GSTRF Quarterly Report (SEC form 10-Q)
SEC Filing- EDGAR Online
Nasdaq:GSTRF
More Info: Current Quote | Chart | News | Profile | Research | Financials
Recent Filings: Aug 1998 (Qtrly Rpt) | Nov 1998 (Qtrly Rpt) | Mar 1999 (Annual Rpt) | May 1999 (Qtrly Rpt)
More filings for GSTRF available from EDGAR Online | Access real-time filings with EDGAR Online Premium
May 17, 1999
GLOBALSTAR TELECOMMUNICATIONS LTD (GSTRF)
Quarterly Report (SEC form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, and elsewhere in this Form 10-Q, are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. In addition, from time to time, Globalstar and or GTL or their representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but are not limited to,
various filings made by Globalstar and or GTL with the Securities and Exchange Commission, press releases or oral statements
made by or with the approval of an authorized executive officer of Globalstar and or GTL. Actual results could differ materially
from those projected or suggested in any forward-looking statements as a result of a wide variety of factors or conditions. All
forward-looking statements involve risks and uncertainties, many of which may be beyond Globalstar's and or GTL's control.
These may include, but are not limited to, problems relating to technical development and deployment of the system, testing,
regulatory compliance, manufacturing and assembly, user terminal availability in sufficient quantities, the competitive and
regulatory environment in which Globalstar will operate, marketing problems and costs and expenses that may exceed current
estimates. See the section of GTL's and Globalstar's most recent Annual Report on Form 10-K entitled "Certain Factors That
May Affect Future Results" and GTL's registration statement on Form S-3 (File No. 333-75677), entitled "Risk Factors".
GTL is a general partner of Globalstar and has no other business. GTL's sole asset is its investment in Globalstar and GTL's
results of operations reflect its share of the results of operations of Globalstar on an equity accounting basis.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased from $56.7 million at December 31, 1998 to $200.3 million at March 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, offset by net expenditures for the Globalstar System of $151.0
million and net cash used in operating activities of $43.5 million.
Current liabilities increased from $401.2 million at December 31, 1998 to $458.7 million at March 31, 1999, primarily as a
result of the reclassification of a portion of vendor financing due within one year, the timing of payments to Globalstar
contractors and accrued interest on the senior notes.
From January 1, to April 30, 1999, Globalstar had three successful launches, of four satellites each, aboard Soyuz launch
vehicles from the Baikonur Cosmodrome in Kazakhstan, bringing the total number of satellites in orbit to twenty. Globalstar had
previously launched its first group of four satellites on February 14, 1998 and its second group of four satellites on April 24,
1998. The first 16 Globalstar satellites have reached their final orbital positions and are currently being used to test basic system
functionality, including the system's inter-satellite handoff capabilities and the latest four satellites are expected to reach their final
orbital positions and will begin operations testing in May 1999. As of April 1999, in addition to the 20 satellites already in orbit,
Globalstar had 8 completed satellites on hand and 24 more in final integration and test. For the remainder of 1999, Globalstar's
current launch plan includes eight additional launches of four satellites each, using a mix of Delta and Soyuz rockets. According
to the plan, Globalstar will deploy an operational constellation of a minimum of 32 satellites by September 1999 and a total of
52 satellites (including 4 in-orbit spares) by the end of 1999.
Through March 31, 1999, Globalstar incurred costs of approximately $2.9 billion for the design, development and construction
of the space and ground segments. Costs incurred during 1999 were approximately $222.1 million. Qualcomm is in the process
of completing its revision to cost estimates for its portion of the ground segment. Due to additional scope and cost growth and
based on preliminary information, Globalstar expects the total project cost to increase by less than 3%. The Qualcomm
estimate is still subject to review by Globalstar. As of March 31, 1999, and including the effect of the preliminary Qualcomm
estimate,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Globalstar's budgeted expenditures were $3.17 billion for the design, construction and deployment of the Globalstar System to
commence commercial service and $340 million for budgeted financing costs. In addition to expenditures for operating costs,
and debt service, Globalstar anticipates further expenditures on system software for the improvement of system functionality
and the addition of new features beyond those planned for the commencement of commercial service. Globalstar expects to
achieve positive cash flow in the third quarter of 2000. Substantial additional financing will be required if there are delays in the
commencement of commercial service and, in any event, after the commencement of commercial service and before positive
cash flow is achieved. Although Globalstar believes it will be able to obtain these additional funds, there can be no assurance
that such funds will be available on favorable terms or on a timely basis, if at all.
Globalstar has agreed, subject to its partners' approval, to purchase from Space Systems/Loral 12 additional spare satellites for
which the cost and payment terms have not as yet been negotiated. It is anticipated that approximately $100 million will be
expended for these spare satellites by the commencement of the commercial service in September 1999.
On January 21, 1999, Globalstar sold to GTL 7 million units (face amount of $50 per unit) of 8% Redeemable Preferred
Partnership Interests (the "8% RPPIs"), in connection with GTL's offering of 7 million shares (face amount of $50 per share) of
8% Convertible Redeemable Preferred Stock due 2011 (the "Preferred Stock"). The Preferred Stock is convertible into shares
of GTL common stock at a conversion price of $23.2563 per share. Loral purchased 3 million shares or $150 million face
amount of the $350 million of the Preferred Stock offered, to maintain its ownership percentage. Dividends on the 8% RPPIs
and the Preferred Stock accrue at 8% per annum and are payable quarterly. Globalstar is using the funds for the construction
and deployment of the Globalstar System.
As of March 31, 1999, Globalstar has raised or received commitments for approximately $3.3 billion. Globalstar intends to
raise the remaining funds required, of approximately $600 million, by the initiation of commercial service in September 1999,
from a combination of sources including: high yield debt issuance (which may include an equity component), bank financing,
equity issuance, financial support from the Globalstar partners, projected service provider payments, and anticipated payments
for the sale of gateways and Globalstar user terminals.
RESULTS OF OPERATIONS
Globalstar is a development stage partnership and has not commenced commercial operations. For the period March 23, 1994
(commencement of operations) to March 31, 1999, Globalstar has recorded cumulative net losses applicable to ordinary
partnership interests of $452.1 million. The net loss applicable to ordinary partnership interests for the three months ended
March 31, 1999 increased to $45.1 million from $24.9 million for the three months ended March 31, 1998. The net loss
increased primarily as a result of increased activity in the development of Globalstar user terminals, increased in-house
engineering and an increase in marketing, general and administration costs. Globalstar is expending significant funds for the
construction, launch, testing and deployment of the Globalstar System and expects such losses to continue through
commencement of commercial operations.
Globalstar has earned interest income of $60.1 million on cash balances and short-term investments since commencement of
operations. Interest income for the three months ended March 31, 1999 decreased to $2.3 million from $5.2 million for the
three months ended March 31, 1998, as result of lower average cash balances available for investment during 1999.
Operating Expenses. Development costs for the three months ended March 31, 1999 were $30.7 million as compared to
$16.5 million for the three months ended March 31, 1998. Development costs increased as a result of increased activity in the
development of Globalstar user terminals and in-house engineering.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Marketing, general and administrative expenses were $12.0 million and $8.3 million for the three months ended March 31,
1999 and 1998, respectively. The increase in marketing, general and administrative expenses is primarily the result of an
increase in the number of employees and an increase in marketing costs as Globalstar gears up for commercial operations.
Depreciation. Globalstar capitalizes all costs, including interest as applicable, associated with the design, construction and
deployment of the Globalstar System, except costs associated with the development of the Globalstar user terminals and certain
technologies under a cost sharing arrangement with Qualcomm. Globalstar will not record depreciation expense on the
Globalstar System under construction until the commencement of commercial operations, as assets are placed into service.
Income Taxes. Globalstar is organized as a limited partnership. As such, no income tax provision or benefit is included in the
accompanying financial statements since U.S. income taxes are the responsibility of its partners. Generally, taxable income or
loss, deductions and credits of Globalstar will be passed through to its partners.
TAXATION
GTL will be subject to US federal, state and local corporate income tax on its share of Globalstar's income that is effectively
connected with the conduct of a trade or business in the United States ("US income") and will be required to file federal, state
and local income tax returns with respect to such US income. In addition, any portion of GTL's income from sources outside
the US, realized through Globalstar or otherwise, may be subject to taxation by certain foreign countries. However, the extent
to which these countries may require GTL or Globalstar to pay tax or to make payments in lieu of tax cannot be determined in
advance.
YEAR 2000 ISSUE
Globalstar's Year 2000 Program is proceeding on schedule. The Year 2000 Issue is the result of computer programs which
were written using two digits rather than four to signify a year (i.e., the year 1999 is denoted as "99" and not "1999").
Computer programs written using only two digits may recognize the year 2000 as the year 1900. This could result in a system
failure or miscalculations causing disruption of operations.
Globalstar has implemented a Year 2000 program (the "Year 2000 Program") for its internal products, system and equipment,
as well as for key vendor supplied products, system and equipment. As part of the Year 2000 Program, Globalstar is assessing
the Year 2000 capabilities of, among other things, its satellites, ground equipment, research and development activities, and
facility management systems. The Year 2000 Program consists of the following phases: Inventory of Year 2000 items,
Assessment (including prioritization), Remediation (including modification, upgrading and replacement), Testing and Auditing.
This five-step program is divided into five major sections covering both information and non-information technology systems: 1)
business systems, 2) technical systems, 3) imbedded hardware/firmware, 4) products and services, and 5) vendor-supplied
services. As of March 31, 1999, Globalstar has completed approximately 98% of the inventory phase and approximately 32%
of its assessment phase. Globalstar expects to complete the first three phases, through the remediation phase, of the Year 2000
Program during the second quarter of 1999. The testing phase will be completed during the third quarter of 1999, prior to the
anticipated in-service date of Globalstar. The fifth phase, the audit phase, commenced in January 1999 and is expected to
continue through the third quarter of 1999 to accommodate re-audits if deemed necessary.
Both internal and external resources are being utilized to execute Globalstar's plan. The program to address Year 2000 has
been underway since July 1997. The incremental costs incurred by Globalstar through March 31, 1999, for this effort were
approximately $735,000. Based on its efforts to date Globalstar anticipates additional incremental expenses of approximately
$565,000 will be incurred to substantially complete the effort.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Based upon the accomplishments to date, no contingency plans are expected to be needed. As risks are identified, contingency
plans will be developed and implemented as necessary. However, because of the progress achieved to date and Globalstar's
expectations that its Year 2000 program will be substantially complete in the third quarter of calendar 1999, Globalstar believes
adequate time will be available to insure alternatives can be developed, assessed and implemented prior to a Year 2000 issue
having a material negative impact on its operations. However, there can be no assurance that such modifications and
conversions, if required, will be completed on a timely basis.
The cost of the program and the dates on which Globalstar believes it will substantially complete Year 2000 modifications are
based on management's best estimates. Such estimates were derived using software surveys and programs to evaluate calendar
date exposures and numerous assumptions of future events, including the continued availability of certain resources, third-party
Year 2000 readiness and other factors. Because none of these estimates can be guaranteed, actual results could differ
materially and adversely from those anticipated. Specific factors that might cause an adjustment of costs are: number of
personnel trained in this area, the ability to locate and correct all relevant computer codes, the ability to validate supplier
certification and similar uncertainties.
Globalstar's failure to remediate a material Year 2000 problem could result in an interruption or failure of certain basic business
operations. These failures could materially and adversely effect Globalstar's results of operations, liquidity and financial
condition. Globalstar is also assessing the Year 2000 readiness of its key third-party suppliers. Information requests have been
distributed to such suppliers and replies are being evaluated. If the risk is deemed material, on-site visits to suppliers will be
conducted to verify the adequacy of the information received. In addition, Globalstar has commenced discussions with its
service providers to determine the status of their Year 2000 capabilities. However, due to the general uncertainty of the Year
2000 problem, including uncertainty with regard to third-party suppliers and service providers, especially those in developing
countries, Globalstar is unable to determine at this time whether the consequences of Year 2000 failures will have an adverse
material impact on Globalstar's results of operations, liquidity or financial condition. There can be no assurance that the
Company's Year 2000 Program will be successful in avoiding any interruption or failure of certain basic business operations,
which may have a material adverse effect on the Company's results of operations or financial position.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133 Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133"), which requires that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.
Globalstar has not yet determined the impact that the adoption of SFAS 133 will have on its earnings or financial position.
Globalstar is required to adopt SFAS 133 on January 1, 2000.
Recent Filings: Aug 1998 (Qtrly Rpt) | Nov 1998 (Qtrly Rpt) | Mar 1999 (Annual Rpt) | May 1999 (Qtrly Rpt)
More filings for GSTRF available from EDGAR Online
EDGAR Online offers detailed company intelligence with Real Time SEC Filings, Full Search, People, Personal and more.
Copyright © 1999 Yahoo! Inc. All Rights Reserved.
|
