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 September 30, 1998
Commission file number: 333-11149
ORBCOMM GLOBAL, L.P.
ORBCOMM GLOBAL CAPITAL CORP.
ORBCOMM CORPORATION
(Exact Name of Registrants as Specified in their Charters)
54-1698039
54-1841164
DELAWARE 54-1890273
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization of Registrants) Identification Nos.)
2455 HORSE PEN ROAD, SUITE 100
HERNDON, VIRGINIA 20171
(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 or 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 past 90 days.
YES X NO
--- ---
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,321 $ 16,106
Investments 0 22,756
Other assets 4,431 4,091
---------------- ----------------
Total Current Assets 11,752 42,953
ORBCOMM System, net 314,954 263,379
Other assets, net 4,897 5,527
Investments in and advances to affiliates 3,101 5,110
---------------- ----------------
TOTAL ASSETS $ 334,704 $ 316,969
================ ================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Current portion of long-term debt $ 1,197 $ 1,087
Accounts payable - Orbital Sciences
Corporation 43,603 21,100
Other accounts payable and accrued
liabilities 11,179 17,174
---------------- ----------------
Total Current Liabilities 55,979 39,361
Long-term debt 170,275 171,190
---------------- ----------------
Total Liabilities 226,254 210,551
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners 60,850 57,834
Orbital Communications Corporation 47,600 48,584
---------------- ----------------
Total Partners' Capital 108,450 106,418
---------------- ----------------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL $ 334,704 $ 316,969
================ ================
(See accompanying notes to 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 NINE MONTHS ENDED STAGE
SEPTEMBER 30, SEPTEMBER 30, THROUGH
-------------------- -------------------- SEPTEMBER 30,
1998 1997 1998 1997 1998
---------- -------- ---------- --------- --------------
REVENUES:
Product sales $ 197 $ 138 $ 924 $ 349 $ 1,771
Distribution fees 0 0 0 0 1,000
----------- --------- ---------- --------- -----------
Total revenues 197 138 924 349 2,771
EXPENSES:
Costs of product sales 188 136 905 343 1,690
Depreciation 3,021 1,854 7,359 5,345 20,905
Engineering expenses 4,644 2,445 11,969 5,858 25,582
Marketing,
administrative and
other expenses 10,886 2,595 24,089 5,428 43,151
----------- --------- ---------- --------- -----------
Total expenses 18,739 7,030 44,322 16,974 91,328
----------- --------- ---------- --------- -----------
Loss from operations (18,542) (6,892) (43,398) (16,625) (88,557)
OTHER INCOME AND EXPENSES:
Interest income, net
of interest expense
of $210, $206,
$630 and $625,
respectively 120 979 481 4,041 8,639
Equity in losses of affiliates (818) (1,853) (4,051) (5,524) (17,920)
----------- --------- ---------- --------- -----------
NET LOSS $ (19,240) $ (7,766) $ (46,968) $(18,108) $ (97,838)
=========== ========= ========== ========= ===========
(See accompanying notes to 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
NINE MONTHS ENDED STAGE
SEPTEMBER 30, THROUGH
------------------------ SEPTEMBER 30,
1998 1997 1998
----------- ----------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (46,968) $ (18,108) $ (97,838)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
Depreciation 7,359 5,345 20,905
Amortization of financing fees 630 625 1,770
Equity in losses of affiliates 4,051 5,524 17,920
Increase in other assets (340) (2,452) (4,431)
Increase in accounts payable -
Orbital Sciences Corporation 22,503 0 43,603
Increase (decrease) in other
accounts payable and accrued liabilities (5,995) (4,062) 11,179
----------- ----------- --------------
NET CASH USED IN OPERATING ACTIVITIES (18,760) (13,128) (6,892)
----------- ----------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (58,934) (65,901) (335,859)
Increase in amount due from
affiliates (2,042) (7,768) (20,668)
Purchase of investments (5,195) (39,660) (189,184)
Proceeds from sale of investments 27,951 98,964 188,851
----------- ----------- --------------
NET CASH USED IN INVESTING ACTIVITIES (38,220) (14,365) (356,860)
----------- ----------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt 0 0 169,475
Repayment of long-term debt (805) (735) (3,527)
Partners' contributions 49,000 0 208,800
Financing fees paid 0 (223) (3,675)
----------- ----------- --------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 48,195 (958) 371,073
----------- ----------- --------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (8,785) (28,451) 7,321
CASH AND CASH EQUIVALENTS:
Beginning of period 16,106 56,870 0
----------- ----------- --------------
CASH AND CASH EQUIVALENTS:
End of period $ 7,321 $ 28,419 $ 7,321
=========== =========== ==============
(See accompanying notes to 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"), 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-based 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 partnership interest
to 2% and eliminating Teleglobe Mobile's direct partnership interest entirely.
Simultaneously, the Company became a 98% general partner in ORBCOMM
International, reducing Teleglobe Mobile's direct partnership interest to 2% and
eliminating OCC's direct partnership 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 September 30, 1998, the results of its operations for the
three-month and nine-month periods ended September 30, 1998 and 1997, and cash
flows for the nine-month periods ended September 30, 1998 and 1997, and the
period from June 30, 1993 (date of inception) through September 30, 1998. 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, 1997 filed with the Securities and Exchange Commission (the
"Commission"). Operating results for the three months and nine months ended
September 30, 1998 are not necessarily indicative of the results of operations
expected in the future, although the Company anticipates a net loss for the
year 1998.
(3) RELATED PARTY TRANSACTIONS
The Company paid Orbital $4,563,000 and $35,200,000 for the nine months
ended September 30, 1998 and 1997, respectively, and approximately $195,000,000
for the period June 30, 1993 (date of inception) through December 31, 1997.
Payments were made for work performed pursuant to the ORBCOMM System Design,
Development and Operations Agreement, the ORBCOMM System Procurement Agreement
(the "Procurement Agreement") and the Administrative Services Agreement (for
provision of ongoing administrative support to the Company). Additionally,
Orbital has deferred and has indicated that it will continue to defer invoicing
of certain amounts under the Procurement Agreement until other funding
arrangements for the Company are secured.
5
6
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% 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, 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.
On the closing of the Old Notes, the Company used $44,800,000 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. All of this investment portfolio has
been used to pay semi-annual interest that was due on the Notes in 1997 and
1998.
The Company also has a $5,000,000 secured note with a financial
institution of which $1,472,000 was outstanding as of September 30, 1998. The
note 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. gateway Earth stations and the network
control center, and is guaranteed by Orbital.
(5) SUBSEQUENT EVENT
On July 1, 1998, a registration statement (the "Registration Statement")
filed by ORBCOMM Corporation with the Commission for the registration of
6,900,000 shares of Common Stock of ORBCOMM Corporation was declared effective
by the Commission. No shares of Common Stock were sold by ORBCOMM Corporation
under this Registration Statement. On October 26, 1998, the Commission declared
effective a post-effective amendment to deregister 6,900,000 shares of ORBCOMM
Corporation's Common Stock.
6
7
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------------ ----------------
ASSETS
CURRENT ASSETS:
Accounts receivable $ 63 $ 65
Prepaid contract costs 464 123
------------------ ----------------
TOTAL ASSETS 527 188
================== ================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 61 $ 803
------------------ ----------------
Total Current Liabilities 61 803
Amount due to ORBCOMM Global, L.P. 12,881 8,635
------------------ ----------------
Total Liabilities 12,942 9,438
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
ORBCOMM Global, L.P. (12,167) (9,065)
Orbital Communications Corporation (248) (185)
------------------ ----------------
Total Partners' Capital (12,415) (9,250)
------------------ ----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 527 $ 188
================== ================
(See accompanying notes to 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 NINE MONTHS ENDED STAGE
SEPTEMBER 30, SEPTEMBER 30, THROUGH
--------------------- ---------------------- SEPTEMBER 30,
1998 1997 1998 1997 1998
--------- ---------- ---------- ---------- --------------
REVENUES:
Product sales $ 89 $ 11 $ 380 $ 73 $ 736
Contract revenues 0 0 0 0 4,203
Service revenues 40 11 82 30 138
------------ ---------- ---------- ---------- -----------
Total revenues 129 22 462 103 5,077
EXPENSES:
Cost of product sales 156 98 524 240 1,169
Marketing expenses 862 1,007 3,103 3,367 16,333
------------ ---------- ---------- ---------- -----------
Total expenses 1,018 1,105 3,627 3,607 17,502
------------ ---------- ---------- ---------- -----------
NET LOSS $ (889) $ (1,083) $ (3,165) $ (3,504) $ (12,425)
============ ========== ========== ========== ===========
(See accompanying notes to 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
NINE MONTHS ENDED STAGE
SEPTEMBER 30, THROUGH
------------------------ SEPTEMBER 30,
1998 1997 1998
---------- ---------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,165) $ (3,504) $ (12,425)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES
Decrease (increase) in accounts receivable 2 11 (63)
Increase in prepaid contract costs (341) 0 (464)
Increase (decrease) in accounts payable and
accrued liabilities (742) 191 61
---------- ---------- ------------
NET CASH USED IN OPERATING ACTIVITIES (4,246) (3,302) (12,891)
---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global, L.P. 4,246 3,302 12,881
Partners' contributions 0 0 10
---------- ---------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,246 3,302 12,891
---------- ---------- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 0 0 0
CASH AND CASH EQUIVALENTS:
Beginning of period 0 0 0
---------- ---------- ------------
CASH AND CASH EQUIVALENTS:
End of period $ 0 $ 0 $ 0
========== ========== ============
(See accompanying notes to 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"), 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-based 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 partnership interest
to 2% and eliminating Teleglobe Mobile's direct partnership interest entirely.
Simultaneously, the Company became a 98% general partner in ORBCOMM
International, reducing Teleglobe Mobile's direct partnership interest to 2% and
eliminating OCC's direct partnership 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 September 30, 1998, the results of its operations for the
three-month and nine-month periods ended September 30, 1998 and 1997, and cash
flows for the nine-month periods ended September 30, 1998 and 1997, and the
period from June 30, 1993 (date of inception) through September 30, 1998. 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, 1997 filed with the Securities and Exchange Commission (the
"Commission"). Operating results for the three months and nine months ended
September 30, 1998 are not necessarily indicative of the results of operations
expected in the future.
(3) RELATED PARTY TRANSACTIONS
As of September 30, 1998, ORBCOMM USA had a payable of $12,881,000 to the
Company for amounts advanced to support ORBCOMM USA's efforts in establishing
commercial and government markets in the United States ($8,635,000 as of
December 31, 1997). ORBCOMM USA is currently in development stage and obtains
funds to support its operations through non-interest bearing advances from the
Company.
10
11
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% 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, 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) SUBSEQUENT EVENT
On July 1, 1998, a registration statement (the "Registration Statement")
filed by ORBCOMM Corporation with the Commission for the registration of
6,900,000 shares of Common Stock of ORBCOMM Corporation was declared effective
by the Commission. No shares of Common Stock were sold by ORBCOMM Corporation
under this Registration Statement. On October 26, 1998, the Commission declared
effective a post-effective amendment to deregister 6,900,000 shares of ORBCOMM
Corporation's Common Stock.
11
12
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- -------------
ASSETS
CURRENT ASSETS:
Accounts receivable $ 1,016 $ 0
Inventory-gateways 26,228 19,580
----------- -----------
TOTAL ASSETS $ 27,244 $ 19,580
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 511 $ 1,200
Deferred revenue 24,799 13,270
----------- -----------
Total Current Liabilities 25,310 14,470
Amount due to ORBCOMM Global, L.P. 7,784 9,990
----------- -----------
Total Liabilities 33,094 24,460
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
ORBCOMM Global, L.P. (5,733) (4,782)
Teleglobe Mobile Partners (117) (98)
----------- -----------
Total Partners' Capital (5,850) (4,880)
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 27,244 $ 19,580
=========== ===========
(See accompanying notes to condensed financial statements)
12
13
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED NINE MONTHS ENDED STAGE
SEPTEMBER 30, SEPTEMBER 30, THROUGH
---------------------- --------------------- SEPTEMBER 30,
1998 1997 1998 1997 1998
----------- ---------- ---------- ---------- -------------
REVENUES:
Product sales $ 3,603 $ 20 $ 3,747 $ 54 $ 3,811
EXPENSES:
Cost of product sales 3,203 40 3,396 68 3,506
Marketing expenses 346 788 1,321 2,119 6,165
--------- --------- --------- ---------- ----------
Total expenses 3,549 828 4,717 2,187 9,671
--------- --------- --------- ---------- ----------
NET INCOME (LOSS) $ 54 $ (808) $ (970) $ (2,133) $ (5,860)
========= ========= ========= ========== ==========
(See accompanying notes to condensed financial statements)
13
14
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
TOTAL CASH
FLOWS DURING
DEVELOPMENT
NINE MONTHS ENDED STAGE
SEPTEMBER 30, THROUGH
----------------------- SEPTEMBER 30,
1998 1997 1998
----------- ---------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (970) $ (2,133) $ (5,860)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Increase in accounts receivable (1,016) (20) (1,016)
Increase in inventory-gateways (6,648) (9,397) (26,228)
Increase (decrease) in accounts payable and
accrued liabilities (689) 2,963 511
Increase in deferred revenue 11,529 4,122 24,799
----------- ---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,206 (4,465) (7,794)
----------- ---------- -----------
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 (decrease) in amount due to ORBCOMM Global, L.P. (2,206) 3,156 7,784
Partners' contributions 0 0 10
----------- ---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,206) 3,156 7,794
----------- ---------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 0 0 0
CASH AND CASH EQUIVALENTS:
Beginning of period 0 0 0
----------- ---------- -----------
CASH AND CASH EQUIVALENTS:
End of period $ 0 $ 0 $ 0
=========== ========== ===========
(See accompanying notes to condensed financial statements)
14
15
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"), 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-based 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 partnership interest
to 2% and eliminating Teleglobe Mobile's direct partnership interest entirely.
Simultaneously, the Company became a 98% general partner in ORBCOMM
International, reducing Teleglobe Mobile's direct partnership interest to 2% and
eliminating OCC's direct partnership 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 September 30, 1998, the results of its operations
for the three-month and nine-month periods ended September 30, 1998 and 1997,
and cash flows for the nine-month periods ended September 30, 1998 and 1997, and
the period from June 30, 1993 (date of inception) through September 30, 1998.
These condensed financial statements are unaudited and do not include all
related footnote disclosures and, therefore, should be read in conjunction with
the footnotes thereto for the year ended December 31, 1997 filed with the
Securities and Exchange Commission (the "Commission"). Operating results for
the three months and nine months ended September 30, 1998 are not necessarily
indicative of the results of operations expected in the future.
(3) RELATED PARTY TRANSACTIONS
As of September 30, 1998, ORBCOMM International had a payable of
$7,784,000 to the Company for amounts advanced to support ORBCOMM
International's efforts in establishing commercial markets outside the United
States ($9,990,000 as of December 31, 1997). ORBCOMM International is currently
in development stage and obtains funds to support its operations through
non-interest bearing advances from the Company.
(4) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% 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, 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.
15
16
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENCIES - (Continued)
Construction of Gateways
In October 1996, ORBCOMM International entered into agreements with
certain manufacturers for the construction of twenty gateway Earth stations
around the globe. During the third quarter of 1998, installation and final
acceptance of the gateway in South Korea occurred. Additionally, as of September
30, 1998, ORBCOMM International had $26,228,000 of prepaid costs as
inventory-gateways ($19,580,000 as of December 31, 1997) of which $15,042,000
represent advance payments to those manufacturers ($11,016,000 as of December
31, 1997). Total commitments under these manufacturing agreements approximate
$18,000,000. Included in inventory-gateways is a portion of the engineering
direct labor costs that are specifically related to the construction of
gateways. As of September 30, 1998, $3,421,000 of such costs had been included
in inventory-gateways ($1,609,000 as of December 31, 1997).
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of September 30, 1998, ORBCOMM International had signed 15 service
license or similar agreements ("SLAs") with international licensees, 12 of which
had associated gateway procurement contracts and software license agreements.
The SLAs authorize the international licensees to use the ORBCOMM System to
provide two-way data and messaging communications services. As of September 30,
1998, $27,366,000 had been received under these agreements and the associated
gateway procurement agreements. Of this amount, $24,799,000 was recorded as
deferred revenue ($13,270,000 as of December 31, 1997). ORBCOMM International is
obligated to construct and deliver 12 gateways to certain international
licensees under certain of these agreements (see note 4).
(6) SUBSEQUENT EVENT
On July 1, 1998, a registration statement (the "Registration Statement")
filed by ORBCOMM Corporation with the Commission for the registration of
6,900,000 shares of Common Stock of ORBCOMM Corporation was declared effective
by the Commission. No shares of Common Stock were sold by ORBCOMM Corporation
under this Registration Statement. On October 26, 1998, the Commission declared
effective a post-effective amendment to deregister 6,900,000 shares of ORBCOMM
Corporation's Common Stock.
16
17
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10 $ 34
Accounts receivable and other current assets 541 188
------------- -----------
Total Current Assets 551 222
Investments in and advances to affiliates, net 55,230 54,663
------------- ------------
TOTAL ASSETS $ 55,781 $ 54,885
============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Accounts payable and accrued liabilities $ 400 $ 1,137
Due to affiliates 110,855 84,160
------------- ------------
Total Liabilities 111,255 85,297
Non-controlling interest in net assets of
consolidated subsidiary (6,084) (4,533)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, par value $0.01;
8,000,000 shares authorized; 4,783,717
and 4,751,292 shares issued;
4,689,145 and 4,656,720 shares
outstanding, respectively 48 48
Additional paid-in capital 452 350
Treasury stock, at cost, 95,572 and 94,572
shares, respectively (771) (730)
Accumulated deficit (49,119) (25,547)
------------- ------------
Total Stockholders' Deficit (49,390) (25,879)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 55,781 $ 54,885
============= ============
(See accompanying notes to condensed consolidated financial statements)
17
18
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
1998 1997 1998 1997
--------- ---------- ---------- ----------
REVENUES:
Product sales and service revenues $ 129 $ 22 $ 462 $ 103
EXPENSES:
Cost of product sales 156 98 524 240
Marketing, administrative and
other expenses 871 1,018 3,128 2,816
--------- ---------- ----------- ----------
Total expenses 1,027 1,116 3,652 3,056
--------- ---------- ----------- ----------
Loss from operations (898) (1,094) (3,190) (2,953)
OTHER INCOME AND EXPENSES:
Equity in losses of affiliates (9,184) (3,352) (21,933) (7,337)
Non-controlling interest in net
losses of consolidated subsidiary 436 531 1,551 1,717
--------- ---------- ----------- ----------
NET LOSS $ (9,646) $ (3,915) $ (23,572) $ (8,573)
========== =========== =========== ==========
(See accompanying notes to condensed consolidated financial statements)
18
19
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(23,572) $(8,573)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Equity in losses of affiliates 21,933 7,337
Non-controlling interest in net losses of
consolidated subsidiary (1,551) (1,717)
Increase in accounts receivable and other current
assets (353) (14)
Decrease in accounts payable and accrued
liabilities (737) 23
---------- --------
NET CASH USED IN OPERATING ACTIVITIES (4,280) (2,944)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in and advances to affiliates (22,500) 0
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (22,500) 0
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock to employees 102 140
Purchases of treasury stock, net of reimbursement
from ORBCOMM Global, L.P. (41) (581)
Net borrowings from affiliates 26,695 3,320
---------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,756 2,879
---------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (24) (65)
CASH AND CASH EQUIVALENTS:
Beginning of period 34 142
---------- ---------
CASH AND CASH EQUIVALENTS:
End of period $ 10 $ 77
========== =========
(See accompanying notes to condensed consolidated financial statements)
19
20
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Orbital Communications Corporation ("OCC") is a majority owned and
controlled 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 and controls 51% of
ORBCOMM USA and holds 49% of ORBCOMM International. Consequently, OCC
consolidates the financial results of ORBCOMM USA.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial position
of OCC as of September 30, 1998, the results of its operations for the
three-month and nine-month periods ended September 30, 1998 and 1997, and cash
flows for the nine-month period ended September 30, 1998 and 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, 1997 filed with the Securities and Exchange Commission
(the "Commission"). The results of operations for the three and nine months
ended September 30, 1998 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 its operations and for its
capital investments in ORBCOMM from Orbital via a non-interest bearing
intercompany borrowing agreement. As of September 30, 1998 and December 31,
1997, OCC owed Orbital $97,948,000 and $75,513,000, respectively, none of which
is currently payable.
ORBCOMM USA currently obtains all of its funding from ORBCOMM via a
non-interest bearing intercompany borrowing agreement. As of September 30, 1998
and December 31, 1997 ORBCOMM USA owed ORBCOMM $12,881,000 and $8,635,000,
respectively, none of which is currently payable.
(4) COMMITMENTS AND CONTINGENCIES
On August 7, 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of senior unsecured notes due in 2004
(the "Notes") to institutional investors. The Notes bear interest at a fixed
rate of 14% and provide for noteholder participation in future service revenues
of the Company. 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 OCC's shareholders (including
Orbital) and Teleglobe Mobile's partners (including Teleglobe and Technology
Resources Industries Bhd.), limited only to the extent necessary for each such
guarantee not to constitute a fraudulent conveyance under applicable law.
20
21
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(UNAUDITED)
(5) SUBSEQUENT EVENT
On July 1, 1998, a registration statement (the "Registration Statement")
filed by ORBCOMM Corporation with the Commission for the registration of
6,900,000 shares of Common Stock of ORBCOMM Corporation was declared effective
by the Commission. No shares of Common Stock were sold by ORBCOMM Corporation
under this Registration Statement. On October 26, 1998, the Commission declared
effective a post-effective amendment to deregister 6,900,000 shares of ORBCOMM
Corporation's Common Stock.
21
22
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,106 $ 1,439
Accounts receivable 1,018 40
Inventory-gateways 26,228 19,580
------- -------
Total Current Assets 28,352 21,059
Investments in affiliates 62,785 59,645
------- -------
TOTAL ASSETS $91,137 $80,704
======= =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 557 $ 1,565
Deferred revenue 24,799 13,270
------- -------
Total Current Liabilities 25,356 14,835
Amount due to ORBCOMM Global, L.P. 7,784 9,990
------- -------
Total Liabilities 33,140 24,825
Non-controlling interest in net assets of
ORBCOMM International Partners, L.P. (2,866) (2,391)
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile, L.P. 45,592 40,381
TR (U.S.A.) Ltd. 14,809 17,481
Teleglobe Mobile Investment Inc. 462 408
------- -------
Total Partners' Capital 60,863 58,270
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $91,137 $80,704
======= =======
(See accompanying notes to condensed consolidated financial statements)
22
23
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
STAGE
THREE MONTHS ENDED NINE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- ------------------ -------------
1998 1997 1998 1997 1998
-------- ------- -------- -------- ------------
REVENUES:
Product sales $3,603 $ 20 $3,747 $ 54 $ 3,811
EXPENSES:
Cost of product sales 3,203 40 3,396 68 3,506
Marketing, administrative and other
expenses 371 817 1,422 2,210 8,635
--------- -------- --------- -------- ----------
Total expenses 3,574 857 4,818 2,278 12,141
--------- -------- --------- -------- ----------
Income (loss) from operations 29 (837) (1,071) (2,224) (8,330)
OTHER INCOME AND EXPENSES:
Interest income (expense), net 14 19 49 58 1,997
Equity in losses of ORBCOMM Global,
L.P. (9,764) (3,604) (23,360) (8,414) (47,226)
Non-controlling interest in losses
(gain) of ORBCOMM International
Partners, L.P. (27) 397 475 1,046 2,871
--------- -------- --------- -------- ----------
NET LOSS $ (9,748) $(4,025) $(23,907) $(9,534) $ (50,688)
========= ======== ========= ======== ==========
(See accompanying notes to condensed consolidated financial statements)
23
24
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
NINE MONTHS ENDED STAGE
SEPTEMBER 30, THROUGH
---------------------- SEPTEMBER 30,
1998 1997 1998
----------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (23,907) $ (9,534) $ (50,688)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Equity in losses of ORBCOMM Global, L.P. 23,360 8,414 47,226
Non-controlling interest in losses (gain) of
ORBCOMM International Partners, L.P. (475) (1,046) (2,871)
Increase in accounts receivable (978) (22) (1,018)
Increase in inventory-gateways (6,648) (9,397) (26,228)
Increase (decrease) in accounts payable and
accrued liabilities (1,008) 2,874 557
Increase in deferred revenue 11,529 4,122 24,799
----------- ---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 1,873 (4,589) (8,223)
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (26,500) 0 (111,025)
Decrease in amount due from ORBCOMM Global, L.P. 0 1,309 0
----------- ---------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (26,500) 1,309 (111,025)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in amount due to ORBCOMM
Global, L.P. (2,206) 3,156 7,784
Partners' contributions 26,500 0 112,565
Non-controlling interest in net assets of
ORBCOMM International Partners, L.P. 0 0 5
----------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,294 3,156 120,354
----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (333) (124) 1,106
CASH AND CASH EQUIVALENTS:
Beginning of period 1,439 1,618 0
----------- ---------- -----------
CASH AND CASH EQUIVALENTS:
End of period $ 1,106 $ 1,494 $ 1,106
=========== ========== ===========
(See accompanying notes to condensed consolidated financial statements)
24
25
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 acting as a general and a
limited partner in ORBCOMM Global, L.P. (the "Company"), a Delaware limited
partnership providing data and messaging communications services using a
low-Earth orbit satellite-based communications system (the "ORBCOMM System").
The Partnership holds a 50% participation percentage ("Participation
Percentage") in the Company, which in turn holds a 98% Participation Percentage
in each of 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%. Consequently, the
Partnership consolidates the financial results of ORBCOMM International.
(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 September 30, 1998, the results of its
operations for the three-month and nine-month periods ended September 30, 1998
and 1997, and cash flows for the nine-month periods ended September 30, 1998 and
1997, and the period from July 21, 1993 (date of inception) through September
30, 1998. 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, 1997 filed with the Securities and
Exchange Commission (the "Commission"). Operating results for the three months
and nine months ended September 30, 1998 are not necessarily indicative of the
results of operations expected in the future.
(3) RELATED PARTY TRANSACTIONS
As of September 30, 1998, ORBCOMM International had a payable of
$7,784,000 to the Company for amounts advanced to support ORBCOMM
International's efforts in establishing commercial markets outside the United
States ($9,990,000 as of December 31, 1997). ORBCOMM International is currently
in development stage and obtains funds to support its operations through
non-interest bearing advances from the Company.
(4) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% 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,
Orbital Communications Corporation ("OCC"), ORBCOMM USA and ORBCOMM
International, except that the guarantees are non-recourse to the shareholders
and/or partners of the
25
26
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENCIES - (CONTINUED)
guarantors, limited only to the extent necessary for each such guarantee not to
constitute a fraudulent conveyance under applicable law.
Construction of Gateways
In October 1996, ORBCOMM International entered into agreements with
certain manufacturers for the construction of twenty gateway Earth stations
around the globe. During the third quarter of 1998, installation and final
acceptance of the gateway in South Korea occurred. Additionally, as of September
30, 1998, ORBCOMM International had $26,228,000 of prepaid costs as
inventory-gateways ($19,580,000 as of December 31, 1997) of which $15,042,000
represent advance payments to those manufacturers ($11,016,000 as of December
31, 1997). Total commitments under these manufacturing agreements approximate
$18,000,000. Included in inventory-gateways is a portion of the engineering
direct labor costs that are specifically related to the construction of
gateways. As of September 30, 1998, $3,421,000 of such costs had been included
in inventory-gateways ($1,609,000 as of December 31, 1997).
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of September 30, 1998, ORBCOMM International had signed 15 service
license or similar agreements ("SLAs") with international licensees, 12 of which
had associated gateway procurement contracts and software license agreements.
The SLAs authorize the international licensees to use the ORBCOMM System to
provide two-way data and messaging communications services. As of September 30,
1998, $27,366,000 had been received under these agreements and the associated
gateway procurement agreements. Of this amount, $24,799,000 was recorded as
deferred revenue ($13,270,000 as of December 31, 1997). ORBCOMM International is
obligated to construct and deliver 12 gateways to certain international
licensees under certain of these agreements (see note 4).
(6) SUBSEQUENT EVENT
On July 1, 1998, a registration statement (the "Registration Statement")
filed by ORBCOMM Corporation with the Commission for the registration of
6,900,000 shares of Common Stock of ORBCOMM Corporation was declared effective
by the Commission. No shares of Common Stock were sold by ORBCOMM Corporation
under this Registration Statement. On October 26, 1998, the Commission declared
effective a post-effective amendment to deregister 6,900,000 shares of ORBCOMM
Corporation's Common Stock.
26
27
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, MARCH 31,
1998 1998
------------ ------------
ASSETS
Cash $ 100 $ 100
------------ ------------
TOTAL ASSETS $ 100 $ 100
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities $ - $ -
Stockholder's equity
Common Stock, par value $0.01;
150,000,000 shares authorized;
100 shares issued and outstanding 1 1
Additional paid-in capital 99 99
Retained earnings - -
------------ ------------
Total stockholder's equity 100 100
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 100 $ 100
============ ============
(See accompanying notes to financial statement)
27
28
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENT
(UNAUDITED)
(1) ORGANIZATION
ORBCOMM Corporation was incorporated under the laws of the State of
Delaware on March 23, 1998. ORBCOMM Corporation was formed for the sole purpose
of investing in and acting as a general partner of ORBCOMM Global, L.P. (the
"Company"), a Delaware limited partnership. ORBCOMM Corporation is authorized to
issue 150,000,000 shares of common stock of $.01 par value, of which 100 shares
are issued and outstanding and held by the Company.
(2) SUBSEQUENT EVENT
On July 1, 1998, a registration statement (the "Registration Statement")
filed by ORBCOMM Corporation with the Securities and Exchange Commission (the
"Commission") for the registration of 6,900,000 shares of Common Stock of
ORBCOMM Corporation was declared effective by the Commission. No shares of
Common Stock were sold by ORBCOMM Corporation under this Registration Statement.
On October 26, 1998, the Commission declared effective a post-effective
amendment to deregister 6,900,000 shares of ORBCOMM Corporation's Common Stock.
28
29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
In 1993, ORBCOMM Global, L.P. ("ORBCOMM" or the "Company") 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% partnership interest in the
Company, with Technology Resources Industries Bhd. ("TRI"), 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 partnerships,
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International" and, together with ORBCOMM USA, the "Marketing
Partnerships"), to market services using the Company's low-Earth orbit
satellite-based data and messaging 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 licenses granted to it by the Federal
Communications Commission (the "FCC") for the ORBCOMM System (the "FCC
Licenses"), consistent with FCC regulations.
As of September 30, 1998, Orbital, through OCC, and Teleglobe and TRI,
through Teleglobe Mobile, had invested in the aggregate approximately $209
million in ORBCOMM. In addition, on August 7, 1996, the Company and ORBCOMM
Global Capital Corp. completed a private placement (the "Old Notes Offering") of
$170.0 million aggregate principal amount of 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.
The Company provides two-way data and messaging communications services
through the ORBCOMM System. The Company's current primary target markets
include: (i) fixed asset monitoring services for electric utility meters, oil
and gas storage tanks, wells and pipelines and environmental projects; (ii)
mobile asset tracking services for commercial vehicles, trailers, containers,
rail cars, heavy equipment, fishing vessels, barges and government assets; and
(iii) messaging services for consumers and commercial and government entities.
Future target markets are expected to include: (i) tracking, messaging and
security services for automobiles; (ii) monitoring applications for home
security systems; and (iii) additional U.S. and foreign government applications.
The Company markets its services to customers within the United States
indirectly through value-added resellers ("VARs") and directly through internal
VARs ("Internal VARs"), and internationally through international licensees
("International Licensees") that may distribute ORBCOMM services directly or
through a distribution network.
On March 23, 1998, the Company formed ORBCOMM Corporation, a Delaware
corporation, for the sole purpose of investing in and acting as a general
partner of the Company. The Company currently holds all of the 100 issued and
outstanding shares of ORBCOMM Corporation.
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 controls the operational and financial affairs of ORBCOMM USA; and (iii)
Teleglobe Mobile 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 assets, liabilities and operating
revenues and expenses. Instead, the Company's proportionate share of the net
income and losses of the Marketing Partnerships is recorded under the caption
"Equity in losses of affiliates" in the Company's financial
29
30
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.
ORBCOMM USA pays to OCC an output capacity charge (the "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"). If the Output Capacity Charge as described above
is less than 1.15% of Total Aggregate Revenues, then OCC is not required to pay
any portion of the system charge to the Company.
ORBCOMM International pays to Teleglobe Mobile an international output
capacity charge (the "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 a
system charge that is a quarterly fee equal to the International Output Capacity
Charge less 1.15% of Total Aggregate Revenues. If the International Output
Capacity Charge as described above is less than 1.15% of Total Aggregate
Revenues, Teleglobe Mobile is not required to pay any portion of the system
charge to the Company.
SERVICE ROLL-OUT
The Company believes that it will provide a reliable, cost-effective
method of providing fixed asset monitoring, mobile asset tracking and messaging
services to a broad range of customers around the world, enabling such customers
to collect data from multiple locations, track assets on a global basis and
transmit and receive short text messages outside the coverage area of other
systems. The Company launched eight additional satellites in September 1998,
completing its initial satellite constellation. A substantial portion of the 28
satellites launched to date have been placed in commercial service and the
Company anticipates that additional satellites will be placed in commercial
service in the next several months. An additional eight satellites that will
create a planned 36-satellite enhanced constellation with increased capacity
and improved service in equatorial regions are expected to be launched in the
third quarter of 1999.
The U.S. ground segment, including the network control center and four
gateway Earth stations (the "U.S. Ground Segment"), is operational. Gateways
located in Italy, South Korea and Japan have successfully completed initial
acceptance testing. Starting in 1999, the Company expects that certain of its
International Licensees will offer ORBCOMM services in portions of Europe and
South America, and in Canada, Japan, Malaysia, Mexico and Morocco, subject to
completion of the necessary ground infrastructure and receipt of the necessary
regulatory and other approvals.
REVENUES
Domestically, the Company generates revenues from the direct sale of
satellite access and usage to the VARs, which sales to date have been primarily
for resale to beta test customers. The pricing of satellite capacity is based on
many variables, including the availability and cost of substitute services, the
cost of providing service and the nature of the customer application. Pricing
generally is based on a wholesale pricing structure that incorporates an initial
activation charge, a recurring monthly charge for access to the ORBCOMM System
and charges based on the customer's usage.
The Company expects that in the fourth quarter of 1998 it will also
generate revenues from the sale of data and messaging communications services
and applications developed and distributed by the Internal VARs. The pricing of
services provided by the Internal VARs will be based on a pricing structure
similar to the VAR pricing
30
31
structure, except that the Internal VAR pricing structure will generate
additional revenues from value-added software, hardware and services provided
to the customer.
The Company has in the past entered into agreements and may, in the
future, enter into additional agreements, to purchase subscriber units for
resale. Historically, the Company has not generated substantial revenues from
the sale of subscriber units. During 1998, the Company committed to purchase
$6.2 million of subscriber units from certain manufacturers to accelerate
initial customer sales by the VARs, Internal VARs and International Licensees.
The Company expects to sell these subscriber units at prices equal to or greater
than cost, although there can be no assurance that the Company will be able to
do so.
Internationally, the Company generates revenues through license fees
paid by, and through the sale of gateways to, International Licensees. In
addition, all 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. International Licensees' gross operating revenues are based on a
wholesale pricing structure similar to the prices charged to the VARs, which
include an activation charge, a recurring monthly access charge and a usage
charge. On execution of a service license or similar agreement ("SLA") by the
International Licensee, an International Licensee purchases a gateway or gateway
components from the Company pursuant to a gateway procurement contract or
arranges to share a gateway with an International Licensee that is in close
proximity. Cash received under the gateway procurement contracts is accounted
for as deferred revenues and generally recognized when the gateway has
successfully completed on-site acceptance testing. Distribution fees and license
fees from SLAs are generally accounted for as deferred revenues and recognized
ratably over the term of the agreements or when the Company's obligations under
the agreements are substantially completed.
OPERATING EXPENSES
The Company owns and operates the assets that comprise the ORBCOMM
System other than the FCC Licenses (which are held by OCC, with certain
contractual rights relating thereto granted to the Company). Satellite-based
communications systems are characterized by high initial capital expenditures
and relatively low marginal costs for providing service. The Company has been
depreciating certain of its assets beginning in 1996, when commercial operation
of the ORBCOMM System began. Costs of products sold consists of the sale of
subscriber units. During 1998, the Company agreed to pay to Magellan
Corporation, a majority-owned subsidiary of Orbital, a subsidy for each Magellan
subscriber unit sold, through March 1999, up to an aggregate of $2.4 million.
Additionally, the Company incurs engineering expenses related to the development
and operation of the ORBCOMM System and marketing, administrative and other
expenses related to the operation of the ORBCOMM System. The Company also has
incurred expenses related to the development of the Internal VARs, which are
included in marketing expenses. The Company anticipates that its expenses
related to the continued development and operation of the Internal VARs
(including the development of applications for customers) will increase
substantially as the Company expands the marketing and distribution efforts of
the Internal VARs.
RESULTS OF OPERATIONS -- ORBCOMM
The Company commenced limited commercial service in the United States
in February 1996 and has generated nominal revenues and substantial negative
cash flows to date. The Company's activities have focused primarily on the
acquisition of U.S. regulatory approvals for the operation of the ORBCOMM
System, the design, construction and launch of satellites, the design and
construction of associated ground network and operating systems (including
associated software), the development of subscriber unit manufacturing sources,
the negotiation of agreements with VARs and International Licensees, the
development of Internal VARs, the development of customer software and hardware
applications, preliminary marketing and sales activities associated with the
Company's limited commercial operations to date and the hiring of key personnel.
Income. In 1995, the Company received a nonrefundable distribution fee
from a potential International Licensee. The Company recognized this
nonrefundable distribution fee over the term of the relevant agreement. No such
fees were received in earlier periods or during the nine months ended September
30, 1998 and 1997, respectively.
In late 1994, the Company borrowed $5.0 million, at an interest rate of
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
31
32
August 1996, the Company closed the Old Notes Offering. The proceeds from the
sale of the Old Notes had been invested primarily in short-term government
securities, with certain restrictions attached to all of the investment
portfolio. A portion of the net proceeds of 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 (net
of interest expenses of $210,000 and $206,000) on the invested portion of the
MetLife Note and the proceeds of the Old Notes Offering of $120,000 and
$979,000 for the three months ended September 30, 1998 and 1997, respectively.
For the nine months ended September 30, 1998 and 1997, the Company recognized
interest income (net of interest expenses of $630,000 and $625,000) of $481,000
and $4.0 million, respectively, on the invested portion of the MetLife Note and
the proceeds of the Old Notes Offering.
Expenses. As discussed above, the Company is in development stage.
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 acquired from Orbital. Research and development expenses
and selling, general and administrative costs have been expensed in the period
incurred. Interest expense, 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 $10.9 million and $2.6 million of marketing,
administrative and other expenses for the three months ended September 30, 1998
and 1997, respectively, and $24.1 million and $5.4 million of marketing,
administrative and other expenses for the nine months ended September 30, 1998
and 1997, respectively. Marketing, administrative and other expenses were
higher period over period due in substantial part to costs relating to an
increased number of employees. In addition, expenses for the three months and
nine months ended September 30, 1998 include expenses incurred by the Company
of $2.2 million relating to the proposed initial public offering of securities
by ORBCOMM Corporation, which offering was terminated in October 1998. The
Company incurred $4.6 million and $2.4 million of ORBCOMM System engineering
expenses for the three months ended September 30, 1998 and 1997, respectively,
and $12.0 million and $5.9 million of ORBCOMM System engineering expenses for
the nine months ended September 30, 1998 and 1997, respectively. The Company is
capitalizing the portion of engineering direct labor costs that relates to
hardware and system designs development and coding of the software products
that enhance the operation of the ORBCOMM System. The Company also incurred
$3.0 million and $1.9 million in ORBCOMM System depreciation expense for the
three months ended September 30, 1998 and 1997, respectively, and $7.4 and $5.3
million in ORBCOMM System depreciation expense for the nine months ended
September 30, 1998 and 1997, respectively, as the ORBCOMM System became
available for commercial service in early 1996.
Equity in Losses of Affiliates. The Company recognized its share of
ORBCOMM USA's and ORBCOMM International's losses, consisting primarily of
marketing expenses, of $818,000 and $1.9 million for the three months ended
September 30, 1998 and 1997, respectively, and $4.1 million and $5.5 million for
the nine months ended September 30, 1998 and 1997, respectively. Each of ORBCOMM
USA and ORBCOMM International formally began their marketing efforts in 1995 in
anticipation of commercial service beginning in 1996.
RESULTS OF OPERATIONS -- ORBCOMM USA
Income. For the three months ended September 30, 1998 and 1997, ORBCOMM
USA recognized revenues relating to the provision of products and services of
$129,000 and $22,000, respectively, and for the nine months ended September 30,
1998 and 1997, ORBCOMM USA recognized revenues relating to the provision of
products and services of $462,000 and $103,000, respectively. The costs of
product sales associated with such revenues were $156,000 and $98,000 for the
three months ended September 30, 1998 and 1997, respectively, and $524,000 and
$240,000 for the nine months ended September 30, 1998 and 1997, respectively.
Expenses. ORBCOMM USA incurred $862,000 and $1.0 million of marketing
expenses for the three months ended September 30, 1998 and 1997, respectively,
and $3.1 million and $3.4 million of marketing expenses for the nine months
ended September 30, 1998 and 1997, respectively.
RESULTS OF OPERATIONS -- ORBCOMM INTERNATIONAL
Expenses. ORBCOMM International incurred $346,000 and $788,000 of
marketing expenses for the three months ended September 30, 1998 and 1997,
respectively, and $1.3 million and $2.1 million of marketing expenses for the
nine months ended September 30, 1998 and 1997, respectively.
32
33
Service License or Similar Agreements. As of September 30, 1998,
ORBCOMM International had signed 15 SLAs with International Licensees, 12 of
which have associated gateway procurement contracts and software license
agreements. The SLAs authorize the International Licensees to use the ORBCOMM
System to provide two-way data and messaging communications services outside
the United States. As of September 30, 1998, $27.4 million had been received
under these agreements and the associated gateway procurement agreements, of
which $24.8 million was recorded as deferred revenue.
Construction of Gateways. ORBCOMM International is obligated to
construct and deliver 12 gateways to certain International Licensees. During the
third quarter of 1998, the installation and final acceptance of the gateway
located in South Korea occurred. As a result, the revenue and the associated
costs for construction and delivery of the gateway have been reflected in the
third quarter statements of operations.
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
nine months ended September 30, 1998. 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
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS; UNAUDITED)
ORBCOMM ELIMINATION
ORBCOMM ORBCOMM USA INTERNATIONAL ENTRIES TOTAL
------------------ ----------------- ------------------ ---------------- ------------
Total revenue $ 924 $ 462 $ 3,747 $ (776) $ 4,357
Interest income (expense), net 481 (1) 0 0 481
Expenses 44,322 (2) 3,627 4,717 776 51,890
Loss before interest and taxes (43,398) (3) (3,165) (970) (47,533)
Net loss (42,917) (3) (3,165) (970) (47,052)
Capital expenditures 58,934 (4) 0 0 58,934
SUPPLEMENTAL DATA
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT FOR SUBSCRIBER UNIT DATA; UNAUDITED)
ORBCOMM
ORBCOMM ORBCOMM USA INTERNATIONAL TOTAL
------------------ ----------------- ------------------- -------------
Cash and cash equivalents $ 7,321 $ 0 $ 0 $ 7,321
ORBCOMM System, net 314,954 0 0 314,954
Total debt 171,472 0 0 171,472
Subscriber units(5) 0 1,600 490 2,090
- ---------------------------------
(1) Net of $630,000 of amortization of deferred financing fees.
(2) Includes depreciation expense of $7.4 million. Interest expense of $18.0
million was capitalized for the nine-month period ended September 30, 1998.
(3) Excludes equity in losses of affiliates of $4.1 million.
(4) Represents capital expenditures, principally for the construction of
the space and ground network system elements.
(5) Represents units that either generate revenues or are used in beta
testing. These units do not include units that are used for
demonstration purposes.
33
34
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred cumulative net losses from inception. The
Company has financed its operations to date, primarily with capital
contributions from its partners and through financing activities. For the
nine-month period ended September 30, 1998, net cash used in operating
activities was $18.8 million primarily as a result of a net loss (excluding
non-cash charges for depreciation, amortization and equity in losses of
affiliates) of $34.9 million and a decrease in accounts payable and accrued
liabilities of $6.0 million. This was offset primarily by an increase in
accounts payable to Orbital of $22.5 million for the nine months ended
September 30, 1998.
Cash flows used in investing activities for the nine-month period ended
September 30, 1998 were $38.2 million, primarily as a result of additional
capital expenditures, advances to affiliates and purchases and sales of
securities. For the nine-month period ended September 30, 1998, the Company
invested $58.9 million, including $18.0 million of capitalized interest, for
satellite constellation design, construction and launch services and design and
construction of the U.S. Ground Segment. In addition, the Company advanced an
additional $2.0 million, net of cash receipts for international operations, to
ORBCOMM USA and ORBCOMM International to support their marketing activities.
This use of cash was partially offset by $22.7 million of net proceeds from the
sale of securities.
Cash flows provided by financing activities for the nine-month period
ended September 30, 1998 were $48.2 million. This amount principally reflects
additional capital contributions of the Company's current partners of $49.0
million.
Expected future uses of cash include capital expenditures related to
the completion of the satellite constellation, debt servicing and working
capital requirements. In addition, the Company intends to continue to increase
marketing and product development expenditures in anticipation of expanded
commercial operations. The total cost of the 36-satellite enhanced constellation
is expected to be approximately $332.0 million through the third quarter of
1999. Of this amount, $244.0 million is for the design, development and
construction of the satellite constellation and launch services, $39.0 million
is for the design and construction of the U.S. Ground Segment, $17.0 million is
for insurance and approximately $32.0 million is for other system costs such as
engineering and billing system costs. As of September 30, 1998, $283.4 million
had been expended for the ORBCOMM System, excluding a total of $52.5 million of
interest expenses that have been capitalized. The foregoing information reflects
the Company's current estimate of its funding requirements for the ORBCOMM
System through the third quarter of 1999. Actual amounts may vary from such
estimates for a variety of reasons, including delays or launch or satellite
failures.
The Company expects to continue to generate negative cash flows through
all of 1998 and at least a substantial portion of 1999. The Company expects that
a portion of its cash requirements will be met through cash expected to be
generated from operations. The Company's ability to generate significant
revenues is subject to numerous uncertainties. Through the remainder of 1998 and
during 1999, the Company expects to receive additional cash payments related to
certain milestones under agreements with International Licensees. The Company's
service and equipment contracts are U.S. dollar-based and do not generate
foreign currency risk. Through September 30, 1998, OCC and Teleglobe Mobile had
made capital contributions to the Company totaling approximately $209 million.
In July 1998, ORBCOMM Corporation, which was organized for the sole purpose of
investing in and acting as a general partner of the Company, postponed its
anticipated initial public offering and in October 1998 elected to terminate
this offering. As a result of the postponement of the initial public offering by
ORBCOMM Corporation, OCC and Teleglobe Mobile have each reaffirmed their
commitments to provide funding to the Company while considering options for
future financing at the Company. The Company believes that the anticipated
capital contributions from its partners, the deferral of invoicing of certain
amounts under the ORBCOMM System Procurement Agreement between the Company and
Orbital until alternative financing arrangements are secured and the net
proceeds of the Old Notes Offering and the MetLife Note will be sufficient
to fund the Company's anticipated net cash loss from operations and capital
expenditures through 1998.
The Company expects to require additional capital in 1999 and may seek
to raise such additional capital through additional contributions or loans from
its current partners, other equity or debt financings or operating lease
arrangements or the Company may seek to enter into strategic arrangements. There
can be no assurance, however,
34
35
that other equity or debt financing or operating lease arrangements will be
available and, if so, that they will be available on terms acceptable to the
Company or that strategic arrangements will be possible and, if so, that they
will be possible on terms acceptable to the Company.
YEAR 2000 PROGRAM
ORBCOMM has initiated a Year 2000 Program (the "Program"), which is
being implemented by a program management office composed of, among others,
senior managers from ORBCOMM and certain outside consultants. The Program has
five phases: inventory; assessment; remediation; testing; and deployment, and
addresses five areas of ORBCOMM: critical system segment (comprising eight
operational areas including the satellites and the ground infrastructure for the
ORBCOMM System); International Licensees; Internal VARs; VARs; and internal
business infrastructure.
ORBCOMM has completed an inventory of each product, component or
software program in the critical system segment that uses date fields, contains
embedded systems or that may otherwise be impacted by the Year 2000 issue.
ORBCOMM is in the process of assessing each of the products, components and
programs of the critical system segment identified in the inventory phase for
Year 2000 compliance. For products, components or software obtained from third
party vendors (including Orbital, the manufacturer of the ORBCOMM satellites),
ORBCOMM is surveying each such vendor to ascertain whether the product,
component or software provided by such vendor is Year 2000 compliant (which may
include obtaining a certification or statement from each such vendor regarding
Year 2000 compliance). Based on its efforts to date, ORBCOMM estimates that the
eight operational areas are between 30% and 90% compliant. ORBCOMM expects that
the assessment phase for the critical system segment will be completed in the
first quarter of 1999.
ORBCOMM will upgrade, repair, replace or otherwise bring into readiness
the products, components and software programs identified in the assessment
phase of the Program as being non-compliant. The Company anticipates that for
some custom applications in the critical system segment, ORBCOMM may use
replacements to or upgrades of existing applications that are already in
development, which replacements or upgrades may obviate the need for
remediation with respect to such applications. ORBCOMM expects that the
remediation phase for the critical system segment will be completed in the
first quarter of 1999.
ORBCOMM is in the process of developing a master test plan, which will
include, with respect to the critical system segment, testing within each of the
eight operational areas at both the unit or functional level, followed by
end-to-end testing of the entire ORBCOMM System. Some unit level testing has
already begun. End-to-end testing of the ORBCOMM System will include testing of
those products, components and programs that have been procured from third party
vendors and certified or represented as Year 2000 compliant, as well as any
products, components or programs that are subject to routine replacements or
upgrades during the term of the Program that are expected to cause such elements
to be Year 2000 compliant. ORBCOMM expects that initial system testing will be
completed in the second quarter of 1999 and that final system testing (including
testing of internationally deployed systems that are the responsibility of
ORBCOMM) will be completed in the third quarter of 1999.
ORBCOMM will encourage the International Licensees and each of the
Internal VARs and the VARs to implement a comprehensive Year 2000 compliance
program. ORBCOMM has begun and will continue to identify and assess the extent
to which the elements comprising ORBCOMM's business infrastructure, including
its information systems, telephone systems, heating, cooling and electrical
systems, building security and other building operations, as well as back-up
systems, are Year 2000 compliant. To accomplish this, ORBCOMM is surveying the
applicable third party vendors and other entities to ascertain whether their
systems are Year 2000 compliant (which may include obtaining a certification or
statement from each such vendor or other entity regarding Year 2000 compliance).
The total estimated cost of the Program, including the planned cost to
replace systems that are impacted by the Year 2000 issue, is not expected to be
material to ORBCOMM's financial condition or results of operations. ORBCOMM
anticipates that most, if not all, of the funds for the Program will come from
its product development budget. To date, ORBCOMM has not deferred work on any
information technology programs or systems as a result of its efforts in
connection with the Program.
35
36
In connection with the Program, ORBCOMM has initiated communications
with its vendors, customers and other service providers regarding ORBCOMM's Year
2000 status. While uncertainties surrounding the significance and likely impact
of the Year 2000 problem make it nearly impossible for ORBCOMM to identify a
reasonably likely worst case scenario for the Year 2000 issue, such scenario
could include: interruptions or failures of data or messaging communications
using the ORBCOMM System; the temporary inability of third parties to pay
amounts due ORBCOMM; and the temporary inability of vendors to provide goods or
services to ORBCOMM. ORBCOMM will develop a contingency plan for the ORBCOMM
System designed to address these risks. Despite its ongoing efforts in
connection with the Program, there can be no assurance that ORBCOMM has
identified or will identify all Year 2000 affected systems or that the Program
will be successfully implemented or implemented on a timely basis.
The Company is a development stage enterprise. Certain statements
included in this report, including statements concerning the Company's
operations, prospects, markets, technical capabilities, funding needs, financing
sources, pricing, launch and commercial service schedules, cash flows and "Year
2000" issues, as well as information concerning future regulatory approvals and
expected actions of third parties such as equipment suppliers, International
Licensees and VARs, are forward-looking statements that may be affected by known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to differ materially from
those expressed or implied by such forward-looking statements. Such factors may
include but are not limited to general economic and business conditions, launch
results, sales and product performance, the introduction of products and
services by competitors, availability of required capital, the ability of
customers and suppliers to assess timely and accurately "Year 2000" issues and
market acceptance of new products and technologies.
36
37
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On July 1, 1998, a registration statement (the "Registration
Statement") filed by ORBCOMM Corporation with the Securities and Exchange
Commission (the "Commission") for the registration of 6,900,000 shares of
Common Stock of ORBCOMM Corporation was declared effective by the Commission.
No shares of Common Stock were sold by ORBCOMM Corporation under this
Registration Statement. On October 26, 1998, the Commission declared effective
a post-effective amendment to the Registration Statement to deregister
6,900,000 shares of ORBCOMM Corporation's Common Stock.
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 l0-Q is provided
in the Exhibit Index that precedes the exhibits
filed with this report.
(b) Neither of ORBCOMM Global, L.P., ORBCOMM Global
Capital Corp. or ORBCOMM Corporation has
previously been required to file a Report on Form
8-K under the Act.
37
38
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: November 13, 1998 By: /s/ SCOTT L. WEBSTER
----------------------------------
Scott L. Webster
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1998 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: November 13, 1998 By: /s/ SCOTT L. WEBSTER
----------------------------------
Scott L. Webster
President
(Principal Executive Officer)
Date: November 13, 1998 By: /s/ W. BARTLETT SNELL
----------------------------------
W. Bartlett Snell
Vice President and Treasurer
(Principal Financial Officer)
38
39
ORBCOMM CORPORATION
Date: November 13, 1998 By: /s/ SCOTT L. WEBSTER
----------------------------------
Scott L. Webster
President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1998 By: /s/ W. BARTLETT SNELL
----------------------------------
W. Bartlett Snell
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
39
40
EXHIBIT INDEX
The following exhibits are filed as part of this report.
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------
3 Organizational Documents.
3.1(a) Certificate of Limited Partnership of
ORBCOMM Global, L.P.
3.2(b) Restated Agreement of Limited
Partnership of ORBCOMM Global, L.P.
3.2.1(c) Amendment No. 1 to Restated Agreement
of Limited Partnership of ORBCOMM
Global, L.P. dated December 2,
1996.
3.3(a) Certificate of Limited Partnership of
ORBCOMM USA, L.P.
3.4(b) Restated Agreement of Limited
Partnership of ORBCOMM USA, L.P.
3.5(a) Certificate of Limited Partnership of
ORBCOMM International Partners, L.P.
3.6(b) Restated Agreement of Limited
Partnership of ORBCOMM International
Partners, L.P.
3.7(d) Certificate of Incorporation of
ORBCOMM Corporation.
3.8(e) Bylaws of ORBCOMM Corporation
4 Instruments Defining the Rights of
Security Holders.
4(b) Indenture, dated as of August 7,
1996, by and among
ORBCOMM Global, L.P., ORBCOMM Global
Capital Corp.,
ORBCOMM USA, L.P., ORBCOMM
International Partners,
L.P., Orbital Communications
Corporation, Teleglobe Mobile
Partners and Marine Midland Bank.
10 Material Contracts.
10.2(a) Pledge Agreement, dated as of
August 7, 1996, by and among ORBCOMM
Global, L.P., ORBCOMM Global Capital
Corp. and Marine Midland Bank.
10.3(b) International System Charge
Agreement, restated as of September
12, 1995, by and among ORBCOMM
Global, L.P., Teleglobe Mobile
Partners and ORBCOMM International
Partners, L.P.
10.4(b) Master Agreement, restated as of
September 12, 1995, by and among
ORBCOMM Global, L.P., Orbital
Sciences Corporation, Orbital
Communications Corporation, Teleglobe
Inc. and Teleglobe Mobile Partners.
10.4.1(h) Amendment No.1 to Master Agreement,
dated as of February
5, 1997, by and among Orbital
Sciences Corporation, Orbital
Communications Corporation, Teleglobe
Inc. and Teleglobe
Mobile Partners.
40
41
10.5(a) ORBCOMM System Procurement Agreement,
dated as of September 12, 1995, by and
between ORBCOMM Global, L.P. and Orbital
Sciences Corporation (provided that
Appendix I is incorporated by reference
to Exhibit 10.24.6 to the Quarterly Report on
Form l0-Q for the quarter ended June 30,
1993 filed by Orbital Sciences Corporation
on August 13, 1993).
10.5.1(i) Amendment No.1 to ORBCOMM System Procurement
Agreement dated December 9, 1996 by
and between ORBCOMM Global, L.P. and
Orbital Sciences Corporation.
10.5.2(h) Amendment No. 2 to ORBCOMM System Procurement
Agreement dated March 24, 1997 by
and between ORBCOMM Global, L.P. and
Orbital Sciences Corporation.
10.5.3(f) Amendment No. 3 to ORBCOMM System Procurement
Agreement dated as of March 31, 1998
by and between ORBCOMM Global, L.P.
and Orbital Sciences Corporation.
10.5.4(f) Amendment No. 4 to ORBCOMM System Procurement
Agreement dated as of March 31, 1998
by and between ORBCOMM Global, L.P.
and Orbital Sciences Corporation.
10.6(b) Proprietary Information and Non-Competition
Agreement, restated as of September
12, 1995, by and among ORBCOMM
Global, L.P., Orbital Sciences
Corporation, Orbital Communications
Corporation, Teleglobe Inc.,
Teleglobe Mobile Partners, ORBCOMM
USA, L.P. and ORBCOMM International
Partners, L.P.
10.7(b) System Charge Agreement, restated as of
September 21, 1995, by and between
ORBCOMM USA, L.P. and Orbital
Communications Corporation.
10.8(b) System Construction Agreement, restated as
of September 12, 1995, by and
between ORBCOMM Global, L.P. and
Orbital Communications Corporation.
10.9(b) Amendment No. 1 to System Construction
Agreement, dated as of July 2, 1996,
by and between ORBCOMM Global, L.P.
and Orbital Communications
Corporation.
10.10(a) Service License Agreement, dated as
of July 1, 1996, by and between
ORBCOMM International Partners, L.P.
and ORBCOMM Canada Inc.
10.11(a) Service License Agreement, dated as
of October 10, 1996, by and between
ORBCOMM International Partners, L.P.
and Cellular Communications Network
(Malaysia) Sdn. Bhd.
10.12(a) Service License Agreement, dated as
of October 15, 1996, by and between
ORBCOMM International Partners, L.P.
and European Company for Mobile
Communication Services, B.V.,
ORBCOMM Europe.
10.13(a) Ground Segment Facilities Use Agreement,
dated as of December 19, 1995, by
and between ORBCOMM International
Partners, L.P. and ORBCOMM Canada
Inc.
41
42
10.14(a) Ground Segment Procurement
Contract, dated as of October 10,
1996, by and between ORBCOMM
International Partners, L.P. and
Cellular Communications Network
(Malaysia) Sdn. Bhd.
10.15(a) Ground Segment Procurement Contract,
dated as of October 15, 1996, by and
between ORBCOMM International
Partners, L.P. and European Company
for Mobile Communication Services,
B.V., ORBCOMM Europe.
10.16(j) Orbital Communications Corporation
1992 Stock Option Plan.
10.17(j) Amended and Restated Administrative
Services Agreement, dated as of
January 1, 1997, by and between
ORBCOMM Global, L.P. and Orbital
Sciences Corporation.
10.18(j) U.S. Gateway Earth Station
Maintenance Service Agreement, dated
as of October 1, 1997, by and between
ORBCOMM Global, L.P. and Orbital
Sciences Corporation.
10.19(j) Subscriber Communicator Manufacture
Agreement, dated as of July 31, 1996,
by and between ORBCOMM Global, L.P.
and Magellan Corporation.
10.20(j) Reseller Agreement, dated as of March
3, 1997, by and between ORBCOMM USA,
L.P. and Orbital Sciences Corporation.
10.20.1(j) Amendment No. 1, dated as of
September 2, 1997, to the Reseller
Agreement, dated as of March 3, 1997,
by and between ORBCOMM USA, L.P. and
Orbital Sciences Corporation.
10.21(j) Employment Agreement, dated as of May
15, 1997, by and between ORBCOMM
Global, L.P. and Robert F. Latham.
10.22(j) Consulting Agreement, dated as of
March 18, 1998, by and between
ORBCOMM Global, L.P. and ORBCOMM
Canada Inc.
27 Financial Data Schedule.
27.1 * Financial Data Schedule of ORBCOMM
Global, L.P.
27.2* Financial Data Schedule of ORBCOMM
Corporation.
- ---------------------
* Filed herewith.
(a) Incorporated by reference to the identically numbered exhibit to
Amendment No. 1, dated October 21, 1996, to the Registration
Statement on Form S-4 filed by ORBCOMM Global, L.P. and ORBCOMM
Global Capital Corp. on August 30, 1996 (Reg. No. 333-11149).
(b) Incorporated by reference to the identically numbered exhibit to the
Registration Statement on Form S-4 filed by ORBCOMM Global, L.P. and
ORBCOMM Global Capital Corp. on August 30, 1996 (Reg. No. 333-11149).
(c) Incorporated by reference to Exhibit 10.16.1 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 filed by Orbital
Sciences Corporation on March 27, 1997.
(d) Incorporated by reference to Exhibit 3.1 to the Registration Statement
on Form S-1 of ORBCOMM Corporation dated April 21, 1998 (Reg. No.
333-50599).
42
43
(e) Incorporated by reference to Exhibit 3.2 to Amendment No. 2, dated
June 12, 1998, to the Registration Statement on Form S-1 of ORBCOMM
Corporation dated April 21, 1998 (Reg. No. 333-50599).
(f) Incorporated by reference to the identically numbered exhibit to
Amendment No. 2, dated June 12, 1998, to the Registration Statement
on Form S-l of ORBCOMM Corporation dated April 21, 1998 (Reg. No.
333-50599).
(g) Incorporated by reference to Exhibit 10.17 of the Annual Report on Form
10-K for the fiscal year ended December 31, 1997 filed by ORBCOMM
Global, L.P. on March 31, 1998.
(h) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
filed by ORBCOMM Global, L.P. on May 14, 1997.
(i) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K for the fiscal year ended December 31, 1996
filed by ORBCOMM Global, L.P. on March 28, 1997.
(j) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K for the fiscal year ended December 31, 1997
filed by ORBCOMM Global, L.P. on March 31, 1998.
43