Attached files
file | filename |
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EX-32.2 - EXHIBIT 32.2 - ORBCOMM Inc. | c15696exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - ORBCOMM Inc. | c15696exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - ORBCOMM Inc. | c15696exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - ORBCOMM Inc. | c15696exv31w2.htm |
Table of Contents
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-33118
ORBCOMM INC.
(Exact name of registrant as specified in its charter)
Delaware | 41-2118289 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
2115 Linwood Avenue, Fort Lee, New Jersey 07024
(Address of principal executive offices)
(Address of principal executive offices)
(201) 363-4900
(Registrants telephone number)
(Registrants telephone number)
N/A
(Former name, former address and formal fiscal year, if changed since last report)
(Former name, former address and formal fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) 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 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):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
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
number of shares outstanding of the registrants common stock as
of May 3, 2011 is
42,760,355.
TABLE OF CONTENTS
Table of Contents
PART I Financial Information
Item 1. | Condensed Consolidated Financial Statements (Unaudited): |
ORBCOMM Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
(in thousands, except share data)
(Unaudited)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 21,226 | $ | 17,026 | ||||
Restricted cash |
1,000 | 1,000 | ||||||
Marketable securities |
61,055 | 67,902 | ||||||
Accounts receivable, net of allowances for
doubtful accounts of $630 and $557 |
5,660 | 4,536 | ||||||
Inventories |
207 | 172 | ||||||
Prepaid expenses and other current assets |
1,709 | 1,377 | ||||||
Deferred income taxes |
117 | 117 | ||||||
Total current assets |
90,974 | 92,130 | ||||||
Satellite network and other equipment, net |
72,388 | 71,684 | ||||||
Intangible assets, net |
743 | 1,114 | ||||||
Restricted cash |
2,220 | 3,030 | ||||||
Other investment |
2,334 | 2,278 | ||||||
Deferred income taxes |
140 | 141 | ||||||
Other assets |
1,058 | 1,092 | ||||||
Total assets |
$ | 169,857 | $ | 171,469 | ||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 2,508 | $ | 2,143 | ||||
Accrued liabilities |
4,758 | 6,043 | ||||||
Current portion of deferred revenue |
1,946 | 2,134 | ||||||
Total current liabilities |
9,212 | 10,320 | ||||||
Note payable related party |
1,540 | 1,416 | ||||||
Deferred revenue, net of current portion |
1,194 | 1,239 | ||||||
Other liabilities |
317 | 375 | ||||||
Total liabilities |
12,263 | 13,350 | ||||||
Commitments and contingencies |
||||||||
Equity: |
||||||||
ORBCOMM Inc. stockholders equity |
||||||||
Common stock, par value $0.001; 250,000,000
shares authorized; 42,760,355 and
42,616,950 shares issued and outstanding |
43 | 43 | ||||||
Additional paid-in capital |
234,527 | 234,125 | ||||||
Accumulated other comprehensive income |
1,075 | 1,126 | ||||||
Accumulated deficit |
(77,315 | ) | (76,584 | ) | ||||
Total ORBCOMM Inc. stockholders equity |
158,330 | 158,710 | ||||||
Noncontrolling interests |
(736 | ) | (591 | ) | ||||
Total equity |
157,594 | 158,119 | ||||||
Total liabilities and equity |
$ | 169,857 | $ | 171,469 | ||||
See notes to condensed consolidated financial statements.
2
Table of Contents
ORBCOMM Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
(in thousands, except per share data)
(Unaudited)
Three months ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Service revenues |
$ | 7,397 | $ | 6,882 | ||||
Product sales |
486 | 535 | ||||||
Total revenues |
7,883 | 7,417 | ||||||
Costs and expenses (1): |
||||||||
Costs of services |
3,463 | 3,136 | ||||||
Costs of product sales |
290 | 323 | ||||||
Selling, general and administrative |
4,421 | 4,162 | ||||||
Product development |
174 | 164 | ||||||
Acquisition-related costs |
257 | | ||||||
Total costs and expenses |
8,605 | 7,785 | ||||||
Loss from operations |
(722 | ) | (368 | ) | ||||
Other income (expense): |
||||||||
Interest income |
54 | 37 | ||||||
Other income (expense) |
101 | (120 | ) | |||||
Interest expense |
(48 | ) | (48 | ) | ||||
Total other income (expense) |
107 | (131 | ) | |||||
Loss from continuing operations before income taxes |
(615 | ) | (499 | ) | ||||
Income taxes |
111 | | ||||||
Loss from continuing operations |
(726 | ) | (499 | ) | ||||
Loss from discontinued operations |
| (91 | ) | |||||
Net loss |
(726 | ) | (590 | ) | ||||
Less: Net income attributable to the noncontrolling interests |
5 | 145 | ||||||
Net loss attributable to ORBCOMM Inc. |
$ | (731 | ) | $ | (735 | ) | ||
Net loss attributable to ORBCOMM Inc.: |
||||||||
Loss from continuing operations |
$ | (731 | ) | $ | (644 | ) | ||
Loss from discontinued operations |
| (91 | ) | |||||
Net loss attributable to ORBCOMM Inc. |
$ | (731 | ) | $ | (735 | ) | ||
Per share information-basic and diluted: |
||||||||
Loss from continuing operations |
$ | (0.02 | ) | $ | (0.02 | ) | ||
Loss from discontinued operations |
| (0.00 | ) | |||||
Net loss attributable to ORBCOMM Inc. |
$ | (0.02 | ) | $ | (0.02 | ) | ||
Weighted average common shares outstanding: |
||||||||
Basic and diluted |
42,726 | 42,559 | ||||||
(1) Stock-based compensation included in costs and expenses: |
||||||||
Costs of services |
$ | 35 | $ | 14 | ||||
Selling, general and administrative |
225 | 416 | ||||||
Product development |
3 | 2 | ||||||
$ | 263 | $ | 432 | |||||
See notes to condensed consolidated financial statements.
3
Table of Contents
ORBCOMM Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
(in thousands)
(Unaudited)
Three months ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (726 | ) | $ | (590 | ) | ||
Adjustments to reconcile net loss to net cash
used in operating activities: |
||||||||
Change in allowance for doubtful accounts |
73 | (201 | ) | |||||
Depreciation and amortization |
1,157 | 1,397 | ||||||
Accretion on note payable-related party |
33 | 33 | ||||||
Stock-based compensation |
263 | 432 | ||||||
Foreign exchange (gains) losses |
(42 | ) | 121 | |||||
Amortization of premium on marketable securities |
450 | 131 | ||||||
Common stock dividend received from other investment |
(56 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(1,195 | ) | (813 | ) | ||||
Inventories |
(38 | ) | (6 | ) | ||||
Prepaid expenses and other assets |
(25 | ) | (44 | ) | ||||
Accounts payable and accrued liabilities |
(209 | ) | (528 | ) | ||||
Deferred revenue |
(230 | ) | (262 | ) | ||||
Other liabilities |
(30 | ) | | |||||
Net cash used in operating activities of continuing operations |
(575 | ) | (330 | ) | ||||
Net cash used in operating activities of discontinued operations |
| (177 | ) | |||||
Net cash used in operating activities |
(575 | ) | (507 | ) | ||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(2,121 | ) | (984 | ) | ||||
Purchases of marketable securities |
(23,848 | ) | (66,422 | ) | ||||
Proceeds from maturities of marketable securities |
30,245 | 26,070 | ||||||
Issuance of note receivable to Alanco |
(300 | ) | | |||||
Change in restricted cash |
810 | | ||||||
Net cash provided by (used in) investing activities of continuing operations |
4,786 | (41,336 | ) | |||||
Net cash used in investing activities of discontinued operations |
| | ||||||
Net cash provided by (used in) investing activities |
4,786 | (41,336 | ) | |||||
Cash flows from financing activities |
| | ||||||
Effect of exchange rate changes on cash and cash equivalents |
(11 | ) | (13 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
4,200 | (41,856 | ) | |||||
Cash and cash equivalents: |
||||||||
Beginning of period |
17,026 | 65,292 | ||||||
End of period |
$ | 21,226 | $ | 23,436 | ||||
Supplemental cash flow disclosures: |
||||||||
Noncash investing and financing activities: |
||||||||
Capital expenditures incurred not yet paid |
$ | 853 | $ | 1,073 | ||||
Stock-based compensation included in capital expenditures |
$ | 14 | $ | 3 | ||||
Gateway and components recorded in inventory in prior years and used for |
||||||||
construction under satellite network and other equipment in 2011 |
$ | 25 | $ | | ||||
Common stock
issued as a form of payment for bonus |
$ | 125 | $ | | ||||
See notes to condensed consolidated financial statements.
4
Table of Contents
ORBCOMM Inc.
Condensed Consolidated Statements of Changes in Equity
Three months ended March 31, 2011 and 2010
Three months ended March 31, 2011 and 2010
(in thousands, except share data)
(Unaudited)
(Unaudited)
Accumulated | ||||||||||||||||||||||||||||
Additional | other | |||||||||||||||||||||||||||
Common stock | paid-in | comprehensive | Accumulated | Noncontrolling | Total | |||||||||||||||||||||||
Shares | Amount | capital | income (loss) | deficit | interests | equity | ||||||||||||||||||||||
Balances, January 1, 2011 |
42,616,950 | $ | 43 | $ | 234,125 | $ | 1,126 | $ | (76,584 | ) | $ | (591 | ) | $ | 158,119 | |||||||||||||
Vesting of restricted stock units |
109,290 | | | | | | | |||||||||||||||||||||
Stock-based compensation |
| | 277 | | | | 277 | |||||||||||||||||||||
Common stock issued for payment of bonus |
34,115 | | 125 | | | | 125 | |||||||||||||||||||||
Net income (loss) |
| | | | (731 | ) | 5 | (726 | ) | |||||||||||||||||||
Cumulative translation adjustment |
| | | (51 | ) | | (150 | ) | (201 | ) | ||||||||||||||||||
Balances, March 31, 2011 |
42,760,355 | $ | 43 | $ | 234,527 | $ | 1,075 | $ | (77,315 | ) | $ | (736 | ) | $ | 157,594 | |||||||||||||
Balances, January 1, 2010 |
42,455,531 | $ | 42 | $ | 230,512 | $ | 76 | $ | (71,415 | ) | $ | 1,703 | $ | 160,918 | ||||||||||||||
Vesting of restricted stock units |
107,420 | 1 | | | | | 1 | |||||||||||||||||||||
Stock-based compensation |
| | 435 | | | | 435 | |||||||||||||||||||||
Net income (loss) |
| | | | (735 | ) | 145 | (590 | ) | |||||||||||||||||||
Cumulative translation adjustment |
| | | 180 | | (13 | ) | 167 | ||||||||||||||||||||
Balances, March 31, 2010 |
42,562,951 | $ | 43 | $ | 230,947 | $ | 256 | $ | (72,150 | ) | $ | 1,835 | $ | 160,931 | ||||||||||||||
See notes to condensed consolidated financial statements.
5
Table of Contents
1. Overview
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 27 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 networks, 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.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant
to the rules of the Securities and Exchange Commission (the SEC). Certain information and
footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been condensed or
omitted pursuant to SEC rules. These financial statements should be read in conjunction with the
Companys Annual Report on Form 10-K for the year ended December 31, 2010.
In the opinion of management, the financial statements as of March 31, 2011 and for the three month
periods ended March 31, 2011 and 2010 include all adjustments (including normal recurring accruals)
necessary for a fair presentation of the consolidated financial position, results of operations and
cash flows for the periods presented. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.
The 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 condensed consolidated balance sheets.
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 condensed 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 March 31, 2011 and December
31, 2010. The Company has no guarantees or other funding obligations to those entities. The Company
had no equity or losses of those investees for the three months ended March 31, 2011 and March 31,
2010.
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 investment is
carried at cost (See Note 7).
The Company has incurred losses from inception including a net loss of $731 for the three months
ended March 31, 2011 and as of March 31, 2011 the Company has an accumulated deficit of $77,315. As
of March 31, 2011, the Companys primary source of liquidity consisted of cash, cash equivalents,
restricted cash and marketable securities totaling $85,501, which the Company believes will be
sufficient to provide working capital and milestone payments for its next-generation satellites for
the next twelve months.
6
Table of Contents
Fair Value of Financial instruments
The Company has no financial assets or liabilities that are measured at fair value on a recurring
basis. However, if certain triggering events occur the Company is required to evaluate the
non-financial assets for impairment and any resulting asset impairment would require that a non-financial
asset be recorded at the fair value. FASB Topic ASC 820 Fair Value Measurement Disclosures ,
prioritizes inputs used in measuring fair value into a hierarchy of three levels: Level 1-
unadjusted quoted prices for identical assets or liabilities traded in active markets, Level 2-
inputs other than quoted prices included within Level 1 that are either directly or indirectly
observable; and Level 3- unobservable inputs in which little or no market activity exists,
therefore requiring an entity to develop its own assumptions that market participants would use in
pricing.
The carrying value of the Companys financial instruments, including cash, accounts receivable,
note receivable, accounts payable and accrued expenses approximated their fair value due to the short-term nature of
these items. The fair value of the Note payable-related party is de minimis.
Marketable securities
Marketable securities consist of debt securities including U.S. government and agency obligations,
corporate obligations and FDIC-insured certificates of deposit, which have stated maturities
ranging from three months to less than one year. 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 condensed consolidated financial statements.
The fair value of the Companys marketable securities approximate their carrying value (See Note
7).
Concentration of credit risk
The Companys customers are primarily commercial organizations. 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:
Three Months ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Caterpillar Inc. |
24.4 | % | 13.2 | % | ||||
Komatsu Ltd. |
18.6 | % | 11.9 | % | ||||
Hitachi Construction Machinery Co., Ltd. |
11.7 | % | 13.8 | % | ||||
Asset Intelligence |
10.2 | % | 11.6 | % |
7
Table of Contents
The following table presents customers with accounts receivable greater than 10% of the Companys
consolidated accounts receivable for the periods shown:
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Caterpillar Inc. |
34.9 | % | 19.9 | % | ||||
Asset Intelligence |
16.4 | % | 20.3 | % |
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.
Income taxes
For the three months ended March 31, 2011, the Company recorded an income tax provision of $111,
resulting from income generated by ORBCOMM Japan. As of March 31, 2011, the Company maintained a valuation allowance against all of its net
deferred tax assets attributable to operations in the United States and all other foreign
jurisdictions, except for Japan, as the realization of such assets was not considered more likely than not.
As of March 31, 2010, the Company maintained a valuation allowance against all net deferred tax
assets attributable to all operations in the United States and all foreign jurisdictions as the
realization of such assets was not considered more likely than not.
As of March 31, 2011, the Company had unrecognized tax benefits of $775. There were no changes to
the Companys unrecognized tax benefits during the three months ended March 31, 2011. The Company
is subject to U.S. federal and state examinations by tax authorities from 2007. The Company does
not expect any significant changes to its unrecognized tax positions during the next twelve months.
The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. No interest and penalties related to uncertain tax positions were recognized during the
three months ended March 31, 2011.
3. Discontinued Operations
On August 5, 2010, Stellar Satellite Communications, Ltd. (Stellar) entered into an Asset
Purchase Agreement with Quake Global, Inc., a manufacturer of satellite communicators to purchase
Stellar. Under the terms of the Asset Purchase Agreement, the Company will receive royalty payments
contingent on future product sales of inventory as defined in the Asset Purchase Agreement. The
Company will recognize the future royalty payments when they are received and the contingency is
resolved in accordance with FASB Topic ASC 450 Contingencies. For the three months ended March 31, 2011, the Company received royalty payments totaling $70, which is included in continuing
operations in its condensed consolidated statements of operations. For the three months ended March 31, 2011, the Company had no discontinued operations.
8
Table of Contents
A summary of discontinued operations for the three months ended March 31, 2010 is as follows:
Revenues- Product sales |
$ | 245 | ||
Loss from discontinued operations |
$ | (91 | ) | |
4. Comprehensive Loss
The components of comprehensive loss are as follows:
Three months ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net loss |
$ | (726 | ) | $ | (590 | ) | ||
Foreign currency translation adjustment |
(201 | ) | 167 | |||||
Comprehensive loss |
(927 | ) | (423 | ) | ||||
Comprehensive income (loss) attributable to noncontrolling interests |
(145 | ) | 132 | |||||
Comprehensive loss attributable to ORBCOMM Inc. |
$ | (782 | ) | $ | (555 | ) | ||
5. 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 March 31, 2011, there were 631,402 shares
available for grant under the 2006 LTIP and no shares available for grant under the 2004 Stock
Option Plan.
For the three months ended March 31, 2011 and 2010, the Company recorded stock-based compensation
expense in continuing operations of $263 and $432, respectively. The Companys stock-based
compensation in discontinued operations for the three months ended March 31, 2010 was nil. For the
three months ended March 31, 2011 and 2010, the Company capitalized stock-based
compensation of $14 and $3, respectively. The components of the Companys stock-based compensation
expense are presented below:
Three months ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Stock appreciation rights |
$ | 209 | $ | 312 | ||||
Restricted stock units |
54 | 120 | ||||||
Total |
$ | 263 | $ | 432 | ||||
As of March 31, 2011, the Company had unrecognized compensation costs for all share-based
payment arrangements totaling $1,602.
Time-Based Stock Appreciation Rights
During the three months ended March 31, 2011, the Company granted 58,000 time-based SARs, which
vest in three equal installments on December 31, 2011, 2012 and 2013. The weighted-average grant
date fair value of these SARs was $2.08 per share.
9
Table of Contents
A summary of the Companys time-based SARs for the three months ended March 31, 2011 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, 2011 |
2,000,667 | $ | 4.07 | |||||||||||||
Granted |
58,000 | 2.88 | ||||||||||||||
Forfeited or expired |
| | ||||||||||||||
Outstanding at March 31, 2011 |
2,058,667 | $ | 4.04 | 7.82 | $ | 769 | ||||||||||
Exercisable at March 31, 2011 |
1,430,334 | $ | 4.73 | 7.30 | $ | 255 | ||||||||||
Vested and expected to vest
at March 31, 2011 |
2,058,667 | $ | 4.04 | 7.82 | $ | 769 | ||||||||||
For the three months ended March 31, 2011 and 2010, the Company recorded stock-based
compensation expense in continuing operations of $116 and $267 relating to these SARs,
respectively. As of March 31, 2011, $968 of total unrecognized compensation cost related to these
SARs is expected to be recognized through December 2013.
Performance-Based Stock Appreciation Rights
During the three months ended March 31, 2011, the Company granted 169,333 performance-based SARs
for 2011 financial and operational targets, which are expected to vest in the first quarter of
2012. As of March 31, 2011, the Company estimates that 100% of the performance targets will be
achieved. The weighted-average grant date fair value of these SARs was $2.47 per share.
A summary of the Companys performance-based SARs for the three months ended March 31, 2011 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, 2011 |
567,146 | $ | 6.00 | |||||||||||||
Granted |
169,333 | 3.56 | ||||||||||||||
Forfeited or expired |
(89,013 | ) | 2.45 | |||||||||||||
Outstanding at March 31, 2011 |
647,466 | $ | 5.85 | 8.11 | $ | 205 | ||||||||||
Exercisable at March 31, 2011 |
478,134 | $ | 6.66 | 7.48 | $ | 197 | ||||||||||
Vested and expected to vest at
March 31, 2011 |
647,466 | $ | 5.85 | 8.11 | $ | 205 | ||||||||||
For the three months ended March 31, 2011 and 2010, the Company recorded stock-based
compensation expense in continuing operations of $93 and $45 relating to these SARs, respectively.
As of March 31, 2011, $382 of total unrecognized compensation cost related to these SARs is
expected to be recognized through the first quarter of 2012.
The fair value of each time and performance 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.
The expected volatility was based on an average of the Companys historical volatility over the
expected terms of the SAR awards and the comparable publicly traded companies historical
volatility. The Company uses the simplified method to determine the expected terms of SARs due to
no history of exercises. Estimated forfeitures were based on voluntary and involuntary termination
behavior as well as analysis of actual 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.
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Three months ended | ||||
March, 31 | ||||
2011 | 2010 | |||
Risk-free interest rate |
2.14% to 2.34% | 2.27% and 2.65% | ||
Expected life (years) |
5.50 and 6.0 | 5.50 and 6.0 | ||
Estimated volatility factor |
83.67% to 84.86% | 85.95% and 83.67% | ||
Expected dividends |
None | None |
Time-based Restricted Stock Units
During the three months ended March 31, 2011, the Company granted 70,000 time-based RSUs, which
vest in January 2012.
A summary of the Companys time-based RSUs for the three months ended March 31, 2011 is as follows:
Weighted-Average Grant | ||||||||
Shares | Date Fair Value | |||||||
Balance at January 1, 2011 |
156,624 | $ | 2.90 | |||||
Granted |
70,000 | 3.00 | ||||||
Vested |
(79,290 | ) | 2.27 | |||||
Forfeited or expired |
| | ||||||
Balance at March 31, 2011 |
147,334 | $ | 3.29 | |||||
For the three months ended March 31, 2011 and 2010, the Company recorded stock-based
compensation expense in continuing operations of $54 and $120 related to these RSUs,
respectively. As of March 31, 2011, $252 of total unrecognized compensation cost related to these RSUs is expected to be recognized through July 2012.
The fair value of the time-based RSU awards granted during the three months ended March 31, 2011 is
based upon the closing stock price of the Companys common stock on the date of grant.
2004 Stock Option Plan
A summary of the status of the Companys stock options as of March 31, 2011 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, 2011 |
757,828 | $ | 2.97 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited or expired |
| | ||||||||||||||
Outstanding at March 31, 2011 |
757,828 | $ | 2.97 | 2.96 | $ | 442 | ||||||||||
Exercisable at March 31, 2011 |
757,828 | $ | 2.97 | 2.96 | $ | 442 | ||||||||||
Vested and expected to vest at
March 31, 2011 |
757,828 | $ | 2.97 | 2.96 | $ | 442 | ||||||||||
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6. Net Loss per Common Share
Basic net loss per common share is calculated by dividing net loss attributable to ORBCOMM Inc. by
the weighted-average number of common shares outstanding for the period. Diluted net loss per
common share is the same as basic net loss per common share, because potentially dilutive
securities such as SARs, RSUs and stock options would have an antidilutive effect as the Company
incurred a net loss for the three months ended March 31, 2011 and 2010.
The potentially dilutive securities excluded from the determination of diluted loss per share, as
their effect is antidilutive, are as follows:
Three months ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
SARs |
2,706,133 | 2,559,813 | ||||||
RSUs |
147,334 | 240,623 | ||||||
Stock options |
757,828 | 782,079 | ||||||
3,611,295 | 3,582,515 | |||||||
7. Marketable Securities
As of March 31, 2011 and December 31, 2010, the marketable securities are recorded at amortized
cost which approximates fair market value which was based on Level 1 inputs. All investments mature
in one year or less.
March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||
Fair | Unrealized | Unrealized | Fair | Unrealized | Unrealized | |||||||||||||||||||
Value | Losses | Gains | Value | Losses | Gains | |||||||||||||||||||
U.S. government and agency
obligations |
$ | 37,384 | $ | 4 | $ | 7 | $ | 39,926 | $ | 18 | $ | 5 | ||||||||||||
Corporate obligations |
19,348 | 8 | 2 | 24,108 | 18 | 3 | ||||||||||||||||||
FDIC-insured certificates of deposit |
4,318 | 2 | | 3,837 | 3 | | ||||||||||||||||||
$ | 61,050 | $ | 14 | $ | 9 | $ | 67,871 | $ | 39 | $ | 8 | |||||||||||||
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.
As of March 31, 2011 and December 31, 2010, the gross unrealized losses of $14 and $39, respectively,
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 March
31, 2011 and there has been no recognition of impairment losses in its condensed consolidated
statements of operations.
Cost method investment
On April 5, 2010, the Company purchased 500,000 shares of Series E Convertible Preferred Stock
(Series E preferred stock) in Alanco Technologies, Inc, (Alanco), the parent company of a
terrestrial VAR, StarTrak Systems, LLC (StarTrak) a provider of tracking, monitoring and control
services for the refrigerated transport market.
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Each share of the Series E preferred stock is entitled to an annual dividend of 5% per annum,
payable quarterly, when declared by Alancos board of directors in cash or stock. The Series E
preferred stock is an equity security that does not have a readily determinable fair value. The
Company periodically assesses whether the investment is other-than-temporary impaired. If the
Company determines that an other-than temporary impairment has occurred, the Company will write
down the investment to its fair value. The fair value of a cost method investment is not evaluated
if there are no identified events or changes in circumstances that may have a significant adverse
effect on the investments fair value.
Alancos board of directors has declared quarterly dividends and the Company received 38,846 shares
of Alancos common stock valued at $56 for the three months ended March 31, 2011. The Company
increased its cost method investment by $56 and recorded dividend income for the same amount in
other income in its condensed consolidated statements of operations.
As of March 31, 2011, the carrying amount of the Companys cost method investment was $2,334.
On February 23, 2011, the Company entered into an Asset Purchase
Agreement with Alanco to purchase substantially all of the assets of StarTrak for consideration at closing totaling $18,500
in the aggregate face amount. The total consideration consists of: (i) cash, (ii) common stock, (iii) preferred stock, (iv)
assumption of debt and (v) delivery of 500,000 shares of the Series E preferred stock back to Alanco. In addition to the
consideration at closing, up to an additional gross amount of $1,500 of contingent consideration may be payable in the form
of an earn-out upon achieving certain revenue milestones for 2011. The Asset Purchase Agreement is subject to customary
closing conditions, including obtaining the approval of the shareholders of Alanco expected in the second quarter of 2011.
On February 23, 2011, the Company advanced $300 to Alanco in the form of a 6% promissory note,
which is to be repaid on the earlier of the following: (i) the closing date of the Asset Purchase
Agreement, or (ii) 10 days following the date in which the Asset Purchase Agreement is terminated.
The promissory note is secured by substantially all the assets of StarTrak.
As of March 31, 2011, the promissory note is included in prepaid expenses and other current assets in
the condensed consolidated balance sheet.
8. Satellite Network and Other Equipment
Satellite network and other equipment consisted of the following:
Useful life | March 31, | December 31, | ||||||||||
(years) | 2011 | 2010 | ||||||||||
Land |
$ | 381 | $ | 381 | ||||||||
Satellite network |
1-10 | 33,180 | 32,560 | |||||||||
Capitalized software |
3-5 | 1,704 | 1,646 | |||||||||
Computer hardware |
5 | 1,281 | 1,247 | |||||||||
Other |
5-7 | 1,337 | 1,311 | |||||||||
Assets under construction |
63,126 | 62,374 | ||||||||||
101,009 | 99,519 | |||||||||||
Less: accumulated depreciation and amortization |
(28,621 | ) | (27,835 | ) | ||||||||
$ | 72,388 | $ | 71,684 | |||||||||
During the three months ended March 31, 2011 and 2010, the Company capitalized costs
attributable to the design and development of internal-use software in the amount of $93 and $48,
respectively. Depreciation and amortization expense for the three months ended March 31, 2011 and
2010 was $786 and $1,025, respectively. This includes amortization of internal-use software of $91
and $110 for the three months ended March 31, 2011 and 2010, 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 next-generation satellites (See Note 16) and upgrades to its infrastructure and
ground segment.
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9. Restricted Cash
Restricted cash consists of the remaining cash collateral of $3,000 for a performance bond required
by the FCC in connection with the construction, launch and operation of the 18 next-generation
satellites that was authorized in the March 21, 2008 FCC Space
Segment License modification. 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 a third milestone. 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 and the remaining $2,000 as a
non-current asset at March 31, 2011 and December 31, 2010.
At December 31, 2010, restricted cash also included $680 deposited into an escrow account under the
terms of a procurement agreement for the quick-launch satellites. During the three months ended
March 31, 2011, $500 was paid to the supplier and the balance of $180 was returned to the Company.
At December 31, 2010, restricted cash also included $350 placed into certificates of deposit to
collateralize a letter of credit with a cellular wireless provider to secure terrestrial
communications services and to secure a credit card facility. During the three months ended March
31, 2011, the
cellular wireless provider reduced the amount of the letter of credit by $130 which was refunded to
the Company.
The interest income earned on the restricted cash balances is unrestricted and included in interest
income in the consolidated statements of operations.
10. Intangible Assets
The Companys intangible assets consisted of the following:
March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||
Useful life | Accumulated | Accumulated | ||||||||||||||||||||||||||
(years) | Cost | amortization | Net | Cost | amortization | Net | ||||||||||||||||||||||
Acquired licenses |
6 | $ | 8,115 | $ | (7,372 | ) | $ | 743 | $ | 8,115 | $ | (7,001 | ) | $ | 1,114 | |||||||||||||
Amortization expense was $371 and
$372 for the three months ended March 31, 2011 and 2010, respectively. Estimated
amortization expense for the acquired licenses for the remainder of 2011 is $743.
11. Accrued Liabilities
The Companys accrued liabilities consisted of the following:
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Accrued compensation and benefits |
$ | 1,395 | $ | 2,151 | ||||
Accrued interest |
872 | 857 | ||||||
Deferred rent payable |
119 | 112 | ||||||
Other accrued expenses |
2,372 | 2,923 | ||||||
$ | 4,758 | $ | 6,043 | |||||
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12. Deferred Revenues
Deferred revenues consisted of the following:
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Service activation fees |
$ | 2,161 | $ | 2,277 | ||||
Prepaid services |
954 | 1,067 | ||||||
Manufacturing license fees |
25 | 29 | ||||||
3,140 | 3,373 | |||||||
Less current portion |
(1,946 | ) | (2,134 | ) | ||||
Long-term portion |
$ | 1,194 | $ | 1,239 | ||||
13. Note Payable
In connection with the acquisition of a majority interest in Satcom in 2005, the Company recorded
an indebtedness to OHB Technology A.G. (formerly known as OHB Teledata A.G.), a stockholder of the
Company. At March 31, 2011, the principal balance of the note payable was 1,138 ($1,605) and it
had a carrying value of $1,540. At December 31, 2010, the principal balance of the note payable was
1,138 ($1,514) and it had a carrying value of $1,416. The carrying value was based on the notes
estimated fair value at the time of acquisition. 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. The amortization to interest expense related to the note for the three months ended March
31, 2011 and 2010 was $33. 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. The note has been classified as long-term and the Company does not expect any
repayments to be required prior to March 31, 2012.
14. Stockholders Equity
During the three months ended March 31, 2011, the Company issued 34,115 shares of its common stock
as a form of payment for bonuses.
As of March 31, 2011, the Company has reserved 4,242,697 shares of common stock for future
issuances related to employee stock compensation plans.
15. Geographic Information
The Company operates in one reportable segment, M2M 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 regions, based on the country in which the
customer is located.
Three months ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
United States |
82 | % | 79 | % | ||||
Japan |
16 | % | 16 | % | ||||
Other |
2 | % | 5 | % | ||||
100 | % | 100 | % | |||||
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16. Commitments and Contingencies
Procurement agreements in connection with next-generation satellites
On May 5, 2008, the Company
entered into a procurement 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 the Company’s 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, the Company had the option, which expired on
May 5, 2011, to order up to thirty additional satellites substantially
identical to the Initial Satellites (the “Optional Satellites”).
The Company and SNC are in discussions regarding extending the date by which
the Optional Satellites are exercisable, as well as the price for 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 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. SNC has not completed any of the pre-ship reviews of the Initial Satellites
within the original required periods. The
Company and SNC are in discussions regarding the impact of such delay, but do
not expect an impact on the SpaceX Launch Services schedule as described below.
Payments under the agreement began upon the execution of the agreement and
continue upon SNC’s successful completion of each payment milestone.
On August 31, 2010, the Company entered into two additional task order agreements with SNC in
connection with the procurement agreement discussed above. Under the terms of the launch vehicle
changes task order agreement, SNC will perform the activities to launch eighteen of the Companys
next-generation satellites on a SpaceX Falcon 1E or Falcon 9 launch vehicle. The total price for
the launch activities is cost reimbursable up to $4,110 that is cancelable by the Company, less a
credit of $1,528. Any unused credit can be applied to other
activities under the task order agreement, or the original
procurement agreement if application to the task order agreement
becomes impossible or impracticable. Under the terms of the engineering change requests and enhancements task order agreement, SNC
will design and make changes to each of the next-generation satellites in order to accommodate an
additional payload-to-bus interface. The total price for the engineering changes requests is cost
reimbursable up to $317. Both task order agreements are payable monthly as the services are
performed, provided
that with respect to the launch vehicle changes task order agreement, the credit in the amount
of $1,528 will first be deducted against amounts accrued thereunder until the entire balance is
expended.
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As of March 31, 2011, the Company has made milestone payments of $42,120 under the agreement.
The Company anticipates making payments under the agreement of
$13,000 during the remainder of
2011. 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
Company anticipates that the Launch Services will be performed
between the latter half of 2011 and 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 March 31, 2011, the Company has made milestone payments of
$10,080 under the SpaceX Agreement.
The Company does not anticipate making payments under the agreement during the remainder of
2011.
AIS Satellite Deployment and License Agreement
On September 28, 2010, the Company and OHB entered into an AIS Satellite Deployment and
License Agreement (the AIS Satellite Agreement) pursuant to which OHB, through its affiliate
Luxspace Sarl (LXS), will (1) design, construct, launch and in-orbit test two AIS microsatellites
and (2) design and construct the required ground support equipment. Under the AIS Satellite
Agreement, the Company will receive exclusive licenses for all data (with certain exceptions as
defined in the AIS Satellite Agreement) collected or transmitted by the two AIS microsatellites
(including all AIS data) during the term of the AIS Satellite Agreement and nonexclusive licenses
for all AIS data collected or transmitted by another microsatellite expected to be launched by LXS.
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The AIS Satellite Agreement provides for milestone payments totaling $2,000 (inclusive of
in-orbit testing) subject to certain adjustments. Payments under the AIS Satellite Agreement began
upon the execution of the agreement and successful completion of each milestone through to the
launch of the two AIS microsatellites, with the first scheduled for
third quarter of 2011 and the second anticipated in early 2012. In
addition, to the extent that both AIS microsatellites are successfully operating after launch, the
Company will pay OHB lease payments of up to $546, subject to certain adjustments, over thirty-six
months. At the Companys option after thirty-six months it can continue the exclusive licenses for
the data with a continuing payment of up to $6 per month. In addition, OHB will also be entitled to
credits of up to $500 to be used solely for the microsatellites AIS data license fees payable to
the Company under a separate AIS data resale agreement.
As of March 31, 2011, the Company has made milestone payments of $500 under the AIS Satellite
Agreement. The Company anticipates making the remaining milestone payments under the agreement of
$1,500 during the remainder of 2011.
Airtime credits
In 2001, in connection with the organization of ORBCOMM Europe LLC 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 three months ended March 31, 2011 and 2010, airtime credits used totaled
approximately $8 and $12, respectively. As of March 31, 2011 and December 31, 2010, unused credits
granted by the Company were approximately $2,183 and $2,191, 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.
18
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Safe Harbor Statement Under the Private Securities Litigation Reform of Act 1995.
Certain statements discussed in Part I, Item 2. Managements Discussion and Analysis of Financial
Condition and Results of
Operations and elsewhere in this Quarterly Report on Form 10-Q 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), 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; our pending
acquisition of the StarTrak Systems, LLC (StarTrak) business may expose us to additional risks;
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 ability to
restore commercial-level AIS service in the near term; 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 more detail in Part I, Item 1A. Risk Factors in our Annual Report
on Form 10-K for the year ended December 31, 2010. The Company undertakes no obligation to publicly
revise any forward-looking statements or cautionary factors, except as required by law.
Overview
We operate a global commercial wireless messaging system optimized for narrowband communications.
Our system consists of a global network of 27 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. We also provide 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 able to integrate into their
applications a terrestrial communications device that will allow them to send and receive messages,
including data intensive messaging using 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 Inc., (Caterpillar), Doosan Infracore America, Hitachi Construction Machinery
Co., Ltd., (Hitachi), Hyundai Heavy Industries, Komatsu Ltd., (Komatsu), The Manitowoc Company
and Volvo Construction Equipment. In addition, we market our services through a distribution
network of vertical market technology integrators known as VARs and IVARs, such as StarTrak, AI, XATA
Corporation and American Innovations, Ltd., and U.S. government agencies.
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.
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Global economic conditions, including a global economic recession, along with unprecedented credit
and capital constraints in the capital markets 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 in many parts of the world remain weak or
may 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.
Cost Method Investment
On April 5, 2010, we purchased 500,000 shares of Series E Convertible Preferred Stock (Series E
preferred stock) in Alanco Technologies, Inc,
(Alanco), the parent company of the terrestrial VAR
StarTrak, a provider of tracking, monitoring and control services for the
refrigerated transport market. See Note 7 to the condensed consolidated financial statements for
further discussion.
On February 23, 2011, we entered into an Asset Purchase Agreement with
Alanco to purchase substantially all of the assets of StarTrak for consideration at closing totaling $18.5 million in the aggregate
face amount. The total consideration consists of: (i) cash, (ii) common stock, (iii) preferred stock, (iv) assumption of debt and
(v) delivery of 500,000 shares of the Series E preferred stock back to Alanco. In addition to the consideration at closing, up to
an additional gross amount of $1.5 million of contingent consideration may be payable in the form of an earn-out upon achieving
certain revenue milestones for 2011. The Asset Purchase Agreement is subject to customary closing conditions, including obtaining
the approval of the shareholders of Alanco expected in the second quarter of 2011.
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 services, accounts receivable, satellite network and other
equipment, long-lived assets, capitalized development costs, valuation of deferred tax assets,
uncertain tax positions, provision for income taxes,
loss contingencies 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. For a discussion of
our critical accounting policies and estimates see Part II, Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for
the year ended December 31, 2010. There have been no material changes to our critical accounting
policies during 2011.
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.
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.
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The following table reconciles our net loss to EBITDA for the periods shown:
Three months ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net loss attributable to ORBCOMM Inc. |
$ | (731 | ) | $ | (735 | ) | ||
Income tax expense |
111 | | ||||||
Interest income |
(54 | ) | (37 | ) | ||||
Interest expense |
48 | 48 | ||||||
Depreciation and amortization |
1,157 | 1,397 | ||||||
EBITDA |
$ | 531 | $ | 673 | ||||
EBITDA during the three months ended March 31, 2011 decreased by $0.1 million over the three months
ended March 31, 2010. The decrease was primarily due to
acquisition-related costs of $0.3 million relating
to the pending acquisition of StarTrak.
Results of Operations
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 included AIS data transmissions, services to the USCG, 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. We also sell
cellular wireless subscriber identity modules, or SIMS, (for our terrestrial-communication
services) to our resellers and direct customers.
The table below presents our revenues for the three months ended March 31, 2011 and 2010, together
with the percentage of total revenue represented by each revenue category in (in thousands):
Three months ended March 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Total | Total | |||||||||||||||
Service revenues |
$ | 7,397 | 93.8 | % | $ | 6,882 | 92.8 | % | ||||||||
Product sales |
486 | 6.2 | % | 535 | 7.2 | % | ||||||||||
$ | 7,883 | 100.0 | % | $ | 7,417 | 100.0 | % | |||||||||
Total revenues for the three months ended March 31, 2011 increased $0.5 million, or 6.3%, to $7.9
million from $7.4 million for the three months ended March 31, 2010.
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Service revenues
Service revenues increased $0.5 million for the three months ended March 31, 2011, or 7.5%, to $7.4
million, from $6.9 million for the three months ended March 31, 2010. The increase in service revenues were
primarily due to an increase in satellite and terrestrial revenue of $1.1 million from an increase
in the number of billable subscriber communicators activated on our communications system offset by
a decrease in AIS revenue of $0.7 million as our AIS service has been interrupted. As of March 31,
2011, we had approximately 589,000 billable subscriber communicators on the ORBCOMM System compared
to approximately 525,000 billable subscriber communicators as of March 31, 2010, an increase of
approximately 12.1%.
Service revenue growth can be impacted by the customary lag between subscriber communicator
activations and recognition of service revenue from these units.
Product sales
Revenue from product sales for
the three months ended March 31, 2011 and 2010 was $0.5 million.
Costs of services
Costs of services is comprised of expenses to provide services, such as payroll and related costs,
including stock-based compensation, materials and supplies, depreciation and amortization of assets
and usage fees to cellular wireless providers for the data transmitted by the resellers on our
network.
Costs of services increased by $0.3 million, or 10.4%, to $3.5 million for the three months ended
March 31, 2011 from $3.2 million for the three months ended March 31, 2010. The increase is
primarily due to a one-time rent expense reduction in connection with the Dulles Virginia facility
relocation during the three months ended March 31, 2010. As a percentage of service revenues, cost
of services were 46.8% for the three months ended March 31, 2011 compared to 45.6% for the three
months ended March 31, 2010.
Costs of product sales
Costs of products includes the purchase price of subscriber communicators and SIMS sold and
shipping charges.
Costs
of product sales for the three months ended March 31, 2011 and 2010 were $0.3
million. We had a gross profit from product sales (revenues from product sales minus costs of
product sales) of $0.2 million for the three months ended March 31,
2011 and 2010.
Selling, general and administrative expenses
Selling, general and administrative expenses relate primarily to expenses for general management,
sales and marketing, and finance, professional fees and general operating expenses.
Selling, general and administrative expenses increased by
$0.2 million, or 6.2%, to $4.4 million
for the three months ended March 31, 2011 from $4.2 million for the three months ended March 31,
2010. The increase of $0.2 million is primarily due to severance costs and a non-recurring credit to bad debt
expense in the prior year period.
Product development expenses
Product development expenses consist primarily of the expenses associated with our engineering
team, along with the cost of third parties that are contracted to support our current applications.
Product development expenses for the three months ended March 31, 2011 and 2010 were $0.2 million.
Acquisition-related costs
Acquisition-related costs are expenditures for pending and completed acquisitions that have been
announced by us, and are expensed as incurred.
Acquisition-related costs for the three months ended
March 31, 2011 were $0.3 million, primarily for legal fees related to the acquisition of StarTrak. We expect to incur more
costs in subsequent periods, and expect the transaction to close in the middle of May 2011.
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-insured certificates of deposit classified as held to maturity, foreign exchange gains and
losses and interest expense.
For the three months ended March 31, 2011 other income was $0.1 million compared to other expense
of $0.1 million for the three months ended March 31, 2010.
Loss from continuing operations before income taxes
As a result of the items described above, we have a loss from continuing operations before income
taxes of $0.6 million for the three months ended March 31, 2011 compared to a loss from continuing
operations before income taxes of $0.5 million for the three months ended March 31, 2010.
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Provision for Income taxes
The provision for income taxes for the three months ended March 31, 2011 was $0.1 million, resulting from income generated by ORBCOMM Japan. As of
March 31, 2011, we maintained a valuation allowance against all net deferred tax assets
attributable to all operations in the United States and all other foreign jurisdictions, except for Japan, as the
realization of such assets was not considered more likely than not.
For the three months ended March 31, 2010, we did not record a provision for income taxes as we
maintained a valuation allowance against all net deferred tax assets attributable to all operations
in the United States and all foreign jurisdictions as the realization of such assets was not
considered more likely than not.
Loss from continuing operations
As a result of the items described above, we have a loss from continuing operations of $0.7 million
for the three months ended March 31, 2011 compared to a loss from continuing operations of $0.5
million for the three months ended March 31, 2010.
Loss from discontinued operations
Loss from discontinued
operations was $0.1 million in the prior period for the three months ended March 31, 2010.
Noncontrolling interests
Noncontrolling interests relate to earnings and losses attributable to noncontrolling shareholders.
Net loss attributable to ORBCOMM Inc.
As a result of the items described above, the net loss attributable to our company was $0.7 million
for the three months ended March 31, 2011 and 2010.
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 and expansion 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 inception and through March 31, 2011 we have an accumulated
deficit of $77.3 million. As of March 31, 2011, our primary source of liquidity consisted of cash,
cash equivalents, restricted cash and marketable securities totaling $85.5 million, which we
believe will be sufficient to provide working capital and milestone payments for our
next-generation satellites for the next twelve months.
Operating activities
Cash used in our operating activities for the three months ended March 31,
2011, was $0.6 million resulting from a net loss of $0.7 million, offset by non-cash items
including $1.2 million for depreciation and amortization, $0.3 million for stock-based compensation
and amortization of premium on marketable securities of $0.5 million. Working capital activities
primarily consisted of a net use of cash of $1.2 million for an increase in accounts receivable
primarily due to the increase in revenues.
Cash used in our operating activities of continuing operations for the three months ended March 31,
2010, was $0.3 million resulting from a net loss of $0.6 million, offset by non-cash items
including $1.4 million for depreciation and amortization and $0.4 million for stock-based
compensation. Working capital activities consisted of net uses of cash of $0.8 million for an
increase in accounts receivable primarily due to the increase in revenues and $0.5 million from a
decrease in accounts payable and accrued expenses primarily related to timing of payments made to
vendors.
Cash used in our operating activities of discontinued operations for the three months ended March
31, 2010 was $0.2 million.
Investing activities
Cash provided by our investing activities for the three months ended March
31, 2011 was $4.8 million, resulting from proceeds received from the maturities of marketable
securities totaling $30.3 million, offset primarily by capital expenditures of $2.1 million and
purchases of marketable securities of $23.8 million.
Cash used in our investing activities of continuing operations for the three months ended March 31,
2010 was $41.3 million, resulting from capital expenditures of $1.0 million and purchases of
marketable securities of $66.4 million. These uses were offset by proceeds received from the
maturities of marketable securities totaling $26.1 million.
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Financing activities
For the three months ended March 31, 2011 and March 31, 2010, we did not have any cash flows from
financing activities of continuing operations.
Future Liquidity and Capital Resource Requirements
We expect cash flows from continuing operating activities, along with our existing cash, cash
equivalents, restricted cash 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 the next twelve months. For the
remainder of 2011, we expect to incur approximately $13.0 million of capital expenditures
primarily for our next-generation satellites.
Contractual Obligations
There have been no material changes in our contractual obligations as of March 31, 2011, as
previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation
S-K.
Item 3. | Quantitative and Qualitative Disclosures about Market Risks |
There has been no material changes in our assessment of our sensitivity to market risk as of March
31, 2011, as previously disclosed in Part II, Item 7A Quantitative and Qualitative Disclosures
about Market Risks in our Annual Report on Form 10-K for the year ended December 31, 2010.
Concentration of credit risk
The following table presents customers with revenues greater than 10% of our consolidated total
revenues for the periods shown:
Three Months | ||||||||
ended March 31, | ||||||||
2011 | 2010 | |||||||
Caterpillar Inc. |
24.4 | % | 13.2 | % | ||||
Komatsu Ltd. |
18.6 | % | 11.9 | % | ||||
Hitachi Construction Machinery Co., Ltd. |
11.7 | % | 13.8 | % | ||||
Asset Intelligence |
10.2 | % | 11.6 | % |
Item 4. | Disclosure Controls and Procedures |
Evaluation of the Companys disclosure controls and procedures. The Companys management evaluated,
with the participation of the Companys President and Chief Executive Officer and Executive Vice
President and Chief Financial Officer, the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)), as of March 31, 2011. Based on
their evaluation, the Companys President and Chief Executive Officer and Executive Vice President
and Chief Financial Officer concluded that the Companys disclosure controls and procedures were
effective as of March 31, 2011.
Internal Control over Financial Reporting. There were no changes in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have
materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting.
PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
From time to time, we are involved in various litigation matters involving ordinary and routine
claims incidental to our business. Management currently believes that the outcome of these
proceedings, either individually or in the aggregate, will not have a material adverse effect on
our business, results of operations or financial condition.
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Item 1A. | Risk Factors |
Except as discussed under Overview in Part 1, Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations, there have been no material changes in the risk
factors as of March 31, 2011, as previously disclosed in Part I, Item 1A Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2010.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 5. | Other Information |
None.
Item 6. | Exhibits |
10.1 | Asset Purchase Agreement, dated as of February 23, 2011, by and among the Company,
Alanco Technologies, Inc. and StarTrak Systems, LLC, filed as Exhibit 4 to the
Companys Schedule 13D/A filed on February 28, 2011, is incorporated herein by reference.
|
|||
31.1 | Certification of President and Chief Executive Officer required by Rule 13a-14(a). |
|||
31.2 | Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a). |
|||
32.1 | Certification of President and Chief Executive Officer required by Rule 13a-14(b) and 18 U.S.C.
Section 1350. |
|||
32.2 | Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(b)
and 18 U.S.C. Section 1350. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
ORBCOMM Inc. | ||||
(Registrant) | ||||
Date: May 10, 2011
|
/s/ Marc J. Eisenberg
|
|||
President and Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
Date: May 10, 2011
|
/s/ Robert G. Costantini
|
|||
Robert G. Costantini, | ||||
Executive Vice President and Chief Financial Officer | ||||
(Principal Financial and Accounting Officer) |
EXHIBIT INDEX
Exhibit | ||||
No. | Description | |||
10.1 | Asset Purchase Agreement, dated as of February 23, 2011, by and among the Company,
Alanco Technologies, Inc. and StarTrak Systems, LLC, filed as Exhibit 4 to the
Companys Schedule 13D/A filed on February 28, 2011, is incorporated herein by reference.
|
|||
31.1 | Certification of Chief Executive Officer and President required by Rule 13a-14(a). |
|||
31.2 | Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a). |
|||
32.1 | Certification of Chief Executive Officer and President required by Rule 13a-14(b) and 18 U.S.C.
Section 1350. |
|||
32.2 | Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(b)
and 18 U.S.C. Section 1350. |
25