1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER 1-14180
LORAL SPACE & COMMUNICATIONS LTD.
C/O LORAL SPACECOM CORPORATION
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
TELEPHONE: (212) 697-1105
JURISDICTION OF INCORPORATION: BERMUDA
IRS IDENTIFICATION NUMBER: 13-3867424
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
The registrant has 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
has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained in the registrant's 2001 definitive proxy statement.
At March 15, 2001, 299,061,088 common shares were outstanding, and the
aggregate market value of such shares (based upon the closing price on the New
York Stock Exchange) held by non-affiliates of the registrant was approximately
$898 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 2001 definitive proxy statement (to be filed
not later than 120 days after the end of the registrant's fiscal year) are
incorporated by reference into Part III.
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2
LIST OF ITEMS AMENDED
ITEM PAGE(S)
---- -------
PART II
8. Financial Statements and Supplementary Data............. F-1, F-45 - F-71
PART IV
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................. 48
Signatures.............................................. 53
TEXT OF AMENDMENT
The financial statements of Globalstar, L.P. were previously INCORPORATED
BY REFERENCE into Part IV of Loral's Annual Report on Form 10-K for the year
ended December 31, 2000, that was originally filed on April 2, 2001 (the
"Original Filing"). Loral is filing this amended Annual Report on form 10 K/A to
INCLUDE the financial statements of Globalstar, L.P. in Financial Statements and
Supplementary Data (Item 8), in response to a comment received from the
Securities and Exchange Commission (the "SEC"). These Globalstar, L.P. financial
statements are identical to the Globalstar financial statements INCORPORATED BY
REFERENCE in the Original Filing.
Any items in the Original Filing not expressly changed hereby shall be as
set forth in the Original Filing. All information contained in this amendment
and the Original Filing is subject to updating and supplementing as provided in
the Company's periodic reports filed with the SEC subsequent to the date of such
reports.
3
PART IV
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SEE INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ON
PAGE F-1.
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 the
Company's 2000 definitive proxy statement which is incorporated herein by
reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
PAGE
----
Index to Financial Statements............................... F-1
Loral Space & Communications Ltd.
Independent Auditors' Report.............................. F-2*
Consolidated Balance Sheets as of December 31, 2000 and
1999................................................... F-3*
Consolidated Statements of Operations for the years ended
December 31, 2000,
1999 and 1998.......................................... F-4*
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000, 1999 and 1998........... F-5*
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998....................... F-6*
Notes to Consolidated Financial Statements................ F-7*
Globalstar, L.P.
Independent Auditors' Report.............................. F-45
Consolidated Balance Sheets as of December 31, 2000 and
1999................................................... F-46
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998....................... F-47
Consolidated Statements of Partners' Capital (Deficiency)
for the years ended December 31, 2000, 1999 and 1998... F-48
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998....................... F-49
Notes to Consolidated Financial Statements................ F-50
(a) 2. Financial Statement Schedules
Independent Auditors' Report.................. S-1
Schedule I -- Condensed Financial Information
of Registrant................................. S-2
Financial statement schedules not listed are
either not required or the information
required is reflected in the consolidated
financial statements.
* Previously filed.
(a) 3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Restructuring, Financing and Distribution Agreement, dated
as of January 7, 1996, among Loral Corporation, Loral
Aerospace Holdings, Inc., Loral Aerospace Corp., Loral
General Partner, Inc., Loral Globalstar L.P., Loral
Globalstar Limited, the Registrant and Lockheed Martin
Corporation(1)
48
4
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.2 Amendment to Restructuring, Financing and Distribution
Agreement, dated as April 15, 1996(1)
2.3 Agreement for the Purchase and Sale of Assets dated as of
September 25, 1996 by and between AT&T Corp., as Seller, and
Loral Space & Communications Ltd., as Buyer(2)
2.4 First Amendment to Agreement for the Purchase and Sale of
Assets dated as of March 14, 1997 by and between AT&T Corp.,
as Seller, and Loral Space & Communications Ltd., as
Buyer(3)
2.5 Agreement and Plan of Merger dated as of October 7, 1997 by
and among Orion Network Systems, Inc., Loral Space &
Communications Ltd. and Loral Satellite Corporation(4)
2.6 First Amendment to Agreement and Plan of Merger dated as of
February 11, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(5)
2.7 Second Amendment to Agreement and Plan of Merger dated as of
March 20, 1998 by and among Orion Network Systems, Inc.,
Loral Space & Communications Ltd. and Loral Satellite
Corporation(12)
3.1 Memorandum of Association(1)
3.2 Memorandum of Increase of Share Capital(1)
3.3 Third Amended and Restated Bye-laws(18)
3.4 Schedule IV to the Third Amended and Restated Bye-laws(18)
4.1 Rights Agreement dated March 27, 1996 between the Registrant
and The Bank of New York, Rights Agent(1)
4.2 Indenture dated as of January 15, 1999 relating to
Registrant's 9 1/2% Senior Notes due 2006(14)
10.1 Shareholders Agreement dated as of April 23, 1996 between
Loral Corporation and the Registrant(1)
10.1.1 Amended Shareholders Agreement dated as of March 29, 2000
between the Registrant and Lockheed Martin Corporation(18)
10.2 Tax Sharing Agreement dated as of April 22, 1996 between
Loral Corporation, the Registrant, Lockheed Martin
Corporation and LAC Acquisition Corporation(1)
10.3 Exchange Agreement dated as of April 22, 1996 between the
Registrant and Lockheed Martin Corporation(1)
10.4 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.S.AM and
Vodafone Satellite Services Limited(14)
10.4.1 Amendment dated as of December 8, 1999 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(15)
10.4.2 Amendment dated as of February 1, 2000 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(18)
10.5 Service Provider Agreements by and between Globalstar, L.P.
and each of Loral General Partner, Inc. and Loral/DASA
Globalstar, L.P.(8)
10.6 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(8)
10.7 1996 Stock Option Plan(1)++
10.7.1 Amendment to 1996 Stock Option Plan(14)++
10.7.2 2000 Stock Option Plan(19)++
10.7.3 Amendment No. 1 to 2000 Stock Option Plan+++
10.7.4 Amendment No. 2 to 2000 Stock Option Plan+++
10.8 Common Stock Purchase Plan for Non-Employee Directors(1)++
49
5
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.9 Employment Agreement between the Registrant and Bernard L.
Schwartz(1)++
10.9.1 Amendment dated as of March 1, 1998 to Employment Agreement
between the Registrant and Bernard L. Schwartz(12)++
10.9.2 Amendment dated as of July 18, 2000 to Employment Agreement
between the Registrant and Bernard L. Schwartz+++
10.10 Registration Rights Agreement dated as of August 9, 1996
among Loral Space & Communications Ltd., Lehman Brothers
Capital Partners II, L.P., Lehman Brothers Merchant Banking
Portfolio Partnership L.P., Lehman Brothers Offshore
Investment Partnership L.P. and Lehman Brothers Offshore
Investment Partnership-Japan L.P.(9)
10.11 Registration Rights Agreement dated November 6, 1996
relating to the Registrant's 6% Convertible Preferred
Equivalent Obligations due 2006(6)
10.12 Registration Rights Agreement (Series C Preferred Stock)
dated as of March 31, 1997 between Loral Space &
Communications Ltd. and Finmeccanica S.p.A. and dated as
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.13 Registration Rights Agreement (Common Stock) dated as of
June 23, 1997 among Loral Space & Communications Ltd.,
Aerospatiale SNI and Alcatel Espace(10)
10.14 Alliance Agreement dated as of June 23, 1997 among Loral
Space & Communications Ltd., Aerospatiale SNI, Alcatel
Espace and Finmeccanica S.p.A.(10)
10.15 Principal Stockholder Agreement dated as of October 7, 1997
among Loral Space & Communications Ltd., Loral Satellite
Corporation, Orion Network Systems, Inc. and certain Orion
stockholders signatory thereto(4)
10.16 Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc., the Banks parties
thereto, Bank of America National Trust and Savings
Association, as Administrative Agent, and Istituto Bancario
San Paolo di Torino S.p.A, individually and as Italian
Export Financing and Arranger and as Selling Bank(11)
10.16.1 First Amendment dated as of May 7, 1998 to and of the
Amended and Restated Credit and Participation Agreement,
dated as of November 14, 1997, among Loral SpaceCom
Corporation, Space Systems/Loral, Inc. and, the banks
parties thereto(14)
10.16.2 Second Amendment dated as of September 4, 1998 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space
Systems/Loral, Inc. and the banks parties thereto.(18)
10.16.3 Third Amendment dated as of July 12, 1999 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space
Systems/Loral, Inc. and the banks parties thereto.(18)
10.16.4 Fourth Amendment dated as of November 10, 1999 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space Systems/
Loral, Inc. and the banks parties thereto.(18)
10.16.5 Fifth Amendment dated as of December 15, 2000 to and of the
Amended and Restated Credit Agreement dated as of November
14, 1997, among Loral SpaceCom Corporation, Space Systems/
Loral, Inc. and the banks parties thereto.+
10.17 Agreement of Limited Partnership of CyberStar, L.P. dated as
of June 30, 1997(12)
10.18 Purchase and Sale Agreement dated November 17, 1997 between
the Federal Government of the United Mexican States and
Corporativo Satelites Mexicanos, S.A. de C.V. for the
purchase and sale of the capital stock of Satelites
Mexicanos, S.A. de C.V. (English translation of Spanish
original)(12)
50
6
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.19 Amended and Restated Membership Agreement dated and
effective as of August 21, 1998 among Loral Satmex Ltd. and
Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S.
de R.L. de C.V.(14)
10.20 Letter Agreement dated December 29, 1997 between Loral Space
& Communications Ltd., Telefonica Autrey S.A. de C.V.,
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc. and Lehman Commercial Paper Inc. and related
Agreement between the Federal Government of United Mexican
States, Telefonica Autrey, S.A. de C.V., Ediciones Enigma,
S.A. de C.V., Loral Space & Communications Ltd., Loral
Satmex Ltd. and Servicios Corporativos Satelitales, S.A. de
C.V.(12)
10.21 Shareholders Agreement dated December 7, 1998 by and among
Alcatel SpaceCom, Loral Space & Communications Ltd., Dr.
Jurgen Schulte-Hillen and EuropeStar Limited(14)
10.22 Registration Rights Agreement dated as of January 21, 1999
relating to Registrant's 9 1/2% Senior Notes due 2006(14)
10.23 Lease Agreement dated as of August 18, 1999 by and between
Loral Asia Pacific Satellite (HK) Limited and APT Satellite
Company Limited(17)
10.24 Registration Rights Agreement dated as of February 18, 2000
relating to Registrant's 6% Series D Convertible Redeemable
Preferred Stock due 2007(18)
10.25 Fee Agreement dated as of April 19, 1996 by and among
Globalstar, Globalstar Telecommunications Limited, Loral
Corporation, Loral Space & Communications Ltd., Qualcomm
Limited Partner, Inc., Space Systems/Loral, Inc. and DASA
Globalstar Limited Partner, Inc.(20)
10.26 Intercreditor Agreement dated as of April 19, 1996 by and
among Globalstar, Globalstar Telecommunications Limited,
Loral Corporation, Loral Space & Communications Ltd.,
Qualcomm Limited Partner, Inc., Space Systems/Loral, Inc.
and DASA Globalstar Limited Partner, Inc.(20)
10.27 Credit Agreement dated as of November 17, 2000 by and among
Loral Satellite, Inc., Bank of America, National
Association, Bank of America Securities LLC, Credit Lyonnais
and Lehman Commercial Paper, Inc.(21)
10.28 Guarantee dated as of November 17, 2000 made by Loral Space
& Communications Ltd.(21)
10.29 Assignment, Amendment and Release Agreement dated as of
November 17, 2000 by and among the lenders parties to the
Globalstar Credit Agreement, Loral Satellite, Inc., Loral
Satcom Ltd., Loral Space & Communications Ltd., Loral Space
& Communications Corporation, Globalstar, L.P. and Bank of
America, National Association(21)
10.30 Amended and Restated Collateral Agreement dated as of
November 17, 2000 by and among Loral Satellite, Inc. and
Bank of America, National Association(21)
10.31 Form of Employment Protection Agreement+++
12 Statement Re: Computation of Ratios+
21 List of Subsidiaries of the Registrant+
23.1 Consent of Deloitte & Touche LLP+
23.2 Consent of Deloitte & Touche LLP+
---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form 10 (No. 1-14180).
(2) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on September 27, 1996.
(3) Incorporated by reference from the Registrant's Current Report on Form 8-K
on March 28, 1997.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on October 10, 1997.
(5) Incorporated by reference from the Registrant's Registration Statement on
Form S-4 filed on February 17, 1998 (File No. 333-46407).
51
7
(6) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the nine month period ended December 31, 1996.
(7) Incorporated by reference from the Registration Statement on Form S-1 of
Globalstar Telecommunications Limited (File No. 33-86808).
(8) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on August 13, 1996.
(9) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on July 8, 1997.
(10) Incorporated by reference from the Registrant's Current Report on Form 8-K
filed on December 9, 1997.
(11) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
(12) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
(13) Incorporated by reference from the Current Report on Form 8-K filed on
December 21, 1999 by Globalstar Telecommunications Limited and Globalstar,
L.P.
(14) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on August 6, 1999.
(15) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on August 23, 1999.
(16) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999.
(17) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on May 3, 2000.
(18) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on July 7, 2000.
(19) Incorporated by reference from Registrant's Current Report on Form 8-K
filed on November 20, 2000.
+ Filed herewith.
++ Management compensation plan.
(b) Reports on Form 8-K.
DATE OF REPORT DESCRIPTION
-------------- -----------
November 17, 2000 Item 5 -- Other Events $500 Million Secured Credit Agreement
52
8
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.
LORAL SPACE & COMMUNICATIONS LTD.
By: /s/ AVI KATZ
------------------------------------
Avi Katz
(Vice President,
General Counsel and Secretary)
Date: September 10, 2001
53
9
INDEX TO FINANCIAL STATEMENTS
Loral Space & Communications Ltd. and Subsidiaries
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 2000 and
1999................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998....................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000, 1999 and 1998........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998....................... F-6
Notes to Consolidated Financial Statements................ F-7
Globalstar, L.P.
Independent Auditors' Report.............................. F-45
Consolidated Balance Sheets as of December 31, 2000 and
1999................................................... F-46
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998....................... F-47
Consolidated Statements of Partners' Capital (Deficiency)
for the years ended December 31, 2000, 1999 and 1998... F-48
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998....................... F-49
Notes to Consolidated Financial Statements................ F-50
F-1
10
INDEPENDENT AUDITORS' REPORT
To the Partners of Globalstar, L.P.:
We have audited the accompanying consolidated balance sheets of Globalstar,
L.P. (a limited partnership) and its subsidiaries (collectively, the
"Partnership") as of December 31, 2000 and 1999 and the related consolidated
statements of operations, partners' capital (deficiency) and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Partnership'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 consolidated financial statements present fairly, in
all material respects, the financial position of the Partnership at December 31,
2000 and 1999 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Partnership will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, uncertainty regarding the
Partnership's ability to raise additional capital raise substantial doubt about
its ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
DELOITTE & TOUCHE LLP
San Jose, California
March 27, 2001
F-45
11
GLOBALSTAR, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PARTNERSHIP INTERESTS)
DECEMBER 31,
-------------------------
2000 1999
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 174,401 $ 127,675
Restricted cash........................................... 22,448 46,246
Accounts receivable, net of allowance of $41 in 2000...... 422
Production gateways and user terminals.................... 53,461 114,980
Other current assets...................................... 6,721 4,001
----------- ----------
Total current assets............................... 257,453 292,902
Property and equipment:
Globalstar System, net.................................... 270,227
Other property and equipment, net......................... 516 5,128
----------- ----------
270,743 5,128
Globalstar System under construction:
Space segment............................................. 2,109,275
Ground segment............................................ 1,634 1,071,914
----------- ----------
1,634 3,181,189
Additional spare satellites................................. 14,758 53,467
Deferred financing costs.................................... 125,176 151,873
Other assets................................................ 32,512 96,900
----------- ----------
Total assets....................................... $ 702,276 $3,781,459
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
Current liabilities:
Term loans payable to affiliates.......................... $ 400,000
Revolving credit facility to affiliates................... 100,000
Senior notes payable ($1,450,000 aggregate principal
amount)................................................. 1,407,941
Accounts payable.......................................... 13,546 $ 10,908
Payable to affiliates..................................... 30,733 468,536
Vendor financing liability................................ 590,372 137,484
Accrued expenses.......................................... 22,305 20,841
Accrued interest.......................................... 34,224 33,533
----------- ----------
Total current liabilities.......................... 2,599,121 671,302
Deferred revenues........................................... 37,952 25,811
Vendor financing liability, net of current portion.......... 198,051 256,311
Deferred interest payable................................... 595
Accrued interest on notes payable........................... 12,366
Term loans payable, net of current portion.................. 400,000
Notes payable............................................... 150,000
Notes payable to affiliates................................. 100,000
Senior notes payable ($1,450,000 aggregate principal
amount), net of current portion........................... 1,399,111
Commitments and contingencies (Note 17)
Partners' capital (deficiency):
8% Series A convertible redeemable preferred partnership
interests (4,396,095 and 4,396,295 interests outstanding
at December 31, 2000 and 1999 respectively, $220 million
redemption value)....................................... 213,393
9% Series B convertible redeemable preferred partnership
interests (2,958,490 and 3,000,000 interests outstanding
at December 31, 2000 and 1999, respectively, $148
million and $150 million redemption value at December
31, 2000 and 1999, respectively)........................ 145,575
Ordinary partnership interests (64,605,733 and 59,844,323
interests outstanding at December 31, 2000 and 1999,
respectively)........................................... (2,598,910) 516,530
Unearned compensation..................................... (60) (16,754)
Warrants.................................................. 203,756 169,585
----------- ----------
Total partners' capital (deficiency)............... (2,395,214) 1,028,329
----------- ----------
Total liabilities and partners' capital
(deficiency)..................................... $ 702,276 $3,781,459
=========== ==========
See notes to consolidated financial statements.
F-46
12
GLOBALSTAR, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER ORDINARY PARTNERSHIP INTEREST AMOUNTS)
YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- -------- --------
Gross Revenue:
Service................................................. $ 2,806
Royalty income.......................................... 1,427
----------
Total gross revenue....................................... 4,233
Less, discounts and promotions on service revenue....... (583)
----------
Net revenue............................................... 3,650
----------
Operating expenses:
Operations.............................................. 127,969 $ 94,313 $ 86,253
Marketing, general and administrative................... 80,951 59,967 41,386
Launch related costs.................................... 29,913 17,315
Impairment of assets.................................... 2,939,790
Depreciation and amortization........................... 327,938 2,312 1,730
---------- -------- --------
Total operating expenses........................ 3,476,648 186,505 146,684
---------- -------- --------
Operating loss............................................ 3,472,998 186,505 146,684
Interest income........................................... 16,490 6,141 17,141
Interest expense.......................................... 329,163
---------- -------- --------
Net loss.................................................. 3,785,671 180,364 129,543
Preferred distributions on redeemable preferred
partnership interests................................... 30,730 52,220 22,197
---------- -------- --------
Net loss applicable to ordinary partnership interests..... $3,816,401 $232,584 $151,740
========== ======== ========
Net loss per ordinary partnership interest -- basic and
diluted................................................. $ 61.23 $ 3.99 $ 2.69
========== ======== ========
Weighted average ordinary partnership interests
outstanding -- basic and diluted........................ 62,325 58,341 56,323
========== ======== ========
See notes to consolidated financial statements.
F-47
13
GLOBALSTAR, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY)
(IN THOUSANDS)
PARTNERS' CAPITAL
CONVERTIBLE
REDEEMABLE
PREFERRED ORDINARY
PARTNERSHIP PARTNERSHIP UNEARNED
INTERESTS INTERESTS COMPENSATION WARRANTS TOTAL
----------- ----------- ------------ -------- -----------
Capital balances -- January 1, 1998...................... $ 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
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
Exercise of warrants (23 interests)...................... 1,864 (271) 1,593
Stock compensation transactions by managing general
partner for the benefit of Globalstar................... 95 95
Sale of ordinary partnership interests in connection with
GTL stock option exercises (7 interests)................ 293 293
Sale of ordinary partnership interests in connection with
GTL common stock issuance -- February 2000 (1,988
interests).............................................. 268,471 268,471
Sale of ordinary partnership interests in connection with
GTL stock issuance -- September & October 2000 (1,000
interests).............................................. 27,769 27,769
Sale of ordinary partnership interests from partner's
equity financing -- September 2000 (1,295 interests).... 56,200 56,200
Conversion of 9% Series B convertible redeemable
preferred partnership interests into ordinary
partnership interests and related payment of dividend in
stock (269 interests)................................... (2,014) 5,344 3,330
Warrants issued for ordinary partnership interests in
exchange for debt guarantee............................. 34,442 34,442
Conversion of 8% Series A convertible redeemable
preferred partnership interests into ordinary
partnership interests and related payment of dividend in
stock (180 interests)................................... (10) 4,374 4,364
Change in fair value of stock compensation for the
benefit of Globalstar................................... (20,393) 20,393
Amortization of unearned compensation.................... (3,699) (3,699)
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 2000............... (356,944) (3,459,457) (3,816,401)
--------- ----------- -------- -------- -----------
Capital balances -- December 31, 2000.................... $ -- $(2,598,910) $ (60) $203,756 $(2,395,214)
========= =========== ======== ======== ===========
See notes to consolidated financial statements.
F-48
14
GLOBALSTAR, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
----------- --------- ---------
Operating activities:
Net loss................................................... $(3,785,671) $(180,364) $(129,543)
Launch related costs....................................... 29,913 17,315
Impairment of assets....................................... 2,939,790
Deferred revenues.......................................... 12,141 2,159
Amortization of unearned compensation...................... (3,604) 5,186 1,284
Depreciation and amortization.............................. 327,938 2,312 1,730
Non-cash interest.......................................... 63,809
Changes in operating assets and liabilities:
Accounts receivable...................................... (422)
Other current assets..................................... (2,720) 1,539 (4,427)
Other assets............................................. (2,090) (2,951) (9,768)
Accounts payable......................................... 6,174 (7,120) 13,654
Payable to affiliates.................................... (25,027) 89,070 79,271
Accrued expenses......................................... 1,479 5,839 3,367
Accrued interest and other............................... 12,462
----------- --------- ---------
Net cash used in operating activities.................. (455,741) (56,576) (24,958)
----------- --------- ---------
Investing activities:
Globalstar System.......................................... (23,305) (880,980) (941,014)
Insurance proceeds from launch failure..................... 28,500 162,000
Payable to affiliates for Globalstar System................ (31,399) 145,441 31,914
Capitalized interest accrued............................... 23,697 16,757
Accounts payable........................................... (3,536) 3,788 (686)
Vendor financing liability................................. 94,543 22,625 173,447
----------- --------- ---------
Cash provided by (used for) Globalstar System.............. 36,303 (656,929) (557,582)
Advances for production gateways and user terminals........ (163,547) (23,179) (127,856)
Cash receipts for production gateways and user terminals... 111,875 53,708 10,860
Receipt and use of restricted cash, net.................... 23,798 (45,730) 1,950
Additional spare satellites, net of vendor financing....... (100,688) (35,984)
Purchases of property and equipment........................ (2,897) (2,482) (4,114)
Other assets............................................... (9,939) (5,250)
Deferred FCC license costs................................. (1,198) (892)
----------- --------- ---------
Net cash used in investing activities.................. (95,156) (721,733) (682,884)
----------- --------- ---------
Financing activities:
Net proceeds from issuance of $300,000 11 1/2% Senior
Notes.................................................... 287,552
Proceeds from issuance of $100,000 Term Loan A............. 100,000
Proceeds from issuance of $300,000 Term Loan B............. 300,000
Deferred financing costs................................... (13,568)
Sale of ordinary partnership interests upon exercise of
options and warrants..................................... 354,326 2,959 19,862
Sale of 8% Series A convertible redeemable preferred
partnership interests to GTL............................. 339,775
Sale of 9% Series B convertible redeemable preferred
partnership interests to GTL............................. 145,575
Repayment of vendor financing.............................. (83,652)
Distributions on redeemable preferred partnership
interests................................................ (23,051) (24,980) (5,037)
Borrowings under credit facilities......................... 350,000 75,000
Repayment of borrowings under long-term revolving credit
facility................................................. (75,000)
----------- --------- ---------
Net cash provided by financing activities.............. 597,623 849,761 302,377
----------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 46,726 71,452 (405,465)
Cash and cash equivalents, beginning of period.............. 127,675 56,223 461,688
----------- --------- ---------
Cash and cash equivalents, end of period.................... $ 174,401 $ 127,675 $ 56,223
=========== ========= =========
Noncash transactions:
Issuance of notes to guarantors for repayment of revolving
credit line.............................................. $ 250,000
===========
Warrants issued in exchange for debt guarantee............. $ 141,000
=========
Payables to affiliates converted into vendor financing..... $ (368,259)
===========
Distributions on redeemable preferred partnership interests
on GTL common stock...................................... $ (7,694)
===========
Accretion to redemption value of preferred partnership
interests................................................ $ 351
=========
Ordinary partnership interests distributed upon conversion
of redeemable preferred partnership interests and related
dividend make-whole payments............................. $ 2,024 $ 150,299 $ 320,250
=========== ========= =========
Warrants issued in connection with Qualcomm vendor
financing................................................ $ 34,442
===========
Warrants issued to China Telecom to acquire ordinary
partnership interests.................................... $ 31,917
=========
Dividends accrued.......................................... $ (15) $ 3,323
=========== =========
Change in fair value of stock compensation for the benefit
of Globalstar............................................ $ (20,393) $ 20,786
=========== =========
See notes to consolidated financial statements.
F-49
15
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Globalstar, L.P. ("Globalstar"), a Delaware limited partnership, was formed
in November 1993, remaining inactive until March 23, 1994, when it received
capital subscriptions for $275 million and commenced operations.
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, 2000, Loral owned, directly or indirectly, 25,163,132
(approximately 39%) of the ordinary partnership interests of Globalstar,
including interests attributable to 9,902,990 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 and its sole assets consist of its equity interests in
Globalstar. 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,
2000, GTL owned 26,668,233 (41.3%) of Globalstar's outstanding ordinary
partnership interests and 100% of the outstanding 8% and 9% convertible
redeemable preferred partnership interests (the "RPPIs").
Globalstar operates in one industry segment, satellite telecommunications,
providing global mobile and fixed wireless voice and data services.
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. BASIS OF PRESENTATION
On January 16, 2001, Globalstar suspended indefinitely principal and
interest payments on its funded debt and dividend payments on its 8% and 9%
RPPIs in order to conserve cash for operations. Non-payment of interest on
Globalstar's debt instruments, credit facility and vendor financing agreements
when they become due, and continuance of non-payment for the applicable grace
period, are "events of default" under the terms of each of the debt instruments.
An event of default has occurred in connection with Globalstar's $500 million
credit facility, its vendor financing facility with QUALCOMM, and its 11 3/8%
senior notes due February 15, 2004 (the "Bond"). Globalstar expects that events
of default will occur with regard to Globalstar's other three senior note
indentures when interest payments become due in May and June of 2001.
Accordingly, for reporting and accounting purposes, Globalstar classified the
$500 million credit facility, the QUALCOMM
F-50
16
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
vendor financing and the four senior notes as current obligations. See
Globalstar's "Notes to Consolidated Financial Statements," Notes 7-9.
Globalstar has retained The Blackstone Group as its financial adviser to
assist in evaluating its business plan and developing initiatives, including
restructuring its debt, identifying funding opportunities and pursuing other
strategic alternatives. At Globalstar's expense, its bondholders have retained
Akin Gump Strauss Hauer & Field LLP as counsel, and Jefferies and Company, Inc.
as financial advisers. Globalstar is currently developing a new business plan
that will offer a basis for a restructuring proposal that it will provide to its
creditors. If it is unable to effectuate an out-of-court restructuring,
Globalstar may be forced to seek protection under the federal bankruptcy laws.
Moreover, its creditors may seek to initiate involuntary bankruptcy proceedings
against Globalstar.
As of December 31, 2000, Globalstar had approximately $197 million in cash
and cash equivalents, including restricted cash. During 2001, Globalstar plans
to use available funds to cover its cash out flow which it expects to include
operating costs of approximately $94 million, progress payments toward the cost
of procurement of eight additional satellites being constructed by SS/L of
approximately $18 million and for the development and maintenance of the ground
segment by QUALCOMM of $40 million. In addition, Globalstar expects to pay
QUALCOMM approximately $19 million for the reimbursable cost of the production
gateways. These expenditures will be offset by expected receipts of
approximately $25 million from the service providers as reimbursement of
production gateway payments made to QUALCOMM. Moreover, Globalstar expects it
will expend an additional $49 million during 2001 for working capital
requirements and restructuring and refinancing costs, partially offset by
revenue receipts to be collected during the year. These cash requirements assume
no interest, principal or dividend payments on outstanding debt and RPPIs.
Globalstar believes that it has sufficient liquidity to fund its operations
through 2001, exclusive of suspended debt service requirements and distribution
payments on its preferred partnership interests.
Globalstar's announcement in January 2001 of its intention to suspend
payments under its long-term debt obligations and RPPIs, and its difficulty in
securing additional financing raise substantial doubt about its ability to
achieve successful operations. These factors raise doubt regarding Globalstar's
ability to continue as a going concern. The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. Globalstar has incurred cumulative ordinary partnership losses of
$4.46 billion through December 31, 2000, which have been funded primarily
through the issuance of partnership interests and debt by Globalstar.
3. IMPAIRMENT OF GLOBALSTAR SYSTEM
Globalstar's revenue performance during the fourth quarter of 2000 has
caused management, in conjunction with its service provider partners, to perform
a reassessment of its business plan and long term revenue projections. In the
fourth quarter of 2000, Globalstar recorded a $2.9 billion impairment charge
related to the $3.2 billion carrying value of the Globalstar System, including
spare satellites, launch deposits, unsold production gateways, user terminals
and related assets. This charge resulted from the revision of estimates of gross
cash flows through 2009, the estimated end of useful life of the Globalstar
System, and the determination that these assets were impaired. The fair value,
for purposes of measuring the impairment at December 31, 2000, was determined by
discounting these cash flows. Gross cash flows are based on revenue projections
offset by estimated expenditures for operations and capital expenditures.
Revenue projections are based on Globalstar's current market outlook, which is
significantly influenced by service provider projections.
F-51
17
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 5).
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:
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
Globalstar System
The Globalstar System 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 System").
Losses from unsuccessful launches and in-orbit failures of Globalstar's
satellites, net of insurance proceeds, are recorded in the period incurred (see
Note 6).
F-52
18
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (see Note 3).
Globalstar System Under Construction
At December 31, 2000, the Globalstar System under construction is comprised
of further expenditures on system software for the improvement of system
functionality. Prior to start of service in the first quarter of 2000, it
included 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 System") which is now the Globalstar System.
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 8). Such costs are
being amortized over the terms of the credit facilities as interest. Total
amortization of deferred financing costs for 2000, 1999 and 1998 was
approximately $54.9 million, $18.6 million and $4.9 million, respectively.
Accumulated amortization totaled $63.9 million and $33.7 million at December 31,
2000 and 1999, respectively.
Interest costs incurred during the construction of the Globalstar System
are capitalized. Total interest costs capitalized in 2000, 1999 and 1998 was
approximately $9.8 million, $233.8 million and $178.7 million, respectively.
Other Assets
Other assets primarily includes the fair value of warrants issued to China
Telecom (see Note 11), the Elsacom/Yuzhnoye advance, and expenditures, including
license fees, legal fees and direct engineering and other technical support, for
obtaining the required FCC licenses. Such amounts are amortized over periods of
up to 10 years, the expected life of the first generation satellites.
Accumulated amortization totaled $4.1 million at December 31, 2000. Other assets
were written down by $68.5 million as a result of the impairment charge taken in
the fourth quarter (see Note 3).
Deferred Revenues
Deferred revenues includes the advance payments from Globalstar's strategic
partners to secure exclusive rights to Globalstar service territories and
pre-committed gross revenue relating to promotional programs. The 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. The 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 discounted minutes of use, amounting to approximately
$15.3 million in pre-committed gross revenue ($11.5 million net of 25%
discount), of which $8.8 million had been received as of December 31, 2000. Of
the prepaid committed revenue, $1.0 million has been recognized as of December
31, 2000.
Vendor Financing
Globalstar's contracts with Space Systems/Loral, Inc. ("SS/L"), a
subsidiary of Loral, and QUALCOMM, called for a portion of the contract price to
be deferred as vendor financing and to be repaid,
F-53
19
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
over as long as a five-year period, commencing upon various dates (see Note 7).
Amounts deferred as vendor financing are recorded as incurred.
Senior 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 (see Note 9).
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"). The Company accounts for stock-based awards to
nonemployees in accordance with SFAS 123 and its interpretations.
Service Revenue
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.
Royalties
Royalty income is comprised of royalty payments for Globalstar user
terminals sold by user terminal manufacturers. Revenue is generally recognized
as units are shipped by the user terminal manufacturers.
Research and Development Expenses
Globalstar's research and development costs, which are expensed as
incurred, were $5.3 million, $94 million and $86 million in 2000, 1999 and 1998,
respectively, and are included in operations expense.
Net Loss 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 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
F-54
20
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 loss, deductions and credits of Globalstar will be
passed proportionately through to its partners.
Earnings Per Ordinary Partnership Interest
Due to Globalstar's net losses for 2000, 1999 and 1998, diluted weighted
average ordinary partnership interests outstanding excludes the weighted average
effect of: (i) the assumed conversion of the 8% Series A convertible redeemable
preferred partnership interests (the "8% RPPIs") into 2.3 million and 3.4
million ordinary partnership interests for 2000 and 1999, respectively; (ii) the
assumed conversion of the 9% Series B convertible redeemable preferred
partnership interests (the "9% RPPIs") into 1.4 million and 0.1 million ordinary
partnership interests for 2000 and 1999, respectively; (iii) the assumed
issuance of ordinary partnership interests upon exercise of Globalstar warrants
and GTL's outstanding options and warrants, into 9.3 million, 4.2 million and
2.6 million ordinary partnership interests for 2000, 1999, and 1998,
respectively, and (iv) 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 ordinary partnership interests for 1998
(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 2000, 1999 and 1998.
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.
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities, and is effective for Globalstar's fiscal year 2001. Globalstar has
not engaged in any transactions requiring the use of SFAS No. 133, accordingly
SFAS No. 133 has no effect on its financial statements.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No.
140 replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. Globalstar has adopted the
applicable disclosure requirements of SFAS No. 140 in its consolidated financial
statements as of December 31, 2000. Globalstar is currently evaluating the
impact of adopting the remaining provisions of SFAS No. 140, which will be
effective for transactions entered into after March 31, 2001.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
F-55
21
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. 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. The
contract to order phones from Ericsson expires in May 2001. In the fourth
quarter of 2000, Globalstar recorded a $2.9 billion impairment charge of which
approximately $113 million was associated with the production gateways and user
terminals (see Note 3).
Globalstar has agreed to finance approximately $151 million of the cost of
these handheld and fixed user terminals. Globalstar recoups 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, 2000 and 1999.
6. PROPERTY AND EQUIPMENT
DECEMBER 31,
--------------------
2000 1999
--------- -------
(IN THOUSANDS)
Globalstar System...................................... $ 591,524 $ --
Leasehold improvements................................. 1,354 2,129
Furniture and office equipment......................... 7,943 9,231
--------- -------
600,821 11,360
Accumulated depreciation............................... (330,078) (6,232)
--------- -------
$ 270,743 $ 5,128
========= =======
Globalstar's property and equipment consists of an in-orbit satellite
constellation, ground equipment located in the U.S. and support equipment
located in various countries around the world. In the fourth quarter of 2000,
Globalstar recorded a $2.9 billion impairment charge of which approximately $2.6
billion was associated with the above assets (see Note 3). Depreciation expense
for 2000, 1999 and 1998 was $323.9 million, $2.3 million, and $1.7 million,
respectively.
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 has also agreed to purchase from SS/L eight spare satellites for
$148 million (including performance incentives of up to $16 million). As of
December 31, 2000, costs of $138 million (including a portion of the performance
incentives) have been recognized for these spare satellites. Globalstar 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
$89.5 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 $18.6 million.
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. As of December 31, 2000, 26 gateways have been sold resulting in a
$7.2 million reduction in costs associated with the Globalstar System. In
addition, Globalstar will receive a payment of up to $10 on each Globalstar user
terminal shipped by the terminal manufacturer, until Globalstar funding of that
design has been recovered.
F-56
22
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PAYABLES TO AFFILIATES AND VENDOR FINANCING
In January 2001, Globalstar suspended indefinitely principal and interest
payments on all of its vendor financing, in order to conserve cash for
operations (see Note 2). Non-payment of interest payments when they become due,
and continuance of non-payment for five days, is an "event of default" under the
terms of the QUALCOMM vendor financing facility. An event of default has
occurred in connection with the QUALCOMM vendor financing facility for failure
to pay two installments of interest on January 15, 2001 for separate credit
extensions made under the QUALCOMM vendor financing facility, such extensions
also known as the "Tranche A Facility" and "Tranche B Facility" (or the "Tranche
A and B Facilities"). Upon an event of default, lenders then holding more than
sixty-six and seven-tenths percent (66.7%) of the then aggregate unpaid
principal amount of the Tranche A and B Facilities then outstanding would, at
their option, have the right to declare all of the amounts and obligations under
the Tranche A and B Facilities immediately due and payable. As of March 26,
2001, no such declaration by QUALCOMM has been made. The amounts due under the
QUALCOMM vendor financing facility have been presented in these financial
statements as current liabilities because we expect such debt may become due by
December 31, 2001.
SS/L has provided $344 million of billings deferred under its construction
contracts with Globalstar, comprised of: $120 million of orbital incentives, of
which $44 million was repaid by Globalstar in 1999, $60 million was repaid in
2000 and $8 million is scheduled to be repaid in 2001; $90 million of vendor
financing which bears interest 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.
Payables and vendor financing due to affiliates is comprised of the
following (in thousands):
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
SS/L............................................... $242,690 $346,537
QUALCOMM........................................... 565,642 501,647
Other affiliates................................... 10,824 14,147
-------- --------
819,156 862,331
Less, current portion.............................. 621,105 606,020
-------- --------
Long-term portion.................................. $198,051 $256,311
======== ========
In May 2000, Globalstar finalized $531.1 million of vendor financing
arrangements (including $31.1 million of accrued interest as of May 2000) with
QUALCOMM that replaced the previous $100 million vendor financing agreement. The
original terms provided for interest at 6%, a maturity date of August 15, 2003
and required repayment pro rata with the term loans under Globalstar's $500
million credit facility (see Note 8). As of December 31, 2000, $550.7 million
was outstanding under this facility (including $50.7 million of accrued
interest). 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, twenty five
percent vested on September 1, 2000, and the remaining twenty five percent will
vest on September 1, 2001. The warrants will expire in 2007. The fair value of
the vested warrants totaled approximately $33.9 million and is being amortized
over the term of the vendor financing arrangements. The fair value attributable
to the unvested portion of such warrants, approximately $505,000, is subject to
adjustment based upon the future value of GTL's common stock.
F-57
23
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CREDIT FACILITIES
In January 2001, Globalstar suspended indefinitely principal and interest
payments on its funded debt in order to conserve cash for operations (see Note
2). Non-payment of interest payments when they become due, and continuance of
non-payment for five days, is an "event of default" under the terms of the $500
million credit facility. An event of default has occurred in connection with the
$500 million credit facility for failure to pay two installments of interest on
January 15, 2001 for two separate credit extensions made under the $500 million
credit agreement, such extensions also known as "Term Loan A" (defined below)
and "Term Loan B" (defined below; or "Term Loans A and B"). Upon an event of
default, (i) with the consent of the Loral Satellite, Inc., the Administrative
Agent, Bank of America, shall, by notice to Globalstar, declare the Revolver,
Term Loan A and Term Loan B to be terminated forthwith and (ii) with the consent
of the Loral Satellite, Inc., the Administrative Agent, Bank of America, shall,
by notice of default to Globalstar, declare all loans made under the $500
million credit facility (with accrued interest thereon) to be immediately due
and payable. As of March 26, 2001, no notice to Globalstar of termination or
acceleration had occurred under the $500 million credit facility. The amounts
due under the $500 million credit facility have been presented in these
financial statements as current liabilities because we expect such debt may
become due by December 31, 2001.
$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. 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.
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 final 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 with Affiliates
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"). The creditors' interests under the credit facility were purchased by a
wholly owned subsidiary of Loral on November 17, 2000, which had previously
guaranteed the facility. As of December 31, 2000, all amounts
F-58
24
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under the $500 million credit agreement were drawn. The following table presents
the repayment schedule for Term Loan A, Term Loan B and the Revolver as per the
original terms of the agreement. These amounts have been included in current
liabilities (in thousands):
TERM TERM
LOAN A LOAN B REVOLVER
-------- -------- --------
2001....................................... $ 50,000 $ 6,000 $ --
2002....................................... 50,000 45,000 100,000
2003....................................... -- 249,000 --
-------- -------- --------
Total payments............................. $100,000 $300,000 $100,000
======== ======== ========
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.
In consideration for the guarantee by Loral in 1999, Loral and certain
Loral subsidiaries received warrants to purchase an aggregate of 3,450,000
Globalstar partnership interests, valued at $141.1 million, (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). Fifty percent of the warrants vested in February 2000 and an additional
25% vested in August 2000. The outstanding 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.
9. SENIOR NOTES AND WARRANTS
In January 2001, Globalstar suspended indefinitely principal and interest
payments on its funded debt in order to conserve cash for operations.
Non-payment of interest on Globalstar's debt instruments when they become due,
and continuance of non-payment for 30 days, is an "event of default" under the
terms of the senior note indentures. An event of default has occurred in
connection with Globalstar's 11 3/8% senior notes due February 15, 2004 (the
"Bond"). Under the terms of the Bond, the trustee for Globalstar's 11 3/8%
senior notes or the holders of at least 25% in principal amount of such notes
may declare the principal, accrued but unpaid interest, and liquidated damages
(if any) on such securities to be due and payable immediately. Interest payments
under the other three other indentures are due on May 15, June 1 and June 15,
2001; however, an "event of default" would occur only upon (i) non-payment of
each indenture's interest payment after the expiration of the applicable 30-day
grace period, or (ii) the acceleration of payment of Globalstar's defaulted
11 3/8% senior notes or its defaulted credit facilities. The amounts due under
the senior notes have been presented in these financial statements as current
liabilities because we expect such debts to become due by December 31, 2001.
(See Note 2).
F-59
25
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31,
----------------------- EFFECTIVE
2000 1999 DUE INTEREST INTEREST
---------- ---------- DATE SOLD PRINCIPAL DATE RATE PAYMENT
(IN THOUSANDS) ------------- ------------ ---- ---------- -------------
11 3/8 Senior Notes
(1)................... $ 484,352 $ 480,567 February 1997 $500,000,000 2004 13.33% Semi-annually
11 1/4 Senior Notes
(2)................... 310,889 307,884 June 1997 325,000,000 2004 13.57% Semi-annually
10 3/4 Senior Notes
(3)................... 321,869 321,263 October 1997 325,000,000 2004 11.63% Semi-annually
11 1/2 Senior Notes
(4)................... 290,831 289,397 May 1998 300,000,000 2005 13.12% Semi-annually
---------- ----------
$1,407,941 $1,399,111
========== ==========
---------------
(1) Note may not be redeemed prior to February 2002 and is subject to a
prepayment premium prior to 2004.
(2) Note may not be redeemed prior to June 2002 and is subject to a prepayment
premium prior to 2004.
(3) Note may not be redeemed prior to November 2002 and is subject to a
prepayment premium prior to 2004.
(4) Note may not be redeemed prior to June 2003 and is subject to a prepayment
premium prior to 2005.
As of December 31, 2000, there were outstanding warrants to purchase
3,810,469 shares of GTL common stock which were issued in connection with the
11 3/8 % Senior Notes, 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.
The senior notes rank pari passu with each other and with all of
Globalstar's other existing 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
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
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. 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") acts 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 is being amortized over ten
years, the expected life of the first generation of satellites. Accumulated
amortization as of December 31, 2000 is $1.9 million.
F-60
26
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 1,382,284 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.
On December 29, 2000, 200 shares of the 8% Preferred Stock were converted
into 429 shares of GTL common stock. As a result of the conversion, the 8% RPPIs
were converted into 106 Globalstar ordinary partnership interests. The remaining
shares of 8% Preferred Stock outstanding at December 31, 2000 were convertible
into 9,451,348 shares of GTL common stock.
Each 8% RPPI is convertible into .53085 ordinary partnership interests,
subject to adjustment in the event of subdivision, combination, or
reclassification of the ordinary partnership interests. As of December 31, 2000,
the outstanding 8% RPPIs were convertible into 2,333,666 of ordinary partnership
interests.
The 8% RPPIs rank pari 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, 2000, the
outstanding 8% RPPIs were convertible into 2,333,666 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.
Payments made during the fourth quarter of 2000 were paid with 179,766 ordinary
partnership interests. In January 2001, Globalstar suspended distributions on
the 8% RPPIs. As a result, GTL suspended dividend payments on the 8% Preferred
Stock. The partnership agreement provides that, in the event accrued and unpaid
dividends accumulate to an amount equal to six quarterly dividends on the 8%
Preferred Stock, holders of the majority of the outstanding 8% Preferred Stock
and the holders of any other securities having similar voting rights will be
entitled to elect one additional member to the general partners committee 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.
In 2000, 41,510 shares of 9% Preferred Stock were converted into 79,958
shares of GTL common stock. As a result of such conversions, the 9% RPPIs were
converted into 19,743 Globalstar ordinary partnership interests. As of December
31, 2000, the outstanding 9% Preferred Stock was convertible into 5,698,851
shares of GTL common stock.
F-61
27
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Each 9% RPPI is convertible into .47562 ordinary partnership interests,
subject to adjustment in the event of subdivision, combination, or
reclassification of the ordinary partnership interests. As of December 31, 2000,
the outstanding 9% Preferred RPPIs were convertible into 1,407,057 ordinary
partnership interests.
The 9% RPPIs rank pari 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, 2000, the
outstanding 9% RPPIs were convertible into 1,407,057 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.
Payments made during the fourth quarter of 2000 were paid with 249,175 ordinary
partnership interests. In January 2001, Globalstar suspended distributions on
the 9% RPPIs. As a result, GTL suspended dividend payments on the 9% Preferred
Stock. The partnership agreement provides that, in the event accrued and unpaid
dividends accumulate to an amount equal to six quarterly dividends on the 9%
Preferred Stock, holders of the majority of the outstanding 9% Preferred Stock
and the holders of any other securities having similar voting rights will be
entitled to elect one additional member to the general partners committee of
Globalstar.
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).
On February 1, 2000, GTL sold 8,050,000 share 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.
On September 19, 2000, GTL entered into a purchase agreement with Bear
Stearns International Limited ("Bear Stearns"), under which Bear Stearns agreed
to purchase over several tranches, up to $105 million of shares of GTL common
Stock. Sales under this agreement were subject to certain conditions, including
the requirement that GTL's share price be trading higher then $4.50. During
2000, Bear Stearns purchased 4,050,000 shares of GTL common stock, resulting in
net proceeds to GTL of $27.8 million. GTL used the proceeds from the sales to
purchase 1,000,001 ordinary partnership interests in Globalstar.
On September 29, 2000, Globalstar's founding partners, Loral, Vodafone,
QUALCOMM, Elsacom and TE.SA.M, purchased an aggregate of 5.2 million shares of
common stock of GTL for $56 million. GTL used the proceeds from the sales to
purchase 1,295,360 ordinary partnership interests in 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.
F-62
28
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 6,825, 10,273 and 4,538 ordinary partnership interests
during 2000, 1999 and 1998, respectively, in exchange for proceeds from GTL
option exercises.
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 60,000 and 240,000 options were exercised
in 2000 and 1998, respectively, 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; 40,000 options were
exercised in 1999 and no options were cancelled during 2000, 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 4, 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 $95,000, $1,154,000, $1,284,000 of compensation expense in 2000, 1999, and
1998, respectively, related to the below market option grants issued by Loral.
In addition, during 2000, 1999 and 1998, GTL granted stock options to certain
non-employees of Globalstar to purchase 167,000, 577,000 and 63,300,
respectively, shares of GTL common stock. The fair value of such options totaled
approximately $393,000 which 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.
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, 70% for 2000, 50% for
1999 and 30% for 1998; 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 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
F-63
29
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
per interest would have been $3,828,896,000 or $61.43 per ordinary partnership
interest in 2000, $237,245,000 or $4.07 per ordinary partnership interest in
1999 and $154,303,000 or $2.74 per ordinary partnership interest in 1998.
A summary of the status of the GTL stock option plan for the years ended
December 31, 2000, 1999 and 1998 is presented below:
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- ---------
Outstanding at January 1, 1998......................... 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
Granted (weighted average fair value of $4.04 per
share)............................................... 4,566,250 9.76
Forfeited.............................................. (984,750) 16.29
Exercised.............................................. (26,300) 10.72
--------- ------
Outstanding at December 31, 2000....................... 8,199,000 $14.79
========= ======
Options exercisable at December 31, 2000............... 1,123,816 $14.20
========= ======
Options exercisable at December 31, 1999............... 584,433 $11.72
========= ======
Options exercisable at December 31, 1998............... 291,890 $ 7.83
========= ======
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 except for 4,336,250 options granted in 2000 which become
exercisable ratably over a three-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, 2000, 1,704,100 shares of common stock
were available for future grant under the Plan.
F-64
30
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about GTL's outstanding stock
options at December 31, 2000:
OUTSTANDING EXERCISABLE
------------------------------------ ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
-------------------- --------- ----------- -------- --------- --------
$1.64 to $3.00............... 18,000 9.92 $ 1.64 -- $ --
$3.01 to $4.64............... 318,400 4.97 4.10 301,400 4.16
$4.65 to $8.70............... 3,908,750 9.37 8.66 75,000 8.70
$8.71 to $17.15.............. 889,400 6.65 13.70 455,500 13.46
$17.16 to $29.03............. 2,665,550 8.23 23.13 175,316 24.71
$29.04 to $31.41............. 398,900 8.26 30.72 116,600 30.83
--------- ---------
8,199,000 8.48 $14.79 1,123,816 $14.20
========= =========
12. PENSIONS AND OTHER EMPLOYEE BENEFITS
Pensions
Globalstar 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. Globalstar'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, Globalstar 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 Globalstar'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-65
31
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for 2000 and 1999, and a statement
of the funded status as of December 31, 2000 and 1999, respectively.
PENSION BENEFITS OTHER BENEFITS
------------------ ----------------
2000 1999 2000 1999
------- ------- ------- -----
(IN THOUSANDS)
Reconciliation of benefit obligation
Obligation at January 1...................... $ 6,609 $ 6,348 $ 814 $ 889
Service cost................................. 532 567 100 83
Interest cost................................ 662 504 101 64
Participant contributions.................... 106 86 9 7
Actuarial (gain) loss........................ 1,439 (896) 388 (208)
Benefit payments............................. (11) -- (5) (21)
------- ------- ------- -----
Obligation at December 31.................... $ 9,337 $ 6,609 $ 1,407 $ 814
------- ------- ------- -----
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1....... $ 8,343 $ 5,815 $ 35 $ 34
Actual return on plan assets................. (723) 2,442 2 5
Employer contributions....................... 45 -- (4) 10
Participant contributions.................... 106 86 9 7
Benefit payments............................. (11) -- (5) (21)
------- ------- ------- -----
Fair value of plan assets at December 31..... $ 7,760 $ 8,343 $ 37 $ 35
------- ------- ------- -----
Funded status
Funded status at December 31................. $(1,577) $ 1,734 $(1,371) $ 778
Unrecognized (gain) loss..................... 354 (2,909) 195 (249)
Unrecognized prior service cost.............. 403
Unrecognized transition obligation (asset)... (214) -- -- --
------- ------- ------- -----
Net amount recognized in accrued
liabilities................................ $(1,437) $(1,175) $ (773) $ 529
======= ======= ======= =====
The following table provides the components of net periodic benefit cost
for the plans for the years ended December 31, 2000, 1999 and 1998, respectively
(in thousands):
PENSION BENEFITS OTHER BENEFITS
----------------------- --------------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ---- ---- ----
Service cost....................... $ 532 $ 568 $ 415 $100 $ 83 $ 66
Interest cost...................... 662 504 419 101 63 61
Expected return on plan assets..... (796) (563) (461) (3) (3) (3)
Amortization of net (gain) loss.... (40) (38) (40) 38 38 39
Recognized actuarial (gain) loss... (51) -- -- 4 -- --
----- ----- ----- ---- ---- ----
Net periodic benefit cost.......... $ 307 $ 471 $ 333 $240 $181 $163
===== ===== ===== ==== ==== ====
The principal actuarial assumptions were:
2000 1999 1998
---- ---- ----
Discount rate.......................................... 7.75% 8.00% 7.00%
Expected return on plan assets......................... 9.50% 9.50% 9.50%
Rate of compensation increase.......................... 4.25% 4.25% 4.25%
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GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actuarial assumptions used a health care cost trend rate of 7.35%
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 2000 would have the following
effects:
1% INCREASE 1% DECREASE
----------- -----------
Effect on total service and interest cost components
of net periodic postretirement health care benefit
cost............................................... $ 43,000 $ (33,000)
Effect on the health care component of the
accumulated postretirement benefit obligation...... 246,000 (194,000)
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 GTL common
stock were approximately $701,000, $587,000 and $460,000 for 2000, 1999 and
1998, respectively.
13. REVENUE BY CUSTOMER LOCATION
For 2000, Globalstar's gross service revenue before discounts and
promotions by geographical location is as follows (in thousands):
Canada...................................................... $ 650
Brazil...................................................... 476
Australia................................................... 392
United States............................................... 357
Other....................................................... 931
------
Gross service revenue before discounts and promotions....... $2,806
======
14. 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 the Senior
Notes is based on market quotations. The fair value of the vendor financing,
notes payable, notes payable to affiliates, revolving credit facility, term loan
A and B is based on the ratio of the carrying amount to fair value of the senior
notes.
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GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of Globalstar's financial instruments are as
follows (in thousands):
DECEMBER 31, 2000 DECEMBER 31, 1999
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Cash and cash equivalents............... $174,401 $174,401 $127,675 $127,675
Restricted cash......................... 22,448 22,448 46,246 46,246
Vendor financing........................ 788,423 86,727 393,795 393,795
10 3/4% Senior notes.................... 321,869 35,800 321,263 195,000
11 1/4% Senior notes.................... 310,889 35,800 307,884 201,500
11 3/8% Senior notes.................... 484,352 55,000 480,567 310,000
11 1/2% Senior notes.................... 290,831 33,000 289,397 183,000
Notes payable........................... 157,420 16,904 -- --
Notes payable to affiliates............. 104,946 11,270 -- --
Revolving credit facility............... 100,000 11,000 -- --
Term Loan A............................. 100,000 11,000 100,000 100,000
Term Loan B............................. 300,000 33,000 300,000 300,000
15. RELATED PARTY TRANSACTIONS
In addition to the transactions described in Notes 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.
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 (as defined), 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 year ended December 31, 1998, QUALCOMM received approximately $187,000
for costs incurred in rendering such support and assistance.
Globalstar has entered into agreements with certain limited partners, for
approximately $6.9 million under which, Globalstar will provide for the
integration and testing of the Globalstar System at certain of the partners'
gateways.
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34
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Globalstar has entered into consulting agreements with certain limited
partners. Costs incurred under these arrangements for the years ended December
31, 2000 and 1998 were approximately $1,050,000 and $309,000, respectively.
There were no costs incurred under these arrangements in 1999.
QUALCOMM initially 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, and we do not expect any other vendor to
manufacture gateways. QUALCOMM has granted a license to manufacture Globalstar
user terminals 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 user terminals 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, Mexico, and
Russia 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.
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 due from affiliates and amounts financed under the
production gateway and user terminal contracts is as follows (in thousands):
DECEMBER 31,
------------------
2000 1999
------- -------
SS/L..................................................... $ 3 $ 21
Loral.................................................... 61 15,413
Other affiliates......................................... 40,059 20,726
------- -------
$40,123 $36,160
======= =======
Payables and vendor financing due to affiliates is as follows (in
thousands):
DECEMBER 31,
--------------------
2000 1999
-------- --------
SS/L................................................... $242,690 $346,537
QUALCOMM............................................... 565,642 501,647
Other affiliates....................................... 10,824 14,147
-------- --------
819,156 862,331
Less, current portion.................................. 621,105 606,020
-------- --------
Long-term portion...................................... $198,051 $256,311
======== ========
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35
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total purchases from affiliates is as follows: (in thousands):
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
SS/L....................................... $ 74,082 $512,815 $514,262
QUALCOMM................................... 99,988 350,565 379,151
Loral...................................... 3,872 4,183 2,157
Other affiliates........................... 6,904 12,688 2,473
-------- -------- --------
$184,846 $880,251 $898,043
======== ======== ========
Starting with commencement of service by Globalstar 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%. The managing
partners allocation may be deferred (with interest at 4% per annum) in any
quarter in which Globalstar would report negative cash flow from operations if
the managing partner's allocation were made. As of December 31, 2000, the
managing partner's allocation of $28,000 has been deferred.
16. 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.
17. COMMITMENTS AND CONTINGENCIES
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):
2001....................................................... $ 3,228
2002....................................................... 3,235
2003....................................................... 3,170
2004....................................................... 3,242
2005....................................................... 3,280
Thereafter................................................. 9,871
-------
Total minimum lease payments............................... $26,026
=======
Rent expense for 2000, 1999 and 1998, was approximately $4.1 million, $4.1
million, and $3.1 million, respectively. Included in rent expense are payments
to Lockheed Martin of $3.7 million, $2.9 million, and $2.7 million for 2000,
1999 and 1998, respectively.
On February 20, 2001, a purported class action lawsuit was filed against
Globalstar, L.P. and Globalstar Capital Corporation (the "defendants") on behalf
of the owners of 10 3/4% bonds, due November 2004 (the "Bonds") in Superior
Court, New Castle County, Delaware. The Bonds were issued by Globalstar Capital
Corporation and Globalstar, L.P. as joint obligors. The next interest payment
payable on the Bonds is due
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36
GLOBALSTAR, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
May 1, 2001. The complaint alleges that the defendants repudiated the Bonds'
Registration Statement, Prospectus and Indenture, without consent of the
bondholders, when Globalstar announced that it was suspending its future
interest payments on the Bonds. The complaint seeks damages in an unspecified
amount. The defendants are required to respond to this complaint by April 23,
2001.
F-71