) (284,227)
Advances for production gateways and user terminals..... (124,203) (20,427)
Cash receipts for production gateways and user
terminals.............................................. 73,507 30,623
Receipt and use of restricted cash...................... (2,394) (27,415)
Additional spare satellites, net of vendor financing.... (16,501) (3,348)
Purchases of property and equipment..................... (838) (1,465)
Deferred FCC license costs.............................. (472)
--------- --------
Net cash used in investing activities................. (76,982) (306,731)
--------- --------
Financing activities:
Sale of ordinary partnership interests upon exercise of
options and warrants................................... 1,896 45
Sale of ordinary partnership interests.................. 268,471
Sale of 8% Series A convertible redeemable preferred
partnership interests to GTL........................... 339,775
Repayment of vendor financing........................... (48,228)
Distributions on redeemable preferred partnership
interests.............................................. (15,280) (10,980)
Borrowings under credit facilities...................... 350,000
--------- --------
Net cash provided by financing activities............. 556,859 328,840
--------- --------
Net increase (decrease) in cash and cash equivalents.... 287,171 (29,395)
Cash and cash equivalents, beginning of period.......... 127,675 56,223
--------- --------
Cash and cash equivalents, end of period................ $ 414,846 $ 26,828
========= ========
Noncash transactions:
Issuance of notes to guarantors for repayment of
revolving credit line.................................. $ 250,000
=========
Conversion of affiliate payables to vendor financing.... $(387,777)
=========
Change in fair value of stock compensation for the
benefit of Globalstar.................................. $ (17,953)
=========
</TABLE>
See notes to condensed consolidated financial statements.
10
<PAGE> 12
GLOBALSTAR, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Globalstar, L.P. ("Globalstar") pursuant to the rules of the
Securities and Exchange Commission ("SEC") and, in the opinion of Globalstar,
include all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of financial position, results of operations and cash flows
as of and for the periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such SEC rules. Globalstar believes that the
disclosures made are adequate to keep the information presented from being
misleading. The results of operations for the three and six months ended June
30, 2000 are not necessarily indicative of the results to be expected for the
full year. These condensed consolidated financial statements should be read in
conjunction with Globalstar's audited consolidated financial statements and
notes thereto included in the latest Annual Report on Form 10-K for Globalstar
Telecommunications Limited ("GTL") and Globalstar.
2. ORGANIZATION AND BUSINESS
Globalstar, L.P. ("Globalstar"), was founded by Loral Space &
Communications Ltd. ("Loral") and QUALCOMM Incorporated ("Qualcomm") to design,
construct and operate a worldwide, low-earth orbit ("LEO") satellite-based
wireless digital telecommunications system (the "Globalstar System"). 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. 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 commenced commercial service in the first quarter of 2000, and
subscriber revenues to date have been lower than originally anticipated. If
Globalstar fails to rapidly and significantly improve its market penetration
rates and revenues, it will be unable to fund its operating costs or service its
debt, unless additional financing can be obtained, as to which there can be no
assurance. If Globalstar is unable to obtain sufficient funds to pay for its
debt service, Globalstar will be in default under its debt facilities.
Globalstar operates in one industry segment, global mobile telephone
service.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Ordinary Partnership Interest
Due to Globalstar's net losses for the three and six months ended June 30,
2000 and 1999, diluted weighted average ordinary partnership interests
outstanding excludes: (i) the weighted average effect of the assumed conversion
of the 8% Series A convertible redeemable preferred partnership interests (the
"8% RPPI's") into 2.3 million and 3.8 million ordinary partnership interests for
the three months ended June 30, 2000 and 1999, respectively, and into 2.3
million and 3.3 million ordinary partnership interests for the six months ended
June 30, 2000 and 1999, respectively; (ii) the assumed conversion of the 9%
Series B convertible redeemable preferred partnership interests (the "9%
RPPI's") into 1.4 million ordinary partnership interests for both the three and
six months ended June 30, 2000; and (iii) 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 9.0 million and 2.6
million ordinary partnership interests for the three months ended June 30, 2000
and 1999, respectively, and into 7.8 million and 2.5 million ordinary
partnership interests for the six months ended June 30, 2000 and 1999,
respectively as their effect would have been anti-dilutive. Accordingly, basic
and diluted net loss per ordinary partnership interest are based on the
11
<PAGE> 13
GLOBALSTAR, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
net loss applicable to ordinary partnership interests and the weighted average
ordinary partnership interests outstanding for the three and six months ended
June 30, 2000 and 1999, respectively.
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>
Globalstar System Up to periods of 10 years from commencement
of service in the first quarter of 2000
Furniture, fixtures & equipment 3 to 8 years
Leasehold improvements Shorter of lease term or the estimated useful
lives of the improvements
</TABLE>
Service Revenue
Globalstar owns and operates a global telecommunications network designed
to serve virtually every populated area of the world by means of a 52-satellite
constellation, including four in-orbit spares. Globalstar provides satellite
services under agreements with its service providers and recognizes revenue as
satellite services are provided. Gross service revenue represents the billable
usage at the contracted rate for the respective services provided. Net service
revenue reflects Globalstar's service revenue after promotions and discounts
provided to service providers. These promotional programs include a 25% discount
on mobile usage fees and free minutes, accumulated based on usage, to service
providers for the advance purchase of airtime. A number of Globalstar service
providers have committed to pre-purchase discount minutes of use, amounting to
approximately $23 million in pre-committed gross revenue. Deferred revenue
relating to advance purchases of airtime amounted to approximately $8 million as
of June 30, 2000.
Royalty Income
Royalty income is comprised of royalty payments for Globalstar user
terminals sold by user terminal manufacturers. Revenue is recognized as units
are shipped by the user terminal manufacturers.
Research and Development Expense
Globalstar's research and development costs, which are expensed as
incurred, were $1.5 million and $26.3 million for the three months ended June
30, 2000 and 1999, respectively, and $3.2 million and $57.1 million for the six
months ended June 30, 2000 and 1999, respectively, and are included in
operations expense.
Comprehensive Loss
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.
Reclassifications
Certain reclassifications have been made to conform prior period amounts to
the current period presentation.
12
<PAGE> 14
GLOBALSTAR, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ADDITIONAL SYSTEM COSTS
From July 1, 2000 through December 31, 2000, Globalstar expects to spend
approximately $161 million for the enhancement of its system software, for the
eight spare satellites being constructed by Space Systems/ Loral Inc. ("SS/L"),
for development work completed but not paid at June 30, 2000, for repayment of
vendor financing and for the net financing provided to Globalstar's service
providers to assist in the purchase of gateways, fixed access terminals and
handsets (net of expected receipts of $129 million from the service providers as
repayment of such financing). In addition, cash interest, preferred dividends
and operating costs are estimated to be between $100 million and $125 million
per quarter for the remainder of 2000. Globalstar expects that its cash on hand
($463 million at June 30, 2000) and remaining available credit as of June 30,
2000 of approximately $29 million under its vendor financing arrangements, will
enable it to end 2000 with a cash surplus in excess of $100 million. Globalstar
believes that it will require additional funds to the extent that cash on hand
and revenue does not cover its expected cash outflows for 2001. While Globalstar
believes it will be able to obtain the 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.
Globalstar also has secured from SS/L twelve and eighteen month call up
orders for two additional Delta launch vehicles. The total future commitment for
these launch vehicles is approximately $82 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 approximately $16.0 million.
5. PAYABLES TO AFFILIATES AND VENDOR FINANCING
Payables and vendor financing due to affiliates is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
SS/L........................................................ $311,425 $346,537
Qualcomm.................................................... 574,499 501,647
Other affiliates............................................ 17,176 14,147
-------- --------
903,100 862,331
Less, current portion....................................... 260,088 606,020
-------- --------
Long-term portion........................................... $643,012 $256,311
======== ========
</TABLE>
In May 2000, Globalstar finalized $531.1 million of vendor financing
arrangements (including $31.1 million of capitalized interest) with Qualcomm
that replaced the previous $100 million vendor financing agreement. The vendor
financing bears interest at 6%, matures on August 15, 2003 and requires
repayment pro rata with the term loans under Globalstar's $500 million credit
facility (see Note 6). As of June 30, 2000, $503 million was outstanding under
this facility. In connection with this agreement, Qualcomm received warrants to
purchase 3,450,000 Globalstar partnership interests at an exercise price of
$42.25 per interest. The exercise price was determined by reference to the fair
market value of GTL's common stock on the closing date of the vendor financing,
based on an approximate one partnership interest for four shares of GTL common
stock. Fifty percent of the warrants vested on the closing date. The remaining
50% will vest generally in two equal installments on September 1, 2000 and
September 1, 2001. The warrants will expire in 2007. The fair value of such
warrants totaled approximately $46.1 million and is being amortized over the
term of the vendor financing arrangements. The fair value attributable to the
unvested portion of such warrants is subject to adjustment based upon the future
value of GTL's common stock.
Loral has agreed that if the principal amount (excluding capitalized
interest of $31.1 million at June 30, 2000) outstanding under the Qualcomm
vendor financing facility exceeds the principal amount outstanding
13
<PAGE> 15
GLOBALSTAR, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PAYABLES TO AFFILIATES AND VENDOR FINANCING -- (CONTINUED)
under Globalstar's $500 million credit facility, as determined on certain
measurement dates, then Loral will guarantee 50% of such excess amount. As a
result, Loral's aggregate guarantee liability for debt outstanding under the
Qualcomm vendor financing facility and Globalstar's $500 million credit facility
will not exceed $500 million.
6. CREDIT FACILITIES
$250 Million Credit Agreement
On June 30, 2000, Globalstar's $250 million credit facility with The Chase
Manhattan Bank became due, and was thereupon repaid in full by its guarantors,
including Lockheed Martin Corporation ("Lockheed Martin"), Qualcomm, DASA and
SS/L, who had previously received warrants for GTL common stock in consideration
of their guarantee. Pursuant to the relevant agreements entered into in 1996,
Globalstar issued three-year notes in the amounts of $206.3 million, $21.9
million, $11.7 million and $10.1 million to Lockheed Martin, Qualcomm, SS/L and
DASA, respectively, in satisfaction of their subrogation rights. The notes are
due on June 30, 2003 and bear interest, on a deferred basis, at a rate of LIBOR
plus 3%, and are presented as notes payable and notes payable to affiliates on
the condensed consolidated balance sheet of Globalstar.
On June 30, 2000, Loral paid $56.3 million on a net basis to Lockheed
Martin in satisfaction of its obligation to indemnify Lockheed Martin for
liability in excess of $150 million under Lockheed Martin's guarantee of
Globalstar's $250 million credit facility. Accordingly, Loral is entitled to
receive notes in respect thereof.
Lockheed Martin, however, has rejected the notes it received and is instead
asking Globalstar to issue new securities with additional rights and enhanced
value, without waiving its claim that it is entitled to receive an immediate
cash reimbursement by Globalstar of its $150 million payment to the bank
lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant
agreements, but is, nonetheless, in discussions with Lockheed Martin to resolve
the dispute.
If the dispute is not resolved, Globalstar cannot be sure that if the
matter were litigated the court would agree with Globalstar's interpretation of
the agreements. Moreover, if as a result of this dispute, a holder of Globalstar
public bonds claimed a cross default under the applicable indentures, and a
court ruled against Globalstar, the maturity date of the bonds would be
accelerated. Management believes, however, that a court would agree with
Globalstar's interpretation of the relevant agreements.
$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 three-year
term loan ("Term Loan A") and a $300 million four-year term loan ("Term Loan
B"). As of June 30, 2000, all amounts under the $500 million credit agreement
were drawn.
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.
14
<PAGE> 16
GLOBALSTAR, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CREDIT FACILITIES -- (CONTINUED)
One of these covenants would require, among other things, that Globalstar
have revenues of $100 million for the 12 month period ended March 31, 2001.
Globalstar's revenues for the quarter ended June 30, 2000, the first three
months of this period, were $708,000. Unless Globalstar can satisfy this
covenant or obtain waivers or amendments from a majority of the bank lenders,
Globalstar will be in default under its debt facilities and Globalstar's lenders
and bondholders would have the right to accelerate payment of their loans to
Globalstar.
7. ORDINARY PARTNERS' CAPITAL
On February 1, 2000, GTL sold 8,050,000 shares of common stock in a public
offering under its shelf registration statement. The sale yielded net proceeds
of approximately $268.5 million to GTL. GTL used the proceeds to purchase
1,987,654 ordinary partnership interests in Globalstar. Globalstar is using 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.
15
<PAGE> 17
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
Globalstar's or GTL's control. Some of these factors and conditions include: (i)
Globalstar has recently commenced commercial service and subscriber demand to
date has been lower than expected; (ii) Globalstar must achieve significant
revenue quickly in order to meet a financial covenant that will become effective
in March 2001 (iii) dependence on service providers to market Globalstar service
and implement important parts of its system and on third parties to complete its
system; (iv) Globalstar has substantial debt; (v) Globalstar may require
additional financing; (vi) satellites may fail prematurely; (vii) severe
competition in the telecommunications industry; (viii) Globalstar is subject to
regulation and (ix) the outcome of Globalstar's discussion with Lockheed Martin.
For a detailed discussion of some of these factors and conditions, please refer
to the most recent Report on Form 10-K that Globalstar and GTL filed 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 $174
million at December 31, 1999 to $463 million at June 30, 2000. The net increase
is primarily the result of the net proceeds from the sale of Globalstar's
ordinary partnership interests of $270 million and the net proceeds from
borrowings under credit facilities of $350 million, partially offset by the net
repayment of vendor financing of $48 million, net cash used in operating
activities of $193 million, net expenditures for production gateways and user
terminals of $51 million, net distributions on redeemable preferred partnership
interests of $15 million, and net expenditures for additional spare satellites
of $17 million.
On June 30, 2000, Globalstar's $250 million credit facility with The Chase
Manhattan Bank became due, and was thereupon repaid in full by its guarantors,
including Lockheed Martin Corporation ("Lockheed Martin"), Qualcomm, DASA and
SS/L, who had previously received warrants for GTL common stock in consideration
of their guarantee. Pursuant to the relevant agreements entered into in 1996,
Globalstar issued three-year notes in the amounts of $206.3 million, $21.9
million, $11.7 million and $10.1 million to Lockheed Martin, Qualcomm, SS/L and
DASA, respectively, in satisfaction of their subrogation rights. The notes are
due on June 30, 2003 and bear interest, on a deferred basis, at a rate of LIBOR
plus 3%.
On June 30, 2000, Loral paid $56.3 million on a net basis to Lockheed
Martin in satisfaction of its obligation to indemnify Lockheed Martin for
liability in excess of $150 million under Lockheed Martin's guarantee of
Globalstar's $250 million credit facility. Accordingly, Loral is entitled to
receive notes in respect thereof.
16
<PAGE> 18
Lockheed Martin, however, has rejected the notes it received and is instead
asking Globalstar to issue new securities with additional rights and enhanced
value, without waiving its claim that it is entitled to receive an immediate
cash reimbursement by Globalstar of its $150 million payment to the bank
lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant
agreements, but is, nonetheless, in discussions with Lockheed Martin to resolve
the dispute.
If the dispute is not resolved, Globalstar cannot be sure that if the
matter were litigated the court would agree with Globalstar's interpretation of
the agreements. Moreover, if as a result of this dispute, a holder of Globalstar
public bonds claimed a cross default under the applicable indentures, and a
court ruled against Globalstar, the maturity date of the bonds would be
accelerated. Management believes, however, that a court would agree with
Globalstar's interpretation of the relevant agreements.
As of June 30, 2000, all 52 Globalstar satellites, including four in-orbit
spares, have been launched and are 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 and eighteen month call up
orders for two additional Delta launch vehicles in the event additional spare
satellites are required. The total future commitment for these launch vehicles
is approximately $82 million plus escalation of 3% per year. If these launch
vehicles are not used by year end 2003, Globalstar will incur a termination
charge of approximately $16 million.
From July 1, 2000 through December 31, 2000, Globalstar expects to spend
approximately $161 million, for the enhancement of its system software, for the
eight spare satellites being constructed by SS/L, for development work completed
but not paid at June 30, 2000, for repayment of vendor financing and for the net
financing provided to Globalstar's service providers to assist in the purchase
of gateways, fixed access terminals and handsets (net of expected receipts of
$129 million from the service providers as repayment of such financing). In
addition, cash interest, preferred dividends and operating costs are estimated
to be between $100 million and $125 million per quarter for the remainder of
2000. Globalstar expects that its cash on hand ($463 million at June 30, 2000)
and remaining available credit as of June 30, 2000 of approximately $29 million
under its vendor financing arrangements, will enable it to end 2000 with a cash
surplus in excess of $100 million. Globalstar believes that it will require
additional funds to the extent that cash on hand and revenue does not cover its
expected cash outflows for 2001. While Globalstar believes it will be able to
obtain the 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 May 2000, Globalstar finalized $531.1 million of vendor financing
arrangements (including $31.1 million of capitalized interest) with Qualcomm
that replaced the previous $100 million vendor financing agreement. The vendor
financing bears interest at 6%, matures on August 15, 2003 and requires
repayment pro rata with the term loans under Globalstar's $500 million credit
facility (see Note 6 to Globalstar's condensed consolidated financial
statements). As of June 30, 2000, $503 million was outstanding under this
facility. In connection with this agreement, Qualcomm received warrants to
purchase 3,450,000 Globalstar partnership interests at an exercise price of
$42.25 per interest. The exercise price was determined by reference to the fair
market value of GTL's common stock on the closing date of the vendor financing,
based on an approximate one partnership interest for four shares of GTL common
stock. Fifty percent of the warrants vested on the closing date. The remaining
50% will vest generally in two equal installments on September 1, 2000 and
September 1, 2001. The warrants will expire in 2007. The fair value of such
warrants totaled approximately $46.1 million and is being amortized over the
term of the vendor financing arrangements. The fair value attributable to the
unvested portion of such warrants is subject to adjustment based upon the future
value of GTL's common stock.
Loral has agreed that if the principal amount (excluding capitalized
interest of $31.1 million at June 30, 2000) outstanding under the Qualcomm
vendor financing facility exceeds the principal amount outstanding under
Globalstar's $500 million credit facility, as determined on certain measurement
dates, then Loral will guarantee 50% of such excess amount. As a result, Loral's
aggregate guarantee liability for debt outstanding under the Qualcomm vendor
financing and Globalstar's credit facility will not exceed $500 million.
17
<PAGE> 19
In February 2000, GTL sold 8,050,000 shares of its common stock to the
public under a 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.
Globalstar's $500 million credit facility contains various financial
condition covenants, one which would require, among other things, that
Globalstar have revenues of $100 million for the 12 month period ended March 31,
2001. Globalstar's revenues for the quarter ended June 30, 2000, the first three
months of this period, were $708,000. Unless Globalstar can satisfy this
covenant or obtain waivers or amendments from a majority of the bank lenders,
Globalstar will be in default under its debt facilities and Globalstar's lenders
and bondholders would have the right to accelerate payment of their loans to
Globalstar.
RESULTS OF OPERATIONS
Effective January 1, 2000, Globalstar commenced commercial operations and
as of June 30, 2000, 39 countries were in full service, served by 17 gateways.
For the three months ended June 30, 2000, Globalstar recorded 1,137,000 minutes
of billable service, more than double the usage in the first quarter. For the
six months ended June 30, 2000, Globalstar recorded 1,687,000 minutes of
billable service.
For the six months ended June 30, 2000, Globalstar recognized gross service
revenue of $660,000, royalty income of $788,000 relating to Globalstar user
terminals sold by user terminal manufacturers, offset by promotions and
discounts of $131,000 on service revenue, resulting in net revenue of
$1,317,000. For the three months ended June 30, 2000, Globalstar recognized
gross service revenue of $483,000, royalty income of $317,000, offset by
promotions and discounts of $92,000 on service revenue, resulting in net revenue
of $708,000. Globalstar has offered promotional programs to its service
providers, including a 25% discount on mobile usage fees and free minutes for
the advance purchase of airtime. A number of Globalstar service providers have
committed to pre-purchase discount minutes of use, amounting to approximately
$23 million in pre-committed gross revenue. Deferred revenue relating to such
advance purchases amounted to approximately $8 million as of June 30, 2000.
Operating Expenses. Operations costs increased to $76 million for the six
months ended June 30, 2000 from $57 million for the six months ended June 30,
1999 and increased to $36 million for the three months ended June 30, 2000 from
$26 million for the three months ended June 30, 1999. The increase is primarily
the result of increased costs associated with Globalstar system integration and
testing and gateway maintenance.
Marketing, general and administrative costs increased to $31 million for
the six months ended June 30, 2000 from $22 million for the six months ended
June 30, 1999 and increased to $15 million for the three months ended June 30,
2000 from $10 million for the three months ended June 30, 1999. The increase is
primarily the result of increased advertising and marketing costs associated
with Globalstar commencing service.
Depreciation and amortization increased to $161 million for the six months
ended June 30, 2000 from $1 million for the six months ended June 30, 1999 and
increased to $81 million for the three months ended June 30, 2000 from $0.6
million for the three months ended June 30, 1999. The increase is the result of
Globalstar commencing service and starting to depreciate the Globalstar System
in 2000.
Interest income increased to $7 million for the six months ended June 30,
2000 from $4 million for the six months ended June 30, 1999 and increased to $4
million for the three months ended June 30, 2000 from $2 million for the three
months ended June 30, 1999. The increase is the result of higher average cash
balances available for investment during 2000, and to a lesser extent, higher
interest rates.
Interest expense increased to $157 million for the six months ended June
30, 2000 and increased to $81 million for the three months ended June 30, 2000
as compared to no interest expense in 1999. The increase is the result of
Globalstar commencing service and starting to expense interest which was
previously capitalized to the Globalstar system under construction.
18
<PAGE> 20
As a result of the above, the net loss applicable to ordinary partnership
interests increased to $433 million for the six months ended June 30, 2000 from
$90 million for the six months ended June 30, 1999 and increased to $217 million
for the three months ended June 30, 2000 from $45 million for the three months
ended June 30, 1999.
Income Taxes. Globalstar is organized as a limited partnership. As such,
no income tax provision or benefit is included in the accompanying financial
statements since U.S. income taxes are the responsibility of its partners.
Generally, taxable income or loss, deductions and credits of Globalstar are
passed through to its partners.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 2000, at GTL's Annual meeting of Shareholders, the following
proposals were acted on:
(1) In an uncontested election, the following individuals were elected to
the Board of Directors of GTL. The votes were as follows:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Bernard L. Schwartz.................................... 86,480,798 628,161
Michael P. DeBlasio.................................... 86,526,624 582,335
Douglas G Dwyre........................................ 86,494,029 614,930
Sir Ronald Grierson.................................... 86,484,808 624,151
Robert B. Hodes........................................ 86,423,922 685,037
E. John Peett.......................................... 86,524,196 584,763
Michael B. Targoff..................................... 86,484,937 624,022
A. Robert Towbin....................................... 86,443,311 665,648
Eric J. Zahler......................................... 86,513,092 595,867
</TABLE>
(2) The proposal to amend GTL's 1994 Stock Option Plan to increase the
number of common shares, $1.00 par value, available for issuance from
5,000,000 to 10,000,000, was approved. The votes were as follows:
<TABLE>
<S> <C>
For......................................................... 36,282,451
Against..................................................... 3,875,809
Broker non-votes............................................ 46,457,020
Abstentions................................................. 493,679
</TABLE>
(3) The proposal to ratify the appointment of Deloitte & Touche LLP as
independent auditors for the year ending December 31, 2000 was
approved. The votes were as follows:
<TABLE>
<S> <C>
For......................................................... 86,526,906
Against..................................................... 370,251
Abstentions................................................. 211,802
</TABLE>
19
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit 12 -- Statement Regarding Computation of Ratios
Exhibit 27.1 -- Financial Data Schedules
Exhibit 27.2 -- Financial Data Schedules
Exhibit 99.1 -- Financial Statements for Loral Qualcomm Satellite
Services, L.P.
Exhibit 99.2 -- Financial Statements for Globalstar Capital Corporation
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
GLOBALSTAR TELECOMMUNICATIONS
LIMITED
Registrant
/s/ RICHARD J. TOWNSEND
--------------------------------------
Richard J. Townsend
Vice President and Chief Financial
Officer
(Principal Financial Officer)
and Registrant's Authorized Officer
GLOBALSTAR, L.P.
/s/ DANIEL P. MCENTEE
--------------------------------------
Daniel P. McEntee
Vice President and Chief Financial
Officer
(Principal Financial Officer)
and Registrant's Authorized Officer
Date: August 11, 2000
20
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C> <C>
Exhibit 12 -- Statement Regarding Computation of Ratios
Exhibit 27.1 -- Financial Data Schedules
Exhibit 27.2 -- Financial Data Schedules
Exhibit 99.1 -- Financial Statements for Loral Qualcomm Satellite Services, L.P.
Exhibit 99.2 -- Financial Statements for Globalstar Capital Corporation
</TABLE>
