1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number: 333-11149
ORBCOMM GLOBAL, L.P.
ORBCOMM GLOBAL CAPITAL CORP.
(Exact name of Registrants as specified in their charters)
54-1698039
DELAWARE 54-1841164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization of Registrants) Identification Nos.)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(Address of Registrants' principal executive offices)
(Zip Code)
(703) 406-6000
(Registrants' telephone number, including area code)
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 and 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the last 90 days.
YES X NO
----- ----
1
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
DECEMBER 31, JUNE 30,
1996 1997
---------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 56,870 $ 37,959
Investments 55,522 41,222
Inventory 1,751 3,850
---------------- ----------------
Total Current Assets 114,143 83,031
Investments 42,360 22,631
Mobile Communications Satellite System,
net of accumulated depreciation 170,034 213,448
Other assets, net 6,138 5,938
Investments in and advances to affiliates (3,166) (680)
---------------- ----------------
TOTAL ASSETS $ 329,509 $ 324,368
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Current portion of long-term debt $ 991 $ 1,039
Accounts payable and accrued expenses 18,298 24,052
---------------- ----------------
Total Current Liabilities 19,289 25,091
Long-term debt 172,278 171,747
---------------- ----------------
Total Liabilities 191,567 196,838
Commitments and contingencies
Partners' Capital:
Teleglobe Mobile Partners 73,596 68,390
Orbital Communications Corporation 64,346 59,140
---------------- ----------------
Total Partners' Capital 137,942 127,530
---------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 329,509 $ 324,368
================ ================
(See accompanying notes to the condensed financial statements)
2
3
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
---------------------------------- ---------------------------------- JUNE 30,
1996 1997 1996 1997 1997
----------------- --------------- -------------- ------------------ -----------------
INCOME:
Product sales $ 55 $ 74 $ 55 $ 207 $ 475
Distribution fees 0 0 0 0 1,000
Other 0 2 0 4 56
----------------- --------------- -------------- ------------------ -----------------
Total Income 55 76 55 211 1,531
EXPENSES:
Cost of product sales 55 83 55 207 475
Depreciation 1,523 1,773 3,042 3,491 9,689
Engineering expenses 1,152 1,833 2,085 3,413 8,866
Marketing, administrative and
other expenses 1,439 1,533 2,275 2,833 9,825
----------------- --------------- -------------- ------------------ -----------------
Total Expenses 4,169 5,222 7,457 9,944 28,855
----------------- --------------- -------------- ------------------ -----------------
Losses from operations (4,114) (5,146) (7,402) (9,733) (27,324)
OTHER INCOME AND EXPENSES:
Interest income (expense), net 2 1,046 17 3,062 6,675
Equity in losses of affiliates (1,004) (1,848) (1,610) (3,671) (9,127)
----------------- --------------- -------------- ------------------ -----------------
DEFICIENCY OF INCOME
OVER EXPENSES $ (5,116) $ (5,948) $ (8,995) $ (10,342) $ (29,776)
================= =============== ============== ================== =================
(See accompanying notes to the condensed financial statements)
3
4
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
------------------------------------ JUNE 30,
1996 1997 1997
---------------- ---------------- ----------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Deficiency of income over expenses $ (8,995) $ (10,342) $ (29,776)
Adjustments to reconcile deficiency
of income over expenses to net cash
provided by (used in) operating activities:
Depreciation 3,042 3,491 9,689
Amortization of financing fees 0 416 722
Equity in losses of affiliates 1,610 3,671 9,127
Increase in receivables (115) (586) (1,856)
Increase in inventory (437) (2,099) (3,850)
Increase in accounts payable and accrued expenses 2,234 5,754 24,052
---------------- ---------------- ----------------
Net cash provided by (used in) operating activities (2,661) 305 8,108
---------------- ---------------- ----------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures (28,948) (46,906) (223,138)
Increase in advances to affiliates (1,694) (6,157) (8,427)
Purchase of investments 0 (32,039) (168,571)
Proceeds from sale of investments 0 66,585 106,592
---------------- ---------------- ----------------
Net cash used in investing activities (30,642) (18,517) (293,544)
---------------- ---------------- ----------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt 0 0 169,475
Repayment of long-term debt (442) (483) (2,213)
Partners' contributions 33,000 0 159,800
Financing fees paid 0 (216) (3,667)
---------------- ---------------- ----------------
Net cash provided by (used in) financing activities 32,558 (699) 323,395
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (745) (18,911) 37,959
CASH AND CASH EQUIVALENTS:
Beginning of period 1,784 56,870 0
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS:
End of period $ 1,039 $ 37,959 $ 37,959
================ ================ ================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 184 $ 12,220 $ 12,992
================ ================ ================
(See accompanying notes to the condensed financial statements)
4
5
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
In 1993, Orbital Communications Corporation ("OCC"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. (the "Company" or
"ORBCOMM"), a Delaware limited partnership. OCC and Teleglobe Mobile also
formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and
ORBCOMM International Partners, L.P. ("ORBCOMM International"), to market
services using the ORBCOMM low-Earth orbit satellite communications system (the
"ORBCOMM System") in the United States and internationally, respectively. In
1995, the Company became a 98% General Partner in ORBCOMM USA, reducing OCC's
direct General Partner interest to 2% and eliminating Teleglobe Mobile's direct
General Partner interest entirely. Simultaneously, the Company became a 98%
General Partner in ORBCOMM International, reducing Teleglobe Mobile's direct
General Partner interest to 2% and eliminating OCC's direct General Partner
interest entirely.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial position
of the Company as of June 30, 1997, the results of its operations for the
three-month and six-month periods ended June 30, 1997 and 1996 and cash flows
for the six-month periods ended June 30, 1997 and 1996, and the period from
June 30, 1993 (date of inception) through June 30, 1997. These condensed
financial statements are unaudited and do not include all related footnote
disclosures and therefore, should be read in conjunction with the audited
financial statements and the footnotes thereto for the year ended December 31,
1996 filed with the Securities and Exchange Commission. Operating results for
the three-month and six-month periods ended June 30, 1997 and 1996,
respectively, are not necessarily indicative of the results of operations
expected in the future, although the Company will continue to be a development
stage enterprise through, and anticipates a net loss for, fiscal year 1997.
3. RELATED PARTY TRANSACTIONS
The Company paid Orbital $20.9 million and $23.8 million for the six
months ended June 30, 1997 and 1996, respectively, and approximately $153.0
million for the period June 30, 1993 (date of inception) through December 31,
1996. Payments were made for work performed pursuant to the ORBCOMM System
Design, Development, and Operations Agreement (for the initial portion of the
ORBCOMM System), the ORBCOMM System Procurement Agreement (for, among other
things, the additional satellites comprising the ORBCOMM System) and the
Administrative Services Agreement (for the provision of ongoing administrative
support to the Company).
4. COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170.0 million of Senior Notes due 2004 with Revenue Participation Interest
(the "Old Notes"). All of the Old Notes were exchanged for an equal principal
amount of registered 14% Series B Senior Notes due 2004 with Revenue
Participation Interest (the "Notes"). The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International (each, a "Guarantor" and collectively, the
"Guarantors"), except that the guarantees are non-recourse to the shareholders
and/or partners of the Guarantors, limited only to the extent necessary for
each such guarantee not to constitute a fraudulent conveyance under applicable
law.
5
6
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
On the closing of the offering of the Old Notes, the Company used
$44.8 million of the net proceeds from the sale of the Old Notes to purchase a
portfolio of U.S. Government securities to provide for payment in full of
interest on the Old Notes and Notes through August 15, 1998. Of this
investment portfolio, $12.1 million was used for the interest payment due on
February 15, 1997. The next semi-annual interest payment on the Notes is due
August 15, 1997.
The Company also has a $5.0 million secured note outstanding with a
financial institution, which bears interest at 9.2% per annum and is due in
monthly principal and interest installments of $104,000 through December 1999.
The note is secured by equipment located at certain of the U.S. Earth stations,
the network control center and the satellite control center, and is guaranteed
by Orbital. A portion of the net proceeds from the offering of the Old Notes,
sufficient to pay when due all remaining interest and principal payments on
this note, was deposited into a segregated account.
6
7
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
December 31, June 30,
1996 1997
-------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 0 $ 0
Accounts receivable 54 54
-------------- -------------
TOTAL ASSETS $ 54 $ 54
============== =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 342 $ 392
-------------- -------------
Total Current Liabilities 342 392
Amount due to ORBCOMM Global, L.P. 3,578 5,949
-------------- -------------
Total Liabilities 3,920 6,341
Commitments and contingencies
Partners' Capital:
Orbital Communications Corporation (77) (126)
ORBCOMM Global, L.P. (3,789) (6,161)
-------------- -------------
Total Partners' Capital (3,866) (6,287)
-------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 54 $ 54
============== =============
(See accompanying notes to the condensed financial statements)
7
8
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
-------------------------------- -------------------------------- JUNE 30,
1996 1997 1996 1997 1997
--------------- -------------- --------------- -------------- --------------
INCOME:
Product sales $ 49 $ 12 $ 49 $ 62 $ 291
Contract revenues 0 0 0 0 4,203
Service revenues 2 11 2 19 30
--------------- -------------- --------------- -------------- --------------
Total Income 51 23 51 81 4,524
EXPENSES:
Cost of product sales 48 70 48 142 404
Marketing and administrative expenses 717 1,107 1,241 2,360 10,417
--------------- -------------- --------------- -------------- --------------
Total Expenses 765 1,177 1,289 2,502 10,821
--------------- -------------- --------------- -------------- --------------
DEFICIENCY OF INCOME
OVER EXPENSES $ (714) $ (1,154) $ (1,238) $ (2,421) $ (6,297)
=============== ============== =============== ============== ==============
(See accompanying notes to the condensed financial statements)
8
9
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
--------------------------------------- JUNE 30,
1996 1997 1997
----------------- ----------------- -------------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Deficiency of income over expenses $ (1,238) $ (2,421) $ (6,297)
Adjustments to reconcile deficiency
of income over expenses to net cash
used in operating activities:
Increase in accounts receivable (59) 0 (54)
Increase (decrease) in accounts payable and
accrued expenses (50) 50 392
----------------- ----------------- -------------------
Net cash used in operating activities (1,347) (2,371) (5,959)
----------------- ----------------- -------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global, L.P. 1,441 2,371 5,949
Partners' contributions 0 0 10
----------------- ----------------- -------------------
Net cash provided by financing activities 1,441 2,371 5,959
----------------- ----------------- -------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 94 0 0
CASH AND CASH EQUIVALENTS:
Beginning of period 10 0 0
----------------- ----------------- -------------------
CASH AND CASH EQUIVALENTS:
End of period $ 104 $ 0 $ 0
----------------- ----------------- -------------------
(See accompanying notes to the condensed financial statements)
9
10
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
In 1993, Orbital Communications Corporation ("OCC"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. (the "Company" or
"ORBCOMM"), a Delaware limited partnership. OCC and Teleglobe Mobile also
formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and
ORBCOMM International Partners, L.P. ("ORBCOMM International"), to market
services using the ORBCOMM low-Earth orbit satellite communications system in
the United States and internationally, respectively. In 1995, the Company
became a 98% General Partner in ORBCOMM USA, reducing OCC's direct General
Partner interest to 2% and eliminating Teleglobe Mobile's direct General
Partner interest entirely.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial position
of ORBCOMM USA as of June 30, 1997, the results of its operations for the
three-month and six-month periods ended June 30, 1997 and 1996 and cash flows
for the six-month periods ended June 30, 1997 and 1996, and the period from
June 30, 1993 (date of inception) through June 30, 1997. These condensed
financial statements are unaudited and do not include all related footnote
disclosures and therefore, should be read in conjunction with the audited
financial statements and the footnotes thereto for the year ended December 31,
1996 filed with the Securities and Exchange Commission. Operating results for
the three-month and six-month periods ended June 30, 1997 and 1996,
respectively, are not necessarily indicative of the results of operations
expected in the future.
3. RELATED PARTY TRANSACTIONS
As of June 30, 1997, ORBCOMM USA had a payable of $5.9 million ($3.6
million as of December 31, 1996) to the Company, none of which is currently
payable, for amounts advanced to support ORBCOMM USA in establishing commercial
and government markets in the United States. ORBCOMM USA is currently in
development stage and obtains funds to support operations through non-interest
bearing advances from the Company.
4. COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170.0 million of Senior Notes due 2004 with Revenue Participation Interest
(the "Old Notes"). All of the Old Notes were exchanged for an equal principal
amount of registered 14% Series B Senior Notes due 2004 with Revenue
Participation Interest (the "Notes"). The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International (each, a "Guarantor" and collectively, the
"Guarantors"), except that the guarantees are non-recourse to the shareholders
and/or partners of the Guarantors, limited only to the extent necessary for
each such guarantee not to constitute a fraudulent conveyance under applicable
law.
10
11
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
December 31, June 30,
1996 1997
---------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 0 $ 0
Accounts receivable 15 22
Prepaid contract costs 3,871 8,572
Amount due from ORBCOMM Global, L.P. 1,309 0
---------------- ----------------
TOTAL ASSETS $ 5,195 $ 8,594
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 729 $ 487
Deferred revenue 6,147 8,636
---------------- ----------------
Total Current Liabilities 6,876 9,123
Amount due to ORBCOMM Global, L.P. 0 2,477
---------------- ----------------
Total Liabilities 6,876 11,600
Commitments and contingencies
Partners' Capital:
Teleglobe Mobile Partners (34) (60)
ORBCOMM Global, L.P. (1,647) (2,946)
---------------- ----------------
Total Partners' Capital (1,681) (3,006)
---------------- ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 5,195 $ 8,594
================ ================
(See accompanying notes to the condensed financial statements)
11
12
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
--------------------------- -------------------------------- JUNE 30,
1996 1997 1996 1997 1997
---------- ------------- ---------------- -------------- --------------
INCOME:
Product sales $ 0 $ 6 $ 0 $ 34 $ 42
EXPENSES:
Cost of product sales 0 6 0 28 $ 34
Marketing and administrative expenses 309 732 405 1,331 $ 3,023
------------ ------------- ---------------- -------------- --------------
Total Expenses 309 738 405 1,359 3,057
------------ ------------- ---------------- -------------- --------------
DEFICIENCY OF INCOME
OVER EXPENSES $ (309) $ (732) $ (405) $ (1,325) $ (3,015)
============ ============= ================ ============== ==============
(See accompanying notes to the condensed financial statements)
12
13
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
---------------------------------- JUNE 30,
1996 1997 1997
------------- ----------------- -------------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Deficiency of income over expenses $ (405) $ (1,325) $ (3,015)
Adjustments to reconcile deficiency
of income over expenses to net cash
used in operating activities:
Increase in accounts receivable (7) (7) (22)
Increase in prepaid contract costs 0 (4,701) (8,572)
Increase (decrease) in accounts payable and accrued expenses 191 (242) 486
Increase in deferred revenue 0 2,489 8,636
------------- ----------------- -------------------
Net cash used in operating activities (221) (3,786) (2,487)
------------- ----------------- -------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Decrease in amount due from ORBCOMM Global, L.P. 0 1,309 0
------------- ----------------- -------------------
Net cash provided by investing activities 0 1,309 0
------------- ----------------- -------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global, L.P. 254 2,477 2,477
Partners' Contributions 0 0 10
------------- ----------------- -------------------
Net cash provided by financing activities 254 2,477 2,487
------------- ----------------- -------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 33 0 0
CASH AND CASH EQUIVALENTS:
Beginning of period 10 0 0
------------- ----------------- -------------------
CASH AND CASH EQUIVALENTS:
End of period $ 43 $ 0 $ 0
============= ================= ===================
(See accompanying notes to the condensed financial statements)
13
14
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
In 1993, Orbital Communications Corporation ("OCC"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. (the "Company" or
"ORBCOMM"), a Delaware limited partnership. OCC and Teleglobe Mobile also
formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and
ORBCOMM International Partners, L.P. ("ORBCOMM International"), to market
services using the ORBCOMM low-Earth orbit satellite communications system in
the United States and internationally, respectively. In 1995, the Company
became a 98% General Partner in ORBCOMM International, reducing Teleglobe
Mobile's direct General Partner interest to 2% and eliminating OCC's direct
General Partner interest entirely.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial position
of ORBCOMM International as of June 30, 1997, the results of its operations for
the three-month and six-month periods ended June 30, 1997 and 1996 and cash
flows for the six-month periods ended June 30, 1997 and 1996, and the period
from June 30, 1993 (date of inception) through June 30, 1997. These condensed
financial statements are unaudited and do not include all related footnote
disclosures and therefore, should be read in conjunction with the audited
financial statements and the footnotes thereto for the year ended December 31,
1996 filed with the Securities and Exchange Commission. Operating results for
the three-month and six-month periods ended June 30, 1997 and 1996,
respectively, are not necessarily indicative of the results of operations
expected in the future.
3. RELATED PARTY TRANSACTIONS
As of June 30, 1997, ORBCOMM International had a payable of $2.5
million to the Company, which is not currently payable (a receivable of $1.3
million that represented net cash out flow to the Company as of December 31,
1996). The payable represents advance funding to support ORBCOMM International
in establishing commercial and government markets outside the United States.
ORBCOMM International is currently in development stage and obtains funds to
support operations through non-interest bearing advances from the Company.
4. COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170.0 million of Senior Notes due 2004 with Revenue Participation Interest
(the "Old Notes"). All of the Old Notes were exchanged for an equal principal
amount of registered 14% Series B Senior Notes due 2004 with Revenue
Participation Interest (the "Notes"). The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International (each, a "Guarantor" and collectively, the
"Guarantors"), except that the guarantees are non-recourse to the shareholders
and/or partners of the Guarantors, limited only to the extent necessary for
each such guarantee not to constitute a fraudulent conveyance under applicable
law.
14
15
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
In October 1996, ORBCOMM International entered into agreements with
certain manufacturers for construction of gateway Earth stations scheduled for
delivery over the next two years, with the first deliveries currently scheduled
for fourth quarter 1997. As of June 30, 1997, ORBCOMM International had $8.6
million of prepaid contract costs that represent advance payments to these
manufacturers ($3.9 million as of December 31, 1996). Total commitments
remaining under these agreements approximate $14.0 million.
5. SERVICE LICENSE AGREEMENTS
ORBCOMM International has signed nine Service License Agreements
("SLAs") with international licensees ("International Licensees"), eight of
which have associated gateway procurement contracts and software license
agreements. These SLAs cover Canada, Europe, the Malaysian Region, a portion
of North Africa, Turkey and Central Asia, the Middle East, Korea, Japan, and a
portion of South America and the Caribbean. The SLAs authorize the
International Licensees to use the ORBCOMM System to provide two-way data and
message communications services. As of June 30, 1997, under these agreements
$8.6 million has been received and recorded as deferred revenue ($2.5 million
during the three-month and six-month periods ended June 30, 1997; none during
the same periods of 1996). ORBCOMM International is obligated to ship eight
gateways to certain International Licensees under certain of these agreements.
15
16
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
DECEMBER 31, JUNE 30,
1996 1997
---------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,618 $ 1,490
Accounts receivable 17 34
Prepaid contract costs 3,871 8,572
Amount due from ORBCOMM Global, L.P. 1,309 0
---------------- -----------------
Total Current Assets 6,815 10,096
Investments in affiliates 74,361 69,516
---------------- -----------------
TOTAL ASSETS $ 81,176 $ 79,612
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 899 $ 562
Deferred revenue 6,147 8,636
---------------- -----------------
Total Current Liabilities 7,046 9,198
Amount due to ORBCOMM Global, L.P. 0 2,477
---------------- -----------------
Total Liabilities 7,046 11,675
Non-controlling interest in net assets
of ORBCOMM International Partners, L.P. (823) (1,472)
Commitments and contingencies
Partners' Capital:
Teleglobe Mobile, L.P. 51,942 48,100
TR (U.S.A.) Ltd. 22,486 20,823
Teleglobe Mobile Investment Inc. 525 486
---------------- -----------------
Total Partners' Capital 74,953 69,409
---------------- -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 81,176 $ 79,612
================ =================
(See accompanying notes to the condensed financial statements)
16
17
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
--------------------------------- -------------------------------- JUNE 30,
1996 1997 1996 1997 1997
--------------- -------------- -------------- --------------- -----------
INCOME:
Product sales $ 0 $ 6 $ 0 $ 34 $ 42
EXPENSES:
Cost of product sales 0 6 0 28 34
Marketing, administrative and other expenses 641 769 799 1,393 5,041
--------------- -------------- -------------- --------------- -----------
Total Expenses 641 775 799 1,421 5,075
--------------- -------------- -------------- --------------- -----------
Losses from operations (641) (769) (799) (1,387) (5,033)
OTHER INCOME AND EXPENSES
Interest income (expense), net 479 20 803 39 1,909
Equity in losses of ORBCOMM Global, L.P. (2,406) (2,732) (4,299) (4,810) (14,004)
Non-controlling interest in losses
of ORBCOMM International Partners, L.P. 151 358 198 649 1,477
--------------- -------------- -------------- --------------- -----------
DEFICIENCY OF INCOME
OVER EXPENSES $ (2,417) $ (3,123) $ (4,097) $ (5,509) $ (15,651)
=============== ============== ============== =============== ===========
(See accompanying notes to the condensed financial statements)
17
18
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
-------------------------------- JUNE 30,
1996 1997 1997
--------- --------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Deficiency of income over expenses $ (4,097) $ (5,509) $ (15,651)
Adjustments to reconcile deficiency
of income over expenses to net cash
provided by (used in) operating activities:
Equity in losses of ORBCOMM Global, L.P. 4,299 4,810 14,004
Non-controlling interest in losses of
ORBCOMM International Partners, L.P. (198) (649) (1,477)
Increase in accounts receivable (108) (17) (34)
Increase in prepaid contract costs 0 (4,701) (8,572)
Increase (decrease) in accounts payable
and accrued expenses 297 (337) 562
Increase in deferred revenue 0 2,489 8,636
----------- ----------- ------------
Net cash provided by (used in) operating activities 193 (3,914) (2,532)
----------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Investments in affiliates (24,430) 0 (83,511)
Decrease in amount due from ORBCOMM Global, L.P. 0 1,309 0
----------- ----------- ------------
Net cash provided by (used in) investing activities (24,430) 1,309 (83,511)
----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Share of financing fees of ORBCOMM Global, L.P. 0 0 (1,014)
Increase in amount due to ORBCOMM Global, L.P. 254 2,477 2,477
Partners' contributions 20,000 0 86,065
Non-controlling interest in net assets
of ORBCOMM International Partners, L.P. 0 0 5
----------- ----------- ------------
Net cash provided by financing activities 20,254 2,477 87,533
----------- ----------- ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (3,983) (128) 1,490
CASH AND CASH EQUIVALENTS:
Beginning of period 34,168 1,618 0
----------- ----------- ------------
CASH AND CASH EQUIVALENTS:
End of period $ 30,185 $ 1,490 $ 1,490
=========== =========== ============
(See accompanying notes to the condensed financial statements)
18
19
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Teleglobe Mobile Partners, a Delaware general partnership (the
"Partnership"), was formed in 1993 for purposes of being a general and a
limited partner in ORBCOMM Global, L.P. (the "Company" or "ORBCOMM"), a
Delaware limited partnership providing international wireless data
communications services using a low-Earth orbit satellite communications system
("the ORBCOMM System"). The Partnership holds a 50% participation percentage
("Participation Percentage") in ORBCOMM, which in turn holds a 98% interest in
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International"), two other partnerships formed to market the ORBCOMM
System. The Partnership also holds directly a 2% Participation Percentage in
ORBCOMM International bringing its direct and indirect Participation Percentage
in ORBCOMM International to 51%.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position of the Partnership as of June 30, 1997, the results of its operations
for the three-month and six-month periods ended June 30, 1997 and 1996 and cash
flows for the six-month periods ended June 30, 1997 and 1996, and the period
from June 30, 1993 (date of inception) through June 30, 1997. These condensed
consolidated financial statements are unaudited and do not include all related
footnote disclosures and therefore, should be read in conjunction with the
audited consolidated financial statements and the footnotes thereto for the
year ended December 31, 1996 filed with the Securities and Exchange Commission.
Operating results for the three-month and six-month periods ended June 30, 1997
and 1996, respectively, are not necessarily indicative of the results of
operations expected in the future.
3. RELATED PARTY TRANSACTIONS
As of June 30, 1997, ORBCOMM International had a payable of $2.5
million to the Company, which is not currently payable (a receivable of $1.3
million that represented net cash out flow to the Company, as of December 31,
1996). The payable represents advance funding to support ORBCOMM International
in establishing commercial and government markets outside the United States.
ORBCOMM International is currently in development stage and obtains funds to
support operations through non-interest bearing advances from the Company.
4. COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170.0 million of Senior Notes due 2004 with Revenue Participation Interest
(the "Old Notes"). All of the Old Notes were exchanged for an equal principal
amount of registered 14% Series B Senior Notes due 2004 with Revenue
Participation Interest (the "Notes"). The Notes are fully and unconditionally
guaranteed on a joint and several basis by the Partnership, OCC, ORBCOMM USA
and ORBCOMM International (each, a "Guarantor" and collectively, the
"Guarantors"), except that the guarantees are non-recourse to the shareholders
and/or partners of the Guarantors, limited only to the extent necessary for
each such guarantee not to constitute a fraudulent conveyance under applicable
law.
19
20
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
In October 1996, ORBCOMM International entered into agreements with
certain manufacturers for construction of gateway Earth stations scheduled for
delivery over the next two years, with the first deliveries currently scheduled
for fourth quarter 1997. As of June 30, 1997, ORBCOMM International had $8.6
million of prepaid contract costs that represent advance payments to these
manufacturers ($3.9 million as of December 31, 1996). Total commitments
remaining under these agreements approximate $14.0 million.
5. SERVICE LICENSE AGREEMENTS
ORBCOMM International has signed nine Service License Agreements
("SLAs") with international licensees ("International Licensees"), eight of
which have associated gateway procurement contracts and software license
agreements. These SLAs cover Canada, Europe, the Malaysian Region, a portion
of North Africa, Turkey and Central Asia, the Middle East, Korea, Japan, and a
portion of South America and the Caribbean. The SLAs authorize the
International Licensees to use the ORBCOMM System to provide two-way data and
message communications services. As of June 30, 1997, under these agreements
$8.6 million has been received and recorded as deferred revenue ($2.5 million
during the three-month and six-month periods ended June 30, 1997; none during
the same periods of 1996). ORBCOMM International is obligated to ship eight
gateways to certain International Licensees under certain of these agreements.
20
21
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 142 $ 79
Accounts receivable 29 54
----------- -----------
Total Current Assets 171 133
Investments in affiliates 67,667 63,682
----------- -----------
TOTAL ASSETS $ 67,838 $ 63,815
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued expenses $ 117 $ 387
Short-term debt 554 159
----------- -----------
Total Current Liabilities 671 546
Due to affiliates 78,728 81,178
----------- -----------
Total Liabilities 79,399 81,724
Non-controlling interest in net assets of ORBCOMM USA, L.P. (1,894) (3,080)
Commitments and contingencies
Stockholders' Deficit:
Common stock, par value $0.01; 8,000,000 shares authorized;
4,730,392 and 4,748,792 shares issued;
4,679,620 and 4,698,020 shares outstanding 47 47
Additional paid-in capital 210 287
Treasury stock (155) (736)
Retained deficit (9,769) (14,427)
----------- -----------
Total Stockholders' Deficit (9,667) (14,829)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 67,838 $ 63,815
=========== ===========
(See accompanying notes to the condensed financial statements)
21
22
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1996 1997 1996 1997
------- ------- ------- -------
INCOME:
Product sales $ 49 $ 12 $ 49 $ 62
Service revenues 2 11 2 19
------- ------- ------- -------
Total Income 51 23 51 81
EXPENSES:
Cost of product sales 48 70 48 142
Marketing, administrative and other expenses 684 1,116 1,211 1,798
------- ------- ------- -------
Total Expenses 732 1,186 1,259 1,940
------- ------- ------- -------
Losses from operations (681) (1,163) (1,208) (1,859)
OTHER INCOME AND EXPENSES:
Equity in losses of ORBCOMM Global, L.P. (2,208) (2,409) (3,891) (3,985)
Non-controlling interest in losses of ORBCOMM USA, L.P. 349 565 606 1,186
------- ------- ------- -------
DEFICIENCY OF INCOME
OVER EXPENSES $(2,540) $(3,007) $(4,493) $(4,658)
======= ======= ======= =======
(See accompanying notes to the condensed financial statements)
22
23
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1997
-------- --------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Deficiency of income over expenses $ (4,493) $(4,658)
Adjustments to reconcile deficiency
of income over expenses to net cash
used in operating activities:
Equity in losses of ORBCOMM Global, L.P. 3,891 3,985
Non-controlling interest in losses of ORBCOMM USA, L.P. (606) (1,186)
Decrease (increase) in accounts receivable 848 (25)
Increase in accounts payable and accrued expenses 148 270
Increase (decrease) in short-term debt 117 (395)
---------- ---------
Net cash used in operating activities (95) (2,009)
---------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Investments in affiliates (8,570) 0
---------- ---------
Net cash used in investing activities (8,570) 0
---------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from sale of common stock to employees 109 77
Purchases of treasury stock 0 (581)
Net borrowings from affiliates 1,441 2,013
Net borrowings from Orbital Sciences Corporation 7,432 437
---------- ---------
Net cash provided by financing activities 8,982 1,946
---------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 317 (63)
CASH AND CASH EQUIVALENTS:
Beginning of period 0 142
---------- ---------
CASH AND CASH EQUIVALENTS:
End of Period $ 317 $ 79
========== =========
(See accompanying notes to the condensed financial statements)
23
24
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Orbital Communications Corporation ("OCC") is a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital") and is included in
Orbital's consolidated financial statements. In 1993, OCC and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. (the "Company" or
"ORBCOMM"), a Delaware limited partnership, and two marketing partnerships,
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International"). OCC and Teleglobe Mobile are each 50% General
Partners in ORBCOMM, and ORBCOMM is a 98% General Partner in each of the two
marketing partnerships. Additionally, OCC is a 2% direct General Partner in
ORBCOMM USA, and Teleglobe Mobile is a 2% direct General Partner in ORBCOMM
International. Directly and indirectly, OCC currently holds 51% and 49% of
ORBCOMM USA and ORBCOMM International, respectively.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position of OCC as of June 30, 1997, the results of its operations for the
three-month and six-month periods ended June 30, 1997 and 1996 and cash flows
for the six-month periods ended June 30, 1997 and 1996. These condensed
consolidated financial statements are unaudited and do not include all related
footnote disclosures and therefore, should be read in conjunction with the
audited consolidated financial statements and the footnotes thereto for the
year ended December 31, 1996 filed with the Securities and Exchange Commission.
Operating results for the three-month and six-month periods ended June 30, 1997
and 1996, respectively, are not necessarily indicative of the results of
operations expected in the future.
3. RELATED PARTY TRANSACTIONS
OCC obtains virtually all of its funding for operations and for its
capital investments in the Company from Orbital via a non-interest bearing
intercompany borrowing agreement. As of June 30, 1997 and December 31, 1996,
OCC owed Orbital $75.2 million and $74.8 million, respectively, none of which
is currently payable.
As of June 30, 1997, ORBCOMM USA had a payable of $5.9 million ($3.6
million as of December 31, 1996) to the Company, none of which is currently
payable, for amounts advanced to support ORBCOMM USA in establishing commercial
and government markets in the United States. ORBCOMM USA is currently in
development stage and obtains funds to support operations through non-interest
bearing advances from the Company.
4. COMMITMENTS AND CONTINGENCIES
On August 7, 1996, the Company and ORBCOMM Global Capital Corp. issued
$170.0 million senior unsecured notes due 2004 (the "Notes") to institutional
investors. The Notes bear interest at a fixed rate of 14% and provide for
noteholder participation in future ORBCOMM service revenues. The Notes are
fully and unconditionally guaranteed on a joint and several basis by OCC,
Teleglobe Mobile, ORBCOMM USA and ORBCOMM International. The guarantees are
non-recourse to the shareholders and/or partners of the guarantors.
24
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In 1993, ORBCOMM Global, L.P. (the "Company" or "ORBCOMM") was formed by
Orbital Sciences Corporation ("Orbital"), acting through Orbital Communications
Corporation ("OCC"), and Teleglobe Inc. ("Teleglobe"), acting through Teleglobe
Mobile Partners ("Teleglobe Mobile"). Each of OCC and Teleglobe Mobile
acquired and currently owns a 50% interest in the Company, with Technology
Resources Industries Bhd. (through TR (U.S.A.) Ltd.) now holding a 30% interest
in Teleglobe Mobile. Concurrently with the formation of the Company, OCC and
Teleglobe Mobile formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM
USA") and ORBCOMM International Partners, L.P. ("ORBCOMM International")
(collectively, the "Marketing Partnerships"), with the exclusive right to
market services using the Company's low-Earth orbit satellite communications
system (the "ORBCOMM System") in the United States and internationally,
respectively. The Company is a 98% General Partner in each of the Marketing
Partnerships, while OCC and Teleglobe Mobile control the remaining 2% of
ORBCOMM USA and ORBCOMM International, respectively. OCC retains control over
the applicable Federal Communications Commission ("FCC") licenses (the "FCC
Licenses") and the ORBCOMM System, consistent with FCC regulations.
To date, OCC and Teleglobe Mobile have invested an aggregate of
approximately $160.0 million in the ORBCOMM project. In addition, on August 7,
1996, the Company and ORBCOMM Global Capital Corp. ("Capital") completed a
private placement (the "Old Notes Offering") of $170.0 million 14% Senior Notes
due 2004 with Revenue Participation Interest (the "Old Notes"). In January
1997, all of the Old Notes were exchanged for notes that are substantially
similar to the Old Notes, except that the new notes (the "Notes") are
registered under the Securities Act of 1933, as amended. The Notes are fully
and unconditionally guaranteed on a joint and several basis by OCC, Teleglobe
Mobile, ORBCOMM USA and ORBCOMM International, except that the guarantees are
non-recourse to the shareholders and/or partners of the guarantors, limited
only to the extent necessary for each such guarantee not to constitute a
fraudulent conveyance under applicable law.
ORGANIZATIONAL STRUCTURE; FINANCIAL REPORTING
Pursuant to the terms of the partnership agreements for the Company and
the Marketing Partnerships: (i) OCC and Teleglobe Mobile share equal
responsibility for the operational and financial affairs of the Company; (ii)
OCC generally controls the operational and financial affairs of ORBCOMM USA;
and (iii) Teleglobe Mobile generally controls the operational and financial
affairs of ORBCOMM International. Since OCC and Teleglobe Mobile have
effective control over ORBCOMM USA and ORBCOMM International, respectively, the
Company accounts for the Marketing Partnerships using the equity method of
accounting. The Company does not consolidate, and therefore does not report in
its financial statements, ORBCOMM USA's and ORBCOMM International's actual
assets, liabilities and operating revenues and expenses. Instead, the
Company's proportionate share of the deficiency of income over expenses of the
Marketing Partnerships is recorded under the caption "Equity in losses of
affiliates" in the Company's financial statements. Correspondingly, the
Company's investment in the Marketing Partnerships is carried at cost,
subsequently adjusted for the proportionate share of net income and losses,
additional capital contributions and distributions under the caption
"Investments in and advances to affiliates." Investors are encouraged to refer
to the financial statements of both ORBCOMM USA and ORBCOMM International
included elsewhere in this report.
25
26
ORBCOMM USA pays to OCC an output capacity charge ("Output Capacity
Charge") that is a quarterly fee equal to 23% of ORBCOMM USA's total service
revenues for such calendar quarter in exchange for the exclusive right to
market, sell, lease and franchise all ORBCOMM System output capacity in the
United States and exclusive use of the tangible assets (including software)
located in the United States to be delivered to the Company pursuant to certain
procurement agreements (the "System Assets"). In consideration of the
construction and financing of the System Assets by the Company, OCC, in turn,
pays to the Company a system charge that is a quarterly fee equal to the Output
Capacity Charge less 1.15% of total aggregate revenues, defined as the
aggregate of ORBCOMM USA's and ORBCOMM International's total system service
revenues ("Total Aggregate Revenues").
ORBCOMM International pays to Teleglobe Mobile an international output
capacity charge ("International Output Capacity Charge") that is a quarterly
fee equal to 23% of ORBCOMM International's total service revenues for such
calendar quarter in exchange for the exclusive right to market, sell, lease and
franchise all ORBCOMM System output capacity outside the United States. In
consideration of the grant by the Company to Teleglobe Mobile of the exclusive
right to market, sell, lease and franchise all ORBCOMM System output capacity
outside the United States, Teleglobe Mobile, in turn, pays to the Company an
international system charge that is a quarterly fee equal to the International
Output Capacity Charge less 1.15% of Total Aggregate Revenues.
SERVICE ROLL-OUT
The roll-out of ORCOMMM System services will occur in two stages.
Commercial intermittent service commenced in the United States in February
1996. The Company currently serves several U.S. market segments that can
benefit from intermittent data communications services, such as oil and gas
pipeline monitoring, certain environmental monitoring, and tracking and
positioning applications. As additional satellites are added to the
constellation, it will become possible to serve additional market segments such
as certain messaging applications that require real time services. Orbital,
the Company's satellite and launch services provider, has indicated that the
first plane of eight satellites is currently planned to be launched on a
Pegasus XL(R) launch vehicle during the fourth quarter of 1997, with the second
plane of eight satellites currently planned to be launched within approximately
two to three months after the launch of the first plane of eight satellites and
the third plane of eight satellites currently planned to be launched within
approximately two to three months after the launch of the second plane of eight
satellites. Orbital has also indicated that the two additional satellites that
are a secondary payload on a Taurus(R) launch vehicle are currently planned to
be launched in approximately 60 to 90 days. Service outside the United States
will be provided as international licensees ("International Licensees") receive
regulatory approval and build network ground systems.
To facilitate the introduction and development of commercial service, the
Company procured several thousand subscriber communicators ("Subscriber
Communicators") from certain of its Subscriber Communicator manufacturers. The
Company believes that this inventory will be sufficient to support certain
market sales activities through at least the end of 1997. By the third quarter
of 1997, the Company also expects to complete construction of a new network
control center that is designed to be capable of supporting the full
constellation of ORBCOMM System satellites.
REVENUE
Currently, during the period of commercial intermittent services, ORBCOMM
USA is building an initial base of subscribers in the United States through
value-added resellers ("Resellers"), who purchase ORBCOMM System services
directly from ORBCOMM USA, and through direct sales activities.
In the United States, service pricing is based on many variables,
including the availability and cost of substitute services, the cost of
providing service and the nature of the user application. Pricing generally
incorporates an initial registration charge, a recurring monthly charge for
access to the ORBCOMM System and usage charges based on the customer's
activity. In charging for registration, access and usage, the Company has
26
27
developed pricing structures in the United States that suit the initial markets
addressed by the existing two-satellite system. Additional pricing, including
priority and other real time messaging pricing, will be developed as the full
deployment of satellites in the ORBCOMM System occurs. It is likely that
multiple pricing alternatives will be offered in the United States, including
peak/off-peak, volume discounts and annual contract commitment options.
The Company has a standard service license agreement ("Service License
Agreement") for execution by International Licensees, who are responsible for
obtaining all necessary licenses and approvals for use of the ORBCOMM System in
their territory. Certain International Licensees will pay to ORBCOMM
International a fee in exchange for the exclusive right to market services
using the ORBCOMM System in a specified service territory. In addition,
International Licensees will pay a monthly satellite usage fee based on the
greater of a percentage of gross operating revenues and a data throughput fee.
On the execution of a Service License Agreement, an International Licensee is
required to purchase a gateway ("Gateway") from ORBCOMM International or to
share the U.S. Gateway or a closely located Gateway operated by another
International Licensee.
Retail pricing in their respective territories will be at the discretion
of the International Licensees and is expected to vary from country to country
to reflect variations in economic conditions, the availability of substitute
services, local customs and government policies regarding competition.
OPERATING EXPENSES
As discussed above, the Company owns and operates the assets, other than
the FCC Licenses, that comprise the ORBCOMM System. Satellite-based
communications systems are characterized by high up-front capital expenditures
and relatively low marginal costs for providing service. Beginning in January
1996, the Company has been depreciating some of its assets, recording a
depreciation charge in its statements of operations. Additionally, the Company
incurs, and reports in its financial statements, engineering and other
operating expenses associated with the actual operation of the ORBCOMM System.
RESULTS OF OPERATIONS - ORBCOMM
The Company commenced commercial intermittent service in the United States
on February 1, 1996 and has generated minimal revenues and negative cash flows
to date. The Company's activities have focused primarily on the acquisition of
regulatory approvals for operation of the ORBCOMM System, design, construction
and deployment of its initial satellites and associated network systems, design
and construction of additional satellites, execution of reseller agreements
with domestic Resellers and Service License Agreements with International
Licensees, identification of potential International Licensees in countries
outside the United States, identification and authorization of Subscriber
Communicator manufacturers and hiring of management and other key personnel.
Income. In 1995, the Company received a non-refundable fee from a
potential International Licensee. The Company recognized this non-refundable
fee over the term of the relevant agreement. No such fees were received in
earlier periods or during the six-month period ended June 30, 1997.
In late 1994, the Company borrowed $5.0 million, which bears interest at
9.2% per annum, from MetLife Capital Corporation ("MetLife") pursuant to a Loan
and Security Agreement dated December 22, 1994 between MetLife and the Company
(the "MetLife Note") to help finance a portion of the ORBCOMM System. In
addition, in August 1996, ORBCOMM closed the Old Notes Offering. The proceeds
from the sale of the Old Notes are invested primarily in short-term government
securities, with certain restrictions attached to all of the investment
portfolio. A portion of the net proceeds from the Old Notes Offering,
sufficient to pay when due all remaining interest and principal payments on the
MetLife Note, was deposited into a segregated account. In January 1997, all of
the Old Notes were exchanged for the Notes. The Company recognized interest
income on the invested portion of the MetLife Note and the proceeds of the Old
Notes Offering of $3.1 million and $17,000 for the six months ended June 30,
1997 and 1996, respectively.
Expenses. As discussed above, the Company is in its development stage and
does not anticipate emerging from the development stage until mid-to late 1998.
During the construction phase of the ORBCOMM System, the Company has
capitalized all construction costs, consisting primarily of satellites, launch
vehicles and the U.S. ground segment procured from Orbital. Research and
development expenses and selling, general and
27
28
administrative costs have been expensed in the period incurred. Interest
expense and revenue participation interest, where appropriate, related to the
MetLife Note, the Old Notes and the Notes has been capitalized as part of the
historical cost of the ORBCOMM System.
The Company incurred $2.8 million and $2.3 million of marketing,
administrative and other expenses for the six months ended June 30, 1997 and
1996, respectively. The Company also incurred $3.4 million and $2.1 million of
ORBCOMM System engineering expenses for the six months ended June 30, 1997 and
1996, respectively. The Company is capitalizing the portion of engineering
direct labor costs that relates to hardware and system design, development and
coding of the software products that enhance the operation of the ORBCOMM
System. The Company also incurred $3.5 million and $3.0 million in ORBCOMM
System depreciation expenses for the six months ended June 30, 1997 and 1996,
respectively, as the ORBCOMM System became available for service in early 1996.
Equity in losses of affiliates. The Company recognized its shares of
ORBCOMM USA's and ORBCOMM International's losses, consisting primarily of
marketing expenses, of $3.7 and $1.6 million for the six months ended June 30,
1997 and 1996, respectively. Each of ORBCOMM USA and ORBCOMM International
formally began their marketing efforts in 1995 in anticipation of commercial
service in 1996.
RESULTS OF OPERATIONS - ORBCOMM USA
Income. In 1993, 1994 and 1995, ORBCOMM USA performed marketing
activities for the U.S. market pursuant to a contract with OCC (the "System
Charge Agreement"), whereby OCC reimbursed ORBCOMM USA for all marketing costs
incurred. Accordingly, ORBCOMM USA recognized contract revenues of $4.2
million from June 30, 1993 (date of inception) through September 30, 1995. The
U.S. marketing service portion of the System Charge Agreement expired in 1995.
During the first six months of 1997 and 1996, ORBCOMM USA recognized revenues
relating to the provision of products and services of $81,000 and $51,000,
respectively.
Expenses. ORBCOMM USA incurred $2.4 million and $1.2 million of marketing
and administrative expenses and $142,000 and $48,000 of cost of product sales
for the six months ended June 30, 1997 and 1996, respectively (once the ORBCOMM
System began operations). Pursuant to the System Charge Agreement, ORBCOMM USA
incurred contract marketing costs of $4.2 million from June 30, 1993 (date of
inception) through September 30, 1995.
RESULTS OF OPERATIONS - ORBCOMM INTERNATIONAL
Expenses. ORBCOMM International incurred $1.3 million and $405,000 of
marketing and administrative expenses for the six months ended June 30, 1997
and 1996, respectively. As of June 30, 1997, ORBCOMM International had $8.6
million of prepaid contract costs, which represent advance payments to certain
manufacturers for construction of gateway Earth stations scheduled for delivery
over the next two years, with the first deliveries currently scheduled for
fourth quarter 1997.
Service License Agreements. ORBCOMM International has signed nine Service
License Agreements with International Licensees, eight of which have associated
Gateway procurement contracts and software license agreements. These Service
License Agreements cover Canada, Europe, the Malaysian Region, a portion of
North Africa, Turkey and Central Asia, the Middle East, Korea, Japan, and a
portion of South America and the Caribbean. The Service License Agreements
authorize the International Licensees to use the ORBCOMM System to provide
two-way data and message communications services. As of June 30, 1997, under
these agreements, $8.6 million has been received and recorded as deferred
revenue. ORBCOMM International is obligated to ship eight gateways to certain
International Licensees under certain of these agreements. ORBCOMM
International generally recognizes fees from Service License Agreements ratably
over the term of the agreement, or when ORBCOMM International's obligations
thereunder are substantially complete. Revenue under the Gateway procurement
contracts is generally recognized when products are shipped or when customers
have accepted the products or services, depending on contractual terms.
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SUPPLEMENTAL DATA
Set forth below is certain supplemental data for the ORBCOMM System
comprising data of the Company, ORBCOMM USA and ORBCOMM International for the
six months ended June 30, 1997. Such supplemental data should be read in
conjunction with the financial statements of the Company, ORBCOMM USA and
ORBCOMM International and the notes thereto located elsewhere in this report.
SUPPLEMENTAL DATA
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
ORBCOMM ORBCOMM ELIMINATION
ORBCOMM USA INTERNATIONAL ENTRIES TOTAL
-------------- ---------- ------------- ----------- ---------
Income(1) $ 211 $ 81 $ 34 $ (170) $ 156
Interest income (expense),
net 3,062 (2) 0 0 3,062
Expenses 9,944 (3) 2,502 1,359 170 13,635
Losses before
interest and taxes (9,733) (4) (2,421) (1,325) (13,479)
Net loss (6,671) (4) (2,421) (1,325) (10,417)
Capital expenditures 46,906 (5) 0 0 46,906
SUPPLEMENTAL DATA
AS OF JUNE 30, 1997
(IN THOUSANDS, EXCEPT UNIT INFORMATION)
ORBCOMM ORBCOMM
ORBCOMM USA INTERNATIONAL TOTAL
------------- --------- ------------- ----------
Cash and cash equivalents $ 37,959 $ 0 $ 0 $ 37,959
Mobile Communications
Satellite System, net 213,448 0 0 213,448
Total debt 172,786 0 0 172,786
Subscriber Communicators (units) 0 404 85 489
- -----------------------
(1) As development-stage enterprises, none of the Company, ORBCOMM USA and
ORBCOMM International had any significant operating revenues for the six
months ended June 30, 1997.
(2) Net of $416 of amortization of financing fees.
(3) Includes depreciation expenses of $3,491. Interest expense of $11,899 was
capitalized for the six months ended June 30, 1997.
(4) Excludes equity in losses of affiliates of $3,671.
(5) Represents capital expenditures, principally for the construction of the
space and ground network system elements.
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LIQUIDITY AND CAPITAL RESOURCES
The development of the Company's business, design, development and
deployment of the ORBCOMM System satellites, and construction of the network
control center and U.S. Gateway have resulted in substantial capital
expenditures during the past several years. Capital expenditures by the
Company were $223.1 million from June 30, 1993 (date of inception) to June 30,
1997. Capital expenditures for the six months ended June 30, 1997 and 1996
were $46.9 million and $28.9 million, respectively.
A combination of operating losses and substantial capital expenditures
related to the development of the ORBCOMM System has resulted in negative cash
flows since 1994. Funding of this cash flows deficiency has been accomplished
through capital contributions from OCC and Teleglobe Mobile and through the
proceeds from the Old Notes Offering and the MetLife Note. The Company expects
to have to continue to fund operating losses as the Company develops and
expands its business. The Company has set aside a sufficient amount in a
segregated account to provide for payments in full of interest on the Old Notes
and Notes through August 15, 1998. Following August 15, 1998, interest expense
on the Notes will represent a significant cash requirement for the Company.
The total cost of the construction and deployment of the ORBCOMM System is
estimated to be approximately $258.0 million. Of this amount, approximately
$202.0 million will be used for the satellite constellation, ground spares and
launch services, approximately $30.0 million will be used for the U.S. ground
segment, approximately $8.0 million will be used for insurance and
approximately $18.0 million will be used for other costs. As of June 30, 1997,
$223.1 million of this amount had been expended. To date, the Company's
partners have invested approximately $160.0 million in the ORBCOMM project.
Such equity investments, together with the proceeds of the Old Notes Offering,
the MetLife Note and cash expected to be generated from operations, is expected
to allow the Company to meet its financial obligations through at least the end
of 1997. The Company believes that a portion of cash from operations through
the end of 1997 will be generated through international license fees obtained
by entering into Service License Agreements. The Company expects to continue
to generate negative cash flows through all of 1998. The Company expects that
its capital requirements in 1998 will be provided by cash flows from operations
and other potential sources, consistent with the covenants contained in the
indenture governing the Notes (the "Indenture"), including capital
contributions, equity investments, credit facilities and/or operating lease
arrangements. Under certain circumstances as specified in the Indenture,
Orbital and Teleglobe have agreed to provide to the Company an aggregate amount
not to exceed $30.0 million in capital contributions or debt financing
expressly subordinated to the Notes.
The Notes contain a revenue participation feature providing for
payment by the Company, on each interest payment date, of interest ("Revenue
Participation Interest") in an aggregate amount equal to 5% of System Revenue
(as defined in the Indenture) for the six-month period ending on December 31 or
June 30 most recently completed prior to such interest payment date. The
Company is not required to pay any Revenue Participation Interest, however,
until the Credit Parties Fixed Charge Coverage Ratio (as defined in the
Indenture) for the four consecutive fiscal quarters last completed prior to
such interest payment date equals or exceeds 2:1. Once this ratio is exceeded,
the Company will have to pay additional interest on the Notes beyond the base
rate of 14%, which will negatively impact the Company's liquidity.
There are no distributions required to be made to the partners of the
Company other than a minimum annual distribution required by the ORBCOMM
Partnership Agreement in the amount of 40%, multiplied by the lesser of (a)
such partners' distributive share of the Company's taxable income for the
preceding year, and (b) the excess, if any, of cumulative Net Income (as
defined) over cumulative Net Loss (as defined) allocated to such partner since
the inception of the Company. All other distributions are to be made at the
discretion of the partners. Pursuant to the covenants contained in the
Indenture, no additional cash distributions are permitted to be made to the
partners of the Company other that those distributions that satisfy the
requirements of the various limitations on "Restricted Payments" contained in
the Indenture. To the extent that such requirements are met and the partners
receive additional cash distributions from the Company beyond those required by
the ORBCOMM Partnership Agreement, this could negatively impact the Company's
liquidity.
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31
LOAN AGREEMENT WITH METLIFE CAPITAL CORPORATION
Under the terms of the MetLife Note, MetLife loaned $5.0 million to the
Company, and in connection therewith the Company granted to MetLife a security
interest in certain equipment of the Company. The MetLife Note is guaranteed
by Orbital. As of June 30, 1997, $2.8 million was outstanding under the
MetLife Note. The Notes rank pari passu in right and priority of payment with
the MetLife Note, except to the extent of the collateral securing such MetLife
Note.
FORWARD LOOKING STATEMENTS
When used in this report, the words "expects," "anticipates" and similar
expressions are intended to identify forward looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed in any of the forward
looking statements. Such risks and uncertainties include, but are not limited
to, industry-wide market factors, market acceptance of products and services
offered by the Company and potential launch delays and risks associated with
the launch and operation of a satellite system.
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32
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A complete list of the exhibits required to be filed with
this report on Form 10-Q is provided in the Exhibit Index
that precedes the exhibits filed with this report.
(b) Neither the Company nor Capital has previously been
required to file a report on Form 8-K under the Act.
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33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
ORBCOMM GLOBAL, L.P.
Date: August 14, 1997 By: /s/ ALAN L. PARKER
---------------------------
Alan L. Parker
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1997 By: /s/ W. BARTLETT SNELL
---------------------------
W. Bartlett Snell
Senior Vice President, Finance and
Administration and
Chief Financial Officer
(Principal Financial Officer)
ORBCOMM GLOBAL CAPITAL
CORP.
Date: August 14, 1997 By: /s/ ALAN L. PARKER
---------------------------
Alan L. Parker
President
(Principal Executive Officer)
Date: August 14, 1997 By: /s/ W. BARTLETT SNELL
---------------------------
W. Bartlett Snell
Vice President and Treasurer
(Principal Financial Officer)
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EXHIBIT INDEX
The following exhibits are filed as part of this report.
EXHIBIT NO. DESCRIPTION
----------- -----------------------------------------------------------
27 Financial Data Schedule (such schedule is furnished for
the information of the Securities and Exchange
Commission and is not to be deemed "filed" as part of
the Form 10-Q, or otherwise subject to the liabilities
of Section 18 of the Securities Exchange Act of 1934.)
(Transmitted herewith.)
34