<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number: 333-11149
ORBCOMM GLOBAL, L.P.
ORBCOMM GLOBAL CAPITAL CORP.
(Exact name of Registrants as specified in their charters)
54-1698039
DELAWARE 54-1841164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization of Registrants) Identification Nos.)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(Address of Registrants' principal executive offices)
(Zip Code)
(703) 406-6000
(Registrants' telephone number, including area code)
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 and 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the last 90 days.
YES X NO
- --
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 28,419 $ 56,870
Investments 38,818 55,522
Inventory 3,901 1,751
--------- ---------
Total Current Assets 71,138 114,143
Investments 0 42,360
Mobile Communications Satellite System,
net of accumulated depreciation 230,590 170,034
Other assets, net 5,736 6,138
Investments in and advances to affiliates (924) (3,166)
--------- ---------
TOTAL ASSETS $ 306,540 $ 329,509
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Current portion of long-term debt $ 1,062 $ 991
Accounts payable and accrued expenses 14,236 18,298
--------- ---------
Total Current Liabilities 15,298 19,289
Long-term debt 171,472 172,278
--------- ---------
Total Liabilities 186,770 191,567
Commitments and contingencies
Partners' Capital:
Teleglobe Mobile Partners 64,510 73,596
Orbital Communications Corporation 55,260 64,346
--------- ---------
Total Partners' Capital 119,770 137,942
--------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 306,540 $ 329,509
========= =========
</TABLE>
(See accompanying notes to the condensed financial statements)
2
<PAGE> 3
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED NINE MONTHS ENDED STAGE
SEPTEMBER 30, SEPTEMBER 30, THROUGH
------------------------ ------------------------ SEPTEMBER 30,
1997 1996 1997 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME:
Product sales $ 136 $ 150 $ 343 $ 205 $ 611
Distribution fees 0 0 0 0 1,000
Other 2 0 6 0 58
-------- -------- -------- -------- --------
Total Income 138 150 349 205 1,669
EXPENSES:
Cost of product sales 136 150 343 205 611
Depreciation 1,854 1,643 5,345 4,579 11,543
Engineering expenses 2,445 1,392 5,858 3,477 11,311
Marketing, administrative and
other expenses 2,595 1,871 5,428 4,146 12,420
-------- -------- -------- -------- --------
Total Expenses 7,030 5,056 16,974 12,407 35,885
-------- -------- -------- -------- --------
Losses from operations (6,892) (4,906) (16,625) (12,202) (34,216)
OTHER INCOME AND EXPENSES:
Interest income (expense), net 979 1,096 4,041 1,007 7,654
Equity in losses of affiliates (1,853) (1,250) (5,524) (2,860) (10,980)
-------- -------- -------- -------- --------
DEFICIENCY OF INCOME
OVER EXPENSES $ (7,766) $ (5,060) $(18,108) $(14,055) $(37,542)
======== ======== ======== ======== ========
</TABLE>
(See accompanying notes to the condensed financial statements)
3
<PAGE> 4
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
NINE MONTHS ENDED STAGE
SEPTEMBER 30, THROUGH
--------------------------- SEPTEMBER 30,
1997 1996 1997
---------- ---------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Deficiency of income over expenses $ (18,108) $ (14,055) $ (37,542)
ADJUSTMENTS TO RECONCILE DEFICIENCY
OF INCOME OVER EXPENSES TO NET CASH
USED IN OPERATING ACTIVITIES:
Depreciation 5,345 4,579 11,543
Amortization of financing fees 625 106 931
Equity in losses of affiliates 5,524 2,860 10,980
Increase in receivables (302) (1,034) (1,572)
Increase in inventory (2,150) (700) (3,901)
(Decrease) increase in accounts payable and accrued expenses (4,062) 3,732 14,236
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES (13,128) (4,512) (5,325)
--------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures (65,901) (49,492) (242,133)
Increase in advances to affiliates (7,768) (2,760) (10,038)
Purchase of investments (39,660) (132,473) (176,192)
Proceeds from sale of investments 98,964 0 138,971
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (14,365) (184,725) (289,392)
--------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt 0 164,475 169,475
Repayment of long-term debt (735) (671) (2,465)
Partners' contributions 0 62,733 159,800
Financing fees paid (223) (661) (3,674)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (958) 225,876 323,136
--------- --------- ---------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (28,451) 36,639 28,419
CASH AND CASH EQUIVALENTS:
Beginning of period 56,870 1,784 0
--------- --------- ---------
CASH AND CASH EQUIVALENTS:
End of period $ 28,419 $ 38,423 $ 28,419
========= ========= =========
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Interest paid $ 23,531 $ 268 $ 24,304
========= ========= =========
</TABLE>
(See accompanying notes to the condensed financial statements)
4
<PAGE> 5
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
In 1993, Orbital Communications Corporation ("OCC"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. (the "Company" or
"ORBCOMM"), a Delaware limited partnership. OCC and Teleglobe Mobile also
formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and
ORBCOMM International Partners, L.P. ("ORBCOMM International"), to market
services using the ORBCOMM low-Earth orbit satellite communications system (the
"ORBCOMM System") in the United States and internationally, respectively. In
1995, the Company became a 98% General Partner in ORBCOMM USA, reducing OCC's
direct General Partner interest to 2% and eliminating Teleglobe Mobile's direct
General Partner interest entirely. Simultaneously, the Company became a 98%
General Partner in ORBCOMM International, reducing Teleglobe Mobile's direct
General Partner interest to 2% and eliminating OCC's direct General Partner
interest entirely.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial position
of the Company as of September 30, 1997, the results of its operations for the
three-month and nine-month periods ended September 30, 1997 and 1996 and cash
flows for the nine-month periods ended September 30, 1997 and 1996, and the
period from June 30, 1993 (date of inception) through September 30, 1997.
These condensed financial statements are unaudited and do not include all
related footnote disclosures and therefore, should be read in conjunction with
the audited financial statements and the footnotes thereto for the year ended
December 31, 1996 filed with the Securities and Exchange Commission. Operating
results for the three-month and nine-month periods ended September 30, 1997 and
1996 are not necessarily indicative of the results of operations expected in
the future, although the Company will continue to be a development stage
enterprise through, and anticipates a net loss for, fiscal year 1997.
3. RELATED PARTY TRANSACTIONS
The Company paid Orbital $35.2 million and $41.8 million for the nine
months ended September 30, 1997 and 1996, respectively, and approximately
$153.0 million for the period June 30, 1993 (date of inception) through
December 31, 1996. Payments were made for work performed pursuant to the
ORBCOMM System Design, Development, and Operations Agreement (for the initial
portion of the ORBCOMM System), the ORBCOMM System Procurement Agreement (for,
among other things, the additional satellites comprising the ORBCOMM System)
and the Administrative Services Agreement (for the provision of ongoing
administrative support to the Company).
4. COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170.0 million of Senior Notes due 2004 with Revenue Participation Interest
(the "Old Notes"). All of the Old Notes were exchanged for an equal principal
amount of registered 14% Series B Senior Notes due 2004 with Revenue
Participation Interest (the "Notes"). The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International (each, a "Guarantor" and collectively, the
"Guarantors"), except that the guarantees are non-recourse to the shareholders
and/or partners of the Guarantors, limited only to the extent necessary for
each such guarantee not to constitute a fraudulent conveyance under applicable
law.
5
<PAGE> 6
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
On the closing of the offering of the Old Notes, the Company used
$44.8 million of the net proceeds from the sale of the Old Notes to purchase a
portfolio of U.S. Government securities to provide for payment in full of
interest on the Old Notes and Notes through August 15, 1998. Of this
investment portfolio, $23.3 million was used to pay interest that was due on
the Notes on February 15, and August 15, 1997.
The Company also has a $5.0 million secured note outstanding with a
financial institution, which bears interest at 9.2% per annum and is due in
monthly principal and interest installments of $104,000 through December 1999.
The note is secured by equipment located at certain of the U.S. Earth stations,
the network control center and the satellite control center, and is guaranteed
by Orbital. A portion of the net proceeds from the offering of the Old Notes,
sufficient to pay when due all remaining interest and principal payments on
this note, was deposited into a segregated account.
6
<PAGE> 7
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 0 $ 0
Accounts receivable 43 54
------- -------
TOTAL ASSETS $ 43 $ 54
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 533 $ 342
------- -------
Total Current Liabilities 533 342
Amount due to ORBCOMM Global, L.P. 6,880 3,578
------- -------
Total Liabilities 7,413 3,920
Commitments and contingencies
Partners' Capital:
ORBCOMM Global, L.P. (7,223) (3,789)
Orbital Communications Corporation (147) (77)
------- -------
Total Partners' Capital (7,370) (3,866)
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 43 $ 54
======= =======
</TABLE>
(See accompanying notes to the condensed financial statements)
7
<PAGE> 8
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED NINE MONTHS ENDED STAGE
SEPTEMBER 30, SEPTEMBER 30, THROUGH
------------------------- -------------------------- SEPTEMBER 30,
1997 1996 1997 1996 1997
--------- --------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
INCOME:
Product sales $ 11 $ 153 $ 73 $ 202 $ 302
Contract revenues 0 0 0 0 4,203
Service revenues 11 1 30 3 41
-------- -------- -------- -------- --------
Total Income 22 154 103 205 4,546
EXPENSES:
Cost of product sales 98 144 240 192 502
Marketing, administrative and
other expenses 1,007 800 3,367 2,041 11,424
-------- -------- -------- -------- --------
Total Expenses 1,105 944 3,607 2,233 11,926
-------- -------- -------- -------- --------
DEFICIENCY OF INCOME
OVER EXPENSES $ (1,083) $ (790) $ (3,504) $ (2,028) $ (7,380)
======== ======== ======== ======== ========
</TABLE>
(See accompanying notes to the condensed financial statements)
8
<PAGE> 9
ORBCOMM USA, L.P.
(A DEVELOPMENT STATE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
NINE MONTHS ENDED STAGE
SEPTEMBER 30, THROUGH
----------------------- SEPTEMBER 30,
1997 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Deficiency of income over expenses $(3,504) $(2,028) $(7,380)
ADJUSTMENTS TO RECONCILE DEFICIENCY
OF INCOME OVER EXPENSES TO NET CASH
USED IN OPERATING ACTIVITIES:
Increase (decrease) in accounts receivable 11 (160) (43)
Increase in accounts payable and accrued expenses 191 82 533
------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES (3,302) (2,106) (6,890)
------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global, L.P. 3,302 2,130 6,880
Partners' contributions 0 0 10
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,302 2,130 6,890
------- ------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 0 24 0
CASH AND CASH EQUIVALENTS:
Beginning of period 0 10 0
------- ------- -------
CASH AND CASH EQUIVALENTS:
End of period $ 0 $ 34 $ 0
======= ======= =======
</TABLE>
(See accompanying notes to the condensed financial statements)
9
<PAGE> 10
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
In 1993, Orbital Communications Corporation ("OCC"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. (the "Company" or
"ORBCOMM"), a Delaware limited partnership. OCC and Teleglobe Mobile also
formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and
ORBCOMM International Partners, L.P. ("ORBCOMM International"), to market
services using the ORBCOMM low-Earth orbit satellite communications system in
the United States and internationally, respectively. In 1995, the Company
became a 98% General Partner in ORBCOMM USA, reducing OCC's direct General
Partner interest to 2% and eliminating Teleglobe Mobile's direct General
Partner interest entirely.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial position
of ORBCOMM USA as of September 30, 1997, the results of its operations for the
three-month and nine-month periods ended September 30, 1997 and 1996 and cash
flows for the nine-month periods ended September 30, 1997 and 1996, and the
period from June 30, 1993 (date of inception) through September 30, 1997.
These condensed financial statements are unaudited and do not include all
related footnote disclosures and therefore, should be read in conjunction with
the audited financial statements and the footnotes thereto for the year ended
December 31, 1996 filed with the Securities and Exchange Commission. Operating
results for the three-month and nine-month periods ended September 30, 1997 and
1996 are not necessarily indicative of the results of operations expected in
the future.
3. RELATED PARTY TRANSACTIONS
As of September 30, 1997, ORBCOMM USA had a payable of $6.9 million
($3.6 million as of December 31, 1996) to the Company, none of which is
currently payable, for amounts advanced to support ORBCOMM USA in establishing
commercial and government markets in the United States. ORBCOMM USA is
currently in development stage and obtains funds to support operations through
non-interest bearing advances from the Company.
4. COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170.0 million of Senior Notes due 2004 with Revenue Participation Interest
(the "Old Notes"). All of the Old Notes were exchanged for an equal principal
amount of registered 14% Series B Senior Notes due 2004 with Revenue
Participation Interest (the "Notes"). The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International (each, a "Guarantor" and collectively, the
"Guarantors"), except that the guarantees are non-recourse to the shareholders
and/or partners of the Guarantors, limited only to the extent necessary for
each such guarantee not to constitute a fraudulent conveyance under applicable
law.
10
<PAGE> 11
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 0 $ 0
Accounts receivable 35 15
Prepaid contract costs 13,268 3,871
Amount due from ORBCOMM Global, L.P. 0 1,309
-------- --------
TOTAL ASSETS $ 13,303 $ 5,195
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 3,692 $ 729
Deferred revenue 10,269 6,147
-------- --------
Total Current Liabilities 13,961 6,876
Amount due to ORBCOMM Global, L.P. 3,156 0
-------- --------
Total Liabilities 17,117 6,876
Commitments and contingencies
Partners' Capital:
ORBCOMM Global, L.P. (3,737) (1,647)
Teleglobe Mobile Partners (77) (34)
-------- --------
Total Partners' Capital (3,814) (1,681)
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 13,303 $ 5,195
======== ========
</TABLE>
(See accompanying notes to the condensed financial statements)
11
<PAGE> 12
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED NINE MONTHS ENDED STAGE
SEPTEMBER 30, SEPTEMBER 30, THROUGH
----------------------- ----------------------- SEPTEMBER 30,
1997 1996 1997 1996 1997
--------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
INCOME:
Product sales $ 20 $ 4 $ 54 $ 4 $ 62
EXPENSES:
Cost of product sales 40 4 68 4 75
Marketing, administrative and
other expenses 788 485 2,119 890 3,811
------- ------- ------- ------- -------
Total Expenses 828 489 2,187 894 3,886
------- ------- ------- ------- -------
DEFICIENCY OF INCOME
OVER EXPENSES $ (808) $ (485) $(2,133) $ (890) $(3,824)
======= ======= ======= ======= =======
</TABLE>
(See accompanying notes to the condensed financial statements)
12
<PAGE> 13
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
NINE MONTHS ENDED STAGE
SEPTEMBER 30, THROUGH
------------------------- SEPTEMBER 30,
1997 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Deficiency of income over expenses $ (2,133) $ (890) $ (3,824)
ADJUSTMENTS TO RECONCILE DEFICIENCY
OF INCOME OVER EXPENSES TO NET CASH
USED IN OPERATING ACTIVITIES:
Increase in accounts receivable (20) (11) (35)
Increase in prepaid contract costs (9,397) 0 (13,268)
Increase in accounts payable and accrued expenses 2,963 288 3,692
Increase in deferred revenue 4,122 0 10,269
-------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES (4,465) (613) (3,166)
-------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Decrease in amount due from ORBCOMM Global, L.P. 1,309 0 0
-------- -------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,309 0 0
-------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global, L.P. 3,156 631 3,156
Partners' contributions 0 0 10
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,156 631 3,166
-------- -------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 0 18 0
CASH AND CASH EQUIVALENTS:
Beginning of period 0 10 0
-------- -------- --------
CASH AND CASH EQUIVALENTS:
End of period $ 0 $ 28 $ 0
======== ======== ========
</TABLE>
(See accompanying notes to the condensed financial statements)
13
<PAGE> 14
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
In 1993, Orbital Communications Corporation ("OCC"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. (the "Company" or
"ORBCOMM"), a Delaware limited partnership. OCC and Teleglobe Mobile also
formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and
ORBCOMM International Partners, L.P. ("ORBCOMM International"), to market
services using the ORBCOMM low-Earth orbit satellite communications system (the
"ORBCOMM System") in the United States and internationally, respectively. In
1995, the Company became a 98% General Partner in ORBCOMM International,
reducing Teleglobe Mobile's direct General Partner interest to 2% and
eliminating OCC's direct General Partner interest entirely.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial position
of ORBCOMM International as of September 30, 1997, the results of its
operations for the three-month and nine-month periods ended September 30, 1997
and 1996 and cash flows for the nine-month periods ended September 30, 1997 and
1996, and the period from June 30, 1993 (date of inception) through September
30, 1997. These condensed financial statements are unaudited and do not
include all related footnote disclosures and therefore, should be read in
conjunction with the audited financial statements and the footnotes thereto for
the year ended December 31, 1996 filed with the Securities and Exchange
Commission. Operating results for the three-month and nine-month periods ended
September 30, 1997 and 1996 are not necessarily indicative of the results of
operations expected in the future.
3. RELATED PARTY TRANSACTIONS
As of September 30, 1997, ORBCOMM International had a payable of $3.2
million to the Company, which is not currently payable (a receivable of $1.3
million that represented net cash out flow to the Company as of December 31,
1996). The payable represents advance funding to support ORBCOMM International
in establishing commercial and government markets outside the United States.
ORBCOMM International is currently in development stage and obtains funds to
support operations through non-interest bearing advances from the Company.
4. COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170.0 million of Senior Notes due 2004 with Revenue Participation Interest
(the "Old Notes"). All of the Old Notes were exchanged for an equal principal
amount of registered 14% Series B Senior Notes due 2004 with Revenue
Participation Interest (the "Notes"). The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International (each, a "Guarantor" and collectively, the
"Guarantors"), except that the guarantees are non-recourse to the shareholders
and/or partners of the Guarantors, limited only to the extent necessary for
each such guarantee not to constitute a fraudulent conveyance under applicable
law.
In October 1996, ORBCOMM International entered into agreements with
certain manufacturers for construction of gateway Earth stations scheduled for
delivery over the next two years, with the first deliveries currently scheduled
for fourth quarter 1997. As of September 30, 1997, ORBCOMM International had
$13.3 million of prepaid contract costs of which $8.8 million represent advance
payments to these manufacturers ($3.9 million as of December 31, 1996). Total
commitments under these manufacturing agreements approximate $18.0 million.
14
<PAGE> 15
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
5. SERVICE LICENSE AGREEMENTS
ORBCOMM International has signed ten Service License Agreements
("SLAs") with international licensees ("International Licensees"), nine of
which have associated gateway procurement contracts and software license
agreements. These SLAs cover Canada, Europe, the Malaysian Region, the
northwest region of North Africa, Turkey and South Central Asia, the Middle
East, Korea, Japan, the Philippines, and a portion of South America and the
Caribbean. The SLAs authorize the International Licensees to use the ORBCOMM
System to provide two-way data and message communications services. As of
September 30, 1997, under these agreements $10.3 million has been received and
recorded as deferred revenue ($6.1 million as of December 31, 1996). ORBCOMM
International is obligated to ship nine gateways to certain International
Licensees under certain of these agreements.
15
<PAGE> 16
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 77 $ 142
Accounts receivable 43 29
-------- --------
Total Current Assets 120 171
Investments in affiliates 60,330 67,667
-------- --------
TOTAL ASSETS $ 60,450 $ 67,838
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued expenses $ 533 $ 117
Short-term debt 161 554
-------- --------
Total Current Liabilities 694 671
Due to affiliates 82,048 78,728
-------- --------
Total Liabilities 82,742 79,399
Non-controlling interest in net assets of ORBCOMM USA, L.P. (3,611) (1,894)
Commitments and contingencies
Stockholders' Deficit:
Common stock, par value $0.01; 8,000,000 shares authorized;
4,730,392 and 4,751,292 shares issued;
4,679,620 and 4,700,520 shares outstanding 47 47
Additional paid-in capital 350 210
Treasury stock (736) (155)
Retained deficit (18,342) (9,769)
-------- --------
Total Stockholders' Deficit (18,681) (9,667)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 60,450 $ 67,838
======== ========
</TABLE>
(See accompanying notes to the condensed financial statements)
16
<PAGE> 17
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- ------- ------- -------
<S> <C> <C> <C> <C>
INCOME:
Product sales $ 11 $ 153 $ 73 $ 202
Service revenues 11 1 30 3
------- ------- ------- -------
Total Income 22 154 103 205
EXPENSES:
Cost of product sales 98 144 240 192
Marketing, administrative and other expenses 1,018 828 2,816 2,039
------- ------- ------- -------
Total Expenses 1,116 972 3,056 2,231
Losses from operations (1,094) (818) (2,953) (2,026)
OTHER INCOME AND EXPENSES:
Equity in losses of ORBCOMM Global, L.P. (3,352) (2,142) (7,337) (6,033)
Non-controlling interest in losses of ORBCOMM USA, L.P. 531 388 1,717 994
------- ------- ------- -------
DEFICIENCY OF INCOME
OVER EXPENSES $(3,915) $(2,572) $(8,573) $(7,065)
======= ======= ======= =======
</TABLE>
(See accompanying notes to the condensed financial statements)
17
<PAGE> 18
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Deficiency of income over expenses $ (8,573) $ (7,065)
ADJUSTMENTS TO RECONCILE DEFICIENCY
OF INCOME OVER EXPENSES TO NET CASH
USED IN OPERATING ACTIVITIES:
Equity in losses of ORBCOMM Global, L.P. 7,337 6,033
Non-controlling interest in losses of ORBCOMM USA, L.P. (1,717) (994)
(Increase) decrease in accounts receivable (14) 779
Increase (decrease) in accounts payable and accrued expenses 23 (22)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (2,944) (1,269)
-------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Investments in affiliates 0 (12,958)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES 0 (12,958)
-------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from sale of common stock to employees 140 110
Purchases of treasury stock (581) 0
Net borrowings from affiliates 2,946 2,474
Net borrowings from Orbital Sciences Corporation 374 11,843
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,879 14,427
-------- --------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (65) 200
CASH AND CASH EQUIVALENTS:
Beginning of period 142 0
-------- --------
CASH AND CASH EQUIVALENTS:
End of Period $ 77 $ 200
======== ========
</TABLE>
(See accompanying notes to the condensed financial statements)
18
<PAGE> 19
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Orbital Communications Corporation ("OCC") is a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital") and is included in
Orbital's consolidated financial statements. In 1993, OCC and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. (the "Company" or
"ORBCOMM"), a Delaware limited partnership, and two marketing partnerships,
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International"). OCC and Teleglobe Mobile are each 50% General
Partners in ORBCOMM, and ORBCOMM is a 98% General Partner in each of the two
marketing partnerships. Additionally, OCC is a 2% General Partner in ORBCOMM
USA, and Teleglobe Mobile is a 2% General Partner in ORBCOMM International.
Directly and indirectly, OCC currently holds 51% and 49% of ORBCOMM USA and
ORBCOMM International, respectively. Consequently OCC consolidates the
financial results of ORBCOMM USA.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position of OCC as of September 30, 1997, the results of its operations for the
three-month and nine-month periods ended September 30, 1997 and 1996 and cash
flows for the nine-month periods ended September 30, 1997 and 1996. These
condensed consolidated financial statements are unaudited and do not include
all related footnote disclosures and therefore, should be read in conjunction
with the audited consolidated financial statements and the footnotes thereto
for the year ended December 31, 1996 filed with the Securities and Exchange
Commission. Operating results for the three-month and nine-month periods ended
September 30, 1997 and 1996 are not necessarily indicative of the results of
operations expected in the future.
3. RELATED PARTY TRANSACTIONS
OCC obtains virtually all of its funding for operations and for its
capital investments in the Company from Orbital via a non-interest bearing
intercompany borrowing agreement. As of September 30, 1997 and December 31,
1996, OCC owed Orbital $75.2 million and $74.8 million, respectively, none of
which is currently payable.
As of September 30, 1997, ORBCOMM USA had a payable of $6.9 million
($3.6 million as of December 31, 1996) to the Company, none of which is
currently payable, for amounts advanced to support ORBCOMM USA in establishing
commercial and government markets in the United States. ORBCOMM USA is
currently in development stage and obtains funds to support operations through
non-interest bearing advances from the Company.
4. COMMITMENTS AND CONTINGENCIES
On August 7, 1996, the Company and ORBCOMM Global Capital Corp. issued
$170.0 million senior unsecured notes due 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 service revenues. The
Notes are fully and unconditionally guaranteed on a joint and several basis by
OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM International. The guarantees
are non-recourse to OCC's shareholders (including Orbital) and Teleglobe
Mobile's partners (including Teleglobe and Technology Resources Industries
Bhd.).
19
<PAGE> 20
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,494 $ 1,618
Accounts receivable 39 17
Prepaid contract costs 13,268 3,871
Amount due from ORBCOMM Global, L.P. 0 1,309
-------- --------
Total Current Assets 14,801 6,815
Investments in affiliates 65,916 74,361
-------- --------
TOTAL ASSETS $ 80,717 $ 81,176
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 3,773 $ 899
Deferred revenue 10,269 6,147
-------- --------
Total Current Liabilities 14,042 7,046
Amount due to ORBCOMM Global, L.P. 3,156 0
-------- --------
Total Liabilities 17,198 7,046
Non-controlling interest in net assets
of ORBCOMM International Partners, L.P. (1,869) (823)
Commitments and contingencies
Partners' Capital:
Teleglobe Mobile, L.P. 45,314 51,942
TR (U.S.A.) Ltd. 19,616 22,486
Teleglobe Mobile Investment Inc. 458 525
-------- --------
Total Partners' Capital 65,388 74,953
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 80,717 $ 81,176
======== ========
</TABLE>
(See accompanying notes to the condensed financial statements)
20
<PAGE> 21
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
THREE MONTHS ENDED NINE MONTHS ENDED DEVELOPMENT
SEPTEMBER 30, SEPTEMBER 30, STAGE THROUGH
------------------------ ------------------------- SEPTEMBER 30,
1997 1996 1997 1996 1997
--------- -------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
INCOME:
Product sales $ 20 $ 4 $ 54 $ 4 $ 62
EXPENSES:
Cost of product sales 40 4 68 4 74
Marketing, administrative and other expenses 817 503 2,210 1,302 5,858
-------- -------- -------- -------- --------
Total Expenses 857 507 2,278 1,306 5,932
-------- -------- -------- -------- --------
Losses from operations (837) (503) (2,224) (1,302) (5,870)
OTHER INCOME AND EXPENSES:
Interest income (expense), net 19 81 58 884 1,928
Equity in losses of ORBCOMM Global, L.P. (3,604) (2,292) (8,414) (6,591) (17,608)
Non-controlling interest in losses
of ORBCOMM International Partners, L.P. 397 238 1,046 436 1,874
-------- -------- -------- -------- --------
DEFICIENCY OF INCOME
OVER EXPENSES $ (4,025) $ (2,476) $ (9,534) $ (6,573) $(19,676)
======== ======== ======== ======== ========
</TABLE>
(See accompanying notes to the condensed financial statements)
21
<PAGE> 22
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
NINE MONTHS ENDED DEVELOPMENT
SEPTEMBER 30, STAGE THROUGH
------------------------- SEPTEMBER 30,
1997 1996 1997
--------- --------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Deficiency of income over expenses $ (9,534) $ (6,573) $(19,676)
ADJUSTMENTS TO RECONCILE DEFICIENCY
OF INCOME OVER EXPENSES TO NET CASH
USED IN OPERATING ACTIVITIES:
Equity in losses of ORBCOMM Global, L.P. 8,414 6,591 17,608
Non-controlling interest in losses of
ORBCOMM International Partners, L.P. (1,046) (436) (1,874)
Increase in accounts receivable (22) (12) (39)
Increase in prepaid contract costs (9,397) 0 (13,268)
Increase in accounts payable and accrued expenses 2,874 38 3,773
Increase in deferred revenue 4,122 0 10,269
-------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES (4,589) (392) (3,207)
-------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Investments in affiliates 0 (49,780) (84,525)
Decrease in amount due from ORBCOMM Global, L.P. 1,309 0 0
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,309 (49,780) (84,525)
-------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global, L.P. 3,156 631 3,156
Partners' contributions 0 17,000 86,065
Non-controlling interest in net assets
of ORBCOMM International Partners, L.P. 0 0 5
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,156 17,631 89,226
-------- -------- --------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (124) (32,541) 1,494
CASH AND CASH EQUIVALENTS:
Beginning of period 1,618 34,168 0
-------- -------- --------
CASH AND CASH EQUIVALENTS:
End of period $ 1,494 $ 1,627 $ 1,494
======== ======== ========
</TABLE>
(See accompanying notes to the condensed financial statements)
22
<PAGE> 23
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Teleglobe Mobile Partners, a Delaware general partnership (the
"Partnership"), was formed in 1993 for purposes of being a general and a
limited partner in ORBCOMM Global, L.P. (the "Company" or "ORBCOMM"), a
Delaware limited partnership providing international wireless data
communications services using a low-Earth orbit satellite communications system
("the ORBCOMM System"). The Partnership holds a 50% participation percentage
("Participation Percentage") in ORBCOMM, which in turn holds a 98% interest in
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International"), two other partnerships formed to market the ORBCOMM
System. The Partnership also holds directly a 2% Participation Percentage in
ORBCOMM International bringing its direct and indirect Participation Percentage
in ORBCOMM International to 51%. Consequently the Partnership consolidates the
financial results of ORBCOMM International.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position of the Partnership as of September 30, 1997, the results of its
operations for the three-month and nine-month periods ended September 30, 1997
and 1996 and cash flows for the nine-month periods ended September 30, 1997 and
1996, and the period from June 30, 1993 (date of inception) through September
30, 1997. These condensed consolidated financial statements are unaudited and
do not include all related footnote disclosures and therefore, should be read
in conjunction with the audited consolidated financial statements and the
footnotes thereto for the year ended December 31, 1996 filed with the
Securities and Exchange Commission. Operating results for the three-month and
nine-month periods ended September 30, 1997 and 1996 are not necessarily
indicative of the results of operations expected in the future.
3. RELATED PARTY TRANSACTIONS
As of September 30, 1997, ORBCOMM International had a payable of $3.2
million to the Company, which is not currently payable (a receivable of $1.3
million that represented net cash out flow to the Company as of December 31,
1996). The payable represents advance funding to support ORBCOMM International
in establishing commercial and government markets outside the United States.
ORBCOMM International is currently in development stage and obtains funds to
support operations through non-interest bearing advances from the Company.
4. COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170.0 million of Senior Notes due 2004 with Revenue Participation Interest
(the "Old Notes"). All of the Old Notes were exchanged for an equal principal
amount of registered 14% Series B Senior Notes due 2004 with Revenue
Participation Interest (the "Notes"). The Notes are fully and unconditionally
guaranteed on a joint and several basis by the Partnership, OCC, ORBCOMM USA
and ORBCOMM International (each, a "Guarantor" and collectively, the
"Guarantors"), except that the guarantees are non-recourse to the shareholders
and/or partners of the Guarantors, limited only to the extent necessary for
each such guarantee not to constitute a fraudulent conveyance under applicable
law.
In October 1996, ORBCOMM International entered into agreements with
certain manufacturers for construction of gateway Earth stations scheduled for
delivery over the next two years, with the first deliveries currently scheduled
for fourth quarter 1997. As of September 30, 1997, ORBCOMM International had
$13.3 million of prepaid contract costs of which $8.8 million represent advance
payments to these manufacturers ($3.9 million as of December 31, 1996). Total
commitments under these manufacturing agreements approximate $18.0 million.
23
<PAGE> 24
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
5. SERVICE LICENSE AGREEMENTS
ORBCOMM International has signed ten Service License Agreements
("SLAs") with international licensees ("International Licensees"), nine of
which have associated gateway procurement contracts and software license
agreements. These SLAs cover Canada, Europe, the Malaysian Region, the
northwest region of North Africa, Turkey and South Central Asia, the Middle
East, Korea, Japan, the Philippines, and a portion of South America and the
Caribbean. The SLAs authorize the International Licensees to use the ORBCOMM
System to provide two-way data and message communications services. As of
September 30, 1997, under these agreements $10.3 million has been received and
recorded as deferred revenue ($6.1 million as of December 31, 1996). ORBCOMM
International is obligated to ship nine gateways to certain International
Licensees under certain of these agreements.
24
<PAGE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In 1993, ORBCOMM Global, L.P. (the "Company" or "ORBCOMM") was formed by
Orbital Sciences Corporation ("Orbital"), acting through Orbital Communications
Corporation ("OCC"), and Teleglobe Inc. ("Teleglobe"), acting through Teleglobe
Mobile Partners ("Teleglobe Mobile"). Each of OCC and Teleglobe Mobile
acquired and currently owns a 50% interest in the Company, with Technology
Resources Industries Bhd. (through TR (U.S.A.) Ltd.) now holding a 30% interest
in Teleglobe Mobile. Concurrently with the formation of the Company, OCC and
Teleglobe Mobile formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM
USA") and ORBCOMM International Partners, L.P. ("ORBCOMM International")
(collectively, the "Marketing Partnerships"), with the exclusive right to
market services using the Company's low-Earth orbit satellite communications
system (the "ORBCOMM System") in the United States and internationally,
respectively. The Company is a 98% General Partner in each of the Marketing
Partnerships, while OCC and Teleglobe Mobile control the remaining 2% of
ORBCOMM USA and ORBCOMM International, respectively. OCC retains control over
the applicable Federal Communications Commission ("FCC") licenses (the "FCC
Licenses") and the ORBCOMM System, consistent with FCC regulations.
To date, OCC and Teleglobe Mobile have invested an aggregate of approximately
$160.0 million in the ORBCOMM project. In addition, on August 7, 1996, the
Company and ORBCOMM Global Capital Corp. ("Capital") completed a private
placement (the "Old Notes Offering") of $170.0 million 14% Senior Notes due
2004 with Revenue Participation Interest (the "Old Notes"). In January 1997,
all of the Old Notes were exchanged for notes that are substantially similar to
the Old Notes, except that the new notes (the "Notes") are registered under the
Securities Act of 1933, as amended. The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International, except that the guarantees are non-recourse to
the shareholders and/or partners of the guarantors, limited only to the extent
necessary for each such guarantee not to constitute a fraudulent conveyance
under applicable law.
ORGANIZATIONAL STRUCTURE; FINANCIAL REPORTING
Pursuant to the terms of the partnership agreements for the Company and the
Marketing Partnerships: (i) OCC and Teleglobe Mobile share equal responsibility
for the operational and financial affairs of the Company; (ii) OCC generally
controls the operational and financial affairs of ORBCOMM USA; and (iii)
Teleglobe Mobile generally controls the operational and financial affairs of
ORBCOMM International. Since OCC and Teleglobe Mobile have effective control
over ORBCOMM USA and ORBCOMM International, respectively, the Company accounts
for the Marketing Partnerships using the equity method of accounting. The
Company does not consolidate, and therefore does not report in its financial
statements, ORBCOMM USA's and ORBCOMM International's actual assets,
liabilities and operating revenues and expenses. Instead, the Company's
proportionate share of the deficiency of income over expenses of the Marketing
Partnerships is recorded under the caption "Equity in losses of affiliates" in
the Company's financial statements. Correspondingly, the Company's investment
in the Marketing Partnerships is carried at cost, subsequently adjusted for the
proportionate share of net income and losses, additional capital contributions
and distributions under the caption "Investments in and advances to
affiliates." Investors are encouraged to refer to the financial statements of
both ORBCOMM USA and ORBCOMM International included elsewhere in this report.
ORBCOMM USA pays to OCC an output capacity charge ("Output Capacity Charge")
that is a quarterly fee equal to 23% of ORBCOMM USA's total service revenues
for such calendar quarter in exchange for the exclusive right to market, sell,
lease and franchise all ORBCOMM System output capacity in the United States and
exclusive use of the tangible assets (including software) located in the United
States to be delivered to the Company pursuant to certain procurement
agreements (the "System Assets"). In consideration of the construction and
financing of the System Assets by the Company, OCC, in turn, pays to the
Company a system charge that is a quarterly fee equal to the Output Capacity
Charge less 1.15% of total aggregate revenues, defined as the aggregate of
ORBCOMM USA's and ORBCOMM International's total system service revenues ("Total
Aggregate Revenues").
ORBCOMM International pays to Teleglobe Mobile an international output
capacity charge ("International Output Capacity Charge") that is a quarterly
fee equal to 23% of ORBCOMM International's total service revenues for such
calendar quarter in exchange for the exclusive right to market, sell, lease and
franchise all ORBCOMM System output capacity outside the United States. In
consideration of the grant by the Company to Teleglobe Mobile of the exclusive
right to market, sell, lease and franchise all
25
<PAGE> 26
ORBCOMM System output capacity outside the United States, Teleglobe Mobile, in
turn, pays to the Company an international system charge that is a quarterly
fee equal to the International Output Capacity Charge less 1.15% of Total
Aggregate Revenues.
SERVICE ROLL-OUT
The roll-out of ORCOMMM System services will occur in two stages. Commercial
intermittent service commenced in the United States in February 1996. The
Company currently serves several U.S. market segments that can benefit from
intermittent data communications services, such as oil and gas pipeline
monitoring, certain environmental monitoring, and tracking and position
determination applications. As additional satellites are added to the existing
two satellites for a planned constellation of up to 28 satellites, it will
become possible to serve additional market segments such as certain messaging
applications that require real time services. Orbital, the Company's satellite
and launch services provider, has indicated that the first plane of eight
satellites is currently planned to be launched on a Pegasus XL(R) launch
vehicle during the fourth quarter of 1997, with the second plane of eight
satellites currently planned to be launched within approximately two to three
months after the launch of the first plane of eight satellites and the third
plane of eight satellites currently planned to be launched within approximately
two to three months after the launch of the second plane of eight satellites.
The two additional satellites that are a secondary payload on a Taurus(R)
launch vehicle are currently at the launch site and Orbital has indicated that
they are planned to be launched in the next several months. Service outside
the United States will be provided as international licensees ("International
Licensees") receive regulatory approval and build network ground systems.
To facilitate the introduction and development of commercial service, the
Company procured several thousand subscriber communicators ("Subscriber
Communicators") from certain of its Subscriber Communicator manufacturers. The
Company believes that this inventory will be sufficient to support certain
market sales activities through the first half of 1998. In the third quarter
of 1997, the Company completed construction of a new network control center
that is designed to support the full constellation of ORBCOMM System
satellites.
REVENUE
Currently, during the period of commercial intermittent services, ORBCOMM USA
is building an initial base of subscribers in the United States through
value-added resellers ("Resellers"), who purchase ORBCOMM System services
directly from ORBCOMM USA, and through direct sales activities.
In the United States, service pricing is based on many variables, including
the availability and cost of substitute services, the cost of providing service
and the nature of the user application. Pricing generally incorporates an
initial registration charge, a recurring monthly charge for access to the
ORBCOMM System and usage charges based on the customer's activity. In charging
for registration, access and usage, the Company has developed pricing
structures in the United States that suit the initial markets addressed by the
existing two-satellite system. Additional pricing, including priority and
other real time messaging pricing, will be developed as the full deployment of
satellites in the ORBCOMM System occurs. It is likely that multiple pricing
alternatives will be offered in the United States, including peak/off-peak,
volume discounts and annual contract commitment options.
The Company has a service license agreement ("Service License Agreement") for
execution by International Licensees, who are responsible for obtaining all
necessary licenses and approvals for use of the ORBCOMM System in their
territory. Certain International Licensees will pay to ORBCOMM International a
fee in exchange for the exclusive right to market services using the ORBCOMM
System in a specified service territory. In addition, International Licensees
will pay a monthly satellite usage fee based on the greater of a percentage of
gross operating revenues and a data throughput fee. On the execution of a
Service License Agreement, an International Licensee is generally required to
purchase a gateway ("Gateway") from ORBCOMM International or to share the U.S.
Gateway or a closely located Gateway operated by another International
Licensee.
Retail pricing in their respective territories will be at the discretion of
the International Licensees and is expected to vary from country to country to
reflect variations in economic conditions, the availability of substitute
services, local customs and government policies regarding competition.
26
<PAGE> 27
OPERATING EXPENSES
As discussed above, the Company owns and operates the assets, other than the
FCC Licenses, that comprise the ORBCOMM System. Satellite-based communications
systems are characterized by high up-front capital expenditures and relatively
low marginal costs for providing service. Beginning in January 1996, the
Company has been depreciating some of its assets, recording a depreciation
charge in its statements of operations. Additionally, the Company incurs, and
reports in its financial statements, engineering, marketing, administrative and
other operating expenses associated with the actual operation of the ORBCOMM
System. The Company expects engineering, marketing and administrative
expenses to increase as a percentage of operating income for the balance of
1997 as a result of the continued increase in the number of employees.
RESULTS OF OPERATIONS - ORBCOMM
The Company commenced commercial intermittent service in the United States on
February 1, 1996 and has generated minimal revenues and negative cash flows to
date. The Company's activities have focused primarily on the acquisition of
regulatory approvals for operation of the ORBCOMM System, design, construction
and deployment of its initial satellites and associated network systems, design
and construction of additional satellites, execution of reseller agreements
with domestic Resellers and Service License Agreements with International
Licensees, identification of potential International Licensees in countries
outside the United States, identification and authorization of Subscriber
Communicator manufacturers and hiring of management and other key personnel.
Income. In 1995, the Company received a non-refundable fee from a potential
International Licensee. The Company recognized this non-refundable fee over
the term of the relevant agreement. No such fees were received in earlier
periods or during the nine-month period ended September 30, 1997.
In late 1994, the Company borrowed $5.0 million, which bears interest at 9.2%
per annum, from MetLife Capital Corporation ("MetLife") pursuant to a Loan and
Security Agreement dated December 22, 1994 between MetLife and the Company (the
"MetLife Note") to help finance a portion of the ORBCOMM System. In addition,
in August 1996, ORBCOMM closed the Old Notes Offering. The proceeds from the
sale of the Old Notes are invested primarily in short-term government
securities, with certain restrictions attached to all of the investment
portfolio. A portion of the net proceeds from the Old Notes Offering,
sufficient to pay when due all remaining interest and principal payments on the
MetLife Note, was deposited into a segregated account. In January 1997, all of
the Old Notes were exchanged for the Notes. The Company recognized interest
income on the invested portion of the MetLife Note and the proceeds of the Old
Notes Offering of $4.0 million and $1.1 million for the nine months ended
September 30, 1997 and 1996, respectively. The Company does not expect any
material increase in revenues to occur until additional planes of satellites in
its constellation have been deployed.
Expenses. As discussed above, the Company is in its development stage and
does not anticipate emerging from the development stage until mid-to late 1998.
During the construction phase of the ORBCOMM System, the Company has
capitalized all construction costs, consisting primarily of satellites, launch
vehicles and the U.S. ground segment procured from Orbital. Research and
development expenses and selling, general and administrative costs have been
expensed in the period incurred. Interest expense and revenue participation
interest, where appropriate, related to the MetLife Note, the Old Notes and the
Notes has been capitalized as part of the historical cost of the ORBCOMM
System.
The Company incurred $5.4 million and $4.1 million of marketing,
administrative and other expenses for the nine months ended September 30, 1997
and 1996, respectively. The Company also incurred $5.8 million and $3.5
million of ORBCOMM System engineering expenses for the nine months ended
September 30, 1997 and 1996, respectively. The Company is capitalizing the
portion of engineering direct labor costs ($3.0 million for the nine months
ended September 30, 1997) that relates to hardware and system design,
development and coding of the software products that enhance the operation of
the ORBCOMM System. The Company also incurred $5.3 million and $4.6 million in
ORBCOMM System depreciation expenses for the nine months ended September 30,
1997 and 1996, respectively, as the ORBCOMM System became available for service
in early 1996. Expenses as a percentage of revenues have increased in 1997 and
the Company expects expenses as a percentage of revenues to continue to
increase until additional planes of satellites in its constellation have been
deployed.
Equity in losses of affiliates. The Company recognized its shares of ORBCOMM
USA's and ORBCOMM International's losses, consisting primarily of marketing
expenses, of $5.5 and $2.8 million for the nine months ended September 30, 1997
and 1996,
27
<PAGE> 28
respectively. Each of ORBCOMM USA and ORBCOMM International formally began
their marketing efforts in 1995 in anticipation of commercial service
commencing in 1996.
RESULTS OF OPERATIONS - ORBCOMM USA
Income. In 1993, 1994 and 1995, ORBCOMM USA performed marketing activities
for the U.S. market pursuant to a contract with OCC (the "System Charge
Agreement"), whereby OCC reimbursed ORBCOMM USA for all marketing costs
incurred. Accordingly, ORBCOMM USA recognized contract revenues of $4.2
million from June 30, 1993 (date of inception) through September 30, 1995. The
U.S. marketing service portion of the System Charge Agreement expired in 1995.
During the first nine months of 1997 and 1996, ORBCOMM USA recognized revenues
relating to the provision of products and services of approximately $103,000
and approximately $205,000, respectively.
Expenses. ORBCOMM USA incurred $3.4 million and $2.0 million of marketing
and administrative expenses and approximately $240,000 and approximately
$192,000 of cost of product sales for the nine months ended September 30, 1997
and 1996, respectively (once the ORBCOMM System began operations). Pursuant to
the System Charge Agreement, ORBCOMM USA incurred contract marketing costs of
$4.2 million from June 30, 1993 (date of inception) through September 30, 1995.
RESULTS OF OPERATIONS - ORBCOMM INTERNATIONAL
Expenses. ORBCOMM International incurred $2.1 million and approximately
$890,000 of marketing and administrative expenses for the nine months ended
September 30, 1997 and 1996, respectively. As of September 30, 1997, ORBCOMM
International had $13.3 million of prepaid contract costs, which represent
advance payments to certain manufacturers for construction of gateway Earth
stations scheduled for delivery over the next two years, with the first
deliveries currently scheduled for fourth quarter 1997.
Service License Agreements. ORBCOMM International has signed ten Service
License Agreements with International Licensees, nine of which have associated
gateway procurement contracts and software license agreements. These Service
License Agreements cover Canada, Europe, the Malaysian Region, the northwest
region of North Africa, Turkey and South Central Asia, the Middle East, Korea,
Japan, the Philippines, and a portion of South America and the
Caribbean. The Service License Agreements authorize the International
Licensees to use the ORBCOMM System to provide two-way data and message
communications services. As of September 30, 1997, under these agreements
$10.3 million has been received and recorded as deferred revenue. ORBCOMM
International is obligated to ship nine gateways to certain International
Licensees under certain of these agreements. Revenue under the Gateway
procurement contracts is generally recognized when products are shipped or when
customers have accepted the products or services, depending on contractual
terms. ORBCOMM International generally recognizes fees from Service License
Agreements ratably over the term of the agreement, or when ORBCOMM
International's obligations thereunder are substantially complete.
28
<PAGE> 29
SUPPLEMENTAL DATA
Set forth below is certain supplemental data for the ORBCOMM System
comprising data of the Company, ORBCOMM USA and ORBCOMM International for the
nine months ended September 30, 1997. Such supplemental data should be read in
conjunction with the financial statements of the Company, ORBCOMM USA and
ORBCOMM International and the notes thereto located elsewhere in this report.
SUPPLEMENTAL DATA
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORBCOMM ORBCOMM ELIMINATION
ORBCOMM USA INTERNATIONAL ENTRIES TOTAL
------------ -------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Income(1) $ 349 $ 103 $ 54 $ (308) $ 198
Interest income (expense),
net 4,041 (2) 0 0 4,041
Expenses 16,974 (3) 3,607 2,187 308 22,460
Losses before
interest and taxes (16,625) (4) (3,504) (2,133) (22,262)
Net loss (12,584) (4) (3,504) (2,133) (18,221)
Capital expenditures 65,901 (5) 0 0 65,901
</TABLE>
SUPPLEMENTAL DATA
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT UNIT INFORMATION)
<TABLE>
<CAPTION>
ORBCOMM ORBCOMM
ORBCOMM USA INTERNATIONAL TOTAL
---------- -------- ------------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 28,419 $ 0 $ 0 $ 28,419
Mobile Communications
Satellite System, net 230,590 0 0 230,590
Total debt 172,534 0 0 172,534
Subscriber Communicators (units) 0 493 145 638
</TABLE>
(1) As development-stage enterprises, none of the Company, ORBCOMM USA and
ORBCOMM International had any significant operating revenues for the nine
months ended September 30, 1997.
(2) Net of $625 of amortization of financing fees.
(3) Includes depreciation expenses of $5,345. Interest expense of $17,850
was capitalized for the nine months ended September 30, 1997.
(4) Excludes equity in losses of affiliates of $5,524.
(5) Represents capital expenditures, principally for the construction of the
space and ground network system elements.
29
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
The development of the Company's business, design, development and deployment
of the ORBCOMM System satellites, and construction of the network control
center and U.S. Gateway have resulted in substantial capital expenditures
during the past several years. Capital expenditures by the Company were $242.1
million from June 30, 1993 (date of inception) to September 30, 1997. Capital
expenditures for the nine months ended September 30, 1997 and 1996 were $65.9
million and $49.5 million, respectively.
A combination of operating losses and substantial capital expenditures
related to the development of the ORBCOMM System has resulted in negative cash
flows since 1994. Funding of this cash flows deficiency has been accomplished
through capital contributions from OCC and Teleglobe Mobile and through the
proceeds from the Old Notes Offering and the MetLife Note. The Company expects
to have to continue to fund operating losses as the Company develops and
expands its business. The Company has set aside a sufficient amount in a
segregated account to provide for payments in full of interest on the Old Notes
and Notes through August 15, 1998. Following August 15, 1998, interest expense
on the Notes will represent a significant cash requirement for the Company.
The total cost of the construction and deployment of the ORBCOMM System is
estimated to be approximately $258.0 million. Of this amount, approximately
$202.0 million will be used for the satellite constellation, ground spares and
launch services, approximately $30.0 million will be used for the U.S. ground
segment, approximately $13.0 million will be used for insurance and
approximately $13.0 million will be used for other costs. As of September 30,
1997, $214.2 million of this amount has been expended, not accounting for $27.9
of interest expense that has been capitalized as part of the historical cost of
the ORBCOMM System. To date, the Company's partners have invested
approximately $160.0 million in the ORBCOMM project. Such equity investments,
together with the proceeds of the Old Notes Offering, the MetLife Note and cash
expected to be generated from operations, is expected to allow the Company to
meet its financial obligations through at least the end of 1997. The Company
believes that a portion of cash from operations through the end of 1997 will be
generated through international license fees obtained by entering into Service
License Agreements. The Company expects to continue to generate negative cash
flows through all of 1998 and a portion of 1999. Under certain circumstances
as specified in the Indenture, Orbital and Teleglobe have agreed to provide to
the Company an aggregate amount not to exceed $30.0 million in capital
contributions or debt financing expressly subordinated to the Notes. The
Company currently expects that, given its anticipated cash requirements, some
or all of such capital contributions or debt financing will be required
in the first quarter of 1998. In addition, the Company expects that it
will meet its capital requirements in 1998 through cash flows from operations
and other potential sources, consistent with the covenants contained in the
indenture governing the Notes (the "Indenture"), including additional capital
contributions, equity investments, credit facilities and/or operating lease
arrangements.
The Notes contain a revenue participation feature providing for payment by
the Company, on each interest payment date, of interest ("Revenue Participation
Interest") in an aggregate amount equal to 5% of System Revenue (as defined in
the Indenture) for the six-month period ending on December 31 or June 30 most
recently completed prior to such interest payment date. The Company is not
required to pay any Revenue Participation Interest, however, until the Credit
Parties Fixed Charge Coverage Ratio (as defined in the Indenture) for the four
consecutive fiscal quarters last completed prior to such interest payment date
equals or exceeds 2:1. Once this ratio is exceeded, the Company will have to
pay additional interest on the Notes beyond the base rate of 14%, which will
negatively impact the Company's liquidity.
There are no distributions required to be made to the partners of the Company
other than a minimum annual distribution required by the ORBCOMM Partnership
Agreement in the amount of 40%, multiplied by the lesser of (a) such partners'
distributive share of the Company's taxable income for the preceding year, and
(b) the excess, if any, of cumulative Net Income (as defined) over cumulative
Net Loss (as defined) allocated to such partner since the inception of the
Company. All other distributions are to be made at the discretion of the
partners. Pursuant to the covenants contained in the Indenture, no additional
cash distributions are permitted to be made to the partners of the Company
other that those distributions that satisfy the requirements of the various
limitations on "Restricted Payments" contained in the Indenture. To the extent
that such requirements are met and the partners receive additional cash
distributions from the Company beyond those required by the ORBCOMM Partnership
Agreement, this could negatively impact the Company's liquidity.
LOAN AGREEMENT WITH METLIFE CAPITAL CORPORATION
Under the terms of the MetLife Note, MetLife loaned $5.0 million to the
Company, and in connection therewith the Company granted to MetLife a security
interest in certain equipment of the Company. The MetLife Note is guaranteed by
Orbital. As of
30
<PAGE> 31
September 30, 1997, $2.5 million was outstanding under the MetLife Note. The
Notes rank pari passu in right and priority of payment with the MetLife Note,
except to the extent of the collateral securing such MetLife Note.
FORWARD LOOKING STATEMENTS
When used in this report, the words "expects," "anticipates" and similar
expressions are intended to identify forward looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed in any of the forward
looking statements. Such risks and uncertainties include, but are not limited
to, industry-wide market factors, market acceptance of products and services
offered by the Company and potential launch delays and risks associated with
the launch and operation of a satellite system.
31
<PAGE> 32
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
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A complete list of the exhibits required to be filed with
this Report on Form 10-Q is provided in the Exhibit Index
that precedes the exhibits filed with this report.
(b) Neither the Company nor Capital has previously been
required to file a Report on Form 8-K under the Act.
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrants have duly caused this report to be signed on their behalf by
the undersigned thereunto duly authorized.
ORBCOMM GLOBAL, L.P.
Date: November 14, 1997 By: /s/ ALAN L. PARKER
-----------------------------
Alan L. Parker
President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 By: /s/ W. BARTLETT SNELL
-----------------------------
W. Bartlett Snell
Senior Vice President, Finance
and Administration and
Chief Financial Officer
(Principal Financial Officer)
ORBCOMM GLOBAL CAPITAL
CORP.
Date: November 14, 1997 By: /s/ ALAN L. PARKER
-----------------------------
Alan L. Parker
President
(Principal Executive Officer)
Date: November 14, 1997 By: /s/ W. BARTLETT SNELL
-----------------------------
W. Bartlett Snell
Vice President and Treasurer
(Principal Financial Officer)
33
<PAGE> 34
EXHIBIT INDEX
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------
<S> <C>
27 Financial Data Schedule (such
schedule is furnished for the
information of the Securities and
Exchange Commission and is not to be
deemed "filed" as part of the Form
10-Q, or otherwise subject to the
liabilities of Section 18 of the
Securities Exchange Act of 1934.)
(Transmitted herewith.)
</TABLE>
34
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 28,419
<SECURITIES> 38,818
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,901
<CURRENT-ASSETS> 71,138
<PP&E> 235,935
<DEPRECIATION> 5,345
<TOTAL-ASSETS> 306,540
<CURRENT-LIABILITIES> 15,298
<BONDS> 171,472
0
0
<COMMON> 0
<OTHER-SE> 119,770<F1>
<TOTAL-LIABILITY-AND-EQUITY> 306,540
<SALES> 343
<TOTAL-REVENUES> 349
<CGS> 343
<TOTAL-COSTS> 16,974
<OTHER-EXPENSES> 1,483<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0<F3>
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,108)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Represents Total Partners' Capital
<F2>Net of equity in losses of affiliates and Interest income
<F3>$17,850 interest expense was capitalized.
</FN>
</TABLE>
