NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Globalstar, Inc. (“Globalstar” or the “Company”) was formed as a Delaware limited liability company in November 2003 and was converted into a Delaware corporation on March 17, 2006. Globalstar provides Mobile Satellite Services (“MSS”) including voice and data communications services through its global satellite network. Thermo Capital Partners LLC, through its affiliates (collectively, “Thermo”), is the principal owner and largest stockholder of Globalstar. The Company's Executive Chairman and Chief Executive Officer controls Thermo. Two other members of the Company's Board of Directors are also directors, officers or minority equity owners of various Thermo entities.
The Company’s satellite communications business, by providing critical mobile communications to subscribers, serves principally the following markets: recreation and personal; government; public safety and disaster relief; oil and gas; maritime and fishing; natural resources, mining and forestry; construction; utilities; and transportation.
Globalstar currently provides the following communications services via satellite which are available only with equipment designed to work on the Globalstar network:
|
|
•
|
two-way voice communication and data transmissions (“Duplex”) using mobile or fixed devices; and
|
|
|
•
|
one-way data transmissions using a mobile or fixed device that transmits its location and other information to a central monitoring station, including certain SPOT and Simplex products.
|
Globalstar provides Duplex, SPOT and Simplex products and services to customers directly and through a variety of independent agents, dealers and resellers, and independent gateway operators (“IGOs”).
Use of Estimates in Preparation of Financial Statements
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. Certain reclassifications have been made to prior year Consolidated Financial Statements to conform to current year presentation. The Company evaluates estimates on an ongoing basis. Significant estimates include the value of derivative instruments, the allowance for doubtful accounts, the net realizable value of inventory, the useful life and value of property and equipment, the value of stock-based compensation, and income taxes.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Globalstar and all its subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less.
Restricted Cash
Restricted cash is comprised of funds held in escrow by the agent for the Company’s senior secured facility agreement (the “Facility Agreement”) to secure the Company’s principal and interest payment obligations related to its Facility Agreement. For the year ended
December 31, 2016
, the Company classified restricted cash as a noncurrent asset on its Consolidated Balance Sheet as the funds in the restricted cash account were fixed and to be used to pay the final principal and interest payments due under the Facility Agreement. As of
December 31, 2017
, the Company's 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 as a result of modified terms in the amendment and restatement of the Facility Agreement in June 2017.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and restricted cash. Cash and cash equivalents and restricted cash consist primarily of highly liquid short-term investments deposited with financial institutions that are of high credit quality.
Accounts and Notes Receivable
Accounts receivable are uncollateralized, without interest and consist primarily of receivables from the sale of Globalstar services and equipment. The Company performs ongoing credit evaluations of its customers and records specific allowances for bad debts based on factors such as current trends, the length of time the receivables are past due and historical collection experience. Accounts receivable are considered past due in accordance with the contractual terms of the arrangements. Accounts receivable balances that are determined likely to be uncollectible are included in the allowance for doubtful accounts. After attempts to collect a receivable have failed, the receivable is written off against the allowance.
The following is a summary of the activity in the allowance for doubtful accounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
3,966
|
|
|
$
|
5,270
|
|
|
$
|
4,788
|
|
Provision, net of recoveries
|
1,256
|
|
|
1,256
|
|
|
2,782
|
|
Write-offs and other adjustments
|
(1,612
|
)
|
|
(2,560
|
)
|
|
(2,300
|
)
|
Balance at end of period
|
$
|
3,610
|
|
|
$
|
3,966
|
|
|
$
|
5,270
|
|
From time to time, the Company enters into notes receivable with certain customers that are included in other current assets. The Company also monitors collection of its notes receivable. During 2015, the Company recorded an additional provision for bad debt of
$0.6 million
related to a specific note receivable balance. During 2016, the Company recovered approximately
$0.5 million
related to the specific customer balance previously reserved in 2015.
Inventory
Inventory consists primarily of purchased products. Inventory is stated at the lower of cost 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, 2016 and 2015,
no
write down of inventory was required.
During the fourth quarter of 2017, the Company adopted ASU No. 2015-11,
Simplifying the Measurement of Inventory
. ASU 2015-11 requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. The adoption of this standard did not have a material effect on its consolidated financial statements and related disclosures.
Property and Equipment
The Globalstar System includes costs for the design, manufacture, test, and launch of a constellation of low earth orbit satellites (the “Space Component”), and primary and backup control centers and gateways (the “Ground Component”). Property and equipment is stated at cost, net of accumulated depreciation.
Costs associated with the design, manufacture, test and launch of the Company’s Space and Ground Components are capitalized. Capitalized costs associated with the Company’s Space Component, Ground Component, and other assets are tracked by fixed
asset category and are allocated to each asset as it comes into service. When a second-generation satellite was incorporated into the second-generation constellation, the Company began depreciation on the date the satellite was placed into service, which was the point that the satellite reached its orbital altitude, over its estimated depreciable life.
The Company capitalizes interest costs associated with the costs of assets in progress, including primarily the construction of its Space and Ground Components. Capitalized interest is added to the cost of the underlying asset and is amortized over the depreciable life of the asset after it is placed into service. As the Company’s construction in progress increases, specifically due to the Company incurring costs related to the second-generation upgrades to its Ground Component, the Company capitalizes more interest, resulting in a lower amount of interest expense recognized under U.S. GAAP. As these upgrades are completed and placed into service, construction in progress will decrease and less interest will be capitalized.
Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets as follows:
Space Component - 15 years from the commencement of service
Ground Component - Up to 15 years from commencement of service
Software, Facilities & Equipment - 3 to 10 years
Buildings - 18 years
Leasehold Improvements - Shorter of lease term or the estimated useful lives of the improvements
The Company evaluates and revises the estimated depreciable lives assigned to property and equipment based on changes in facts and circumstances. When changes are made to estimated useful lives, the remaining carrying amounts are depreciated prospectively over the remaining useful lives.
For assets that are sold or retired, including satellites that are de-orbited and no longer providing services, the estimated cost and accumulated depreciation is removed from property and equipment.
The Company assesses the impairment of long-lived assets when indicators of impairment are present. Recoverability of assets is measured by comparing the carrying amounts of the assets to the estimated future undiscounted cash flows, excluding financing costs. If the Company determines that an impairment exists, any related impairment loss is estimated based on fair values.
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.
During the fourth quarter of 2017, the Company adopted ASU 2016-06,
Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments.
ASU 2016-06 clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The Company evaluated its derivative instruments and determined that this standard did not have an impact on the Company's financial statements or related disclosures.
During the fourth quarter of 2017, the Company adopted ASU 2017-11:
I. Accounting for Certain Financial Instruments With Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception.
Part I of this ASU reduces the complexity associated with accounting for certain financial instruments with down round features. Part II of this ASU recharacterizes the indefinite deferral provisions described in
Topic 480: Distinguishing Liabilities from Equity.
The Company evaluated its debt and related derivative instruments and determined that this standard did not have an impact on the Company's financial statements or related disclosures.
Deferred Financing Costs
Deferred financing costs are those costs directly incurred in obtaining long-term debt. These costs are amortized as additional interest expense over the term of the corresponding debt, or until the first put option date for the Company’s
8.00%
Convertible Senior Notes Issued in 2013 (“2013
8.00%
Notes”). Deferred financing costs are recorded on the Company's consolidated balance sheets as a reduction in the carrying amount of the related debt liability. The Company classifies deferred financing costs consistent with the classification of the related debt outstanding at the end of the reporting period. As of
December 31, 2017
and
2016
, the Company had net deferred financing costs of
$34.5 million
and
$45.7 million
, respectively.
Fair Value of Financial Instruments
The carrying amount of accounts receivable and accounts payable is equal to or approximates fair value.
The Company believes it is not practicable to determine the fair value of the Facility Agreement. 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 2013
8.00%
Notes, the fair value of debt is calculated using inputs consistent with those used to calculate the fair value of the derivatives embedded in these instruments.
Litigation, Commitments and Contingencies
The Company is subject to various claims and lawsuits that arise in the ordinary course of business. Estimating liabilities and costs associated with these matters requires judgment and assessment based on professional knowledge and experience of our management and legal counsel. The ultimate resolution of any such exposure may vary from earlier estimates as further facts and circumstances become known.
Gain/Loss on Extinguishment of Debt
Gain or loss on extinguishment of debt generally is recorded upon an extinguishment of a debt instrument or the conversion of certain of the Company’s convertible notes. Gain or loss on extinguishment of debt is calculated as the difference between the reacquisition price and net carrying amount of the debt and is recorded as an extinguishment gain or loss in the Company’s consolidated statement of operations.
Revenue Recognition and Deferred Revenue
Revenue consists primarily of satellite voice and data service revenue and revenue generated from the sale of fixed and mobile devices as well as other products and accessories. The Company also recognizes revenue from certain engineering service contracts as described below. Revenue is recognized when services are rendered, assuming all recognition criteria is met under applicable accounting guidance. Customer payments received in advance of the corresponding service period are recorded as deferred revenue. Upon activation of a Globalstar device, certain customers are charged an activation fee, which is recognized over the term of the expected customer life. Credits granted to customers are expensed or charged against revenue or accounts receivable upon issuance.
Estimates related to earned but unbilled service revenue are calculated using current subscriber data, including plan subscriptions and usage between the end of the billing cycle and the end of the period.
Subscriber acquisition costs, including dealer and internal sales commissions and certain other costs, are expensed at the time of the related sale, except when related to multiple-element arrangement contracts as discussed below.
The Company does not record sales taxes, telecommunication taxes or other governmental fees collected from customers in revenue.
Duplex Service Revenue.
The Company recognizes revenue for monthly access fees in the period services are rendered. Access fees represent the minimum monthly charge for each line of service based on its associated rate plan. The Company also recognizes revenue for airtime minutes in excess of the monthly access fees in the period such minutes are used. Under certain annual plans where customers prepay for a predetermined amount of minutes, revenue is deferred until the minutes are used or the prepaid time period expires. Unused minutes are accumulated until they expire, usually one year after activation, at which point we recognize revenue for any remaining unused minutes. The Company offers other annual plans whereby the customer is charged an annual fee to access the Company’s system. These fees are recognized on a straight-line basis over the term of the plan. In some cases, the Company charges a per minute rate whereby it recognizes the revenue when each minute is used.
SPOT Service Revenue.
The Company sells SPOT services as monthly, annual or multi-year plans and recognizes revenue 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 title and risk of loss have passed to the customer, persuasive evidence of an arrangement exists, the fee is fixed and determinable and collection is probable.
Other Service Revenue.
The Company provides certain engineering services to assist customers in developing new applications related to its system. The revenues associated with these services are generally recorded when the services are rendered, and the expenses are recorded when incurred.
Multiple-Element Arrangement Contracts.
At times, the Company will sell subscriber equipment through multiple-element arrangement contracts with services. When the Company sells subscriber equipment and services in bundled arrangements and determines that it has separate units of accounting, the Company will allocate the bundled contract price among the various contract deliverables based on each deliverable’s relative fair value. The Company will determine vendor specific objective evidence of fair value by assessing sales prices of subscriber equipment and services when they are sold to customers on a stand-alone basis. Initial direct costs incurred related to these contracts will be deferred to the extent they exceed the profit margin recognized at the time of sale.
Stock-Based Compensation
The Company recognizes compensation expense in the financial statements for both employee and non-employee share-based awards based on the grant date fair value of those awards. The Company uses the Black-Scholes option pricing model to estimate fair values of 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.
During the fourth quarter of 2016, the Company adopted ASU No. 2016-09,
Compensation-Stock Compensation
. The adoption of this standard did not have a material effect on its consolidated financial statements and related disclosures.
Foreign Currency
The functional currency of the Company’s foreign consolidated subsidiaries is their local currency, unless the subsidiary operates in a hyperinflationary economy, such as Venezuela. Assets and liabilities of its foreign subsidiaries are translated into United States dollars based on exchange rates at the end of the reporting period. Income and expense items are translated at the average exchange rates prevailing during the reporting period. For
2017
,
2016
and
2015
, the foreign currency translation adjustments were losses of
$1.9 million
,
$0.8 million
and
$2.7 million
, respectively.
Foreign currency transaction gains/losses were a
$2.2 million
loss, a
$0.2 million
loss and a
$3.7 million
gain for
2017
,
2016
, and
2015
, respectively. These were classified as other income (expense) on the consolidated statement of operations.
Effective July 1, 2015 the Company began using the SIMADI exchange rate published by the Central Bank of Venezuela to remeasure its Venezuelan subsidiary's bolivar based transactions and net monetary assets in U.S. dollars. The Company determined, based upon its specific facts and circumstances, that the SIMADI rate (renamed the DICOM rate in March 2016) is the most appropriate rate for financial reporting purposes, instead of the official exchange rate of
6.3
previously used. The Company continues to monitor the significant uncertainty surrounding current Venezuela exchange mechanisms. Included in the foreign currency gain (loss) recorded during the third quarter of 2015 was a
$1.9 million
loss related to its Venezuelan subsidiary resulting from this change in exchange rate.
Asset Retirement Obligation
Liabilities arising from legal obligations associated with the retirement of long-lived assets are measured at fair value and recorded as a liability. Upon initial recognition of a liability for retirement obligations, the Company records an asset, which is depreciated over the life of the asset to be retired. Accretion of the asset retirement obligation liability and depreciation of the related assets are included in depreciation, amortization and accretion in the accompanying consolidated statements of operations.
The Company capitalizes, as part of the carrying amount, the estimated costs associated with the eventual retirement of gateways owned by the Company. As of
December 31, 2017
and
2016
, the Company had accrued approximately
$1.5 million
and
$1.4 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
$3.8 million
,
$2.1 million
and
$1.9 million
for
2017
,
2016
and
2015
, respectively. These costs are expensed as incurred as cost of services and primarily include the cost of new product development, chip set design, software development and engineering.
Advertising Expenses
Advertising costs were
$2.1 million
,
$4.1 million
and
$3.4 million
for
2017
,
2016
, and
2015
, 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.
During the fourth quarter of 2017, the Company adopted ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
. ASU No. 2015-17 simplifies the presentation of deferred taxes on the balance sheet by requiring classification of all deferred tax items as noncurrent including valuation allowances by jurisdiction. The implementation of this standard did not have a material impact on the Company's consolidated financial statements and related disclosures.
Comprehensive Income (Loss)
All components of comprehensive income (loss), including the minimum pension liability adjustment and foreign currency translation adjustment, are reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources.
Earnings (Loss) Per Share
The Company is required to present basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. For 2017 and 2016, diluted net loss per share of common stock was the same as basic net loss per share of common stock because the effects of potentially dilutive securities were anti-dilutive. Potentially dilutive securities include primarily outstanding stock-based awards, convertible notes, warrants and shares issuable pursuant to the Company's Employee Stock Purchase Plan.
Intangible and Other Assets
The gross carrying amount and accumulated amortization of the Company's intangible assets subject to amortization consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Weighted
Average
Useful Life
(in years)
|
|
Cost
|
|
Accumulated Amortization
|
|
Carrying Amount
|
|
Cost
|
|
Accumulated Amortization
|
|
Carrying Amount
|
Developed technology
|
9
|
|
$
|
6,108
|
|
|
$
|
(4,958
|
)
|
|
$
|
1,150
|
|
|
$
|
6,003
|
|
|
$
|
(4,740
|
)
|
|
$
|
1,263
|
|
Customer relationships
|
8
|
|
2,100
|
|
|
(2,100
|
)
|
|
—
|
|
|
2,100
|
|
|
(2,081
|
)
|
|
19
|
|
Regulatory authorizations
|
7
|
|
878
|
|
|
(56
|
)
|
|
822
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Trade name
|
1
|
|
200
|
|
|
(200
|
)
|
|
—
|
|
|
200
|
|
|
(200
|
)
|
|
—
|
|
|
|
|
$
|
9,286
|
|
|
$
|
(7,314
|
)
|
|
$
|
1,972
|
|
|
$
|
8,303
|
|
|
$
|
(7,021
|
)
|
|
$
|
1,282
|
|
For each of
2017
and
2016
, the Company recorded amortization expense on these intangible assets of
$0.3 million
. Amortization expense is recorded in operating expenses in the Company’s consolidated statements of operations. Estimated annual amortization of intangible assets is approximately
$0.3 million
for each of
2018
through 2022 and
$0.5 million
in total thereafter, excluding the effects of any acquisitions, dispositions or write-downs subsequent to
December 31, 2017
.
In addition, the Company has intangible assets not subject to amortization consisting primarily of costs associated with the efforts related to the Company's petition to the Federal Communications Commission ("FCC") to use its licensed MSS spectrum to provide terrestrial wireless services in the United States as well as costs with international regulatory agencies to obtain similar authorizations outside of the United States. The total carrying amount of these costs was
$7.9 million
and
$5.6 million
at
December 31, 2017
and
2016
, respectively. The Company assesses these intangible assets for impairment annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. In assessing whether it is more likely than not that such an asset is impaired, the Company assesses relevant events and circumstances that could affect the significant inputs used to determine the fair value of the asset. In November 2016, the Company revised its original proposal to the FCC to request terrestrial use of only its 11.5 MHz of licensed spectrum in the 2.4 GHz band. For the year ended December 31, 2016, the Company recorded an impairment of
$0.4 million
related to the portion of its efforts specific to the Company's original proposed rules to use 22 MHz, which includes both its licensed spectrum and the adjacent unlicensed spectrum, to provide terrestrial wireless services. The Company recorded this impairment on its consolidated statements of operations as a reduction in the value of long-lived assets for the year ended December 31, 2016. As previously discussed in Part I: Item 1. Business, the revised proposed rules were adopted in December 2016.
The Company assesses the impairment of intangible and other assets when indicators of impairment are present. If the Company determines that an impairment exists, any related loss is estimated based on fair values.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 has been modified multiple times since its initial release. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09, as amended, becomes effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted and the standard permits the use of either the retrospective or cumulative effect transition method. The Company has an internal project team that has evaluated the impact this standard has on its financial statements, accounting systems and related disclosures. The most significant changes to the Company's revenue recognition accounting policies are related to the following: 1) the allocation and timing of revenue recognized between service revenue and subscriber equipment sales, 2) the acceleration of service revenue recognized for breakage during certain customer's prepaid contracts, and 3) the deferment of certain contract acquisition costs and the recognition of these costs over the expected life of a customer's contract. The Company adopted this standard when it became effective on January 1, 2018 using the cumulative effect method of adoption. The Company has determined that this standard will not have a material impact on its financial position or results of operations.
In March 2016, the FASB issued 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. This ASU is effective for public business entities in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-04,
Liabilities-Extinguishment of Liabilities: Recognition of Breakage for Certain Prepaid Stored Value Products
. ASU No. 2016-04 contains specific guidance for the derecognition of prepaid stored-value product liabilities within the scope of this ASU. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect this ASU to have a material effect on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13,
Credit Losses, Measurement of Credit Losses on Financial Instruments
. ASU No. 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s incurred loss approach with an expected loss model for instruments measured at amortized cost. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The Company has not yet determined the impact this standard will have on its financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, S
tatement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
. ASU No. 2016-15 is intended to reduce diversity in how certain cash receipts and cash payments are presented in the statement of cash flows. The new guidance clarifies the classification of cash activity related to debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank-owned life insurance policies, distributions received from equity-method investments, and beneficial interests in securitization transactions. The guidance also describes a predominance principle pursuant to which cash flows with aspects of more than one class that cannot be separated should be classified based on the activity that is likely to be the predominant source or use of cash flow. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures, but does not expect it to have a material effect on the Company's consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.
ASU 2016-16 requires entities to account for the income tax effects of intercompany sales and transfers of assets other than
inventory when the transfer occurs rather than current guidance which requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, S
tatement of Cash Flows - Restricted Cash
. ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet is required. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company adopted this standard effective with reporting periods beginning on January 1, 2017 and reflected the impact of this standard using a retrospective transition method for each period presented. Additionally, the Company added required disclosures pursuant to ASC 2016-18 to its consolidated statements of cash flows.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations: Clarifying the Definition of a Business
. ASU 2017-01 most significantly revises guidance specific to the definition of a business related to accounting for acquisitions. Additionally, ASU 2017-01 also affects other areas of US GAAP, such as the definition of a business related to the consolidation of variable interest entities, the consolidation of a subsidiary or group of assets, components of an operating segment, and disposals of reporting units and the impact on goodwill. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's condensed consolidated financial statements and related disclosures.
In February 2017, the FASB issued ASU 2017-05,
Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
. ASU 2017-05 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 is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.
In February 2017, the FASB issued ASU 2017-07:
Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. ASU 2017-07 requires sponsors of benefit plans to present the service cost component of net periodic benefit cost in the same income statement line or items as other employee costs and present the remaining components of net periodic benefit cost in one or more separate line items outside of income from operations. This ASU also limits the capitalization of benefit costs to only the service cost component. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's consolidated financial statements and related disclosures.
In March 2017, the FASB issued ASU 2017-08:
Receivables-Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities
. This ASU amends current US GAAP to shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09:
Compensation-Stock Compensation: Scope of Modification Accounting.
This ASU clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, a company will apply modification accounting only if the fair value, vesting conditions or classification of the award change due to a modification in the terms or conditions of the share-based payment award. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU 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. Early adoption is permitted. Companies may apply the guidance in the period of adoption or retrospectively to each period in which the income tax effects of the Tax Act related to items in accumulated other comprehensive income are recognized. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
Globalstar System:
|
|
|
|
|
|
Space component
|
|
|
|
|
|
First and second-generation satellites in service
|
$
|
1,195,426
|
|
|
$
|
1,211,090
|
|
Prepaid long-lead items
|
—
|
|
|
17,040
|
|
Second-generation satellite, on-ground spare
|
32,481
|
|
|
32,481
|
|
Ground component
|
48,710
|
|
|
48,400
|
|
Construction in progress:
|
|
|
|
|
Space component
|
3
|
|
|
81
|
|
Ground component
|
227,167
|
|
|
207,127
|
|
Next-generation software upgrades
|
12,414
|
|
|
10,223
|
|
Other
|
2,572
|
|
|
2,299
|
|
Total Globalstar System
|
1,518,773
|
|
|
1,528,741
|
|
Internally developed and purchased software
|
16,132
|
|
|
15,005
|
|
Equipment
|
9,966
|
|
|
9,875
|
|
Land and buildings
|
3,322
|
|
|
3,330
|
|
Leasehold improvements
|
1,969
|
|
|
1,893
|
|
Total property and equipment
|
1,550,162
|
|
|
1,558,844
|
|
Accumulated depreciation
|
(579,043
|
)
|
|
(519,125
|
)
|
Total property and equipment, net
|
$
|
971,119
|
|
|
$
|
1,039,719
|
|
Amounts in the above table consist primarily of costs incurred related to the construction of the Company’s second-generation constellation and ground upgrades. The ground component of construction in progress represents costs (including capitalized interest) associated primarily with the Company's contracts with Hughes Network Systems, LLC ("Hughes") and Ericsson Inc. (“Ericsson”) to complete second-generation equipment upgrades to the Company's ground infrastructure. The Company expects to begin depreciating these assets in the near future. See
Note 6: Commitments
for further discussion of these contracts.
Amounts included in the Company’s second-generation satellite, on-ground spare balance as of
December 31, 2017
and
2016
, 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, 2017
, this satellite has not been placed into service; therefore, the Company has not started to record depreciation expense.
Pursuant to the Amended and Restated Contract for the construction of Globalstar Satellites for the Second Generation Constellation between the Company and Thales Alenia Space France ("Thales"), dated and executed in June 2009 (the "2009 Contract"), the Company paid
€12 million
in purchase price plus an additional
€3.1 million
in procurement costs for the 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 7: Contingencies
. Thales further asserts that the LLI belong to Thales and that Thales has no obligation to turn over possession of the LLI to the Company. The Company 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.
Capitalized Interest and Depreciation Expense
The following table summarizes capitalized interest for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Interest cost eligible to be capitalized
|
$
|
51,212
|
|
|
$
|
48,095
|
|
|
$
|
42,749
|
|
Interest cost recorded in interest income (expense), net
|
(33,319
|
)
|
|
(34,108
|
)
|
|
(32,609
|
)
|
Net interest capitalized
|
$
|
17,893
|
|
|
$
|
13,987
|
|
|
$
|
10,140
|
|
The following table summarizes depreciation expense for the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Depreciation Expense
|
$
|
77,197
|
|
|
$
|
76,960
|
|
|
$
|
76,711
|
|
3. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Principal
Amount
|
|
Unamortized Discount and Deferred Financing Costs
|
|
Carrying
Value
|
|
Principal
Amount
|
|
Unamortized Discount and Deferred Financing Costs
|
|
Carrying
Value
|
Facility Agreement
|
$
|
467,256
|
|
|
$
|
34,459
|
|
|
$
|
432,797
|
|
|
$
|
543,011
|
|
|
$
|
45,651
|
|
|
$
|
497,360
|
|
Loan Agreement with Thermo
|
106,054
|
|
|
26,333
|
|
|
79,721
|
|
|
93,962
|
|
|
29,615
|
|
|
64,347
|
|
8.00% Convertible Senior Notes Issued in 2013
|
1,348
|
|
|
—
|
|
|
1,348
|
|
|
17,126
|
|
|
2,554
|
|
|
14,572
|
|
Total Debt
|
574,658
|
|
|
60,792
|
|
|
513,866
|
|
|
654,099
|
|
|
77,820
|
|
|
576,279
|
|
Less: Current Portion
|
79,215
|
|
|
—
|
|
|
79,215
|
|
|
75,755
|
|
|
—
|
|
|
75,755
|
|
Long-Term Debt
|
$
|
495,443
|
|
|
$
|
60,792
|
|
|
$
|
434,651
|
|
|
$
|
578,344
|
|
|
$
|
77,820
|
|
|
$
|
500,524
|
|
The principal amounts shown above include payment of in-kind interest, as applicable. The carrying value is net of deferred financing costs and any discounts to the loan amounts at issuance, including accretion, as further described below. The current portion of long-term debt represents the scheduled principal repayments under the Facility Agreement due within one year of the balance sheet date and the total outstanding balance of the Company's 2013 8.00% Notes (as defined below) as the first put date of the notes is April 1, 2018. The Company believes that the principal payment due in December 2018 under the Facility Agreement will be in excess of its available sources of cash in order to also maintain compliance with the requirement balance in the debt service reserve account. The Company intends to raise funds in sufficient amounts to meet its obligations; however, the source of funds has not yet been fully arranged.
Facility Agreement
In 2009, the Company entered into the Facility Agreement with a syndicate of bank lenders, including BNP Paribas, Société Générale, Natixis, Crédit Agricole Corporate and Investment Bank (formerly Calyon) and Crédit Industriel et Commercial, as arrangers, and BNP Paribas, as the security agent. The Facility Agreement was amended and restated in July 2013, August 2015 and June 2017.
The Facility Agreement is scheduled to mature in December 2022. As of
December 31, 2017
, the Facility Agreement was fully drawn. Semi-annual principal repayments began in December 2014. Indebtedness under the facility bears interest at a floating
rate of LIBOR plus
3.25%
through June 2018, 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
|
|
|
|
•
|
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.
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 period ended December 31, 2018. The source of funds for these Equity Cure Contributions has not yet been fully arranged. As of
December 31, 2017
, the Company was in compliance with respect to the covenants of the Facility Agreement.
The Facility Agreement also requires the Company to maintain a debt service reserve account, which is pledged to secure all of the Company's obligations under the Facility Agreement. The use of these funds is restricted to making principal and interest payments under the Facility Agreement. Prior to October 30, 2017, the Company was required to maintain a total of
$37.9 million
in a debt service reserve account. Beginning on October 30, 2017, the balance in the debt service reserve account must equal the total amount of principal and interest payable by the Company on the next payment date. As of
December 31, 2017
, the balance in the debt service reserve account was
$50.9 million
, which is classified as restricted cash on the Company's consolidated balance sheet. The remaining amount included in restricted cash as of
December 31, 2017
represents a portion of the proceeds from the October 2017 stock offering (see further discussion below).
The following changes to the terms of the Facility Agreement were made upon its amendment and restatement in 2017:
|
|
•
|
The amendments to the Facility Agreement defer most financial covenants until the measurement period ending December 31, 2018; extend to the measurement period ending December 31, 2019 the date through which Equity Cure Contributions can be made; eliminate the requirement of the Company to redeem in full the 2013
8.00%
Notes; defer mandatory prepayments from qualifying equity raises until January 1, 2020; and revise the definition of the debt service reserve account required balance after October 30, 2017 to mean an amount equal to the Debt Service (as defined in the 2017 GARA) amount due on the next payment date.
|
|
|
•
|
The Company agreed to raise at least
$159.0 million
in equity, which includes
$12.0 million
previously raised from its common stock purchase agreement with Terrapin Opportunity, L.P. ("Terrapin") in January 2017. The Company was required to raise a portion of the total
$159.0 million
by June 30, 2017 and the remaining amount no later than October 30, 2017. The Company was required to raise approximately
$33.0 million
as of June 30, 2017, which included amounts for the Company's outstanding restructuring fees, insurance premiums to BPIFAE and principal and interest due under the Facility Agreement as of June 30, 2017. This amount was raised pursuant to the Common Stock Purchase Agreement entered into between the Company and Thermo on June 30, 2017, as discussed in
Note 9: Related Party Transactions
. In October 2017, the Company satisfied the remaining equity requirement by completing a common stock offering that generated net proceeds of approximately
$115.0 million
(after deducting underwriter commissions and estimated offering expenses), as discussed further below. The Company is required to deposit
80%
of any equity proceeds raised through December 31, 2019 (including those funds required to be raised in 2017) into a restricted account, separate from the debt service reserve account discussed above, that may only be used to pay obligations under the Facility Agreement.
|
|
|
•
|
The 2017 GARA required Thermo to fund or backstop the amounts required to be raised as of June 30, 2017. The total
$33.0 million
was raised pursuant to the Common Stock Purchase Agreement with Thermo, discussed in
Note 9: Related Party Transactions
|
|
|
•
|
The Company agreed to limit expenditures in connection with its spectrum rights to be the lesser of (1)
$20.0 million
and (2)
20%
of the proceeds of the aggregate of any equity the Company raises from January 1, 2017 through December 31, 2019.
|
|
|
•
|
The Company agreed to pay an amendment fee to the agent and lenders in the aggregate amount of
$0.3 million
and accelerated the payment of the restructuring fee and insurance premium of approximately
$20.8
million, which was previously due December 31, 2017 and accrued as a current liability on the Company's consolidated balance sheet.
|
The amendment and restatement of the Facility Agreement was considered a debt modification pursuant to applicable accounting guidance. As such, fees paid to the creditors were capitalized on the Company's consolidated balance sheet as deferred financing costs and fees paid to the Company's advisors and other third parties were expensed in the Company's statement of operations for the period ended June 30, 2017.
Thermo Loan Agreement
In connection with the amendment and restatement of the Facility Agreement in July 2013, the Company amended and restated its loan agreement with Thermo (the “Loan Agreement”). All obligations of the Company to Thermo under the Loan Agreement are subordinated to the Company’s obligations under the Facility Agreement.
The Loan Agreement accrues interest at
12%
per annum, which is capitalized and added to the outstanding principal in lieu of cash payments. The Company will make payments to Thermo only when permitted by the Facility Agreement. Principal and interest under the Loan Agreement become due and payable
six
months after the obligations under the Facility Agreement have been paid in full, or earlier if the Company has a change in control or if any acceleration of the maturity of the loans under the Facility Agreement occurs. As of
December 31, 2017
,
$62.6 million
of interest had accrued since 2009 with respect to the Loan Agreement; the Loan Agreement is included in long-term debt on the Company's consolidated balance sheets.
The Company evaluated the various embedded derivatives within the Loan Agreement (See
Note 5: Fair Value Measurements
for additional information about the embedded derivative in the Loan Agreement). The Company determined that the conversion option and the contingent put feature upon a fundamental change required bifurcation from the Loan Agreement. The conversion option and the contingent put feature were not deemed clearly and closely related to the Loan Agreement and were separately accounted for as a standalone derivative. The Company recorded this compound embedded derivative liability as a non-current liability on its consolidated balance sheets with a corresponding debt discount, which is netted against the face value of the Loan Agreement.
The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the maturity of the Loan Agreement using an effective interest rate method. The fair value of the compound embedded derivative liability is marked-to-market at the end of each reporting period, with any changes in value reported in the consolidated statements of operations. The Company determines the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices.
All of the transactions between the Company and Thermo and its affiliates were reviewed and approved on the Company's behalf by a Special Committee of its independent directors, who were represented by independent counsel.
The amount by which the if-converted value of the Loan Agreement exceeds the principal amount at
December 31, 2017
, assuming conversion at the closing price of the Company's common stock on that date of
$1.31
per share, is approximately
$83.8 million
.
8.00% Convertible Senior Notes Issued in 2013
On May 20, 2013, the Company issued
$54.6 million
aggregate principal amount of its 2013
8.00%
Notes. The 2013
8.00%
Notes are convertible into shares of common stock at a conversion price of
$0.73
(as adjusted) per share of common stock, or
1,370
shares of the Company's common stock per
$1,000
principal amount of the 2013
8.00%
Notes. The conversion price of the 2013
8.00%
Notes is adjusted in the event of certain stock splits or extraordinary share distributions, or as a reset of the base conversion and exercise price pursuant to the terms of the Fourth Supplemental Indenture between the Company and U.S. Bank National Association, as Trustee, dated May 20, 2013 (the “Indenture”).
The 2013
8.00%
Notes are senior unsecured debt obligations of the Company with no sinking fund. The 2013
8.00%
Notes will mature on April 1, 2028, subject to various call and put features, and bear interest at a rate of
8.00%
per annum. Interest on the 2013
8.00%
Notes is payable semi-annually in arrears on April 1 and October 1 of each year. Interest is paid in cash at a rate of
5.75%
per annum and in additional notes at a rate of
2.25%
per annum.
Subject to certain conditions set forth in the Indenture, the Company may redeem the 2013
8.00%
Notes, with the prior approval of the majority lenders under the Facility Agreement, in whole or in part, at any time on or after April 1, 2018, at a price equal to the principal amount of the 2013
8.00%
Notes to be redeemed plus all accrued and unpaid interest thereon.
A holder of the 2013
8.00%
Notes has the right, at the holder’s option, to require the Company to purchase some or all of the 2013
8.00%
Notes held by it on each of April 1, 2018 and April 1, 2023 at a price equal to the principal amount of the 2013
8.00%
Notes to be purchased plus accrued and unpaid interest.
Subject to the procedures for conversion and other terms and conditions of the Indenture, a holder may convert its 2013
8.00%
Notes at its option at any time prior to the close of business on the business day immediately preceding April 1, 2028, into shares of common stock (or, at the option of the Company, cash in lieu of all or a portion thereof, provided that, under the Facility Agreement, the Company may pay cash only with the consent of the majority lenders).
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
|
|
Total
|
|
$
|
55,387
|
|
|
98,514
|
|
|
$
|
48,384
|
|
On August 24, 2017, the Company entered into an agreement to issue an aggregate of
26.4 million
shares of its voting common stock in exchange for approximately
$16.0 million
principal amount of its 2013
8.00%
Notes. As a result of this conversion, the Company recorded a loss on extinguishment of debt of
$6.3 million
during the third quarter of 2017 calculated as the difference between the fair value of the shares issued to the holder and the carrying value of the debt and derivative liabilities written off due to the conversion.
Holders who convert 2013
8.00%
Notes may receive conversion shares over a
40
-consecutive trading day settlement period. Accordingly, the portion of converted debt is extinguished on an incremental basis over the
40
-day settlement period, reducing the Company's outstanding debt balance. As of
December 31, 2017
, no conversions had been initiated but not yet fully settled.
A holder of the 2013
8.00%
Notes has the right, at the holder’s option, to require the Company to purchase some or all of the 2013
8.00%
Notes held by it at any time if there is a Fundamental Change. A Fundamental Change occurs if the Company's common stock ceases to be traded on a stock exchange or an established over-the-counter market, or if there is a change of control. If there is a Fundamental Change, the purchase price of any 2013
8.00%
Notes purchased by the Company will be equal to its principal amount plus accrued and unpaid interest and a Fundamental Change Make-Whole Amount calculated as provided in the Indenture.
The Indenture provides that the Company and its subsidiaries may not, with specified exceptions, including the liens securing the Facility Agreement and liens approved in writing by the Agent, create, incur, assume or suffer to exist any lien on any of its assets, provided that if the Company or any of its subsidiaries creates, incurs or assumes any lien which is junior to the most senior lien securing the Facility Agreement, the Company must promptly issue to the holders of the 2013
8.00%
Notes
$3.6 million
(as calculated under the Indenture) of shares of the Company's common stock. At
December 31, 2017
, the Company did not expect that a lien will be created that does not meet at least one of the specified exceptions in the Indenture, and therefore accrued no amount for this feature.
The Indenture provides for customary events of default. 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, 2017
, 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. However, following the conversion in August 2017 (as discussed above), the remaining debt discount balance was recorded to interest expense during the third quarter 2017, resulting in no balance as of September 30, 2017. 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 (such as the one discussed above), with any changes in value reported in the consolidated statements of operations. The Company determines the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices.
The amount by which the if-converted value of the 2013
8.00%
Notes exceeded the principal amount at
December 31, 2017
, assuming conversion at the closing price of the Company's common stock on that date of
$1.31
per share, is approximately
$1.1 million
.
Debt maturities
Annual debt maturities for each of the five years following
December 31, 2017
and thereafter are as follows (in thousands):
|
|
|
|
|
2018
|
79,215
|
|
2019
|
94,870
|
|
2020
|
100,000
|
|
2021
|
100,000
|
|
2022
|
94,519
|
|
Thereafter
|
106,054
|
|
Total
|
$
|
574,658
|
|
Amounts in the above table are calculated based on amounts outstanding at
December 31, 2017
, and therefore exclude paid-in-kind interest payments that will be made in future periods.
The 2013
8.00%
Notes are subject to repurchase by the Company at the option of the holders on April 1, 2018. As such, the amounts are included in the 2018 maturities in the table above.
Terrapin Opportunity, L.P. Common Stock Purchase Agreement
In August 2015, the Company entered into a common stock purchase agreement with Terrapin pursuant to which the Company could require Terrapin to purchase up to
$75.0 million
of shares of the Company’s voting common stock over the
24
-month term following the date of the agreement. From time to time over the
24
-month term, in the Company’s discretion, the Company could present Terrapin with up to
24
draw notices requiring Terrapin to purchase a specified dollar amount of shares of voting common stock, based on the price per share per day over
ten
consecutive trading days (a "Draw Down Period"). The per share purchase price for these shares of voting common stock will equal the daily volume weighted average price of the common stock on each date during the Draw Down Period on which shares are purchased by Terrapin, but not less than a minimum price specified by the Company (a “Threshold Price”), less a discount ranging from
2.75%
to
4.00%
based on the Threshold Price. In addition, in the Company’s discretion, but subject to certain limitations, the Company could grant to Terrapin the option to purchase additional shares during a Draw Down Period. The Company agreed not to sell to Terrapin a number of shares of voting common stock that, when aggregated with all other shares of voting common stock then beneficially owned by Terrapin and its affiliates, would result in their beneficial ownership of more than
9.9%
of the then issued and outstanding shares of voting common stock.
Through the term of this agreement, Terrapin purchased a total of
67.3 million
shares of voting common stock for a total purchase price of
$75.0 million
. In January 2017, the Company drew
$12.0 million
and issued to Terrapin
8.9 million
shares of voting common stock. No funds remain available under this agreement.
Public Offering of Common Stock
In October 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Morgan Stanley & Co. LLC, as manager for several underwriters (collectively, the “Underwriters”), relating to the sale of
73.4 million
shares of common stock, at a public offering price of
$1.65
per share.
The Company received approximately
$115.0 million
in net proceeds from the sale of the common stock. The Company used the net proceeds from the offering to meet its obligation to raise
$114.0 million
by October 30, 2017 pursuant to the 2017 GARA (as discussed above).
Eighty percent
of the net proceeds of the offering were deposited in a restricted account, a portion of which was used to pay principal and interest due under the Facility Agreement in December 2017. The remainder of the proceeds will be used for principal and interest due under the Facility Agreement in June 2018 and for general corporate purposes.
4. 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, 2017
|
|
December 31, 2016
|
Derivative assets:
|
|
|
|
|
|
Interest rate cap
|
$
|
—
|
|
|
$
|
4
|
|
Total derivative assets
|
$
|
—
|
|
|
$
|
4
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
Compound embedded derivative with the 2013 8.00% Notes
|
$
|
(1,326
|
)
|
|
$
|
(26,664
|
)
|
Compound embedded derivative with the Loan Agreement with Thermo
|
(226,659
|
)
|
|
(254,507
|
)
|
Total derivative liabilities
|
$
|
(227,985
|
)
|
|
$
|
(281,171
|
)
|
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,
|
|
2017
|
|
2016
|
|
2015
|
Interest rate cap
|
$
|
(4
|
)
|
|
$
|
(2
|
)
|
|
$
|
(40
|
)
|
Compound embedded derivative with the 2013 8.00% Notes
|
(6,662
|
)
|
|
(461
|
)
|
|
32,829
|
|
Compound embedded derivative with the Loan Agreement with Thermo
|
27,848
|
|
|
(41,068
|
)
|
|
149,071
|
|
Total derivative gain (loss)
|
$
|
21,182
|
|
|
$
|
(41,531
|
)
|
|
$
|
181,860
|
|
Intangible and Other Assets
Interest Rate Cap
In June 2009, in connection with entering into the Facility Agreement, under which interest accrues at a variable rate, the Company entered into
five
ten
-year interest rate cap agreements. The interest rate cap agreements reflect a variable notional amount at interest rates that provide coverage to the Company for exposure resulting from escalating interest rates over the term of the Facility Agreement. The interest rate cap provides limits on the six-month Libor rate (“Base Rate”) used to calculate the coupon interest on outstanding amounts on the Facility Agreement and is capped at
5.50%
should the Base Rate not exceed
6.5%
. Should the Base Rate exceed
6.5%
, the Company’s Base Rate will be
1%
less than the then six-month Libor rate. The Company paid an approximately
$12.4 million
upfront fee for the interest rate cap agreements. The interest rate cap did not qualify for hedge accounting treatment, and changes in the fair value of the agreements are included in the consolidated statements of operations.
Derivative Liabilities
The Company has identified various embedded derivatives resulting from certain features in the Company’s debt instruments, including the conversion option and the contingent put feature within both the 2013
8.00%
Notes and the Loan Agreement with Thermo. These embedded derivatives required bifurcation from the debt host agreement and are recorded as a derivative liability on the Company’s consolidated balance sheets with a corresponding debt discount netted against the principal amount of the related debt instrument. The Company accretes the debt discount associated with each derivative liability to interest expense over the term of the related debt instrument using an effective interest rate method. The fair value of each embedded derivative liability is marked-to-market at the end of each reporting period, or more frequently as deemed necessary, with any changes in value reported in its consolidated statements of operations. The Company determined the fair value of its compound embedded derivative liabilities using a blend of a Monte Carlo simulation model and market prices. See
Note 5: Fair Value Measurements
for further discussion. Each liability and the features embedded in the debt instrument which required the Company to account for the instrument as a derivative are described below.
Compound Embedded Derivative with 2013
8.00%
Notes
As a result of the conversion option and the contingent put feature within the 2013 8.00% Notes, the Company recorded a compound embedded derivative liability on its consolidated balance sheets with a corresponding debt discount that is netted against the face value of the 2013 8.00% Notes. The Company determined the fair value of the compound embedded derivative liability using a blend of a Monte Carlo simulation model and market prices. As the first put date for the 2013 8.00% Notes is on April 1, 2018, the Company has classified this derivative liability as current on its consolidated balance sheet at
December 31, 2017
.
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 blend of a Monte Carlo simulation model and market prices.
5. FAIR VALUE MEASUREMENTS
The Company follows the authoritative guidance for fair value measurements relating to financial and non-financial assets and liabilities, including presentation of required disclosures herein. This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2:
Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3:
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Recurring Fair Value Measurements
The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2017:
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
Balance
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total assets measured at fair value
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016:
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
Balance
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Total assets measured at fair value
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Liability for potential stock issuance to Hughes
|
$
|
—
|
|
|
$
|
(2,706
|
)
|
|
$
|
—
|
|
|
$
|
(2,706
|
)
|
Liability for stock issuance due to legal settlement
|
—
|
|
|
(389
|
)
|
|
—
|
|
|
$
|
(389
|
)
|
Compound embedded derivative with the 2013 8.00% Notes
|
—
|
|
|
—
|
|
|
(26,664
|
)
|
|
(26,664
|
)
|
Compound embedded derivative with the Loan Agreement with Thermo
|
—
|
|
|
—
|
|
|
(254,507
|
)
|
|
(254,507
|
)
|
Total liabilities measured at fair value
|
$
|
—
|
|
|
$
|
(3,095
|
)
|
|
$
|
(281,171
|
)
|
|
$
|
(284,266
|
)
|
Assets
Interest Rate Cap
The fair value of the interest rate cap is determined using observable pricing inputs including benchmark yields, reported trades and broker/dealer quotes at the reporting date. See
Note 4: Derivatives
for further discussion.
Liabilities
Liability for potential stock issuance to Hughes
As described in
Note 6: Commitments
, the Company agreed to provide downside protection after the issuance of shares of common stock to Hughes in lieu of cash for contract payments in June 2015. This feature required the Company to issue to Hughes additional shares of common stock equal to the difference, if any, between the initial consideration of
$15.5 million
and the total amount of gross proceeds Hughes receives from the sale of any shares plus the market value of any shares still held by Hughes as of the close of trading on June 30, 2017. In April 2017, Hughes sold all remaining shares of Globalstar common stock and the Company was not required to issue additional shares. Prior to settlement, this liability was recorded on the Company's consolidated balance sheet in accrued expenses and was marked-to-market at each balance sheet date. The value of this option was calculated using a Black-Scholes pricing model. The Company recorded gains and losses resulting from changes in the value of this liability in its consolidated statement of operations. This liability is no longer outstanding.
Liability for future stock issuance due to legal settlement
As described in
Note 7: Contingencies
, the Company settled litigation related to its Brazilian subsidiary in October 2016 through payment of Globalstar common stock. In connection with this settlement, the Company paid
4.5 million
reais, or
$1.4 million
. The Company agreed to provide downside protection for the difference between the total settlement amount of
4.5 million
reais and the total amount of gross proceeds the counterparty receives from the sale of these shares. An estimate of
$0.4 million
for this liability was recorded in accrued expenses in the Company's consolidated financial statements as of December 31, 2016. In March 2017, the Company settled this liability through the final payment of approximately
0.3 million
shares of Globalstar common stock.
Derivative Liabilities
The Company has
two
derivative liabilities classified as Level 3. The Company marks-to-market these liabilities at each reporting date, or more frequently as deemed necessary, with the changes in fair value recognized in the Company’s consolidated statements of operations. See
Note 4: Derivatives
for further discussion.
The significant quantitative Level 3 inputs utilized in the valuation models are shown in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017:
|
|
Stock Price
Volatility
|
|
Risk-Free Interest Rate
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016:
|
|
Stock Price
Volatility
|
|
Risk-Free Interest Rate
|
|
Conversion
Price
|
|
Discount
Rate
|
|
Market Price of Common Stock
|
Compound embedded derivative with the 2013 8.00% Notes
|
100 - 110%
|
|
1.0%
|
|
$0.73
|
|
25%
|
|
$1.58
|
Compound embedded derivative with the Loan Agreement with Thermo
|
40 - 110%
|
|
2.2%
|
|
$0.73
|
|
25%
|
|
$1.58
|
Fluctuation in the Company’s stock price is the primary driver for the changes in the derivative valuations during each reporting period. The Company’s stock price decreased
17%
from
December 31, 2016
to
December 31, 2017
. As the stock price decreases towards the current conversion price for each of the related derivative instruments, the value to the holder of the instrument generally decreases, thereby decreasing the liability on the Company’s consolidated balance sheets. These valuations are sensitive to the weighting applied to each of the simulated values. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the expected volatility of the Company’s stock price. Decreases in expected volatility would generally result in a lower fair value measurement.
Probability of a change of control is another significant unobservable input used in the fair value measurement of the Company’s derivative instruments. Subject to certain restrictions in each indenture, the Company’s debt instruments contain certain provisions whereby holders may require the Company to purchase all or any portion of the convertible debt instrument upon a change of control. A change of control will occur upon certain changes in the ownership of the Company or certain events relating to the trading of the Company’s common stock. The simulated fair value of the derivative liabilities above is sensitive to changes in the assumed probabilities of a change of control. Decreases in the assumed probability of a change of control would generally result in a lower fair value measurement.
In addition to the inputs described above, the valuation model used to calculate the fair value measurement of the compound embedded derivatives within the Company’s 2013
8.00%
Notes and Loan Agreement 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 trading activity in the market provides the Company with additional valuation support. The Company uses a weight factor to calculate the fair value of the embedded derivatives to align the fair value produced from the Monte Carlo simulation model with the market value of the 2013
8.00%
Notes. Due to the similarities of the debt instruments, the Company applies a similar weight to the embedded derivative in the Loan Agreement. These valuations are sensitive to the weighting applied to each of the simulated values.
The following table presents a rollforward for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
(281,171
|
)
|
|
$
|
(239,642
|
)
|
Derivative adjustment related to conversions
|
32,000
|
|
|
—
|
|
Unrealized gain (loss), included in derivative gain (loss)
|
21,186
|
|
|
(41,529
|
)
|
Balance at end of period
|
$
|
(227,985
|
)
|
|
$
|
(281,171
|
)
|
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, 2017
|
|
December 31, 2016
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
Loan Agreement with Thermo
|
$
|
79,721
|
|
|
$
|
54,936
|
|
|
$
|
64,347
|
|
|
$
|
47,874
|
|
2013 8.00% Notes
|
1,348
|
|
|
1,295
|
|
|
14,572
|
|
|
14,350
|
|
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. See further discussion in Note 3: Long-Term Debt and Other Financing Arrangements. 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 4: 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. The Company no longer considers the likelihood of recovering the value of LLI to be probable. See
Note 2: Property and Equipment
for further discussion. As such, a reduction in the value of long-lived assets of
$17.0
million was recorded on its consolidated statements of operations during the fourth quarter of 2017. During 2016, the Company recorded a loss of
$0.4 million
to reduce the carrying value of the intangible asset associated with its efforts to support its petition to the FCC to use its licensed MSS spectrum to provide terrestrial wireless services. See
Note 1: Summary of Significant Accounting Policies
for further discussion. Losses of this nature are recorded in operating expenses in the consolidated statement of operations. The following tables present 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 and 2016 (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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016:
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total Losses
|
Intangibles and other assets, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,782
|
|
|
$
|
350
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,782
|
|
|
$
|
350
|
|
6. COMMITMENTS
Contractual Obligations - Next-Generation Gateways and Other Ground Facilities
As of
December 31, 2017
, the Company had purchase commitments with Thales, Hughes and Ericsson related to the procurement, deployment and maintenance of the second-generation network. The Company is obligated to make payments under these purchase commitments totaling approximately
$0.5 million
, which were recorded in accounts payable and accrued expenses on its consolidated balance sheet as of
December 31, 2017
.
Hughes designed, supplied and implemented the Radio Access Network ("RAN") ground network equipment and software upgrades for installation at a number of the Company’s gateways. Hughes also provided the satellite interface chips to be used in various second-generation Globalstar devices. Ericsson developed, implemented and installed the Company's ground interface, or core network system, at certain of the Company’s gateways. The second-generation Ericsson core links the Hughes RANs to the public-switched telephone network (“PSTN”), cellular networks and Internet. In December 2016, the Company formally accepted all contract deliverables under the core contracts for both Hughes and Ericsson necessary to deploy its second-generation ground infrastructure. The Company intends to complete certain add-ons outside of the scope of the core contracts, which include certain punch list items with Ericsson and the installation of second-generation RANs at certain additional gateways.
In April 2015, Hughes exercised an option to be paid in shares of the Company's common stock (at a price
7%
below market) in lieu of cash for certain contract payments, totaling approximately
$15.5 million
. In June 2015, the Company issued
7.4 million
shares of freely tradable common stock at the
7%
discount pursuant to this option. In connection with this option, the Company agreed to provide downside protection through June 30, 2017. This feature required that the Company issue additional shares of common stock equal to the difference, if any, between the initial consideration of
$15.5 million
and the total amount of gross proceeds Hughes received from the sale of any shares plus the market value of any shares still held by Hughes as of the close of trading on June 30, 2017. Pursuant to this agreement, the Company recorded a liability of
$2.7 million
as of
December 31, 2016
. In April 2017, Hughes sold all remaining shares of Globalstar common stock. The Company was not required to issue additional shares. See
Note 5: Fair Value Measurements
for further discussion of the fair value of this liability.
Other Second-Generation Commitments
The Company has signed various licensing and royalty agreements necessary for the manufacture and distribution of its second-generation products. Payments made under these agreements were
$6.6 million
as of
December 31, 2017
; amounts are recorded primarily in noncurrent assets on the Company's consolidated balance sheet. The Company estimates the portion of expense incurred or royalties earned for the next 12 months and reclassifies these amounts to current assets on the Company's consolidated balance sheet each reporting period. The Company will expense these amounts through depreciation expense over the life of the gateway, maintenance expense over the term of the services, or cost of goods sold on a per unit basis as these units are manufactured, sold, or activated.
Future Minimum Lease Obligations
The Company has non-cancelable operating leases for facilities and equipment throughout the United States and around the world, including Louisiana, California, Florida, Canada, Ireland, France, Brazil, Panama, Singapore and Botswana. The leases expire on various dates through 2021. The following table presents the future minimum lease payments for leases having an initial or remaining non-cancelable lease term in excess of one year (in thousands) as of
December 31, 2017
, excluding possible lease payment reimbursement from the State of Louisiana pursuant to the Cooperative Endeavor Agreement the Company entered into with the Louisiana Department of Economic Development (See
Note 8: Accrued Expenses and Other Non-Current Liabilities
):
|
|
|
|
|
2018
|
$
|
1,241
|
|
2019
|
357
|
|
2020
|
313
|
|
2021
|
168
|
|
2022
|
—
|
|
Thereafter
|
—
|
|
Total minimum lease payments
|
$
|
2,079
|
|
Rent expense for
2017
,
2016
and
2015
was approximately
$1.4 million
,
$1.3 million
and
$1.3 million
, respectively.
7. 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 a tolling agreement as of June 13, 2013, under which Thales dismissed the New York Proceeding without prejudice. The tolling agreement has expired. Thales may refile the petition at a later date and pursue the confirmation of the arbitration award, which the Company would oppose. Should Thales be successful in confirming the arbitration award, this would have a material adverse effect on the Company’s financial condition, results of operations and liquidity.
On June 24, 2012, the Company and Thales agreed to settle their prior commercial disputes, including those disputes that were the subject of the arbitration award. In order to effectuate this settlement, the Company and Thales entered into a Release Agreement, a Settlement Agreement and a Submission Agreement. Under the terms of the Release Agreement, Thales agreed unconditionally and irrevocably to release and forever discharge the Company from any and all claims and obligations (with the exception of those items payable under the Settlement Agreement or in connection with a new contract for the purchase of any additional second-generation satellites), including, without limitation, a full release from paying
€35.6
million of the termination charges awarded in the arbitration together with all interest on the award amount effective upon the earlier of December 31, 2012, and the effective date of the financing for the purchase of any additional second-generation satellites. Under the terms of the Release Agreement, the Company agreed unconditionally and irrevocably to release and forever discharge Thales from any and all claims (with limited exceptions), including, without limitation, claims related to Thales’ work under the 2009 satellite construction contract, including any obligation to pay liquidated damages, effective upon the earlier of December 31, 2012, and the effective date of the financing for the purchase of any additional second-generation satellites. In connection with the Release Agreement and the Settlement Agreement, the Company recorded a contract termination charge of approximately
€17.5 million
which is recorded in the Company’s consolidated balance sheets as of
December 31, 2017
and
2016
. The releases became effective on December 31, 2012.
Under the terms of the Settlement Agreement, the Company agreed to pay
€17.5
million to Thales, representing one-third of the termination charges awarded to Thales in the arbitration, subject to certain conditions, on the later of the effective date of the new contract for the purchase of any additional second-generation satellites and the effective date of the financing for the purchase of these satellites. As of
December 31, 2017
, this condition had not been satisfied. Because the effective date of the new contract for the purchase of additional second-generation satellites did not occur on or prior to February 28, 2013, any party may terminate the Settlement Agreement. If any party terminates the Settlement Agreement, all parties’ rights and obligations under the Settlement Agreement shall terminate. The Release Agreement is a separate and independent agreement from the Settlement Agreement and provides that it supersedes all prior understandings, commitments and representations between the parties with respect to the subject matter thereof; therefore it would survive any termination of the Settlement Agreement. As of
December 31, 2017
, no party had terminated the Settlement Agreement
Litigation
Due to the nature of the Company's business, the Company is involved, from time to time, in various litigation matters or subject to disputes or routine claims regarding its business activities. Legal costs related to these matters are expensed as incurred. In 2016, the Company settled litigation incurred on behalf of the Company's Brazilian subsidiary. The Company paid the total settlement of
4.5 million
reais, or
$1.4 million
, by issuing approximately
1.3 million
shares of Globalstar common stock in October 2016. The Company agreed to provide downside protection for the difference between the total settlement amount of
4.5 million
reais and the total gross proceeds received by the third party upon sale of these shares. In March 2017, the Company paid
0.3 million
shares of Globalstar common stock related to this downside protection, valued at
1.4 million
reais, or
$0.5 million
.
In management's opinion, there is no pending litigation, dispute or claim, other than those described in this report, which could be expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.
8. ACCRUED EXPENSES AND OTHER NON-CURRENT LIABILITIES
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Accrued interest
|
$
|
228
|
|
|
$
|
381
|
|
Accrued liability for potential stock issuance to Hughes
|
—
|
|
|
2,706
|
|
Accrued compensation and benefits
|
3,913
|
|
|
3,193
|
|
Accrued property and other taxes
|
3,944
|
|
|
4,173
|
|
Accrued customer liabilities and deposits
|
4,529
|
|
|
3,907
|
|
Accrued professional and other service provider fees
|
3,386
|
|
|
2,544
|
|
Accrued commissions
|
1,162
|
|
|
858
|
|
Accrued telecommunications expenses
|
876
|
|
|
686
|
|
Accrued satellite and ground costs
|
634
|
|
|
2,076
|
|
Accrued inventory
|
102
|
|
|
90
|
|
Accrued liability for legal settlement
|
—
|
|
|
389
|
|
Other accrued expenses
|
1,980
|
|
|
2,159
|
|
Total accrued expenses
|
$
|
20,754
|
|
|
$
|
23,162
|
|
Accrued liability for potential stock issuance to Hughes included the estimated value at December 31, 2016 of the downside protection that the Company provided to Hughes in connection with its April 2015 agreement (as amended). This liability was settled in 2017. See
Note 5: Fair Value Measurements
and
Note 6: Commitments
for further discussion.
Accrued liability for legal settlement related to the litigation incurred on behalf of the Company's Brazilian subsidiary. The balance at December 31, 2016 included the fair value of the downside protection the Company provided related to the settlement of this litigation. This liability was settled in 2017. See
Note 5: Fair Value Measurements
and
Note 7: Contingencies
for further discussion.
Other accrued expenses include primarily advertising costs, capital lease obligations, vendor services, warranty reserve, occupancy costs, payments to IGOs and estimated payroll shortfall under the Cooperative Endeavor Agreement with the Louisiana Department of Economic Development (“LED”).
The following is a summary of the activity in the warranty reserve account, which is included in other accrued expenses above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
132
|
|
|
$
|
101
|
|
|
$
|
129
|
|
Provision
|
273
|
|
|
272
|
|
|
279
|
|
Utilization
|
(262
|
)
|
|
(241
|
)
|
|
(307
|
)
|
Balance at end of period
|
$
|
143
|
|
|
$
|
132
|
|
|
$
|
101
|
|
Other non-current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Long-term accrued interest
|
$
|
—
|
|
|
$
|
99
|
|
Asset retirement obligation
|
1,451
|
|
|
1,443
|
|
Deferred rent and other deferred expense
|
274
|
|
|
470
|
|
Capital lease obligations
|
154
|
|
|
87
|
|
Liability related to the Cooperative Endeavor Agreement with the State of Louisiana
|
460
|
|
|
445
|
|
Foreign tax contingencies
|
3,634
|
|
|
3,346
|
|
Total other non-current liabilities
|
$
|
5,973
|
|
|
$
|
5,890
|
|
The Company relocated to Louisiana in 2011. In connection with its relocation, the Company entered into a Cooperative Endeavor Agreement with the LED whereby the Company would be reimbursed for certain qualified relocation costs and lease expenses. In accordance with the terms of the agreement, these reimbursement costs, not to exceed
$8.1 million
, will be reimbursed to the Company as incurred provided the Company maintains required annual payroll levels in Louisiana through 2019. Under the terms of the agreement, the Company was reimbursed a total of
$5.2 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, 2017
.
9. RELATED PARTY TRANSACTIONS
Payables to Thermo and other affiliates related to normal purchase transactions were
$0.2 million
and
$0.3 million
as of
December 31, 2017
and
2016
, respectively.
Transactions with Thermo
General and administrative expenses are related to non-cash expenses and those expenses incurred by Thermo on behalf of the Company which are charged to the Company. Non-cash expenses, which the Company accounts for as a contribution to capital, relate to services provided by two executive officers of Thermo (who are also directors of the Company) and receive no cash compensation from the Company. The Thermo expense charges are based on actual amounts (with no mark-up) incurred or upon allocated employee time. Those expenses charged to the Company were
$0.8 million
,
$0.7 million
, and
$0.9 million
for the periods ended
December 31, 2017
,
2016
, and
2015
, respectively.
As of
December 31, 2017
, the principal amount outstanding under the Loan Agreement with Thermo was
$106.1 million
, and the fair value of the compound embedded derivative liability associated with the Loan Agreement was
$226.7 million
. During
2017
and
2016
, interest accrued on the Loan Agreement was approximately
$12.1
million and
$10.7
million, respectively.
In June 2009, the Company entered into a Contingent Equity Agreement with Thermo, under which Thermo agreed to deposit
$60.0 million
into a contingent equity account to fulfill a condition precedent for borrowing under the Facility Agreement. The Company has drawn the entire amount in this account plus accrued interest. Since the origination of the Contingent Equity Agreement, the Company has issued to Thermo warrants to purchase
41.5
million shares of common stock for the annual availability fee and subsequent resets due to provisions in the Contingent Equity Agreement and
163.0
million shares of common stock resulting from the Company's draws on the contingent equity account, including accrued interest, pursuant to the terms of the Contingent Equity Agreement. Thermo has exercised all warrants related to the Contingent Equity Agreement resulting in the issuance of
41.5 million
shares of Globalstar common stock.
In June 2017, the Company and Thermo entered into a Common Stock Purchase Agreement in connection with the amendment and restatement of the Company's Facility Agreement. Thermo purchased
17.8 million
shares of common stock for
$33.0 million
at a purchase price of
$1.85
, which represented a
10%
discount to the closing price of the Company's common stock on June 29, 2017.
In October 2017, 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
27.6 million
shares of common stock at a purchase price of
$43.3 million
.
The Facility Agreement requires Thermo to maintain minimum and maximum ownership levels in the Company's common stock. Thermo may convert shares of nonvoting common stock into shares of common stock as needed to comply with these ownership limitations. In October 2017, Thermo converted
134.0 million
shares of the Company's nonvoting common stock into
134.0
million shares of voting common stock.
In 2013, the Company's Board of Directors formed a special committee consisting solely of independent directors of the Company, represented by independent legal counsel. This special committee serves as an independent board to review and approve certain transactions between the Company and Thermo.
See
Note 3: Long-Term Debt and Other Financing Arrangements
for further discussion of the Company's debt and financing transactions with Thermo.
10. PENSIONS AND OTHER EMPLOYEE BENEFITS
Defined Benefit Plan
Until June 1, 2004, substantially all Old and New Globalstar employees and retirees who participated and/or met the vesting criteria for the plan were participants in the Retirement Plan of Space Systems/Loral (the "Loral Plan"), a defined benefit pension plan. The accrual of benefits in the Old Globalstar segment of the Loral Plan was curtailed, or frozen, by the administrator of the Loral Plan 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,
|
|
2017
|
|
2016
|
Change in projected benefit obligation:
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
$
|
17,778
|
|
|
$
|
17,595
|
|
Service cost
|
195
|
|
|
195
|
|
Interest cost
|
722
|
|
|
758
|
|
Actuarial loss
|
916
|
|
|
381
|
|
Benefits paid
|
(974
|
)
|
|
(1,151
|
)
|
Projected benefit obligation, end of year
|
$
|
18,637
|
|
|
$
|
17,778
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
$
|
12,895
|
|
|
$
|
12,785
|
|
Return on plan assets
|
1,682
|
|
|
937
|
|
Employer contributions
|
645
|
|
|
324
|
|
Benefits paid
|
(974
|
)
|
|
(1,151
|
)
|
Fair value of plan assets, end of year
|
$
|
14,248
|
|
|
$
|
12,895
|
|
Funded status, end of year-net liability
|
$
|
(4,389
|
)
|
|
$
|
(4,883
|
)
|
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,
|
|
2017
|
|
2016
|
|
2015
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
195
|
|
|
$
|
195
|
|
|
$
|
111
|
|
Interest cost
|
722
|
|
|
758
|
|
|
744
|
|
Expected return on plan assets
|
(825
|
)
|
|
(808
|
)
|
|
(862
|
)
|
Amortization of unrecognized net actuarial loss
|
443
|
|
|
473
|
|
|
512
|
|
Total net periodic benefit cost
|
$
|
535
|
|
|
$
|
618
|
|
|
$
|
505
|
|
Amounts recognized in the consolidated balance sheet were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Amounts recognized:
|
|
|
|
|
|
Funded status recognized in other non-current liabilities
|
$
|
(4,389
|
)
|
|
$
|
(4,883
|
)
|
Net actuarial loss recognized in accumulated other comprehensive loss
|
5,558
|
|
|
5,942
|
|
Net amount recognized in retained deficit
|
$
|
1,169
|
|
|
$
|
1,059
|
|
The estimated net actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in
2018
is
$0.4 million
.
No
amounts are expected to be amortized from accumulated other comprehensive loss into net periodic benefit cost in
2018
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,
|
|
2017
|
|
2016
|
|
2015
|
Benefit obligation assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
3.63
|
%
|
|
4.15
|
%
|
|
4.38
|
%
|
Rate of compensation increase
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Net periodic benefit cost assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
4.15
|
%
|
|
4.38
|
%
|
|
4.03
|
%
|
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.
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,
|
|
2017
|
|
2016
|
Equity securities
|
58
|
%
|
|
56
|
%
|
Debt securities
|
42
|
|
|
44
|
|
Total
|
100
|
%
|
|
100
|
%
|
The fair values of the Company’s pension plan assets by asset category were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
United States equity securities
|
$
|
5,705
|
|
|
$
|
—
|
|
|
$
|
5,705
|
|
|
$
|
—
|
|
International equity securities
|
1,460
|
|
|
—
|
|
|
1,460
|
|
|
—
|
|
Fixed income securities
|
4,028
|
|
|
—
|
|
|
4,028
|
|
|
—
|
|
Other
|
1,702
|
|
|
—
|
|
|
1,702
|
|
|
—
|
|
Total
|
$
|
12,895
|
|
|
$
|
—
|
|
|
$
|
12,895
|
|
|
$
|
—
|
|
Accumulated Benefit Obligation
The accumulated benefit obligation of the defined benefit pension plan was
$18.6 million
and
$17.8 million
at
December 31, 2017
and
2016
, respectively.
Benefits Payments and Contributions
The benefit payments to retirees over the next ten years are expected to be paid as follows (in thousands):
|
|
|
|
|
2018
|
$
|
988
|
|
2019
|
1,010
|
|
2020
|
1,012
|
|
2021
|
1,013
|
|
2022
|
1,038
|
|
2023 - 2027
|
5,517
|
|
For
2017
and
2016
, the Company contributed
$0.6 million
and
$0.3 million
, respectively, to the Globalstar Plan. For
2018
, the Company's expected contributions to the Globalstar Plan are
$0.4 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
$0.4 million
,
$0.3 million
and
$0.3 million
for
2017
,
2016
, and
2015
, respectively.
11. TAXES
The components of income tax expense were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
|
|
Federal tax
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State tax
|
25
|
|
|
18
|
|
|
34
|
|
Foreign tax
|
165
|
|
|
(6,561
|
)
|
|
(211
|
)
|
Total
|
190
|
|
|
(6,543
|
)
|
|
(177
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal and state tax
|
—
|
|
|
—
|
|
|
—
|
|
Foreign tax provision (benefit)
|
—
|
|
|
—
|
|
|
1,569
|
|
Total
|
—
|
|
|
—
|
|
|
1,569
|
|
Income tax expense (benefit)
|
$
|
190
|
|
|
$
|
(6,543
|
)
|
|
$
|
1,392
|
|
U.S. and foreign components of income (loss) before income taxes are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
U.S. income (loss)
|
$
|
(60,964
|
)
|
|
$
|
(103,494
|
)
|
|
$
|
109,411
|
|
Foreign income (loss)
|
(27,920
|
)
|
|
(35,695
|
)
|
|
(35,697
|
)
|
Total income (loss) before income taxes
|
$
|
(88,884
|
)
|
|
$
|
(139,189
|
)
|
|
$
|
73,714
|
|
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. As of
December 31, 2016
, the Company had cumulative U.S. and foreign net operating loss carryforwards for income tax reporting purposes of approximately
$1.6 billion
and
$197.4 million
, respectively. The net operating loss carryforwards expire from
2018
through
2037
, with less than
1%
expiring prior to 2026.
The components of net deferred income tax assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Federal and foreign net operating loss and credit carryforwards
|
$
|
464,288
|
|
|
$
|
712,799
|
|
Property and equipment and other long-term assets
|
(45,373
|
)
|
|
(58,379
|
)
|
Accruals and reserves
|
12,754
|
|
|
21,071
|
|
Deferred tax assets before valuation allowance
|
431,669
|
|
|
675,491
|
|
Valuation allowance
|
(431,669
|
)
|
|
(675,491
|
)
|
Net deferred income tax assets
|
$
|
—
|
|
|
$
|
—
|
|
The change in the valuation allowance during
2017
of
$243.8 million
was due to the Company providing valuation allowances against all of the tax benefit generated from its consolidated net losses. Due to the permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% (see further discussion below) and a change in our calculation of the state income tax rate, the Company has remeasured all U.S. deferred tax assets resulting in a significant decrease in both the deferred tax asset balance and the associated valuation allowance. Additionally, 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,
|
|
2017
|
|
2016
|
|
2015
|
Provision at U.S. statutory rate of 35%
|
$
|
(31,118
|
)
|
|
$
|
(48,722
|
)
|
|
$
|
25,788
|
|
State income taxes, net of federal benefit
|
(1,804
|
)
|
|
(6,193
|
)
|
|
6,597
|
|
Change in valuation allowance (excluding impact of foreign exchange rates)
|
(245,304
|
)
|
|
36,631
|
|
|
(39,686
|
)
|
Effect of foreign income tax at various rates
|
3,739
|
|
|
4,844
|
|
|
4,739
|
|
Permanent differences
|
11,166
|
|
|
10,331
|
|
|
7,046
|
|
Change in unrecognized tax benefit
|
—
|
|
|
(6,313
|
)
|
|
712
|
|
Net change in permanent items due to provision to tax return
|
(3,565
|
)
|
|
3,222
|
|
|
(3,099
|
)
|
Remeasurement of U.S. deferred tax assets (Federal and State)
|
266,864
|
|
|
—
|
|
|
—
|
|
Other (including amounts related to prior year tax matters)
|
212
|
|
|
(343
|
)
|
|
(705
|
)
|
Total
|
$
|
190
|
|
|
$
|
(6,543
|
)
|
|
$
|
1,392
|
|
Tax Audits
The Company operates in various U.S. and foreign tax jurisdictions. The process of determining its anticipated tax liabilities involves many calculations and estimates which are inherently complex. The Company believes that it has complied in all material respects with its obligations to pay taxes in these jurisdictions. However, its position is subject to review and possible challenge by the taxing authorities of these jurisdictions. If the applicable taxing authorities were to challenge successfully its current tax positions, or if there were changes in the manner in which the Company conducts its activities, the Company could become subject to material unanticipated tax liabilities. It may also become subject to additional tax liabilities as a result of changes in tax laws, which could in certain circumstances have a retroactive effect.
Neither the Company nor any of its subsidiaries is currently under audit by the IRS or by any state jurisdiction in the United States. The Company's corporate U.S. tax returns for 2012 and subsequent years remain subject to examination by tax authorities. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.
The Company acquired a tax liability for which the Company has been indemnified by the previous owners. As of
December 31, 2017
and
2016
, the Company had recorded a tax liability of
$1.4 million
and
$1.1 million
, respectively, to the foreign tax authorities with an offsetting tax receivable from the previous owners, which is included in Intangible and Other Assets in the accompanying balance sheets. In addition, an agreement was reached in November 2014 to settle other outstanding refinancing contingencies by utilization of the Brazilian tax amnesty program and the accumulated fiscal losses related to tax periods preceding the date of the agreement. While the Brazilian tax authorities have not given final confirmation of the settlement, the Company does not currently maintain a corresponding liability on its consolidated balance sheet as the Company believes additional liability is remote. The Company may be exposed to liabilities in the future if its subsidiary in Brazil, after making use of all available tax benefits and fiscal losses, incurs additional tax liabilities for which it may not be fully indemnified by the seller, or the seller may fail to perform its indemnification obligations.
In the Company's international tax jurisdictions, numerous tax years remain subject to examination by tax authorities, including tax returns for 2006 and subsequent years in most of the Company's international tax jurisdictions.
During 2016, as a result of the expiration of the statute of limitations associated with the tax position of a foreign subsidiary, the Company removed
$4.1 million
in unrecognized tax positions and
$2.2 million
in related interest and penalties from non-current liabilities on its consolidated balance sheet. This adjustment resulted in a corresponding tax benefit in the Company's consolidated statements of operations. The Company classified interest and penalties as a component of income tax expense pursuant to ASC Topic 740
Accounting for Uncertainty in Income Taxes
. A rollforward of the Company's unrecognized tax benefits during 2016 is included below (in thousands). There are
no
unrecognized tax benefits as of December 31, 2017.
|
|
|
|
|
Gross unrecognized tax benefits at January 1, 2016
|
$
|
3,830
|
|
Gross increase (decrease) based on tax positions related to current year
|
245
|
|
Gross increase (decrease) based on tax positions related to prior years
|
—
|
|
Lapse of applicable statute of limitations
|
(4,075
|
)
|
Gross unrecognized tax benefits at December 31, 2016
|
$
|
—
|
|
In October 2016, the U.S. Department of the Treasury released final and temporary regulations under Section 385 of the U.S. Internal Revenue Code. The final regulations strengthen the tax rules distinguishing between debt and equity specific to related party transactions. The Company has evaluated the impact of these regulations on its current accounting and tax policies and procedures, and has determined that they will not have a material impact on the consolidated financial statements.
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.
As of December 31, 2016, the Company had not provided U.S. income taxes and foreign withholding taxes on approximately
$1.8 million
of undistributed earnings from certain foreign subsidiaries indefinitely invested outside the U.S. As required by the tax law changes, the Company performed an analysis of all foreign earnings and profits to determine whether the Company is subject to the Transition Tax. Based upon the analysis of all foreign subsidiary earnings, the Company is in a net earnings and profits deficit. Accordingly, the Company is not subject to the Transition Tax.
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, 2017.
Given the significant complexity of the Act, the Company continues to evaluate the impact of the Tax Act and monitor the anticipated additional implementation guidance from the Internal Revenue Service to determine any further implications that the Tax Act may have in future periods. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company has evaluated the provisions within the Tax Act and has recognized provisional impacts related to the revaluation of its deferred tax assets, deferred tax liabilities and associated valuation allowance, and included the impact in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. The Company expects to complete its analysis within the measurement period provided in SAB 118.
12. GEOGRAPHIC INFORMATION
The Company attributes equipment revenue to various countries based on the location where equipment is sold. Service revenue is generally attributed to the various countries based on the Globalstar entity that holds the customer contract. Long-lived assets consist primarily of property and equipment and are attributed to various countries based on the physical location of the asset at a given fiscal year-end, except for the Company’s satellites which are included in the long-lived assets of the United States. The Company’s information by geographic area is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
|
|
Service:
|
|
|
|
|
|
|
|
|
United States
|
$
|
68,556
|
|
|
$
|
56,868
|
|
|
$
|
50,832
|
|
Canada
|
18,296
|
|
|
16,038
|
|
|
14,553
|
|
Europe
|
8,183
|
|
|
6,955
|
|
|
5,738
|
|
Central and South America
|
2,959
|
|
|
2,659
|
|
|
2,407
|
|
Others
|
479
|
|
|
549
|
|
|
594
|
|
Total service revenue
|
98,473
|
|
|
83,069
|
|
|
74,124
|
|
Subscriber equipment:
|
|
|
|
|
|
|
|
|
United States
|
8,431
|
|
|
7,441
|
|
|
7,823
|
|
Canada
|
2,995
|
|
|
3,122
|
|
|
4,339
|
|
Europe
|
1,532
|
|
|
1,533
|
|
|
1,710
|
|
Central and South America
|
1,202
|
|
|
1,413
|
|
|
2,087
|
|
Others
|
27
|
|
|
283
|
|
|
407
|
|
Total subscriber equipment revenue
|
14,187
|
|
|
13,792
|
|
|
16,366
|
|
Total revenue
|
$
|
112,660
|
|
|
$
|
96,861
|
|
|
$
|
90,490
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
Long-lived assets:
|
|
|
|
|
|
United States
|
$
|
966,611
|
|
|
$
|
1,035,331
|
|
Canada
|
773
|
|
|
670
|
|
Europe
|
433
|
|
|
408
|
|
Central and South America
|
3,051
|
|
|
3,084
|
|
Other
|
251
|
|
|
226
|
|
Total long-lived assets
|
$
|
971,119
|
|
|
$
|
1,039,719
|
|
13. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed based on the weighted average number of shares of common stock outstanding during the year. Common stock equivalents are included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive.
The following table sets forth the calculation of basic and diluted earnings (loss) per share and reconciles basic weighted average shares to diluted weighted average shares of common stock outstanding for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Net income (loss)
|
$
|
(89,074
|
)
|
|
$
|
(132,646
|
)
|
|
$
|
72,322
|
|
Effect of dilutive securities:
|
|
|
|
|
|
2013 8.00% Notes
|
—
|
|
|
—
|
|
|
2,398
|
|
Loan Agreement with Thermo
|
—
|
|
|
—
|
|
|
8,903
|
|
Income (loss) to common stockholders plus assumed conversions
|
$
|
(89,074
|
)
|
|
$
|
(132,646
|
)
|
|
$
|
83,623
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Basic shares outstanding
|
1,166,581
|
|
|
1,064,443
|
|
|
1,020,149
|
|
Incremental shares from assumed exercises, conversions and other issuance of:
|
|
|
|
|
|
Stock options, restricted stock, restricted stock units and ESPP
|
—
|
|
|
—
|
|
|
8,559
|
|
2013 8.00% Notes
|
—
|
|
|
—
|
|
|
27,853
|
|
Loan Agreement with Thermo
|
—
|
|
|
—
|
|
|
136,710
|
|
Warrants and other
|
—
|
|
|
—
|
|
|
37,123
|
|
Diluted shares outstanding
|
1,166,581
|
|
|
1,064,443
|
|
|
1,230,394
|
|
Income (loss) per share:
|
|
|
|
|
|
Basic
|
$
|
(0.08
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
Diluted
|
$
|
(0.08
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
For the years ended December 31, 2017, and 2016,
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.
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, 2017
and
2016
, the number of shares of common stock that was authorized and remained available for issuance under the Equity Plan was
24.1 million
and
26.6 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 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,
|
|
2017
|
|
2016
|
|
2015
|
Risk-free interest rate
|
2
|
%
|
|
1 - 2%
|
|
|
Less than 1 - 2%
|
|
Expected term of options (years)
|
5
|
|
|
5
|
|
|
6
|
|
Volatility
|
67
|
%
|
|
65
|
%
|
|
72%
|
|
Weighted average grant-date fair value per share
|
$
|
0.85
|
|
|
$
|
1.04
|
|
|
$
|
1.43
|
|
The following table represents the Company’s stock option activity for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Exercise Price
|
Outstanding at January 1, 2017
|
8,722,605
|
|
|
$
|
1.43
|
|
Granted
|
1,346,400
|
|
|
1.49
|
|
Exercised
|
(100,915
|
)
|
|
0.70
|
|
Forfeited or expired
|
(577,592
|
)
|
|
2.02
|
|
Outstanding at December 31, 2017
|
9,390,498
|
|
|
1.41
|
|
|
|
|
|
Exercisable at December 31, 2017
|
7,546,083
|
|
|
$
|
1.37
|
|
The following table summarizes the aggregate intrinsic value of stock options exercised during the years indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Intrinsic value of stock options exercised
|
$
|
94
|
|
|
$
|
199
|
|
|
$
|
492
|
|
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, 2017
from the exercise of stock options were
$0.1
million
. The aggregate intrinsic value of all outstanding stock options at
December 31, 2017
was
$2.7 million
with a remaining contractual life of
5.5
years. The aggregate intrinsic value of all vested stock options at
December 31, 2017
was
$2.7 million
with a remaining contractual life of
4.6
years.
The following table presents compensation expense related to stock options for the years indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Total compensation expense
|
$
|
1.2
|
|
|
$
|
1.4
|
|
|
$
|
1.2
|
|
As of
December 31, 2017
, unrecognized compensation expense related to nonvested stock options outstanding was approximately
$1.3 million
to be recognized over a weighted-average period of
2.7
years.
The Company adjusts its estimates of expected forfeitures of equity awards based upon its review of recent forfeiture activity and expected future employee turnover. The Company considers the impact of both pre-vesting forfeitures and post-vesting cancellations for purposes of evaluating forfeiture estimates. The effect of adjusting the forfeiture rate is recognized in the period in which the forfeiture estimate is changed.
Restricted Stock
Shares of restricted stock generally vest
one
year from the grant date or in equal annual installments over
three
years. Non-vested shares are generally forfeited upon the termination of employment. Holders of restricted stock are entitled to all rights of a stockholder of the Company with respect to the restricted stock, including the right to vote the shares and receive any dividends or other distributions. Compensation expense associated with restricted stock is measured based on the grant date fair value of the common stock and is recognized on a straight line basis over the vesting period. The table below summarizes the weighted average grant date fair value of restricted stock for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Weighted average grant date fair value
|
$
|
1.37
|
|
|
$
|
1.56
|
|
|
$
|
1.84
|
|
The following is a rollforward of the activity in restricted stock for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Nonvested at January 1, 2017
|
2,528,832
|
|
|
$
|
1.75
|
|
Granted
|
3,344,301
|
|
|
1.37
|
|
Vested
|
(2,140,294
|
)
|
|
1.75
|
|
Forfeited
|
(102,022
|
)
|
|
1.36
|
|
Nonvested at December 31, 2017
|
3,630,817
|
|
|
$
|
1.41
|
|
The following table represents the compensation expense related to restricted stock for the years indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Total compensation expense
|
$
|
2.3
|
|
|
$
|
2.2
|
|
|
$
|
1.4
|
|
The total fair value of restricted stock awards vested during
2017
,
2016
and
2015
was
$3.4 million
,
$1.4 million
, and
$1.2 million
, respectively. The increase in fair value from 2016 to 2017 was due to an increase in the average stock price during 2017, as well as incentive-based executive compensation resulting from obtaining terrestrial spectrum authorities. As of
December 31, 2017
, unrecognized compensation expense related to unvested restricted stock outstanding was approximately $
4.6 million
to be recognized over a weighted-average period of
2.5
years.
Key Employee Bonus Plan
The Company has an annual bonus plan designed to reward designated key employees' efforts to exceed the Company's financial performance goals for the designated calendar year ("Plan Year"). The bonus pool available for distribution is determined based on the Company's adjusted EBITDA performance during the Plan Year. The bonus may be paid in cash or the Company's common stock, as determined by the Compensation Committee. For the
2017
Plan Year, the Company's adjusted EBITDA performance was within the bonus payout threshold according to the bonus plan document. As of
December 31, 2017
,
$1.1 million
was accrued on the Company's consolidated balance sheet related to this bonus payment, which will be made in the form of common stock.
Employee Stock Purchase Plan
In June 2011, the Company adopted an Employee Stock Purchase Plan (the “Plan”) which provides eligible employees of the Company and its subsidiaries with an opportunity to acquire shares of its common stock at a discount. The maximum aggregate number of shares of common stock that may be purchased through the Plan is
7,000,000
shares. The number of shares that may be purchased through the Plan will be subject to proportionate adjustments to reflect stock splits, stock dividends, or other changes in the Company’s capital stock.
The Plan permits eligible employees to purchase shares of common stock during two semi-annual offering periods beginning on June 15 and December 15 (the “Offering Periods”), unless adjusted by the Company's Board of Directors or one of its designated committees. Eligible employees may purchase shares of up to
15%
of their total compensation per pay period, but may purchase in any calendar year no more than the lesser of
$25,000
in fair market value of common stock or
500,000
shares of common stock, as measured as of the first day of each applicable Offering Period. The price an employee pays is
85%
of the fair market value of common stock. Fair market value is equal to the lesser of the closing price of a share of common stock on either the first day or the last day of the Offering Period.
For each of the years ended
December 31, 2017
and
2016
, the Company received
$0.7 million
related to shares issued under this plan. For
2017
and
2016
, the Company recorded compensation expense of approximately
$0.5 million
and
$0.4 million
, respectively, which is reflected in marketing, general and administrative expenses. Additionally, the Company has issued approximately
4.5 million
shares through
December 31, 2017
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,
|
|
2017
|
|
2016
|
Risk-free interest rate
|
1.00
|
%
|
|
Less than 1.00
|
%
|
Expected term (months)
|
6
|
|
|
6
|
|
Volatility
|
100
|
%
|
|
108
|
%
|
Weighted average grant-date fair value per share
|
$
|
0.61
|
|
|
$
|
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,
|
|
2017
|
|
2016
|
Accumulated minimum pension liability adjustment
|
$
|
(5,558
|
)
|
|
$
|
(5,942
|
)
|
Accumulated net foreign currency translation adjustment
|
(1,381
|
)
|
|
564
|
|
Total accumulated other comprehensive loss
|
$
|
(6,939
|
)
|
|
$
|
(5,378
|
)
|
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
|
2017
|
|
March 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
Total revenue
|
|
$
|
24,652
|
|
|
$
|
28,123
|
|
|
$
|
30,458
|
|
|
$
|
29,427
|
|
Loss from operations
|
|
$
|
(15,202
|
)
|
|
$
|
(12,510
|
)
|
|
$
|
(10,793
|
)
|
|
$
|
(30,281
|
)
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
2016
|
|
March 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
Total revenue
|
|
$
|
21,836
|
|
|
$
|
25,086
|
|
|
$
|
25,544
|
|
|
$
|
24,395
|
|
Loss from operations
|
|
$
|
(15,698
|
)
|
|
$
|
(16,411
|
)
|
|
$
|
(14,763
|
)
|
|
$
|
(16,804
|
)
|
Net income (loss)
|
|
$
|
(26,947
|
)
|
|
$
|
14,099
|
|
|
$
|
(2,577
|
)
|
|
$
|
(117,221
|
)
|
Basic income (loss) per common share
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
$
|
(0.11
|
)
|
Diluted income (loss) per common share
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
$
|
(0.11
|
)
|
Shares used in basic per share calculations
|
|
1,041,028
|
|
|
1,049,381
|
|
|
1,080,313
|
|
|
1,086,631
|
|
Shares used in diluted per share calculations
|
|
1,041,028
|
|
|
1,249,672
|
|
|
1,080,313
|
|
|
1,086,631
|
|
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, 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
|
|
|
—
|
|
Intangibles 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 Balance Sheet
As of
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Elimination
|
|
Consolidated
|
|
(In thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
7,259
|
|
|
$
|
1,327
|
|
|
$
|
1,644
|
|
|
$
|
—
|
|
|
$
|
10,230
|
|
Accounts receivable, net of allowance
|
5,938
|
|
|
6,340
|
|
|
2,941
|
|
|
—
|
|
|
15,219
|
|
Intercompany receivables
|
897,691
|
|
|
678,707
|
|
|
32,040
|
|
|
(1,608,438
|
)
|
|
—
|
|
Inventory
|
2,266
|
|
|
4,354
|
|
|
1,473
|
|
|
—
|
|
|
8,093
|
|
Prepaid expenses and other current assets
|
1,570
|
|
|
955
|
|
|
2,063
|
|
|
—
|
|
|
4,588
|
|
Total current assets
|
914,724
|
|
|
691,683
|
|
|
40,161
|
|
|
(1,608,438
|
)
|
|
38,130
|
|
Property and equipment, net
|
1,031,623
|
|
|
3,708
|
|
|
4,384
|
|
|
4
|
|
|
1,039,719
|
|
Restricted cash
|
37,983
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,983
|
|
Intercompany notes receivable
|
8,901
|
|
|
—
|
|
|
6,436
|
|
|
(15,337
|
)
|
|
—
|
|
Investment in subsidiaries
|
(280,557
|
)
|
|
73,029
|
|
|
36,146
|
|
|
171,382
|
|
|
—
|
|
Intangible and other assets, net
|
15,259
|
|
|
128
|
|
|
1,407
|
|
|
(12
|
)
|
|
16,782
|
|
Total assets
|
$
|
1,727,933
|
|
|
$
|
768,548
|
|
|
$
|
88,534
|
|
|
$
|
(1,452,401
|
)
|
|
$
|
1,132,614
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
75,755
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
75,755
|
|
Debt restructuring fees
|
20,795
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,795
|
|
Accounts payable
|
2,624
|
|
|
3,490
|
|
|
1,385
|
|
|
—
|
|
|
7,499
|
|
Accrued contract termination charge
|
18,451
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,451
|
|
Accrued expenses
|
10,573
|
|
|
5,884
|
|
|
6,705
|
|
|
—
|
|
|
23,162
|
|
Intercompany payables
|
636,336
|
|
|
750,084
|
|
|
221,980
|
|
|
(1,608,400
|
)
|
|
—
|
|
Payables to affiliates
|
309
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
309
|
|
Deferred revenue
|
1,576
|
|
|
19,304
|
|
|
5,599
|
|
|
—
|
|
|
26,479
|
|
Total current liabilities
|
766,419
|
|
|
778,762
|
|
|
235,669
|
|
|
(1,608,400
|
)
|
|
172,450
|
|
Long-term debt, less current portion
|
500,524
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500,524
|
|
Employee benefit obligations
|
4,883
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,883
|
|
Intercompany notes payable
|
6,435
|
|
|
—
|
|
|
8,901
|
|
|
(15,336
|
)
|
|
—
|
|
Derivative liabilities
|
281,171
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
281,171
|
|
Deferred revenue
|
5,567
|
|
|
299
|
|
|
11
|
|
|
—
|
|
|
5,877
|
|
Other non-current liabilities
|
1,115
|
|
|
325
|
|
|
4,450
|
|
|
—
|
|
|
5,890
|
|
Total non-current liabilities
|
799,695
|
|
|
624
|
|
|
13,362
|
|
|
(15,336
|
)
|
|
798,345
|
|
Stockholders' equity (deficit)
|
161,819
|
|
|
(10,838
|
)
|
|
(160,497
|
)
|
|
171,335
|
|
|
161,819
|
|
Total liabilities and shareholders' equity (deficit)
|
$
|
1,727,933
|
|
|
$
|
768,548
|
|
|
$
|
88,534
|
|
|
$
|
(1,452,401
|
)
|
|
$
|
1,132,614
|
|
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 revenues
|
$
|
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
|
22,928
|
|
|
4,792
|
|
|
77,099
|
|
|
(65,720
|
)
|
|
39,099
|
|
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
|
143,197
|
|
|
20,613
|
|
|
92,394
|
|
|
(74,758
|
)
|
|
181,446
|
|
Income (loss) from operations
|
(66,837
|
)
|
|
30,193
|
|
|
(32,151
|
)
|
|
9
|
|
|
(68,786
|
)
|
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
|
(2,514
|
)
|
|
(700
|
)
|
|
345
|
|
|
(4
|
)
|
|
(2,873
|
)
|
Total other income (expense)
|
(22,237
|
)
|
|
(14,614
|
)
|
|
111
|
|
|
16,642
|
|
|
(20,098
|
)
|
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 revenues
|
$
|
70,460
|
|
|
$
|
34,428
|
|
|
$
|
43,130
|
|
|
$
|
(64,949
|
)
|
|
$
|
83,069
|
|
Subscriber equipment sales
|
584
|
|
|
9,380
|
|
|
6,545
|
|
|
(2,717
|
)
|
|
13,792
|
|
Total revenue
|
71,044
|
|
|
43,808
|
|
|
49,675
|
|
|
(67,666
|
)
|
|
96,861
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization and accretion shown separately below)
|
20,569
|
|
|
5,929
|
|
|
10,976
|
|
|
(5,566
|
)
|
|
31,908
|
|
Cost of subscriber equipment sales
|
207
|
|
|
7,481
|
|
|
4,931
|
|
|
(2,712
|
)
|
|
9,907
|
|
Marketing, general and administrative
|
21,691
|
|
|
4,847
|
|
|
73,679
|
|
|
(59,235
|
)
|
|
40,982
|
|
Reduction in the value of long-lived assets
|
350
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
350
|
|
Depreciation, amortization and accretion
|
75,896
|
|
|
802
|
|
|
1,054
|
|
|
(362
|
)
|
|
77,390
|
|
Total operating expenses
|
118,713
|
|
|
19,059
|
|
|
90,640
|
|
|
(67,875
|
)
|
|
160,537
|
|
Income (loss) from operations
|
(47,669
|
)
|
|
24,749
|
|
|
(40,965
|
)
|
|
209
|
|
|
(63,676
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on equity issuance
|
2,789
|
|
|
—
|
|
|
(389
|
)
|
|
—
|
|
|
2,400
|
|
Interest income and expense, net of amounts capitalized
|
(35,754
|
)
|
|
(24
|
)
|
|
(164
|
)
|
|
(10
|
)
|
|
(35,952
|
)
|
Derivative loss
|
(41,531
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(41,531
|
)
|
Equity in subsidiary earnings
|
(9,803
|
)
|
|
(15,670
|
)
|
|
—
|
|
|
25,473
|
|
|
—
|
|
Other
|
(678
|
)
|
|
92
|
|
|
17
|
|
|
139
|
|
|
(430
|
)
|
Total other income (expense)
|
(84,977
|
)
|
|
(15,602
|
)
|
|
(536
|
)
|
|
25,602
|
|
|
(75,513
|
)
|
Income (loss) before income taxes
|
(132,646
|
)
|
|
9,147
|
|
|
(41,501
|
)
|
|
25,811
|
|
|
(139,189
|
)
|
Income tax expense (benefit)
|
—
|
|
|
18
|
|
|
(6,561
|
)
|
|
—
|
|
|
(6,543
|
)
|
Net income (loss)
|
$
|
(132,646
|
)
|
|
$
|
9,129
|
|
|
$
|
(34,940
|
)
|
|
$
|
25,811
|
|
|
$
|
(132,646
|
)
|
Defined benefit pension plan liability adjustment
|
221
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
221
|
|
Net foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
(759
|
)
|
|
(7
|
)
|
|
(766
|
)
|
Total comprehensive income (loss)
|
$
|
(132,425
|
)
|
|
$
|
9,129
|
|
|
$
|
(35,699
|
)
|
|
$
|
25,804
|
|
|
$
|
(133,191
|
)
|
Globalstar, Inc.
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
66,024
|
|
|
$
|
30,803
|
|
|
$
|
37,887
|
|
|
$
|
(60,590
|
)
|
|
$
|
74,124
|
|
Subscriber equipment sales
|
808
|
|
|
12,093
|
|
|
8,444
|
|
|
(4,979
|
)
|
|
16,366
|
|
Total revenue
|
66,832
|
|
|
42,896
|
|
|
46,331
|
|
|
(65,569
|
)
|
|
90,490
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation, amortization and accretion shown separately below)
|
18,775
|
|
|
6,474
|
|
|
12,348
|
|
|
(6,982
|
)
|
|
30,615
|
|
Cost of subscriber equipment sales
|
64
|
|
|
10,580
|
|
|
6,147
|
|
|
(4,977
|
)
|
|
11,814
|
|
Marketing, general and administrative
|
19,492
|
|
|
5,758
|
|
|
65,660
|
|
|
(53,492
|
)
|
|
37,418
|
|
Depreciation, amortization and accretion
|
75,313
|
|
|
1,203
|
|
|
1,212
|
|
|
(481
|
)
|
|
77,247
|
|
Total operating expenses
|
113,644
|
|
|
24,015
|
|
|
85,367
|
|
|
(65,932
|
)
|
|
157,094
|
|
Income (loss) from operations
|
(46,812
|
)
|
|
18,881
|
|
|
(39,036
|
)
|
|
363
|
|
|
(66,604
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
(2,254
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,254
|
)
|
Loss on equity issuance
|
(6,663
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,663
|
)
|
Interest income and expense, net of amounts capitalized
|
(35,301
|
)
|
|
(27
|
)
|
|
(536
|
)
|
|
10
|
|
|
(35,854
|
)
|
Derivative gain
|
181,860
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
181,860
|
|
Equity in subsidiary earnings
|
(19,467
|
)
|
|
(13,345
|
)
|
|
—
|
|
|
32,812
|
|
|
—
|
|
Other
|
959
|
|
|
465
|
|
|
1,599
|
|
|
206
|
|
|
3,229
|
|
Total other income (expense)
|
119,134
|
|
|
(12,907
|
)
|
|
1,063
|
|
|
33,028
|
|
|
140,318
|
|
Income (loss) before income taxes
|
72,322
|
|
|
5,974
|
|
|
(37,973
|
)
|
|
33,391
|
|
|
73,714
|
|
Income tax expense
|
—
|
|
|
34
|
|
|
1,358
|
|
|
—
|
|
|
1,392
|
|
Net income (loss)
|
$
|
72,322
|
|
|
$
|
5,940
|
|
|
$
|
(39,331
|
)
|
|
$
|
33,391
|
|
|
$
|
72,322
|
|
Defined benefit pension plan liability adjustment
|
787
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
787
|
|
Net foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
(2,742
|
)
|
|
20
|
|
|
(2,722
|
)
|
Total comprehensive income (loss)
|
$
|
73,109
|
|
|
$
|
5,940
|
|
|
$
|
(42,073
|
)
|
|
$
|
33,411
|
|
|
$
|
70,387
|
|
Globalstar, Inc.
Condensed Consolidating Statement of 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 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
|
)
|
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 debt and equity issuance 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
|
—
|
|
|
—
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Net cash provided by (used in) operating activities:
|
$
|
8,642
|
|
|
$
|
1,307
|
|
|
$
|
(1,136
|
)
|
|
$
|
—
|
|
|
$
|
8,813
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-generation network costs (including interest)
|
(12,901
|
)
|
|
—
|
|
|
(269
|
)
|
|
—
|
|
|
(13,170
|
)
|
Property and equipment additions
|
(8,453
|
)
|
|
(699
|
)
|
|
(233
|
)
|
|
—
|
|
|
(9,385
|
)
|
Purchase of intangible assets
|
(1,996
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,996
|
)
|
Net cash used in investing activities
|
(23,350
|
)
|
|
(699
|
)
|
|
(502
|
)
|
|
—
|
|
|
(24,551
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of the Facility Agreement
|
(32,835
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,835
|
)
|
Proceeds from issuance of stock to Terrapin
|
48,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48,000
|
|
Proceeds from issuance of common stock and exercise of options and warrants
|
3,337
|
|
|
|
|
|
|
—
|
|
|
3,337
|
|
Net cash provided by financing activities
|
18,502
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,502
|
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
55
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
3,794
|
|
|
608
|
|
|
(1,583
|
)
|
|
—
|
|
|
2,819
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
41,448
|
|
|
719
|
|
|
3,227
|
|
|
—
|
|
|
45,394
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
45,242
|
|
|
$
|
1,327
|
|
|
$
|
1,644
|
|
|
$
|
—
|
|
|
$
|
48,213
|
|
Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(In thousands)
|
Net cash provided by (used in) operating activities
|
$
|
(2,349
|
)
|
|
$
|
1,767
|
|
|
$
|
2,744
|
|
|
$
|
—
|
|
|
$
|
2,162
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second-generation network costs (including interest)
|
(25,195
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,195
|
)
|
Property and equipment additions
|
(2,608
|
)
|
|
(1,720
|
)
|
|
(1,195
|
)
|
|
—
|
|
|
(5,523
|
)
|
Purchase of intangible assets
|
(2,520
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,520
|
)
|
Investment in businesses
|
(240
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(240
|
)
|
Net cash used in investing activities
|
(30,563
|
)
|
|
(1,720
|
)
|
|
(1,195
|
)
|
|
—
|
|
|
(33,478
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of the Facility Agreement
|
(6,450
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,450
|
)
|
Proceeds from issuance of stock to Terrapin
|
39,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,000
|
|
Proceeds from issuance of common stock and exercise of options and warrants
|
726
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
726
|
|
Net cash provided by financing activities
|
33,276
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,276
|
|
Effect of exchange rate changes on cash
|
—
|
|
|
—
|
|
|
(1,605
|
)
|
|
—
|
|
|
(1,605
|
)
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
364
|
|
|
47
|
|
|
(56
|
)
|
|
—
|
|
|
355
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
41,084
|
|
|
672
|
|
|
3,283
|
|
|
—
|
|
|
45,039
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
41,448
|
|
|
$
|
719
|
|
|
$
|
3,227
|
|
|
$
|
—
|
|
|
$
|
45,394
|
|