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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT AMENDMENT NO.1 PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED
SEPTEMBER 30, 1998
ORBITAL IMAGING CORPORATION
(COMMISSION FILE NO. 333-49583)
DELAWARE 54-1660268
(State of Incorporation) (IRS Identification number)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
(Address of principal executive offices) (Telephone number)
Indicate by check mark whether 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. X Yes No
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EXPLANATORY NOTE
In consultation with its new independent auditors retained in July 1999, Orbital
Imaging Corporation ("ORBIMAGE") determined that it would restate its condensed
financial statements for the quarter ended June 30, 1998, the quarter ended
September 30, 1998, and its financial statements for the year ended December 31,
1998, and its condensed consolidated financial statements for the quarter ended
March 31, 1999, the quarter ended June 30, 1999 and the quarter ended September
30, 1999. This amendment includes in Item 1 such restated condensed financial
statements for the three and nine months ended September 30, 1998, and other
information relating to such restated condensed financial statements, including
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 2). Information regarding the effect of the restatement on
ORBIMAGE's results of operations for the three and nine months ended September
30, 1998 is included in Item 2 of this amendment and in the Notes to Condensed
Financial Statements included in Item 1 of this amendment.
Except for Items 1, 2 and 6, no other information included in the original
report on Form 10-Q is amended by this amendment. For current information
regarding risks, uncertainties and other factors that may affect ORBIMAGE's
future performance, please see the "Risk Factors" included in Item 7 of
ORBIMAGE's Annual Report on Form 10-K for the year ended December 31, 1999.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL IMAGING CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31, SEPTEMBER 30,
1997 1998
---- ----
Current assets: ........................................................................... (RESTATED)
Cash and cash equivalents ........................................................... $ 10,883 $ 62,760
Available-for-sale securities, at fair value ........................................ 11,337 27,250
Held-to-maturity securities, at amortized cost ...................................... - 8,242
Receivables and other current assets ................................................ 134 2,217
--------- ---------
Total current assets ........................................................... 22,354 100,469
Property, plant and equipment, at cost, less accumulated
depreciation of $5,144 and $6,949, respectively ..................................... 11,054 14,720
Satellites and related rights, at cost, less accumulated
depreciation and amortization of $12,947 and
$20,216, respectively ............................................................... 104,226 181,901
Held-to-maturity securities, at amortized cost ............................................ - 16,310
Other assets .............................................................................. 115 8,143
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Total assets ........................................................................ $ 137,749 $ 321,543
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............................................... $ 4,335 $ 26,891
Current portion of deferred revenue ................................................. 7,725 8,451
Deferred tax liabilities ............................................................ 468 583
--------- ---------
Total current liabilities ...................................................... 12,528 35,925
Senior notes .............................................................................. - 142,521
Deferred revenue, net of current portion .................................................. 29,667 25,789
Deferred tax liabilities .................................................................. 10,194 6,607
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Total liabilities ................................................................... 52,389 210,842
Preferred stock subject to repurchase, par value $0.01; 10,000,000 shares authorized;
Series A 12% cumulative convertible, 2,000,000 shares authorized, 392,887 and
648,653 shares issued and outstanding, respectively (liquidation value of $40,074
and $68,102, respectively) 36,355 75,577
Stockholders' equity:
Common stock, par value $0.01; 75,000,000 shares authorized;
25,214,000 shares issued and outstanding ....................................... 252 252
Additional paid-in-capital .......................................................... 75,285 83,103
Unrealized gain on available-for-sale securities .................................... - 6
Accumulated deficit ................................................................. (26,532) (48,237)
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Total stockholders' equity .......................................................... 49,005 35,124
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Total ............................................................................... $ 137,749 $ 321,543
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See accompanying notes to condensed financial statements.
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ORBITAL IMAGING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -----------------------------
1997 1998 1997 1998
---- ---- ---- ----
(RESTATED) (RESTATED)
Revenues........................................................ $ 221 $ 3,209 $ 525 $ 8,547
Direct expenses ................................................ 1,194 3,505 3,423 11,598
-------- -------- -------- --------
Gross loss ..................................................... (973) (296) (2,898) (3,051)
Selling, general and administrative expenses ................... 840 2,066 1,616 5,379
-------- -------- -------- --------
Loss from operations ........................................... (1,813) (2,362) (4,514) (8,430)
Net interest income (expense), net of interest expense of
$0, $2,132, $0 and $4,111, respectively .................... 498 (125) 864 1,197
-------- -------- -------- --------
Loss before benefit for income taxes ........................... (1,315) (2,487) (3,650) (7,233)
Benefit for income taxes ....................................... (657) (313) (1,095) (3,475)
-------- -------- -------- --------
Net loss........................................................ $ (658) $ (2,174) $ (2,555) $ (3,758)
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See accompanying notes to condensed financial statements.
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ORBITAL IMAGING CORPORATION
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
UNREALIZED
COMMON STOCK ADDITIONAL GAIN ON
----------------------- PAID-IN AVAILABLE-FOR ACCUMULATED
SHARES AMOUNT CAPITAL SALE SECURITIES DEFICIT TOTAL
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AS OF DECEMBER 31, 1996 ............ - $ - $ 45,921 $ - $ (19,641) $ 26,280
Shares issued to Orbital .............. 25,200,000 252 31,066 - - 31,318
Preferred stock dividends ............. - - - - (1,639) (1,639)
Tax-sharing charge .................... - - (1,751) - - (1,751)
Net loss .............................. - - - - (2,555) (2,555)
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BALANCE AS OF SEPTEMBER 30, 1997 ........... 25,200,000 $ 252 $ 75,236 $ - $ (23,835) $ 51,653
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BALANCE AS OF DECEMBER 31, 1997 ............ 25,214,000 $ 252 $ 75,285 $ - $ (26,532) $ 49,005
Common stock warrants issued, net ..... - - 7,594 - - 7,594
Deemed dividend on issuance of preferred
stock subject to repurchase ......... - - - - (9,975) (9,975)
Issuance of compensatory stock options - - 224 - - 224
Preferred stock dividends ............. - - - - (7,972) (7,972)
Change in unrealized gain on
available-for-sale securities ....... - - - 6 - 6
Net loss .............................. - - - - (3,758) (3,758)
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BALANCE AS OF SEPTEMBER 30, 1998 (RESTATED) 25,214,000 $ 252 $ 83,103 $ 6 $ (48,237) $ 35,124
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See accompanying notes to condensed financial statements.
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ORBITAL IMAGING CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1997 1998
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(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $ (2,555) $ (3,758)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, amortization and other................................ 3,032 9,805
Deferred tax benefit................................................ (1,095) (3,475)
Changes in assets and liabilities:
Increase in receivables and other current assets.................... (276) (655)
(Increase) decrease in other assets................................. 385 (315)
Increase in accounts payable and accrued expenses................... 3,566 22,275
(Increase) decrease in deferred revenue............................. 2,574 (3,152)
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NET CASH PROVIDED BY OPERATING ACTIVITIES...................................... 5,631 20,725
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................................... (39,410) (89,694)
Purchases of held-to-maturity securities....................................... - (32,184)
Purchases of available-for-sale securities..................................... (102,778) (94,968)
Maturities of held-to-maturity securities...................................... - 7,568
Maturities of available-for-sale securities.................................... 75,008 52,472
Sales of available-for-sale securities......................................... 1,972 26,842
Payment for business acquisition - (5,000)
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NET CASH USED IN INVESTING ACTIVITIES.......................................... (65,208) (134,964)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of senior notes..................................... - 137,247
Net proceeds from issuance of common stock warrants............................ - 7,594
Net proceeds from issuance of preferred stock subject to repurchase............ 33,758 21,275
Net proceeds from issuance of common stock .................................... 31,318 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES...................................... 65,076 166,116
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INCREASE IN CASH AND CASH EQUIVALENTS.............................................. 5,499 51,877
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................................... - 10,883
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CASH AND CASH EQUIVALENTS, END OF PERIOD............................................ $ 5,499 $ 62,760
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid..................................................................... $ - $ 9,009
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NON-CASH ITEMS:
Deemed dividend on issuance of preferred stock subject to repurchase.............. $ - $ 9,975
Preferred stock dividends......................................................... - 7,972
Capitalized compensatory stock options............................................ - 80
See accompanying notes to condensed financial statements.
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ORBITAL IMAGING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
information reflects all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation of such information.
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 ("SEC"). Although
management believes that the disclosures provided are adequate to make the
information presented not misleading, these unaudited interim condensed
financial statements should be read in conjunction with the audited financial
statements and footnotes thereto for the year ended December 31, 1997, which are
included in Orbital Imaging Corporation's Registration Statement on Form S-4, as
amended, filed with the SEC. Operating results for the three months and nine
months ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the full year.
Orbital Imaging Corporation is hereafter referred to as the "Company."
On February 25, 1998, ORBIMAGE issued $150 million of units (the " 1998
Offering"), each unit consisted of $1,000 principal amount of 11 5/8% senior
notes due 2005 and one warrant to purchase 8.75164 shares of ORBIMAGE common
stock. In consultation with its new independent auditors retained in July 1999,
the valuation of the warrants issued in connection with the 1998 Offering
was restated form $9.0 million to $7.9 million based on an independent third
party valuation, which resulted in reducing the debt discount and additional
paid in capital The Series A Preferred Stock sold on February 25, 1998 was
deemed to have a beneficial conversion feature totaling $10.0 million as a
result of the difference between the common stock fair value based on an
independent third party valuation and the conversion price of the preferred
stock. This difference is a deemed dividend to the holders of the preferred
stock. The preferred stock dividends paid in shares during 1998 were also deemed
to have a beneficial conversion feature as a result of the difference between
the conversion price of the preferred stock and the underlying value of the
common stock. Additionally, the stock options issued to employees during 1998
were deemed to be compensatory based on the difference between the exercise
price and the common stock fair value based on an independent third party
valuation. As a result of these changes, ORBIMAGE's loss before income taxes,
benefit for income taxes, net loss and preferred stock dividends were restated
as follows for the three and nine months ended September 30, 1998 (in
thousands):
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30, 1998 30, 1998
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ORIGINALLY REPORTED:
Loss before income taxes................................ $ (2,452) $ (7,135)
Benefit for income taxes................................ (322) (3,492)
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Net loss................................................ $ (2,130) $ (3,643)
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Preferred stock dividends............................... $ (1,946) $ (5,300)
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RESTATED:
Loss before income taxes................................ $ (2,487) $ (7,233)
Benefit for income taxes................................ (313) (3,475)
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Net loss................................................ $ (2,174) $ (3,758)
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Preferred stock dividends............................... $ (2,800) $ (17,947)
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(2) SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
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Income Taxes
The Company has recorded its interim income tax benefit based on estimates
of the 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.
Reclassifications
Certain reclassifications have been made to the 1997 financial statements
to conform to the 1998 financial statement presentation. Amounts previously
reported as preferred stock and additional paid-in capital as of December 31,
1997 and September 30, 1998 were reclassified from stockholders' equity to
preferred stock subject to repurchase.
(3) BUSINESS ACQUISITION
On April 30, 1998, the Company acquired substantially all of the assets of
TRIFID Corporation ("TRIFID") for $4.0 million. Based on TRIFID meeting revenue
targets established in the acquisition agreement, an additional $1.0 million of
consideration was paid during the three months ended September 30, 1998. The
acquisition was accounted for using the purchase method of accounting and
resulted in excess of purchase price over net assets acquired of approximately
$3.0 million, which is being amortized on a straight-line basis over ten years.
The following supplemental financial information presents the Company's
results of operations, on a pro forma basis, as though the TRIFID acquisition
were consummated on January 1, 1997 (in thousands):
NINE MONTHS ENDED SEPTEMBER 30,
1997 1998
--------------------------------
(RESTATED)
Revenues $3,272 $9,370
Net loss (3,141) (3,761)
The allocation of purchase price to net assets acquired may be adjusted if
additional information becomes known about certain business assumptions used to
estimate the fair value of such net assets.
(4) INTEREST CAPITALIZATION
The Company capitalizes interest costs in connection with the construction
of satellites and related ground segments and systems. The capitalized interest
is recorded as part of the historical cost of the asset to which it relates and
will be amortized over the asset's useful life when placed in service. For the
three and nine months ended September 30, 1998, capitalized interest totaled
$2.7 million and $6.9 million, respectively.
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(5) PREFERRED STOCK SUBJECT TO REPURCHASE
In February 1998, ORBIMAGE issued 227,295 shares of Series A cumulative
convertible preferred stock (the "Preferred Stock") generating net proceeds of
approximately $21.3 million. The Preferred Stock is convertible into ORBIMAGE
common stock in an amount equal to $100 per share of Preferred Stock, divided by
the Series A Conversion Price, which is $4.17 per share of Preferred Stock. Each
share entitles the holder to receive cumulative dividends of 12% per annum.
Dividends on the Preferred Stock are cumulative and are payable on a semi-annual
basis in May and November. Under the terms of the indenture governing the
Company's 11-5/8% Senior Notes due 2005, the dividends are payable in additional
shares of Preferred Stock. In May 1998 the Company issued 28,471 shares of
Preferred Stock as dividends. At September 30, 1998, the Company had accrued
dividends of approximately 32,500 shares of Preferred Stock.
The activity in the preferred stock subject to repurchase was as follows
for the nine months ended September 30, 1997 and 1998 (dollars in thousands):
SHARES AMOUNT
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BALANCE AS OF DECEMBER 31, 1996................................... - $ -
Shares issued in private offering, net......................... 392,887 33,758
Accrual of preferred stock dividends........................... - 1,414
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BALANCE AS OF SEPTEMBER 30, 1997.................................. 392,887 35,172
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BALANCE AS OF DECEMBER 31, 1997................................... 392,887 $ 36,355
Shares issued in private offering, net......................... 227,295 21,275
Deemed dividend on issuance of preferred stock subject to
repurchase................................................... - 9,975
Preferred stock dividends paid in shares....................... 28,471 3,306
Accrual of preferred stock dividends........................... - 4,666
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BALANCE AS OF SEPTEMBER 30, 1998 (RESTATED)....................... 648,653 $ 75,577
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(6) RELATED PARTY TRANSACTIONS
Pursuant to a procurement contract under which the Company is purchasing
from Orbital Sciences Corporation ("Orbital"), the Company's majority
stockholder, various satellites, and ground systems, the Company incurred costs
of approximately $8.6 million and $44.5 million for the three months ended
September 30, 1997 and 1998, respectively, and approximately $35.2 million and
$81.3 million for the nine months ended September 30, 1997 and 1998,
respectively. The Company incurred costs of approximately $0.3 million and $0.6
million for the three months ended September 30, 1997 and 1998, respectively,
and approximately $2.4 million and $1.8 million for the nine months ended
September 30, 1997 and 1998, respectively, under an administrative services
agreement with Orbital.
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(7) RECENT PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of SFAS No. 130 had no impact on the
Company's net income or stockholders' equity. SFAS No. 130 requires unrealized
gains on the Company's available-for-sale securities to be included in
comprehensive income. For the three and nine months ended September 30, 1998,
comprehensive income (loss) totaled $(2.2 million) (restated) and $(3.8 million)
(restated), respectively. For the three and nine months ended September 30,
1997, there were no differences between net loss, as reported, and comprehensive
income (loss).
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information, which
establishes annual and interim reporting standards for a company's operating
segments and related disclosures about its products, services, geographic areas
and major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Adoption of SFAS No. 131 will not impact the Company's
financial position, results of operations or cash flows, and any effect, while
not yet determined by the Company, will be limited to the presentation of its
disclosures.
In January 1997, the SEC issued new rules requiring disclosure of the
Company's accounting policies for derivatives and market risk disclosure. The
market risk disclosure rules are effective for the Company in filings that
include audited financial statements for the fiscal years ending after June 15,
1998. Adoption of the new market risk disclosure rules will not impact the
Company's financial position, results of operations or cash flows, and any
effect, while not yet determined by the Company, will be limited to the
presentation of its disclosures.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1998
Certain statements included in this discussion relating to funding
requirements, capital expenditures, sources and uses of funds, operating results
and "Year 2000" issues are forward-looking statements that involve known and
unknown risks, uncertainties, and other factors that may cause the actual
results, performance or achievements of the Company to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors may include, but are not limited to,
general and economic business conditions, launch success, satellite performance,
availability of required capital, market acceptance of new products and
technologies, the ability of customers and suppliers to assess timely and
accurately "Year 2000" issues, and U.S. government policies, priorities and
funding of programs. The actual results that the Company achieves may differ
materially from any forward-looking statements due to such risks and
uncertainties.
BUSINESS ACQUISITION. On April 30, 1998, the Company acquired
substantially all of the assets of TRIFID Corporation ("TRIFID") for $4.0
million. Based on TRIFID meeting revenue targets established in the acquisition
agreement, an additional $1.0 million of consideration was paid during the three
months ended September 30, 1998. TRIFID is an image processing and product
generation company, providing sophisticated image processing software,
geographic information database and production systems, imaging sensor design
and related engineering services to both governmental and commercial customers.
The acquisition provides the Company with the technical personnel and production
capability required to generate high-resolution imagery and derived products.
The acquisition resulted in excess of purchase price over net assets acquired of
approximately $3.0 million, which is being amortized over ten years.
REVENUES. Revenues for the three months ended September 30, 1997 and 1998
were approximately $0.2 million and $3.2 million, respectively. Revenues for the
nine months ended September 30, 1997 and 1998 were approximately $0.5 million
and $8.5 million, respectively. The increase in 1998 revenues was primarily due
to the commencement of the OrbView-2 satellite's commercial operations in
November 1997. Revenues during the three months and nine months ended September
30, 1998 also included $0.8 million and $1.2 million, respectively in sales
generated from the image processing business acquired from TRIFID in April 1998.
Revenues for the comparable 1997 periods were attributable solely to the sale of
OrbView-1 imagery products.
DIRECT EXPENSES. Direct expenses include the costs of operating and
depreciating (i) the OrbView-1 satellite, (ii) the license pursuant to which the
Company has exclusive worldwide distribution rights for OrbView-2 satellite
imagery (the "OrbView-2 License"), and (iii) the related ground assets. Direct
expenses for the three months ended September 30, 1997 and 1998 were
approximately $1.2 million and $3.5 million, respectively. Direct expenses for
the nine months ended September 30, 1997 and 1998 were approximately $3.4
million and $11.6 million, respectively. Direct expenses increased from the 1997
periods to the comparable 1998 periods primarily as a result of the OrbView-2
License amortization, additional ground station depreciation and increased
operating expenses primarily related to OrbView-2, all of which began when
OrbView-2 commenced commercial operations in November 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses include the costs of marketing, advertising,
promotion and other selling expenses, as well as the costs of the finance,
administrative and general management functions of the Company. SG&A expenses
were approximately $0.8 million and $2.1 million (restated) for the three months
ended September 30, 1997 and 1998, respectively. SG&A expenses were
approximately $1.6 million and $5.4 million (restated) for the nine months ended
September 30, 1997 and 1998, respectively. The increase in SG&A expenses in 1998
was primarily attributable to the increase in salaries and related benefits as
the Company expanded its operations and workforce.
INTEREST INCOME AND INTEREST EXPENSE. Interest income reflects interest
earnings on investments made primarily with proceeds from the Company's
financing activities. Interest expense reflects interest incurred on the
Company's 11-5/8% Senior Notes due 2005 (the "Notes"), net of applicable
capitalized interest. Net interest income (expense) for the three months ended
September 30, 1997 and 1998 was approximately $0.5 million and ($0.1 million),
respectively. Net interest income was approximately $0.9 million and $1.2
million for the nine months ended September 30, 1997 and 1998, respectively.
Interest expense was approximately $2.1 million (restated) and $4.1 million
(restated) for the three and nine months ended September 30, 1998, respectively.
The Company
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had no interest expense in the comparable 1997 periods. For the three and nine
months ended September 30, 1998, capitalized interest in connection with the
construction of the OrbView-3 and OrbView-4 satellites and related ground
segments totaled $2.7 million and $6.9 million, respectively.
BENEFIT FOR INCOME TAXES. The Company recorded an income tax benefit of
approximately $0.7 million and $0.3 million for the three months ended September
30, 1997 and 1998, respectively. The Company recorded an income tax benefit of
approximately $1.1 million and $3.5 million for the nine months ended September
30, 1997 and 1998, respectively. The tax benefits result from net operating
losses generated during the period offset, in part, by decreases in deferred tax
liabilities for depreciation of satellite assets, which were previously deducted
for tax purposes. The Company records its interim income tax benefit or
provision based on estimates of the 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.
Restatement. In consultation with its new independent auditors retained in
July 1999, ORBIMAGE determined that its condensed financial statements for the
quarter ended June 30, 1998, the quarter ended September 30, 1998, and its
financial statements for the year ended December 31, 1998, and its condensed
consolidated financial statements for the quarter ended March 31, 1999, the
quarter ended June 30, 1999 and the quarter ended September 30, 1999. See Note
(1) of the Notes to Condensed Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had approximately $90.0 million of
cash and cash equivalents, and unrestricted securities. The Company's current
ratio was approximately 2.8 as of September 30, 1998 compared to 1.8 as of
December 31, 1997.
On February 25, 1998, the Company issued units consisting of the Notes and
Common Stock warrants raising gross proceeds of $150.0 million (the "Units
Offering"). Interest on the Notes is payable semi-annually beginning on
September 1, 1998. Out of net proceeds of approximately $144.8 million, the
Company purchased approximately $32.9 million of U.S. Treasury securities to pay
the interest on the Notes for the first four interest payment dates, of which
$24.6 million remains as of September 30, 1998. These securities have maturities
ranging from six months to two years and were placed in a restricted account and
pledged as security for repayment of interest on the Notes. The Notes will rank
pari passu in right of payment with all existing and future senior indebtedness
of the Company, and will rank senior in right of payment to any future
subordinated indebtedness of the Company. Concurrent with the Units Offering,
the Company completed a private placement of 227,295 shares of Series A
Preferred Stock, generating approximately $21.3 million of net proceeds.
Operating activities provided net cash of approximately $20.7 million for
the nine months ended September 30, 1998. Investing activities used cash of
approximately $135.0 million for the nine months ended September 30, 1998,
primarily for the net purchases (net of sales and maturities) of short- and
long-term investments and capital expenditures. Capital expenditures for the
nine months ended September 30, 1998 were approximately $82.8 million (excluding
capitalized interest) and consisted primarily of costs relating to the
acquisition of the OrbView-3 and OrbView-4 satellites and the related U.S.
ground system. The total projected cost of the OrbView-1, OrbView-3 and
OrbView-4 satellites, the OrbView-2 License and the related U.S. ground systems
is estimated to be approximately $297.0 million, which includes all satellite
design, construction and launch costs, but excludes insurance costs. Of this
amount, the Company has spent approximately $213.9 million through September 30,
1998 and expects to spend an additional $83.1 million through mid-2000, the
projected deployment date of OrbView-4.
The Company expects to fund its future capital expenditures and negative
cash flows from operating activities using cash and cash equivalents and
short-term investments together with advance payments from customers. The
Company's ability to generate positive cash flow is dependent on the sale of its
products and services, adequate customer acceptance of the Company's products
and services and numerous other factors. While the Company believes it has
sufficient resources to fund the Company's operations through its positive free
cash flow, additional funding may be necessary in the event of an OrbView-3 or
OrbView-4 launch delay, cost increases, or unanticipated expenses. There can be
no assurance that additional capital will be available on favorable terms or on
a timely basis, if at all. The Company has incurred losses since its inception
and management believes that it will continue to do so for the foreseeable
future.
"YEAR 2000" CONSIDERATIONS
The Year 2000 presents potential concerns for computer hardware and
software applications. The consequences of this may include systems failures and
business process interruption. The problem may exist for many kinds of software
and hardware, including mainframe, mini computers, PCs and embedded systems.
The Company has commenced an audit to assess the potential "Year 2000"
issues with respect to various financial, technical and operational
computer-related systems. This audit will consist of reviewing software code and
hardware system components to determine whether a system failure or
miscalculations causing disruption of operations might occur as a result of the
system's inability to distinguish between the year 2000 and the year 1900. The
Company believes that its internal review will be completed by the end of
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1998. The Company intends to correct any "Year 2000" issues, or develop
alternative "work-around" procedures that address the problem, as soon as
problems are identified. The Company has also inquired of its primary
third-party vendor, Orbital Sciences Corporation ("Orbital"), as to whether
products or services provided by Orbital may be adversely affected by the "Year
2000" issue. Orbital has informed the Company that with respect to its provision
of administrative services, no material "Year 2000" issues have been identified.
Orbital is still conducting an internal review of "Year 2000" issues with
respect to the satellite systems, ground systems and launch services provided or
to be provided to ORBIMAGE, and expects to have completed its initial assessment
of any pertinent issues by the end of 1998.
The Company's largest customer consists of various agencies within the
U.S. government. If such customer's systems are not "Year 2000" compliant on a
timely basis, payments owed to ORBIMAGE could be delayed. There can be no
assurance that a significant delay in payments would not have a material impact
on the Company's financial results.
The Company does not currently anticipate that addressing "Year 2000"
problems for its internal systems will have a material impact on its operations
or financial results. There can be, however, no assurance that costs associated
with addressing Year 2000 issues will not be greater than anticipated, or that
Year 2000 problems will be identified on a timely basis and that corrective
actions undertaken by the Company or its primary third-party vendor will be
completed before any "Year 2000" problems occur. All costs, including the cost
of internal personnel, outside consultants, systems replacements and other
equipment, will be expensed as incurred, except for long-lived assets which will
be capitalized in accordance with the Company's capitalization policies.
Contingency plans will be developed if it appears the Company or its key
supplier will not be "Year 2000" compliant and such noncompliance is expected to
have a material adverse impact on the Company's operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - A complete listing of exhibits required is given
in the Exhibit Index that precedes the exhibits filed with
this report.
(b) Reports on Form 8-K - Not applicable.
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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 IMAGING CORPORATION
DATED: March 30, 2000 By: /s/ Gilbert D. Rye
------------------
Gilbert D. Rye, President
and Chief Executive Officer
DATED: March 30, 2000 By: /s/ Armand D. Mancini
---------------------
Armand D. Mancini, Vice President
` and Chief Financial Officer
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EXHIBIT INDEX
The following exhibits are filed as part of this report.
Exhibit No. Description
27 Financial Data Schedule