NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Globalstar, Inc. (“Globalstar” or the “Company”) was formed as a Delaware limited liability company in November 2003 and was converted into a Delaware corporation on March 17, 2006. Globalstar provides Mobile Satellite Services (“MSS”) including voice and data communications services through its global satellite network. Thermo Capital Partners LLC, through its affiliates (collectively, “Thermo”), is the principal owner and largest stockholder of Globalstar. The Company's Executive Chairman and Chief Executive Officer controls Thermo. Two other members of the Company's Board of Directors are also directors, officers or minority equity owners of various Thermo entities.
The Company’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 via satellite which are available only with equipment designed to work on the Globalstar network:
|
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•
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two-way voice communication and data transmissions (“Duplex”) using mobile or fixed devices; and
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|
•
|
one-way data transmissions using a mobile or fixed device that transmits its location and other information to a central monitoring station, including certain SPOT and Simplex products.
|
Globalstar provides Duplex, SPOT and Simplex products and services to customers directly and through a variety of independent agents, dealers and resellers, and independent gateway operators (“IGOs”).
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. Significant estimates include the value of derivative instruments, the allowance for doubtful accounts, the net realizable value of inventory, the useful life and value of property and equipment, the value of stock-based compensation, and income taxes.
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 “Facility Agreement”) to secure the Company’s principal and interest payment obligations related to its Facility Agreement. The Company classifies restricted cash for certain debt instruments consistent with the classification of the related debt outstanding at the end of the reporting period.
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
Accounts receivable are uncollateralized, without interest and consist primarily of receivables from the sale of Globalstar services and equipment. The Company performs ongoing credit evaluations of its customers and records specific allowances for bad debts based on factors such as current trends, the length of time the receivables are past due and historical collection experience. Accounts receivable are considered past due in accordance with the contractual terms of the arrangements. Accounts receivable balances that are determined likely to be uncollectible are included in the allowance for doubtful accounts. After attempts to collect a receivable have failed, the receivable is written off against the allowance.
The following is a summary of the activity in the allowance for doubtful accounts (in thousands):
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Year Ended December 31,
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|
2016
|
|
2015
|
|
2014
|
Balance at beginning of period
|
$
|
5,270
|
|
|
$
|
4,788
|
|
|
$
|
7,419
|
|
Provision, net of recoveries
|
1,256
|
|
|
2,782
|
|
|
2,281
|
|
Write-offs and other adjustments
|
(2,560
|
)
|
|
(2,300
|
)
|
|
(4,912
|
)
|
Balance at end of period
|
$
|
3,966
|
|
|
$
|
5,270
|
|
|
$
|
4,788
|
|
During 2014, the Company deactivated approximately
26,000
subscribers in its Duplex subscriber base who were either suspended or non-paying. The increase in write-offs and other adjustments in 2014 reflect the balances related to these accounts.
From time to time, the Company enters into notes receivable with certain customers that are included in other current assets. The Company also monitors collection of its notes receivable. During 2015, the Company recorded an additional provision for bad debts of
$0.6 million
related to a specific note receivable balance. During 2016, the Company recovered approximately
$0.5 million
related to the specific customer balance previously reserved in 2015.
Inventory
Inventory consists primarily of purchased products. Inventory is stated at the lower of cost or market 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 market value, and are recorded as a cost of subscriber equipment sales - reduction in the value of inventory in the Company’s Consolidated Financial Statements. At the point of any inventory write down to market, a new, lower cost basis for that inventory is established, and any subsequent changes in facts and circumstances do not result in the restoration of the former cost basis or increase in that newly established cost basis. Product sales and returns from the previous
12 months
and future demand forecasts are reviewed and excess and obsolete inventory is written off.
During the years ended December 31, 2016 and 2015,
no
write down of inventory was required. In the year ended December 31, 2014, the Company wrote down the value of inventory by
$21.7 million
after evaluating its Duplex inventory and estimating the timing of new product launches. The assessment indicated that there was an excess of Duplex equipment included in inventory on hand based on the sales run-rate at the time of the assessment. Additionally, the Company's business plan contemplates using Hughes-based technology in future product development. As a result, much of the raw material held by Qualcomm is not likely to be used in the future production of additional inventory and was impaired.
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, including primarily the construction of its Space and Ground Components. 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 increases, specifically due to the Company incurring costs related to the second-generation upgrades to its Ground Component, the Company capitalizes more interest, resulting in a lower amount of interest expense recognized under U.S. GAAP. As these upgrades are completed and placed into service, construction in progress will decrease and less interest will be capitalized.
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 - Up to 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 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 long-lived assets when indicators of impairment are present. 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 Company determines that an impairment exists, any related impairment loss is estimated based on fair values. The Company records losses from the in-orbit failure of a satellite in the period it is determined that the satellite is not recoverable.
Derivative Instruments
The Company enters into 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 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 term of the corresponding debt, or until the first put option date for the Company’s
8.00%
Convertible Senior Notes Issued in 2013 (“2013
8.00%
Notes”). 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, 2016
and
2015
, the Company had net deferred financing costs of
$45.7 million
and
$57.9 million
, respectively.
Fair Value of Financial Instruments
The carrying amount of accounts receivable and accounts payable is equal to or approximates fair value.
The Company believes it is not practicable to determine the fair value of the Facility Agreement. Unlike typical long-term debt, 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 other debt instruments, which include the Thermo Loan Agreement and 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. 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 and revenue generated from the sale of fixed and mobile devices as well as other products and accessories. The Company also recognizes revenue from certain engineering service contracts as described below. Revenue is recognized when services are rendered, assuming all recognition criteria is met under applicable accounting guidance. 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 upon issuance.
Estimates related to earned but unbilled service revenue are calculated using current subscriber data, including plan subscriptions and usage between the end of the billing cycle and the end of the period.
Subscriber acquisition costs, including dealer and internal sales commissions and certain other costs, are expensed at the time of the related sale, except when related to multiple-element arrangement contracts as discussed below.
The Company does not record sales taxes, telecommunication taxes or other governmental fees collected from customers in revenue.
Duplex Service Revenue.
The Company recognizes revenue for monthly access fees in the period services are rendered. Access fees represent the minimum monthly charge for each line of service based on its associated rate plan. The Company also recognizes revenue for airtime minutes in excess of the monthly access fees in the period such minutes are used. Under certain annual plans where customers prepay for a predetermined amount of minutes, revenue is deferred until the minutes are used or the prepaid time period expires. Unused minutes are accumulated until they expire, usually one year after activation, at which point we recognize revenue for any remaining unused minutes. The Company offers other annual plans whereby the customer is charged an annual fee to access the Company’s system. These fees are recognized on a straight-line basis over the term of the plan. In some cases, the Company charges a per minute rate whereby it recognizes the revenue when each minute is used.
SPOT and Simplex Service Revenue.
The Company sells SPOT and Simplex 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.
Independent Gateway Operator ("IGO") Service Revenue.
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.
Equipment Revenue.
Subscriber equipment revenue represents the sale of fixed and mobile user terminals, SPOT and Simplex products, and accessories. The Company recognizes revenue upon shipment provided title and risk of loss have passed to the customer, persuasive evidence of an arrangement exists, the fee is fixed and determinable and collection is probable.
Other Service Revenue.
The Company provides certain engineering services to assist customers in developing new applications related to its system. The revenues associated with these services are generally recorded when the services are rendered, and the expenses are recorded when incurred.
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 units of accounting, the Company will allocate the bundled contract price among the various contract deliverables based on each deliverable’s relative fair value. The Company will determine vendor specific objective evidence of fair value by assessing sales prices of subscriber equipment and services when they are sold to customers on a stand-alone basis. Initial direct costs incurred related to these contracts will be deferred to the extent they exceed the profit margin recognized at the time of sale.
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 fair values of share-based awards. Option pricing models, including the Black-Scholes model, require the use of input estimates and assumptions, including expected volatility, term, and risk-free interest rate. The assumptions for expected volatility and expected term most significantly affect the estimated grant-date fair value. 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. See
Note 14: Stock Compensation
for a description of methods used to determine the Company's assumptions. If the Company determined that another method used to estimate expected volatility or expected life was more reasonable than its current methods, or if another method for calculating these input assumptions was prescribed by authoritative guidance, the estimated fair value calculated for share-based awards could change significantly. Higher volatility and longer expected lives result in increases to share-based compensation determined at the date of grant.
For the year ended
December 31, 2016
, the Company adopted ASU No. 2016-09,
Compensation-Stock Compensation
. The adoption of this standard did not have a material effect on its consolidated financial statements and related disclosures.
Foreign Currency
The functional currency of the Company’s foreign consolidated subsidiaries is their local currency, unless the subsidiary operates in a hyperinflationary economy, such as Venezuela. 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
2016
,
2015
and
2014
, the foreign currency translation adjustments were losses of
$0.8 million
,
$2.7 million
and
$1.3 million
, respectively.
Foreign currency transaction gains/losses were a
$0.2 million
loss, a
$3.7 million
gain and a
$4.1 million
gain for
2016
,
2015
, and
2014
, respectively. These were classified as other income (expense) on the consolidated statement of operations.
Effective July 1, 2015 the Company began using the SIMADI exchange rate published by the Central Bank of Venezuela to remeasure its Venezuelan subsidiary's bolivar based transactions and net monetary assets in U.S. dollars. The Company determined, based upon its specific facts and circumstances, that the SIMADI rate (renamed the DICOM rate in March 2016) is the most appropriate rate for financial reporting purposes, instead of the official exchange rate of
6.3
previously used. The Company continues to monitor the significant uncertainty surrounding current Venezuela exchange mechanisms. Included in the foreign currency gain (loss) recorded during the third quarter of 2015 was a
$1.9 million
loss related to its Venezuelan subsidiary resulting from this change in exchange rate.
Asset Retirement Obligation
Liabilities arising from legal obligations associated with the retirement of long-lived assets are measured at fair value and recorded as a liability. Upon initial recognition of a liability for retirement obligations, the Company records an asset, which is depreciated over the life of the asset 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.
The Company capitalizes, as part of the carrying amount, the estimated costs associated with the eventual retirement of gateways owned by the Company. As of
December 31, 2016
and
2015
, the Company had accrued approximately
$1.4 million
and
$1.3 million
, respectively, for asset retirement obligations. The Company believes this estimate will be sufficient to satisfy the Company’s obligation under leases to remove the gateway equipment and restore the 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
$2.1 million
,
$1.9 million
and
$0.5 million
for
2016
,
2015
and
2014
, respectively. These costs are expensed as incurred as cost of services and primarily include the cost of new product development, chip set design, software development and engineering.
Advertising Expenses
Advertising costs were
$4.1 million
,
$3.4 million
and
$2.6 million
for
2016
,
2015
, and
2014
, respectively. These costs are expensed as incurred as marketing, general and administrative expenses.
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.
The Company also 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 Income (Loss)
All components of comprehensive income (loss), 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 income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources.
Earnings (Loss) Per Share
The Company is required to present basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. For 2016 and 2014, diluted net loss per share of common stock was the same as basic net loss per share of common stock because the effects of potentially dilutive securities were anti-dilutive. Potentially dilutive securities include primarily outstanding stock-based awards, convertible notes, warrants and shares issuable pursuant to the Company's Employee Stock Purchase Plan.
Intangible and Other Assets
The gross carrying amount and accumulated amortization of the Company's intangible assets subject to amortization consist of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
Developed technology
|
$
|
6,003
|
|
|
$
|
(4,740
|
)
|
|
$
|
5,861
|
|
|
$
|
(4,485
|
)
|
Customer relationships
|
2,100
|
|
|
(2,081
|
)
|
|
2,100
|
|
|
(2,047
|
)
|
Trade name
|
200
|
|
|
(200
|
)
|
|
200
|
|
|
(200
|
)
|
|
$
|
8,303
|
|
|
$
|
(7,021
|
)
|
|
$
|
8,161
|
|
|
$
|
(6,732
|
)
|
For
2016
and
2015
, the Company recorded amortization expense on these intangible assets of
$0.3 million
and
$0.4 million
, respectively. Amortization expense is recorded in operating expenses in the Company’s consolidated statements of operations. Estimated annual amortization of intangible assets is approximately
$0.2 million
for each of
2017
and
2018
and
$0.1 million
each for
2019
,
2020
and
2021
, excluding the effects of any acquisitions, dispositions or write-downs subsequent to
December 31, 2016
.
In addition, the Company has intangible assets not subject to amortization consisting primarily of costs associated with the efforts related to the Company's petition to the Federal Communications Commission ("FCC") to use its licensed MSS spectrum to provide terrestrial wireless services. The total carrying amount of these costs was
$5.6 million
and
$4.4 million
at
December 31, 2016
and
2015
, respectively. 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. In November 2016, the Company revised its original proposal to the FCC to request terrestrial use of only its 11.5 MHz of licensed spectrum in the 2.4 GHz band. For the year ended
December 31, 2016
, the Company recorded an impairment of
$0.4 million
related the portion of its efforts specific to the Company's original proposed rules to use 22 MHz, which includes both its licensed spectrum and the adjacent unlicensed spectrum, to provide terrestrial wireless services. The Company recorded this impairment on its consolidated statements of operations as a reduction in the value of long-lived assets for the year ended
December 31, 2016
. As previously discussed in Part I: Item 1. Business, the revised proposed rules were adopted in December 2016.
The Company assesses the impairment of intangible and other assets when indicators of impairment are present. If the Company determines that an impairment exists, any related loss is estimated based on fair values.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 has been modified multiple times since its initial release. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09, as amended, becomes effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have on its financial statements and related disclosures. The most significant changes to the Company's revenue recognition accounting policies will be related to 1) the allocation and timing of revenue recognized between service revenue and subscriber equipment sales and 2) the deferment of certain contract acquisition costs and the recognition of these costs over a customer's contract period or over a customer's expected life. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method.
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
. ASU 2014-15 describes how an entity’s management should assess, considering both quantitative and qualitative factors, whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued, which represents a change from the existing literature that requires consideration about an entity’s ability to continue as a going concern within one year after the balance sheet date. The Company adopted this standard during the fourth quarter of 2016. The implementation of this standard did not have a material impact on its consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU No. 2015-11,
Simplifying the Measurement of Inventory
. ASU 2015-11 requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Inventory measured using last-in, first-out (LIFO) and retail inventory method (RIM) are excluded from this new guidance. This ASU replaces the concept of market with the single measurement of net realizable value and is intended to create efficiencies for preparers and more closely align U.S. GAAP with IFRS. This ASU is effective for public business entities in fiscal years and interim periods within those years, beginning after December 15, 2016. Prospective application is required and early adoption is permitted as of the beginning of an interim or annual reporting period. This ASU will not have a material effect on the Company's consolidated financial statements and related disclosures.
In November 2015, the FASB issued ASU. No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. ASU No. 2015-17 simplifies the presentation of deferred taxes on the balance sheet by requiring classification of all deferred tax items as noncurrent including valuation allowances by jurisdiction. The ASU is effective for public entities for annual and interim periods beginning after December 15, 2016, and interim periods within those annual reporting periods. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures, but does not expect the effect to be material.
In March 2016, the FASB issued ASU No. 2016-02,
Leases
. The main difference between the provisions of ASU No. 2016-02 and previous U.S. GAAP is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU No. 2016- 02 retains a distinction between finance leases and operating leases, and the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous U.S. GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right-of-use assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied under previous U.S. GAAP. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU is effective for public business entities in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company has not yet determined the effect of the standard on its ongoing reporting.
In March 2016, the FASB issued ASU No. 2016-04,
Liabilities-Extinguishment of Liabilities: Recognition of Breakage for Certain Prepaid Stored Value Products
. ASU No. 2016-04 contains specific guidance for the derecognition of prepaid stored-value product liabilities within the scope of this ASU. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect this ASU to have a material effect on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU. No. 2016-06,
Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments
. ASU No. 2016-06 clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect the adoption of this ASU to have a material effect on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13,
Credit Losses, Measurement of Credit Losses on Financial Instruments
. ASU No. 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s incurred loss approach with an expected loss model for instruments measured at amortized cost. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The Company has not yet determined the effect of this standard on its ongoing reporting.
In August 2016, the FASB issued ASU No. 2016-15, S
tatement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
. ASU No. 2016-15 is intended to reduce diversity in how certain cash receipts and cash payments are presented in the statement of cash flows. The new guidance clarifies the classification of cash activity related to debt prepayment or debt
extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank-owned life insurance policies, distributions received from equity-method investments, and beneficial interests in securitization transactions. The guidance also describes a predominance principle pursuant to which cash flows with aspects of more than one class that cannot be separated should be classified based on the activity that is likely to be the predominant source or use of cash flow. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures, but does not expect it to have a material effect on the Company's consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.
ASU 2016-16 requires entities to account for the income tax effects of intercompany sales and transfers of assets other than inventory when the transfer occurs rather than current guidance which requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, S
tatement of Cash Flows - Restricted Cash
. ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet is required. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
Globalstar System:
|
|
|
|
|
|
Space component
|
|
|
|
|
|
First and second-generation satellites in service
|
$
|
1,211,090
|
|
|
$
|
1,211,768
|
|
Prepaid long-lead items
|
17,040
|
|
|
17,040
|
|
Second-generation satellite, on-ground spare
|
32,481
|
|
|
32,481
|
|
Ground component
|
48,400
|
|
|
46,870
|
|
Construction in progress:
|
|
|
|
|
Space component
|
81
|
|
|
81
|
|
Ground component
|
207,127
|
|
|
177,780
|
|
Next-generation software upgrades
|
10,223
|
|
|
3,440
|
|
Other
|
2,299
|
|
|
2,153
|
|
Total Globalstar System
|
1,528,741
|
|
|
1,491,613
|
|
Internally developed and purchased software
|
15,005
|
|
|
14,492
|
|
Equipment
|
9,875
|
|
|
10,802
|
|
Land and buildings
|
3,330
|
|
|
3,151
|
|
Leasehold improvements
|
1,893
|
|
|
1,671
|
|
Total property and equipment
|
1,558,844
|
|
|
1,521,729
|
|
Accumulated depreciation
|
(519,125
|
)
|
|
(444,169
|
)
|
Total property and equipment, net
|
$
|
1,039,719
|
|
|
$
|
1,077,560
|
|
Amounts in the above table consist primarily of costs incurred related to the construction of the Company’s second-generation constellation and ground upgrades. The ground component of construction in progress represents costs (including capitalized interest) associated primarily with the Company's contracts with Hughes Network Systems, LLC ("Hughes") and Ericsson Inc. (“Ericsson”) to complete second-generation equipment upgrades to the Company's ground infrastructure. The Company expects to begin depreciating these assets in the near future. See
Note 6: Commitments
for further discussion of these contracts.
Amounts included in the Company’s second-generation satellite, on-ground spare balance as of
December 31, 2016
and
2015
, 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, 2016
, this satellite and the prepaid long-lead items ("LLI") have not been placed into service; therefore, the Company has not started to record depreciation expense for these items.
Pursuant to the Amended and Restated Contract for the construction of Globalstar Satellites for the Second Generation Constellation between the Company and Thales Alenia Space France ("Thales"), dated and executed in June 2009 (the "2009 Contract"), the Company paid
€12 million
in purchase price plus an additional
€3.1 million
in procurement costs for the LLI to be procured by Thales on the Company's behalf. The LLI were to be used in the construction of the Phase 3 satellites for the Company. As reflected on the Company's consolidated balance sheets and in the above table, the Company believes that it owns the LLI and that title to the LLI transferred to the Company upon payment. The Company has asked Thales to turn over the LLI. Despite historical statements to the contrary, Thales currently disputes the Company's ownership of the LLI and has asserted that the Company released its title to the LLI pursuant to that certain Release Agreement, dated as of June 24, 2012, which is described more fully in
Note 7: Contingencies
. Thales further asserts that the LLI belong to Thales and that Thales has no obligation to turn over possession of the LLI to the Company. The Company disputes Thales' assertions and is currently considering its rights and remedies to recover the LLI. At this time, the Company cannot predict the outcome related to this dispute, including, without limitation, the likelihood of any settlement or the probability of success with respect to any litigation that the Company may determine to commence with respect to the LLI.
Capitalized Interest and Depreciation Expense
The following table summarizes capitalized interest for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Interest cost eligible to be capitalized
|
$
|
48,095
|
|
|
$
|
42,749
|
|
|
$
|
44,854
|
|
Interest cost recorded in interest income (expense), net
|
(34,108
|
)
|
|
(32,609
|
)
|
|
(36,909
|
)
|
Net interest capitalized
|
$
|
13,987
|
|
|
$
|
10,140
|
|
|
$
|
7,945
|
|
The following table summarizes depreciation expense for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Depreciation Expense
|
$
|
76,960
|
|
|
$
|
76,711
|
|
|
$
|
84,802
|
|
3. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
The principal amount and carrying value of long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Principal
Amount
|
|
Unamortized Discount and Deferred Financing Costs
|
|
Carrying
Value
|
|
Principal
Amount
|
|
Unamortized Discount and Deferred Financing Costs
|
|
Carrying
Value
|
Facility Agreement
|
$
|
543,011
|
|
|
$
|
45,651
|
|
|
$
|
497,360
|
|
|
$
|
575,846
|
|
|
$
|
57,829
|
|
|
$
|
518,017
|
|
Thermo Loan Agreement
|
93,962
|
|
|
29,615
|
|
|
64,347
|
|
|
83,222
|
|
|
32,558
|
|
|
50,663
|
|
8.00% Convertible Senior Notes Issued in 2013
|
17,126
|
|
|
2,554
|
|
|
14,572
|
|
|
16,747
|
|
|
4,307
|
|
|
12,441
|
|
Total Debt
|
654,099
|
|
|
77,820
|
|
|
576,279
|
|
|
675,815
|
|
|
94,694
|
|
|
581,121
|
|
Less: Current Portion
|
75,755
|
|
|
—
|
|
|
75,755
|
|
|
32,835
|
|
|
—
|
|
|
32,835
|
|
Long-Term Debt
|
$
|
578,344
|
|
|
$
|
77,820
|
|
|
$
|
500,524
|
|
|
$
|
642,980
|
|
|
$
|
94,694
|
|
|
$
|
548,286
|
|
The principal amounts shown above include payment of in-kind interest, as applicable. The carrying value is net of deferred financing costs and any discounts to the loan amounts at issuance, including accretion, as further described below. The current portion of long-term debt represents the scheduled principal repayments under the Facility Agreement due within one year of the balance sheet date. These short-term debt obligations are significant and the Company believes they will be in excess of its cash flows from operations. The Company intends to raise funds in sufficient amounts to make these payments; however, the source of funds has not yet been fully arranged.
As required by U.S. GAAP, the Company adopted the provisions of ASU No. 2015-03,
Interest - Imputation of Interest - Simplifying the Presentation of Debt Issue Costs
during the quarter ended March 31, 2016. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the consolidated balance sheets as a reduction in the carrying amount of the related debt liability, consistent with debt discounts. The Company has applied the provisions of this ASU on a retrospective basis, and therefore, the Company has reduced long-term debt on its consolidated balance sheet as of December 31, 2015 by
$57.9 million
of deferred financing costs previously reported as assets.
Facility Agreement
In 2009, the Company entered into the Facility Agreement with a syndicate of bank lenders, including BNP Paribas, Natixis, Société Générale, Caylon, Crédit Industriel et Commercial as arrangers and BNP Paribas as the security agent and agent. The Facility Agreement was amended and restated in July 2013 through the Global Deed of Amendment and Restatement with Thermo and amended and restated through the Second Global Amendment and Restatement Agreement in August 2015.
The Facility Agreement is scheduled to mature in December 2022. As of
December 31, 2016
, the Facility Agreement was fully drawn. Semi-annual principal repayments began in December 2014. Indebtedness under the facility bears interest at a floating rate of LIBOR plus
2.75%
through June 2017, increasing by an additional
0.5%
each year thereafter to a maximum rate of LIBOR plus
5.75%
.
Ninety-five
percent of the Company's obligations under the Facility Agreement are guaranteed by Bpifrance (formerly COFACE), the French export credit agency. The Company's obligations under the Facility Agreement are guaranteed on a senior secured basis by all of its domestic subsidiaries and are secured by a first priority lien on substantially all of the assets of the Company and its domestic subsidiaries (other than their FCC licenses), including patents and trademarks,
100%
of the equity of the Company's domestic subsidiaries and
65%
of the equity of certain foreign subsidiaries.
The Facility Agreement contains customary events of default and requires that the Company satisfy various financial and non-financial covenants, including the following:
|
|
•
|
The Company's capital expenditures do not exceed
$13.2 million
for 2016 and
$15.0 million
for each year thereafter. Pursuant to the terms of the Facility Agreement, if, in any relevant period, the capital expenditures are less than the permitted amount for that relevant period, a permitted excess amount may be added to the maximum amount of capital expenditures in the next period;
|
|
|
•
|
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 Facility Agreement) (amounts in thousands):
|
|
|
|
|
|
|
Period
|
|
Minimum Amount
|
1/1/16-6/30/16
|
|
$
|
24,502
|
|
7/1/16-12/31/16
|
|
$
|
32,426
|
|
1/1/17-6/30/17
|
|
$
|
32,214
|
|
7/1/17-12/31/17
|
|
$
|
40,646
|
|
|
|
•
|
The minimum adjusted consolidated EBITDA Minimum Amount changes semi-annually through December 31, 2022, for which measurement period the Minimum Amount is
$65.7 million
.
|
|
|
•
|
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
10.50
:1 for the December 31, 2016 measurement period, decreasing gradually each semi-annual period until the requirement equals
2.50
:1 for the five 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 (excluding the Thermo commitments described below and the excluded Purchase Agreement Amounts, as defined in the Facility Agreement).
|
Additionally, the covenants in the Facility Agreement limit the Company's ability to, among other things, incur or guarantee additional indebtedness; make certain investments, acquisitions or capital expenditures above certain agreed levels; pay dividends or repurchase or redeem capital stock or subordinated indebtedness; grant liens on its assets; incur restrictions on the ability of its subsidiaries to pay dividends or to make other payments to the Company; enter into transactions with its affiliates; merge or consolidate with other entities or transfer all or substantially all of its assets; and transfer or sell assets.
If the Company violates any of these covenants and is unable to obtain a sufficient Equity Cure Contribution (as described below) or obtain a waiver, or is unable to make payments to satisfy its debt obligations under the Facility Agreement and is unable to obtain a waiver, it would be in default under the Facility Agreement and payment of the indebtedness could be accelerated. The acceleration of the Company's indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-acceleration provisions. As of
December 31, 2016
, the Company was in compliance with the covenants of the Facility Agreement.
In calculating compliance with the financial covenants of the Facility Agreement, the Company may include certain cash funds contributed to the Company from the issuance of the Company's common stock and/or subordinated indebtedness. These funds are referred to as "Equity Cure Contributions" and may be used to achieve compliance with financial covenants through a date as late as June 2019, subject to the conditions set forth in the Facility Agreement. Through
December 31, 2016
, the Company drew
$63.0 million
under its common stock purchase agreement with Terrapin Opportunity, L.P. ("Terrapin"), as described below. In January 2017, the Company drew the remaining
$12.0 million
. The Company used these funds as Equity Cure Contributions under the Facility Agreement with respect to the calculation of compliance with financial covenants for the measurement periods ended December 31, 2015, June 30, 2016 and December 31, 2016. The Company anticipates that it will need to obtain additional Equity Cure Contributions to maintain compliance with financial covenants under the Facility Agreement for the measurement periods ended June 30, 2017 and December 31, 2017. The source of funds for these Equity Cure Contributions has not yet been fully arranged.
The Facility Agreement also requires the Company to maintain a total of
$37.9 million
in a debt service reserve account, which is pledged to secure all of the Company's obligations under the Facility Agreement. The use of these funds is restricted to making principal and interest payments under the Facility Agreement. As of
December 31, 2016
, the balance in the debt service reserve account, which was established with the proceeds of the loan agreement with Thermo discussed below, was
$38.0 million
and classified as restricted cash on the Company's consolidated balance sheets.
The following changes to the terms of the Facility Agreement were made upon its amendment and restatement in 2015:
|
|
•
|
The amendments to the Facility Agreement clarified the definition of Net Debt (which previously was ambiguous and subject to varying interpretations), adjusted the calculation of the Net Debt to Adjusted Consolidated EBITDA covenant,
|
changed the way in which certain Equity Cure Contributions are calculated, and extended by up to June 2019 the date through which Equity Cure Contributions can be made.
|
|
•
|
The lenders agreed that the
$14 million
equity financing the Company received from Terrapin on June 22, 2015 would be credited towards an Equity Cure Contribution for the measurement period ended June 30, 2015 and that any equity financing the Company raised between the closing date and June 30, 2016 could be used to the extent required as an Equity Cure Contribution for any period ending on or before June 30, 2016.
|
|
|
•
|
The lenders waived any existing defaults or events of default under the Facility Agreement.
|
|
|
•
|
Thermo agreed to make, or caused to be made, available to the Company cash equity financing, subject to certain conditions, of
$30.0 million
, all as further described below.
|
|
|
•
|
Thermo repeated in favor of the lenders and agent each of the representations and warranties previously made by Thermo in the Amended and Restated Thermo Subordination Deed executed in July 2013.
|
In August 2013, pursuant to the amended and restated Facility Agreement, the Company paid the lenders a restructuring fee plus an additional underwriting fee to COFACE in the aggregate amount of approximately
$13.9 million
, representing
40%
of the total restructuring and underwriting fee; the balance of
$20.8 million
is due no later than December 31, 2017. As of
December 31, 2016
, this remaining amount is included in current liabilities on the consolidated balance sheet. In addition, Thermo confirmed its obligations under the Equity Commitment, Restructuring and Consent Agreement dated as of May 20, 2013 to make, or arrange for third parties to make, cash contributions to the Company in exchange for equity, subordinated convertible debt or other equity-linked securities.
Thermo Loan Agreement
In connection with the amendment and restatement of the Facility Agreement in 2013, the Company amended and restated its loan agreement with Thermo (as amended and restated, the “Loan Agreement”). All obligations of the Company to Thermo under the Loan Agreement are subordinated to all of the Company’s obligations under the Facility Agreement.
The Loan Agreement accrues interest at
12%
per annum, which is capitalized and added to the outstanding principal in lieu of cash payments. The Company will make payments to Thermo only when permitted by the Facility Agreement. Principal and interest under the Loan Agreement become due and payable
six
months after the obligations under the Facility Agreement have been paid in full, or earlier if the Company has a change in control or if any acceleration of the maturity of the loans under the Facility Agreement occurs. As of
December 31, 2016
,
$50.5 million
of interest had accrued since 2009 with respect to the Loan Agreement; the Loan Agreement is included in long-term debt on the Company's consolidated balance sheets.
The Company evaluated the various embedded derivatives within the Loan Agreement (see
Note 5: Fair Value Measurements
for additional information about the embedded derivative in the Loan Agreement). The Company determined that the conversion option and the contingent put feature upon a fundamental change required bifurcation from the Loan Agreement. The conversion option and the contingent put feature were not deemed clearly and closely related to the Loan Agreement and were separately accounted for as a standalone derivative. The Company recorded this compound embedded derivative liability as a non-current liability on its consolidated balance sheets with a corresponding debt discount, which is netted against the face value of the Loan Agreement.
The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the maturity of the Loan Agreement using an effective interest rate method. The fair value of the compound embedded derivative liability is marked-to-market at the end of each reporting period, with any changes in value reported in the consolidated statements of operations. The Company determines the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices.
In connection with, and as a condition to the effectiveness of, the amendment and restatement of the Facility Agreement in 2015, Thermo and certain of its affiliates executed and delivered to the agent under the Facility Agreement an undertaking (the “Second Thermo Group Undertaking Letter”) and entered into an Equity Commitment Agreement (the “Equity Agreement”) and the Loan Agreement. Pursuant to the Second Thermo Group Undertaking Letter and the Equity Agreement, Thermo agreed that, during the period commencing on the effective date of the amendment and restatement of the Facility Agreement and ending on the later of March 31, 2018 and, if the Company's 2013 8.00% Notes shall have been redeemed in full, September 30, 2019 (the “Commitment Period”), under certain circumstances, it would make, or cause to be made, available to the Company cash equity financing in the aggregate amount of
$30.0 million
. The balance of this commitment was reduced by any cash equity financing
received by the Company during the Commitment Period from Thermo or an external equity funding source, including Terrapin, if the Company uses the funds as an Equity Cure Contribution.
The Company has received cash equity financing in excess of Thermo's equity commitment. This cash equity financing includes primarily draws under the Terrapin Agreement in August 2015, February 2016, and June 2016 for
$15 million
,
$6.5 million
, and
$22.0 million
, respectively. As a result, Thermo has
no
remaining cash equity commitment under the Equity Agreement as of
December 31, 2016
. In connection with the amendment and restatement of the Facility Agreement, the Second Thermo Group Undertaking Letter and the Equity Agreement, the Company agreed to increase the principal amount under the Thermo Loan Agreement by
$6.0 million
. This fee was capitalized as a deferred financing cost and is being amortized over the term of the Facility Agreement.
All of the transactions between the Company and Thermo and its affiliates were reviewed and approved on the Company's behalf by a Special Committee of its independent directors, who were represented by independent counsel.
The amount by which the if-converted value of the Thermo Loan Agreement exceeds the principal amount at
December 31, 2016
, assuming conversion at the closing price of the Company's common stock on that date of
$1.58
per share, is approximately
$108.9 million
.
8.00% Convertible Senior Notes Issued in 2013
On May 20, 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
$0.73
(as adjusted) per share of common stock, or
1,370
shares of the Company's common stock per
$1,000
principal amount of the 2013 8.00% Notes. The conversion price of the 2013 8.00% Notes will be adjusted in the event of certain stock splits or extraordinary share distributions, or as a reset of the base conversion and exercise price pursuant to the terms of the Fourth Supplemental Indenture between the Company and U.S. Bank National Association, as Trustee, dated May 20, 2013 (the “Indenture”).
The 2013 8.00% Notes are senior unsecured debt obligations of the Company with no sinking fund. The 2013 8.00% Notes will mature on April 1, 2028, subject to various call and put features, and bear interest at a rate of
8.00%
per annum. Interest on the 2013 8.00% Notes is payable semi-annually in arrears on April 1 and October 1 of each year. Interest is paid in cash at a rate of
5.75%
per annum and in additional notes at a rate of
2.25%
per annum.
Subject to certain conditions set forth in the Indenture, the Company may redeem the 2013 8.00% Notes, with the prior approval of the majority lenders under the Facility Agreement, in whole or in part, at any time on or after April 1, 2018, at a price equal to the principal amount of the 2013 8.00% Notes to be redeemed plus all accrued and unpaid interest thereon.
A holder of 2013 8.00% Notes has the right, at the holder’s option, to require the Company to purchase some or all of the 2013 8.00% Notes held by it on each of April 1, 2018 and April 1, 2023 at a price equal to the principal amount of the 2013 8.00% Notes to be purchased plus accrued and unpaid interest.
Subject to the procedures for conversion and other terms and conditions of the Indenture, a holder may convert its 2013 8.00% Notes at its option at any time prior to the close of business on the business day immediately preceding April 1, 2028, into shares of common stock (or, at the option of the Company, cash in lieu of all or a portion thereof, provided that, under the Facility Agreement, the Company may pay cash only with the consent of the majority lenders).
The conversion activity since issuance of the 2013 8.00% Notes is summarized in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Principal Amount Converted
|
|
Shares of Voting Common Stock Issued
|
|
(Gain)/Loss on Extinguishment of Debt
|
Year Ended December 31, 2013
|
|
$
|
8,029
|
|
|
14,863
|
|
|
$
|
(4,237
|
)
|
Year Ended December 31, 2014
|
|
24,881
|
|
|
46,353
|
|
|
44,061
|
|
Year Ended December 31, 2015
|
|
6,491
|
|
|
10,887
|
|
|
2,254
|
|
Year Ended December 31, 2016
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
39,401
|
|
|
72,103
|
|
|
$
|
42,078
|
|
Holders who convert 2013 8.00% Notes receive conversion shares over a
40
-consecutive trading day settlement period. Accordingly, the portion of converted debt is extinguished on an incremental basis over the 40-day settlement period, reducing the Company's outstanding debt balance. As of
December 31, 2016
, no conversions had been initiated but not yet fully settled.
A holder of the 2013 8.00% Notes has the right, at the holder’s option, to require the Company to purchase some or all of the 2013 8.00% Notes held by it at any time if there is a Fundamental Change. A Fundamental Change occurs if the Company's common stock ceases to be traded on a stock exchange or an established over-the-counter market, or if there is a change of control. If there is a Fundamental Change, the purchase price of any 2013 8.00% Notes purchased by the Company will be equal to its principal amount plus accrued and unpaid interest and a Fundamental Change Make-Whole Amount calculated as provided in the Indenture.
The Indenture provides that the Company and its subsidiaries may not, with specified exceptions, including the liens securing the Facility Agreement and liens approved in writing by the Agent, create, incur, assume or suffer to exist any lien on any of its assets, provided that if the Company or any of its subsidiaries creates, incurs or assumes any lien which is junior to the most senior lien securing the Facility Agreement, the Company must promptly issue to the holders of the 2013 8.00% Notes
$3.6 million
(as calculated under the Indenture) of shares of the Company's common stock. At
December 31, 2016
, the Company did not expect that a lien will be created that does not meet at least one of the specified exceptions in the Indenture, and therefore accrued no amount for this feature.
The Indenture provides for customary events of default, including without limitation, failure to pay principal or premium on the 2013 8.00% Notes when due or to distribute cash or shares of common stock when due as described above; failure by the Company to comply with its obligations and covenants in the Indenture; default by the Company in the payment of principal or interest on any other indebtedness for borrowed money with a principal amount in excess of
$10.0 million
, if such indebtedness is accelerated and not rescinded with
30
days; rendering of certain final judgments; failure by Thermo to fulfill the contribution obligations described above; and certain events of insolvency or bankruptcy. If there is an event of default, the Trustee may, at the direction of the holders of
25%
or more in aggregate principal amount of the 2013 8.00% Notes, accelerate the maturity of the 2013 8.00% Notes. As of
December 31, 2016
, 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 did not deem the conversion option and the contingent put feature to be clearly and closely related to the 2013 8.00% Notes and separately accounted for them as a standalone derivative. The Company recorded this compound embedded derivative liability as a non-current liability on its consolidated balance sheets with a corresponding debt discount which is netted against the face value of the 2013 8.00% Notes.
The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the first put date of the 2013 8.00% Notes (April 1, 2018) using an effective interest rate method. The Company is marking to market the fair value of the compound embedded derivative liability at the end of each reporting period, with any changes in value reported in the consolidated statements of operations. The Company determines the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices.
The amount by which the if-converted value of the 2013 8.00% Notes exceeded the principal amount at
December 31, 2016
, assuming conversion at the closing price of the Company's common stock on that date of
$1.58
per share, is approximately
$20 million
.
8.00% Convertible Senior Unsecured Notes Issued in 2009
In June 2009, the Company sold
$55.0 million
in aggregate principal amount of 8.00% Convertible Senior Unsecured Notes (the “
8.00%
Notes Issued in 2009”) and Warrants (the “8.00% Warrants”) to purchase
15.3 million
shares of common stock. Pursuant to the terms of the indenture governing the
8.00%
Notes Issued in 2009, if at any time the closing price of the common stock exceeded
200%
of the conversion price of the 8.00% Notes Issued in 2009 then in effect for
30
consecutive trading days, all of the outstanding 8.00% Notes Issued in 2009 would have been automatically converted into common stock. The condition for the automatic conversion was met on April 15, 2014, and all outstanding 8.00% Notes Issued in 2009 (approximately
$37.8 million
principal amount at that time) converted on that date into approximately
34.5 million
shares of voting common stock. Prior to expiration of the 8.00% Warrants and the automatic conversion of the 8.00% Notes Issued in 2009, the exercise price of the 8.00% Warrants was $
0.32
and the base conversion price of the 8.00% Notes Issued in 2009 was $
1.14
.
The Company recorded the conversion rights and features and the contingent put feature embedded within the 8.00% Notes Issued in 2009 as a compound embedded derivative liability on the consolidated balance sheets with a corresponding debt discount, which was netted against the principal amount of the 8.00% Notes Issued in 2009. Due to the cash settlement provisions and reset features in the 8.00% Warrants issued with the 8.00% Notes Issued in 2009, the Company recorded the 8.00% Warrants as an embedded derivative liability in the consolidated balance sheets with a corresponding debt discount, which was netted against the principal amount of the 8.00% Notes Issued in 2009.
Prior to the automatic conversion of these notes, the Company was accreting the debt discount associated with the compound embedded derivative liability to interest expense over the term of the 8.00% Notes Issued in 2009 using an effective interest rate method. The fair value of the compound embedded derivative liability was being marked-to-market at the end of each reporting period, with any changes in value reported in the consolidated statements of operations. Upon the automatic conversion of the 8.00% Notes Issued in 2009, the remaining debt discount and derivative liability were written off through extinguishment gain (loss) in the consolidated statement of operations. The Company recorded a gain on extinguishment of debt of approximately
$3.9 million
related to these conversions during the second quarter of 2014.
Warrants Outstanding
Warrants are outstanding to purchase shares of common stock as shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Warrants
|
|
Strike Price
|
|
December 31,
|
|
December 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Contingent Equity Agreement (1)
|
24,571,428
|
|
|
30,191,866
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
5.0% Warrants (2)
|
—
|
|
|
8,000,000
|
|
|
—
|
|
|
0.32
|
|
|
24,571,428
|
|
|
38,191,866
|
|
|
|
|
|
|
|
|
|
(1)
|
Pursuant to the terms of the Contingent Equity Agreement with Thermo (See
Note 9: Related Party Transactions
for a description of the Contingent Equity Agreement), the Company issued to Thermo warrants to purchase shares of common stock pursuant to the annual availability fee and subsequent reset provisions in the Contingent Equity Agreement. These warrants were issued between June 2009 and June 2012 and have a
five
-year exercise period from issuance. As of
December 31, 2016
, Thermo had exercised warrants to purchase approximately
16.9 million
of these shares prior to the expiration of the associated warrants. In June 2016, Thermo exercised warrants to purchase
5.6 million
shares of voting common stock for a total purchase price of
$0.1 million
. The exercise period for the remaining outstanding warrants expires in June 2017.
|
|
|
(2)
|
In June 2011, the Company issued warrants (the "5.0% Warrants") to purchase
15.2
million shares of its voting common stock in connection with the issuance of its 5.0% Convertible Senior Unsecured Notes. In June 2016, Thermo exercised all of the remaining warrants outstanding to purchase
8.0 million
shares of voting common stock for a total purchase price of
$2.5 million
.
|
Debt maturities
Annual debt maturities for each of the five years following
December 31, 2016
and thereafter are as follows (in thousands):
|
|
|
|
|
2017
|
$
|
75,755
|
|
2018
|
94,992
|
|
2019
|
94,870
|
|
2020
|
100,000
|
|
2021
|
100,000
|
|
Thereafter
|
188,482
|
|
Total
|
$
|
654,099
|
|
Amounts in the above table are calculated based on amounts outstanding at
December 31, 2016
, and therefore exclude paid-in-kind interest payments that will be made in future periods.
The 2013
8.00%
Notes are subject to repurchase by the Company at the option of the holders on April 1, 2018. As such, the amounts are included in the 2018 maturities in the table above.
Terrapin Opportunity, L.P. Common Stock Purchase Agreement
On December 28, 2012, the Company entered into a Common Stock Purchase Agreement with Terrapin pursuant to which the Company, subject to certain conditions, could require Terrapin to purchase up to
$30.0 million
of shares of voting common stock over the
24
-month term beginning August 2, 2013. Through the term of this agreement, Terrapin purchased a total of
17.2 million
shares of voting common stock at a total purchase price of
$30.0 million
. No funds remain available under this agreement.
In conjunction with the amendment of the Facility Agreement in August 2015 (as discussed above), the Company entered into a new common stock purchase agreement with Terrapin pursuant to which the Company may require Terrapin to purchase up to
$75.0 million
of shares of the Company’s voting common stock over the
24
-month term following the date of the agreement. From time to time over the
24
-month term, in the Company’s discretion, the Company could present Terrapin with up to
24
draw notices requiring Terrapin to purchase a specified dollar amount of shares of voting common stock, based on the price per share per day over ten consecutive trading days (a "Draw Down Period"). The per share purchase price for these shares of voting common stock will equal the daily volume weighted average price of the common stock on each date during the Draw Down Period on which shares are purchased by Terrapin, but not less than a minimum price specified by the Company (a “Threshold Price”), less a discount ranging from
2.75%
to
4.00%
based on the Threshold Price. In addition, in the Company’s discretion, but subject to certain limitations, the Company could grant to Terrapin the option to purchase additional shares during a Draw Down Period. The Company agreed not to sell to Terrapin a number of shares of voting common stock that, when aggregated with all other shares of voting common stock then beneficially owned by Terrapin and its affiliates, would result in their beneficial ownership of more than
9.9%
of the then issued and outstanding shares of voting common stock. As discussed above and in
Note 9: Related Party Transactions
, Thermo committed, under certain conditions, to purchase equity securities of the Company on the same pricing terms as the August 2015 Terrapin Agreement.
The Company has made the following draws pursuant to the August 2015 Terrapin Agreement (amounts in thousands, except average price):
|
|
|
|
|
|
|
|
|
|
|
|
|
Draw Down Date
|
|
Purchase Price
|
|
Shares of Voting Common Stock Issued
|
|
Average Price
|
August 2015
|
|
$
|
15,000
|
|
|
9,336
|
|
|
$
|
1.61
|
|
February 2016
|
|
6,500
|
|
|
6,353
|
|
|
1.02
|
|
June 2016
|
|
22,000
|
|
|
19,458
|
|
|
1.13
|
|
November 2016
|
|
6,500
|
|
|
8,028
|
|
|
0.81
|
|
December 2016
|
|
13,000
|
|
|
15,234
|
|
|
0.85
|
|
Total
|
|
$
|
63,000
|
|
|
58,409
|
|
|
|
At
December 31, 2016
,
$12.0 million
remained available under the August 2015 Terrapin Agreement. These funds were fully drawn in January 2017.
4. DERIVATIVES
In connection with certain existing and past borrowing arrangements, the Company was required to record derivative instruments on its consolidated balance sheets. None of these derivative instruments is designated as a hedge. The following table discloses the fair values of the derivative instruments on the Company’s consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Intangible and other assets:
|
|
|
|
|
|
Interest rate cap
|
$
|
4
|
|
|
$
|
6
|
|
Total intangible and other assets
|
$
|
4
|
|
|
$
|
6
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
Compound embedded derivative with 2013 8.00% Notes
|
$
|
(26,664
|
)
|
|
$
|
(26,203
|
)
|
Compound embedded derivative with the Thermo Loan Agreement
|
(254,507
|
)
|
|
(213,439
|
)
|
Total derivative liabilities
|
$
|
(281,171
|
)
|
|
$
|
(239,642
|
)
|
The following table discloses the changes in value recorded as derivative gain (loss) in the Company’s consolidated statement of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Interest rate cap
|
$
|
(2
|
)
|
|
$
|
(40
|
)
|
|
$
|
(139
|
)
|
Warrants issued with 8.00% Notes Issued in 2009
|
—
|
|
|
—
|
|
|
(67,523
|
)
|
Compound embedded derivative with 8.00% Notes Issued in 2009
|
—
|
|
|
—
|
|
|
(16,406
|
)
|
Compound embedded derivative with 2013 8.00% Notes
|
(461
|
)
|
|
32,829
|
|
|
(69,133
|
)
|
Compound embedded derivative with the Thermo Loan Agreement
|
(41,068
|
)
|
|
149,071
|
|
|
(132,848
|
)
|
Total derivative gain (loss)
|
$
|
(41,531
|
)
|
|
$
|
181,860
|
|
|
$
|
(286,049
|
)
|
Intangible and Other Assets
Interest Rate Cap
In June 2009, in connection with entering into the Facility Agreement, under which interest accrues at a variable rate, the Company entered into
five
ten
-year interest rate cap agreements. The interest rate cap agreements reflect a variable notional amount at interest rates that provide coverage to the Company for exposure resulting from escalating interest rates over the term of the Facility Agreement. The interest rate cap provides limits on the six-month Libor rate (“Base Rate”) used to calculate the coupon interest on outstanding amounts on the Facility Agreement and is capped at
5.50%
should the Base Rate not exceed
6.5%
. Should the Base Rate exceed
6.5%
, the Company’s Base Rate will be
1%
less than the then six-month Libor rate. The Company paid an approximately
$12.4 million
upfront fee for the interest rate cap agreements. The interest rate cap did not qualify for hedge accounting treatment, and changes in the fair value of the agreements are included in the consolidated statements of operations.
Derivative Liabilities
The Company has identified various embedded derivatives resulting from certain features in the Company’s debt instruments. These embedded derivatives required bifurcation from the debt host agreement. All embedded derivatives that required bifurcation are recorded as a derivative liability on the Company’s consolidated balance sheets with a corresponding debt discount netted against the principal amount of the related debt instrument. The Company accretes the debt discount associated with each derivative liability to interest expense over the term of the related debt instrument using an effective interest rate method. The fair value of each embedded derivative liability is marked-to-market at the end of each reporting period with any changes in value reported in its consolidated statements of operations. Each liability 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 blend of a Monte Carlo simulation model and market prices.
Compound Embedded Derivative with the Thermo Loan Agreement
As a result of the conversion option and the contingent put feature within the Loan Agreement with Thermo as amended and restated in July 2013, 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 Loan Agreement. The Company determined the fair value of the compound embedded derivative liability using a blend of a Monte Carlo simulation model and market prices.
Compound Embedded Derivative with 8.00% Notes Issued in 2009
As a result of the conversion rights and features and the contingent put feature embedded within the
8.00%
Notes Issued in 2009, the Company recorded a compound embedded derivative liability on its consolidated balance sheets with a corresponding debt discount that was netted against the principal amount of the 8.00% Notes Issued in 2009. The Company determined the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices. On April 15, 2014, the remaining principal amount of 8.00% Notes Issued in 2009 was converted into common stock; accordingly, the derivative liability embedded in the 8.00% Notes Issued in 2009 is no longer outstanding.
Warrants Issued with 8.00% Notes Issued in 2009
Due to the cash settlement provisions and reset features in the 8.00% Warrants issued with the 8.00% Notes Issued in 2009, the Company recorded the 8.00% Warrants as an embedded derivative liability on its consolidated balance sheets with a corresponding debt discount that was netted against the principal amount of the 8.00% Notes Issued in 2009. The Company determined the fair value of the warrant derivative using a Monte Carlo simulation model. The exercise period for the 8.00% Warrants expired in June 2014; accordingly, the derivative liability for the 8.00% Warrants is no longer outstanding.
5. FAIR VALUE MEASUREMENTS
The Company follows the authoritative guidance for fair value measurements relating to financial and non-financial assets and liabilities, including presentation of required disclosures herein. This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2:
Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3:
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Recurring Fair Value Measurements
The following table provides a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016:
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
Balance
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Total assets measured at fair value
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Liability for potential stock issuance to Hughes
|
$
|
—
|
|
|
$
|
(2,706
|
)
|
|
$
|
—
|
|
|
$
|
(2,706
|
)
|
Liability for stock issuance due to legal settlement
|
—
|
|
|
(389
|
)
|
|
—
|
|
|
(389
|
)
|
Compound embedded derivative with 2013 8.00% Notes
|
—
|
|
|
—
|
|
|
(26,664
|
)
|
|
(26,664
|
)
|
Compound embedded derivative with the Thermo Loan Agreement
|
—
|
|
|
—
|
|
|
(254,507
|
)
|
|
(254,507
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
(3,095
|
)
|
|
$
|
(281,171
|
)
|
|
$
|
(284,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2015:
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
Balance
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
Total assets measured at fair value
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Liability for potential stock issuance to Hughes
|
$
|
—
|
|
|
$
|
(5,495
|
)
|
|
$
|
—
|
|
|
$
|
(5,495
|
)
|
Compound embedded derivative with 2013 8.00% Notes
|
—
|
|
|
—
|
|
|
(26,203
|
)
|
|
(26,203
|
)
|
Compound embedded derivative with the Thermo Loan Agreement
|
—
|
|
|
—
|
|
|
(213,439
|
)
|
|
(213,439
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
(5,495
|
)
|
|
$
|
(239,642
|
)
|
|
$
|
(245,137
|
)
|
Assets
Interest Rate Cap
The fair value of the interest rate cap is determined using observable pricing inputs including benchmark yields, reported trades and broker/dealer quotes at the reporting date.
Note 4: Derivatives
for further discussion.
Liabilities
Liability for potential stock issuance to Hughes
As described in
Note 6: Commitments
, the Company agreed to provide downside protection after the issuance of shares of common stock to Hughes in lieu of cash for contract payments in June 2015. This feature requires the Company to issue to Hughes additional shares of common stock equal to the difference, if any, between the initial consideration of
$15.5 million
and the total amount of gross proceeds Hughes receives from the sale of any shares plus the market value of any shares still held by Hughes as of the close of trading on June 30, 2017. The value of this option is calculated using a Black-Scholes pricing model. This liability is marked-to-market at each balance sheet date and through the settlement date.
Liability for future stock issuance due to legal settlement
As described in
Note 7: Contingencies
, the Company settled litigation related to its Brazilian subsidiary in October 2016. In connection with this settlement, the Company paid
4.5 million
reais, or
$1.4 million
. The Company agreed to provide downside protection for the difference between the total settlement amount of
4.5 million
reais and the total amount of gross proceeds the counterparty receives from the sale of these shares. This liability is valued at
$0.4 million
as of
December 31, 2016
and will be paid in the form of Globalstar common stock.
Derivative Liabilities
The Company has
two
derivative liabilities classified as Level 3. The Company marks-to-market these liabilities at each reporting date with the changes in fair value recognized in the Company’s consolidated statements of operations. See
Note 4: Derivatives
for further discussion.
The significant quantitative Level 3 inputs utilized in the valuation models are shown in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Inputs at December 31, 2016:
|
|
Stock Price
Volatility
|
|
Risk-Free Interest Rate
|
|
Conversion Price
|
|
Discount
Rate
|
|
Market Price of Common Stock
|
Compound embedded derivative with 2013 8.00% Notes
|
100 - 110 %
|
|
1.0%
|
|
$0.73
|
|
25%
|
|
$1.58
|
Compound embedded derivative with the Thermo Loan Agreement
|
40 - 110 %
|
|
2.2%
|
|
$0.73
|
|
25%
|
|
$1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Inputs at December 31, 2015:
|
|
Stock Price
Volatility
|
|
Risk-Free Interest Rate
|
|
Conversion
Price
|
|
Discount
Rate
|
|
Market Price of Common Stock
|
Compound embedded derivative with 2013 8.00% Notes
|
75 - 90 %
|
|
1.1%
|
|
$0.73
|
|
39%
|
|
$1.44
|
Compound embedded derivative with the Thermo Loan Agreement
|
50 - 90 %
|
|
2.1%
|
|
$0.73
|
|
39%
|
|
$1.44
|
Fluctuation in the Company’s stock price is the primary driver for the changes in the derivative valuations during each reporting period. The Company’s stock price increased
10%
from December 31, 2015 to December 31, 2016. As the stock price increases away from the current conversion price for each of the related derivative instruments, the value to the holder of the instrument generally increases, thereby increasing the liability on the Company’s consolidated balance sheets. These valuations are sensitive to the weighting applied to each of the simulated values. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the expected volatility of the Company’s stock price. Decreases in expected volatility would generally result in a lower fair value measurement.
Probability of a change of control is another significant unobservable input used in the fair value measurement of the Company’s derivative instruments. Subject to certain restrictions in each indenture, the Company’s debt instruments contain certain provisions whereby holders may require the Company to purchase all or any portion of the convertible debt instrument upon a change of control. A change of control will occur upon certain changes in the ownership of the Company or certain events relating to the trading of the Company’s common stock. The simulated fair value of the derivative liabilities above is sensitive to changes in the assumed probabilities of a change of control. Decreases in the assumed probability of a change of control would generally result in a lower fair value measurement.
In addition to the inputs described above, the valuation model used to calculate the fair value measurement of the compound embedded derivatives within the Company’s 2013
8.00%
Notes and Thermo Loan Agreement included the following inputs and features: discount rate, payment in kind interest payments, make whole premiums, a
40
-day stock issuance settlement period upon conversion, automatic conversions, estimated maturity date, and the principal balance of each loan at the balance sheet date. There are also certain put and call features within the 2013 8.00% Notes that impact the valuation model. The trading activity in the market provides the Company with additional valuation support. The Company uses a weight factor to calculate the fair value of the embedded derivatives to align the fair value produced from the Monte Carlo simulation model with the market value of
the 2013 8.00% Notes. Due to the similarities of the debt instruments, the Company applies a similar weight to the embedded derivative in the Thermo Loan Agreement. These valuations are sensitive to the weighting applied to each of the simulated values.
The following table presents a rollforward for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
(239,642
|
)
|
|
$
|
(441,550
|
)
|
Derivative adjustment related to conversions
|
—
|
|
|
20,008
|
|
Unrealized gain (loss), included in derivative gain (loss)
|
(41,529
|
)
|
|
181,900
|
|
Balance at end of period
|
$
|
(281,171
|
)
|
|
$
|
(239,642
|
)
|
Fair Value of Debt Instruments
The Company believes it is not practicable to determine the fair value of the Facility Agreement. Unlike typical long-term debt, interest rates and other terms for the Facility Agreement are not readily available and generally involve a variety of factors, including due diligence by the debt holders. As such, it is not practicable to determine the fair value of the Facility Agreement without incurring significant additional costs. 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, 2016
|
|
December 31, 2015
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
Thermo Loan Agreement
|
$
|
64,347
|
|
|
$
|
47,874
|
|
|
$
|
50,663
|
|
|
$
|
17,244
|
|
2013 8.00% Notes
|
14,572
|
|
|
14,350
|
|
|
12,441
|
|
|
9,831
|
|
Nonrecurring Fair Value Measurements
The Company follows the authoritative guidance regarding non-financial assets and non-financial liabilities that are remeasured at fair value on a nonrecurring basis. 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. See below for a further discussion of the fair value measurement for each item measured on a nonrecurring basis.
Long-Lived Assets
During
2016
, the Company recorded a loss of
$0.4 million
to reduce the carrying value of the intangible asset associated with the efforts to support the Company's petition to the FCC to use its licensed MSS spectrum to provide terrestrial wireless services. See
Note 1: Summary of Significant Accounting Policies
for further discussion. During 2015,
no
impairment loss was recorded on long-lived assets. Losses of this nature are recorded in operating expenses in the consolidated statement of operations. The following table presents the location on the Company's consolidated balance sheet and the amount of the reduction in the value of long-lived assets recorded in 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016:
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total Losses
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles and other assets, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,782
|
|
|
$
|
350
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,782
|
|
|
$
|
350
|
|
6. COMMITMENTS
Contractual Obligations - Second-Generation Gateways and Other Ground Facilities
As of
December 31, 2016
, the Company had purchase commitments with Thales, Hughes, and Ericsson related to the procurement, deployment and maintenance of the second-generation network. The Company is obligated to make payments under these purchase commitments totaling approximately
$3.4 million
during 2017. As of
December 31, 2016
, the Company recorded
$1.9 million
related to these contracts in accounts payable and accrued expenses on its consolidated balance sheet.
Hughes Network Systems
In May 2008, the Company entered into a contract with Hughes under which Hughes designed, supplied and implemented the Radio Access Network (RAN) network equipment and software upgrades for installation at a number of the Company’s gateways. Hughes also provided the satellite interface chips to be used in various second-generation Globalstar devices.
In May 2014, the Company entered into an agreement with Hughes to incorporate changes to the scope of work for the RAN and UTS being supplied to the Company. The additional work increased the total contract value by
$3.8 million
. The Company also entered into a letter agreement with Hughes whereby Hughes was granted the option to accept the pre-payment of certain payment milestones in the form of our common stock at a
7%
discount in lieu of cash. The Company issued the stock to Hughes on July 1, 2014. The payment milestones totaled
$9.9 million
. In valuing the shares, the Company recorded a loss of approximately
$0.7 million
in its consolidated statement of operations during the second quarter of 2014. In October 2014, the Company and Hughes formally amended the contract to include the revised scope of work agreed to in the May letter agreement.
In March 2015, the Company entered into an agreement with Hughes for the design, development, build, testing and delivery of four custom test equipment units for a total of
$1.9 million
. This test equipment was delivered during the fourth quarter of 2015. In April 2015, the Company extended the scope of work for delivery of two additional RANs for a total of
$4.0 million
. These RANs were delivered in February 2016. In July 2015, the Company and Hughes formally amended the contract to include the revised scope of work set forth in the March 2015 and April 2015 letter agreements.
In December 2016, the Company formally accepted all contract deliverables under its agreement with Hughes. The remaining amounts owed under the contract are
$0.8 million
as of
December 31, 2016
, which are recorded in accrued expenses on the Company's consolidated balance sheet.
In April 2015, Hughes exercised an option to be paid in shares of the Company's common stock (at a price
7%
below market) in lieu of cash for certain of its remaining contract payments, including those related to the 2015 work mentioned above, totaling approximately
$15.5 million
. In June 2015, the Company issued
7.4 million
shares of freely tradable common stock at the
7%
discount pursuant to this option. The portion of these contract payments related to future milestone work was included in Prepaid second-generation ground costs on the consolidated balance sheet. As the contract milestones are achieved, the Company reclassifies the related costs from Prepaid second-generation ground costs to construction in progress within Property and equipment. The Company recorded a loss related to the issuance of the
7.4 million
shares of the Company's common stock, equal to the value of the
7%
discount of
$1.2 million
in its consolidated statement of operations for the three months ended June 30, 2015. In the April 2015 agreement (as amended), the Company agreed to provide downside protection through June 30, 2017. This feature requires that the Company issue additional shares of common stock equal to the difference, if any, between the initial consideration of
$15.5 million
and the total amount of gross proceeds Hughes receives from the sale of any shares plus the market value of any shares still held by Hughes as of the close of trading on June 30, 2017. Pursuant to this agreement, the Company recorded a liability of
$2.7 million
as of
December 31, 2016
and
$5.5 million
as of
December 31, 2015
, respectively. The Company calculated these estimates of the value of this option using a Black-Scholes pricing model and an estimate of the number of shares of common stock held by Hughes as of the balance sheet dates. This liability is marked to market at each balance sheet date and through the settlement date. The Company records gains and losses resulting from change in the value of this liability in its consolidated statement of operations.
Ericsson
In October 2008, the Company entered into a contract with Ericsson under which Ericsson to developed, implemented and installed a ground interface, or core network system, installed at a number of the Company’s gateway ground stations. In July 2014, the parties signed an amended and restated contract to specify the remaining contract value and a new milestone schedule to reflect a revised program time line. Prior to the amended and restated contract being finalized, Ericsson and the Company agreed to defer certain milestone payments previously due under the 2008 contract to 2014 and beyond. The deferred payments were incurring interest at a rate of
6.5%
per annum. In April 2015, the Company signed an amendment to the 2014 contract to incorporate certain changes in scope and timing identified as necessary by the parties. In conjunction with signing this amendment, the parties executed a new letter agreement under which Ericsson waived the remaining
$1.0 million
in deferred milestone payments and
$0.4 million
in interest accrued on the milestone payments under the 2008 contract. In the first quarter of 2015, the Company reversed these amounts from accounts payable, accrued expenses and construction in progress on the Company's consolidated balance sheet. In August 2015, the Company and Ericsson executed a second amendment to the 2014 contract which incorporated revised payment and pricing schedules. This amendment also reflected an accelerated timeline for the project. During the second quarter of 2016, the Company took possession of the final Ericsson hardware for the Company's global deployment. In December 2016, the Company formally accepted all contract deliverables for the IMS solution under the agreement with Ericsson, with the exception of a punch list of items. As of
December 31, 2016
, the remaining amount due under the contract is approximately
$2.6 million
, of which
$1.2 million
is recorded in accounts payable and accrued expenses.
Other Second-Generation Commitments
The Company has signed various licensing and royalty agreements necessary for the manufacture and distribution of its second-generation products. Payments made under these agreements were
$5.9 million
as of
December 31, 2016
; amounts 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.
Future Minimum Lease Obligations
The Company has non-cancelable operating leases for facilities and equipment throughout the United States and around the world, including Louisiana, California, Florida, Canada, Ireland, France, Brazil, Panama, Singapore and Botswana. The leases expire on various dates through 2021. The following table presents the future minimum lease payments for leases having an initial or remaining non-cancelable lease term in excess of one year (in thousands) as of
December 31, 2016
, excluding possible lease payment reimbursement from the State of Louisiana pursuant to the Cooperative Endeavor Agreement the Company entered into with the Louisiana Department of Economic Development (See
Note 8: Accrued Expenses and Other Non-Current Liabilities
):
|
|
|
|
|
2017
|
$
|
1,353
|
|
2018
|
1,183
|
|
2019
|
340
|
|
2020
|
297
|
|
2021
|
161
|
|
Thereafter
|
—
|
|
Total minimum lease payments
|
$
|
3,334
|
|
Rent expense for
2016
,
2015
and
2014
was approximately
$1.3 million
,
$1.3 million
and
$1.4 million
, respectively.
7. CONTINGENCIES
Arbitration
On June 3, 2011, the Globalstar filed a demand for arbitration against Thales before the American Arbitration Association to enforce certain rights to order additional satellites under the 2009 Contract. The Company did not include within its demand any claims that it had against Thales for work previously performed under the contract to design, manufacture and timely deliver the first
25
second-generation satellites. On May 10, 2012, the arbitration tribunal issued its award in which it determined that the Company had terminated the 2009 Contract "for convenience" and had materially breached the contract by failing to pay to Thales the
€51.3
million in termination charges required under the contract. The tribunal additionally determined that absent further agreement between the parties, Thales had no further obligation to manufacture or deliver satellites under Phase 3 of the 2009 Contract. Based on these determinations, the tribunal directed the Company to pay Thales approximately
€53 million
in termination charges, plus interest, by June 9, 2012. On May 23, 2012, Thales commenced an action in the United States District Court for the Southern District of New York by filing a petition to confirm the arbitration award (the “New York Proceeding”). Thales and the Company entered into a tolling agreement as of June 13, 2013, under which Thales dismissed the New York Proceeding without prejudice. The tolling agreement has expired. Thales may refile the petition at a later date and pursue the confirmation of the arbitration award, which the Company would oppose. Should Thales be successful in confirming the arbitration award, this would have a material adverse effect on the Company’s financial condition, results of operations and liquidity.
On June 24, 2012, the Company and Thales agreed to settle their prior commercial disputes, including those disputes that were the subject of the arbitration award. In order to effectuate this settlement, the Company and Thales entered into a Release Agreement, a Settlement Agreement and a Submission Agreement. Under the terms of the Release Agreement, Thales agreed unconditionally and irrevocably to release and forever discharge the Company from any and all claims and obligations (with the exception of those items payable under the Settlement Agreement or in connection with a new contract for the purchase of any additional second-generation satellites), including, without limitation, a full release from paying
€35.6
million of the termination charges awarded in the arbitration together with all interest on the award amount effective upon the earlier of December 31, 2012 and the effective date of the financing for the purchase of any additional second-generation satellites. Under the terms of the Release Agreement, the Company agreed unconditionally and irrevocably to release and forever discharge Thales from any and all claims (with limited exceptions), including, without limitation, claims related to Thales’ work under the 2009 satellite construction contract, including any obligation to pay liquidated damages, effective upon the earlier of December 31, 2012, and the effective date of the financing for the purchase of any additional second-generation satellites. In connection with the Release Agreement and the Settlement Agreement, the Company recorded a contract termination charge of approximately
€17.5 million
which is recorded in the Company’s consolidated balance sheets as of
December 31, 2016
and
2015
. The releases became effective on December 31, 2012.
Under the terms of the Settlement Agreement, the Company agreed to pay
€17.5
million to Thales, representing one-third of the termination charges awarded to Thales in the arbitration, subject to certain conditions, on the later of the effective date of the new contract for the purchase of any additional second-generation satellites and the effective date of the financing for the purchase of these satellites. As of
December 31, 2016
, this condition had not been satisfied. Because the effective date of the new contract for the purchase of additional second-generation satellites did not occur on or prior to February 28, 2013, any party may terminate the Settlement Agreement. If any party terminates the Settlement Agreement, all parties’ rights and obligations under the Settlement Agreement shall terminate. The Release Agreement is a separate and independent agreement from the Settlement Agreement and provides that it supersedes all prior understandings, commitments and representations between the parties with respect to the subject matter thereof; therefore it would survive any termination of the Settlement Agreement. As of
December 31, 2016
, no party had terminated the Settlement Agreement
Litigation
Due to the nature of the Company's business, the Company is involved, from time to time, in various litigation matters or subject to disputes or routine claims regarding its business activities. Legal costs related to these matters are expensed as incurred. During 2014 and 2016, the Company recorded an accrual related to the settlement of litigation incurred on behalf of the Company's Brazilian subsidiary. The Company paid the total settlement of
4.5 million
reais, or
$1.4 million
, by issuing approximately
1.3 million
shares of Globalstar common stock on October 24, 2016. The Company agreed to provide downside protection for the difference between the total settlement amount of
4.5 million
reais and the total gross proceeds received by the third party upon sale of these shares. The Company accrued a total of
1.3 million
reais, or
$0.4 million
, as of
December 31, 2016
related to this downside protection, which will be paid in the form of Globalstar common stock. See
Note 8: Accrued Expenses and Other Non-Current Liabilities
and
Note 5: Fair Value Measurements
for further discussion.
In management's opinion, there is no pending litigation, dispute or claim, other than those described in this report, which could be expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.
8. ACCRUED EXPENSES AND OTHER NON-CURRENT LIABILITIES
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Accrued interest
|
$
|
381
|
|
|
$
|
317
|
|
Accrued liability for potential stock issuance to Hughes
|
2,706
|
|
|
5,495
|
|
Accrued compensation and benefits
|
3,193
|
|
|
2,101
|
|
Accrued property and other taxes
|
4,173
|
|
|
4,145
|
|
Accrued customer liabilities and deposits
|
3,907
|
|
|
3,216
|
|
Accrued professional and other service provider fees
|
2,544
|
|
|
1,130
|
|
Accrued commissions
|
858
|
|
|
1,224
|
|
Accrued telecommunications expenses
|
686
|
|
|
1,511
|
|
Accrued satellite and ground costs
|
2,076
|
|
|
60
|
|
Accrued inventory
|
90
|
|
|
502
|
|
Accrued liability for legal settlement
|
389
|
|
|
328
|
|
Other accrued expenses
|
2,159
|
|
|
2,410
|
|
Total accrued expenses
|
$
|
23,162
|
|
|
$
|
22,439
|
|
Accrued liability for potential stock issuance to Hughes includes the estimated value at
December 31, 2016
and
2015
, respectively, of the downside protection that the Company provided to Hughes in connection with its April 2015 agreement (as amended). See
Note 5: Fair Value Measurements
and
Note 6: Commitments
for further discussion.
Accrued liability for legal settlement relates to the litigation incurred on behalf of the Company's Brazilian subsidiary. The balance at
December 31, 2016
includes the fair value of the downside protection the Company provided related to the settlement of this litigation. The balance at
December 31, 2015
includes the accrual of the estimated loss related to the litigation as of that date. This litigation was settled in October 2016. See
Note 5: Fair Value Measurements
and
Note 7: Contingencies
for further discussion.
Other accrued expenses include primarily advertising costs, capital lease obligations, vendor services, warranty reserve, occupancy costs, payments to IGOs and estimated payroll shortfall under the Cooperative Endeavor Agreement with the Louisiana Department of Economic Development (“LED”).
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,
|
|
2016
|
|
2015
|
|
2014
|
Balance at beginning of period
|
$
|
101
|
|
|
$
|
129
|
|
|
$
|
142
|
|
Provision
|
272
|
|
|
279
|
|
|
246
|
|
Utilization
|
(241
|
)
|
|
(307
|
)
|
|
(259
|
)
|
Balance at end of period
|
$
|
132
|
|
|
$
|
101
|
|
|
$
|
129
|
|
Other non-current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Long-term accrued interest
|
$
|
99
|
|
|
$
|
96
|
|
Asset retirement obligation
|
1,443
|
|
|
1,302
|
|
Deferred rent and other deferred expense
|
470
|
|
|
593
|
|
Capital lease obligations
|
87
|
|
|
94
|
|
Liability related to the Cooperative Endeavor Agreement with the State of Louisiana
|
445
|
|
|
716
|
|
Uncertain income tax positions
|
—
|
|
|
5,795
|
|
Foreign tax contingencies
|
3,346
|
|
|
2,311
|
|
Total other non-current liabilities
|
$
|
5,890
|
|
|
$
|
10,907
|
|
The Company relocated to Louisiana in 2011. In connection with its relocation, the Company entered into a Cooperative Endeavor Agreement with the LED whereby the Company would be reimbursed for certain qualified relocation costs and lease expenses. In accordance with the terms of the agreement, these reimbursement costs, not to exceed
$8.1 million
, will be reimbursed to the Company as incurred provided the Company maintains required annual payroll levels in Louisiana through 2019. Under the terms of the agreement, the Company was reimbursed a total of
$4.9 million
for qualifying relocation and lease expenses and
$1.3 million
for facility improvements and replacement equipment in connection with the relocation through December 31, 2016.
As a result of the expiration of the statute of limitations associated with the tax position of one of the Company's foreign subsidiaries, the Company removed the total unrecognized tax position of
$6.3 million
, inclusive of cumulative interest and penalties, from its non-current liabilities and recorded a
$6.3 million
tax benefit in its consolidated financial statements during the third quarter of 2016.
For further discussion of amounts accrued related to the Company's asset retirement obligation and foreign tax contingencies, see
Note 1: Summary of Significant Accounting Policies
and
Note 11: Taxes
, respectively.
9. RELATED PARTY TRANSACTIONS
Payables to Thermo and other affiliates related to normal purchase transactions were
$0.3 million
and
$0.6 million
at each of
December 31, 2016
and
2015
, respectively.
Transactions with Thermo
General and administrative expenses are related to non-cash expenses and those expenses incurred by Thermo on behalf of the Company which are charged to the Company. Non-cash expenses, which the Company accounts for as a contribution to capital, relate to services provided by two executive officers of Thermo (who are also directors of the Company) and receive no cash compensation from the Company. The Thermo expense charges are based on actual amounts (with no mark-up) incurred or upon allocated employee time. For the periods ended
December 31, 2016
,
2015
, and
2014
, expenses incurred by Thermo were
$0.7 million
,
$0.9 million
, and
$0.8 million
, respectively.
As of
December 31, 2016
, the principal amount outstanding under the Loan Agreement with Thermo was
$94.0 million
, and the fair value of the compound embedded derivative liability associated with the Loan Agreement was
$254.5 million
. During
2016
and
2015
, interest accrued on the Loan Agreement was approximately
$10.7
and
$9.1
, respectively.
In June 2009, the Company entered into a Contingent Equity Agreement with Thermo, under which Thermo agreed to deposit
$60.0 million
into a contingent equity account to fulfill a condition precedent for borrowing under the Facility Agreement. The Company has drawn the entire
$60.0 million
from this account as well as interest earned from the funds previously held in this account of approximately
$1.1 million
. Since the origination of the Contingent Equity Agreement, the Company has issued to Thermo warrants to purchase
41.5
million shares of common stock for the annual availability fee and subsequent resets due to provisions in the Contingent Equity Agreement and
160.9
million shares of common stock resulting from the Company's draws on the contingent equity account pursuant to the terms of the Contingent Equity Agreement. The Company also issued to Thermo
2.1
million shares of common stock resulting from the interest earned from the funds previously held in this account. Thermo has exercised a total of
16.9 million
warrants related to the Contingent Equity Agreement resulting in the issuance of
16.9 million
shares of Globalstar common stock. As of
December 31, 2016
, approximately
24.6 million
warrants remain outstanding under this agreement that are scheduled to expire in June 2017.
Additionally, in June 2009, the Company issued to Thermo
4.2 million
warrants as partial consideration for the original Loan Agreement with Thermo. Thermo exercised these warrants in 2014, resulting in the issuance of
4.2 million
shares of Globalstar common stock.
Since June 2009, Thermo and its affiliates have also purchased
$20.0 million
of the Company’s
5.0%
Notes, purchased
$11.4 million
of the Company's
8.00%
Notes Issued in 2009, and loaned
$37.5 million
to the Company to fund the debt service reserve account. In connection with these agreements, Thermo was issued
16.3 million
8.00% Warrants issued in 2009 and
8.0 million
5.0% Warrants. During 2014, Thermo exercised
16.3 million
of the 8.00% Warrants issued in 2009 resulting in the issuance of
14.7 million
shares of Globalstar common stock. During 2016, Thermo exercised
8.0 million
5.0% Warrants resulting in the issuance of
8.0 million
shares of Globalstar common stock. As of
December 31, 2016
,
no
warrants remain outstanding under any of these agreements.
In May 2013, the Company issued
8.00%
Notes Issued in 2013 in exchange for previously outstanding
5.75%
Notes. In connection with this exchange, the Company entered into the Consent Agreement, the Common Stock Purchase Agreement and the Common Stock Purchase and Option Agreement. During 2013, Thermo and its affiliates funded
$65.0 million
in accordance with these agreements.
In August 2015, the Company entered into an Equity Agreement with Thermo. Thermo agreed to purchase up to
$30.0 million
in equity securities of the Company if the Company so requests or if an event of default is continuing under the Facility Agreement and funds are not available under the August 2015 Terrapin Agreement. The Company has received cash equity financing in excess of Thermo's equity commitment. As a result, Thermo had no remaining cash equity commitment under the Equity Agreement as of
December 31, 2016
.
The Facility Agreement requires Thermo to maintain minimum and maximum ownership levels in the Company's common stock. Thermo may convert shares of nonvoting common stock into shares of common stock as needed to comply with these ownership limitations.
See
Note 3: Long-Term Debt and Other Financing Arrangements
and
Note 4: Derivatives
for further discussion of the Company's debt and financing transactions with Thermo.
10. 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 as of October 23, 2003. Prior to October 23, 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.
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,
|
|
2016
|
|
2015
|
Change in projected benefit obligation:
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
$
|
17,595
|
|
|
$
|
18,932
|
|
Service cost
|
195
|
|
|
111
|
|
Interest cost
|
758
|
|
|
744
|
|
Actuarial (gain) loss
|
381
|
|
|
(1,071
|
)
|
Benefits paid
|
(1,151
|
)
|
|
(1,121
|
)
|
Projected benefit obligation, end of year
|
$
|
17,778
|
|
|
$
|
17,595
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
$
|
12,785
|
|
|
$
|
13,433
|
|
Return on plan assets
|
937
|
|
|
66
|
|
Employer contributions
|
324
|
|
|
407
|
|
Benefits paid
|
(1,151
|
)
|
|
(1,121
|
)
|
Fair value of plan assets, end of year
|
$
|
12,895
|
|
|
$
|
12,785
|
|
Funded status, end of year-net liability
|
$
|
(4,883
|
)
|
|
$
|
(4,810
|
)
|
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,
|
|
2016
|
|
2015
|
|
2014
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
195
|
|
|
$
|
111
|
|
|
$
|
103
|
|
Interest cost
|
758
|
|
|
744
|
|
|
781
|
|
Expected return on plan assets
|
(808
|
)
|
|
(862
|
)
|
|
(932
|
)
|
Amortization of unrecognized net actuarial loss
|
473
|
|
|
512
|
|
|
281
|
|
Total net periodic benefit cost
|
$
|
618
|
|
|
$
|
505
|
|
|
$
|
233
|
|
Amounts recognized in the consolidated balance sheet were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Amounts recognized:
|
|
|
|
|
|
Funded status recognized in other non-current liabilities
|
$
|
(4,883
|
)
|
|
$
|
(4,810
|
)
|
Net actuarial loss recognized in accumulated other comprehensive loss
|
5,942
|
|
|
6,163
|
|
Net amount recognized in retained deficit
|
$
|
1,059
|
|
|
$
|
1,353
|
|
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,
|
|
2016
|
|
2015
|
|
2014
|
Benefit obligation assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
4.15
|
%
|
|
4.38
|
%
|
|
4.03
|
%
|
Rate of compensation increase
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Net periodic benefit cost assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
4.38
|
%
|
|
4.03
|
%
|
|
4.80
|
%
|
Expected rate of return on plan assets
|
6.50
|
%
|
|
6.50
|
%
|
|
7.12
|
%
|
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.
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,
|
|
2016
|
|
2015
|
Equity securities
|
56
|
%
|
|
55
|
%
|
Debt securities
|
44
|
|
|
45
|
|
Total
|
100
|
%
|
|
100
|
%
|
The fair values of the Company’s pension plan assets by asset category were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
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
|
$
|
5,705
|
|
|
$
|
—
|
|
|
$
|
5,705
|
|
|
$
|
—
|
|
International equity securities
|
1,460
|
|
|
—
|
|
|
1,460
|
|
|
—
|
|
Fixed income securities
|
4,028
|
|
|
—
|
|
|
4,028
|
|
|
—
|
|
Other
|
1,702
|
|
|
—
|
|
|
1,702
|
|
|
—
|
|
Total
|
$
|
12,895
|
|
|
$
|
—
|
|
|
$
|
12,895
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
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
|
$
|
5,688
|
|
|
$
|
—
|
|
|
$
|
5,688
|
|
|
$
|
—
|
|
International equity securities
|
1,370
|
|
|
—
|
|
|
1,370
|
|
|
—
|
|
Fixed income securities
|
4,026
|
|
|
—
|
|
|
4,026
|
|
|
—
|
|
Other
|
1,701
|
|
|
—
|
|
|
1,701
|
|
|
—
|
|
Total
|
$
|
12,785
|
|
|
$
|
—
|
|
|
$
|
12,785
|
|
|
$
|
—
|
|
Accumulated Benefit Obligation
The accumulated benefit obligation of the defined benefit pension plan was
$17.8 million
and
$17.6 million
at
December 31, 2016
and
2015
, respectively.
Benefits Payments and Contributions
The benefit payments to retirees over the next ten years are expected to be paid as follows (in thousands):
|
|
|
|
|
2017
|
$
|
974
|
|
2018
|
981
|
|
2019
|
1,002
|
|
2020
|
1,002
|
|
2021
|
1,003
|
|
2022 - 2026
|
5,379
|
|
For
2016
and
2015
, the Company contributed
$0.3 million
and
$0.4 million
, respectively, to the Globalstar Plan.
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
$0.3 million
,
$0.3 million
and
$0.3 million
for
2016
,
2015
, and
2014
, respectively.
11. TAXES
The components of income tax expense were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
|
|
|
Federal tax
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State tax
|
18
|
|
|
34
|
|
|
20
|
|
Foreign tax
|
(6,561
|
)
|
|
(211
|
)
|
|
2,430
|
|
Total
|
(6,543
|
)
|
|
(177
|
)
|
|
2,450
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal and state tax
|
—
|
|
|
—
|
|
|
—
|
|
Foreign tax provision (benefit)
|
—
|
|
|
1,569
|
|
|
(1,569
|
)
|
Total
|
—
|
|
|
1,569
|
|
|
(1,569
|
)
|
Income tax expense (benefit)
|
$
|
(6,543
|
)
|
|
$
|
1,392
|
|
|
$
|
881
|
|
U.S. and foreign components of income (loss) before income taxes are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
U.S. income (loss)
|
$
|
(103,494
|
)
|
|
$
|
109,411
|
|
|
$
|
(461,250
|
)
|
Foreign income (loss)
|
(35,695
|
)
|
|
(35,697
|
)
|
|
(735
|
)
|
Total income (loss) before income taxes
|
$
|
(139,189
|
)
|
|
$
|
73,714
|
|
|
$
|
(461,985
|
)
|
As of
December 31, 2016
, the Company had cumulative U.S. and foreign net operating loss carryforwards for income tax reporting purposes of approximately
$1.6 billion
and
$197.4 million
, respectively. As of
December 31, 2015
, the Company had cumulative U.S. and foreign net operating loss carryforwards for income tax reporting purposes of approximately
$1.5 billion
and
$142.6 million
, respectively. The net operating loss carryforwards expire from
2017
through
2035
.
The Company has not provided U.S. income taxes and foreign withholding taxes on approximately
$1.8 million
of undistributed earnings from certain foreign subsidiaries indefinitely invested outside the U.S. Should the Company decide to repatriate these foreign earnings, the Company would have to adjust the income tax provision in the period in which management determines that it intends to repatriate the earnings.
The components of net deferred income tax assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Federal and foreign net operating loss and credit carryforwards
|
$
|
712,799
|
|
|
$
|
641,001
|
|
Property and equipment and other long-term assets
|
(58,379
|
)
|
|
(32,698
|
)
|
Accruals and reserves
|
21,071
|
|
|
25,124
|
|
Deferred tax assets before valuation allowance
|
675,491
|
|
|
633,427
|
|
Valuation allowance
|
(675,491
|
)
|
|
(633,427
|
)
|
Net deferred income tax assets
|
$
|
—
|
|
|
$
|
—
|
|
The change in the valuation allowance during
2016
and
2015
of
$42.1 million
and
$50.6 million
, respectively, was due to the Company providing valuation allowances against all of the tax benefit generated from the consolidated net losses in both periods. The change in property and equipment and other long-term deferred tax assets during
2016
and
2015
was driven primarily by depreciation due to the difference between tax and book depreciable lives.
The actual provision for income taxes differs from the statutory U.S. federal income tax rate as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Provision at U.S. statutory rate of 35%
|
$
|
(48,722
|
)
|
|
$
|
25,788
|
|
|
$
|
(161,702
|
)
|
State income taxes, net of federal benefit
|
(6,193
|
)
|
|
6,597
|
|
|
(27,656
|
)
|
Change in valuation allowance (excluding impact of foreign exchange rates)
|
36,631
|
|
|
(39,686
|
)
|
|
136,717
|
|
Effect of foreign income tax at various rates
|
4,844
|
|
|
4,739
|
|
|
243
|
|
Permanent differences
|
10,331
|
|
|
7,046
|
|
|
33,138
|
|
Change in unrecognized tax benefit
|
(6,313
|
)
|
|
712
|
|
|
(3,839
|
)
|
Net change in permanent items due to provision to tax return
|
3,222
|
|
|
(3,099
|
)
|
|
21,008
|
|
Other (including amounts related to prior year tax matters)
|
(343
|
)
|
|
(705
|
)
|
|
2,972
|
|
Total
|
$
|
(6,543
|
)
|
|
$
|
1,392
|
|
|
$
|
881
|
|
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.
Neither the Company nor any of its subsidiaries is currently under audit by the IRS or by any state jurisdiction in the United States. The Company's corporate U.S. tax returns for 2012 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.
The Company acquired a tax liability for which the Company has been indemnified by the previous owners. As of
December 31, 2016
and
2015
, the Company had recorded a tax liability of
$1.1 million
and
$0.3 million
, respectively, to the foreign tax authorities with an offsetting tax receivable from the previous owners, which is included in Intangible and Other Assets in the accompanying balance sheets. In addition, an agreement was reached in November 2014 to settle other outstanding refinancing contingencies by utilization of the Brazilian tax amnesty program and the accumulated fiscal losses related to tax periods preceding the date of the agreement. While the Brazilian tax authorities have not given final confirmation of the settlement, the Company does not currently maintain a corresponding liability on its consolidated balance sheet as the Company believes additional liability is remote. The Company may be exposed to liabilities in the future if its subsidiary in Brazil, after making use of all available tax benefits and fiscal losses, incurs additional tax liabilities for which it may not be fully indemnified by the seller, or the seller may fail to perform its indemnification obligations.
In the Company's international tax jurisdictions, numerous tax years remain subject to examination by tax authorities, including tax returns for 2006 and subsequent years in most of the Company's international tax jurisdictions.
A rollforward of the Company's unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Gross unrecognized tax benefits at January 1, 2016
|
$
|
3,830
|
|
Gross increase (decrease) based on tax positions related to current year
|
245
|
|
Gross increase (decrease) based on tax positions related to prior years:
|
|
|
Lapse of applicable statute of limitations
|
(4,075
|
)
|
Gross unrecognized tax benefits at December 31, 2016
|
$
|
—
|
|
|
|
|
|
|
Gross unrecognized tax benefits at January 1, 2015
|
$
|
3,550
|
|
Gross increase (decrease) based on tax positions related to current year
|
280
|
|
Gross increase (decrease) based on tax positions related to prior years
|
—
|
|
Gross unrecognized tax benefits at December 31, 2015
|
$
|
3,830
|
|
During 2016, as a result of the expiration of the statute of limitations associated with the tax position of a foreign subsidiary, the Company removed
$4.1 million
in unrecognized tax positions and
$2.2 million
in related interest and penalties from non-current liabilities on its consolidated balance sheet. This adjustment resulted in a corresponding tax benefit in the Company's consolidated statements of operations. The Company classified interest and penalties as a component of income tax expense pursuant to ASC Topic 740
Accounting for Uncertainty in Income Taxes
.
In October 2016, the U.S. Department of the Treasury released final and temporary regulations under Section 385 of the U.S. Internal Revenue Code. The final regulations strengthen the tax rules distinguishing between debt and equity specific to related party transactions. The Company continues to evaluate the impact these regulations will have on its current accounting and tax policies and procedures, however it does not believe that they will have a material impact on the consolidated financial statements.
12. GEOGRAPHIC INFORMATION
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. Long-lived assets consist primarily of property and equipment and are attributed to various countries based on the physical location of the asset at a given fiscal year-end, 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,
|
|
2016
|
|
2015
|
|
2014
|
Revenues:
|
|
|
|
|
|
|
|
|
Service:
|
|
|
|
|
|
|
|
|
United States
|
$
|
56,868
|
|
|
$
|
50,832
|
|
|
$
|
46,519
|
|
Canada
|
16,038
|
|
|
14,553
|
|
|
14,584
|
|
Europe
|
6,955
|
|
|
5,738
|
|
|
5,536
|
|
Central and South America
|
2,659
|
|
|
2,407
|
|
|
2,623
|
|
Others
|
549
|
|
|
594
|
|
|
561
|
|
Total service revenue
|
83,069
|
|
|
74,124
|
|
|
69,823
|
|
Subscriber equipment:
|
|
|
|
|
|
|
|
|
United States
|
7,441
|
|
|
7,823
|
|
|
10,931
|
|
Canada
|
3,122
|
|
|
4,339
|
|
|
5,668
|
|
Europe
|
1,533
|
|
|
1,710
|
|
|
2,123
|
|
Central and South America
|
1,413
|
|
|
2,087
|
|
|
1,279
|
|
Others
|
283
|
|
|
407
|
|
|
240
|
|
Total subscriber equipment revenue
|
13,792
|
|
|
16,366
|
|
|
20,241
|
|
Total revenue
|
$
|
96,861
|
|
|
$
|
90,490
|
|
|
$
|
90,064
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
Long-lived assets:
|
|
|
|
|
|
United States
|
$
|
1,035,331
|
|
|
$
|
1,073,327
|
|
Canada
|
670
|
|
|
510
|
|
Europe
|
408
|
|
|
484
|
|
Central and South America
|
3,084
|
|
|
2,782
|
|
Other
|
226
|
|
|
457
|
|
Total long-lived assets
|
$
|
1,039,719
|
|
|
$
|
1,077,560
|
|
13. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed based on the weighted average number of shares of common stock outstanding during the year. Common stock equivalents are included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive.
The following table sets forth the calculation of basic and diluted earnings (loss) per share 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,
|
|
2016
|
|
2015
|
|
2014
|
Net income (loss)
|
$
|
(132,646
|
)
|
|
$
|
72,322
|
|
|
$
|
(462,866
|
)
|
Effect of dilutive securities:
|
|
|
|
|
|
2013 8.00% Notes
|
—
|
|
|
2,398
|
|
|
—
|
|
Thermo Loan Agreement
|
—
|
|
|
8,903
|
|
|
—
|
|
Income (loss) to common stockholders plus assumed conversions
|
$
|
(132,646
|
)
|
|
$
|
83,623
|
|
|
$
|
(462,866
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Basic shares outstanding
|
1,064,443
|
|
|
1,020,149
|
|
|
934,356
|
|
Incremental shares from assumed exercises, conversions, and other issuance of:
|
|
|
|
|
|
Stock options, restricted stock, restricted stock units and ESPP
|
—
|
|
|
8,559
|
|
|
—
|
|
2013 8.00% Notes
|
—
|
|
|
27,853
|
|
|
—
|
|
Thermo Loan Agreement
|
—
|
|
|
136,710
|
|
|
—
|
|
Warrants and other
|
—
|
|
|
37,123
|
|
|
—
|
|
Diluted shares outstanding
|
1,064,443
|
|
|
1,230,394
|
|
|
934,356
|
|
Income (loss) per share:
|
|
|
|
|
|
Basic
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.50
|
)
|
Diluted
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.50
|
)
|
For the years ended
December 31, 2016
, and
2014
,
204.2 million
and
194.4 million
shares of potential common stock, respectively, were excluded from diluted shares outstanding because the effects of potentially dilutive securities would be anti-dilutive.
14. STOCK COMPENSATION
The Company’s 2006 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, 2016
and
2015
, the number of shares of common stock that was authorized and remained available for issuance under the Equity Plan was
26.6 million
and
29.9 million
, respectively.
Stock Options
The Company has granted incentive stock options under the Equity Plan. The options generally vest in equal installments over
three
or
four
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 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 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 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,
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
1 - 2%
|
|
|
Less than 1 - 2%
|
|
|
Less than 1 - 2%
|
|
Expected term of options (years)
|
5
|
|
|
6
|
|
|
5
|
|
Volatility
|
65
|
%
|
|
72%
|
|
|
72%
|
|
Weighted average grant-date fair value per share
|
$
|
1.04
|
|
|
$
|
1.43
|
|
|
$
|
1.67
|
|
The following table represents the Company’s stock option activity for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Exercise Price
|
Outstanding at January 1, 2016
|
7,964,680
|
|
|
$
|
1.36
|
|
Granted
|
1,139,800
|
|
|
1.93
|
|
Exercised
|
(178,400
|
)
|
|
0.54
|
|
Forfeited or expired
|
(203,475
|
)
|
|
2.14
|
|
Outstanding at December 31, 2016
|
8,722,605
|
|
|
1.43
|
|
|
|
|
|
Exercisable at December 31, 2016
|
6,808,078
|
|
|
$
|
1.24
|
|
The following table summarizes the aggregate intrinsic value of stock options exercised during the years indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Intrinsic value of stock options exercised
|
$
|
199
|
|
|
$
|
492
|
|
|
$
|
5,083
|
|
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. Net cash proceeds during the year ended
December 31, 2016
from the exercise of stock options were
$1.0 million
. The aggregate intrinsic value of all outstanding stock options at
December 31, 2016
was
$4.1 million
with a remaining contractual life of
6.0
years. The aggregate intrinsic value of all vested stock options at
December 31, 2016
was
$3.9 million
with a remaining contractual life of
5.2
years.
The following table presents compensation expense related to stock options for the years indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Total compensation expense
|
$
|
1.4
|
|
|
$
|
1.2
|
|
|
$
|
1.5
|
|
As of
December 31, 2016
, unrecognized compensation expense related to nonvested stock options outstanding was approximately
$1.9 million
to be recognized over a weighted-average period of
1.7
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
one
year from the grant date or in equal annual installments over
three
years. Non-vested shares are generally forfeited upon the termination of employment. Holders of restricted stock 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,
|
|
2016
|
|
2015
|
|
2014
|
Weighted average grant-date fair value
|
$
|
1.56
|
|
|
$
|
1.84
|
|
|
$
|
3.32
|
|
The following is a rollforward of the activity in restricted stock for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Nonvested at January 1, 2016
|
1,380,665
|
|
|
$
|
2.09
|
|
Granted
|
2,323,360
|
|
|
1.56
|
|
Vested
|
(1,150,811
|
)
|
|
1.78
|
|
Forfeited
|
(24,382
|
)
|
|
1.90
|
|
Nonvested at December 31, 2016
|
2,528,832
|
|
|
$
|
1.75
|
|
The following table represents the compensation expense related to restricted stock for the years indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Total compensation expense
|
$
|
2.2
|
|
|
$
|
1.4
|
|
|
$
|
1.6
|
|
The total fair value of restricted stock awards vested during
2016
,
2015
and
2014
was
$1.4 million
,
$1.2 million
, and
$3.0 million
, respectively. As of
December 31, 2016
, unrecognized compensation expense related to unvested restricted stock outstanding was approximately $
3.4 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. During 2016, the Company's adjusted EBITDA performance was within the bonus payout threshold according to the bonus plan document. As of
December 31, 2016
,
$0.8 million
was accrued on the Company's consolidated balance sheet related to this bonus payment, which will be made in the form of common stock.
Employee Stock Purchase Plan
In June 2011, the Company adopted an Employee Stock Purchase Plan (the “Plan”) which provides eligible employees of the Company and its subsidiaries 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
7,000,000
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”), unless adjusted by the Company's Board of Directors or one of its designated committees. 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 the years ended
December 31, 2016
and
2015
, the Company received
$0.7 million
and
$0.6 million
, respectively, related to shares issued under this plan. For both
2016
and
2015
the Company recorded compensation expense of approximately
$0.4 million
, which is reflected in marketing, general and administrative expenses. Additionally, the Company has issued approximately
3.7 million
shares through
December 31, 2016
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,
|
|
2016
|
|
2015
|
Risk-free interest rate
|
Less than 1.00
|
%
|
|
Less than 1.00
|
%
|
Expected term (months)
|
6
|
|
|
6
|
|
Volatility
|
108
|
%
|
|
100%
|
|
Weighted average grant-date fair value per share
|
$
|
0.61
|
|
|
$
|
1.07
|
|
15. 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,
|
|
2016
|
|
2015
|
Accumulated minimum pension liability adjustment
|
$
|
(5,942
|
)
|
|
$
|
(6,163
|
)
|
Accumulated net foreign currency translation adjustment
|
564
|
|
|
1,330
|
|
Total accumulated other comprehensive loss
|
$
|
(5,378
|
)
|
|
$
|
(4,833
|
)
|
No
amounts were reclassified out of accumulated other comprehensive loss for the periods shown above.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of consolidated quarterly financial information (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
2016
|
|
March 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
Total revenue
|
|
$
|
21,836
|
|
|
$
|
25,086
|
|
|
$
|
25,544
|
|
|
$
|
24,395
|
|
Loss from operations
|
|
$
|
(15,698
|
)
|
|
$
|
(16,411
|
)
|
|
$
|
(14,763
|
)
|
|
$
|
(16,804
|
)
|
Net income (loss)
|
|
$
|
(26,947
|
)
|
|
$
|
14,099
|
|
|
$
|
(2,577
|
)
|
|
$
|
(117,221
|
)
|
Basic income (loss) per common share
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
—
|
|
|
$
|
(0.11
|
)
|
Diluted income (loss) per common share
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
—
|
|
|
$
|
(0.11
|
)
|
Shares used in basic per share calculations
|
|
1,041,028
|
|
|
1,049,381
|
|
|
1,080,313
|
|
|
1,086,631
|
|
Shares used in diluted per share calculations
|
|
1,041,028
|
|
|
1,249,672
|
|
|
1,080,313
|
|
|
1,086,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
2015
|
|
March 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
Total revenue
|
|
$
|
21,022
|
|
|
$
|
23,023
|
|
|
$
|
23,678
|
|
|
$
|
22,767
|
|
Loss from operations
|
|
$
|
(17,185
|
)
|
|
$
|
(17,417
|
)
|
|
$
|
(16,089
|
)
|
|
$
|
(15,913
|
)
|
Net income (loss)
|
|
$
|
(129,727
|
)
|
|
$
|
204,767
|
|
|
$
|
24,098
|
|
|
$
|
(26,816
|
)
|
Basic income (loss) per common share
|
|
$
|
(0.13
|
)
|
|
$
|
0.20
|
|
|
$
|
0.02
|
|
|
$
|
(0.03
|
)
|
Diluted income (loss) per common share
|
|
$
|
(0.13
|
)
|
|
$
|
0.17
|
|
|
$
|
0.02
|
|
|
$
|
(0.03
|
)
|
Shares used in basic per share calculations
|
|
1,000,845
|
|
|
1,009,917
|
|
|
1,031,398
|
|
|
1,037,880
|
|
Shares used in diluted per share calculations
|
|
1,000,845
|
|
|
1,205,450
|
|
|
1,234,551
|
|
|
1,037,880
|
|
17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In connection with the Company’s issuance of the 2013 8.00% Notes, certain of the Company’s 100% owned domestic subsidiaries (the “Guarantor Subsidiaries”) fully, unconditionally, jointly, and severally guaranteed the payment obligations under these notes. The following condensed financial information sets forth, on a consolidating basis, the balance sheets, statements of operations and comprehensive income (loss) and statements of cash flows for Globalstar, Inc. (“Parent Company”), the Guarantor Subsidiaries and the Parent Company’s other subsidiaries (the “Non-Guarantor Subsidiaries”).
Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elimination
|
|
Consolidated
|
|
(In Thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
7,259
|
|
|
$
|
1,327
|
|
|
$
|
1,644
|
|
|
$
|
—
|
|
|
$
|
10,230
|
|
Accounts receivable, net of allowance
|
5,938
|
|
|
6,340
|
|
|
2,941
|
|
|
—
|
|
|
15,219
|
|
Intercompany receivables
|
897,691
|
|
|
678,707
|
|
|
32,040
|
|
|
(1,608,438
|
)
|
|
—
|
|
Inventory
|
2,266
|
|
|
4,354
|
|
|
1,473
|
|
|
—
|
|
|
8,093
|
|
Prepaid expenses and other current assets
|
1,570
|
|
|
955
|
|
|
2,063
|
|
|
—
|
|
|
4,588
|
|
Total current assets
|
914,724
|
|
|
691,683
|
|
|
40,161
|
|
|
(1,608,438
|
)
|
|
38,130
|
|
Property and equipment, net
|
1,031,623
|
|
|
3,708
|
|
|
4,384
|
|
|
4
|
|
|
1,039,719
|
|
Restricted cash
|
37,983
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,983
|
|
Intercompany notes receivable
|
8,901
|
|
|
—
|
|
|
6,436
|
|
|
(15,337
|
)
|
|
—
|
|
Investment in subsidiaries
|
(280,557
|
)
|
|
73,029
|
|
|
36,146
|
|
|
171,382
|
|
|
—
|
|
Prepaid second-generation ground costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Intangibles and other assets, net
|
15,259
|
|
|
128
|
|
|
1,407
|
|
|
(12
|
)
|
|
16,782
|
|
Total assets
|
$
|
1,727,933
|
|
|
$
|
768,548
|
|
|
$
|
88,534
|
|
|
$
|
(1,452,401
|
)
|
|
$
|
1,132,614
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
75,755
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
75,755
|
|
Debt restructuring fees
|
20,795
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,795
|
|
Accounts payable
|
2,624
|
|
|
3,490
|
|
|
1,385
|
|
|
—
|
|
|
7,499
|
|
Accrued contract termination charge
|
18,451
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,451
|
|
Accrued expenses
|
10,573
|
|
|
5,884
|
|
|
6,705
|
|
|
—
|
|
|
23,162
|
|
Intercompany payables
|
636,336
|
|
|
750,084
|
|
|
221,980
|
|
|
(1,608,400
|
)
|
|
—
|
|
Payables to affiliates
|
309
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
309
|
|
Deferred revenue
|
1,576
|
|
|
19,304
|
|
|
5,599
|
|
|
—
|
|
|
26,479
|
|
Total current liabilities
|
766,419
|
|
|
778,762
|
|
|
235,669
|
|
|
(1,608,400
|
)
|
|
172,450
|
|
Long-term debt, less current portion
|
500,524
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500,524
|
|
Employee benefit obligations
|
4,883
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,883
|
|
Intercompany notes payable
|
6,435
|
|
|
—
|
|
|
8,901
|
|
|
(15,336
|
)
|
|
—
|
|
Derivative liabilities
|
281,171
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
281,171
|
|
Deferred revenue
|
5,567
|
|
|
299
|
|
|
11
|
|
|
—
|
|
|
5,877
|
|
Other non-current liabilities
|
1,115
|
|
|
325
|
|
|
4,450
|
|
|
—
|
|
|
5,890
|
|
Total non-current liabilities
|
799,695
|
|
|
624
|
|
|
13,362
|
|
|
(15,336
|
)
|
|
798,345
|
|
Stockholders' equity (deficit)
|
161,819
|
|
|
(10,838
|
)
|
|
(160,497
|
)
|
|
171,335
|
|
|
161,819
|
|
Total liabilities and shareholders' equity (deficit)
|
$
|
1,727,933
|
|
|
$
|
768,548
|
|
|
$
|
88,534
|
|
|
$
|
(1,452,401
|
)
|
|
$
|
1,132,614
|
|
Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Elimination
|
|
Consolidated
|
|
(In thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3,530
|
|
|
$
|
719
|
|
|
$
|
3,227
|
|
|
$
|
—
|
|
|
$
|
7,476
|
|
Accounts receivable, net of allowance
|
4,860
|
|
|
5,215
|
|
|
4,461
|
|
|
—
|
|
|
14,536
|
|
Intercompany receivables
|
839,215
|
|
|
609,500
|
|
|
54,507
|
|
|
(1,503,222
|
)
|
|
—
|
|
Inventory
|
2,148
|
|
|
6,321
|
|
|
3,554
|
|
|
—
|
|
|
12,023
|
|
Prepaid expenses and other current assets
|
2,399
|
|
|
291
|
|
|
1,766
|
|
|
—
|
|
|
4,456
|
|
Total current assets
|
852,152
|
|
|
622,046
|
|
|
67,515
|
|
|
(1,503,222
|
)
|
|
38,491
|
|
Property and equipment, net
|
1,069,605
|
|
|
3,722
|
|
|
4,587
|
|
|
(354
|
)
|
|
1,077,560
|
|
Restricted cash
|
37,918
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,918
|
|
Intercompany notes receivable
|
12,037
|
|
|
—
|
|
|
5,355
|
|
|
(17,392
|
)
|
|
—
|
|
Investment in subsidiaries
|
(274,453
|
)
|
|
58,686
|
|
|
32,945
|
|
|
182,822
|
|
|
—
|
|
Prepaid second-generation ground costs
|
8,929
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,929
|
|
Intangible and other assets, net
|
11,384
|
|
|
280
|
|
|
464
|
|
|
(11
|
)
|
|
12,117
|
|
Total assets
|
$
|
1,717,572
|
|
|
$
|
684,734
|
|
|
$
|
110,866
|
|
|
$
|
(1,338,157
|
)
|
|
$
|
1,175,015
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
32,835
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,835
|
|
Accounts payable
|
4,292
|
|
|
2,439
|
|
|
1,387
|
|
|
—
|
|
|
8,118
|
|
Accrued contract termination charge
|
19,121
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,121
|
|
Accrued expenses
|
9,816
|
|
|
6,949
|
|
|
5,674
|
|
|
—
|
|
|
22,439
|
|
Intercompany payables
|
585,091
|
|
|
706,913
|
|
|
211,188
|
|
|
(1,503,192
|
)
|
|
—
|
|
Payables to affiliates
|
616
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
616
|
|
Deferred revenue
|
1,980
|
|
|
17,722
|
|
|
4,200
|
|
|
—
|
|
|
23,902
|
|
Total current liabilities
|
653,751
|
|
|
734,023
|
|
|
222,449
|
|
|
(1,503,192
|
)
|
|
107,031
|
|
Long-term debt, less current portion
|
548,286
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
548,286
|
|
Employee benefit obligations
|
4,810
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,810
|
|
Intercompany notes payable
|
5,563
|
|
|
—
|
|
|
11,818
|
|
|
(17,381
|
)
|
|
—
|
|
Derivative liabilities
|
239,642
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
239,642
|
|
Deferred revenue
|
6,027
|
|
|
386
|
|
|
—
|
|
|
—
|
|
|
6,413
|
|
Debt restructuring fees
|
20,795
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,795
|
|
Other non-current liabilities
|
1,567
|
|
|
305
|
|
|
9,035
|
|
|
—
|
|
|
10,907
|
|
Total non-current liabilities
|
826,690
|
|
|
691
|
|
|
20,853
|
|
|
(17,381
|
)
|
|
830,853
|
|
Stockholders' equity (deficit)
|
237,131
|
|
|
(49,980
|
)
|
|
(132,436
|
)
|
|
182,416
|
|
|
237,131
|
|
Total liabilities and shareholders' equity (deficit)
|
$
|
1,717,572
|
|
|
$
|
684,734
|
|
|
$
|
110,866
|
|
|
$
|
(1,338,157
|
)
|
|
$
|
1,175,015
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
70,460
|
|
|
$
|
34,428
|
|
|
$
|
43,130
|
|
|
$
|
(64,949
|
)
|
|
$
|
83,069
|
|
Subscriber equipment sales
|
584
|
|
|
9,380
|
|
|
6,545
|
|
|
(2,717
|
)
|
|
13,792
|
|
Total revenue
|
71,044
|
|
|
43,808
|
|
|
49,675
|
|
|
(67,666
|
)
|
|
96,861
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization and accretion shown separately below)
|
20,569
|
|
|
5,929
|
|
|
10,976
|
|
|
(5,566
|
)
|
|
31,908
|
|
Cost of subscriber equipment sales
|
207
|
|
|
7,481
|
|
|
4,931
|
|
|
(2,712
|
)
|
|
9,907
|
|
Marketing, general and administrative
|
21,691
|
|
|
4,847
|
|
|
73,679
|
|
|
(59,235
|
)
|
|
40,982
|
|
Reduction in the value of long-lived assets
|
350
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
350
|
|
Depreciation, amortization and accretion
|
75,896
|
|
|
802
|
|
|
1,054
|
|
|
(362
|
)
|
|
77,390
|
|
Total operating expenses
|
118,713
|
|
|
19,059
|
|
|
90,640
|
|
|
(67,875
|
)
|
|
160,537
|
|
Income (loss) from operations
|
(47,669
|
)
|
|
24,749
|
|
|
(40,965
|
)
|
|
209
|
|
|
(63,676
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on equity issuance
|
2,789
|
|
|
—
|
|
|
(389
|
)
|
|
—
|
|
|
2,400
|
|
Interest income and expense, net of amounts capitalized
|
(35,754
|
)
|
|
(24
|
)
|
|
(164
|
)
|
|
(10
|
)
|
|
(35,952
|
)
|
Derivative loss
|
(41,531
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(41,531
|
)
|
Equity in subsidiary earnings
|
(9,803
|
)
|
|
(15,670
|
)
|
|
—
|
|
|
25,473
|
|
|
—
|
|
Other
|
(678
|
)
|
|
92
|
|
|
17
|
|
|
139
|
|
|
(430
|
)
|
Total other income (expense)
|
(84,977
|
)
|
|
(15,602
|
)
|
|
(536
|
)
|
|
25,602
|
|
|
(75,513
|
)
|
Income (loss) before income taxes
|
(132,646
|
)
|
|
9,147
|
|
|
(41,501
|
)
|
|
25,811
|
|
|
(139,189
|
)
|
Income tax expense (benefit)
|
—
|
|
|
18
|
|
|
(6,561
|
)
|
|
—
|
|
|
(6,543
|
)
|
Net income (loss)
|
$
|
(132,646
|
)
|
|
$
|
9,129
|
|
|
$
|
(34,940
|
)
|
|
$
|
25,811
|
|
|
$
|
(132,646
|
)
|
Defined benefit pension plan liability adjustment
|
221
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
221
|
|
Net foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
(759
|
)
|
|
(7
|
)
|
|
(766
|
)
|
Total comprehensive income (loss)
|
$
|
(132,425
|
)
|
|
$
|
9,129
|
|
|
$
|
(35,699
|
)
|
|
$
|
25,804
|
|
|
$
|
(133,191
|
)
|
Globalstar, Inc.
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
66,024
|
|
|
$
|
30,803
|
|
|
$
|
37,887
|
|
|
$
|
(60,590
|
)
|
|
$
|
74,124
|
|
Subscriber equipment sales
|
808
|
|
|
12,093
|
|
|
8,444
|
|
|
(4,979
|
)
|
|
16,366
|
|
Total revenue
|
66,832
|
|
|
42,896
|
|
|
46,331
|
|
|
(65,569
|
)
|
|
90,490
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization and accretion shown separately below)
|
18,775
|
|
|
6,474
|
|
|
12,348
|
|
|
(6,982
|
)
|
|
30,615
|
|
Cost of subscriber equipment sales
|
64
|
|
|
10,580
|
|
|
6,147
|
|
|
(4,977
|
)
|
|
11,814
|
|
Marketing, general and administrative
|
19,492
|
|
|
5,758
|
|
|
65,660
|
|
|
(53,492
|
)
|
|
37,418
|
|
Depreciation, amortization and accretion
|
75,313
|
|
|
1,203
|
|
|
1,212
|
|
|
(481
|
)
|
|
77,247
|
|
Total operating expenses
|
113,644
|
|
|
24,015
|
|
|
85,367
|
|
|
(65,932
|
)
|
|
157,094
|
|
Income (loss) from operations
|
(46,812
|
)
|
|
18,881
|
|
|
(39,036
|
)
|
|
363
|
|
|
(66,604
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
(2,254
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,254
|
)
|
Loss on equity issuance
|
(6,663
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,663
|
)
|
Interest income and expense, net of amounts capitalized
|
(35,301
|
)
|
|
(27
|
)
|
|
(536
|
)
|
|
10
|
|
|
(35,854
|
)
|
Derivative gain
|
181,860
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
181,860
|
|
Equity in subsidiary earnings
|
(19,467
|
)
|
|
(13,345
|
)
|
|
—
|
|
|
32,812
|
|
|
—
|
|
Other
|
959
|
|
|
465
|
|
|
1,599
|
|
|
206
|
|
|
3,229
|
|
Total other income (expense)
|
119,134
|
|
|
(12,907
|
)
|
|
1,063
|
|
|
33,028
|
|
|
140,318
|
|
Income (loss) before income taxes
|
72,322
|
|
|
5,974
|
|
|
(37,973
|
)
|
|
33,391
|
|
|
73,714
|
|
Income tax expense
|
—
|
|
|
34
|
|
|
1,358
|
|
|
—
|
|
|
1,392
|
|
Net income (loss)
|
$
|
72,322
|
|
|
$
|
5,940
|
|
|
$
|
(39,331
|
)
|
|
$
|
33,391
|
|
|
$
|
72,322
|
|
Defined benefit pension plan liability adjustment
|
787
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
787
|
|
Net foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
(2,742
|
)
|
|
20
|
|
|
(2,722
|
)
|
Total comprehensive income (loss)
|
$
|
73,109
|
|
|
$
|
5,940
|
|
|
$
|
(42,073
|
)
|
|
$
|
33,411
|
|
|
$
|
70,387
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
75,590
|
|
|
$
|
5,069
|
|
|
$
|
22,252
|
|
|
$
|
(33,088
|
)
|
|
$
|
69,823
|
|
Subscriber equipment sales
|
434
|
|
|
14,568
|
|
|
11,212
|
|
|
(5,973
|
)
|
|
20,241
|
|
Total revenue
|
76,024
|
|
|
19,637
|
|
|
33,464
|
|
|
(39,061
|
)
|
|
90,064
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization and accretion shown separately below)
|
11,320
|
|
|
9,586
|
|
|
9,401
|
|
|
(639
|
)
|
|
29,668
|
|
Cost of subscriber equipment sales
|
2,220
|
|
|
9,492
|
|
|
11,861
|
|
|
(8,716
|
)
|
|
14,857
|
|
Cost of subscriber equipment sales - reduction in the value of inventory
|
7,362
|
|
|
6,776
|
|
|
7,546
|
|
|
—
|
|
|
21,684
|
|
Marketing, general and administrative
|
7,171
|
|
|
16,253
|
|
|
14,947
|
|
|
(4,851
|
)
|
|
33,520
|
|
Reduction in the value of long-lived assets
|
44
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
84
|
|
Depreciation, amortization and accretion
|
76,656
|
|
|
10,176
|
|
|
25,270
|
|
|
(25,956
|
)
|
|
86,146
|
|
Total operating expenses
|
104,773
|
|
|
52,323
|
|
|
69,025
|
|
|
(40,162
|
)
|
|
185,959
|
|
Income (loss) from operations
|
(28,749
|
)
|
|
(32,686
|
)
|
|
(35,561
|
)
|
|
1,101
|
|
|
(95,895
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
(39,846
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39,846
|
)
|
Loss on equity issuance
|
(748
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(748
|
)
|
Interest income and expense, net of amounts capitalized
|
(42,636
|
)
|
|
(34
|
)
|
|
(563
|
)
|
|
—
|
|
|
(43,233
|
)
|
Derivative loss
|
(286,049
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(286,049
|
)
|
Equity in subsidiary earnings
|
(67,150
|
)
|
|
(4,734
|
)
|
|
—
|
|
|
71,884
|
|
|
—
|
|
Other
|
2,312
|
|
|
593
|
|
|
1,411
|
|
|
(530
|
)
|
|
3,786
|
|
Total other income (expense)
|
(434,117
|
)
|
|
(4,175
|
)
|
|
848
|
|
|
71,354
|
|
|
(366,090
|
)
|
Income (loss) before income taxes
|
(462,866
|
)
|
|
(36,861
|
)
|
|
(34,713
|
)
|
|
72,455
|
|
|
(461,985
|
)
|
Income tax expense
|
—
|
|
|
20
|
|
|
861
|
|
|
—
|
|
|
881
|
|
Net income (loss)
|
$
|
(462,866
|
)
|
|
$
|
(36,881
|
)
|
|
$
|
(35,574
|
)
|
|
$
|
72,455
|
|
|
$
|
(462,866
|
)
|
Defined benefit pension plan liability adjustment
|
(2,467
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,467
|
)
|
Net foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
(1,320
|
)
|
|
18
|
|
|
(1,302
|
)
|
Total comprehensive income (loss)
|
$
|
(465,333
|
)
|
|
$
|
(36,881
|
)
|
|
$
|
(36,894
|
)
|
|
$
|
72,473
|
|
|
$
|
(466,635
|
)
|
Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Net cash provided by (used in) operating activities:
|
$
|
8,642
|
|
|
$
|
1,307
|
|
|
$
|
(1,136
|
)
|
|
$
|
—
|
|
|
$
|
8,813
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-generation network costs (including interest)
|
(12,901
|
)
|
|
—
|
|
|
(269
|
)
|
|
—
|
|
|
(13,170
|
)
|
Property and equipment additions
|
(8,453
|
)
|
|
(699
|
)
|
|
(233
|
)
|
|
—
|
|
|
(9,385
|
)
|
Purchase of intangible assets
|
(1,996
|
)
|
|
|
|
|
|
|
|
(1,996
|
)
|
Change in restricted cash
|
(65
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
Net cash used in investing activities
|
(23,415
|
)
|
|
(699
|
)
|
|
(502
|
)
|
|
—
|
|
|
(24,616
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of the Facility Agreement
|
(32,835
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,835
|
)
|
Proceeds from issuance of stock to Terrapin
|
48,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48,000
|
|
Proceeds from issuance of common stock and exercise of options and warrants
|
3,337
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,337
|
|
Net cash provided by financing activities
|
18,502
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,502
|
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
55
|
|
Net increase (decrease) in cash and cash equivalents
|
3,729
|
|
|
608
|
|
|
(1,583
|
)
|
|
—
|
|
|
2,754
|
|
Cash and cash equivalents, beginning of period
|
3,530
|
|
|
719
|
|
|
3,227
|
|
|
—
|
|
|
7,476
|
|
Cash and cash equivalents, end of period
|
$
|
7,259
|
|
|
$
|
1,327
|
|
|
$
|
1,644
|
|
|
$
|
—
|
|
|
$
|
10,230
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Net cash provided by (used in) operating activities:
|
$
|
(2,349
|
)
|
|
$
|
1,767
|
|
|
$
|
2,744
|
|
|
$
|
—
|
|
|
$
|
2,162
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-generation network costs (including interest)
|
(25,195
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,195
|
)
|
Property and equipment additions
|
(2,608
|
)
|
|
(1,720
|
)
|
|
(1,195
|
)
|
|
—
|
|
|
(5,523
|
)
|
Purchase of intangible assets
|
(2,520
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,520
|
)
|
Investment in businesses
|
(240
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(240
|
)
|
Net cash used in investing activities
|
(30,563
|
)
|
|
(1,720
|
)
|
|
(1,195
|
)
|
|
—
|
|
|
(33,478
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of the Facility Agreement
|
(6,450
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,450
|
)
|
Proceeds from issuance of stock to Terrapin
|
39,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,000
|
|
Proceeds from issuance of common stock and exercise of options and warrants
|
726
|
|
|
|
|
|
|
—
|
|
|
726
|
|
Net cash provided by financing activities
|
33,276
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,276
|
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
(1,605
|
)
|
|
—
|
|
|
(1,605
|
)
|
Net increase (decrease) in cash and cash equivalents
|
364
|
|
|
47
|
|
|
(56
|
)
|
|
—
|
|
|
355
|
|
Cash and cash equivalents, beginning of period
|
3,166
|
|
|
672
|
|
|
3,283
|
|
|
—
|
|
|
7,121
|
|
Cash and cash equivalents, end of period
|
$
|
3,530
|
|
|
$
|
719
|
|
|
$
|
3,227
|
|
|
$
|
—
|
|
|
$
|
7,476
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Net cash provided by operating activities
|
$
|
2,770
|
|
|
$
|
983
|
|
|
$
|
228
|
|
|
$
|
—
|
|
|
$
|
3,981
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-generation network costs (including interest)
|
(14,604
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,604
|
)
|
Property and equipment additions
|
(1,876
|
)
|
|
(987
|
)
|
|
(414
|
)
|
|
—
|
|
|
(3,277
|
)
|
Purchase of intangible assets
|
(1,396
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,396
|
)
|
Net cash used in investing activities
|
(17,876
|
)
|
|
(987
|
)
|
|
(414
|
)
|
|
—
|
|
|
(19,277
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of the Facility Agreement
|
(4,046
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,046
|
)
|
Payment of deferred financing costs
|
(164
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(164
|
)
|
Proceeds from issuance of common stock and exercise of options and warrants
|
9,547
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,547
|
|
Net cash provided by financing activities
|
5,337
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,337
|
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
(328
|
)
|
|
—
|
|
|
(328
|
)
|
Net increase (decrease) in cash and cash equivalents
|
(9,769
|
)
|
|
(4
|
)
|
|
(514
|
)
|
|
—
|
|
|
(10,287
|
)
|
Cash and cash equivalents, beginning of period
|
12,935
|
|
|
676
|
|
|
3,797
|
|
|
—
|
|
|
17,408
|
|
Cash and cash equivalents, end of period
|
$
|
3,166
|
|
|
$
|
672
|
|
|
$
|
3,283
|
|
|
$
|
—
|
|
|
$
|
7,121
|
|