Globalstar Reports Satellite Problems, First Quarter Loss, CEO Change, Lawsuits

Globalstar reported first quarter losses and the removal from service of three satellites experiencing operational problems, disrupting service to some subscribers for a few minutes each day. The loss of the satellites has affected some users near the equator and in the high northern and southern latitudes. If the satellites cannot be restored on-orbit spare satellites will be maneuvered to fill gaps in the constellation.

Globalstar L.P. reported a first-quarter loss for 2001, and continues to review various restructuring proposals even as it defaulted on debt. Globalstar’s net loss applicable to ordinary partnership interests was US$145 million. Globalstar L.P. recorded 4 million minutes of use in the quarter, a 53 percent increase in traffic over the previous quarter.

At the end of March, Globalstar had 40,700 subscribers, an increase of over 30 percent from the previous quarter, increasing to 44,000 subscribers by the end of April. Data services, which were introduced in North America in late December, represented 4% of total billable minutes for the quarter. In March, data represented nearly 8% of total traffic volume, driven by testing and demonstrations in Mediterranean markets. Installation of fixed phones grew, with phones installed on public intercity buses in Brazil, in remote communities across Central America and Morocco, and along highways in Argentina. At a single mining operation in Honduras, five fixed phones each are generating several thousand minutes of use per week. Globalstar service coverage now reaches 109 countries or over 75% of the world's land area. Globalstar is working with outside companies to develop further specialized equipment for aviation, maritime, and other potential data markets.

The company reported first-quarter gross service revenue of US$1.9 million, up 66 percent from the fourth quarter of last year. Net revenue including royalty income from phone sales, but excluding discounts and promotions, rose 32 percent, to US$1.5 million. Globalstar, which has warned it may seek bankruptcy protection if it cannot restructure, said it had US$138 million in cash and cash equivalents as of March 31, giving it enough funds to continue operations through the end of 2001. The company defaulted on some debt due to its January decision to suspend interest payments on its debt and dividend payments on its preferred stock. The suspension of these payments are expected to reduce the company's cash outflow by about US$400 million in 2001.

Bernard L. Schwartz stepped down May 15 as chairman of Globalstar LP and Olof Lundberg was named as his successor. Lundberg, former Director General of Inmarsat, and then chairman and CEO of ICO Global Communications (leading the company from its establishment through its initial public offering), was also named acting Chief Executive Officer of Globalstar. Lundberg will become chief executive officer upon receipt of the appropriate U.S. immigration documents. Schwartz, chairman of Loral Space & Communications, will remain on Globalstar’s general partners committee, while Loral will continue as managing general partner.

Qualcomm has offered a US$500 million rescue package. Qualcomm, a substantial investor in Globalstar, as well as an equipment supplier and creditor, would provide US$250 million. Another group of investors would put up an additional US$250 million. For the plan to work, Globalstar would have to wipe out its debts by filing for bankruptcy under Chapter 11 of US bankruptcy laws.

Mobile phone manufacturer Ericsson has filed a lawsuit against Globalstar. Ericsson is seeking US$31 million in damages from Globalstar for failing to meet minimum purchasing requirements under two contracts signed between the two companies.

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