SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
June 30, 1995
ORBITAL SCIENCES CORPORATION
Commission file number 0-18287
Delaware 06-1209561
(State of Incorporation) (IRS Identification
number)
21700 Atlantic Boulevard
Dulles, Virginia 20166 (703) 406-5000
(Address of principal (Telephone number)
executive offices)
The registrant has (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, and (2) has been subject to such filing
requirements for the past 90 days.
As of August 10, 1995, 22,662,618 shares of the
registrant's common stock were outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in
thousands, except share data)
A S S E T S
June 30, December 31,
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $18,377 $21,156
Short-term investments, at market 21,440 12,426
Receivables, net 83,376 94,236
Inventories 28,320 26,098
Deferred income taxes and other assets 8,145 5,914
Total current assets 159,658 159,830
PROPERTY, PLANT AND EQUIPMENT, at cost, less
accumulated depreciation and amortization of
$30,366 and $33,432, respectively 101,882 102,061
INVESTMENTS IN AFFILIATES 64,093 54,721
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED,
less accumulated amortization of $11,426 and 67,464 68,878
$10,042, respectively
DEFERRED INCOME TAXES AND OTHER ASSETS 15,737 17,238
TOTAL ASSETS $408,834 $402,728
CURRENT LIABILITIES:
Short-term borrowings and current portion of
long-term obligations $11,752 $28,160
Accounts payable 13,823 14,961
Accrued expenses 26,381 37,439
Payable to subcontractors 3,259 13,695
Deferred revenue 11,557 13,272
Total current liabilities 66,772 107,527
LONG-TERM OBLIGATIONS, net of current portion 95,203 81,163
DEFERRED INCOME TAXES AND OTHER LIABILITIES 11,245 11,992
TOTAL LIABILITIES 173,220 200,682
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01; 10,000,000
shares authorized, no shares issued or outstanding - -
Common stock, par value $.01; 40,000,000 shares
authorized, 22,636,351 and 20,170,196 shares
outstanding, after deducting 15,735 shares
held in treasury 227 202
Additional paid-in capital 237,549 201,328
Unrealized gains (losses) on short-term
investments (221) (462)
Retained earnings (losses) (1,941) 978
Total stockholders' equity 235,614 202,046
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $408,834 $402,728
See accompanying notes to condensed consolidated financial statements
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; in thousands, except share data)
Three Months
Ended
June 30,
1995 1994
REVENUES $64,589 $48,365
COSTS OF GOODS SOLD 47,806 37,594
GROSS PROFIT 16,783 10,771
RESEARCH AND DEVELOPMENT EXPENSES 4,932 2,808
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,497 7,215
AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 740 385
INCOME (LOSS) FROM OPERATIONS (386) 363
NET INTEREST INCOME (EXPENSE) (1,119) 420
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (65) (121)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (1,570) 662
PROVISION (BENEFIT) FOR INCOME TAXES (843) 101
NET INCOME (LOSS) ($727) $561
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE ($0.03) $0.03
SHARES USED IN COMPUTING NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE 21,220,824 17,943,673
NET INCOME PER COMMON SHARE, ASSUMING FULL DILUTION ($0.03) $0.03
SHARES USED IN COMPUTING NET INCOME
PER COMMON SHARE, ASSUMING FULL DILUTION 25,116,476 22,048,014
See accompanying notes to condensed consolidated financial statements
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; in thousands, except share data)
Six Months Ended
June 30,
1995 1994
REVENUES $132,930 $98,675
COSTS OF GOODS SOLD 97,293 73,623
GROSS PROFIT 35,637 25,052
RESEARCH AND DEVELOPMENT EXPENSES 8,764 6,506
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 22,707 14,472
AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 1,400 808
INCOME (LOSS) FROM OPERATIONS 2,766 3,266
NET INTEREST INCOME (EXPENSE) (1,887) 931
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES 362 (544)
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,241 3,653
PROVISION FOR INCOME TAXES - 917
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 1,241 2,736
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (4,160) -
NET INCOME (LOSS) ($2,919) $2,736
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Income Before Cumulative Effect of Accounting Change $0.06 $0.15
Cumulative Effect of Accounting Change ($0.20) -
($0.14) $0.15
SHARES USED IN COMPUTING NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE 20,954,359 17,904,561
NET INCOME PER COMMON SHARE, ASSUMING FULL DILUTION
Income Before Cumulative Effect of Accounting Change $0.06 $0.12
Cumulative Effect of Accounting Change ($0.20) -
($0.14) $0.12
SHARES USED IN COMPUTING NET INCOME
PER COMMON SHARE, ASSUMING FULL DILUTION 24,863,449 22,011,237
See accompanying notes to condensed consolidated financial statements
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
Six Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($2,919) $2,735
Adjustments to reconcile net income to net cash
provided by
(used in)operating activities:
Depreciation and amortization expense 9,620 4,978
Equity in (earnings) losses of affiliates 361 543
Cumulative effect of accounting change 4,160 -
Change in assets and liabilities:
(Increase) decrease in receivables 10,860 402
(Increase) decrease in inventory (2,222) 727
(Increase) decrease in other current assets (2,467) (629)
(Increase) decrease in deposits and other assets 1,236 3,043
Increase (decrease) in payables and accrued expenses (24,132) (9,660)
Increase (decrease) in deferred revenue (2,216) (11,904)
Increase (decrease) in deferred income taxes and other (747) (428)
Net cash provided by (used in) operating activities (8,466) (10,193)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,854) (10,287)
Proceeds from sales of fixed assets 125 -
Purchase of investment securities (13,083) (8,916)
Sale of investment securities 4,310 4,990
Investments in affiliates (9,689) (5,125)
Net cash used in investing activities (28,191) (19,338)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (16,435) (2,667)
Principal payments on long-term obligations (2,933) (751)
Proceeds from issuance of long-term obligations 20,000 -
Net proceeds from issuances of common stock 33,246 1,161
Adjustment to recast pooled company's year end - (1,138)
Net cash provided by (used in) financing activities 33,878 (3,395)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,779) (32,926)
CASH AND CASH EQUIVALENTS, beginning of period 21,156 49,458
CASH AND CASH EQUIVALENTS, end of period $18,377 $16,532
See accompanying notes to condensed consolidated financial statements
ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(Unaudited)
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited
interim financial information reflects all adjustments,
consisting of normal recurring accruals, necessary for a fair
presentation thereof. Certain information and footnote
disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to instructions, rules and
regulations prescribed by the Securities and Exchange Commission.
Although the Company believes that the disclosures provided are
adequate to make the information presented not misleading, these
unaudited interim condensed consolidated financial statements
should be read in conjunction with the audited consolidated
financial statements and the footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1994. Operating results for the three- and six-month periods
ended June 30, 1995 and 1994 are not necessarily indicative of
the results expected for the full year.
Orbital Sciences Corporation is hereafter referred to as
"Orbital" or the "Company."
(1) The Financial Accounting Standards Board recently
issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of" ("SFAS
121"), which (i) requires that long-lived assets "to be
held and used" be reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable,
(ii) requires that long-lived assets "to be disposed
of" be reported at the lower of carrying amount or fair
value less cost to sell, and (iii) provides guidelines
and procedures for measuring an impairment loss that
are significantly different from existing guidelines
and procedures.
The Company adopted the provisions of SFAS 121 during
the quarter ended June 30, 1995. As a result, as of
January 1, 1995 Orbital recorded a cumulative
adjustment for a change in accounting principle of
approximately $4.2 million related to the impairment in
the carrying amount of certain assets to be disposed of
that support its orbit transfer vehicle product line.
(2) Inventories
Inventories consist of components inventory, work-in-
process inventory and finished goods inventory and are
generally stated at the lower of cost or net realizable
value on a first-in, first-out or specific
identification basis.
Components inventory consists primarily of components
and raw materials purchased to support future
production efforts. Work-in-process inventory consists
primarily of (i) costs incurred under U.S. Government
fixed-price contracts accounted for using the
percentage of completion method of accounting applied
on a units of delivery basis and (ii) partially
assembled commercial products, and generally includes
direct production costs and certain allocated indirect
costs (including an allocation of general and
administrative costs). Work-in-process inventory has
been reduced by contractual progress payments received.
Finished goods inventory consists of fully assembled
commercial products awaiting shipment.
(3) Investments in Affiliates
The Company's majority-owned subsidiary, Orbital
Communications Corporation ("OCC"), and Teleglobe
Mobile Partners, an affiliate of Teleglobe Inc., formed
a partnership, ORBCOMM Development Partners, L.P.
("ORBCOMM Development"), for the two-phased design,
development, construction, integration, test and
operation of a 26-satellite low-Earth orbit
communications system (the "ORBCOMM System"). Pursuant
to the terms of the partnership agreement, OCC and
Teleglobe Mobile Partners are each 50% general partners
in ORBCOMM Development. Teleglobe Mobile has an option
to invest an additional $70,000,000 in the next phase
of the ORBCOMM System implementation.
Orbital and OCC are the primary suppliers of
communications satellites, launch vehicles, ground
tracking systems, system software and integration
services to ORBCOMM Development, and successfully
launched the first two ORBCOMM System satellites in
April 1995. In July 1995, Orbital successfully
completed on-orbit functional testing of the
satellites. With the testing complete, ORBCOMM can
begin conducting communications testing with customers
in actual operating conditions.
Based on its current assessment of the overall business
prospects of ORBCOMM Development and the ORBCOMM
System, the Company currently believes its investment
in ORBCOMM Development of approximately $64,000,000 is
fully recoverable. If, in the future, implementation
of the ORBCOMM System is significantly delayed,
significantly restricted or abandoned, the Company may
be required to expense part or all of its investment.
(4) Equity in Earnings (Losses) of Affiliates
During the six months ended June 30, 1995 and for the
years ended December 31, 1994 and 1993, Orbital
recorded contract revenues on sales to ORBCOMM
Development of approximately $12,000,000, $30,000,000
and $38,000,000, respectively, and eliminated as equity
in earnings of affiliates 50% of its profits on those
sales. At June 30, 1995, Orbital had approximately
$7,900,000 in unbilled receivables from ORBCOMM
Development.
During the construction phase of the ORBCOMM System and
prior to the commencement of planned operations,
ORBCOMM Development is capitalizing substantially all
construction-related costs and is expensing as incurred
all selling, general and administrative costs as period
costs.
(5) Long-Term Unsecured Debt
In June 1995, the Company entered into a $20 million
fixed-rate unsecured debt financing arrangement with a
private insurance company. The debt has a six-year
term and bears interest at 10 1/2% per annum.
(6) Common Stock and Income Per Share
In June 1995, the Company completed a private placement
of two million shares of its Common Stock, receiving
net proceeds of approximately $32 million. The
Company's shares were placed with various offshore
institutional investors and the issuance was exempt
from public registration pursuant to Regulation S of
the Securities Act of 1933, as amended.
Income per common and common equivalent share is
calculated using the weighted average number of common
and common equivalent shares, to the extent dilutive,
outstanding during the periods. Income per common
share assuming full dilution is calculated using the
weighted average number of common and common equivalent
shares outstanding during the periods plus the effects
of an assumed conversion of the Company's 6 3/4%
convertible subordinated debentures, after giving
effect to all net income adjustments that would result
from the assumed conversion. Any reduction of less
than three percent in the aggregate has not been
considered dilutive in the calculation and presentation
of income per common share assuming full dilution.
(7) Income Taxes
The Company has recorded its interim income tax
provision based on estimates of the Company's effective
tax rate expected to be applicable for the full fiscal
year. Estimated effective rates recorded during
interim periods may be periodically revised, if
necessary, to reflect current estimates.
(8) Hercules Incorporated
In November 1988, Orbital and Hercules Incorporated
("Hercules") entered into an joint venture agreement
relating to the development and production of the
Pegasus space launch vehicle (the "Joint Venture
Agreement"). In 1994, Alliant Techsystems, Inc.
("Alliant") acquired the assets of Hercules Aerospace
Company (a wholly owned subsidiary of Hercules) and, in
connection therewith, assumed the rights and
responsibilities of Hercules with respect to the Joint
Venture Agreement. During the second quarter of 1995,
Orbital and Alliant replaced the Joint Venture
Agreement with a joint teaming agreement to provide for
the continuation of joint performance on the Pegasus
and Taurus space launch vehicle programs (the "Joint
Teaming Agreement"). The Joint Teaming Agreement
provides, among other things, that Orbital will perform
as the system prime contractor for all present and
future Pegasus and Taurus missions and Alliant will
perform as a solid rocket motor and payload fairing
subcontractor to Orbital on the Pegasus program and as
a solid rocket motor subcontractor to Orbital on the
Taurus program. As a subcontractor, Alliant will
receive firm-fixed prices for its subcontracts and will
no longer share in contract profits and losses, but
will share in the costs and benefits associated
with certain specified portions of current
contracts. The Joint Teaming Agreement will continue
through December 31, 2005, unless terminated earlier by
mutual agreement.
Orbital and Alliant have also agreed to release
all present and future claims related to the Joint
Venture Agreement, including (i) a final dismissal with
prejudice of the January 1994 lawsuit filed by Hercules
against Orbital alleging breaches of certain
representations and warranties by Orbital in the 1988
stock purchase agreement between Hercules and Orbital,
and (ii) a final dismissal with prejudice of the July
1994 lawsuit filed by Hercules against Orbital
alleging breach of fiduciary duty and breach of
contract in the determination of Orbital's recoverable
costs pursuant to the Joint Venture Agreement.
(9) Reclassifications
Certain reclassifications have been made to the 1994
condensed consolidated financial statements to conform
to the 1995 condensed consolidated financial statement
presentation. The December 1994 acquisition of
Magellan Corporation was recorded using the pooling of
interests method of accounting for business
combinations and, accordingly, Orbital's 1994
historical financial statements have been restated to
reflect this transaction.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE- AND SIX-MONTH PERIODS ENDED
JUNE 30, 1995 AND 1994
The ORBCOMM System. The Company's majority-owned subsidiary,
Orbital Communications Corporation ("OCC"), and Teleglobe Mobile
Partners, an affiliate of Teleglobe Inc., formed a partnership,
ORBCOMM Development Partners, L.P. ("ORBCOMM Development"), for
the two-phased design, development, construction, integration,
test and operation of a 26-satellite low-Earth orbit
communications system (the "ORBCOMM System"). Pursuant to the
terms of the partnership agreement, OCC and Teleglobe Mobile
Partners are each 50% general partners in ORBCOMM Development.
Teleglobe Mobile has an option to invest an additional
$70,000,000 in the next phase of the ORBCOMM System
implementation, and the parties are currently in discussions
concerning the exercise of such option.
Orbital and OCC are the primary suppliers of communications
satellites, launch vehicles, ground tracking systems, system
software and integration services to ORBCOMM Development, and
successfully launched the first two ORBCOMM System satellites in
April 1995. In July 1995, Orbital successfully completed on-
orbit functional testing of the satellites. With the testing
complete, ORBCOMM can begin conducting communications testing
with customers in actual operating conditions.
Based on its current assessment of the overall business prospects
of ORBCOMM Development and the ORBCOMM System, the Company
currently believes its investment in ORBCOMM Development of
approximately $64,000,000 is fully recoverable. If, in the
future, implementation of the ORBCOMM System is significantly
delayed, significantly restricted or abandoned, the Company may
be required to expense part or all of its investment.
Adoption of New Accounting Standard. The Financial Accounting
Standards Board recently issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121")
which (i) requires that long-lived assets "to be held and used"
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable, (ii) requires that long-lived assets "to be
disposed of" be reported at the lower of carrying amount or fair
value less cost to sell, and (iii) provides guidelines and
procedures for measuring an impairment loss that are
significantly different from existing guidelines and procedures.
The Company adopted the provisions of SFAS 121 during the quarter
ended June 30, 1995. As a result, as of January 1, 1995 Orbital
recorded a cumulative adjustment for a change in accounting
principle of approximately $4.2 million related to the impairment
in the carrying amount of certain assets to be disposed of that
support its orbit transfer vehicle product line.
Revenues. Orbital's revenues for the three-month periods ended
June 30, 1995 and 1994 were $64,589,000 and $48,365,000,
respectively. The Company's revenues for the six-month periods
ended June 30, 1995 and 1994 were $132,930,000 and $98,675,000,
respectively.
Revenues from the Company's space launch vehicle products
decreased to $5,307,000 during the 1995 three-month period from
$14,152,000 during the comparable 1994 period. Space launch
vehicle revenues were $11,965,000 and $29,762,000 for the six-
month periods ended June 30, 1995 and 1994, respectively. The
significant decrease in revenues during the periods is
attributable primarily to the continuing effects of production
delays caused by the Company's failed first launch of its new
Pegasus XL launch vehicle in June 1994, and was impacted to some
extent by the failed second launch of the Pegasus XL in June
1995. Orbital expects revenues during the rest of 1995 to be less
than 1994 as a result of the ongoing failure review process and
resulting schedule delays. Sales of space launch vehicles to
ORBCOMM Development were $1,360,000 and $2,074,000 for the three-
month periods ended June 30, 1995 and 1994, respectively, and
were $1,452,000 and $4,150,000 for the 1995 and 1994 six-month
periods, respectively.
Revenues from suborbital launch vehicle products increased to
$5,772,000 in the 1995 three-month period as compared to
$4,529,000 in the 1994 period. Suborbital revenues were
$11,492,000 and $11,626,000 for the six-month periods ended June
30, 1995 and 1994, respectively. While suborbital revenues have
decreased significantly during the past few years as U.S.
Government defense spending has been reduced, the Company expects
1995 revenues to remain approximately consistent with, or to
increase slightly from, revenue levels achieved in 1994.
For the three months ended June 30, 1995, spacecraft systems
revenues increased to $14,382,000 from $4,065,000 in the 1994
period, and revenues for the six-month period ended June 30, 1995
were $28,901,000 as compared to $11,043,000 in the same period in
1994. The increase in spacecraft system sales is primarily as a
result of additional revenues generated from the Company's
Germantown operations, acquired in August 1994 (the "August 1994
Acquisition"). The 1995 and 1994 three-month periods included
$1,535,000 and $1,414,000, respectively, in sales of MicroStar
spacecraft to ORBCOMM Development and the six-month periods
included $3,395,000 and $4,496,000 in such sales, respectively.
Revenues generated from sales of space sensors and instruments of
$3,062,000 during the 1995 quarter decreased from the comparable
1994 quarter sales of $5,386,000. Space sensors and instruments
sales were $6,547,000 and $8,773,000 for the 1995 and 1994 six-
month periods, respectively, and are expected to remain lower
than 1994 levels throughout 1995.
Revenues from defense electronics and avionics products were
approximately $14,327,000 for the three-month period ended June
30, 1995 as compared to $2,639,000 in the 1994 period. Defense
electronics and avionics products sales were $29,790,000 and
$5,860,000 in the 1995 and 1994 six-month periods, respectively.
The Company acquired these products as part of the August 1994
Acquisition and the September 1993 acquisition of the Applied
Science Operation of The Perkin-Elmer Corporation.
Revenues from sales of navigation and positioning products
increased to $12,573,000 for the three months ended June 30, 1995
as compared to $9,631,000 for the 1994 period, and to $26,459,000
for the six months ended June 30, 1995 as compared to $18,553,000
for the 1994 period, primarily due to increased unit sales
offset, in part, by lower unit prices for GPS navigators.
Revenues from the Company's newly established Advanced Projects
Group were $5,840,000 during the second quarter of 1995 (and
$9,404,000 for the first half of 1995) as a result of work
performed under a cooperative agreement with NASA awarded earlier
in 1995 for the development of a new small reusable launch
vehicle and work under a contract with the U.S. Government's
Advanced Research Projects Agency, completed in April 1995, for
the study of a new advanced unmanned, long-duration, high-flying
aircraft.
Gross Profit. Gross profit depends on a number of factors,
including the Company's mix of contract types and costs incurred
thereon in relation to estimated costs. The Company's gross
profit for the three-month periods ended June 30, 1995 and 1994
were $16,783,000 and $10,771,000, respectively. Gross profit for
the six-month periods ended June 30, 1995 and 1994 was
$35,637,000 and $25,052,000, respectively. Gross profit margin
as a percentage of sales was approximately 26.0% and 22.3% for
the three-month periods ended June 30, 1995 and 1994,
respectively, and 26.8% and 25.4%, for the six-month periods
ended June 30, 1995 and 1994, respectively. The increased gross
profit margin during 1995 was primarily attributable to increased
margins for spacecraft systems and navigation and positioning
products, offset in part by cost increases on the Pegasus program
as a result of the Pegasus XL failures in June of 1994 and 1995.
The Company believes that its gross profit margin for the
remainder of 1995 will increase slightly as compared to the first
half of 1995.
Research and Development Expenses. Research and development
expenses represent Orbital's self-funded product development
activities, and exclude direct customer-funded development.
Research and development expenses during the three-month periods
ended June 30, 1995 and 1994 were $4,932,000 and $2,808,000,
respectively. Research and development expenses for the 1995 and
1994 six-month periods were $8,764,000 and $6,506,000,
respectively. Research and development expenses in 1995 relate
primarily to the development of new or improved navigation
products and development efforts on the Company's Pegasus XL
program, and include estimated expenses related to the recent
Pegasus XL failure. The Company expects its research and
development expenditures for the rest of 1995 to be consistent
with second half 1994 expenditures.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses include the costs of marketing,
advertising, promotional and other selling expenses as well as
the costs of the finance, administrative and general management
functions of the Company. Selling, general and administrative
expenses for the three months ended June 30, 1995 and 1994 were
$11,497,000 (or 17.8% of revenues) and $7,215,000 (or 14.9% of
revenues), respectively. Selling, general and administrative
expenses for the six months ended June 30, 1995 and 1994 were
$22,707,000 (or 17.1% of revenues) and $14,472,000 (or 14.7% of
revenues), respectively. The increase in selling, general and
administrative expenses during 1995 as compared to 1994 was
primarily attributable to expanded marketing efforts related to
the Company's ORBCOMM project ($3,304,000 of expenses in 1995 as
compared to $1,714,000 in 1994) and to various remote sensing
systems ($408,000 of expenses in 1995 with no corresponding
expenses in 1994), and to the August 1994 Acquisition
($12,188,000 of expenses in 1995). The Company expects selling,
general and administrative expenses as a percentage of revenues
during the remainder of 1995 to be less than or approximately
equal to those in the first half of 1995.
Interest Income and Interest Expense. Net interest expense was
$1,119,000 for the three months ended June 30, 1995 as compared
to net interest income of $420,000 during the 1994 quarter. Net
interest expense for the 1995 six-month period was $1,887,000 as
compared to $931,000 of net interest income for the 1994 six-
month period. Interest income for the periods reflects interest
earnings on short-term investments. Interest expense is
primarily for outstanding amounts on Orbital's revolving credit
facility, on the Company's public debentures and, during 1995, on
acquisition debt incurred in connection with the August 1994
Acquisition. Interest expense has been reduced by capitalized
interest of $1,330,000 and $1,275,000 for the 1995 and 1994 three-
month periods, respectively, and by $2,533,000 and $2,517,000 for
the 1995 and 1994 six-month periods, respectively.
Equity in Earnings (Losses) of Affiliates. Equity in earnings
(losses) of affiliates for the three-month periods ended June 30,
1995 and 1994 of ($65,000) and ($121,000), respectively, and for
the six-month periods ended June 30, 1995 of $362,000 and
($544,000), respectively, represents elimination of 50% of the
profits on sales to ORBCOMM Development, as well as the Company's
pro rata share of ORBCOMM Development's current period earnings
and losses. During the construction phase of the project and
prior to the commencement of planned operations, ORBCOMM
Development is capitalizing substantially all construction-
related costs and is expensing as incurred all selling, general
and administrative costs as period costs.
Provision for Income Taxes. A provision for income taxes was not
necessary for the six months ended June 30, 1995 given the
Company's reported operating losses. The Company recorded an
income tax provision of $101,000 and $917,000 for the three- and
six-month periods ended June 30, 1994, respectively. The Company
records its interim income tax provisions based on estimates of
the Company's effective tax rate expected to be applicable for
the full fiscal year. Estimated effective rates recorded during
interim periods may be periodically revised, if necessary, to
reflect current estimates.
At December 31, 1994, Orbital had approximately $50,000,000 and
$900,000 of net operating loss and tax credit carryforwards,
respectively, which are available to reduce future income tax
obligations, subject to certain annual limitations and other
restrictions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's growth has required substantial capital to fund
both an expanding business base and significant research and
development and capital investment expenditures. Additionally,
the Company has historically made strategic acquisitions of
businesses and routinely evaluates potential acquisition
candidates. The Company expects to continue to pursue potential
acquisitions that it believes would augment its marketing,
technical, manufacturing or financial capabilities. The Company
has funded these requirements to date, and expects to fund its
requirements in the future, through cash generated by operations,
working capital loan facilities, asset-based financings, joint
venture arrangements, and private and public equity and debt
offerings.
During the quarter ended June 30, 1995, Orbital entered into a
$20 million fixed-rate unsecured debt financing arrangement with
a private insurance company. The debt has a six-year term and
bears interest at 10 1/2% per annum. The debt arrangement
restricts the payment of dividends and contains certain covenants
with respect to the Company's working capital, fixed charge
ratio, leverage ratio and tangible net worth. Additionally, in
June 1995, the Company completed a private placement of two
million shares of its Common Stock, receiving net proceeds of
approximately $32 million. The Company's shares were placed with
various offshore institutional investors and the issuance was
exempt from public registration pursuant to Regulation S of the
Securities Act of 1933, as amended. In August 1994, Orbital
issued secured notes totaling approximately $24,200,000 to eight
financial institutions, to support the August 1994 Acquisition.
The notes have an average interest rate of approximately 8 3/4%
and generally mature on a monthly basis over a three- to five-
year period.
Cash, cash equivalents and short-term investments were
$39,817,000 at June 30, 1995, and the Company had short-term and
long-term debt obligations outstanding of approximately
$106,955,000. The outstanding debt relates primarily to advances
under the Company's line of credit facility, secured notes issued
in connection with the August 1994 Acquisition, unsecured notes
issued in 1995, fixed asset financings and the Company's public
debentures. During the quarter ended June 30, 1995, Orbital
converted, at a premium, approximately $3,000,000 of its
convertible debentures at the request of certain debenture
holders, issuing approximately 209,000 shares of Common Stock.
The Company's revolving credit facility provides for total
borrowings from an international syndicate of six banks of up to
$65,000,000, subject to a defined borrowing base comprised of
certain contract receivables. Approximately $6,113,000 of
borrowings were outstanding under the facility at June 30, 1995,
against an available facility limit of approximately $25,491,000.
At June 30, 1995, the average interest rate on outstanding
borrowings under this facility was approximately 8.2%.
Borrowings are secured by contract receivables and certain other
assets. The facility restricts the payment of dividends and
contains certain covenants with respect to the Company's working
capital, fixed charge ratio, leverage ratio and tangible net
worth, and expires in September 1997.
The Company's operations used net cash of approximately
$8,466,000 in the six months ended June 30, 1995. The Company
also incurred approximately $9,689,000 of investment related to
the ORBCOMM System and $9,854,000 in capital expenditures related
primarily to spacecraft production and test equipment.
Orbital's capital expenditures for 1995 are expected to
approximate 1994 and 1993 levels, including continued investments
in space launch vehicle and spacecraft production, test, and
airborne and ground support equipment. Additionally, Orbital
expects to invest up to $10,000,000 in various ORBIMAGE remote
sensing projects. Assuming that Teleglobe Mobile exercises its
option to invest in the next phase of the ORBCOMM System, Orbital
intends to invest approximately $5,000,000 in the ORBCOMM System
over the next two years. In the event Teleglobe Mobile chooses
not to exercise its option to invest in the next phase of the
project and Orbital desires to proceed, additional investment by
Orbital or that of other potential investors could exceed
$80,000,000 over the next two years.
Orbital expects that its 1995 capital needs for its existing
operations, including its planned $5,000,000 investment in the
ORBCOMM System, will in part be provided by working capital, cash
flows from operations, credit facilities, asset-based financings,
customer financings and operating lease arrangements.
Additionally, as part of a joint venture to be partially funded
by NASA and Rockwell International Corporation, Orbital has
committed to invest at least $67,500,000 in the development of a
new small reusable launch vehicle, which investment will be
required over the next four years, including approximately
$5,000,000 in 1995. Orbital believes that it may require
additional equity and/or debt financing to fund fully its
currently planned operations and capital requirements, to meet
its potential increased investment in the ORBCOMM System and to
meet its investment requirements for the new launch vehicle.
On July 31, 1995, Orbital signed a letter of intent to acquire
MacDonald, Dettwiler and Associates Ltd. ("MDA"), a leading
supplier of commercial remote sensing ground stations, located in
Vancouver, British Columbia. During its recently completed
fiscal year ended March 31, 1995, MDA reported net income of
approximately US $5,500,000 on sales of approximately US
$80,000,000. Pursuant to the terms of the preliminary agreement,
Orbital will exchange approximately 3,600,000 shares of its
Common Stock for all of MDA's outstanding common stock. The
transaction is to be accounted for as a pooling of interests
combination and is expected to be completed later in 1995.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) The annual meeting of stockholders
of the Company was held on April 27, 1995.
(b) Not applicable.
(c) (i) Election of five directors, each
serving for a three-year term:
Fred C. Alcorn
Votes: For: 16,447,193 Against: 0
Withheld: 102,969 Abstain: 0
Broker Non-Votes: 0
Lennard A. Fisk
Votes: For: 16,443,042 Against: 0
Withheld: 107,120 Abstain: 0
Broker Non-Votes: 0
Jack L. Kerrebrock
Votes: For: 16,447,643 Against: 0
Withheld: 102,519 Abstain: 0
Broker Non-Votes: 0
David W. Thompson
Votes: For: 16,451,464 Against: 0
Withheld: 98,698 Abstain: 0
Broker Non-Votes: 0
James R. Thompson
Votes: For: 16,451,363 Abstain: 0
Withheld: 98,799 Abstain: 0
Broker Non-Votes: 0
(ii) Proposal to approve the increase in the
number of shares of common stock authorized for
issuance under the 1990 Stock Option Plan from
2,000,000 to 2,975,000 shares.
Votes: For: 9,607,196 Against: 1,846,991
Withheld: 0 Abstain: 193,249
Broker Non-Votes: 4,902,726
(iii) Proposal approving amendments to
the 1990 Stock Option Plan for Non-Employee
Directors to increase the option exercise price
to 100% of the fair market value; to increase the
number of shares of common stock automatically
granted annually to 3,000 shares; and to increase
the number of shares of common stock authorized
for issuance to 170,000 shares.
Votes: For: 10,799,307 Against: 578,459
Withheld: 0 Abstain: 269,670
Broker Non-Votes: 4,902,726
(iv) Ratification of selection of the
Company's independent auditors.
Votes: For: 16,377,182 Against: 61,786
Withheld: 0 Abstain: 111,194
Broker Non-Votes: 0
(d) Not applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - A complete listing of exhibits required
is given in the Exhibit Index that precedes the
exhibits filed with this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
ORBITAL SCIENCES CORPORATION
DATED: August 14, 1995 By: /s/ David W. Thompson
David W. Thompson,President
and Chief Executive Officer
DATED: August 14, 1995 By: /s/ Carlton B. Crenshaw
Carlton B. Crenshaw, Senior
Vice President and Principal
Financial Officer
EXHIBIT INDEX
The following exhibits are filed as part of this report.
Exhibit Description
No.
4.7.1 Promissory Note dated as of June 14, 1995 made by
Corporation and The Northwestern Mutual Life Insurance
Company (transmitted herewith).
4.7.2 Note Agreement dated as of June 14, 1995 between the
Corporation and The Northwestern Mutual Life Insurance
Company (transmitted herewith).
10.5.1 Orbital Sciences Corporation 1990 Stock Option Plan,
restated as of April 27, 1995 (transmitted herewith).
10.5.2 Orbital Sciences Corporation 1990 Stock Option Plan for
Non-Employee Directors, restated as of April 27, 1995
(transmitted herewith).
10.6.3 Amendment No. 2 dated July 5, 1995 to the Credit
Agreement dated September 27, 1994 among the Company,
Orbital Imaging Corporation and Fairchild Space and
Defense Corporation, the Banks listed therein, Morgan
Guaranty Trust Company of New York, as Administrative
Agent, and J.P. Morgan Delaware, as Collateral Agent
(transmitted herewith).
11 Statement re: Computation of Earnings Per Share
(transmitted herewith).
27 Financial Data Schedule (such schedule is furnished for
the information of the Securities and Exchange
Commission and is not to be deemed "filed" as part of
the Form 10-Q, or otherwise subject to the liabilities
of Section 18 of the Securities Exchange Act of 1934)
(transmitted herewith).