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ORBCOMM 10-Q 2016
orbc-10q_20160331.htm

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

¨

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 of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

395 W. Passaic Street, Rochelle Park, New Jersey 07662

(Address of principal executive offices)

703-433-6300

(Registrant’s telephone number)

N/A

(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  x    No  ¨

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  x    No  ¨

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

 

¨

  

Accelerated filer

 

x

 

 

 

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the registrant’s common stock as of May 2, 2016 is 70,866,624.

 

 

 

 

 


 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2016 and December 31, 2015

3

Condensed Consolidated Statements of Operations (unaudited) for the quarter ended March 31, 2016 and March 31, 2015

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the quarter ended March 31, 2016 and March 31, 2015

5

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2016 and March 31, 2015

6

Condensed Consolidated Statements of Changes in Equity (unaudited) for the three months ended March 31, 2016 and March 31, 2015

7

Notes to the Condensed Consolidated Financial Statements (unaudited)

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3. Quantitative and Qualitative Disclosures about Market Risks

31

Item 4. Disclosure Controls and Procedures

31

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

32

Item 1A. Risk Factors

32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3. Defaults Upon Senior Securities

32

Item 4. Mine Safety Disclosures

32

Item 5. Other Information

32

Item 6. Exhibits

33

SIGNATURES

34

EXHIBIT INDEX

35

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ORBCOMM Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value and share data)

(Unaudited)

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

21,158

 

 

$

27,077

 

Accounts receivable, net of allowance for doubtful accounts of $1,047

   and $1,233, respectively

 

31,205

 

 

 

29,816

 

Inventories

 

21,665

 

 

 

20,712

 

Prepaid expenses and other current assets

 

5,818

 

 

 

5,646

 

Restricted cash

 

1,000

 

 

 

1,000

 

Deferred income taxes

 

508

 

 

 

508

 

Total current assets

 

81,354

 

 

 

84,759

 

Satellite network and other equipment, net

 

235,182

 

 

 

229,970

 

Goodwill

 

112,425

 

 

 

112,425

 

Intangible assets, net

 

90,229

 

 

 

93,172

 

Other assets

 

7,116

 

 

 

6,573

 

Total assets

$

526,306

 

 

$

526,899

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

9,926

 

 

$

13,895

 

Accrued liabilities

 

29,458

 

 

 

24,186

 

Current portion of deferred revenue

 

7,373

 

 

 

7,652

 

Total current liabilities

 

46,757

 

 

 

45,733

 

Note payable - related party

 

1,298

 

 

 

1,241

 

Note payable

 

150,000

 

 

 

150,000

 

Deferred revenue, net of current portion

 

5,140

 

 

 

6,024

 

Deferred tax liabilities

 

18,643

 

 

 

18,440

 

Other liabilities

 

5,039

 

 

 

5,705

 

Total liabilities

 

226,877

 

 

 

227,143

 

Commitments and contingencies

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

ORBCOMM Inc. stockholders' equity

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, par value $0.001; 1,000,000 shares

   authorized; 35,173 and 35,759 shares issued and outstanding

 

351

 

 

 

357

 

Common stock, par value $0.001; 250,000,000 shares authorized; 70,875,217 and

   70,613,642 shares issued at March 31, 2016 and December 31, 2015

 

71

 

 

 

71

 

Additional paid-in capital

 

382,914

 

 

 

381,659

 

Accumulated other comprehensive income (loss)

 

(660

)

 

 

(1,174

)

Accumulated deficit

 

(83,520

)

 

 

(81,424

)

Less treasury stock, at cost; 29,990 shares at March 31, 2016 and

   December 31, 2015

 

(96

)

 

 

(96

)

Total ORBCOMM Inc. stockholders' equity

 

299,060

 

 

 

299,393

 

Noncontrolling interest

 

369

 

 

 

363

 

Total equity

 

299,429

 

 

 

299,756

 

Total liabilities and equity

$

526,306

 

 

$

526,899

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

 

3


 

ORBCOMM Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

Service revenues

 

$

26,914

 

 

$

23,774

 

Product sales

 

 

16,646

 

 

 

18,556

 

Total revenues

 

 

43,560

 

 

 

42,330

 

Cost of revenues, exclusive of depreciation and amortization shown below:

 

 

 

 

 

 

 

 

Cost of services

 

 

9,188

 

 

 

7,704

 

Cost of product sales

 

 

11,450

 

 

 

13,948

 

Gross profit

 

 

22,922

 

 

 

20,678

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

11,756

 

 

 

11,441

 

Product development

 

 

1,957

 

 

 

1,608

 

Depreciation and amortization

 

 

8,959

 

 

 

6,455

 

Acquisition - related and integration costs

 

 

364

 

 

 

2,451

 

Loss from operations

 

 

(114

)

 

 

(1,277

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

88

 

 

 

71

 

Other (expense) income

 

 

(190

)

 

 

188

 

Interest expense

 

 

(1,699

)

 

 

(1,242

)

Total other income (expense)

 

 

(1,801

)

 

 

(983

)

Loss before income taxes

 

 

(1,915

)

 

 

(2,260

)

Income taxes

 

 

162

 

 

 

477

 

Net loss

 

 

(2,077

)

 

 

(2,737

)

Less: Net income attributable to the noncontrolling interests

 

 

19

 

 

 

136

 

Net loss attributable to ORBCOMM Inc.

 

$

(2,096

)

 

$

(2,873

)

Net loss attributable to ORBCOMM Inc.

   common stockholders

 

$

(2,096

)

 

$

(2,882

)

Per share information-basic:

 

 

 

 

 

 

 

 

Net loss attributable to ORBCOMM Inc.

   common stockholders

 

$

(0.03

)

 

$

(0.04

)

Per share information-diluted:

 

 

 

 

 

 

 

 

Net loss attributable to ORBCOMM Inc.

   common stockholders

 

$

(0.03

)

 

$

(0.04

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

70,700

 

 

 

70,238

 

Diluted

 

 

70,700

 

 

 

70,238

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

 

 

4


 

ORBCOMM Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Net loss

 

$

(2,077

)

 

$

(2,737

)

Other comprehensive income (loss) - Foreign currency translation adjustments

 

 

501

 

 

 

(488

)

Other comprehensive income (loss)

 

 

501

 

 

 

(488

)

Comprehensive loss

 

 

(1,576

)

 

 

(3,225

)

Less: Comprehensive (income) attributable to noncontrolling interests

 

 

(6

)

 

 

(196

)

Comprehensive loss attributable to ORBCOMM Inc.

 

$

(1,582

)

 

$

(3,421

)

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

 

 

5


 

ORBCOMM Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(2,077

)

 

$

(2,737

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Change in allowance for doubtful accounts

 

(303

)

 

 

200

 

Change in the fair value of acquisition-related contingent consideration

 

100

 

 

 

(93

)

Amortization of the fair value adjustment related to warranty liabilities acquired through

   acquisitions

 

(8

)

 

 

(12

)

Amortization of deferred financing fees

 

155

 

 

 

110

 

Depreciation and amortization

 

8,959

 

 

 

6,455

 

Stock-based compensation

 

1,386

 

 

 

1,131

 

Foreign exchange loss (gain)

 

351

 

 

 

(532

)

Deferred income taxes

 

203

 

 

 

432

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

 

(1,096

)

 

 

10,946

 

Inventories

 

(864

)

 

 

(3,004

)

Prepaid expenses and other assets

 

(969

)

 

 

(1,351

)

Accounts payable and accrued liabilities

 

(877

)

 

 

(6,538

)

Deferred revenue

 

(1,178

)

 

 

(318

)

Other liabilities

 

(118

)

 

 

130

 

Net cash provided by operating activities

 

3,664

 

 

 

4,819

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisition of businesses, net of cash acquired

 

 

 

 

(133,707

)

Capital expenditures

 

(9,835

)

 

 

(4,171

)

Cash held for acquisition

 

 

 

 

123,000

 

Net cash used in investing activities

 

(9,835

)

 

 

(14,878

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds received from issuance of long-term debt

 

 

 

 

10,000

 

Cash paid for debt issuance costs

 

 

 

 

(842

)

Proceeds received from exercise of stock options

 

 

 

 

244

 

Principal payment of note payable

 

 

 

 

(10,000

)

Principal payments of capital leases

 

 

 

 

(24

)

Net cash used in financing activities

 

 

 

 

(622

)

Effect of exchange rate changes on cash and cash equivalents

 

252

 

 

 

(192

)

Net decrease in cash and cash equivalents

 

(5,919

)

 

 

(10,873

)

Beginning of period

 

27,077

 

 

 

91,565

 

End of period

$

21,158

 

 

$

80,692

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash paid for

 

 

 

 

 

 

 

Interest

$

2,198

 

 

$

2,332

 

Income taxes

$

138

 

 

$

364

 

Supplemental schedule of noncash investing and financing activities

 

 

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

Capital expenditures incurred not yet paid

$

3,777

 

 

$

3,186

 

Capital expenditure milestone payable incurred not yet paid

$

5,070

 

 

$

5,460

 

Stock-based compensation related to capital expenditures

$

66

 

 

$

28

 

Series A convertible preferred stock dividend paid in kind

$

 

 

$

9

 

Common stock issued as payment for MPUs

$

 

 

$

358

 

Acquisition-related contingent consideration

$

 

 

$

542

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

 

6


 

ORBCOMM Inc.

Condensed Consolidated Statements of Changes in Equity

Three Months Ended March 31, 2016 and 2015

(in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

Treasury stock

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

income

 

 

deficit

 

 

Shares

 

 

Amount

 

 

interests

 

 

equity

 

Balances, January 1, 2016

 

 

35,759

 

 

$

357

 

 

 

70,613,642

 

 

$

71

 

 

$

381,659

 

 

$

(1,174

)

 

$

(81,424

)

 

 

29,990

 

 

$

(96

)

 

$

363

 

 

$

299,756

 

Vesting of restricted stock units

 

 

 

 

 

 

 

 

250,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,249

 

Conversion of preferred stock to common stock

 

 

(586

)

 

 

(6

)

 

 

976

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of SARs

 

 

 

 

 

 

 

 

9,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,096

)

 

 

 

 

 

 

 

 

19

 

 

 

(2,077

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

514

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

501

 

Balances, March 31, 2016

 

 

35,173

 

 

$

351

 

 

 

70,875,217

 

 

$

71

 

 

$

382,914

 

 

$

(660

)

 

$

(83,520

)

 

 

29,990

 

 

$

(96

)

 

$

369

 

 

$

299,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 1, 2015

 

 

90,973

 

 

$

909

 

 

 

70,109,488

 

 

$

70

 

 

$

376,297

 

 

$

(583

)

 

$

(68,137

)

 

 

29,990

 

 

$

(96

)

 

$

49

 

 

$

308,509

 

Vesting of restricted stock units

 

 

 

 

 

 

 

 

227,382

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,082

 

Common stock issued as payment

   for MPUs

 

 

 

 

 

 

 

 

54,801

 

 

 

 

 

 

358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

358

 

Series A convertible preferred stock dividend

 

 

902

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

 

 

 

 

 

 

50,000

 

 

 

 

 

 

244

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

244

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,873

)

 

 

 

 

 

 

 

 

136

 

 

 

(2,737

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(548

)

 

 

 

 

 

 

 

 

 

 

 

60

 

 

 

(488

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, March 31, 2015

 

 

91,875

 

 

$

918

 

 

 

70,441,671

 

 

$

70

 

 

$

377,981

 

 

$

(1,131

)

 

$

(71,019

)

 

 

29,990

 

 

$

(96

)

 

$

245

 

 

$

306,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

 

7


 

ORBCOMM Inc.

Notes to the Condensed Consolidated Financial Statements

(All amounts in thousands except share amounts, per share amounts or unless otherwise noted)

 

 

1. Organization and Business

ORBCOMM Inc. (“ORBCOMM” or the “Company”), a Delaware corporation, is a global provider of Machine-to-Machine (“M2M”) and Internet of Things (“IoT”) solutions, including network connectivity, devices, device management and web reporting applications. The Company’s M2M and IoT products and services are designed to track, monitor, control and enhance security for a variety of assets, such as trailers, trucks, rail cars, sea containers, generators, fluid tanks, marine vessels, diesel or electric powered generators (“gensets”), oil and gas wells, pipeline monitoring equipment, irrigation control systems and utility meters, in industries for transportation & distribution, heavy equipment, oil & gas, maritime and government. Additionally, the Company provides satellite Automatic Identification Service (“AIS”) data services to assist in vessel navigation and to improve maritime safety for government and commercial customers worldwide. The Company provides these services using multiple network platforms, including a constellation of 41 owned low-Earth orbit (“LEO”) satellites, 11 of which were placed into service on March 1, 2016, and accompanying ground infrastructure, as well as terrestrial-based cellular communication services obtained through reseller agreements with major cellular (Tier One) wireless providers. The Company also offers customer solutions utilizing additional satellite network service options that the Company obtains through service agreements entered into with multiple mobile satellite providers. The Company’s satellite-based customer solution offerings uses small, low power, mobile satellite subscriber communicators for remote asset connectivity, and the Company’s terrestrial-based solutions utilizes cellular data modems with subscriber identity modules (“SIMS”). The Company also resells service using the two-way Inmarsat satellite network to provide higher bandwidth, low-latency satellite products and services, leveraging the Company’s IsatDataPro (“IDP”) technology. The Company’s customer solutions provide access to data gathered over these systems via connections to other public or private networks, including the Internet. The Company provides what it believes is the most versatile, leading-edge M2M and IoT solutions to enable its customers to run their business more efficiently.

 

 

2. Summary of Significant Accounting Principles

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 (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The accompanying financial statements are unaudited and, in the opinion of management, include all adjustments (including normal recurring accruals) necessary for a fair presentation of the consolidated financial position, results of operations, comprehensive income 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

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 Company’s proportionate share of the net income or loss of such investee is reflected in the Company’s condensed consolidated results of operations. When the Company does not exercise significant influence over the investee, the investment is accounted for under the cost method.

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, 2016 and December 31, 2015. The Company has no guarantees or other funding obligations to those entities. The Company had no equity in or losses of those investees for the three months ended March 31, 2016 and 2015.

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Acquisition-related and Integration Costs

Acquisition-related and integration costs are expensed as incurred and are presented separately on the condensed consolidated statement of operations. These costs may include professional services expenses and identifiable integration costs directly relating to acquisitions.

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 its non-financial assets for impairment and any resulting asset impairment would require that a non-financial asset be recorded at the fair value. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurement Disclosure,” 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 Company’s financial instruments, including cash, accounts receivable and accounts payable approximated their fair value due to the short-term nature of these items. The carrying value of the Secured Credit Facilities, as defined below, approximated its fair value as the debt is at variable interest rates. The fair value of the Note-payable related party is deminimus.

Concentration of Credit Risk

The Company’s 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. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts are past due, the customer’s 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.

There were no customers with revenues greater than 10% of the Company’s consolidated total revenues for the three months ended March 31, 2016 and 2015.

 

One customer, Caterpillar Inc., comprised 10.7% and 11.6% of the Company’s consolidated accounts receivable as of March 31, 2016 and December 31, 2015, respectively.

As of March 31, 2016, the Company did not maintain in-orbit insurance coverage for its ORBCOMM Generation 1 (“OG1”) satellites to address the risk of potential systemic anomalies, failures or catastrophic events affecting its satellite constellation. The Company maintains in-orbit insurance coverage for its ORBCOMM Generation 2 (“OG2”) satellites, as described in “Note 15 – Commitments and Contingencies.”

Inventories

Inventories are stated at the lower of cost or market, determined on a first-in, first-out basis. At March 31, 2016 and December 31, 2015, inventory consisted primarily of $18,005 and $16,912, respectively, of finished goods and purchased parts to be utilized by its contract manufacturer and $3,660 and $3,800, respectively, of raw materials, net of inventory obsolescence. The Company reviews inventory quantities on hand and evaluates the realizability of inventories and adjusts the carrying value as necessary based on forecasted product demand. A provision is made for potential losses on slow moving and obsolete inventories when identified.

Valuation of Long-lived Assets

Property and equipment and other long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company measures recoverability by comparing the carrying amount to the projected cash flows the assets are expected to generate. An impairment loss is recognized to the extent that carrying value exceeds fair value.

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Our satellite constellation and related assets are evaluated as a single asset group whenever facts or circumstances indicate that the carrying value may not be recoverable. If indicators of impairment are identified, recoverability of long-lived assets is measured by comparing their carrying amount to the projected cash flows the assets are expected to generate.

Determining whether an impairment has occurred typically requires the use of significant estimates and assumptions, including the allocation of cash flows to assets or asset groups and, if required, an estimate of fair value for those assets or asset groups.

If a satellite were to fail while in-orbit, the resulting loss would be charged to expense in the period it is determined that the satellite is not recoverable. The amount of any such loss would be reduced to the extent of insurance proceeds estimated to be received. Refer to “Note 6 – Satellite Network and Other Equipment” for more information.

Warranty Costs

The Company accrues for one-year warranty coverage on product sales estimated at the time of sale based on historical costs to repair or replace products for customers compared to historical product revenues. The warranty accrual is included in accrued liabilities on the condensed consolidated balance sheet. Refer to “Note 8 – Accrued Liabilities” for more information.

Recent Accounting Pronouncements

In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09 “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”), which amends FASB ASC Topic 718 “Compensation – Stock Compensation” and is effective for the fiscal years beginning after December 15, 2016. ASC 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements.  The adoption of this standard, which will be applied prospectively, is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

3. Acquisitions

WAM Technologies, LLC

On October 6, 2015, pursuant to an Asset Purchase Agreement entered into by a wholly owned subsidiary of the Company, WAM Technologies, LLC (“WAM”) and the individual owners of WAM (the “Sellers”), the Company completed the acquisition of substantially all of the assets of WAM for total consideration of $8,500, subject to net working capital adjustments, of which $1,100 was deposited in escrow in connection with certain indemnification obligations (the “WAM Acquisition”).

Preliminary Estimated Purchase Price Allocation

The WAM Acquisition has been accounted for using the acquisition method of accounting in accordance with FASB ASC Topic 805 “Business Combinations.” This method requires that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The excess of the purchase price over the net assets was recorded as goodwill. The preliminary allocation of the purchase price was based upon a preliminary valuation and the estimates and assumptions are subject to change during the one year measurement period. The total consideration for the WAM Acquisition was $8,500 in a debt-free, cash-free transaction. The preliminary estimated purchase price allocation for the WAM Acquisition is as follows: 

 

 

Amount

 

Accounts receivable

$

570

 

Property, plant and equipment

 

122

 

Intangible assets

 

4,810

 

Total identifiable assets acquired

 

5,502

 

Accounts payable and accrued expenses

 

202

 

Deferred revenues

 

7,326

 

Total liabilities assumed

 

7,528

 

Net identifiable assets acquired

 

(2,026

)

Goodwill