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 of the Board controls Thermo. Two other members of the Company's Board of Directors are also directors, officers or minority equity owners of various Thermo entities.
The Company’s satellite communications business, by providing critical mobile communications to subscribers, serves principally the following markets: recreation and personal; government; public safety and disaster relief; oil and gas; maritime and fishing; natural resources, mining and forestry; construction; utilities; and transportation.
Globalstar currently provides the following communications services 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 using mobile or fixed devices, including the GSP-1700 phone, the Globalstar 9600
TM
hotspot, two generations of the Sat-Fi, and other fixed and data-only devices ("Duplex");
|
|
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•
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one-way or two-way communication and data transmissions using mobile devices, including the SPOT family of products, such as SPOT X
TM
, SPOT Gen3 and Trace, that transmit messages and the location of the device ("SPOT"); and
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|
|
•
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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 commercial Simplex products, such as the battery- and solar-powered SmartOne, STX-3 and STINGR ("Simplex").
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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. Restricted cash is classified as a current asset on its Consolidated Balance Sheet as these funds are expected to be used to pay principal and interest due under the Facility Agreement during the next twelve months.
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
Receivables are recorded when the right to consideration from the customer becomes unconditional, which is generally upon billing or upon satisfaction of a performance obligation, whichever is earlier. Accounts receivable are uncollateralized, without interest, and consist primarily of receivables from the sale of Globalstar services and equipment. For service customers, payment is generally due within thirty days of the invoice date and for equipment customers, payment is generally due within thirty to sixty days of the invoice date, or, for some customers, may be made in advance of shipment.
The Company performs ongoing credit evaluations of its customers and impairs receivable balances by recording specific allowances for 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,
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
3,610
|
|
|
$
|
3,966
|
|
|
$
|
5,270
|
|
Provision, net of recoveries
|
1,398
|
|
|
1,256
|
|
|
1,256
|
|
Write-offs and other adjustments
|
(1,626
|
)
|
|
(1,612
|
)
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(2,560
|
)
|
Balance at end of period
|
$
|
3,382
|
|
|
$
|
3,610
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|
|
$
|
3,966
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Inventory
Inventory consists primarily of purchased products, including subscriber equipment devices which work on the Company’s network, approximately
$8.6 million
and
$7.3 million
as of December 31, 2018 and 2017, respectively, as well as ground infrastructure assets expected to be used as spare parts or sold to third parties, approximately
$5.7 million
and
zero
as of December 31, 2018 and 2017, respectively. Inventory is stated at the lower of cost and net realizable value. Cost is computed using the first-in, first-out (FIFO) method. Inventory write downs are measured as the difference between the cost of inventory and the net realizable value and are recorded as a cost of subscriber equipment sales - reduction in the value of inventory in the Company’s Consolidated Financial Statements. At the point of any inventory write down to net realizable value, 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.
For the year ended December 31, 2017, the Company wrote down the value of inventory by
$0.8 million
after adjusting for changes in net realizable value for certain products, particularly in international locations, compared to the carrying value of inventory, as well as for a reduction in the value of prepaid inventory due to design changes for products under development. During the years ended December 31, 2018 and 2016,
no
write down of inventory was required.
Property and Equipment
The Globalstar System includes costs for the design, manufacture, test, and launch of a constellation of low earth orbit satellites (the “Space Component”), and primary and backup control centers and gateways (the “Ground Component”). Property and equipment is stated at cost, net of accumulated depreciation.
Costs associated with the design, manufacture, test and launch of the Company’s Space and Ground Components are capitalized. Capitalized costs associated with the Company’s Space Component, Ground Component, and other assets are tracked by fixed asset category and are allocated to each asset as it comes into service. When a second-generation satellite was incorporated into the second-generation constellation, the Company began depreciation on the date the satellite was placed into service, which was the point that the satellite reached its orbital altitude, over its estimated depreciable life.
The Company capitalizes interest costs associated with the costs of assets in progress. Capitalized interest is added to the cost of the underlying asset and is amortized over the depreciable life of the asset after it is placed into service. As the Company’s construction in progress decreases, the Company capitalizes less interest, resulting in a higher amount of net interest expense recognized under U.S. GAAP. In connection with the launch of Sat-Fi2
TM
, the first device to operate on the Company's upgraded ground network, the Company placed into service the portion of the next-generation ground component (including associated developed technology and software upgrades), which represents the gateways capable of supporting commercial traffic. Placing these assets into service during 2018 resulted in a decrease in the Company's construction in progress balance; however, as the Company continues to improve its network and other related assets, the balance of construction in progress may increase in future periods.
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.
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 expected term of the corresponding debt. Deferred financing costs are recorded on the Company's consolidated balance sheets as a reduction in the carrying amount of the related debt liability. The Company classifies deferred financing costs consistent with the classification of the related debt outstanding at the end of the reporting period. As of
December 31, 2018
, and
2017
, the Company had net deferred financing costs of
$24.4 million
and
$34.5 million
, respectively.
Fair Value of Financial Instruments
The Company believes it is not practicable to determine the fair value of the Facility Agreement. 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 Loan Agreement with Thermo and the Company’s
8.00%
Convertible Senior Notes Issued in 2013 (“2013
8.00%
Notes”), the fair value of debt is calculated using inputs consistent with those used to calculate the fair value of the derivatives embedded in these instruments.
Litigation, Commitments and Contingencies
The Company is subject to various claims and lawsuits that arise in the ordinary course of business. Estimating liabilities and costs associated with these matters requires judgment and assessment based on professional knowledge and experience of our management and legal counsel. When a loss is considered probable and reasonably estimable, a liability is recorded for the Company's best estimate. If there is a range of loss, the Company will record a reserve based on the low end of the range, unless facts and circumstances can support a different point in the range. When a loss is probable, but not reasonably estimable, disclosure is provided, as considered necessary. Reserves for potential claims or lawsuits may be relieved if the loss is no longer considered probable. The ultimate resolution of any such exposure may vary from earlier estimates as further facts and circumstances become known.
Gain/Loss on Extinguishment of Debt
Gain or loss on extinguishment of debt generally is recorded upon an extinguishment of a debt instrument or the conversion of certain of the Company’s convertible notes. Gain or loss on extinguishment of debt is calculated as the difference between the reacquisition price and net carrying amount of the debt and is recorded as an extinguishment gain or loss in the Company’s consolidated statement of operations.
Revenue Recognition and Deferred Revenue
Effective January 1, 2018, the Company adopted ASC 606 using the modified retrospective method. As such, the revenue accounting policies below reflect the Company's policies after adoption of this standard. Refer to the Company's annual report on Form 10-K for the year ended December 31, 2017 for its revenue accounting policies in place during 2017 and 2016.
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. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. Each type of revenue is a separate performance obligation with distinct deliverables and is therefore accounted for discretely. Revenue is measured based on the consideration specified in a contract with a customer, adjusted for credits and discounts, as applicable, and is recognized when the Company satisfies a performance obligation by transferring control over a product or service to a customer.
Unless otherwise disclosed, service revenue is recognized over a period of time and revenue from the sale of subscriber equipment is recognized at a point in time. The recognition of revenue for service is over time as the customer simultaneously receives and consumes the benefits of the Company’s performance over the contract term. The recognition of revenue for subscriber equipment is at a point in time as the risks and rewards of ownership of the hardware transfer to the customer generally upon shipment, which is when legal title of the product transfers to the customer, among other things (as discussed further below).
The Company does not record sales taxes, telecommunication taxes or other governmental fees collected from customers in revenue. The Company excludes these taxes from the measurement of contract transaction prices.
The Company receives payment from customers in accordance with billing statements or invoices for customer contracts; these payments may be in advance or arrears of services provided to the customer by the Company. Customer payments received in advance of the corresponding service period are recorded as deferred revenue.
Upon activation of a Globalstar device, certain customers are charged an activation fee, which is recognized over the term of the expected customer life. Credits granted to customers are expensed or charged against revenue or accounts receivable over the remaining term of the contract. Estimates related to earned but unbilled service revenue are calculated using current subscriber data, including plan subscriptions and usage between the end of the billing cycle and the end of the period. The recognition of revenue related to amounts allocated to performance obligations that were satisfied (or partially satisfied) in a previous period is not routine or material to the Company’s financial statements.
Provisions for estimated future warranty costs, returns and rebates are recorded as a cost of sale, or a reduction to revenue, as applicable. These costs are based on historical trends and the provision is reviewed regularly and periodically adjusted to reflect changes in estimates.
Certain contracts with customers may contain a financing component. Under ASC 606, an entity should adjust the promised amount of the consideration for the effects of time value of money if the timing of the payments agreed upon by the parties to the contract provides the customer or the entity with a significant benefit of financing for the transfer of goods or services to the customer. This type of transaction is infrequent and not considered material to the Company. Additionally, in connection with the adoption of ASC 606, the Company has applied the practical expedient related to the existence of a significant financing component as it expects at contract inception that the period between payment by the customer and transfer of the promised goods or services will be one year or less.
The following describes the principal activities from which the Company generates its revenue. The Company’s only reportable segment is its MSS business.
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 and data in excess of the monthly access fees in the period such minutes or data are used. The Company offers certain annual plans whereby a customer prepays for a predetermined amount of minutes and data. In these cases, revenue is recognized consistent with a customer's expected pattern of usage based on historical experience because the Company believes that this method most accurately depicts the satisfaction of the Company's obligation to the customer. This usage pattern is typically seasonal and highest in the second and third calendar quarters of the year. The Company offers other annual plans whereby the customer is charged an annual fee to access the Company’s system with an unlimited amount of usage. Annual fees for unlimited plans are recognized on a straight-line basis over the term of the plans.
SPOT Service Revenue.
The Company sells SPOT services as monthly, annual or multi-year plans and recognizes revenue on a straight-line basis over the service term, beginning when the service is activated by the customer.
Simplex Service Revenue.
The Company sells 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 control has transferred to the customer. Indicators of transfer of control include, but are not limited to; 1) the Company’s right to payment, 2) the customer has legal title of the equipment, 3) the Company has transferred physical possession of the equipment to the customer or carrier, and 4) the customer has significant risks and rewards of ownership of the equipment. The Company sells equipment designed to work on its network through various channels, including through dealers, retailers and resellers (including IGOs) as well as direct to consumers or other businesses by its global sales team and through its e-commerce website. The sales channel depends primarily on the type of equipment and geographic region. Promotional rebates are offered from time to time. A reduction to revenue is recorded to reflect the lower transaction price based on an estimate of the customer take rate at the time of the sale using primarily historical data. This estimate is adjusted periodically to reflect actual rebates given to the Company’s customers. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenues.
Other Service Revenue.
Other service revenue includes primarily revenue associated with engineering services to assist customers in developing new applications related to its system. The revenue associated with these engineering services is generally recorded over time as the services are rendered, and the Company's obligation to the customer is satisfied.
Multiple-Element Arrangement Contracts.
At times, the Company will sell subscriber equipment through multiple-element arrangement contracts with services. When the Company sells subscriber equipment and services in bundled arrangements and determines that it has separate performance obligations, the Company allocates the bundled contract price among the various performance obligations based on relative stand-alone selling prices at contract inception of the district goods or services underlying each performance obligation and recognizes revenue when, or as, each performance obligation is satisfied.
Stock-Based Compensation
The Company recognizes compensation expense in the financial statements for both employee and non-employee share-based awards based on the grant date fair value of those awards. The Company uses the Black-Scholes option pricing model to estimate fair values of stock options. 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.
Foreign Currency
The functional currency of the Company’s foreign consolidated subsidiaries is generally their local currency, unless the subsidiary operates in a hyperinflationary economy, such as Venezuela. 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
2018
,
2017
and
2016
, the foreign currency translation adjustments were net gains of
$3.2 million
, net losses of
$1.9 million
and net losses of
$0.8 million
, respectively.
Foreign currency transaction gains/losses were net losses of
$3.1 million
$2.2 million
and
$0.2 million
for each of
2018
,
2017
, and
2016
, respectively. These were classified as other income (expense) on the consolidated statement of operations.
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 both
December 31, 2018
and
2017
, the Company had accrued approximately
$1.5 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
$1.5 million
,
$3.8 million
and
$2.1 million
for
2018
,
2017
and
2016
, respectively. These costs are expensed as incurred as cost of services and include primarily the cost of new product development, chip set design and other engineering work.
Advertising Expenses
Advertising costs were
$3.0 million
,
$2.1 million
and
$4.1 million
for
2018
,
2017
, and
2016
, 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; however, as the Company has full valuation allowance on its deferred tax assets, there is no impact to the consolidated statements of operations and balance sheets.
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. Common stock equivalents are included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive. Potentially dilutive securities include primarily outstanding stock-based awards, convertible notes and shares issuable pursuant to the Company's Employee Stock Purchase Plan.
For the years ended December 31, 2018, 2017 and 2016,
201.7 million
,
176.5 million
and
204.2 million
shares of potential common stock, respectively, were excluded from diluted shares outstanding because the effects of potentially dilutive securities would be anti-dilutive.
Intangible and Other Assets
Intangible Assets Not Subject to Amortization
A significant portion of the Company's intangible assets are licenses that provide the Company the exclusive right to provide MSS services over the Globalstar System or to utilize designated radio frequency spectrum to provide terrestrial wireless communication services in a particular region of the world. While licenses are issued for only a fixed time, such licenses are subject to renewal by the Federal Communications Commission ("FCC") or equivalent international regulatory authorities. These license renewals are expected to occur routinely and at nominal cost. Moreover, the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of its wireless licenses. As a result, the Company treats the wireless licenses as an indefinite-lived intangible asset. The Company re-evaluates the useful life determination for wireless licenses annually, or more frequently if needed, to determine whether events and circumstances continue to support an indefinite useful life.
Intangible Assets Subject to Amortization
Our intangible assets that do not have indefinite lives (primarily developed technology and customer relationships) are amortized over their estimated useful lives. For information related to each major classes of intangible assets, including accumulated amortization and estimated average useful lives, see
Note 4: Intangible and Other Assets
.
Other Assets
Prepaid Licenses and Royalties
The Company has signed various licensing and royalty agreements necessary for the manufacture and distribution of its second-generation products. Amounts that are prepaid are recorded primarily in noncurrent assets on the Company's consolidated balance sheet. The Company estimates the portion of expense incurred or royalties earned for the next 12 months and reclassifies these amounts to current assets on the Company's consolidated balance sheet each reporting period. The Company will expense these amounts through depreciation expense over the life of the gateway, maintenance expense over the term of the services, or cost of goods sold on a per unit basis as these units are manufactured, sold, or activated.
Business Economic Loss Claim Receivable
In accordance with ASC 450, the Company believes that the recognition of a gain is appropriate at the earlier of when the gain is realizable or realized. A realized gain is one where cash (or other assets, such as claims to cash) has already been received without expectation of repayment. A gain is realizable when assets are readily convertible to known amounts of cash or claims to cash. In May 2018, the Company entered into a settlement agreement related a business economic loss claim. As part of the Company's assessment, it considered that the terms of the settlement agreement are final (e.g. not subject to appeal) and the counterparty has the ability to pay the amount. Therefore, the Company recorded a receivable and non-operating income for the amount of the settlement. The Company imputed interest on this receivable in accordance with ASC 835-30-15-2 as it represents a contractual right to receive money on fixed or determinable dates. The difference between the present value and the face amount was treated as a discount and is being amortized as interest income over the life of the claim using the interest method. See
Note 9: Contingencies
for further discussion.
Costs to Obtain a Contract
The Company also capitalizes costs to obtain a contract, which include certain deferred subscriber acquisition costs which are amortized consistently with the pattern of transfer of the good or delivery of the service to which the asset relates. When a contract terminates prior to the end of its expected life, the remaining deferred costs asset associated with it becomes impaired. An immediate recognition of expense for individual remaining costs to obtain a contract following deactivation is not practicable. See
Note 2: Revenue
for further discussion.
Impairment of Intangible and Other Assets
The Company assesses these intangible assets for impairment annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. In assessing whether it is more likely than not that such an asset is impaired, the Company assesses relevant events and circumstances that could affect the significant inputs used to determine the fair value of the asset. If the Company determines that an impairment exists, any related loss is estimated based on fair values.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13,
Credit Losses, Measurement of Credit Losses on Financial Instruments
. ASU No. 2016-13, as amended, significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s incurred loss approach with an expected loss model for instruments measured at amortized cost. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The Company has not yet determined the impact this standard will have on its financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13,
Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
. As part of the FASB's disclosure framework project, it has eliminated, amended and added disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of any interim or annual reporting period. This ASU will have an impact on the Company's
disclosures.
In August 2018, the FASB issued ASU No. 2018-14,
Compensation - Retirement Benefits - Defined Benefit Plans - General Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
. As part of the FASB's disclosure framework project, it has changed the disclosure requirements for defined pension and other post-retirement benefit plans. The FASB eliminated disclosure requirements related to the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, the amount and timing of plan assets expected to be returned to the employer, if any, information related to Japanese Welfare Pension Insurance Law, information about the amount of future annual benefits covered by insurance contracts and significant transactions between the employer or related parties and the plan, and the disclosure of the effects of a one-percentage-point change in the assumed health care cost trend rates on the (1) aggregate of the service and interest cost components of net periodic benefit costs and the (2) benefit obligation for postretirement health care benefits. Entities will be required to disclose the weighted-average interest crediting rate for cash balance plans and other plans with promised interest crediting rates as well as an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This ASU is effective for public entities for annual periods beginning after December 15, 2020. Early adoption is permitted as of the beginning of any annual reporting period. This ASU will have an impact on the Company's disclosures.
In August 2018, the FASB issued ASU No. 2018-15,
Intangibles - Goodwill and Other - Internal-Use Software Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
. This ASU requires companies to defer specified implementation costs in a cloud computing arrangement that are often expensed under current US GAAP and recognize these costs to expense over the noncancellable term of the arrangement. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's financial statements and related disclosures.
Recently Implemented Financial Reporting Rules
In August 2018, the SEC adopted the final rule under SEC Release 33-10532,
Disclosure Update and Simplification
, which amended its rules to eliminate, modify, or integrate into other SEC requirements certain disclosure rules. The amendments are part of the SEC’s ongoing disclosure effectiveness initiative. The amendments eliminate redundant and duplicative requirements including, but not limited to, the ratio of earnings to fixed charges, outdated regulatory disclosures, certain accounting policies about derivative instruments and specific SEC disclosures that are also required under current US GAAP. The amendments may expand current disclosures for certain companies, specifically the requirement to disclose the change in stockholders' equity for the current and comparative quarter and year-to-date interim periods. The amended rules became effective November 5, 2018 and are applied to any filings after that date. These final rules did not have a material impact on the Company's disclosures and financial statements.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 became effective for annual reporting periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. See
Note 2: Revenue
for further discussion, including the impact on the Company's consolidated financial statements and required disclosures.
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") No. 2016-02,
Leases,
which has been modified since its initial release. 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. In July 2018, the FASB issued ASU No. 2018-11,
Leases (Topic 842): Targeted Improvements
, which provides for the election of transition methods between the modified retrospective method and the optional transition relief method. The modified retrospective method is applied to all prior reporting periods presented with a cumulative-effect adjustment recorded in the earliest comparative period while the optional transition relief method is applied beginning in the period of adoption with a cumulative-effect adjustment recorded in the first quarter of 2019. This ASU is effective for public business entities in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted this standard when it became effective on January 1, 2019 using
the optional transition relief method. The Company has an internal project team that has evaluated the impact that this standard has on its financial statements, accounting systems and related disclosures; for operating leases in which the Company is the lessee, it will recognize a right-of-use asset and associated lease liability upon adoption. The adoption of this standard on January 1, 2019 did not have a material impact to the Company's financial statements; however, as discussed further in
Note 8: Commitments
, the Company relocated to a new headquarters location in Covington, Louisiana in February 2019 and is currently evaluating the impact this lease will have on the Company's financial statements.
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 became effective for public entities for annual and interim periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements or related disclosures.
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 and clarify the classification of how certain cash receipts and cash payments are presented in the statement of cash flows. This ASU became effective for public entities for annual and interim periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements or related disclosures.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.
ASU No. 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 an asset until the asset has been sold to an outside party or otherwise recognized. This ASU became effective for public entities for annual and interim periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements or related disclosures.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations: Clarifying the Definition of a Business
. ASU No. 2017-01 most significantly revises guidance specific to the definition of a business related to accounting for acquisitions. Additionally, ASU No. 2017-01 also affects other areas of US GAAP, such as the definition of a business related to the consolidation of variable interest entities, the consolidation of a subsidiary or group of assets, components of an operating segment, and disposals of reporting units and the impact on goodwill. This ASU became effective for public entities for annual and interim periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements or related disclosures.
In February 2017, the FASB issued No. ASU 2017-05,
Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
. ASU 2017-05 was issued to provide clarity on the scope and application for recognizing gains and losses from the sale or transfer of nonfinancial assets, and should be adopted concurrently with ASU 2014-09,
Revenue from Contracts with Customers
. This ASU became effective for public entities for annual and interim periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements or related disclosures.
In February 2017, the FASB issued ASU No. 2017-07,
Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. ASU 2017-07 requires sponsors of benefit plans to present the service cost component of net periodic benefit cost in the same income statement line or items as other employee costs and present the remaining components of net periodic benefit cost in one or more separate line items outside of income from operations. This ASU also limits the capitalization of benefit costs to only the service cost component. This ASU became effective for public entities for annual and interim periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. As a result of the retrospective adoption of this standard, for the years ended December 31, 2017 and 2016, the Company reclassified
$0.3 million
and
$0.4 million
, respectively, from marketing, general and administrative expense to other income (expense). The service cost component of periodic benefit cost is the only cost that remains in income from operations; all other periodic benefit costs, including interest cost, expected return on plan assets and amortization of amounts deferred from previous periods are now reflected outside of income from operations and reflected in the other income (expense) line item on the Company's consolidated statements of operations. There were no other changes to the Company's consolidated financial statements or disclosures.
In March 2017, the FASB issued ASU No. 2017-08:
Receivables-Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities
. This ASU amends current US GAAP to shorten the amortization period for certain purchased
callable debt securities held at a premium to the earliest call date. This standard will replace today's yield-to-maturity approach, which generally requires amortization of premium over the life of the instrument. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2018. The Company adopted this standard on January 1, 2018. The adoption of this standard did not have a material effect on the Company's consolidated financial statements or related disclosures.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation-Stock Compensation: Scope of Modification Accounting.
This ASU clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, a company will apply modification accounting only if the fair value, vesting conditions or classification of the award change due to a modification in the terms or conditions of the share-based payment award. This ASU became effective for public entities for annual and interim periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements or related disclosures.
In February 2018, the FASB issued ASU No. 2018-02,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. This guidance allows companies to reclassify items in accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”). This ASU is effective for all entities for annual and interim periods beginning after December 15, 2018. The Company adopted this standard on January 1, 2019. The adoption of this standard did not have a material effect on the Company's financial statements or related disclosures.
In June 2018, the FASB issued ASU No. 2018-07,
Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting
. ASU 2018-07 aligns the accounting for share-based payment awards issued to employees and nonemployees. Measurement of equity-classified nonemployee awards will now be valued on the grant date and will no longer be remeasured through the performance completion date. This amendment also changes the accounting for nonemployee awards with performance conditions to recognize compensation cost when achievement of the performance condition is probable, rather than upon achievement of the performance condition, as well as eliminating the requirement to reassess the equity or liability classification for nonemployee awards upon vesting, except for certain award types. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2018. The Company adopted this standard on January 1, 2019. The adoption of this standard did not have a material effect on the Company's financial statements or related disclosures.
2. REVENUE
Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
On
January 1, 2018
, the Company adopted ASC 606 using the modified retrospective method and recognized the cumulative effect of initially applying the guidance as an adjustment to the opening balance of retained deficit. The Company applied the new revenue standard to new and existing contracts that were not complete as of the date of initial application. The Company has applied the transitional practical expedient related to contract modifications and it has not retrospectively restated contracts that were modified prior to
January 1, 2018
.
As a result of applying this standard using the modified retrospective method, the Company has presented financial results and applied its accounting policies for the period beginning
January 1, 2018
under ASC 606, while prior period results and accounting policies have not been adjusted and are reflected under legacy GAAP pursuant to ASC 605.
As a result of adopting ASC 606, the Company recorded a net increase to stockholders' equity of
$3.1 million
, which resulted in a reduction to the opening retained deficit balance as of
January 1, 2018
as a cumulative catch-up adjustment for all open contracts as of the date of adoption. The most significant drivers of this adjustment included the Company’s change in accounting policy related to the deferral of costs to obtain a contract and the accrual of contract breakage to revenue based on historical usage patterns of existing contracts (see further discussion below).
See
Note 1: Summary of Significant Accounting Policies
for further discussion on the Company's accounting policies related to revenue, deferred revenue, accounts receivables and costs to obtain a contract.
Impact on Financial Statements
The following tables summarize the impact of the adoption of ASC 606 on the Company’s consolidated financial statements. As noted above, the change in accounting policy related to the deferral of costs to obtain a contract and the accrual of estimated contract breakage to revenue based on historical usage patterns of existing contracts resulted in the most significant change to the Company’s consolidated financial statements. The impact on the Company's financial statements related to the change in accounting policy is as follows: 1) deferred costs to obtain a contract are primarily reflected in the marketing, general and administrative as well as the intangible and other assets, net, lines in the tables below and 2) the accrual of estimated contract breakage to revenue is reflected primarily in the service revenue and deferred revenue lines in the tables below. Amounts presented in the tables below are in thousands.
Consolidated Statement of Operations and Comprehensive Income (Loss)
Year Ended
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on change in accounting policy
|
|
Year ended December 31, 2018
|
|
As
reported
|
|
Impact of
ASC 606
|
|
Legacy GAAP
|
Service revenue
|
$
|
111,089
|
|
|
$
|
(570
|
)
|
|
$
|
110,519
|
|
Subscriber equipment sales
|
19,024
|
|
|
(445
|
)
|
|
18,579
|
|
Cost of subscriber equipment sales
|
14,441
|
|
|
(315
|
)
|
|
14,126
|
|
Marketing, general and administrative
|
55,443
|
|
|
(206
|
)
|
|
55,237
|
|
Other
|
40,988
|
|
|
(51
|
)
|
|
40,937
|
|
Net loss
|
(6,516
|
)
|
|
(443
|
)
|
|
(6,959
|
)
|
Comprehensive loss
|
(3,416
|
)
|
|
(443
|
)
|
|
(3,859
|
)
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
Basic
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
Diluted
|
(0.01
|
)
|
|
—
|
|
|
(0.01
|
)
|
Consolidated Balance Sheet
As of
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on change in accounting policy
|
|
December 31, 2018
|
|
As
reported
|
|
Impact of
ASC 606
|
|
Legacy
GAAP
|
Accounts receivable, net
|
$
|
19,327
|
|
|
$
|
(583
|
)
|
|
$
|
18,744
|
|
Prepaid expenses and other current assets
|
13,410
|
|
|
289
|
|
|
13,699
|
|
Intangible and other assets, net
|
40,286
|
|
|
(1,921
|
)
|
|
38,365
|
|
Deferred revenue, current and long-term
|
37,630
|
|
|
1,241
|
|
|
38,871
|
|
Retained earnings (deficit)
|
(1,574,725
|
)
|
|
3,536
|
|
|
(1,571,189
|
)
|
Disaggregation of Revenue
The following table discloses revenue disaggregated by type of product and service (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2018
|
|
December 31, 2017
(1)
|
|
December 31, 2016
(1)
|
Service revenue:
|
|
|
|
|
|
Duplex
|
$
|
41,223
|
|
|
$
|
37,635
|
|
|
$
|
31,848
|
|
SPOT
|
52,363
|
|
|
45,427
|
|
|
38,157
|
|
Simplex
|
13,459
|
|
|
10,946
|
|
|
10,005
|
|
IGO
|
932
|
|
|
1,068
|
|
|
907
|
|
Other
|
3,112
|
|
|
3,397
|
|
|
2,152
|
|
Total service revenue
|
111,089
|
|
|
98,473
|
|
|
83,069
|
|
|
|
|
|
|
|
Subscriber equipment sales:
|
|
|
|
|
|
Duplex
|
$
|
2,016
|
|
|
$
|
2,754
|
|
|
$
|
3,877
|
|
SPOT
|
8,046
|
|
|
5,394
|
|
|
5,321
|
|
Simplex
|
8,330
|
|
|
5,243
|
|
|
3,765
|
|
IGO
|
498
|
|
|
779
|
|
|
843
|
|
Other
|
134
|
|
|
17
|
|
|
(14
|
)
|
Total subscriber equipment sales
|
19,024
|
|
|
14,187
|
|
|
13,792
|
|
|
|
|
|
|
|
Total revenue
|
$
|
130,113
|
|
|
$
|
112,660
|
|
|
$
|
96,861
|
|
(1)
As noted above, prior periods have not been adjusted under the modified retrospective method of adoption.
The Company attributes equipment revenue to various countries based on the location where equipment is sold. Service revenue is generally attributed to the various countries based on the Globalstar entity that holds the customer contract. The following table discloses revenue disaggregated by geographical market (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2018
|
|
December 31, 2017
(1)
|
|
December 31, 2016
(1)
|
Service revenue:
|
|
|
|
|
|
United States
|
$
|
78,918
|
|
|
$
|
68,556
|
|
|
$
|
56,868
|
|
Canada
|
20,186
|
|
|
18,296
|
|
|
16,038
|
|
Europe
|
9,190
|
|
|
8,183
|
|
|
6,955
|
|
Central and South America
|
2,183
|
|
|
2,959
|
|
|
2,659
|
|
Others
|
612
|
|
|
479
|
|
|
549
|
|
Total service revenue
|
111,089
|
|
|
98,473
|
|
|
83,069
|
|
|
|
|
|
|
|
Subscriber equipment sales:
|
|
|
|
|
|
United States
|
$
|
10,809
|
|
|
$
|
8,431
|
|
|
$
|
7,441
|
|
Canada
|
3,343
|
|
|
2,995
|
|
|
3,122
|
|
Europe
|
3,101
|
|
|
1,532
|
|
|
1,533
|
|
Central and South America
|
1,472
|
|
|
1,202
|
|
|
1,413
|
|
Others
|
299
|
|
|
27
|
|
|
283
|
|
Total subscriber equipment sales
|
19,024
|
|
|
14,187
|
|
|
13,792
|
|
|
|
|
|
|
|
Total revenue
|
$
|
130,113
|
|
|
$
|
112,660
|
|
|
$
|
96,861
|
|
(1)
As noted above, prior periods have not been adjusted under the modified retrospective method of adoption.
Contract Balances
The following table discloses information about accounts receivable, costs to obtain a contract, and contract liabilities from contracts with customers (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
January 1, 2018
|
Accounts receivable
|
$
|
19,327
|
|
|
$
|
17,113
|
|
Capitalized costs to obtain a contract
|
2,018
|
|
|
2,265
|
|
Contract liabilities
|
37,630
|
|
|
37,799
|
|
Accounts Receivable
Included in the accounts receivable balance in the table above are contract assets, which represent primarily unbilled amounts related to performance obligations satisfied by the Company, of
$0.7 million
and
$0.1 million
as of
December 31, 2018
and
January 1, 2018
, respectively.
The Company has agreements with certain of its IGOs whereby the parties net settle outstanding payables and receivables between the respective entities on a periodic basis. As of
December 31, 2018
,
$7.8 million
related to these agreements was included in accounts receivable on the Company’s consolidated balance sheet.
During the year ended
December 31, 2018
, impairment loss on receivables from contracts with customers was
$3.9 million
including both provisions for bad debt and the reversal of revenue for accounts where collectability is not reasonably assured.
Costs to Obtain a Contract
The Company also capitalizes costs to obtain a contract, which include certain deferred subscriber acquisition costs which are amortized consistently with the pattern of transfer of the good or delivery of the service to which the asset relates. The Company’s subscriber acquisition costs primarily include dealer and internal sales commissions and certain other costs, including but not limited to, promotional costs, cooperative marketing credits and shipping and fulfillment costs. The Company capitalizes incremental costs to obtain a contract to the extent it expects to recover them. These capitalized contract costs include only internal and external initial activation commissions because these costs are considered incremental and would not have been incurred if the contract had not been obtained. These capitalized costs are included in other assets on the Company’s consolidated balance sheet and are amortized to marketing, general and administrative expenses on the Company’s consolidated statement of operations on a straight-line basis over the estimated customer life of
three
years, which considers anticipated contract renewals.
Upon adoption of ASC 606, the Company applied the practical expedient and recognizes the incremental costs of obtaining contracts as expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in marketing, general and administrative expenses in the period in which the cost is incurred.
When a contract terminates prior to the end of its expected life, the remaining deferred costs asset associated with it becomes impaired. An immediate recognition of expense for individual remaining costs to obtain a contract following deactivation is not practicable. Because early terminations are factored into the determination of the expected customer life and therefore affect the amortization period, the Company does not recognize early termination expense on individual assets because the incremental effect would be immaterial and doing do would be impractical.
For the year ended
December 31, 2018
, the amount of amortization related to previously capitalized costs to obtain a contract was
$1.5 million
.
Contract Liabilities
Contract liabilities, which are included in deferred revenue on the Company’s consolidated balance sheet, represent the Company’s obligation to transfer service or equipment to a customer for which it has previously received consideration from a customer. As of
December 31, 2018
, the total transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was
$37.6 million
. As discussed above, revenue is recognized when the Company satisfies a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized during the year ended
December 31, 2018
from performance obligations included in the contract liability balance at the beginning of the period was
$28.7 million
.
In general, the duration of the Company’s contracts is one year or less; however, from time to time, the Company offers multi-year contracts. As of
December 31, 2018
, the Company expects to recognize
$31.9 million
, or approximately
85%
, of its remaining performance obligations during the next twelve months and
$2.8 million
, or approximately
7%
, between two to seven years from the balance sheet date. The remaining
$2.9 million
, or approximately
8%
, is related to a single contract and will be recognized as work is performed by the Company, the timing of which is currently unknown. The Company has applied the practical expedient pursuant to ASC 606 allowing for limited disclosure of contract liabilities with a remaining duration of one year or less.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Globalstar System:
|
|
|
|
|
|
Space component
|
|
|
|
|
|
First and second-generation satellites in service
|
$
|
1,195,291
|
|
|
$
|
1,195,426
|
|
Second-generation satellite, on-ground spare
|
32,481
|
|
|
32,481
|
|
Ground component
|
256,850
|
|
|
48,710
|
|
Construction in progress:
|
|
|
|
|
Ground component
|
18,068
|
|
|
227,167
|
|
Next-generation software upgrades
|
2,250
|
|
|
12,414
|
|
Other
|
2,699
|
|
|
2,575
|
|
Total Globalstar System
|
1,507,639
|
|
|
1,518,773
|
|
Internally developed and purchased software
|
26,045
|
|
|
16,132
|
|
Equipment
|
10,097
|
|
|
9,966
|
|
Land and buildings
|
3,311
|
|
|
3,322
|
|
Leasehold improvements
|
1,478
|
|
|
1,969
|
|
Total property and equipment
|
1,548,570
|
|
|
1,550,162
|
|
Accumulated depreciation
|
(665,875
|
)
|
|
(579,043
|
)
|
Total property and equipment, net
|
$
|
882,695
|
|
|
$
|
971,119
|
|
Amounts in the above table consist primarily of costs incurred related to the construction of the Company’s second-generation constellation and ground upgrades. In connection with the 2018 launch of Sat-Fi2
TM
, the first device to operate on the Company's upgraded ground network, the Company placed into service the portion of the next-generation ground component (including associated developed technology and software upgrades), which represents the gateways currently capable of supporting commercial traffic. Also, during 2018, the Company reclassified approximately
$5.4 million
from construction in progress to inventory consisting of amounts associated with the portion of ground infrastructure assets expected to be used as spare parts or sold to third parties. The remaining ground component of construction in progress represents costs (including capitalized interest) associated with the Company's contracts primarily with Hughes Network Systems, LLC ("Hughes") and Ericsson Inc. (“Ericsson”) for the Company's ground infrastructure in certain regions around the world. In January 2019, the Company completed certain technology upgrades to allow customers to use Sat-Fi2
TM
in Brazil; as such, it placed into service approximately
$7.9 million
of construction in progress (including capitalized interest) related to the deployment of two RANs to this region.
Amounts included in the Company’s second-generation satellite, on-ground spare balance as of
December 31, 2018
and
2017
, consist primarily of costs related to a spare second-generation satellite that has not been placed in orbit, but is capable of being included in a future launch. As of
December 31, 2018
, this satellite has not been placed into service; therefore, the Company has not started to record depreciation expense.
Capitalized Interest and Depreciation Expense
The following table summarizes capitalized interest for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Interest cost eligible to be capitalized
|
$
|
51,819
|
|
|
$
|
51,212
|
|
|
$
|
48,095
|
|
Interest cost recorded in interest income (expense), net
|
(43,434
|
)
|
|
(33,319
|
)
|
|
(34,108
|
)
|
Net interest capitalized
|
$
|
8,385
|
|
|
$
|
17,893
|
|
|
$
|
13,987
|
|
The following table summarizes depreciation expense for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Depreciation Expense
|
$
|
81,779
|
|
|
$
|
77,197
|
|
|
$
|
76,960
|
|
The following table summarizes amortization expense for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Amortization Expense
|
$
|
8,659
|
|
|
$
|
301
|
|
|
$
|
430
|
|
Geographic Location of Long-Lived Assets
Long-lived assets consist primarily of property and equipment and are attributed to various countries based on the physical location of the asset, except for the Company’s satellites which are included in the long-lived assets of the United States. The Company’s information by geographic area is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
Long-lived assets:
|
|
|
|
|
|
United States
|
$
|
852,033
|
|
|
$
|
966,611
|
|
Canada
|
12,603
|
|
|
773
|
|
Europe
|
3,425
|
|
|
433
|
|
Central and South America
|
14,383
|
|
|
3,051
|
|
Other
|
251
|
|
|
251
|
|
Total long-lived assets
|
$
|
882,695
|
|
|
$
|
971,119
|
|
As discussed above, during 2018, the Company placed into service the portion of the next-generation ground component which represents the gateways capable of supporting commercial traffic. Construction in progress related to these assets was accumulated in the United States and allocated to the various gateways during 2018 based on physical location.
4. INTANGIBLE AND OTHER ASSETS
Intangible Assets Not Subject to Amortization
The Company has intangible assets not subject to amortization, which include certain costs to obtain or defend regulatory authorizations and a portion of capitalized interest associated with these assets. These costs include primarily efforts related to the Company's petition to the FCC to use its licensed MSS spectrum to provide terrestrial wireless services and costs with international regulatory agencies to obtain similar terrestrial authorizations outside of the United States. The total amount of these assets was
$19.9 million
and
$9.7 million
at
December 31, 2018
and
2017
, respectively.
Intangible Assets Subject to Amortization
The gross carrying amount and accumulated amortization of the Company's intangible assets subject to amortization consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Weighted
Average
Useful Life
(in years)
|
|
Cost
|
|
Accumulated Amortization
|
|
Carrying Amount
|
|
Cost
|
|
Accumulated Amortization
|
|
Carrying Amount
|
Developed technology
|
9
|
|
$
|
9,764
|
|
|
$
|
(5,478
|
)
|
|
$
|
4,286
|
|
|
$
|
6,108
|
|
|
$
|
(4,958
|
)
|
|
$
|
1,150
|
|
Customer relationships
|
8
|
|
2,100
|
|
|
(2,100
|
)
|
|
—
|
|
|
2,100
|
|
|
(2,100
|
)
|
|
—
|
|
MSS licenses
|
7
|
|
1,109
|
|
|
(152
|
)
|
|
957
|
|
|
878
|
|
|
(56
|
)
|
|
822
|
|
Trade name
|
1
|
|
200
|
|
|
(200
|
)
|
|
—
|
|
|
200
|
|
|
(200
|
)
|
|
—
|
|
|
|
|
$
|
13,173
|
|
|
$
|
(7,930
|
)
|
|
$
|
5,243
|
|
|
$
|
9,286
|
|
|
$
|
(7,314
|
)
|
|
$
|
1,972
|
|
During 2018, the Company placed into service developed technology and software associated with the launch of its next generation of products, including Sat-Fi2
TM
, SPOT X
TM
and SmartOne Solar
TM
. For
2018
and
2017
, the Company recorded amortization expense on these intangible assets of
$0.6 million
and
$0.3 million
, respectively. Amortization expense is recorded in operating expenses in the Company’s consolidated statements of operations. Total estimated annual amortization of intangible assets is expected to be approximately
$0.8 million
for each of
2019
through 2022,
$0.5 million
for 2023 and
$1.3 million
thereafter, excluding the effects of any acquisitions, dispositions or write-downs subsequent to
December 31, 2018
.
Other Assets
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Costs to obtain a contract
|
$
|
2,018
|
|
|
$
|
—
|
|
Long-term prepaid licenses and royalties
|
5,209
|
|
|
4,920
|
|
Business economic loss claim receivable (see Note 9 for further discussion)
|
3,684
|
|
|
—
|
|
International tax receivables
|
840
|
|
|
1,823
|
|
Investments in businesses
|
2,089
|
|
|
2,089
|
|
Other long-term assets
|
1,338
|
|
|
1,226
|
|
|
$
|
15,178
|
|
|
$
|
10,058
|
|
5. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Principal
Amount
|
|
Unamortized Discount and Deferred Financing Costs
|
|
Carrying
Value
|
|
Principal
Amount
|
|
Unamortized Discount and Deferred Financing Costs
|
|
Carrying
Value
|
Facility Agreement
|
$
|
389,390
|
|
|
$
|
24,355
|
|
|
$
|
365,035
|
|
|
$
|
467,256
|
|
|
$
|
34,459
|
|
|
$
|
432,797
|
|
Loan Agreement with Thermo
|
119,702
|
|
|
22,665
|
|
|
97,037
|
|
|
106,054
|
|
|
26,333
|
|
|
79,721
|
|
8.00% Convertible Senior Notes Issued in 2013
|
1,379
|
|
|
—
|
|
|
1,379
|
|
|
1,348
|
|
|
—
|
|
|
1,348
|
|
Total Debt
|
510,471
|
|
|
47,020
|
|
|
463,451
|
|
|
574,658
|
|
|
60,792
|
|
|
513,866
|
|
Less: Current Portion
|
96,249
|
|
|
—
|
|
|
96,249
|
|
|
79,215
|
|
|
—
|
|
|
79,215
|
|
Long-Term Debt
|
$
|
414,222
|
|
|
$
|
47,020
|
|
|
$
|
367,202
|
|
|
$
|
495,443
|
|
|
$
|
60,792
|
|
|
$
|
434,651
|
|
The principal amounts shown above include payment of in-kind interest, as applicable. The carrying value is net of deferred financing costs and any discounts to the loan amounts at issuance, including accretion, as further described below. The current portion of long-term debt represents the scheduled principal repayments under the Facility Agreement due within one year of the balance sheet date and the total outstanding balance of the Company's 2013
8.00%
Notes. The Company believes that the principal payments due in June and December 2019 under the Facility Agreement will be in excess of its available sources of cash in order to also maintain compliance with the required balance in the debt service reserve account. The Company intends to raise funds in sufficient amounts to meet its obligations or, alternatively, seek a restructuring or refinancing of these debt obligations; however, the source of funds has not yet been arranged nor have the terms of any such restructuring or refinancing been determined.
Facility Agreement
In 2009, the Company entered into the Facility Agreement with a syndicate of bank lenders, including BNP Paribas, Société Générale, Natixis, Crédit Agricole Corporate and Investment Bank (formerly Calyon) and Crédit Industriel et Commercial, as arrangers, and BNP Paribas, as the security agent. The Facility Agreement was amended and restated in July 2013, August 2015 and June 2017.
The Facility Agreement is scheduled to mature in December 2022. As of
December 31, 2018
, 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
3.75%
through June 2019, increasing by an additional
0.5%
each year thereafter to a maximum rate of LIBOR plus
5.75%
. Interest on the Facility Agreement is payable semi-annually in arrears on June 30 and December 31 of each calendar year.
Ninety-five
percent of the Company's obligations under the Facility Agreement are guaranteed by Bpifrance Assurance Export S.A.S. ("BPIFAE") (formerly COFACE), the French export credit agency. The Company's obligations under the Facility Agreement are guaranteed on a senior secured basis by all of its domestic subsidiaries and are secured by a first priority lien on substantially all of the assets of the Company and its domestic subsidiaries (other than their FCC licenses), including patents and trademarks,
100%
of the equity of the Company's domestic subsidiaries and
65%
of the equity of certain foreign subsidiaries.
The Facility Agreement contains customary events of default and requires that the Company satisfy various financial and non-financial covenants, including the following:
|
|
•
|
The Company's capital expenditures do not exceed
$15.0 million
per year;
|
|
|
•
|
The Company's expenditures in connection with its spectrum rights must be the lesser of (1)
$20.0 million
and (2)
20%
of the proceeds of the aggregate of any equity the Company raises from January 1, 2017 through December 31, 2019;
|
|
|
•
|
The Company 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
|
7/1/18-12/31/18
|
|
$
|
47,694
|
|
1/1/19-6/30/19
|
|
$
|
45,509
|
|
7/1/19-12/31/19
|
|
$
|
53,830
|
|
1/1/20-6/30/20
|
|
$
|
50,790
|
|
7/1/20-12/31/20
|
|
$
|
59,114
|
|
|
|
•
|
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
5.00
:1 for the December 31, 2018 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;
|
|
|
•
|
The Company maintains a minimum interest coverage ratio of
3.50
:1 for the December 31, 2018 measurement period, increasing gradually each semi-annual period until the requirement equals
5.00
: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. Additionally, the Company has a required reserve being held with its credit card processor to address any liability arising from potential charge-backs given the growth in both volume and amount of the Company's annual service subscriptions, among other factors. The Company is in discussions with its senior lenders to evaluate if this reserve impacts the terms 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 December 2019. If the Company violates any covenants and is unable to obtain a sufficient Equity Cure Contribution or obtain a waiver, or is unable to make payments to satisfy its debt obligations under the Facility Agreement when due 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. The Company needed an Equity Cure Contribution to maintain compliance with financial covenants under the Facility Agreement for the measurement period ended
December 31, 2018
. The Company will also need Equity Cure Contributions for periods thereafter, subject to the provisions of the Facility Agreement. The source of funds for these Equity Cure Contributions has not yet been arranged. As of
December 31, 2018
, the Company was in compliance with respect to the covenants of the Facility Agreement, except for one matter. In February 2019, the Company became aware that it had not complied with an administrative provision within the Facility Agreement. Prior to the issuance of these financial statements, this noncompliance was remedied within the applicable grace period in order to avoid an event of default.
The Facility Agreement also requires the Company to maintain a debt service reserve account, which is pledged to secure all of the Company's obligations under the Facility Agreement. The use of the debt service reserve account funds is restricted to making principal and interest payments under the Facility Agreement. The balance in the debt service reserve account must equal the total amount of principal and interest payable by the Company on the next payment date. As of
December 31, 2018
, the balance in the debt service reserve account was
$60.3 million
and is classified as restricted cash on the Company's consolidated balance sheet.
Thermo Loan Agreement
In connection with the amendment and restatement of the Facility Agreement in July 2013, the Company amended and restated its loan agreement with Thermo (the “Loan Agreement”). All obligations of the Company to Thermo under the Loan Agreement are subordinated to the Company’s obligations under the Facility Agreement. The Loan Agreement is convertible into shares of common stock at a conversion price of
$0.69
(as adjusted) per share of common stock. As a result of the Company's equity offering in 2018 (as discussed below), the Company issued stock at a price below the base conversion rate at the time, accordingly, the base conversion rate was reset in December 2018 from
$0.73
to
$0.69
.
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, 2018
,
$76.2 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 7: 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 Monte Carlo simulation model.
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 disinterested independent directors, who were represented by independent counsel.
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
$0.69
(as adjusted) per share of common stock. The conversion price of the 2013
8.00%
Notes is adjusted in the event of certain stock splits or extraordinary share distributions, or as a reset of the base conversion and exercise price pursuant to the terms of the Fourth Supplemental Indenture between the Company and U.S. Bank National Association, as Trustee, dated May 20, 2013 (the “Indenture”). As a result of the Company's equity offering in 2018 (as discussed below), the Company issued stock at a price below the base conversion rate at the time, accordingly, the base conversion rate was reset in December 2018 from
$0.73
to
$0.69
.
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. As of
December 31, 2018
, the 2013
8.00%
Notes have not been redeemed by the Company.
A holder of the 2013
8.00%
Notes has the right, at the holder’s option, to require the Company to purchase some or all of the 2013
8.00%
Notes held by it on each of April 1, 2018 and April 1, 2023 at a price equal to the principal amount of the 2013
8.00%
Notes to be purchased plus accrued and unpaid interest. The remaining holders did not exercise this option on April 1, 2018.
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) over a
40
-consecutive trading day settlement period.
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
|
|
—
|
|
|
—
|
|
|
—
|
|
Year Ended December 31, 2017
|
|
15,986
|
|
|
26,411
|
|
|
6,306
|
|
Year Ended December 31, 2018
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
55,387
|
|
|
98,514
|
|
|
$
|
48,384
|
|
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 for customary events of default. 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, 2018
, 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 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 was 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. Due to significant conversions since issuance, the entire debt discount has been recorded to interest expense resulting in no balance as of
December 31, 2018
. The Company is marking to market the fair value of the compound embedded derivative liability at the end of each reporting period, or more frequently as deemed necessary, and as of the date of a significant conversion, 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 Monte Carlo simulation model.
Debt maturities
Annual debt maturities for each of the five years following
December 31, 2018
and thereafter are as follows (in thousands):
|
|
|
|
|
2019
|
96,249
|
|
2020
|
100,000
|
|
2021
|
100,000
|
|
2022
|
94,520
|
|
2023
|
—
|
|
Thereafter
|
119,702
|
|
Total
|
$
|
510,471
|
|
Amounts in the above table are calculated based on amounts outstanding at
December 31, 2018
, and therefore exclude paid-in-kind interest payments that will be made in future periods.
The Company intends on redeeming the 2013
8.00%
Notes in the near future if the Company's stock price exceeds the conversion price of the notes. Accordingly, any such redemption is expected to result in the conversion of the notes by the holders in lieu of a cash payment by the Company at par value. As such, the amounts are included in the 2019 maturities in the table above.
Public Offering of Common Stock
In December 2018, the Company entered into an underwriting agreement (the "2018 Underwriting Agreement") with Cantor Fitzgerald & Co., as the sole book-running manager, relating to the sale of
171.4
million shares of common stock, at a public offering price of
$0.35
per share. Under the terms of the 2018 Underwriting Agreement, the Company granted the underwriter a 30-day option to purchase an additional
25.7
million shares of its common stock. This option was not exercised.
The Company received approximately
$59.1
million in net proceeds from the sale of its common stock during the 2018 offering.
Eighty
percent of the net proceeds from the 2018 offering was deposited into the Company's debt service reserve account. The Company used the funds from the 2018 offering, together with cash on hand, to fund the principal and interest payment due in December 2018 under the Facility Agreement. The funds raised in the 2018 offering qualified as an Equity Cure Contribution, allowing the Company to remain in compliance with the covenants under the Facility Agreement as of December 31, 2018.
6. DERIVATIVES
In connection with certain existing borrowing arrangements, the Company was required to record derivative instruments on its consolidated balance sheets. None of these derivative instruments are designated as a hedge. The following table discloses the fair values of the derivative instruments on the Company’s consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Derivative liabilities:
|
|
|
|
|
Compound embedded derivative with the 2013 8.00% Notes
|
$
|
(757
|
)
|
|
$
|
(1,326
|
)
|
Compound embedded derivative with the Loan Agreement with Thermo
|
(146,108
|
)
|
|
(226,659
|
)
|
Total derivative liabilities
|
$
|
(146,865
|
)
|
|
$
|
(227,985
|
)
|
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,
|
|
2018
|
|
2017
|
|
2016
|
Interest rate cap
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
(2
|
)
|
Compound embedded derivative with the 2013 8.00% Notes
|
569
|
|
|
(6,662
|
)
|
|
(461
|
)
|
Compound embedded derivative with the Loan Agreement with Thermo
|
80,551
|
|
|
27,848
|
|
|
(41,068
|
)
|
Total derivative gain (loss)
|
$
|
81,120
|
|
|
$
|
21,182
|
|
|
$
|
(41,531
|
)
|
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. The value of the interest rate cap was approximately
zero
as of both
December 31, 2018
and
December 31, 2017
.
Derivative Liabilities
The Company has identified various embedded derivatives resulting from certain features in the Company’s debt instruments, including the conversion option and the contingent put feature within both the 2013
8.00%
Notes and the Loan Agreement with Thermo. The fair value of each embedded derivative liability is marked-to-market at the end of each reporting period, or more frequently as deemed necessary, with any changes in value reported in its consolidated statements of operations and its consolidated statements of cash flows as an operating activity. The Company determined the fair value of its compound embedded derivative liabilities using a Monte Carlo simulation model. See
Note 7: Fair Value Measurements
for further discussion. 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 Monte Carlo simulation model. Consistent with the classification of the 2013
8.00%
Notes on the Company's consolidated balance sheet, the Company has classified this derivative liability as current on its consolidated balance sheet at
December 31, 2018
.
Compound Embedded Derivative with the Loan Agreement with Thermo
As a result of the conversion option and the contingent put feature within the Loan Agreement with Thermo as amended and restated in 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 Monte Carlo simulation model.
7. FAIR VALUE MEASUREMENTS
The Company follows the authoritative guidance for fair value measurements relating to financial and non-financial assets and liabilities, including presentation of required disclosures herein. This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2:
Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3:
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Recurring Fair Value Measurements
The following tables provide a summary of the liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018:
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
Balance
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Compound embedded derivative with the 2013 8.00% Notes
|
—
|
|
|
—
|
|
|
(757
|
)
|
|
(757
|
)
|
Compound embedded derivative with the Loan Agreement with Thermo
|
—
|
|
|
—
|
|
|
(146,108
|
)
|
|
(146,108
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(146,865
|
)
|
|
$
|
(146,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2017:
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
Balance
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Compound embedded derivative with the 2013 8.00% Notes
|
—
|
|
|
—
|
|
|
(1,326
|
)
|
|
(1,326
|
)
|
Compound embedded derivative with the Loan Agreement with Thermo
|
—
|
|
|
—
|
|
|
(226,659
|
)
|
|
(226,659
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(227,985
|
)
|
|
$
|
(227,985
|
)
|
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. As previously disclosed, the value of the interest rate cap was approximately
zero
as of both
December 31, 2018
and
December 31, 2017
, accordingly, the interest rate cap is not reflected in the tables above. See
Note 6: Derivatives
for further discussion.
Liabilities
Derivative Liabilities
The Company has
two
derivative liabilities classified as Level 3. The Company marks-to-market these liabilities at each reporting date, or more frequently as deemed necessary, with the changes in fair value recognized in the Company’s consolidated statements of operations. See
Note 6: Derivatives
for further discussion.
The significant quantitative Level 3 inputs utilized in the valuation models are shown in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018:
|
|
Stock Price
Volatility
|
|
Risk-Free Interest Rate
|
|
Note Conversion Price
|
|
Discount
Rate
|
|
Market Price of Common Stock
|
Compound embedded derivative with the 2013 8.00% Notes
|
40 - 120%
|
|
2.5%
|
|
$0.69
|
|
28%
|
|
$0.64
|
Compound embedded derivative with the Loan Agreement with Thermo
|
40 - 120%
|
|
2.5%
|
|
$0.69
|
|
28%
|
|
$0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Price
Volatility
|
|
Risk-Free Interest Rate
|
|
Note Conversion
Price
|
|
Discount
Rate
|
|
Market Price of Common Stock
|
Compound embedded derivative with the 2013 8.00% Notes
|
78%
|
|
1.4%
|
|
$0.73
|
|
27%
|
|
$1.31
|
Compound embedded derivative with the Loan Agreement with Thermo
|
40 - 77%
|
|
2.2%
|
|
$0.73
|
|
27%
|
|
$1.31
|
Fluctuation in the Company’s stock price is one of the primary drivers for the changes in the derivative valuations during each reporting period. The Company’s stock price decreased
51%
from
December 31, 2017
to
December 31, 2018
. As the stock price decreases, the value to the holder of the instrument generally decreases, thereby decreasing the liability on the Company’s consolidated balance sheets. Stock price volatility is another significant unobservable input 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. Increases in expected volatility would generally result in a higher 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. Increases in the assumed probability of a change of control in the short-term would generally result in a lower fair value measurement, while increases in the assumed probability of a change in control in the long-term would generally result in a higher 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 Loan Agreement with Thermo included the following inputs and features: payment in kind interest payments, make whole premiums, a
40
-day stock issuance settlement period upon conversion, 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 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,
|
|
2018
|
|
2017
|
Balance at beginning of period
|
$
|
(227,985
|
)
|
|
$
|
(281,171
|
)
|
Derivative adjustment related to conversions
|
—
|
|
|
32,000
|
|
Unrealized gain, included in derivative gain (loss)
|
81,120
|
|
|
21,186
|
|
Balance at end of period
|
$
|
(146,865
|
)
|
|
$
|
(227,985
|
)
|
Fair Value of Debt Instruments
The Company believes it is not practicable to determine the fair value of the Facility Agreement without incurring significant additional costs. Unlike typical long-term debt, interest rates and other terms for the Facility Agreement are not readily available and generally involve a variety of factors, including due diligence by the debt holders. The following table sets forth the carrying values and estimated fair values of the Company's other debt instruments, which are classified as Level 3 financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
Loan Agreement with Thermo
|
$
|
97,037
|
|
|
$
|
67,452
|
|
|
$
|
79,721
|
|
|
$
|
54,936
|
|
2013 8.00% Notes
|
1,379
|
|
|
734
|
|
|
1,348
|
|
|
1,295
|
|
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. On August 24, 2017, a holder of
$16.0 million
principal amount of its 2013
8.00%
Notes converted the notes into shares of the Company's common stock. As a result of this conversion, the Company wrote off a portion of the compound embedded derivative with the 2013
8.00%
Notes based on the value of the derivative on the conversion date. As of the date of conversion, the fair value of the compound embedded derivative with the 2013
8.00%
Notes was
$34.7 million
. The significant quantitative Level 3 inputs utilized in the valuation models as of the conversion date are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 24, 2017:
|
|
Stock Price
Volatility
|
|
Risk-Free
Interest
Rate
|
|
Note
Conversion
Price
|
|
Discount Rate
|
|
Market Price of Common Stock
|
Compound embedded derivative with the 2013 8.00% Notes
|
65
|
%
|
|
1.1
|
%
|
|
0.73
|
|
|
26
|
%
|
|
2.03
|
|
See further discussion in
Note 6: Derivatives
for other valuation inputs used in the valuation model of the 2013
8.00%
Notes and the impact these inputs have on the fair value measurement.
Long-Lived Assets
Long-lived assets and intangible and other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
During 2017, the Company recorded a reduction in value of long-lived assets related to its satellite construction contract with Thales. Under the terms of the contract, the Company paid to Thales
€12 million
in purchase price plus an additional
€3.1 million
in procurement costs for the prepaid long-lead items ("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. The Company believes that it owns the LLI and that title to the LLI transferred to the Company upon payment. 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 9: 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 recorded a reduction in the carrying value of long-lived assets of
$17.0 million
in its consolidated statement of operations during the fourth quarter of 2017 when circumstances changed impacting the fair value that is probable of being recovered from these assets in the construction of Phase 3 satellites.
During 2018, a reduction in the value of long-lived assets and/or intangible and other assets was not required.
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 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2017:
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total Losses
|
Property and equipment, net:
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
971,119
|
|
|
$
|
17,040
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
971,119
|
|
|
$
|
17,040
|
|
8. COMMITMENTS
Contractual Obligations - Next-Generation Gateways and Other Ground Facilities
As of
December 31, 2018
, the Company had purchase commitments with certain vendors related to the procurement, deployment and maintenance of the second-generation network, including gateway acquisitions.
The Company has a purchase commitment with MIL-SAT LLC for the procurement and production of new antennas for substantially all of the Company's gateways. As of
December 31, 2018
, the Company's remaining purchase obligations under this commitment are approximately
$16.0 million
; the timing of payments is driven by work performed under the contract over an approximate
three
-year period.
In December 2018, the Company entered into a binding asset purchase agreement with Tesam Argentina, S.A., the owners of the Company's IGO in Argentina, to establish a ground station in Argentina. The Company will purchase certain fixed assets and related government authorizations in connection with the operation of this gateway. The Company is obligated to make a payment under this purchase agreement of approximately
$1.2 million
in 2019, which is net of recoverable taxes of
$0.2 million
, and was recorded in accrued expenses on its consolidated balance sheet as of
December 31, 2018
.
Other Commitments
The Company has inventory purchase commitments with its third party product manufacturers in the normal course of business. These commitments are generally non-cancelable and are based on internal twelve-month sales forecasts. The Company estimates that its open inventory purchase commitments as of
December 31, 2018
were approximately
$15.9 million
. As of
December 31, 2018
, approximately
$0.6 million
related to these commitments was recorded in prepaid expenses and other current assets on the Company's consolidated balance sheet.
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, Nevada, Texas, Canada, Ireland, France, Brazil, Panama, Singapore and Botswana. The leases expire on various dates through 2031. 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, 2018
, 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 10: Accrued Expenses and Other Non-Current Liabilities
):
|
|
|
|
|
2019
|
$
|
766
|
|
2020
|
694
|
|
2021
|
495
|
|
2022
|
404
|
|
2023
|
408
|
|
Thereafter
|
2,730
|
|
Total minimum lease payments
|
$
|
5,497
|
|
As of
December 31, 2018
, the Company had certain leases which had a remaining lease term of less than one year. These leases included the Company's current headquarters in Covington, Louisiana and one of its gateways in Singapore. The Company moved into a new headquarter location in February 2019 and is leasing this location from Thermo Covington, LLC; as the former lease had a remaining term of less than one year and the new lease was not signed as of
December 31, 2018
, amounts for either location are not reflected in the table above. The Company's new headquarters lease will have a total lease term of
ten
years with annual base lease payments of approximately
$1.4 million
, which will increase at a rate of
2.5%
per year. The Company renewed its lease agreement with its gateway in Singapore in February 2019; as this lease agreement was month to month as of
December 31, 2018
, amounts for this location were not included in the table above. The Singapore gateway lease will have a total lease term of
two
years with annual base lease payments of approximately
$0.5 million
per year.
Total rent expense for
2018
,
2017
and
2016
was approximately
$1.4 million
,
$1.4 million
and
$1.3 million
, respectively.
9. CONTINGENCIES
Arbitration
On June 3, 2011, Globalstar filed a demand for arbitration against Thales before the American Arbitration Association to enforce certain rights to order additional satellites under the 2009 Contract. The Company did not include within its demand any claims that it had against Thales for work previously performed under the contract to design, manufacture and timely deliver the first
25
second-generation satellites. On May 10, 2012, the arbitration tribunal issued its award in which it determined that the Company had terminated the 2009 Contract "for convenience" and had materially breached the contract by failing to pay to Thales the
€51.3
million in termination charges required under the contract. The tribunal additionally determined that absent further agreement between the parties, Thales had no further obligation to manufacture or deliver satellites under Phase 3 of the 2009 Contract. Based on these determinations, the tribunal directed the Company to pay Thales approximately
€53 million
in termination charges, plus interest by June 9, 2012. On May 23, 2012, Thales commenced an action in the United States District Court for the Southern District of New York by filing a petition to confirm the arbitration award (the “New York Proceeding”). Thales and the Company entered into tolling agreements under which Thales dismissed the New York Proceeding without prejudice. These tolling agreements have expired. Accordingly, as of May 10, 2018, Thales's right to enforce the arbitration award pursuant to the Federal Arbitration Act is now time-barred.
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’s 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. The releases became effective on December 31, 2012. In connection with the Release Agreement and the Settlement Agreement, the Company recorded a contract termination charge of approximately
€17.5 million
on its consolidated balance sheet during the second quarter of 2012. As discussed above, the statute of limitations for Thales to enforce the arbitration award pursuant to the Federal Arbitration Act has expired. As such, the Company believes that payment of the contract termination charge is not probable and removed this liability from its consolidated balance sheet during the second quarter of 2018. The Company recorded a
$20.5 million
revision to this contract termination charge on its consolidated income statement during the second quarter of 2018. Nevertheless, there can be no assurance that Thales would not or could not seek some alternative means to pursue all or a portion of the
€17.5 million
contract termination charge, which would be defended vigorously by the Company.
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, 2018
, 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, 2018
, no party had terminated the Settlement Agreement.
Securities
Claim
As previously disclosed, on September 25, 2018, a shareholder action was filed against Globalstar, Inc. (the “Company” or “Globalstar”), members of the Board of Directors, Thermo Companies, Inc., and certain members of Globalstar management in the Court of Chancery of the State of Delaware (the “Court”), captioned Mudrick Capital Management, LP, et al. v. Monroe, et al., C.A. No. 2018-0699-TMR (the "Action"). As previously disclosed, on December 14, 2018, all parties to the Action, including plaintiffs Mudrick Capital Management, L.P. (“Mudrick Capital”) and Warlander Asset Management (“Warlander”, and, together with Mudrick Capital, the “Plaintiffs”), entered into a stipulation and agreement of settlement, compromise and release of stockholder derivative action (the “Settlement Agreement”) to settle all claims asserted against all defendants in the Action. The material provisions of the Settlement Agreement are described below.
|
|
•
|
The Plaintiffs released and dismissed with prejudice all claims in the Action.
|
|
|
•
|
The Company agreed to conduct an equity offering pursuant to which shares of its common stock were sold to investors at market price (as defined in the Settlement Agreement), in an amount of not more than
$60 million
(excluding the underwriter’s over-allotment option), that was open to all the qualified and readily identifiable holders of the Company’s common stock on a pro rata basis based on their ownership (such offering, the “Financing”). The Company completed the Financing on December 21, 2018.
|
|
|
•
|
Each of the Plaintiffs and Thermo agreed to support the Financing by (i) committing to purchase, upon the signing of the Settlement Agreement, their pro rata share of the financing, on equal terms and based on their respective ownership of the Company’s outstanding shares and (ii) upon signing the Settlement Agreement, providing a backstop commitment to purchase the shares offered to persons other than the Plaintiffs and Thermo but not purchased by such persons, on a pro rata basis based on their current respective ownership of the Company’s outstanding shares.
|
|
|
•
|
The Company agreed to amend its Certificate of Incorporation and Bylaws to provide that, so long as Thermo and its affiliates beneficially own at least
45%
of the Company’s outstanding common stock,
two
of the
seven
members of the Company’s Board of Directors (the “Minority Directors”) will be elected by the vote of a plurality of the holders of the Company’s Common Stock other than Thermo and its affiliates (the “Independent Stockholders”).
|
|
|
•
|
The initial Minority Directors, Benjamin Wolff and Keith Cowan, were designated by the Plaintiffs and appointed to the Board of Directors in December 2018. In addition, Michael Lovett was appointed to the Board as an independent director and Timothy Taylor was appointed to the Board as a director in December 2018. Mr. Wolff and Mr. Lovett have been appointed to the Company’s Compensation Committee, Mr. Cowan has been appointed to Nominating & Corporate Governance Committee and Mr. Wolff and Mr. Lovett have been appointed to the Audit Committee. To permit the addition to the Board of Mr. Wolff, Mr. Cowan, Mr. Lovett and Mr. Taylor,
four
of the Company’s current directors agreed upon by the parties departed.
|
|
|
•
|
The Company agreed to amend its Certificate of Incorporation and Bylaws to provide that so long as Thermo and its affiliates beneficially own at least
45%
of the Company’s common stock, subject to certain exceptions, approval by a majority of shares held by Independent Stockholders is required for any related-party transaction with a value of
$5 million
or more between the Company and Thermo and its affiliates, subject to certain exclusions specified in the Settlement Agreement.
|
|
|
•
|
The Company also agreed to amend its Certificate of Incorporation and Bylaws to provide that so long as Thermo and its affiliates beneficially own at least
45%
of the Company’s outstanding common stock, the Company will maintain a strategic review committee of its Board of Directors (the “Strategic Review Committee”). The Strategic Review Committee consists of the
two
then-serving Minority Directors and
two
independent directors appointed by the then-serving Board; provided, however, that, subject to the Minority Directors’ right to remove him with or without cause, Mr. Taylor has been appointed an initial member of the Strategic Review Committee. The other initial members of the Strategic Review Committee are Mr. Wolff, Mr. Cowen and Mr. Hasler.
|
|
|
•
|
To the extent permitted by applicable law, the Strategic Review Committee will have exclusive responsibility for the oversight, review and approval of (i) subject to certain exceptions, any acquisition by Thermo and its affiliates of additional newly-issued securities of the Company; (ii) any extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (iii) any sale or transfer of a material amount of assets of Company or any sale or transfer of assets of any of its subsidiaries which are material to the Company; (iv) any further change in the Board, including any plans or proposals to change the number or term of directors (provided that only elections of Minority Directors shall be within the authority of the Strategic Review Committee); (v) subject to certain exceptions, any material change in the present capitalization or dividend policy of the Company; (vi) any other material changes in the Company’s lines of business or corporate structure; and (vii) subject to certain exceptions, any transaction between the Company and Thermo and its affiliates with a value in excess of
$250,000
. The approval of any of the foregoing transactions will require the vote of at least
three
members of the Strategic Review Committee.
|
|
|
•
|
Thermo agreed that it will convert all its outstanding subordinated debt to equity at the contractual conversion price within
five
business days after any of the following events: (i) the refinancing of
85%
or more of the Company’s bank debt; (ii) extension of the maturity of all of the Company’s bank debt of
two
years or more; (iii) a refinancing of at least
$150 million
of the Company’s bank debt with a minimum two year extension on the remaining balance, or (iii) an amortization holiday or holidays pursuant to which the Company is relieved of the obligation to make principal payments on the Company’s bank debt for
two
years or longer.
|
|
|
•
|
An agreement that the Plaintiffs reserve the right to make a petition to the Court for an award of attorneys’ fees and expenses; however, any award to Plaintiffs’ counsel for fees and expenses shall be determined by the court of the State of Delaware.
|
The effectiveness of the Settlement Agreement is subject to approval by the Court of Chancery of the State of Delaware. The Court of Chancery has scheduled a hearing for April 1, 2019, to determine whether it should issue an order approving the proposed settlement pursuant to the Settlement Agreement. Accordingly, as of the date of this Report, the Settlement Agreement was not yet effective.
In connection with the Action described above, the Plaintiffs’ claims for monetary relief from the Company are now limited to attorneys' fees and expenses incurred in connection with and related to pursuing the Action, as well as in connection with and related to a shareholder demand to inspect certain of the Company's books and records and a lawsuit seeking to enforce that demand. The Company evaluated the facts and circumstances under applicable accounting guidance and determined that a loss with respect to such Plaintiffs' attorneys' fees and costs is probable and reasonably estimable. In accordance with ASC 450, as of
December 31, 2018
, the Company estimated a range of loss and recorded a reserve based on the low end of the range, as there were no facts and circumstances to support a different point in the range. The estimated loss for damages did not exceed the Company's retention limit of
$1.5 million
for a "securities claim" under its directors and officers insurance policy. This amount is accrued as a current liability on the Company's consolidated balance sheet and recorded in marketing, general and administrative expenses on the Company’s consolidated statement of operations. The Company believes it is probable that any losses in excess of the Company's retention limit will be covered under the terms of its insurance policy.
Business Economic Loss Claim
In May 2018, the Company concluded the settlement of a business economic loss claim in which it was an absent member in a tort class action lawsuit. The Company will receive proceeds of
$7.4 million
, net of legal fees, related to this settlement. The Company received the first installment of
$3.7 million
in January 2019; the final installment is expected to be received in January 2020. During the second quarter of 2018, the Company recorded the present value of the proceeds of
$6.8 million
and a discount of
$0.6 million
, which was recorded in prepaid expenses and other current assets as well as intangible and other assets, net, on the Company's consolidated balance sheet. The present value of the net proceeds of
$6.8 million
was recorded in other income on the Company's consolidated statement of operations. The discount of
$0.6 million
was recorded on the Company's consolidated balance sheet and is being accreted to interest income over the term of the receivable using the effective interest method.
Other Litigation
Due to the nature of the Company's business, the Company is involved, from time to time, in various litigation matters or subject to disputes or routine claims regarding its business activities. Legal costs related to these matters are expensed as incurred.
In management's opinion, there is no pending litigation, dispute or claim, 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.
10. ACCRUED EXPENSES AND OTHER NON-CURRENT LIABILITIES
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Accrued interest
|
$
|
97
|
|
|
$
|
228
|
|
Accrued compensation and benefits
|
3,027
|
|
|
3,913
|
|
Accrued property and other taxes
|
3,069
|
|
|
3,944
|
|
Accrued customer liabilities and deposits
|
4,802
|
|
|
4,529
|
|
Accrued professional and other service provider fees
|
5,224
|
|
|
3,386
|
|
Accrued commissions
|
1,224
|
|
|
1,162
|
|
Accrued telecommunications expenses
|
1,528
|
|
|
1,565
|
|
Accrued satellite and ground costs
|
428
|
|
|
634
|
|
Accrued inventory
|
561
|
|
|
102
|
|
Accrued asset purchase (See Note 8 for further discussion)
|
1,401
|
|
|
—
|
|
Other accrued expenses
|
1,724
|
|
|
1,291
|
|
Total accrued expenses
|
$
|
23,085
|
|
|
$
|
20,754
|
|
Other accrued expenses include primarily advertising costs, capital lease obligations, vendor services, warranty reserve, occupancy costs 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,
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
143
|
|
|
$
|
132
|
|
|
$
|
101
|
|
Provision
|
372
|
|
|
273
|
|
|
272
|
|
Utilization
|
(362
|
)
|
|
(262
|
)
|
|
(241
|
)
|
Balance at end of period
|
$
|
153
|
|
|
$
|
143
|
|
|
$
|
132
|
|
Other non-current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Asset retirement obligation
|
1,459
|
|
|
1,451
|
|
Deferred rent and other deferred expense
|
147
|
|
|
274
|
|
Capital lease obligations
|
77
|
|
|
154
|
|
Liability related to the Cooperative Endeavor Agreement with the State of Louisiana
|
248
|
|
|
460
|
|
Foreign tax contingencies
|
1,435
|
|
|
3,634
|
|
Total other non-current liabilities
|
$
|
3,366
|
|
|
$
|
5,973
|
|
The Company relocated its headquarters 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
$5.6 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, 2018
.
11. RELATED PARTY TRANSACTIONS
Payables to Thermo and other affiliates related to normal purchase transactions were
$0.7 million
and
$0.2 million
as of
December 31, 2018
and
2017
, respectively. This increase is related to the timing of payment of expenses incurred by Thermo on behalf of the Company related to the shareholder litigation discussed in
Note 9: Contingencies
.
Transactions with Thermo
Certain general and administrative expenses are incurred by Thermo on behalf of the Company. These expenses, which include non-cash expenses that the Company accounts for as a contribution to capital, related to services provided by certain executive officers of Thermo and those expenses incurred by Thermo on behalf of the Company which are charged to the Company. The expenses charged are based on actual amounts (with no mark-up) incurred by Thermo or upon allocated employee time. The expenses charged to the Company were
$1.5 million
,
$0.8 million
, and
$0.7 million
for the periods ended
December 31, 2018
,
2017
and
2016
, respectively; the increase in 2018 was driven by approximately
$0.7 million
of expenses incurred by Thermo on behalf of the Company related to the shareholder litigation.
In February 2019, the Company entered into a lease agreement with Thermo Covington, LLC for the Company's new headquarters office. As previously discussed in
Note 8: Commitments
, the Company's former lease agreement terminated in December 2018; as such, prior to this termination date, the Company began a process to search for a new headquarters location. Annual lease expense for the new location will be
$1.4 million
per year, increasing at a rate of
2.5%
per year, for a lease term of
ten
years.
As of
December 31, 2018
, the principal amount outstanding under the Loan Agreement with Thermo was
$119.7 million
, and the fair value of the compound embedded derivative liability associated with the Loan Agreement was
$146.1 million
. During
2018
and
2017
, interest accrued on the Loan Agreement was approximately
$13.6
million and
$12.1
million, respectively.
On April 24, 2018, Globalstar entered into the Merger Agreement with GBS Acquisitions, Inc., a Delaware corporation and wholly owned subsidiary of Globalstar (“Merger Sub”), Thermo Acquisitions, Inc., a Delaware corporation (“Thermo Acquisitions”), the stockholders of Thermo Acquisitions (collectively, the “Thermo Stockholders,” and each, individually, a “Thermo Stockholder”), and Thermo Development, Inc., in its capacity as the representative of the Thermo Stockholders as set forth therein (the “Stockholders’ Representative”). Thermo Acquisitions is controlled by James Monroe III, Executive Chairman of the Board of Directors of Globalstar and former Chief Executive Officer of Globalstar. Pursuant to the terms of the Merger Agreement, Merger Sub would merge with and into Thermo Acquisitions with Thermo Acquisitions continuing as the surviving corporation and a wholly owned subsidiary of Globalstar (the “Merger”). The transaction was unanimously recommended by the Special Committee of the Board of Directors of Globalstar, consisting entirely of disinterested independent directors, and unanimously approved by the full Board of Directors. On July 31, 2018, Globalstar, following the unanimous recommendation of its Special Committee of independent directors, and the Stockholders’ Representative, terminated the Merger Agreement by mutual written agreement by entering into a Termination of Agreement and Plan of Merger, between Globalstar and the Stockholders’ Representative. In addition, on July 31, 2018, the Voting Agreement between Globalstar and certain of its stockholders terminated in accordance with its terms as a result of the termination of the Merger Agreement. No termination fees are payable in connection with the termination of the Merger Agreement.
In December 2018, the Company entered into an underwriting agreement relating to the sale of its common stock at a public offering. Thermo participated in the stock offering and purchased a total of
141.0 million
shares of common stock at a purchase price of
$49.3 million
.
The Facility Agreement requires Thermo to maintain minimum and maximum ownership levels in the Company's common stock. Thermo may convert shares of voting common stock into shares of nonvoting common stock, or vice versa, as needed to comply with these ownership limitations.
In addition, the Company's Board of Directors maintains a special committee consisting solely of disinterested independent directors of the Company, represented by independent legal counsel. This special committee serves as an independent board to review and approve certain transactions between the Company and Thermo.
See
Note 5: Long-Term Debt and Other Financing Arrangements
for further discussion of the Company's debt and financing transactions with Thermo.
12. PENSIONS AND OTHER EMPLOYEE BENEFITS
Defined Benefit Plan
Until June 1, 2004, substantially all Old and New Globalstar employees and retirees who participated and/or met the vesting criteria for the plan were participants in the Retirement Plan of Space Systems/Loral (the "Loral Plan"), a defined benefit pension plan. The accrual of benefits in the Old Globalstar segment of the Loral Plan was curtailed, or frozen, by the administrator of the Loral Plan in 2003. Prior to 2003, benefits for the Loral Plan were generally based upon contributions, length of service with the Company and age of the participant. On June 1, 2004, the assets and frozen pension obligations of the Globalstar Segment of the Loral Plan were transferred into a new Globalstar Retirement Plan (the "Globalstar Plan"). The Globalstar Plan remains frozen and participants are not currently accruing benefits beyond those accrued as of October 23, 2003. The Company's funding policy is to fund the Globalstar Plan in accordance with the Internal Revenue Code and regulations.
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,
|
|
2018
|
|
2017
|
Change in projected benefit obligation:
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
$
|
18,637
|
|
|
$
|
17,778
|
|
Service cost
|
194
|
|
|
195
|
|
Interest cost
|
663
|
|
|
722
|
|
Actuarial (gain) loss
|
(1,332
|
)
|
|
916
|
|
Benefits paid
|
(1,012
|
)
|
|
(974
|
)
|
Projected benefit obligation, end of year
|
$
|
17,150
|
|
|
$
|
18,637
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
$
|
14,248
|
|
|
$
|
12,895
|
|
Return on plan assets
|
(870
|
)
|
|
1,682
|
|
Employer contributions
|
295
|
|
|
645
|
|
Benefits paid
|
(1,012
|
)
|
|
(974
|
)
|
Fair value of plan assets, end of year
|
$
|
12,661
|
|
|
$
|
14,248
|
|
Funded status, end of year-net liability
|
$
|
(4,489
|
)
|
|
$
|
(4,389
|
)
|
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,
|
|
2018
|
|
2017
|
|
2016
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
194
|
|
|
$
|
195
|
|
|
$
|
195
|
|
Interest cost
|
663
|
|
|
722
|
|
|
758
|
|
Expected return on plan assets
|
(901
|
)
|
|
(825
|
)
|
|
(808
|
)
|
Amortization of unrecognized net actuarial loss
|
374
|
|
|
443
|
|
|
473
|
|
Total net periodic benefit cost
|
$
|
330
|
|
|
$
|
535
|
|
|
$
|
618
|
|
Amounts recognized in the consolidated balance sheet were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Amounts recognized:
|
|
|
|
|
|
Funded status recognized in other non-current liabilities
|
$
|
(4,489
|
)
|
|
$
|
(4,389
|
)
|
Net actuarial loss recognized in accumulated other comprehensive loss
|
5,622
|
|
|
5,558
|
|
Net amount recognized in retained deficit
|
$
|
1,133
|
|
|
$
|
1,169
|
|
The estimated net actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in
2019
is
$0.4 million
.
No
amounts are expected to be amortized from accumulated other comprehensive loss into net periodic benefit cost in
2019
related to prior service costs or net transition obligations.
Assumptions
The weighted-average assumptions used to determine the benefit obligation and net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Benefit obligation assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
4.25
|
%
|
|
3.63
|
%
|
|
4.15
|
%
|
Rate of compensation increase
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Net periodic benefit cost assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
3.63
|
%
|
|
4.15
|
%
|
|
4.38
|
%
|
Expected rate of return on plan assets
|
6.50
|
%
|
|
6.50
|
%
|
|
6.50
|
%
|
Rate of compensation increase
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
The assumptions, investment policies and strategies for the Globalstar Plan are determined by the Globalstar Plan Committee. The Globalstar Plan Committee is responsible for ensuring the investments of the plans are managed in a prudent and effective manner. Amounts related to the pension plan are derived from actuarial and other assumptions, including discount rates, mortality, expected rate of return, participant data and termination. The Company reviews assumptions on an annual basis and makes adjustments as considered necessary.
The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the projected benefit obligation for the plan, the asset mix of the plan and the fact that the plan assets are actively managed to mitigate risk. Discount rates are determined annually based on the Plan administrator’s yield curve index, which considers expected benefit payments and is discounted with rates from the yield curve to determine a single equivalent discount rate.
Plan Assets and Investment Policies and Strategies
The plan assets are invested in various mutual funds which have quoted prices. The plan has a target allocation. On a weighted-average basis, target allocations for equity securities range from
50%
to
60%
, for debt securities
25%
to
50%
and for other investments
0%
to
15%
. The defined benefit pension plan asset allocations as of the measurement date presented as a percentage of total plan assets were as follows:
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Equity securities
|
54
|
%
|
|
58
|
%
|
Debt securities
|
46
|
|
|
42
|
|
Total
|
100
|
%
|
|
100
|
%
|
The fair values of the Company’s pension plan assets by asset category were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
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
|
$
|
5,509
|
|
|
$
|
—
|
|
|
$
|
5,509
|
|
|
$
|
—
|
|
International equity securities
|
1,288
|
|
|
—
|
|
|
1,288
|
|
|
—
|
|
Fixed income securities
|
4,158
|
|
|
—
|
|
|
4,158
|
|
|
—
|
|
Other
|
1,706
|
|
|
—
|
|
|
1,706
|
|
|
—
|
|
Total
|
$
|
12,661
|
|
|
$
|
—
|
|
|
$
|
12,661
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
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
|
$
|
6,597
|
|
|
$
|
—
|
|
|
$
|
6,597
|
|
|
$
|
—
|
|
International equity securities
|
1,615
|
|
|
—
|
|
|
1,615
|
|
|
—
|
|
Fixed income securities
|
4,119
|
|
|
—
|
|
|
4,119
|
|
|
—
|
|
Other
|
1,917
|
|
|
—
|
|
|
1,917
|
|
|
—
|
|
Total
|
$
|
14,248
|
|
|
$
|
—
|
|
|
$
|
14,248
|
|
|
$
|
—
|
|
Accumulated Benefit Obligation
The accumulated benefit obligation of the defined benefit pension plan was
$17.2 million
and
$18.6 million
at
December 31, 2018
and
2017
, respectively.
Benefits Payments and Contributions
The benefit payments to retirees over the next ten years are expected to be paid as follows (in thousands):
|
|
|
|
|
2019
|
$
|
1,023
|
|
2020
|
1,025
|
|
2021
|
1,026
|
|
2022
|
1,052
|
|
2023
|
1,070
|
|
2024 - 2028
|
5,623
|
|
For
2018
and
2017
, the Company contributed
$0.3 million
and
$0.6 million
, respectively, to the Globalstar Plan. For
2019
, the Company's expected contributions to the Globalstar Plan will be
$0.2 million
.
401(k) Plan
The Company has a defined contribution employee savings plan, or “401(k),” which provides that the Company may match the contributions of participating employees up to a designated level. Under this plan, the matching contributions were approximately
$0.6 million
,
$0.4 million
and
$0.3 million
for
2018
,
2017
, and
2016
, respectively. The increase in matching contributions in 2018 is driven by increased headcount as well as an increase to the matching contribution percentage by the Company during 2018.
13. TAXES
The components of income tax expense (benefit) were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Current:
|
|
|
|
|
|
|
|
|
Federal tax
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State tax
|
30
|
|
|
25
|
|
|
18
|
|
Foreign tax
|
95
|
|
|
165
|
|
|
(6,561
|
)
|
Total
|
125
|
|
|
190
|
|
|
(6,543
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal and state tax
|
—
|
|
|
—
|
|
|
—
|
|
Foreign tax provision (benefit)
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
—
|
|
|
—
|
|
|
—
|
|
Income tax expense (benefit)
|
$
|
125
|
|
|
$
|
190
|
|
|
$
|
(6,543
|
)
|
U.S. and foreign components of income (loss) before income taxes are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
U.S. income (loss)
|
$
|
28,699
|
|
|
$
|
(60,964
|
)
|
|
$
|
(103,494
|
)
|
Foreign loss
|
(35,090
|
)
|
|
(27,920
|
)
|
|
(35,695
|
)
|
Total loss before income taxes
|
$
|
(6,391
|
)
|
|
$
|
(88,884
|
)
|
|
$
|
(139,189
|
)
|
As of
December 31, 2018
, the Company had cumulative U.S. and foreign net operating loss carryforwards for income tax reporting purposes of approximately
$1.8 billion
and
$228.9 million
, respectively. As of
December 31, 2017
, the Company had cumulative U.S. and foreign net operating loss carryforwards for income tax reporting purposes of approximately
$1.7 billion
and
$232.5 million
, respectively. The current net operating loss carryforwards expire from
2019
through
2038
, with less than
1%
expiring prior to 2026.
The components of net deferred income tax assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Federal and foreign net operating loss, interest limitation and credit carryforwards
|
$
|
489,815
|
|
|
$
|
464,288
|
|
Property and equipment and other long-term assets
|
(80,830
|
)
|
|
(45,373
|
)
|
Accruals and reserves
|
7,152
|
|
|
12,754
|
|
Deferred tax assets before valuation allowance
|
416,137
|
|
|
431,669
|
|
Valuation allowance
|
(416,137
|
)
|
|
(431,669
|
)
|
Net deferred income tax assets
|
$
|
—
|
|
|
$
|
—
|
|
The change in the valuation allowance during
2018
of
$15.5 million
was due to the Company providing valuation allowances against all of the tax benefit generated from its consolidated net losses. The change in property and equipment and other long-term assets was driven primarily by depreciation due to the difference between tax and book depreciable lives.
The actual provision for income taxes differs from the statutory U.S. federal income tax rate as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Provision at U.S. statutory rate of 21% for 2018 and 35% for each of 2017 and 2016
|
$
|
(1,349
|
)
|
|
$
|
(31,118
|
)
|
|
$
|
(48,722
|
)
|
State income taxes, net of federal benefit
|
890
|
|
|
(1,804
|
)
|
|
(6,193
|
)
|
Change in valuation allowance (excluding impact of foreign exchange rates)
|
(8,228
|
)
|
|
(245,304
|
)
|
|
36,631
|
|
Effect of foreign income tax at various rates
|
(237
|
)
|
|
3,739
|
|
|
4,844
|
|
Permanent differences
|
7,031
|
|
|
11,166
|
|
|
10,331
|
|
Change in unrecognized tax benefit
|
—
|
|
|
—
|
|
|
(6,313
|
)
|
Net change in permanent items due to provision to tax return
|
1,813
|
|
|
(3,565
|
)
|
|
3,222
|
|
Remeasurement of U.S. deferred tax assets (Federal and State)
|
—
|
|
|
266,864
|
|
|
—
|
|
Other (including amounts related to prior year tax matters)
|
205
|
|
|
212
|
|
|
(343
|
)
|
Total
|
$
|
125
|
|
|
$
|
190
|
|
|
$
|
(6,543
|
)
|
Tax Audits
The Company operates in various U.S. and foreign tax jurisdictions. The process of determining its anticipated tax liabilities involves many calculations and estimates which are inherently complex. The Company believes that it has complied in all material respects with its obligations to pay taxes in these jurisdictions. However, its position is subject to review and possible challenge by the taxing authorities of these jurisdictions. If the applicable taxing authorities were to challenge successfully its current tax positions, or if there were changes in the manner in which the Company conducts its activities, the Company could become subject to material unanticipated tax liabilities. It may also become subject to additional tax liabilities as a result of changes in tax laws, which could in certain circumstances have a retroactive effect.
In July 2018, the Company's Canadian subsidiary was notified that its income tax returns for the years ended October 31, 2015 and 2016 had been selected for audit. The Company has provided all requested information to the Canada Revenue Agency ("CRA") and is working with the CRA to complete the audit.
Except for the audit noted above, neither the Company nor any of its subsidiaries is currently under audit by the IRS or by any state income tax jurisdiction in the United States. The Company's corporate U.S. tax returns for 2015 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, 2018
, and
2017
, the Company had recorded a tax liability of
$0.4 million
and
$1.4 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. The Company may be exposed to other 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 2010 and subsequent years in most of the Company's international tax jurisdictions.
There are
no
unrecognized tax benefits as of December 31, 2017 and 2018.
Change in Tax Regulations
On December 22, 2017, the United States (“U.S.”) enacted significant changes to the U.S. tax law following the passage and signing of the Tax Act. The Tax Act included significant changes to existing tax law substantially effective January 1, 2018, including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, changes to the NOL utilization regulations, repeal of alternative minimum tax, a one-time deemed repatriation tax on deferred foreign income (“Transition Tax”), implementation of a territorial tax system, implementation of anti-deferral and anti-base erosion provisions, and provisions to both accelerate and limit certain deductions. The Company has revalued its deferred tax assets and liabilities based on the new corporate tax rate. As the Company’s deferred tax assets have a full valuation allowance, the Company has not recorded any income statement
impact as a result of the remeasurement of net deferred tax assets. Accordingly, the tax law changes did not have a material impact to the financial statements of the Company.
Also, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin (SAB) 118 to provide guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Act in the period of enactment. SAB 118 provides for a measurement period of up to one year from the date of enactment. During the measurement period, companies need to reflect adjustments to any provisional amounts if it obtains, prepares or analyzes additional information about facts and circumstances that existed as of the enactment date that, if known, would have affected the income tax effects initially reported as provisional amounts. The Company completed its analysis of the Tax Act and no adjustments were made to the provisional amounts recorded in the Company’s financial statements for the period ending on December 31, 2017.
As of December 31, 2018, the Company had not provided foreign withholding taxes on approximately
$2.2 million
of undistributed earnings from certain foreign subsidiaries indefinitely invested outside the U.S.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period costs are both acceptable methods subject to an accounting policy election. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2018.
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, 2018
, and
2017
, the number of shares of common stock that was authorized and remained available for issuance under the Equity Plan was
11.4 million
and
24.1 million
, respectively.
Stock Options
The Company has granted incentive stock options under the Equity Plan. These options have various vesting terms, but generally vest in equal installments over
three
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 stock price volatility, the expected option life and the expected forfeiture rate. The market price of common stock has been volatile at times in recent years. The Company makes judgmental adjustments to project volatility during the expected term of the options, considering, among other things, historical volatility of the share prices of its peer group and expectations with regard to business conditions that may impact stock price fluctuations or stability. The Company estimates the expected term considering factors such as historical exercise patterns and the recipients of the options granted. The risk-free rate is based on the United States Treasury Department yield curve in effect at the time of grant for the expected life of the option. The Company assumes an expected dividend yield of
zero
for all periods. The table below summarizes the assumptions for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Risk-free interest rate
|
2 - 3%
|
|
|
2
|
%
|
|
1 - 2%
|
|
Expected term of options (years)
|
5
|
|
|
5
|
|
|
5
|
|
Volatility
|
63
|
%
|
|
67
|
%
|
|
65
|
%
|
Weighted average grant-date fair value per share
|
$
|
0.26
|
|
|
$
|
0.85
|
|
|
$
|
1.04
|
|
The following table represents the Company’s stock option activity for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Exercise Price
|
Outstanding at January 1, 2018
|
9,390,498
|
|
|
$
|
1.41
|
|
Granted
|
708,400
|
|
|
0.48
|
|
Exercised
|
(850,000
|
)
|
|
0.38
|
|
Forfeited or expired
|
(1,033,668
|
)
|
|
1.32
|
|
Outstanding at December 31, 2018
|
8,215,230
|
|
|
1.45
|
|
|
|
|
|
Exercisable at December 31, 2018
|
7,184,081
|
|
|
$
|
1.51
|
|
The following table summarizes the aggregate intrinsic value of stock options exercised during the years indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Intrinsic value of stock options exercised
|
$
|
35
|
|
|
$
|
94
|
|
|
$
|
199
|
|
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, 2018
from the exercise of stock options were
$0.3 million
. The aggregate intrinsic value of all outstanding stock options at
December 31, 2018
was
$0.3 million
with a remaining contractual life of
7.3
years. The aggregate intrinsic value of all vested stock options at
December 31, 2018
was
$0.2 million
with a remaining contractual life of
6.2
years.
The following table presents compensation expense related to stock options for the years indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Total compensation expense
|
$
|
1.1
|
|
|
$
|
1.2
|
|
|
$
|
1.4
|
|
As of
December 31, 2018
, unrecognized compensation expense related to nonvested stock options outstanding was approximately
$0.8 million
to be recognized over a weighted-average period of
2.4
years.
The Company adjusts its estimates of expected forfeitures of equity awards based upon its review of recent forfeiture activity and expected future employee turnover. The Company considers the impact of both pre-vesting forfeitures and post-vesting cancellations for purposes of evaluating forfeiture estimates. The effect of adjusting the forfeiture rate is recognized in the period in which the forfeiture estimate is changed.
Restricted Stock
Shares of restricted stock generally may vest immediately,
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 awards are entitled to all rights of a stockholder of the Company with respect to the restricted stock, including the right to vote the shares and receive any dividends or other distributions. Compensation expense associated with restricted stock is measured based on the grant date fair value of the common stock and is recognized on a straight line basis over the vesting period. The table below summarizes the weighted average grant date fair value of restricted stock for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Weighted average grant date fair value
|
$
|
0.49
|
|
|
$
|
1.37
|
|
|
$
|
1.56
|
|
The following is a rollforward of the activity in restricted stock for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Nonvested at January 1, 2018
|
3,630,817
|
|
|
$
|
1.41
|
|
Granted
|
13,117,386
|
|
|
0.49
|
|
Vested
|
(5,804,742
|
)
|
|
0.86
|
|
Forfeited
|
(132,445
|
)
|
|
1.19
|
|
Nonvested at December 31, 2018
|
10,811,016
|
|
|
$
|
0.59
|
|
The following table represents the compensation expense related to restricted stock for the years indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Total compensation expense
|
$
|
3.9
|
|
|
$
|
2.3
|
|
|
$
|
2.2
|
|
The total fair value of restricted stock awards vested during
2018
,
2017
and
2016
was
$3.1 million
,
$3.4 million
, and
$1.4 million
, respectively. As of
December 31, 2018
, unrecognized compensation expense related to unvested restricted stock outstanding was approximately $
5.6 million
to be recognized over a weighted-average period of
2.2
years.
Modifications
As a result of the departure of
four
members of the Board of Directors in December 2018, the Company modified certain terms for all stock options outstanding for the
four
departing directors and the
three
members of the Board of Directors who were not departing (collectively, the "Former Board"). In connection with this modification, all unvested stock options held by members of the Former Board vested and the term of all stock options held by such members was extended to a new
ten
-year period. Additionally, the Company accelerated the vesting of outstanding restricted stock awards for
three
of the
four
departing members of the Board of Directors.
In total, the
seven
members of the Former Board had options to purchase approximately
3.4 million
shares outstanding. Additionally,
three
departing members of the Board of Directors had unvested restricted stock awards of
0.5 million
shares in total.
The incremental compensation cost recognized upon modification of the stock options was
$0.6 million
and the incremental compensation cost recognized upon acceleration of the vesting of the restricted stock awards was
$0.1 million
, both of which were recognized during the year ended December 31, 2018 in accordance with applicable accounting guidance. As substantially all stock options held by members of the Former Board had vested as of December 31, 2018, the impact of this vesting of remaining outstanding stock options was not meaningful.
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. For the
2018
Plan Year, the Company's adjusted EBITDA performance was within the bonus payout threshold according to the bonus plan document. As of
December 31, 2018
,
$1.3 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 in March 2019.
Employee Stock Purchase Plan
The Company has 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, 2018
and
2017
, the Company received
$0.5 million
and
$0.7 million
, respectively, related to shares issued under this plan. For each of
2018
and
2017
, the Company recorded compensation expense of approximately
$0.5 million
, which is reflected in marketing, general and administrative expenses. Additionally, the Company has issued approximately
6.0 million
shares through
December 31, 2018
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,
|
|
2018
|
|
2017
|
Risk-free interest rate
|
2.00
|
%
|
|
1.00
|
%
|
Expected term (months)
|
6
|
|
|
6
|
|
Volatility
|
104
|
%
|
|
100
|
%
|
Weighted average grant-date fair value per share
|
$
|
0.35
|
|
|
$
|
0.61
|
|
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,
|
|
2018
|
|
2017
|
Accumulated minimum pension liability adjustment
|
$
|
(5,622
|
)
|
|
$
|
(5,558
|
)
|
Accumulated net foreign currency translation adjustment
|
1,783
|
|
|
(1,381
|
)
|
Total accumulated other comprehensive loss
|
$
|
(3,839
|
)
|
|
$
|
(6,939
|
)
|
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
|
2018
|
|
March 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
Total revenue
|
|
$
|
28,749
|
|
|
$
|
33,726
|
|
|
$
|
35,692
|
|
|
$
|
31,946
|
|
Operating income (loss)
|
|
$
|
(12,958
|
)
|
|
$
|
1,948
|
|
|
$
|
(17,962
|
)
|
|
$
|
(18,407
|
)
|
Net income (loss)
|
|
$
|
87,930
|
|
|
$
|
(7,012
|
)
|
|
$
|
9,019
|
|
|
$
|
(96,453
|
)
|
Basic income (loss) per common share
|
|
$
|
0.07
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.07
|
)
|
Diluted income (loss) per common share
|
|
$
|
0.06
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.07
|
)
|
Shares used in basic per share calculations
|
|
1,262,336
|
|
|
1,263,372
|
|
|
1,264,516
|
|
|
1,287,742
|
|
Shares used in diluted per share calculations
|
|
1,437,328
|
|
|
1,263,372
|
|
|
1,427,800
|
|
|
1,287,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
2017
|
|
March 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
Total revenue
|
|
$
|
24,652
|
|
|
$
|
28,123
|
|
|
$
|
30,458
|
|
|
$
|
29,427
|
|
Loss from operations
|
|
$
|
(15,131
|
)
|
|
$
|
(12,439
|
)
|
|
$
|
(10,721
|
)
|
|
$
|
(30,155
|
)
|
Net income (loss)
|
|
$
|
(20,161
|
)
|
|
$
|
(98,734
|
)
|
|
$
|
52,406
|
|
|
$
|
(22,585
|
)
|
Basic income (loss) per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.02
|
)
|
Diluted income (loss) per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.02
|
)
|
Shares used in basic per share calculations
|
|
1,113,968
|
|
|
1,128,985
|
|
|
1,169,993
|
|
|
1,251,826
|
|
Shares used in diluted per share calculations
|
|
1,113,968
|
|
|
1,128,985
|
|
|
1,345,905
|
|
|
1,251,826
|
|
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, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Elimination
|
|
Consolidated
|
|
(In thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
11,312
|
|
|
$
|
2,126
|
|
|
$
|
1,774
|
|
|
$
|
—
|
|
|
$
|
15,212
|
|
Restricted cash
|
60,278
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,278
|
|
Accounts receivable, net of allowance
|
7,138
|
|
|
7,826
|
|
|
4,363
|
|
|
—
|
|
|
19,327
|
|
Intercompany receivables
|
1,047,320
|
|
|
824,920
|
|
|
105,819
|
|
|
(1,978,059
|
)
|
|
—
|
|
Inventory
|
6,747
|
|
|
6,149
|
|
|
1,378
|
|
|
—
|
|
|
14,274
|
|
Prepaid expenses and other current assets
|
7,765
|
|
|
2,987
|
|
|
2,658
|
|
|
—
|
|
|
13,410
|
|
Total current assets
|
1,140,560
|
|
|
844,008
|
|
|
115,992
|
|
|
(1,978,059
|
)
|
|
122,501
|
|
Property and equipment, net
|
850,790
|
|
|
1,242
|
|
|
30,658
|
|
|
5
|
|
|
882,695
|
|
Intercompany notes receivable
|
5,600
|
|
|
—
|
|
|
6,436
|
|
|
(12,036
|
)
|
|
—
|
|
Investment in subsidiaries
|
(255,187
|
)
|
|
42,481
|
|
|
50,220
|
|
|
162,486
|
|
|
—
|
|
Intangibles and other assets, net
|
36,275
|
|
|
324
|
|
|
3,698
|
|
|
(11
|
)
|
|
40,286
|
|
Total assets
|
$
|
1,778,038
|
|
|
$
|
888,055
|
|
|
$
|
207,004
|
|
|
$
|
(1,827,615
|
)
|
|
$
|
1,045,482
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
96,249
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96,249
|
|
Accounts payable
|
2,420
|
|
|
3,378
|
|
|
1,197
|
|
|
—
|
|
|
6,995
|
|
Accrued expenses
|
8,904
|
|
|
6,747
|
|
|
7,434
|
|
|
—
|
|
|
23,085
|
|
Intercompany payables
|
778,340
|
|
|
832,284
|
|
|
367,396
|
|
|
(1,978,020
|
)
|
|
—
|
|
Payables to affiliates
|
656
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
656
|
|
Derivative liabilities
|
757
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
757
|
|
Deferred revenue
|
1,699
|
|
|
23,943
|
|
|
6,296
|
|
|
—
|
|
|
31,938
|
|
Total current liabilities
|
889,025
|
|
|
866,352
|
|
|
382,323
|
|
|
(1,978,020
|
)
|
|
159,680
|
|
Long-term debt, less current portion
|
367,202
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
367,202
|
|
Employee benefit obligations
|
4,489
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,489
|
|
Intercompany notes payable
|
6,436
|
|
|
—
|
|
|
5,600
|
|
|
(12,036
|
)
|
|
—
|
|
Derivative liabilities
|
146,108
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
146,108
|
|
Deferred revenue
|
5,339
|
|
|
335
|
|
|
18
|
|
|
—
|
|
|
5,692
|
|
Other non-current liabilities
|
494
|
|
|
323
|
|
|
2,549
|
|
|
—
|
|
|
3,366
|
|
Total non-current liabilities
|
530,068
|
|
|
658
|
|
|
8,167
|
|
|
(12,036
|
)
|
|
526,857
|
|
Stockholders' equity (deficit)
|
358,945
|
|
|
21,045
|
|
|
(183,486
|
)
|
|
162,441
|
|
|
358,945
|
|
Total liabilities and shareholders' equity
|
$
|
1,778,038
|
|
|
$
|
888,055
|
|
|
$
|
207,004
|
|
|
$
|
(1,827,615
|
)
|
|
$
|
1,045,482
|
|
Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Elimination
|
|
Consolidated
|
|
(In thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
32,864
|
|
|
$
|
4,942
|
|
|
$
|
3,838
|
|
|
$
|
—
|
|
|
$
|
41,644
|
|
Restricted cash
|
63,635
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
63,635
|
|
Accounts receivable, net of allowance
|
7,129
|
|
|
6,524
|
|
|
3,460
|
|
|
—
|
|
|
17,113
|
|
Intercompany receivables
|
979,942
|
|
|
755,847
|
|
|
64,477
|
|
|
(1,800,266
|
)
|
|
—
|
|
Inventory
|
1,182
|
|
|
4,610
|
|
|
1,481
|
|
|
—
|
|
|
7,273
|
|
Prepaid expenses and other current assets
|
3,149
|
|
|
2,414
|
|
|
1,182
|
|
|
—
|
|
|
6,745
|
|
Total current assets
|
1,087,901
|
|
|
774,337
|
|
|
74,438
|
|
|
(1,800,266
|
)
|
|
136,410
|
|
Property and equipment, net
|
962,756
|
|
|
3,855
|
|
|
4,503
|
|
|
5
|
|
|
971,119
|
|
Intercompany notes receivable
|
5,600
|
|
|
—
|
|
|
6,436
|
|
|
(12,036
|
)
|
|
—
|
|
Investment in subsidiaries
|
(280,745
|
)
|
|
84,244
|
|
|
38,637
|
|
|
157,864
|
|
|
—
|
|
Intangible and other assets, net
|
18,353
|
|
|
47
|
|
|
3,348
|
|
|
(12
|
)
|
|
21,736
|
|
Total assets
|
$
|
1,793,865
|
|
|
$
|
862,483
|
|
|
$
|
127,362
|
|
|
$
|
(1,654,445
|
)
|
|
$
|
1,129,265
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
79,215
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
79,215
|
|
Accounts payable
|
2,257
|
|
|
2,736
|
|
|
1,055
|
|
|
—
|
|
|
6,048
|
|
Accrued contract termination charge
|
21,002
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,002
|
|
Accrued expenses
|
7,627
|
|
|
6,331
|
|
|
6,796
|
|
|
—
|
|
|
20,754
|
|
Intercompany payables
|
711,159
|
|
|
799,565
|
|
|
289,503
|
|
|
(1,800,227
|
)
|
|
—
|
|
Payables to affiliates
|
225
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
225
|
|
Derivative liabilities
|
1,326
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,326
|
|
Deferred revenue
|
1,164
|
|
|
23,282
|
|
|
7,301
|
|
|
—
|
|
|
31,747
|
|
Total current liabilities
|
823,975
|
|
|
831,914
|
|
|
304,655
|
|
|
(1,800,227
|
)
|
|
160,317
|
|
Long-term debt, less current portion
|
434,651
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
434,651
|
|
Employee benefit obligations
|
4,389
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,389
|
|
Intercompany notes payable
|
6,436
|
|
|
—
|
|
|
5,600
|
|
|
(12,036
|
)
|
|
—
|
|
Derivative liabilities
|
226,659
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
226,659
|
|
Deferred revenue
|
5,625
|
|
|
410
|
|
|
17
|
|
|
—
|
|
|
6,052
|
|
Other non-current liabilities
|
906
|
|
|
325
|
|
|
4,742
|
|
|
—
|
|
|
5,973
|
|
Total non-current liabilities
|
678,666
|
|
|
735
|
|
|
10,359
|
|
|
(12,036
|
)
|
|
677,724
|
|
Stockholders' equity (deficit)
|
291,224
|
|
|
29,834
|
|
|
(187,652
|
)
|
|
157,818
|
|
|
291,224
|
|
Total liabilities and shareholders' equity
|
$
|
1,793,865
|
|
|
$
|
862,483
|
|
|
$
|
127,362
|
|
|
$
|
(1,654,445
|
)
|
|
$
|
1,129,265
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
$
|
89,992
|
|
|
$
|
40,658
|
|
|
$
|
65,054
|
|
|
$
|
(84,615
|
)
|
|
$
|
111,089
|
|
Subscriber equipment sales
|
711
|
|
|
16,963
|
|
|
5,676
|
|
|
(4,326
|
)
|
|
19,024
|
|
Total revenue
|
90,703
|
|
|
57,621
|
|
|
70,730
|
|
|
(88,941
|
)
|
|
130,113
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization and accretion shown separately below)
|
26,795
|
|
|
5,932
|
|
|
10,050
|
|
|
(5,129
|
)
|
|
37,648
|
|
Cost of subscriber equipment sales
|
552
|
|
|
13,964
|
|
|
4,253
|
|
|
(4,328
|
)
|
|
14,441
|
|
Marketing, general and administrative
|
38,007
|
|
|
5,221
|
|
|
91,758
|
|
|
(79,543
|
)
|
|
55,443
|
|
Revision to contract termination charge
|
(20,478
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,478
|
)
|
Depreciation, amortization and accretion
|
88,783
|
|
|
264
|
|
|
1,391
|
|
|
—
|
|
|
90,438
|
|
Total operating expenses
|
133,659
|
|
|
25,381
|
|
|
107,452
|
|
|
(89,000
|
)
|
|
177,492
|
|
Income (loss) from operations
|
(42,956
|
)
|
|
32,240
|
|
|
(36,722
|
)
|
|
59
|
|
|
(47,379
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and expense, net of amounts capitalized
|
(43,742
|
)
|
|
4
|
|
|
72
|
|
|
54
|
|
|
(43,612
|
)
|
Derivative gain
|
81,120
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
81,120
|
|
Gain on legal settlement
|
6,779
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,779
|
|
Equity in subsidiary earnings (loss)
|
(7,617
|
)
|
|
(16,655
|
)
|
|
—
|
|
|
24,272
|
|
|
—
|
|
Other
|
(100
|
)
|
|
206
|
|
|
(3,349
|
)
|
|
(56
|
)
|
|
(3,299
|
)
|
Total other income (expense)
|
36,440
|
|
|
(16,445
|
)
|
|
(3,277
|
)
|
|
24,270
|
|
|
40,988
|
|
Income (loss) before income taxes
|
(6,516
|
)
|
|
15,795
|
|
|
(39,999
|
)
|
|
24,329
|
|
|
(6,391
|
)
|
Income tax expense
|
—
|
|
|
30
|
|
|
95
|
|
|
—
|
|
|
125
|
|
Net income (loss)
|
$
|
(6,516
|
)
|
|
$
|
15,765
|
|
|
$
|
(40,094
|
)
|
|
$
|
24,329
|
|
|
$
|
(6,516
|
)
|
Defined benefit pension plan liability adjustment
|
(64
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(64
|
)
|
Net foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
3,072
|
|
|
92
|
|
|
3,164
|
|
Total comprehensive income (loss)
|
$
|
(6,580
|
)
|
|
$
|
15,765
|
|
|
$
|
(37,022
|
)
|
|
$
|
24,421
|
|
|
$
|
(3,416
|
)
|
Globalstar, Inc.
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
$
|
76,096
|
|
|
$
|
39,347
|
|
|
$
|
54,102
|
|
|
$
|
(71,072
|
)
|
|
$
|
98,473
|
|
Subscriber equipment sales
|
264
|
|
|
11,459
|
|
|
6,141
|
|
|
(3,677
|
)
|
|
14,187
|
|
Total revenue
|
76,360
|
|
|
50,806
|
|
|
60,243
|
|
|
(74,749
|
)
|
|
112,660
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization and accretion shown separately below)
|
25,664
|
|
|
5,981
|
|
|
10,740
|
|
|
(5,363
|
)
|
|
37,022
|
|
Cost of subscriber equipment sales
|
97
|
|
|
9,211
|
|
|
4,311
|
|
|
(3,675
|
)
|
|
9,944
|
|
Cost of subscriber equipment sales - reduction in the value of inventory
|
843
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
843
|
|
Marketing, general and administrative
|
22,588
|
|
|
4,792
|
|
|
77,099
|
|
|
(65,720
|
)
|
|
38,759
|
|
Reduction in the value of long-lived assets
|
17,040
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,040
|
|
Depreciation, amortization and accretion
|
76,625
|
|
|
629
|
|
|
244
|
|
|
—
|
|
|
77,498
|
|
Total operating expenses
|
142,857
|
|
|
20,613
|
|
|
92,394
|
|
|
(74,758
|
)
|
|
181,106
|
|
Income (loss) from operations
|
(66,497
|
)
|
|
30,193
|
|
|
(32,151
|
)
|
|
9
|
|
|
(68,446
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
(6,306
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,306
|
)
|
Gain (loss) on equity issuance
|
2,706
|
|
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
2,670
|
|
Interest income and expense, net of amounts capitalized
|
(34,570
|
)
|
|
(8
|
)
|
|
(198
|
)
|
|
5
|
|
|
(34,771
|
)
|
Derivative gain
|
21,182
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,182
|
|
Equity in subsidiary earnings (loss)
|
(2,735
|
)
|
|
(13,906
|
)
|
|
—
|
|
|
16,641
|
|
|
—
|
|
Other
|
(2,854
|
)
|
|
(700
|
)
|
|
345
|
|
|
(4
|
)
|
|
(3,213
|
)
|
Total other income (expense)
|
(22,577
|
)
|
|
(14,614
|
)
|
|
111
|
|
|
16,642
|
|
|
(20,438
|
)
|
Income (loss) before income taxes
|
(89,074
|
)
|
|
15,579
|
|
|
(32,040
|
)
|
|
16,651
|
|
|
(88,884
|
)
|
Income tax expense
|
—
|
|
|
25
|
|
|
165
|
|
|
—
|
|
|
190
|
|
Net income (loss)
|
$
|
(89,074
|
)
|
|
$
|
15,554
|
|
|
$
|
(32,205
|
)
|
|
$
|
16,651
|
|
|
$
|
(89,074
|
)
|
Defined benefit pension plan liability adjustment
|
384
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
384
|
|
Net foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
(1,944
|
)
|
|
(1
|
)
|
|
(1,945
|
)
|
Total comprehensive income (loss)
|
$
|
(88,690
|
)
|
|
$
|
15,554
|
|
|
$
|
(34,149
|
)
|
|
$
|
16,650
|
|
|
$
|
(90,635
|
)
|
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 revenue
|
$
|
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
|
21,268
|
|
|
4,847
|
|
|
73,679
|
|
|
(59,235
|
)
|
|
40,559
|
|
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
|
118,290
|
|
|
19,059
|
|
|
90,640
|
|
|
(67,875
|
)
|
|
160,114
|
|
Income (loss) from operations
|
(47,246
|
)
|
|
24,749
|
|
|
(40,965
|
)
|
|
209
|
|
|
(63,253
|
)
|
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 (loss)
|
(9,803
|
)
|
|
(15,670
|
)
|
|
—
|
|
|
25,473
|
|
|
—
|
|
Other
|
(1,101
|
)
|
|
92
|
|
|
17
|
|
|
139
|
|
|
(853
|
)
|
Total other income (expense)
|
(85,400
|
)
|
|
(15,602
|
)
|
|
(536
|
)
|
|
25,602
|
|
|
(75,936
|
)
|
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 Cash Flows
Year Ended
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Net cash provided by (used in) operating activities:
|
$
|
7,933
|
|
|
$
|
(1,842
|
)
|
|
$
|
(171
|
)
|
|
$
|
—
|
|
|
$
|
5,920
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-generation network costs (including interest)
|
(5,730
|
)
|
|
—
|
|
|
(1,302
|
)
|
|
—
|
|
|
(7,032
|
)
|
Property and equipment additions
|
(5,938
|
)
|
|
(974
|
)
|
|
(437
|
)
|
|
—
|
|
|
(7,349
|
)
|
Purchase of intangible assets
|
(2,978
|
)
|
|
—
|
|
|
(42
|
)
|
|
—
|
|
|
(3,020
|
)
|
Net cash used in investing activities
|
(14,646
|
)
|
|
(974
|
)
|
|
(1,781
|
)
|
|
—
|
|
|
(17,401
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of the Facility Agreement
|
(77,866
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(77,866
|
)
|
Net proceeds from common stock offering
|
59,100
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59,100
|
|
Payments for financing costs
|
(276
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(276
|
)
|
Proceeds from issuance of common stock and exercise of options and warrants
|
846
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
846
|
|
Net cash used in financing activities
|
(18,196
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,196
|
)
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
—
|
|
|
—
|
|
|
(112
|
)
|
|
—
|
|
|
(112
|
)
|
Net decrease in cash, cash equivalents and restricted cash
|
(24,909
|
)
|
|
(2,816
|
)
|
|
(2,064
|
)
|
|
—
|
|
|
(29,789
|
)
|
Cash, cash equivalents and restricted cash, beginning of period
|
96,499
|
|
|
4,942
|
|
|
3,838
|
|
|
—
|
|
|
105,279
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
71,590
|
|
|
$
|
2,126
|
|
|
$
|
1,774
|
|
|
$
|
—
|
|
|
$
|
75,490
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Net cash provided by operating activities:
|
$
|
6,010
|
|
|
$
|
4,361
|
|
|
$
|
3,486
|
|
|
$
|
—
|
|
|
$
|
13,857
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-generation network costs (including interest)
|
(11,856
|
)
|
|
—
|
|
|
(54
|
)
|
|
—
|
|
|
(11,910
|
)
|
Property and equipment additions
|
(3,674
|
)
|
|
(746
|
)
|
|
(1,105
|
)
|
|
—
|
|
|
(5,525
|
)
|
Purchase of intangible assets
|
(3,468
|
)
|
|
—
|
|
|
(328
|
)
|
|
—
|
|
|
(3,796
|
)
|
Investment in businesses
|
455
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
455
|
|
Net cash used in investing activities
|
(18,543
|
)
|
|
(746
|
)
|
|
(1,487
|
)
|
|
—
|
|
|
(20,776
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of the Facility Agreement
|
(75,755
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(75,755
|
)
|
Net proceeds from common stock offering
|
114,993
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
114,993
|
|
Proceeds from Thermo Common Stock Purchase Agreement
|
33,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,000
|
|
Payment of debt restructuring fee
|
(20,795
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,795
|
)
|
Payments for financing costs
|
(654
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(654
|
)
|
Proceeds from issuance of stock to Terrapin
|
12,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,000
|
|
Proceeds from issuance of common stock and exercise of options and warrants
|
1,001
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,001
|
|
Net cash provided by financing activities
|
63,790
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
63,790
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
—
|
|
|
—
|
|
|
195
|
|
|
—
|
|
|
195
|
|
Net increase in cash, cash equivalents and restricted cash
|
51,257
|
|
|
3,615
|
|
|
2,194
|
|
|
—
|
|
|
57,066
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
45,242
|
|
|
1,327
|
|
|
1,644
|
|
|
—
|
|
|
48,213
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
96,499
|
|
|
$
|
4,942
|
|
|
$
|
3,838
|
|
|
$
|
—
|
|
|
$
|
105,279
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended
December 31, 2016
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Parent
Company
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Guarantor
Subsidiaries
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Non-
Guarantor
Subsidiaries
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Eliminations
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Consolidated
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(In thousands)
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Net cash provided by (used in) operating activities
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$
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8,642
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$
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1,307
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$
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(1,136
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)
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$
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—
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$
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8,813
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Cash flows used in investing activities:
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Second-generation network costs (including interest)
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(12,901
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)
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—
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(269
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)
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—
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(13,170
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)
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Property and equipment additions
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(8,453
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)
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(699
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)
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(233
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)
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—
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(9,385
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)
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Purchase of intangible assets
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(1,996
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)
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—
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—
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—
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(1,996
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)
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Net cash used in investing activities
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(23,350
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)
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(699
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)
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(502
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)
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—
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(24,551
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)
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Cash flows provided by (used in) financing activities:
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Principal payments of the Facility Agreement
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(32,835
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)
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—
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—
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—
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(32,835
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)
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Proceeds from issuance of stock to Terrapin
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48,000
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—
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—
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—
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48,000
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Proceeds from issuance of common stock and exercise of options and warrants
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3,337
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—
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—
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—
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3,337
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Net cash provided by financing activities
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18,502
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—
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—
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—
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18,502
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Effect of exchange rate changes on cash, cash equivalents and restricted cash
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—
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—
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55
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—
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55
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Net increase (decrease) in cash, cash equivalents and restricted cash
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3,794
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608
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(1,583
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)
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—
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2,819
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Cash, cash equivalents and restricted cash, beginning of period
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41,448
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719
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3,227
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—
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45,394
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Cash, cash equivalents and restricted cash, end of period
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$
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45,242
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$
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1,327
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$
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1,644
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$
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—
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$
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48,213
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