<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 June 30, 1998
Commission file number: 333-11149
ORBCOMM GLOBAL, L.P.
ORBCOMM GLOBAL CAPITAL CORP.
ORBCOMM CORPORATION
(Exact Name of Registrants as Specified in their Charters)
<TABLE>
<S> <C>
54-1698039
DELAWARE 54-1841164
(State or Other Jurisdiction of 54-1890273
Incorporation or Organization of Registrants) (I.R.S. Employer
Identification Nos.)
</TABLE>
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
--- ---
<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>
JUNE 30, DECEMBER 31,
1998 1997
-------------- ---------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,986 $ 16,106
Investments 10,571 22,756
Other assets 7,297 4,091
--------------- ---------------
Total Current Assets 23,854 42,953
ORBCOMM System, net 300,243 263,379
Other assets, net 5,107 5,527
Investments in and advances to affiliates 7,117 5,110
--------------- ---------------
TOTAL ASSETS $ 336,321 $ 316,969
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Current portion of long-term debt $ 1,138 $ 1,087
Accounts payable - Orbital Sciences Corporation 36,180 21,100
Other accounts payable and accrued liabilities 19,704 17,174
--------------- ---------------
Total Current Liabilities 57,022 39,361
Long-term debt 170,609 171,190
--------------- ---------------
Total Liabilities 227,631 210,551
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners 58,970 57,834
Orbital Communications Corporation 49,720 48,584
--------------- ---------------
Total Partners' Capital 108,690 106,418
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 336,321 $ 316,969
=============== ===============
</TABLE>
(See accompanying notes to 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 SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
---------------------------- ---------------------------- JUNE 30,
1998 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales $ 507 $ 76 $ 727 $ 211 $ 1,574
Distribution fees 0 0 0 0 1,000
------------ ------------ ------------ ------------ ------------
Total revenues 507 76 727 211 2,574
EXPENSES:
Costs of product sales 502 83 717 207 1,502
Depreciation 2,435 1,773 4,338 3,491 17,884
Engineering expenses 4,671 1,833 7,325 3,413 20,938
Marketing, administrative and other expenses 8,899 1,533 13,203 2,833 32,265
------------ ------------ ------------ ------------ ------------
Total expenses 16,507 5,222 25,583 9,944 72,589
------------ ------------ ------------ ------------ ------------
Loss from operations (16,000) (5,146) (24,856) (9,733) (70,015)
OTHER INCOME AND EXPENSES:
Interest income, net of interest expense
of $210, $206, $420 and $416, respectively 143 1,046 361 3,062 8,519
Equity in losses of affiliates (1,225) (1,848) (3,233) (3,671) (17,102)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (17,082) $ (5,948) $ (27,728) $ (10,342) $ (78,598)
============ ============ ============ ============ ============
</TABLE>
(See accompanying notes to 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
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
------------------------------- JUNE 30,
1998 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (27,728) $ (10,342) $ (78,598)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation 4,338 3,491 17,884
Amortization of financing fees 420 416 1,560
Equity in losses of affiliates 3,233 3,671 17,102
Increase in other assets (3,206) (2,685) (7,297)
Increase in accounts payable - Orbital Sciences Corporation 15,080 0 36,180
Increase in other accounts payable and
accrued liabilities 2,530 5,754 19,704
------------ ------------ -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (5,333) 305 6,535
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (41,202) (46,906) (318,127)
Increase in amount due from affiliates (5,240) (6,157) (24,198)
Purchase of investments (5,195) (32,039) (188,852)
Proceeds from sale of investments 17,380 66,585 178,280
------------ ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (34,257) (18,517) (352,897)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt 0 0 169,475
Repayment of long-term debt (530) (483) (3,252)
Partners' contributions 30,000 0 189,800
Financing fees paid 0 (216) (3,675)
------------ ------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 29,470 (699) 352,348
------------ ------------ -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (10,120) (18,911) 5,986
CASH AND CASH EQUIVALENTS:
Beginning of period 16,106 56,870 0
------------ ------------ -----------
CASH AND CASH EQUIVALENTS:
End of period $ 5,986 $ 37,959 $ 5,986
============ ============ ===========
</TABLE>
(See accompanying notes to 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"), a
Delaware limited partnership. OCC and Teleglobe Mobile also formed two marketing
partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International
Partners, L.P. ("ORBCOMM International"), to market services using the ORBCOMM
low-Earth orbit satellite-based communications system (the "ORBCOMM System") in
the United States and internationally, respectively. In 1995, the Company became
a 98% general partner in ORBCOMM USA, reducing OCC's direct partnership interest
to 2% and eliminating Teleglobe Mobile's direct partnership interest entirely.
Simultaneously, the Company became a 98% general partner in ORBCOMM
International, reducing Teleglobe Mobile's direct partnership interest to 2% and
eliminating OCC's direct partnership interest entirely.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial position
of the Company as of June 30, 1998, the results of its operations for the
three-month and six-month periods ended June 30, 1998 and 1997, and cash flows
for the six-month periods ended June 30, 1998 and 1997, and the period from June
30, 1993 (date of inception) through June 30, 1998. These condensed financial
statements are unaudited and do not include all related footnote disclosures
and, therefore, should be read in conjunction with the audited financial
statements and the footnotes thereto for the year ended December 31, 1997 filed
with the Securities and Exchange Commission. Operating results for the three
months and six months ended June 30, 1998 are not necessarily indicative of the
results of operations expected in the future, although the Company will continue
to be a development stage enterprise and anticipates a net loss for the year
1998.
(3) RELATED PARTY TRANSACTIONS
The Company paid Orbital $2,254,000 and $20,900,000 for the six
months ended June 30, 1998 and 1997, respectively, and approximately
$195,000,000 for the period June 30, 1993 (date of inception) through December
31, 1997. Payments were made for work performed pursuant to the ORBCOMM System
Design, Development and Operations Agreement, the ORBCOMM System Procurement
Agreement (the "Procurement Agreement") and the Administrative Services
Agreement (for provision of ongoing administrative support to the Company).
Additionally, Orbital has deferred and has indicated that it will continue to
defer invoicing of certain amounts otherwise due under the Procurement Agreement
until other funding arrangements for the Company are secured.
5
<PAGE> 6
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). The Notes are fully
and unconditionally guaranteed on a joint and several basis by OCC, Teleglobe
Mobile, ORBCOMM USA and ORBCOMM International, except that the guarantees are
non-recourse to the shareholders and/or partners of the guarantors, limited
only to the extent necessary for each such guarantee not to constitute a
fraudulent conveyance under applicable law.
On the closing of the Old Notes, the Company used $44,800,000 of the
net proceeds from the sale of the Old Notes to purchase a portfolio of U.S.
Government securities to provide for payment in full of interest on the Old
Notes and Notes through August 15, 1998. Of this investment portfolio, a total
of $34,240,000 has been used to pay interest that was due on the Notes on
February 15, 1997, August 15, 1997 and February 15, 1998.
The Company also has a $5,000,000 secured note with a financial
institution of which $1,747,000 is outstanding as of June 30, 1998. The note
bears interest at 9.2% per annum and is due in monthly principal and interest
installments of $104,000 through December 1999. The note is secured by equipment
located at certain of the U.S. gateway Earth stations and the network control
center, and is guaranteed by Orbital.
(5) SUBSEQUENT EVENT
On July 2, 1998, ORBCOMM Corporation elected to postpone its initial
public offering. ORBCOMM Corporation was organized for the sole purpose of
investing in and acting as a general partner of the Company. OCC and Teleglobe
Mobile each has reaffirmed its commitment to provide funding to the Company
while considering options for future financing at the Company.
6
<PAGE> 7
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable $ 334 $ 65
Prepaid contract costs 200 123
------------------ -----------------
TOTAL ASSETS $ 534 $ 188
================== =================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 240 $ 803
------------------ -----------------
Total Current Liabilities 240 803
Amount due to ORBCOMM Global, L.P. 11,820 8,635
------------------ -----------------
Total Liabilities 12,060 9,438
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
ORBCOMM Global, L.P. (11,295) (9,065)
Orbital Communications Corporation (231) (185)
------------------ -----------------
Total Partners' Capital (11,526) (9,250)
------------------ -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 534 $ 188
================== =================
</TABLE>
(See accompanying notes to 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 SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
---------------------------- ---------------------------- JUNE 30,
1998 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales $ 249 $ 12 $ 291 $ 62 $ 647
Contract revenues 0 0 0 0 4,203
Service revenues 20 11 42 19 98
------------ ------------ ------------ ------------ ------------
Total revenues 269 23 333 81 4,948
EXPENSES:
Cost of product sales 302 70 368 142 1,013
Marketing expenses 678 1,107 2,241 2,360 15,471
------------ ------------ ------------ ------------ ------------
Total expenses 980 1,177 2,609 2,502 16,484
------------ ------------ ------------ ------------ ------------
NET LOSS $ (711) $ (1,154) $ (2,276) $ (2,421) $ (11,536)
============ ============ ============ =========== ============
</TABLE>
(See accompanying notes to condensed financial statements)
8
<PAGE> 9
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
---------------------------- JUNE 30,
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,276) $ (2,421) $ (11,536)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES
Increase in accounts receivable (269) 0 (334)
Increase in prepaid contract costs (77) 0 (200)
Increase (decrease) in accounts payable and
accrued liabilities (563) 50 240
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (3,185) (2,371) (11,830)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global, L.P. 3,185 2,371 11,820
Partners' contributions 0 0 10
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,185 2,371 11,830
------------ ------------ ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 0 0 0
CASH AND CASH EQUIVALENTS:
Beginning of period 0 0 0
------------ ------------ ------------
CASH AND CASH EQUIVALENTS:
End of period $ 0 $ 0 $ 0
============ ============ ============
</TABLE>
(See accompanying notes to 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"), a
Delaware limited partnership. OCC and Teleglobe Mobile also formed two marketing
partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International
Partners, L.P. ("ORBCOMM International"), to market services using the ORBCOMM
low-Earth orbit satellite-based communications system (the "ORBCOMM System") in
the United States and internationally, respectively. In 1995, the Company became
a 98% general partner in ORBCOMM USA, reducing OCC's direct partnership interest
to 2% and eliminating Teleglobe Mobile's direct partnership interest entirely.
Simultaneously, the Company became a 98% general partner in ORBCOMM
International, reducing Teleglobe Mobile's direct partnership interest to 2% and
eliminating OCC's direct partnership interest entirely.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial position
of ORBCOMM USA as of June 30, 1998, the results of its operations for the
three-month and six-month periods ended June 30, 1998 and 1997, and cash flows
for the six-month periods ended June 30, 1998 and 1997, and the period from June
30, 1993 (date of inception) through June 30, 1998. These condensed financial
statements are unaudited and do not include all related footnote disclosures
and, therefore, should be read in conjunction with the audited financial
statements and the footnotes thereto for the year ended December 31, 1997 filed
with the Securities and Exchange Commission. Operating results for the three
months and six months ended June 30, 1998 are not necessarily indicative of the
results of operations expected in the future.
(3) RELATED PARTY TRANSACTIONS
As of June 30, 1998, ORBCOMM USA had a payable of $11,820,000 to the
Company for amounts advanced to support ORBCOMM USA's efforts in establishing
commercial and government markets in the United States ($8,635,000 as of
December 31, 1997). ORBCOMM USA is currently in development stage and obtains
funds to support its operations through non-interest bearing advances from the
Company.
(4) COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes") All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). The Notes are fully
and unconditionally guaranteed on a joint and several basis by OCC, Teleglobe
Mobile, ORBCOMM USA and ORBCOMM International, except that the guarantees are
non-recourse to the shareholders and/or partners of the guarantors, limited
only to the extent necessary for each such guarantee not to constitute a
fraudulent conveyance under applicable law.
10
<PAGE> 11
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) SUBSEQUENT EVENT
On July 2, 1998, ORBCOMM Corporation elected to postpone its initial
public offering. ORBCOMM Corporation was organized for the sole purpose of
investing in and acting as a general partner of the Company. OCC and Teleglobe
Mobile each has reaffirmed its commitment to provide funding to the Company
while considering options for future financing at the Company.
11
<PAGE> 12
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Inventory-gateways $ 28,217 $ 19,580
------------------ ------------------
TOTAL ASSETS $ 28,217 $ 19,580
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 2,117 $ 1,200
Deferred revenue 19,958 13,270
------------------ ------------------
Total Current Liabilities 22,075 14,470
Amount due to ORBCOMM Global, L.P. 12,046 9,990
------------------ ------------------
Total Liabilities 34,121 24,460
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
ORBCOMM Global, L.P. (5,786) (4,782)
Teleglobe Mobile Partners (118) (98)
------------------ ------------------
Total Partners' Capital (5,904) (4,880)
------------------ ------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 28,217 $ 19,580
================== ==================
</TABLE>
(See accompanying notes to condensed financial statements)
12
<PAGE> 13
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 SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
---------------------------- ---------------------------- JUNE 30,
1998 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales $ 39 $ 6 $ 144 $ 34 $ 208
EXPENSES:
Cost of product sales 104 6 193 28 303
Marketing expenses 474 732 975 1,331 5,819
------------ ------------ ------------ ------------ ------------
Total expenses 578 738 1,168 1,359 6,122
------------ ------------ ------------ ------------ ------------
NET LOSS $ (539) $ (732) $ (1,024) $ (1,325) $ (5,914)
============ ============ ============ ============ ============
</TABLE>
(See accompanying notes to condensed financial statements)
13
<PAGE> 14
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
---------------------------- JUNE 30,
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,024) $ (1,325) $ (5,914)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Increase in inventory-gateways (8,637) (4,708) (28,217)
Increase (decrease) in accounts payable and
accrued liabilities 917 (242) 2,117
Increase in deferred revenue 6,688 2,489 19,958
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (2,056) (3,786) (12,056)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in amount due from ORBCOMM Global, L.P. 0 1,309 0
------------ ------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 0 1,309 0
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global, L.P. 2,056 2,477 12,046
Partners' contributions 0 0 10
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,056 2,477 12,056
------------ ------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 0 0 0
CASH AND CASH EQUIVALENTS:
Beginning of period 0 0 0
------------ ------------ ------------
CASH AND CASH EQUIVALENTS:
End of period $ 0 $ 0 $ 0
============ ============ ============
</TABLE>
(See accompanying notes to condensed financial statements)
14
<PAGE> 15
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
In 1993, Orbital Communications Corporation ("OCC"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. (the "Company"), a
Delaware limited partnership. OCC and Teleglobe Mobile also formed two marketing
partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International
Partners, L.P. ("ORBCOMM International"), to market services using the ORBCOMM
low-Earth orbit satellite-based communications system (the "ORBCOMM System") in
the United States and internationally, respectively. In 1995, the Company became
a 98% general partner in ORBCOMM USA, reducing OCC's direct partnership interest
to 2% and eliminating Teleglobe Mobile's direct partnership interest entirely.
Simultaneously, the Company became a 98% general partner in ORBCOMM
International, reducing Teleglobe Mobile's direct partnership interest to 2% and
eliminating OCC's direct partnership interest entirely.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial position
of ORBCOMM International as of June 30, 1998, the results of its operations for
the three-month and six-month periods ended June 30, 1998 and 1997, and cash
flows for the six-month periods ended June 30, 1998 and 1997, and the period
from June 30, 1993 (date of inception) through June 30, 1998. These condensed
financial statements are unaudited and do not include all related footnote
disclosures and, therefore, should be read in conjunction with the audited
financial statements and the footnotes thereto for the year ended December 31,
1997 filed with the Securities and Exchange Commission. Operating results for
the three months and six months ended June 30, 1998 are not necessarily
indicative of the results of operations expected in the future.
(3) RELATED PARTY TRANSACTIONS
As of June 30, 1998, ORBCOMM International had a payable of
$12,046,000 to the Company for amounts advanced to support ORBCOMM
International's efforts in establishing commercial markets outside the United
States ($9,990,000 as of December 31, 1997). ORBCOMM International is currently
in development stage and obtains funds to support its operations through
non-interest bearing advances from the Company.
(4) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). The Notes are fully
and unconditionally guaranteed on a joint and several basis by OCC, Teleglobe
Mobile, ORBCOMM USA and ORBCOMM International, except that the guarantees are
non-recourse to the shareholders and/or partners of the guarantors, limited
only to the extent necessary for each such guarantee not to constitute a
fraudulent conveyance under applicable law.
15
<PAGE> 16
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENCIES - (CONTINUED)
Construction of Gateways
In October 1996, ORBCOMM International entered into agreements with
certain manufacturers for the construction of twenty gateway Earth stations
scheduled for delivery over the next two years. As of June 30, 1998, ORBCOMM
International had $28,217,000 of prepaid costs as inventory-gateways
($19,580,000 as of December 31, 1997) of which $14,356,000 represent advance
payments to those manufacturers ($11,016,000 as of December 31, 1997). Total
commitments under these manufacturing agreements approximate $18,000,000.
Included in inventory-gateways is a portion of the engineering direct labor
costs that are specifically related to the construction of gateways. As of June
30, 1998, $2,988,239 of such costs had been included in inventory-gateways
($1,609,000 as of December 31, 1997).
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of June 30, 1998, ORBCOMM International had signed fourteen
service license or similar agreements ("SLAs") with international licensees,
eleven of which have associated gateway procurement contracts and software
license agreements. The SLAs authorize the international licensees to use the
ORBCOMM System to provide two-way data and messaging communications services. As
of June 30, 1998, $19,958,000 had been received under these agreements and the
associated gateway procurement agreements and recorded as deferred revenue
($13,270,000 as of December 31, 1997). ORBCOMM International is obligated to
construct and deliver eleven gateways to certain international licensees under
certain of these agreements (see note 4).
(6) SUBSEQUENT EVENT
On July 2, 1998, ORBCOMM Corporation elected to postpone its initial
public offering. ORBCOMM Corporation was organized for the sole purpose of
investing in and acting as a general partner of the Company. OCC and Teleglobe
Mobile each has reaffirmed its commitment to provide funding to the Company
while considering options for future financing at the Company.
16
<PAGE> 17
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; EXCEPT SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20 $ 34
Accounts receivable and other current assets 538 188
------------------ ------------------
Total Current Assets 558 222
Investments in affiliates, net 56,914 54,663
------------------ ------------------
TOTAL ASSETS $ 57,472 $ 54,885
================== ==================
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES:
Accounts payable and accrued liabilities $ 582 $ 1,137
Due to affiliates 102,282 84,160
------------------ ------------------
Total Liabilities 102,864 85,297
Non-controlling interest in net assets of consolidated subsidiary (5,648) (4,533)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, par value $0.01;
8,000,000 shares authorized;
4,783,717 and 4,751,292 shares issued;
4,689,145 and 4,656,720 shares outstanding, respectively 48 48
Additional paid-in capital 452 350
Treasury stock, at cost, 95,572 and 94,572 shares, respectively (771) (730)
Accumulated deficit (39,473) (25,547)
------------------ ------------------
Total Stockholders' Deficit (39,744) (25,879)
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 57,472 $ 54,885
================== ==================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
17
<PAGE> 18
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales and service revenues $ 269 $ 23 $ 333 $ 81
EXPENSES:
Cost of product sales 302 70 368 142
Marketing, administrative and other expenses 682 1,116 2,257 1,798
------------ ------------ ------------ ------------
Total expenses 984 1,186 2,625 1,940
------------ ------------ ------------ ------------
Loss from operations (715) (1,163) (2,292) (1,859)
OTHER INCOME AND EXPENSES:
Equity in losses of affiliates (8,193) (2,409) (12,749) (3,985)
Non-controlling interest in net losses
of consolidated subsidiary 349 565 1,115 1,186
------------ ------------ ------------ ------------
NET LOSS $ (8,559) $ (3,007) $ (13,926) $ (4,658)
============ ============ ============ ============
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
18
<PAGE> 19
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,926) $ (4,658)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Equity in losses of affiliates 12,749 3,985
Non-controlling interest in net losses of consolidated subsidiary (1,115) (1,186)
Increase in accounts receivable and other current assets (350) (25)
Decrease in accounts payable and current liabilities (555) (125)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (3,197) (2,009)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (15,000) 0
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (15,000) 0
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock to employees 102 77
Purchases of treasury stock, net of reimbursement from
ORBCOMM Global, L.P. (41) (581)
Net borrowings from affiliates 18,122 2,450
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,183 1,946
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (14) (63)
CASH AND CASH EQUIVALENTS:
Beginning of period 34 142
------------ ------------
CASH AND CASH EQUIVALENTS:
End of period $ 20 $ 79
============ ============
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
19
<PAGE> 20
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Orbital Communications Corporation ("OCC") is a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital") and is included in
Orbital's consolidated financial statements. In 1993, OCC and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. (the "Company" or
"ORBCOMM"), a Delaware limited partnership, and two marketing partnerships,
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International"). OCC and Teleglobe Mobile are each 50% general
partners in ORBCOMM, and ORBCOMM is a 98% general partner in each of the two
marketing partnerships. Additionally, OCC is a 2% direct general partner in
ORBCOMM USA, and Teleglobe Mobile is a 2% direct general partner in ORBCOMM
International. Directly and indirectly, OCC currently holds 51% and 49% of
ORBCOMM USA and ORBCOMM International, respectively. 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 June 30, 1998, the results of its operations for the
three-month and six-month periods ended June 30, 1998, and 1997, and cash flows
for the six-month periods ended June 30, 1998 and 1997. These condensed
consolidated financial statements are unaudited and do not include all related
footnote disclosures and therefore, should be read in conjunction with the
audited consolidated financial statements and the footnotes thereto for the year
ended December 31, 1997 filed with the Securities and Exchange Commission. The
results of operations for the three and six months ended June 30, 1998 are not
necessarily indicative of the results of operations expected in the future.
(3) RELATED PARTY TRANSACTIONS
OCC obtains virtually all of its funding for its operations and for
its capital investments in ORBCOMM from Orbital via a non-interest bearing
intercompany borrowing agreement. As of June 30, 1998 and December 31, 1997, OCC
owed Orbital $90,445,000 and $75,513,000, respectively, none of which is
currently payable.
ORBCOMM USA currently obtains all of its funding from ORBCOMM via a
non-interest bearing intercompany borrowing agreement. As of June 30, 1998 and
December 31, 1997 ORBCOMM USA owed ORBCOMM $11,820,000 and $8,635,000,
respectively, none of which is currently payable.
(4) COMMITMENTS AND CONTINGENCIES
On August 7, 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% senior unsecured notes due in
2004 (the "Notes") to institutional investors. The Notes bear interest at a
fixed rate of 14% and provide for noteholder participation in future service
revenues of the Company. The Notes are fully and unconditionally guaranteed on
a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM
International. The guarantees are non-recourse to OCC's shareholders (including
Orbital) and Teleglobe Mobile's partners (including Teleglobe and Technology
Resources Industries Bhd.), limited only to the extent necessary for each such
guarantee not to constitute a fraudulent conveyance under applicable law.
20
<PAGE> 21
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) SUBSEQUENT EVENT
On July 2, 1998 ORBCOMM Corporation elected to postpone its proposed
initial public offering. ORBCOMM Corporation was organized for the sole purpose
of investing in and acting as a general partner of ORBCOMM. OCC and Teleglobe
Mobile each has reaffirmed its commitment to provide funding to ORBCOMM while
considering options for future financing at ORBCOMM.
21
<PAGE> 22
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,086 $ 1,439
Accounts receivable 9 40
Inventory-gateways 28,217 19,580
------------------ ------------------
Total Current Assets 29,312 21,059
Investments in affiliates 61,049 59,645
------------------ ------------------
TOTAL ASSETS $ 90,361 $ 80,704
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 2,139 $ 1,565
Deferred revenue 19,958 13,270
------------------ ------------------
Total Current Liabilities 22,097 14,835
Amount due to ORBCOMM Global, L.P. 12,046 9,990
------------------ ------------------
Total Liabilities 34,143 24,825
Non-controlling interest in net assets
of ORBCOMM International Partners, L.P. (2,893) (2,391)
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile, L.P. 40,964 40,381
TR (U.S.A.) Ltd. 17,733 17,481
Teleglobe Mobile Investment Inc. 414 408
------------------ ------------------
Total Partners' Capital 59,111 58,270
------------------ ------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 90,361 $ 80,704
================== ==================
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
22
<PAGE> 23
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
---------------------------- ---------------------------- JUNE 30,
1998 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales $ 39 $ 6 $ 144 $ 34 $ 208
EXPENSES:
Cost of product sales 104 6 193 28 303
Marketing, administrative and other expenses 519 769 1,051 1,393 8,264
------------ ------------ ------------ ------------ ------------
Total expenses 623 775 1,244 1,421 8,567
------------ ------------ ------------ ------------ ------------
Loss from operations (584) (769) (1,100) (1,387) (8,359)
OTHER INCOME AND EXPENSES:
Interest income (expense), net 15 20 35 39 1,983
Equity in losses of ORBCOMM Global, L.P. (8,394) (2,732) (13,596) (4,810) (37,462)
Non-controlling interest in losses
of ORBCOMM International Partners, L.P. 264 358 502 649 2,898
------------ ------------ ------------ ------------ ------------
NET LOSS $ (8,699) $ (3,123) $ (14,159) $ (5,509) $ (40,940)
============ ============ ============ ============ ============
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
23
<PAGE> 24
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
---------------------------- JUNE 30,
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (14,159) $ (5,509) $ (40,940)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Equity in losses of ORBCOMM Global, L.P. 13,596 4,810 37,462
Non-controlling interest in losses of
ORBCOMM International Partners, L.P. (502) (649) (2,898)
Decrease (increase) in accounts receivable 31 (17) (9)
Increase in inventory-gateways (8,637) (4,701) (28,217)
Increase (decrease) in accounts payable and
accrued liabilities 574 (337) 2,139
Increase in deferred revenue 6,688 2,489 19,958
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (2,409) (3,914) (12,505)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (15,000) 0 (99,525)
Decrease in amount due from ORBCOMM Global, L.P. 0 1,309 0
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (15,000) 1,309 (99,525)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global, L.P. 2,056 2,477 12,046
Partners' contributions 15,000 0 101,065
Non-controlling interest in net assets
of ORBCOMM International Partners, L.P. 0 0 5
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,056 2,477 113,116
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (353) (128) 1,086
CASH AND CASH EQUIVALENTS:
Beginning of period 1,439 1,618 0
------------ ------------ ------------
CASH AND CASH EQUIVALENTS:
End of period $ 1,086 $ 1,490 $ 1,086
============ ============ ============
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
24
<PAGE> 25
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Teleglobe Mobile Partners, a Delaware general partnership (the
"Partnership"), was formed in 1993 for purposes of acting as a general and a
limited partner in ORBCOMM Global, L.P. (the "Company"), a Delaware limited
partnership providing data and messaging communications services using a
low-Earth orbit satellite-based communications system (the "ORBCOMM System").
The Partnership holds a 50% participation percentage ("Participation
Percentage") in the Company, which in turn holds a 98% Participation Percentage
in each of ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners,
L.P. ("ORBCOMM International"), two other partnerships formed to market the
ORBCOMM System. The Partnership also holds directly a 2% Participation
Percentage in ORBCOMM International, bringing its direct and indirect
Participation Percentage in ORBCOMM International to 51%. Consequently, the
Partnership consolidates the financial results of ORBCOMM International.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position of the Partnership as of June 30, 1998, the results of its operations
for the three-month and six-month periods ended June 30, 1998 and 1997, and cash
flows for the six-month periods ended June 30, 1998 and 1997, and the period
from July 21, 1993 (date of inception) through June 30, 1998. These condensed
consolidated financial statements are unaudited and do not include all related
footnote disclosures and, therefore, should be read in conjunction with the
audited consolidated financial statements and the footnotes thereto for the year
ended December 31, 1997 filed with the Securities and Exchange Commission.
Operating results for the three months and six months ended June 30, 1998 are
not necessarily indicative of the results of operations expected in the future.
(3) RELATED PARTY TRANSACTIONS
As of June 30, 1998, ORBCOMM International had a payable of
$12,046,000 to the Company for amounts advanced to support ORBCOMM
International's efforts in establishing commercial markets outside the United
States ($9,990,000 as of December 31, 1997). ORBCOMM International is currently
in development stage and obtains funds to support its operations through
non-interest bearing advances from the Company.
(4) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). The Notes are fully
and unconditionally guaranteed on a joint and several basis by the Partnership,
Orbital Communications Corporation ("OCC"), ORBCOMM USA and ORBCOMM
International, except that the
25
<PAGE> 26
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENCIES - (CONTINUED)
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 construction of twenty gateway Earth stations
scheduled for delivery over the next two years. As of June 30, 1998, ORBCOMM
International had $28,217,000 of prepaid costs as inventory-gateways
($19,580,000 as of December 31, 1997) of which $14,356,000 represent advance
payments to those manufacturers ($11,016,000 as of December 31, 1997). Total
commitments under these manufacturing agreements approximate $18,000,000.
Included in inventory-gateways is a portion of the engineering direct labor
costs that are specifically related to the construction of gateways. As of June
30, 1998, $2,988,239 of such costs had been included in inventory-gateways
($1,609,000 as of December 31, 1997).
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of June 30, 1998, ORBCOMM International has signed fourteen
service license or similar agreements ("SLAs") with international licensees,
eleven of which have associated gateway procurement contracts and software
license agreements. The SLAs authorize the international licensees to use the
ORBCOMM System to provide two-way data and messaging communications services. As
of June 30, 1998, $19,958,000 had been received under these agreements and the
associated gateway procurement agreements and recorded as deferred revenue
($13,270,000 as of December 31, 1997). ORBCOMM International is obligated to
construct and deliver eleven gateways to certain international licensees under
certain of these agreements (see note 4).
(6) SUBSEQUENT EVENT
On July 2, 1998, ORBCOMM Corporation elected to postpone its initial
public offering. ORBCOMM Corporation was organized for the sole purpose of
investing in and acting as a general partner of the Company. OCC and the
Partnership each has reaffirmed its commitment to provide funding to the Company
while considering options for future financing at the Company.
26
<PAGE> 27
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
---------------- --------------
<S> <C> <C>
ASSETS
Cash $ 100 $ 100
---------------- --------------
TOTAL ASSETS $ 100 $ 100
================ ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities $ - $ -
Stockholder's equity
Common Stock, par value $0.01; 150,000,000 shares authorized;
100 shares issued and outstanding 1 1
Additional paid-in capital 99 99
Retained earnings - -
---------------- --------------
Total stockholder's equity 100 100
---------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 100 $ 100
================ ==============
</TABLE>
(See accompanying notes to financial statements)
27
<PAGE> 28
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENT
(UNAUDITED)
(1) ORGANIZATION
ORBCOMM Corporation was incorporated under the laws of the State of
Delaware on March 23, 1998. ORBCOMM Corporation was formed for the sole purpose
of investing in and acting as a general partner of ORBCOMM Global, L.P. (the
"Company"), a Delaware limited partnership. ORBCOMM Corporation is authorized to
issue 150,000,000 shares of common stock of $.01 par value, of which 100 shares
are issued and outstanding and held by the Company.
(2) SUBSEQUENT EVENT
On July 2, 1998, ORBCOMM Corporation elected to postpone its initial
public offering. Each of the general partners of the Company, Orbital
Communications Corporation and Teleglobe Mobile Partners, has reaffirmed its
commitment to provide funding to the Company while considering options for
future financing at the Company.
28
<PAGE> 29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
In 1993, ORBCOMM Global, L.P. ("ORBCOMM" or the "Company") was formed
by Orbital Sciences Corporation ("Orbital"), acting through Orbital
Communications Corporation ("OCC"), and Teleglobe Inc. ("Teleglobe"), acting
through Teleglobe Mobile Partners ("Teleglobe Mobile"). Each of OCC and
Teleglobe Mobile acquired and currently owns a 50% partnership interest in the
Company, with Technology Resources Industries Bhd. ("TRI"), through TR (U.S.A.)
Ltd., now holding a 30% interest in Teleglobe Mobile. Concurrently with the
formation of the Company, OCC and Teleglobe Mobile formed two partnerships,
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International" and, together with ORBCOMM USA, the "Marketing
Partnerships"), to market services using the Company's low-Earth orbit
satellite-based data and messaging communications system (the "ORBCOMM System")
in the United States and internationally, respectively. The Company is a 98%
general partner in each of the Marketing Partnerships, while OCC and Teleglobe
Mobile control the remaining 2% of ORBCOMM USA and ORBCOMM International,
respectively. OCC retains control over the licenses granted to it by the Federal
Communications Commission (the "FCC") for the ORBCOMM System (the "FCC
Licenses"), consistent with FCC regulations.
As of June 30, 1998, Orbital, through OCC, and Teleglobe and TRI,
through Teleglobe Mobile, had invested in the aggregate approximately $190
million in ORBCOMM. In addition, on August 7, 1996, the Company and ORBCOMM
Global Capital Corp. completed a private placement (the "Old Notes Offering") of
$170.0 million aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). In January 1997, all of the
Old Notes were exchanged for notes that are substantially similar to the Old
Notes, except that the new notes (the "Notes") are registered under the
Securities Act of 1933, as amended. The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International, except that the guarantees are non-recourse to the
shareholders and/or partners of the guarantors, limited only to the extent
necessary for each such guarantee not to constitute a fraudulent conveyance
under applicable law.
The Company provides two-way data and messaging communications
services through the ORBCOMM System. The Company's current primary target
markets include: (i) fixed asset monitoring services for electric utility
meters, oil and gas storage tanks, wells and pipelines and environmental
projects; (ii) mobile asset tracking services for commercial vehicles, trailers,
containers, rail cars, heavy equipment, fishing vessels, barges and government
assets; and (iii) messaging services for consumers and commercial and government
entities. Future target markets are expected to include: (i) tracking, messaging
and security services for automobiles; (ii) monitoring applications for home
security systems; and (iii) additional U.S. and foreign government applications.
The Company markets its services to customers within the United States
indirectly through value-added resellers ("VARs") and directly through internal
VARs ("Internal VARs"), and internationally through international licensees
("International Licensees") that may distribute ORBCOMM services directly or
through a distribution network.
On March 23, 1998, the Company formed ORBCOMM Corporation, a Delaware
corporation, for the sole purpose of investing in and acting as a general
partner of the Company. The Company currently holds all of the 100 issued and
outstanding shares of ORBCOMM Corporation.
ORGANIZATIONAL STRUCTURE; FINANCIAL REPORTING
Pursuant to the terms of the partnership agreements for the Company
and the Marketing Partnerships: (i) OCC and Teleglobe Mobile share equal
responsibility for the operational and financial affairs of the Company; (ii)
OCC controls the operational and financial affairs of ORBCOMM USA; and (iii)
Teleglobe Mobile controls the operational and financial affairs of ORBCOMM
International. Since OCC and Teleglobe Mobile have effective control over
ORBCOMM USA and ORBCOMM International, respectively, the Company accounts for
the Marketing Partnerships using the equity method of accounting. The Company
does not consolidate, and therefore does not report in its financial statements,
ORBCOMM USA's and ORBCOMM International's assets, liabilities and operating
revenues and expenses. Instead, the Company's proportionate share of the net
income and losses of the Marketing Partnerships is recorded under the caption
"Equity in losses of affiliates" in the Company's financial 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
29
<PAGE> 30
distributions under the caption "Investments in and advances to affiliates."
Investors are encouraged to refer to the financial statements of both ORBCOMM
USA and ORBCOMM International included elsewhere in this report.
ORBCOMM USA pays to OCC an output capacity charge (the "Output
Capacity Charge") that is a quarterly fee equal to 23% of ORBCOMM USA's total
service revenues for such calendar quarter in exchange for the exclusive right
to market, sell, lease and franchise all ORBCOMM System output capacity in the
United States and exclusive use of the tangible assets (including software)
located in the United States to be delivered to the Company pursuant to certain
procurement agreements (the "System Assets"). In consideration of the
construction and financing of the System Assets by the Company, OCC, in turn,
pays to the Company a system charge that is a quarterly fee equal to the Output
Capacity Charge less 1.15% of total aggregate revenues, defined as the aggregate
of ORBCOMM USA's and ORBCOMM International's total system service revenues
("Total Aggregate Revenues"). If the Output Capacity Charge as described above
is less than 1.15% of Total Aggregate Revenues, then OCC is not required to pay
any portion of the system charge to the Company.
ORBCOMM International pays to Teleglobe Mobile an international
output capacity charge (the "International Output Capacity Charge") that is a
quarterly fee equal to 23% of ORBCOMM International's total service revenues for
such calendar quarter in exchange for the exclusive right to market, sell, lease
and franchise all ORBCOMM System output capacity outside the United States. In
consideration of the grant by the Company to Teleglobe Mobile of the exclusive
right to market, sell, lease and franchise all ORBCOMM System output capacity
outside the United States, Teleglobe Mobile, in turn, pays to the Company a
system charge that is a quarterly fee equal to the International Output Capacity
Charge less 1.15% of Total Aggregate Revenues. If the International Output
Capacity Charge as described above is less than 1.15% of Total Aggregate
Revenues, Teleglobe Mobile is not required to pay any portion of the system
charge to the Company.
SERVICE ROLL-OUT
The Company believes that it will provide a reliable, cost-effective
method of providing fixed asset monitoring, mobile asset tracking and messaging
services to a broad range of customers around the world, enabling such customers
to collect data from multiple locations, track assets on a global basis and
transmit and receive short text messages outside the coverage area of other
systems. The Company has launched 20 satellites to date and currently expects to
launch eight additional satellites by the end of September 1998, which will
complete its planned 28-satellite constellation. An additional eight satellites
that will create a planned 36-satellite enhanced constellation with increased
capacity and improved service in equatorial regions are expected to be launched
in the third quarter of 1999.
Since early 1996, the Company has been providing limited commercial
services in the United States. Commencing in April 1998, the Company began to
place in commercial service satellites that were launched in late 1997 and early
1998, which has enabled the Company to begin to offer commercial services on a
broader basis throughout the United States and other temperate regions. The
Company expects to significantly expand its commercial services later in 1998 in
the United States and other temperate regions when eight satellites launched in
early August 1998 and eight additional satellites scheduled for launch later in
1998 are expected to be placed in commercial service. Service outside the United
States will be expanded as the necessary ground infrastructure is completed and
the necessary regulatory approvals are received. Enhanced service in equatorial
regions is expected to be available by the fall of 1999, when the final eight
satellites of the planned 36-satellite enhanced constellation are scheduled to
be placed in commercial service.
The U.S. ground segment, including the network control center and
four gateway Earth stations (the "U.S. Ground Segment"), is operational.
Gateways located in Italy, South Korea and Japan have successfully completed
acceptance testing. During 1998, the Company expects that certain of its
International Licensees will be able to offer ORBCOMM services in portions of
Europe, Japan, Malaysia, Mexico, Morocco, portions of the Middle East and South
Korea, subject to completion of the necessary ground infrastructure and receipt
of the necessary regulatory and other approvals.
30
<PAGE> 31
REVENUES
Domestically, the Company generates revenues from the direct sale of
satellite capacity to the VARs, which sales to date have been primarily for
resale to beta test customers. The pricing of satellite capacity is based on
many variables, including the availability and cost of substitute services, the
cost of providing service and the nature of the customer application. Pricing
generally is based on a wholesale pricing structure that incorporates an initial
activation charge, a recurring monthly charge for access to the ORBCOMM System
and charges based on the customer's usage.
The Company expects that in 1998 it will also generate revenues from
the sale of data and messaging communications services and applications
developed and distributed by the Internal VARs. The pricing of services provided
by the Internal VARs will be based on a pricing structure similar to the VAR
pricing structure, except that the Internal VAR pricing structure will generate
additional revenues from value-added software, hardware and services provided to
the customer.
The Company has on occasion purchased and recently entered into
agreements, and may, in the future, enter into additional agreements, to
purchase subscriber units for resale. In the past, the Company has not generated
substantial revenues from the sale of subscriber units. The Company recently
committed to purchase $6.2 million of subscriber units from certain
manufacturers to accelerate initial customer sales by the VARs, Internal VARs
and International Licensees. The Company expects to sell these subscriber units
at prices equal to or greater than cost, although there can be no assurance that
the Company will be able to do so.
Internationally, the Company generates revenues through license fees
paid by, and through the sale of gateways to, International Licensees. In
addition, all International Licensees will pay a monthly satellite usage fee
based on the greater of a percentage of gross operating revenues and a data
throughput fee. International Licensees' gross operating revenues are based on a
wholesale pricing structure similar to the prices charged to the VARs, which
include an activation charge, a recurring monthly access charge and a usage
charge. On execution of a service license or similar agreement ("SLA") by the
International Licensee, an International Licensee purchases a gateway or gateway
components from the Company pursuant to a gateway procurement contract or
arranges to share a gateway with an International Licensee that is in close
proximity. Cash received under the gateway procurement contracts is accounted
for as deferred revenues and generally recognized when the gateway has
successfully completed acceptance testing. Distribution fees and license fees
from SLAs are generally accounted for as deferred revenues and recognized
ratably over the term of the agreements or when the Company's obligations under
the agreements are substantially complete.
OPERATING EXPENSES
The Company owns and operates the assets that comprise the ORBCOMM
System other than the FCC Licenses (which are held by OCC, with certain
contractual rights relating thereto granted to the Company). Satellite-based
communications systems are characterized by high initial capital expenditures
and relatively low marginal costs for providing service. The Company has been
depreciating certain of its assets beginning in 1996, when commercial operation
of the ORBCOMM System began. Costs of products sold consists of the sale of
subscriber units. The Company recently agreed to pay to Magellan Corporation a
subsidy for each Magellan subscriber unit sold, through March 1999, up to an
aggregate of $2.4 million. Additionally, the Company incurs engineering expenses
related to the development and operation of the ORBCOMM System and marketing,
administrative and other expenses related to the operation of the ORBCOMM
System. The Company also has incurred nominal expenses related to the
development of the Internal VARs, which are included in marketing expenses. The
Company anticipates that its expenses related to the continued development and
operation of the Internal VARs (including the development of applications for
customers) will increase substantially as the Company expands the marketing and
distribution efforts of the Internal VARs.
31
<PAGE> 32
RESULTS OF OPERATIONS -- ORBCOMM
The Company commenced limited commercial service in the United States
in February 1996 and has generated nominal revenues and substantial negative
cash flows to date. The Company's activities have focused primarily on the
acquisition of U.S. regulatory approvals for the operation of the ORBCOMM
System, the design, construction and launch of satellites, the design and
construction of associated ground network and operating systems (including
associated software), the development of subscriber unit manufacturing sources,
the negotiation of agreements with VARs and International Licensees, the
development of Internal VARs, the development of customer software and hardware
applications, preliminary marketing and sales activities associated with the
Company's limited commercial operations to date and the hiring of key personnel.
Income. In 1995, the Company received a nonrefundable distribution
fee from a potential International Licensee. The Company recognized this
nonrefundable distribution fee over the term of the relevant agreement. No such
fees were received in earlier periods or during the six months ended June 30,
1998 and 1997, respectively.
In late 1994, the Company borrowed $5.0 million, at an interest rate
of 9.2% per annum, from MetLife Capital Corporation ("MetLife") pursuant to a
Loan and Security Agreement dated December 22, 1994 between MetLife and the
Company (the "MetLife Note") to help finance a portion of the ORBCOMM System. In
addition, in August 1996, the Company 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 of the Old Notes Offering,
sufficient to pay when due all remaining interest and principal payments on the
MetLife Note, was deposited into a segregated account. In January 1997, all of
the Old Notes were exchanged for the Notes. The Company recognized interest
income (net of interest expenses of $210,000 and $206,000) on the invested
portion of the MetLife Note and the proceeds of the Old Notes Offering of
$143,000 and $1.0 million for the three months ended June 30, 1998 and 1997,
respectively. For the six months ended June 30, 1998 and 1997, the Company
recognized interest income (net of interest expenses of $420,000 and $416,000)
of $361,000 and $3.1 million, respectively, on the invested portion of the
MetLife Note and the proceeds of the Old Notes Offering.
Expenses. As discussed above, the Company is in development stage and
does not anticipate emerging from development stage until the fall of 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 acquired from Orbital. Research and development expenses
and selling, general and administrative costs have been expensed in the period
incurred. Interest expense, where appropriate, related to the MetLife Note, the
Old Notes and the Notes has been capitalized as part of the historical cost of
the ORBCOMM System.
The Company incurred $8.9 million and $1.5 million of marketing,
administrative and other expenses for the three months ended June 30, 1998 and
1997, respectively, and $13.2 million and $2.8 million of marketing,
administrative and other expenses for the six months ended June 30, 1998 and
1997, respectively. The Company incurred $4.7 million and $1.8 million of
ORBCOMM System engineering expenses for the three months ended June 30, 1998 and
1997, respectively, and $7.3 million and $3.4 million of ORBCOMM System
engineering expenses for the six months ended June 30, 1998 and 1997,
respectively. The Company is capitalizing the portion of engineering direct
labor costs that relates to hardware and system design development and coding of
the software products that enhance the operation of the ORBCOMM System. The
Company also incurred $2.4 million and $1.8 million in ORBCOMM System
depreciation expense for the three months ended June 30, 1998 and 1997,
respectively, and $4.3 and $3.5 million in ORBCOMM System depreciation expense
for the six months ended June 30, 1998 and 1997, respectively, as the ORBCOMM
System became available for commercial service in early 1996.
Equity in Losses of Affiliates. The Company recognized its share of
ORBCOMM USA's and ORBCOMM International's losses, consisting primarily of
marketing expenses, of $1.2 million and $1.8 million for the three months ended
June 30, 1998 and 1997, respectively, and $3.2 million and $3.7 million for the
six months ended June 30, 1998 and 1997, respectively. Each of ORBCOMM USA and
ORBCOMM International formally began their marketing efforts in 1995 in
anticipation of commercial service beginning in 1996.
32
<PAGE> 33
RESULTS OF OPERATIONS -- ORBCOMM USA
Income. For the three months ended June 30, 1998 and 1997, ORBCOMM
USA recognized revenues relating to the provision of products and services of
$269,000 and $23,000, respectively, and for the six months ended June 30, 1998
and 1997, ORBCOMM USA recognized revenues relating to the provision of products
and services of $333,000 and $81,000, respectively. The costs of product sales
associated with such revenues were $302,000 and $70,000 for the three months
ended June 30, 1998 and 1997, respectively, and $368,000 and $142,000 for the
six months ended June 30, 1998 and 1997, respectively.
Expenses. ORBCOMM USA incurred $678,000 and $1.1 million of marketing
expenses for the three months ended June 30, 1998 and 1997, respectively, and
$2.2 million and $2.4 million of marketing expenses for the six months ended
June 30, 1998 and 1997, respectively.
RESULTS OF OPERATIONS -- ORBCOMM INTERNATIONAL
Expenses. ORBCOMM International incurred $474,000 and $732,000 of
marketing expenses for the three months ended June 30, 1998 and 1997,
respectively, and $975,000 and $1.3 million of marketing expenses for the six
months ended June 30, 1998 and 1997, respectively.
Service License or Similar Agreements. As of June 30, 1998, ORBCOMM
International had signed fourteen SLAs with International Licensees, eleven of
which have associated gateway procurement contracts and software license
agreements. The SLAs authorize the International Licensees to use the ORBCOMM
System to provide two-way data and messaging communications services outside the
United States. As of June 30, 1998 and December 31, 1997, $20.0 million and
$13.3 million, respectively, had been received under these agreements and the
associated gateway procurement agreements and recorded as deferred revenue.
ORBCOMM International is obligated to construct and deliver eleven gateways to
certain International Licensees under certain of these agreements.
SUPPLEMENTAL DATA
Set forth below is certain supplemental data for the ORBCOMM System
comprising data of the Company, ORBCOMM USA and ORBCOMM International for the
six months ended June 30, 1998. Such supplemental data should be read in
conjunction with the financial statements of the Company, ORBCOMM USA and
ORBCOMM International and the notes thereto located elsewhere in this report.
SUPPLEMENTAL DATA
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORBCOMM ORBCOMM ELIMINATION
ORBCOMM USA INTERNATIONAL ENTRIES TOTAL
------------------ --------------- ------------------ ------------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue(1) $ 727 $ 333 $ 144 $ (587) $ 617
Interest income (expense), net 361 (2) 0 0 361
Expenses 25,583 (3) 2,609 1,168 587 28,773
Loss before interest and taxes (24,856) (4) (2,276) (1,024) (28,156)
Net loss (24,495) (4) (2,276) (1,024) (27,795)
Capital expenditures 41,202 (5) 0 0 41,202
</TABLE>
33
<PAGE> 34
SUPPLEMENTAL DATA
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT FOR SUBSCRIBER UNIT DATA)
<TABLE>
<CAPTION>
ORBCOMM ORBCOMM
ORBCOMM USA INTERNATIONAL TOTAL
------------------ --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,986 $ 0 $ 0 $ 5,986
ORBCOMM System, net 300,243 0 0 300,243
Total debt 171,747 0 0 171,747
Subscriber units(6) 0 1,038 451 1,489
</TABLE>
- ----------------------------------
(1) As development-stage companies, none of the Company, ORBCOMM USA and
ORBCOMM International had any significant operating revenues for the
six-month period ended June 30, 1998.
(2) Net of $420,000 of amortization of deferred financing fees.
(3) Includes depreciation expense of $4.3 million. Interest expense of
$12.0 million was capitalized for the six-month period ended June 30,
1998.
(4) Excludes equity in losses of affiliates of $3.2 million.
(5) Represents capital expenditures, principally for the construction of
the space and ground network system elements.
(6) Represents units that either generate revenues or are used in beta
testing. These units do not include units that are used for
demonstration purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a development stage enterprise and has incurred
cumulative net losses from inception. The Company has financed its operations to
date primarily with capital contributions from its partners and through
financing activities. For the six-month period ended June 30, 1998, net cash
used in operating activities was $5.3 million primarily as a result of a net
loss, excluding non-cash charges for depreciation, amortization and equity in
losses of affiliates, of $19.7 million and an increase in other assets of $3.2
million. This was offset by an increase in accounts payable to Orbital of $15.1
million and an increase in accounts payable and accrued liabilities of $2.5
million.
Cash flows used in investing activities for the six-month period
ended June 30, 1998 were $34.3 million primarily as a result of additional
capital expenditures, advances to affiliates and purchases and sales of
securities. For the six-month period ended June 30, 1998, the Company invested
$41.2 million, including $12.0 million of capitalized interest, for satellite
constellation design, construction and launch services and design and
construction of the U.S. Ground Segment. In addition, the Company advanced an
additional $5.2 million, net of cash receipts for international operations, to
ORBCOMM USA and ORBCOMM International to support their marketing activities.
This use of cash was partially offset by $12.2 million of net proceeds from the
sale of securities.
Cash flows provided by financing activities for the six-month period
ended June 30, 1998 were $29.5 million. This amount principally reflects
additional capital contributions of the Company's current partners of $30.0
million.
Expected future uses of cash include continued hiring of employees,
capital expenditures related to the completion of the satellite constellation,
debt servicing and working capital requirements. In addition, the Company
intends to continue to increase marketing and product development expenditures
in anticipation of expanded commercial operations. The total cost of the
36-satellite enhanced constellation is expected to be approximately $332.0
million through the third quarter of 1999. Of this amount, $244.0 million is for
the design, development and construction of the satellite constellation and
launch services, $39.0 million is for the design and construction of the U.S.
Ground Segment, $17.0 million is for insurance and approximately $32.0 million
is for other system costs such as engineering and billing system costs. As of
June 30, 1998, $271.6 million had been expended for the ORBCOMM System,
excluding a total of $46.5 million of interest expenses that have been
capitalized. The foregoing information reflects the Company's current estimate
of its funding requirements for the ORBCOMM System through the third quarter of
1999. Actual amounts may vary from such estimates for a variety of reasons,
including delays or launch or satellite failures.
34
<PAGE> 35
The Company expects to continue to generate negative cash flows
through all of 1998 and at least a portion of 1999. The Company expects that a
portion of its cash requirements will be met through cash expected to be
generated from operations. The Company's ability to generate significant
revenues is subject to numerous uncertainties. In 1998, the Company expects to
receive additional cash payments related to certain milestones under agreements
with International Licensees. The Company's service and equipment contracts are
U.S. dollar-based and do not generate foreign currency risk. Through June 30,
1998, OCC and Teleglobe Mobile have made capital contributions to the Company
totaling approximately $190 million. As a result of the postponement of the
initial public offering by ORBCOMM Corporation, which was organized for the sole
purpose of investing in and acting as a general partner of the Company, OCC and
Teleglobe Mobile each has reaffirmed its commitment to provide funding to the
Company while considering options for future financing at the Company. The
Company believes that the anticipated capital contributions from its partners,
the deferral of invoicing of certain amounts otherwise due under the ORBCOMM
System Procurement Agreement between the Company and Orbital until alternative
financing arrangements are secured and the net proceeds of the Old Notes
Offering and the MetLife Note will be sufficient to fund the Company's
anticipated net cash loss from operations and capital expenditures through 1998.
The Company expects to require additional capital in 1999 and may
seek to raise such additional capital through additional contributions or loans
from its current partners, other equity or debt financings or operating lease
arrangements or the Company may seek to enter into strategic arrangements. There
can be no assurance, however, that other equity or debt financing or operating
lease arrangements will be available and, if so, that they will be available on
terms acceptable to the Company or that strategic arrangements will be possible
and, if so, that they will be possible on terms acceptable to the Company.
The Company has made a preliminary assessment of potential "Year
2000" issues with respect to various computer-related systems. The Company is
developing an initial corrective action plan that includes testing and
reprogramming impacted software when appropriate and feasible, obtaining
vendor-provided software upgrades when available and replacing impacted systems
when necessary. The Company currently expects that identified "Year 2000"
impacted systems will be corrected by the end of 1999, although there can be no
assurance that the Company has identified all "Year 2000" impacted systems or
that its corrective action plan will be completely successful. The Company
believes that the costs to correct its systems will not materially affect its
financial condition or results of operations. In addition, the Company has not
received any indication to date that the impact of "Year 2000" issues on its
customers and suppliers will have a material adverse effect on the Company.
The Company is a development stage enterprise. Certain statements
included in this report, including statements concerning the Company's
operations, prospects, markets, technical capabilities, funding needs, financing
sources, pricing, launch and commercial service schedules, cash flows and "Year
2000" issues, as well as information concerning future regulatory approvals and
expected actions of third parties such as equipment suppliers, International
Licensees and VARs, are forward-looking statements that may be affected by known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to differ materially from
those expressed or implied by such forward-looking statements. Such factors may
include but are not limited to general economic and business conditions, launch
results, sales and product performance, the introduction of products and
services by competitors, availability of required capital, the ability of
customers and suppliers to assess timely and accurately "Year 2000" issues and
market acceptance of new products and technologies.
35
<PAGE> 36
PART II
OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On July 2, 1998, ORBCOMM Corporation elected to postpone
its initial public offering.
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 of ORBCOMM Global, L.P., ORBCOMM Global
Capital Corp. or ORBCOMM Corporation has
previously been required to file a Report on Form
8-K under the Act.
</TABLE>
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
ORBCOMM GLOBAL, L.P.
Date: August 14, 1998 By: /s/ SCOTT L. WEBSTER
---------------------
Scott L. Webster
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ W. BARTLETT SNELL
----------------------
W. Bartlett Snell
Senior Vice President, Finance and
Administration and
Chief Financial Officer
(Principal Financial Officer)
ORBCOMM GLOBAL CAPITAL CORP.
Date: August 14, 1998 By: /s/ SCOTT L. WEBSTER
---------------------
Scott L. Webster
President
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ W. BARTLETT SNELL
----------------------
W. Bartlett Snell
Vice President and Treasurer
(Principal Financial Officer)
37
<PAGE> 38
ORBCOMM CORPORATION
Date: August 14, 1998 By: /s/ SCOTT L. WEBSTER
---------------------
Scott L. Webster
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ W. BARTLETT SNELL
----------------------
W. Bartlett Snell
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
38
<PAGE> 39
EXHIBIT INDEX
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -------------------------------------------------------------------------------------------------
<S> <C>
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.
2(a) Purchase Agreement, dated as of August 2, 1996, by and among ORBCOMM Global, L.P., ORBCOMM
Global Capital Corp., ORBCOMM USA, L.P., ORBCOMM International Partners, L.P., Orbital
Communications Corporation, Teleglobe Mobile Partners, Bear Stearns & Co. Inc., J.P. Morgan
Securities Inc. and RBC Dominion Securities Company.
3 Organizational Documents.
3.1(b) Certificate of Limited Partnership of ORBCOMM Global, L.P.
3.2(a) Restated Agreement of Limited Partnership of ORBCOMM Global, L.P.
3.2.1(c) Amendment No. 1 to Restated Agreement of Limited Partnership of ORBCOMM Global, L.P. dated
December 2, 1996
3.3(b) Certificate of Limited Partnership of ORBCOMM USA, L.P.
3.4(a) Restated Agreement of Limited Partnership of ORBCOMM USA, L.P.
3.5(b) Certificate of Limited Partnership of ORBCOMM International Partners, L.P.
3.6(a) Restated Agreement of Limited Partnership of ORBCOMM International Partners, L.P.
3.7(d) Certificate of Incorporation of ORBCOMM Corporation.
3.8(e) Bylaws of ORBCOMM Corporation
4 Instruments Defining the Rights of Security Holders.
4(a) Indenture, dated as of August 7, 1996, by and among ORBCOMM Global, L.P., ORBCOMM Global Capital
Corp., ORBCOMM USA, L.P., ORBCOMM International Partners, L.P., Orbital Communications
Corporation, Teleglobe Mobile Partners and Marine Midland Bank.
4.1(f) Specimen of the Common Stock Certificate of ORBCOMM Corporation.
10 Material Contracts.
10.1(g) Amended and Restated Administrative Services Agreement, dated as of January 1, 1997, by and
between ORBCOMM Global, L.P. and Orbital Sciences Corporation.
</TABLE>
39
<PAGE> 40
<TABLE>
<S> <C>
10.2(a) Pledge Agreement, dated as of August 7, 1996, by and among ORBCOMM Global, L.P., ORBCOMM Global
Capital Corp. and Marine Midland Bank.
10.3(a) International System Charge Agreement, restated as of September 12, 1995, by and among ORBCOMM Global,
L.P., Teleglobe Mobile Partners and ORBCOMM International Partners, L.P.
10.4(a) Master Agreement, restated as of September 12, 1995, by and among ORBCOMM Global, L.P., Orbital
Sciences Corporation, Orbital Communications Corporation, Teleglobe Inc. and Teleglobe Mobile Partners.
10.4.1(h) Amendment No.1 to Master Agreement, dated as of February 5, 1997, by and among Orbital Sciences
Corporation, Orbital Communications Corporation, Teleglobe Inc. and Teleglobe Mobile Partners.
10.5(b) ORBCOMM System Procurement Agreement, dated as of September 12, 1995, by and between ORBCOMM Global,
L.P. and Orbital Sciences Corporation (provided that Appendix I is incorporated by reference to Exhibit
10.24.6 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 filed by Orbital
Sciences Corporation on August 13, 1993).
10.5.1(i) Amendment No.1 to ORBCOMM System Procurement Agreement dated December 9, 1996 by and between ORBCOMM
Global, L.P. and Orbital Sciences Corporation.
10.5.2(h) Amendment No. 2 to ORBCOMM System Procurement Agreement dated March 24, 1997 by and between ORBCOMM
Global, L.P. and Orbital Sciences Corporation.
10.5.3(f) Amendment No. 3 to ORBCOMM System Procurement Agreement dated as of March 31, 1998 by and between
ORBCOMM Global, L.P. and Orbital Sciences Corporation.
10.5.4(f) Amendment No. 4 to ORBCOMM System Procurement Agreement dated as of March 31, 1998 by and between
ORBCOMM Global, L.P. and Orbital Sciences Corporation.
10.6(a) Proprietary Information and Non-Competition Agreement, restated as of September 12, 1995, by and among
ORBCOMM Global, L.P., Orbital Sciences Corporation, Orbital Communications Corporation, Teleglobe Inc.,
Teleglobe Mobile Partners, ORBCOMM USA, L.P. and ORBCOMM International Partners, L.P.
10.7(a) System Charge Agreement, restated as of September 21, 1995, by and between ORBCOMM USA, L.P. and
Orbital Communications Corporation.
10.8(a) System Construction Agreement, restated as of September 12, 1995, by and between ORBCOMM Global, L.P.
Orbital Communications Corporation.
</TABLE>
40
<PAGE> 41
<TABLE>
<S> <C>
10.9(a) Amendment No. 1 to System Construction Agreement, dated as of July 2, 1996, by and between ORBCOMM
Global, L.P. and Orbital Communications Corporation.
10.10(b) Service License Agreement, dated as of July 1, 1996, by and between ORBCOMM International Partners,
L.P. and ORBCOMM Canada Inc.
10.11(b) Service License Agreement, dated as of October 10, 1996, by and between ORBCOMM International Partners,
L.P. and Cellular Communications Network (Malaysia) Sdn. Bhd.
10.12(b) Service License Agreement, dated as of October 15, 1996, by and between ORBCOMM International Partners,
L.P. and European Company for Mobile Communication Services, B.V., ORBCOMM Europe.
10.13(b) Ground Segment Facilities Use Agreement, dated as of December 19, 1995, by and between ORBCOMM
International Partners, L.P. and ORBCOMM Canada Inc.
10.14(b) Ground Segment Procurement Contract, dated as of October 10, 1996, by and between ORBCOMM International
Partners, L.P. and Cellular Communications Network (Malaysia) Sdn. Bhd.
10.15(b) Ground Segment Procurement Contract, dated as of October 15, 1996, by and between ORBCOMM International
Partners, L.P. and European Company for Mobile Communication Services, B.V., ORBCOMM Europe.
10.16(j) Orbital Communications Corporation 1992 Stock Option Plan.
10.17(j) Amended and Restated Administrative Services Agreement, dated as of January 1, 1997, by and between
ORBCOMM Global, L.P. and Orbital Sciences Corporation.
10.18(j) U.S. Gateway Earth Station Maintenance Service Agreement, dated as of October 1, 1997, by and between
ORBCOMM Global, L.P. and Orbital Sciences Corporation.
10.19(j) Subscriber Communicator Manufacture Agreement, dated as of July 31, 1996, by and between ORBCOMM
Global, L.P. and Magellan Corporation.
10.20(j) Reseller Agreement, dated as of March 3, 1997, by and between ORBCOMM USA, L.P. and Orbital Sciences
Corporation.
10.20.1(j) Amendment No. 1, dated as of September 2, 1997, to the Reseller Agreement, dated as of March 3, 1997,
by and between ORBCOMM USA, L.P. and Orbital Sciences Corporation.
10.21(j) Employment Agreement, dated as of May 15, 1997, by and between ORBCOMM Global, L.P. and Robert F.
Latham.
10.22(j) Consulting Agreement, dated as of March 18, 1998, by and between ORBCOMM Global, L.P. and ORBCOMM
Canada Inc.
27 Financial Data Schedule.
</TABLE>
41
<PAGE> 42
<TABLE>
<S> <C>
27.1* Financial Data Schedule of ORBCOMM Global, L.P.
27.2* Financial Data Schedule of ORBCOMM Corporation.
</TABLE>
- -------------------------------------
* Filed herewith.
(a) Incorporated by reference to the identically numbered exhibit to the
Registration Statement on Form S-4 filed by ORBCOMM Global, L.P. and ORBCOMM
Global Capital Corp. on August 30, 1996 (Reg. No. 333-11149).
(b) Incorporated by reference to the identically numbered exhibit to Amendment
No. 1, dated October 21, 1996, to the Registration Statement on Form S-4
filed by ORBCOMM Global, L.P. and ORBCOMM Global Capital Corp. on August 30,
1996 (Reg. No. 333-11149).
(c) Incorporated by reference to Exhibit 10.16.1 to the Annual Report on Form
10-K for the fiscal year ended December 31, 1996 filed by Orbital Sciences
Corporation on March 27, 1997.
(d) Incorporated by reference to Exhibit 3.1 to the Registration Statement on
Form S-1 of ORBCOMM Corporation dated April 21, 1998 (Reg. No. 333-50599).
(e) Incorporated by reference to Exhibit 3.2 to Amendment No. 2, dated June 12,
1998, to the Registration Statement on Form S-1 of ORBCOMM Corporation dated
April 21, 1998 (Reg. No. 333-50599)
(f) Incorporated by reference to the identically numbered exhibit to Amendment
No. 2, dated June 12, 1998, to the Registration Statement on Form S-1 of
ORBCOMM Corporation dated April 21, 1998 (Reg. No. 333-50599).
(g) Incorporated by reference to Exhibit 10.17 of the Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 filed by ORBCOMM Global, L.P. on
March 31, 1998.
(h) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 filed by
ORBCOMM Global, L.P. on May 14, 1997.
(i) Incorporated by reference to the identically numbered exhibit to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 filed by
ORBCOMM Global, L.P. on March 28, 1997.
(j) Incorporated by reference to the identically numbered exhibit to the Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 filed by
ORBCOMM Global, L.P. on March 31, 1998.
42
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001021649
<NAME> ORBCOMM GLOBAL, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,986
<SECURITIES> 10,571
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 7,297<F1>
<CURRENT-ASSETS> 23,854
<PP&E> 318,127
<DEPRECIATION> 17,884
<TOTAL-ASSETS> 336,321
<CURRENT-LIABILITIES> 57,022
<BONDS> 170,609
0
0
<COMMON> 0
<OTHER-SE> 108,690<F2>
<TOTAL-LIABILITY-AND-EQUITY> 336,321
<SALES> 727
<TOTAL-REVENUES> 727
<CGS> 717
<TOTAL-COSTS> 25,583
<OTHER-EXPENSES> 2,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0<F3>
<INCOME-PRETAX> (27,728)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,728)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,728)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Include inventory and other current assests.
<F2>Represents total partners' Capital.
<F3>Approximately $12.0 million have been Capitalized for the six months ended June
30, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001058416
<NAME> ORBCOMM CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 99<F1>
<TOTAL-LIABILITY-AND-EQUITY> 100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Represents additional paid-in Capital.
</FN>
</TABLE>
