NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Globalstar, Inc. (“Globalstar” or the “Company”) provides Mobile Satellite Services (“MSS”) including voice and data communications services through its global satellite network. The Company’s only reportable segment is its MSS business. Thermo Companies, through commonly controlled affiliates, (collectively, “Thermo”) is the principal owner and largest stockholder of Globalstar. The Company's Executive Chairman of the Board 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’s satellite communications business, by providing critical mobile communications to subscribers, serves principally the following markets: recreation and personal; government; public safety and disaster relief; oil and gas; maritime and fishing; natural resources, mining and forestry; construction; utilities; and transportation.
Globalstar currently provides the following communications services:
•two-way voice communication and data transmissions using mobile or fixed devices, including the GSP-1700 phone, two generations of the Sat-Fi ® and other fixed and data-only devices ("Duplex");
•one-way or two-way communication and data transmissions using mobile devices, including the SPOT family of products, such as SPOT X ®, SPOT Gen4TM and SPOT Trace®, that transmit messages and the location of the device ("SPOT");
•one-way data transmissions using a mobile or fixed device that transmits its location and other information to a central monitoring station, including commercial IoT products, such as the battery- and solar-powered SmartOne, STX-3 and ST100 ("Commercial IoT"); and
•engineering services to assist certain customers in developing new applications to operate on the Company's network, enhancements to the Company's ground network and other communication services using the Company's MSS and terrestrial spectrum licenses ("Engineering and Other").
Globalstar provides Duplex, SPOT and Commercial IoT products and services to customers directly and through a variety of independent agents, dealers, resellers and independent gateway operators (“IGOs”).
COVID-19 Risks and Uncertainties
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) a global pandemic. The impact caused by COVID-19 for the period ended December 31, 2020 and through the release date of these consolidated financial statements included, among other effects, the accommodation of certain pricing concessions requested by customers and experienced lower demand for its products and services, particularly from its customers that operate in the oil and gas market. While the full extent and duration of the impact is unknown, the Company expects a continuation of this lower demand at least until this industry fully recovers. While the Company also initially experienced a reduction in demand from its customers that operate in the retail industry, this demand has recovered, due in part to the re-opening of most retailer store locations. Additionally, the Company began and expects to continue to operate with a remote workforce, manage a supply chain sourcing predominantly from China, and engage with international regulators remotely to advance the terrestrial spectrum authorization process. There are a number of uncertainties that could impact the Company's future results of operations, including the effectiveness of COVID-19 mitigation measures; the duration of the pandemic; global economic conditions; changes to the Company's operations; changes in consumer confidence, behaviors and spending; work from home trends; and the sustainability of supply chains.
In accordance with the Company's accounting policies disclosed in this Report, the Company reviews the carrying value of long-lived assets, amortizable intangible assets and inventory when circumstances warrant an assessment in order to evaluate whether indicators of impairment exist. No indicators of impairment of long-lived assets or intangible assets were identified; furthermore, the reduction in cash flows from the areas of the business impacted by COVID-19 are expected to be temporary. For inventory associated with the areas of the business impacted by COVID-19, the carrying value of inventory on hand was already lower than its expected net realizable value; accordingly, no impairment has been necessary in connection with
COVID-19. For accounts receivable, the Company increased its loss rate for certain receivables as discussed in more detail in this Note 1: Summary of Significant Accounting Policies.
Revised internal cash flow and financial projections have also been evaluated in light of financial covenant requirements in the Company's facility agreements. This liquidity assessment considers relief granted to the Company under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES" Act), including a $5.0 million loan the Company received in April 2020 under the payroll protection program, which the Company expects to be forgiven, and the deferral of the payment of certain payroll taxes. Additionally, the Company evaluated tax law changes pursuant to the CARES Act and revised its net operating loss carryforwards and other estimates, as necessary.
For further discussion relating to the matters discussed above, see Note 6: Long-Term Debt and Other Financing Arrangements and Note 13: Taxes.
Use of Estimates in Preparation of Financial Statements
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America ("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. Certain reclassifications have been made to prior year Consolidated Financial Statements to conform to current year presentation. The Company evaluates estimates on an ongoing basis.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Globalstar and all its subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidation.
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 is comprised of funds held in escrow by the agent for the Company’s senior secured facility agreement (the “First Lien Facility Agreement”) to secure the Company’s principal and interest payment obligations related to its First Lien Facility Agreement. Restricted cash is classified as either a current or non-current asset on the Company's Consolidated Balance Sheet based on when these funds are expected to be used to pay principal and interest due under the First Lien Facility Agreement.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and restricted cash. Cash and cash equivalents and restricted cash consist primarily of highly liquid short-term investments deposited with financial institutions that are of high credit quality.
Accounts and Notes Receivable
On January 1, 2020, the Company adopted the provisions of ASU No. 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments, and recognized the cumulative effect of initially applying the guidance as an adjustment to the opening balance of retained deficit. As a result of adopting ASU No. 2016-13, the Company recorded a net decrease to stockholders' equity of $1.7 million, which resulted in an increase to the opening retained deficit balance as of January 1, 2020. The most significant driver of this adjustment was the Company’s change in accounting policy related to expected losses (rather than incurred losses) from trade receivables applied to its portfolio based on historical and future performance.
Receivables are recorded when the right to consideration from the customer becomes unconditional, which is generally upon billing or upon satisfaction of a performance obligation, whichever is earlier. Accounts receivable are uncollateralized, without interest, and consist primarily of receivables from the sale of Globalstar services and equipment. For service customers,
payment is generally due within thirty days of the invoice date and for equipment customers, payment is generally due within thirty to sixty days of the invoice date, or, for some customers, may be made in advance of shipment.
The Company performs ongoing credit evaluations of its customers and impairs receivable balances by recording specific allowances for credit losses based on factors such as supportable and reasonable current trends, the length of time the receivables are past due and historical collection experience. The Company believes that historical collection experience is the most reasonable basis for predicting future performance. The Company’s major portfolio of contract assets are customer receivables and, as such, historical delinquency percentages are generally consistent over time. The estimate of the allowance for credit losses is computed using aging schedules by type of revenue (service and subscriber equipment), by product (Duplex, SPOT and Commercial IoT) and by country. As discussed above, accounts receivable are considered past due in accordance with the contractual terms of the applicable arrangements. The Company applies a loss rate to its portfolio of trade receivables based on past-due status and records an allowance for credit losses, which represents the expected losses of those trade receivables over their estimated contractual life. The estimated life may vary by service and product type, but is generally less than one year. Allowances are generally recorded for all aging categories of outstanding receivables, including those in the current category (which is a change from legacy GAAP). Accounts receivable balances that are determined likely to be uncollectible are included in the allowance for credit losses. After attempts to collect a receivable have failed, the receivable is written off against the allowance.
In March 2020, after the Company adopted ASU No. 2016-13, the World Health Organization declared the outbreak COVID-19 a global pandemic. COVID-19 has resulted in some disruption to the Company, primarily as it relates to the volume of equipment sales and uncertainties impacting the collection of certain outstanding receivables. Although the Company expects this disruption to be temporary, it has considered the potential impact of COVID-19 on its portfolio of trade receivables and has increased its loss rate for such receivables for the year ended December 31, 2020, in limited circumstances. The Company will continue to reassess its sales and collections of receivables each reporting period to support its allowance across its portfolio.
The following is a summary of the activity in the allowance for credit losses (in thousands):
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Year Ended December 31,
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2020
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2019
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|
2018
|
|
Balance at beginning of period
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$
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2,952
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|
|
$
|
3,382
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|
|
$
|
3,610
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|
|
Impact of adoption of ASU 2016-13
|
1,684
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—
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—
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|
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Provision, net of recoveries
|
1,656
|
|
|
1,747
|
|
|
1,398
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|
|
Write-offs and other adjustments
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(1,940)
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|
|
(2,177)
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|
|
(1,626)
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|
|
Balance at end of period
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$
|
4,352
|
|
|
$
|
2,952
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|
|
$
|
3,382
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Inventory
Inventory consists primarily of purchased products, including subscriber equipment devices, which work on the Company’s network, of approximately $9.5 million and $12.0 million as of December 31, 2020 and 2019, respectively, as well as ground infrastructure assets expected to be used as spare parts of approximately $4.3 million as of December 31, 2020 and 2019, respectively. Inventory is stated at the lower of cost or net realizable value. Cost is computed using the first-in, first-out (FIFO) method. Inventory write downs are measured as the difference between the cost of inventory and the net realizable value and are recorded as a cost of subscriber equipment sales - reduction in the value of inventory in the Company’s Consolidated Financial Statements. Product sales and returns from the previous 12 months and future demand forecasts are reviewed and excess and obsolete inventory is written off.
For the years ended December 31, 2020 and 2019, the Company wrote down the value of inventory by $0.7 million and $0.4 million, respectively, after adjusting for changes in net realizable value. In 2020, the Company discontinued production of a second-generation Duplex device, which was the majority of the write down recorded. The remaining reduction in value of inventory recorded during 2020 was driven by an evaluation of excess or obsolete inventory related to end of life products and technology. In 2019, the Company reduced the carrying value of gateway spare parts due to excess hardware parts. During the year ended December 31, 2018, no write down of inventory was recorded.
Property and Equipment
The Globalstar System includes costs for the design, manufacture, test and launch of a constellation of low earth orbit satellites (the “Space Component”), and primary and backup control centers and gateways (the “Ground Component”). Property and equipment is stated at cost, net of accumulated depreciation.
Costs associated with the design, manufacture, test and launch of the Company’s Space and Ground Components are capitalized. Capitalized costs associated with the Company’s Space Component, Ground Component, and other assets are tracked by fixed asset category and are allocated to each asset as it comes into service. When a second-generation satellite was incorporated into the second-generation constellation, the Company began depreciation on the date the satellite was placed into service, which was the point that the satellite reached its orbital altitude, over its estimated depreciable life.
The Company capitalizes interest costs associated with the costs of assets in progress. Capitalized interest is added to the cost of the underlying asset and is amortized over the depreciable life of the asset after it is placed into service. As the Company’s construction in progress decreases, the Company capitalizes less interest, resulting in a higher amount of net interest expense recognized under U.S. GAAP.
Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets as follows:
Space Component - 15 years from the commencement of service
Ground Component - 7 or 15 years from commencement of service
Software, Facilities & Equipment - 3 to 10 years
Buildings - 18 years
Leasehold Improvements - Shorter of lease term or the estimated useful lives of the improvements
The estimated useful lives of the Company's Space and Ground components were based on estimated design life, information from the Company's engineering department and overall Company strategy for the use of these assets. The Company evaluates and revises the estimated depreciable lives assigned to property and equipment based on changes in facts and circumstances. When changes are made to estimated useful lives, the remaining carrying amounts are depreciated prospectively over the remaining useful lives.
For assets that are sold or retired, including satellites that are de-orbited and no longer providing services, the estimated cost and accumulated depreciation is removed from property and equipment.
The Company assesses the impairment of property and equipment whenever events or changes in circumstances indicate that the recorded value may not be recoverable. Recoverability of assets is measured by comparing the carrying amounts of the assets to the estimated future undiscounted cash flows, excluding financing costs. If the asset is not recoverable, its carrying value would be adjusted down to fair value and an impairment loss would be recorded. Additionally, the Company routinely performs profitability analyses to determine if investments in certain products and/or services remain viable. In the event the Company decides not to support a product or service, or determines that an asset is not expected to generate future benefit, the asset may be abandoned and an impairment loss may be recorded on the associated assets.
Assets held for sale are carried at the lower of cost or fair value less estimated cost to sell; these assets are generally classified as current on the Company's consolidated balance sheets as the disposal of these assets is expected within one year. As of December 31, 2020 and 2019, the Company had approximately $0.3 million and $0.5 million, respectively, of assets classified as held for sale due to the anticipated disposal of its former gateway location in Nicaragua. The change in classification from held and used to held for sale resulted in an initial impairment of long-lived assets of $1.1 million during 2019, which was recorded in the Company's consolidated statement of operations. In the fourth quarter of 2020, the Company signed a contract for the sale of this property; the final selling price (net of estimated costs to sell) is $0.3 million and, as a result, the Company recorded an additional impairment totaling $0.2 million.
Leases
The Company has operating and finance leases for facilities and equipment throughout the United States and around the world, including corporate offices, satellite control centers, ground control centers, gateways and certain equipment.
Upon inception of a contract, the Company evaluates if the contract, or part of the contract, contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases include both a right-of-use asset and a lease liability. The right-of-use asset represents the Company’s right to use the underlying asset in the lease. Certain initial direct costs associated with consummating a lease are included in the initial measurement of the right-of-use asset. The right-of-use asset also includes prepaid lease payments and lease incentives. The lease liability represents the present value of the remaining lease payments discounted using the implicit rate in the lease on the lease commencement date. For leases in which the implicit rate is not readily determinable, an estimated incremental borrowing rate is used, which represents a rate of interest that the Company would pay to borrow on a collateralized basis over a similar term. The Company has elected to combine lease and nonlease components, if applicable.
For operating leases, the Company records lease expense on a straight-line basis over the lease term in either marketing, general and administrative expense or cost of services, depending on the nature of the underlying asset. For finance leases, the Company records the amortization of the right-of-use asset through depreciation, amortization and accretion expense and records the interest expense on the lease liability through interest expense, net, using the effective interest method.
Variable lease payments are payments made to a lessor due to changes in circumstances occurring after the commencement date. Variable lease payments dependent upon an index or rate are included in the measurement of the lease liability; all other variable lease payments are not included in the measurement of the lease liability and recognized when incurred. Variable lease payments excluded from the measurement of the lease liability are uncommon and, when incurred, are immaterial for the Company.
The Company’s existing leases have remaining lease terms of less than 1 year to 11 years. Lease terms include renewal or termination options that the Company is reasonably certain to exercise. For leases with a term of twelve months or less, the Company does not record a right-of-use asset and associated lease liability on its consolidated balance sheet.
The Company reviews the carrying value of its right-of-use assets for impairment whenever events or changes in circumstances indicate that the recorded value may not be recoverable. Recoverability of assets is measured by comparing the carrying amounts of the assets to the estimated future undiscounted cash flows, excluding financing costs. If a right-of-use asset is not recoverable, its carrying value would be adjusted down to fair value and an impairment loss would be recorded.
Derivative Instruments
Upon inception of a contract, the Company evaluates if the contract contains a derivative instrument. The Company has financing arrangements that are hybrid instruments that contain embedded derivative features. Derivative instruments are recognized as either assets or liabilities in the consolidated balance sheets and are measured at fair value with gains or losses recognized in earnings. The Company determines the fair value of derivative instruments based on available market data and assumptions developed by management using appropriate valuation models.
Deferred Financing Costs
Deferred financing costs are those costs directly incurred in obtaining long-term debt. These costs are amortized as additional interest expense over the expected term of the corresponding debt. Deferred financing costs are recorded on the Company's consolidated balance sheets as a reduction in the carrying amount of the related debt liability. The Company classifies deferred financing costs consistent with the classification of the related debt outstanding at the end of the reporting period. As of December 31, 2020 and 2019, the Company had net deferred financing costs of $38.5 million and $43.6 million, respectively.
Fair Value of Financial Instruments
The Company believes it is not practicable to determine the fair value of the First Lien Facility Agreement, the Second Lien Facility Agreement and the Payroll Protection Program Loan ("PPP Loan"). Interest rates and other terms for long-term debt are not readily available and generally involve a variety of factors, including due diligence by the debt holders. For the Company’s 8.00% Convertible Senior Notes Issued in 2013 (“2013 8.00% Notes”), the fair value of debt is calculated using inputs consistent with those used to calculate the fair value of the derivatives embedded in these instruments.
Litigation, Commitments and Contingencies
The Company is subject to various claims and lawsuits that arise in the ordinary course of business. Estimating liabilities and costs associated with these matters requires judgment and assessment based on professional knowledge and experience of our management and legal counsel. When a loss is considered probable and reasonably estimable, a liability is recorded for the Company's best estimate. If there is a range of loss, the Company will record a reserve based on the low end of the range, unless facts and circumstances can support a different point in the range. When a loss is probable, but not reasonably estimable, disclosure is provided, as considered necessary. Reserves for potential claims or lawsuits may be relieved if the loss is no longer considered probable. The ultimate resolution of any such exposure may vary from earlier estimates as further facts and circumstances become known.
Gain/Loss on Extinguishment of Debt
Gain or loss on extinguishment of debt generally is recorded upon an extinguishment of a debt instrument or the conversion of certain of the Company’s convertible notes. Gain or loss on extinguishment of debt is calculated as the difference between the reacquisition price and net carrying amount of the debt and is recorded as an extinguishment gain or loss in the Company’s consolidated statement of operations.
Revenue Recognition and Deferred Revenue
Revenue consists primarily of satellite voice and data service revenue, revenue generated from the sale of fixed and mobile devices, and revenue from providing engineering and support services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Each type of revenue is a separate performance obligation with distinct deliverables and is therefore accounted for discretely. Revenue is measured based on the consideration specified in a contract with a customer, adjusted for credits and discounts, as applicable, and is recognized when the Company satisfies a performance obligation by transferring control over a product or service to a customer.
Generally, service revenue is recognized over a period of time and revenue from the sale of subscriber equipment is recognized at a point in time. The recognition of revenue for service is over time as the customer simultaneously receives and consumes the benefits of the Company’s performance over the contract term. The recognition of revenue for subscriber equipment is at a point in time as the risks and rewards of ownership of the hardware transfer to the customer generally upon shipment, which is when legal title of the product transfers to the customer, among other things (as discussed further below).
The Company does not record sales taxes, telecommunication taxes or other governmental fees collected from customers in revenue. The Company excludes these taxes from the measurement of contract transaction prices.
The Company receives payment from customers in accordance with billing statements or invoices for customer contracts; these payments may be in advance or arrears of services provided to the customer by the Company. Customer payments received in advance of the corresponding service period are recorded as deferred revenue.
Upon activation of a Globalstar device, certain customers are charged an activation fee, which is recognized over the term of the expected customer life. Credits granted to customers are expensed or charged against revenue or accounts receivable over the remaining term of the contract. Estimates related to earned but unbilled service revenue are calculated primarily using current subscriber data, including plan subscriptions and usage between the end of the billing cycle and the end of the period. The recognition of service revenue related to amounts allocated to performance obligations that were satisfied (or partially satisfied) in a previous period is not material to the Company’s financial statements. Amounts related to earned but unbilled revenue from the sale of subscriber equipment are recognized if hardware is shipped prior to the invoice being generated. This situation may result from multi-deliverable contracts, whereby equipment and service revenue are bundled and billed over time to a single customer.
Provisions for estimated future warranty costs, returns and rebates are recorded as a cost of sale, or a reduction to revenue, as applicable. These costs are based on historical trends and the provision is reviewed regularly and periodically adjusted to reflect changes in estimates.
Certain contracts with customers may contain a financing component. Under ASC 606, an entity should adjust the promised amount of the consideration for the effects of time value of money if the timing of the payments agreed upon by the parties to the contract provides the customer or the entity with a significant benefit of financing for the transfer of goods or services to the customer. This type of transaction is infrequent and not considered material to the Company. Additionally, in connection with the adoption of ASC 606, the Company has applied the practical expedient related to the existence of a significant financing component as it expects at contract inception that the period between payment by the customer and transfer of the promised goods or services will be one year or less.
The following describes the principal activities from which the Company generates its revenue.
Duplex Service Revenue. The Company recognizes revenue for monthly access fees in the period services are rendered. The Company offers certain annual plans whereby a customer prepays for a predetermined amount of minutes and data. In these cases, revenue is recognized consistent with a customer's expected pattern of usage based on historical experience because the Company believes that this method most accurately depicts the satisfaction of the Company's obligation to the customer. This usage pattern is typically seasonal and highest in the second and third calendar quarters of the year. The Company offers other annual plans whereby the customer is charged an annual fee to access the Company’s system with an unlimited amount of usage. Annual fees for unlimited plans are recognized on a straight-line basis over the term of the plans.
SPOT Service Revenue. The Company sells SPOT services as monthly, annual or multi-year plans and recognizes revenue on a straight-line basis over the service term, beginning when the service is activated by the customer.
Commercial IoT Service Revenue. The Company sells Commercial IoT services as monthly, annual or multi-year plans and recognizes revenue ratably over the service term or as service is used, beginning when the service is activated by the customer.
Equipment Revenue. Subscriber equipment revenue represents the sale of fixed and mobile user terminals, SPOT and Commercial IoT products, and accessories. The Company recognizes revenue upon shipment provided control has transferred to the customer. Indicators of transfer of control include, but are not limited to; 1) the Company’s right to payment, 2) the customer has legal title of the equipment, 3) the Company has transferred physical possession of the equipment to the customer or carrier, and 4) the customer has significant risks and rewards of ownership of the equipment. The Company sells equipment designed to work on its network through various channels, including through dealers, retailers and resellers (including IGOs) as well as direct to consumers or other businesses by its global sales team and through its e-commerce website. The sales channel depends primarily on the type of equipment and geographic region. Promotional rebates are offered from time to time. A reduction to revenue is recorded to reflect the lower transaction price based on an estimate of the customer take rate at the time of the sale using primarily historical data. This estimate is adjusted periodically to reflect actual rebates given to the Company’s customers. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of subscriber equipment sales.
Engineering and Other Service Revenue. Other service revenue includes primarily revenue associated with engineering services to assist customers in developing new applications to operate on its network. The revenue associated with these engineering services is generally recorded over time as the services are rendered, and the Company's obligation to the customer is satisfied. Additionally, the Company owns and operates its satellite constellation and earns a portion of its revenues through the sale of airtime minutes or data on a wholesale basis to IGOs. Revenue from services provided to IGOs is recognized based upon airtime minutes or data packages used by customers of the IGOs and in accordance with contractual fee arrangements.
Multiple-Element Arrangement Contracts. At times, the Company will sell subscriber equipment through multiple-element arrangement contracts with services. When the Company sells subscriber equipment and services in bundled arrangements and determines that it has separate performance obligations, the Company allocates the bundled contract price among the various performance obligations based on relative stand-alone selling prices at contract inception of the distinct goods or services underlying each performance obligation and recognizes revenue when, or as, each performance obligation is satisfied.
Stock-Based Compensation
The Company recognizes compensation expense in the financial statements for both employee and non-employee share-based awards based on the grant date fair value of those awards. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards on the date of grant. For restricted stock awards and units, the fair value is determined from the stock price on the grant date. The Company's estimate of the forfeiture rate of its share-based awards also impacts the timing of expense recorded over the vesting period of the award. The Company's estimate for pre-vesting forfeitures is recognized over the requisite service periods of the awards on a straight-line basis, which is generally commensurate with the vesting term. For share-based awards with a performance condition that affects vesting, the Company recognizes compensation cost for awards if and when the performance condition is probable of achievement. See Note 15: Stock Compensation for a description of methods used to determine the Company's assumptions.
Foreign Currency
The functional currency of the Company’s foreign consolidated subsidiaries is generally their local currency, unless the subsidiary operates in a hyperinflationary economy, such as Venezuela and Argentina. Assets and liabilities of its foreign subsidiaries are translated into United States dollars based on exchange rates at the end of the reporting period. Income and expense items are translated at the average exchange rates prevailing during the reporting period. For 2020, 2019 and 2018, the foreign currency translation adjustments were net losses of $1.5 million, net losses of $0.7 million and net gains of $3.2 million, respectively.
Foreign currency transaction gains/losses were approximately net losses of $0.7 million, net gains of $0.1 million and net losses of $3.1 million for each of 2020, 2019, and 2018, respectively. These were classified as other (expense) income on the consolidated statement of operations.
Asset Retirement Obligation
Liabilities arising from legal obligations associated with the retirement of gateway long-lived assets are measured at fair value and recorded as a liability. Upon initial recognition of a liability for retirement obligations, the Company also capitalizes, as part of the asset carrying amount, the estimated costs associated with its expected retirement. This asset is depreciated over the life of the gateway to be retired. Accretion of the asset retirement obligation liability and depreciation of the related assets are included in depreciation, amortization and accretion in the accompanying consolidated statements of operations. As of both December 31, 2020 and 2019, the Company had accrued approximately $1.6 million and $1.5 million, respectively, for asset retirement obligations. The Company believes this estimate will be sufficient to satisfy the Company’s obligation under site leases to remove the gateway equipment and restore the lease sites to their original condition.
Warranty Expense
Warranty terms extend from 90 days on equipment accessories to one year for fixed and mobile user terminals. A provision for estimated future warranty costs is recorded as cost of sales when products are shipped. Warranty costs are based on historical trends in warranty charges as a percentage of gross product shipments. The resulting accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost estimates.
Research and Development Expenses
Research and development costs were $1.9 million, $3.2 million and $2.7 million for 2020, 2019 and 2018, respectively. These costs are expensed as incurred as cost of services and include primarily the cost of new product development, chip set design and other engineering work.
Income Taxes
The Company is taxed as a C corporation for U.S. tax purposes. The Company recognizes deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, operating losses and tax credit carryforwards. The Company measures deferred tax assets and liabilities using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date; however, as the Company has a full valuation allowance on its deferred tax assets, there is no impact to the consolidated statements of operations and balance sheets.
The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In assessing the likelihood of realization, management considers: (i) future reversals of existing taxable temporary differences; (ii) future taxable income exclusive of reversing temporary differences and carryforwards; (iii) taxable income in prior carry-back year(s) if carry-back is permitted under applicable tax law; and (iv) tax planning strategies.
Comprehensive (Loss) Income
All components of comprehensive (loss) income, including the minimum pension liability adjustment and foreign currency translation adjustment, are reported in the financial statements in the period in which they are recognized. Comprehensive (loss) income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources.
(Loss) Earnings Per Share
The Company is required to present basic and diluted (loss) earnings per share. Basic (loss) earnings per share is computed by dividing (loss) income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. The numerator used to calculate diluted EPS includes the effect of dilutive securities, including interest expense, net, and derivative gains or losses reflected in net (loss) income. Common stock equivalents are included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive. The effect of potentially dilutive common shares for the Company's convertible notes are calculated using the if-converted method. Generally, for all other potentially dilutive common shares, the effect is calculated using the treasury stock method.
Intangible and Other Assets
Intangible Assets Not Subject to Amortization
A significant portion of the Company's intangible assets are licenses that provide the Company the exclusive right to provide MSS services over the Globalstar System or to utilize designated radio frequency spectrum to provide terrestrial wireless communication services in a particular region of the world. While licenses are issued for only a fixed time, such licenses are subject to renewal by the Federal Communications Commission ("FCC") or equivalent international regulatory authorities. These license renewals are expected to occur routinely and at nominal cost. Moreover, the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of its wireless licenses. As a result, the Company treats the wireless licenses as an indefinite-lived intangible asset. The Company re-evaluates the useful life determination for wireless licenses annually, or more frequently if needed, to determine whether events and circumstances continue to support an indefinite useful life. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an indicator is present, the Company would measure recoverability by comparing the carrying amount to the future undiscounted cash flows the asset is expected to generate. If the asset is not recoverable, the undiscounted cash flows do not exceed the carrying amount and the carrying amount would be adjusted down to its fair value.
Intangible Assets Subject to Amortization
Our intangible assets that do not have indefinite lives (primarily developed technology and customer relationships) are amortized over their estimated useful lives. For information related to each major class of intangible assets, including accumulated amortization and estimated average useful lives, see Note 5: Intangible and Other Assets.
Other Assets
Prepaid Licenses and Royalties
The Company has signed various licensing and royalty agreements necessary for the manufacture and distribution of its second-generation products. Amounts that are prepaid are recorded primarily in noncurrent assets on the Company's consolidated balance sheet. The Company estimates the portion of expense incurred or royalties earned for the next 12 months and reclassifies these amounts to current assets on the Company's consolidated balance sheet each reporting period. The Company will expense these amounts through depreciation expense over the life of the gateway, maintenance expense over the term of the services, or cost of goods sold on a per unit basis as these units are manufactured, sold, or activated.
Business Economic Loss Claim Receivable
In accordance with ASC 450, the Company believes that the recognition of a gain is appropriate at the earlier of when the gain is realizable or realized. A realized gain is one where cash (or other assets, such as claims to cash) has already been received without expectation of repayment. A gain is realizable when assets are readily convertible to known amounts of cash or claims to cash. In May 2018, the Company entered into a settlement agreement related a business economic loss claim. The Company received proceeds of $7.4 million, net of legal fees, related to this settlement. The Company received the two installments of $3.7 million each in January 2019 and January 2020. As part of the Company's assessment, it considered that the terms of the settlement agreement are final (e.g. not subject to appeal) and the counterparty has the ability to pay the amount. Therefore, the Company recorded a receivable and non-operating income for the amount of the settlement. When this receivable was recorded in 2018, the Company imputed interest in accordance with ASC 835-30-15-2 as it represented a contractual right to receive money on fixed or determinable dates. The difference between the present value and the face amount was treated as a discount and was amortized as interest income over the life of the claim using the interest method.
Contract Acquisition Costs
The Company also capitalizes incremental costs to obtain a contract, or contract acquisition costs, to the extent it expects to recover them. These capitalized costs primarily include deferred subscriber acquisition costs and are amortized consistently with the pattern of transfer of the good or delivery of the service to which the asset relates. When a contract terminates prior to the end of its expected life, the remaining contract acquisition cost associated with it becomes impaired and the amount is expensed.
Total contract acquisition costs were $2.4 million and $2.0 million as of December 31, 2020 and 2019, respectively, and are recorded in other assets on the Company's consolidated balance sheet. These costs are typically amortized to marketing, general and administrative expenses over three years, which considers anticipated contract renewals. For the years ended December 31, 2020, 2019 and 2018, the amount of amortization related to contract acquisition costs was $2.1 million, $1.4 million and $1.5 million, respectively.
Impairment of Intangible and Other Assets
The Company assesses these intangible assets for impairment annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. In assessing whether it is more likely than not that such an asset is impaired, the Company assesses relevant events and circumstances that could affect the significant inputs used to determine the fair value of the asset. If the Company determines that an impairment exists, any related loss is estimated based on fair values.
Other Information
Advertising Expenses
Advertising costs were $2.5 million, $3.4 million and $3.6 million for 2020, 2019, and 2018, respectively. These costs are expensed as incurred as marketing, general and administrative expenses.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. As part of the FASB's disclosure framework project, it has changed the disclosure requirements for defined pension and other post-retirement benefit plans as outlined in ASU No. 2018-14. This ASU is effective for public entities for annual periods beginning after December 15, 2020. This ASU adds certain narrative disclosures and removes other disclosures as outlined in ASU No. 2018-14 related to the defined benefit plan as outlined in ASU No. 2018-14. The Company adopted this standard when it became effective on January 1, 2021. The adoption of this standard will impact certain of the Company's disclosures in future filings.
In December 2019, the FASB issued ASU No. 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU No. 2019-12 amends the accounting treatment for income taxes by simplifying and clarifying certain aspects of the existing guidance. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2020. The Company adopted this standard when it became effective on January 1, 2021. The adoption of this standard did not have a material effect on the Company's financial statements or related disclosures.
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-06: Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Among other things, ASU No. 2020-06 simplifies the guidance in ASC 470 by eliminating two of the three models that require separating embedded conversion features from convertible instruments. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2021. Early adoption is permitted as of the beginning of any interim or annual reporting period, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For existing debt instruments, the Company does not expect this standard will have a material impact to its consolidated financial statements or related disclosures.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13, as amended, 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 replaced the incurred loss approach with an expected loss model for instruments measured at amortized cost. Entities are required to 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 became effective for public entities for annual and interim periods beginning after December 15, 2019. The Company adopted this standard when it became effective on January 1, 2020. See further discussion above in "Accounts and Notes Receivable" in this Note for a discussion of the impact to the Company's consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. As part of the FASB's disclosure framework project, it has eliminated, amended and added disclosure requirements for fair value measurements. Entities are no longer required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Public companies are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. The Company adopted this standard when it became effective on January 1, 2020. The adoption of this standard impacted certain of the Company's disclosures included in Note 8: Fair Value Measurements.
2. REVENUE
Disaggregation of Revenue
The following table discloses revenue disaggregated by type of product and service (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Service revenue:
|
|
|
|
|
|
|
Duplex
|
$
|
33,878
|
|
|
$
|
43,679
|
|
|
$
|
41,223
|
|
|
SPOT
|
46,417
|
|
|
50,461
|
|
|
52,363
|
|
|
Commercial IoT
|
17,174
|
|
|
16,972
|
|
|
13,459
|
|
|
Engineering and Other
|
15,722
|
|
|
2,274
|
|
|
4,044
|
|
|
Total service revenue
|
113,191
|
|
|
113,386
|
|
|
111,089
|
|
|
|
|
|
|
|
|
|
Subscriber equipment sales:
|
|
|
|
|
|
|
Duplex
|
$
|
1,883
|
|
|
$
|
1,325
|
|
|
$
|
2,021
|
|
|
SPOT
|
8,176
|
|
|
7,617
|
|
|
8,425
|
|
|
Commercial IoT
|
5,140
|
|
|
9,300
|
|
|
8,444
|
|
|
Other
|
97
|
|
|
90
|
|
|
134
|
|
|
Total subscriber equipment sales
|
15,296
|
|
|
18,332
|
|
|
19,024
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
128,487
|
|
|
$
|
131,718
|
|
|
$
|
130,113
|
|
The Company attributes equipment revenue to various countries based on the location where equipment is sold. Service revenue is generally attributed to the various countries based on the Globalstar entity that holds the customer contract. The following table discloses revenue disaggregated by geographical market (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Service revenue:
|
|
|
|
|
|
|
United States
|
$
|
84,290
|
|
|
$
|
80,704
|
|
|
$
|
78,918
|
|
|
Canada
|
18,217
|
|
|
20,709
|
|
|
20,186
|
|
|
Europe
|
7,040
|
|
|
8,628
|
|
|
9,190
|
|
|
Central and South America
|
2,717
|
|
|
2,513
|
|
|
2,183
|
|
|
Others
|
927
|
|
|
832
|
|
|
612
|
|
|
Total service revenue
|
113,191
|
|
|
113,386
|
|
|
111,089
|
|
|
|
|
|
|
|
|
|
Subscriber equipment sales:
|
|
|
|
|
|
|
United States
|
$
|
8,226
|
|
|
$
|
9,937
|
|
|
$
|
11,756
|
|
|
Canada
|
3,741
|
|
|
4,632
|
|
|
3,051
|
|
|
Europe
|
1,639
|
|
|
1,707
|
|
|
2,487
|
|
|
Central and South America
|
1,674
|
|
|
1,946
|
|
|
1,472
|
|
|
Others
|
16
|
|
|
110
|
|
|
258
|
|
|
Total subscriber equipment sales
|
15,296
|
|
|
18,332
|
|
|
19,024
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
128,487
|
|
|
$
|
131,718
|
|
|
$
|
130,113
|
|
During the third quarter of 2019, the Company revised its calculation of the estimated impact from the initial adoption of ASC 606 to recognize additional revenue that should have been recognized under ASC 606 for contracts that were open at the adoption date. The adjustment, which totaled $3.9 million, was recorded to Duplex service revenue and was deemed immaterial to the Company’s financial statements for each period since January 1, 2018; this was reflected as an out-of-period amount.
Accounts Receivable
The Company has agreements with certain of its IGOs whereby the parties net settle outstanding payables and receivables between the respective entities on a periodic basis. As of December 31, 2020 and 2019, $1.9 million and $6.5 million, respectively, related to these agreements was included in accounts receivable on the Company’s consolidated balance sheet. The decrease in this balance from December 31, 2019 to 2020 was due to a net settlement with one of the Company's IGOs that reduced outstanding accounts receivable and accounts payable balances during the fiscal year end December 31, 2020.
Contract Liabilities
Contract liabilities, which are included in deferred revenue on the Company’s consolidated balance sheet, represent the Company’s obligation to transfer service or equipment to a customer from whom it has previously received consideration. The amount of revenue recognized during the years ended December 31, 2020 and 2019 from performance obligations included in the contract liability balance at the beginning of these periods was $31.2 million and $30.9 million, respectively. Additionally, during the fourth quarter of 2020, the Company recognized $2.9 million of revenue previously included in non-current deferred revenue related to a contract executed in 2007 for the construction of a gateway in Nigeria, upon its termination due to a lack of performance by the partner, and the Company's performance of all obligations in accordance with the terms of the contract.
In general, the duration of the Company’s contracts is one year or less; however, from time to time, the Company offers multi-year contracts. As of December 31, 2020, the Company expects to recognize $26.0 million, or approximately 89%, of its remaining performance obligations during the next twelve months.
3. LEASES
The following tables disclose the components of the Company’s finance and operating leases (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of:
|
|
As of:
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Operating leases:
|
|
|
|
|
|
Right-of-use asset, net
|
|
$
|
14,400
|
|
|
$
|
15,871
|
|
|
|
|
|
|
|
|
Short-term lease liability (recorded in accrued expenses)
|
|
1,330
|
|
|
1,634
|
|
|
Long-term lease liability
|
|
13,726
|
|
|
14,747
|
|
|
Total operating lease liabilities
|
|
$
|
15,056
|
|
|
$
|
16,381
|
|
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
|
Right-of-use asset, net (recorded in intangible and other current assets, net)
|
|
$
|
19
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
Short-term lease liability (recorded in accrued expenses)
|
|
11
|
|
|
68
|
|
|
Long-term lease liability (recorded in non-current liabilities)
|
|
9
|
|
|
19
|
|
|
Total finance lease liabilities
|
|
$
|
20
|
|
|
$
|
87
|
|
Lease Cost
The components of lease cost are reflected in the table below (amounts in thousands). For the years ended December 31, 2020 and 2019, the Company has presented financial results and applied its accounting policies under ASC 842; for the year ended December 31, 2018, financial results and accounting policies have not been adjusted and are reflected under legacy GAAP pursuant to ASC 840.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2020
|
|
Twelve Months Ended December 31, 2019
|
|
|
|
|
|
|
|
Operating lease cost:
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
1,880
|
|
|
$
|
1,719
|
|
|
Interest on lease liabilities
|
|
1,320
|
|
|
1,098
|
|
|
Finance lease cost:
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
76
|
|
|
105
|
|
|
Interest on lease liabilities
|
|
4
|
|
|
11
|
|
|
Short-term lease cost
|
|
100
|
|
|
180
|
|
|
Total lease cost
|
|
$
|
3,380
|
|
|
$
|
3,113
|
|
As reported under legacy GAAP, total rent expense for 2018 was approximately $1.4 million. The increase in lease expense from 2018 to 2019 was due primarily to the lease entered into in February 2019 with Thermo Covington, LLC for the Company's new headquarters office.
Weighted-Average Remaining Lease Term and Discount Rate
The following table discloses the weighted-average remaining lease term and discount rate for finance and operating leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of:
|
|
As of:
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Weighted-average lease term
|
|
|
|
|
|
Finance leases
|
|
1.8 years
|
|
1.5 years
|
|
Operating Leases
|
|
8.3 years
|
|
8.9 years
|
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
|
|
|
|
Finance leases
|
|
7.2
|
%
|
|
8.1
|
%
|
|
Operating leases
|
|
8.4
|
%
|
|
8.4
|
%
|
Supplemental Cash Flow Information
The below table discloses supplemental cash flow information for finance and operating leases (in thousands). As noted above, presentation for the year ended December 31, 2018 has not been adjusted under the modified retrospective method of adoption.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2020
|
|
Twelve Months Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
3,055
|
|
|
$
|
2,647
|
|
|
Operating cash flows from finance leases
|
|
4
|
|
|
11
|
|
|
Financing cash flows from finance leases
|
|
68
|
|
|
103
|
|
Maturity Analysis
The following table reflects undiscounted cash flows on an annual basis for the Company’s lease liabilities as of December 31, 2020 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
|
|
|
|
|
|
2021
|
|
$
|
2,597
|
|
|
$
|
11
|
|
|
2022
|
|
2,478
|
|
|
6
|
|
|
2023
|
|
2,510
|
|
|
4
|
|
|
2024
|
|
2,383
|
|
|
—
|
|
|
2025
|
|
2,405
|
|
|
—
|
|
|
Thereafter
|
|
8,803
|
|
|
—
|
|
|
Total lease payments
|
|
$
|
21,176
|
|
|
$
|
21
|
|
|
Imputed interest
|
|
(6,120)
|
|
|
(1)
|
|
|
Discounted lease liability
|
|
$
|
15,056
|
|
|
$
|
20
|
|
As of December 31, 2020, the Company had executed additional operating leases, primarily for new gateway locations, that are expected to commence during 2021. Accordingly, these leases are not included on the balance sheet as of December 31, 2020 or in the maturity table above. The Company is in the process of evaluating these lease obligations.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Globalstar System:
|
|
|
|
|
Space component
|
|
|
|
|
First and second-generation satellites in service
|
$
|
1,195,509
|
|
|
$
|
1,195,509
|
|
|
Second-generation satellite, on-ground spare
|
32,443
|
|
|
32,443
|
|
|
Ground component
|
272,492
|
|
|
269,547
|
|
|
Construction in progress:
|
|
|
|
|
Ground component
|
19,327
|
|
|
16,040
|
|
|
Other
|
3,298
|
|
|
5,132
|
|
|
Total Globalstar System
|
1,523,069
|
|
|
1,518,671
|
|
|
Internally developed and purchased software
|
23,984
|
|
|
18,922
|
|
|
Equipment
|
9,679
|
|
|
8,731
|
|
|
Land and buildings
|
3,110
|
|
|
3,287
|
|
|
Leasehold improvements
|
1,655
|
|
|
1,633
|
|
|
Total property and equipment
|
1,561,497
|
|
|
1,551,244
|
|
|
Accumulated depreciation
|
(845,588)
|
|
|
(751,330)
|
|
|
Total property and equipment, net
|
$
|
715,909
|
|
|
$
|
799,914
|
|
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 remaining ground component of construction in progress represents costs (including capitalized interest) incurred for assets to upgrade the Company's ground infrastructure in certain regions around the world. These gateway assets will be deployed based on coverage optimization. The ground component of construction in progress also includes costs (including capitalized interest) associated with the Company's contract for the procurement and production of new gateway antennas. As of December 31, 2020, approximately $7.9 million of the ground component of CIP
includes costs associated with new antennas for certain of the Company's gateways around the world. The Company expects these assets to be placed into service in the near future.
Amounts included in the Company’s second-generation satellite, on-ground spare balance as of December 31, 2020 and 2019, 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 December 31, 2020, this satellite has not been placed into service; therefore, the Company has not started to record depreciation expense.
Capitalized Interest and Depreciation Expense
The following table summarizes capitalized interest for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Interest cost eligible to be capitalized
|
$
|
50,721
|
|
|
$
|
64,058
|
|
|
$
|
51,819
|
|
|
Interest cost recorded in interest income (expense), net
|
(48,064)
|
|
|
(62,255)
|
|
|
(43,434)
|
|
|
Net interest capitalized
|
$
|
2,657
|
|
|
$
|
1,803
|
|
|
$
|
8,385
|
|
The following table summarizes depreciation expense for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Depreciation Expense
|
$
|
84,853
|
|
|
$
|
83,575
|
|
|
$
|
81,779
|
|
The following table summarizes amortization expense for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Amortization Expense
|
$
|
11,962
|
|
|
$
|
12,197
|
|
|
$
|
8,659
|
|
During 2018, the Company placed into service developed technology associated with the launch of its next generation of products. The amortization expense in the table above reflects primarily the 15-year life of these assets from the in-service date.
Geographic Location of Property and Equipment
Long-lived assets consist primarily of property and equipment and are attributed to various countries based on the physical location of the asset, except for the Company’s satellites which are included in the long-lived assets of the United States. The Company’s information by geographic area is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
Property and equipment:
|
|
|
|
|
United States
|
$
|
687,302
|
|
|
$
|
772,498
|
|
|
Canada
|
11,814
|
|
|
12,239
|
|
|
Europe
|
3,170
|
|
|
3,126
|
|
|
Central and South America
|
13,614
|
|
|
11,786
|
|
|
Other
|
9
|
|
|
265
|
|
|
Total property and equipment
|
$
|
715,909
|
|
|
$
|
799,914
|
|
5. INTANGIBLE AND OTHER ASSETS
Intangible Assets
The Company has intangible assets not subject to amortization, which include certain costs to obtain or defend regulatory authorizations and a portion of capitalized interest associated with these assets. These costs primarily include efforts related to the enhancement of the Company's licensed MSS spectrum to provide terrestrial wireless services as well as costs with international regulatory agencies to obtain similar terrestrial authorizations outside of the United States. This category includes work in progress assets as well as indefinite lived assets already placed into service. The Company also has intangible assets subject to amortization, which primarily include developed technology and definite lived MSS licenses.
The gross carrying amount and accumulated amortization of the Company's intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Intangible Assets Not Subject to Amortization
|
$
|
21,496
|
|
|
$
|
—
|
|
|
$
|
21,496
|
|
|
$
|
18,288
|
|
|
$
|
—
|
|
|
$
|
18,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets Subject to Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
$
|
11,856
|
|
|
$
|
(7,016)
|
|
|
$
|
4,840
|
|
|
$
|
11,692
|
|
|
$
|
(6,232)
|
|
|
$
|
5,460
|
|
|
Regulatory authorizations
|
1,866
|
|
|
(682)
|
|
|
1,184
|
|
|
1,937
|
|
|
(477)
|
|
|
1,460
|
|
|
|
$
|
13,722
|
|
|
$
|
(7,698)
|
|
|
$
|
6,024
|
|
|
$
|
13,629
|
|
|
$
|
(6,709)
|
|
|
$
|
6,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
35,218
|
|
|
$
|
(7,698)
|
|
|
$
|
27,520
|
|
|
$
|
31,917
|
|
|
$
|
(6,709)
|
|
|
$
|
25,208
|
|
As of December 31, 2020 and 2019, customer relationships totaling $2.1 million and trade names totaling $0.2 million were fully amortized and have been removed from the table above. For the twelve months ended December 31, 2020, the Company recorded amortization expense on these intangible assets of $1.1 million. Amortization expense is recorded in operating expenses in the Company’s consolidated statements of operations.
Excluding the effects of any acquisitions, dispositions or write-downs subsequent to December 31, 2020, total estimated annual amortization of intangible assets is as follows (in thousands):
|
|
|
|
|
|
|
|
2021
|
$
|
1,110
|
|
|
2022
|
1,108
|
|
|
2023
|
840
|
|
|
2024
|
594
|
|
|
2025
|
416
|
|
|
Thereafter
|
1,956
|
|
|
Total
|
$
|
6,024
|
|
Other Assets
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Costs to obtain a contract
|
$
|
2,404
|
|
|
$
|
1,976
|
|
|
Long-term prepaid licenses and royalties
|
4,679
|
|
|
5,037
|
|
|
International tax receivables
|
619
|
|
|
800
|
|
|
Investments in businesses
|
1,589
|
|
|
2,089
|
|
|
Compound embedded derivative with the Second Lien Facility Agreement
|
286
|
|
|
—
|
|
|
Other long-term assets
|
1,132
|
|
|
535
|
|
|
Total other assets
|
$
|
10,709
|
|
|
$
|
10,437
|
|
6. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Principal
Amount
|
|
Unamortized Discount and Deferred Financing Costs
|
|
Carrying
Value
|
|
Principal
Amount
|
|
Unamortized Discount and Deferred Financing Costs
|
|
Carrying
Value
|
|
First Lien Facility Agreement
|
$
|
186,988
|
|
|
$
|
6,373
|
|
|
$
|
180,615
|
|
|
$
|
190,361
|
|
|
$
|
10,185
|
|
|
$
|
180,176
|
|
|
Second Lien Facility Agreement
|
230,597
|
|
|
32,125
|
|
|
198,472
|
|
|
201,495
|
|
|
35,448
|
|
|
166,047
|
|
|
Loan Agreement with Thermo
|
—
|
|
|
—
|
|
|
—
|
|
|
135,105
|
|
|
18,562
|
|
|
116,543
|
|
|
8.00% Convertible Senior Notes Issued in 2013
|
1,376
|
|
|
—
|
|
|
1,376
|
|
|
1,410
|
|
|
—
|
|
|
1,410
|
|
|
Payroll Protection Program Loan
|
4,973
|
|
|
26
|
|
|
4,947
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total Debt
|
423,934
|
|
|
38,524
|
|
|
385,410
|
|
|
528,371
|
|
|
64,195
|
|
|
464,176
|
|
|
Less: Current Portion
|
58,824
|
|
|
—
|
|
|
58,824
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Long-Term Debt
|
$
|
365,110
|
|
|
$
|
38,524
|
|
|
$
|
326,586
|
|
|
$
|
528,371
|
|
|
$
|
64,195
|
|
|
$
|
464,176
|
|
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. As of December 31, 2020, the current portion of long-term debt represents the scheduled principal repayments under the First Lien Facility Agreement and the PPP Loan due within one year of the balance sheet date.
First Lien Facility Agreement
In 2009, the Company entered into the First Lien Facility Agreement with a syndicate of bank lenders, including BNP Paribas, Société Générale, Natixis, Crédit Agricole Corporate and Investment Bank and Crédit Industriel et Commercial, as arrangers, and BNP Paribas, as the security agent. The First Lien Facility Agreement was amended and restated in July 2013, August 2015, June 2017 and November 2019.
The First Lien Facility Agreement is scheduled to mature in December 2022. Indebtedness under the First Lien Facility Agreement bears interest at a floating rate of LIBOR plus a margin that increases by 0.5% each year to a maximum rate of LIBOR plus 5.75%. The current interest rate is LIBOR plus 4.75%. Interest on the First Lien 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 First Lien Facility Agreement are guaranteed by Bpifrance Assurance Export S.A.S. ("BPIFAE"), the French export credit agency. The Company's obligations under the First Lien 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.
As previously discussed, the Company received a loan under the CARES Act in April 2020. Due to restrictions limiting the Company's ability to incur indebtedness, the execution of this loan required a waiver under the First Lien Facility Agreement, which was approved by the Company's senior lenders.
The First Lien Facility Agreement contains customary events of default and requires that the Company satisfy various financial and non-financial covenants, including the following:
•The Company's capital expenditures do not exceed $15.0 million per year;
•The Company's expenditures in connection with its spectrum rights do not exceed $20.0 million;
•The Company maintains at all times a minimum liquidity balance of $4.0 million;
•The Company achieves for each period the following minimum adjusted consolidated EBITDA (as defined in the First Lien Facility Agreement) (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Minimum Amount
|
|
1/1/20-6/30/20
|
|
$
|
18,245
|
|
|
7/1/20-12/31/20
|
|
$
|
23,755
|
|
|
1/1/21-6/30/21
|
|
$
|
20,524
|
|
|
7/1/21-12/31/21
|
|
$
|
26,780
|
|
|
|
|
|
|
|
|
|
•The Company maintains a minimum debt service coverage ratio of 1.00:1;
•The Company maintains a maximum net debt to adjusted consolidated EBITDA ratio of 3.96:1 for the December 31, 2020 measurement period and 2.50:1 for the four semi-annual measurement periods leading up to December 31, 2022;
•The Company maintains a minimum interest coverage ratio of 3.63:1 for the December 31, 2020 measurement period, increasing gradually each semi-annual period until the requirement equals 5.25:1 for the two semi-annual measurement periods leading up to December 31, 2022; and
•The Company makes mandatory prepayments in specified circumstances and amounts, including if the Company generates excess cash flow, monetizes its spectrum rights, receives the proceeds of certain asset dispositions or receives more than $145.0 million from the sale of additional debt or equity securities.
Additionally, the covenants in the First Lien 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 First Lien 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 maturity. If the Company violates any financial covenants and is unable to obtain a sufficient Equity Cure Contribution or obtain a waiver, it would be in default under the First Lien 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 December 31, 2020, the Company was in compliance with respect to the covenants of the First Lien Facility Agreement.
The First Lien Facility Agreement requires mandatory prepayments of principal with any Excess Cash Flow (as defined and calculated in the First Lien Facility Agreement) on a semi-annual basis. During 2020, the Company was required to pay $0.3 million and $3.1 million to its first lien lenders resulting from the Excess Cash Flow calculations as of December 31, 2019 and June 30, 2020, respectively. The Company expects to make another prepayment in 2021 from Excess Cash Flow as of December 31, 2020. These payments reduce future principal payment obligations.
The First Lien 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 First Lien Facility Agreement. The required balance in the debt service reserve account is fixed and must equal at least $50.9 million. As of December 31, 2020, the balance in the debt service reserve
account was approximately $51.1 million and is classified as non-current restricted cash on the Company's consolidated balance sheet as it will be used towards the final scheduled payment due upon maturity of the First Lien Facility Agreement in December 2022.
The amended and restated First Lien Facility Agreement includes a requirement that the Company raise no less than $45.0 million from the sale of equity prior to March 30, 2021. These proceeds will be applied towards the principal payment due on June 30, 2021 and then, if applicable, to the next scheduled principal payments. The Company currently expects to fulfill this requirement with proceeds from the exercise of the remaining warrants issued to the Second Lien Facility Agreement lenders in November 2019. The Company will access equity and debt capital markets, if necessary to fund any remaining requirements not satisfied through warrant proceeds. In December 2019, the Company received proceeds of $3.6 million from the exercise of a portion of warrants issued to the Second Lien Facility Agreement lenders, which is retained in the equity proceeds account under the First Lien Facility Agreement and is recorded in current restricted cash on the Company's consolidated balance sheet as of December 31, 2020. Since December 31, 2020, certain of the Second Lien Facility Agreement lenders exercised approximately 5.5 million warrants at a price of $0.38 per share, the proceeds of which will be used to fulfill a portion of the $45.0 million requirement discussed above.
Subordinated Loan Agreement
In July 2019, the Company entered into a Subordinated Loan Agreement (the “Subordinated Loan Agreement”) with Thermo Funding Company LLC (an affiliated entity to Thermo), and certain unaffiliated parties. Under the Subordinated Loan Agreement, the Company received $62.0 million to fund the June 30, 2019 payment of interest and principal under the Company’s First Lien Facility Agreement and for certain other purposes. The Subordinated Loan Agreement accrued interest at 15% per annum, which was capitalized and added to the outstanding principal in lieu of cash payments. Prior to repayment, the Subordinated Loan Agreement had accrued a total of $4.0 million. In November 2019, the Subordinated Loan Agreement was paid in full from a portion of the proceeds from the Second Lien Facility Agreement (see further discussion below). For further discussion on the accounting treatment of the Subordinated Loan Agreement, refer to the Globalstar Annual Report on Form 10-K for the year ended December 31, 2019.
Second Lien Facility Agreement
In November 2019, the Company entered into a $199.0 million Second Lien Facility Agreement with Thermo, EchoStar Corporation and certain other unaffiliated lenders. The Second Lien Facility Agreement is scheduled to mature in November 2025. The loans under the Second Lien Facility Agreement bear interest at a blended rate of 13.5% per annum to be paid in kind (or in cash at the option of the Company, subject to restrictions in the First Lien Facility Agreement).
The cash proceeds from this loan were net of a 3%, or $6.0 million, original issue discount (the "OID"). A portion of this OID was recorded as a debt discount of $4.0 million. This debt discount was netted against the principal amount of the loan and is being accreted using an effective interest method to interest expense over the term of the loan.
As additional consideration for the loan, the Company issued the lenders warrants to purchase 124.5 million shares of voting common stock at an exercise price of $0.38 per share. These warrants expire on March 31, 2021. As of December 31, 2020, approximately 115.0 million warrants remain outstanding. Since December 31, 2020, an additional 5.5 million warrants were exercised at a price of $0.38 per share. The Company determined that the warrants were equity instruments and recorded them as a part of stockholders’ equity. A portion of the warrants fair value was recorded as a debt discount of $15.8 million. This debt discount was netted against the principal amount of the loan and is being accreted using an effective interest method to interest expense over the term of the loan.
As previously discussed, the Company received a loan under the CARES Act in April 2020. Due to restrictions limiting the Company's ability to incur indebtedness, the execution of this loan required a waiver under the Second Lien Facility Agreement, which was approved by the Company's second lien lenders.
The Second Lien Facility Agreement contains customary events of default and requires that the Company satisfy various financial and non-financial covenants. Unless shown below, covenants under the Second Lien Facility Agreement are consistent with the covenants under the Company's First Lien Facility Agreement (discussed above). The financial covenants in the Second Lien Facility Agreement require the Company to:
•maintain at all times a minimum liquidity balance of $3.6 million;
•achieve for each period the following minimum adjusted consolidated EBITDA (as defined in the Second Lien Facility Agreement) (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Minimum Amount
|
|
|
|
|
|
1/1/20-6/30/20
|
|
$
|
16,400
|
|
|
7/1/20-12/31/20
|
|
$
|
21,400
|
|
|
1/1/21-6/30/21
|
|
$
|
18,500
|
|
|
7/1/21-12/31/21
|
|
$
|
24,100
|
|
|
|
|
|
|
|
|
|
•maintain a minimum debt service coverage ratio of 0.90:1;
•maintain a maximum net debt to adjusted consolidated EBITDA ratio of 4.36:1 for the December 31, 2020 measurement period and 2.75:1 for the four semi-annual measurement periods leading up to December 31, 2022; and
•maintain a minimum interest coverage ratio of 3.27:1 for the December 31, 2020 measurement period, increasing gradually each semi-annual period until the requirement equals 4.73:1 for the two semi-annual measurement periods leading up to December 31, 2022.
As of December 31, 2020, the Company was in compliance with the covenants of the Second Lien Facility Agreement.
The portion of the Second Lien Facility Agreement proceeds that was used to repay the Subordinated Loan Agreement was considered a debt extinguishment pursuant to applicable accounting guidance. See discussion in the Subordinated Loan Agreement section above for further information. The remaining Second Lien Facility Agreement was recorded at its carrying value at inception.
The Company evaluated the various embedded derivatives within the Second Lien Facility Agreement related to certain contingently exercisable put options. Due to the substantial discount upon issuance, as calculated under applicable accounting guidance, these prepayment features were required to be bifurcated and separately valued. The Company initially recorded the compound embedded derivative liability as a non-current liability on its consolidated balance sheets with a corresponding debt discount, which is netted against the face value of the Second Lien Facility Agreement. The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the maturity date using an effective interest rate method.
Thermo's participation in the Second Lien Facility Agreement was reviewed and approved on the Company's behalf by the Strategic Review Committee, which is a committee of disinterested and independent directors who are represented by independent legal counsel. See Note 11: Related Party Transactions for further information on the role and responsibility of the Strategic Review Committee.
Thermo Loan Agreement
In connection with the amendment and restatement of the First Lien Facility Agreement in July 2013, the Company amended and restated its loan agreement with Thermo (the “Loan Agreement”). The Loan Agreement was convertible into shares of common stock at a conversion price of $0.69 (as adjusted) per share of common stock. The Loan Agreement accrued interest at 12% per annum, which was capitalized and added to the outstanding principal in lieu of cash payments.
On February 19, 2020, Thermo converted the entire principal balance outstanding under the Loan Agreement, which totaled $137.4 million and included accrued interest since inception of $93.9 million. This conversion resulted in the issuance of 200.1 million shares of common stock. In accordance with applicable accounting guidance for debt extinguishment with related parties, upon conversion, the remaining debt discount was written off and recorded as a contribution to capital though equity and the associated derivative liability was marked to market at the conversion date and then extinguished through equity as a contribution to capital.
The Company evaluated the various embedded derivatives within the Loan Agreement (See Note 8: 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 Company recorded this compound embedded derivative liability as a non-current liability on its consolidated balance sheets with a corresponding debt discount, which was netted against the face value of the Loan Agreement. Prior to conversion in February 2020, the Company was 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 stated maturity was used as the expected term for purposes of amortizing the debt discount, despite the Company's expectation of an earlier conversion, based on the applicable accounting rules.
8.00% Convertible Senior Notes Issued in 2013
In 2013, the Company issued $54.6 million aggregate principal amount of its 2013 8.00% Notes. The 2013 8.00% Notes are convertible into shares of common stock at a conversion price of $0.69 per share of common stock, as adjusted pursuant to the terms of the indenture (the “Indenture”). The 2013 8.00% Notes are senior unsecured debt obligations that mature on April 1, 2028, subject to various call and put features, and bear interest at a rate of 8.00% per annum. Interest is paid in cash at a rate of 5.75% and in additional notes at a rate of 2.25%. Since issuance, $55.5 million of principal amount of the 2013 8.00% Notes have been converted resulting in the issuance of 98.6 million shares of Globalstar common stock.
The Company may redeem the 2013 8.00% Notes, with the prior approval of the majority lenders under the First Lien Facility Agreement and the Second Lien Facility Agreement, in whole or in part, 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 to require the Company to purchase some or all of the 2013 8.00% Notes held by it on April 1, 2023, or at any time if there is a Fundamental Change (as defined in the Indenture), at a price equal to the principal amount of the 2013 8.00% Notes to be purchased plus accrued and unpaid interest. A holder may convert its 2013 8.00% Notes at its option at any time prior to April 1, 2028 into shares of common stock.
The Indenture provides for customary events of default. As of December 31, 2020, the Company was in compliance with respect to the terms of the 2013 8.00% Notes and the Indenture.
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 recorded this compound embedded derivative liability as a liability on its consolidated balance sheets with a corresponding debt discount which was netted against the face value of the 2013 8.00% Notes. The debt discount has been fully accreted as of September 30, 2017.
Payroll Protection Program Loan
In April 2020, the Company sought relief under the CARES Act and received a $5.0 million loan under the PPP. The PPP Loan is an unsecured debt obligation and is scheduled to mature in April 2022. As permitted under the CARES Act, the Company applied for loan forgiveness in December 2020, inclusive of both principal and accrued interest, in accordance with the terms of the CARES Act, based on payroll costs incurred since disbursement of the PPP Loan. Any amount not forgiven by the Small Business Administration (the "SBA") is subject to an interest rate of 1.00% per annum commencing on the date of the PPP Loan. Principal and interest payments due under the PPP Loan are generally deferred until the review and approval of any forgiveness is made by the SBA, subject to the PPP rules. Furthermore, the Company's first and second lien lenders would require the Company to accelerate the repayment of any portion of the loan amount that is not forgiven.
The Company evaluated the applicable accounting guidance relative to the PPP Loan and accounted for the proceeds of the PPP Loan as debt under ASC 470. The Company expects the PPP Loan to be forgiven, but cannot provide assurance of such forgiveness until it has been approved by the Company's lender and the SBA. Any portion of the PPP Loan that is forgiven will be recorded in the Company's condensed consolidated statement of operations as a gain on extinguishment of debt in the period of forgiveness.
Debt maturities
Annual debt maturities for each of the five years following December 31, 2020 and thereafter are as follows (in thousands):
|
|
|
|
|
|
|
|
2021
|
$
|
58,824
|
|
|
2022
|
132,857
|
|
|
2023
|
1,656
|
|
|
2024
|
—
|
|
|
2025
|
230,597
|
|
|
Thereafter
|
—
|
|
|
Total
|
$
|
423,934
|
|
Amounts in the above table are calculated based on amounts outstanding at December 31, 2020, and therefore exclude paid-in-kind interest payments that will be made in future periods.
7. DERIVATIVES
The Company has identified various embedded derivatives resulting from certain features in the Company’s existing borrowing arrangements, requiring recognition on its consolidated balance sheets. None of these derivative instruments are designated as a hedge. The following table discloses the fair values of the derivative instruments on the Company’s consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Derivative assets:
|
|
|
|
|
Compound embedded derivative with the Second Lien Facility Agreement
|
$
|
286
|
|
|
$
|
—
|
|
|
Total derivative assets
|
$
|
286
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
Compound embedded derivative with the 2013 8.00% Notes
|
$
|
(123)
|
|
|
$
|
(522)
|
|
|
Compound embedded derivative with the Loan Agreement with Thermo
|
—
|
|
|
(1,270)
|
|
|
Compound embedded derivative with the Second Lien Facility Agreement
|
—
|
|
|
(2,000)
|
|
|
Total derivative liabilities
|
$
|
(123)
|
|
|
$
|
(3,792)
|
|
As of December 31, 2020, the derivative asset recorded for the Compound embedded derivative with the Second Lien Facility Agreement was included in Intangible and other assets, net on the Company's consolidated balance sheets.
The following table discloses the changes in value recorded as derivative gain in the Company’s consolidated statement of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Compound embedded derivative with the 2013 8.00% Notes
|
399
|
|
|
235
|
|
|
569
|
|
|
Compound embedded derivative with the Loan Agreement with Thermo
|
212
|
|
|
144,838
|
|
|
80,551
|
|
|
Compound embedded derivative with the Second Lien Facility Agreement
|
2,286
|
|
|
—
|
|
|
—
|
|
|
Total derivative gain
|
$
|
2,897
|
|
|
$
|
145,073
|
|
|
$
|
81,120
|
|
The fair value of each embedded derivative is marked-to-market at the end of each reporting period, or more frequently as deemed necessary, with any changes in value reported in its consolidated statements of operations and its consolidated statements of cash flows as an operating activity. The Company classifies its derivatives consistent with the classification of the underlying debt on the Company's consolidated balance sheet. See Note 8: Fair Value Measurements for further discussion. Each liability or asset and the features embedded in the debt instrument, which required the Company to account for the instrument as a derivative, are described below.
Compound Embedded Derivative with 2013 8.00% Notes
As a result of the conversion option and the contingent put feature within the 2013 8.00% Notes, the Company recorded a compound embedded derivative liability on its consolidated balance sheets with a corresponding debt discount that is netted against the face value of the 2013 8.00% Notes. The Company determined the fair value of the compound embedded derivative liability using a Monte Carlo simulation model. The Company classifies this derivative liability consistent with the classification of the 2013 8.00% Notes on the Company's consolidated balance sheet.
Compound Embedded Derivative with the Loan Agreement with Thermo
As a result of the conversion option and the contingent put feature within the Loan Agreement with Thermo as amended and restated in 2013, the Company recorded a compound embedded derivative liability on its consolidated balance sheets with a corresponding debt discount that was netted against the face value of the Loan Agreement. The Company determined the fair value of the compound embedded derivative liability using a Monte Carlo simulation model. During the first quarter of 2020, the compound embedded derivative with the Loan Agreement with Thermo was extinguished. See Note 6: Long-Term Debt and Other Financing Arrangements for further discussion.
Compound Embedded Derivative with the Second Lien Facility Agreement
As a result of certain contingently exercisable put features within the Second Lien Facility Agreement, the Company initially recorded a compound embedded derivative liability on its consolidated balance sheet with a corresponding debt discount that is netted against the face value of the Second Lien Facility Agreement. The Company determined the fair value of the compound embedded derivative liability using a probability weighted discounted cash flow model.
8. 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 assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2020:
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
Balance
|
|
Assets:
|
|
|
|
|
|
|
|
|
Compound embedded derivative with the Second Lien Facility Agreement
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
286
|
|
|
$
|
286
|
|
|
Total assets measured at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
286
|
|
|
$
|
286
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Compound embedded derivative with the 2013 8.00% Notes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(123)
|
|
|
$
|
(123)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(123)
|
|
|
$
|
(123)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019:
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
Balance
|
|
Compound embedded derivative with 8.00% Notes Issued in 2013
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(522)
|
|
|
$
|
(522)
|
|
|
Compound embedded derivative with the Loan Agreement with Thermo
|
—
|
|
|
—
|
|
|
(1,270)
|
|
|
(1,270)
|
|
|
Compound embedded derivative with the Second Lien Facility Agreement
|
—
|
|
|
—
|
|
|
(2,000)
|
|
|
(2,000)
|
|
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3,792)
|
|
|
$
|
(3,792)
|
|
All of the Company's derivative assets and liabilities are classified as Level 3. The Company marks-to-market these assets and liabilities at each reporting date, or more frequently as deemed necessary, with the changes in fair value recognized in the Company’s consolidated statements of operations. See Note 7: Derivatives for further discussion.
2013 8.00% Notes and Loan Agreement with Thermo
The significant quantitative Level 3 inputs utilized in the valuation models are shown in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020:
|
|
|
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
|
40 - 85%
|
|
0.1%
|
|
$0.69
|
|
19%
|
|
$0.34
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2020, the compound embedded derivative with the Loan Agreement with Thermo was extinguished and, therefore, as of December 31, 2020, the value was zero. See Note 6: Long-Term Debt and Other Financing Arrangements and Note 7: Derivatives for further discussion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019:
|
|
|
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
|
70 - 130%
|
|
1.6%
|
|
$0.69
|
|
27%
|
|
$0.52
|
|
Compound embedded derivative with the Loan Agreement with Thermo
|
70 - 130%
|
|
1.6%
|
|
$0.69
|
|
27%
|
|
$0.52
|
Second Lien Facility Agreement
The compound embedded derivative with the Second Lien Facility Agreement is valued using a probability weighted discounted cash flow model. The most significant observable input used in the fair value measurement is the discount yield, which was 13% and 18% at December 31, 2020 and 2019, respectively. As of December 31, 2020, the discount yield utilized in the valuation was lower than the blended interest rate of the underlying debt. As a result, the features embedded in the underlying debt resulted in an asset for the Company.
Decreases in the discount yield generally will result in a lower fair value measurement in the model. The unobservable inputs used in the fair value measurement include the probability of change of control and the estimated timing and amounts of cash flows associated with certain mandatory prepayments within the debt agreement.
Rollforward of Recurring Level 3 Assets and Liabilities
The following table presents a rollforward for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
Balances at beginning of period
|
$
|
(3,792)
|
|
|
$
|
(146,865)
|
|
|
Derivative adjustment related to conversions
|
1,058
|
|
|
—
|
|
|
Issuance of compound embedded derivative with the Second Lien Facility Agreement
|
—
|
|
|
(2,000)
|
|
|
Unrealized gain, included in derivative gain
|
2,897
|
|
|
145,073
|
|
|
Balances at end of period
|
$
|
163
|
|
|
$
|
(3,792)
|
|
Fair Value of Debt Instruments
The Company believes it is not practicable to determine the fair value of the First Lien Facility Agreement, the Second Lien Facility Agreement and the PPP Loan without incurring significant additional costs. Unlike typical long-term debt, interest rates and other terms for these instruments 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Loan Agreement with Thermo
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
116,543
|
|
|
$
|
88,886
|
|
|
2013 8.00% Notes
|
1,376
|
|
|
1,122
|
|
|
1,410
|
|
|
875
|
|
Nonrecurring Fair Value Measurements
Compound Embedded Derivative with the Loan Agreement with Thermo
The Company follows the authoritative guidance regarding non-financial assets and liabilities that are remeasured at fair value on a nonrecurring basis. On February 19, 2020, Thermo converted the entire principal balance outstanding under the Loan Agreement with Thermo into shares of common stock. See further discussion in Note 6: Long-Term Debt and Other Financing Arrangements. As a result of the conversion, the Company wrote off the total fair value of the compound embedded derivative liability with the Loan Agreement with Thermo based on the derivative value on the conversion date of $1.1 million. This embedded derivative was classified as a Level 3 fair value measurement on the Company's consolidated balance sheet. The significant quantitative Level 3 inputs utilized in the valuation model are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 19, 2020
|
|
|
Stock Price
Volatility
|
|
Risk-Free Interest Rate
|
|
Note Conversion Price
|
|
Discount Rate
|
|
Market Price of Common Stock
|
|
Compound embedded derivative with the Loan Agreement with Thermo
|
70 - 130%
|
|
1.4
|
%
|
|
$
|
0.69
|
|
|
27
|
%
|
|
$
|
0.42
|
|
Long-Lived Assets
Long-lived assets and intangible and other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
During 2019, the Company reclassified its former gateway location in Nicaragua from held and used to held for sale. This asset was originally recorded at a total fair value of $1.6 million prior to the reduction in its value, resulting in a total loss of $1.1 million during 2019. As of December 31, 2019, the fair value less estimated cost to sell was $0.5 million. During the fourth quarter of 2020, the Company signed a contract for the sale of this property; the final selling price (net of estimated cost to sell) is $0.3 million and, accordingly, the Company recorded an additional impairment totaling $0.2 million during 2020. Additionally, during the fourth quarter of 2020, the Company wrote down $0.2 million related to of the ground portion of construction in progress for one of its gateways resulting from an analysis made over these balances.
9. COMMITMENTS AND CONTINGENCIES
Network Obligations
The Company has purchase commitments with certain vendors related to the procurement, deployment and maintenance of the Company's network. As of December 31, 2020, the Company's remaining purchase obligations under certain of these noncancellable commitments are approximately $8.1 million; the timing of payments is driven by work performed under the contracts over the remaining contract periods, which range from approximately one to three years.
Inventory Purchase Commitments
The Company has inventory purchase commitments with its third party product manufacturers in the normal course of business. These commitments are generally non-cancelable and are based on sales forecasts. The Company estimates that its open inventory purchase commitments as of December 31, 2020 were approximately $6.4 million.
Credit Card Processor Reserve
The Company is required to maintain a reserve of $5.0 million with its credit card processor to address any liability arising from potential charge-backs. The balance at December 31, 2020 was $5.0 million and is recorded in prepaid expenses and other current assets on the Company's consolidated balance sheet as the required reserve is held with the credit card processor.
Business Economic Loss Claim
In May 2018, the Company concluded the settlement of a business economic loss claim in which it was an absent member in a tort class action lawsuit. The Company received proceeds of $7.4 million, net of legal fees, related to this settlement. The Company received the two installments of $3.7 million each in January 2019 and January 2020.
Customer Bankruptcy Claim
During 2020, one of the Company's customers filed for Chapter 11 of the United States Bankruptcy Code resulting in the Company reserving all open receivables due from the customer. This customer's plan of reorganization was confirmed by the bankruptcy court and the order was issued in January 2021. The cure payment is expected to be made to Globalstar in early 2021 totaling $0.3 million. As of December 31, 2020, the confirmation was not yet made and accordingly the Company is accounting for this matter as a gain contingency and has recorded such gain in 2021, when the contingency was resolved and payment was made.
Other 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 management's opinion, there is no pending litigation, dispute or claim, which could be expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.
10. ACCRUED EXPENSES AND OTHER NON-CURRENT LIABILITIES
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Accrued compensation and benefits
|
$
|
4,270
|
|
|
$
|
3,455
|
|
|
Accrued property and other taxes
|
4,702
|
|
|
3,864
|
|
|
Accrued customer liabilities and deposits
|
6,551
|
|
|
5,751
|
|
|
Accrued professional and other service provider fees
|
2,705
|
|
|
3,192
|
|
|
Accrued commissions
|
1,722
|
|
|
1,829
|
|
|
Accrued telecommunications expenses
|
1,284
|
|
|
610
|
|
|
|
|
|
|
|
Accrued inventory
|
499
|
|
|
702
|
|
|
|
|
|
|
|
Accrued tariffs
|
1,795
|
|
|
1,795
|
|
|
Short-term lease liability
|
1,330
|
|
|
1,634
|
|
|
Other accrued expenses
|
1,058
|
|
|
2,042
|
|
|
Total accrued expenses
|
$
|
25,916
|
|
|
$
|
24,874
|
|
Accrued compensation and benefits include primarily accrued vacation, payroll, benefits and taxes. The increase in this balance from December 31, 2019 to 2020 is due primarily to higher accrued vacation balances as well as deferred payroll taxes (as discussed below).
Accrued tariffs represent amounts payable to U.S Customs and Border Protection for a ruling issued in September 2019 related to the classification of certain of the Company's core products imported from China. The Company plans on filing a protest against this ruling to challenge the classification and reduce the amounts owed.
Other accrued expenses include primarily vendor services, warranty reserve, occupancy costs and accrued network costs. For the year ended December 31, 2019, other accrued expenses also included the estimated payroll shortfall under the Cooperative Endeavor Agreement with the Louisiana Department of Economic Development.
The following is a summary of the activity in the warranty reserve account, which is included in other accrued expenses above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Balance at beginning of period
|
$
|
186
|
|
|
$
|
153
|
|
|
$
|
143
|
|
|
Provision
|
543
|
|
|
525
|
|
|
372
|
|
|
Utilization
|
(517)
|
|
|
(492)
|
|
|
(362)
|
|
|
Balance at end of period
|
$
|
212
|
|
|
$
|
186
|
|
|
$
|
153
|
|
Other non-current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Asset retirement obligation
|
$
|
1,629
|
|
|
$
|
1,467
|
|
|
Deferred tax liability
|
755
|
|
|
395
|
|
|
Deferred payroll taxes under CARES Act
|
423
|
|
|
—
|
|
|
Foreign tax contingencies
|
633
|
|
|
1,086
|
|
|
Other
|
8
|
|
|
123
|
|
|
Total other non-current liabilities
|
$
|
3,448
|
|
|
$
|
3,071
|
|
Asset retirement obligations reflect the estimated liability arising from legal obligations associated with the retirement of certain long-lived assets; for further discussion, refer to Note 1: Summary of Significant Accounting Policies.
Deferred payroll taxes under the CARES Act reflect the Company's employer share of social security taxes that were originally due during a portion of 2020. The Company expects these amounts will be repaid in two installments in December 2021 and December 2022; amounts in the table above reflect the portion due in December 2022.
Foreign tax contingencies reflect primarily amounts owed by the Company's Brazilian subsidiary pursuant to refinancing programs in country.
11. RELATED PARTY TRANSACTIONS
Payables to Thermo and other affiliates related to normal purchase transactions were $0.6 million and $0.3 million as of December 31, 2020 and 2019, respectively.
Transactions with Thermo
Certain general and administrative expenses are incurred by Thermo on behalf of the Company. These expenses, which include non-cash expenses that the Company accounts for as a contribution to capital, related to services provided by certain executive officers of Thermo, and expenses incurred by Thermo on behalf of the Company that are charged to the Company. The expenses charged are based on actual amounts (with no mark-up) incurred by Thermo or upon allocated employee time. The expenses charged to the Company were $0.6 million, $0.5 million, and $1.5 million for the periods ended December 31, 2020, 2019 and 2018, respectively.
In February 2019, the Company entered into a lease agreement with Thermo Covington, LLC for the Company's headquarters office. Annual lease payments started at $1.4 million per year, increasing at a rate of 2.5% per year, for a lease term of ten years. During the twelve months ended December 31, 2020 and 2019, the Company incurred lease expense of $1.6 million and $1.5 million, respectively, due to Thermo under this lease agreement.
On February 19, 2020, Thermo converted the entire principal balance outstanding under the Loan Agreement resulting in the issuance of 200.1 million shares of common stock.
In July 2019, the Company entered into a Subordinated Loan Agreement, effective June 28, 2019, with Thermo and certain unaffiliated parties. Thermo's participation in the Subordinated Loan Agreement was $53.8 million and $3.4 million of interest had accrued prior to its pay down. In November 2019, the Company entered into the Second Lien Facility Agreement. Thermo's participation in the Second Lien Facility Agreement was $95.1 million. This principal balance earns paid-in-kind interest at a rate of 13% per annum. Interest accrued since inception with respect to Thermo's portion of the debt outstanding on the Second Lien Facility Agreement was approximately $14.5 million, of which $13.4 million was accrued during the twelve months ended December 31, 2020. In connection with the issuance of the Second Lien Facility Agreement, the holders received warrants to purchase shares of voting common stock, of which Thermo received 59.5 million warrants with an exercise price of $0.38 per share. As of December 31, 2020, approximately 50.0 million warrants remain outstanding and expire on March 31, 2021.
Additionally, the First Lien Facility Agreement requires Thermo to maintain minimum and maximum ownership levels in the Company's common stock.
The Company has a Strategic Review Committee that is required to remain in existence for as long as Thermo and its affiliates beneficially own forty-five percent (45%) or more of Globalstar’s outstanding common stock. To the extent permitted by applicable law, the Strategic Review Committee has exclusive responsibility for the oversight, review and approval of, among other things and subject to certain exceptions, any acquisition by Thermo and its affiliates of additional newly-issued securities of the Company and any transaction between the Company and Thermo and its affiliates with a value in excess of $250,000.
See Note 6: Long-Term Debt and Other Financing Arrangements for further discussion of the Company's debt and financing transactions with Thermo.
12. PENSIONS AND OTHER EMPLOYEE BENEFITS
Defined Benefit Plan
Until June 1, 2004, substantially all Old and New Globalstar employees and retirees who participated and/or met the vesting criteria for the plan were participants in the Retirement Plan of Space Systems/Loral (the "Loral Plan"), a defined benefit pension plan. The accrual of benefits in the Old Globalstar segment of the Loral Plan was curtailed, or frozen, by the administrator of the Loral Plan in 2003. Prior to 2003, benefits for the Loral Plan were generally based upon contributions, length of service with the Company and age of the participant. On June 1, 2004, the assets and frozen pension obligations of the Globalstar Segment of the Loral Plan were transferred into a new Globalstar Retirement Plan (the "Globalstar Plan"). The Globalstar Plan remains frozen and participants are not currently accruing benefits beyond those accrued as of October 23, 2003. The Company's funding policy is to fund the Globalstar Plan in accordance with the Internal Revenue Code and regulations.
In each of December 2020 and 2019, the Company settled a portion of the pension liability related to retirees and terminated vested employees in the Globalstar Plan as a de-risking strategy. The total settlements for 2020 and 2019 were $7.7 million and $1.7 million, respectively, and were paid out through the assets held in the Globalstar Plan. The settlements resulted in a reduction to the projected benefit obligation and a corresponding decrease to plan assets as of both December 31, 2020 and 2019. Additionally, in accordance with ASC 715 Compensation — Retirement Benefits, the Company recognized losses totaling $2.1 million and $0.5 million, respectively, and these losses are included in other income (expense) in its consolidated statement of operations during the twelve-month periods ended December 31, 2020 and 2019 associated with these settlements. The losses represent the pro rata portion of actuarial losses that were previously deferred in other comprehensive income.
Defined Benefit Pension Obligation and Funded Status
Below is a reconciliation of projected benefit obligation, plan assets and the funded status of the Company’s defined benefit plan (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
Change in projected benefit obligation:
|
|
|
|
|
Projected benefit obligation, beginning of year
|
$
|
16,509
|
|
|
$
|
17,150
|
|
|
Service cost
|
176
|
|
|
195
|
|
|
Interest cost
|
521
|
|
|
706
|
|
|
Actuarial loss
|
671
|
|
|
1,147
|
|
|
Settlement
|
(7,669)
|
|
|
(1,660)
|
|
|
Benefits paid
|
(1,029)
|
|
|
(1,029)
|
|
|
Projected benefit obligation, end of year
|
$
|
9,179
|
|
|
$
|
16,509
|
|
|
Change in fair value of plan assets:
|
|
|
|
|
Fair value of plan assets, beginning of year
|
$
|
12,381
|
|
|
$
|
12,661
|
|
|
Return on plan assets
|
1,131
|
|
|
2,179
|
|
|
Employer contributions
|
715
|
|
|
230
|
|
|
Settlement
|
(7,669)
|
|
|
(1,660)
|
|
|
Benefits paid
|
(1,029)
|
|
|
(1,029)
|
|
|
Fair value of plan assets, end of year
|
$
|
5,529
|
|
|
$
|
12,381
|
|
|
Funded status, end of year-net liability
|
$
|
(3,650)
|
|
|
$
|
(4,128)
|
|
Net Benefit Cost and Amounts Recognized
Components of the net periodic benefit cost of the Company’s defined benefit pension plan were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
Service cost
|
$
|
176
|
|
|
$
|
195
|
|
|
$
|
194
|
|
|
Interest cost
|
521
|
|
|
706
|
|
|
663
|
|
|
Expected return on plan assets
|
(793)
|
|
|
(794)
|
|
|
(901)
|
|
|
Amortization of unrecognized net actuarial loss
|
300
|
|
|
404
|
|
|
374
|
|
|
Settlement
|
2,075
|
|
|
455
|
|
|
—
|
|
|
Total net periodic benefit cost
|
$
|
2,279
|
|
|
$
|
966
|
|
|
$
|
330
|
|
Amounts recognized in the consolidated balance sheet were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Amounts recognized:
|
|
|
|
|
Funded status recognized in other non-current liabilities
|
$
|
(3,650)
|
|
|
$
|
(4,128)
|
|
|
Net actuarial loss recognized in accumulated other comprehensive loss
|
2,483
|
|
|
4,525
|
|
|
Net amount recognized in retained deficit
|
$
|
(1,167)
|
|
|
$
|
397
|
|
The estimated net actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2021 is $0.2 million. No amounts are expected to be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2021 related to prior service costs or net transition obligations.
Assumptions
The weighted-average assumptions used to determine the benefit obligation and net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Benefit obligation assumptions:
|
|
|
|
|
|
|
Discount rate
|
2.50
|
%
|
|
3.28
|
%
|
|
4.25
|
%
|
|
Rate of compensation increase
|
N/A
|
|
N/A
|
|
N/A
|
|
Net periodic benefit cost assumptions:
|
|
|
|
|
|
|
Discount rate
|
3.28
|
%
|
|
4.25
|
%
|
|
3.63
|
%
|
|
Expected rate of return on plan assets
|
6.50
|
%
|
|
6.50
|
%
|
|
6.50
|
%
|
|
Rate of compensation increase
|
N/A
|
|
N/A
|
|
N/A
|
The assumptions, investment policies and strategies for the Globalstar Plan are determined by the Globalstar Plan Committee. The Globalstar Plan Committee is responsible for ensuring the investments of the plans are managed in a prudent and effective manner. Amounts related to the pension plan are derived from actuarial and other assumptions, including discount rates, mortality, expected rate of return, participant data and termination. The Company reviews assumptions on an annual basis and makes adjustments as considered necessary.
The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the projected benefit obligation for the plan, the asset mix of the plan and the fact that the plan assets are actively managed to mitigate risk. Discount rates are determined annually based on the Plan administrator’s yield curve index, which considers expected benefit payments and is discounted with rates from the yield curve to determine a single equivalent discount rate.
Plan Assets and Investment Policies and Strategies
The plan assets are invested in various mutual funds which have quoted prices. The plan has a target allocation. On a weighted-average basis, target allocations for equity securities range from 50% to 60%, for debt securities 25% to 50% and for other investments 0% to 15%. The defined benefit pension plan asset allocations as of the measurement date presented as a percentage of total plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Equity securities
|
55
|
%
|
|
55
|
%
|
|
Debt securities
|
45
|
|
|
45
|
|
|
|
|
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
The fair values of the Company’s pension plan assets by asset category were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
United States equity securities
|
$
|
2,426
|
|
|
$
|
—
|
|
|
$
|
2,426
|
|
|
$
|
—
|
|
|
International equity securities
|
619
|
|
|
—
|
|
|
619
|
|
|
—
|
|
|
Fixed income securities
|
1,553
|
|
|
—
|
|
|
1,553
|
|
|
—
|
|
|
Other
|
931
|
|
|
—
|
|
|
931
|
|
|
—
|
|
|
Total
|
$
|
5,529
|
|
|
$
|
—
|
|
|
$
|
5,529
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
United States equity securities
|
$
|
5,501
|
|
|
$
|
—
|
|
|
$
|
5,501
|
|
|
$
|
—
|
|
|
International equity securities
|
1,366
|
|
|
—
|
|
|
1,366
|
|
|
—
|
|
|
Fixed income securities
|
3,725
|
|
|
—
|
|
|
3,725
|
|
|
—
|
|
|
Other
|
1,789
|
|
|
—
|
|
|
1,789
|
|
|
—
|
|
|
Total
|
$
|
12,381
|
|
|
$
|
—
|
|
|
$
|
12,381
|
|
|
$
|
—
|
|
Accumulated Benefit Obligation
The accumulated benefit obligation of the defined benefit pension plan was $9.2 million and $16.5 million at December 31, 2020 and 2019, respectively.
Benefits Payments and Contributions
The benefit payments to retirees over the next ten years are expected to be paid as follows (in thousands):
|
|
|
|
|
|
|
|
2021
|
$
|
502
|
|
|
2022
|
505
|
|
|
2023
|
497
|
|
|
2024
|
510
|
|
|
2025
|
526
|
|
|
2026 - 2030
|
2,605
|
|
For 2020 and 2019, the Company contributed $0.7 million and $0.2 million, respectively, to the Globalstar Plan. For 2021, the Company's expected contributions to the Globalstar Plan will be $0.5 million.
401(k) Plan
The Company has a defined contribution employee savings plan, or “401(k),” which provides that the Company may match the contributions of participating employees up to a designated level. Under this plan, the matching contributions were approximately $0.6 million for each of 2020, 2019, and 2018.
13. TAXES
The components of income tax expense were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
Federal tax
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
State tax
|
54
|
|
|
56
|
|
|
30
|
|
|
Foreign tax
|
248
|
|
|
94
|
|
|
95
|
|
|
Total
|
302
|
|
|
150
|
|
|
125
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal and state tax
|
360
|
|
|
395
|
|
|
—
|
|
|
Foreign tax
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
360
|
|
|
395
|
|
|
—
|
|
|
Income tax expense
|
$
|
662
|
|
|
$
|
545
|
|
|
$
|
125
|
|
U.S. and foreign components of income (loss) before income taxes are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
U.S. income (loss)
|
$
|
(82,740)
|
|
|
$
|
47,545
|
|
|
$
|
28,699
|
|
|
Foreign income (loss), net
|
(26,237)
|
|
|
(31,676)
|
|
|
(35,090)
|
|
|
Total income (loss) before income taxes
|
$
|
(108,977)
|
|
|
$
|
15,869
|
|
|
$
|
(6,391)
|
|
As of December 31, 2020 and 2019, the Company had cumulative U.S. and foreign net operating loss ("NOL") carryforwards for income tax reporting purposes of approximately $1.8 billion and $0.2 billion, respectively. The vast majority of these NOL carryforwards were generated prior to 2018 and expire from 2021 through 2040, with less than 1% expiring prior to 2025, and the remaining NOL carryforwards do not expire.
The components of net deferred income tax assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Federal and foreign NOL and credit carry-forwards
|
$
|
507,105
|
|
|
$
|
475,171
|
|
|
Property and equipment and other long-term assets
|
(133,086)
|
|
|
(153,049)
|
|
|
Reserves and disallowed interest
|
6,349
|
|
|
2,310
|
|
|
Deferred tax assets before valuation allowance
|
380,368
|
|
|
324,432
|
|
|
Valuation allowance
|
(381,123)
|
|
|
(324,827)
|
|
|
Net deferred income tax liability
|
$
|
(755)
|
|
|
$
|
(395)
|
|
The change in the valuation allowance during 2020 of $56.3 million was due to the Company providing valuation allowances against all of the tax benefit generated from its consolidated net losses. Due to the remeasurement of the state impact on U.S. deferred tax assets and the Company’s reconciliation of various deferred tax assets to reflect the remaining cumulative differences, the Company has remeasured all U.S. deferred tax assets resulting in an increase in both the deferred tax asset and the associated valuation allowance. The change in property and equipment and other long-term assets was driven primarily by depreciation due to the difference between tax and book depreciable lives. Due to the limitation on utilization of state NOLs, the Company recorded deferred tax liabilities of $0.8 million and $0.4 million as of December 31, 2020 and 2019.
The actual provision for income taxes differs from the statutory U.S. federal income tax rate as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Provision at U.S. statutory rate of 21%
|
$
|
(22,885)
|
|
|
$
|
3,333
|
|
|
$
|
(1,349)
|
|
|
State income taxes, net of federal benefit
|
(1,386)
|
|
|
1,055
|
|
|
890
|
|
|
Change in valuation allowance (excluding impact of foreign exchange rates)
|
61,540
|
|
|
(89,998)
|
|
|
(8,228)
|
|
|
Effect of foreign income tax at various rates
|
(53)
|
|
|
(84)
|
|
|
(237)
|
|
|
Permanent differences
|
5,809
|
|
|
7,942
|
|
|
7,031
|
|
|
Net change in permanent items due to provision to tax return
|
1,914
|
|
|
2,475
|
|
|
1,813
|
|
|
Adjustment to reserved deferred assets
|
(48,485)
|
|
|
62,085
|
|
|
—
|
|
|
Adjustment to state deferred rate
|
4,200
|
|
|
13,639
|
|
|
—
|
|
|
Other (including amounts related to prior year tax matters)
|
8
|
|
|
98
|
|
|
205
|
|
|
Total
|
$
|
662
|
|
|
$
|
545
|
|
|
$
|
125
|
|
Tax Audits
The Company operates in various U.S. and foreign tax jurisdictions. The process of determining its anticipated tax liabilities involves many calculations and estimates which are inherently complex. The Company believes that it has complied in all material respects with its obligations to pay taxes in these jurisdictions. However, its position is subject to review and possible challenge by the taxing authorities of these jurisdictions. If the applicable taxing authorities were to challenge successfully its current tax positions, or if there were changes in the manner in which the Company conducts its activities, the Company could become subject to material unanticipated tax liabilities. It may also become subject to additional tax liabilities as a result of changes in tax laws, which could in certain circumstances have a retroactive effect.
In July 2018, the Company's Canadian subsidiary was notified that its income tax returns for the years ended October 31, 2015 and 2016 had been selected for audit. The Company has provided all requested information to the Canada Revenue Agency ("CRA") and is working with the CRA to complete the audit.
Except for the audit noted above, neither the Company nor any of its subsidiaries is currently under audit by the IRS or by any state income tax jurisdiction in the United States. The Company's corporate U.S. tax returns for 2017 and subsequent years remain subject to examination by tax authorities. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.
In the Company's international tax jurisdictions, numerous tax years remain subject to examination by tax authorities, including tax returns for 2012 and subsequent years in most of the Company's international tax jurisdictions.
There are no unrecognized tax benefits as of December 31, 2020 and December 31, 2019.
Other
As of December 31, 2020, the Company had not provided foreign withholding taxes on approximately $3.0 million of undistributed earnings from certain foreign subsidiaries indefinitely invested outside the U.S.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the years ended December 31, 2020 and 2019.
As previously discussed in Note 1: Summary of Significant Accounting Policies, the CARES Act was enacted in March 2020 to provide economic relief to eligible business and individuals impacted by COVID-19. The Company evaluated the impact the CARES Act legislation has on its liquidity and tax positions. The net impact to the Company's NOL carryforwards as of December 31, 2019 was $14.8 million due to the change in the interest limitations permitted under the CARES Act.
14. (LOSS) EARNINGS PER SHARE
Basic (loss) earnings per share is computed by dividing (loss) income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. The numerator used to calculate diluted EPS includes the effect of dilutive securities, including interest expense, net, and derivative gains or losses reflected in net (loss) income. Common stock equivalents are included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive. The effect of potentially dilutive common shares for the Company's convertible notes are calculated using the if-converted method. Generally, for all other potentially dilutive common shares, the effect is calculated using the treasury stock method.
The following table sets forth the calculation of basic and diluted (loss) earnings per share and reconciles basic weighted average shares to diluted weighted average shares of common stock outstanding for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net (loss) income
|
$
|
(109,639)
|
|
|
$
|
15,324
|
|
|
$
|
(6,516)
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
2013 8.00% Notes
|
—
|
|
|
(127)
|
|
|
—
|
|
|
Loan Agreement with Thermo
|
—
|
|
|
(125,880)
|
|
|
—
|
|
|
Loss to common stockholders plus assumed conversions
|
$
|
(109,639)
|
|
|
$
|
(110,683)
|
|
|
$
|
(6,516)
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
Basic shares outstanding
|
1,642,359
|
|
|
1,450,768
|
|
|
1,269,548
|
|
|
Incremental shares from assumed exercises, conversions and other issuance of:
|
|
|
|
|
|
|
Stock options, restricted stock, restricted stock units and Employee Stock Purchase Plan
|
—
|
|
|
4,743
|
|
|
—
|
|
|
2013 8.00% Notes
|
—
|
|
|
2,044
|
|
|
—
|
|
|
Loan Agreement with Thermo
|
—
|
|
|
195,805
|
|
|
—
|
|
|
Warrants issued in connection with Second Lien Facility Agreement
|
—
|
|
|
1,831
|
|
|
—
|
|
|
Diluted shares outstanding
|
1,642,359
|
|
|
1,655,191
|
|
|
1,269,548
|
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
Basic
|
$
|
(0.07)
|
|
|
$
|
0.01
|
|
|
$
|
(0.01)
|
|
|
Diluted
|
$
|
(0.07)
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.01)
|
|
For the years ended December 31, 2020 and 2018, 4.2 million shares and 201.7 million shares, respectively, of potential common stock were excluded from diluted shares outstanding because the effects of potentially dilutive securities would be anti-dilutive. Additionally, as of December 31, 2020, 115.0 million warrants issued to the lenders of the Second Lien Facility Agreement were outstanding and not reflected in the 4.2 million potentially dilutive security amount above as they were out of the money as of December 31, 2020.
15. STOCK COMPENSATION
The Company’s Equity Incentive Plan (“Equity Plan”) provides long-term incentives to the Company’s key employees, including officers, directors, consultants and advisers (“Eligible Participants”), and is designed to align stockholder and employee interests. Under the Equity Plan, the Company may grant incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units, and other stock based awards or any combination thereof to Eligible Participants. The Compensation Committee of the Company’s Board of Directors establishes the terms and conditions of any awards granted under the plans. As of December 31, 2020 and 2019, the number of shares of common stock that was authorized and remained available for issuance under the Equity Plan was 26.7 million and 34.4 million, respectively.
Stock Options
The Company has granted incentive stock options under the Equity Plan. These options have various vesting terms, but generally vest in equal installments over three years and expire in ten years. Non-vested options are generally forfeited upon termination of employment.
The Company recognizes compensation expense for stock option grants over the employee's requisite service period, which is generally based on the vesting period, based on the fair value at the date of grant using the Black-Scholes option pricing model. The Company uses historical data, among other factors, to estimate the expected stock price volatility, the expected option life and the expected forfeiture rate. The market price of common stock has been volatile at times in recent years. The Company makes judgmental adjustments to project volatility during the expected term of the options, considering, among other things, historical volatility of the share prices of its peer group and expectations with regard to business conditions that may impact stock price fluctuations or stability. The Company estimates the expected term considering factors such as historical exercise patterns and the recipients of the options granted. The risk-free rate is based on the United States Treasury Department yield curve in effect at the time of grant for the expected life of the option. The Company assumes an expected dividend yield of zero for all periods. The table below summarizes the assumptions for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Risk-free interest rate
|
1.7
|
%
|
|
2.5
|
%
|
|
2% - 3%
|
|
Expected term of options (years)
|
5
|
|
5
|
|
5
|
|
Volatility
|
72
|
%
|
|
63
|
%
|
|
63
|
%
|
|
Weighted average grant-date fair value per share
|
$
|
0.32
|
|
|
$
|
0.29
|
|
|
$
|
0.26
|
|
The following table represents the Company’s stock option activity for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Exercise Price
|
|
Outstanding at January 1, 2020
|
7,827,464
|
|
|
$
|
1.42
|
|
|
Granted
|
700,000
|
|
|
0.54
|
|
|
|
|
|
|
|
Forfeited or expired
|
(543,296)
|
|
|
1.34
|
|
|
Outstanding at December 31, 2020
|
7,984,168
|
|
|
1.35
|
|
|
|
|
|
|
|
Exercisable at December 31, 2020
|
6,918,029
|
|
|
$
|
1.45
|
|
No stock options were exercised during 2020, accordingly, no amounts are shown in the table above. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The aggregate intrinsic value of all outstanding stock options at December 31, 2020 was nearly zero with a remaining contractual life of 6.0 years. The aggregate intrinsic value of all vested stock options at December 31, 2020 was nearly zero with a remaining contractual life of 6.2 years.
For the years ended December 31, 2020, 2019 and 2018, the Company recognized $0.3 million, $0.3 million and $1.1 million, respectively, of compensation expense related to stock options. As of December 31, 2020, unrecognized compensation expense related to nonvested stock options outstanding was approximately $0.4 million to be recognized over a weighted-average period of 1.4 years.
The Company adjusts its estimates of expected forfeitures of equity awards based upon its review of recent forfeiture activity and expected future employee turnover. The Company considers the impact of both pre-vesting forfeitures and post-vesting cancellations for purposes of evaluating forfeiture estimates. The effect of adjusting the forfeiture rate is recognized in the period in which the forfeiture estimate is changed.
Restricted Stock
Shares of restricted stock generally vest immediately, one year from the grant date, in equal annual installments over three years or based on performance criteria. Non-vested shares are generally forfeited upon the termination of employment. Holders of restricted stock awards are entitled to all rights of a stockholder of the Company with respect to the restricted stock, including the right to vote the shares and receive any dividends or other distributions. Compensation expense associated with restricted stock is measured based on the grant date fair value of the common stock and is recognized on a straight line basis over the vesting period. The table below summarizes the weighted average grant date fair value of restricted stock for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Weighted average grant date fair value
|
$
|
0.36
|
|
|
$
|
0.46
|
|
|
$
|
0.49
|
|
The following is a rollforward of the activity in restricted stock for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
Nonvested at January 1, 2020
|
9,292,800
|
|
|
$
|
0.56
|
|
|
Granted
|
7,894,009
|
|
|
0.36
|
|
|
Vested
|
(9,344,341)
|
|
|
0.48
|
|
|
Forfeited
|
(106,860)
|
|
|
0.41
|
|
|
Nonvested at December 31, 2020
|
7,735,608
|
|
|
$
|
0.46
|
|
Included in the non-vested balance at December 31, 2020 are approximately 2.0 million performance-based restricted stock awards that will vest upon the achievement of certain milestones. For the years ended December 31, 2020, 2019 and 2018, the Company recognized $4.5 million, $4.3 million and $3.9 million, respectively, of compensation expense related to restricted stock. The total fair value, as calculated on the day of vesting, of restricted stock awards that vested during 2020, 2019 and 2018 was $3.3 million, $4.1 million, and $3.1 million, respectively. As of December 31, 2020, unrecognized compensation expense related to unvested restricted stock outstanding was approximately $2.1 million to be recognized over a weighted-average period of 2.0 years.
Key Employee Bonus Plan
The Company has an annual bonus plan designed to reward designated key employees' efforts to exceed the Company's financial performance goals for the designated calendar year ("Plan Year"). The bonus pool available for distribution is determined based on the Company's adjusted EBITDA performance during the Plan Year. The bonus may be paid in cash or the Company's common stock, as determined by the Compensation Committee and with the consent of our Lenders if paid cash.
For the 2020 Plan Year, the Company's adjusted EBITDA performance was within the bonus payout threshold according to the plan document. As of December 31, 2020, $1.3 million was accrued on the Company's consolidated balance sheet related to this bonus payment, which is expected to be made in the form of common stock during the first quarter of 2021.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the “Plan”) which provides eligible employees of the Company with an opportunity to acquire shares of its common stock at a discount. The maximum aggregate number of shares of common stock that may be purchased through the Plan is 14.0 million shares. The number of shares that may be purchased through the Plan will be subject to proportionate adjustments to reflect stock splits, stock dividends, or other changes in the Company’s capital stock.
The Plan permits eligible employees to purchase shares of common stock during two semi-annual offering periods beginning on June 15 and December 15 (the “Offering Periods”). Eligible employees may purchase shares of up to 15% of their total compensation per pay period, but may purchase in any calendar year no more than the lesser of $25,000 in fair market value of common stock or 500,000 shares of common stock, as measured as of the first day of each applicable Offering Period.
The price an employee pays is 85% of the fair market value of common stock. Fair market value is equal to the lesser of the closing price of a share of common stock on either the first day or the last day of the Offering Period.
For each of 2020 and 2019, the Company received $0.6 million in proceeds related to shares issued under this plan. For the years ended December 31, 2020, 2019 and 2018, the Company recorded compensation expense of approximately $0.4 million, $0.5 million and $0.5 million, respectively, which is reflected in marketing, general and administrative expenses. Additionally, the Company has issued approximately 10.5 million shares through December 31, 2020 related to the Plan.
The fair value of the employees’ stock purchase rights granted under the ESPP was estimated using the Black-Scholes option pricing model with the following assumptions for the following years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
Risk-free interest rate
|
0.9
|
%
|
|
2.4
|
%
|
|
Expected term (months)
|
6
|
|
6
|
|
Volatility
|
123
|
%
|
|
128
|
%
|
|
Weighted average grant-date fair value per share
|
$
|
0.18
|
|
|
$
|
0.20
|
|
16. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss includes all changes in equity during a period from non-owner sources. The change in accumulated other comprehensive loss for all periods presented resulted from foreign currency translation adjustments and minimum pension liability adjustments.
The components of accumulated other comprehensive loss were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Accumulated minimum pension liability adjustment
|
$
|
(2,483)
|
|
|
$
|
(4,525)
|
|
|
Accumulated net foreign currency translation adjustment
|
(461)
|
|
|
1,076
|
|
|
Total accumulated other comprehensive loss
|
$
|
(2,944)
|
|
|
$
|
(3,449)
|
|
For each of the periods ended December 31, 2020 and 2019, the minimum pension liability adjustment in the table above includes a settlement loss of $2.1 million and $0.5 million, respectively. See further discussion in Note 12: Pensions and Other Employee Benefits.
No amounts were reclassified out of accumulated other comprehensive income (loss) for the periods shown above.