Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2019
or
|
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-33117
GLOBALSTAR, INC.
(Exact Name of Registrant as Specified in Its Charter)
|
| | |
Delaware | | 41-2116508 |
(State or Other Jurisdiction of | | (I.R.S. Employer Identification No.) |
Incorporation or Organization) | | |
1351 Holiday Square Blvd.
Covington, Louisiana 70433
(Address of principal executive offices and zip code)
Registrant's Telephone Number, Including Area Code: (985) 335-1500
|
| | | | |
Securities registered pursuant to section 12(b) of the Act: | | | | |
Title of each class | | Name of exchange on which registered | | Trading Symbol |
Voting Common Stock | | NYSE American | | GSAT |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
| | |
Large accelerated filer ☐ | | Accelerated filer ☒ |
| | |
Non-accelerated filer ☐ | | Smaller reporting company ☐ |
(Do not check if a smaller reporting company) | | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 26, 2019, 1,450,115,141 shares of voting common stock and no shares of nonvoting common stock were outstanding. Unless the context otherwise requires, references to common stock in this Report mean the Registrant’s voting common stock.
FORM 10-Q
GLOBALSTAR, INC.
TABLE OF CONTENTS
|
| | |
| Page |
| |
| | |
Item 1. | | |
| | |
Item 2. | | |
| | |
Item 3. | | |
| | |
Item 4. | | |
| | |
| |
| | |
Item 1. | | |
| | |
Item 1A. | | |
| | |
Item 2. | | |
| | |
Item 3. | | |
| | |
Item 4. | | |
| | |
Item 5. | | |
| | |
Item 6. | | |
| | |
| |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
GLOBALSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31,
2019 | | March 31,
2018 |
Revenue: | | | |
Service revenue | $ | 26,119 |
| | $ | 26,010 |
|
Subscriber equipment sales | 3,959 |
| | 2,739 |
|
Total revenue | 30,078 |
| | 28,749 |
|
Operating expenses: | | | |
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below) | 9,853 |
| | 9,029 |
|
Cost of subscriber equipment sales | 3,149 |
| | 2,172 |
|
Marketing, general and administrative | 11,606 |
| | 11,275 |
|
Depreciation, amortization and accretion | 23,801 |
| | 19,231 |
|
Total operating expenses | 48,409 |
| | 41,707 |
|
Loss from operations | (18,331 | ) | | (12,958 | ) |
Other income (expense): | | | |
Interest income and expense, net of amounts capitalized | (12,870 | ) | | (7,353 | ) |
Derivative gain | 57,008 |
| | 108,944 |
|
Other | (9 | ) | | (662 | ) |
Total other income | 44,129 |
| | 100,929 |
|
Income before income taxes | 25,798 |
| | 87,971 |
|
Income tax expense | 27 |
| | 41 |
|
Net income | $ | 25,771 |
| | $ | 87,930 |
|
| | | |
Other comprehensive income: | | | |
Foreign currency translation adjustments | (270 | ) | | (330 | ) |
Comprehensive income | $ | 25,501 |
| | $ | 87,600 |
|
| | | |
Net income per common share: | | | |
Basic | $ | 0.02 |
| | $ | 0.07 |
|
Diluted | 0.02 |
| | 0.06 |
|
Weighted-average shares outstanding: | | | |
Basic | 1,448,318 |
| | 1,262,336 |
|
Diluted | 1,632,257 |
| | 1,437,328 |
|
See accompanying notes to unaudited interim condensed consolidated financial statements.
GLOBALSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)
(Unaudited) |
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
ASSETS | |
| | |
|
Current assets: | |
| | |
|
Cash and cash equivalents | $ | 13,773 |
| | $ | 15,212 |
|
Restricted cash | 60,574 |
| | 60,278 |
|
Accounts receivable, net of allowance of $3,652 and $3,382, respectively | 20,037 |
| | 19,327 |
|
Inventory | 14,415 |
| | 14,274 |
|
Prepaid expenses and other current assets | 24,406 |
| | 13,410 |
|
Total current assets | 133,205 |
| | 122,501 |
|
Property and equipment, net | 864,200 |
| | 882,695 |
|
Operating lease right of use assets, net | 14,587 |
| | — |
|
Intangible and other assets, net of accumulated amortization of $8,180 and $7,930, respectively | 32,916 |
| | 40,286 |
|
Total assets | $ | 1,044,908 |
| | $ | 1,045,482 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
|
Current liabilities: | |
| | |
|
Current portion of long-term debt | $ | 96,249 |
| | $ | 96,249 |
|
Accounts payable | 6,206 |
| | 6,995 |
|
Accrued expenses | 34,593 |
| | 23,085 |
|
Payables to affiliates | 218 |
| | 656 |
|
Derivative liabilities | 542 |
| | 757 |
|
Deferred revenue | 31,485 |
| | 31,938 |
|
Total current liabilities | 169,293 |
| | 159,680 |
|
Long-term debt, less current portion | 374,039 |
| | 367,202 |
|
Operating lease liabilities | 13,571 |
| | — |
|
Employee benefit obligations | 4,541 |
| | 4,489 |
|
Derivative liabilities | 89,315 |
| | 146,108 |
|
Deferred revenue | 5,513 |
| | 5,692 |
|
Other non-current liabilities | 3,261 |
| | 3,366 |
|
Total non-current liabilities | 490,240 |
| | 526,857 |
|
| | | |
Contingencies (Note 8) |
|
| |
|
|
| | | |
Stockholders’ equity: | |
| | |
|
Preferred Stock of $0.0001 par value; 100,000,000 shares authorized and none issued and outstanding at March 31, 2019 and December 31, 2018, respectively | — |
| | — |
|
Series A Preferred Convertible Stock of $0.0001 par value; one share authorized and none issued and outstanding at March 31, 2019 and December 31, 2018, respectively | — |
| | — |
|
Voting Common Stock of $0.0001 par value; 1,900,000,000 shares authorized and 1,450,069,483 shares issued and outstanding at March 31, 2019; 1,500,000,000 shares authorized and 1,446,783,645 shares issued and outstanding at December 31, 2018 | 145 |
| | 145 |
|
Nonvoting Common Stock of $0.0001 par value; no shares authorized and none issued and outstanding at March 31, 2019; 400,000,000 shares authorized and none issued and outstanding at December 31, 2018 | — |
| | — |
|
Additional paid-in capital | 1,938,293 |
| | 1,937,364 |
|
Accumulated other comprehensive loss | (4,109 | ) | | (3,839 | ) |
Retained deficit | (1,548,954 | ) | | (1,574,725 | ) |
Total stockholders’ equity | 385,375 |
| | 358,945 |
|
Total liabilities and stockholders’ equity | $ | 1,044,908 |
| | $ | 1,045,482 |
|
See accompanying notes to unaudited interim condensed consolidated financial statements.
GLOBALSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited) |
| | | | | | | | | | | | | | | | | |
| Common Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Deficit | Total |
Balances – January 1, 2019 | 1,446,784 |
| $ | 145 |
| $ | 1,937,364 |
| $ | (3,839 | ) | $ | (1,574,725 | ) | $ | 358,945 |
|
Net issuance of restricted stock awards, stock for employee stock option exercises and recognition of stock-based compensation | 3,285 |
| — |
| 1,000 |
| — |
| — |
| 1,000 |
|
Contribution of services | — |
| — |
| 47 |
| — |
| — |
| 47 |
|
Recognition of stock-based compensation of employee stock purchase plan | — |
| — |
| 77 |
| — |
| — |
| 77 |
|
Stock offering issuance costs | — |
| — |
| (195 | ) | | | (195 | ) |
Other comprehensive loss | — |
| — |
| — |
| (270 | ) | — |
| (270 | ) |
Net income | — |
| — |
| — |
| — |
| 25,771 |
| 25,771 |
|
Balances – March 31, 2019 | 1,450,069 |
| $ | 145 |
| $ | 1,938,293 |
| $ | (4,109 | ) | $ | (1,548,954 | ) | $ | 385,375 |
|
| | | | | |
|
|
| | | | | | |
| Common Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Deficit | Total |
Balances – January 1, 2018 | 1,261,949 |
| $ | 126 |
| $ | 1,869,339 |
| $ | (6,939 | ) | $ | (1,571,302 | ) | $ | 291,224 |
|
Net issuance of restricted stock awards and recognition of stock-based compensation | 1,165 |
| — |
| 1,853 |
| — |
| — |
| 1,853 |
|
Recognition of stock-based compensation of employee stock purchase plan | — |
| — |
| 84 |
| — |
| — |
| 84 |
|
Contribution of services | — |
| — |
| 137 |
| — |
| — |
| 137 |
|
Other comprehensive loss | — |
| — |
| — |
| (330 | ) | — |
| (330 | ) |
Impact of adoption of ASC 606 | — |
| — |
| — |
| — |
| 3,093 |
| 3,093 |
|
Net income | — |
| — |
| — |
| — |
| 87,930 |
| 87,930 |
|
Balances – March 31, 2018 | 1,263,114 |
| $ | 126 |
| $ | 1,871,413 |
| $ | (7,269 | ) | $ | (1,480,279 | ) | $ | 383,991 |
|
See accompanying notes to unaudited interim condensed consolidated financial statements.
GLOBALSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) |
| | | | | | | |
| Three Months Ended |
| March 31,
2019 |
| March 31,
2018 |
Cash flows provided by (used in) operating activities: | |
| | |
|
Net income | $ | 25,771 |
| | $ | 87,930 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
| | |
|
Depreciation, amortization and accretion | 23,801 |
| | 19,231 |
|
Change in fair value of derivative assets and liabilities | (57,008 | ) | | (108,944 | ) |
Stock-based compensation expense | 1,091 |
| | 1,150 |
|
Amortization of deferred financing costs | 2,198 |
| | 1,658 |
|
Provision for bad debts | 846 |
| | 361 |
|
Noncash interest and accretion expense | 4,505 |
| | 2,400 |
|
Unrealized foreign currency (gain) loss | (88 | ) | | 590 |
|
Other, net | 1 |
| | (40 | ) |
Changes in operating assets and liabilities: | |
| | |
|
Accounts receivable | (1,676 | ) | | (269 | ) |
Inventory | (107 | ) | | (403 | ) |
Prepaid expenses and other current assets | (6,797 | ) | | 13 |
|
Other assets | 1,041 |
| | 172 |
|
Accounts payable and accrued expenses | 9,122 |
| | 5,365 |
|
Payables to affiliates | (439 | ) | | 71 |
|
Other non-current liabilities | (248 | ) | | (104 | ) |
Deferred revenue | (688 | ) | | 651 |
|
Net cash provided by operating activities | 1,325 |
| | 9,832 |
|
Cash flows used in investing activities: | |
| | |
|
Second-generation network costs (including interest) | (793 | ) | | (341 | ) |
Property and equipment additions | (1,013 | ) | | (1,397 | ) |
Purchase of intangible assets | (455 | ) | | (648 | ) |
Net cash used in investing activities | (2,261 | ) | | (2,386 | ) |
Cash flows provided by (used in) financing activities: | |
| | |
|
Payments for debt and equity issuance costs | (195 | ) | | — |
|
Proceeds from issuance of common stock and exercise of options and warrants | 2 |
| | — |
|
Net cash used in financing activities | (193 | ) | | — |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (14 | ) | | (22 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash | (1,143 | ) | | 7,424 |
|
Cash, cash equivalents and restricted cash, beginning of period | 75,490 |
| | 105,279 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 74,347 |
| | $ | 112,703 |
|
| As of: |
| March 31,
2019 | | December 31,
2018 |
Reconciliation of cash, cash equivalents and restricted cash | | | |
Cash and cash equivalents | $ | 13,773 |
| | $ | 15,212 |
|
Restricted cash (See Note 5 for further discussion on restrictions) | 60,574 |
| | 60,278 |
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 74,347 |
| | $ | 75,490 |
|
| | | |
| | | |
| | | |
| Three Months Ended |
| March 31,
2019 | | March 31,
2018 |
Supplemental disclosure of cash flow information: | |
| | |
|
Cash paid for interest | $ | — |
| | $ | 39 |
|
| | | |
Supplemental disclosure of non-cash financing and investing activities: | |
| | |
|
Increase in capitalized accrued interest for second-generation network costs | $ | 78 |
| | $ | 1,330 |
|
Capitalized accretion of debt discount and amortization of prepaid financing costs | 63 |
| | 1,277 |
|
See accompanying notes to unaudited interim condensed consolidated financial statements.
GLOBALSTAR, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Globalstar, Inc. (“Globalstar” or the “Company”) provides Mobile Satellite Services (“MSS”) including voice and data communications services through its global satellite network. Thermo Capital Partners LLC, through its affiliates (collectively, “Thermo”), is the principal owner and largest stockholder of Globalstar. The Company’s 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 has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and footnote disclosures normally in financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”); however, management believes the disclosures made are adequate to make the information presented not misleading. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Globalstar Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 28, 2019 (the “2018 Annual Report”), and Management's Discussion and Analysis of Financial Condition and Results of Operations herein.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. The Company evaluates estimates on an ongoing basis. Significant estimates include the value of derivative instruments, the allowance for doubtful accounts, the net realizable value of inventory, the useful life and value of property and equipment, the value of stock-based compensation and income taxes.
These unaudited interim condensed consolidated financial statements include the accounts of Globalstar and all its subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidation. In the opinion of management, the information included herein includes all adjustments, consisting of normal recurring adjustments, that are necessary for a fair presentation of the Company’s condensed consolidated statements of operations, condensed consolidated balance sheets, condensed consolidated statements of stockholders' equity and condensed consolidated statements of cash flows for the periods presented. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year or any future period.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s incurred loss approach with an expected loss model for instruments measured at amortized cost. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The Company has not yet determined the impact this standard will have on its financial statements and related disclosures.
In 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 Issued Financial Reporting Rules
In April 2019, the SEC adopted the final rules under SEC Releases 33-10618 and 34-85381, FAST Act Modernization and Simplification of Regulation S-K. Among other things, the amendments 1) allow registrants who present financial statements covering three years in their periodic reports to omit discussion of the earliest year from management's discussion and analysis if the discussion was included in a prior filing, 2) allow registrants to omit certain information and exhibits from their periodic reports without submitting confidential treatment requests to the Commission, 3) clarify and streamline certain risk factor and property disclosure requirements, 4) require all filings to include hyperlinks to information that is incorporated by reference in current filings to the information available on EDGAR, as applicable, and 5) require registrants to apply XBRL tags to certain information on cover pages of SEC filings. The amended rules will become effective May 2, 2019 and will be applied to any filings after that date, except for the confidential treatment amendments, which became effective on April 2, 2019 and the XBRL tagging requirement, which is effective for large accelerated and accelerated filers for fiscal reports ending on or after June 15, 2019 and 2020, respectively. The Company does not expect these final rules to have a material impact on its disclosures and financial statements.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 became effective for annual reporting periods beginning after December 15, 2018. ASU 2016-02 amended the FASB Accounting Standards Codification (“ASC”) and created a new ASC Topic 842, “Leases” (“ASC 842”). The Company adopted this standard on January 1, 2019. See Note 3: Leases for further discussion, including the impact on the Company's condensed consolidated financial statements and required 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
The following table discloses revenue disaggregated by type of product and service (amounts in thousands):
|
| | | | | | | |
| Three Months Ended |
| March 31, 2019 | | March 31, 2018 |
Service revenue: | | | |
Duplex | $ | 8,645 |
| | $ | 8,783 |
|
SPOT | 13,095 |
| | 12,962 |
|
Commercial IoT | 3,698 |
| | 3,089 |
|
IGO | 166 |
| | 209 |
|
Other | 515 |
| | 967 |
|
Total service revenue | 26,119 |
| | 26,010 |
|
| | | |
Subscriber equipment sales: | | | |
Duplex | $ | 251 |
| | $ | 431 |
|
SPOT | 1,591 |
| | 1,474 |
|
Commercial IoT | 2,072 |
| | 833 |
|
Other | 45 |
| | 1 |
|
Total subscriber equipment sales | 3,959 |
| | 2,739 |
|
| | | |
Total revenue | $ | 30,078 |
| | $ | 28,749 |
|
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):
|
| | | | | | | |
| Three Months Ended |
| March 31, 2019 | | March 31, 2018 |
Service revenue: | | | |
United States | $ | 19,252 |
| | $ | 18,380 |
|
Canada | 3,811 |
| | 4,486 |
|
Europe | 2,122 |
| | 2,246 |
|
Central and South America | 564 |
| | 569 |
|
Others | 370 |
| | 329 |
|
Total service revenue | 26,119 |
| | 26,010 |
|
| | | |
Subscriber equipment sales: | | | |
United States | $ | 2,211 |
| | $ | 1,595 |
|
Canada | 812 |
| | 350 |
|
Europe | 577 |
| | 389 |
|
Central and South America | 312 |
| | 388 |
|
Others | 47 |
| | 17 |
|
Total subscriber equipment sales | 3,959 |
| | 2,739 |
|
| | | |
Total revenue | $ | 30,078 |
| | $ | 28,749 |
|
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):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Accounts receivable | $ | 20,037 |
| | $ | 19,327 |
|
Capitalized costs to obtain a contract | 1,970 |
| | 2,018 |
|
Contract liabilities | 36,998 |
| | 37,630 |
|
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 $0.9 million and $0.7 million as of March 31, 2019 and December 31, 2018, respectively.
The Company has agreements with certain of its independent gateway operators ("IGOs") whereby the parties net settle outstanding payables and receivables between the respective entities on a periodic basis. As of March 31, 2019, $7.5 million related to these agreements was included in accounts receivable on the Company’s condensed consolidated balance sheet.
During the three months ended March 31, 2019 and March 31, 2018, impairment loss on receivables from contracts with customers was $1.8 million and $0.9 million, respectively, including both provisions for bad debt and the reversal of revenue for accounts where collectability is not reasonably assured. The increase in the impairment loss on receivables during the three months ended March 31, 2019 compared to the same period in 2018 was driven primarily by a specific reserve related to one of the Company's IGOs.
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 condensed consolidated balance sheet and are amortized to marketing, general and administrative expenses on the Company’s condensed consolidated statement of operations on a straight-line basis over the estimated customer life of three years, which considers anticipated contract renewals. For each of the three months ended March 31, 2019 and March 31, 2018, the amount of amortization related to capitalized costs to obtain a contract was $0.4 million, respectively.
Contract Liabilities
Contract liabilities, which are included in deferred revenue on the Company’s condensed 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 March 31, 2019, the total transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was $37.0 million. The amount of revenue recognized during the three months ended March 31, 2019 from performance obligations included in the contract liability balance at the beginning of the 2019 period was $13.7 million. The amount of revenue recognized during the three months ended March 31, 2018 from performance obligations included in the contract liability balance at the beginning of the 2018 period was $13.3 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 March 31, 2019, the Company expects to recognize $31.5 million, or approximately 85%, of its remaining performance obligations during the next twelve months and $2.6 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.
3. LEASES
Adoption of ASC Topic 842 “Leases”
On January 1, 2019, the Company adopted ASC 842 using the modified retrospective method. The Company has presented financial results and applied its accounting policies for the period beginning January 1, 2019 under ASC 842, while prior period results and accounting policies have not been adjusted and are reflected under legacy GAAP pursuant to ASC 840.
In connection with the adoption of ASC 842, the Company performed an analysis of contracts under ASC 840 to ensure proper assessment of leases (or embedded leases) in existence as of January 1, 2019. The Company elected the package of practical expedients permitted under ASC 842, which allows the Company not to reassess 1) whether any expired or existing contracts as of the adoption date are or contain a lease, 2) lease classification for any expired or existing leases as of the adoption date and 3) initial direct costs for any existing leases as of the adoption date.
The most significant impact of applying ASC 842 was the recognition of right-of-use assets and lease liabilities for operating leases in its condensed consolidated balance sheet. For finance leases, the accounting remained generally consistent with legacy GAAP; however, the existing capital lease and obligation for these leases have been reclassified to a right-of-use asset and lease liability. On January 1, 2019, the Company recognized an initial operating right-of-use asset of $3.3 million and associated operating lease liabilities of $3.7 million. During the first quarter of 2019, the Company entered into additional leases, most significantly a lease agreement for its new headquarters location (see further discussion in Note 9: Related Party Transactions), resulting in the recognition of additional right-of-use assets and associated lease liabilities of $11.7 million. There was no impact to opening retained deficit as of January 1, 2019.
Leases
The Company has operating and finance leases for facilities and equipment throughout the United States and around the world, including corporate offices, satellite control centers, ground control centers, gateways and certain equipment.
Upon inception of a contract, the Company evaluates if the contract, or part of the contract, contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases include both a right-of-use asset and a lease liability. The right-of-use asset represents the Company’s right to use the underlying asset in the lease. Certain initial direct costs associated with consummating a lease are included in the initial measurement of the right-of-use asset. The right-of-use asset also includes prepaid lease payments and lease incentives. The lease liability represents the present value of the remaining lease payments discounted using the implicit rate in the lease on the lease commencement date. For leases in which the implicit rate is not readily determinable, an estimated incremental borrowing rate is used, which represents a rate of interest that the Company would pay to borrow on a collateralized basis over a similar term. The Company has elected to combine lease and nonlease components, if applicable. As of March 31, 2019, there are no leases not yet commenced that create significant rights and obligations.
For operating leases, the Company records lease expense on a straight-line basis over the lease term in either marketing, general and administrative expense or cost of services, depending on the nature of the underlying asset. For finance leases, the Company records the amortization of the right-of-use asset through depreciation, amortization and accretion expense and records the interest expense on the lease liability through interest expense, net, using the effective interest method.
Variable lease payments are payments made to a lessor due to changes in circumstances occurring after the commencement date. Variable lease payments dependent upon an index or rate are included in the measurement of the lease liability; all other variable lease payments are not included in the measurement of the lease liability and recognized when incurred. Variable lease payments excluded from the measurement of the lease liability are uncommon for the Company.
The Company’s leases have remaining lease terms of 1 year to 13 years. Lease terms include renewal or termination options that the Company is reasonably certain to exercise. For leases with a term of twelve months or less, the Company does not record a right-of-use asset and associated lease liability on its condensed consolidated balance sheet.
The Company reviews the carrying value of its right-of-use assets for impairment whenever events or changes in circumstances indicate that the recorded value may not be recoverable. Recoverability of assets is measured by comparing the carrying amounts of the assets to the estimated future undiscounted cash flows, excluding financing costs. If the Company determines that an impairment exists, any related impairment loss is estimated based on fair values.
The following tables disclose the components of the Company’s finance and operating leases (amounts in thousands):
|
| | | | |
| | Three Months Ended |
| | March 31, 2019 |
Operating leases: | | |
Right-of-use asset, net | | $ | 14,587 |
|
| | |
Short-term lease liability (as recorded in accrued expenses) | | 1,376 |
|
Long-term lease liability | | 13,571 |
|
Total operating lease liabilities | | $ | 14,947 |
|
| | |
Finance leases: | | |
Right-of-use asset, net (as recorded in intangible and other current assets, net) | | $ | 174 |
|
| | |
Short-term lease liability (as recorded in accrued expenses) | | 94 |
|
Long-term lease liability (as recorded in non-current liabilities) | | 63 |
|
Total finance lease liabilities | | $ | 157 |
|
Impact on Financial Statements
The following table summarizes the impact of the adoption of ASC 842 on the Company’s condensed consolidated balance sheet. There was no impact on the Company’s condensed consolidated statement of operations as a result of this adoption. Amounts are in thousands.
Condensed Consolidated Balance Sheet
As of March 31, 2019
|
| | | | | | | | | | | |
| Impact on change in accounting policy |
| As reported
March 31, 2019 | | Impact of
ASC 842 | | Legacy
GAAP |
Right-of-use asset, net | $ | 14,587 |
| | $ | (14,587 | ) | | $ | — |
|
Intangible and other assets, net | 174 |
| | (174 | ) | | — |
|
Property and equipment, net | — |
| | 174 |
| | 174 |
|
Accrued expenses | 1,471 |
| | (1,267 | ) | | 204 |
|
Lease liabilities | 13,571 |
| | (13,571 | ) | | — |
|
Other non-current liabilities | 63 |
| | — |
| | 63 |
|
Lease Cost
The components of lease cost are reflected in the table below (amounts in thousands). As noted above, prior periods have not been adjusted under the modified retrospective method of adoption.
|
| | | | |
| | Three Months Ended |
| | March 31, 2019 |
Operating lease cost: | | |
Amortization of right-of-use assets | | $ | 409 |
|
Interest on lease liabilities | | 130 |
|
Finance lease cost: | | |
Amortization of right-of-use assets | | 26 |
|
Interest on lease liabilities | | 3 |
|
Short-term lease cost | | 169 |
|
Total lease cost | | $ | 737 |
|
Weighted-Average Remaining Lease Term and Discount Rate
The following table discloses the weighted-average remaining lease term and discount rate for finance and operating leases.
|
| | | |
| | Three Months Ended |
| | March 31, 2019 |
| | |
Weighted-average lease term | | |
Finance leases | | 2.0 years |
|
Operating Leases | | 9.3 years |
|
| | |
Weighted-average discount rate | | |
Finance leases | | 7.8 | % |
Operating leases | | 8.4 | % |
Maturity Analysis
The following table reflects undiscounted cash flows on an annual basis for the Company’s lease liabilities as of March 31, 2019 (amounts in thousands):
|
| | | | | | | | |
| | Operating Leases | | Finance Leases |
| | | | |
2019 (remaining) | | $ | 1,949 |
| | $ | 78 |
|
2020 | | 2,542 |
| | 72 |
|
2021 | | 1,952 |
| | 11 |
|
2022 | | 1,851 |
| | 6 |
|
2023 | | 1,894 |
| | 3 |
|
2024 | | 1,894 |
| | — |
|
Thereafter | | 8,810 |
| | — |
|
Total lease payments | | $ | 20,892 |
| | $ | 170 |
|
Imputed interest | | (5,945 | ) | | (13 | ) |
Discounted lease liability | | $ | 14,947 |
| | $ | 157 |
|
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
|
| | | | | | | |
| March 31,
2019 | | December 31,
2018 |
Globalstar System: | |
| | |
|
Space component | |
| | |
|
First and second-generation satellites in service | $ | 1,195,291 |
| | $ | 1,195,291 |
|
Second-generation satellite, on-ground spare | 32,481 |
| | 32,481 |
|
Ground component | 269,293 |
| | 256,850 |
|
Construction in progress: | |
| | |
|
Ground component | 10,593 |
| | 18,068 |
|
Next-generation software upgrades | 2,087 |
| | 2,250 |
|
Other | 1,585 |
| | 2,699 |
|
Total Globalstar System | 1,511,330 |
| | 1,507,639 |
|
Internally developed and purchased software | 18,644 |
| | 26,045 |
|
Equipment | 9,773 |
| | 10,097 |
|
Land and buildings | 3,304 |
| | 3,311 |
|
Leasehold improvements | 1,321 |
| | 1,478 |
|
Total property and equipment | 1,544,372 |
| | 1,548,570 |
|
Accumulated depreciation | (680,172 | ) | | (665,875 | ) |
Total property and equipment, net | $ | 864,200 |
| | $ | 882,695 |
|
Amounts in the above table consist primarily of costs incurred related to the construction of the Company’s second-generation constellation and ground upgrades. The remaining ground component of construction in progress represents costs (including capitalized interest) associated with the Company's contracts primarily with Hughes Network Systems, LLC (“Hughes”) and Ericsson Inc. (“Ericsson”) to upgrade the Company's ground infrastructure in certain regions around the world. These gateway assets will be deployed based on coverage optimization. In January 2019, the Company completed technology upgrades to allow customers to use Sat-Fi2TM in certain areas of Latin America. Accordingly, 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. The ground component of construction in progress also includes costs (including capitalized interest) associated with the Company's contract for the procurement and production of new gateway antennas.
Additionally, during the first quarter of 2019, a portion of internally developed and purchased software assets that were previously placed into service reached the end of their depreciable life. Accordingly, these assets were retired, which drove the decrease in the table above.
Amounts included in the Company’s second-generation satellite, on-ground spare balance as of March 31, 2019 and December 31, 2018, 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 March 31, 2019, this satellite has not been placed into service; therefore, the Company has not started to record depreciation expense.
5. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt consists of the following (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 |
| Principal Amount | | Unamortized Discount and Deferred Financing Costs | | Carrying Value | | Principal Amount | | Unamortized Discount and Deferred Financing Costs | | Carrying Value |
Facility Agreement | $ | 389,390 |
| | $ | 22,115 |
| | $ | 367,275 |
| | $ | 389,390 |
| | $ | 24,355 |
| | $ | 365,035 |
|
Loan Agreement with Thermo | 123,329 |
| | 21,695 |
| | 101,634 |
| | 119,702 |
| | 22,665 |
| | 97,037 |
|
8.00% Convertible Senior Notes Issued in 2013 | 1,379 |
| | — |
| | 1,379 |
| | 1,379 |
| | — |
| | 1,379 |
|
Total Debt | 514,098 |
| | 43,810 |
| | 470,288 |
| | 510,471 |
| | 47,020 |
| | 463,451 |
|
Less: Current Portion | 96,249 |
| | — |
| | 96,249 |
| | 96,249 |
| | — |
| | 96,249 |
|
Long-Term Debt | $ | 417,849 |
| | $ | 43,810 |
| | $ | 374,039 |
| | $ | 414,222 |
| | $ | 47,020 |
| | $ | 367,202 |
|
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 8.00% Convertible Senior Notes Issued in 2013 (the "2013 8.00% Notes") based on the put and call features in these 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 an amendment to or refinancing of these debt obligations; however, the source of funds has not yet been arranged nor have the terms of any such amendment 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 March 31, 2019, 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. 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 the process of transitioning to an alternative credit card processor and expects that the total cash required to be withheld will decrease to $5.0 million by the third quarter of 2019 and remain at approximately this level. 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 anticipates that it will need an Equity Cure Contribution to maintain compliance with financial covenants under the Facility Agreement for the measurement periods ended June 30, 2019 and December 31, 2019, subject to the provisions of the Facility Agreement. The source of funds for these Equity Cure Contributions has not yet been arranged. As of March 31, 2019, the Company was in compliance with respect to the covenants of the Facility Agreement, except for one matter. The agent to the lenders of the Facility Agreement recently notified the Company that they believe it had not complied with a certain administrative provision within the Facility Agreement. The Company believes that it has remedied any noncompliance within the allowed cure 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 March 31, 2019, the balance in the debt service reserve account was $60.6 million and is classified as restricted cash on the Company's condensed 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. Based on the terms of the Settlement Agreement (as defined and discussed further in Note 8: Contingencies), the outstanding debt under the Thermo Loan Agreement will convert into shares of Globalstar common stock at the conversion price in place at the time of certain financing events described in the Settlement Agreement, if and when such events occur.
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 March 31, 2019, $79.8 million of interest had accrued since 2009 with respect to the Loan Agreement; the Loan Agreement is included in long-term debt on the Company’s condensed consolidated balance sheets.
The Company evaluated the various embedded derivatives within the Loan Agreement (See Note 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 condensed consolidated balance sheets with a corresponding debt discount, which is netted against the face value of the Loan Agreement.
The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the maturity of the Loan Agreement using an effective interest rate method. The fair value of the compound embedded derivative liability is marked-to-market at the end of each reporting period, with any changes in value reported in the condensed consolidated statements of operations. The Company determines the fair value of the compound embedded derivative using a Monte Carlo simulation model.
As previously disclosed, in connection with the Settlement Agreement discussed in Note 8: Contingencies, the Company formed a Strategic Review Committee that is required to remain in existence for as long as Thermo and its affiliates own and its affiliates beneficially own forty-five percent (45%) or more of Globalstar’s outstanding common stock. To the extent permitted by applicable law, the Strategic Review Committee will have exclusive responsibility for the oversight, review and approval of, among other things and subject to certain exceptions, any acquisition by Thermo and its affiliates of additional newly-issued securities of the
Company and any transaction between the Company and Thermo and its affiliates with a value in excess of $250,000. The approval of any of the foregoing transactions will require the vote of at least three members of the Strategic Review Committee.
8.00% Convertible Senior Notes Issued in 2013
The 2013 8.00% Notes are convertible into shares of common stock at a conversion price of $0.69 (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”).
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. 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 March 31, 2019, 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 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.
Interest on the 2013 8.00% Notes is payable semi-annually in arrears on April 1 and October 1 of each year. Interest is paid in cash at a rate of 5.75% per annum and in additional notes at a rate of 2.25% per annum. The Indenture for the 2013 8.00% Notes provides for customary events of default. As of March 31, 2019, the Company was in compliance with the terms of the 2013 8.00% Notes and the Indenture.
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. As of March 31, 2019, holders had converted a total of $55.4 million principal amount of the 2013 8.00% Notes, resulting in the issuance of approximately 98.5 million shares of voting common stock.
The Company evaluated the various embedded derivatives within the Indenture for the 2013 8.00% Notes. The Company determined that the conversion option and the contingent put feature within the Indenture required bifurcation from the 2013 8.00% Notes. The Company recorded this compound embedded derivative liability as a liability on its condensed consolidated balance sheets with a corresponding debt discount which was netted against the face value of the 2013 8.00% Notes. See Note 6: Derivatives for further information.
6. DERIVATIVES
In connection with certain existing borrowing arrangements, the Company was required to record derivative instruments on its condensed consolidated balance sheets. None of these derivative instruments are designated as a hedge. The following table discloses the fair values of the derivative instruments on the Company’s condensed consolidated balance sheets (in thousands):
|
| | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Derivative liabilities: | |
| | |
|
Compound embedded derivative with the 2013 8.00% Notes | $ | (542 | ) | | $ | (757 | ) |
Compound embedded derivative with the Loan Agreement with Thermo | (89,315 | ) | | (146,108 | ) |
Total derivative liabilities | $ | (89,857 | ) | | $ | (146,865 | ) |
The following table discloses the changes in value recorded as derivative gain (loss) in the Company’s condensed consolidated statement of operations (in thousands):
|
| | | | | | | |
| Three Months Ended |
| March 31, 2019 | | March 31, 2018 |
Compound embedded derivative with the 2013 8.00% Notes | $ | 215 |
| | $ | 1,321 |
|
Compound embedded derivative with the Loan Agreement with Thermo | 56,793 |
| | 107,623 |
|
Total derivative gain | $ | 57,008 |
| | $ | 108,944 |
|
Intangible and Other Assets
Interest Rate Cap
In June 2009, in connection with entering into the Facility Agreement, under which interest accrues at a variable rate, the Company entered into five ten-year interest rate cap agreements. The interest rate cap agreements reflect a variable notional amount at interest rates that provide coverage to the Company for exposure resulting from escalating interest rates over the term of the Facility Agreement. The interest rate cap provides limits on the six-month Libor rate (“Base Rate”) used to calculate the coupon interest on outstanding amounts on the Facility Agreement and is capped at 5.50% should the Base Rate not exceed 6.5%. Should the Base Rate exceed 6.5%, the Company’s Base Rate will be 1% less than the then six-month Libor rate. The Company paid an approximately $12.4 million upfront fee for the interest rate cap agreements. The interest rate cap did not qualify for hedge accounting treatment, and changes in the fair value of the agreements are included in the condensed consolidated statements of operations. The value of the interest rate cap was approximately zero as of March 31, 2019 and December 31, 2018, respectively.
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 condensed consolidated statements of operations and its condensed 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. Consistent with the classification of the 2013 8.00% Notes on the Company's condensed consolidated balance sheet, the Company has classified the associated derivative liability as current on its condensed consolidated balance sheet at March 31, 2019.
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):
|
| | | | | | | | | | | | | | | |
| March 31, 2019 |
| (Level 1) | | (Level 2) | | (Level 3) | | Total Balance |
Compound embedded derivative with the 2013 8.00% Notes | $ | — |
| | $ | — |
| | $ | (542 | ) | | $ | (542 | ) |
Compound embedded derivative with the Loan Agreement with Thermo | — |
| | — |
| | (89,315 | ) | | (89,315 | ) |
Total liabilities measured at fair value | $ | — |
| | $ | — |
| | $ | (89,857 | ) | | $ | (89,857 | ) |
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| (Level 1) | | (Level 2) | | (Level 3) | | Total Balance |
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 | ) |
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 condensed 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:
|
| | | | | | | | | | | | | | | |
| March 31, 2019 |
| Stock Price Volatility | | Risk-Free Interest Rate | | Note Conversion Price | | Discount Rate | | Market Price of Common Stock |
Compound embedded derivative with the 2013 8.00% Notes | 40% - 110% | | 2.2 | % | | $ | 0.69 |
| | 27 | % | | $ | 0.43 |
|
Compound embedded derivative with the Loan Agreement with Thermo | 40% - 110% | | 2.2 | % | | $ | 0.69 |
| | 27 | % | | $ | 0.43 |
|
|
| | | | | | | | | | | | | | | |
| 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 |
|
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 33% from December 31, 2018 to March 31, 2019. As the stock price decreases, the value to the holder of the instrument generally decreases, thereby decreasing the liability on the Company’s condensed 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. Decreases in expected volatility would generally result in a lower fair value measurement.
Probability of a change of control is another significant unobservable input used in the fair value measurement of the Company’s derivative instruments. Subject to certain restrictions in each indenture, the Company’s debt instruments contain certain provisions whereby holders may require the Company to purchase all or any portion of the convertible debt instrument upon a change of control. A change of control will occur upon certain changes in the ownership of the Company or certain events relating to the trading of the Company’s common stock. The simulated fair value of the derivative liabilities above is sensitive to changes in the assumed probabilities of a change of control. 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):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Balance at beginning of period | $ | (146,865 | ) | | $ | (227,985 | ) |
Unrealized gain, included in derivative gain | 57,008 |
| | 108,944 |
|
Balance at end of period | $ | (89,857 | ) | | $ | (119,041 | ) |
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):
|
| | | | | | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 |
| Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Loan Agreement with Thermo | $ | 101,634 |
| | $ | 74,182 |
| | $ | 97,037 |
| | $ | 67,452 |
|
2013 8.00% Notes | 1,379 |
| | 778 |
| | 1,379 |
| | 734 |
|
8. CONTINGENCIES
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 Settlement Agreement is subject to approval by the Court of Chancery of the State of Delaware which held a hearing on April 1, 2019. The Company expects the Court to approve the Settlement Agreement and is currently awaiting its decision.
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 March 31, 2019, 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 Company accrued the total estimated loss of $3.0 million, which is recorded as a current liability on the Company's condensed consolidated balance sheet and recorded in marketing, general and administrative expenses on the Company’s condensed consolidated statement of operations.
These estimated losses, as well as other costs incurred by the Company directly associated with the Action, exceeded the Company's retention limit of $1.5 million for a "securities claim" under its directors and officers insurance policy. According to ASC 450, a recovery related to a contingent loss (e.g., insurance recovery) is a contingent gain. Recovery of a recorded contingent loss shall be recognized only when realization of the recovery is deemed probable and reasonably estimable. 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. Accordingly, the Company has recorded a receivable of $3.1 million with an offsetting reduction to marketing, general and administrative expenses during the quarter ended March 31, 2019.
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 is due 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 second and final installment of $3.7 million is expected to be received in January 2020 and is recorded in prepaid expenses and other current assets on the Company's condensed consolidated balance sheet at March 31, 2019. 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. The present value of the net proceeds of $6.8 million was recorded in other income on the Company's condensed consolidated statement of operations. The discount of $0.6 million was recorded on the Company's condensed 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.
9. RELATED PARTY TRANSACTIONS
Payables to Thermo and other affiliates related to normal purchase transactions were $0.2 million and $0.7 million as of March 31, 2019 and December 31, 2018, respectively. The fluctuation in this payable is related to the timing of payment of expenses incurred by Thermo on behalf of the Company.
Transactions with Thermo
Certain general and administrative expenses are incurred by Thermo on behalf of the Company. These expenses include non-cash expenses that the Company accounts for as a contribution to capital related to services provided by certain executive officers of Thermo and expenses incurred by Thermo on behalf of the Company 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 $0.4 million and $0.2 million during the three month periods ended March 31, 2019 and 2018, respectively.
Additionally, in February 2019, the Company entered into a lease agreement with Thermo Covington, LLC for the Company's new headquarters office. Annual lease payments 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. During the three months ended March 31, 2019, the Company incurred lease expenses of $0.3 million due to Thermo under this lease agreement.
As of March 31, 2019, the principal amount outstanding under the Loan Agreement with Thermo was $123.3 million, and the fair value of the compound embedded derivative liability associated with the Loan Agreement was $89.3 million. During the three months ended March 31, 2019 and 2018, interest accrued on the Loan Agreement was approximately $3.6 million and $3.2 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.
As previously disclosed, in connection with the Settlement Agreement discussed in Note 8: Contingencies, the Company formed a Strategic Review Committee that is required to remain in existence for as long as Thermo and its affiliates own and its affiliates beneficially own forty-five percent (45%) or more of Globalstar’s outstanding common stock. To the extent permitted by applicable law, the Strategic Review Committee will have exclusive responsibility for the oversight, review and approval of, among other things and subject to certain exceptions, any acquisition by Thermo and its affiliates of additional newly-issued securities of the Company and any transaction between the Company and Thermo and its affiliates with a value in excess of $250,000. The approval of any of the foregoing transactions will require the vote of at least three members of the Strategic Review Committee.
See Note 5: Long-Term Debt and Other Financing Arrangements for further discussion of the Company's debt and financing transactions with Thermo.
10. 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 shares of common stock outstanding during the period. Common stock equivalents are included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive. Potentially dilutive securities include primarily outstanding stock-based awards, convertible notes and shares issuable pursuant to the Company's Employee Stock Purchase Plan. The share amounts for dilutive securities that are reflected in the table below are shown regardless of being in or out of the money.
The following table sets forth the calculation of basic and diluted earnings (loss) per share and reconciles basic weighted average shares to diluted weighted average shares of common stock outstanding for the periods indicated (in thousands):
|
| | | | | | | |
| Three Months Ended
March 31, |
| 2019 | | 2018 |
Net income | $ | 25,771 |
| | $ | 87,930 |
|
Effect of dilutive securities: | | | |
2013 8.00% Notes | 27 |
| | 15 |
|
Loan Agreement with Thermo | 4,497 |
| | 2,396 |
|
Income to common stockholders plus assumed conversions | $ | 30,295 |
| | $ | 90,341 |
|
Weighted average common shares outstanding: | | | |
Basic shares outstanding | 1,448,318 |
| | 1,262,336 |
|
Incremental shares from assumed exercises, conversions and other issuance of: | | | |
Stock options, restricted stock, restricted stock units and ESPP | 3,204 |
| | 5,639 |
|
2013 8.00% Notes | 1,998 |
| | 2,065 |
|
Loan Agreement with Thermo | 178,737 |
| | 167,288 |
|
Diluted shares outstanding | 1,632,257 |
| | 1,437,328 |
|
Net income per share: | | | |
Basic | $ | 0.02 |
| | $ | 0.07 |
|
Diluted | 0.02 |
| | 0.06 |
|
11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In connection with the Company’s issuance of the 2013 8.00% Notes, certain of the Company’s 100% owned domestic subsidiaries (the “Guarantor Subsidiaries”), fully, unconditionally, jointly, and severally guaranteed the payment obligations under the 2013 8.00% Notes. The following financial information sets forth, on a consolidating basis, the balance sheets, statements of operations and statements of cash flows for Globalstar, Inc. (the “Parent Company”), for the Guarantor Subsidiaries and for the Parent Company’s other subsidiaries (the “Non-Guarantor Subsidiaries”).
The condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include disclosures included in annual financial statements. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses.
Globalstar, Inc.
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2019
(Unaudited) |
| | | | | | | | | | | | | | | | | | | |
| Parent Company | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
| (In thousands) |
Revenue: | |
| | |
| | |
| | |
| | |
|
Service revenue | $ | 21,937 |
| | $ | 9,582 |
| | $ | 15,129 |
| | $ | (20,529 | ) | | $ | 26,119 |
|
Subscriber equipment sales | 302 |
| | 3,486 |
| | 1,501 |
| | (1,330 | ) | | 3,959 |
|
Total revenue | 22,239 |
| | 13,068 |
| | 16,630 |
| | (21,859 | ) | | 30,078 |
|
Operating expenses: | |
| | |
| | |
| | |
| | |
|
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below) | 7,015 |
| | 1,449 |
| | 2,891 |
| | (1,502 | ) | | 9,853 |
|
Cost of subscriber equipment sales | 223 |
| | 3,066 |
| | 1,188 |
| | (1,328 | ) | | 3,149 |
|
Marketing, general and administrative | 7,124 |
| | 1,301 |
| | 22,210 |
| | (19,029 | ) | | 11,606 |
|
Depreciation, amortization and accretion | 23,195 |
| | 17 |
| | 589 |
| | — |
| | 23,801 |
|
Total operating expenses | 37,557 |
| | 5,833 |
| | 26,878 |
| | (21,859 | ) | | 48,409 |
|
Income (loss) from operations | (15,318 | ) | | 7,235 |
| | (10,248 | ) | | — |
| | (18,331 | ) |
Other income (expense): | |
| | |
| | |
| | |
| | |
|
Interest income and expense, net of amounts capitalized | (12,864 | ) | | (4 | ) | | (2 | ) | | — |
| | (12,870 | ) |
Derivative gain | 57,008 |
| | — |
| | — |
| | — |
| | 57,008 |
|
Equity in subsidiary earnings (loss) | (2,933 | ) | | (4,634 | ) | | — |
| | 7,567 |
| | — |
|
Other | (122 | ) | | 187 |
| | (73 | ) | | (1 | ) | | (9 | ) |
Total other income | 41,089 |
| | (4,451 | ) | | (75 | ) | | 7,566 |
| | 44,129 |
|
Income (loss) before income taxes | 25,771 |
| | 2,784 |
| | (10,323 | ) | | 7,566 |
| | 25,798 |
|
Income tax expense | — |
| | 7 |
| | 20 |
| | — |
| | 27 |
|
Net income (loss) | $ | 25,771 |
| | $ | 2,777 |
| | $ | (10,343 | ) | | $ | 7,566 |
| | $ | 25,771 |
|
Comprehensive income (loss) | $ | 25,771 |
| | $ | 2,777 |
| | $ | (10,607 | ) | | $ | 7,560 |
| | $ | 25,501 |
|
Globalstar, Inc.
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2018
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Parent Company | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
| (In thousands) |
Revenue: | | | |
| | |
| | |
| | |
|
Service revenue | $ | 20,534 |
| | $ | 9,074 |
| | $ | 15,608 |
| | $ | (19,206 | ) | | $ | 26,010 |
|
Subscriber equipment sales | 47 |
| | 2,049 |
| | 1,196 |
| | (553 | ) | | 2,739 |
|
Total revenue | 20,581 |
| | 11,123 |
| | 16,804 |
| | (19,759 | ) | | 28,749 |
|
Operating expenses: | |
| | |
| | |
| | |
| | |
|
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below) | 6,257 |
| | 1,390 |
| | 2,868 |
| | (1,486 | ) | | 9,029 |
|
Cost of subscriber equipment sales | 41 |
| | 1,810 |
| | 875 |
| | (554 | ) | | 2,172 |
|
Marketing, general and administrative | 7,085 |
| | 1,064 |
| | 20,863 |
| | (17,737 | ) | | 11,275 |
|
Depreciation, amortization and accretion | 19,044 |
| | 96 |
| | 91 |
| | — |
| | 19,231 |
|
Total operating expenses | 32,427 |
| | 4,360 |
| | 24,697 |
| | (19,777 | ) | | 41,707 |
|
Income (loss) from operations | (11,846 | ) | | 6,763 |
| | (7,893 | ) | | 18 |
| | (12,958 | ) |
Other income (expense): | |
| | |
| | |
| | |
| | |
|
Loss on extinguishment of debt | — |
| | — |
| | — |
| | — |
| | — |
|
Interest income and expense, net of amounts capitalized | (7,386 | ) | | (2 | ) | | 14 |
| | 21 |
| | (7,353 | ) |
Derivative gain | 108,944 |
| | — |
| | — |
| | — |
| | 108,944 |
|
Equity in subsidiary earnings (loss) | (1,320 | ) | | (3,387 | ) | | — |
| | 4,707 |
| | — |
|
Other | (462 | ) | | (176 | ) | | (8 | ) | | (16 | ) | | (662 | ) |
Total other income | 99,776 |
| | (3,565 | ) | | 6 |
| | 4,712 |
| | 100,929 |
|
Income (loss) before income taxes | 87,930 |
| | 3,198 |
| | (7,887 | ) | | 4,730 |
| | 87,971 |
|
Income tax expense | — |
| | 6 |
| | 35 |
| | — |
| | 41 |
|
Net income (loss) | $ | 87,930 |
| | $ | 3,192 |
| | $ | (7,922 | ) | | $ | 4,730 |
| | $ | 87,930 |
|
Comprehensive income (loss) | $ | 87,930 |
| | $ | 3,192 |
| | $ | (8,246 | ) | | $ | 4,724 |
| | $ | 87,600 |
|
Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of March 31, 2019
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| (In thousands) |
ASSETS | |
| | |
| | |
| | |
| | |
|
Current assets: | |
| | |
| | |
| | |
| | |
|
Cash and cash equivalents | $ | 9,860 |
| | $ | 281 |
| | $ | 3,632 |
| | $ | — |
| | $ | 13,773 |
|
Restricted cash | 60,574 |
| | — |
| | — |
| | — |
| | 60,574 |
|
Accounts receivable, net of allowance | 7,931 |
| | 7,429 |
| | 4,677 |
| | — |
| | 20,037 |
|
Intercompany receivables | 1,051,185 |
| | 823,295 |
| | 68,438 |
| | (1,942,918 | ) | | — |
|
Inventory | 7,290 |
| | 5,460 |
| | 1,665 |
| | — |
| | 14,415 |
|
Prepaid expenses and other current assets | 10,603 |
| | 9,111 |
| | 4,692 |
| | — |
| | 24,406 |
|
Total current assets | 1,147,443 |
| | 845,576 |
| | 83,104 |
| | (1,942,918 | ) | | 133,205 |
|
Property and equipment, net | 833,129 |
| | 876 |
| | 30,191 |
| | 4 |
| | 864,200 |
|
Operating lease right of use assets, net | 12,436 |
| | 236 |
| | 1,915 |
| | — |
| | 14,587 |
|
Intercompany notes receivable | 5,674 |
| | — |
| | — |
| | (5,674 | ) | | — |
|
Investment in subsidiaries | (257,501 | ) | | 45,744 |
| | 50,696 |
| | 161,061 |
| | — |
|
Intangible and other assets, net | 29,104 |
| | 277 |
| | 3,547 |
| | (12 | ) | | 32,916 |
|
Total assets | $ | 1,770,285 |
| | $ | 892,709 |
| | $ | 169,453 |
| | $ | (1,787,539 | ) | | $ | 1,044,908 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
| | |
| | |
| | |
|
Current liabilities: | |
| | |
| | |
| | |
| | |
|
Current portion of long-term debt | $ | 96,249 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 96,249 |
|
Accounts payable | 2,253 |
| | 2,851 |
| | 1,102 |
| | — |
| | 6,206 |
|
Accrued expenses | 19,453 |
| | 7,315 |
| | 7,825 |
| | — |
| | 34,593 |
|
Intercompany payables | 778,914 |
| | 827,358 |
| | 336,587 |
| | (1,942,859 | ) | | — |
|
Payables to affiliates | 218 |
| | — |
| | — |
| | — |
| | 218 |
|
Derivative liabilities | 542 |
| | — |
| | — |
| | — |
| | 542 |
|
Deferred revenue | 1,650 |
| | 22,679 |
| | 7,156 |
| | — |
| | 31,485 |
|
Total current liabilities | 899,279 |
| | 860,203 |
| | 352,670 |
| | (1,942,859 | ) | | 169,293 |
|
Long-term debt, less current portion | 374,039 |
| | — |
| | — |
| | — |
| | 374,039 |
|
Operating lease liabilities | 12,035 |
| | 201 |
| | 1,335 |
| | — |
| | 13,571 |
|
Employee benefit obligations | 4,541 |
| | — |
| | — |
| | — |
| | 4,541 |
|
Intercompany notes payable | — |
| | — |
| | 5,674 |
| | (5,674 | ) | | — |
|
Derivative liabilities | 89,315 |
| | — |
| | — |
| | — |
| | 89,315 |
|
Deferred revenue | 5,252 |
| | 243 |
| | 18 |
| | — |
| | 5,513 |
|
Other non-current liabilities | 449 |
| | 322 |
| | 2,490 |
| | — |
| | 3,261 |
|
Total non-current liabilities | 485,631 |
| | 766 |
| | 9,517 |
| | (5,674 | ) | | 490,240 |
|
Stockholders’ equity (deficit) | 385,375 |
| | 31,740 |
| | (192,734 | ) | | 160,994 |
| | 385,375 |
|
Total liabilities and stockholders’ equity | $ | 1,770,285 |
| | $ | 892,709 |
| | $ | 169,453 |
| | $ | (1,787,539 | ) | | $ | 1,044,908 |
|
Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of December 31, 2018
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Parent Company | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | 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 |
| | — |
|
Intangible 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: | |
| | |
| | |
| | |
| |