Posted by Briland Modem News Team on November 13, 2001 at 15:30:56:
Tuesday November 13, 6:17 pm Eastern Time
Globalstar posts loss, finalizing bankruptcy plan
(UPDATE: Adds analyst comment, stock price)
By Yukari Iwatani
CHICAGO, Nov 13 (Reuters) - Troubled mobile satellite telephone company Globalstar L.P. on Tuesday
posted a third-quarter loss and said it was finalizing a prepackaged voluntary bankruptcy plan and cutting
about 29 percent of its work force.
Globalstar, which offers global mobile phone service via a network of satellites, said
it would file for Chapter 11 bankruptcy protection as soon as the plan is finalized.
The New York-based firm had previously warned that it might seek bankruptcy
protection.
``We believe we're going to get to the point where all the creditors and all the
partners will come to an agreement that should ensure the business will continue,''
said Mac Jeffery, spokesman for Globalstar.
Analysts were not surprised by the announcement.
``That's obviously what I expected,'' Sam Farrar of satellite consulting firm Farrar and
Associates, said. ``It's just further proof that, at the kind of capitalization it requires,
there's no business.''
The company had about $68 million in cash on hand at the end of the third quarter,
ahead of its earlier guidance of about $50 million. It expects to have about $45
million in cash at the end of the year despite its earlier warning that it may only have
enough cash to operate through the end of the year.
It is reducing its headcount to 125 employees by mid-November. The company in August had cut its staff by almost half, leaving 175
employees.
Jeffery said the company now believes it will need far less additional funding than previously expected to achieve break-even cash flow in 2002.
Shares of Globalstar fell to 28 cents in after-hours trading on Instinet after closing up 4 cents at 65 cents on Nasdaq.
LOSS NARROWS
Globalstar, a partnership formed in 1994 by satellite firm Loral Space & Communications Ltd. (NYSE:LOR - news) and wireless
telecommunications firm Qualcomm Inc. (NasdaqNM:QCOM - news), reported a third-quarter loss applicable to ordinary partnership interests of
$129 million, or $1.98 per partnership interest.
That converts to a loss of 33 cents a share for Globalstar Telecommunications Ltd. (NasdaqSC:GSTRF - news), the publicly traded entity. In the
second quarter, net loss applicable to ordinary partnership interests was $144 million.
Globalstar said it recorded 7.4 million minutes of use during the quarter, a 34 percent increase from the second quarter. Its subscribers increased
by 14 percent to 58,600.
However, Roger Rusch, president of satellite consulting firm TelAstra, noted that the company recorded fewer new subscribers during the
quarter compared with previous periods.
``This was one of the poorest quarters for growth in the number of subscribers they've ever had,'' Rusch said. He also pointed out that each
existing customer only spent about 44 minutes a month on their phones, compared with cell phone users who spend about 300 minutes a month
on average.
Revenues fell 18 percent to $1.4 million, reflecting lowered wholesale prices.
Its operating expenses excluding depreciation and amortization fell 57 percent to $19.7 million from $45.9 million a year ago, reflecting its efforts
to cut costs.
DEBT HOLDERS TO RECEIVE EQUITY IN NEW FIRM
According to the proposed restructuring plan, Globalstar debt holders will receive equity in a new Globalstar company. Discussions are still
ongoing about the ownership structure of the new company and the extent of the role current partners will play, Jeffery said.
However, the company said all partnership interests will likely be severely diluted, in which they will have little or no value.
The new company will also acquire some Globalstar service providers, which until now operated as independent companies. By doing so, it
hopes to consolidate its service offerings and prices, the company said. Globalstar will continue to offer its services through independent
providers it does not acquire.
``To a certain extent, having this announcement and hopefully seeing it completed will resolve future uncertainties,'' Tim Logue, space and
telecommunications analyst for Coudert Brothers law firm, said.
However, he added that Globalstar and other rivals like Iridium still face uncertainties about their long-term future when they will have to replace
current satellite networks.
``Can one build a big enough business to make it worthwhile to finance a second generation system? That's going to be a question that will dog
both of these systems,'' he said.
Globalstar also said that, of the three satellites that were taken out of service earlier this year, one has been restored to service and a second
was replaced in early October. The third satellite will be replaced in early December.
Service outages are now brief and infrequent, only affecting a small number of customers in certain non-temperate regions, the company said.
Outages will disappear completely when the third satellite is replaced, the company said.