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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number: 333-11149
ORBCOMM GLOBAL, L.P.
ORBCOMM GLOBAL CAPITAL CORP.
(Exact Name of Registrants as Specified in their Charters)
54-1698039
DELAWARE 54-1841164
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization of Registrants) Identification Nos.)
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 CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,586 $ 3,799
Investments 0 390
Other receivables 968 248
Prepaid expenses 2,458 0
Product development 843 0
Inventory 9,975 6,688
------------- ---------------
Total Current Assets 22,830 11,125
Mobile Communications Satellite System, net 328,055 327,946
Other assets, net 6,015 4,690
Investments in and advances to affiliates 5,974 2,483
Goodwill, net 371 390
------------- ---------------
TOTAL ASSETS $ 363,245 $ 346,634
============= ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Current portion of long-term debt $ 609 $ 1,190
Accounts payable and accrued liabilities 15,202 19,255
Accounts payable - Orbital Sciences Corporation 72,312 50,800
------------- ---------------
Total Current Liabilities 88,123 71,245
Revenue participation accrued interest 1,278 599
Long-term debt 170,000 170,000
------------- ---------------
Total Liabilities 259,401 241,844
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners 58,972 56,520
Orbital Communications Corporation 44,872 48,270
------------- ---------------
Total Partners' Capital 103,844 104,790
------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 363,245 $ 346,634
============= ===============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
3
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
------------------------- ------------------------ JUNE 30,
1999 1998 1999 1998 1999
----------- ----------- ----------- ---------- ------------
REVENUES:
Service and product sales $ 550 $ 507 $ 1,064 $ 727 $ 3,173
Distribution fees 0 0 0 0 1,000
----------- ----------- ----------- ---------- ------------
Total revenues 550 507 1,064 727 4,173
EXPENSES:
Cost of product sales 657 502 1,147 717 3,174
Engineering expenses 6,395 4,671 11,663 7,325 42,283
Marketing, administrative and other expenses 11,220 8,899 19,032 13,203 73,055
----------- ----------- ----------- ---------- ------------
Total expenses 18,272 14,072 31,842 21,245 118,512
----------- ----------- ----------- ---------- ------------
LOSS FROM OPERATIONS BEFORE DEPRECIATION
AND AMORTIZATION (17,722) (13,565) (30,778) (20,518) (114,339)
Depreciation 12,306 2,435 23,757 4,338 48,351
Goodwill amortization 10 0 19 0 19
----------- ----------- ----------- ---------- ------------
LOSS FROM OPERATIONS (30,038) (16,000) (54,554) (24,856) (162,709)
OTHER INCOME AND EXPENSES:
Interest income 88 353 185 781 10,397
Interest expense and other financial charges (6,668) (210) (13,168) (420) (17,122)
Equity in net income (losses) of affiliates 2,348 (1,225) (509) (3,233) (19,110)
----------- ----------- ----------- ---------- ------------
NET LOSS $ (34,270) $ (17,082) $ (68,046) $ (27,728) $ (188,544)
=========== =========== =========== ========== ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
4
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
--------------------------- JUNE 30,
1999 1998 1999
--------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(68,046) $(27,728) $(188,544)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
Items not affecting cash:
Depreciation 23,757 4,338 48,351
Goodwill amortization 19 0 19
Amortization of financing fees 513 420 2,490
Equity in net losses of affiliates 509 3,233 19,110
--------- --------- ----------
SUB-TOTAL (43,248) (19,737) (118,574)
Net changes in non-cash working capital items:
Decrease (increase) in other receivables (720) 509 (968)
Increase in prepaid expenses (2,458) (2,914) (2,458)
Increase in product development (843) 0 (843)
Increase in inventory (3,287) (801) (9,975)
Increase (decrease) in accounts payable and accrued liabilities (4,053) 2,530 15,202
Increase in accounts payable - Orbital Sciences Corporation 0 0 4,648
Increase in revenue participation accrued interest 679 0 1,278
--------- --------- ----------
NET CASH USED IN OPERATING ACTIVITIES (53,930) (20,413) (111,690)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,354) (26,122) (308,742)
Increase in investments in and advances to affiliates (4,050) (5,240) (25,113)
Purchase of investments 0 (5,195) (190,885)
Proceeds from sale of investments 390 17,380 190,884
Other 0 0 (390)
--------- --------- ----------
NET CASH USED IN INVESTING ACTIVITIES (6,014) (19,177) (334,246)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt 0 0 169,475
Repayment of long-term debt (581) (530) (4,390)
Partners' contributions 67,150 30,000 294,950
Financing fees paid and other (1,838) 0 (5,513)
--------- --------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 64,731 29,470 454,522
--------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,787 (10,120) 8,586
CASH AND CASH EQUIVALENTS:
Beginning of period 3,799 16,106 0
--------- --------- ----------
CASH AND CASH EQUIVALENTS:
End of period $ 8,586 $ 5,986 $ 8,586
========= ========= ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 11,944 $ 11,995 $ 60,741
========= ========= ==========
Non-cash capital expenditures $ 21,512 $ 15,080 $ 67,664
========= ========= ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
5
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED 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.
In 1998, the Company purchased the assets of Dolphin Software Systems
Inc. ("Dolphin") and established two wholly owned subsidiaries. Dolphin
Information Services, Inc. ("DIS"), a Delaware corporation, distributes outside
Canada software products that enable customers to more easily access and manage
information obtained from or regarding their remote or mobile assets using the
ORBCOMM system (collectively, the "Dolphin Software"). Dolphin Software
Services ULC, a Nova Scotia unlimited liability company, develops modifications
and enhancements to, and distributes in Canada, the Dolphin Software. The
value attributed to assets acquired from Dolphin is not material to the
Company's total assets.
In April 1999, the Company and ORBCOMM Enterprises Corporation, a
Delaware corporation and wholly owned subsidiary of the Company, formed ORBCOMM
Enterprises, L.P., a Delaware limited partnership ("ORBCOMM Enterprises"), as
an unrestricted subsidiary of the Company for the purpose of marketing and
distributing the Company's monitoring, tracking and messaging services to
customers and developing applications with respect thereto.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position of the
Company as of June 30, 1999, the results of its operations for the three-month
and six-month periods ended June 30, 1999 and 1998, its cash flows for the
six-month periods ended June 30, 1999 and 1998, and the period from June 30,
1993 (date of inception) through June 30, 1999. 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, 1998 filed with the Securities and Exchange Commission. Operating
results for the three months and six months ended June 30, 1999 are not
necessarily indicative of the results of operations expected in the future,
although the Company anticipates a net loss for the year 1999. The Company
expects to emerge from development stage during 1999.
5
6
ORBCOMM GLOBAL L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(3) RELATED PARTY TRANSACTIONS
The Company paid Orbital $536,000 and $2,254,000 for the six months
ended June 30, 1999 and 1998, respectively, and approximately $200,600,000 for
the period June 30, 1993 (date of inception) through December 31, 1998, 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
invoicing $72,312,000 and $50,800,000 under the Procurement Agreement as of June
30, 1999 and December 31, 1998, respectively, and has indicated that it will
continue to defer invoicing of certain amounts under the Procurement Agreement
and, to the extent applicable, a new procurement agreement dated as of February
1, 1999 between the Company and Orbital until other funding arrangements for the
Company are secured.
In May 1999, ORBCOMM USA transferred to ORBCOMM Enterprises
approximately $700,000 of its product development assets associated with the
marketing and distribution of the Company's monitoring, tracking and messaging
services and associated applications.
The Company sold an aggregate of $381,000, $503,000, $871,000 and
$587,000 of product to ORBCOMM USA and ORBCOMM International for the three
months and six months ended June 30, 1999 and 1998, respectively, and $1,763,000
for the period June 30, 1993 (date of inception) through December 31, 1998.
Effective January 1, 1999, the Company commenced allocating to ORBCOMM
USA and ORBCOMM International their respective share of expenses incurred by the
Company on behalf of ORBCOMM USA and ORBCOMM International. For the three-month
and six-month periods ended June 30, 1999, the Company charged ORBCOMM USA and
ORBCOMM International $2,000,000 and $5,843,000, respectively (none for the same
periods of 1998).
(4) 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"). Revenue
Participation Interest represents an aggregate amount equal to 5% of ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. 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 also has a $5,000,000 secured note with a financial
institution of which $609,000 and $1,190,000 was outstanding as the current
portion of the long-term debt as of June 30, 1999 and December 31, 1998,
respectively. The note bears interest at a rate of 9.2% per annum, is secured
by equipment located at certain of the U.S. gateway Earth stations and the
network control center and is guaranteed by Orbital.
6
7
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(5) STOCK OPTION PLAN
During the second quarter of 1999, the Company and ORBCOMM Corporation,
a Delaware corporation and wholly owned subsidiary of the Company (the
"Corporation"), adopted The 1999 Equity Plan of ORBCOMM Corporation and ORBCOMM
Global, L.P. (the "Equity Plan"). The Equity Plan provides for grants of
incentive or non-qualified stock options to purchase common stock of the
Corporation to officers, employees, consultants and independent directors of
the Corporation and its affiliates and to officers, employees and consultants
of the Company. To date, no options have been granted under the Equity Plan.
In 1998, DIS adopted the Dolphin Information Services, Inc. 1998 Stock
Option Plan (the "DIS Plan"). The DIS Plan provides for grants of incentive or
non-qualified stock options to purchase DIS common stock to officers, employees
and outside directors of DIS, the Company and their respective affiliates. As
of June 30, 1999, 1,237,500 options to acquire shares of DIS common stock had
been granted to DIS employees and officers at an exercise price of U.S.$0.08,
which price represents the fair market value of DIS common stock on the date of
grant. DIS has elected to account for stock-based compensation by applying the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and providing the pro forma disclosure provisions of the
Statement of Financial Accounting Standards 123, "Accounting for Stock-Based
Compensation".
7
8
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
ASSETS
CURRENT ASSETS:
Accounts receivable $ 205 $ 220
Inventory 0 309
Other assets 151 113
Product development 0 569
--------- ---------
TOTAL ASSETS $ 356 $ 1,211
========= =========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 111 $ 717
--------- ---------
Total Current Liabilities 111 717
Amount due to affiliates 17,113 13,342
--------- ---------
Total Liabilities 17,224 14,059
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
ORBCOMM Global, L.P. (16,531) (12,591)
Orbital Communications Corporation (337) (257)
--------- ---------
Total Partners' Capital (16,868) (12,848)
--------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 356 $ 1,211
========= =========
The accompanying notes are an integral part of these condensed financial
statements.
8
9
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
-------------------- ---------------------- JUNE 30,
1999 1998 1999 1998 1999
-------- ------ -------- -------- -----------
REVENUES:
Service and product sales $ 326 $ 269 $ 591 $ 333 $ 1,762
Contract revenues 0 0 0 0 4,203
-------- ------ -------- -------- ---------
Total revenues 326 269 591 333 5,965
EXPENSES:
Cost of sales 150 302 390 368 1,833
Marketing expenses 1,306 678 4,221 2,241 21,010
-------- ------ -------- -------- ---------
Total expenses 1,456 980 4,611 2,609 22,843
-------- ------ -------- -------- ---------
NET LOSS $(1,130) $(711) $(4,020) $(2,276) $(16,878)
======== ====== ======== ======== =========
The accompanying notes are an integral part of these condensed financial
statements.
9
10
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
------------------------- JUNE 30,
1999 1998 1999
-------- -------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,020) $(2,276) $(16,878)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net changes in non-cash working capital items:
Decrease (increase) in accounts receivable 15 (269) (205)
Decrease in inventory 309 0 0
Increase in other assets (38) 0 (151)
Decrease (increase) in product development 569 (77) 0
Increase (decrease) in accounts payable and accrued
liabilities (606) (563) 111
-------- -------- ---------
NET CASH USED IN OPERATING ACTIVITIES (3,771) (3,185) (17,123)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to affiliates 3,771 3,185 17,113
Partners' contributions 0 0 10
-------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,771 3,185 17,123
-------- -------- ---------
NET DECREASE 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
======== ======== =========
The accompanying notes are an integral part of these condensed financial
statements.
10
11
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.
In April 1999, the Company and ORBCOMM Enterprises Corporation, a
Delaware corporation and wholly owned subsidiary of the Company, formed ORBCOMM
Enterprises, L.P., a Delaware limited partnership ("ORBCOMM Enterprises"), as
an unrestricted subsidiary of the Company for the purpose of marketing and
distributing the Company's monitoring, tracking and messaging services to
customers and developing applications with respect thereto.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed financial
statements reflect all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position of ORBCOMM USA as
of June 30, 1999, the results of its operations for the three-month and
six-month periods ended June 30, 1999 and 1998, its cash flows for the
six-month periods ended June 30, 1999 and 1998, and the period from June 30,
1993 (date of inception) through June 30, 1999. 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, 1998 filed
with the Securities and Exchange Commission. Operating results for the three
months and six months ended June 30, 1999 are not necessarily indicative of the
results of operations expected in the future. ORBCOMM USA expects to emerge
from development stage during 1999.
(3) RELATED PARTY TRANSACTIONS
As of June 30, 1999, ORBCOMM USA had a payable of $17,113,000 to the
Company for amounts advanced to support ORBCOMM USA's efforts to establish
commercial and government markets in the United States ($13,660,000 as of
December 31, 1998) none of which is currently payable. ORBCOMM USA is
currently in development stage, and still obtains funds to support operations
through non-interest bearing advances from the Company.
As of December 31, 1998, ORBCOMM USA had a receivable of $318,000 from
ORBCOMM International (none as of June 30, 1999).
11
12
ORBCOMM USA, L.P.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(3) RELATED PARTY TRANSACTIONS - (CONTINUED)
In May 1999, ORBCOMM USA transferred to ORBCOMM Enterprises
approximately $700,000 of its product development assets associated with the
marketing and distribution of the Company's monitoring, tracking and messaging
services and associated applications.
ORBCOMM USA purchased $358,000, $304,000, $526,000 and $370,000 of
product from the Company for the three months and six months ended June 30,
1999 and 1998, respectively, and $1,402,000 for the period June 30, 1993 (date
of inception) through December 31, 1998.
Effective January 1, 1999, the Company commenced allocating to ORBCOMM
USA its respective share of expenses incurred by the Company on behalf of
ORBCOMM USA. For the three-month and six-month periods ended June 30, 1999,
the Company charged ORBCOMM USA $1,171,000 and $3,769,000, respectively (none
for the same periods of 1998).
(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"). Revenue
Participation Interest represents an aggregate amount equal to 5% of ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. 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.
12
13
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS, UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
ASSETS
CURRENT ASSETS:
Accounts receivable $13,568 $ 1,023
Current portion of deferred and prepaid contract costs 11,336 14,733
--------- --------
Total Current Assets 24,904 15,756
Deferred and prepaid contract costs, net of current portion 6,876 6,146
--------- --------
TOTAL ASSETS $31,780 $21,902
========= ========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 1,673 $ 530
Current portion of deferred revenue 12,863 11,254
--------- --------
Total Current Liabilities 14,536 11,784
Amount due to affiliates 4,247 7,389
Deferred revenue, net of current portion 15,252 8,840
--------- --------
Total Liabilities 34,035 28,013
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners (45) (122)
ORBCOMM Global, L.P. (2,210) (5,989)
--------- --------
Total Partners' Capital (2,255) (6,111)
--------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $31,780 $21,902
========= ========
The accompanying notes are an integral part of these condensed financial
statements.
13
14
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
------------------ ---------------------- JUNE 30,
1999 1998 1999 1998 1999
------- ------ ------- -------- -----------
REVENUES:
Service and product sales $6,826 $ 39 $12,976 $ 144 $ 23,983
EXPENSES:
Cost of sales 2,606 104 7,391 193 18,444
Marketing expenses 441 474 1,729 975 7,804
------- ------ ------- -------- ---------
Total expenses 3,047 578 9,120 1,168 26,248
------- ------ ------- -------- ---------
NET INCOME (LOSS) $3,779 $(539) $ 3,856 $(1,024) $ (2,265)
======= ====== ======= ======== =========
The accompanying notes are an integral part of these condensed financial
statements.
14
15
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
------------------------------ JUNE 30,
1999 1998 1999
--------- -------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,856 $(1,024) $ (2,265)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net changes in non-cash working capital items:
Increase in accounts receivable (12,545) 0 (13,568)
Decrease (increase) in deferred and prepaid contract costs 2,667 (8,637) (18,212)
Increase in accounts payable and accrued liabilities 1,143 917 1,673
Increase in deferred revenue 8,021 6,688 28,115
--------- -------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,142 (2,056) (4,257)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in amount due to affiliates (3,142) 2,056 4,247
Partners' contributions 0 0 10
--------- -------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,142) 2,056 4,257
--------- -------- ---------
NET DECREASE 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
========= ======== =========
The accompanying notes are an integral part of these condensed financial
statements.
15
16
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 condensed financial
statements reflect all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position of ORBCOMM
International as of June 30, 1999, the results of its operations for the
three-month and six-month periods ended June 30, 1999 and 1998, its cash
flows for the six-month periods ended June 30, 1999 and 1998, and the period
from June 30, 1993 (date of inception) through June 30, 1999. 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,
1998 filed with the Securities and Exchange Commission. Operating results for
the three months and six months ended June 30, 1999 are not necessarily
indicative of the results of operations expected in the future. ORBCOMM
International expects to emerge from development stage during 1999.
(3) RELATED PARTY TRANSACTIONS
As of June 30, 1999, ORBCOMM International had a payable of $4,247,000
to the Company for amounts advanced to support ORBCOMM International's efforts
to establish commercial markets outside the United States ($7,071,000 as of
December 31, 1998) none of which is currently payable. ORBCOMM International
is currently in development stage, and still obtains funds to support its
operations through non-interest bearing advances from the Company.
As of December 31, 1998, ORBCOMM International had a payable of
$318,000 to ORBCOMM USA (none as of June 30, 1999).
ORBCOMM International purchased $23,000, $199,000, $345,000 and
$217,000 of product from the Company for the three months and six months ended
June 30, 1999 and 1998, respectively, and $361,000 for the period June 30, 1993
(date of inception) through December 31, 1998.
Effective January 1, 1999, the Company commenced allocating to ORBCOMM
International its respective share of expenses incurred by the Company on
behalf of ORBCOMM International. For the three-month and six-
16
17
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) RELATED PARTY TRANSACTIONS - (CONTINUED)
month periods ended June 30, 1999, the Company charged ORBCOMM International
$829,000 and $2,074,000, respectively (none for the same periods of 1998).
(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"). Revenue
Participation Interest represents an aggregate amount equal to 5% of ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. 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.
Construction of Gateways
In October 1996, ORBCOMM International entered into agreements with
certain manufacturers for the purchase of 20 gateway Earth stations that have
been or will be installed around the world. During the first half of 1999,
installation and final acceptance of gateways in Brazil, Argentina and Malaysia
occurred. The related revenue and the associated costs have been properly
reflected in the condensed consolidated statements of operations. Additionally,
as of June 30, 1999, ORBCOMM International had $18,212,000 of deferred and
prepaid contract costs ($20,879,000 as of December 31, 1998), of which
$10,976,000 represents advance payments to manufacturers for gateways that have
not yet been completed ($12,718,000 as of December 31, 1998). Total
commitments under the gateway manufacturing agreements approximated $22,000,000
of which approximately $6,100,000 was outstanding as of June 30, 1999. Included
in deferred and prepaid contract costs is the portion of engineering direct
labor costs that relates to the construction of gateways. As of June 30, 1999,
$1,968,000 of such costs had been included in deferred and prepaid contract
costs ($1,114,000 as of December 31, 1998).
In the second quarter of 1999, ORBCOMM International recognized
$3,137,000 in revenue reflecting payments made by its former international
licensees SEC ORBCOMM (Middle East) Ltd. ("SEC ORBCOMM") and CEC Bosphorus
Communications Ltd. ("CEC Bosphorus") under their respective service license
agreements and other associated agreements with ORBCOMM International. ORBCOMM
International had terminated these licensees for non-performance and deferred
recognizing this revenue pending the outcome of a motion for a preliminary
injunction filed by SATCOM International Group PLC, the alleged successor-in-
interest to each of SEC ORBCOMM and CEC Bosphorus ("SATCOM"). SATCOM's motion
for a preliminary injunction was denied by the district court on March 18, 1999.
17
18
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of June 30, 1999, ORBCOMM International had signed 16 agreements with
international licensees, ten of which had associated gateway procurement
contracts and software license agreements. These agreements authorize the
international licensees to use the ORBCOMM System to provide two-way data and
messaging communications services in their designated territories. As of June
30, 1999, $28,115,000 was recorded as deferred revenue under these agreements
and the associated gateway procurement agreements ($20,094,000 as of December
31, 1998). ORBCOMM International is obligated to construct and deliver ten
gateways to certain international licensees under certain of these agreements
(see note 4).
18
19
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10 $ 10
Accounts receivable and other current assets 445 1,247
--------- ---------
Total Current Assets 455 1,257
Investments in affiliates 54,708 56,111
--------- ---------
TOTAL ASSETS $ 55,163 $ 57,368
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Accounts payable and other accrued liabilities $ 114 $ 724
--------- ---------
Total Current Liabilities 114 724
Due to affiliates 157,955 123,677
--------- ---------
Total Liabilities 158,069 124,401
Non-controlling interest in net assets of consolidated subsidiary (8,266) (6,296)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $0.01;
8,000,000 shares authorized;
4,798,392 and 4,783,892 shares issued;
4,702,820 and 4,688,320 shares outstanding, respectively 48 48
Additional paid-in capital 657 452
Treasury stock, at cost, 95,572 shares (770) (770)
Accumulated deficit (94,575) (60,467)
--------- ---------
Total Stockholders' Deficit (94,640) (60,737)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 55,163 $ 57,368
========= =========
See accompanying footnotes to the condensed consolidated financial statements.
19
20
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1999 1998 1999 1998
--------- -------- --------- ---------
REVENUES:
Service and product sales $ 327 $ 269 $ 593 $ 333
EXPENSES:
Cost of product sales 150 302 390 368
Marketing, administrative and other expenses 1,309 682 4,228 2,257
--------- -------- --------- ---------
Total expenses 1,459 984 4,618 2,625
--------- -------- --------- ---------
LOSS FROM OPERATIONS (1,132) (715) (4,025) (2,292)
OTHER INCOME AND EXPENSES:
Equity in net losses of affiliates (16,581) (8,193) (32,053) (12,749)
Non-controlling interest in net losses of
consolidated subsidiary 553 349 1,970 1,115
--------- -------- --------- ---------
NET LOSS $(17,160) $(8,559) $(34,108) $(13,926)
========= ======== ========= =========
See accompanying footnotes to the condensed consolidated financial statements.
20
21
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(34,108) $(13,926)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
Items not affecting cash:
Equity in net losses of affiliates 32,053 12,749
Non-controlling interest in net losses of consolidated subsidiary (1,970) (1,115)
--------- ---------
SUB-TOTAL (4,025) (2,292)
Net changes in non-cash working capital items:
Decrease (increase) in accounts receivable and other current assets 802 (350)
Decrease in accounts payable and other accrued liabilities (610) (555)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (3,833) (3,197)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (30,650) (15,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (30,650) (15,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock to employees 205 102
Purchases of treasury stock, net of reimbursement from
ORBCOMM Global, L.P. 0 (41)
Net borrowings from affiliates 34,278 18,122
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 34,483 18,183
--------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS 0 (14)
CASH AND CASH EQUIVALENTS:
Beginning of period 10 34
--------- ---------
CASH AND CASH EQUIVALENTS:
End of period $ 10 $ 20
========= =========
See accompanying footnotes to the condensed consolidated financial statements.
21
22
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.
("ORBCOMM"), a Delaware limited partnership, and two marketing partnerships,
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International"). Each of OCC and Teleglobe Mobile is a 50% general
partner in ORBCOMM, and ORBCOMM is a 98% general partner in each of the two
marketing partnerships. Additionally, OCC is a 2% general partner in ORBCOMM
USA, and Teleglobe Mobile is a 2% general partner in ORBCOMM International.
Directly and indirectly, OCC currently holds and controls 51% and 49% of
ORBCOMM USA and ORBCOMM International, respectively. Consequently, OCC
consolidates the financial results of ORBCOMM USA.
In April 1999, ORBCOMM formed ORBCOMM Enterprises, L.P., a Delaware
limited partnership ("ORBCOMM Enterprises"), as an unrestricted subsidiary of
the Company for the purpose of marketing and distributing ORBCOMM's monitoring,
tracking and messaging services to customers and developing applications with
respect thereto. In May 1999, ORBCOMM USA transferred certain of its assets to
ORBCOMM Enterprises.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying 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 June 30, 1999, the results of its operations for the three and six-month
periods ended June 30, 1999 and 1998, and its cash flows for the six-month
periods ended June 30, 1999 and 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,
1998 filed with the Securities and Exchange Commission. The results of
operations for the three and six months ended June 30, 1999 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 arrangement. As of June 30, 1999 and December 31, 1998,
OCC owed Orbital $140,744,000 and $110,287,000, respectively, none of which is
currently payable. As of June 30, 1999 and December 31, 1998 OCC owed ORBCOMM
$98,000 and $48,000, respectively.
ORBCOMM USA currently obtains all of its funding from ORBCOMM via a
non-interest bearing intercompany borrowing arrangement. As of June 30, 1999
and December 31, 1998, ORBCOMM USA owed ORBCOMM $17,113,000 and $13,342,000,
respectively, none of which is currently payable. In May 1999, ORBCOMM USA
transferred approximately $700,000 of its product development assets associated
with the marketing and distribution of ORBCOMM's monitoring, tracking and
messaging services and associated applications to ORBCOMM Enterprises.
22
23
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(3) RELATED PARTY TRANSACTIONS - (CONTINUED)
During the second quarter of 1999 and 1998, ORBCOMM USA purchased
$358,000 and $304,000, respectively, of products from ORBCOMM. For the first
half of 1999 and 1998, these purchases were $526,000 and $370,000,
respectively. Effective January 1, 1999, ORBCOMM commenced allocating to
ORBCOMM USA its respective share of expenses incurred by ORBCOMM on behalf of
ORBCOMM USA. For the three and six-month periods ended June 30, 1999, ORBCOMM
charged ORBCOMM USA $1,171,000 and $3,769,000, respectively (none for the same
periods of 1998).
(4) COMMITMENTS AND CONTINGENCIES
In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued
$170,000,000 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 ORBCOMM system revenues. The Notes are fully
and unconditionally guaranteed on a joint and several basis by OCC, Teleglobe
Mobile, ORBCOMM USA and ORBCOMM International. The guarantees are non-recourse
to OCC's shareholders (including Orbital) and Teleglobe Mobile's partners
(including Teleglobe).
23
24
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1 $ 11
Accounts receivable 13,568 1,023
Current portion of deferred and prepaid contract costs 11,336 14,733
--------- ---------
Total Current Assets 24,905 15,767
Deferred and prepaid contract costs, net of current portion 6,876 6,146
Investments in affiliates 58,795 58,467
--------- ---------
TOTAL ASSETS $ 90,576 $ 80,380
========= =========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 1,786 $ 651
Current portion of deferred revenue 12,863 11,254
--------- ---------
Total Current Liabilities 14,649 11,905
Amount due to affiliates 4,247 7,389
Deferred revenue, net of current portion 15,252 8,840
--------- ---------
Total Liabilities 34,148 28,134
Non-controlling interest in net assets of ORBCOMM International
Partners, L.P. (1,105) (2,994)
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile, L.P. 56,958 54,688
Teleglobe Mobile Investment Inc. 575 552
--------- ---------
Total Partners' Capital 57,533 55,240
--------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 90,576 $ 80,380
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
24
25
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
---------------------- ----------------------- JUNE 30,
1999 1998 1999 1998 1999
--------- -------- --------- --------- -----------
REVENUES:
Service and product sales $ 6,826 $ 39 $ 12,976 $ 144 $ 23,983
EXPENSES:
Cost of sales 2,606 104 7,391 193 18,444
Marketing, administrative and other expenses 455 519 1,771 1,051 10,392
--------- -------- --------- --------- ---------
Total expenses 3,061 623 9,162 1,244 28,836
--------- -------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 3,765 (584) 3,814 (1,100) (4,853)
OTHER INCOME AND EXPENSES:
Interest income 0 15 0 35 2,289
Financial charges 0 0 0 0 (288)
Equity in net losses of ORBCOMM Global, L.P. (19,104) (8,394) (36,147) (13,596) (94,691)
Non-controlling interest in net losses (income) of
ORBCOMM International Partners, L.P. (1,851) 264 (1,889) 502 1,110
--------- -------- --------- --------- ---------
NET LOSS $(17,190) $(8,699) $(34,222) $(14,159) $(96,433)
========= ======== ======== ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
25
26
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
----------------------- JUNE 30,
1999 1998 1999
--------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(34,222) $(14,159) $ (96,433)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Items not affecting cash:
Equity in net losses of ORBCOMM Global, L.P. 36,147 13,596 94,691
Non-controlling interest in net losses (income) of ORBCOMM
International Partners, L.P. 1,889 (502) (1,110)
--------- --------- ----------
SUB-TOTAL 3,814 (1,065) (2,852)
Net changes in non-cash working capital items:
Decrease (increase) in accounts receivable (12,545) 31 (13,568)
Decrease (increase) in deferred and prepaid contract costs 2,667 (8,637) (18,212)
Increase in accounts payable and accrued liabilities 1,135 574 1,786
Increase in deferred revenue 8,021 6,688 28,115
--------- --------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,092 (2,409) (4,731)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (36,500) (15,000) (154,525)
--------- --------- ----------
NET CASH USED IN INVESTING ACTIVITIES (36,500) (15,000) (154,525)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in amount due to affiliates (3,142) 2,056 4,247
Partners' contributions 36,540 15,000 155,005
Non-controlling interest in net assets of ORBCOMM
International Partners, L.P. 0 0 5
--------- --------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 33,398 17,056 159,257
--------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (10) (353) 1
CASH AND CASH EQUIVALENTS:
Beginning of period 11 1,439 0
--------- --------- ----------
CASH AND CASH EQUIVALENTS:
End of period $ 1 $ 1,086 $ 1
========= ========= ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
25
27
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 condensed consolidated
financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position of the
Partnership as of June 30, 1999, the results of its operations for the
three-month and six-month periods ended June 30, 1999 and 1998, its cash
flows for the six-month periods ended June 30, 1999 and 1998, and the period
from July 21, 1993 (date of inception) through June 30, 1999. 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, 1998 filed with the Securities and Exchange Commission.
Operating results for the three months and six months ended June 30, 1999 are
not necessarily indicative of the results of operations expected in the future.
The Partnership expects to emerge from development stage during 1999.
(3) RELATED PARTY TRANSACTIONS
As of June 30, 1999, ORBCOMM International had a payable of $4,247,000
to the Company for amounts advanced to support ORBCOMM International's efforts
to establish commercial markets outside the United States ($7,071,000 as of
December 31, 1998), none of which is currently payable. ORBCOMM International
is currently in development stage, and still obtains funds to support its
operations through non-interest bearing advances from the Company.
As of December 31, 1998, ORBCOMM International had a payable of
$318,000 to ORBCOMM USA (none as of June 30, 1999).
ORBCOMM International purchased $23,000, $199,000, $345,000 and
$217,000 of product from the Company for the three months and six months ended
June 30, 1999 and 1998, respectively, and $361,000 for the period June 30, 1993
(date of inception) through December 31, 1998.
Effective January 1, 1999, the Company commenced allocating to ORBCOMM
International its respective share of expenses incurred by the Company on
behalf of ORBCOMM International. For the three-month and six-
26
28
TELEGLOBE MOBILE PARTNERS
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) RELATED PARTY TRANSACTIONS - (CONTINUED)
month periods ended June 30, 1999, the Company charged ORBCOMM International
$829,000 and $2,074,000, respectively (none for the same periods of 1998).
In 1996, the Partnership entered into an administrative services
agreement with Teleglobe. Under this agreement, Teleglobe provides management
services to the Partnership. As of June 30, 1999 and December 31, 1998, the
Partnership owed Teleglobe $68,000 and $74,000, respectively, under this
agreement.
(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"). Revenue
Participation Interest represents an aggregate amount equal to 5% of ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. 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 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 purchase of 20 gateway Earth stations that have
been or will be installed around the world. During the first half of 1999,
installation and final acceptance of gateways in Brazil, Argentina and Malaysia
occurred. The related revenue and the associated costs have been properly
reflected in the condensed consolidated statements of operations. Additionally,
as of June 30, 1999, ORBCOMM International had $18,212,000 of deferred and
prepaid contract costs ($20,879,000 as of December 31, 1998), of which
$10,976,000 represents advance payments to manufacturers for gateways that have
not yet been completed ($12,718,000 as of December 31, 1998). Total
commitments under the gateway manufacturing agreements approximated $22,000,000
of which approximately $6,100,000 was outstanding as of June 30, 1999. Included
in deferred and prepaid contract costs is the portion of engineering direct
labor costs that relates to the construction of gateways. As of June 30, 1999,
$1,968,000 of such costs had been included in deferred and prepaid contract
costs ($1,114,000 as of December 31, 1998).
In the second quarter of 1999, ORBCOMM International recognized $3,137,000
in revenue reflecting payments made by its former international licensees SEC
ORBCOMM (Middle East) Ltd. ("SEC ORBCOMM") and CEC Bosphorus Communications Ltd.
("CEC Bosphorus") under their respective service license agreements and other
associated agreements with ORBCOMM International. ORBCOMM International had
terminated these licensees for non-performance and deferred recognizing this
revenue pending the outcome of a motion for a preliminary injunction filed by
SATCOM International Group PLC, the alleged successor-in-interest to
28
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TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENCIES-(CONTINUED)
each of SEC ORBCOMM and CEC Bosphorus ("SATCOM"). SATCOM's motion for a
preliminary injunction was denied by the district court on, March 18, 1999.
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of June 30, 1999, ORBCOMM International had signed 16 agreements with
international licensees, ten of which had associated gateway procurement
contracts and software license agreements. These agreements authorize the
international licensees to use the ORBCOMM System to provide two-way data and
messaging communications services in their designated territories. As of June
30, 1999, $28,115,000 was recorded as deferred revenue under these agreements
and the associated gateway procurement agreements ($20,094,000 as of December
31, 1998). ORBCOMM International is obligated to construct and deliver ten
gateways to certain international licensees under certain of these agreements
(see note 4).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In 1993, Orbital Sciences Corporation ("Orbital"), acting through
Orbital Communications Corporation ("OCC"), and Teleglobe Inc., acting through
Teleglobe Mobile Partners ("Teleglobe Mobile"), formed ORBCOMM Global, L.P.
("ORBCOMM"). OCC and Teleglobe Mobile each acquired and currently owns a 50%
partnership interest in us. Concurrently with our formation, OCC and Teleglobe
Mobile formed two marketing partnerships, ORBCOMM USA, L.P. and ORBCOMM
International Partners, L.P., with the exclusive right to market our services
in the United States and internationally, respectively. We are a 98% general
partner in each of ORBCOMM USA and ORBCOMM International, while OCC and
Teleglobe Mobile hold 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,
consistent with FCC regulations.
ORBCOMM Global Capital Corp. ("Capital"), a wholly owned subsidiary of
ours, was formed in July 1996 to act as a co-issuer with us in connection with
the issuance of $170,000,000 aggregate amount of our 14% senior notes due 2004.
Capital has nominal assets and does not conduct any operations. In 1998, we
purchased the assets of Dolphin Software Systems Inc. ("Dolphin") and
established two wholly owned subsidiaries. Dolphin Information Services, Inc.,
a Delaware corporation ("DIS"), distributes outside Canada software products
that enable customers to more easily access and manage information obtained from
or regarding their remote or mobile assets using the ORBCOMM system
(collectively, the "Dolphin Software"). Dolphin Software Services ULC, a Nova
Scotia unlimited liability company ("DSS"), develops modifications and
enhancements to, and distributes in Canada, the Dolphin Software. The value
attributed to assets acquired from Dolphin is not material to our total assets.
On February 25, 1999, we formed ORBCOMM Investment Corporation, a Delaware
corporation, as an unrestricted subsidiary for the purpose of making strategic
investments in existing and prospective international service licensees, other
service distributors and various third parties. In April 1999, we formed,
together with ORBCOMM Enterprises Corporation, a Delaware corporation and wholly
owned subsidiary of ours, ORBCOMM Enterprises, L.P., a Delaware limited
partnership ("ORBCOMM Enterprises"), as an unrestricted subsidiary for the
purpose of marketing and distributing our monitoring, tracking and messaging
services to customers and developing applications with respect thereto.
We market our services within the United States indirectly through
value-added resellers ("VARs") through ORBCOMM USA and directly through
internally developed value-added resellers ("Internal VARs") through ORBCOMM
Enterprises, and internationally through international service licensees
("International Licensees") through ORBCOMM International. The International
Licensees may distribute our services directly or through a distribution
network including through VARs and Internal VARs.
OUR ORGANIZATIONAL STRUCTURE; BASIS OF OUR FINANCIAL REPORTING
Our consolidated financial statements include our accounts and the accounts
of our subsidiaries, DIS, DSS, Capital, ORBCOMM Corporation, ORBCOMM Investment
Corporation, ORBCOMM Enterprises and ORBCOMM Enterprises Corporation. Since OCC
and Teleglobe Mobile have effective control over ORBCOMM USA and ORBCOMM
International, respectively, we account for each of ORBCOMM USA and ORBCOMM
International using the equity method of accounting. We do not consolidate
either ORBCOMM USA or ORBCOMM International, and therefore do not report in our
condensed consolidated financial statements, either of ORBCOMM USA's or ORBCOMM
International's assets, liabilities and operating revenues and expenses.
Instead, our proportionate share of the net income and
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losses of each of ORBCOMM USA and ORBCOMM International is recorded under the
caption "Equity in net income (losses) of affiliates" in our condensed
consolidated financial statements. Correspondingly, our investment in each of
ORBCOMM USA and ORBCOMM International 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". In February 1999, we completed the purchase of additional shares
of ORBCOMM Japan Ltd., our International Licensee for Japan, increasing our
equity interest in ORBCOMM Japan to approximately 32%. With the purchase of
this additional ownership interest, we now account for our investment in ORBCOMM
Japan using the equity method of accounting. In April 1999, ORBCOMM Investment
Corporation acquired a 20% interest in ORBCOMM Middle East & Central Asia Ltd.,
our International Licensee for the Middle East and Central Asia region.
ORBCOMM USA pays to OCC an 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) of the ORBCOMM system located
in the United States (the "System Assets"). In consideration of the
construction and financing by us of the System Assets, OCC, in turn, pays to us
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 and
does not owe any portion of the system charge to us.
ORBCOMM International pays to Teleglobe Mobile an 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 us 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 us 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, then Teleglobe Mobile is not required to pay and does
not owe any portion of the system charge to us.
ROLL-OUT OF OUR SERVICES
The ORBCOMM system provides 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. To date, we have launched 28
satellites.
In November 1998, we formally announced the launch of full commercial
service in North America. The U.S. ground segment, including the network
control center and four gateway Earth stations, is operational. In addition,
gateways located in Italy, Japan, Brazil, Argentina, Malaysia and South Korea
have successfully completed acceptance testing. Our International Licensees for
Europe, a portion of South America, Japan and Malaysia have launched commercial
service. Collectively, these four International Licensees cover approximately
50 countries. During the remainder of 1999, we expect that our International
Licensees for Malaysia, North Africa, the remaining portion of South America and
the south Caribbean region, Mexico and the north Caribbean region will launch
commercial service as well, subject to completion of the necessary ground
infrastructure and receipt of the necessary regulatory approvals.
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REVENUES
We expect to emerge from development stage in 1999. Domestically,
ORBCOMM USA generates revenues from the direct sale of satellite access and
usage to VARs, which sales to date have been primarily for resale to customers.
The pricing of satellite access and usage is based on many variables, including
the availability and cost of substitute services, the cost of providing service
and the nature of the user application. Pricing generally is based on a
wholesale pricing structure that incorporates an initial activation charge, a
recurring monthly charge for access to the ORBCOMM system and a flat-rate fee
for usage. In the future, we intend to implement usage-sensitive billing.
Domestically, ORBCOMM Enterprises also generates revenues from the sale of
our data and messaging communications services as well as applications developed
and distributed by the Internal VARs. The pricing of services provided by the
Internal VARs is based on a pricing structure similar to the VAR pricing
structure except that the Internal VAR pricing structure generates additional
revenues from value-added software and customer services, as well as hardware,
provided to the customer. In addition, ORBCOMM Enterprises expects to generate
revenues internationally from the sale of our data and messaging communications
services and applications developed by the internal VARS.
Internationally, ORBCOMM International generates revenues through
license fees paid by and through the sale of gateways to International
Licensees. In addition, all International Licensees in commercial service pay
a monthly satellite usage fee based on a percentage of gross operating
revenues. In the future, we expect ORBCOMM International to be able to charge
the International Licensees 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 VARs, which includes an
activation charge, a recurring monthly access charge and a usage charge. On
execution of an agreement, International Licensees purchase a gateway or
gateway components from ORBCOMM International pursuant to a gateway procurement
contract or arrange to share a gateway with an International Licensee that is
in close proximity. Cash received under the gateway procurement contracts is
generally accounted for as deferred revenues and recognized when the gateway
has successfully completed acceptance testing. License fees from service
license or similar agreements are generally accounted for as deferred revenues
and recognized over the term of the agreements.
OPERATING EXPENSES
We own and operate the assets that comprise the ORBCOMM system, other
than the licenses from the FCC, which are held by OCC. Satellite-based
communications systems are characterized by high initial capital expenditures
and relatively low marginal costs for providing service. On November 30, 1998,
we announced the commencement of full commercial service in North America and
commenced depreciation of our 28-satellite system. Additionally, we incur:
- engineering expenses related to the development and operation of the
ORBCOMM system;
- marketing expenses related to the marketing of our services; and
- general, administrative and other expenses related to the operation
of the ORBCOMM system.
Prior to April 1999, ORBCOMM USA incurred expenses related to the
development of Internal VARs, which were included in ORBCOMM USA's marketing
expenses. In April 1999, with the formation of ORBCOMM Enterprises and the
transfer of Internal VAR assets to ORBCOMM Enterprises, ORBCOMM Enterprises
began to incur such expenses. It is anticipated that ORBCOMM
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Enterprises' expenses related to the continued development and operation of the
Internal VARs, including the development of applications for customers, will
increase substantially as ORBCOMM Enterprises expands the marketing and
distribution efforts of the Internal VARs.
RESULTS OF OPERATION - ORBCOMM
We have generated substantial negative cash flows to date. Our
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 and execution of agreements with International
Licensees;
- the negotiation and execution of agreements with VARs;
- the development of Internal VARs;
- the development of customer software and hardware applications;
- marketing and sales activities associated with our commercial
operations; and
- the hiring of key personnel.
In October 1998, we purchased substantially all of the assets of Dolphin
and established two wholly owned subsidiaries, DIS and DSS. It is expected that
most DIS and DSS product sales will be to consolidated affiliates. As such, we
do not expect DIS or DSS to have a material impact on our financial results.
Revenues. Product sales of $550,000, $507,000, $1,064,000 and $727,000
for the three months and six months ended June 30, 1999 and 1998, respectively,
relate primarily to the sale of subscriber units by us to ORBCOMM USA and
ORBCOMM International, which units in turn are sold to customers.
Cost of product sales. Cost of product sales for the three months and
six months ended June 30, 1999 and 1998 was $657,000, $502,000, $1,147,000 and
$717,000, respectively. Cost of product sales consists of the cost of the sale
of subscriber units sold by us to ORBCOMM USA and ORBCOMM International, which
units in turn are sold to customers.
Engineering expenses. We incurred $6,395,000, $4,671,000, $11,663,000
and $7,325,000 in ORBCOMM system engineering expenses for the three months and
six months ended June 30, 1999 and 1998, respectively. We are capitalizing a
portion of engineering direct labor costs that relates to hardware and system
design and development and coding of the software products that enhance the
operation of the ORBCOMM system. Engineering expenses, which consist primarily
of salaries and employee-related expenses, were higher in 1999 due in
substantial part to a lower capitalization of engineering expenses and a
greater number of employees.
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34
Marketing, administrative and other expenses. We incurred $11,220,000,
$8,899,000, $19,032,000 and $13,203,000 of marketing, administrative and other
expenses for the three months and six months ended June 30, 1999 and 1998,
respectively. These expenses were higher quarter-over-quarter due in
substantial part to increased costs relating to a greater number of employees.
Depreciation. We incurred $12,306,000, $2,435,000, $23,757,000 and
$4,338,000 in ORBCOMM system depreciation expense for the three months and six
months ended June 30, 1999 and 1998, respectively. Depreciation expense
increased in 1999 as a result of the launch of full commercial service in North
America in the fourth quarter of 1998, at which time we commenced depreciation
of our 28-satellite system. We expect depreciation expense in 1999 to be
approximately $49,000,000.
Interest income. We recognized $88,000, $353,000, $185,000 and
$781,000 of interest income for the three months and six months ended June 30,
1999 and 1998, respectively. Interest income consists of interest earned on the
invested portion of the net proceeds of our 14% senior notes due 2004, our
$5,000,000 note from MetLife Capital Corporation and the investment of unused
capital contributions from our partners. Interest income was lower
quarter-over-quarter primarily due to the use of the proceeds of our notes and
the Metlife note to fund our operations.
Interest expense and other financial charges. We recognized interest
expense and other financial charges of $6,668,000, $210,000, $13,168,000 and
$420,000 for the three months and six months ended June 30, 1999 and 1998,
respectively. Interest expense consists primarily of interest on our notes.
Interest expense increased in 1999 as a result of the launch of full commercial
service in North America in the fourth quarter of 1998, at which time we
stopped capitalizing interest expense related to the ORBCOMM system.
Equity in net income (losses) of affiliates. We recognized $2,348,000,
($1,225,000), ($509,000) and ($3,233,000) of equity in net income (losses) of
affiliates for the three months and six months ended June 30, 1999 and 1998,
respectively. Equity in net income (losses) of affiliates represents our share
of ORBCOMM USA's net losses, consisting primarily of marketing expenses,
ORBCOMM International's net income (losses) and ORBCOMM Japan's net losses.
RESULTS OF OPERATION - ORBCOMM USA
Revenues. ORBCOMM USA recognized revenues relating to the provision of
products and services of $326,000, $269,000, $591,000 and $333,000 for the
three months and six months ended June 30, 1999 and 1998, respectively. Total
revenues increased in 1999 due in substantial part to an increase in service
revenues received by ORBCOMM USA.
Cost of sales. Cost of sales for the three months and six months ended
June 30, 1999 and 1998 was $150,000, $302,000, $390,000 and $368,000,
respectively. Cost of sales consists primarily of the cost of the sale of
subscriber units sold to customers.
Marketing expenses. ORBCOMM USA incurred $1,306,000, $678,000,
$4,221,000 and $2,241,000 of marketing expenses for the three months and six
months ended June 30, 1999 and 1998, respectively. Marketing expenses
decreased from the first quarter to the second quarter of 1999 because,
beginning in April 1999, ORBCOMM Enterprises, as opposed to ORBCOMM USA, began
incurring marketing expenses related to the development of the Internal VARs.
The increase in marketing expenses from 1998 to 1999 is a result of an increase
in employee-related expenses.
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RESULTS OF OPERATION - ORBCOMM INTERNATIONAL
Revenues. ORBCOMM International recognized revenues relating to the
provision of products and services of $51,000, $39,000, $233,000 and $144,000
for the three months and six months ended June 30, 1999 and 1998, respectively.
These revenues consist primarily of revenues from the sale of subscriber units
to customers.
Service license or similar agreements. As of June 30, 1999, ORBCOMM
International had executed 16 service license or similar agreements ("SLAs")
with International Licensees, ten of which have associated gateway procurement
contracts and software license agreements. These agreements authorize the
International Licensees to use the ORBCOMM system to provide two-way data and
messaging communications services in their respective territories. License fees
from SLAs are accounted for as deferred revenues and recognized over the term of
the agreements. ORBCOMM International recognized $250,000 and $475,000 as
amortization of license fees associated with SLAs for the three months and six
months ended June 30, 1999, respectively (none for the same periods of 1998).
In the second quarter of 1999, ORBCOMM International recognized $3,137,000
in revenue reflecting payments previously made by its former International
Licensees SEC ORBCOMM (Middle East) Ltd. and CEC Bosphorus Communications Ltd.
under their respective SLAs and associated agreements with ORBCOMM
International. ORBCOMM International had terminated these licensees for
non-performance and had deferred recognizing this revenue pending the outcome of
a motion for a preliminary injunction filed by SATCOM International Group PLC,
the alleged successor-in-interest to each of SEC ORBCOMM and CEC Bosphorus.
SATCOM's motion for a preliminary injunction was denied by the district court on
March 18, 1999.
Construction of gateways. In October 1996, ORBCOMM International
entered into agreements with certain manufacturers for the purchase of 20
gateway Earth stations that have been or will be installed around the world.
During the first half of 1999, installation and final acceptance of gateways in
Brazil, Argentina and Malaysia occurred. As a result, ORBCOMM International
recognized $3,388,000 and $9,131,000 as product sales for the three months and
six months ended June 30, 1999, respectively (none for the same periods of
1998). Cost of sales associated with the construction and delivery of these
gateways was $2,581,000 and $7,217,000 for the three months and six months
ended June 30, 1999, respectively (none for the same periods of 1998).
Marketing expenses. ORBCOMM International incurred $441,000, $474,000,
$1,729,000 and $975,000 of marketing expenses for the three months and six
months ended June 30, 1999 and 1998, respectively. The variance in marketing
expenses results primarily from an increase in employee-related expenses.
SUPPLEMENTAL DATA
Set forth below is certain supplemental data for the ORBCOMM system
comprising data of ORBCOMM, ORBCOMM USA and ORBCOMM International for the six
months ended June 30, 1999. Such supplemental data should be read in
conjunction with our condensed consolidated financial statements and the
condensed financial statements of ORBCOMM USA and ORBCOMM International, and
the notes thereto located elsewhere in this report.
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SUPPLEMENTAL DATA
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
ORBCOMM ELIMINATION
ORBCOMM ORBCOMM USA INTERNATIONAL ENTRIES TOTAL
---------------- ------------- ----------------- ---------------- ------------
Total revenue(1) $ 1,064 $ 591 $ 12,976 $ (871) $ 13,760
Expenses 55,618(2) 4,611 9,120 871 68,478
Income (loss) from operations (54,554) (4,020) 3,856 (54,718)
Interest income 185 0 0 185
Interest expense 13,168(3) 0 0 13,168
Net income (loss) (67,885)(4) (4,020) 3,856 (68,049)
Capital expenditures 23,866(5) 0 0 23,866
SUPPLEMENTAL DATA
AS OF JUNE 30, 1999
(IN THOUSANDS, EXCEPT FOR SUBSCRIBER UNIT DATA)
ORBCOMM ORBCOMM
ORBCOMM USA INTERNATIONAL TOTAL
------------------ ------------------ ----------------- -------------
Cash and cash equivalents $ 8,586 $ 0 $ 0 $ 8,586
Mobile Communications Satellite System, net 328,055 0 0 328,055
Total debt 170,609 0 0 170,609
Subscriber units (6) 0 6,964 3,181 10,145
- ------------------------------
(1) ORBCOMM, ORBCOMM USA and ORBCOMM International are development stage
enterprises.
(2) Includes depreciation expenses and goodwill amortization of $23,776,000.
(3) Includes $513,000 of amortization of deferred financing fees.
(4) Excludes equity in net losses of ORBCOMM USA and ORBCOMM International of
$161,000.
(5) Represents capital expenditures, principally for the construction of the
space and ground network system elements.
(6) Represents units that are activated on ORBCOMM's network, some of which
are not revenue-generating.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred cumulative net losses from inception and have financed
our operations to date primarily with capital contributions from our partners
and through financing activities. For the six months ended June 30, 1999 and
1998, net cash used in operating activities was $53,930,000 and $20,413,000,
respectively, primarily as a result of a net loss (excluding items not
affecting cash for depreciation, amortization and equity in net income (losses)
of affiliates) of $43,248,000 and $19,737,000, respectively. The increased net
loss for the six months ended June 30, 1999, excluding items not affecting
cash, is primarily attributable to higher operating expenses related to the
roll-out of global commercial services and because interest expense is no
longer capitalized as it was during the construction phase of the ORBCOMM
system.
Cash flows from investing activities for the six months ended June 30, 1999
used cash of $6,014,000, primarily as a result of additional capital
expenditures and additional investments in and advances to affiliates. In the
first half of 1999, we invested $2,354,000 for the design, development and
construction of satellites, launch services and the design and construction of
the U.S. ground segment, excluding $21,512,000 of accrued milestone obligations
under the September 1995 procurement agreement with Orbital. Further, in April
1999, we invested $3,000,000 in Aeris Communications, Inc., a provider of
two-way, digital cellular-based data communications with whom we have executed a
service provider agreement. For the six months ended June 30, 1998, cash used in
investing activities was $19,177,000, primarily for capital expenditures,
advances to affiliates and purchases and sales of investments.
Cash flows from financing activities for the six months ended June 30,
1999 and 1998 provided cash
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of $64,731,000 and $29,470,000, respectively. The increase quarter-over-quarter
is primarily attributable to increased capital contributions from our current
partners, which were $67,150,000 and $30,000,000 for the six months ended June
30, 1999 and 1998, respectively.
Expected future uses of cash include employee-related expenses, additional
capital expenditures related to the replenishment or enhancement of our
satellite constellation, debt servicing and working capital requirements. In
addition, we intend to continue to increase marketing and product development
expenditures in anticipation of expanded commercial operations. The total cost
of our enhanced satellite system through December 31, 1999 is expected to be
approximately $337,000,000, excluding capitalized interest as well as amounts
under the new procurement agreement with Orbital. Of this amount:
- $249,000,000 is for the design, development and construction of the
satellite constellation and launch services;
- $39,000,000 is for the design and construction of the U.S. ground
segment;
- $17,000,000 is for insurance; and
- approximately $32,000,000 is for other system costs such as
engineering and billing system costs.
As of February 1, 1999, we signed a new procurement agreement with
Orbital under which we will procure, at a minimum, eight additional satellites
and two separate Pegasus launch vehicles, at a total cost of approximately
$70,000,000. In addition, under this agreement we have the option to procure up
to 22 additional satellites and associated launch services using the Pegasus
launch vehicle. We expect that these additional satellites will be used, among
other things, to meet certain of the milestones set forth in the license
granted by the FCC on March 31, 1998 authorizing OCC to launch an additional 12
low-Earth orbit ("LEO") satellites, as replenishment satellites, as ground
spares or to enhance the satellite constellation.
As of June 30, 1999, $319,317,000 had been expended for the ORBCOMM
system, excluding a total of $57,089,000 of interest expense that had been
capitalized. The foregoing information reflects our current estimate of our
funding requirements for the ORBCOMM system through 1999. Actual amounts may
vary from such estimates for a variety of reasons, including satellite
failures.
We expect to continue to generate negative cash flows for at least the next
several quarters. We expect that a portion of our cash requirements will be met
through revenues from operations. Our ability to generate significant revenues
is subject to numerous uncertainties. Our service and equipment contracts are
U.S. dollar-based and, hence, not subject to foreign currency risk. Through June
30, 1999, OCC and Teleglobe Mobile had made capital contributions to us totaling
$294,950,000. While they are not contractually required to do so, our partners
are currently funding our operations. We will require additional capital this
year and may seek to raise such additional capital through additional
contributions or loans from our current partners, other equity or debt
financings or operating lease arrangements or we may seek to enter into
strategic arrangements. We cannot assure you, however, 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 us or that strategic arrangements
will be possible and, if so, that they will be possible on terms acceptable to
us.
We have issued $170,000,000 of notes that mature in August 2004. The
notes earn a 14% fixed interest as well as a 5% revenue participation interest
on service and certain other revenues. The market
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price for these notes may fluctuate as a function of market interest rate
changes, investors' perception of the risk and our revenue growth.
RISK FACTORS
Many statements contained in this report are not historical and are
forward-looking in nature. Examples of such forward-looking statements include
statements concerning:
- our operations, funding needs and financing sources;
- our launch and commercial service schedules;
- our cash flows and profitability;
- future regulatory approvals;
- expected characteristics of competing systems; and
- expected actions of third parties such as equipment suppliers, VARs
and International Licensees.
These forward looking statements are inherently predictive and
speculative, and are based on our current views and assumptions regarding
future events and operating performance. The following are some of the risks
that could cause actual results to differ significantly from those expressed or
implied by such statements.
WE HAVE AN UNPROVEN TRACK RECORD
We expect to incur continued net losses. We incurred cumulative
net losses of approximately $188,500,000 through June 30, 1999 and expect
losses to continue for at least the next several quarters. Our continued
business development will require substantial capital expenditures, most of
which we will incur before we realize significant revenues from the ORBCOMM
system. Together with our operating expenses, these capital expenditures will
result in negative cash flows unless or until we establish an adequate
revenue-generating customer base. We cannot assure you that we will have
positive cash flows or that we will become profitable.
We have a limited operating and financial history. You have limited
operating and financial data on which to evaluate our business performance. We
have conducted full commercial operations for only a limited period of time.
Our ability to provide commercial service globally or even in key markets and
to generate positive operating cash flows will depend on our ability to, among
other things:
- successfully operate and maintain the satellites in the
constellation;
- integrate the various ORBCOMM system segments, including the
satellites, the ground and control infrastructure and the hardware
and software used in customer applications;
- develop distribution capabilities within the United States and
licensing and distribution arrangements outside the United States
sufficient to capture and retain an adequate customer base;
- successfully and timely launch an additional plane of satellites to
create an enhanced satellite constellation;
- install the necessary ground infrastructure and obtain the necessary
regulatory and other approvals outside the United States; and
- provide for the timely design, manufacture and distribution of
subscriber units to customers in
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sufficient quantities, with appropriate functional characteristics
and at competitive prices for various applications.
WE WILL HAVE SIGNIFICANT ADDITIONAL FUNDING REQUIREMENTS
Additional funding required to provide global service could be
significant. To complete and maintain our enhanced satellite constellation and
to expand global service, we will require significant additional capital
expenditures. We currently expect that the total cost of our enhanced satellite
constellation from June 30, 1993 (date of inception) through December 31, 1999
will be approximately $337,000,000, excluding capitalized interest as well as
amounts under the February 1999 procurement agreement with Orbital. Through
June 30, 1999, we had spent approximately $319,300,000 on satellite
constellation design, construction and launch services, design and construction
of the U.S. ground segment and insurance and other system costs, excluding
approximately $57,000,000 of capitalized interest. To finance these
expenditures, Orbital, through OCC, and Teleglobe, through Teleglobe Mobile,
had invested $294,950,000 in us through June 30, 1999. In addition, we received
net proceeds of approximately $164,000,000 from the sale of our notes and
$5,000,000 from the MetLife note. While they are not contractually required to
do so, our partners are currently funding our operations. We will require
additional capital this year and may seek to raise such additional capital
through additional contributions or loans from our current partners, other
equity or debt financings or operating lease arrangements or we may seek to
enter into strategic arrangements. We cannot assure you, however, 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 us or that strategic
arrangements will be possible and, if so, that they will be possible on terms
acceptable to us.
Developing, marketing and distributing data and messaging
communications services to customers, constructing certain components of the
ground infrastructure or procuring and launching additional satellites may
require us to make significant expenditures that are not currently planned.
These additional expenditures may arise as a result of, among other things:
- a decision to establish additional Internal VARs;
- the requirement that we construct international gateways because
International Licensees are unable or unwilling to do so; or
- the requirement that we procure and launch satellites to replace
satellites in the event of, for example, an uninsured loss.
Interest expense on our notes represents a significant cash requirement
for us. We do not expect to be able to generate sufficient cash from operations
to cover all these requirements for at least several more quarters. Moreover,
we may need additional funding to cover delays or increased costs in the
future. If this additional funding becomes necessary, we cannot assure you that
additional funding will be available from the public or private markets or from
our partners on favorable terms or on a timely basis, if at all.
Our substantial debt service obligations could affect our
competitiveness. We have a highly leveraged capital structure. As of June 30,
1999, our liabilities totaled approximately $259,000,000. Our debt service
requirements could negatively affect our market value because of the following:
- our ability to obtain additional financing for future working
capital needs or for other purposes may be limited;
- a substantial portion of our cash flows from operations will be
dedicated to paying principal and interest on our indebtedness,
thereby reducing funds available for operations and business
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expansion; and
- we may have greater exposure to adverse economic conditions than
competing companies that are not as highly leveraged.
These factors could negatively affect our financial condition and
results of operations.
Restrictive covenants in the indenture could prevent us from taking
otherwise sound business action. The indenture governing our notes contains
certain restrictive covenants. The restrictions in the indenture affect, and in
some cases significantly limit or prohibit, our ability to, among other things:
- incur additional indebtedness;
- make prepayments of certain indebtedness;
- make distributions;
- make investments;
- engage in transactions with affiliates;
- issue capital stock;
- create liens;
- sell assets; and
- engage in mergers and consolidations.
If we fail to comply with the restrictive covenants in the indenture
governing the Notes, our obligation to repay the Notes may be accelerated.
MARKET DEMAND FOR OUR PRODUCTS AND SERVICES IS NOT CERTAIN
Customer acceptance depends on several factors. The success of the
ORBCOMM system will depend on customer acceptance of our services, which is
contingent on a number of factors, including:
- the number of satellites that are operational at any time;
- completion and performance of the necessary ground infrastructure;
- receipt of the necessary regulatory and other approvals to operate
in a particular country;
- the availability of subscriber units that are compatible with the
ORBCOMM system and meet the varying needs of customers;
- the price of our services and related subscriber units; and
- the extent, availability and price of alternative data and messaging
communications services.
As with any new communications service, we cannot assure you that the
market will accept our services.
In addition, we believe that market acceptance of certain of our
services depends on the design, development and commercial availability of
integrated hardware and software applications that support the specific needs
of our target customers. Each of our VARs, Internal VARs and applications
developers is responsible for developing and/or marketing such applications. To
date, approximately 100
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applications have been developed by or on behalf of VARs and Internal VARs for
use with the ORBCOMM system. If there is a lack of, or a delay in the
availability of the components necessary to fulfill our customers' business
requirements, market acceptance of ORBCOMM services could be adversely
affected.
Currently over 100 companies are using or are in the process of
evaluating the ORBCOMM system. Our business plan assumes that our potential
customers will accept certain limitations inherent in satellite communications
services. For example, the ORBCOMM system's line-of-sight limitation,
particularly in "urban canyons," and its limited ability to penetrate buildings
and other objects could limit customers' use of the ORBCOMM system and
services. In addition to the limitations that the ORBCOMM system architecture
imposes, our services will not be available in those countries where we or our
International Licensees have not obtained the necessary regulatory and other
approvals. Certain potential customers may find these limitations on the
availability of our services to be unacceptable.
In addition to the 28 satellites currently in orbit, we have procured and
plan to launch additional satellites in 1999 and thereafter to, among other
things, increase overall system capacity, enhance service quality in key markets
and meet certain technical and regulatory requirements. To help meet these
objectives, we are in the process of evaluating the preferred orbital position
for the satellites currently scheduled to be launched in 1999 and those
satellites expected to be launched thereafter.
Competition comes from several sources. Competition in the
communications industry is intense, fueled by rapid and continuous
technological advances and alliances among industry participants seeking to use
such advances internationally to capture significant market share. Although
currently no other company is providing the same global, satellite-based
commercial data communications services that we provide, we anticipate that the
ORBCOMM system will face competition from numerous existing and potential
alternative communications services. We expect that potential competitors may
include:
- operators or users of other LEO satellite networks similar to the
ORBCOMM system whose satellites operate below 1GHz;
- operators or users of networks of LEO satellites operating above
1GHz that offer voice telephony as well as data services;
- operators or users of medium-Earth orbit satellite systems that use
satellites with orbits located between 2,000 and 18,000 miles above
the Earth;
- operators or users of geostationary or geosynchronous satellite
systems that use satellites with orbits located approximately 22,300
nautical miles directly above the equator; and
- operators and users of terrestrial-based data communications
systems.
If any of our competitors succeeds in marketing and deploying systems
with services having functions and prices similar to those we expect to offer,
our ability to compete in markets served by such competitors may be adversely
affected.
Some of our actual or potential competitors have financial, personnel
and other resources that are substantially greater than our resources. In
addition, a continuing trend toward consolidation and strategic alliances in
the communications industry could give rise to significant new competitors.
Furthermore, any foreign competitor may benefit from subsidies from, or other
protective measures taken by, its home country. Some of these competitors could
develop more technologically advanced systems than the ORBCOMM system or could
provide more efficient or less expensive services than those that we expect to
provide.
We may also face competition in the future from companies using new
technologies including new satellite systems. A number of these new
technologies, even if they are not ultimately successful, could
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negatively affect us. Additionally, our business could be adversely affected if
competitors begin or expand their operations or if existing or new
communications service providers are able to penetrate our target markets.
RELIANCE ON THIRD PARTIES COULD AFFECT OUR OPERATIONS
We will rely heavily on VARs within the United States. In the United
States, we intend to rely heavily on VARs to market and distribute many of our
services to customers. Our success depends, in part, on our ability to attract
and retain qualified VARs. We cannot assure you that we will be able to enter
into VAR agreements for additional markets at the times or on the terms we
expect or that we will be able to retain our existing VARs when the terms of
their respective agreements end.
We believe that for the VARs to successfully market our services, they
will need to design, develop and make commercially available data and messaging
applications that support the specific needs of our target customers. This will
require the VARs to commit substantial financial and technological resources.
Certain VARs are or are likely to be newly formed ventures with limited
financial resources, and these entities may not be successful in designing data
and messaging applications or marketing our services effectively. The inability
of VARs to provide data and messaging applications to customers could
negatively affect market acceptance of our services. Also, if VARs fail to
develop data and messaging applications, we may do so, which will increase our
expenses. Furthermore, our reseller agreements provide that VARs will use all
reasonable commercial efforts to market and distribute our services, although
generally the VARs are not required to meet established sales objectives. We
cannot assure you that VARs will successfully develop a market for and
distribute our services.
Although we are developing VARs internally, we currently act primarily
as a wholesaler to VARs. Thus, the cost to customers for our services purchased
through VARs is largely beyond our control. Furthermore, we will have no rights
independently to offer particular data and messaging applications developed by
VARs or to use the associated software unless we enter into appropriate
licensing agreements. By developing Internal VARs, we may create actual or
apparent conflicts with certain VARs, which could adversely affect such VARs'
willingness to invest resources in developing and distributing data and
messaging applications for the ORBCOMM system.
We will rely heavily on International Licensees outside the United
States. Outside the United States, we enter into agreements with International
Licensees. The International Licensees are responsible in their territories for
procuring and installing the necessary gateways, obtaining the necessary
regulatory and other approvals to provide services using the ORBCOMM system and
marketing and distributing our services. We select the International Licensees
primarily by evaluating their ability to market and distribute our services
successfully. Although we consider many elements in evaluating potential
International Licensees, an individual International Licensee may not satisfy
any one or more of these elements. Our success depends, in part, on our ability
to attract and retain qualified International Licensees. We cannot assure you
that we will be able to enter into agreements with International Licensees for
additional territories at the times or on the terms we expect, or that we will
be able to retain our existing International Licensees when the terms of their
respective agreements end. In addition, each agreement we have executed with an
International Licensee provides that the International Licensee may terminate
the agreement upon one year's written notice, and any International Licensee
may decide to do so. Also, ORBCOMM International has the right under the terms
of these agreements to terminate such agreements based on the non-performance
of the licensee as described therein.
We are required to give one of our International Licensees satellite
usage fee credits as a result of our failure to meet certain ORBCOMM system
launch milestones. Moreover, certain of the agreements grant International
Licensees the right to terminate their agreements if they are unable to obtain
the necessary
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regulatory and other approvals within certain time parameters. Our
International Licensees may not be successful in obtaining the necessary
regulatory and other approvals, and, even if successful, the International
Licensees may not develop a market and/or a distribution network for our
services.
Certain International Licensees are or are likely to be newly formed
ventures with limited financial resources. These entities may not be successful
in procuring and installing the necessary gateways, obtaining the necessary
regulatory approvals or successfully marketing and distributing our services.
The general form of our service license agreement does not obligate us or give
us the contractual right to construct the necessary gateway if an International
Licensee is unable or unwilling to construct one. In the future, and if an
International Licensee is unable or unwilling to do so, we may desire to
construct, or finance the construction of, the necessary gateway. However, the
International Licensee or the relevant governmental authority may not permit us
to construct the gateway, or we may not be able to bear the cost of
constructing the gateway, which cost may be significant.
We will rely heavily on subscriber unit manufacturers to satisfy
customer demand. Our success depends in part on manufacturers developing, on a
timely basis, relatively inexpensive subscriber units. While we have executed
six subscriber unit manufacturing agreements and have type approved or are
finalizing type approval of at least 13 different subscriber unit models, a
sufficient supply of these subscriber units may not be available to customers
at prices or with functional characteristics that meet customers' needs. As of
June 30, 1999, we had procured for our own inventory, and our customers and
distributors had either received or ordered, a total of over 80,000 subscriber
units. On occasion, we have found it advisable to purchase or to subsidize the
purchase of subscriber units and may do so in the future. The cost of these
purchases or subsidies could be significant. Generally, we expect to sell these
subscriber units to VARs, Internal VARs and International Licensees at prices
equal to or greater than cost, although we cannot assure you that we will be
able to do so. If subscriber unit manufacturers are unable to develop and
manufacture subscriber units successfully at cost-effective prices that both
meet the needs of customers and are available in sufficient numbers, market
acceptance of the ORBCOMM system and the quality of our services could be
affected, which, in turn, could negatively affect our financial condition and
results of operations.
We rely heavily on Orbital for our most important assets. We do not
independently have, and do not intend to acquire, except by contracting with
other parties, the ability to design, construct or launch the ORBCOMM
satellites. Under the September 1995 procurement agreement, we have contracted
with Orbital to provide these services on a fixed-price basis, subject to
adjustments for out-of-scope work. We may terminate this procurement agreement
if Orbital fails to achieve certain milestones within 56 weeks after the
contracted completion date or if Orbital fails to comply materially with any
terms of the procurement agreement. We may not, however, withhold payments
under this procurement agreement solely because Orbital fails to achieve
certain milestones by the dates originally planned. As of February 1, 1999, we
executed a new procurement agreement with Orbital under which we will procure,
at a minimum, among other things, eight additional satellites and two separate
Pegasus launch vehicles, at a total cost of approximately $70,000,000. In
addition, we have an option to procure up to 22 additional satellites and
associated launch services using the Pegasus launch vehicle. Depending on the
product or service being purchased, we are required to pay Orbital a fixed fee,
subject to certain incentive payments and other adjustments, or on a time and
materials basis. Under this procurement agreement, we are entitled to withhold
payments from Orbital based on the failure to achieve certain milestones, until
such time as such milestones are achieved or we have waived in writing the
requirement to achieve such milestones.
An adverse effect on Orbital and its business for whatever reason may
adversely affect Orbital's ability to perform under these procurement
agreements. We have not identified any alternate provider of the services
Orbital currently provides. An alternate service provider may not be available
or, if available,
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may not be available at a cost or on terms acceptable to us.
We rely heavily on third parties to control access to our proprietary
information. Our success and ability to compete depend to a certain degree on
our proprietary technology, and we depend on Orbital's intellectual property
rights relating to the ORBCOMM system. Under the September 1995 procurement
agreement and the February 1999 procurement agreement, Orbital or its
subcontractors generally own the intellectual property relating to the work
performed by Orbital under the procurement agreements, including the ORBCOMM
satellites, other than certain communications software, and the U.S. ground
segment. We rely primarily on copyright and trade secret law to protect our
technology. While we have applied for two patents, none of our patent
applications has yet been granted. We have entered into confidentiality
agreements with each of our employees, consultants and vendors, which
agreements, where appropriate, obligate the signatory to assign to us
proprietary technology developed during performance under the agreements and
generally to control access to and distribution of our software, documentation
and other proprietary information. Notwithstanding these precautions, it may be
possible for a third party to copy or otherwise obtain and use our software or
other proprietary information without authorization or to develop similar
software independently. In addition, absent the appropriate licensing
agreements, we have no rights independently to offer particular applications
developed by VARs or to use the software included in these applications.
Enforcing intellectual property rights to these products will depend on VARs.
Furthermore, the laws of countries outside the United States may afford us and
the VARs little or no effective protection of our intellectual property. Losing
protection of these intellectual property rights could negatively affect our
financial condition and results of operations.
The steps we have taken may not prevent misappropriation of our
technology, and agreements entered into for that purpose may not be
enforceable. In addition, we may have to resort to litigation in the future to
enforce our intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. This litigation, whether
or not successful, could result in substantial costs and diverted resources,
each of which could negatively affect our financial condition and results of
operations.
RISKS RELATED TO SATELLITES COULD AFFECT OUR OPERATIONS
A significant portion of our tangible assets are our LEO satellites and
the related ground infrastructure. The loss or failure of satellites in the
constellation could negatively affect us.
Useful life of satellites; Damage to or loss of satellites. There are
many factors that contribute to and may affect the useful life of any
satellites, including our satellites, such as the quality of the satellites'
design and construction and the durability and expected gradual environmental
degradation of their electrical and other components.
The first generation of ORBCOMM satellites have eight-year design
lives, with the exception of the first two satellites placed in orbit in April
1995, each of which has a design life of four years. We cannot assure you that
any satellite will operate for the full duration of its design life.
In addition, loss of or damage to our satellites may result from a
variety of causes, including:
- electrostatic storms;
- collisions with other objects, including space debris, man-made
objects or certain space phenomena such as comets, meteors or meteor
showers;
- random failure of satellite components; or
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- high levels of radiation.
Also, loss of or damage to our satellites may result from the failure
of the launch vehicle that was to place the satellites in orbit.
The ORBCOMM system was designed to provide for redundancy in the event
of the loss or failure of one or more satellites in the constellation, whether
due to a satellite reaching the end of its design life or some other cause.
However, the loss or failure of satellites in the constellation may cause:
- gaps in service availability;
- significantly degraded service quality;
- increased costs; or
- loss of revenue for the period that service is interrupted or
impaired.
Satellite anomalies. In addition to the factors discussed above, there
are a number of factors that may cause anomalies with respect to the operation
or performance of satellites in orbit. In connection with the deployment of our
satellite constellation, we experienced certain anomalies with respect to
several of our satellites. These anomalies include reduced power levels on
certain satellites and the failure of certain satellites to transmit data to
subscriber units. While we have bypassed the data transmission anomaly, the
coverage footprint of such satellites is reduced. Moreover, implementation of
the bypass requires that certain manufacturers modify certain subscriber
communicator models to enable them to work with the modified satellites. Also,
in the second quarter of 1999, we concluded that one of our initial two
satellites launched in April 1995, which had experienced an outage of certain
of its electronic systems and subsystems since early 1998, was non-recoverable
and no longer capable of providing commercial service. You should also note
that:
- anomalies such as those described above, or other anomalies that
have comparable effects, could occur in the future with respect to
the in-orbit satellites or additional satellites launched by us; and
- while the anomalies described above have not materially affected our
business, if we are unable to correct such anomalies, if applicable,
or should additional anomalies occur in the future with respect to
the other in-orbit satellites or additional satellites that we
launch, such events could negatively affect our business.
Launch-related risks. To date, we have successfully launched 28 satellites
into their proper orbits. Currently, we plan to launch additional satellites on
a Pegasus launch vehicle in 1999. Satellite launches are subject to significant
risks, including:
- failure of the launch vehicle due to a crash or explosion, which
could cause disabling damage to or loss of the satellites;
- damage to the satellites during loading into the launch vehicle,
during the launch itself or as the satellites are deployed by the
launch vehicle;
- failure of the satellites to achieve their proper orbits; and
- unreasonable delays related to poor weather conditions or prior
launch failures.
We bear the risk of loss of a launch vehicle and satellites upon
release of the Pegasus launch vehicle from Orbital's L-1011 aircraft. Our
insurance against the loss of a launch vehicle and its satellite payload may be
limited.
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If our next satellite launch fails, or if we should need to procure
launch services from an alternate provider for any reason, the resulting delays
would increase the costs to deploy our enhanced satellite constellation.
Cost increases from satellite enhancements, launch failures and other
sources could negatively affect our financial performance. We could experience
an increase in costs over those currently estimated to be necessary to complete
our enhanced satellite constellation. These additional cost increases could
come from, for example, launch or uninsured satellite failures and further
modifications to all or a portion of the ORBCOMM system design to work out
technical difficulties or to accommodate changes in market conditions, customer
needs, system requirements or regulatory requirements. Significant cost
increases related to launching and implementing our enhanced satellite
constellation could negatively affect our financial condition and results of
operations.
Limited insurance exposes us to significant risks of loss. Our
insurance may not adequately mitigate the adverse effects of a launch failure
or a loss of satellites in-orbit. Unless there is a failure of any of the three
planes of satellites currently in orbit, as discussed below, our insurance
program does not currently cover the next planned Pegasus launch (the "Fourth
Pegasus Launch") with respect to the cost to replace the launch vehicle or the
satellites, although it could be modified to do so. Absent a failure, as
discussed below, we intend to modify our existing insurance program to cover
the cost of replacing the launch vehicle used in the Fourth Pegasus Launch. Our
decision whether to modify our existing insurance program to cover the cost of
replacing the satellites to be launched in the Fourth Pegasus Launch will
depend on, among other things, whether we decide to use any of the additional
satellites we will procure from Orbital pursuant to the February 1999
procurement agreement as ground spares.
We have procured insurance against the in-orbit failure of satellites in
each of the first three planes of eight satellites launched using the Pegasus
launch vehicle. If there is a failure of any of the three planes of eight
satellites currently in orbit, where "failure" is defined as the loss of three
or more satellites in any such plane, our insurance program would cover the
costs of a replacement launch vehicle and thereafter would cover the cost of the
launch vehicle and the satellites, as well as the increased insurance premium
thereon, for subsequent launches. In the event such a failure occurs prior to
the Fourth Pegasus Launch, and we decided to launch the satellites currently
intended to be launched in the Fourth Pegasus Launch as replacement satellites,
our insurance would cover the cost to procure the launch vehicle used in the
Fourth Pegasus Launch and the satellites launched in connection with the Fourth
Pegasus Launch.
We have no insurance against in-orbit satellite failure for the two
satellites that were launched in April 1995 or for the two satellites launched
in February 1998.
Schedule delays could affect our commercial operations in certain
areas. In the past, we have had to delay satellite launches primarily because
of subcontractor late deliveries and enhancements made to the satellites'
design based on, among other things, information we obtained from operating the
two satellites launched in April 1995.
Additional delays in implementing our enhanced satellite constellation
could result from a variety of causes, including, among others:
- a delay or failure of the launch of the satellites planned for
1999; and
- delays caused by design reviews in the event of a launch vehicle
failure or the loss of a satellite or other event beyond our
control.
We cannot assure you that these or other factors, some of which are
beyond our control, will not delay
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the implementation of our enhanced satellite constellation, which could
negatively affect our financial condition and results of operations.
The costs of maintaining the space segment may outstrip funds generated
from operations. The ORBCOMM satellites, which constitute a substantial portion
of our total assets, have limited useful lives. We anticipate using funds from
operations to develop a second generation of satellites to replenish and expand
the constellation. If sufficient funds from operations are not available and we
are unable to obtain financing for the second generation satellites, we will
not be able to replace the first generation satellites at the end of their
useful lives. We cannot assure you that additional capital would be available
to develop the second generation satellites on favorable terms or on a timely
basis, if at all.
Lack of adequate security for communications via the Internet could
affect customer acceptance of our services. Like many other modern
communications networks, we currently deliver a substantial portion of data to
our customers over the Internet and expect to continue to use the Internet as a
primary delivery method for data collected from subscriber units and
satellites. We currently take certain measures to ensure the security of
customer data, but despite these measures, persons seeking unauthorized access
to our customer data may be able to gain such access. We believe that if
unauthorized access to our customer data were to occur, or if our potential
customers were to perceive that such unauthorized access was likely, the market
for our services would be negatively affected.
We could experience difficulty integrating all of the components and
sub-components of the ORBCOMM system. While the ORBCOMM system has successfully
transmitted approximately ten million messages to date, the ORBCOMM system is
exposed to the risks inherent in any large-scale complex communications system
using advanced technologies. Operating the ORBCOMM system requires that we
design and integrate communications technologies and devices ranging from
satellites operating in space to ground infrastructure located around the
world. Even if built to specifications, the ORBCOMM system may not function as
expected. If any of the diverse and dispersed elements of the system fails to
function and coordinate as required, that failure could delay full deployment
of the ORBCOMM system or render it unable to perform at the quality and
capacity levels required for us to operate our business successfully.
REGULATORY RISKS PRESENT POTENTIAL OBSTACLES TO GLOBAL OPERATION OF THE ORBCOMM
SYSTEM
Obtaining and maintaining the necessary U.S. licenses could cause
delays. Our business may be affected by the regulatory activities of various
U.S. government agencies, primarily the FCC. Although each of OCC's licenses
for the ORBCOMM system (collectively, the "FCC Licenses") is currently valid,
the FCC could revoke these licenses if OCC fails to satisfy certain conditions
or to meet certain prescribed milestones, including:
- the December 2000 milestone by which OCC must have launched 36
satellites;
- the September 2002 milestone by which OCC must launch two of the 12
additional satellites licensed in March 1998; and
- the March 2004 milestone by which OCC must launch the remaining ten
of these satellites,
unless the FCC grants extensions for accomplishing the required milestones. OCC
is required to apply for a license renewal three years before each FCC License
expires. While, based on past experience, OCC believes the FCC generally grants
the renewal applications of existing licensees where the licensee has satisfied
the requirements of the license, it is possible that the FCC will not, in fact,
renew either of the FCC Licenses. Should the FCC revoke or fail to renew the
FCC Licenses, or if OCC fails to satisfy any of the conditions of the FCC
Licenses, such event would negatively affect our financial condition and
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results of operations.
The FCC has licensed OCC to operate as a private carrier. Because of
our method of distributing services, we believe that OCC currently is not
subject to the restrictions that apply to common carriers or to providers of
Commercial Mobile Radio Services ("CMRS"). We plan to distribute our services
to customers indirectly through VARs and directly through Internal VARs. In
most cases, we will provide our customers with enhanced services and will not
be interconnected with the public switched telephone network. Therefore, we do
not believe that the FCC will regard these services as common carrier or CMRS.
In the future, however, we may provide services that the FCC deems common
carrier or CMRS, or the FCC may exercise its discretionary authority to apply
the common carrier or CMRS rules to our operations. Applying these rules could
negatively affect our financial condition and results of operations by, for
instance, subjecting us to rate regulation and certain tariff filing
requirements, limiting some foreign ownership in us and subjecting us to state
regulation, if we were deemed to be a common carrier.
Our financial condition and results of operations could be adversely
affected if the United States adopts new laws, policies or changes in the
interpretation or application of existing laws, policies and regulations that
modify the present regulatory environment.
The failure to obtain regulatory approvals in other countries could
hinder global service offerings. Our business is affected by the regulatory
authorities of the countries in which we or the International Licensees will
operate and in which we plan to offer our services. Our International Licensees
will be required to obtain local regulatory approvals to offer our services, to
operate gateways and to sell subscriber units within their territories. Thus,
the International Licensees must obtain numerous approvals before we can offer
full global coverage. Our current business plan is based on our receiving
regulatory approvals in several foreign jurisdictions within specified time
periods. To date, 39 countries have granted approvals to provide full
commercial or other limited services using the ORBCOMM system. Certain of these
licenses permit a range of activities including the right to test and
demonstrate or operate the ORBCOMM system on a temporary or otherwise limited
basis. While each International Licensee is responsible for obtaining
regulatory approvals in its territory, each International Licensee may not be
successful in doing so. If any International Licensee is not successful, we
will not be able to offer services in the affected territory.
Although many countries have moved to privatize communications services
and permit competition in providing these services, some countries continue to
require that a government-owned entity provide all communications services.
While we anticipate that substantially all of the International Licensees will
be private entities, we may be required to offer our services through a
government-owned or -controlled entity in those territories where government
monopolies prevail.
Our inability to offer service in a foreign country or countries could
negatively affect our financial condition and results of operations. Regulatory
provisions in countries in which we or the International Licensees seek to
operate may impose impediments on our or the International Licensees'
operations, and such restrictions could be unduly burdensome. Our business may
also be adversely affected by regulatory changes resulting from judicial
decisions and/or the adoption of treaties, legislation or regulations by the
national authorities of countries or territories where we plan to operate the
ORBCOMM system.
Coordination with the International Telecommunications Union ("ITU")
poses risks of delays. Frequency coordination through the ITU is a necessary
prerequisite to obtaining interference protection from other satellite systems.
There is no penalty for launching a satellite system before completing the ITU
coordination process, although protection from interference through this
process is only afforded as of the date that the ITU notifies the ORBCOMM
system that the coordination process has been successfully completed. OCC has
completed the ITU coordination process with respect to our enhanced
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satellite constellation with all administrations except Russia and France. OCC
expects that it will successfully complete the ITU coordination process with
Russia and France by December 1999, at which time the ORBCOMM system will be
fully registered with the ITU. The FCC has modified OCC's ITU documentation to
include the proposed launch of the 12 additional satellites for which OCC has
been licensed. We do not expect this modification to affect coordination of the
our enhanced satellite constellation. Moreover, supplemental coordination of
these 12 satellites is not required for countries for which the United States
previously completed coordination.
Any delay in or failure to complete the ITU coordination process
successfully may result in interference to the ORBCOMM system by other mobile
satellite systems operating internationally, and this interference could
negatively affect our financial condition and results of operations.
Furthermore, International Licensees working with their respective governments
are required to complete ITU coordination of subscriber units and gateways
located in their territories with countries located within distances determined
by ITU recommendations. These coordinations may not be completed successfully
or in a timely manner, which could result in delayed availability of ORBCOMM
services in the affected territories.
OPERATING RISKS COME FROM SEVERAL SOURCES
Multinational operations and developing markets pose unique operating
challenges. Since we expect to derive substantial revenues by providing
communications services globally, we are subject to certain multinational
operating risks, such as:
- changes in domestic and foreign government regulations and
communications standards;
- licensing requirements;
- tariffs or taxes and other trade barriers;
- price, wage and exchange controls;
- political, social and economic instability;
- inflation;
- interest rate and currency fluctuations; and
- U.S. law prohibitions from operating in certain countries.
Many of these risks may be greater in developing countries or regions.
In addition, although we anticipate that the International Licensees will make
all payments in U.S. dollars, currency control restrictions may prevent the
International Licensees in those countries from being able to do so. Because we
expect to receive most payments in U.S. dollars, we do not intend to hedge
against exchange rate fluctuations.
OUR BUSINESS IS SUBJECT TO CERTAIN STRUCTURAL AND MARKET RISKS
We are controlled by two strategic partners. We are a limited
partnership whose current partners, OCC and Teleglobe Mobile, each holds 50% of
our partnership interests. Under our current partnership agreement,
substantially all actions taken by us require the approval of at least a
majority-in-interest, i.e., partners holding a majority of the partnership
interests. As such, the partners must agree with respect to any and all
decisions that require approval of a majority-in-interest, or in the event the
partners fail to agree, such failure will result in deadlock between the
partners. Such failure of the partners to agree with respect to any decision
requiring the approval of a majority-in-interest could negatively affect us.
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Potential conflicts of interest with Orbital or Teleglobe could
negatively affect us. Orbital and Teleglobe each has a substantial ownership
interest in ORBCOMM. A conflict of interest may exist between us and Orbital
under either of the procurement agreements and the other related agreements
between Orbital and OCC. Also, Orbital is a majority owner of Magellan
Corporation, one of our subscriber unit manufacturers. A conflict of interest
also may exist between us and Teleglobe by virtue of Teleglobe's majority
ownership of ORBCOMM Canada Inc., our International Licensee for Canada.
Further, under our partnership agreement, transactions between us and either of
Orbital or Teleglobe or any of their affiliates are subject to the approval of
the other partner. Any potential conflict of interest between us and either of
these entities could negatively affect our results of operations.
THE YEAR 2000 POSES CERTAIN RISKS
We have initiated a Year 2000 readiness program, which is being
implemented by a program management office composed of, among others, certain
of our senior managers and certain outside consultants. The program has five
phases: inventory, assessment, remediation, testing and deployment, and our
primary area of focus is the critical system segment, which comprises eight
operational areas including the satellites and the ground infrastructure for
the ORBCOMM system.
We have 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. All products,
components and software identified in the inventory phase have been assessed to
determine whether they are Year 2000 ready. For products, components or
software obtained from third party vendors, including Orbital, we surveyed each
such vendor to ascertain whether the product, component or software provided by
such vendor is Year 2000 ready, which may include obtaining a certification or
statement from each such vendor regarding Year 2000 readiness. Based on our
efforts to date, we estimate that the eight operational areas of the critical
system segment are between 80% and 100% ready.
We have upgraded, repaired, replaced or otherwise brought into
readiness the products, components and software programs in the critical system
segment identified in the assessment phase of the program as being non-Year
2000 ready and will upgrade, repair, replace or otherwise bring into readiness
any products, components and software programs that may be identified in the
testing phase of the program as being non-Year 2000 ready. We anticipate that
for some custom applications in the critical system segment, we 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. With respect to those products,
components and software programs identified in the assessment phase of the
program as being non-Year 2000 ready, the remediation phase was completed in
the first quarter of 1999.
We have prepared a master test plan, which includes, 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. We have substantially completed unit and functional
level testing, and are in the process of performing end-to-end tests, of the
ORBCOMM system. In connection therewith, we have deployed Year 2000 ready
software for the satellites and the ground system segment in the United States,
and are currently deploying Year 2000 ready software for those international
ground systems that are our responsibility, which deployment is expected to be
completed in the third quarter of 1999.
We have also successfully completed testing of the satellite and the
ground system segments with respect to the so-called "GPS roll-over date,"
August 21, 1999. Despite these efforts, however, we cannot
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assure you that other factors, such as the interaction of external GPS
receivers with the ORBCOMM system, will not adversely effect the operation
and/or use of the ORBCOMM system on the GPS roll-over date.
We are encouraging our International Licensees and VARs to implement a
comprehensive Year 2000 readiness program. We have identified and will continue
to assess the extent to which the elements comprising our business
infrastructure, including our applications developed for customers, information
systems, telephone systems, heating, cooling and electrical systems, building
security and other building operations, as well as back-up systems, are Year
2000 ready. To accomplish this, we have surveyed the applicable third party
vendors and other entities to ascertain whether their systems are Year 2000
ready, which has included, where possible, obtaining, a certification or
statement from each such vendor or other entity regarding Year 2000 readiness.
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 our financial condition or results of operations. To date, we have
not deferred work on any information technology programs or systems as a result
of its efforts in connection with the program.
In connection with the program, we have engaged in ongoing
communications with our customers and distribution partners regarding our Year
2000 status. While uncertainties surrounding the significance and likely impact
of the Year 2000 problem make it nearly impossible for us 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 to us,
and
- the temporary inability of vendors to provide goods or services to
us.
We have developed a contingency plan designed to address potential
issues that may arise in connection with the Year 2000 roll-over, particularly
with regard to the satellites and the ground system segment of the ORBCOMM
network. Despite our ongoing efforts in connection with the program, we cannot
assure you that we have identified or will identify all Year 2000 affected
systems or that the program will be successfully implemented or implemented on
a timely basis.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
On December 18, 1998, ORBCOMM International terminated for
non-performance its service license agreements with SEC ORBCOMM
(Middle East) Ltd. ("SEC ORBCOMM") and CEC Bosphorus
Communications Ltd. ("CEC Bosphorus"), which agreements together
covered 20 countries. On December 23, 1998, SATCOM International
Group PLC ("SATCOM"), the alleged successor-in-interest to SEC
ORBCOMM's and CEC Bosphorus' interests in these agreements, filed
an action (98 Civ. 9095, S.D.N.Y.) claiming that the termination
of these agreements was unjustified. The suit sought damages and a
preliminary and permanent injunction effectively awarding the
licenses to SATCOM. The district court denied SATCOM's application
for a temporary restraining order on December 28, 1998. Following
an evidentiary hearing, on March 18, 1999, the district court
denied SATCOM's request for a preliminary injunction. SATCOM
appealed the district court's denial of its request for a
preliminary injunction; however, SATCOM subsequently withdrew this
appeal. On March 29, 1999, SATCOM moved for an order staying the
district court action pending arbitration before the American
Arbitration Association. On May 27, 1999, the district court
denied SATCOM's motion for a stay of the district court action and
granted a cross-motion filed by ORBCOMM International, staying the
arbitration SATCOM had initiated and enjoining SATCOM from
proceeding with such arbitration. SATCOM has appealed the district
court's May 27, 1999 ruling.
While none of these decisions represents a final adjudication of
all of SATCOM's claims against ORBCOMM International, the district
court, in denying SATCOM's request for preliminary injunction,
concluded that SATCOM was unlikely to prevail on the merits.
ORBCOMM International has executed an agreement with a new
International Licensee for the countries formerly covered by these
service license agreements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) A complete list of the exhibits required to be filed with
this Report on Form 10-Q is provided in the Exhibit Index
that precedes the exhibits filed with this report.
(b) On April 29, 1999, ORBCOMM Global, L.P. filed a Report on
Form 8-K and on May 14, 1999, ORBCOMM Global, L.P. filed a
Report on Form 8-K/A, in each case in connection with a
change in accountants.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrants have duly caused this report to be signed on their behalf by
the undersigned thereunto duly authorized.
ORBCOMM GLOBAL, L.P.
Date: August 16, 1999 By: /s/ SCOTT L. WEBSTER
---------------------
Scott L. Webster
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 16, 1999 By: /s/ RICHARD G. TENNANT
-----------------------
Richard G. Tennant
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
ORBCOMM GLOBAL CAPITAL CORP.
Date: August 16, 1999 By: /s/ SCOTT L. WEBSTER
---------------------
Scott L. Webster
President
(Principal Executive Officer)
Date: August 16, 1999 By: /s/ RICHARD G. TENNANT
-----------------------
Richard G. Tennant
Vice President and Treasurer
(Principal Financial Officer)
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EXHIBIT INDEX
The following exhibits are filed as part of this report.
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------
3 Organizational Documents.
3.1(a) Certificate of Limited Partnership of ORBCOMM.
3.2(a) Restated Agreement of Limited Partnership of ORBCOMM.
3.2.1(d) Amendment No. 1 to Restated Agreement of Limited Partnership
of ORBCOMM dated December 2, 1996.
3.3(a) Certificate of Limited Partnership of ORBCOMM USA.
3.4(a) Restated Agreement of Limited Partnership of ORBCOMM USA.
3.5(a) Certificate of Limited Partnership of ORBCOMM International.
3.6(a) Restated Agreement of Limited Partnership of ORBCOMM
International.
4(a) Indenture, dated as of August 7, 1996, by and among ORBCOMM,
Capital, ORBCOMM USA, ORBCOMM International, OCC,
Teleglobe Mobile and Marine Midland Bank.
10 Material Contracts.
10.2(a) Pledge Agreement, dated as of August 7, 1996, by
and among ORBCOMM, Capital, and Marine Midland
Bank as Collateral Agent.
10.3(a) International System Charge Agreement, restated
as of September 12, 1995, by and among ORBCOMM,
Teleglobe Mobile and ORBCOMM International.
10.4(a) Master Agreement, restated as of September 12,
1995, by and among ORBCOMM, Orbital, ORBCOMM,
Teleglobe and Teleglobe Mobile.
10.4.1(b) Amendment No. 1 to Master Agreement, dated as of
February 5, 1997 by and among OCC, Orbital,
Teleglobe and Teleglobe Mobile.
10.5(a) Procurement Agreement, dated as of September 12,
1995, by and between ORBCOMM and Orbital
(provided that Appendix I is incorporated by
reference to Exhibit10.24.6 to the Quarterly
Report on Form 10-Q for the Quarter Ended June
30, 1993 filed by Orbital on August 13, 1993).
10.5.1(c) Amendment No. 1 to Procurement Agreement dated December 9,
1996 between ORBCOMM and Orbital.
10.5.2(b) Amendment No. 2 to Procurement Agreement dated March 24,
1997 between ORBCOMM and Orbital.
10.5.3(e) Amendment No. 3 to ORBCOMM System Procurement
Agreement, dated as of March 31, 1998 by and
between ORBCOMM and Orbital.
10.5.4(e) Amendment No. 4 to ORBCOMM System Procurement
Agreement, dated as of March 31, 1998 by and
between ORBCOMM and Orbital.
10.5.5(g) Amendment No. 5 to ORBCOMM System Procurement Agreement,
dated as of July 30, 1998 by and between ORBCOMM and Orbital.
10.5.6(g) Amendment No. 6 to ORBCOMM System Procurement Agreement,
dated as of September 21, 1998 by and between ORBCOMM and
Orbital.
10.5.7(g) Amendment No. 7 to ORBCOMM System Procurement Agreement,
dated as of December 31, 1998 by and between ORBCOMM and
Orbital.
10.5.8*+ Procurement Agreement, dated as of February 1,
1999, by and between ORBCOMM and Orbital.
10.5.9* Amendment No. 8 to ORBCOMM System Procurement
Agreement, dated as of March 24, 1999 by and
between ORBCOMM and Orbital.
10.6(a) Proprietary Information and Non-Competition
Agreement, restated as of September 12, 1995, by
and among ORBCOMM, Orbital, OCC, Teleglobe,
Teleglobe Mobile, ORBCOMM USA and ORBCOMM
International.
10.7(a) System Charge Agreement, restated as of September 12, 1995,
by and
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between OCC and ORBCOMM USA.
10.8(a) System Construction Agreement, restated as of
September 12, 1995, by and between ORBCOMM and
OCC.
10.9(a) Amendment No. 1 to System Construction Agreement, dated as
of July 1, 1996, by and between ORBCOMM and OCC.
10.10(a) Service License Agreement, dated as of December
19, 1995, between ORBCOMM International and
ORBCOMM Canada Inc.
10.12(a) Service License Agreement, dated as of October
15, 1996, between ORBCOMM International and
European Company for Mobile Communicator
Services, B.V., ORBCOMM Europe.
10.14(a) Ground Segment Facilities Use Agreement, dated as
of December 19, 1995, between ORBCOMM
International and ORBCOMM Canada Inc.
10.15(a) Ground Segment Procurement Contract, dated as of
October 15, 1996, between ORBCOMM International
and European Company for Mobile Communicator
Services, B.V., ORBCOMM Europe.
10.16(f) Orbital Communications Corporation 1992 Stock Option Plan.
10.16.1* The 1999 Equity Plan of ORBCOMM Corporation and ORBCOMM
Global, L.P.
10.16.2* Dolphin Information Services, Inc. 1998 Stock Option Plan.
10.17(f) Amended and Restated Administrative Services
Agreement, dated as of January 1, 1997 by and
between ORBCOMM and Orbital.
10.19(f) Subscriber Communicator Manufacture Agreement
dated as of July 31, 1996 by and between ORBCOMM
and Magellan Corporation.
10.20(f) Reseller Agreement dated as of March 3, 1997 by
and between ORBCOMM USA and Orbital Sciences
Corporation (the "Reseller Agreement").
10.20.1(f) Amendment No. 1 to the Reseller Agreement dated as of
September 2, 1997.
10.21(f) Employment Agreement dated as of May 15, 1997 by and between
ORBCOMM and Robert F. Latham.
10.22(f) Consulting Agreement dated as of March 18, 1998 by and
between ORBCOMM and ORBCOMM Canada Inc.
21* Subsidiaries of ORBCOMM.
27* Financial Data Schedule of ORBCOMM Global, L.P.
- ----------
* Filed herewith.
+ Confidential treatment was granted pursuant to Rule 406 under the
Securities Act of 1933, as amended, in connection with this report. Certain
portions of the exhibit have been omitted. The omitted portions of the
exhibit have been filed separately with the Commission.
(a) Incorporated by reference to the identically numbered exhibit to our
Registration Statement on Form S-4, as amended (Reg. No. 333-11149).
(b) Incorporated by reference to the identically numbered exhibit to our
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 filed by
us on May 14, 1997.
(c) Incorporated by reference to the identically numbered exhibit to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 filed by us
on March 28, 1997.
(d) Incorporated by reference to Exhibit 10.16.1 of the Annual Report on Form
10-K for the fiscal year ended December 31, 1996 of Orbital, filed by
Orbital on March 27, 1997.
(e) Incorporated by reference to the identically numbered exhibit to Amendment
No. 1 to our Registration Statement on Form S-1, as amended (Reg. No.
333-50599).
(f) Incorporated by reference to the identically numbered exhibit to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 filed by us
on March 31, 1998.
(g) Incorporated by reference to the identically numbered exhibit to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1998 filed by us
on March 31, 1999.
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