NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Globalstar, Inc. (“Globalstar” or the “Company”) provides Mobile Satellite Services (“MSS”) including voice and data communications services through its global satellite network. Thermo Capital Partners LLC, through its affiliates (collectively, “Thermo”), is the principal owner and largest stockholder of Globalstar. The Company’s Chairman and Chief Executive Officer controls Thermo. Two other members of the Company's Board of Directors are also directors, officers or minority equity owners of various Thermo entities.
The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and footnote disclosures normally in financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"); however, management believes the disclosures made are adequate to make the information presented not misleading. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Globalstar Annual Report on Form 10-K for the year ended
December 31, 2016
, as filed with the SEC on February 23, 2017 (the "2016 Annual Report"), and Management's Discussion and Analysis of Financial Condition and Results of Operations herein.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. The Company evaluates estimates on an ongoing basis. Significant estimates include the value of derivative instruments, the allowance for doubtful accounts, the net realizable value of inventory, the useful life and value of property and equipment, the value of stock-based compensation and income taxes. The Company has made certain reclassifications to prior period condensed consolidated financial statements to conform to current period presentation.
These unaudited interim condensed consolidated financial statements include the accounts of Globalstar and all its subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidation. In the opinion of management, the information included herein includes all adjustments, consisting of normal recurring adjustments, that are necessary for a fair presentation of the Company’s condensed consolidated statements of operations, condensed consolidated balance sheets, and condensed consolidated statements of cash flows for the periods presented. The results of operations for the
three and six
months ended
June 30, 2017
are not necessarily indicative of the results that may be expected for the full year or any future period.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 has been modified multiple times since its initial release. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09, as amended, becomes effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted; however, the Company plans on adopting this standard when it becomes effective on January 1, 2018. The Company has an internal project team that is evaluating the impact this standard will have on its financial statements, accounting systems and related disclosures. Currently, the Company expects that the most significant changes to the Company's revenue recognition accounting policies will be related to the following: 1) the allocation and timing of revenue recognized between service revenue and subscriber equipment sales, 2) the timing of service revenue recognized for breakage during certain customer's prepaid contracts and 3) the deferment of certain contract acquisition costs and the recognition of these costs over the expected life of a customer's contract. The standard permits the use of either the retrospective or cumulative effect transition method. The Company expects to follow the cumulative effect method of adoption.
In March 2016, the FASB issued ASU No. 2016-02,
Leases
. The main difference between the provisions of ASU No. 2016-02 and previous U.S. GAAP is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU No. 2016-02 retains a distinction between finance leases and operating leases, and the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous U.S. GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right-of-use assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied under previous U.S. GAAP. In transition, lessees and lessors are required to recognize and
measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU is effective for public business entities in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13,
Credit Losses, Measurement of Credit Losses on Financial Instruments
. ASU No. 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s incurred loss approach with an expected loss model for instruments measured at amortized cost. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The Company has not yet determined the impact this standard will have on its financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations: Clarifying the Definition of a Business
. ASU 2017-01 most significantly revises guidance specific to the definition of a business related to accounting for acquisitions. Additionally, ASU 2017-01 also affects other areas of US GAAP, such as the definition of a business related to the consolidation of variable interest entities, the consolidation of a subsidiary or group of assets, components of an operating segment, and disposals of reporting units and the impact on goodwill. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's condensed consolidated financial statements and related disclosures.
In February 2017, the FASB issued ASU 2017-05,
Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
. ASU 2017-06 was issued to provide clarity on the scope and application for recognizing gains and losses from the sale or transfer of nonfinancial assets, and should be adopted concurrently with ASU 2014-09:
Revenue from Contracts with Customers
. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.
In February 2017, the FASB issued ASU 2017-07:
Compensation—Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. ASU 2017-07 requires sponsors of benefit plans to present the service cost component of net periodic benefit cost in the same income statement line or items as other employee costs and present the remaining components of net periodic benefit cost in one or more separate line items outside of income from operations. This ASU also limits the capitalization of benefit costs to only the service cost component. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's condensed consolidated financial statements and related disclosures.
In March 2017, the FASB issued ASU 2017-08:
Receivables—Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities
. This ASU amends current US GAAP to shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's condensed consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09:
Compensation—Stock Compensation: Scope of Modification Accounting.
This ASU clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, a company will apply modification accounting only if the fair value, vesting conditions or classification of the award change due to a modification in the terms or conditions of the share-based payment award. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's condensed consolidated financial statements and related disclosures.
In July 2017, the FASB issued ASU 2017-11:
I. Accounting for Certain Financial Instruments With Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception.
Part I of this ASU reduces the complexity associated with accounting for certain financial instruments with down round features. Part II of this ASU recharacterizes the indefinite deferral provisions described in
Topic 480: Distinguishing Liabilities from Equity.
It does not have an accounting effect.
This ASU is effective for public entities for annual and interim periods beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows - Restricted Cash
. ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet is required. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company adopted this standard effective with reporting periods beginning on January 1, 2017 and reflected the impact of this standard using a retrospective transition method for each period presented. Additionally, the Company added required disclosures pursuant to ASC 2016-18 to its condensed consolidated statements of cash flows.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
December 31,
2016
|
Globalstar System:
|
|
|
|
|
|
Space component
|
|
|
|
|
|
First and second-generation satellites in service
|
$
|
1,195,180
|
|
|
$
|
1,211,090
|
|
Prepaid long-lead items
|
17,040
|
|
|
17,040
|
|
Second-generation satellite, on-ground spare
|
32,481
|
|
|
32,481
|
|
Ground component
|
48,562
|
|
|
48,400
|
|
Construction in progress:
|
|
|
|
|
|
Space component
|
463
|
|
|
81
|
|
Ground component
|
217,199
|
|
|
207,127
|
|
Next-generation software upgrades
|
11,091
|
|
|
10,223
|
|
Other
|
1,917
|
|
|
2,299
|
|
Total Globalstar System
|
1,523,933
|
|
|
1,528,741
|
|
Internally developed and purchased software
|
16,530
|
|
|
15,005
|
|
Equipment
|
10,153
|
|
|
9,875
|
|
Land and buildings
|
3,319
|
|
|
3,330
|
|
Leasehold improvements
|
1,940
|
|
|
1,893
|
|
Total property and equipment
|
1,555,875
|
|
|
1,558,844
|
|
Accumulated depreciation
|
(542,077
|
)
|
|
(519,125
|
)
|
Total property and equipment, net
|
$
|
1,013,798
|
|
|
$
|
1,039,719
|
|
Amounts in the above table consist primarily of costs incurred related to the construction of the Company’s second-generation constellation and ground upgrades. The ground component of construction in progress represents costs (including capitalized interest) associated with the Company's contracts with Hughes Network Systems, LLC ("Hughes") and Ericsson Inc. (“Ericsson”) related to the second-generation upgrades to the Company's ground infrastructure. The Company will begin depreciating this asset when the second-generation gateways are placed into commercial service. See
Note 6: Commitments and Contingencies
for further discussion of these contracts.
Amounts included in the Company’s second-generation satellite, on-ground spare balance as of
June 30, 2017
consist primarily of costs related to a spare second-generation satellite that has not been placed in orbit, but is capable of being included in a future launch. As of
June 30, 2017
, this satellite and the prepaid long-lead items ("LLI") have not been placed into service; therefore, the Company has not started to record depreciation expense for these items.
Pursuant to the Amended and Restated Contract for the construction of Globalstar Satellites for the Second Generation Constellation between the Company and Thales Alenia Space France ("Thales"), dated and executed in June 2009 (the "2009
Contract"), the Company paid
€12 million
in purchase price plus an additional
€3.1 million
in procurement costs for the LLI to be procured by Thales on the Company's behalf. The LLI were to be used in the construction of the Phase 3 satellites for the Company. As reflected on the Company's condensed consolidated balance sheets and in the above table, the Company believes that it owns the LLI and that title to the LLI transferred to the Company upon payment. The Company has asked Thales to turn over the LLI. Despite historical statements to the contrary, Thales currently disputes the Company's ownership of the LLI and has asserted that the Company released its title to the LLI pursuant to that certain Release Agreement, dated as of June 24, 2012, which is described more fully in
Note 6: Commitments and Contingencies
. Thales further asserts that the LLI belong to Thales and that Thales has no obligation to turn over possession of the LLI to the Company. The Company disputes Thales' assertions and is considering its rights and remedies to recover the LLI. At this time, the Company cannot predict the outcome related to this dispute, including, without limitation, the likelihood of any settlement or the probability of success with respect to any litigation that the Company may determine to commence with respect to the LLI.
3. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt consists of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Principal
Amount
|
|
Unamortized Discount and Deferred Financing Costs
|
|
Carrying
Value
|
|
Principal
Amount
|
|
Unamortized Discount and Deferred Financing Costs
|
|
Carrying
Value
|
Facility Agreement
|
$
|
521,317
|
|
|
$
|
40,098
|
|
|
$
|
481,219
|
|
|
$
|
543,011
|
|
|
$
|
45,651
|
|
|
$
|
497,360
|
|
Thermo Loan Agreement
|
99,776
|
|
|
28,035
|
|
|
71,741
|
|
|
93,962
|
|
|
29,615
|
|
|
64,347
|
|
8.00% Convertible Senior Notes Issued in 2013
|
17,319
|
|
|
1,593
|
|
|
15,726
|
|
|
17,126
|
|
|
2,554
|
|
|
14,572
|
|
Total Debt
|
638,412
|
|
|
69,726
|
|
|
568,686
|
|
|
654,099
|
|
|
77,820
|
|
|
576,279
|
|
Less: Current Portion
|
110,313
|
|
|
1,593
|
|
|
108,720
|
|
|
75,755
|
|
|
—
|
|
|
75,755
|
|
Long-Term Debt
|
$
|
528,099
|
|
|
$
|
68,133
|
|
|
$
|
459,966
|
|
|
$
|
578,344
|
|
|
$
|
77,820
|
|
|
$
|
500,524
|
|
The principal amounts shown above include payment of in-kind interest, as applicable. The carrying value is net of deferred financing costs and any discounts to the loan amounts at issuance, including accretion, as further described below. The current portion of long-term debt represents the scheduled principal repayments under the Facility Agreement due within one year of the balance sheet date and the total outstanding balance of the Company's 2013
8.00%
Notes (as defined below) as the first put date of the notes is April 1, 2018. These short-term debt obligations are significant and the Company believes these obligations will be in excess of its cash flows from operations. The Company intends to raise funds in sufficient amounts to make these payments; however, the source of funds has not yet been fully arranged.
Facility Agreement
In 2009, the Company entered into the Facility Agreement with a syndicate of bank lenders, including BNP Paribas, Société Générale, Natixis, Crédit Agricole Corporate and Investment Bank (formerly Calyon) and Crédit Industriel et Commercial, as arrangers, and BNP Paribas, as the security agent. The Facility Agreement was amended and restated in July 2013, August 2015 and June 2017.
The Facility Agreement is scheduled to mature in
December 2022
. As of
June 30, 2017
, the Facility Agreement was fully drawn. Semi-annual principal repayments began in December 2014. Indebtedness under the facility bears interest at a floating rate of LIBOR plus
2.75%
through June 2017, increasing by an additional
0.5%
each year thereafter to a maximum rate of LIBOR plus
5.75%
. Interest on the Facility Agreement is payable semi-annually in arrears on June 30 and December 31 of each calendar year.
Ninety-five
percent of the Company’s obligations under the Facility Agreement are guaranteed by Bpifrance Assurance Export S.A.S. ("BPIFAE") (formerly COFACE), the French export credit agency. The Company’s obligations under the Facility Agreement are guaranteed on a senior secured basis by all of its domestic subsidiaries and are secured by a first priority lien on substantially all of the assets of the Company and its domestic subsidiaries (other than their FCC licenses), including patents and trademarks,
100%
of the equity of the Company’s domestic subsidiaries and
65%
of the equity of certain foreign subsidiaries.
The Facility Agreement contains customary events of default and requires that the Company satisfy various financial and non-financial covenants. The covenants in the Facility Agreement limit the Company's ability to, among other things, incur or guarantee additional indebtedness; make certain investments, acquisitions or capital expenditures above certain agreed levels; pay dividends
or repurchase or redeem capital stock or subordinated indebtedness; grant liens on its assets; incur restrictions on the ability of its subsidiaries to pay dividends or to make other payments to the Company; enter into transactions with its affiliates; merge or consolidate with other entities or transfer all or substantially all of its assets; and transfer or sell assets.
In calculating compliance with the financial covenants of the Facility Agreement, the Company may include certain cash funds contributed to the Company from the issuance of the Company's common stock and/or subordinated indebtedness. These funds are referred to as "Equity Cure Contributions" and may be used to achieve compliance with financial covenants through December 2019. If the Company violates any covenants and is unable to obtain a sufficient Equity Cure Contribution or obtain a waiver, or is unable to make payments to satisfy its debt obligations under the Facility Agreement and is unable to obtain a waiver, it would be in default under the Facility Agreement and payment of the indebtedness could be accelerated. The acceleration of the Company's indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-acceleration provisions. As of
June 30, 2017
, the Company was in compliance with respect to the covenants of the Facility Agreement.
The Facility Agreement also requires the Company to maintain a debt service reserve account, which is pledged to secure all of the Company's obligations under the Facility Agreement. The use of these funds is restricted to making principal and interest payments under the Facility Agreement. Prior to October 30, 2017, the Company must maintain a total of
$37.9 million
in a debt service reserve account. On October 30, 2017, the balance in the debt service reserve account must equal the total amount of principal and interest payable by the Company on the next payment date. As of
June 30, 2017
, the balance in the debt service reserve account was
$37.9 million
and classified as restricted cash on the Company's condensed consolidated balance sheets.
On June 30, 2017, the Company, Thermo, the lenders and the BPIFAE and Security Agent entered into a Third Global Amendment and Restatement Agreement (the “2017 GARA”). Pursuant to the 2017 GARA, the Facility Agreement was amended and restated and the Company, Thermo and the lenders agreed to the following:
|
|
•
|
The amendments to the Facility Agreement defer most financial covenants until the measurement period ending December 31, 2018; extend to the measurement period ending December 31, 2019 the date through which Equity Cure Contributions can be made; eliminate the requirement of the Company to redeem in full the 2013
8.00%
Notes (as defined below); defer mandatory prepayments from qualifying equity raises until January 1, 2020; and revise the definition of the debt service reserve account required balance after October 30, 2017 to mean an amount equal to the Debt Service (as defined in the 2017 GARA) amount due on the next payment date.
|
|
|
•
|
The Company agreed to raise at least
$159.0 million
in equity, which includes
$12.0 million
previously raised from its common stock purchase agreement with Terrapin Opportunity, L.P. ("Terrapin") in January 2017. The Company was required to raise a portion of the total
$159.0 million
by June 30, 2017 and the remaining amount no later than October 30, 2017. The Company was required to raise approximately
$33.0 million
as of June 30, 2017, which included amounts for the Company's outstanding restructuring fees, insurance premiums to BPIFAE and principal and interest due under the Facility Agreement as of June 30, 2017. If the Company does not raise the remaining funds by October 30, 2017, it would constitute an event of default under the Facility Agreement. The Company is required to deposit
80%
of any equity proceeds raised through December 31, 2019 (including those funds required to be raised in 2017) into a restricted account, separate from the debt service reserve account discussed above, that may only be used to pay obligations under the Facility Agreement.
|
|
|
•
|
The 2017 GARA required Thermo to fund or backstop the amounts required to be raised as of June 30, 2017. The total
$33.0 million
was raised pursuant to the Common Stock Purchase Agreement with Thermo, discussed further below.
|
|
|
•
|
The Company agreed to limit capital expenditures in connection with its spectrum rights to be the lesser of (1)
$20.0 million
and (2)
20%
of the proceeds of the aggregate of any equity the Company raises from January 1, 2017 through December 31, 2019.
|
|
|
•
|
The Company agreed to pay an amendment fee to the agent and lenders in the aggregate amount of
$255,000
and accelerated the payment of the restructuring fee and insurance premium of approximately
$20.8 million
, which was previously due December 31, 2017 and accrued as a current liability on the Company's condensed consolidated balance sheet.
|
The amendment and restatement of the Facility Agreement was considered a debt modification pursuant to applicable accounting guidance. As such, fees paid to the creditors were capitalized on the Company's condensed consolidated balance sheet as deferred financing costs and fees paid to the Company's advisors and other third parties were expensed in the Company's statement of operations for the period ended June 30, 2017.
Thermo Loan Agreement
In connection with the amendment and restatement of the Facility Agreement in July 2013, the Company amended and restated its loan agreement with Thermo (the “Loan Agreement”). All obligations of the Company to Thermo under the Loan Agreement are subordinated to the Company’s obligations under the Facility Agreement.
The Loan Agreement accrues interest at
12%
per annum, which is capitalized and added to the outstanding principal in lieu of cash payments. The Company will make payments to Thermo only when permitted by the Facility Agreement. Principal and interest under the Loan Agreement become due and payable
six
months after the obligations under the Facility Agreement have been paid in full, or earlier if the Company has a change in control or if any acceleration of the maturity of the loans under the Facility Agreement occurs. As of
June 30, 2017
,
$56.3 million
of interest had accrued since 2009 with respect to the Loan Agreement; the Loan Agreement is included in long-term debt on the Company’s condensed consolidated balance sheets.
The Company evaluated the various embedded derivatives within the Loan Agreement (See
Note 5: Fair Value Measurements
for additional information about the embedded derivative in the Loan Agreement). The Company determined that the conversion option and the contingent put feature upon a fundamental change required bifurcation from the Loan Agreement. The conversion option and the contingent put feature were not deemed clearly and closely related to the Loan Agreement and were separately accounted for as a standalone derivative. The Company recorded this compound embedded derivative liability as a non-current liability on its condensed consolidated balance sheets with a corresponding debt discount, which is netted against the face value of the Loan Agreement.
The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the maturity of the Loan Agreement using an effective interest rate method. The fair value of the compound embedded derivative liability is marked-to-market at the end of each reporting period, with any changes in value reported in the condensed consolidated statements of operations. The Company determines the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices.
The amount by which the if-converted value of the Thermo Loan Agreement exceeds the principal amount at
June 30, 2017
, assuming conversion at the closing price of the Company's common stock on that date of
$2.13
per share, is approximately
$190.7 million
.
As discussed above, in connection with the 2017 GARA, Thermo and certain of its affiliates agreed to fund or backstop approximately
$33.0 million
in funding to the Company by June 30, 2017. The total amount was raised pursuant to the Common Stock Purchase Agreement entered into between the Company and Thermo on June 30, 2017. According to the terms of the Common Stock Purchase Agreement, Thermo purchased
17.8 million
shares of the Company's voting common stock for
$33.0 million
at a purchase price of
$1.85
, which represented a
10%
discount to the closing price of the Company's voting common stock on June 29, 2017. The terms of the Common Stock Purchase Agreement were approved by a special committee of independent directors of the Board of Directors, who were represented by independent legal counsel.
8.00% Convertible Senior Notes Issued in 2013
The
8.00%
Convertible Senior Notes Issued in 2013 (the "2013 8.00% Notes") are convertible into shares of common stock at a conversion price of
$0.73
(as adjusted) per share of common stock. The conversion price of the 2013
8.00%
Notes is adjusted in the event of certain stock splits or extraordinary share distributions, or as a reset of the base conversion and exercise price pursuant to the terms of the Fourth Supplemental Indenture between the Company and U.S. Bank National Association, as Trustee, dated May 20, 2013 (the "Indenture").
The 2013
8.00%
Notes are senior unsecured debt obligations of the Company with no sinking fund. The 2013
8.00%
Notes will mature on April 1, 2028, subject to various call and put features, and bear interest at a rate of
8.00%
per annum. Interest on the 2013
8.00%
Notes is payable semi-annually in arrears on April 1 and October 1 of each year. Interest is paid in cash at a rate of
5.75%
per annum and in additional notes at a rate of
2.25%
per annum. The Indenture for the 2013
8.00%
Notes provides for customary events of default. As of
June 30, 2017
, the Company was in compliance with respect to the terms of the 2013
8.00%
Notes and the Indenture.
Subject to certain conditions set forth in the Indenture, the Company may redeem the 2013
8.00%
Notes, with the prior approval of the majority lenders under the Facility Agreement, in whole or in part, at any time on or after April 1, 2018, at a price equal to the principal amount of the 2013
8.00%
Notes to be redeemed plus all accrued and unpaid interest thereon.
A holder of the 2013
8.00%
Notes has the right, at the holder’s option, to require the Company to purchase some or all of the 2013
8.00%
Notes held by it on each of April 1, 2018 and April 1, 2023 at a price equal to the principal amount of the 2013
8.00%
Notes to be purchased plus accrued and unpaid interest.
Subject to the procedures for conversion and other terms and conditions of the Indenture, a holder may convert its 2013
8.00%
Notes at its option at any time prior to the close of business on the business day immediately preceding
April 1, 2028
, into shares of common stock (or, at the option of the Company, cash in lieu of all or a portion thereof, provided that, under the Facility Agreement, the Company may pay cash only with the consent of the Majority Lenders).
As of
June 30, 2017
, holders had converted a total of
$39.4 million
principal amount of the 2013
8.00%
Notes, resulting in the issuance of approximately
72.1 million
shares of voting common stock. There were
no
conversions during the
three and six
-month periods ending
June 30, 2017
.
Holders who convert 2013 8.00% Notes receive conversion shares over a
40
-consecutive trading day settlement period. Accordingly, the portion of converted debt is extinguished on an incremental basis over the
40
-day settlement period, reducing the Company's outstanding debt balance. As of
June 30, 2017
, no conversions had been initiated but not yet fully settled.
The Company evaluated the various embedded derivatives within the Indenture for the 2013
8.00%
Notes. The Company determined that the conversion option and the contingent put feature within the Indenture required bifurcation from the 2013
8.00%
Notes. The Company did not deem the conversion option and the contingent put feature to be clearly and closely related to the 2013
8.00%
Notes and separately accounted for them as a standalone derivative. The Company recorded this compound embedded derivative liability as a non-current liability on its condensed consolidated balance sheets with a corresponding debt discount which is netted against the face value of the 2013
8.00%
Notes.
The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the first put date of the 2013
8.00%
Notes (April 1, 2018) using an effective interest rate method. The Company is marking to market the fair value of the compound embedded derivative liability at the end of each reporting period, with any changes in value reported in the condensed consolidated statements of operations. The Company determines the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices.
The amount by which the if-converted value of the 2013 8.00% Notes exceeded the principal amount at
June 30, 2017
, assuming conversion at the closing price of the Company's common stock on that date of
$2.13
per share, is approximately
$33.1 million
.
Warrants Outstanding
Pursuant to the terms of the Contingent Equity Agreement with Thermo (See Note 9: Related Party Transactions in the Consolidated Financial Statements in the 2016 Annual Report for a description of the Contingent Equity Agreement), the Company issued to Thermo
41.5 million
warrants at a strike price of
$0.01
to purchase shares of common stock pursuant to the annual availability fee and subsequent reset provisions in the Contingent Equity Agreement. These warrants were issued between June 2009 and June 2012 and have a
five
-year exercise period from issuance. In May 2017, Thermo exercised the remaining
24.6 million
of the total
41.5 million
warrants issued, resulting in the issuance of
24.6 million
shares of the Company's common stock. As of
June 30, 2017
,
no
warrants remain outstanding under this agreement.
Terrapin Opportunity, L.P. Common Stock Purchase Agreement
In August 2015, the Company entered into a common stock purchase agreement with Terrapin pursuant to which the Company could require Terrapin to purchase up to
$75.0 million
of shares of the Company’s voting common stock over the
24
-month term following the date of the agreement. Through the term of this agreement, Terrapin purchased a total of
67.3 million
shares of voting common stock for a total purchase price of
$75.0 million
. In January 2017, the Company drew
$12.0 million
and issued to Terrapin
8.9 million
shares of voting common stock. No funds remain available under this agreement.
4. DERIVATIVES
In connection with certain existing borrowing arrangements, the Company was required to record derivative instruments on its condensed consolidated balance sheets. None of these derivative instruments is designated as a hedge. The following table discloses the fair values of the derivative instruments on the Company’s condensed consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Derivative assets:
|
|
|
|
|
|
Interest rate cap
|
$
|
1
|
|
|
$
|
4
|
|
Total derivative assets
|
$
|
1
|
|
|
$
|
4
|
|
Derivative liabilities:
|
|
|
|
|
|
Compound embedded derivative with the 2013 8.00% Notes
|
$
|
(36,860
|
)
|
|
$
|
(26,664
|
)
|
Compound embedded derivative with the Thermo Loan Agreement
|
(318,215
|
)
|
|
(254,507
|
)
|
Total derivative liabilities
|
$
|
(355,075
|
)
|
|
$
|
(281,171
|
)
|
The following table discloses the changes in value recorded as derivative gain (loss) in the Company’s condensed consolidated statement of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2017
|
|
June 30, 2016
|
|
June 30, 2017
|
|
June 30, 2016
|
Interest rate cap
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
|
$
|
(5
|
)
|
Compound embedded derivative with the 2013 8.00% Notes
|
(11,354
|
)
|
|
5,335
|
|
|
(10,196
|
)
|
|
5,783
|
|
Compound embedded derivative with the Thermo Loan Agreement
|
(65,775
|
)
|
|
35,165
|
|
|
(63,708
|
)
|
|
33,377
|
|
Total derivative gain (loss)
|
$
|
(77,130
|
)
|
|
$
|
40,499
|
|
|
$
|
(73,907
|
)
|
|
$
|
39,155
|
|
Intangible and Other Assets
Interest Rate Cap
In June 2009, in connection with entering into the Facility Agreement, under which interest accrues at a variable rate, the Company entered into
five
ten
-year interest rate cap agreements. The interest rate cap agreements reflect a variable notional amount at interest rates that provide coverage to the Company for exposure resulting from escalating interest rates over the term of the Facility Agreement. The interest rate cap provides limits on the six-month Libor rate (“Base Rate”) used to calculate the coupon interest on outstanding amounts on the Facility Agreement and is capped at
5.50%
should the Base Rate not exceed
6.5%
. Should the Base Rate exceed
6.5%
, the Company’s Base Rate will be
1%
less than the then six-month Libor rate. The Company paid an approximately
$12.4 million
upfront fee for the interest rate cap agreements. The interest rate cap did not qualify for hedge accounting treatment, and changes in the fair value of the agreements are included in the condensed consolidated statements of operations.
Derivative Liabilities
The Company has identified various embedded derivatives resulting from certain features in the Company’s debt instruments, including the conversion option and the contingent put feature within both the 2013
8.00%
Notes and the Thermo Loan Agreement. These embedded derivatives required bifurcation from the debt host agreement and are recorded as a derivative liability on the Company’s condensed consolidated balance sheets with a corresponding debt discount netted against the principal amount of the related debt instrument. The Company accretes the debt discount associated with each derivative liability to interest expense over the term of the related debt instrument using an effective interest rate method. The fair value of each embedded derivative liability is marked-to-market at the end of each reporting period with any changes in value reported in its condensed consolidated statements of operations. The Company determined the fair value of its compound embedded derivative liabilities using a blend of a Monte Carlo simulation model and market prices. See
Note 5: Fair Value Measurements
for further discussion. As the first put date for the 2013
8.00%
Notes is on April 1, 2018, the Company has classified this derivative liability as current on its condensed consolidated balance sheet at June 30, 2017.
5. FAIR VALUE MEASUREMENTS
The Company follows the authoritative guidance for fair value measurements relating to financial and non-financial assets and liabilities, including presentation of required disclosures herein. This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2:
Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3:
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Recurring Fair Value Measurements
The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
Balance
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Total assets measured at fair value
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Compound embedded derivative with 2013 8.00% Notes
|
—
|
|
|
—
|
|
|
(36,860
|
)
|
|
(36,860
|
)
|
Compound embedded derivative with the Thermo Loan Agreement
|
—
|
|
|
—
|
|
|
(318,215
|
)
|
|
(318,215
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(355,075
|
)
|
|
$
|
(355,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
Balance
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Total assets measured at fair value
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Liability for potential stock issuance to Hughes
|
$
|
—
|
|
|
$
|
(2,706
|
)
|
|
$
|
—
|
|
|
$
|
(2,706
|
)
|
Liability for stock issuance due to legal settlement
|
—
|
|
|
(389
|
)
|
|
—
|
|
|
(389
|
)
|
Compound embedded derivative with 2013 8.00% Notes
|
—
|
|
|
—
|
|
|
(26,664
|
)
|
|
(26,664
|
)
|
Compound embedded derivative with the Thermo Loan Agreement
|
—
|
|
|
—
|
|
|
(254,507
|
)
|
|
(254,507
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
(3,095
|
)
|
|
$
|
(281,171
|
)
|
|
$
|
(284,266
|
)
|
Assets
Interest Rate Cap
The fair value of the interest rate cap is determined using observable pricing inputs including benchmark yields, reported trades, and broker/dealer quotes at the reporting date. See
Note 4: Derivatives
for further discussion.
Liabilities
Liability for potential stock issuance to Hughes
As described in
Note 6: Commitments and Contingencies
, the Company agreed to provide downside protection after the issuance of shares of common stock to Hughes in lieu of cash for contract payments in June 2015. This feature required the Company to issue to Hughes additional shares of common stock equal to the difference, if any, between the initial consideration of
$15.5 million
and the total amount of gross proceeds Hughes received from the sale of any shares plus the market value of any shares still held by Hughes as of the close of trading on June 30, 2017. In April 2017, Hughes sold all remaining shares of Globalstar common stock and the Company was not required to issue additional shares. Prior to settlement, this liability was recorded on the Company's condensed consolidated balance sheet in accrued expenses and was marked-to-market at each balance sheet date. The value of this option was calculated using a Black-Scholes pricing model. The Company recorded gains and losses resulting from changes in the value of this liability in its condensed consolidated statement of operations. As of June 30, 2017, this liability was no longer outstanding.
Liability for future stock issuance due to legal settlement
As described in
Note 6: Commitments and Contingencies
, the Company settled litigation related to its Brazilian subsidiary in October 2016 through the payment of Globalstar common stock. In connection with this settlement, the Company agreed to provide downside protection for the difference between the total settlement amount and the total amount of gross proceeds the counterparty receives from the sale of these shares. An estimate of
$0.4 million
for this liability was recorded in accrued expenses in the Company's condensed consolidated financial statements as of
December 31, 2016
. In March 2017, the Company settled this liability through the final payment of approximately
0.3 million
shares of Globalstar common stock.
Derivative Liabilities
The Company has
two
derivative liabilities classified as Level 3. The Company marks-to-market these liabilities at each reporting date with the changes in fair value recognized in the Company’s condensed consolidated statements of operations. See
Note 4: Derivatives
for further discussion.
The significant quantitative Level 3 inputs utilized in the valuation models are shown in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
Stock Price
Volatility
|
|
Risk-Free
Interest
Rate
|
|
Note
Conversion
Price
|
|
Discount Rate
|
|
Market Price of Common Stock
|
Compound embedded derivative with the 2013 8.00% Notes
|
90%
|
|
1.2
|
%
|
|
$
|
0.73
|
|
|
26
|
%
|
|
$
|
2.13
|
|
Compound embedded derivative with the Thermo Loan Agreement
|
40% - 85%
|
|
2.0
|
%
|
|
$
|
0.73
|
|
|
26
|
%
|
|
$
|
2.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Stock Price
Volatility
|
|
Risk-Free
Interest
Rate
|
|
Note
Conversion
Price
|
|
Discount Rate
|
|
Market Price of Common Stock
|
Compound embedded derivative with the 2013 8.00% Notes
|
100% - 110%
|
|
1.0
|
%
|
|
$
|
0.73
|
|
|
25
|
%
|
|
$
|
1.58
|
|
Compound embedded derivative with the Thermo Loan Agreement
|
40% - 110%
|
|
2.2
|
%
|
|
$
|
0.73
|
|
|
25
|
%
|
|
$
|
1.58
|
|
Fluctuation in the Company’s stock price is the primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases away from the current conversion price for each of the related derivative instruments, the value to the holder of the instrument generally increases, thereby increasing the liability on the Company’s condensed consolidated balance sheets. These valuations are sensitive to the weighting applied to each of the simulated values. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative
instruments. The simulated fair value of these liabilities is sensitive to changes in the expected volatility of the Company's stock price. Decreases in expected volatility would generally result in a lower fair value measurement.
Probability of a change of control is another significant unobservable input used in the fair value measurement of the Company’s derivative instruments. Subject to certain restrictions in each indenture, the Company’s debt instruments contain certain provisions whereby holders may require the Company to purchase all or any portion of the convertible debt instrument upon a change of control. A change of control will occur upon certain changes in the ownership of the Company or certain events relating to the trading of the Company’s common stock. The simulated fair value of the derivative liabilities above is sensitive to changes in the assumed probabilities of a change of control. Decreases in the assumed probability of a change of control would generally result in a lower fair value measurement.
In addition to the inputs described above, the valuation model used to calculate the fair value measurement of the compound embedded derivatives within the Company’s 2013
8.00%
Notes and Thermo Loan Agreement included the following inputs and features: discount rate, payment in kind interest payments, make whole premiums, a
40
-day stock issuance settlement period upon conversion, automatic conversions, estimated maturity date, and the principal balance of each loan at the balance sheet date. There are also certain put and call features within the 2013
8.00%
Notes that impact the valuation model. The trading activity in the market provides the Company with additional valuation support. The Company uses a weight factor to calculate the fair value of the embedded derivatives to align the fair value produced from the Monte Carlo simulation model with the market value of the 2013
8.00%
Notes. Due to the similarities of the debt instruments, the Company applies a similar weight to the embedded derivative in the Thermo Loan Agreement. These valuations are sensitive to the weighting applied to each of the simulated values.
The following table presents a rollforward for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
(277,946
|
)
|
|
$
|
(240,982
|
)
|
|
$
|
(281,171
|
)
|
|
$
|
(239,642
|
)
|
Unrealized gain (loss), included in derivative gain (loss)
|
(77,129
|
)
|
|
40,500
|
|
|
(73,904
|
)
|
|
39,160
|
|
Balance at end of period
|
$
|
(355,075
|
)
|
|
$
|
(200,482
|
)
|
|
$
|
(355,075
|
)
|
|
$
|
(200,482
|
)
|
Fair Value of Debt Instruments
The Company believes it is not practicable to determine the fair value of the Facility Agreement without incurring significant additional costs. Unlike typical long-term debt, interest rates and other terms for the Facility Agreement are not readily available and generally involve a variety of factors, including due diligence by the debt holders. The following table sets forth the carrying values and estimated fair values of the Company's other debt instruments, which are classified as Level 3 financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
Thermo Loan Agreement
|
$
|
71,741
|
|
|
$
|
51,045
|
|
|
$
|
64,347
|
|
|
$
|
47,874
|
|
2013 8.00% Notes
|
15,726
|
|
|
15,459
|
|
|
14,572
|
|
|
14,350
|
|
6. COMMITMENTS AND CONTINGENCIES
Contractual Obligations - Next-Generation Gateways and Other Ground Facilities
As of
June 30, 2017
, the Company had purchase commitments with Thales, Hughes and Ericsson related to the procurement, deployment and maintenance of the second-generation network. The Company is obligated to make payments under these purchase commitments totaling approximately
$1.1 million
during 2017, all of which are owed to Ericsson and were accrued on its condensed consolidated balance sheet in accrued expenses as of
June 30, 2017
.
Hughes designed, supplied and implemented the Radio Access Network ("RAN") ground network equipment and software upgrades for installation at a number of the Company’s gateways. Hughes also provided the satellite interface chips to be used in various second-generation Globalstar devices. Ericsson developed, implemented and installed the Company's ground interface, or core network system, at certain of the Company's gateways. The second-generation Ericsson core links the Hughes RANs to the public-switched telephone network (“PSTN”), cellular networks and Internet. In December 2016, the Company formally accepted all contract deliverables under the core contracts for both Hughes and Ericsson necessary to deploy its second-generation ground infrastructure. The Company intends to complete certain add-ons outside of the scope of the core contracts, which include certain punch list items with Ericsson and the installation of second-generation RANs at certain additional gateways.
In April 2015, Hughes exercised an option to be paid in shares of the Company's common stock (at a price
7%
below market) in lieu of cash for certain of its remaining contract payments, totaling approximately
$15.5 million
. In June 2015, the Company issued
7.4 million
shares of freely tradable common stock at the
7%
discount pursuant to this option. In the April 2015 agreement (as amended), the Company agreed to provide downside protection through June 30, 2017. This feature required that the Company issue additional shares of common stock equal to the difference, if any, between the initial consideration of
$15.5 million
and the total amount of gross proceeds Hughes received from the sale of any shares plus the market value of any shares still held by Hughes as of the close of trading on June 30, 2017. In April 2017, Hughes sold all remaining shares of Globalstar common stock. The Company was not required to issue additional shares. See
Note 5: Fair Value Measurements
for further discussion of the fair value of this liability.
Arbitration
On June 3, 2011, Globalstar filed a demand for arbitration against Thales before the American Arbitration Association to enforce certain rights to order additional satellites under the 2009 Contract. The Company did not include within its demand any claims that it had against Thales for work previously performed under the contract to design, manufacture and timely deliver the first
25
second-generation satellites. On May 10, 2012, the arbitration tribunal issued its award in which it determined that the Company had terminated the 2009 Contract "for convenience" and had materially breached the contract by failing to pay to Thales the
€51.3 million
in termination charges required under the contract. The tribunal additionally determined that absent further agreement between the parties, Thales had no further obligation to manufacture or deliver satellites under Phase 3 of the 2009 Contract. Based on these determinations, the tribunal directed the Company to pay Thales approximately
€53 million
in termination charges, plus interest by June 9, 2012. On May 23, 2012, Thales commenced an action in the United States District Court for the Southern District of New York by filing a petition to confirm the arbitration award (the “New York Proceeding”). Thales and the Company entered into a tolling agreement as of June 13, 2013, under which Thales dismissed the New York Proceeding without prejudice. The tolling agreement has expired. Thales may refile the petition at a later date and pursue the confirmation of the arbitration award, which the Company would oppose. Should Thales be successful in confirming the arbitration award, this would have a material adverse effect on the Company's financial condition, results of operations and liquidity.
On June 24, 2012, the Company and Thales agreed to settle their prior commercial disputes, including those disputes that were the subject of the arbitration award. In order to effectuate this settlement, the Company and Thales entered into a Release Agreement, a Settlement Agreement and a Submission Agreement. Under the terms of the Release Agreement, Thales agreed unconditionally and irrevocably to release and forever discharge the Company from any and all claims and obligations (with the exception of those items payable under the Settlement Agreement or in connection with a new contract for the purchase of any additional second-generation satellites), including, without limitation, a full release from paying
€35.6 million
of the termination charges awarded in the arbitration together with all interest on the award amount effective upon the earlier of December 31, 2012, and the effective date of the financing for the purchase of any additional second-generation satellites. Under the terms of the Release Agreement, the Company agreed unconditionally and irrevocably to release and forever discharge Thales from any and all claims (with limited exceptions), including, without limitation, claims related to Thales’ work under the 2009 satellite construction contract, including any obligation to pay liquidated damages, effective upon the earlier of December 31, 2012, and the effective date of the financing for the purchase of any additional second-generation satellites. In connection with the Release Agreement and the Settlement Agreement, the Company recorded a contract termination charge of approximately
€17.5 million
which is recorded in the
Company’s condensed consolidated balance sheets as of
June 30, 2017
and
December 31, 2016
. The releases became effective on December 31, 2012.
Under the terms of the Settlement Agreement, the Company agreed to pay
€17.5 million
to Thales, representing one-third of the termination charges awarded to Thales in the arbitration, subject to certain conditions, on the later of the effective date of the new contract for the purchase of any additional second-generation satellites and the effective date of the financing for the purchase of these satellites. As of
June 30, 2017
, this condition had not been satisfied. Because the effective date of the new contract for the purchase of additional second-generation satellites did not occur on or prior to February 28, 2013, any party may terminate the Settlement Agreement. If any party terminates the Settlement Agreement, all parties’ rights and obligations under the Settlement Agreement shall terminate. The Release Agreement is a separate and independent agreement from the Settlement Agreement and provides that it supersedes all prior understandings, commitments and representations between the parties with respect to the subject matter thereof; therefore it would survive any termination of the Settlement Agreement. As of
June 30, 2017
, no party had terminated the Settlement Agreement.
Litigation
Due to the nature of the Company's business, the Company is involved, from time to time, in various litigation matters or subject to disputes or routine claims regarding its business activities. Legal costs related to these matters are expensed as incurred. In 2016, the Company settled litigation incurred on behalf of the Company's Brazilian subsidiary. The Company paid the total settlement of
4.5 million
reais, or
$1.4 million
, by issuing approximately
1.3 million
shares of Globalstar common stock in October 2016. The Company agreed to provide downside protection for the difference between the total settlement amount of
4.5 million
reais and the total gross proceeds received by the third party upon sale of these shares. In March 2017, the Company paid
0.3 million
shares of Globalstar common stock related to this downside protection, valued at
1.4 million
reais, or
$0.5 million
.
In management's opinion, there is no pending litigation, dispute or claim, other than those described in this report, which could be expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.
7. RELATED PARTY TRANSACTIONS
Payables to Thermo and other affiliates related to normal purchase transactions were
$0.3 million
as of
June 30, 2017
and
December 31, 2016
, respectively.
Transactions with Thermo
General and administrative expenses are related to non-cash expenses and those expenses incurred by Thermo on behalf of the Company which are charged to the Company. Non-cash expenses, which the Company accounts for as a contribution to capital, relate to services provided by two executive officers of Thermo (who are also directors of the Company) and receive no cash compensation from the Company. The Thermo expense charges are based on actual amounts (with no mark-up) incurred or upon allocated employee time. Those expenses charged to the Company were
$0.2 million
during the three months ended
June 30, 2017
and
2016
and
$0.4 million
and
$0.3 million
for the
six
months ended
June 30, 2017
and
2016
, respectively.
As of
June 30, 2017
, the principal amount outstanding under the Loan Agreement with Thermo was
$99.8 million
, and the fair value of the compound embedded derivative liability associated with the Loan Agreement was
$318.2 million
. During the three months ended
June 30, 2017
and
2016
, interest accrued on the Loan Agreement was approximately
$3.0 million
and
$2.6 million
, respectively. During the
six
months ended
June 30, 2017
and
2016
, interest accrued on the Loan Agreement was approximately and
$5.8 million
and
$5.2 million
, respectively.
In May 2017, Thermo exercised all remaining warrants to purchase approximately
24.6 million
shares issued under the Contingent Equity Agreement for a purchase price of
$0.2 million
.
In June 2017, the Company and Thermo entered into a Common Stock Purchase Agreement in connection with the amendment and restatement of the Company's Facility Agreement.
The Facility Agreement requires Thermo to maintain minimum and maximum ownership levels in the Company's common stock. Thermo may convert shares of nonvoting common stock into shares of voting common stock as needed to comply with these ownership limitations.
In 2013, the Company's Board of Directors formed a special committee consisting solely of independent directors of the Company, represented by independent legal counsel. This special committee serves as an independent board to review and approve certain transactions between the Company and Thermo.
See
Note 3: Long-Term Debt and Other Financing Arrangements
for further discussion of the Company's debt and financing transactions with Thermo.
8. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed based on the weighted average number of shares of common stock outstanding during the period. Common stock equivalents are included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive.
The following table sets forth the calculation of basic and diluted earnings (loss) per share for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income (loss)
|
$
|
(98,734
|
)
|
|
$
|
14,099
|
|
|
$
|
(118,895
|
)
|
|
$
|
(12,848
|
)
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
2013 8.00% Notes
|
—
|
|
|
537
|
|
|
—
|
|
|
—
|
|
Thermo Loan Agreement
|
—
|
|
|
2,401
|
|
|
—
|
|
|
—
|
|
Income (loss) to common stockholders plus assumed conversions
|
$
|
(98,734
|
)
|
|
$
|
17,037
|
|
|
$
|
(118,895
|
)
|
|
$
|
(12,848
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
Basic shares outstanding
|
1,128,985
|
|
|
1,049,381
|
|
|
1,121,518
|
|
|
1,045,205
|
|
Incremental shares from assumed exercises, conversions and other issuances:
|
|
|
|
|
|
|
|
Stock options, restricted stock, restricted stock units and ESPP
|
—
|
|
|
5,793
|
|
|
—
|
|
|
—
|
|
2013 8.00% Notes
|
—
|
|
|
27,164
|
|
|
—
|
|
|
—
|
|
Thermo Loan Agreement
|
—
|
|
|
139,709
|
|
|
—
|
|
|
—
|
|
Warrants and other
|
—
|
|
|
27,625
|
|
|
—
|
|
|
—
|
|
Diluted shares outstanding
|
1,128,985
|
|
|
1,249,672
|
|
|
1,121,518
|
|
|
1,045,205
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.09
|
)
|
|
$
|
0.01
|
|
|
(0.11
|
)
|
|
(0.01
|
)
|
Diluted
|
(0.09
|
)
|
|
0.01
|
|
|
(0.11
|
)
|
|
(0.01
|
)
|
For the
six
months ended
June 30, 2017
and
2016
,
191.6 million
and
197.0 million
shares, respectively, of potential common stock were excluded from diluted shares outstanding because the effects of assuming issuance of these potentially dilutive securities would be anti-dilutive. For the three months ended
June 30, 2017
, the number of shares excluded from diluted shares outstanding was
190.5 million
.
9. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In connection with the Company’s issuance of the 2013
8.00%
Notes, certain of the Company’s
100%
owned domestic subsidiaries (the “Guarantor Subsidiaries”), fully, unconditionally, jointly, and severally guaranteed the payment obligations under the 2013
8.00%
Notes. The following financial information sets forth, on a consolidating basis, the balance sheets, statements of operations and statements of cash flows for Globalstar, Inc. (the “Parent Company”), for the Guarantor Subsidiaries and for the Parent Company’s other subsidiaries (the “Non-Guarantor Subsidiaries”).
The condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include disclosures included in annual financial statements. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses.
Globalstar, Inc.
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2017
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
18,685
|
|
|
$
|
9,846
|
|
|
$
|
13,096
|
|
|
$
|
(17,326
|
)
|
|
$
|
24,301
|
|
Subscriber equipment sales
|
60
|
|
|
3,702
|
|
|
1,491
|
|
|
(1,431
|
)
|
|
3,822
|
|
Total revenue
|
18,745
|
|
|
13,548
|
|
|
14,587
|
|
|
(18,757
|
)
|
|
28,123
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)
|
6,415
|
|
|
1,403
|
|
|
1,974
|
|
|
(756
|
)
|
|
9,036
|
|
Cost of subscriber equipment sales
|
32
|
|
|
3,106
|
|
|
1,525
|
|
|
(1,885
|
)
|
|
2,778
|
|
Marketing, general and administrative
|
5,312
|
|
|
997
|
|
|
19,357
|
|
|
(16,122
|
)
|
|
9,544
|
|
Depreciation, amortization and accretion
|
19,101
|
|
|
120
|
|
|
54
|
|
|
—
|
|
|
19,275
|
|
Total operating expenses
|
30,860
|
|
|
5,626
|
|
|
22,910
|
|
|
(18,763
|
)
|
|
40,633
|
|
Income (loss) from operations
|
(12,115
|
)
|
|
7,922
|
|
|
(8,323
|
)
|
|
6
|
|
|
(12,510
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on equity issuance
|
1,964
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,964
|
|
Interest income and expense, net of amounts capitalized
|
(8,829
|
)
|
|
7
|
|
|
(32
|
)
|
|
4
|
|
|
(8,850
|
)
|
Derivative loss
|
(77,130
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(77,130
|
)
|
Equity in subsidiary earnings (loss)
|
(1,282
|
)
|
|
(4,076
|
)
|
|
—
|
|
|
5,358
|
|
|
—
|
|
Other
|
(1,342
|
)
|
|
(337
|
)
|
|
(418
|
)
|
|
(5
|
)
|
|
(2,102
|
)
|
Total other income (expense)
|
(86,619
|
)
|
|
(4,406
|
)
|
|
(450
|
)
|
|
5,357
|
|
|
(86,118
|
)
|
Income (loss) before income taxes
|
(98,734
|
)
|
|
3,516
|
|
|
(8,773
|
)
|
|
5,363
|
|
|
(98,628
|
)
|
Income tax expense
|
—
|
|
|
4
|
|
|
102
|
|
|
—
|
|
|
106
|
|
Net income (loss)
|
$
|
(98,734
|
)
|
|
$
|
3,512
|
|
|
$
|
(8,875
|
)
|
|
$
|
5,363
|
|
|
$
|
(98,734
|
)
|
Comprehensive income (loss)
|
$
|
(98,734
|
)
|
|
$
|
3,512
|
|
|
$
|
(8,911
|
)
|
|
$
|
5,354
|
|
|
$
|
(98,779
|
)
|
Globalstar, Inc.
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
10,944
|
|
|
$
|
10,863
|
|
|
$
|
10,689
|
|
|
$
|
(11,526
|
)
|
|
$
|
20,970
|
|
Subscriber equipment sales
|
96
|
|
|
2,774
|
|
|
1,997
|
|
|
(751
|
)
|
|
4,116
|
|
Total revenue
|
11,040
|
|
|
13,637
|
|
|
12,686
|
|
|
(12,277
|
)
|
|
25,086
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)
|
5,135
|
|
|
1,034
|
|
|
2,702
|
|
|
(934
|
)
|
|
7,937
|
|
Cost of subscriber equipment sales
|
43
|
|
|
2,112
|
|
|
1,478
|
|
|
(747
|
)
|
|
2,886
|
|
Marketing, general and administrative
|
5,430
|
|
|
1,322
|
|
|
16,219
|
|
|
(11,521
|
)
|
|
11,450
|
|
Depreciation, amortization and accretion
|
18,851
|
|
|
206
|
|
|
288
|
|
|
(121
|
)
|
|
19,224
|
|
Total operating expenses
|
29,459
|
|
|
4,674
|
|
|
20,687
|
|
|
(13,323
|
)
|
|
41,497
|
|
Income (loss) from operations
|
(18,419
|
)
|
|
8,963
|
|
|
(8,001
|
)
|
|
1,046
|
|
|
(16,411
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on equity issuance
|
(2,075
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,075
|
)
|
Interest income and expense, net of amounts capitalized
|
(9,000
|
)
|
|
(3
|
)
|
|
(47
|
)
|
|
1
|
|
|
(9,049
|
)
|
Derivative gain
|
40,499
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40,499
|
|
Equity in subsidiary earnings (loss)
|
2,924
|
|
|
(968
|
)
|
|
—
|
|
|
(1,956
|
)
|
|
—
|
|
Other
|
170
|
|
|
92
|
|
|
328
|
|
|
95
|
|
|
685
|
|
Total other income (expense)
|
32,518
|
|
|
(879
|
)
|
|
281
|
|
|
(1,860
|
)
|
|
30,060
|
|
Income (loss) before income taxes
|
14,099
|
|
|
8,084
|
|
|
(7,720
|
)
|
|
(814
|
)
|
|
13,649
|
|
Income tax benefit
|
—
|
|
|
—
|
|
|
(450
|
)
|
|
—
|
|
|
(450
|
)
|
Net income (loss)
|
$
|
14,099
|
|
|
$
|
8,084
|
|
|
$
|
(7,270
|
)
|
|
$
|
(814
|
)
|
|
$
|
14,099
|
|
Comprehensive income (loss)
|
$
|
14,099
|
|
|
$
|
8,084
|
|
|
$
|
(8,195
|
)
|
|
$
|
(814
|
)
|
|
$
|
13,174
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2017
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
36,297
|
|
|
$
|
19,202
|
|
|
$
|
24,097
|
|
|
$
|
(33,814
|
)
|
|
$
|
45,782
|
|
Subscriber equipment sales
|
127
|
|
|
5,993
|
|
|
2,841
|
|
|
(1,968
|
)
|
|
6,993
|
|
Total revenue
|
36,424
|
|
|
25,195
|
|
|
26,938
|
|
|
(35,782
|
)
|
|
52,775
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)
|
12,543
|
|
|
2,828
|
|
|
5,147
|
|
|
(2,508
|
)
|
|
18,010
|
|
Cost of subscriber equipment sales
|
66
|
|
|
4,823
|
|
|
1,952
|
|
|
(1,967
|
)
|
|
4,874
|
|
Marketing, general and administrative
|
10,971
|
|
|
2,116
|
|
|
37,265
|
|
|
(31,318
|
)
|
|
19,034
|
|
Depreciation, amortization and accretion
|
38,052
|
|
|
402
|
|
|
115
|
|
|
—
|
|
|
38,569
|
|
Total operating expenses
|
61,632
|
|
|
10,169
|
|
|
44,479
|
|
|
(35,793
|
)
|
|
80,487
|
|
Income (loss) from operations
|
(25,208
|
)
|
|
15,026
|
|
|
(17,541
|
)
|
|
11
|
|
|
(27,712
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on equity issuance
|
2,706
|
|
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
2,670
|
|
Interest income and expense, net of amounts capitalized
|
(17,584
|
)
|
|
(1
|
)
|
|
(101
|
)
|
|
8
|
|
|
(17,678
|
)
|
Derivative loss
|
(73,907
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(73,907
|
)
|
Equity in subsidiary earnings (loss)
|
(3,215
|
)
|
|
(7,510
|
)
|
|
—
|
|
|
10,725
|
|
|
—
|
|
Other
|
(1,687
|
)
|
|
(437
|
)
|
|
5
|
|
|
(7
|
)
|
|
(2,126
|
)
|
Total other income (expense)
|
(93,687
|
)
|
|
(7,948
|
)
|
|
(132
|
)
|
|
10,726
|
|
|
(91,041
|
)
|
Income (loss) before income taxes
|
(118,895
|
)
|
|
7,078
|
|
|
(17,673
|
)
|
|
10,737
|
|
|
(118,753
|
)
|
Income tax expense
|
—
|
|
|
9
|
|
|
133
|
|
|
—
|
|
|
142
|
|
Net income (loss)
|
$
|
(118,895
|
)
|
|
$
|
7,069
|
|
|
$
|
(17,806
|
)
|
|
$
|
10,737
|
|
|
$
|
(118,895
|
)
|
Comprehensive income (loss)
|
$
|
(118,895
|
)
|
|
$
|
7,069
|
|
|
$
|
(18,662
|
)
|
|
$
|
10,728
|
|
|
$
|
(119,760
|
)
|
Globalstar, Inc.
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
27,882
|
|
|
$
|
18,358
|
|
|
$
|
20,114
|
|
|
$
|
(26,635
|
)
|
|
$
|
39,719
|
|
Subscriber equipment sales
|
424
|
|
|
4,466
|
|
|
3,674
|
|
|
(1,361
|
)
|
|
7,203
|
|
Total revenue
|
28,306
|
|
|
22,824
|
|
|
23,788
|
|
|
(27,996
|
)
|
|
46,922
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)
|
9,948
|
|
|
2,070
|
|
|
5,597
|
|
|
(2,087
|
)
|
|
15,528
|
|
Cost of subscriber equipment sales
|
187
|
|
|
3,540
|
|
|
2,693
|
|
|
(1,356
|
)
|
|
5,064
|
|
Marketing, general and administrative
|
10,604
|
|
|
1,854
|
|
|
33,064
|
|
|
(25,462
|
)
|
|
20,060
|
|
Depreciation, amortization and accretion
|
37,623
|
|
|
426
|
|
|
569
|
|
|
(239
|
)
|
|
38,379
|
|
Total operating expenses
|
58,362
|
|
|
7,890
|
|
|
41,923
|
|
|
(29,144
|
)
|
|
79,031
|
|
Income (loss) from operations
|
(30,056
|
)
|
|
14,934
|
|
|
(18,135
|
)
|
|
1,148
|
|
|
(32,109
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on equity issuance
|
(1,923
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,923
|
)
|
Interest income and expense, net of amounts capitalized
|
(17,981
|
)
|
|
(12
|
)
|
|
(152
|
)
|
|
(9
|
)
|
|
(18,154
|
)
|
Derivative gain
|
39,155
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,155
|
|
Equity in subsidiary earnings (loss)
|
(1,427
|
)
|
|
2,079
|
|
|
—
|
|
|
(652
|
)
|
|
—
|
|
Other
|
(616
|
)
|
|
(112
|
)
|
|
604
|
|
|
48
|
|
|
(76
|
)
|
Total other income (expense)
|
17,208
|
|
|
1,955
|
|
|
452
|
|
|
(613
|
)
|
|
19,002
|
|
Income (loss) before income taxes
|
(12,848
|
)
|
|
16,889
|
|
|
(17,683
|
)
|
|
535
|
|
|
(13,107
|
)
|
Income tax benefit
|
—
|
|
|
—
|
|
|
(259
|
)
|
|
—
|
|
|
(259
|
)
|
Net income (loss)
|
$
|
(12,848
|
)
|
|
$
|
16,889
|
|
|
$
|
(17,424
|
)
|
|
$
|
535
|
|
|
$
|
(12,848
|
)
|
Comprehensive income (loss)
|
$
|
(12,848
|
)
|
|
$
|
16,889
|
|
|
$
|
(19,000
|
)
|
|
$
|
535
|
|
|
$
|
(14,424
|
)
|
Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of
June 30, 2017
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
4,538
|
|
|
$
|
1,975
|
|
|
$
|
2,325
|
|
|
$
|
—
|
|
|
$
|
8,838
|
|
Accounts receivable
|
5,806
|
|
|
6,135
|
|
|
3,428
|
|
|
—
|
|
|
15,369
|
|
Intercompany receivables
|
938,139
|
|
|
717,066
|
|
|
46,098
|
|
|
(1,701,303
|
)
|
|
—
|
|
Inventory
|
2,208
|
|
|
4,621
|
|
|
1,985
|
|
|
—
|
|
|
8,814
|
|
Prepaid expenses and other current assets
|
1,738
|
|
|
1,830
|
|
|
1,621
|
|
|
—
|
|
|
5,189
|
|
Total current assets
|
952,429
|
|
|
731,627
|
|
|
55,457
|
|
|
(1,701,303
|
)
|
|
38,210
|
|
Property and equipment, net
|
1,005,671
|
|
|
3,751
|
|
|
4,371
|
|
|
5
|
|
|
1,013,798
|
|
Restricted cash
|
37,915
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,915
|
|
Intercompany notes receivable
|
7,447
|
|
|
—
|
|
|
6,436
|
|
|
(13,883
|
)
|
|
—
|
|
Investment in subsidiaries
|
(282,248
|
)
|
|
78,753
|
|
|
37,502
|
|
|
165,993
|
|
|
—
|
|
Intangible and other assets, net
|
17,321
|
|
|
87
|
|
|
2,650
|
|
|
(12
|
)
|
|
20,046
|
|
Total assets
|
$
|
1,738,535
|
|
|
$
|
814,218
|
|
|
$
|
106,416
|
|
|
$
|
(1,549,200
|
)
|
|
$
|
1,109,969
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
108,720
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
108,720
|
|
Accounts payable
|
2,925
|
|
|
3,487
|
|
|
1,212
|
|
|
—
|
|
|
7,624
|
|
Accrued contract termination charge
|
20,026
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,026
|
|
Accrued expenses
|
7,713
|
|
|
6,097
|
|
|
6,854
|
|
|
—
|
|
|
20,664
|
|
Derivative Liabilities
|
36,860
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36,860
|
|
Intercompany payables
|
673,426
|
|
|
773,216
|
|
|
254,622
|
|
|
(1,701,264
|
)
|
|
—
|
|
Payables to affiliates
|
304
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
304
|
|
Deferred revenue
|
1,130
|
|
|
21,247
|
|
|
7,099
|
|
|
—
|
|
|
29,476
|
|
Total current liabilities
|
851,104
|
|
|
804,047
|
|
|
269,787
|
|
|
(1,701,264
|
)
|
|
223,674
|
|
Long-term debt, less current portion
|
459,966
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
459,966
|
|
Employee benefit obligations
|
4,944
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,944
|
|
Intercompany notes payable
|
6,436
|
|
|
—
|
|
|
7,447
|
|
|
(13,883
|
)
|
|
—
|
|
Derivative liabilities
|
318,215
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
318,215
|
|
Deferred revenue
|
5,468
|
|
|
384
|
|
|
14
|
|
|
—
|
|
|
5,866
|
|
Other non-current liabilities
|
928
|
|
|
325
|
|
|
4,577
|
|
|
—
|
|
|
5,830
|
|
Total non-current liabilities
|
795,957
|
|
|
709
|
|
|
12,038
|
|
|
(13,883
|
)
|
|
794,821
|
|
Stockholders’ equity (deficit)
|
91,474
|
|
|
9,462
|
|
|
(175,409
|
)
|
|
165,947
|
|
|
91,474
|
|
Total liabilities and stockholders’ equity
|
$
|
1,738,535
|
|
|
$
|
814,218
|
|
|
$
|
106,416
|
|
|
$
|
(1,549,200
|
)
|
|
$
|
1,109,969
|
|
Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of
December 31, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
7,259
|
|
|
$
|
1,327
|
|
|
$
|
1,644
|
|
|
$
|
—
|
|
|
$
|
10,230
|
|
Accounts receivable
|
5,938
|
|
|
6,340
|
|
|
2,941
|
|
|
—
|
|
|
15,219
|
|
Intercompany receivables
|
897,691
|
|
|
678,707
|
|
|
32,040
|
|
|
(1,608,438
|
)
|
|
—
|
|
Inventory
|
2,266
|
|
|
4,354
|
|
|
1,473
|
|
|
—
|
|
|
8,093
|
|
Prepaid expenses and other current assets
|
1,570
|
|
|
955
|
|
|
2,063
|
|
|
—
|
|
|
4,588
|
|
Total current assets
|
914,724
|
|
|
691,683
|
|
|
40,161
|
|
|
(1,608,438
|
)
|
|
38,130
|
|
Property and equipment, net
|
1,031,623
|
|
|
3,708
|
|
|
4,384
|
|
|
4
|
|
|
1,039,719
|
|
Restricted cash
|
37,983
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,983
|
|
Intercompany notes receivable
|
8,901
|
|
|
—
|
|
|
6,436
|
|
|
(15,337
|
)
|
|
—
|
|
Investment in subsidiaries
|
(280,557
|
)
|
|
73,029
|
|
|
36,146
|
|
|
171,382
|
|
|
—
|
|
Intangible and other assets, net
|
15,259
|
|
|
128
|
|
|
1,407
|
|
|
(12
|
)
|
|
16,782
|
|
Total assets
|
$
|
1,727,933
|
|
|
$
|
768,548
|
|
|
$
|
88,534
|
|
|
$
|
(1,452,401
|
)
|
|
$
|
1,132,614
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
75,755
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
75,755
|
|
Debt restructuring fees
|
20,795
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,795
|
|
Accounts payable
|
2,624
|
|
|
3,490
|
|
|
1,385
|
|
|
—
|
|
|
7,499
|
|
Accrued contract termination charge
|
18,451
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,451
|
|
Accrued expenses
|
10,573
|
|
|
5,884
|
|
|
6,705
|
|
|
—
|
|
|
23,162
|
|
Intercompany payables
|
636,336
|
|
|
750,084
|
|
|
221,980
|
|
|
(1,608,400
|
)
|
|
—
|
|
Payables to affiliates
|
309
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
309
|
|
Deferred revenue
|
1,576
|
|
|
19,304
|
|
|
5,599
|
|
|
—
|
|
|
26,479
|
|
Total current liabilities
|
766,419
|
|
|
778,762
|
|
|
235,669
|
|
|
(1,608,400
|
)
|
|
172,450
|
|
Long-term debt, less current portion
|
500,524
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500,524
|
|
Employee benefit obligations
|
4,883
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,883
|
|
Intercompany notes payable
|
6,435
|
|
|
—
|
|
|
8,901
|
|
|
(15,336
|
)
|
|
—
|
|
Derivative liabilities
|
281,171
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
281,171
|
|
Deferred revenue
|
5,567
|
|
|
299
|
|
|
11
|
|
|
—
|
|
|
5,877
|
|
Other non-current liabilities
|
1,115
|
|
|
325
|
|
|
4,450
|
|
|
—
|
|
|
5,890
|
|
Total non-current liabilities
|
799,695
|
|
|
624
|
|
|
13,362
|
|
|
(15,336
|
)
|
|
798,345
|
|
Stockholders’ equity (deficit)
|
161,819
|
|
|
(10,838
|
)
|
|
(160,497
|
)
|
|
171,335
|
|
|
161,819
|
|
Total liabilities and stockholders’ equity
|
$
|
1,727,933
|
|
|
$
|
768,548
|
|
|
$
|
88,534
|
|
|
$
|
(1,452,401
|
)
|
|
$
|
1,132,614
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2017
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Cash flows provided by operating activities
|
$
|
4,008
|
|
|
$
|
1,068
|
|
|
$
|
1,180
|
|
|
$
|
—
|
|
|
$
|
6,256
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-generation network costs (including interest)
|
(6,498
|
)
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
|
(6,530
|
)
|
Property and equipment additions
|
(1,637
|
)
|
|
(420
|
)
|
|
(59
|
)
|
|
—
|
|
|
(2,116
|
)
|
Purchase of intangible assets
|
(1,552
|
)
|
|
—
|
|
|
(492
|
)
|
|
—
|
|
|
(2,044
|
)
|
Net cash used in investing activities
|
(9,687
|
)
|
|
(420
|
)
|
|
(583
|
)
|
|
—
|
|
|
(10,690
|
)
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of the Facility Agreement
|
(21,695
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,695
|
)
|
Proceeds from Thermo Common Stock Purchase Agreement
|
33,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,000
|
|
Payment of debt restructuring fee
|
(20,795
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,795
|
)
|
Payment of debt amendment fee
|
(255
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(255
|
)
|
Proceeds from issuance of stock to Terrapin
|
12,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,000
|
|
Proceeds from issuance of common stock and exercise of options and warrants
|
635
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
635
|
|
Net cash provided by financing activities
|
2,890
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,890
|
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
84
|
|
|
—
|
|
|
84
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(2,789
|
)
|
|
648
|
|
|
681
|
|
|
—
|
|
|
(1,460
|
)
|
Cash, cash equivalents and restricted cash, beginning of period
|
45,242
|
|
|
1,327
|
|
|
1,644
|
|
|
—
|
|
|
48,213
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
42,453
|
|
|
$
|
1,975
|
|
|
$
|
2,325
|
|
|
$
|
—
|
|
|
$
|
46,753
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Cash flows provided by (used in) operating activities
|
$
|
916
|
|
|
$
|
255
|
|
|
$
|
(170
|
)
|
|
$
|
—
|
|
|
$
|
1,001
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-generation network costs (including interest)
|
(5,161
|
)
|
|
—
|
|
|
(146
|
)
|
|
—
|
|
|
(5,307
|
)
|
Property and equipment additions
|
(5,937
|
)
|
|
(167
|
)
|
|
(241
|
)
|
|
—
|
|
|
(6,345
|
)
|
Purchase of intangible assets
|
(806
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(806
|
)
|
Net cash used in investing activities
|
(11,904
|
)
|
|
(167
|
)
|
|
(387
|
)
|
|
—
|
|
|
(12,458
|
)
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of the Facility Agreement
|
(16,418
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,418
|
)
|
Proceeds from issuance of stock to Terrapin
|
28,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,500
|
|
Proceeds from issuance of common stock and exercise of options and warrants
|
3,016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,016
|
|
Net cash provided by financing activities
|
15,098
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,098
|
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
152
|
|
|
—
|
|
|
152
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
4,110
|
|
|
88
|
|
|
(405
|
)
|
|
—
|
|
|
3,793
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
41,448
|
|
|
719
|
|
|
3,227
|
|
|
—
|
|
|
45,394
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
45,558
|
|
|
$
|
807
|
|
|
$
|
2,822
|
|
|
$
|
—
|
|
|
$
|
49,187
|
|