e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
001-33118
ORBCOMM INC.
(Exact name of registrant in its
charter)
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Delaware
(State or other jurisdiction
of
incorporation of organization)
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41-2118289
(I.R.S. Employer
Identification Number)
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2115 Linwood Avenue
Fort Lee, New Jersey 07024
(Address of principal
executive offices)
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Registrants telephone number, including area code:
(201) 363-4900
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class:
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Name of Each Exchange on Which Registered:
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Common stock, par value $0.001 per share
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The Nasdaq Stock Market, LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has 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 registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check One):
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Large Accelerated
Filer o
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Accelerated
Filer þ
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Non-Accelerated
Filer o
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Smaller Reporting
Company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act) Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant (based on the closing
price reported on the Nasdaq Global Market on June 30,
2009) was $61,212,014.
Shares held by all executive officers and directors of the
registrant have been excluded from the foregoing calculation
because such persons may be deemed to be affiliates of the
registrant.
The number of shares of the registrants common stock
outstanding as of March 8, 2010 was 42,562,951.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement for the 2010
Annual Meeting of Stockholders to be held on April 29,
2010, are incorporated by reference in Part III of this
Form 10-K.
Forward-
Looking Statements
Certain statements discussed in Part I, Item 1.
Business, Part I, Item 3. Legal
Proceedings, Part II, Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this
Annual Report on
Form 10-K
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These
forward-looking statements generally relate to our plans,
objectives and expectations for future events and include
statements about our expectations, beliefs, plans, objectives,
intentions, assumptions and other statements that are not
historical facts. Such forward-looking statements, including
those concerning the Companys expectations, are subject to
known and unknown risks and uncertainties, which could cause
actual results to differ materially from the results, projected,
expected or implied by the forward-looking statements, some of
which are beyond the Companys control, that may cause the
Companys actual results, performance or achievements, or
industry results, to be materially different from any future
results, performance or achievements expressed or implied by
such forward-looking statements. These risks and uncertainties
include but are not limited to: the impact of global recession
and continued worldwide credit and capital constraints;
substantial losses we have incurred and expect to continue to
incur; demand for and market acceptance of our products and
services and the applications developed by our resellers; loss
or decline or slowdown in the growth in business from Asset
Intelligence, a subsidiary of I.D. Systems, Inc.
(AI) (formerly a division of General Electric
Company (GE or General Electric)), other
value-added
resellers or VARs and international value-added resellers or
IVARs; loss or decline or slowdown in growth in business of any
of the specific industry sectors the Company serves, such as
transportation, heavy equipment, fixed assets and maritime;
litigation proceedings; technological changes, pricing pressures
and other competitive factors; the inability of our
international resellers to develop markets outside the United
States; market acceptance and success of our Automatic
Identification System (AIS) business; the inability
to provide AIS service due to the in-orbit satellite failure of
the remaining two quick-launch satellites; satellite launch and
construction delays and cost overruns of our next-generation
satellites; in-orbit satellite failures or reduced performance
of our existing satellites; the failure of our system or
reductions in levels of service due to technological
malfunctions or deficiencies or other events; our inability to
renew or expand our satellite constellation; political, legal
regulatory, government administrative and economic conditions
and developments in the United States and other countries and
territories in which we operate; and changes in our business
strategy. In addition, specific consideration should be given to
various factors described in Part I, Item 1A.
Risk Factors and Part II, Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and elsewhere in this
Annual Report on
Form 10-K.
The Company undertakes no obligation to publicly revise any
forward-looking statements or cautionary factors, except as
required by law.
PART I
Overview
We operate a global commercial wireless messaging system
optimized for narrowband communications. Our system consists of
a global network of 29 low-Earth orbit, or LEO, satellites and
accompanying ground infrastructure. Our two-way communications
system enables our customers and end-users, which include large
and established multinational businesses and government
agencies, to track, monitor, control and communicate
cost-effectively with fixed and mobile assets located anywhere
in the world. In 2007, we began providing terrestrial-based
cellular communication services through reseller agreements with
major cellular wireless providers. Currently, our agreements
with major cellular providers include GSM and CDMA offerings in
the United States and GSM services with significant coverage
worldwide. These terrestrial-based communication services enable
our customers who have higher bandwidth requirements to receive
and send messages from communication devices based on
terrestrial-based technologies using the cellular providers
wireless networks as well as from dual-mode devices combining
our satellite subscriber communicators with devices for
terrestrial-based technologies. As a result, our customers are
now able to integrate into their applications a terrestrial
communications device that will allow them to add messages,
including data intensive messaging from the cellular
providers wireless networks.
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Our products and services enable our customers and end-users to
enhance productivity, reduce costs and improve security through
a variety of commercial, government, and emerging homeland
security applications. We enable our customers and end-users to
achieve these benefits using a single global satellite
technology standard for
machine-to-machine
and telematic, or M2M, data communications. Our customers have
made significant investments in developing ORBCOMM-based
applications. Examples of assets that are connected through our
M2M data communications system include trucks, trailers,
railcars, containers, heavy equipment, fluid tanks, utility
meters, pipeline monitoring equipment, marine vessels, and oil
wells. Our customers include original equipment manufacturers,
or OEMs, such as Caterpillar Inc., (Caterpillar),
Doosan Infracore America, Hitachi Construction Machinery Co.,
Ltd., (Hitachi), Hyundai Heavy Industries, Komatsu
Ltd., (Komatsu), The Manitowoc Company and Volvo
Construction Equipment, IVARs, such as AI (a subsidiary of I.D.
Systems), VARs, such as XATA Corporation and American
Innovations, Ltd., and government agencies, such as the
U.S. Coast Guard.
We currently have a contract to provide AIS data to the
U.S. Coast Guard and offer the AIS data service to other
government and commercial customers. Further, we are working
with system integrators and maritime information service
providers for value-added service and to facilitate the sales
and distribution of our AIS data. In January 2009, we entered
into our first AIS data license distribution agreement for
commercial purposes with Lloyds Register-Fairplay Ltd
(Lloyds). As a result, Lloyds has
entered into agreements with several government agencies and
corporate customers. We will continue to work with additional
candidates to address the various market sectors for AIS data.
We believe we are the only commercially available
satellite-based AIS data provider with capability beyond
terrestrial-based systems into the open seas.
Through our M2M data communications system, our customers and
end-users can send and receive information to and from any place
in the world using low-cost subscriber communicators and paying
airtime costs that we believe are the lowest in the industry for
global connectivity. Our customers can also use cellular
terrestrial units, or wireless subscriber identity modules
(SIMS), for use with devices or equipment that
enable the use of a cellular providers wireless network,
singularly or in conjunction with satellite services, to send
and receive information from these devices. We believe that
there is no other satellite or terrestrial network currently in
operation that can offer global two-way wireless narrowband data
service including coverage at comparable cost using a single
technology standard worldwide, that also provides a parallel
terrestrial network for data intensive applications. We are
currently authorized, either directly or indirectly, to provide
our satellite communications services in over 90 countries and
territories in North America, Europe, South America, Asia,
Africa and Australia.
Presently our unique M2M data communications system is comprised
of three elements: (i) a constellation of 29 LEO satellites
in multiple orbital planes between 435 and 550 miles above
the Earth operating in the Very High Frequency, or VHF, radio
frequency spectrum, (ii) a network of related ground
infrastructure, including 15 gateway earth stations, four
regional gateway control centers and a network control center in
Dulles, Virginia, through which data sent to and from satellite
subscriber communicators are routed and includes a
communications node for terrestrial services through which data
sent to and from terrestrial units are routed and (iii) a
combination of satellite subscriber communicators and SIMS
attached to a variety of fixed and mobile assets worldwide. See
The ORBCOMM Communications System.
As of December 31, 2009, we had approximately 515,000
billable subscriber communicators activated on our
communications system compared to approximately 460,000 billable
subscriber communicators as of December 31, 2008, an
increase of 12.0%.
In 2009, communications capability for three of the five
quick-launch satellites and the Coast Guard demonstration
satellite (CDS) launched in June 2008 were
lost. As a result, we recognized non-cash impairment charges of
$29.2 million in our consolidated statements of operations.
In December 2009, we entered into a settlement and release
agreement with the third party insurers with respect to our
in-orbit insurance policy for the five quick-launch satellites
and the CDS and received $44.3 million. We recorded the
$44.3 million as an insurance recovery-satellite network in
our consolidated statements of operations. See
ORBCOMM Communications System under System
Status Satellite Impairments and Insurance
Recovery for a description of the anomalies and the
insurance recovery.
In August 2009, we placed in service the two remaining
quick-launch satellites for which we maintain communications
capability. These satellites are currently providing worldwide
AIS services and limited
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ORBCOMM messaging. The similarity of these satellites to the
failed satellites is believed to significantly reduce their
expected useful lives and they are fully depreciated as of
December 31, 2009. The remaining two quick-launch
satellites are equipped with an AIS payload that provides
redundant capabilities for our AIS data service, and we will be
relying on these satellites to provide AIS data service. If
these satellites also fail, we will not be able to provide AIS
data service, including under existing contracts, unless we are
able to procure other AIS data service from third parties or
until the launch of our AIS payload equipped next-generation
satellites, scheduled as early as the end of 2010.
Our
Business Strengths and Competitive Advantage
We believe that our focus on M2M data communications is unique
in our industry and will enable us to achieve significant
growth. We believe no other satellite or terrestrial network
currently in operation offers users global two-way wireless
narrowband data communications using a single global technology
standard anywhere in the world at costs comparable to ours. This
provides us with a number of competitive advantages that we
believe will help promote our success, including the following:
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Established global satellite network and proven
technology. We believe our global satellite
network and technology enable us to offer superior products and
services to the end-users of our communications system in terms
of comprehensive coverage, reliability and compatibility. Our
global satellite network provides worldwide coverage, including
in international waters, allowing end-users to access our
communications system in areas outside the coverage of
terrestrial networks, such as cellular, paging, and other
wireless networks. Our proven technology offers full two-way M2M
data communication (with acknowledgement of message receipt)
with minimal
line-of-sight
limitations and no performance issues during adverse weather
conditions, which distinguishes us from other satellite
communications systems. Our primary satellite orbital planes
contain five to eight satellites each providing built-in system
redundancies in the event of a single satellite malfunction. In
addition, our satellite system uses a single global technology
standard and eliminates the need for multiple network agreements
and versions of hardware and software.
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Low cost structure. We have a significant cost
advantage over any potential new LEO satellite system competitor
with respect to our current satellite constellation, because we
acquired the majority of our current network assets from ORBCOMM
Global L.P., referred to as the Predecessor Company, and its
subsidiaries out of bankruptcy for a fraction of their original
cost. In addition, because our LEO satellites are relatively
small and deployed into low-Earth orbit, the constellation is
less expensive and easier to launch and maintain than larger LEO
satellites and large geostationary satellites. We believe that
we have less complex and less costly ground infrastructure and
subscriber communication equipment than other satellite
communications providers. Our low cost satellite system
architecture enables us to provide global two-way wireless
narrowband data communication services to end-users at prices
that we believe are the lowest in the industry for global
connectivity.
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Sole commercial satellite operator licensed in the VHF
spectrum. We are the sole commercial satellite
operator licensed to operate in the
137-150 MHz
VHF spectrum by the FCC or, to our knowledge, any other national
spectrum or radio-telecommunications regulatory agency in the
world. The spectrum that we use was allocated globally by the
International Telecommunication Union, or ITU, for use by
satellite fleets such as ours to provide mobile data
communications service. We are currently authorized, either
directly or indirectly, to provide our data communications
service in over 90 countries and territories in North America,
Europe, South America, Asia, Africa, and Australia. VHF spectrum
has inherent advantages for M2M data communications over systems
using shorter wavelength signals. The VHF signals used to
communicate between our satellites and subscriber communicators
are not affected by weather and are less dependent on
line-of-sight
access to our satellites than other satellite communications
systems. In addition, our longer wavelength signals enable our
satellites to communicate reliably over longer distances at
lower power levels. Higher power requirements of commercial
satellite systems in other spectrum bands are a significant
factor in their higher cost and technical complexity.
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Significant market lead over satellite-based
competitors. We believe that we have a
significant market lead in providing M2M data communications
services that meet the coverage and cost requirements in the
rapidly developing asset management and supply chain markets.
The process required to establish a new competing
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satellite-based system with the advantages of a VHF system
includes obtaining regulatory permits to launch and operate
satellites and to provide communications services, and the
design, development, construction and launch of a communications
system. We believe that a minimum of five years and significant
investments in time and resources would be required for another
satellite-based M2M data communications service provider to
develop the capability to offer comparable services. Our VARs
and IVARs have made significant investments in developing
ORBCOMM-based applications. These applications often require
substantial time and financial investment to develop for
commercial use.
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Key distribution and OEM customer
relationships. Our strategic relationships with
key distributors and OEMs have enabled us to streamline our
sales and distribution channels and shift much of the risk and
cost of developing and marketing applications to others. We have
established strategic relationships with key service providers,
such as Asset Intelligence and XATA Corporation, a leading
provider of tracking solutions for the trucking industry,
including to Penske Corporation, the leading truck leasing
company in the United States, and major OEMs, such as
Caterpillar, Hitachi, Komatsu, and Volvo. We believe our close
relationships with these distributors and OEMs allows us to work
closely with them at all stages of application development, from
planning and design through implementation of our M2M data
communications services, and to benefit from their
industry-specific expertise. By fostering these strong
relationships with distributors and OEMs, we believe that once
we have become so integrated into our customers planning,
development, and implementation process, and their equipment, we
anticipate it will be more difficult to displace us or our
communication services. In addition, the fixed and mobile assets
which are tracked, monitored, controlled, and communicated with
by these customers generally have long useful lives and the cost
of replacing our communications equipment with an alternative
service providers equipment could be prohibitive for a
large numbers of assets.
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Reliable, low cost subscriber
communicators. There are multiple manufacturers
that build subscriber communicators for our network, including
our subsidiary Stellar Satellite Communications, Ltd.
(Stellar) and independent third party manufacturers
such as Quake Global, Inc (Quake), Digi
International, (Digi) and Sierra Wireless, Inc.
(Sierra Wireless). Through Stellar we have an
arrangement with Delphi Corporation that provides us with
industrial-scale manufacturing capability for the supply of low
cost, reliable, ISO-9001 certified, automotive grade subscriber
communicators. As a result of these manufacturing relationships,
technological advances and higher volumes, we have significantly
reduced the selling price of our subscriber communicators from
approximately $280 per unit in 2003 to below $100 per unit in
volume in 2009. In addition, the cost of communications
components necessary for our subscriber communicators to operate
in the VHF band is relatively low as they are based on readily
available FM radio components. Dual-mode devices are being built
by several manufacturers that combine other communication
technologies with satellite technology and will be offered to
the market at what we believe will be industry low prices.
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Our
Strategy
Our strategy is to leverage our business strengths and key
competitive advantages to increase the number of subscriber
communicators activated on our M2M data communications system,
both in existing and new markets. We are focused on increasing
our market share of customers with the potential for a high
number of connections with lower usage applications. We believe
that the service revenue associated with each additional
subscriber communicator activated on our communications system
will more than offset the low incremental cost of adding such
subscriber communicator to our system and, as a result,
positively impact our results of operations. We currently
provide services through reseller agreements allowing customers
to utilize other major cellular providers networks offering GSM
and CDMA technologies to be intergraded into their applications.
We plan to continue to target multinational companies and
government agencies to increase substantially our penetration of
what we believe is a significant and growing addressable market.
Additionally, we seek to leverage our new business in AIS
services. To achieve our objectives, we are pursuing the
following business strategies:
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Expand our low cost, multi-channel marketing and distribution
network of resellers. We intend to increase
further the number of resellers that develop, market and
implement their applications together with our communications
services and subscriber communicators to end-users. We are also
focused on increasing the
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number of OEM and distributor relationships with leading
companies that own, manage, or operate fixed or mobile assets.
We are seeking to recruit resellers with industry knowledge to
develop applications that could be used for industries or
markets that we do not currently serve. Resellers invest their
own capital developing applications compatible with our system,
and they typically act as their own agents and systems
integrators when marketing these applications to end-users,
without the need for significant investment by us. As a result,
we have established a low cost marketing and distribution model
that is both easily scalable by adding resellers or large-scale
asset deployers, and allows us to penetrate markets without
incurring substantial research and development costs or sales
and marketing costs.
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Expand our international markets. Our
international growth strategy is to open new markets outside the
United States by obtaining regulatory authorizations and
developing markets for our M2M data communications services to
be sold in regions where the market opportunity for our OEM
customers and resellers is greatest. We are currently authorized
to provide our data communications services in over 90 countries
and territories in North America, Europe, South America, Asia,
Africa, and Australia, directly or indirectly through our
multiple international licensees and country representatives. We
are currently working with IVARs who, generally, subject to
certain regulatory restrictions, have the right to market and
sell their applications anywhere our communications services are
offered. We seek to enter into agreements with strong
distributors in each region. Our regional distributors, which
include country representatives and international licensees,
obtain the necessary regulatory authorizations and develop local
markets directly or by recruiting local VARs. In some
international markets where distribution channels are in the
early stages of development, we seek to bring together VARs who
have developed well-tested applications with local distributors
to create localized solutions and accelerate the adoption of our
M2M data communications services. In addition, we have made
efforts to strengthen the financial positions of certain of our
regional distributors, including several, such as ORBCOMM Europe
LLC, who were former licensees of the predecessor company left
weakened by its bankruptcy, through restructuring transactions
whereby we obtained greater operating control over such regional
distributors. We believe that by strengthening the financial
condition of, and our operating control over, these established
regional distributors, they will be better positioned to promote
and distribute our products and services and enable us to
achieve our market potential in the relevant regions.
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Further reduce subscriber communicator costs and improve
functionality of communicators. We are working
with our subscriber communicator manufacturers to further reduce
the cost of our subscriber communicators, as well as to develop
technological advances, including further reductions in size,
improvements in power management efficiency, increased
reliability, and enhanced capabilities. Our ability to offer our
customers less expensive subscriber communicators that are
smaller, more efficient and more reliable is key to our ability
to provide a complete low cost solution to our customers and
end-users. Additionally, some suppliers have been developing a
dual-mode device that will allow customers to integrate both a
satellite and terrestrial communication component into a single
device.
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Reduce network latency. Following the launch
of our next-generation satellites, we expect to reduce the time
lags in delivering messages and data, or network latency, in
most regions of the world. We believe this will improve the
quality and coverage of our system and enable us to increase our
customer base.
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Introduce new features and services. We will
continue to develop and introduce new features and services to
expand our customer base and increase our revenues. For example,
as a result of providing terrestrial-based cellular
communication services, our customers are now able to integrate
in their applications a terrestrial communications device that
will allow them to add messages, including data intensive
messaging from combined satellite and cellular technologies. We
have upgraded the technology capabilities of our network
operations center to deliver both satellite and terrestrial
messages through our ground infrastructure to the ultimate
destination. In addition, we have recently developed a broadcast
capability that allows large numbers of subscriber communicators
to receive a single message simultaneously. This represents an
efficient delivery mechanism to address large populations of
subscribers with a single message, such as weather data
broadcasts, widespread alert notifications and demand response
applications for electric utilities. We believe that subscriber
communicator technology advances, such as dual-mode devices,
will broaden our addressable market by providing attractive
combinations of bandwidth and coverage at a
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reasonable price. Dual-mode devices combine a satellite
subscriber communicator with a cellular network subscriber
communicator for higher bandwidth applications not typical of
ORBCOMMs applications. Dual-mode devices can also be used
as a back channel service for terrestrial or satellite-based
broadcast-only networks.
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Expand AIS services. In June 2008, we launched
satellites equipped with AIS capability, to augment our existing
commercial constellation. AIS is a shipboard broadcast system
that transmits a vessels identification and position to
aid navigation and improve maritime safety. Current
terrestrial-based AIS systems provide only limited shore
coverage and are not able to provide global open ocean coverage.
Using our communications system, customers will have access to
AIS data well beyond coastal regions in a cost effective and
timely fashion. We currently have a contract to provide AIS data
to the U.S. Coast Guard and offer the AIS data service to
other government and commercial customers. Further, we will be
working with system integrators and maritime information service
providers for value-added service and to facilitate the sales
and distribution of our AIS data. In January 2009, we entered
into our first AIS data license distribution agreement for
commercial purposes with Lloyds. We will continue to work
with additional candidates to address the various market sectors
for AIS data and believe ORBCOMM is the only commercially
available provider of satellite-based AIS data reaching beyond
coastal access into the open water.
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Provide comprehensive technical support, customer service and
quality control. We have allocated additional
resources to provide customer support for training, integration
and testing in order to assist our VARs and other distributors
in the roll-out of their applications and to enhance end-user
acquisition and retention. We provide our VAR and OEM customers
with access to customer support technicians. We also deploy our
technicians to our VAR and OEM customers to facilitate the
integration of our M2M data communications system with their
applications during the planning, development and implementation
processes and to certify that these applications are compatible
with our system. Our support personnel include professionals
with application development, in-house laboratory, and hardware
design and testing capabilities.
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Industry
Overview
Increasingly, businesses and governments face the need to track,
control, monitor and communicate with fixed and mobile assets
that are located throughout the world. At the same time, these
assets increasingly incorporate microprocessors, sensors and
other devices that can provide a variety of information about
the assets location, condition, operation and environment
and are capable of responding to external commands and queries.
As these intelligent devices proliferate, we believe that the
need to establish two-way communications with these devices is
greater than ever. The owners and operators of these intelligent
devices are seeking low cost and efficient communications
systems that will enable them to communicate with these devices.
We operate in the
machine-to-machine
and telematics, or M2M, industry, which includes various types
of communications systems that enable intelligent machines,
devices and fixed or mobile assets to communicate information
from the machine, device or fixed or mobile asset to and from
back-office information systems of the businesses and government
agencies that track, monitor, control and communicate with them.
These M2M data communications systems integrate a number of
technologies and cross several different industries, including
computer hardware and software systems, positioning systems,
terrestrial and satellite communications networks and
information technologies (such as data hosting and report
generation).
There are three main components in any M2M data communications
system:
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Fixed or mobile assets. Intelligent or
trackable assets include devices and sensors that collect,
measure, record or otherwise gather data about themselves or
their environment to be used, analyzed or otherwise disseminated
to other machines, applications or human operators and come in
many forms, including devices and sensors that:
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Report the location, speed and fuel economy data from trucks and
locomotives;
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Monitor the location and condition of trailers, railcars and
marine shipping containers;
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Report operating data and usage for heavy equipment;
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Monitor fishing vessels to enforce government regulations
regarding geographic and seasonal restrictions;
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Report energy consumption from a utility meter;
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Monitor corrosion in a pipeline;
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Monitor fluid levels in oil storage tanks;
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Measure water delivery in agricultural pipelines; and
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Monitor environmental conditions in agricultural facilities.
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Communications network. The communications
network enables a connection to take place between the fixed or
mobile asset and the back-office systems and users of that
assets data. The proliferation of terrestrial and
satellite-based wireless networks has enabled the creation of a
variety of M2M data communications applications. Networks that
are being used to deliver M2M data include terrestrial
communications networks, such as cellular, radio paging and WiFi
networks, and satellite communications networks, utilizing
low-Earth-orbit or geosynchronous satellites.
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Back-office application or user. Data
collected from a remote asset is used in a variety of ways with
applications that allow the end-user to track, monitor, control
and communicate with these assets with a greater degree of
control and with much less time and expense than would be
required to do so manually.
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Market
Opportunity
Commercial
transportation
Large trucking and trailer leasing companies require
applications that report location, engine diagnostic data,
driver performance, fuel consumption, compliance, rapid
decelerations, fuel taxes, driver logs and zone adherence in
order to manage their truck fleets more safely and efficiently
and to improve truck and trailer utilization.
Truck and trailer fleet owners and operators, as well as truck
and trailer OEMs, are increasingly integrating M2M data
communications systems into their trucks and trailers. As trucks
and trailer tracking applications phase out the use of older
analog cellular wireless networks, end-users will need to
migrate to alternative communications systems and we expect that
an increasing number of customers will be seeking long-term
solutions for their M2M data communications needs as they make
their replacement decisions. Trailer tracking represents a
significantly larger potential market as we estimate that there
are approximately three trailers to every truck. The trailer
market also requires additional applications, such as cargo
sensor reporting, load monitoring, control of refrigeration
systems and door alarms. Future regulations may require position
tracking of specific types of cargo, such as hazardous
materials, and could also increase trailer tracking market
opportunities. The railcar market also requires many of these
same applications and many trailer applications using M2M data
communications system can readily be translated to the railcar
market.
Heavy
equipment
Heavy equipment fleet owners and leasing companies seeking to
improve fleet productivity and profitability require
applications that report diagnostic information, location
(including for purposes of geo-fencing),
time-of-use
information, emergency notification, driver usage and
maintenance alerts for their heavy equipment, which may be
geographically dispersed, often in remote, difficult to reach
locations. Using M2M data communications systems, heavy
equipment fleet operators can remotely manage the productivity
and mechanical condition of their equipment fleets, potentially
lowering operating costs through preventive maintenance. OEMs
can also use M2M applications to better anticipate the
maintenance and spare parts needs of their customers, expanding
the market for more higher-margin spare parts orders for the
OEMs. Heavy equipment OEMs are increasingly integrating M2M data
communications systems as standardized into their equipment at
the factory or offering them as add-on options through certified
after-market dealers.
7
Since the heavy equipment market is dominated by a small number
of OEMs, M2M data communications service providers targeting
this market segment focus on building relationships with these
OEMs, such as Caterpillar, Komatsu, Hitachi and Volvo.
Fixed
asset monitoring
Companies with widely dispersed fixed assets require a means of
collecting data from remote assets to monitor productivity,
minimize downtime and realize other operational benefits, as
well as managing and controlling the functions of such assets,
for example, the remote operation of valves and electrical
switches. M2M data communications systems can provide industrial
companies with applications for automated meter reading, oil and
gas storage tank monitoring, pipeline monitoring and
environmental monitoring, which can reduce operating costs for
these companies, including labor costs, fuel costs, and the
expense of
on-site
monitoring and maintenance.
Marine
vessels
Marine vessels have a need for satellite-based communications
due to the absence of reliable terrestrial-based coverage more
than a few miles offshore. M2M data communications systems may
offer features and functions to luxury recreational marine
vessels and commercial fishing vessels, such as onboard
diagnostics and other marine telematics, alarms, requests for
assistance, security, location reporting and tracking, two-way
messaging, catch data and weather reports. In addition, owners
and operators of commercial fishing and other marine vessels are
increasingly subject to regulations governing, among other
things, commercial fishing seasons and geographic limitations,
vessel tracking, safety systems, and resource management and
protection using various M2M communications systems.
Government
and homeland security
Governments worldwide are seeking to address the global terror
threat by monitoring land borders and hazardous materials, as
well as marine vessels and containers. In addition, modern
military and public safety forces use a variety of applications,
particularly in supply chain management, logistics and support,
which could incorporate our products and services. M2M
communications systems can be used in applications to address
infiltration across land borders, for example, monitoring
seismic sensors placed along the border to detect incursions.
Increasingly, there is a need to monitor maritime vessels for
homeland security and M2M data communications systems could be
used in applications to address homeland security requirements,
such as tracking and monitoring these vessels and containers.
We have begun to leverage our investment in AIS technology to
resell AIS data collected by our network to other maritime
services and governmental agencies. Further expansion of the AIS
business has been driven by our AIS distribution agreements for
commercial purposes. We are seeking to expand our commercial
activities with other distribution partners in the future.
Consumer
transportation
Automotive companies are seeking a means to address the growing
need for safety systems in passenger vehicles and to broadcast a
single message to multiple vehicles at one time. Within the
automotive market, there is no single communications technology
that satisfies the need for 100% coverage, high reliability and
low cost. An example of an automotive safety application is a
system that has the ability to detect and report the deployment
of a vehicles airbag, triggering the dispatch of an
ambulance, tow truck or other necessary response personnel. The
terrestrial cellular communications systems currently employed
have substantial dead zones, where network coverage
is not available, and are difficult to manage globally. With
emerging technology, satellite-based automotive safety systems
may be able to provide near-real-time message delivery with
minimal network latencies, thereby providing a viable
alternative to cellular-based systems.
While our system currently has latency limitations which make it
impractical for us to address this market fully, we believe that
our existing network may be used with dual-mode devices,
combining our subscriber communicators with communications
devices for cellular networks, allowing our communications
services to function as an effective
back-up
system by filling the coverage gaps in current cellular or
wireless networks used in consumer transportation applications.
In addition, we may undertake additional capital expenditures
beyond our
8
current capital plan in order to expand our satellite
constellation and lower our latencies to the level that
addresses the requirements of resellers and OEMs developing
applications for this market if we believe the economic returns
justify such an investment. We believe we can supplement our
satellite constellation within the lead time required to
integrate applications using our communications service into the
automotive OEM product development cycle.
Products
and Services
Our principal products and services are satellite-based data
communications services and product sales from subscriber
communicators. In 2007, we commenced terrestrial-based cellular
communications services, which consist of reselling airtime
using cellular providers wireless technology networks, and
product sales from cellular wireless SIMS for use with devices
or equipment that enable the use of the cellular providers
wireless networks for data communications.
Our communications services are used by businesses and
government agencies that are engaged in tracking, monitoring,
controlling, or communicating with fixed or mobile assets
globally. Our low cost, industrially-rated subscriber
communicators are embedded into many different assets for use
with our system. Our products and services are combined with
industry or customer specific applications developed by our
VARs, which are sold to their end-user customers.
For our satellite-based data and terrestrial-based cellular
communications services, we do not generally market to end users
directly; instead, we utilize a cost-effective sales and
marketing strategy of partnering with resellers such as VARs,
IVARs and country representatives. These resellers, which are
our direct customers, market to end users.
Satellite
communications services
We provide global two-way M2M data communications services
through our satellite-based system. We focus our communications
services on narrowband data applications. These data messages
are typically sent by a remote subscriber communicator through
our satellite system to our ground facilities for forwarding
through an appropriate terrestrial communications network to the
ultimate destination.
Our system, typically combined with industry- or
customer-specific applications developed by our resellers,
permits a wide range of fixed and mobile assets to be tracked,
monitored, controlled, and communicated with from a central
point.
We derive subscription-based recurring revenue from our
resellers typically based upon the number of subscriber
communicators activated on, and the amount of data transmitted
through, our communications system. Customers pay a range of
monthly service charges to access our communications system
(generally in addition to a one-time provisioning fee), which we
believe are the lowest price points in the market.
Terrestrial
cellular communication services
These communication services include GSM and CDMA offerings that
support higher bandwidth applications that are not typical for
an ORBCOMM satellite application. These data messages are sent
by SIMS, which are routed through the cellular providers
wireless networks to our ground facilities and forwarded to the
ultimate destination in real time. These services commenced in
the third quarter of 2007.
We derive subscription-based recurring revenue from resellers
typically based upon the number of SIMS activated on, and the
amount of data transmitted through, the cellular providers
wireless networks. Customers pay a range of monthly service
charges to access our communications system (generally in
addition to a one-time provisioning fee).
Satellite
AIS data services
AIS is a shipboard broadcast system that transmits a
vessels identification and position to aid navigation and
improve maritime safety. The International Maritime Organization
has mandated the use of AIS on all Safety of Life at Sea (SOLAS)
vessels, which are vessels over 300 tons. Current
terrestrial-based AIS systems provide only limited shore-based
coverage and are not able to provide global open ocean coverage.
Using our communications system, our customers have access to
AIS data well beyond coastal regions in a cost effective and
timely fashion.
9
The following table sets forth selected customers,
representative applications and the benefits of such
applications for each of our addressed markets:
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Market
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Select Customers/End-Users
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Representative Applications
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Key Benefits
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Commercial transportation
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DriverTech
ID Systems
Volvo Construction Equipment
XATA Corporation
Air IQ Inc.
Star Trak
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Position, speed and heading reporting
Units diagnostic monitoring
Compliance/tax reporting
Cargo monitoring
Systems control
Boundary (geofencing) notification
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Improve fleet productivity and
profitability
Enable efficient, centralized fleet management
Ensure safe delivery of shipping cargo
Allow real-time tracking of unit maintenance
requirements
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Heavy equipment
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Caterpillar, Inc.
Hitachi Construction. Machinery Co., Ltd
Komatsu Ltd.
Volvo Construction Equipment
Doosan Infracore America
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Position reporting
Unit diagnostic monitoring
Usage tracking
Emergency notification
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Improve fleet productivity and
profitability
Allow OEMs to improve planning and scheduling of
preventative maintenance and spare parts needs of their customers
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Fixed asset monitoring
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American Innovations, Ltd.
Automata, Inc.
ID Systems
Pioneer Hi-Bred International
High Tide Technologies
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Unit diagnostic monitoring
Usage tracking
Systems control
Automated meter reading
Cathodic Protection
Irrigation monitoring
Flow monitoring
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Provide method for managing,
controlling, and collecting data from remote sites
Improve maintenance services productivity and
profitability
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Marine vessels
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Metocean Data Systems Ltd.
Recreational boaters*
Skymate, Inc.
Atlantic Electronics
Commercial fishing fleets
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Position reporting
Two-way messaging
Unit diagnostic monitoring
Weather reporting
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Ensure vessel compliance with
regulations
Create a low cost information channel to disseminate
critical weather and safety information
Sea surface temperature reporting
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Government and homeland security/AIS
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National Oceanic and Atmospheric
Administration*
U.S. Coast Guard
U.S. Customs and Border Protection*
U.S. Marine Corps*
Lloyds Register-Fairplay Ltd.
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Container tracking
Environmental monitoring
Satellite-based Automatic Identification System
(AIS) data services
Border monitoring
Vehicle tracking
Vessel Tracking
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Provide efficient monitoring of changing
environmental conditions
Address increasing need to monitor vessels in U.S.
waters
Minimize security threats and secure border
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* |
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Represents an end-user from which we directly derive revenue
through VARs or other resellers. |
Subscriber
communicators
Our subsidiary ORBCOMM Japan, markets and sells subscriber
communicators directly to our customers. We also earn a one-time
royalty fee from third parties for the use of our proprietary
communications protocol, which enables subscriber communicators
to connect to our M2M data communications system. To ensure the
availability of subscriber communicators having different
functional capabilities in sufficient quantities to meet demand,
we have provided extensive design specifications and technical
and engineering support to our manufacturers. In addition,
because we maintain backwards compatibility, subscriber
communicators produced by former manufacturers are still in use
with our system today.
ORBCOMM Japan is currently selling subscriber communicators
manufactured by Quake.
10
Wireless
subscriber identity modules (SIMS)
Our subsidiary, ORBCOMM LLC, markets and sells cellular wireless
subscriber identity modules, or SIMS which are purchased from
the cellular wireless providers and sold to resellers.
Customers
We market and sell our products and services directly to OEM and
government customers and indirectly through VARs, IVARs,
international licensees and country representatives. In 2009,
GE, Caterpillar and Komatsu accounted for 17.0%, 16.2% and 11.3%
of our revenues for fiscal 2009, respectively. In January, 2010,
GE sold its AI division which constituted the majority of our
revenues from GE to I.D. Systems, Inc. Our agreement with GE
continues with I.D. Systems, Inc.
Revenues
in Foreign Geographic Areas
As a result of our acquisition of ORBCOMM Japan in 2008,
revenues in Japan represented approximately 10% and 19% of our
consolidated revenues in 2009 and 2008, respectively. Revenues
in Europe represented approximately 12% of our consolidated
revenues in 2007. No other foreign geographic area accounted for
more than 10% of our consolidated revenues.
Key
Strategic Relationships
Delphi
Automotive Systems LLC
In May 2004, we entered into a Cooperation Agreement with
Stellar and Delphi Corporation, a tier-one automotive components
supplier that designs, manufacturers and supplies advanced
automotive grade subscriber communicators for Stellar for use
with our satellite communications system. Pursuant to the
agreement, and subject to limited exceptions, Delphi
Corporations Delphi Automotive System LLC subsidiary, or
Delphi, is the sole supplier of subscriber communicators for
Stellar. In November 2008, we entered into an amendment to the
Cooperation Agreement with Stellar and Delphi dated in May 2004
to extend the terms of Cooperation Agreement until
December 31, 2010. This relationship provides Stellar
access to Delphis substantial technical and manufacturing
resources, which we believe enables Stellar to continue to lower
the cost of our subscriber communicators while at the same time
providing improved features.
General
Electric Company
We have a significant customer relationship with General
Electric Company, that provides access to a wide array of sales
channels and extends to several divisions and businesses,
including GE Equipment Services. GE Equipment Services develops
applications that use our M2M data communications system and
includes Trailer Fleet Services, its Penske Truck Leasing joint
venture, Rail Services and its GE Asset Intelligence LLC
subsidiary, or AI, which was acquired by I.D. Systems, Inc. in
January 2010, among others. All of these GE Equipment Services
divisions directly or indirectly sell applications utilizing our
M2M data communications services and subscriber communicators
manufactured by Stellar. As a result, GE Equipment Services has
a number of different sales channels for the distribution of our
asset monitoring and tracking products either to third party
end-users or to other GE divisions who are end-users.
GE Rail Services is also integrating our M2M data communications
system into its RailWise application for railcars. GE Equipment
Services European division offers RailWise. Penske Truck
Leasing also uses our M2M data communications system to monitor
tractor-trailers, and other GE businesses are monitoring many
different types of assets, including GE Healthcares
portable MRI machines, locomotives for GE Rail, tractor-trailers
for Penske Truck Leasing, and portable electric generators for
GE Energy.
AI
One of our largest customers in 2009 was AI, which is dedicated
to M2M data communications applications and which renewed its
IVAR agreement with us through 2010.
11
On April 3, 2009, we entered into a settlement agreement
(the Settlement Agreement) with AI with respect to
the supply agreement dated October 10, 2006 between our
Stellar Subsidiary and AI the (2006 Agreement).
Pursuant to the Settlement Agreement, we received
$0.8 million as settlement for GEs obligation under
the 2006 Agreement. We and AI terminated the 2006 Agreement and
all parties respective obligations relating to it, and
released each other from any claims relating to their
obligations arising under the 2006 Agreement, except for certain
obligations related to warranties, indemnities, confidentiality
and intellectual property.
Concurrent with the Settlement Agreement, we and AI entered into
the Services Agreement (the Services Agreement) with
a term of January 1, 2009 through December 31, 2013,
pursuant to which we and AI agree to expand the scope of
services provided or that may in the future be provided to AI to
include other satellite, cellular or dual mode (cellular plus
satellite) data communications services, in addition to the
low-earth-orbit-satellite-based data communication services (the
Low-Earth Services) under the IVAR Agreement.
Under the Services Agreement, AI will activate and provide
telematics and machine-to-machine data communications services
on all communicators sold or managed by or on behalf of AI in
the United States, Canada and Mexico for purposes of
communications between (i) communicators sold or managed by
or on behalf of AIs asset tracking and monitoring business
and (b) communications centers or customers of AIs
asset tracking and monitoring business, whether satellite,
cellular or dual mode (cellular plus satellite), exclusively
(subject to certain restrictions and qualifications) on the
ORBCOMM communications system that provides the Low-Earth
Services and terrestrial-based cellular communication services
through reseller agreements with major cellular wireless
providers and that may in the future provide communication
services through other third party communication networks in
each case as long as we provide competitive services at
competitive rates with appropriate regulatory approval, subject
to the terms of the Services Agreement.
U.S.
Coast Guard
In May 2004, we were awarded a contract by the U.S. Coast
Guard (the USCG) to develop and demonstrate the
ability to receive, collect, and forward AIS data over our
satellite system (the Concept Validation Project).
AIS is a shipboard broadcast system that transmits a marine
vessels identification and position to aid navigation and
improve maritime safety. The International Maritime Organization
has mandated the use of AIS on all Safety of Life at Sea (SOLAS)
vessels, which are vessels over 300 tons. The CDS carries an AIS
receiver in addition to our standard communications payload.
Also we have included the AIS capability in our quick-launch
satellites and intend to outfit our next-generation satellites
with the AIS capability.
We believe we are the only commercially available AIS data
provider with capability beyond terrestrial-based systems
reaching into the open seas. Current terrestrial-based AIS
networks provide limited coverage and are not able to provide
the expanded coverage capability desired by the USCG. By using
our remaining two quick-launch satellites, the USCG can collect
and process AIS data well beyond the coast of the United States
in a cost effective and timely fashion. The USCG has paid us the
full contract price of $7.2 million, primarily for the
construction and launch of an AIS-enabled demonstration
satellite. These payments are included in deferred revenue.
Additional amounts are payable now that the USCG has accepted
the subsequent post-launch AIS data transmission services and
maintenance options.
On April 14, 2008, we and the USCG entered into an
amendment to the agreement extending the definitive launch date
to August 15, 2008. In consideration for agreeing to the
extend the launch date, we agreed to provide the USCG with all
AIS data from each of the quick-launch satellites being launched
with the CDS, to the extent the satellites are providing
service, for 90 continuous days, which commenced on
February 1, 2009 at no additional cost. In addition, the
USCG will have certain intellectual property rights over the AIS
data received by the AIS receivers aboard the quick-launch
satellites and the Coast Guard demonstration satellite solely
during a
90-day
evaluation period to share only with other U.S. government
agencies, provided that during a
90-day
evaluation period we were permitted to use the AIS data from the
quick-launch satellites in connection with our other programs.
On June 19, 2008, the CDS and five quick-launch satellites
were launched. In July 2008, we began transmitting AIS test data
to the USCG. In August 2008, the USCG accepted the AIS data and
elected to receive initial post-
12
launch maintenance for $0.4 million and AIS data
transmission services for $0.2 million over the initial
term of fourteen months. On September 30, 2008, the USCG
increased the initial amount of the usage for the AIS data
transmission services for an additional $0.4 million. In
2009, communications capability for three of the quick-launch
satellites and the CDS has been lost. In August 2009, we placed
in service the remaining two quick-launch satellites for which
we maintain communications capability. These satellites are
providing worldwide AIS services. In August 2009, the USCG
elected to exercise the subsequent post-launch maintenance and
AIS data transmissions services options for $0.2 million
and $0.4 million, respectively, to continue receiving
service from the remaining two quick-launch satellites.
Sales,
Marketing and Distribution
We generally market our satellite and terrestrial communications
services through resellers (i.e.,VARs and internationally
through IVARs, international licensees and country
representatives). The following chart shows how our low cost,
multi-channel distribution network is structured:
VARs and IVARs. We are currently working with
a number of VARs and IVARs and seek to continue to increase the
number of our VARs and IVARs as we expand our business. The role
of the VAR or IVAR is to develop tailored applications that
utilize our system and then market these applications, through
non-exclusive licenses, to specific, targeted vertical markets.
VARs and IVARs are responsible for establishing retail pricing,
collecting airtime revenue from end-users and for providing
customer service and support to end-users. Our relationship with
a VAR or IVAR may be direct or indirect and may be governed by a
reseller agreement between us, the international licensee or
country representative, on the one hand, and the VAR or IVAR on
the other hand, that establishes the VARs or IVARs
responsibilities with respect to the business, as well as the
cost of satellite service to the VAR or IVAR. VARs and IVARs are
responsible for their own development and sales costs. VARs and
IVARs typically have unique industry knowledge, which permits
them to develop applications targeted for a particular industry
or market. Our VARs and IVARs have made significant investments
in developing ORBCOMM-based applications. These applications
often require significant time and financial investment to
develop for commercial use. By leveraging these investments, we
are able to minimize our own research and development costs,
increase the scale of our business without increasing overhead
and diversify our business risk among many sales channels. VARs
and IVARs pay fees for access to our system based on the number
of subscriber communicators they have activated on the network
and on the amount of data transmitted. VARs and IVARs are also
generally required to pay a one-time fee for each subscriber
communicator activated on our system and for other
administrative charges. VARs and IVARs then typically bill
end-users based upon the full value of the application and are
responsible for customer care to the end-user.
Generally, subject to certain regulatory restrictions, the IVAR
arrangement allows us to enter into a single agreement with any
given IVAR and allows the IVARs to pay directly to us a single
price on a single monthly invoice in a single currency for
worldwide service, regardless of the territories they are
selling into, thereby avoiding the need to negotiate prices with
individual international licensees and country representatives.
We pay our international licensees and country representatives a
commission on revenues received from IVARs from each subscriber
communicator activated in a specific territory. The terms of our
reseller agreements with IVARs typically provide for a
three-year initial term that is renewable for additional three
year terms. Under these agreements, the IVAR is
13
responsible for promoting their applications in their respective
territory, providing sales forecasts and provisioning
information to us, collecting airtime revenue from end-users and
paying invoices rendered by us. In addition, IVARs are
responsible for providing customer support.
International licensees and country
representatives. We generally market and
distribute our services outside the United States and Canada
primarily through international licensees and country
representatives, including through our subsidiary, Satcom
International Group plc., which has entered into country
representative agreements with our affiliated international
licensee, ORBCOMM Europe LLC, covering the United Kingdom,
Ireland and Switzerland and a service license agreement covering
substantially all of the countries of the Middle East and a
significant number of countries of Central Asia. In addition,
ORBCOMM Europe and Satcom have entered into an agreement
obligating ORBCOMM Europe to enter into a country representative
agreement for Turkey with Satcom, if the current country
representative agreement for Turkey expires or is terminated for
any reason. We rely on these third parties to establish business
in their respective territories, including obtaining and
maintaining necessary regulatory and other approvals, as well as
managing local VARs. In addition, we believe that our
international licensees and country representatives, through
their local expertise, are able to operate in these territories
in a more efficient and cost-effective manner. We currently have
agreements covering over [90] countries and territories through
our multiple international licensees and country
representatives. As we seek to expand internationally, we expect
to continue to enter into agreements with additional
international licensees and country representatives,
particularly in Asia and Africa. International licensees and
country representatives are generally required to make the
system available in their designated regions to VARs and IVARs.
In territories with multiple countries, it is typical for our
international licensees to appoint country representatives.
Country representatives are
sub-licensees
within the territory. They perform tasks assigned by the
international licensee. In return, the international licensees
are responsible for, among other things, operating and
maintaining the necessary gateway earth stations within their
designated regions, obtaining the necessary regulatory approvals
to provide our services in their designated regions, and
marketing and distributing our services in such regions.
Country representatives are entities that obtain local
regulatory approvals and establish local marketing channels to
provide ORBCOMM services in their designated countries. As a
U.S. company, we are not legally qualified to hold a
license to operate as a telecommunications provider in some
countries and our country representative program permits us to
serve many international markets. In some cases, a country
representative enters into a joint venture with us. In other
cases, the country representative is an independent entity that
pays us fees based on the amount of airtime usage on our system.
Country representatives may distribute our services directly or
through a distribution network made up of local VARs.
Subject to certain limitations, our service license agreements
grant to the international licensee, among other things, the
exclusive right (subject to our right to appoint IVARs) to
market services using our satellite system in a designated
region and a limited right to use certain of our proprietary
technologies and intellectual property.
International licensees and country representatives who are
appointed by us pay fees for access to the system in their
region based on the number of subscriber communicators activated
on the network in their territory and the amount of data
transmitted through the system. We may adjust pricing in
accordance with the terms of the relevant agreements. We pay
international licensees and country representatives a commission
based on the revenue we receive from IVARs that is generated
from subscriber communicators that IVARs activate in their
territories.
We have entered into or are negotiating new service license or
country representative agreements with several international
licensees and country representatives, respectively, including
former licensees of the Predecessor Company and new groups
consisting of affiliates of former licensees of the Predecessor
Company. Until new service license agreements are in place, we
will operate in those regions where a licensee has not been
contracted either pursuant to letters of intent entered into
with such licensee or pursuant to the terms of the original
agreements with the Predecessor Company, as is currently the
case in South Korea and Morocco. There can be no assurance we
will be successful in negotiating new service license or country
representative agreements.
14
Competition
Currently, we are the only commercial provider of below
1 GHz band, or little LEO, two-way data satellite services
optimized for narrowband. However, we are not the only provider
of data communication services, and we face competition from a
variety of existing and proposed products and services.
Competing service providers can be divided into three main
categories: terrestrial tower-based, low-Earth orbit mobile
satellite and geostationary satellite service providers.
Terrestrial
tower-based networks
While terrestrial tower-based networks are capable of providing
services at costs comparable to ours, they lack seamless global
coverage. Terrestrial coverage is dependent on the location of
tower transmitters, which are generally located in densely
populated areas or heavily traveled routes. Several data and
messaging markets, such as long-haul trucking, railroads, oil
and gas, agriculture, utility distribution, and heavy
construction, have significant activity in sparsely populated
areas with limited or no terrestrial coverage. In addition,
there are many different terrestrial systems and protocols, so
service providers must coordinate with multiple carriers to
enable service in different coverage areas. In some geographic
areas, terrestrial tower-based networks have gaps in their
coverage and may require a
back-up
system to fill in such coverage gaps. Beginning in 2007 and
continuing today, we have entered into re-seller agreements with
several major cellular wireless providers in the U.S. and
the rest of the world to provide terrestrial communications
services to our customers who want these services using the
wireless communications networks of these cellular wireless
providers.
Low-Earth
orbit mobile satellite service providers
Low-Earth orbit mobile satellite service providers operating
above the 1 GHz band, or big LEO systems, can provide data
connectivity with global coverage that can compete with our
communications services. To date, the primary focus of big LEO
satellite service providers has been primarily on
circuit-switched communications tailored for voice traffic,
which, by its nature, is less efficient for the transfer of
short data messages because they require a dedicated circuit
that is time and bandwidth intensive when compared to the amount
of information transmitted. However, big LEO satellite service
providers have shifted their focus more on M2M data
communications. These systems entail significantly higher costs
for the satellite fleet operator and the end-users. Our
principal big LEO mobile satellite service competitors are
Globalstar, Inc. and Iridium Communications Inc.
Geostationary
satellite service providers
Geostationary satellite system operators can offer services that
compete with ours. Certain pan-regional or global systems
(operating in the L or S bands), such as Inmarsat plc, are
designed and licensed for mobile high-speed data and voice
services. However, the equipment cost and service fees for
narrowband, or small packet, data communications with these
systems is significantly more expensive than for our system.
Some companies, such as the OmniTracs subsidiary of QUALCOMM
Incorporated, which uses SESs satellites (operating in C
and Ku bands), have developed technologies to use their
bandwidth for mobile applications. We believe that the equipment
cost and service fees for narrowband data communications using
these systems are also significantly higher than ours, and that
these geostationary providers cannot offer global service with
competitive communications devices and costs. In addition, these
geostationary systems have other limitations, such as requiring
a clear line of sight between the communicator equipment and the
satellite, are affected by adverse weather or atmospheric
conditions, and are vulnerable to catastrophic single point
failures of their satellites with limited backup options.
Research
and Development
We are able to minimize our research and development costs by
leveraging the investments made by our VARs and
IVARs. See sales marketing and distribution. We have
incurred no research and development costs in 2009, 2008 and
2007.
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Backlog
We have no significant backlog as of December 31, 2009. The
backlog of subscriber communicators at our Stellar subsidiary as
of December 31, 2008 was 6,508 units, or approximately
$1.0 million, which excludes 200,750 units that AI had
committed to purchase under the 2006 Agreement (see Key
Strategic Relationships General Electric Company),
under which they were in default.
In addition, our pre-bill backlog, which represents
subscriber communicators activated at the customers
request for testing prior to putting the units into actual
service, was 37,858 units as of December 31, 2009, as
compared with a pre-bill backlog of 59,775 as of
December 31, 2008. We believe that the majority of units
that comprise our pre-bill backlog will be billable within a
one-year period. We are not able to determine pre-bill backlog
in dollars because the service costs for each subscriber
communicator varies by customer.
Orbcomm
Communications System
Overview
Our data communications services are provided by our proprietary
two-way satellite system, which is designed to provide
near-real-time and
store-and-forward
communication to and from both fixed and mobile assets around
the world. During the third quarter of 2007, we began providing
terrestrial cellular wireless data communications services
through a reseller agreement with a cellular wireless provider.
Our system has three operational segments:
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The space segment, which consists of a constellation of 29
operational satellites in multiple orbital planes between 435
and 550 miles above the Earth (four primary planes of five
to eight satellites each) operating in the VHF band.;
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The ground and control segment, which consists of fifteen
gateway earth stations, four regional gateway control centers
and a network control center in Dulles, Virginia, through which
data sent to and from satellite subscriber communicators are
routed, including a communications node for terrestrial services
through which data sent to and from terrestrial units are
routed; and
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The subscriber segment, which consists of satellite subscriber
communicators and cellular terrestrial units, or wireless modems
incorporating SIMS used by end-users to transmit and receive
messages to and from their assets and our system.
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For most applications using our system, data is generated by
end-user developed software and is currently transferred to
either a subscriber communicator, or a GPRS-based wireless
device using a SIM on the cellular providers wireless
network. In the case of the satellite subscriber communicator
selection, data is encapsulated and transmitted to the next
satellite that comes into view. The data is then routed by the
satellite to the next gateway earth station it successfully
connects to, which in turn forwards it to the associated gateway
control center. Within the gateway control center, the data is
processed and forwarded to its ultimate destination after
acknowledgement to the satellite subscriber communicator that
the entire data message content has been received. In the case
of the cellular device, a message is routed through the cellular
providers wireless network Gateway GPRS Support
Node (GGSN), to the associated ORBCOMM Access Point Name
(APN) located within the gateway control center, and forwarded
to its ultimate destination in real time. The destination may be
another subscriber communicator, a corporate resource management
system, any personal or business Internet
e-mail
address, a pager or a cellular phone. In addition, data can be
sent in the reverse direction (a feature which is utilized by
many applications to remotely control assets).
When a satellite is in view of and connected to a gateway earth
station at the time it receives data from a subscriber
communicator, a transmission is initiated to transfer the data
in what we refer to as near-real-timemode. In this
near-real-time mode, the data is passed immediately
from a subscriber communicator to a satellite and onto the
gateway earth station to the appropriate control center for
routing to its final destination. When a satellite is not
immediately in view of a gateway earth station, the satellite
switches to a
store-and-forward
mode to accept data in GlobalGram format. These
GlobalGrams are short messages (consisting of data of up to
approximately 120 bytes) and are stored in a satellite until it
can connect through a gateway earth station to
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the appropriate control center. The automatic mode-switching
capability between near-real-time service and GlobalGram service
allows the satellite network to be available to the satellite
subscriber communicators worldwide regardless of their location.
End-user data can be delivered by the gateway control center in
a variety of formats. Communications options include private and
public communications links to the control center, such as
standard Internet, dedicated telecommunications company and
VPN-based transports. Data can also be received via standard
e-mail
protocols with full delivery acknowledgement as requested, or
via our Internet protocol gateway interface in HTML and XML
formats. Wherever possible, our system makes use of existing,
mature technologies and conforms to internationally accepted
standards for electronic mail and web technologies. For
wireless-based applications, the ORBCOMM and cellular providers
APN provides the flexibility for developers to control the
end-to-end
connectivity as needed for the application, using customizable
TCP, UDP, and SMS services. This allows existing legacy
applications to be retrofit and completely new system designs to
be implemented to integrate existing as well as new end user
business applications.
System
Status
Satellite
Impairments and Insurance Recovery
On June 19, 2008, the CDS and five quick-launch satellites
were launched. Due to continued delays associated with the
construction of the final quick-launch satellite, we are
retaining it for future deployment. Since launch, communications
capability for three of the quick-launch satellites and the CDS
has been lost as described below. In August 2009, we placed into
service the remaining two quick-launch satellites for which we
maintain communications capability.
On February 22, 2009, one quick-launch satellite
experienced a power system anomaly that subsequently resulted in
a loss of contact with the satellite. After consultation with
OHB and our own engineers, we believe that after an extended
period of no communication with the satellite, the satellite was
not recoverable. A non-cash impairment charge to write-off the
cost of this satellite of $7.0 million was recognized
during the first quarter of 2009.
On July 31, 2009, another quick-launch satellite
experienced a gateway transmitter anomaly that resulted in a
loss of contact with the satellite by our ground control
systems. After consulting with our engineers, we believe that
the gateway transmitter will not be recovered, resulting in an
inability to provide ORBCOMM messaging and AIS data services by
this satellite. A non-cash impairment charge to write-off the
cost of this satellite of $7.1 million was recognized
during the third quarter of 2009.
On August 7, 2009, another quick-launch satellite
experienced a power system anomaly. Subsequently, on
August 24, 2009, the CDS also experienced an anomaly with
its power system. These anomalies resulted in a loss of contact
with the satellites. After consulting with OHB and our own
engineers, we believe that after such an extended period of no
communication with the satellites, it is unlikely that the
satellites will be recovered based on its experience with
earlier satellites with which contact was similarly lost. A
non-cash impairment charge to write-off the cost of these
satellites of $14.8 million was recorded for a total
impairment charge of $21.9 million recognized during the
third quarter of 2009. During the quarter ended
December 31, 2009, we accrued additional expense of
$0.3 million relating to the quick-launch satellites which
is recorded in impairment charges-satellite network.
The loss of these satellites can result in longer latencies in
transmitting messages but is not otherwise expected to have a
material adverse effect on the current communications service as
the satellites were not in full operational service.
The remaining two quick-launch satellites are equipped with an
AIS payload that provides redundant capabilities for our AIS
data service, and we will be relying on these satellites to
provide AIS data service. These satellites are providing limited
ORBCOMM messaging and worldwide AIS services. These satellites
are experiencing attitude control system anomalies which result
in the satellites not pointing towards the sun and the earth as
expected. These pointing errors result in reduced power
generation, improper satellite spacing within the orbital plane
and reduced communications capabilities. One of these satellites
has an intermittent flight computer anomaly and a power system
anomaly which has significantly reduced its availability. The
similarity of these
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satellites to the failed satellites described below is believed
to significantly reduce their expected useful lives. As a
result, these two satellites have been fully depreciated as of
December 31, 2009. If these satellites also fail, we will
not be able to provide AIS data service, including under
existing contracts, unless we are able to procure other AIS data
service from third parties or until the launch of our AIS
payload equipped next-generation satellites, scheduled as early
as the end of 2010.
We purchased an in-orbit insurance policy that covers the total
loss or constructive total loss of the CDS and five quick-launch
satellites during the coverage period that ended on
June 19, 2009. Under the terms of the policy, a satellite
that does not meet the working satellite criteria constitutes a
constructive total loss of that satellite for insurance
purposes. The in-orbit insurance policy is subject to certain
exclusions including a deductible under which no claim is
payable under the policy for the first satellite to suffer a
constructive total loss or total loss.
We filed a claim under our in-orbit insurance policy for all six
satellites as either a total loss or constructive total loss.
The total loss claim was for the one satellite that suffered a
power system failure resulting in loss of contact in February
2009, and the constructive total loss claim for each of the
other five satellites was on the basis that these satellites did
not meet the working satellite criteria stated in the policy.
The maximum amount recoverable by us under the policy from third
party insurers for all six satellites covered by the policy was
$50.0 million, after taking into account the one-satellite
deductible, under which no claim is payable for the first
satellite to suffer a constructive total loss or total loss, and
less any salvage value that can be established.
On December 10, 2009, we and the third party insurers
entered into a settlement and release agreement to settle any
and all claims relating to the CDS and the five quick-launch
satellites discussed above. Under the terms of the settlement
agreement, we received $44.3 million from the third party
insurers. In addition, each of the insurers has waived all
rights, title and interest in and to the CDS and the five
quick-launch satellites. As a result, we recorded a
$44.3 million insurance recovery in our consolidated
statements of operations in 2009.
Next-Generation
Satellite Launch
On May 5, 2008, we entered into an agreement with Sierra
Nevada Corporation (SNC) to construct eighteen
low-earth-orbit satellites in three sets of six satellites for
our next-generation satellites. SNC will also provide launch
support services, a test satellite (excluding the mechanical
structure), a satellite software simulator and the associated
ground support equipment. Further, we have the option,
exercisable at any time until the third anniversary of the
execution of the agreement, to order up to thirty additional
satellites substantially identical to the eighteen satellites.
The total contract price is $117.0 million, excluding any
optional satellites or change order, subject to price reductions
for failure to achieve certain milestones. Our agreement with
SNC does not include the Falcon 1e as one of the launch vehicles
covered under the fixed price contract. We are negotiating with
SNC a change order to perform some or all of the additional work
required to launch the 18 next-generation satellites on multiple
Falcon 1e launch vehicles but to date have not agreed with SNC
on any changes required. We expect any such change order to
result in increased costs. If we are unable to agree on changes
with SNC, we intend to negotiate with our launch services
provider, utilize internal resources or other third parties, to
perform a portion of the required additional work. SNC is behind
schedule on its contractual milestones although these delays are
currently not impacting the first scheduled launch window in our
contract with our launch services provider of December 1,
2010 through March 31, 2011.
On August 28, 2009, we entered into commercial launch
services agreement (the LSA) with Space Exploration
Technologies Corp. (SpaceX) pursuant to which SpaceX
will provide launch services (the Launch Services)
using multiple SpaceX Falcon 1e launch vehicles for the carriage
into low-Earth-orbit our 18 next-generation commercial
communications satellites currently being constructed by SNC.
Under the LSA, SpaceX will also provide us
satellite-to-launch
vehicle integration and support services, as well as certain
related optional services. The LSA anticipates that the Launch
Services will be performed between the fourth quarter of 2010
and first quarter of 2014, subject to certain rights of ours and
SpaceX to reschedule any of the particular Launch Services as
needed. The LSA also provides us the option to procure, prior to
each Launch Service, reflight launch services whereby in the
event the applicable Launch Service results in a failure due to
the SpaceX launch vehicle, SpaceX will provide comparable
reflight launch services at no additional cost to us beyond the
initial option price for such reflight launch services.
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The total price payable under the LSA (excluding any options or
additional launch services) is $46.6 million, subject to
certain adjustments. We may postpone and reschedule the Launch
Services for any reason at our sole discretion, following a
delay of 12 months for any particular Launch Services. We
also have the right to terminate any of the Launch Services
subject to the payment of a termination fee in an amount that
would be based on the date we exercise our termination right.
Through a series of launches, we intend to replenish the
existing constellation of satellites with 18 next-generation
satellites with increased communications capabilities and our
AIS payload, which depending on the capabilities of the
replacement satellites, which may require fewer satellites than
we currently have. Flexibility in the number of satellites per
launch, the number of satellites inserted into each plane and
target plane may allow us to modify our plans within just a few
months before launch. In addition, we have required SNC to
include options to order additional satellites if the market
demands such an increase or if lower latencies are required or
to mitigate a launch failure.
First
Generation Satellite Health
The majority of our current satellite fleet was put into service
in the late 1990s and has an estimated operating life of
approximately nine to twelve years after giving effect to
certain operational changes and software updates. We believe
that our satellite performance remains stable and sufficient for
the use of our customers. Our satellite availability, or the
percentage of time that an operational satellite is available to
pass commercial traffic, was 94.1% in 2009. Twenty of the
operational satellites have aggregate average availability over
98.3%. With the high probability of several satellites in view
at any one time, especially in the primary coverage area, and
the constant motion of the satellites, the time an operational
satellite is unavailable is relatively insignificant. We
consider a satellite operational unless it can no
longer provide any communications service, and we determine that
further recovery efforts are not expected to return it to
service.
Due to our satellite constellation architecture, which consists
of numerous independent satellites, our space segment is
inherently redundant and service quality is not significantly
affected by an individual satellite failure, although service
quality could be significantly affected by multiple satellite
failures. Our system has experienced minor degradation over
time, equal to less than 3% over the past five years (excluding
three satellites that have slightly lower commercial service
capability). The 3% degradation is primarily due to battery
capacity reduction. We have and expect to continue to develop
operational procedures to minimize the impact for providing
messaging services with degraded batteries.
In 2008, one of our Plane D satellites, which had limited
availability and a battery anomaly preventing nighttime
operation, stopped providing regular operational service
although it may continue to provide operational service on a
limited basis. The remaining five Plane D satellites have been
repositioned to minimize coverage gaps that impact system
latency and overall capacity. In addition, one of our Plane B
satellites is no longer providing operational service. The
remaining seven plane B satellites have been repositioned to
minimize coverage gaps that impact system latency and overall
capacity. In April 2007, our Plane F polar satellite, one of the
original prototype first generation satellites launched in 1995,
was retired due to intermittent service, without any material
impact on our service. Prior to such retirements, a failure of
an operational satellite last occurred in October 2000, prior to
our acquisition of the satellite constellation in 2001, when a
satellite experienced a processor malfunction. These failures
are less than anticipated failure rates and demonstrate the
benefits of a distributed satellite system architecture like
ours. We do not expect the absence of these satellites to
materially affect our business. These satellites are fully
depreciated.
Gateway
Health
The gateway earth stations in the United States are performing
well. We continue to perform infrastructure upgrades including
software upgrades which improved power conditioning and remote
monitoring. In general, our international gateway control
centers are stable. Our gateway control centers all regularly
exceeded 98% availability on a
month-to-month
basis. The majority of the international gateway earth stations
are performing well. In 2009, the international gateway earth
stations located in Malaysia, South America and Kazakhstan
experienced intermittent outages. We refurbished and replaced
numerous components at the Malaysian gateway earth station
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which has resolved the intermittent outages. In 2010, we expect
to perform similar refurbishment activities at the Kazakhstan
and South American gateway earth stations.
Network
Capacity
We continue to conduct analyses to investigate the utilization
of our communication channels. Various metrics were used in
evaluating the different elements of the communication protocol.
The efficiency of the satellites random access subscriber
receivers is measured as the ratio of successfully received
inbound communication packets to the number of assignments made
to subscriber communicators. In the beginning of 2006, the
average value of this ratio was approximately 30%, which is
lower than the expected ratio of between 60% and 80%. Throughout
2006 and 2007, a number of improvements were made to raise this
performance ratio to over 60%. Several modifications also were
made in 2007 that impacted satellite capacity directly,
resulting in a substantial increase in throughput capability. It
should be noted that failed messaging transactions do not result
in lost messages, but do require subscriber communicators to
re-initiate message transmissions. For the user, such instances
could translate into message delays.
Regulation
of Our System in the United States
FCC
authorization
Any entity seeking to construct, launch, or operate a commercial
satellite system in the United States must first be licensed by
the U.S. Federal Communications Commission (FCC).
ORBCOMM License Corp., a wholly owned subsidiary of ours, holds
the satellite constellation license originally issued to ORBCOMM
Global L.P. in 1994 (which we refer to as the Space Segment
License). Pursuant to an application we filed on May 31,
2007, the Space Segment License was most recently modified by
the FCC on March 21, 2008, and currently authorizes the
operation of the first generation ORBCOMM satellites, the
construction, launch and operation a total of 24 ORBCOMM
next-generation replacement satellites, as well any required
construction, launch an operation during the term of the license
of additional technically identical replacement satellites.
ORBCOMM License Corp. also holds additional FCC licenses to:
(1) operate four United States gateway earth stations; and
(2) deploy and operate up to 1,000,000 subscriber
communicators in the United States. We believe that our system
is currently in full compliance with all applicable FCC rules,
policies, and license conditions. We also believe that we will
continue to be able to comply with all applicable FCC
requirements, although we cannot assure you that it will be the
case.
License
renewal
Our Space Segment License renewal application was granted by the
FCC on March 21, 2008, extending the term of the Space
Segment License until April 2025. The current FCC licenses for
the United States gateway earth stations and subscriber
communicators expire on May 17, 2020 and June 12,
2020, respectively, and the renewal applications must be filed
between 30 and 90 days prior to expiration. Although the
FCC has been positively disposed thus far towards granting our
applications for license renewals, there can be no assurance
that the FCC will in fact renew our FCC licenses in the future.
Additionally, there can be no assurance that, to the extent that
any modification our FCC licenses may be required in the future
to address changed circumstances, that any related FCC
applications we may file will be granted on a timely basis, or
at all.
FCC
license conditions
We believe that our system is currently in full compliance with
all applicable FCC rules, policies, and license conditions. We
also believe that we will continue to be able to comply with all
applicable FCC requirements, although we cannot assure you that
it will be the case.
Under the FCCs current rules and policies relating to
little LEO licensing, access in the United States to certain
portions of the uplink and downlink spectrum assigned to our
system was made subject to possible future spectrum sharing
arrangements with one or more other little LEO systems, if such
systems are proposed, and then authorized by the FCC. However,
there are currently no other FCC little LEO licensees authorized
in our spectrum. While other entities could seek to be licensed
in the little LEO service by the FCC, to our knowledge no new
applications have been submitted to date. If any one or more new
entities are licensed and do in fact proceed with
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system deployment in accordance with the previously established
FCC requirements, we believe that there would be no material
adverse effect on our system operations, although we cannot
assure you it will be the case.
Non-common
carrier status
All of our systems FCC licenses authorize service
provision on a non-common carrier basis. As a
result, the system and the services provided thereby have been
subject to limited FCC regulations, but not the obligations,
restrictions and reporting requirements applicable to common
carriers or to providers of Commercial Mobile Radio Services, or
CMRS. There can be no assurance, however, that in the future, we
will not be deemed by the FCC to provide services that are
designated common carrier or CMRS, or that the FCC will not
exercise its discretionary authority to apply its common carrier
or CMRS rules and regulations to us or our system. If this were
to occur, we would be subject to FCC obligations that include
record retention requirements, limitations on use or disclosure
of customer proprietary network information and
truth-in-billing
regulations. In addition, we would need to obtain FCC approval
for foreign ownership in excess of 25 percent and authority
under Section 214 of the Communications Act of 1934, as
amended, to provide international services. Finally, we would be
subject to additional reporting obligations with regard to
international traffic and circuits, and Equal Employment
Opportunity compliance.
United
States import and export control regulations
We are subject to U.S. import and export control laws and
regulations, specifically the Arms Export Control Act, the
International Traffic in Arms Regulations, the Export
Administration Regulations and the trade sanctions laws and
regulations administered by the U.S. Department of the
Treasurys Office of Foreign Assets Control, and we believe
we are in full compliance with all such laws and regulations. We
also believe that we have obtained all the specific
authorizations currently needed to operate our business and
believe that the terms of the relevant licenses are sufficient
given the scope and duration of the activities to which they
pertain.
Regulation
of our System in Other Countries
Communications
services
We, the relevant international licensee
and/or the
relevant international licensees country representative in
each country outside the United States must obtain the requisite
local regulatory authorization before the commencement of
service in that country. The process for obtaining the
applicable regulatory authorization varies from country to
country, and in some instances may require technical studies or
actual experimental field tests under the direction
and/or
supervision of the local regulatory authority. Failure to obtain
or maintain any requisite authorizations in any given country or
territory could mean that services may not be provided in that
country or territory.
Certain countries continue to require that some or all
telecommunications services be provided by a government-owned or
controlled entity. Therefore, under such circumstances, we may
be required to offer our services through a government-owned or
controlled entity.
As part of our international initiative, we are in the process
of seeking or assessing the prospect of obtaining regulatory
authority in other countries and territories, including China,
India and Russia. Because our satellites are licensed by the
FCC, the scope of the local regulatory authority in any given
country or territory outside of the United States (with the
exception of countries where gateway earth stations are located)
is generally limited to the operation of subscriber communicator
equipment, but may also involve additional restrictions or
conditions. Based on available information, we believe that the
regulatory authorizations obtained by us, our international
licensees
and/or their
country representatives are sufficient for the provision of
commercial services in the subject countries and territories,
subject to continuing regulatory compliance. We also believe
that additional local service provision authorizations may be
obtained in other countries and territories in the near future.
Non-U.S.
gateway earth stations
To date, in addition to those in the United States, gateway
earth stations have been authorized and deployed in Argentina,
Australia, Brazil, Curaçao, Italy, Japan, Kazakhstan,
Malaysia, Morocco and South Korea. Gateway
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earth stations are generally licensed on an individual facility
basis. This process normally entails radio frequency
coordination within the country of operation for the specific
frequencies to be used in the designated geographic location of
the subject gateway earth station. This domestic frequency
coordination is in addition to any international coordination
that may be required, as determined by the proximity of the
gateway earth station location to foreign borders (see
International Regulation of Our System).
Based on the best available information, we believe that each of
the above-listed gateway earth stations authorizations is
sufficient for the provision of our commercial services in the
areas served by the relevant facilities. We will need additional
gateway earth station authorizations in other countries as we
install additional gateway earth stations around the world.
Equipment
standards
Each manufacturer of the applicable subscriber communicator is
contractually responsible to obtain and maintain the
governmental authorizations necessary to operate their
subscriber communicators in each jurisdiction. Most countries
generally require all radio transmission equipment used within
their borders to comply with operating standards that may
include specifications relating to required minimum acceptable
levels for radiated power, power density and spurious emissions
into adjacent frequency bands not allocated for the intended
use. Technical criteria established by telecommunications
equipment standards issued by the FCC
and/or the
European Telecommunications Standards Institute, or ETSI, are
generally accepted,
and/or
closely duplicated by domestic equipment approval regulations in
most countries. All current models of subscriber communicators
comply with established FCC standards and many comply with ETSI
standards.
International
Regulation of our System
Our use of certain orbital planes and related system radio
frequency assignments, as licensed by the FCC, is subject to the
frequency coordination and registration process of the ITU. In
order to protect satellite systems from harmful radio frequency
interference from other satellite communications systems, the
ITU maintains a Master International Frequency Register, or
MIFR, of radio frequency assignments and their associated
orbital locations. Each ITU member state (referred to as an
administration) is required by treaty to give notice of,
coordinate and register its proposed use of radio frequency
assignments and associated orbital locations with the ITUs
Radio communication Bureau.
The FCC serves as the notifying administration for the United
States and is responsible for filing and coordinating our
allocated radio frequency assignments and associated orbital
locations for the system with both the ITUs Radio
communication Bureau and the national administrations of other
countries in each satellites service region. While the
FCC, as our notifying administration, is responsible for
coordinating the system, in practice the satellite licensee is
generally responsible for identifying any potential interference
concerns with existing systems or those enjoying date priority
and to coordinate with such systems. If we are unable to reach
agreement and finalize coordination, the FCC would then assist
with such coordination.
When the coordination process is completed, the ITU formally
enters each satellite systems orbital and frequency use
characteristics in the MIFR. Such registration notifies all
proposed users of frequencies that the registered satellite
system is protected from interference from subsequent or
non-conforming uses by other nations. In the event disputes
arise during coordination, the ITUs radio regulations do
not contain mandatory dispute resolution or enforcement
mechanisms and dispute resolution procedures are based on the
willingness of the parties concerned to reach a mutually
acceptable agreement voluntarily. Neither the ITU specifically,
nor international law generally, provides clear remedies if this
voluntary process fails.
The FCC has notified the ITU that our system was initially
placed in service in April 1995 and that it has operated without
any substantiated complaints of interference since that time.
The FCC has also informed the ITU that our system has
successfully completed its coordination with all countries other
than Russia. We expect that we will successfully complete the
ITU coordination process with Russia in the future, at which
time the complete system will be formally registered in the
MIFR. On September 27, 2007, the FCC transmitted an Advance
Publication submission to the ITU relating to the CDS, the
quick-launch satellites and the next-generation satellites; the
first step in the international coordination process for our new
satellites. If design modifications to future system satellites
entail substantial changes to the frequency utilization by the
subject system component(s), additional
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international coordination may be required or reasonably deemed
advisable. However, we believe that ITU coordination can be
successfully completed in all circumstances where such
coordination is required, although we cannot assure you that we
will successfully complete such ITU coordination. Failure to
complete requisite ITU coordination could have a material
adverse effect on our business. Regardless, to date, and to our
best knowledge, the system has not caused harmful interference
to any other radio system, or suffered harmful interference from
any other radio system.
Intellectual
Property
We use and hold intellectual property rights for a number of
trademarks, service marks and logos for our system. We have one
main mark ORBCOMM which is
registered or is pending registration in approximately 125
countries. In addition, we currently have three issued patents
and one patent application relating to various aspects of our
system, and at any time we may file additional patent
applications in the appropriate countries for various aspects of
our system.
We believe that all intellectual property rights used in our
system were independently developed or duly licensed by us, by
those we license the rights from or by the technology companies
who supplied portions of our system. We cannot assure you,
however, that third parties will not bring suit against us for
patent or other infringement of intellectual property rights.
Our patents cover various aspects of the protocol employed by
our subscriber communicators. In addition, certain intellectual
property rights to the software used by the Stellar subscriber
communicators is cross-licensed between Stellar and Delphi.
Employees
As of December 31, 2009, we had 101 full-time
employees. Our employees are not covered by any collective
bargaining agreements and we have not experienced a work
stoppage since our inception. We believe that our relationship
with our employees is good.
Corporate
Information
Our principal executive offices are located at 2115 Linwood
Avenue, Fort Lee, New Jersey 07024, and our telephone
number is
(201) 363-4900.
Our website is www.orbcomm.com and information contained on our
website is not included as a part of, or incorporated by
reference into, this Annual Report on
Form 10-K.
Our annual, quarterly, and other reports, and amendments to
those reports can be obtained through the Investor Relations
section of our website or from the Securities and Exchange
Commission at www.sec.gov.
Executive
Officers of the Registrant
Certain information regarding our executive officers is provided
below:
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Name
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Age
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Position(s)
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Marc J. Eisenberg
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43
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Chief Executive Officer and President
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Robert G. Costantini
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50
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Executive Vice President and Chief Financial Officer
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John J. Stolte, Jr.
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50
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Executive Vice President Technology and Operations
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Christian G. Le Brun
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42
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Executive Vice President and General Counsel
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Brian J. Bell
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43
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Executive Vice President Sales and Marketing
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Marc J. Eisenberg is our Chief Executive Officer and
President, a position he has held since March 31, 2008, and
a member of our board of directors since March 7, 2008.
From June 2006 to March 30, 2008 he was our Chief Operating
Officer and from March 2002 to June 2006, he was our Executive
Vice President, Sales and Marketing. He was a member of the
board of directors of ORBCOMM Holdings LLC from May 2002 until
February 2004. Prior to joining ORBCOMM, from 1999 to 2001,
Mr. Eisenberg was a Senior Vice President of Cablevision
23
Electronics Investments, where among his duties he was
responsible for selling Cablevision services such as video and
internet subscriptions through its retail channel. From 1984 to
1999, he held various positions, most recently as the Senior
Vice President of Sales and Operations with the consumer
electronics company The Wiz, where he oversaw sales and
operations and was responsible for over 2,000 employees and
$1 billion a year in sales. Mr. Eisenberg is the son
of Jerome B. Eisenberg, our Chairman of the Board.
Robert G. Costantini is our Executive Vice President and
Chief Financial Officer, a position he has held since
October 2, 2006. From October 2003 until September 2006, he
served as Chief Financial Officer, Senior Vice President and
Corporate Secretary of First Aviation Services Inc., an aviation
services company providing aircraft parts and maintenance
services. From 1999 to 2003, Mr. Costantini was the Chief
Financial Officer of FocusVision Worldwide, Inc., a technology
company providing video transmission services. From 1986 to
1989, he was Corporate Controller and from 1989 to 1999 he was
Vice-President Finance of M.T. Maritime Management
Corp., a global maritime transportation company.
Mr. Costantini started his career with Peat Marwick,
Mitchell & Co. Mr. Costantini is a Certified
Public Accountant, Certified Management Accountant, and a member
of the bar of New York and Connecticut.
John J. Stolte, Jr. is our Executive Vice President,
Technology and Operations, a position he has held since April
2001. From January to April 2001, he held a similar position
with ORBCOMM Global L.P. Mr. Stolte has over 20 years
of technology management experience in the aerospace and
telecommunications industries. Prior to joining ORBCOMM Global
L.P., Mr. Stolte held a number of positions at Orbital
Sciences Corporation from September 1990 to January 2001, most
recently as Program Director, where he was responsible for
design, manufacturing and launch of the ORBCOMM satellite
constellation. From 1982 to 1990, Mr. Stolte worked for
McDonnell Douglas in a number of positions including at the
Naval Research Laboratory where he led the successful
integration, test and launch of a multi-billion dollar defense
satellite.
Christian G. Le Brun is our Executive Vice President and
General Counsel, a position he has held since March 31,
2008. From April 2005 to March 30, 2008, Mr. Le Brun
was our Senior Vice President and General Counsel. Prior to
joining ORBCOMM, from 1999 to 2005, Mr. Le Brun was an
attorney with Chadbourne & Parke LLP, where he oversaw
a broad range of transactions, including mergers, acquisitions,
divestitures, corporate restructurings and work-outs, as well as
debt and equity financing arrangements involving publicly-held
and private companies. In addition, from 1994 to 1999, he was a
corporate attorney with Pullman & Comley, LLC.
Brian J. Bell is our Executive Vice President, Sales and
Marketing, a position he has held since joining the Company on
July 1, 2009. From 2007 to 2009, he served as Regional Head
of Sales for British Telecom, where he was responsible for
strategy, development and management of their Global Partners
sales organization in North America. From January 2004 to
September 2007, Mr. Bell was Executive Director of
Sales with Verizon Business where he managed a sales and support
organization responsible for some of Verizons largest and
most complex accounts including IBM, CSC, Northrop Grumman and
the Federal Aviation Administration. From
1996-2004,
Mr. Bell held various senior management roles at IBM,
Winstar Communications and Internap where he successfully
developed large account sales teams, global distribution
alliances and channel marketing programs with an emphasis on
launching new business initiatives and developing new geographic
markets. Mr. Bell started his career in 1990 at
MCI Communications, where he held positions of increasing
responsibility in finance and sales management.
Set forth below and elsewhere in this Annual Report on
Form 10-K
are risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the
forward-looking statements contained in this Annual Report on
Form 10-K.
Any of these risks could also materially and adversely affect
our business, financial condition or the price of our common
stock. Because of the following factors, as well as other
variables affecting our operating results, past financial
performance should not be considered as a reliable indicator of
future performance and investors should not use historical
trends to anticipate results or trends in future periods.
24
Risks
Relating to Our Business
A
global recession and continued worldwide credit and capital
constraints could adversely affect us.
Recent global economic conditions, including concerns about a
continued global recession, tightening of credit and capital
markets and failures or material business deteriorations of
financial institutions and other entities, have resulted in
unprecedented government intervention in the U.S., Europe and
other regions of the world. In addition, the market turmoil and
tightening of credit have led to lack of customer confidence,
increased market volatility and a reduction of general business
activity. If these conditions continue or worsen, risks to us
include:
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potential declines in revenues, profitability and cash flow due
to reduced orders for our products and services, payment delays
or other factors caused by economic challenges faced by our
customers, end-users and prospective customers and end-users;
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potential adverse impacts on our ability and our customers
and vendors ability to access credit and capital
sources; and
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potential reprioritization by our customers, end-users and
prospective customers and end-users of resources away from
investments in capital improvements, equipment, vehicles or
vessels which use our products and services including in the
transportation market among other markets which use our products
and services.
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Any such impacts could have a material adverse effect on our
business, financial condition, operating results and cash flow.
Our
business plan depends on both increased demand for mobile
satellite services and our ability to successfully implement
it.
Our business plan is predicated on growth in demand for M2M and
AIS mobile data satellite services. Demand for such satellite
services may not grow, or may even contract, either generally or
in particular geographic markets, for particular types of
services or during particular time periods. A lack of demand
could impair our ability to sell products and services, develop
and successfully market new products and services and could
exert downward pressure on prices. Any decline in prices would
decrease our revenues and profitability and negatively affect
our ability to generate cash for investments and other working
capital needs.
Our ability to successfully implement our business plan will
also depend on a number of other factors, including:
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our ability to maintain the health, capacity and control of our
existing satellite network;
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the ability of our vendors to successfully complete the design,
build and launch of our next-generation satellites and related
ground infrastructure, products and services and, once launched,
our ability to maintain the health, capacity and control of such
satellite constellation;
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the level of market acceptance and demand for our products and
services;
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our ability to introduce innovative new products and services
that satisfy market demand;
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our ability to sell our products and services in additional
countries;
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the ability of our OEMs, VARs and IVARs to market and distribute
their products, services and applications effectively and their
continued development of innovative and improved solutions and
applications for our products and services;
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the effectiveness of our competitors in developing and offering
similar services and products; and
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our ability to maintain competitive prices for our products and
services and control costs.
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We
have incurred substantial operating losses and are incurring net
losses. We anticipate additional future losses. We must increase
our revenues to become profitable.
We have had annual net losses since our inception, including a
net loss of $3.4 million for fiscal year 2009 and at
December 31, 2009, we had an accumulated deficit of
$71.4 million. Our future results will continue to reflect
significant operating expenses, including expenses associated
with expanding our sales and marketing efforts, maintaining the
infrastructure to operate as a public company and the
maintenance of existing gateway earth stations and satellite
network ground segment facilities. As a result, we may incur
additional operating losses and net losses in the future. The
continued development of our business also will require
additional capital expenditures for, among other things, the
development, construction, launch and insurance for our
next-generation satellites, and the installation of additional
gateway earth stations and associated satellite network ground
segment facilities around the world, as well as the maintenance
of existing gateway earth stations and satellite network ground
segment facilities that we own and operate. Accordingly, as we
make these capital investments, our future results will include
greater depreciation and amortization expense which reflect the
full cost of acquiring these new assets.
In order to become profitable, we must increase revenue. Revenue
will depend on the success of our resellers and acceptance of
our products and services by end-users in current markets, as
well as in new geographic and industry markets. We may not
become profitable and we may not be able to sustain such
profitability, if achieved.
We may
need additional capital to complete our capital expenditure
plans, which may not be available to us when we need it on
favorable terms, or at all. Our next-generation satellites may
not be completed on time, and the costs associated with it may
be greater than expected.
If our future cash flows from operations are less than expected
or if our capital expenditures exceed our spending plans, either
in terms of aggregate amount or timing, our existing sources of
liquidity, including cash and cash equivalents on hand and cash
generated from sales of our products and services may not be
sufficient to fund our anticipated operations, capital
expenditures (including the deployment of additional
satellites), working capital and other financing requirements.
If we continue to incur operating losses in the future, we may
need to reduce further our operating costs or obtain alternate
sources of financing, or both, to remain viable and, in
particular, to fund the design, construction, launch and
insurance for our next-generation satellites. We cannot assure
you that we will have access to additional sources of capital on
favorable terms or at all.
We estimate that the aggregate costs associated with the design,
building launch and insurance of our next-generation satellites
and related infrastructure upgrades will be approximately
$200 million, approximately $50 million of which has
been paid. We may not complete our next-generation satellites
and related infrastructure, products and services on time, on
budget or at all. The design, manufacture and launch of
satellite systems are highly complex and historically have been
subject to delays and cost overruns. The deployment of our
next-generation
satellites may suffer from delays, interruptions or increased
costs due to many factors, some of which may be beyond our
control, including:
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lower than anticipated internally generated cash flows;
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engineering or manufacturing performance falling below expected
levels of output or efficiency;
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denial or delays in receipt of regulatory approvals or
non-compliance with conditions imposed by regulatory authorities;
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the breakdown or failure of equipment or systems;
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non-performance by third-party contractors, including the prime
system contractor and associated subcontractors;
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the inability to license necessary technology on commercially
reasonable terms or at all;
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use of a new or unproven launch vehicle;
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launch delays or failures or in-orbit satellite failures once
launched or the decision to manufacture additional replacement
satellites for future launches;
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labor disputes or disruptions in labor productivity or the
unavailability of skilled labor;
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Changes in project scope;
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additional requirements imposed by changes in laws; and
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severe weather or catastrophic events such as fires,
earthquakes, storms or explosions.
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If any of the above events occur, they could have a material
adverse effect on our ability to continue to deploy our
next-generation satellites and related infrastructure, products
and services.
We
incur significant costs as a result of operating as a public
company, and our management devotes substantial time to new
compliance requirements.
We incur significant legal, accounting and other expenses as a
public company, including costs resulting from regulations
regarding corporate governance practices. For example, the
listing requirements of The Nasdaq Global Market require that we
satisfy certain corporate governance requirements relating to
independent directors, audit committees, distribution of annual
and interim reports, stockholder meetings, stockholder
approvals, solicitation of proxies, conflicts of interest,
stockholder voting rights and codes of conduct. Our management
and other personnel devote a substantial amount of time to these
compliance requirements. Moreover, these rules and regulations
have increased our legal and financial compliance costs and will
make some activities more time-consuming and costly. Further,
these rules and regulations could make it more difficult for us
to attract and retain qualified persons to serve on our board of
directors, our board committees or as executive officers.
If
end-users do not accept our services and the applications
developed by VARs or we cannot obtain or maintain the necessary
regulatory approvals or licenses for particular countries or
territories, we will fail to attract new customers and our
business will be harmed.
Our success depends on end-users accepting our services, the
applications developed by VARs, and a number of other factors,
including the technical capabilities of our system, the
availability of low cost subscriber communicators, the receipt
and maintenance of regulatory and other approvals in the United
States and other countries and territories in which we operate,
the price of our services and the extent and availability of
competitive or alternative services. We may not succeed in
increasing revenue from the sale of our products and services to
new and existing customers. Our failure to significantly
increase the number of end-users will harm our business.
Our business plan assumes that potential customers and end-users
will accept certain limitations inherent in our system. For
example, our satellite system is optimized for small packet, or
narrowband, data transmissions, is subject to certain delays in
the relay of messages, referred to as latencies, and may be
subject to certain
line-of-sight
limitations between our satellites and the end-users
subscriber communicator. In addition, our satellite system is
not capable of handling voice traffic. Certain potential
end-users, particularly those requiring full time, real-time
communications and those requiring the transmission of large
amounts of data or voice traffic, may find such limitations
unacceptable. Furthermore, our satellite-based AIS system does
not receive all AIS transmission signals on AIS equipped vessels
in a given day due to signal collisions and co-channel
interference of AIS transmissions, particularly in areas with a
high density of AIS equipped vessels such as ports.
In addition to the limitations imposed by the architecture of
our system, our failure to obtain the necessary regulatory and
other approvals or licenses in a given country or territory will
preclude the availability of our services in such country or
territory until such time, if at all, that such approvals or
licenses can be obtained. Certain potential end-users requiring
messaging services in those countries and territories may find
such limitations unacceptable.
We
face competition from existing and potential competitors in the
telecommunications industry, including numerous terrestrial and
satellite-based network systems with greater resources, which
could reduce our market share and revenues.
Competition in the telecommunications industry is intense,
fueled by rapid, continuous technological advances and alliances
between industry participants seeking to capture significant
market share. We face competition from numerous existing and
potential alternative telecommunications products and services
provided
27
by various large and small companies, including sophisticated
two-way satellite-based data and voice communication services
and next-generation digital cellular services, such as GSM and
3G, which has influenced the price at which our VARs and other
service providers offer our services. The provision of satellite
based data services and products is subject to downward price
pressure to expand their respective market share. Recently,
competition from Iridium, Inmarsat and, to a lesser extent,
Globalstar, three global satellite communication services
operators, has been increasing with respect to low speed data
service. In addition, a continuing trend toward consolidation
and strategic alliances in the telecommunications industry could
give rise to significant new competitors, and foreign
competitors may benefit from government subsidies, or other
protective measures, afforded by its home country. Some of these
competitors may provide more efficient or less expensive
services than we are able to provide, which could reduce our
market share and adversely affect our revenues and business.
Many of our existing and potential competitors have
substantially greater financial, technical, marketing and
distribution resources than we do. Additionally, many of these
companies have greater name recognition and more established
relationships with our target customers. Furthermore, these
competitors may be able to adopt more aggressive pricing
policies and offer customers more attractive terms than we can.
We
have a limited operating history and recently commenced the
commercialization of our new
satellite-based
AIS service, which makes it difficult to evaluate your
investment in us.
We have conducted commercial operations since April 2001, when
we acquired substantially all of our current communications
system from ORBCOMM Global L.P. and its subsidiaries. In
addition, we recently commenced the commercialization of our new
satellite-based AIS service and four of our six satellites
recently launched with AIS capability have failed and are no
longer able to provide service. Our prospects and ability to
implement our current business plan, including our ability to
provide commercial two-way data communications service in key
markets on a global basis and to generate revenues and positive
operating cash flows, will depend on our ability to, among other
things:
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successfully operate and maintain our remaining two quick-launch
satellites with AIS capability in light of the failure of the
other quick-launch satellites of identical design, and
successfully design, construct, launch, place in commercial
service, operate and maintain our next-generation satellites in
a timely and cost-efficient manner;
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develop licensing and distribution arrangements in key markets
within and outside the United States sufficient to capture and
retain an adequate customer base;
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install the necessary ground infrastructure and obtain and
maintain the necessary regulatory and other approvals in key
markets outside the United States, by our own efforts or through
our existing or future international licensees, to expand our
business internationally; and
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successfully attract and maintain manufacturers that provide for
the timely design, manufacture and distribution of subscriber
communicators in sufficient quantities, with appropriate
functional characteristics and at competitive prices, for
various applications.
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Given our limited operating history, there can be no assurance
that we will be able to achieve these objectives or develop a
sufficiently large revenue-generating customer base to achieve
profitability. In particular, because we acquired a fully
operational satellite constellation and communications system
from ORBCOMM Global L.P. and its subsidiaries, our current
senior management team has limited experience with managing the
design, construction, launch, and in-orbit testing and
deployment of a satellite system.
The
CDS and three quick-launch satellites experienced anomalies that
subsequently resulted in a loss of contact with these
satellites, which could also occur with the two remaining
quick-launch satellites of the same design. Any additional
losses of these satellites could have a major impact on our
plans to replenish and extend the operating life of our
satellite constellation.
Even if we can determine the root cause and establish operations
procedures, if any, to preclude similar failures from occurring
on the remaining two quick-launch satellites that are of the
same design, we may not be able to prevent a similar occurrence
from happening on the remaining two quick-launch satellites.
28
Our plans to extend the operating life of our network are
dependent on the health of our satellites, and the failure of
the CDS and other quick-launch satellites could have a
significant impact on the operating life of our network. The
continued operation of the remaining two deployed quick-launch
satellites is important to us to leverage our work with AIS to
then resell AIS data collected by our satellites, as well as to
augment our current satellite constellation. In addition, these
new satellites were intended to supplement and ultimately
replace our existing Plane A satellites and are important to
maintain adequate service levels and to provide additional
capacity for future subscriber growth. A failure of our
remaining deployed quick-launch satellites could materially
adversely affect our business, financial condition and results
of operations. We are relying on these satellites to provide AIS
data service. If these satellites also fail, we will not be able
to provide AIS data service, including under existing contracts,
unless we are able to procure other AIS data from third parties
or until the launch of our AIS payload equipped next-generation
satellites. See The ORBCOMM Communications
System System Status for a description of the
status of our communications network.
Our
success in generating sufficient cash from operations to fund a
portion of the cost of constructing, launching and insuring our
next-generation satellites will depend in part on the market
acceptance and success of our new AIS data service, which may
not occur.
We recently commenced the commercialization of our
satellite-based AIS service to receive and report AIS
transmissions to be used for ship tracking and other
navigational activities, and have been working closely with the
U.S. Coast Guard on the AIS project. Four of our six
satellites launched with AIS capability have failed and are no
longer able to provide service. We intend to market AIS data
received from the remaining two quick-launch satellites as well
as our next-generation satellites to other U.S. and
international government agencies, as well as to companies whose
businesses require such information. We are currently relying on
the two remaining quick launch satellites to provide AIS data
service. If these satellites also fail, we will not be able to
provide AIS data service, including under existing contracts,
unless we are able to procure other AIS data from third parties
or until the launch of our AIS payload equipped next-generation
satellites.
The market for our satellite-based AIS service is new and
untested. We cannot predict with certainty the potential demand
for the services we plan to offer or the extent to which we will
be able to meet that demand. Although we believe the market for
satellite-based AIS service is significant, the actual size of
the market is unknown and subject to significant uncertainty.
Demand for our AIS data service offerings in general, in
particular geographic markets, for particular types of services
or during particular time periods may not enable us to generate
sufficient positive cash flow to fund a portion of the cost of
our next-generation satellites. Among other things, end-user
acceptance of our AIS data service offerings will depend upon:
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our ability to maintain commercially acceptable AIS service from
the remaining two quick-launch satellites in light of the
failure of the other quick-launch satellites of identical design.
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the actual size of the addressable market;
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our ability to provide attractive service offerings at
competitive prices to our target markets;
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the effectiveness of our competitors in developing and offering
alternative technologies or lower priced services; and
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general and local economic conditions.
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Our business plan assumes a rapidly growing revenue base for AIS
data service. If we cannot implement this business plan
successfully and gain market acceptance for these planned AIS
data services, our business, financial condition, results of
operations and liquidity could be materially and adversely
affected.
We
rely on third parties to market and distribute our services to
end-users. If these parties are unwilling or unable to provide
applications and services to end-users, our business will be
harmed.
We rely on VARs to market and distribute our services to
end-users in the United States, and we rely on international
licensees, country representatives, VARs and IVARs, outside the
United States (we refer collectively here to all such parties as
resellers). We also rely on resellers to market and
distribute our AIS services. The
29
willingness of our existing resellers, as well as potential new
resellers, to engage or continue to engage in our business
depends on a number of factors, including whether they perceive
our services to be compatible with their business objectives,
whether they believe we will successfully deploy our
next-generation satellites, whether the prices they can charge
end-users will provide an adequate return, and regulatory
constraints, if any. We believe that successful marketing of our
services will depend on the design, development and commercial
availability of applications that support the specific needs of
the targeted end-users. The design, development and
implementation of applications require the commitment of
substantial financial and technological resources on the part of
these resellers. Certain resellers are, and many potential
resellers will be, newly formed or small ventures with limited
financial resources, and such entities might not be successful
in their efforts to design applications or effectively market
our services. The inability of these resellers to provide
applications to end-users could have a harmful effect on our
business, financial condition and results of operations. We also
believe that our success depends upon the pricing of
applications by our resellers to end-users, over which we have
no control other than with respect to AIS services under certain
circumstances.
As a result of these arrangements, we are dependent on the
performance of our resellers to generate substantially all our
service revenues. If our resellers fail to market or distribute
our services effectively, our revenues, profitability, liquidity
and reputation could be adversely affected.
Defects
or errors in applications could result in end-users not being
able to use our services, which would damage our reputation and
harm our financial condition.
Our resellers must develop applications quickly to keep pace
with rapidly changing markets. These applications, as well as
new models of subscriber communicators, have long development
cycles and are likely to contain undetected errors or defects,
especially when first introduced or when subsequent versions are
introduced, which could result in the disruption of our services
to the end-users. While we sometimes assist our resellers in
developing applications, we have limited ability to accelerate
development cycles to avoid errors and defects in their
applications. Such disruption could damage our reputation as
well as the reputation of the respective resellers, and result
in lost customers, lost revenue, diverted development resources,
and increased service and warranty costs.
Because
we depend on a few significant customers for a substantial
portion of our revenues, the loss or decline or slowdown in
growth in business of any customer could seriously harm our
business.
Significant customers such as the AI subsidiary of I.D. Systems,
Inc. (formerly a division of GE), represented 17.0% and 19.3% of
our revenues in 2009 and 2008, respectively, Caterpillar, and
Hitachi represent a substantial portion of our revenues in 2009
and 2008, and are expected to represent a substantial portion of
our revenues in the near future. We expect AI to continue to
represent a substantial part of our revenues in the near future.
As a result, the loss of these customers or any other major
customer, or decline or slowdown in the growth in business of
these customers or any other significant customer, which could
occur at any time, could have a material adverse effect on our
business, financial condition and results of operations. In
addition, because service revenue depends either partially or
entirely on the usage of the ORBCOMM System by our customers and
end users, the decline or slowdown in the growth of usage
patterns of AI or any other significant customer, which could
occur at any time and with or without a reduction in the number
of billable subscriber communicators activated on the ORBCOMM
System by such customers, could have a material adverse effect
on our business, financial condition and results of operations.
If our
international licensees and country representatives are not
successful in establishing their businesses outside of the
United States, the prospects for our business will be
limited.
Outside of the United States, we rely in part on international
licensees and country representatives to establish businesses in
their respective territories, including obtaining and
maintaining necessary regulatory and other approvals as well as
managing local VARs. International licensees and country
representatives may not be successful in obtaining and
maintaining the necessary regulatory and other approvals to
provide our services in their assigned territories and, even if
those approvals are obtained and maintained, international
licensees
and/or
country representatives may not be successful in developing a
market
and/or
distribution network within their territories. Certain of the
international licensees
and/or
country representatives are, or are likely to be, newly formed
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or small ventures with limited or no operational history and
limited financial resources, and any such entities may not be
successful in their efforts to secure adequate financing and to
continue operating. In addition, in certain countries and
territories outside the United States, we rely on international
licensees and country representatives to operate and maintain
various components of our system, such as gateway earth
stations. These international licensees and country
representatives may not be successful in operating and
maintaining such components of our communications system and may
not have the same financial incentives as we do to maintain
those components in good repair.
Some
of our international licensees and country representatives are
experiencing significant operational and financial difficulties
and have in the past defaulted on their obligations to
us.
Many of our international licensees and country representatives
were also international licensees and country representatives of
our predecessor company and, as a consequence of the bankruptcy
of ORBCOMM Global L.P., they were left in many cases with
significant financial problems, including significant debt and
insufficient working capital. Certain of our international
licensees and country representatives (including in Korea,
Malaysia, Mexico, South America and Africa, and to a lesser
extent, Europe) have not yet been able to successfully or
adequately reorganize or recapitalize themselves and as a result
have continued to experience significant material difficulties,
including the failure to pay us for our services. To date,
several of our licensees and country representatives have had
difficulty in paying their usage fees and have not paid us or
have paid us at reduced rates and in cases where collectibility
is not reasonably assured, we have not reflected invoices issued
to such licensees and country representatives in our revenues or
accounts receivable. The ability of these international
licensees and country representatives to pay their obligations
to us may be dependent, in many cases, upon their ability to
successfully restructure their business and operations or raise
additional capital. In addition, we have from time to time had
disagreements with certain of our international licensees
related to these operational and financial difficulties. To the
extent these international licensees and country representatives
are unable to reorganize
and/or raise
additional capital to execute their business plans on favorable
terms (or are delayed in doing so), our ability to offer
services internationally and recognize revenue will be impaired
and our business, financial condition and results of operations
may be adversely affected.
As a result of these difficulties experienced by our
international licensees, we have and expect to continue to
acquire their operations and, where permissible, seek to
maintain control of international licensees through majority
ownership. Although we have implemented a strategy for the
acquisition of certain independent licensees and gateway earth
station operators when circumstances permit, we may not be able
to continue to implement this strategy on favorable terms and
may not be able to realize the additional efficiencies that we
anticipate from this strategy. In some regions it is
impracticable to acquire the independent gateway earth station
operators either because local regulatory requirements or
business or cultural norms do not permit an acquisition, because
the expected revenue increase from an acquisition would be
insufficient to justify the transaction, or because the
independent gateway earth station operator will not sell at a
price acceptable to us. In those regions, our revenue and
profits may be adversely affected if those independent gateway
earth station operators do not fulfill their own business plans
to increase substantially their sales of services and products.
While expanding our international operations would advance our
growth, it would also increase numerous risks, including:
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difficulties in penetrating new markets due to established and
entrenched competitors;
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difficulties in developing products and services that are
tailored to the needs of local customers;
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lack of local acceptance or knowledge of our products and
services;
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lack of recognition of our products and services;
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unavailability of or difficulties in establishing relationships
with distributors;
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significant investments, including the development and
deployment of dedicated gateway earth stations or other ground
infrastructure as certain countries require physical gateways
within their jurisdiction to connect the traffic coming to and
from their territory;
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instability of international economies and governments;
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changes in laws and policies affecting trade and investment in
other jurisdictions;
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exposure to varying legal standards, including intellectual
property protection and foreign state ownership laws, in other
jurisdictions;
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difficulties in obtaining required regulatory authorizations;
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difficulties in enforcing legal rights in other jurisdictions;
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local domestic ownership requirements;
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changing and conflicting national and local regulatory
requirements; and
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foreign currency exchange rates and exchange controls.
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These risks could affect our ability to successfully compete and
expand internationally. The prices for most of our products and
services are denominated in U.S. dollars. Any appreciation
of the U.S. dollar against other currencies will increase
the cost of our products and services to our international
customers and, as a result, may reduce the competitiveness of
our international offerings and make it more difficult for us to
grow internationally.
We
currently are unable to offer near-real-time service
in important regions of the world due to the absence of gateway
earth stations in those areas, which is limiting our growth and
our ability to compete.
Our objective is to establish a worldwide service network,
either directly or through independent gateway operators, but to
date we have been unable to do so in certain areas of the world
and we may not succeed in doing so in the future. We have been
unable to find capable independent gateway operators or
otherwise obtain regulatory authorizations to install and
operate gateway earth stations for several important regions and
countries, including Southern Africa, India, Russia and certain
parts of Southeast Asia. This could reduce overall demand for
our products and services and reduce the value of our services
for potential users who require service in these areas.
A
natural disaster could diminish our ability to provide
communications service.
Natural disasters could damage or destroy our gateway earth
stations or our other ground-based facilities resulting in a
disruption of service to our customers in the affected region.
In addition, the collateral effects of such natural disasters
could impair the functioning of our ground equipment. If a
natural disaster were to impair or destroy any of our ground
facilities, we might be unable to provide service to our
customers in the affected area for a period of time. Even if the
gateway earth stations are not affected by natural disasters,
our service could be disrupted if a natural disaster damages
wireline or terrestrial wireless networks that we utilize, or
disrupts our ability to connect to those networks. Such failure
or service disruptions could harm our business and results of
operations.
We
rely on a limited number of manufacturers for our subscriber
communicators. If we are unable to, or cannot find third parties
to, manufacture a sufficient quantity of subscriber
communicators at a reasonable price, the prospects for our
business will be negatively impacted.
The development and availability on a timely basis of relatively
inexpensive subscriber communicators are critical to the
successful commercial operation of our system. Our Stellar
subsidiary relies on a contract manufacturer, Delphi Automotive
Systems LLC, or Delphi, a subsidiary of Delphi Corporation, to
produce subscriber communicators. Our customers may not be able
to obtain a sufficient supply of subscriber communicators at
price points or with functional characteristics and reliability
that meet their needs. An inability to successfully develop and
manufacture subscriber communicators that meet the needs of
customers and are available in sufficient numbers and at prices
that render our services cost-effective to customers could limit
the acceptance of our system and potentially affect the quality
of our services, which could have a material adverse effect on
our business, financial condition and results of operations.
Our business may be materially and adversely affected if
Stellars agreement with Delphi Corporation is terminated
or modified. If our agreements with third party manufacturers
are, or Stellars agreement with Delphi Corporation is,
terminated or expire, our search for additional or alternate
manufacturers could result in significant
32
delays, added expense and an inability to maintain or expand our
customer base. Any of these events could require us to take
unforeseen actions or devote additional resources to provide our
services and could harm our ability to compete effectively.
There are currently three manufacturers of subscriber
communicators, including Stellar, Quake Global, Inc., or Quake,
and Digi International, which acquired Mobile Applitechs
business. In addition, Sierra Wireless is manufacturing a model
of dual-mode subscriber communicator (GSM cellular and ORBCOMM)
based on a licensing arrangement with Digi International with
respect to the ORBCOMM communications component. If our
agreements with third party manufacturers, including our
subscriber communicator manufacturing agreements with Quake or
Digi International are terminated or expire, our search for
additional or alternate manufacturers could result in
significant delays in customers activating subscriber
communicators on our communications system, added expense for
our customers and our inability to maintain or expand our
customer base.
We
depend on recruiting and retaining qualified personnel and our
inability to do so would seriously harm our
business.
Because of the technical nature of our services and the market
in which we compete, our success depends on the continued
services of our key personnel, including certain of our
engineering personnel, and our ability to attract and retain
qualified personnel. The loss of the services of one or more of
our key employees or our inability to attract, retain and
motivate qualified personnel could have a material adverse
effect on our ability to operate our business and our financial
condition and results of operations. We do not have key-man life
insurance policies covering any of our executive officers or key
technical personnel. Competitors and others have in the past,
and may in the future, attempt to recruit our employees. The
available pool of individuals with relevant experience in the
satellite industry is limited, and the process of identifying
and recruiting personnel with the skills necessary to operate
our system can be lengthy and expensive. In addition, new
employees generally require substantial training, which requires
significant resources and management attention. Even if we
invest significant resources to recruit, train and retain
qualified personnel, we may not be successful in our efforts.
Our
management team is subject to a variety of demands for its
attention and rapid growth which could further strain our
management and other resources and have a material adverse
effect on our business, financial condition and results of
operations.
We currently face a variety of challenges, including maintaining
the infrastructure and systems necessary for us to operate as a
public company, addressing our potential litigation matters and
managing the growth of our business. Our recent growth and
expansion has increased the responsibilities of our management
team. Any litigation, regardless of the merit or resolution,
could be costly and divert the efforts and attention of our
management. As we continue to expand, we may further strain our
management and other resources. Our failure to meet these
challenges as a result of insufficient management or other
resources could have a material adverse effect on our business,
financial condition and results of operations.
Pursuing
strategic transactions may cause us to incur additional
risks.
We may pursue acquisitions, joint ventures or other strategic
transactions on an opportunistic basis. We may face costs and
risks arising from any such transactions, including integrating
a new business into our business or managing a joint venture.
These risks may include legal, organizational, financial, loss
of key customers and distributors and diversion of
managements time.
In addition, if we were to choose to engage in any major
business combination or similar strategic transaction, we may
require significant external financing in connection with the
transaction. Depending on market conditions, investor
perceptions of our company and other factors, we may not be able
to obtain capital on acceptable terms, in acceptable amounts or
at appropriate times to implement any such transaction. Any such
financing, if obtained, may further dilute existing stockholders.
33
We may
be subject to litigation proceedings that could adversely affect
our business.
We may be subject to legal claims or regulatory matters
involving stockholder, consumer, antitrust and other issues. As
described in Item 3. Legal Proceedings, we have
been involved in a number of litigation matters including a
class action lawsuit that was settled by our insurance provider
in 2009. Litigation is subject to inherent uncertainties,
including increases in demands for attention on our management
team, and unfavorable rulings could occur. An unfavorable ruling
could include money damages. If an unfavorable ruling were to
occur, it could have a material adverse effect on our business
and results of operations for the period in which the ruling
occurred or future periods.
Our
business is characterized by rapid technological change and we
may not be able to compete with new and emerging
technologies.
We operate in the telecommunications industry, which is
characterized by extensive research and development efforts and
rapid technological change. New and advanced technology which
can perform essentially the same functions as our messaging and
AIS service (though without global coverage), such as digital
cellular networks (GSM and 3G), direct broadcast satellites, new
deployed satellites of competing low-earth orbit satellite
systems and other forms of wireless transmission, are in various
stages of development by others in the industry. These
technologies are being developed, supported and rolled out by
entities that may have significantly greater resources than we
do. These technologies could adversely impact the demand for our
services. Research and development by others may lead to
technologies that render some or all of our services
non-competitive or obsolete in the future.
Because
we operate in a highly regulated industry, we may be subjected
to increased regulatory restrictions which could disrupt our
service or increase our operating costs.
System operators and service providers are subject to extensive
regulation under the laws of various countries and the rules and
policies they adopt. These rules and policies, among other
things, establish technical parameters for the operation of
facilities and subscriber communicators, determine the
permissible uses of facilities and subscriber communicators, and
establish the terms and conditions pursuant to which our
international licensees and country representatives operate
their facilities, including certain of the gateway earth
stations and gateway control centers in our system. These rules
and policies may also require our international licensees and
country representatives to cut-off the data passing through the
gateway earth stations or gateway control centers without
notifying us or our end-users, significantly disrupting the
operation of our communications system. These rules and policies
may also impose regulatory constraints on the use of subscriber
communicators within certain countries or territories.
International and domestic licensing and certification
requirements may cause a delay in the marketing of our services
and products, may impose costly fees and procedures on our
international licensees and country representatives, and may
give a competitive advantage to larger companies that compete
with our international licensees and country representatives.
Possible future changes to regulations and policies in the
countries in which we operate may result in additional
regulatory requirements or restrictions on the services and
equipment we provide, which may have a material adverse effect
on our business and operations. Although we believe that we or
our international licensees and country representatives have
obtained all the licenses required to conduct our business as it
is operated today, we may not be able to obtain, modify or
maintain such licenses in the future. Moreover, changes in
international or domestic licensing and certification
requirements may result in disruptions of our communications
services or alternatively result in added operational costs,
which could harm our business. Our use of certain orbital planes
and radio frequency assignments, as licensed by the FCC, is
subject to the frequency coordination and registration process
of the ITU. In the event disputes arise during coordination, the
ITUs radio regulations do not contain mandatory dispute
resolution or enforcement mechanisms and neither the ITU
specifically, nor does international law generally, provide
clear remedies in this situation. Finally, our business could be
adversely affected by the adoption of new laws, fees, policies
or regulations, or changes in the interpretation or application
of existing laws, fees, policies and regulations that modify the
present regulatory environment, including with respect to
prohibiting or limiting the distribution of real or
near-real-time AIS data.
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Our
business relies on our ability to maintain our FCC
licenses.
Our FCC licenses a license for the satellite
constellation, separate licenses for the four U.S. gateway
earth stations and a blanket license for the subscriber
communicators are subject to revocation if we fail
to satisfy certain conditions or to meet certain prescribed
milestones. Our FCC satellite constellation license is valid
until April 2025 and authorizes the continued operation of the
first generation ORBCOMM satellites, the construction, launch
and operation of a total of 24 ORBCOMM next-generation
satellites, as well any required construction, launch an
operation during the term of the license of additional
technically identical replacement satellites. The
U.S. gateway earth station and subscriber communicator
licenses will expire in 2020. Renewal applications for the
gateway earth station and subscriber communicator licenses must
be filed between 30 and 90 days prior to expiration.
Although the FCC has been positively disposed thus far towards
granting our applications for license renewals, there can be no
assurance that the FCC will in fact renew our FCC licenses in
the future. Additionally, there can be no assurance that, to the
extent that any modification of our FCC licenses may be required
in the future to address changed circumstances, that any related
FCC applications we may file will be granted on a timely basis,
or at all. If the FCC revokes or fails to renew our FCC
licenses, or does not grant any future application we file to
modify one or more of our licenses, or if we fail to satisfy any
of the conditions of our FCC licenses, any such circumstance
could have a material adverse impact on our business. Finally,
our business could be adversely affected by the adoption of new
laws, policies or regulations, or changes in the interpretation
or application of existing laws, policies and regulations that
modify the present regulatory environment.
Our
business would be harmed if our international licensees and
country representatives fail to acquire and retain all necessary
regulatory approvals; We are currently unable to offer service
in important regions of the world due to regulatory
requirements, which is limiting our growth and our ability to
compete.
Our business is affected by the regulatory authorities of the
countries in which we operate. Due to foreign ownership
restrictions in various jurisdictions around the world,
obtaining and maintaining local regulatory approval for
operation of our system is the responsibility of our
international licensees
and/or
country representatives in each of these licensed territories.
In addition, in certain countries regulatory frameworks may be
rudimentary or in an early stage of development, which can make
it difficult or impossible to license and operate our system in
such jurisdictions. There can be no assurance that our
international licensees, our country representatives
and/or us
will be successful in obtaining or maintaining any additional
approvals that may be desirable and, if these efforts are not
successful, we will be unable to provide service in such
countries. Our inability to offer service in one or more
important new markets, particularly in China or India, could
have a negative impact on our ability to generate more revenue
and could diminish our business prospects.
Our ability to provide service in certain regions is limited by
local regulations as some countries, like China, India and
Russia, have specific regulatory requirements such as local
domestic ownership requirements or requirements for physical
gateway earth stations or other ground infrastructure within
their jurisdiction to connect traffic coming to and from their
territory. While we are currently in discussions with parties in
these countries to satisfy these regulatory requirements, we may
not be able find an acceptable local partner or reach an
agreement to develop additional gateway earth stations or other
ground infrastructure or the cost of developing and deploying
such infrastructure may be prohibitive, which could impair our
ability to expand our product and service offerings in such
areas and undermine our value for potential users who require
service in these areas. The inability to offer to sell our
products and services in all major international markets could
impair our international growth. In addition, the construction
of such gateway earth stations or other ground infrastructure in
foreign countries may require us to comply with certain
U.S. regulatory requirements which may contravene the laws
or regulations of the local jurisdiction.
There
are numerous risks inherent to our international operations that
are beyond our control.
International telecommunications services are subject to country
and region risks. Most of our coverage area and some of our
subsidiaries are outside the United States. As a result, we are
subject to certain risks on a
country-by-country
or
region-by-region
basis, including changes in domestic and foreign government
regulations and telecommunications standards, licensing
requirements, tariffs or taxes and other trade barriers,
exchange
35
controls, expropriation, and political and economic instability,
including fluctuations in the value of foreign currencies which
may make payment in U.S. dollars more expensive for foreign
customers or payment in foreign currencies less valuable for us.
Certain of these risks may be greater in developing countries or
regions, where economic, political or diplomatic conditions may
be significantly more volatile than those commonly experienced
in the United States and other industrialized countries.
We do
not currently maintain in-orbit or other insurance for our
satellites.
We do not currently maintain in-orbit insurance coverage for our
satellites to address the risk of potential systemic anomalies,
failures or catastrophic events affecting the existing satellite
constellation. We obtained in-orbit insurance for the CDS and
five quick-launch satellites for total loss or constructive
total loss as defined under the terms of the policy. On
December 10, 2009, we and the third party insurers entered
into a settlement and release agreement to settle all claims
related to the CDS and the five
quick-launch
satellites for $44.3 million.
We may obtain launch insurance for the launch of our
next-generation satellites. However, any determination as to
whether we procure insurance, including in-orbit and launch
insurance, will depend on a number of factors, including the
availability of insurance in the market and the cost of
available insurance. We may not be able to obtain insurance at
reasonable costs. Even if we obtain insurance, it may not be
sufficient to compensate us for the losses we may suffer due to
applicable deductions and exclusions.
The price, terms and availability of insurance have fluctuated
significantly since we began offering commercial satellite
services. The cost of obtaining insurance can vary as a result
of either satellite failures or general conditions in the
insurance industry. Insurance policies on satellites may not
continue to be available on commercially reasonable terms, or at
all. In addition to higher premiums, insurance policies may
provide for higher deductibles, shorter coverage periods and
additional satellite health-related policy exclusions. An
uninsured failure of one or more of our satellites could have a
material adverse effect on our financial condition and results
of operations. In addition, higher premiums on insurance
policies would increase our costs, thereby reducing our
operating income by the amount of such increased premiums.
Moreover, if we were to determine in the future that the terms
of any particular insurance is economically unfavorable or
unfeasible after taking into account factors such as cost of the
insurance and scope of insurance exclusions and limitations, we
may elect to self insure against losses of such satellites.
Even where we have obtained in-orbit insurance for a satellite,
this insurance coverage will not protect us against all losses
that might arise as a result of a satellite failure. Our current
in-orbit insurance policies contain, and any future policies can
be expected to contain, specified exclusions and material change
limitations customary in the industry at the time the policy is
written. These exclusions typically relate to losses resulting
from acts of war, insurrection or military action, government
confiscation, as well as lasers, directed energy beams, or
nuclear or anti-satellite devices or radioactive contamination.
In addition, should we wish to launch a spare satellite to
replace a failed operational satellite, the timing of such
launch will be dependent on prior commitments made by potential
suppliers of launch services to other satellite operators. Our
insurance does not protect us against lost or delayed revenue,
business interruption or lost business opportunities. We do not
maintain third-party liability insurance with respect to our
satellites. Accordingly, we have no insurance to cover any
third-party damages that may be caused by any of our satellites.
If we experience significant uninsured losses, such events could
have a material adverse impact on our business, financial
condition and results of operations.
Our
business relies on intellectual property, some of which third
parties own, and we may inadvertently infringe upon their
patents and proprietary rights.
Many entities, including some of our competitors, currently (or
may in the future) hold patents and other intellectual property
rights that cover or affect products or services related to
those that we offer. We cannot assure you that we are aware of
all intellectual property rights that our products may infringe
upon. In general, if a court were to determine that one or more
of our products infringes upon intellectual property held by
others, we may be required to cease developing or marketing
those products, to obtain licenses from the holders of the
intellectual property, or to redesign those products in such a
way as to avoid infringing upon others patents. We cannot
estimate
36
the extent to which we may be required in the future to obtain
intellectual property licenses, or the availability and cost of
any such licenses. To the extent that we are required to pay
royalties to third parties to whom we are not currently making
payments, these increased costs of doing business could
negatively affect our profitability or liquidity.
If a competitor holds intellectual property rights, it may not
allow us to use its intellectual property at any price, which
could adversely affect our competitive position.
If we
become subject to unanticipated domestic or foreign tax or fee
liabilities, it could materially increase our
costs.
We operate in various tax jurisdictions. We believe that we have
complied in all material respects with our obligations to pay
taxes in these jurisdictions. However, our position is subject
to review and possible challenge by the taxing authorities of
these jurisdictions. If the applicable taxing authorities were
to challenge successfully our current tax positions, or if there
were changes in the manner in which we conduct our activities,
or changes in the interpretation or application of existing
laws, we could become subject to material unanticipated tax or
fee liabilities. We may also become subject to additional tax or
fee liabilities as a result of changes in tax laws, which could
in certain circumstances have a retroactive effect.
Risks
Related to our Technology
New
satellites are subject to launch failures, delays and cost
overruns, the occurrence of which can materially and adversely
affect our operations and business.
Satellites are subject to certain risks related to failed or
delayed launches. Launch failures result in significant delays
in the deployment of satellites because of the need both to
construct replacement satellites, and to obtain other launch
opportunities. Launch delays can be caused by a number of
factors, including delays in manufacturing satellites, preparing
satellites for launch, securing appropriate launch vehicles or
obtaining regulatory approvals. We intend to conduct various
satellite launches for our next-generation satellites that could
commence as early as the fourth quarter of 2010 to replenish
existing satellites and to augment the existing constellation in
order to expand the messaging capacity of our network and
improve the service level of our network. Any launch failures of
our additional satellites could result in delays of at least six
to nine months from the date of the launch failure until
additional satellites under construction are completed and their
launches are achieved. Such delays would have a negative impact
on our future growth and would materially and adversely affect
our business, financial condition and results of operations.
Our
satellites have a limited operating life; a number of our
recently launched satellites have failed and others have
degraded over time resulting in increased system latencies. If
we are unable to deploy replacement satellites, our services
will be harmed and materially and adversely affect our
operations and business.
The majority of our first-generation satellites were placed into
orbit between 1997 and 1999. Our first-generation satellites
have an average operating life of approximately nine to twelve
years after giving effect to certain operational changes and
software updates. On June 19, 2008, we launched five of the
six quick-launch satellites together with our CDS in a single
mission to supplement and ultimately replace our existing Plane
A satellites and we plan launch our next-generation satellites
that could commence as early as the fourth quarter of 2010. In
addition to supplementing and replacing our first-generation
satellites, these satellites were also intended to expand the
capacity of our communications system. Four of our six recently
deployed satellites have failed and are no longer able to
provide service. The failure of our two remaining deployed
quick-launch satellites, which are of the same design of the
failed
quick-launch
satellites, could materially adversely affect our business,
financial condition and results of operations. We are relying on
these satellites to provide AIS data service. If these
satellites also fail, we will not be able to provide AIS data
service, including under existing contracts, unless we are able
to procure other AIS data from third parties or until the launch
of our AIS payload equipped next-generation satellites. These
satellite failures combined with the aging of our first
generation satellites have resulted in increased system
37
latencies, which have resulted and may continue to result in our
customers or potential customers delaying deployments or using a
competing wireless data network.
While we expect that our current constellation to provide a
commercially acceptable level of satellite messaging service
through the scheduled launch of our next-generation satellites,
we cannot guarantee we will be able to provide such level of
service through such launches of our
next-generation
satellites. Also, our satellites have already exceeded their
original design lives and the actual remaining useful lives of
our satellites may be shorter than we expect. If we are unable
to effectively develop and deploy our next-generation satellites
before our current constellation ceases to provide a
commercially acceptable level of service our business will
suffer.
We are
dependent on a limited number of suppliers to provide the
payload, bus and launch vehicle for our next-generation
satellites and any increased cost, delay or disruption in the
supply of these components and related services will adversely
affect our ability to replenish our satellite constellation and
adversely impact our business, financial condition and results
of operations.
In 2008, we entered into an agreement with Sierra Nevada
Corporation (SNC) to design and manufacture 18
next-generation satellites. In 2009, we entered into a
commercial launch services agreement with Space Exploration
Technologies Corp. (SpaceX) to provide launch
services using multiple SpaceX Falcon 1e launch vehicles for the
carriage into low-Earth orbit of our 18 next-generation
satellites being constructed by SNC. Our reliance on these
suppliers for their services involves significant risks and
uncertainties, including whether our suppliers will provide an
adequate supply of required components of sufficient quality,
will charge the agreed upon prices for the components or will
perform their obligations on a timely basis. If any of our
suppliers becomes financially unstable, we may have to find a
new supplier. There are a limited number of suppliers for
communication satellite components and related services and the
lead-time required to qualify a new supplier may take several
months. There are only a limited number of suppliers to launch
our satellites. There is no assurance that a new supplier will
be found on a timely basis, or at all, if any one of our
suppliers ceases to supply their services for our satellites or
cease to provide launch services.
Any delay in our launch schedule could adversely affect our
ability to provide communications services, particularly as the
health of our current satellite constellation declines and we
could lose current or prospective customers as a result of
service interruptions. The loss of any of our satellite
suppliers or delay in our launch schedule or any significant
increase in costs in our
next-generation
satellite program could have a material adverse effect on our
business, financial condition and results of operations.
Once
launched and properly deployed, our satellites are subject to
significant operating risks due to various types of potential
anomalies.
Satellites utilize highly complex technology and operate in the
harsh environment of space and, accordingly, are subject to
significant operational risks while in orbit. These risks
include malfunctions, or anomalies, that may occur
in our satellites. Some of the principal satellite anomalies
include:
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Mechanical failures due to manufacturing error or defect,
including:
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Mechanical failures that degrade the functionality of a
satellite, such as the failure of solar array panel deployment
mechanisms;
|
|
|
|
Antenna failures that degrade the communications capability of
the satellite;
|
|
|
|
Circuit failures that reduce the power output of the solar array
panels on the satellites;
|
|
|
|
Failure of the battery cells that power the payload and
spacecraft operations during daily solar eclipse periods;
|
|
|
|
Power system failures that result in a shut-down or loss of the
satellite;
|
|
|
|
Attitude control system failures that degrade or cause the
inoperability of the satellite;
|
|
|
|
Transmitter or receiver failures that degrade or cause the
inability of the satellite to communicate with subscriber
communicator units or gateway earth stations
|
|
|
|
Communications system failures that affect overall system
capacity; and
|
|
|
|
Satellite computer or processor failures that impair or cause
the inoperability of the satellites.
|
38
|
|
|
|
|
Equipment degradation during the satellites lifetime,
including:
|
|
|
|
|
|
Degradation of the batteries ability to accept a full
charge;
|
|
|
|
Degradation of solar array panels due to radiation; and
|
|
|
|
General degradation resulting from operating in the harsh space
environment.
|
|
|
|
|
|
Deficiencies of control or communications software, including:
|
|
|
|
|
|
Failure of the charging algorithm that may damage the
satellites batteries;
|
|
|
|
Problems with the communications and messaging servicing
functions of the satellite; and
|
|
|
|
Limitations on the satellites digital signal processing
capability that limit satellite communications capacity.
|
We have experienced, and may in the future experience, anomalies
in some of the categories described above, including with
respect to the CDS and five quick-launch satellites. See
The ORBCOMM Communications System System
Status Satellite Impairments and Insurance
Recovery. The continued operation of the remaining two
deployed quick-launch satellites is important to us to leverage
our work with AIS to then resell AIS data collected by our
satellites, as well as to augment our current satellite
constellation. In addition, these new satellites were intended
to supplement and ultimately replace our existing Plane A
satellites and is important to maintain adequate service levels
and to provide additional capacity for future subscriber growth.
A failure of any of our remaining deployed quick-launch
satellites could materially adversely affect our business,
financial condition and results of operations.
The effects of these anomalies include, but are not limited to,
failure of the satellite, degraded communications performance,
reduced power available to the satellite in sunlight
and/or
eclipse, battery overcharging or undercharging and limitations
on satellite communications capacity. Some of these effects may
be increased during periods of greater message traffic and could
result in our system requiring more than one attempt to send
messages before they get through to our satellites. Although
these effects do not result in lost messages, they could lead to
increased messaging latencies for the end-user and reduced
throughput for our system. See The ORBCOMM Communications
System System Status Network
Capacity for a description of our network capacity. While
we have already implemented a number of system adjustments we
cannot assure you that these actions will succeed or adequately
address the effects of any anomalies in a timely manner or at
all.
A total of 35 first generation satellites were launched by
ORBCOMM Global L.P. and of these, a total of 27 remain
operational. Our Plane F polar satellite, one of the original
prototype first generation satellites launched in 1995, was
retired in April 2007 due to intermittent service. Two
additional satellites (one from each of Plane B and Plane
D) were retired in 2008 also due to intermittent service.
The other five satellites that are not operational experienced
failures early in their lifetime and the previous mission ending
satellite failure affecting our system occurred in October 2000,
prior to our acquisition of the satellite constellation. The
absence of these eight satellites can increase system latency
and decrease overall capacity. While certain software
deficiencies may be corrected remotely, most, if not all, of the
satellite anomalies or debris collision damage cannot be
corrected once the satellites are placed in orbit. See The
ORBCOMM Communications System System
Status First Generation for a description of
the operational status and anomalies that affect our satellites.
We may experience additional anomalies in the future, whether of
the types described above or arising from the failure of other
systems or components, and operational redundancy may not be
available upon the occurrence of such an anomaly.
Our
system could fail to perform or perform at reduced levels of
service because of technological malfunctions, satellite
failures or deficiencies or events outside of our control, which
would seriously harm our business and reputation.
Our system is exposed to the risks inherent in a large-scale,
complex telecommunications system employing advanced technology.
Any disruption to our services, information systems or
communication networks or those of third parties into which our
network connects could result in the inability of our customers
to receive our services for an indeterminate period of time.
Satellite anomalies and other technical and operational
deficiencies of our communications system described in this
Annual Report on
Form 10-K
could result in system failures or reduced levels of service. In
addition, certain components of our system are located in
foreign countries, and as a result, are potentially subject to
governmental, regulatory or other actions in such countries
which could force us to limit the
39
operations of, or completely shut down, components of our
system, including gateway earth stations or subscriber
communicators. Any disruption to our services or extended
periods of reduced levels of service could, and increased
latencies in our satellite network delivering messages have and
could continue to, cause us to lose customers or revenue, result
in delays or cancellations of future implementations of our
products and services, result in failure to attract customers or
could result in litigation, customer service or repair work that
would involve substantial costs and distract management from
operating our business. The failure of any of the diverse and
dispersed elements of our system, including our satellites, our
network control center, our gateway earth stations, our gateway
control centers or our subscriber communicators, to function and
coordinate as required could render our system unable to perform
at the quality and capacity levels required for success. Any
system failures or extended reduced levels of service could
reduce our sales, increase costs or result in liability claims
and seriously harm our business.
We do
not currently have
back-up
facilities for our network control center. In the event of a
general failure at our network control center, our system will
be disrupted and our operations will be harmed.
The core control segment of our system is housed at our primary
ISP providers data center located in Sterling, Virginia.
We currently do not have
back-up
facilities for certain essential command and control functions
that are performed by our network control center, and as a
result, our system and business operations remain vulnerable to
the possibility of a failure at our network control center.
There would be a severe disruption to the functionality of our
system in the event of a failure at our network control center.
Although we plan to install a
back-up
network control center in 2010, there can be no assurance that
we will be able to complete the installation on a timely basis
or that such a
back-up
network would eliminate disruption to our system in the event of
a failure.
All
operational satellites are subject to the possibility to be
impacted by space debris or another spacecraft.
Collisions with space debris or other spacecraft, could
materially affect system performance and our business. Our
satellites do not have the ability to actively maneuver to avoid
potential impact by space debris or other satellites. On
February 10, 2009 a satellite owned by Iridium Satellite
LLC and Russias Cosmos collided in an orbital altitude
similar to ours causing an increase in risk of space debris
damaging or interfering with the operation of our satellites.
Much
of the hardware and software we use in operating our gateway
earth stations was designed and manufactured over ten years ago
and could be more difficult and expensive to service, upgrade or
replace.
Much of the hardware and software we use in operating our
gateway earth stations was designed and manufactured over ten
years ago and portions are becoming obsolete. As they continue
to age, they may become less reliable and will be more difficult
and expensive to service, upgrade or replace. Although we
maintain inventories of some spare parts, it nonetheless may be
difficult or impossible to obtain all necessary replacement
parts for the hardware. Our business plan contemplates updating
or replacing some of the hardware and software in our network,
however, the age of our existing hardware and software may
present us with technical and operational challenges that
complicate or otherwise make it not feasible to carry out our
planned upgrades and replacements, and the expenditure of
resources, both from a monetary and human capital perspective,
may exceed our estimates. Without upgrading and replacing our
equipment, obsolescence of the technologies that we use could
have a material adverse affect on our revenues, profitability
and liquidity.
Technical
or other difficulties with our gateway earth stations could harm
our business.
Our system relies in part on the functionality of our gateway
earth stations, some of which are owned and maintained by third
parties. While we believe that the overall health of the
majority of our gateway earth stations remains stable, we have
and may continue to experience technical difficulties or parts
obsolescence with our gateway earth stations which negatively
impact service in the region covered by that gateway earth
station. Certain problems with these gateway earth stations have
and may continue to reduce their availability and negatively
impact the performance of our system in that region. For
example, the owner of the Malaysian gateway earth station has
been unable to raise sufficient capital to properly maintain
this gateway earth station. We are also experiencing commercial
disputes with the entities that own the gateway earth stations
in South America, Korea and Kazakhstan. In 2009, the
international gateway earth stations located in Malaysia, South
America and Kazakhstan experienced intermittent outages. We
refurbished and replaced various components at the Malaysian
gateway earth station to
40
address the outages. In 2010, we expect to perform similar
refurbishment activities at the Kazakhstan and South American
gateway earth stations. In addition, due to regulatory and
licensing constraints in certain countries in which we operate,
we are unable to wholly-own or majority-own some of the gateway
earth stations in our system located outside the United States.
As a result of these ownership restrictions, we rely on third
parties to own and operate some of these gateway earth stations.
If our relationship with these third parties deteriorates or if
these third parties are unable or unwilling to bear the cost of
operating or maintaining the gateway earth stations, or if there
are changes in the applicable domestic regulations that require
us to give up any or all of our ownership interests in any of
the gateway earth stations, our control over our system could be
diminished and our business could be harmed.
Rapid
and significant technological changes in the satellite
communications industry may impair our competitive position and
require us to make significant additional capital
expenditures.
The space and communications industries are subject to rapid
advances and innovations in technology. We expect to face
competition in the future from companies using new technologies
and new satellite systems. New technology could render our
system obsolete or less competitive by satisfying customer
demand in more attractive ways or through the introduction of
incompatible standards. Particular technological developments
that could adversely affect us include the deployment by our
competitors of new satellites with greater power, flexibility,
efficiency or capabilities than our current constellation or our
next generation satellites, as well as continuing improvements
in terrestrial wireless technologies. For us to keep up with
technological changes and remain competitive, we may need to
make significant capital expenditures. Customer acceptance of
the products and services that we offer will continually be
affected by technology-based differences in our product and
service offerings compared to those of our competitors. New
technologies may be protected by patents or other intellectual
property laws and therefore may not be available to us. Any
failure by us to implement new technology within our system may
compromise our ability to compete.
Our
networks and those of our third-party service providers may be
vulnerable to security risks.
We expect the secure transmission of confidential information
over public networks to continue to be a critical element of our
operations. Our network and those of our third-party service
providers and our customers may be vulnerable to unauthorized
access, computer viruses and other security problems. Persons
who circumvent security measures could wrongfully obtain or use
information on the network or cause interruptions, delays or
malfunctions in our operations, any of which could have a
material adverse effect on our business, financial condition and
results of operations. We may be required to expend significant
resources to protect against the threat of security breaches or
to alleviate problems, including reputational harm and
litigation, caused by any breaches. Although we have implemented
and intend to continue to implement security measures, these
measures may prove to be inadequate and result in system
failures and delays that could lower network operations center
availability, which could harm our business.
Risks
Related to an Investment in our Common Stock
The
price of our common stock has been, and may continue to be,
volatile and your investment may decline in value.
The trading price of our common stock has been and may continue
to be volatile and purchasers of our common stock could incur
substantial losses. Further, our common stock has a limited
trading history. Factors that could affect the trading price of
our common stock include:
|
|
|
|
|
further failure of our current or future satellites or a delay
in the launch of our next-generation satellites;
|
|
|
|
liquidity of the market in, and demand for, our common stock;
|
|
|
|
changes in expectations as to our future financial performance
or changes in financial or subscriber growth estimates, if any,
of market analysts;
|
|
|
|
actual or anticipated fluctuations in our results of operations,
including quarterly results;
|
|
|
|
our financial or subscriber growth performance failing to meet
the expectations of market analysts or investors;
|
|
|
|
our ability to raise additional funds to meet our capital needs;
|
|
|
|
the outcome of any litigation by or against us, including any
judgments favorable or adverse to us;
|
41
|
|
|
|
|
conditions and trends in the end markets we serve and changes in
the estimation of the size and growth rate of these markets;
|
|
|
|
announcements relating to our business or the business of our
competitors;
|
|
|
|
investor perception of our prospects, our industry and the
markets in which we operate;
|
|
|
|
changes in our pricing policies or the pricing policies of our
competitors;
|
|
|
|
loss of one or more of our significant customers;
|
|
|
|
changes in governmental regulation;
|
|
|
|
changes in market valuation or earnings of our competitors;
|
|
|
|
investor perception of and confidence in capital markets and
equity investments; and
|
|
|
|
general economic conditions.
|
In addition, the stock market in general, and The Nasdaq Global
Market and the market for telecommunications companies in
particular, have experienced and continue to experience extreme
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of particular
companies affected. These broad market and industry factors may
materially harm the market price of our common stock, regardless
of our operating performance.
In the past, following periods of volatility in the market price
of a companys securities, securities
class-action
litigation has often been instituted against that company. Such
litigation has previously been instituted against us and could
result in substantial costs and a diversion of managements
attention and resources, which could materially harm our
business, financial condition, future results and cash flow.
If
securities or industry analysts do not publish research or
publish inaccurate or unfavorable research about our business,
our stock price and trading volume could decline.
The trading market for our common stock will continue to depend
in part on the research and reports that securities or industry
analysts publish about us or our business. In 2008, two
securities firms ceased providing research coverage of our
company and our business. In 2009, one additional securities
firm ceased providing such research coverage. If we do not
continue to maintain adequate research coverage or if one or
more of the analysts who covers us downgrades our stock or
publishes inaccurate or unfavorable research about our business,
our stock price would likely decline. If one or more of these
analysts ceases coverage of our company or fails to publish
reports on us regularly, demand for our stock could decrease,
which could cause our stock price and trading volume to decline.
We are
subject to anti-takeover provisions which could affect the price
of our common stock.
Our amended and restated certificate of incorporation and our
bylaws contain provisions that could make it difficult for a
third party to acquire us without the consent of our board of
directors. These provisions do not permit actions by our
stockholders by written consent and require the approval of the
holders of at least
662/3%
of our outstanding common stock entitled to vote to amend
certain provisions of our amended and restated certificate of
incorporation and bylaws. In addition, these provisions include
procedural requirements relating to stockholder meetings and
stockholder proposals that could make stockholder actions more
difficult. Our board of directors is classified into three
classes of directors serving staggered, three-year terms and may
be removed only for cause. Any vacancy on the board of directors
may be filled only by the vote of the majority of directors then
in office. Our board of directors has the right to issue
preferred stock with rights senior to those of the common stock
without stockholder approval, which could be used to dilute the
stock ownership of a potential hostile acquirer, effectively
preventing acquisitions that have not been approved by our board
of directors. Delaware law also imposes some restrictions on
mergers and other business combinations between us and any
holder of 15% or more for our outstanding common stock. Although
we believe these provisions provide for an opportunity to
receive a higher bid by requiring potential acquirers to
negotiate with our board of directors, these provisions apply
even if the offer may be considered beneficial by some
stockholders and may delay or prevent an acquisition of our
company.
42
If
persons engage in short sales of our common stock, the price of
our common stock may decline.
Selling short is a technique used by a stockholder to take
advantage of an anticipated decline in the price of a security.
A significant number of short sales or a large volume of other
sales within a relatively short period of time can create
downward pressure on the market price of a security. Further
sales of common stock could cause even greater declines in the
price of our common stock due to the number of additional shares
available in the market, which could encourage short sales that
could further undermine the value of our common stock. Holders
of our securities could, therefore, experience a decline in the
value of their investment as a result of short sales of our
common stock.
We do
not expect to pay dividends on our common stock in the
foreseeable future.
We do not currently pay cash dividends on our common stock and,
because we currently intend to retain all cash we generate to
fund the growth of our business, we do not expect to pay
dividends on our common stock in the foreseeable future. Any
future dividend payments would be within the discretion of our
board of directors and would depend on a variety of factors,
including our results of operations, working capital
requirements, capital expenditure requirements, financial
condition, contractual restrictions, business opportunities,
anticipated cash needs, provisions of applicable law and other
factors that our board of directors may deem relevant. We may
not generate sufficient cash from operations in the future to
pay dividends on our common stock.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
We currently lease approximately 7,000 and 30,000 square
feet of office space in Fort Lee, New Jersey and Dulles,
Virginia and sublease approximately 1,400 square feet of
office space in Tokyo, Japan. In addition, we currently own and
operate seven gateway earth stations at the following locations,
four situated on owned real property and three on real property
subject to leases:
|
|
|
|
|
Gateway
|
|
Real Property Owned or Leased
|
|
Lease Expiration
|
|
St. Johns, Arizona
|
|
Owned
|
|
n/a
|
Arcade, New York
|
|
Owned
|
|
n/a
|
Curaçao, Netherlands Antilles
|
|
Owned
|
|
n/a
|
Rutherglen Vic, Australia
|
|
Owned
|
|
n/a
|
Ocilla, Georgia
|
|
Leased
|
|
March 2013
|
Kitaura-town, Japan
|
|
Leased
|
|
March 2012
|
East Wenatchee, Washington
|
|
Leased
|
|
Month to Month
|
We currently own or lease real property sufficient for our
business operations, although we may need to purchase or lease
additional real property in the future.
|
|
Item 3.
|
Legal
Proceedings
|
We discuss certain legal proceedings pending against the Company
in the notes to the consolidated financial statements and refer
you to that discussion for important information concerning
those legal proceedings, including the basis for such actions
and relief sought. See Note 18 to the consolidated
financial statements for this discussion.
43
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Price of
our Common Stock
Our common stock has traded on The Nasdaq Global Market under
the symbol ORBC.
The following sets forth the high and low sales prices of our
common stock, as reported on The Nasdaq Global Market from
January 1, 2008 through December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
Quarter ended December 31, 2009
|
|
$
|
3.23
|
|
|
$
|
2.04
|
|
Quarter ended September 30, 2009
|
|
$
|
2.89
|
|
|
$
|
1.49
|
|
Quarter ended June 30, 2009
|
|
$
|
2.13
|
|
|
$
|
1.25
|
|
Quarter ended March 31, 2009
|
|
$
|
2.96
|
|
|
$
|
1.16
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
Quarter ended December 31, 2008
|
|
$
|
5.14
|
|
|
$
|
1.29
|
|
Quarter ended September 30, 2008
|
|
$
|
6.86
|
|
|
$
|
4.20
|
|
Quarter ended June 30, 2008
|
|
$
|
6.87
|
|
|
$
|
4.70
|
|
Quarter ended March 31, 2008
|
|
$
|
6.38
|
|
|
$
|
4.18
|
|
As of March 8, 2010, there were 505 holders of record of our
common stock.
Warrants
During the year ended December 31, 2009, warrants to
purchase 257,986 shares with a per share exercise price of
$4.26 expired.
Dividend
Payments and Policy
We have never declared or paid cash dividends on shares of our
common stock.
Our board of directors currently intends to retain all available
funds and future earnings to support operations and to finance
the growth and development of our business and does not intend
to pay cash dividends on our common stock for the foreseeable
future. Our board of directors may, from time to time, examine
our dividend policy and may, in its absolute discretion, change
such policy.
44
Stock
Performance Graph
The graph set forth below compares the cumulative total
shareholder return on our common stock between November 3,
2006 (the date of our initial public offering) and
December 31, 2009, with the cumulative total result of
(i) the Russell 2000 Index and (ii) the NASDAQ
Telecommunications Index, over the same period. This graph
assumes the investment of $100 on November 3, 2006 in our
common stock, the Russell 2000 Index and the NASDAQ
Telecommunications Index, and assumes the reinvestment of
dividends, if any. The graph assumes the initial value of our
common stock on November 3, 2006 was the closing sales
price of $7.75 per share.
The comparisons shown in the graph below are based on historical
data. We caution that the stock price performance show in the
graph below is not necessarily indicative of, nor is it intended
to forecast, the potential future performance of our common
stock. Information used in the graph was obtained from Research
Data Group, a source believed to be reliable, but we are not
responsible for any errors or omissions in such information.
COMPARISON
OF 38 MONTH CUMULATIVE TOTAL RETURN*
Among ORBCOMM Inc., The Russell 2000 Index
And The NASDAQ Telecommunications Index
*$100 invested on 11/3/06 in stock or 10/31/06 in index,
including reinvestment of dividends. Fiscal year ending
December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/06
|
|
|
12/06
|
|
|
12/07
|
|
|
12/08
|
|
|
12/09
|
ORBCOMM Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
113.81
|
|
|
|
$
|
81.16
|
|
|
|
$
|
27.87
|
|
|
|
$
|
34.84
|
|
Russell 2000
|
|
|
|
100.00
|
|
|
|
|
102.97
|
|
|
|
|
101.36
|
|
|
|
|
67.11
|
|
|
|
|
85.35
|
|
NASDAQ Telecommunications
|
|
|
|
100.00
|
|
|
|
|
108.30
|
|
|
|
|
119.96
|
|
|
|
|
69.77
|
|
|
|
|
96.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
The following selected consolidated financial data should be
read together with the information under Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
the related notes which are included elsewhere in this Annual
Report on
Form 10-K.
We have derived the consolidated statement of operations data
for the years ended December 31, 2009, 2008 and 2007 and
the consolidated balance sheet data as of December 31, 2009
and 2008 from our audited consolidated financial statements,
which are included elsewhere in this Annual Report on
Form 10-K.
We have derived the consolidated statement of operations data
for the years ended December 31, 2006 and 2005 and the
consolidated balance sheet data as of December 31, 2007,
2006 and 2005 from our consolidated financial statements, which
are not included in this Annual Report on
Form 10-K.
Our historical results are not necessarily indicative of future
results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Consolidated Statement of Operations Data:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Service revenues
|
|
$
|
27,143
|
|
|
$
|
23,811
|
|
|
$
|
17,707
|
|
|
$
|
11,542
|
|
|
$
|
7,802
|
|
Product sales
|
|
|
423
|
|
|
|
3,498
|
|
|
|
1,524
|
|
|
|
235
|
|
|
|
2,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
27,566
|
|
|
|
27,309
|
|
|
|
19,231
|
|
|
|
11,777
|
|
|
|
10,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of services
|
|
|
26,891
|
|
|
|
9,800
|
|
|
|
7,982
|
|
|
|
8,704
|
|
|
|
6,223
|
|
Costs of product sales
|
|
|
260
|
|
|
|
2,172
|
|
|
|
683
|
|
|
|
24
|
|
|
|
111
|
|
Selling, general and administrative
|
|
|
17,172
|
|
|
|
18,879
|
|
|
|
17,583
|
|
|
|
15,684
|
|
|
|
9,326
|
|
Product development
|
|
|
714
|
|
|
|
643
|
|
|
|
648
|
|
|
|
1,224
|
|
|
|
569
|
|
Gains on customer claims settlements
|
|
|
|
|
|
|
(1,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges-satellite network
|
|
|
29,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance recovery-satellite network
|
|
|
(44,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
30,031
|
|
|
|
30,126
|
|
|
|
26,896
|
|
|
|
25,636
|
|
|
|
16,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,465
|
)
|
|
|
(2,817
|
)
|
|
|
(7,665
|
)
|
|
|
(13,859
|
)
|
|
|
(6,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
110
|
|
|
|
558
|
|
|
|
5,074
|
|
|
|
2,616
|
|
|
|
(1,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-control earnings of consolidated subsidiary
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(2,355
|
)
|
|
|
(2,387
|
)
|
|
|
(2,591
|
)
|
|
|
(11,243
|
)
|
|
|
(7,486
|
)
|
Income (loss) from discontinued operations(2)
|
|
|
(954
|
)
|
|
|
(1,682
|
)
|
|
|
(998
|
)
|
|
|
28
|
|
|
|
(1,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss(3)
|
|
|
(3,309
|
)
|
|
|
(4,069
|
)
|
|
|
(3,589
|
)
|
|
|
(11,215
|
)
|
|
|
(9,098
|
)
|
Less: Net income attributable to the noncontrolling interests(3)
|
|
|
130
|
|
|
|
471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ORBCOMM Inc.
|
|
$
|
(3,439
|
)
|
|
$
|
(4,540
|
)
|
|
$
|
(3,589
|
)
|
|
$
|
(11,215
|
)
|
|
$
|
(9,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common shares
|
|
$
|
(3,439
|
)
|
|
$
|
(4,540
|
)
|
|
$
|
(3,589
|
)
|
|
$
|
(29,646
|
)
|
|
$
|
(14,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share information-basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.06
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(2.80
|
)
|
|
$
|
(2.23
|
)
|
Income (loss) from discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.04
|
)
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ORBCOMM Inc.
|
|
$
|
(0.08
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(2.80
|
)
|
|
$
|
(2.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
42,404
|
|
|
|
41,984
|
|
|
|
39,706
|
|
|
|
10,601
|
|
|
|
5,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Consolidated Balance Sheet Data:(2)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
65,292
|
|
|
$
|
75,370
|
|
|
$
|
115,587
|
|
|
$
|
62,139
|
|
|
$
|
68,663
|
|
Marketable securities
|
|
|
26,145
|
|
|
|
|
|
|
|
|
|
|
|
38,850
|
|
|
|
|
|
Working capital
|
|
|
85,572
|
|
|
|
67,236
|
|
|
|
106,716
|
|
|
|
100,797
|
|
|
|
65,285
|
|
Satellite network and other equipment, net
|
|
|
73,208
|
|
|
|
92,772
|
|
|
|
49,369
|
|
|
|
29,079
|
|
|
|
7,697
|
|
Intangible assets, net
|
|
|
2,600
|
|
|
|
4,086
|
|
|
|
5,572
|
|
|
|
7,058
|
|
|
|
4,297
|
|
Total assets
|
|
|
181,059
|
|
|
|
191,367
|
|
|
|
181,823
|
|
|
|
148,093
|
|
|
|
89,316
|
|
Note payable related party
|
|
|
1,398
|
|
|
|
1,244
|
|
|
|
1,170
|
|
|
|
879
|
|
|
|
594
|
|
Convertible redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,221
|
|
Total equity (deficit)(3)
|
|
|
160,918
|
|
|
|
163,051
|
|
|
|
160,849
|
|
|
|
128,712
|
|
|
|
(42,654
|
)
|
|
|
|
(1) |
|
On November 8, 2006, we completed our initial public
offering of 9,230,800 shares of common stock at a price of
$11.00 per share. After deducting underwriting discounts and
commissions and offering expenses we received proceeds of
approximately $89.5 million. From these net proceeds we
paid accumulated and unpaid dividends totaling $7.5 million
to the holders of Series B preferred stock, a
$3.6 million contingent purchase price payment relating to
the acquisition of our interest in Satcom International Group
plc and $10.1 million to the holders of Series B
preferred stock in connection with obtaining consents required
for the conversion of the Series B preferred stock into
common stock. All outstanding shares of Series A and B preferred
stock automatically converted into 21,383,318 shares of
common stock. |
|
(2) |
|
The amounts reflected above have been recast to reflect all
adjustments necessary to present the assets, liabilities and the
related results of operations of Stellar as discontinued
operations. |
|
(3) |
|
In 2008, amounts have been recast for noncontrolling interests. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis should be read in
conjunction with our Consolidated Financial Statements and Notes
which appear elsewhere in this Annual Report on
Form 10-K.
This discussion contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results could
differ materially from those anticipated in these forward-
looking statements as a result of various factors, including
those set forth in Part I, Item 1A.Risk
Factors and elsewhere in this Annual Report on
Form 10-K.
Organization
ORBCOMM LLC was organized as a Delaware limited liability
company on April 4, 2001 and on April 23, 2001, we
acquired substantially all of the non-cash assets and assumed
certain liabilities of ORBCOMM Global L.P. and its subsidiaries,
which had filed for relief under Chapter 11 of the
U.S. Bankruptcy Code. The assets acquired from ORBCOMM
Global L.P. and its subsidiaries consisted principally of the
in-orbit satellites and supporting U.S. ground
infrastructure equipment that we own today. At the same time,
ORBCOMM LLC also entered an agreement that resulted in the
acquisition of the FCC licenses required to own and operate the
communications system from a subsidiary of Orbital Sciences
Corporation, which was not in bankruptcy, in a related
transaction. Prior to April 23, 2001, ORBCOMM LLC did not
have any operating activities. We were formed as a Delaware
corporation in October 2003 and on February 17, 2004, the
members of ORBCOMM LLC contributed all of their outstanding
membership interests in ORBCOMM LLC to us in exchange for shares
of our common stock, representing ownership interests in us
equal in proportion to their prior ownership interest in ORBCOMM
LLC. As a result of, and immediately following the contribution,
ORBCOMM LLC became a
wholly-owned
subsidiary of ours.
Overview
We operate a global commercial wireless messaging system
optimized for narrowband communications. Our system consists of
a global network of 29 low-Earth orbit, or LEO, satellites and
accompanying ground infrastructure. Our two-way communications
system enables our customers and end-users, which include large
and established multinational businesses and government
agencies, to track, monitor, control and communicate cost-
47
effectively with fixed and mobile assets located anywhere in the
world. We also provide terrestrial-based cellular communication
services through reseller agreements with major cellular
wireless providers which include GSM and CDMA offerings. These
terrestrial-based communication services enable our customers
who have higher bandwidth requirements to receive and send
messages from communication devices based on terrestrial-based
technologies using the cellular providers wireless
networks as well as from dual-mode devices combining our
satellite subscriber communicators with devices for
terrestrial-based technologies. As a result, our customers are
now able to integrate into their applications a terrestrial
communications device that will allow them to add messages,
including data intensive messaging from the cellular
providers wireless networks.
Our products and services enable our customers and end-users to
enhance productivity, reduce costs and improve security through
a variety of commercial, government, and emerging homeland
security applications. We enable our customers and end-users to
achieve these benefits using a single global satellite
technology standard for
machine-to-machine
and telematic, or M2M, data communications. Our customers have
made significant investments in developing ORBCOMM-based
applications. Examples of assets that are connected through our
M2M data communications system include trucks, trailers,
railcars, containers, heavy equipment, fluid tanks, utility
meters, pipeline monitoring equipment, marine vessels, and oil
wells. Our customers include original equipment manufacturers,
or OEMs, such as Caterpillar, Doosan Infracore America, Hitachi,
Hyundai Heavy Industries, Komatsu, The Manitowoc Company and
Volvo Construction Equipment; IVARs, such as Asset Intelligence
( now a subsidiary of ID Systems and formerly a division of GE)
,VARs, such as XATA Corporation and American Innovations, Ltd.;
and government agencies, such as the U.S. Coast Guard.
The recent global economic conditions, including concerns about
a global economic recession, along with unprecedented credit and
capital constraints in the capital markets and deteriorations of
financial institutions have created a challenging economic
environment leading to a lack of customer confidence. Our
worldwide operations and performance depend significantly on
global economic conditions and their impact on our
customers decisions to purchase our services and products.
Economic conditions have worsened significantly in many parts of
the world, and may remain weak or even deteriorate further in
the foreseeable future. The worldwide economic turmoil may have
a material adverse effect on our operations and financial
results, and we may be unable to predict the scope and magnitude
of its effects on our business. VARs and end users in any of our
target markets, including in commercial transportation and heavy
equipment, have and may experience unexpected fluctuations in
demand for their products, as our end users alter purchasing
activities in response to this economic volatility. Our
customers may change or scale back product development efforts,
the roll-out of service applications, product purchases or other
sales activities that affect purchases of our products and
services, and this could adversely affect the amount and timing
of revenue for the long-term future, leaving us with limited
visibility in the revenue we can anticipate in any given period.
These economic conditions also affect our third party
manufacturers, and if they are unable to obtain the necessary
capital to operate their business, this may also impact their
ability to provide the subscriber communicators that our
end-users need, or may adversely affect their ability to provide
timely services or to make timely deliveries of products or
services to our end-users. It is currently unclear as to what
overall effect these economic conditions and uncertainties will
have on our existing customers and core markets, and future
business with existing and new customers in our current and
future markets.
Starting in the fourth quarter of 2008 and during 2009, we
experienced a slowing of demand by several VARs across our core
markets. It is currently unclear as to what overall effect these
economic conditions and uncertainties will have on our existing
customers and core markets, and future business with existing
and new customers in our current and future markets.
As of December 31, 2009, we had approximately 515,000
billable subscriber communicators activated on our
communications system compared to approximately 460,000 billable
subscriber communicators as of December 31, 2008, an
increase of approximately 12.0%.
Satellite
replenishment
The majority of our current fleet of satellites was put in
service in the late 1990s and has an estimated operating life of
approximately nine to twelve years. Since 2002, we have
implemented several operational changes and software
demonstration updates that we believe have enhanced the expected
life of the satellites. The majority of
48
these changes focus on extending the life of the primary life
limiting component the nickel hydrogen
batteries which power the satellites.
Through a series of launches, we intend to replenish the
existing constellation of satellites with 18 next-generation
satellites, which depending on the capabilities of the
replacement satellites, which may require fewer satellites than
we currently have. Flexibility in the number of satellites per
launch, the number of satellites inserted into each plane and
target plane may allow us to modify our plans within just a few
months before launch. In addition, we have required SNC our
manufacturer for our next-generation satellites to include
options to order additional satellites if the market demands
such an increase or if lower latencies are required or to
mitigate a launch failure.
We intend to launch 18 next-generation satellites equipped with
increased communications capabilities and our AIS payload
currently being constructed by SNC with the first of several
launches using multiple SpaceX Falcon 1e launch vehicles based
on our agreement with SpaceX, our launch service provider. The
agreement with SpaceX anticipates that the launch services will
be performed between the fourth quarter of 2010 and first
quarter of 2014, subject to certain rights of us and the launch
service provider to reschedule any of the following launch
services as needed. The agreement also provides us the option to
procure, prior to each launch service, reflight launch services
whereby in the event the applicable launch service results in a
failure due to the SpaceX launch vehicle, our launch service
provider will provide comparable reflight launch services at no
additional cost to us beyond the initial option price for such
reflight launch services.
For the year ended 2009, we spent $32.5 million on capital
expenditures, of which $29.0 million was for the
next-generation satellites including $10.3 million for the
launch services contract, $0.8 million was for the
quick-launch satellites and $0.4 million was for the Coast
Guard demonstration satellite. For the year ended 2008, we spent
$40.0 million on capital expenditures, of which
$26.6 million was for the next-generation satellites,
$8.7 million was for the quick-launch and $1.4 million
was for the Coast Guard demonstration satellite. For the year
ended 2007, we spent $19.7 million on capital expenditures,
of which $0.5 million was for the Coast Guard demonstration
satellite and $16.1 million was for the quick-launch
satellites.
Satellite
impairments and insurance recovery
On June 19, 2008, the Coast Guard demonstration satellite
and five quick-launch satellites were launched. Due to continued
delays associated with the construction of the final
quick-launch satellite, we are retaining it for future
deployment. Since launch, communications capability for three of
the quick-launch satellites and the Coast Guard demonstration
satellite has been lost as described below.
In August 2009, we placed the remaining two quick-launch
satellites in service for which we maintain communications
capability. These satellites are providing limited ORBCOMM
messaging and worldwide AIS services. These satellites are
experiencing attitude control system anomalies which result in
the satellites not pointing towards the sun and the earth as
expected. These pointing errors result in reduced power
generation, improper satellite spacing within the orbital plane
and reduced communications capabilities. One of these satellites
has an intermittent flight computer anomaly and a power system
anomaly which has significantly reduced its availability. The
similarity of these satellites to the failed satellites
described below is believed to significantly reduce their
expected useful lives to three and five months.
On February 22, 2009, one quick-launch satellite
experienced a power system anomaly that subsequently resulted in
a loss of contact with the satellite. After consultation with
OHB and our own engineers, we believe that after an extended
period of no communication with the satellite, the satellite was
not recoverable. A non-cash impairment charge to write-off the
cost of this satellite of $7.0 million was recognized
during the first quarter of 2009.
On July 31, 2009, another quick-launch satellite
experienced a gateway transmitter anomaly that resulted in a
loss of contact with the satellite by our ground control
systems. After consulting with our engineers, we believe that
the gateway transmitter will not be recovered, resulting in an
inability to provide ORBCOMM messaging and AIS data services by
this satellite. A non-cash impairment charge to write-off the
cost of this satellite of $7.1 million was recognized
during the third quarter of 2009.
49
On August 7, 2009, another quick-launch satellite
experienced a power system anomaly. Subsequently, on
August 24, 2009, the Coast Guard demonstration satellite
also experienced an anomaly with its power system. These
anomalies resulted in a loss of contact with the satellites.
After consulting with OHB and our own engineers, we believe that
after such an extended period of no communication with the
satellites, it is unlikely that the satellites will be recovered
based on its experience with earlier satellites with which
contact was similarly lost. A non-cash impairment charge to
write-off the cost of these satellites of $14.8 million was
recorded for a total impairment charge of $21.9 million
recognized during the third quarter of 2009. During the quarter
ended December 31, 2009, we recorded an additional non-cash
impairment charge of $0.3 million.
The loss of these satellites can result in longer latencies in
transmitting messages but is not otherwise expected to have a
material adverse effect on the current communications service as
the satellites were not in full operational service.
The remaining two quick-launch satellites are equipped with an
AIS payload that provides redundant capabilities for our AIS
data service, and we will be relying on these satellites to
provide AIS data service. If these satellites also fail, we will
not be able to provide AIS data service, including under
existing contracts, unless we are able to procure other AIS data
service from third parties or until the launch of our AIS
payload equipped
next-generation
satellites, scheduled as early as the end of 2010.
We purchased an in-orbit insurance policy that covers the total
loss or constructive total loss of the Coast Guard demonstration
satellite and five quick-launch satellites during the coverage
period that ended on June 19, 2009. Under the terms of the
policy, a satellite that does not meet the working satellite
criteria constitutes a constructive total loss of that satellite
for insurance purposes. The in-orbit insurance is subject to
certain exclusions including a deductible under which no claim
is payable under the policy for the first satellite to suffer a
constructive total loss or total loss.
We filed a claim under our in-orbit insurance policy for all six
satellites as either a total loss or constructive total loss.
The total loss claim was for the one satellite that suffered a
power system failure resulting in loss of contact in February
2009, and the constructive total loss claim for each of the
other five satellites is on the basis that these satellites did
not meet the working satellite criteria stated in the policy.
The maximum amount recoverable by us under the policy from third
party insurers for all six satellites covered by the policy was
$50.0 million, after taking into account the one-satellite
deductible, under which no claim is payable for the first
satellite to suffer a constructive total loss or total loss, and
less any salvage value that can be established.
On December 10, 2009, we and the third party insurers
entered into a settlement and release agreement to settle any
and all claims relating to the Coast Guard demonstration
satellite and the five quick-launch satellites discussed above.
Under the terms of the settlement agreement, we received
$44.3 million from the third party insurers. In addition,
each of the insurers has waived all rights, title and interest
in and to the Coast Guard demonstration satellite and the five
quick-launch satellites. As a result, we recorded a
$44.3 million insurance recovery in our consolidated
statements of operations in 2009.
ORBCOMM
Japan
On March 25, 2008, we received a 37% equity interest in
ORBCOMM Japan, which was accounted for an investment in
affiliates at March 31, 2008. ORBCOMM Japans results
of operations were not significant for the period from
March 25, 2008 through March 31, 2008. On May 15,
2008, we received an additional 14% equity interest in Japan
and, as a result, our ownership interest increased to 51%. On
June 9, 2008, we entered into an agreement with the
noncontrolling stockholder, which terminated its substantive
participatory rights in the governance of ORBCOMM Japan and as a
result, we obtained the controlling interest in ORBCOMM Japan.
We consolidated the results of ORBCOMM Japan as though the
controlling interest was acquired on April 1, 2008 and
therefore deducted $0.1 million of ORBCOMM Japans
earnings for the period prior to June 9, 2008 (the date we
acquired our controlling interest) from our results of
continuing operations in our consolidated statement of
operations. See Note 5 to the consolidated financial
statements for further discussion.
50
Discontinued
Operations
We are focused on our network business and are in the process of
discussing with interested parties about a sale of our
subsidiary, Stellar Satellite Communications, Ltd.
(Stellar). The GE settlement agreement and the
services agreement discussed below provides us with the ability
to dispose of Stellar without disrupting ORBCOMMs growth
prospects with GE and allows us to concentrate on our
service-based data communications business. As a result, we
classified Stellars assets and liabilities as held for
sale on our consolidated balance sheets and presented
Stellars results of operations as discontinued operations
in our consolidated statements of operations for the periods
presented. We expect to complete a sale of Stellar during 2010.
See Note 4 to the consolidated financial statements for
further discussion.
On April 3, 2009, we entered into a settlement agreement
(the Settlement Agreement) with GE with respect to
the supply agreement dated October 10, 2006 (the 2006
Agreement) to supply up to 412,000 units of
in-production and future models of subscriber communicators
through December 31, 2009 to support GEs applications
utilizing our data communications system. 270,000 of these units
were non-cancelable except for specified early termination
provisions.
Pursuant to the Settlement Agreement, we received
$0.8 million as settlement for GEs obligation under
the 2006 Agreement. GE did not purchase its minimum committed
volumes for 2007 and 2008. In 2009, we recognized a gain of
$0.8 million for customer claims settlements in loss from
discontinued operations.
We and GE terminated the 2006 Agreement and all their respective
obligations relating to it, and released each other from any
claims relating to their obligations arising under the 2006
Agreement, except for certain obligations related to warranties,
indemnities, confidentiality and intellectual property.
GE
Concurrent with the Settlement Agreement, we and GE entered into
a services agreement (the Services Agreement) with a
term of January 1, 2009 through December 31 2013, pursuant
to which we and GE agreed to expand the scope of services
provided or that may in the future be provided to include other
satellite, cellular or dual mode (cellular plus satellite) data
communications services, in addition to the
low-earth-orbit-satellite-based data communication services (the
Low-Earth Services).
Under the Services Agreement, GE will activate and provide
telematics and
machine-to-machine
data communications services on all communicators sold or
managed by or on behalf of GE in the United States, Canada and
Mexico for purposes of communications between
(i) subscriber communicators sold or managed by or on
behalf of GEs asset tracking and monitoring business and
(ii) communications centers or customers of GEs asset
tracking and monitoring business, whether satellite, cellular or
dual mode (cellular plus satellite), exclusively (subject to
certain restrictions and qualifications) on ORBCOMMs
communications system that provides the Low-Earth Services and
terrestrial-based cellular communication services through
reseller agreements with major cellular wireless providers and
that may in the future provide communication services through
other third party communication networks in each case as long as
we provide competitive services at competitive rates with
appropriate regulatory approval, subject to the terms of the
Services Agreement.
EBITDA
EBITDA is defined as earnings attributable to ORBCOMM Inc.,
before interest income (expense), provision for income taxes and
depreciation and amortization. We believe EBITDA is useful to
our management and investors in evaluating our operating
performance because it is one of the primary measures we use to
evaluate the economic productivity of our operations, including
our ability to obtain and maintain our customers, our ability to
operate our business effectively, the efficiency of our
employees and the profitability associated with their
performance. It also helps our management and investors to
meaningfully evaluate and compare the results of our operations
from period to period on a consistent basis by removing the
impact of our financing transactions and the depreciation and
amortization impact of capital investments from our operating
results. In addition, our management uses EBITDA in
presentations to our board of directors to enable it to have the
same measurement of operating performance used by management and
for planning purposes, including the preparation of our annual
operating budget.
51
EBITDA is not a performance measure calculated in accordance
with accounting principles generally accepted in the United
States, or GAAP. While we consider EBITDA to be an important
measure of operating performance, it should be considered in
addition to, and not as a substitute for, or superior to, net
loss or other measures of financial performance prepared in
accordance with GAAP and may be different than EBITDA measures
presented by other companies.
The following table reconciles our net loss to EBITDA for the
periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net loss attributable to ORBCOMM Inc.
|
|
$
|
(3,439
|
)
|
|
$
|
(4,540
|
)
|
|
$
|
(3,589
|
)
|
Interest income
|
|
|
(85
|
)
|
|
|
(1,599
|
)
|
|
|
(5,258
|
)
|
Interest expense
|
|
|
193
|
|
|
|
199
|
|
|
|
209
|
|
Depreciation and amortization
|
|
|
19,132
|
|
|
|
3,236
|
|
|
|
2,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
15,801
|
|
|
$
|
(2,704
|
)
|
|
$
|
(6,223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA in 2009 improved by $18.5 million over 2009. This
improvement was due to recognizing a net gain of
$15.0 million on insurance settlement, higher net service
revenues of $3.3 million and a gain of $0.8 million
for customer claims settlement from GE reported in loss from
discontinued operations, a decrease of $2.1 million in
stock-based compensation offset by an increase in operating
expenses of $0.9 million from the full year consolidation
of ORBCOMM Japan for $0.5 million, $0.3 million of a
satellite insurance policy, $0.9 million for bad debt
reserves, unanticipated expenses of $0.6 million for a
contested proxy vote, $0.1 million in severance payments
and $0.3 million in legal fees related to the preparation
of our satellite insurance claim.
EBITDA in 2008 improved by $3.5 million over 2007 including
$1.2 million from ORBCOMM Japan. This improvement was due
to an increase in net service revenues of $6.1 million,
offset by increases in operating expenses of $0.9 million,
foreign exchange currency losses of $0.8 million and
noncontrolling interests and pre-control earnings of ORBCOMM
Japan of $0.6 million from April 1, 2008. Operating
expenses increased in 2008 primarily due to an increase in
facility costs of $0.7 million and $1.0 million from
ORBCOMM Japan. These increases were offset by a gain of
$1.4 million primarily from the settlement of claims
against ORBCOMM Japan and a $0.3 million reduction in
operating expenses associated with an asset purchase option.
Revenues
We derive service revenues from our resellers and direct
customers from utilization of satellite subscriber communicators
on our communications system and the reselling of airtime from
the utilization of terrestrial-based subscriber communicators
using SIMS on the cellular providers wireless networks.
These service revenues generally consist of a one-time
activation fee for each subscriber communicator and SIMS
activated for use on our communications system and monthly usage
fees. Usage fees that we charge our customers are based upon the
number, size and frequency of data transmitted by the customer
and the overall number of subscriber communicators and SIMS
activated by each customer. Revenues for usage fees from
currently billing subscriber communicators and SIMS are
recognized on an accrual basis, as services are rendered, or on
a cash basis, if collection from the customer is not reasonably
assured at the time the service is provided. Usage fees charged
to our resellers and direct customers are charged primarily at
wholesale rates based on the overall number of subscriber
communicators activated by them and the total amount of data
transmitted. Service revenues also includes AIS data
transmissions, services to the USCG (described below), royalty
fees from third parties for the use of our proprietary
communications protocol charged on a one-time basis for each
satellite subscriber communicator connected to our M2M data
communications system and fees from providing engineering,
technical and management support services to customers.
We derive product revenues primarily from sales of subscriber
communicators to our resellers (i.e., our VARs, IVARs,
international licensees and country representatives) and direct
customers and other equipment such as gateway earth stations and
related products to customers. During the third quarter of 2007,
we began selling cellular
52
wireless subscriber identity modules, or SIMS, (for our
terrestrial-communication services) to our resellers and direct
customers.
During 2004, we entered into an agreement with the USCG to
design, develop, launch and operate a single satellite equipped
with the capability to receive, process and forward AIS data
(the Concept Validation Project). Under the terms of
the agreement, title to the Concept Validation Project
demonstration satellite remains with us, however the USCG is
granted a non-exclusive, royalty free license to use the
intellectual property related to the designs, processes and
procedures developed under the agreement in connection with any
of our future satellites that are AIS enabled. We are permitted
to use the Concept Validation Project demonstration satellite.
The agreement provides for post-launch maintenance and AIS data
transmission services to be provided by us to the USCG for an
initial term of 14 months and an additional option to
receive post-launch maintenance and AIS data transmission
services subsequent to the initial term. In 2009, the USCG
elected to receive the additional post-launch maintenance and
AIS data transmissions services options for 12 months to
continue receiving service from the remaining two quick-launch
satellites.
Costs and
expenses
We own and operate a 29-satellite constellation, six of the
fifteen gateway earth stations and two of the four gateway
control centers. Satellite-based communications systems are
typically characterized by high initial capital expenditures and
relatively low marginal costs for providing service. Because we
acquired substantially all of our existing satellite and network
assets from ORBCOMM Global L.P. for a fraction of their original
cost in a bankruptcy court-approved sale, we have benefited from
lower amortization of capital costs than if the assets were
acquired at ORBCOMM Global L.P.s original cost. These
satellites became fully depreciated during the fourth quarter of
2006.
In 2009, as discussed above, under
Overview Satellite impairments and
insurance recovery, communications capability for three of
the quick-launch satellites and the Coast Guard demonstration
satellite were lost. As a result, we recognized non-cash
impairment charges of $29.2 million in our consolidated
statements of operations. In December 2009, we entered into a
settlement and release agreement with the third party insurers
with respect to our in-orbit insurance policy and received
$44.3 million. We recorded the $44.3 million as an
insurance recovery-satellite network in our consolidated
statements of operations.
In August 2009, we placed the remaining two quick-launch
satellites in service and began depreciating these satellites
over their expected useful lives of three and five months as
these two satellites are experiencing similar anomalies to the
three quick-launch satellites and the Coast Guard demonstration
satellite that are expected to be permanent and significantly
reduce their expected useful lives. As a result our depreciation
expense, a component of cost of services, increased
significantly in 2009. This was primarily due to
$14.2 million of depreciation expense relating to the two
remaining quick-launch satellites.
We currently anticipate that when the next-generation satellites
are placed in service in 2011 they will be depreciated over a
period of ten years, representing the estimated operational
lives of the satellites.
We incur engineering expenses associated with the operation of
our communications system and the development and support of new
applications, as well as sales, marketing and administrative
expenses related to the operation of our business. As of
December 31, 2009, we have 101 employees and we do not
expect a significant increase in 2010.
Critical
Accounting Policies and Estimates
Our discussion and analysis of our results of operations,
liquidity and capital resources are based on our consolidated
financial statements which have been prepared in conformity with
accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial
statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses, and disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates and judgments,
including those related to revenue recognition, costs of
revenues, accounts receivable, satellite network and other
equipment, capitalized development costs, intangible assets,
valuation of deferred tax assets, uncertain tax positions
53
and the value of securities underlying stock-based compensation.
We base our estimates on historical and anticipated results and
trends and on various other assumptions that we believe are
reasonable under the circumstances, including assumptions as to
future events. These estimates form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. By their
nature, estimates are subject to an inherent degree of
uncertainty. Actual results may differ from our estimates and
could have a significant adverse effect on our results of
operations and financial position. We believe the following
critical accounting policies affect our more significant
estimates and judgments in the preparation of our consolidated
financial statements.
Revenue
recognition
We recognize revenues when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable
and collectibility is reasonably assured. Our revenue
recognition policy requires us to make significant judgments
regarding the probability of collection of the resulting
accounts receivable balance based on prior history and the
creditworthiness of our customers. In instances where collection
is not reasonably assured, revenue is recognized when we receive
cash from the customer.
Revenues generated from the sale of satellite subscriber
communicators, SIMS and other products are either recognized
when the products are shipped or when customers accept the
products, depending on the specific contractual terms. Sales of
satellite subscriber communicators and SIMS and other items are
not subject to return and title and risk of loss pass to the
customer at the time of shipment.
Sales of subscriber communicators and SIMS are primarily to
resellers and are not bundled with service arrangements.
Revenues from sales of gateway earth stations and related
products are recognized only upon installation, customer
acceptance and when collectibility is reasonably assured.
Revenues from the activation of subscriber communicators and
SIMS are initially recorded as deferred revenues and are,
thereafter, recognized ratably over the term of the agreement
with the customer, generally three years which is the estimated
customer relationship period. Revenues generated from monthly
usage and administrative fees and engineering services are
recognized when the services are rendered. Revenues generated
from royalties under our subscriber communicator manufacturing
agreements are recognized when we issue to a third party
manufacturer upon request a unique serial number to be assigned
to each unit manufactured by such third party manufacturer.
Under of our agreement with the USCG with respect to the Concept
Validation Project and related services, described under
Overview Revenues, as no
tangible deliverable other than services will be provided to the
USCG and we retain title to the Coast Guard demonstration
satellite, the arrangement is accounted for as a long term
service arrangement. The deliverables under the agreement with
the USCG do not qualify as separate units of accounting.
Commencing with acceptance of the AIS data by the USCG in August
2008, the revenues related to the design and development of the
satellite, initial post-launch maintenance and AIS data
transmission services are being recognized ratably over six
years, the expected life of the customer relationship. In August
2009, the USCG elected to receive the subsequent post-launch
maintenance and AIS data transmission services options to
continue receiving service from the remaining two quick-launch
satellites. These services are being recognized ratably over the
remaining expected life of the customer relationship.
For arrangements with multiple obligations (e.g., deliverable
and undeliverable products, and other post-contract support), we
allocate revenues to each component of the contract based upon
objective evidence of each components fair value. We
recognize revenues allocated to undelivered products when the
criteria for product revenues set forth above are met. If
objective and reliable evidence of the fair value of the
undelivered obligations is not available, the arrangement
consideration allocable to a delivered item is combined with the
amount allocable to the undelivered item(s) within the
arrangement. Revenues are recognized as the remaining
obligations are fulfilled.
Out-of-pocket
expenses incurred during the performance of professional service
contracts are included in costs of services and any amounts
re-billed to clients are included in revenues during the period
in which they are incurred. Shipping costs billed to customers
are included in product sales revenues and the related costs are
included as costs of product sales.
54
Amounts received prior to the performance of services under
customer contracts are recognized as deferred revenues and
revenue recognition is deferred until such time that all revenue
recognition criteria have been met.
Costs
of product sales and services
Costs of services is comprised of payroll and related costs,
including stock-based compensation, materials and supplies,
depreciation and amortization of assets used to provide services
and usage fees to cellular wireless providers for the data
transmitted by the resellers on our network. Costs of product
sales includes the purchase price of subscriber communicators
and SIMS sold and shipping charges.
Accounts
receivable
Accounts receivable are due in accordance with payment terms
included in our negotiated contracts. Amounts due are stated net
of an allowance for doubtful accounts. Accounts that are
outstanding longer than the contractual payment terms are
considered past due. We make ongoing assumptions and judgments
relating to the collectibility of our accounts receivable to
determine our required allowances based on a number of factors
such as the age of the receivable, credit history of the
customer, historical experience and current economic conditions
that may affect a customers ability to pay. Past
experience may not be indicative of future collections; as a
result, allowances for doubtful accounts may deviate from our
estimates as a percentage of accounts receivable and sales.
Satellite
network and other equipment
Satellite network and other equipment are stated at cost, less
accumulated depreciation and amortization. We use judgment to
determine the useful life of our satellite network based on the
estimated operational life of the satellites and periodic
reviews of engineering data relating to the operation and
performance of our satellite network.
Satellite network includes the costs of our constellation of
satellites, and the ground and control segments, which consists
of gateway earth stations, gateway control centers and the
network control center (the Ground Segment).
Assets under construction primarily consist of milestone
payments pursuant to procurement agreements, which includes the
design, development, launch and other direct costs relating to
the construction of the satellites and upgrades to the
Companys infrastructure and the Ground Segment. Once these
assets are placed in service they will be transferred to
satellite network and then depreciation will be recognized using
the straight-line method over the estimated lives of the assets.
No depreciation has been recorded on these assets as of
December 31, 2009.
Long-lived
assets
Management reviews long-lived assets, including license rights
for impairment, whenever events or changes in circumstances
indicate that the carrying amount of assets may not be
recoverable. In connection with this review, we reevaluate the
periods of depreciation and amortization. We recognize an
impairment loss when the sum of the future undiscounted net cash
flows expected to be realized from the asset is less than its
carrying amount. If an asset is considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the asset exceeds its fair value, which
is determined using the projected discounted future net cash
flows. We measure fair value by discounting estimated future net
cash flows using an appropriate discount rate. Considerable
judgment by us is necessary to estimate the fair value of the
assets and accordingly, actual results could vary significantly
from such estimates. Our most significant estimates and
judgments relating to the long-lived asset impairments include
the timing and amount of projected future cash flows and the
discount rate selected to measure the risks inherent in future
cash flows.
Capitalized
development costs
Judgments and estimates occur in the calculation of capitalized
development costs. We evaluate and estimate when a preliminary
project stage is completed and at the point when the project is
substantially complete and ready for use. We base our estimates
and evaluations on engineering data. We capitalize the costs of
acquiring, developing
55
and testing software to meet our internal needs. Capitalization
of costs associated with software obtained or developed for
internal use commences when both the preliminary project stage
is completed and management has authorized further funding for
the project, based on a determination that it is probable that
the project will be completed and used to perform the function
intended. Capitalized costs include only (1) external
direct cost of materials and services consumed in developing or
obtaining internal-use software, and (2) payroll and
payroll-related costs for employees who are directly associated
with, and devote time to, the internal-use software project.
Capitalization of such costs ceases no later than the point at
which the project is substantially complete and ready for its
intended use. Internal use software costs are amortized once the
software is placed in service using the straight-line method
over periods ranging from one to five years.
Income
taxes
We account for income taxes using an asset and liability
approach that recognizes deferred tax assets and liabilities for
the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. We recognize a change in tax rates on deferred tax
assets and liabilities in income in the period that includes the
enactment date. Judgment is applied in determining whether the
recoverability of our deferred tax assets will be realized in
full or in part. A valuation allowance is established for the
amount of deferred tax assets that are determined not to be
realizable. Realization of our deferred tax assets may depend
upon our ability to generate future taxable income.
Effective January 1, 2007, we adopted the accounting
guidance on accounting for uncertainty in income taxes
recognized in an enterprises financial statements. This
guidance prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken or
expected to be taken in a tax return. Also this guidance
provides guidance on derecognition, classification, interest and
penalties and disclosures of matters related to uncertainty in
income taxes. The evaluation of a tax position in accordance
with this interpretation is a two-step process. In the first
step, recognition, we determine whether it is
more-likely-than-not that a tax position will be sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. The second step addresses measurement of a tax
position that meets the more-likely-than-not criteria. The tax
position is measured at the largest amount of benefit that is
greater than 50 percent likely of being realized upon
ultimate settlement. Differences between tax positions taken in
a tax return and amounts recognized in the financial statements
will generally result in an increase in a liability for income
taxes payable or a reduction of an income tax refund receivable,
or a reduction in a deferred tax asset or an increase in a
deferred tax liability or both. Tax positions that previously
failed to meet the more-likely-than-not recognition threshold
should be recognized in the first subsequent financial reporting
period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not
recognition threshold should be de-recognized in the first
subsequent financial reporting period in which that threshold is
no longer met. Accounting for uncertainties in income taxes
positions involves significant judgments by management.
During the years ended December 31, 2009 and 2008, we had
no significant unrecognized tax benefits. During the year ended
December 31, 2007, we recognized uncertain tax benefits
totaling $0.8 million. Due to the existence of our
valuation allowance the uncertain tax benefits if recognized
would not impact our effective income tax rate. We are subject
to U.S. federal and state examinations by tax authorities
for all years from 2006. We do not expect any significant
changes to its unrecognized tax positions during the next twelve
months.
Discontinued
Operations
We classify a component as discontinued operations in our
consolidated statements of operations when it meets the criteria
to be classified as held for sale, or it has been disposed of.
Beginning in the second quarter of 2009, we classified the
assets and liabilities of Stellar as assets held for sale in our
consolidated balance sheets and their results of operations as
discontinued operations in our consolidated statements of
operations for the periods presented. We expect to complete a
sale of Stellar during 2010. The assets held for sale are
reported at the lower of
56
cost or estimated fair value less costs to sell and are no
longer being depreciated. The ultimate value to be realized will
depend on the final offer and negotiated sales price realized
for the component when it is sold.
Loss
contingencies
We accrue for costs relating to litigation, claims and other
contingent matters when such liabilities become probable and
reasonably estimable. Such estimates may be based on advice from
third parties or on managements judgment, as appropriate.
Actual amounts paid may differ from amounts estimated, and such
differences will be charged to operations in the period in which
the final determination of the liability is made. Management
considers the assessment of loss contingencies as a critical
accounting policy because of the significant uncertainty
relating to the outcome of any potential legal actions and other
claims and the difficulty of predicting the likelihood and range
of the potential liability involved, coupled with the material
impact on our results of operations that could result from legal
actions or other claims and assessments.
Share-based
Compensation
Our share-based compensation plans consist of the 2006 Long-Term
Incentives Plan (the 2006 LTIP) and the 2004 Stock
Option Plan. The 2006 LTIP approved by our stockholders in
September 2006, provides for the grants of non-qualified stock
options, stock appreciation rights (SARs), common
stock, restricted stock, restricted stock units
(RSUs), performance units and performance shares to
our employees and non-employee directors The 2004 Stock Option
Plan, adopted in 2004, provides for the grants of non-qualified
and incentive stock options to officers, directors, employees
and consultants.
We measure and recognize stock-based compensation expense for
all share-based payment awards made to employees and directors
based on estimated fair values on the date of grant. The value
of the portion of the award that is ultimately expected to vest
is recognized as expense over the requisite service period. For
awards with performance conditions, an evaluation is made at the
grant date and future periods as to the likelihood of the
performance criteria being met. Compensation expense is adjusted
in future periods for subsequent changes in the performance
condition until the vesting date. We estimate forfeitures at the
time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.
For the years ended December 31, 2009, 2008 and 2007, we
recognized $1.5 million, $3.6 million and
$4.3 million of stock-based compensation expense,
respectively. For the years ended December 31, 2009, 2008
and 2007 stock-based compensation expense was not significant in
our discontinued operations. As of December 31, 2009, we
had an aggregate of $1.4 million of unrecognized
compensation costs for all share-based payment arrangements.
We expect that our planned use of share-based payment
arrangements will continue to be a significant expense for us in
future periods. We have not recognized, and do not expect to
recognize in the near future, any tax benefit related to
employee stock-based compensation expense as a result of the
full valuation allowance on our net deferred tax assets and net
operating loss carryforwards.
The grant date fair value of the performance-and time-based RSU
awards granted in 2009, 2008 and 2007 are based upon the closing
stock price of our common stock on the date of grant.
The fair value of each time and performance-based SAR award is
estimated on the date of grant using the Black-Scholes option
pricing model with the assumptions described below for the
periods indicated. Expected volatility was based on the stock
volatility for comparable publicly traded companies. We use the
simplified method based on the average of the
vesting term and the contractual term to calculate the expected
life of each SAR award. Estimated forfeitures were based on
voluntary and involuntary termination behavior as well as
analysis of
57
actual SAR forfeitures. The risk-free interest rate was based on
the U.S. Treasury yield curve at the time of the grant over
the expected term of the SAR grants.
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Risk-free interest rate
|
|
2.15% to 2.34%
|
|
2.50% to 3.20%
|
|
4.93%
|
Expected life (years)
|
|
5.5 and 6.00
|
|
5.5 and 6.00
|
|
5.5
|
Estimated volatility factor
|
|
55.03% and 85.30%
|
|
43.98% to 48.98%
|
|
43.95%
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
2004
Stock Option Plan
In 2009, 2008 and 2007 we did not grant any stock options.
Results
of Operations
Revenues
The table below presents our revenues (in thousands) for the
years ending December 31, 2009, 2008 and 2007, together
with the percentage of total revenue represented by each revenue
category:
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Years Ended December 31,
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2009
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2008
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2007
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% of
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% of
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% of
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Total
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Total
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Total
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Service revenues
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$
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27,143
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98.5
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%
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$
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23,811
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87.2
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%
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$
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17,707
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92.1
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%
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Product sales
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423
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1.5
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%
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3,498
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12.8
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%
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1,524
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7.9
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%
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$
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27,566
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100.0
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%
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$
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27,309
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100.0
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%
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$
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19,231
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100.0
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%
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2009 vs. 2008: Total revenues for 2009
increased $0.3 million, or 0.1%, to $27.6 million from
$27.3 million in 2008. Service revenues increased 14.0% and
Product sales declined 87.9%.
2008 vs. 2007: Total revenues for 2008
increased $8.1 million, or 42.0%, to $27.3 million
from $19.2 million in 2007. Service revenues increased
34.5% and Product sales increased 129.5%.
Service
revenues
2009 vs. 2008: Service revenues increased
$3.3 million in 2009, or 14.0%, to $27.1 million, or
approximately 98.5% of total revenues, from $23.8 million,
or approximately 87.2% of total revenues in 2008.
The increase in service revenues in 2009 over 2008 were
primarily due to an increase in the number of billable
subscriber communicators activated on our communications system,
an increase in AIS revenue of $1.4 million and incremental
service revenue margin provided by ORBCOMM Japan of
$0.4 million. As of December 31, 2009, we had
approximately 515,000 billable subscriber communicators
activated on our communications system compared to approximately
460,000 billable subscriber communicators as of
December 31, 2008, an increase of approximately 12.0%.
2008 vs. 2007: Service revenues increased
$6.1 million in 2008, or 34.5%, to $23.8 million, or
approximately 87.2% of total revenues, from $17.7 million,
or approximately 92.1% of total revenues in 2007.
The increase in service revenues in 2008 over 2007 were
primarily due to an increase in the number of billable
subscriber communicators activated on our communications system,
$0.6 million of revenues from the Coast Guard agreement and
incremental service revenue margin provided by ORBCOMM Japan of
$1.0 million. As of December 31, 2008, the number of
billable subscriber communicators activated on our
communications systems increased approximately 31.0% from
approximately 351,000 billable subscriber communicators as of
December 31, 2007.
Service revenue growth can be impacted by the customary lag
between subscriber communicator activations and recognition of
service revenue from these units. In addition in 2008, this
customary lag has been increased by the slowdown in deployments
of activated units to end users by GE.
58
Product
sales
2009 vs. 2008: Revenue from product sales
decreased $3.1 million in 2009, or 87.9%, to
$0.4 million, or approximately 1.5% of total revenues, from
$3.5 million, or approximately 12.8% of total revenues in
2008. The decrease in product revenues in 2009 over 2008 was due
to the lower product sales as a result of the current economic
conditions impacting the heavy equipment sector at our Japanese
subsidiary.
2008 vs. 2007: Revenue from product sales
increased $2.0 million in 2008, or 129.5%, to
$3.5 million, or approximately 12.8% of total revenues,
from $1.5 million, or approximately 7.9% of total revenues
in 2007. In 2007, product sales primarily consisted of
$1.5 million of revenue recognized from the sale of a
gateway earth station pursuant to a contract entered into in
2006. We recognize the revenue from the sale of a gateway earth
station upon installation, customer acceptance and when
collectibility is reasonably assured. The increase in product
revenues in 2008 over 2007 was due to the consolidation of
ORBCOMM Japan from April 1, 2008.
Costs
of services
Costs of services is comprised of payroll and related costs,
including stock-based compensation, materials and supplies,
depreciation and amortization of assets used to provide services
and usage fees to cellular wireless providers for the data
transmitted by the resellers on our network.
2009 vs. 2008: Costs of services increased by
$17.1 million, or 174.4%, to $26.9 million in 2009
from $9.8 million in 2008. The increase is primarily due to
depreciation expense of $15.9 million resulting primarily
from $14.2 million in depreciation from the remaining two
quick-launch satellites that were placed in service in August
2009 being depreciated over three and five months and
$0.5 million of depreciation expense from the Coast Guard
demonstration satellite placed in service during the third
quarter of 2008, a charge of $0.3 million from a satellite
insurance policy that expired in June 2009, network
telecommunications costs to support higher service revenues of
$0.5 million and the consolidation of ORBCOMM Japan of
$0.5 million. As a percentage of service revenues, cost of
services were 99.1% of service revenues in 2009 compared to
41.2% in 2008. The increase in cost of services as a percentage
of revenues was primarily due to the depreciation expense
related to placing the two quick-launch satellites in service in
August 2009.
2008 vs. 2007: Costs of services increased by
$1.8 million, or 22.7%, to $9.8 million in 2008 from
$8.0 million in 2007. The increase is primarily due to
costs related to our terrestrial-based cellular communication
services which commenced in the third quarter of 2007, facility
costs of $0.5 million related to our new network operations
center facility and depreciation expense of $0.7 million
primarily related to the Coast Guard demonstration satellite
placed in service during the third quarter of 2008. As a
percentage of service revenues, cost of services were 41.2% of
service revenues in 2008 compared to 45.1% in 2007.
Costs
of product sales
Costs of products includes the cost of subscriber communicators
from our Japanese Subsidiary, SIMS and a gateway earth station.
2009 vs. 2008: Costs of product sales
decreased by $1.9 million, or 88.0%, to $0.3 million
in 2009 from $2.2 million in 2008. In 2008 product costs
includes a cost reduction of $0.2 million from the gateway
earth station sold in 2007. In 2009, we had a gross profit from
product sales (revenues from product sales minus costs of
product sales) of $0.2 million. Excluding the cost
reduction of $0.2 million from the gateway earth station
sold in 2007 we had a gross profit from product sales (revenues
from product sales minus costs of product sales) of
$1.2 million in 2008. The decrease in costs of products
sales in 2009 over 2008 is due to lower product sales by our
Japanese subsidiary as a result of the current economic
conditions.
2008 vs. 2007: Costs of product sales
increased $1.5 million, or 218.0%, to $2.2 million in
2008 from $0.7 million in 2007. In 2008 product costs
includes a cost reduction of $0.2 million from the gateway
earth station sold in 2007. In 2007 product costs also includes
$0.6 million consists of costs associated with the gateway
earth station sale pursuant to a contract entered into in 2006.
Excluding the cost reduction of $0.2 million from the
gateway earth station sold in 2007, we had a gross profit from
product sales (revenues from product sales minus costs of
product sales) of $1.2 million in 2008.
59
Selling,
general and administrative expenses
Selling, general and administrative expenses relate primarily to
compensation and associated expenses for employees in general
management, sales and marketing and finance, professional fees
and general operating expenses.
2009 vs. 2008: Selling, general and
administrative expenses decreased by $1.7 million, or 9.0%,
to $17.2 million in 2009 from $18.9 million in 2008.
This decrease is primarily due to lower employee costs of
$1.8 million, resulting primarily from a decrease in
stock-based compensation of $2.0 million, and
$0.7 million of professional fees. Included in professional
fees in 2009 were unanticipated expenses of $0.6 million
incurred in connection with our contested proxy and
$0.3 million in legal fees related to the preparation of
filing our satellite insurance claim. These decreases were
offset by an increase in bad debts of $0.9 million.
2008 vs. 2007: Selling, general and
administrative expenses increased $1.3 million, or 7.4%, to
$18.9 million in 2008 from $17.6 million in 2007. The
increase is primarily due to a $0.7 million increase in
employee costs, resulting from an increase in payroll costs of
$1.1 million including $0.5 million due to the
acquisition of ORBCOMM Japan, offset by a decrease in
stock-based compensation of $0.4 million.
Product
development expenses
Product development expenses consist primarily of the expenses
associated with the staff of our engineering team, along with
the cost of third parties that are contracted to support our
current applications.
2009 vs. 2008: Product development expenses in
2009 and 2008 were $0.7 million and $0.6 million,
respectively.
2008 vs. 2007: Product development expenses in
both 2008 and 2007 were $0.6 million.
Gain
on customer claims settlements
In 2008, we recognized a $0.3 million gain on a settlement
of a claim against a VAR upon receipt of the settlement proceeds.
On March 25, 2008, we received a 37% equity interest in
ORBCOMM Japan and cash of $0.6 million in satisfaction of
claims against ORBCOMM Japan, pursuant to a voluntary
reorganization of ORBCOMM Japan in accordance with the
rehabilitation plan approved by the Tokyo district court on
December 25, 2007. The fair value of the consideration we
received for settlement of claims against ORBCOMM Japan exceeded
the $0.4 million carrying value of current and long-term
receivables from ORBCOMM Japan by $0.9 million and we
recognized a gain for the same amount for the three months ended
March 31, 2008.
On May 15, 2008, we received 616 newly issued shares of
common stock from ORBCOMM Japan representing an additional 14%
equity interest and recognized a gain of $0.2 million.
Impairment
charges and insurance recovery satellite
network
In February 2009, one quick-launch satellite experienced a power
system anomaly that subsequently resulted in a loss of contact
with the satellite. The satellite was not recovered and we
recorded a non-cash impairment charge to write off the cost of
the satellite of $7.0 million during the first quarter of
2009.
In July 2009, one quick-launch satellite with lower than
expected subscriber transmission experienced a gateway
transmitter anomaly that resulted in a loss of contact with the
satellite by our ground control systems. The satellite was not
recoverable and we recorded a non-cash impairment charge to
write-off the cost of this satellite of $7.1 million. In
August 2009, a second quick-launch satellite and the Coast Guard
demonstration satellite experienced a power system anomaly that
subsequently resulted in a loss of contract with the satellites.
Both of these satellites were not recoverable and we recorded a
non-cash impairment charge to write-off the cost of these
satellites of $14.8 million for a total impairment charge
of $21.9 million recognized during the third quarter of
2009. During the fourth quarter of 2009, we accrued additional
expense of $0.3 million relating to the quick-launch satellites.
60
On December 10, 2009, we and the third party insurers
entered into a settlement and release agreement to settle any
and all claims relating to the Coast Guard demonstration
satellite and the five quick-launch satellites discussed above.
In December 2009, we received $44.3 million from the third
party insurers and recorded an insurance recovery-satellite
network for the same amount in our consolidated statements of
operations.
Other
income (expense)
Other income is comprised primarily of interest income from our
cash and cash equivalents, which consists of
U.S. Treasuries, interest bearing instruments, and our
investments in marketable securities consisting of
U.S. government and agency obligations, corporate
obligations and FDIC-backed certificates of deposit debt
securities classified as held to maturity, foreign exchange
gains and losses and interest expense.
2009 vs. 2008: Other income was
$0.1 million in 2009 compared to $0.6 million in 2008.
In 2009, interest income was $0.1 million compared to
$1.6 million. This decrease was primarily due to lower
invested cash balances. In 2009, included in other expense are
$0.2 million of gains from foreign currency transactions.
In 2008, included in other expense are $0.8 million of
losses from foreign currency transactions.
2008 vs. 2007: Other income was
$0.6 million in 2008 compared to $5.1 million in 2007.
In 2008, interest income was $1.6 million compared to
$5.3 million. This decrease was primarily due to lower
interest rates from investing in low risk and low interest rate
U.S. Treasury securities in 2008 compared to higher
interest rates from investing in investment grade floating rate
redeemable municipal debt securities in 2007. In 2008, included
in other expense are $0.8 million of losses from foreign
currency transactions. In 2007 gains from foreign currency
transactions were not significant.
Pre-control
earnings in subsidiary
Pre-control earnings in subsidiary are comprised of earnings
prior to the change in control related to the acquisition of
ORBCOMM Japan in June 2008.
In 2008, the pre-control earnings of ORBCOMM Japan was
$0.1 million.
Loss
from continuing operations
2009 vs. 2008: As a result of the items
described above, we have a loss from continuing operations of
$2.4 million in 2009 and 2008.
2008 vs. 2007: As a result of the items
described above, we have a loss from continuing operations of
$2.4 million in 2008 compared to a loss from continuing
operations of $2.6 million in 2007.
Loss
from discontinued operations
2009 vs. 2008: Loss from discontinued
operations in 2009 was $1.0 million compared to a loss of
$1.7 million in 2008.
The improvement in loss from discontinued operations in 2009
over 2008 was primarily related to the $0.8 million for
customer claims settlement from GE in 2009 under the 2006
Agreement.
2008 vs. 2007: Loss from discontinued
operations in 2008 was $1.7 million compared to a loss of
$1.0 million in 2007.
The increase in the loss from discontinued operations in 2008
over 2007 was primarily due lower product sales.
Noncontrolling
interests
Noncontrolling interests relate to earnings of ORBCOMM Japan
that are attributable to its minority shareholders.
61
Net
loss attributable to ORBCOMM Inc.
2009 vs. 2008: As a result of the items
described above, the net loss attributable to our company of
$3.4 million in 2009, compared to a net loss of
$4.5 million in 2008.
2008 vs. 2007: As a result of the items
described above, the net loss attributable to our company of
$4.5 million in 2008, compared to a net loss of
$3.6 million in 2007.
Liquidity
and Capital Resources
Overview
Our liquidity requirements arise from our working capital needs
and to fund capital expenditures to support our current
operations, and facilitate growth and expansion. Since our
inception, we have financed our operations from sales of our
common stock through public offerings and private placements of
debt, convertible redeemable preferred stock, membership
interests and common stock. We have incurred losses from
operations since inception, including a net loss of
$3.4 million in 2009 and as of December 31, 2009 we
have an accumulated deficit of $71.4 million. As of
December 31, 2009, our primary source of liquidity
consisted of cash and cash equivalents and marketable securities
totaling $91.4 million, which we believe will be sufficient
to provide working capital and milestone payments for our
next-generation satellites for at least the next twelve months.
Public
Offering
On May 31, 2007, we closed a secondary public offering of
8,050,000 shares of common stock at a price of $11.50 per
share. An aggregate of 2,985,000 shares of common stock
were sold by us and 5,065,000 shares were sold by certain
stockholders, which included 1,050,000 shares sold upon
full exercise of the underwriters over-allotment option.
We received net proceeds of approximately $31.0 million
after deducting underwriters discounts and commissions and
offering costs of $3.3 million. We did not receive any
proceeds from the shares sold by the selling stockholders.
Operating
activities
Cash provided by our operating activities of continuing
operations in 2009 was $2.1 million resulting from a net
loss of $3.3 million, which included a $15.0 million
gain on insurance settlement satellite network,
offset by non-cash items including $19.1 million for
depreciation and amortization and $1.5 million for
stock-based compensation. Working capital activities primarily
consisted of a net use of cash of $1.1 million from a
decrease in deferred revenues primarily due to an increase in
the recognition of revenues related the Coast Guard contract.
Cash provided by our operating activities of continuing
operations in 2008 was $4.3 million resulting from a net
loss of $4.1 million, offset by adjustments for non-cash
items of $6.6 million and $1.8 million of cash
generated from working capital. Adjustments for non-cash items
primarily consisted of $3.2 million for depreciation and
amortization and $3.6 million for stock-based compensation,
$0.8 million for foreign currency transactions and
$0.1 million of pre-control earnings relating to ORBCOMM
Japan, offset by $0.9 million non-cash gains primarily
related to obtaining our 51% interest in ORBCOMM Japan and a
$0.3 million reduction of expenses due to expiration of an
asset purchase option. Working capital activities primarily
consisted of net sources of cash of $1.7 million for a
decrease in accounts receivable primarily related to timing of
collections and $1.0 million for an increase in deferred
revenue primarily related to an increase in pre-payments of
service revenues by OEMs, offset by a net use of cash of
$0.8 million for an increase in prepaid expenses and other
current assets.
Cash provided by our operating activities of continuing
operations in 2007 was $1.7 million resulting from a net
loss of $3.6 million, offset by adjustments for non-cash
items of $6.9 million and $1.6 million used for
working capital. Adjustments for non-cash items primarily
consisted of $2.4 million for depreciation and amortization
and $4.3 million for stock-based compensation. Working
capital activities primarily consisted of net uses of cash of
$1.6 million for an increase in accounts receivable
primarily related to the increase in our revenues and the timing
of collections, $0.4 million for an increase in prepaid
expenses and other assets and accounts payable and accrued
expenses, offset by a source of cash from an increase of
$0.7 million in inventories.
62
Cash used in our operating activities of discontinued operations
in 2009 was $0.1 million resulting from a loss from
discontinued operations of $1.0 million, offset by
$0.9 million of cash generated from working capital.
Cash used in our operating activities of discontinued operations
in 2008 was $2.0 million resulting from a loss from
discontinued operations of $1.7 million and
$0.3 million of cash used for working capital.
.
Cash provided by our operating activities of discontinued
operations in 2007 was $1.0 million resulting from a loss
from discontinued operations of $1.0 million, offset by
$2.1 million of cash generated from working capital.
Investing
activities
Cash used in our investing activities of continuing operations
in 2009 was $12.8 million, resulting from capital
expenditures of $32.5 million, primarily for satellites,
and purchases of marketable securities consisting of
U.S. government and agency and corporate obligations and
FDIC-backed certificates of deposit debt securities of
$26.2 million. Capital expenditures and purchases of
marketable securities, were offset by the insurance
recovery-satellite network of $44.3 million and a net
change in restricted cash of $1.7 million. The net change
in restricted cash was due to a $2.0 million refund for
completion of milestones for a performance bond in connection
with obtaining FCC authorization to construct, launch and
operate an additional twenty-four next-generation satellites,
offset by a payment of $0.3 million to secure a letter of
credit with a cellular wireless provider related to secure
terrestrial communications services. Capital expenditures
included $29.0 million for the next-generation satellites
including $10.3 million for the launch services contract,
$0.8 million for the quick-launch satellites and
$0.4 million for the Coast Guard demonstration satellite
and $2.3 million of improvements to our internal
infrastructure and Ground Segment.
Cash used in our investing activities of continuing operations
in 2008 was $45.3 million, resulting from capital
expenditures of $40.0 million, primarily for satellites,
and an increase of $5.7 million to restricted cash as
collateral for a performance bond in connection with obtaining
FCC authorization to construct, launch and operate an additional
twenty-four next-generation satellites and the Orbital Sciences
procurement agreement for the quick-launch satellites. Capital
expenditures included $1.4 million for the Coast Guard
demonstration satellite, $8.7 million for the quick-launch
satellites and $26.6 million for the next-generation
satellites and $3.3 million of improvements to our internal
infrastructure and Ground Segment.
Cash provided by our investing activities of continuing
operations in 2007 was $19.1 million resulting from sales
of marketable securities of $97.2 million offset by capital
expenditures of $19.7 million, primarily for satellites,
and purchases of marketable securities consisting of investment
grade floating rate redeemable municipal debt securities
totaling $58.3 million. Capital expenditures included
$0.5 million for the Coast Guard demonstration satellite
and $16.1 million for the quick-launch and next-generation
satellites and $3.1 million of improvements to our internal
infrastructure and Ground Segment.
Cash used in our investing activities of discontinued operations
in 2009 and 2008 was $0.2 million and $0.3 million in
2007.
Financing
activities
In 2009, we did not have any cash flows from financing
activities of continuing operations.
Cash provided by our financing activities of continuing
operations in 2008 was $0.3 million resulting primarily
from proceeds received from the exercise of warrants and stock
options to purchase 125,744 shares of our common stock at
per share exercise prices ranging from $2.33 to $3.38.
Cash provided by our financing activities of continuing
operations in 2007 was $31.0 million resulting primarily
from the net proceeds received from our secondary public
offering of common stock, after deducting underwriters
discounts and commissions and offering costs.
63
Future
Liquidity and Capital Resource Requirements
We expect cash flows from continuing operating activities, along
with our existing cash and cash equivalents and marketable
securities will be sufficient to provide working capital and
fund capital expenditures, which primarily includes milestone
payments under the procurement agreements for the
next-generation satellites for at least the next twelve months.
For 2010, we expect to incur approximately $22.2 million of
capital expenditures primarily for our next-generation
satellites.
Contractual
Obligations
The following table summarizes our contractual obligations at
December 31, 2009 and the effect that those obligations are
expected to have on our liquidity and cash flows in future
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1 to
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
3 Years
|
|
|
3 Years
|
|
|
Next-generation satellite and launch procurement agreements
|
|
$
|
111,400
|
|
|
$
|
22,230
|
|
|
$
|
87,570
|
|
|
$
|
1,600
|
|
Quick-launch procurement agreements
|
|
|
2,913
|
|
|
|
2,913
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4,193
|
|
|
|
1,141
|
|
|
|
2,774
|
|
|
|
278
|
|
Purchase commitment
|
|
|
4,800
|
|
|
|
|
|
|
|
4,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123,306
|
|
|
$
|
26,284
|
|
|
$
|
95,144
|
|
|
$
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Next
Generation procurement agreements
On May 5, 2008, we entered into a Procurement Agreement
(the Agreement) with Sierra Nevada Corporation
(SNC) pursuant to which SNC will construct eighteen
low-earth-orbit satellites in three sets of six satellites
(shipsets) for our next-generation satellites (the
Initial Satellites). Under the Agreement, SNC will
also provide launch support services, a test satellite
(excluding the mechanical structure), a satellite software
simulator and the associated ground support equipment. Under the
Agreement, we may elect to use the launch option to be offered
by SNC or we may contract separately with other providers for
launch services and launch insurance for the satellites.
Under the Agreement, we have the option, exercisable at any time
until the third anniversary of the execution of the Agreement,
to order up to thirty additional satellites substantially
identical to the Initial Satellites (the Optional
Satellites).
The total contract price (for the Initial Satellites) is
$117 million, subject to reduction upon failure to achieve
certain in-orbit operational milestones with respect to the
Initial Satellites or if the pre-ship reviews of each shipset
are delayed more than 60 days after the specified time
periods described below. We have agreed to pay SNC up to
$1.5 million in incentive payments for the successful
operation of the Initial Satellites five years following the
successful completion of in-orbit testing for the third shipset
of six satellites. The price for the Optional Satellites ranges
from $5.0 million to $7.7 million per satellite
depending on the number of satellites ordered and the timing of
the exercise of the option.
The Agreement also requires SNC to complete the pre-ship review
of the Initial Satellites (i) no later than 24 months
after the execution of the Agreement for the first shipset of
six satellites, (ii) no later than 31 months after the
execution of the Agreement for the second shipset of six
satellites and (iii) no later than 36 months after the
execution of the Agreement for the third shipset of six
satellites. Payments under the Agreement will begin upon the
execution of the Agreement and will extend into the second
quarter of 2012, subject to SNCs successful completion of
each payment milestone.
Under the Agreement, SNC has agreed to provide us with an
optional secured credit facility for up to $20.0 million
commencing 24 months after the execution of the Agreement
and maturing 44 months after the effective date. If we
elect to establish and use the credit facility we and SNC will
enter into a formal credit facility on terms established in the
Agreement.
64
As December 31, 2009, we had made payments totaling
approximately $42.1 million pursuant to this agreement.
On August 28, 2009, we and Space Exploration Technologies
Corp. (SpaceX) entered into a Commercial Launch
Services Agreement (the LSA) pursuant to which
SpaceX will provide launch services (the Launch
Services) using multiple SpaceX Falcon 1e launch vehicles
for the carriage into low-Earth-orbit our 18 next-generation
commercial communications satellites currently being constructed
by SNC. Under the LSA, SpaceX will also provide us
satellite-to-launch
vehicle integration and support services, as well as certain
related optional services.
The LSA anticipates that the Launch Services will be performed
between the fourth quarter of 2010 and first quarter of 2014,
subject to certain rights of ours and SpaceX to reschedule any
of the particular Launch Services as needed. The Agreement also
provides us the option to procure, prior to each Launch Service,
reflight launch services whereby in the event the applicable
Launch Service results in a failure due to the SpaceX launch
vehicle, SpaceX will provide comparable reflight launch services
at no additional cost to us beyond the initial option price for
such reflight launch services.
The total price under the LSA (excluding any options or
additional launch services) is $46.6 million, subject to
certain adjustments. The amounts due under the SLA are payable
in periodic installments from the date of execution of the SLA
through the performance of each Launch Service. We may postpone
and reschedule the Launch Services for any reason at our sole
discretion, following 12 months of delay for any particular
Launch Services. We also have the right to terminate any of the
Launch Services subject to the payment of a termination fee in
an amount that would be based on the date we exercise our
termination right.
As December 31, 2009, we had made payments totaling
approximately $10.1 million pursuant to this agreement.
Quick-launch
procurement agreements
On April 21, 2006, we entered into an agreement with
Orbital Sciences Corporation to supply the payloads for our six
quick-launch satellites. The price of the six payloads is
$17 million, subject to price adjustments under certain
circumstances. As December 31, 2009, we had made payments
totaling approximately $16.3 million pursuant to this
agreement.
On June 5, 2006, we entered into an agreement with
OHB-System AG, an affiliate of OHB Technology A.G., to design,
develop and manufacture six satellite buses, integrate such
buses with the payloads to be provided by Orbital Sciences
Corporation, and launch the six integrated satellites. The
original price for the six satellite buses and related
integration and launch services was $20 million and
payments under the agreement are due upon specific milestones
achieved by OHB-System AG. In addition, OHB System, AG will
provide services relating to the development, demonstration and
launch of the Companys next-generation satellites at a
cost of $1.35 million of which $0.8 million was paid
in 2008.
On July 2, 2008, we entered into an agreement with OHB
System AG, to amend the June 5, 2006 agreement in
connection with the successful launch of the Coast Guard
demonstration satellite and the five quick-launch satellites on
June 19, 2008. Pursuant to the agreement, we and OHB
System, AG agreed to a revised schedule of milestone and related
payments for the launch of the five quick-launch satellites and
delivery schedule of the sixth quick-launch satellite, with no
modification to the price in the agreement entered into on
June 5, 2006, including certain launch support and in-orbit
testing services for the sixth quick-launch satellite. In
addition, we agreed to pay an additional $0.4 million to
OHB System, AG relating to the construction of the five
quick-launch satellites. Further, we and OHB System, AG have
also agreed to waive any applicable on-time delivery incentive
payments and to waive any applicable liquidating damages, except
for any liquidating delay damages with respect to delivery delay
of the sixth quick-launch satellite.
As of December 31, 2009, we have made payments totaling
$17.7 million pursuant to this agreement.
65
Purchase
commitment
On August 29, 2008, Stellar entered into an agreement with
Delphi Automotive Systems LLC to purchase approximately
$4.8 million of a future model of a subscriber communicator
over a two-year period beginning once the subscriber
communicator model becomes commercially available which is
expected to occur within the next twelve months.
Operating
leases
Amounts represent future minimum payments under operating leases
for our office spaces and other facilities.
Related
parties
The information in Part III, Item 11, Certain
Relationships and Related Transactions, is incorporated
herein by reference.
Off-
Balance sheet Arrangements
None
Recent
Accounting Pronouncements
Effective January 1, 2009, we adopted FASB ASC Topic 805,
Business Combinations (ASC 805). ASC 805
establishes principles and requirements for how the acquirer of
a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed and
any non-controlling interest in the acquiree. ASC 805 also
provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what
information to disclose to enable users of financial statements
to evaluate the nature and financial effects of the business
combination. We will apply ASC 805 prospectively to any business
combinations completed after January 1, 2009.
Effective January 1, 2009, we adopted FASB ASC
810-10-45,
Consolidation Topic, (ASC
810-10-45)
which revised the accounting treatment for noncontrolling
interests of partially owned subsidiaries. The adoption of ASC
810-10-45
has resulted in the reclassification of amounts previously
attributable to minority interest (now referred to as
noncontrolling interest) to a separate component of equity in
the accompanying consolidated balance sheets. Additionally, net
income attributable to noncontrolling interests is shown
separately from net loss in the accompanying consolidated
statements of operations. The prior periods presented have also
been reclassified to conform to the current classification as
required by ASC
810-10-45.
These reclassifications have no effect on our previously
reported net loss per common share.
In April 2009, the FASB issued updated guidance related to
business combinations, which is included in the Codification in
ASC 805-20,
Business Combinations-Identifiable Assets, Liabilities and
Any Non Controlling Interest, (ASC
805-20).
ASC 805-20
amends and clarifies ASC 805 to address application issues
regarding the initial recognition and measurement, subsequent
measurement and accounting and disclosures of assets and
liabilities arising from contingencies in a business
combination. In circumstances where the acquisition-date fair
value for a contingency cannot be determined during the
measurement period and it is concluded that it is probable that
an assets or liability exists as of the acquisition date and the
amount can be reasonably estimated, a contingency is recognized
as of the acquisition date based on the estimated amount. We
will apply ASC
805-20
prospectively to any business combinations completed after
January 1, 2009.
In April 2009, the FASB issued new guidance on FASB ASC
320-10,
Investments Debt and Equity Securities, which
amended existing guidance for the recognition and measurement of
other-than-temporary
impairments for debt securities which replaced the pre-existing
intent and ability indicator. The new guidance
specifies that if the fair value of a debt security is less than
its amortized cost basis, an other- than-temporary impairment is
triggered in circumstances where (1) an entity has an
intent to sell the security, (2) it is more likely than not
that the entity will be required to sell the security before
recovery of its amortized cost basis, or (3) the entity
does not expect to recover the entire amortized cost basis of
the security (that is, a credit loss exists).
Other-than-temporary
impairments are separated into amounts representing credit
losses which are recognized in
66
earnings and amounts related to all other factors which are
recognized in other comprehensive income (loss). We adopted the
new guidance on April 1, 2009 and it did not have a
material on our consolidated financial statements.
In June 2009, the FASB issued ASU
No. 2009-17,
Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities Consolidations in FASB Topic
810, Consolidations (ASC 810). ASU
2009-17
requires a company to perform ongoing reassessment of whether it
is the primary beneficiary of a variable interest entity
(VIE). Specifically, the guidance modifies how a
company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar
rights) should be consolidated. The guidance clarifies that the
determination of whether a company is required to consolidate a
VIE is based on, among other things, an entitys purpose
and design and a companys ability to direct the activities
of the VIE that most significantly impact the VIEs
economic performance. The guidance requires an ongoing
reassessment of whether a company is the primary beneficiary of
a VIE and enhanced disclosures of the companys involvement
in VIEs and any significant changes in risk exposure due to that
involvement. In addition, qualifying special purpose entities
are no longer exempt from consolidation under the amended
guidance. ASU
No. 2009-17
will be effective for us on January 1, 2010. We adopted ASU
No. 2009-17
on January 1, 2010 and it did not have a material impact on
our consolidated financial statements.
In October 2009, FASB issued ASU
No. 2009-13,
Revenue Recognition FASB Topic ASC
605-25
(ASC
605-25),
Multiple Deliverable Revenue Arrangements. ASU
No. 2009-13
requires an entity to allocate the revenue at the inception of
an arrangement to all of its deliverables based on their
relative selling prices. This guidance eliminates the residual
method of allocation of revenue in multiple deliverable
arrangements and requires the allocation of revenue based on the
relative-selling-price method. The determination of the selling
price for each deliverable requires the use of a hierarchy
designed to maximize the use of available objective evidence
including, vendor-specific objective evidence of fair value
(VSOE), third party evidence of selling price (TPE), or
estimated selling price (ESP). ASU
No. 2009-13
will be effective for us on January 1, 2011 and early
adoption is allowed and may be adopted either under the
prospective method, whereby all revenue arrangements entered
into, or materially modified after the effective date or under
the retrospective application to all revenue arrangements for
all periods presented. We may elect to adopt ASU
No. 2009-13
prior to January 1, 2011 under the prospective method but
must adjust the revenue of prior reported periods such that all
new revenue arrangements entered into, or materially modified,
during the fiscal year of adoption are accounted for under this
guidance. We are currently evaluating the impact of adopting ASC
No. 2009-13
on our consolidated financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
rate risk
We do not have any material interest rate risk.
Effects
of inflation risk
Overall, we believe that the impact of inflation risk on our
business will not be significant.
Foreign
currency risk
The majority of our revenues and expenses are transacted in
U.S. dollars. Due to the acquisition of ORBCOMM Japan, we
have foreign exchange exposures to non U.S. dollar
revenues. For the years ended December 31, 2009 and 2008,
revenues denominated in foreign currencies were approximately
10.9% and 18.3% of total revenues. For the year ended
December 31, 2009, our revenues would have decreased by
approximately 1.0% if the U.S. dollar would have
strengthened by 10%.
We have assets and liabilities denominated in foreign
currencies. A potential change in the fair value of these assets
and liabilities from an increase (decrease) of 10% of the
U.S. dollar would be an increase (decrease) of
approximately $0.3 million.
67
Concentration
of credit risk
The following table presents customers with revenues greater
than 10% of our consolidated total revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
General Electric Company
|
|
|
17.0
|
%
|
|
|
19.3
|
%
|
|
|
27.1
|
%
|
Caterpillar Inc.
|
|
|
16.2
|
%
|
|
|
11.9
|
%
|
|
|
|
|
Komatsu Ltd.
|
|
|
11.3
|
%
|
|
|
|
|
|
|
|
|
Hitachi Construction Machinery Co., Ltd.
|
|
|
|
|
|
|
15.8
|
%
|
|
|
|
|
Market
rate risk
As of December 31, 2009, we have marketable securities
which consist of U.S. government and agency obligations,
corporate obligations and FDIC-backed certificates of deposit
debt securities totaling $26.1 million. The primary
objectives of our investment activities are to preserve capital,
maintain sufficient liquidity to meet operating requirements
while at the same time maximizing income we receive from our
investments without significantly increasing our risk. Due to
the high investment quality and short duration of these
marketable securities, we do not believe that we have any
material exposure to changes in the fair value as a result of
changes in interest rates. Declines in interest rates, however
will reduce future income. A hypothetical 1% movement in market
interest rates would not have a significant impact on interest
income.
Vendor
risk
A significant portion of the communicators sold by Stellar are
manufactured under a contract with Delphi Automotive Systems
LLC, a subsidiary of Delphi Corporation, which emerged from
bankruptcy protection in 2009. The Communicators are
manufactured by a Delphi affiliate in Mexico.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The consolidated financial statements of ORBCOMM Inc., and
subsidiaries including the notes thereto and the report thereon,
is presented beginning at
page F-1
of this Annual Report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
On August 27, 2009, the Audit Committee of our Board of
Directors dismissed Deloitte & Touche LLP as the
Companys independent registered public accounting firm and
approved the engagement of KPMG LLP as our independent
registered public accounting firm for the fiscal year ended
December 31, 2009. In connection with our change in
accountants, there were no disagreements or reportable events
required to be disclosed pursuant to
Regulation S-K,
Item 304(a)(1)(iv) and Item 304(a)(1)(v).
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
In connection with preparation of this Annual Report on From
10-K, we
carried out an evaluation, under the supervision and with the
participation of our management including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
as of December 31, 2009. The term disclosure controls
and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to
be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is accumulated and
communicated to the Companys management, including its
principal executive and principal
68
financial officers, as appropriate to allow timely decisions
regarding required disclosure. Management recognizes that any
controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment
in evaluating the cost-benefit relationship of possible controls
and procedures. Based on the evaluation of our disclosure
controls and procedures as of December 31, 2009, our Chief
Executive Officer and Chief Financial Officer concluded that, as
of such date, our disclosure controls and procedures were
effective.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in Exchange Act
Rule 13a-15(f).
Management, including our Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness
of our internal control over financial reporting based on the
framework set forth in Internal Control -Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management
concluded that our internal control over financial reporting was
effective as of December 31, 2009. The effectiveness of our
internal control over financial reporting as of
December 31, 2009 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in its
attestation report which is included below.
Changes
in Internal Control over Financial Reporting
There were no changes in the Companys internal control
over financial reporting during the quarter ended
December 31, 2009, that are materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
69
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
ORBCOMM Inc.:
We have audited ORBCOMM Inc. and subsidiaries internal control
over financial reporting as of December 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). ORBCOMM Inc.
and subsidiaries management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
ORBCOMM Inc. and subsidiaries internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers or persons performing similar functions, and effected
by the companys board of directors, management and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, ORBCOMM Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of ORBCOMM Inc. and subsidiaries as
of December 31, 2009, and the related consolidated
statements of operations, cash flows, and equity for the year
then ended, and our report dated March 16, 2010 expressed
an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
New York, New York
March 16, 2010
70
|
|
Item 9B.
|
Other
information
|
None.
71
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Identification
of Directors
Reference is made to the information regarding directors under
the heading Election of Directors (Proposal 1)
in the Proxy Statement for our 2009 Annual Meeting of
stockholders to be held on April 29, 2010, (the 2010 Proxy
Statement), which information is hereby incorporated by
reference.
Identification
of Executive Officers
Reference is made to the information regarding executive
officers under the heading Executive Officers of the
Registrant in Part I, Item 1 of this Annual
Report on
Form 10-K.
Identification
of Audit Committee and Audit Committee Financial
Expert
Reference is made to the information regarding directors under
the heading Election of Directors
(Proposal 1) Board of Directors and
Committees Audit Committee in our 2010 Proxy
Statement, which information hereby is incorporated by reference.
Material
Changes to Procedures for Recommending Directors
Reference is made to the information regarding directors under
the heading Election of Directors (Proposal 1)
in our 2010 Proxy Statement, which information is hereby
incorporated by reference.
Compliance
with Section 16(a) of the Exchange Act
Reference is made to the information under the heading
Section 16(a) Beneficial Ownership Reporting
Compliance Board of Directors and Committees
in our 2010 Proxy Statement, which information is hereby
incorporated by reference.
Code of
Ethics
We have adopted a code of ethics, or Code of Business Conduct,
to comply with the rules of the SEC and Nasdaq. Our Code of
Business Conduct applies to our directors, officers and
employees, including our principal executive officer and senior
financial officers. A copy of our Code of Business Conduct is
maintained on our website at www.orbcomm.com.
|
|
Item 11.
|
Executive
Compensation
|
Reference is made to the information under the heading
Executive Compensation in our 2010 Proxy Statement,
which information is hereby incorporated by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Beneficial
Ownership
Reference is made to the information under the heading
Security Ownership of Certain Beneficial Owners and
Management in our 2010 Proxy Statement, which information
is hereby incorporated by reference.
Equity
Compensation Plan Information
Reference is made to the information under the heading
Equity Compensation Plan Information in our 2010
Proxy Statement, which information is hereby incorporated by
reference.
72
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Reference is made to the information under the heading
Certain Relationships and Transactions with Related
Persons in our 2010 Proxy Statement, which information is
hereby incorporated by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Reference is made to the information under the heading
Ratification of Selection of Independent Registered Public
Accounting Firm (Proposal 2) Principal
Accountant Fees in our 2010 Proxy Statement, which
information is hereby incorporated by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statements Schedules
|
(a)(1) Financial Statements
See Index to Consolidated Financial Statements appearing on
page F-1.
(a)(2) Financial Statement Schedules
Schedule II-
See Index to Consolidated Financial Statements appearing on
page F-1
Financial statement schedules not filed herein have been omitted
as they are not applicable or the required information or
equivalent information has been included in the financial
statements or the notes thereto.
(a)(3) Exhibits
See Exhibit Index attached hereto and incorporated by
reference herein.
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ORBCOMM Inc. has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Fort Lee, State
of New Jersey, on March 16, 2010.
ORBCOMM Inc.
|
|
|
|
By:
|
/s/ Marc
J. Eisenberg
|
Marc J. Eisenberg
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on March 16, 2010 by the
following persons in the capacities indicated:
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Marc
J. Eisenberg
Marc
J. Eisenberg
|
|
Chief Executive Officer and President and Director
(principal executive officer)
|
|
|
|
/s/ Jerome
B. Eisenberg
Jerome
B. Eisenberg
|
|
Chairman of the Board
|
|
|
|
/s/ Marco
Fuchs*
Marco
Fuchs
|
|
Director
|
|
|
|
/s/ Didier
Delepine*
Didier
Delepine
|
|
Director
|
|
|
|
/s/ Timothy
Kelleher*
Timothy
Kelleher
|
|
Director
|
|
|
|
/s/ Hans
E.W. Hoffmann*
Hans
E.W. Hoffmann
|
|
Director
|
|
|
|
/s/ John
Major*
John
Major
|
|
Director
|
|
|
|
/s/ Gary
H. Ritondaro*
Gary
H. Ritondaro
|
|
Director
|
|
|
|
/s/ John
R. Wood*
John
R. Wood
|
|
Director
|
|
|
|
/s/ Robert
G. Costantini
Robert
G. Costantini
|
|
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
|
|
|
|
|
|
*By:
|
|
/s/ Christian
G. LeBrun
Christian
G. LeBrun, Attorney-in-Fact**
|
|
|
|
** By authority of the power of attorney filed as
Exhibit 24 hereto.
|
74
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-36
|
|
F-1
Report of
Independent Registered Public Accounting Firm
The Board of Directors and
Stockholders of ORBCOMM Inc.:
We have audited the accompanying consolidated balance sheet of
ORBCOMM Inc. and subsidiaries (the Company) as of
December 31, 2009, and the related consolidated statement
of operations, cash flows, and equity for the year then ended.
In connection with our audit of the consolidated financial
statements, we also have audited the consolidated financial
statement schedule, Schedule II
Valuation and Qualifying Accounts
as of and for the year ended December 31, 2009. These
consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of ORBCOMM Inc. and subsidiaries as of
December 31, 2009, and the results of their operations and
their cash flows for the year then ended, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related consolidated financial statement schedule
as of and for the year ended December 31, 2009, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 3 to the consolidated financial
statements, the Company changed its method of accounting for
noncontrolling interests due to the adoption of new accounting
requirements issued by the FASB, as of January 1, 2009.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 16, 2010
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
New York, New York
March 16, 2010
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
ORBCOMM Inc.
Fort Lee, New Jersey
We have audited the accompanying consolidated balance sheet of
ORBCOMM Inc. and subsidiaries (the Company) as of
December 31, 2008, and the related consolidated statements
of operations, changes in equity, and cash flows for the years
ended December 31, 2008 and 2007. Our audits also included
the 2008 and 2007 information included in the financial
statement schedule listed in the Index at Item 15. These
consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2008, and the results of its
operations and their cash flows for each of the two years in the
period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, the 2008 and 2007 information
included in such financial statement schedule, when considered
in relation to the basic 2008 and 2007 consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 3 to the consolidated financial
statements, the Company changed its method of accounting for
uncertain tax positions effective January 1, 2007.
As discussed in Note 2 to the consolidated financial
statements, the financial statements as of December 31,
2008 and for the years ended December 31, 2008 and 2007
have been retrospectively adjusted for the adoption of new
accounting guidance which changes the accounting treatment for
noncontrolling interests of partially owned subsidiaries.
As discussed in Note 4 to the consolidated financial
statements, the Company classified the assets and liabilities of
Stellar Satellite Communications Ltd. (Stellar) as
assets held for sale in the consolidated balance sheet as of
December 31, 2008 and Stellars results of operations
and cash flows have be presented as discontinued operations for
the years ended December 31, 2008 and 2007.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 16, 2009 (March 16, 2010 as to the effects of
the retrospective adjustments to 2008 and 2007 relating to the
adoption of new accounting guidance for noncontrolling interests
and the classification of Stellar as discontinued operations and
the related disclosures in Note 4)
F-3
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
65,292
|
|
|
$
|
75,370
|
|
Restricted cash
|
|
|
1,000
|
|
|
|
2,000
|
|
Marketable securities
|
|
|
26,145
|
|
|
|
|
|
Accounts receivable, net of allowances for doubtful accounts of
$803 and $101
|
|
|
3,574
|
|
|
|
3,412
|
|
Inventories
|
|
|
78
|
|
|
|
158
|
|
Receivable from insurance recovery
|
|
|
|
|
|
|
2,450
|
|
Prepaid expenses and other current assets
|
|
|
1,218
|
|
|
|
1,690
|
|
Current assets held for sale
|
|
|
778
|
|
|
|
1,621
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
98,085
|
|
|
|
86,701
|
|
Satellite network and other equipment, net
|
|
|
73,208
|
|
|
|
92,772
|
|
Intangible assets, net
|
|
|
2,600
|
|
|
|
4,086
|
|
Restricted cash
|
|
|
2,980
|
|
|
|
3,680
|
|
Other assets
|
|
|
1,354
|
|
|
|
1,484
|
|
Long term assets held for sale
|
|
|
2,832
|
|
|
|
2,644
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
181,059
|
|
|
$
|
191,367
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,642
|
|
|
$
|
8,428
|
|
Accrued liabilities
|
|
|
5,610
|
|
|
|
7,168
|
|
Current portion of deferred revenue
|
|
|
3,849
|
|
|
|
3,543
|
|
Current liabilities related to assets held for sale
|
|
|
412
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,513
|
|
|
|
19,465
|
|
Note payable related party
|
|
|
1,398
|
|
|
|
1,244
|
|
Deferred revenue, net of current portion
|
|
|
6,230
|
|
|
|
7,607
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
20,141
|
|
|
|
28,316
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
ORBCOMM Inc. stockholders equity
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001; 250,000,000 shares
authorized; 42,455,531 and 42,101,834 shares issued and
outstanding
|
|
|
42
|
|
|
|
42
|
|
Additional paid-in capital
|
|
|
230,512
|
|
|
|
229,001
|
|
Accumulated other comprehensive income
|
|
|
76
|
|
|
|
381
|
|
Accumulated deficit
|
|
|
(71,415
|
)
|
|
|
(67,976
|
)
|
|
|
|
|
|
|
|
|
|
Total ORBCOMM Inc. stockholders equity
|
|
|
159,215
|
|
|
|
161,448
|
|
Noncontrolling interests in ORBCOMM Japan
|
|
|
1,703
|
|
|
|
1,603
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
160,918
|
|
|
|
163,051
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
181,059
|
|
|
$
|
191,367
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
$
|
27,143
|
|
|
$
|
23,811
|
|
|
$
|
17,707
|
|
Product sales
|
|
|
423
|
|
|
|
3,498
|
|
|
|
1,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
27,566
|
|
|
|
27,309
|
|
|
|
19,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of services
|
|
|
26,891
|
|
|
|
9,800
|
|
|
|
7,982
|
|
Costs of product sales
|
|
|
260
|
|
|
|
2,172
|
|
|
|
683
|
|
Selling, general and administrative
|
|
|
17,172
|
|
|
|
18,879
|
|
|
|
17,583
|
|
Product development
|
|
|
714
|
|
|
|
643
|
|
|
|
648
|
|
Gains on customer claims settlements
|
|
|
|
|
|
|
(1,368
|
)
|
|
|
|
|
Impairment charges-satellite network
|
|
|
29,244
|
|
|
|
|
|
|
|
|
|
Insurance recovery-satellite network
|
|
|
(44,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
30,031
|
|
|
|
30,126
|
|
|
|
26,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,465
|
)
|
|
|
(2,817
|
)
|
|
|
(7,665
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
85
|
|
|
|
1,599
|
|
|
|
5,258
|
|
Other income (expense)
|
|
|
218
|
|
|
|
(842
|
)
|
|
|
25
|
|
Interest expense
|
|
|
(193
|
)
|
|
|
(199
|
)
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
110
|
|
|
|
558
|
|
|
|
5,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before pre-control earnings
of consolidated subsidiary
|
|
|
(2,355
|
)
|
|
|
(2,259
|
)
|
|
|
(2,591
|
)
|
Less: Pre-control earnings of consolidated subsidiary
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(2,355
|
)
|
|
|
(2,387
|
)
|
|
|
(2,591
|
)
|
Loss from discontinued operations
|
|
|
(954
|
)
|
|
|
(1,682
|
)
|
|
|
(998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,309
|
)
|
|
|
(4,069
|
)
|
|
|
(3,589
|
)
|
Less: Net income attributable to the noncontrolling interests
|
|
|
130
|
|
|
|
471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ORBCOMM Inc.
|
|
$
|
(3,439
|
)
|
|
$
|
(4,540
|
)
|
|
$
|
(3,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ORBCOMM Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(2,485
|
)
|
|
$
|
(2,858
|
)
|
|
$
|
(2,591
|
)
|
Loss from discontinued operations
|
|
|
(954
|
)
|
|
|
(1,682
|
)
|
|
|
(998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ORBCOMM Inc.
|
|
$
|
(3,439
|
)
|
|
$
|
(4,540
|
)
|
|
$
|
(3,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share information-basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.06
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
Loss from discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.04
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ORBCOMM Inc.
|
|
$
|
(0.08
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
42,404
|
|
|
|
41,984
|
|
|
|
39,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Stock-based compensation included in costs and
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of services
|
|
$
|
65
|
|
|
$
|
119
|
|
|
$
|
383
|
|
Selling, general and administrative
|
|
|
1,438
|
|
|
|
3,467
|
|
|
|
3,878
|
|
Product development
|
|
|
8
|
|
|
|
57
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,511
|
|
|
$
|
3,643
|
|
|
$
|
4,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,309
|
)
|
|
$
|
(4,069
|
)
|
|
$
|
(3,589
|
)
|
Adjustments to reconcile net loss to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in allowance for doubtful accounts
|
|
|
698
|
|
|
|
(159
|
)
|
|
|
34
|
|
Depreciation and amortization
|
|
|
19,115
|
|
|
|
3,174
|
|
|
|
2,398
|
|
Accretion on note payable related party
|
|
|
131
|
|
|
|
131
|
|
|
|
131
|
|
Stock-based compensation
|
|
|
1,511
|
|
|
|
3,643
|
|
|
|
4,329
|
|
Foreign exchange (gains) losses
|
|
|
(217
|
)
|
|
|
839
|
|
|
|
(23
|
)
|
Amortization of premium on marketable securities
|
|
|
72
|
|
|
|
|
|
|
|
|
|
Gain on insurance settlement-satellite network
|
|
|
(15,006
|
)
|
|
|
|
|
|
|
|
|
Loss on disposal of equipment
|
|
|
|
|
|
|
13
|
|
|
|
|
|
Pre-control earnings of consolidated subsidiary
|
|
|
|
|
|
|
128
|
|
|
|
|
|
Non-cash portion of gains on customer claims settlements
|
|
|
|
|
|
|
(882
|
)
|
|
|
|
|
Gain on expiration of gateway purchase option
|
|
|
|
|
|
|
(325
|
)
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(705
|
)
|
|
|
1,676
|
|
|
|
(1,551
|
)
|
Inventories
|
|
|
77
|
|
|
|
228
|
|
|
|
694
|
|
Prepaid expenses and other assets
|
|
|
532
|
|
|
|
(837
|
)
|
|
|
(412
|
)
|
Accounts payable and accrued liabilities
|
|
|
286
|
|
|
|
(264
|
)
|
|
|
(376
|
)
|
Deferred revenue
|
|
|
(1,069
|
)
|
|
|
963
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing
operations
|
|
|
2,116
|
|
|
|
4,259
|
|
|
|
1,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities of
discontinued operations
|
|
|
949
|
|
|
|
(312
|
)
|
|
|
2,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,065
|
|
|
|
3,947
|
|
|
|
3,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(32,486
|
)
|
|
|
(40,044
|
)
|
|
|
(19,743
|
)
|
Purchases of marketable securities
|
|
|
(26,217
|
)
|
|
|
|
|
|
|
(58,325
|
)
|
Sales of marketable securities
|
|
|
|
|
|
|
|
|
|
|
97,175
|
|
Change in restricted cash
|
|
|
1,700
|
|
|
|
(5,680
|
)
|
|
|
|
|
Proceeds of insurance settlement-satellite network
|
|
|
44,250
|
|
|
|
|
|
|
|
|
|
Cash acquired from step acquisition of subsidiary
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities of
continuing operations
|
|
|
(12,753
|
)
|
|
|
(45,358
|
)
|
|
|
19,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities of discontinued operations
|
|
|
(208
|
)
|
|
|
(245
|
)
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(12,961
|
)
|
|
|
(45,603
|
)
|
|
|
18,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock in connection with
secondary
|
|
|
|
|
|
|
|
|
|
|
|
|
public offering, net of underwriters discounts and
commissions and
|
|
|
|
|
|
|
|
|
|
|
|
|
offering costs of $3,318
|
|
|
|
|
|
|
|
|
|
|
31,010
|
|
Proceeds from exercise of warrants and options
|
|
|
|
|
|
|
342
|
|
|
|
572
|
|
Payment of offering costs in connection with initial and
secondary public offerings
|
|
|
|
|
|
|
(40
|
)
|
|
|
(609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities from continuing
operations
|
|
|
|
|
|
|
302
|
|
|
|
30,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
302
|
|
|
|
30,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
(182
|
)
|
|
|
1,137
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(10,078
|
)
|
|
|
(40,217
|
)
|
|
|
53,448
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
75,370
|
|
|
|
115,587
|
|
|
|
62,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
65,292
|
|
|
$
|
75,370
|
|
|
$
|
115,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures (Note 21)
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
Years ended December 31, 2009, 2008 and 2007
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
other
|
|
|
|
|
|
interests
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
in ORBCOMM
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
income (loss)
|
|
|
deficit
|
|
|
Japan
|
|
|
equity
|
|
|
loss
|
|
|
Balances, January 1, 2007
|
|
|
36,923,715
|
|
|
$
|
37
|
|
|
$
|
188,917
|
|
|
$
|
(395
|
)
|
|
$
|
(59,847
|
)
|
|
$
|
|
|
|
$
|
128,712
|
|
|
|
|
|
Secondary public offering of common stock, net of
underwriters discounts and commissions and offering costs
|
|
|
2,985,000
|
|
|
|
3
|
|
|
|
30,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,970
|
|
|
|
|
|
Exercise of warrants and options
|
|
|
1,419,230
|
|
|
|
2
|
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
572
|
|
|
|
|
|
Vesting of restricted stock units
|
|
|
330,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,445
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,589
|
)
|
|
|
|
|
|
|
(3,589
|
)
|
|
$
|
(3,589
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
|
(261
|
)
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
41,658,066
|
|
|
|
42
|
|
|
|
224,899
|
|
|
|
(656
|
)
|
|
|
(63,436
|
)
|
|
|
|
|
|
|
160,849
|
|
|
|
|
|
Exercise of warrants and options
|
|
|
187,270
|
|
|
|
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
342
|
|
|
|
|
|
Vesting of restricted stock units
|
|
|
256,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,760
|
|
|
|
|
|
Non-controlling interest of acquired subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
847
|
|
|
|
847
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,540
|
)
|
|
|
599
|
|
|
|
(3,941
|
)
|
|
$
|
(4,540
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,037
|
|
|
|
|
|
|
|
157
|
|
|
|
1,194
|
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
42,101,834
|
|
|
|
42
|
|
|
|
229,001
|
|
|
|
381
|
|
|
|
(67,976
|
)
|
|
|
1,603
|
|
|
|
163,051
|
|
|
|
|
|
Vesting of restricted stock units
|
|
|
353,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,511
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,439
|
)
|
|
|
130
|
|
|
|
(3,309
|
)
|
|
$
|
(3,439
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
|
|
|
|
|
|
(30
|
)
|
|
|
(335
|
)
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
|
42,455,531
|
|
|
$
|
42
|
|
|
$
|
230,512
|
|
|
$
|
76
|
|
|
$
|
(71,415
|
)
|
|
$
|
1,703
|
|
|
$
|
160,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-7
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
|
|
Note 1.
|
Organization
and Business
|
ORBCOMM Inc. (ORBCOMM or the Company), a
Delaware corporation, is a satellite-based data communications
company that operates a two-way global wireless data messaging
system optimized for narrowband data communication. The Company
also provides terrestrial-based cellular communication services
through reseller agreements with major cellular wireless
providers. The Company provides services through a constellation
of 29 owned and operated low-Earth orbit satellites and
accompanying ground infrastructure through which small, low
power, fixed or mobile satellite subscriber communicators
(Communicators) and cellular wireless subscriber
identity modules, or SIMS, connected to the cellular wireless
providers network, that can be connected to other public
or private networks, including the Internet (collectively, the
ORBCOMM System). The ORBCOMM System is designed to
enable businesses and government agencies to track, monitor,
control and communicate with fixed and mobile assets.
|
|
Note 2.
|
Public
Offering and Basis of Presentation
|
On May 31, 2007, the Company completed a secondary public
offering of 8,050,000 shares of its Common stock at a price
of $11.50 per share. An aggregate of 2,985,000 shares of
common stock were sold by the Company and 5,065,000 shares
were sold by certain stockholders of the Company, which included
1,050,000 shares sold upon full exercise of the
underwriters over-allotment option. The Company received
net proceeds of approximately $30,970, after deducting
underwriters discounts and commissions and offering costs
of $3,358. The Company did not receive any proceeds from the
shares of common stock sold by the selling stockholders.
The Company has incurred losses from inception including a net
loss of $3,439 in 2009 and as of December 31, 2009, the
Company has an accumulated deficit of $71,415. As of
December 31, 2009, the Companys primary source of
liquidity consisted of cash and cash equivalents and marketable
securities totaling $91,437, which the Company believes will be
sufficient to provide working capital and milestone payments for
its next-generation satellites for at least the next twelve
months.
|
|
Note 3.
|
Summary
of Significant Accounting Policies
|
Principles
of consolidation
The accompanying consolidated financial statements include the
accounts of the Company, its wholly-owned and majority-owned
subsidiaries, and investments in variable interest entities in
which the Company is determined to be the primary beneficiary.
All significant intercompany accounts and transactions have been
eliminated in consolidation. The portions of majority-owned
subsidiaries that the Company does not own are reflected as
noncontrolling interests in the consolidated balance sheet.
Investments in entities over which the Company has the ability
to exercise significant influence but does not have a
controlling interest are accounted for under the equity method
of accounting. The Company considers several factors in
determining whether it has the ability to exercise significant
influence with respect to investments, including, but not
limited to, direct and indirect ownership level in the voting
securities, active participation on the board of directors,
approval of operating and budgeting decisions and other
participatory and protective rights. Under the equity method,
the Companys proportionate share of the net income or loss
of such investee is reflected in the Companys consolidated
results of operations. Although the Company owns interests in
companies that it accounts for pursuant to the equity method,
the investments in those entities had no carrying value as of
December 31, 2009 and 2008. The Company has no guarantees
or other funding obligations to those entities, and the Company
had no equity in the earnings or losses of those investees for
the years ended December 31, 2009, 2008 and 2007.
Noncontrolling interests in companies are accounted for by the
cost method where the Company does not exercise significant
influence over the investee. The Companys cost basis
investments had no carrying value as of December 31, 2009
and 2008.
F-8
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
Use of
estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses at
the date of the consolidated financial statements and during the
reporting periods, and to disclose contingent assets and
liabilities at the date of the consolidated financial
statements. Actual results could differ from those estimates.
The most significant estimates relate to the allowances for
doubtful accounts, the useful lives and impairment of the
Companys satellite network and other equipment, license
rights, inventory valuation, the fair value of securities
underlying share-based payment arrangements, uncertain tax
positions and the realization of deferred tax assets.
Revenue
recognition
The Company derives service revenues from the utilization of
Communicators on the ORBCOMM System and the reselling of airtime
from the utilization of SIMS on the cellular providers
wireless networks from its resellers (i.e., its value added
resellers, international value added resellers, international
licensees and country representatives) and direct customers.
These service revenues consist of subscriber-based and recurring
monthly usage fees and generally a one-time activation fee for
each Communicator and SIMS activated for use. Usage fees charged
to customers are based upon the number, size and frequency of
data transmitted by a customer and the overall number of
Communicators and SIMS activated by each customer. Usage fees
charged to the Companys resellers are charged primarily
based on the overall number of Communicators and SIMS activated
by the resellers and the total amount of data transmitted by
their customers.
The Company also earns service revenues from providing
engineering, technical and management support services to
customers, and a one-time royalty fee relating to the
manufacture of Communicators from third parties under a
manufacturing agreement. Revenues generated from monthly usage
and administrative fees and engineering services are recognized
when the services are rendered.
Product revenues are derived from sales of Communicators, SIMS,
and other equipment such as gateway earth stations to customers.
Revenues generated from the sale of Communicators, SIMS and
other products are either recognized when the products are
shipped or when customers accept the products, depending on the
specific contractual terms. Sales of Communicators, SIMS and
other products are not subject to return and title and risk of
loss pass to the customer at the time of shipment. Sales of
Communicators and SIMS are primarily to resellers and are not
bundled with services arrangements. Revenues from sales of
gateway earth stations and related products are recognized upon
customer acceptance. Revenues from the activation of both
Communicators and SIMS are initially recorded as deferred
revenues and are, thereafter, recognized ratably over the term
of the agreement with the customer, generally three years which
is the estimated customer relationship period. Revenues
generated from royalties relating to the manufacture of
Communicators by third parties are recognized when the third
party notifies the Company of the units it has manufactured and
a unique serial number is assigned to each unit by the Company.
Amounts received prior to the performance of services under
customer contracts are recognized as deferred revenues and
revenue recognition is deferred until such time that all revenue
recognition criteria have been met. For arrangements with
multiple obligations (e.g., deliverable and undeliverable
products, and other post-contract support), the Company
allocates revenues to each component of the contract based on
objective evidence of its fair value. The Company recognizes
revenues allocated to undelivered products when the criteria for
product revenues set forth above are met. If objective and
reliable evidence of the fair value of the undelivered
obligations is not available, the arrangement consideration
allocable to a delivered item is combined with the amount
allocable to the undelivered item(s) within the arrangement.
Revenues are recognized as the remaining obligations are
fulfilled.
During 2004, the Company entered into a contract with the United
States Coast Guard (USCG) to design, develop, launch
and operate a single satellite equipped with the capability to
receive, process and forward Automatic Identification Systems
(AIS) data (the Concept Validation
Project). Under the terms of the agreement, title to the
Concept Validation Project demonstration satellite (also called
the Coast Guard
F-9
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
demonstration satellite) remained with the Company, however the
USCG was granted a non-exclusive, royalty-free license to use
the designs, software processes and procedures developed under
the contract in connection with any future Company satellites
that are AIS enabled. The Company is permitted to use the
Concept Validation Project satellite and to provide services to
other customers. The agreement also provides for post-launch
maintenance and AIS data transmission services to be provided by
the Company to the USCG for an initial term of 14 months.
At its option, the USCG may elect an additional option to
receive post-launch maintenance and AIS data transmission
services subsequent to the initial term.
On June 19, 2008, the Coast Guard demonstration satellite
was launched. In August 2008, the USCG accepted the AIS data and
elected to receive the initial post-launch maintenance for $380
and AIS data transmission services for $198. At that time, the
Company placed the Coast Guard demonstration satellite in
service and began to recognize revenues. On September 30,
2008, the USCG exercised its option to increase the AIS data
transmission services to $575. In August 2009, the USCG
exercised its option to receive the subsequent post-launch
maintenance for $200 and AIS data transmission services for $394
for 12 months.
Because no tangible deliverable other than services will be
provided to the USCG and the Company retained title to the
Concept Validation Project satellite, the arrangement is
accounted for as a long-term service arrangement. The
deliverables under the agreement with the USCG do not qualify as
separate units of accounting. Commencing with acceptance of the
AIS data by the USCG in August 2008, the revenues related to the
design and development of the satellite, initial post-launch
maintenance and AIS data transmission services are being
recognized ratably over six years, the expected life of the
customer relationship. The subsequent maintenance and AIS data
transmission services are being recognized ratably over the
remaining expected life of the customer relationship.
Out-of-pocket
expenses incurred during the performance of professional service
contracts are included in costs of services and any amounts
re-billed to customers are included in revenues during the
period in which they are incurred. Shipping costs billed to
customers are included in product sales revenues and the related
costs are included as costs of product sales.
Costs
of revenues
Costs of services is comprised of payroll and related costs,
including stock-based compensation, materials and supplies,
depreciation and amortization of assets used to provide services
and usage fees to cellular wireless providers for the data
transmitted by the resellers on the Companys network.
Costs of product sales includes the purchase price of subscriber
communicators and SIMS sold and shipping charges.
Foreign
currency translation
The Company has foreign operations where the functional currency
is the local currency. For operations where the local currency
is the functional currency, assets and liabilities are
translated using
end-of-period
exchange rates; revenues, expenses and cash flows are translated
using average rates of exchange. For these operations, currency
translation adjustments are recognized in accumulated other
comprehensive income. Foreign currency transaction gains and
losses related to assets and liabilities that are denominated in
a currency other than the functional currency are included in
other income (expense) in the consolidated statements of
operations. For the years ended December 31, 2009 and 2007,
the Company recorded foreign exchange gains of $217 and $23,
respectively. For the year ended December 31, 2008, the
Company recorded a foreign exchange loss of $839.
Fair
value of financial instruments
The fair values of the Companys cash and cash equivalents,
accounts receivable and accounts payable approximate their
carrying value due to the short-term nature of these items. The
fair value of the Note
Payable-related
party is de minimis.
F-10
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
Cash
and cash equivalents
The Company considers all liquid investments with maturities of
three months or less, at the time of purchase, to be cash
equivalents.
Marketable
securities
Marketable securities consist of U.S. government and agency
obligations, corporate obligations and FDIC-backed certificates
of deposit debt securities, which have stated maturities ranging
from three to six months. The Company classifies these
securities as
held-to-maturity
since it has the positive intent and ability to hold until
maturity. These securities are carried at amortized cost. The
changes in the value of these marketable securities, other than
impairment charges, are not reported in the consolidated
financial statements. The fair value of the Companys
marketable securities approximate their carrying value (See
Note 8).
Concentration
of risk
The Companys customers are primarily commercial
organizations headquartered in the United States. Accounts
receivable are generally unsecured.
Accounts receivable are due in accordance with payment terms
included in contracts negotiated with customers. Amounts due
from customers are stated net of an allowance for doubtful
accounts. Accounts that are outstanding longer than the
contractual payment terms are considered past due. The Company
determines its allowance for doubtful accounts by considering a
number of factors, including the length of time accounts are
past due, the customers current ability to pay its
obligations to the Company, and the condition of the general
economy and the industry as a whole. The Company writes-off
accounts receivable when they are deemed uncollectible.
The following table presents customers with revenues greater
than 10% of the Companys consolidated total revenues for
the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
General Electric Company
|
|
|
17.0
|
%
|
|
|
19.3
|
%
|
|
|
27.1
|
%
|
Caterpillar Inc.
|
|
|
16.2
|
%
|
|
|
11.9
|
%
|
|
|
|
|
Komatsu Ltd.
|
|
|
11.3
|
%
|
|
|
|
|
|
|
|
|
Hitachi Construction Machinery Co., Ltd.
|
|
|
|
|
|
|
15.8
|
%
|
|
|
|
|
The following table presents customers with accounts receivable
greater than 10% of the Companys consolidated accounts
receivable for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
General Electric Company
|
|
|
12,7
|
%
|
|
|
16.2
|
%
|
Caterpillar Inc.
|
|
|
13.9
|
%
|
|
|
|
|
Hitachi Construction Machinery Co., Ltd.
|
|
|
|
|
|
|
16.6
|
%
|
The Company does not currently maintain in-orbit insurance
coverage for its satellites to address the risk of potential
systemic anomalies, failures or catastrophic events affecting
its satellite constellation. If the Company experiences
significant uninsured losses, such events could have a material
adverse impact on the Companys business.
F-11
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
Inventories
Inventories are stated at the lower of cost or fair value,
determined on a
first-in,
first-out basis. Inventory consists primarily of finished goods
available for sale to customers. The Company regularly reviews
inventory quantities on hand and evaluates the realizability of
inventories and adjusts the carrying value as necessary based on
forecasted product demand. Inventories in excess of one
years supply are classified as long-term.
At December 31, 2009 and 2008 assets held for sale include
$2,125 and $2,126, respectively, of long-term inventory of which
$332 is component parts held at the manufacturing facility of
Stellar Satellite Communications, Ltd
(Stellars) principal supplier.
Satellite
network and other equipment
Satellite network and other equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are recognized once an asset is placed in service
using the straight-line method over the estimated useful lives
of the assets. Leasehold improvements are amortized over the
shorter of their useful life or their respective lease term.
Satellite network includes costs of the constellation of
satellites, and the ground and control segments, consisting of
gateway earth stations, gateway control centers and the network
control center (the Ground Segment).
Assets under construction primarily consist of milestone
payments pursuant to procurement agreements, which includes the
design, development, launch and other direct costs relating to
the construction of the satellites and upgrades to the
Companys infrastructure and the Ground Segment. Once these
assets are placed in service they will be transferred to
satellite network and then depreciation will be recognized using
the straight-line method over the estimated lives of the assets.
No depreciation has been recorded on these assets as of
December 31, 2009.
The cost of repairs and maintenance is charged to operations as
incurred; significant renewals and betterments are capitalized.
Capitalized
development costs
The Company capitalizes the costs of acquiring, developing and
testing software to meet the Companys internal needs.
Capitalization of costs associated with software obtained or
developed for internal use commences when both the preliminary
project stage is completed and management has authorized further
funding for the project, based on a determination that it is
probable that the project will be completed and used to perform
the function intended. Capitalized costs include only
(1) external direct cost of materials and services consumed
in developing or obtaining internal-use software, and
(2) payroll and payroll-related costs for employees who are
directly associated with and devote time to the internal-use
software project. Capitalization of such costs ceases no later
than the point at which the project is substantially complete
and ready for its intended use. Internal use software costs are
amortized once the software is placed in service using the
straight-line method over periods ranging from three to five
years.
Intangible
assets
Intangible assets consist primarily of licenses acquired from
affiliates to market and resell the Companys services in
certain foreign geographic areas and related regulatory
approvals to allow the Company to provide its services in
various countries and territories. Intangible assets are
amortized using the straight line method over the estimated
useful lives of the assets. Intangible assets are stated at
their acquisition cost less accumulated amortization. The
Company does not have any indefinite lived intangible assets at
December 31, 2009 and 2008.
F-12
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
Impairment
of long-lived assets
The Company reviews its long-lived assets and amortizable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. In connection with this review, the Company
also re-evaluates the periods of depreciation and amortization
for these assets. The Company recognizes an impairment loss when
the sum of the future undiscounted net cash flows expected to be
realized from the asset is less than its carrying amount. If an
asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amount of the asset exceeds the fair value of the asset, which
is determined using the present value of net future operating
cash flows to be generated by the asset.
Income
taxes
The Company accounts for income taxes using an asset and
liability approach that recognizes deferred tax assets and
liabilities for the future tax consequences attributable to
temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The Company recognizes a change in tax
rates on deferred tax assets and liabilities in income in the
period that includes the enactment date. Valuation allowances
are established when realization of deferred tax assets is not
considered more likely than not.
Effective January 1, 2007, the Company adopted the
accounting guidance on accounting for uncertainty in income
taxes recognized in an enterprises financial statements.
This guidance prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken or
expected to be taken in a tax return. Also this guidance
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition.
The Company recognizes interest and penalties related to
uncertain tax positions in income tax expense.
Loss
contingencies
The Company accrues for costs relating to litigation, claims and
other contingent matters when such liabilities become probable
and reasonably estimable. Such estimates may be based on advice
from third parties or on managements judgment, as
appropriate. Actual amounts paid may differ from amounts
estimated, and such differences will be charged to operations in
the period in which the final determination of the liability is
made.
Stock-based
compensation
The Company measures and recognizes stock-based compensation
expense for all share-based payment awards made to employees and
directors based on estimated fair values on the date of grant.
The value of the portion of the award that is ultimately
expected to vest is recognized as expense over the requisite
service period. For awards with performance conditions, an
evaluation is made at the grant date and future periods as to
the likelihood of the performance criteria being met.
Compensation expense is adjusted in future periods for
subsequent changes in the performance condition until the
vesting date. The Company estimates forfeitures at the time of
grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
Recent
accounting pronouncements
In October 2009, FASB issued ASU
No. 2009-13,
Revenue Recognition FASB Topic ASC
605-25
(ASC
605-25),
Multiple Deliverable Revenue Arrangements. ASU
No. 2009-13
requires an entity to allocate the revenue at the inception of
an arrangement to all of its deliverables based on their
relative selling prices. This guidance eliminates the residual
method of allocation of revenue in multiple deliverable
arrangements and requires the allocation of revenue based on the
relative-selling-price method. The determination of the selling
price for each deliverable requires the use of a hierarchy
designed to maximize the use of available objective evidence
including,
F-13
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
vendor-specific objective evidence of fair value (VSOE), third
party evidence of selling price (TPE), or estimated selling
price (ESP). ASU
No. 2009-13
will be effective for the Company on January 1, 2011 and
early adoption is allowed and may be adopted either under the
prospective method, whereby all revenue arrangements entered
into, or materially modified after the effective date or under
the retrospective application to all revenue arrangements for
all periods presented. The Company may elect to adopt ASU
No. 2009-13
prior to January 1, 2011 under the prospective method but
must adjust the revenue of prior reported periods such that all
new revenue arrangements entered into, or materially modified,
during the fiscal year of adoption are accounted for under this
guidance. The Company is currently evaluating the impact of
adopting ASC
No. 2009-13
on its consolidated financial statements.
Effective July 1, 2009, the Company adopted the Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC)
105-10,
Generally Accepted Accounting Principles-Overall
(ASC
105-10).
ASC 105-10
establishes the FASB Accounting Standards Codification
(the Codification) as the source of
authoritative accounting principles recognized by the FASB to be
applied to non-governmental entities in the preparation of
financial statements in conformity with U.S. GAAP. Rules
and interpretative releases of the SEC under authority of
Federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants. All guidance contained in
the Codification carries an equal level of authority. The
Codification superseded all existing non-SEC accounting and
reporting standards. All other non-grandfathered, non-SEC
accounting literature not included in the Codification is
non-authoritative. The FASB will not issue new standards in the
form of new Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead it will issue Accounting Standards
Updates (ASUs). The FASB will not consider ASUs as
authoritative in their own right. ASUs will serve only to update
the Codification, provide background information about the
guidance and provide the bases for conclusions in the change(s)
in the Codification. References made to FASB guidance throughout
this document have been updated for the Codification.
In June 2009, the FASB issued ASU
No. 2009-17,
Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities Consolidations in FASB Topic
810, Consolidations. ASU
No. 2009-17
requires a company to perform ongoing reassessment of whether it
is the primary beneficiary of a variable interest entity
(VIE). Specifically, the guidance modifies how a
company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar
rights) should be consolidated. The guidance clarifies that the
determination of whether a company is required to consolidate a
VIE is based on, among other things, an entitys purpose
and design and a companys ability to direct the activities
of the VIE that most significantly impact the VIEs
economic performance. The guidance requires an ongoing
reassessment of whether a company is the primary beneficiary of
a VIE and enhanced disclosures of the companys involvement
in VIEs and any significant changes in risk exposure due to that
involvement. In addition, qualifying special purpose entities
are no longer exempt from consolidation under the amended
guidance. ASU
No. 2009-17
will be effective for the Company on January 1, 2010. The
Company adopted ASU
No. 2009-17
on January 1, 2010 and it did not have a material impact on
its consolidated financial statements.
In April 2009, the Company adopted the FASB ASC
825-10-65,
Financial Instruments-Overall- Transition and Open Effective
Date Information (ASC
825-10-65).
ASC
825-10-65
amends ASC
825-10 to
require disclosures about fair value of financial instruments
not measured on the balance sheet at fair value in interim
financial statements as well as in annual financial statements.
The Company adopted ASC
825-10-65 on
April 1, 2009. The adoption of ASC
825-10-65
did not have a material impact on the Companys
consolidated financial statements.
In April 2009, the FASB issued new guidance on FASB ASC
320-10,
Investments Debt and Equity Securities, which
amended existing guidance for the recognition and measurement of
other-than-temporary
impairments for debt securities which replaced the pre-existing
intent and ability indicator. The new guidance
specifies that if the fair value of a debt security is less than
its amortized cost basis, an
other-than-temporary
impairment is triggered in circumstances where (1) an
entity has an intent to sell the security, (2) it is more
likely than not that the entity will be required to sell the
security before recovery of its amortized cost basis, or
(3) the entity does not expect to recover the entire
amortized cost basis of the security (that is, a credit loss
exists).
F-14
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
Other-than-temporary
impairments are separated into amounts representing credit
losses which are recognized in earnings and amounts related to
all other factors which are recognized in other comprehensive
income (loss). The Company adopted the new guidance on
April 1, 2009 and it did not have a material impact on its
consolidated financial statements.
Effective April 1, 2009, the Company adopted FASB ASC
855-10,
Subsequent Events-Overall (ASC
855-10).
ASC 855-10
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued. Specifically, ASC
855-10
provides guidance regarding the period after the balance sheet
date during which management should evaluate events or
transactions that may occur for potential recognition or
disclosure in the financial statements; the circumstances under
which an entity should recognize events or transactions
occurring after the balance sheet date in its financial
statements; and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date.
In April 2009, the FASB issued updated guidance related to
business combinations, which is included in the Codification in
ASC 805-20,
Business Combinations-Identifiable Assets, Liabilities and
Any Non Controlling Interest, (ASC
805-20).
ASC 805-20
amends and clarifies ASC 805 to address application issues
regarding the initial recognition and measurement, subsequent
measurement and accounting and disclosures of assets and
liabilities arising from contingencies in a business
combination. In circumstances where the acquisition-date fair
value for a contingency cannot be determined during the
measurement period and it is concluded that it is probable that
an assets or liability exists as of the acquisition date and the
amount can be reasonably estimated, a contingency is recognized
as of the acquisition date based on the estimated amount. The
Company will apply ASC
805-20
prospectively to any business combinations completed after
January 1, 2009.
Effective January 1, 2009, the Company adopted FASB ASC
Topic 805, Business Combinations (ASC 805).
ASC 805 establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree. ASC
805 also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines
what information to disclose to enable users of financial
statements to evaluate the nature and financial effects of the
business combination. The Company will apply ASC 805
prospectively to any business combinations completed after
January 1, 2009.
Effective January 1, 2009, the Company adopted FASB ASC
810-10-45,
Consolidation Topic, (ASC
810-10-45)
which revised the accounting treatment for noncontrolling
interests of partially owned subsidiaries. The adoption of ASC
810-10-45,
on a retrospective basis, has resulted in the reclassification
of amounts previously attributable to minority interest (now
referred to as noncontrolling interest) to a separate component
of equity in the accompanying consolidated balance sheets.
Additionally, net income attributable to noncontrolling
interests is shown separately from net loss in the accompanying
consolidated statements of operations. The prior periods
presented have also been reclassified to conform to the current
classification as required by ASC
810-10-45.
As a result, equity increased by $1,446 for the reclassification
of noncontrolling interests as of December 31, 2008, and net
loss decreased by $471 for the year ended December 31, 2008.
These reclassifications have no effect on the Companys
previously reported net loss per common share.
Effective January 1, 2008, the Company adopted FASB ASC
820-10,
Fair Value Measurements and Disclosures-Overall
(ASC
820-10),
to define fair value, establish a framework for measuring fair
value in accordance with generally accepted accounting
principles and expand disclosures about fair value measurements
except with respect to its non-financial assets and liabilities.
ASC 820-10
requires quantitative disclosures using a tabular format in all
periods (interim and annual) and qualitative disclosures about
the valuation techniques used to measure fair value in all
annual periods. On January 1, 2009, the Company adopted ASC
820-10 for
its non-financial assets and liabilities. The adoption of ASC
820-10 did
not have material impact on the Companys consolidated
financial statements.
F-15
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
|
|
Note 4.
|
Discontinued
Operations
|
The Company is focused on continuing the growth and expansion of
its network services business and is discussing with interested
parties about a sale of its subsidiary, Stellar. The GE
Settlement Agreement discussed below and the Services Agreement
(See Note 20) provide the Company with the ability to
dispose of Stellar without disrupting ORBCOMMs growth
prospects with GE Asset Intelligence, LLC (GE), (now
a subsidiary of I.D. Systems, Inc. and formerly a division of
GE) allowing the Company to concentrate its resources on its
service-based data communications business. Beginning in the
second quarter of 2009, the Company classified the assets and
liabilities of Stellar as assets held for sale in its
consolidated balance sheets and Stellars results of
operations as discontinued operations in its consolidated
statements of operations for the periods presented. The Company
expects to complete a sale of Stellar during 2010.
On April 3, 2009, the Company entered into a settlement
agreement (the Settlement Agreement) with GE with
respect to the supply agreement dated October 10, 2006 (the
2006 Agreement) to supply GE up to
412,000 units of in-production and future models of
subscriber communicators to support GEs applications
utilizing the Companys data communications system. 270,000
of these units were non-cancelable except for specified early
termination provisions.
Pursuant to the Settlement Agreement, the Company received $800
as settlement for GEs obligation under the 2006 Agreement.
GE did not purchase its minimum committed volumes for 2007 and
2008. For year ended December 31, 2009, the Company
recognized a gain on settlement of $800, which is recorded in
discontinued operations.
The Company and GE terminated the 2006 Agreement and all their
respective obligations relating to it, and released each other
from any claims relating to their obligations arising under the
2006 Agreement, except for certain obligations related to
warranties, indemnities, confidentiality and intellectual
property.
A summary of discontinued operations for the years ended
December 31, 2009, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues- Product sales
|
|
$
|
1,604
|
|
|
$
|
2,783
|
|
|
$
|
8,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(954
|
)
|
|
$
|
(1,682
|
)
|
|
$
|
(998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, the major classes of
assets and liabilities of Stellar held for sale were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts receivable, net
|
|
$
|
168
|
|
|
$
|
338
|
|
|
|
|
|
|
|
|
|
|
Inventories, current
|
|
|
575
|
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
778
|
|
|
|
1,621
|
|
|
|
|
|
|
|
|
|
|
Other equipment, net
|
|
|
707
|
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
Inventories, long term
|
|
|
2,125
|
|
|
|
2,126
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
412
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the assets held for sale are
reported at the lower of cost or estimated fair value less costs
to sell and are no longer being depreciated.
F-16
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
On March 25, 2008, the Company received a 37% equity
interest in ORBCOMM Japan with an estimated fair value of $640
and cash of $602 in satisfaction of claims against ORBCOMM
Japan. The distribution was pursuant to a voluntary
reorganization of ORBCOMM Japan in accordance with a
rehabilitation plan approved by the Tokyo district court on
December 25, 2007.
The Company and ORBCOMM Japan are parties to a service license
agreement, pursuant to which ORBCOMM Japan acts as a country
representative and resells the Companys services in Japan.
ORBCOMM Japan owns a gateway earth station in Japan, holds the
regulatory authority and authorization to operate the gateway
earth station and provides the Companys satellite
communication services in Japan.
The consideration the Company received for settlement of claims
against ORBCOMM Japan exceeded the $366 carrying value of
current and long-term receivables from ORBCOMM Japan by $876 and
the Company recognized a gain for the same amount in the first
quarter of 2008.
The Companys aggregate claims against ORBCOMM Japan
totaled approximately $2,910, of which $2,410 related to amounts
owed to the Company pursuant to a change in control payment
provision in the service license agreement that was triggered by
a change in control of ORBCOMM Japan prior to the
reorganization. The Company had not previously recognized any
amounts in its financial statements related to the change in
control provision because it believed that the collection of the
change in control payment was not reasonably assured. ORBCOMM
Japans results of operations were not significant for the
period from March 25, 2008 through March 31, 2008.
On May 12, 2008, the Company entered into an amended
service license agreement with ORBCOMM Japan, which expires in
June 2018. On May 15, 2008, in consideration for entering
into the amended service license agreement, the Company received
616 newly issued shares of common stock from ORBCOMM Japan
representing an additional 14% equity interest and the Company
recognized a gain of $242 during the three months ended
June 30, 2008. As a result, the Companys ownership
interest in ORBCOMM Japan increased to 51%. On June 9,
2008, the Company and the noncontrolling stockholder entered
into an agreement, which terminated the noncontrolling
stockholders substantive participatory rights in the
governance of ORBCOMM Japan and resulted in the Company
obtaining a controlling interest in ORBCOMM Japan.
As the 51% interest in ORBCOMM Japan was acquired in two
transactions during 2008, the Company has accounted for this
transaction using the step acquisition method prescribed by
Accounting Research Bulletin No. 51, Consolidated
Financial Statements (ARB 51). As permitted by
ARB 51, the Company consolidated ORBCOMM Japans results of
operations as though the controlling interest was acquired on
April 1, 2008. For the year ended December 31, 2008,
the Company deducted from continuing operations in its
consolidated statement of operations $128 of pre-control
earnings of ORBCOMM Japan for the period prior to the
termination of the noncontrolling stockholders substantive
participatory rights on June 9, 2008 and noncontrolling
interest for the 49% interest in the income of ORBCOMM Japan
attributable to the noncontrolling stockholders for the period
after the change in control.
|
|
Note 6.
|
Stock-based
Compensation
|
The Companys share-based compensation plans consist of its
2006 Long-Term Incentives Plan (the 2006 LTIP) and
its 2004 Stock Option Plan. As of December 31, 2009, there
were 2,015,761 shares available for grant under the 2006
LTIP and no shares available for grant under the 2004 stock
option plan.
For the years ended December 31, 2009, 2008 and 2007, the
Company recognized stock-based compensation expense in
continuing operations of $1,511, $3,643 and $4,329,
respectively. The Companys stock-based compensation in
discontinued operations for the years ended December 31,
2009, 2008 and 2007 was not significant. For the year ended
December 31, 2008, the Company capitalized stock-based
compensation of $54 to satellite network and other equipment.
The Company has not recognized and does not expect to recognize
in the
F-17
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
foreseeable future, any tax benefit related to stock-based
compensation as a result of the full valuation allowance on its
net deferred tax assets and its net operating loss carryforwards.
The components of the Companys stock-based compensation
expense are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
$
|
24
|
|
|
$
|
96
|
|
|
$
|
254
|
|
Restricted stock units
|
|
|
545
|
|
|
|
2,633
|
|
|
|
3,470
|
|
Stock appreciation rights
|
|
|
942
|
|
|
|
914
|
|
|
|
605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,511
|
|
|
$
|
3,643
|
|
|
$
|
4,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the Company had unrecognized
compensation costs for all share-based payment arrangements
totaling $1,420.
2006
LTIP
In September 2006, the Companys stockholders approved the
2006 LTIP under which awards for shares of common stock are
authorized for grants to directors and employees. As of
December 31, 2009, the Company has 2,015,761 shares of
common stock available for grant under the 2006 LTIP. The 2006
LTIP provides for grants and awards of stock options, stock
appreciation rights (SARs), common stock, restricted
stock, restricted stock units (RSUs), performance
units and performance shares. Stock options granted pursuant to
the 2006 LTIP Plan have a maximum term of 10 years. The
SARs expire 10 years from the date of grant and are payable
in cash, shares of common stock or a combination of both upon
exercise, as determined by the Compensation Committee. The 2006
LTIP is administrated by the Compensation Committee of the
Companys Board of Directors, which selects persons
eligible to receive awards under the 2006 LTIP and determines
the number, terms, conditions, performance measures and other
provisions of the awards.
In October 2006, the Compensation Committee approved the
issuance of 1,059,280 RSUs to employees of the Company. Upon
vesting, subject to payment of withholding taxes, the holders of
the RSUs are entitled to receive an equivalent number of common
shares. An aggregate of 532,880 RSUs are time-based awards that
vest in three equal installments, subject to continued
employment on January 1, 2007, 2008 and 2009. An aggregate
of 526,400 RSUs are performance-based awards that will vest upon
attainment of various operational and financial performance
targets established for each of fiscal 2006, 2007 and 2008 by
the Compensation Committee or the Board of Directors and
continued employment by the employee through dates the
Compensation Committee has determined that the performance
targets have been achieved.
In October 2006, the Compensation Committee approved the
issuance of 413,334 SARs to certain executive officers of the
Company. An aggregate of 66,667 are time-based SARs that vest in
three equal installments subject to continued employment on
January 1, 2007, 2008 and 2009. An aggregate of 346,667
SARs are performance-based awards that will vest upon attainment
of various operational and financial performance targets
established for each of fiscal 2006, 2007 and 2008 by the
Compensation Committee or the Board of Directors and continued
employment by the executive officers through dates the
Compensation Committee has determined that the performance
targets have been achieved.
Time-Based
Restricted Stock Units
In 2009, the Company granted 147,420 time-based RSUs. These RSUs
vest over various periods through July 2012.
F-18
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
A summary of the Companys time-based RSUs for the year
ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
|
Balance at January 1, 2009
|
|
|
342,184
|
|
|
$
|
8.21
|
|
Granted
|
|
|
147,420
|
|
|
|
1.68
|
|
Vested
|
|
|
(250,851
|
)
|
|
|
9.15
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
238,753
|
|
|
$
|
3.18
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009, 2008 and 2007, the
Company recorded stock-based compensation expense in continuing
operations of $461, $2,176 and $2,113 related to the time-based
RSUs, respectively. As of December 31, 2009, $505 of total
unrecognized compensation cost related to the time-based RSUs
granted is expected to be recognized through July 2012.
Performance-Based
Restricted Stock Units
A summary of the Companys performance-based RSUs for the
year ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
|
Balance at January 1, 2009
|
|
|
131,129
|
|
|
$
|
4.85
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(91,242
|
)
|
|
|
4.81
|
|
Forfeited or expired
|
|
|
(39,887
|
)
|
|
|
5.11
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009, 2008 and 2007, the
Company recorded stock-based compensation expense in continuing
operations of $85, $457 and $1,357 related to the
performance-based RSUs, respectively. As of December 31,
2009, there was no unrecognized compensation costs related to
the performance-based RSUs.
The grant date fair value of the performance-and time-based RSU
awards granted in 2009, 2008 and 2007 is based upon the closing
stock price of the Companys common stock on the date of
grant.
Time-based
Stock Appreciation Rights
A summary of the Companys time-based SARs for the year
ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
Contractual
|
|
|
Intrinsic Value
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term (years)
|
|
|
(In thousands)
|
|
|
Outstanding at January 1, 2009
|
|
|
1,141,667
|
|
|
$
|
5.31
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
25,000
|
|
|
|
1.70
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
1,166,667
|
|
|
$
|
5.23
|
|
|
|
8.18
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
746,667
|
|
|
$
|
5.50
|
|
|
|
8.12
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2009
|
|
|
1,166,667
|
|
|
$
|
5.23
|
|
|
|
8.18
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
For the years ended December 31, 2009, 2008 and 2007, the
Company recorded stock-based compensation expense in continuing
operations of $903, $767 and $122 relating to the time-based
SARs, respectively. As of December 31, 2009, $913 of total
unrecognized compensation cost related to the time-based SARs is
expected to be recognized through February 2012. The weighted
average grant date fair value of the time-based SARs granted in
2009, 2008 and 2007 was $0.91, $2.27 and $5.41 per share,
respectively.
Performance-Based
Stock Appreciation Rights
In 2009, 30,000 performance-based SARs were granted when the
Compensation Committee established financial and operational
performance targets for fiscal 2009. As of December 31,
2009, the Company estimates that these performance targets will
be achieved at a rate of 30%, resulting in 9,000
performance-based SARs vesting in the first quarter of 2010.
A summary of the Companys performance-based SARs for the
year ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
Contractual
|
|
|
Intrinsic Value
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term (years)
|
|
|
(In thousands)
|
|
|
Outstanding at January 1, 2009
|
|
|
291,899
|
|
|
$
|
10.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
30,000
|
|
|
|
1.86
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(41,753
|
)
|
|
|
9.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
280,146
|
|
|
$
|
9.59
|
|
|
|
7.64
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
250,146
|
|
|
$
|
10.52
|
|
|
|
7.45
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2009
|
|
|
259,145
|
|
|
$
|
10.15
|
|
|
|
7.51
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of the
performance-based SARs granted during the years ended
December 31, 2009, 2008 and 2007 was $1.30, $1.23 and $6.19
per share, respectively.
For the years ended December 31, 2009, 2008 and 2007, the
Company recorded stock-based compensation expense in continuing
operations of $38, $147 and $483 relating to the
performance-based SARs, respectively. As of December 31,
2009, $2 of total unrecognized compensation cost related to the
performance-based SARs is expected to be recognized through the
first quarter of 2010.
The fair value of each SAR award is estimated on the date of
grant using the Black-Scholes option pricing model with the
assumptions described below for the periods indicated. Expected
volatility was based on the stock volatility for comparable
publicly traded companies. The Company uses the
simplified method based on the average of the
vesting term and the contractual term to calculate the expected
life of each SAR award, due to insufficient history of
exercises. Estimated forfeitures were based on voluntary and
involuntary termination behavior as well as analysis of actual
SAR forfeitures. The risk-free interest rate was based on the
U.S. Treasury yield curve at the time of the grant over the
expected term of the SAR grants.
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Risk-free interest rate
|
|
2.15% to 2.34%
|
|
2.50% to 3.20%
|
|
4.93%
|
Expected life (years)
|
|
5.5 and 6.00
|
|
5.5 and 6.00
|
|
5.5
|
Estimated volatility
|
|
55.03% and 85.30%
|
|
43.98% to 48.98%
|
|
43.95%
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
F-20
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
Stock
Options
Options granted under the 2004 Stock Option Plan have a maximum
term of 10 years and vest over a period determined by the
Companys Board of Directors (generally four years) at an
exercise price per share determined by the Board of Directors at
the time of the grant. The 2004 stock option plan expires
10 years from the effective date, or when all options have
been granted, whichever is sooner. The Company did not grant
stock options in 2009, 2008 and 2007.
A summary of the status of the Companys stock options as
of December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
Contractual
|
|
|
Intrinsic Value
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term (years)
|
|
|
(In thousands)
|
|
|
Outstanding at January 1, 2009
|
|
|
782,079
|
|
|
$
|
2.98
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
782,079
|
|
|
$
|
2.98
|
|
|
|
4.18
|
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
782,079
|
|
|
$
|
2.98
|
|
|
|
4.18
|
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2009
|
|
|
782,079
|
|
|
$
|
2.98
|
|
|
|
4.18
|
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, there was no unrecognized
compensation costs related to the stock options.
|
|
Note 7.
|
Net Loss
per Common Share
|
Basic net loss per common share is calculated by dividing net
loss applicable to common stockholders by the weighted-average
number of common shares outstanding for the year. Diluted net
loss per common share is the same as basic net loss per common
share, because potentially dilutive securities such as RSUs,
SARs, stock options and stock warrants would have an
antidilutive effect as the Company incurred a net loss for the
years ended December 31, 2009, 2008 and 2007. The
potentially dilutive securities excluded from the determination
of basic and diluted loss per share, as their effect is
antidilutive, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
|
782,079
|
|
|
|
782,079
|
|
|
|
832,957
|
|
RSUs
|
|
|
238,753
|
|
|
|
473,313
|
|
|
|
535,942
|
|
SARs
|
|
|
1,446,813
|
|
|
|
1,433,566
|
|
|
|
283,956
|
|
Common stock warrants
|
|
|
|
|
|
|
257,986
|
|
|
|
473,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,467,645
|
|
|
|
2,946,944
|
|
|
|
2,126,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8.
|
Marketable
Securities
|
As of December 31, 2009, the marketable securities are
recorded at amortized cost which approximates fair market value.
All investments mature in one year or less.
F-21
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Gains
|
|
|
U.S. government and agency obligations
|
|
$
|
13,009
|
|
|
$
|
|
|
|
$
|
1
|
|
Corporate obligations
|
|
|
11,211
|
|
|
|
7
|
|
|
|
|
|
FDIC-backed certificates of deposit
|
|
|
1,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,139
|
|
|
$
|
7
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company would recognize an impairment loss when the decline
in the estimated fair value of a marketable security below the
amortized cost is determined to be
other-than-temporary.
The Company considers various factors in determining whether to
recognize an impairment charge, including the duration of time
and the severity to which the fair value has been less than the
amortized cost, any adverse changes in the issuers
financial conditions and the Companys intent to sell or
whether it is more likely than not that it would be required to
sell the marketable security before its anticipated recovery.
Investments with unrealized losses have been in an unrealized
loss position for less than a year.
For the year ended December 31, 2009, the gross unrealized
losses of $7 were primarily due to changes in interest rates and
not credit quality of the issuer. Accordingly, the Company has
determined that the gross unrealized losses are not
other-than-temporary
at December 31, 2009 and there has been no recognition of
impairment losses in its consolidated statements of operations.
|
|
Note 9.
|
Satellite
Network and Other Equipment
|
Satellite network and other equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
December 31,
|
|
|
|
(Years)
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
|
|
|
|
$
|
381
|
|
|
$
|
381
|
|
Satellite network
|
|
|
3 months to 10 years
|
|
|
|
27,814
|
|
|
|
21,290
|
|
Capitalized software
|
|
|
3-5
|
|
|
|
1,318
|
|
|
|
1,112
|
|
Computer hardware
|
|
|
5
|
|
|
|
1,144
|
|
|
|
1,069
|
|
Other
|
|
|
5-7
|
|
|
|
1,105
|
|
|
|
881
|
|
Assets under construction
|
|
|
|
|
|
|
66,450
|
|
|
|
76,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,212
|
|
|
|
101,732
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(25,004
|
)
|
|
|
(8,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
73,208
|
|
|
$
|
92,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2009 and 2008, the
Company capitalized costs attributable to the design and
development of internal-use software in the amount of $175 and
$336, respectively.
Depreciation and amortization expense for the years ended
December 31, 2009, 2008 and 2007 was $17,629, $1,688 and
$912, respectively. This includes amortization of internal-use
software of $342, $252 and $243 for the years ended
December 31, 2009, 2008 and 2007, respectively.
Assets under construction primarily consist of milestone
payments pursuant to procurement agreements, which includes the
design, development, launch and other direct costs relating to
the construction of the satellites (See Note 18) and
upgrades to its infrastructure and the ground segment.
On June 19, 2008, the Coast Guard Demonstration satellite
(CDS) and five quick-launch satellites were
launched. Due to continued delays associated with the
construction of the final quick-launch satellite, the Company
F-22
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
is retaining it for future deployment. Since launch,
communications capability for three of the quick-launch
satellites and the CDS has been lost as described below.
In August 2009, the Company placed in service the two
remaining quick-launch satellites for which the Company
maintains communications capability are providing limited
ORBCOMM messaging and worldwide AIS services. These satellites
are experiencing attitude control system anomalies which result
in the satellites not pointing towards the sun and the earth as
expected. These pointing errors result in reduced power
generation, improper satellite spacing within the orbital plane
and reduced communications capabilities. One of these satellites
has an intermittent flight computer anomaly and a power system
anomaly which has significantly reduced its availability. The
similarity of these satellites to the failed satellites
described below is believed to significantly reduce their
expected useful lives. These two satellites are fully
depreciated as of December 31, 2009.
On February 22, 2009, one quick-launch satellite
experienced a power system anomaly that subsequently resulted in
a loss of contact with the satellite. After consultation with
OHB and its own engineers, the Company believes that after an
extended period of no communication with the satellite, the
satellite is not recoverable. A non-cash impairment charge to
write-off the cost of this satellite of $7,045 was recognized
during the first quarter of 2009.
On July 31, 2009, another quick-launch satellite
experienced a gateway transmitter anomaly that resulted in a
loss of contact with the satellite by the Companys ground
control systems. After consulting with its engineers, the
Company believes that the gateway transmitter will not be
recovered, resulting in an inability to provide ORBCOMM
messaging and AIS data services by this satellite. Accordingly,
a non-cash impairment charge of $7,083 was recognized during the
third quarter of 2009.
On August 7, 2009, another quick-launch satellite
experienced a power system anomaly. Subsequently, on
August 24, 2009, the CDS also experienced an anomaly with
its power system. These anomalies resulted in a loss of contact
with the satellites. After consulting with OHB Technology
(formerly known as OHB Teledata A.G.) (OHB) and the
Companys own engineers, the Company believes that after
such an extended period of no communication with the satellites,
it is unlikely that the satellites will be recovered based on
its experience with earlier satellites with which contact was
similarly lost. Accordingly, the Company recorded a non-cash
impairment charge for the cost of these two satellites of
$14,776, for a total impairment charge of $21,859 for the
quarter ended September 30, 2009. During the quarter ended
December 31, 2009, the Company accrued additional expense
of $340 relating to the quick-launch satellites which is
recorded in impairment charges-satellite network.
The loss of these satellites can result in longer latencies in
transmitting messages but is not otherwise expected to have a
material adverse effect on the current communications service as
the satellites were not in full operational service.
The remaining two quick-launch satellites are equipped with an
AIS payload that provides redundant capabilities for the
Companys AIS data service, and the Company will be relying
on these satellites to provide AIS data service. If these
satellites also fail, the Company will not be able to provide
AIS data service, including under existing contracts, unless the
Company is able to procure other AIS data service from third
parties or until the launch of its AIS payload equipped next
generation satellites, scheduled as early as the end of 2010.
The Company had purchased an in-orbit insurance policy for the
2008 launch of the CDS and the quick-launch satellites that
covers the total loss or constructive total loss of the CDS and
five quick-launch satellites during the coverage period that
ended on June 19, 2009. Under the terms of the policy, a
satellite that does not meet the working satellite criteria
constitutes a constructive total loss of that satellite for
insurance purposes. The in-orbit insurance policy is subject to
certain exclusions including a deductible under which no claim
is payable under the policy for the first satellite to suffer a
constructive total loss or total loss.
The Company filed a claim under its in-orbit insurance policy
for all six satellites as either a total loss or constructive
total loss. The total loss claim was for the one satellite that
suffered a power system failure resulting in loss of contact in
February 2009, and the constructive total loss claim for each of
the other five satellites is on the
F-23
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
basis that these satellites did not meet the working satellite
criteria stated in the policy. The maximum amount recoverable by
the Company under the policy from third party insurers for all
six satellites covered by the policy was $50,000, after taking
into account the one-satellite deductible, under which no claim
is payable for the first satellite to suffer a constructive
total loss or total loss, and less any salvage value that can be
established.
On December 10, 2009, the Company and the third party
insurers entered into a settlement and release agreement to
settle any and all claims relating to the CDS and the five
quick-launch satellites discussed above. Under the terms of the
settlement agreement, the Company received $44,250 in 2009 from
the third party insurers. In addition, each of the insurers has
waived all rights, title and interest in and to the CDS and the
five quick-launch satellites. The Company recorded an insurance
recovery-satellite network of $44,250 in its consolidated
statements of operations.
Restricted cash consists of cash collateral of $5,000 for a
performance bond required by the FCC in connection with the
Company obtaining expanded FCC authorization to construct,
launch and operate an additional 24 next-generation satellites.
Under the terms of the performance bond, the cash collateral
will be reduced in increments of $1,000 upon completion of
specified milestones. The Company certified completion of three
milestones to the FCC on March 20, 2009, and in response to
a request from the FCC staff, filed a supplement to the
certification on May 18, 2009. In November 2009, $2,000 was
returned to the Company related to the first two milestones. The
FCC has not yet issued a ruling on the certification of the
third milestone. The Company has classified $1,000 of restricted
cash for the third milestone as a current asset at
December 31, 2009.
Restricted cash also includes $680 deposited into an escrow
account under the terms of the Orbital Sciences procurement
agreement for the quick-launch satellites. The amounts in escrow
are payable to Orbital Sciences, subject to adjustments under
the agreement, one year following the successful completion of
in-orbit testing of the five quick-launch satellites (See
Note 18).
In July 2009, the Company placed $300 into a certificate of
deposit to secure a letter of credit with a cellular wireless
provider to secure terrestrial communications services.
The interest income earned on the restricted cash balances is
unrestricted and included in interest income in the consolidated
statements of operations.
|
|
Note 11.
|
Intangible
Assets
|
The Companys intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Useful Life
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
(Years)
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Acquired licenses-Satcom International Group, plc
|
|
6
|
|
$
|
8,115
|
|
|
$
|
(5,515
|
)
|
|
$
|
2,600
|
|
|
$
|
8,115
|
|
|
$
|
(4,029
|
)
|
|
$
|
4,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the years ended December 31, 2009,
2008 and 2007 was $1,486.
Estimated amortization expense for the acquired licenses is as
follows:
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2010
|
|
$
|
1,486
|
|
2011
|
|
|
1,114
|
|
|
|
|
|
|
|
|
$
|
2,600
|
|
|
|
|
|
|
F-24
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
|
|
Note 12.
|
Accrued
Liabilities
|
The Companys accrued liabilities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Accrued compensation and benefits
|
|
$
|
1,738
|
|
|
$
|
2,200
|
|
Accrued interest
|
|
|
797
|
|
|
|
736
|
|
Accrued professional fees
|
|
|
327
|
|
|
|
229
|
|
Deferred rent payable
|
|
|
919
|
|
|
|
166
|
|
Other accrued expenses
|
|
|
1,829
|
|
|
|
1,387
|
|
Litigation settlement (See Note 18)
|
|
|
|
|
|
|
2,450
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,610
|
|
|
$
|
7,168
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13.
|
Deferred
Revenue
|
Deferred revenues consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Professional services
|
|
$
|
6,437
|
|
|
$
|
7,043
|
|
Service activation fees
|
|
|
2,563
|
|
|
|
3,032
|
|
Manufacturing license fees
|
|
|
44
|
|
|
|
59
|
|
Prepaid services
|
|
|
1,035
|
|
|
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,079
|
|
|
|
11,150
|
|
Less current portion
|
|
|
(3,849
|
)
|
|
|
(3,543
|
)
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
6,230
|
|
|
$
|
7,607
|
|
|
|
|
|
|
|
|
|
|
Deferred professional services revenues at December 31,
2009 and 2008 represent amounts related to the USCG under the
Concept Validation Project (See Note 18).
OHB
Technology A.G.
In 2005, in connection with acquisition of a majority interest
in Satcom International Group plc, the Company has recorded an
indebtedness to OHB, a principal stockholder of the Company. At
December 31, 2009, the principal balance of the note
payable was 1,138 ($1,628) and it had a carrying value of
$1,398. At December 31, 2008, the principal balance of the
note payable was 1,138 ($1,605) and it had a carrying
value of $1,244. The difference between the carrying value and
principal balance is being amortized to interest expense over
the estimated life of the note of six years. Interest expense
related to the note was $131 for the years ended
December 31, 2009, 2008 and 2007. This note does not bear
interest and has no fixed repayment term. Repayment will be made
from the distribution profits (as defined in the note agreement)
of ORBCOMM Europe LLC (ORBCOMM Europe). The note has
been classified as long-term and the Company does not expect any
repayments to be required prior to January 1, 2011.
F-25
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
|
|
Note 15.
|
Stockholders
Equity
|
Preferred
Stock
The Company currently has 50,000,000 shares of preferred
stock authorized. No shares were outstanding at
December 31, 2009 and 2008.
Common
Stock
The terms of the Common stock are as follows:
Voting
rights
The holders of common stock are entitled to one vote per share.
Dividends
Subject to preferences that may be applicable to any outstanding
shares of preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors. No common stock dividends
have been declared to date.
Warrants
The Company issued no warrants to purchase common stock in 2009,
2008 and 2007. As of December 31, 2009, the Company had no
outstanding warrants to purchase shares of common stock.
During the year ended December 31, 2009, warrants to
purchase 257,986 shares with a per share exercise price of
$4.26 expired.
During the year ended December 31, 2008, the Company issued
106,146 shares of common stock upon the exercise of
warrants at per share exercise prices ranging from $2.33 to
$3.38. The Company received gross proceeds of $262 from the
exercise of these warrants. In addition, the Company issued
46,643 shares of common stock upon the cashless exercise of
warrants to purchase 86,123 common shares with per share
exercise prices ranging from $2.33 to $3.38.
During the year ended December 31, 2007, the Company issued
225,900 shares of common stock upon the exercise of
warrants at per share exercise prices ranging from $2.33 to
$4.26. The Company received gross proceeds of $536 from the
exercise of these warrants. In addition, the Company issued
704,042 shares of common stock upon the cashless exercise
of warrants to purchase 927,979 common shares with per share
exercise prices ranging from $2.33 to $4.26.
At December 31, 2009, the Company has reserved
4,483,406 shares of common stock for future issuances
related to employee stock compensation plans.
F-26
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
|
|
Note 16.
|
Geographical
Information
|
The Company operates in one reportable segment, satellite data
communications. Other than satellites in orbit, long-lived
assets outside of the United States are not significant. The
following table summarizes revenues on a percentage basis by
geographic region, based on the country in which the customer is
located:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
|
86
|
%
|
|
|
77
|
%
|
|
|
82
|
%
|
Japan
|
|
|
10
|
%
|
|
|
19
|
%
|
|
|
3
|
%
|
Europe
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
12
|
%
|
Other
|
|
|
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the tax provision for the
Companys continuing operations for the years ended
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
155
|
|
State
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
546
|
|
|
$
|
(4
|
)
|
|
$
|
(480
|
)
|
State
|
|
|
103
|
|
|
|
(1
|
)
|
|
|
(90
|
)
|
International
|
|
|
74
|
|
|
|
961
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
723
|
|
|
|
956
|
|
|
|
(506
|
)
|
Valuation allowance
|
|
|
(723
|
)
|
|
|
(956
|
)
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
The components of net deferred tax assets (liabilities) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred revenues
|
|
$
|
1,464
|
|
|
$
|
1,347
|
|
Allowance for doubtful accounts
|
|
|
649
|
|
|
|
146
|
|
Deferred compensation
|
|
|
1,297
|
|
|
|
1,736
|
|
Bonus accruals
|
|
|
360
|
|
|
|
|
|
Vacation accrual
|
|
|
270
|
|
|
|
264
|
|
Deferred rent
|
|
|
349
|
|
|
|
63
|
|
Accrued expenses
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax assets
|
|
|
4,518
|
|
|
|
3,556
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
Satellite network and other property
|
|
|
121
|
|
|
|
|
|
Deferred revenues
|
|
|
2,369
|
|
|
|
2,892
|
|
Accrued expenses
|
|
|
203
|
|
|
|
|
|
Tax loss carryforwards
|
|
|
9,362
|
|
|
|
6,445
|
|
|
|
|
|
|
|
|
|
|
Total non-current current deferred tax assets
|
|
|
12,055
|
|
|
|
9,337
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
16,573
|
|
|
|
12,893
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Non-current deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Satellite network and other property
|
|
|
|
|
|
|
(490
|
)
|
Deferred gain on involuntary conversion
|
|
|
(4,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current current deferred tax liabilities
|
|
|
(4,812
|
)
|
|
|
(490
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
|
11,761
|
|
|
|
12,403
|
|
Less valuation allowance
|
|
|
(11,761
|
)
|
|
|
(12,403
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The benefit for income taxes differs from the amount computed by
applying the statutory U.S. Federal income tax rate from
continuing operations because of the effect of the following
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income tax benefit at U.S. statutory rate of 34%
|
|
$
|
(845
|
)
|
|
$
|
(971
|
)
|
|
$
|
(881
|
)
|
State income taxes, net of federal benefit
|
|
|
68
|
|
|
|
(1
|
)
|
|
|
(40
|
)
|
Effect of foreign subsidiaries
|
|
|
596
|
|
|
|
1,401
|
|
|
|
280
|
|
Other permanent items
|
|
|
904
|
|
|
|
527
|
|
|
|
319
|
|
Change in valuation allowance
|
|
|
(723
|
)
|
|
|
(956
|
)
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net change in the total valuation allowance for the years
ended December 31, 2009, 2008 and 2007 was $723, $956 and
$322, respectively.
The Company recognizes tax benefits associated with the exercise
of stock options and vesting of RSUs directly to
stockholders equity only when the tax benefit reduces
income tax payable on the basis that a cash tax savings has
occurred. Accordingly, deferred tax assets are not recognized
for net operating loss carryforwards
F-28
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
resulting from tax benefits. As of December 31, 2009 and
2008, the Company has not recognized in its deferred tax assets
an aggregate of $4,157 and $4,173, respectively, of windfall tax
benefits associated with the exercise of stock options and the
vesting of RSUs.
At December 31, 2009 and December 31, 2008, the
Company had potentially utilizable federal net operating loss
tax carryforwards of $24,020 and $15,523, respectively. The net
operating loss carryforwards expire at various times through
2029. At December 31, 2009 and December 31, 2008, the
Company had potentially utilizable foreign net operating loss
carryforwards of $6,761 and $6,534, respectively. The foreign
net operating loss carryforwards expire on various dates through
2029.
The utilization of the Companys net operating losses may
be subject to a substantial limitation due to the change
of ownership provisions under Section 382 of the
Internal Revenue Code and similar state provisions. Such
limitation may result in the expiration of the net operating
loss carryforwards before their utilization.
ORBCOMM Japan has net operating loss carryforwards that expire
through 2013. As a result of ORBCOMM Japans voluntary
reorganization, the Company has recorded a full valuation
allowance for the deferred tax assets relating to the net
operating loss carryforwards because it is more likely than not
that ORBCOMM Japan will not recognize the benefits of these
deferred tax assets due to its limited operating history
following reorganization. The Company will maintain the
valuation allowance until sufficient positive evidence exists to
support reversal.
The Company has not provided deferred income taxes on the
undistributed earnings of its Japan subsidiary. The amount of
such earnings was $1.5 million. These earnings have been
permanently reinvested and the Company does not plan to initiate
action that would precipitate the payment of income taxes
thereon. It is not practicable to estimate the amount of
additional tax that might be payable on the undistributed
earnings of its Japan subsidiary.
As of January 1, 2007, the Company had no significant
unrecognized tax benefits. During the year ended
December 31, 2007, the Company recognized gross adjustments
for uncertain tax benefits of $775. During the years
December 31, 2009 and 2008, the Company recorded no
significant unrecognized tax benefits. Due to the existence of
the Companys valuation allowance, the uncertain tax
benefits if recognized would not impact the Companys
effective income tax rate. The Company is subject to
U.S. federal and state examinations by tax authorities from
2006. The Company does not expect any significant changes to its
unrecognized tax positions during the next twelve months.
No interest and penalties related to uncertain tax positions
were accrued at December 31, 2009, 2008 and 2007.
The following table is a reconciliation of the beginning and
ending amount of unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at January 1
|
|
$
|
775
|
|
|
$
|
775
|
|
|
$
|
|
|
Additions for tax positions related to prior years
|
|
|
|
|
|
|
|
|
|
|
591
|
|
Additions for tax positions
|
|
|
|
|
|
|
|
|
|
|
184
|
|
Reductions for tax positions of prior years
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
775
|
|
|
$
|
775
|
|
|
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, the unrecognized tax
benefits have been recorded as a reduction to the Companys
federal and state net operating loss tax carryforwards in
deferred tax assets.
|
|
Note 18.
|
Commitments
and Contingencies
|
Procurement
agreements in connection with next-generation
satellites
On May 5, 2008, the Company entered into a procurement
agreement with SNC pursuant to which SNC will construct eighteen
low-earth-orbit satellites in three sets of six satellites
(shipsets) for the Companys next-
F-29
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
generation satellites (the Initial Satellites).
Under the agreement, SNC will also provide launch support
services, a test satellite (excluding the mechanical structure),
a satellite software simulator and the associated ground support
equipment. Under the agreement, the Company may elect to use the
launch option to be offered by SNC or it may contract separately
with other providers for launch services and launch insurance
for the satellites. Under the agreement, the Company has the
option, exercisable at any time until the third anniversary of
the execution of the agreement, to order up to thirty additional
satellites substantially identical to the Initial Satellites
(the Optional Satellites).
The total contract price for the Initial Satellites is $117,000,
subject to reduction upon failure to achieve certain in-orbit
operational milestones with respect to the Initial Satellites or
if the pre-ship reviews of each shipset are delayed more than
60 days after the specified time periods described below.
The Company has agreed to pay SNC up to $1,500 in incentive
payments for the successful operation of the Initial Satellites
five years following the successful completion of in-orbit
testing for the third shipset of six satellites. The price for
the Optional Satellites ranges from $5,000 to $7,700 per
satellite depending on the number of satellites ordered and the
timing of the exercise of the option.
The agreement also requires SNC to complete the pre-ship review
of the Initial Satellites (i) no later than 24 months
after the execution of the agreement for the first shipset of
six satellites, (ii) no later than 31 months after the
execution of the agreement for the second shipset of six
satellites and (iii) no later than 36 months after the
execution of the agreement for the third shipset of six
satellites. Payments under the agreement will begin upon the
execution of the agreement and will extend into the second
quarter of 2012, subject to SNCs successful completion of
each payment milestone. As of December 31, 2009, the
Company has made milestone payments of $42,120 under the
agreement. The Company anticipates making payments under the
agreement of $22,230 during 2010. Under the agreement, SNC has
agreed to provide the Company with an optional secured credit
facility for up to $20,000 commencing 24 months after the
execution of the agreement and maturing 44 months after the
effective date. If the Company elects to establish and use the
credit facility it and SNC will enter into a formal credit
facility on terms established in the agreement.
On August 28, 2009, the Company and Space Exploration
Technologies Corp. (SpaceX) entered into a
Commercial Launch Services Agreement (the Agreement)
pursuant to which SpaceX will provide launch services (the
Launch Services) using multiple SpaceX Falcon 1e
launch vehicles for the carriage into low-Earth-orbit for the
Companys 18 next-generation commercial communications
satellites currently being constructed by SNC. Under the
Agreement, SpaceX will also provide to the Company launch
vehicle integration and support services, as well as certain
related optional services.
The Agreement anticipates that the Launch Services will be
performed between 2011 and first quarter of 2014, subject to
certain rights of the Company and SpaceX to reschedule any of
the particular Launch Services as needed. The Agreement also
provides the Company the option to procure, prior to each Launch
Service, reflight launch services whereby in the event the
applicable Launch Service results in a failure due to the SpaceX
launch vehicle, SpaceX will provide comparable reflight launch
services at no additional cost to the Company beyond the initial
option price for such reflight launch services.
The total price under the Agreement (excluding any options or
additional launch services) is $46,600, subject to certain
adjustments. The amounts due under the Agreement are payable in
periodic installments from the date of execution of the
Agreement through the performance of each Launch Service. The
Company may postpone and reschedule the Launch Services for any
reason at its sole discretion, following 12 months of delay
for any particular Launch Services. The Company also has the
right to terminate any of the Launch Services subject to the
payment of a termination fee in an amount that would be based on
the date the Company exercises its termination right.
As of December 31, 2009, the Company has made milestone
payments of $10,080 under the agreement. The Company anticipates
making the next milestone payment during the first quarter of
2011.
F-30
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
Procurement
agreements in connection with quick-launch
satellites
On April 21, 2006, the Company entered into an agreement
with Orbital Sciences to design, manufacture, test and deliver
to the Company, one payload engineering development unit and six
AIS-equipped satellite payloads for the Company. The cost of the
payloads is $17,000, subject to adjustment under certain
circumstances. Payments under the agreement were due upon the
achievement of specified milestones by Orbital Sciences. As of
December 31, 2009, the Company has made milestone payments
of $16,320 under this agreement. The Company has been
negotiating further payments, if any, under the agreement.
On June 5, 2006, the Company entered into an agreement with
OHB System, AG, an affiliate of OHB, to design, develop and
manufacture six satellite buses, integrate such buses with the
payloads provided by Orbital Sciences, and launch the six
integrated satellites. The original price for the six satellite
buses and launch services was $20,000 and payments under the
agreement were due upon specific milestones achieved by OHB
System, AG.
On July 2, 2008, the Company and OHB System, AG entered
into an agreement to amend the June 5, 2006 agreement in
connection with the successful launch of the Coast Guard
demonstration satellite and the five quick-launch satellites on
June 19, 2008. Pursuant to the agreement, the Company and
OHB System, AG agreed to a revised schedule of milestone and
related payments for the launch of the five quick-launch
satellites and delivery schedule of the sixth quick-launch
satellite, with no modification to the price in the agreement
entered into on June 5, 2006, including certain launch
support and in-orbit testing services for the sixth quick-launch
satellite. In addition, the Company agreed to pay an additional
$450 to OHB System, AG relating to the construction of the five
quick-launch satellites. The Company and OHB System, AG have
also agreed to waive any applicable on-time delivery incentive
payments and to waive any applicable liquidating damages, except
for any liquidating delay damages with respect to delivery delay
of the sixth quick-launch satellite.
As of December 31, 2009, the Company has made milestone
payments of $17,767 under this agreement. In addition, OHB
System, AG will provide services relating to the development,
demonstration and launch of the Companys next-generation
satellites at a total cost of $1,350, of which $820 has been
paid. The Company is reviewing the remaining payments under the
agreement.
Procurement
agreements in connection with U.S. Coast Guard
contract
In May 2004, the Company entered into an agreement to construct
and deploy a satellite for use by the USCG (see Note 13).
In connection with this agreement, the Company entered into
procurement agreements with Orbital Sciences and OHB System, AG.
As of December 31, 2009, the Companys remaining
obligation under this agreement was $271.
As a result of delays in launching the satellite, in February
2007, the USCG issued a unilateral modification to the contract
setting a definitive launch date of July 2, 2007. On
September 13, 2007, the Company and USCG entered into an
amendment to the agreement to extend the definitive launch date
to December 31, 2007. In consideration for agreeing to
extend the launch date, the Company will provide up to
200 hours of additional support for up to 14 months
after the launch date at no cost and reduce USCGs cost for
the post-launch maintenance options and for certain usage
options.
The USCG project was planned to be launched with the
Companys quick-launch satellites, however the launch did
not occur by December 31, 2007. On January 14, 2008,
the Company received a cure notice from the USCG notifying the
Company that unless the satellite is launched within
90 days after receipt of the cure notice, the USCG would
have been able to terminate the contract for default and pursue
the remedies available to it, one of which is procuring supplies
and services similar to those terminated and holding the Company
liable for any excess costs of procurement.
On April 14, 2008, the Company and the USCG entered into an
amendment to the agreement extending the definitive launch date
to August 15, 2008. In consideration for agreeing to the
extend the launch date, the Company will provide the USCG with
all AIS data from each of the quick-launch satellites being
launched with the Coast
F-31
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
Guard demonstration satellite, to the extent the satellites are
providing service, for 90 continuous days, which commenced on
February 1, 2009 at no additional cost. In addition, the
USCG will have certain intellectual property rights over the AIS
data received by the AIS receivers aboard the quick-launch
satellites and the Coast Guard demonstration satellite solely
during the
90-day
evaluation period to share only with other U.S. government
agencies, provided that during the
90-day
evaluation period the Company is permitted to use the AIS data
from the quick-launch satellites in connection with the
Companys other programs.
Gateway
settlement obligation
In 1996, a predecessor to the Company entered into a contract to
purchase gateway earth stations (GESs) from ViaSAT
Inc. (the GESs Contract). As of September 15,
2000, the date the predecessor company filed for bankruptcy,
approximately $11,000 had been paid to ViaSAT, leaving
approximately $3,700 owing under the GESs Contract for 8.5 GESs
manufactured and stored by ViaSAT. In December 2004, the Company
and ViaSAT entered into a settlement agreement whereby the
Company was granted title to 4 completed GESs in return for a
commitment to pay an aggregate of $1,000 by December 2007. The
Company had options, which expired in December 2007, to purchase
any or all of the remaining 4.5 GESs for aggregate consideration
of $2,700. However, the Company would have been required to
purchase one of the remaining 4.5 GESs for $1,000 prior to the
sale or disposition of the last of the 4 GESs for which title
has been transferred. The Company recorded the 4 GESs in
inventory at an aggregate value of $1,644 upon execution of the
settlement agreement. During 2007, the Company and ViaSAT
entered into discussions to extend the option, however such
discussions were terminated during the second quarter of 2008
with the parties having no further obligations under the
settlement agreement. As a result, the Companys accrued
liability of $644 related to the settlement agreement was
reversed in June 2008 and the Company reduced costs of product
sales by $161, cost of services by $164 and satellite network
and other assets by $319.
Airtime
credits
In 2001, in connection with the organization of ORBCOMM Europe
and the reorganization of the ORBCOMM business in Europe, the
Company agreed to grant certain country representatives in
Europe approximately $3,736 in airtime credits. The Company has
not recorded the airtime credits as a liability for the
following reasons: (i) the Company has no obligation to pay
the unused airtime credits if they are not utilized; and
(ii) the airtime credits are earned by the country
representatives only when the Company generates revenue from the
country representatives. The airtime credits have no expiration
date. Accordingly, the Company is recording airtime credits as
services are rendered and these airtime credits are recorded net
of revenues from the country representatives. For the years
ended December 31, 2009, 2008 and 2007 airtime credits used
totaled approximately $76, $183 and $179, respectively. As of
December 31, 2009 and 2008 unused credits granted by the
Company were approximately $2,231 and $2,307, respectively.
Purchase
commitment
On August 29, 2008, Stellar entered into an agreement with
Delphi Automotive Systems LLC to purchase approximately $4,800
of a future model of a subscriber communicator over a two-year
period beginning once the subscriber communicator model becomes
commercially available within the next twelve months (See
Note 4).
F-32
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
Operating
leases
The Company leases office, storage and other facilities under
agreements classified as operating leases which expire through
2014. Future minimum lease payments, by year and in the
aggregate, under non-cancelable operating leases with initial or
remaining terms of one year or more as of December 31, 2009
are as follows:
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2010
|
|
$
|
1,141
|
|
2011
|
|
|
1,045
|
|
2012
|
|
|
924
|
|
2013
|
|
|
805
|
|
2014
|
|
|
278
|
|
|
|
|
|
|
|
|
$
|
4,193
|
|
|
|
|
|
|
Rent expense for the years ended December 31, 2009, 2008
and 2007 was approximately $1,094, $1,608 and $981, respectively.
Litigation
From time to time, the Company is involved in various litigation
matters involving ordinary and routine claims incidental to its
business. Management currently believes that the outcome of
these proceedings, either individually or in the aggregate, will
not have a material adverse effect on the Companys
business, results of operations or financial condition. The
Company has been involved in a certain litigation matter as
discussed below.
Class Action
Litigation
On September 20 and 25, 2007, two separate plaintiffs filed
purported class action lawsuits in the United States District
Court for the District of New Jersey against the Company and
certain of its officers. On July 17, 2008, the lead
plaintiffs filed their consolidated complaint against the
Company and certain of its officers, and added as defendants the
two co-lead underwriters of the Companys initial public
offering, UBS Securities LLC and Morgan Stanley & Co.
Incorporated. The consolidated complaint alleges, among other
things, that the Companys registration statement related
to its initial public offering in November 2006 contained
material misstatements and omissions in violation of the
Securities Act of 1933. The action sought to recover
compensatory and rescissory damages, on behalf of a class of
shareholders who purchased common stock in
and/or
traceable to the Companys initial public offering on or
about November 3, 2006 through August 14, 2007. On
February 25, 2009, the Company and the other named
defendants agreed in principle to settle the action, while
continuing to deny any liability for these claims, for a payment
of $2,450 paid in the fourth quarter of 2009 by the
Companys insurer providing directors and officers
liability coverage for the claims asserted in the litigation. As
of December 31, 2008, the Company accrued the $2,450 as a
component of accrued liabilities. The Company had established a
receivable from its insurance carrier in the same amount that is
included in receivable from insurance recovery as collection was
probable. On May 21, 2009, the Company and the other named
defendants entered into a definitive settlement agreement to
settle the action on the terms described above and on
November 2, 2009, the United States District Court for the
District of New Jersey approved the settlement. As a result, the
Companys accrued liability of $2,450 and the corresponding
receivable from its insurance carrier was reversed in November
2009. In addition, the Company has received a request for
indemnification pursuant to the Underwriting Agreement entered
into in connection with the initial public offering from UBS
Securities, LLC and Morgan Stanley & Co. Incorporated
for any losses or costs they may incur as a result of this
lawsuit. The Company has declined to pay any such indemnity
claims by these firms. Litigation is subject to inherent
uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include money damages. If an
unfavorable ruling were to occur, it could have a material
adverse effect on the Companys business and results of
operations for the period in which the ruling occurred or future
periods.
F-33
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
|
|
Note 19.
|
Employee
Incentive Plans
|
The Company maintains a 401(k) plan. All employees who have been
employed for three months or longer are eligible to participate
in the plan. Employees may contribute up to 15% of eligible
compensation to the plan, subject to certain limitations. The
Company has the option of matching up to 100% of the amount
contributed by each employee up to 4% of employees
compensation. In addition, the plan contains a discretionary
contribution component pursuant to which the Company may make an
additional annual contribution. Contributions vest over a
five-year period from the employees date of employment.
The Company did not make any contributions for the years ended
December 31, 2009, 2008 and 2007.
|
|
Note 20.
|
Services
Agreement with AI (now a subsidiary of I.D. Systems, Inc. and
formerly a division of GE)
|
Concurrent with the Settlement Agreement (See Note 4), the
Company and GE entered into a services agreement (the
Services Agreement) with a term of January 1,
2009 through December 31, 2013, pursuant to which the Company
and AI agreed to expand the scope of services provided or that
may in the future be provided to AI to include other satellite,
cellular or dual mode (cellular plus satellite) data
communications services, in addition to the
low-earth-orbit-satellite-based data communication services (the
Low-Earth Services).
Under the Services Agreement, AI will activate and provide
telematics and
machine-to-machine
data communications services on all communicators sold or
managed by or on behalf of AI in the United States, Canada and
Mexico for purposes of communications between
(i) subscriber communicators sold or managed by or on
behalf of GEs asset tracking and monitoring business and
(ii) communications centers or customers of AIs asset
tracking and monitoring business, whether satellite, cellular or
dual mode (cellular plus satellite), exclusively (subject to
certain restrictions and qualifications) on the ORBCOMM
communications system that provides the Low-Earth Services and
terrestrial-based cellular communication services through
reseller agreements with major cellular wireless providers and
that may in the future provide communication services through
other third party communication networks in each case as long as
the Company provides competitive services at competitive rates
with appropriate regulatory approval, subject to the terms of
the Services Agreement.
|
|
Note 21.
|
Supplemental
Disclosure of Noncash Investing and Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures incurred not yet paid
|
|
$
|
1,045
|
|
|
$
|
6,626
|
|
|
$
|
1,459
|
|
Gateway received in settlement of long-term receivable
|
|
|
|
|
|
|
230
|
|
|
|
|
|
Stock-based compensation included in capital expenditures
|
|
|
|
|
|
|
54
|
|
|
|
|
|
Net assets from step acquisition of subsidiary
|
|
|
|
|
|
|
1,363
|
|
|
|
|
|
Asset basis adjustment due to expiration of gateway purchase
option
|
|
|
|
|
|
|
161
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Public offering expenses incurred not yet paid
|
|
|
|
|
|
|
|
|
|
|
40
|
|
F-34
Notes to
consolidated financial statements
(In thousands, except share and per share amounts)
|
|
Note 22.
|
Quarterly
Financial Data (Unaudited)
|
The quarterly results of operations are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,727
|
|
|
$
|
6,770
|
|
|
$
|
7,031
|
|
|
$
|
7,038
|
|
Income (loss) from operations
|
|
|
(8,591
|
)
|
|
|
(1,108
|
)
|
|
|
(562
|
)
|
|
|
7,796
|
|
Income (loss) from continuing operations
|
|
|
(8,647
|
)
|
|
|
(745
|
)
|
|
|
(718
|
)
|
|
|
7,755
|
|
Income (loss) from discontinued operations
|
|
|
(452
|
)
|
|
|
412
|
|
|
|
(489
|
)
|
|
|
(425
|
)
|
Net income (loss) attributable to ORBCOMM Inc.
|
|
|
(9,135
|
)
|
|
|
(362
|
)
|
|
|
(1,237
|
)
|
|
|
7,295
|
|
Net income (loss) per common share-basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(0.21
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
0.18
|
|
Income (loss) from discontinued operations
|
|
|
(0.01
|
)
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Net income (loss) attributable to ORBCOMM Inc.
|
|
|
(0.22
|
)
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
0.17
|
|
Net income (loss) per common share-diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(0.21
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
0.18
|
|
Income (loss) from discontinued operations
|
|
|
(0.01
|
)
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Net income (loss) attributable to ORBCOMM Inc.
|
|
|
(0.22
|
)
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
0.17
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
42,308,367
|
|
|
|
42,406,892
|
|
|
|
42,442,477
|
|
|
|
42,455,531
|
|
Diluted
|
|
|
42,308,367
|
|
|
|
42,406,892
|
|
|
|
42,442,477
|
|
|
|
42,608,019
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,844
|
|
|
$
|
6,874
|
|
|
$
|
7,530
|
|
|
$
|
8,061
|
|
Loss from operations
|
|
|
(882
|
)
|
|
|
(774
|
)
|
|
|
(527
|
)
|
|
|
(634
|
)
|
Loss from continuing operations
|
|
|
(155
|
)
|
|
|
(582
|
)
|
|
|
(459
|
)
|
|
|
(1,191
|
)
|
Loss from discontinued operations
|
|
|
(379
|
)
|
|
|
(356
|
)
|
|
|
(353
|
)
|
|
|
(594
|
)
|
Net loss attributable to ORBCOMM Inc.
|
|
|
(534
|
)
|
|
|
(979
|
)
|
|
|
(1,001
|
)
|
|
|
(2,026
|
)
|
Net loss per common share-basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.04
|
)
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Net loss attributable to ORBCOMM Inc.
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.05
|
)
|
Weighted-average shares outstanding-basic and diluted
|
|
|
41,802,725
|
|
|
|
41,961,461
|
|
|
|
42,070,196
|
|
|
|
42,100,869
|
|
F-35
Schedule II
Valuation and Qualifying Accounts
ORBCOMM
INC.
December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. B
|
|
|
Col. C
|
|
|
|
|
|
Col. E
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of the
|
|
|
Costs and
|
|
|
Other
|
|
|
Col. D
|
|
|
End of the
|
|
Description
|
|
Period
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Period
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful receivables
|
|
$
|
101
|
|
|
|
714
|
|
|
|
(12
|
)(1)
|
|
|
|
|
|
$
|
803
|
|
Deferred tax asset valuation
|
|
$
|
12,403
|
|
|
|
(723
|
)
|
|
|
81
|
(2)
|
|
|
|
|
|
$
|
11,761
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful receivables
|
|
$
|
260
|
|
|
|
(177
|
)
|
|
|
18
|
(1)
|
|
|
|
|
|
$
|
101
|
|
Deferred tax asset valuation
|
|
$
|
12,824
|
|
|
|
(956
|
)
|
|
|
535
|
(2)
|
|
|
|
|
|
$
|
12,403
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful receivables
|
|
$
|
226
|
|
|
|
229
|
|
|
|
(195
|
)(1)
|
|
|
|
|
|
$
|
260
|
|
Deferred tax asset valuation
|
|
$
|
12,749
|
|
|
|
322
|
|
|
|
(247
|
)(2)
|
|
|
|
|
|
$
|
12,824
|
|
|
|
|
(1) |
|
Amounts relate to write-offs, net of recoveries. |
|
(2) |
|
Amounts relate to differences in foreign exchange rates. |
F-36
Exhibit Index
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Page No.
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the Company, filed as
Exhibit 3.1 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2006, is incorporated
herein by reference.
|
|
|
|
3
|
.2
|
|
Amended Bylaws of the Company, filed as Exhibit 3.2 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2006, is incorporated
herein by reference.
|
|
|
|
10
|
.1.1
|
|
Validation Services Agreement, dated May 20, 2004, by and
between the Company and the U.S. Coast Guard, filed as
Exhibit 10.1 to the Companys Registration Statement
on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.1.2
|
|
Amendment of Solicitation/Modification of Contract dated
September 13, 2007 amending the Validation Services
Agreement dated as of May 20, 2004, by and between the
Company and U.S. Coast Guard, filed as Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007, is incorporated
herein by reference.
|
|
|
|
10
|
.1.3
|
|
Amendment of Solicitation/Modification of Contract dated
April 14, 2008 amending the Validation Services Agreement
dated as of May 20, 2004, as amended, by and between the
Company and U.S. Coast Guard, filed as Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008, is incorporated herein
by reference.
|
|
|
|
10
|
.1.4
|
|
Amendment of Solicitation/Modification of Contract dated
August 28, 2008 amending the Validation Services Agreement
dated as of May 20, 2004, as amended, by and between the
Company and U.S. Coast Guard, filed as Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008, is incorporated
herein by reference.
|
|
|
|
10
|
.1.5
|
|
Amendment of Solicitation/Modification of Contract dated
September 30, 2008 amending the Validation Services
Agreement dated as of May 20, 2004, as amended, by and
between the Company and U.S. Coast Guard, filed as
Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008, is incorporated
herein by reference
|
|
|
|
10
|
.1.6
|
|
Amendment of Solicitation/Modification of Contract dated
September 30, 2008 amending the Validation Services
Agreement dated as of May 20, 2004, as amended, by and
between the Company and U.S. Coast Guard, filed as
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008, is incorporated
herein by reference.
|
|
|
|
10
|
.2.1
|
|
Cooperation Agreement, dated May 18, 2004, among the
Company, Stellar Satellite Communications Ltd. and Delphi
Corporation, filed as Exhibit 10.2.1 to the Companys
Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.2.2
|
|
Amendment Number One to Cooperation Agreement, dated
December 27, 2005, among the Company, Stellar Satellite
Communications Ltd. and Delphi Corporation, filed as
Exhibit 10.2.2 to the Companys Registration Statement
on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.2.3
|
|
Amendment Number Two to Cooperation Agreement dated as of
November 3, 2008, among the Company, Stellar Satellite
Communications Ltd. and the Delphi Electronics &
Safety Division of Delphi Incorporated, filed as
Exhibit 10.4 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008, is incorporated
herein by reference.
|
|
|
|
10
|
.2.4
|
|
Pricing Agreement dated as of September 8, 2008, by and
between Stellar Satellite Communications Ltd. and Delphi
Automotive Systems, LLC, acting through its Delphi
Electronics & Safety Division, filed as
Exhibit 10.5 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008, is incorporated
herein by reference.
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Page No.
|
|
|
10
|
.3.1
|
|
ORBCOMM Concept Demonstration Satellite Bus, Integration Test
and Launch Services Procurement Agreement, dated March 10,
2005, between the Company and OHB-System AG, filed as
Exhibit 10.3.1 to the Companys Registration Statement
on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.3.2
|
|
Amendment to the Procurement Agreement, dated June 5, 2006,
between the Company and OHB-System AG, filed as
Exhibit 10.3.2 to the Companys Registration Statement
on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.3.3
|
|
Memorandum of Agreement dated July 2, 2008 between the
Company and OHB System, AG, concerning modifications to
Amendment No. 1 dated as of June 5, 2006 of ORBCOMM
Concept Demonstration Satellite Bus, Integration Test and Launch
Services Procurement Agreement dated March 10, 2005 by and
between the Company and OHB System, AG, filed as
Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008, is incorporated herein
by reference.
|
|
|
|
10
|
.3.4
|
|
Memorandum of Agreement dated November 25, 2008, between
the Company and OHB System, AG, concerning Amendment No. 1
dated as of June 5, 2006 of ORBCOMM Concept Demonstration
Satellite Bus, Integration Test and Launch Services Procurement
Agreement dated March 10, 2005 by and between the Company
and OHB System, AG., filed as Exhibit 10.3.4 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2008, is incorporated
herein by reference.
|
|
|
|
10
|
.4
|
|
ORBCOMM Concept Demonstration Communication Payload Procurement
Agreement, dated November 3, 2004, between the Company and
Orbital Sciences Corporation, filed as Exhibit 10.4 to the
Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.5.1
|
|
Amendment to the Procurement Agreement, dated April 21,
2006, between the Company and Orbital Sciences Corporation,
filed as Exhibit 10.5 to the Companys Registration
Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.5.2
|
|
Memorandum of Agreement, dated October 10, 2007, between
the Company and Orbital Sciences Corporation concerning
modification to the Amendment to the procurement agreement filed
as Exhibit 10.5.2 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007, is incorporated
herein by reference. hereto.
|
|
|
|
10
|
.6
|
|
ORBCOMM Generation 2 Procurement Agreement dated May 5,
2008, by and between the Company and Sierra Nevada Corporation,
filed as Exhibit 10.2 to the Companys Quarterly
Report on
Form 10-Q
for the period ended June 30, 2008, is incorporated herein
by reference.
|
|
|
|
**10
|
.7
|
|
Falcon 1e Commercial Launch Services Agreement, dated
August 28, 2009 between the Company and Space Exploration
Technologies Corporation (previously filed as Exhibit 10.1
to the Companys Quarterly Report Amendment No. 1 on
Form 10-Q/A
for the quarter ended September 30, 2009).
|
|
|
|
10
|
.8
|
|
Second Amended and Restated Registration Rights Agreement, dated
as of December 30, 2005, by and among the Company and
certain preferred stockholders of the Company, filed as
Exhibit 10.6 to the Companys Registration Statement
on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.8.1
|
|
International Value Added Reseller Agreement, dated
March 14, 2003, between the Company and Transport
International Pool, filed as Exhibit 10.9.1 to the
Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.8.2
|
|
Amendment to International Value Added Reseller Agreement, dated
January 26, 2006, between the Company and Transport
International Pool, filed as Exhibit 10.9.2 to the
Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Page No.
|
|
|
10
|
.8.3
|
|
Assignment and Assumption Agreement, dated February 28,
2006, between ORBCOMM LLC, Transport International Pool and GE
Asset Intelligence, LLC, filed as Exhibit 10.9.3 to the
Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.8.4
|
|
Amendment to International Value Added Reseller Agreement dated
July 11, 2006 between ORBCOMM LLC and GE Asset
Intelligence, filed as Exhibit 10.9.4 to the Companys
Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.8.5
|
|
Services agreement dated April 3, 2009 between ORBCOMM LLC
and GE Asset Intelligence, LLC., filed as Exhibit 10.1 to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009, is incorporated herein
by reference.
|
|
|
|
10
|
.8.5
|
|
Amendment to International Value Added Resellers Agreement,
dated August 3, 2006, between ORBCOMM LLC and GE Asset
Intelligence, LLC, filed as Exhibit 10.9.5 to the
Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.9
|
|
Form of Common Stock Warrants, filed as Exhibit 10.10 to
the Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.10
|
|
Form of Series A Preferred Stock Warrants, filed as
Exhibit 10.11 to the Companys Registration Statement
on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.11
|
|
Form of Ridgewood Preferred Stock Warrants, filed as
Exhibit 10.12 to the Companys Registration Statement
on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.12
|
|
Form of Indemnification Agreement between the Company and the
executive officers and directors of the Company, filed as
Exhibit 10.13 to the Companys Registration Statement
on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.13
|
|
Schedule identifying agreements substantially identical to the
Form of Indemnification Agreement constituting
Exhibit 10.12 hereto.
|
|
|
|
*10
|
.14
|
|
2004 Stock Option Plan, filed as Exhibit 10.15 to the
Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
*10
|
.15
|
|
2006 Long-Term Incentives Plan, filed as Exhibit 10.16 to
the Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
*10
|
.16
|
|
Form of Incentive Stock Option Agreement under the 2004 Stock
Option Plan, filed as Exhibit 10.17 to the Companys
Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference, filed as Exhibit 10.17
to the Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
*10
|
.17
|
|
Form of Non Statutory Stock Option Agreement under the 2004
Stock Option Plan, filed as Exhibit 10.18 to the
Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
*10
|
.18
|
|
Employment Agreement between Jerome B. Eisenberg and the
Company, filed as Exhibit 10.27 to the Companys
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008, is incorporated
herein by reference.
|
|
|
|
*10
|
.19
|
|
Employment Agreement between Marc J. Eisenberg and the Company,
filed as Exhibit 10.28 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2008, is incorporated
herein by reference.
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
Description
|
|
Page No.
|
|
|
10
|
.20
|
|
Employment Agreement between John J. Stolte Jr. and the Company,
filed as Exhibit 10.30 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2008, is incorporated
herein by reference.
|
|
|
|
*10
|
.21
|
|
Form of Restricted Stock Unit Award Agreement under the 2006
Long-Term Incentives Plan, filed as Exhibit 10.24 to the
Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
*10
|
.22
|
|
Form of Stock Appreciation Rights Award Agreement under the 2006
Long-Term Incentives Plan, filed as Exhibit 10.25 to the
Companys Registration Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.23
|
|
Employment Agreement between Robert G. Costantini and the
Company, filed as Exhibit 10.29 to the Companys
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008, is incorporated
herein by reference.
|
|
|
|
10
|
.24
|
|
Employment Agreement between Christian G. Le Brun and the
Company, filed as Exhibit 10.31 to the Companys
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2008, is incorporated
herein by reference.
|
|
|
|
10
|
.25
|
|
Employment Agreement between Brian Bell and the Company.
|
|
|
|
10
|
.26
|
|
Summary of Non-Employee Director Compensation, filed as
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q
for the period ended June 30, 2007 (File
No. 000-1361983),
is incorporated herein by reference.
|
|
|
|
10
|
.27
|
|
Letter agreement, dated October 10, 2006, between Stellar
Satellite Communications Ltd. and GE Asset Intelligence, LLC,
filed as Exhibit 10.27 to the Companys Registration
Statement on
Form S-1
(Registration
No. 333-134088),
is incorporated herein by reference.
|
|
|
|
10
|
.27.1
|
|
Termination agreement dated April 3, 2009 between Stellar
Satellite Communications Ltd . and GE Asset Intelligence, LLC,
filed as Exhibit 10.1 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2009, is incorporated herein
by reference.
|
|
|
|
10
|
.27.2
|
|
Settlement agreement dated April 3, 2009 among ORBCOMM
Inc., ORBCOMM LLC and Stellar Satellite Communications Ltd. and
GE Asset Intelligence, LLC, filed as Exhibit 10.3 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009, is incorporated herein
by reference.
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10
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.28
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Settlement and Release Agreement regarding loss of ORBCOMM CDS
and Quick-Launch 1-5 Satellites dated December 10, 2009.
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21
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Subsidiaries of the Company
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23
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.1
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Consent of KPMG LLP, an independent registered public accounting
firm.
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23
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.2
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Consent of Deloitte & Touche LLP, an independent
registered public accounting firm.
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24
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Power of Attorney authorizing certain persons to sign this
Annual Report on behalf of certain directors and executive
officers of the Company.
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31
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.1
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Certification of the Chief Executive Officer and President
required by
Rule 13a-14(a).
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31
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.2
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Certification of the Executive Vice President and Chief
Financial Officer required by
Rule 13a-149a).
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32
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Certification of the Chief Executive Officer and President and
Executive Vice President and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act.
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* |
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Management contract or compensatory plan or arrangement. |
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Portions of this exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions have been
separately filed with the Securities and Exchange Commission. |
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** |
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The exhibit was refiled to provide a revised redacted version of
the agreement which contains fewer redactions than previously
filed in response to communications with the Securities and
Exchange Commission in connection with the Companys
confidential treatment request with respect to the exhibit. |