1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
JUNE 30, 1997
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 executive offices) (Telephone number)
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 1, 1997, 32,188,046 shares of the registrant's common stock were
outstanding.
2
EXPLANATORY NOTE
Orbital Sciences Corporation ("Orbital") has determined to restate its annual
consolidated financial statements and its condensed consolidated quarterly
financial statements for 1997, 1996 and 1995. This amendment includes in Item 1
such restated condensed consolidated financial statements for the three and six
months ended June 30, 1997, and other information relating to such restated
condensed consolidated financial statements. Item 2 includes Orbital's amended
and restated discussion and analysis of financial condition and results of
operations.
Except for Items 1 and 2 and Exhibits 11 and 27, no other information included
in the original report on Form 10-Q is amended by this amendment. Exhibit 11,
Computation of earnings Per Share, has been intentionally omitted from this
filing as it is not required for this form 10-Q/A. For current information
regarding risks, uncertainties and other factors that may affect Orbital's
future performance, please see "Outlook: Issues and Uncertainties" included in
Item 7 of Orbital's Annual Report on Form 10-K for the year ended December 31,
1999.
2
3
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
(RESTATED) (RESTATED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 30,059 $ 27,923
Short-term investments, at market 4,176 5,827
Receivables, net 122,871 140,973
Inventories, net 40,864 27,159
Deferred income taxes and other assets 5,257 5,952
---------- ----------
TOTAL CURRENT ASSETS 203,227 207,834
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation
and amortization of $71,126 and $70,907, respectively 107,401 126,888
INVESTMENTS IN AFFILIATES 147,405 88,394
GOODWILL, less accumulated amortization of $17,716 and $15,972, respectively 67,980 69,512
DEFERRED INCOME TAXES AND OTHER ASSETS 18,452 16,985
---------- ----------
TOTAL ASSETS $ 544,465 $ 509,613
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 62,468 $ 38,969
Accounts payable 30,848 26,611
Accrued expenses 37,399 40,019
Deferred revenues 36,651 31,180
---------- ----------
TOTAL CURRENT LIABILITIES 167,366 136,779
LONG-TERM OBLIGATIONS, net of current portion 58,543 35,326
OTHER LIABILITIES 15,072 15,523
---------- ----------
TOTAL LIABILITIES 240,981 187,628
NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES (2,920) (1,810)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized
Series A Special Voting Preferred Stock, one share authorized and outstanding -- --
Class B Preferred Stock, 10,000 shares authorized and outstanding -- --
Common Stock, par value $.01; 80,000,000 shares authorized,
32,269,326 and 32,160,598 shares outstanding, after deducting
15,735 shares held in treasury 323 322
Additional paid-in capital 324,510 323,592
Unrealized gains (losses) on short-term investments (6) 14
Cumulative translation adjustment (4,004) (3,681)
Retained earnings (deficit) (14,419) 3,548
---------- ----------
Total stockholders' equity 306,404 323,795
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 544,465 $ 509,613
========== ==========
See accompanying notes to condensed consolidated financial statements.
3
4
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED: IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE THREE MONTHS ENDED
JUNE 30,
-----------------------------------
1997 1996
------------ ------------
(RESTATED) (RESTATED)
Revenues $ 90,263 $ 115,063
Costs of goods sold 67,824 82,727
------------ ------------
Gross Profit 22,439 32,336
Research and development expenses 7,603 5,534
Selling, general and administrative expenses 23,244 19,829
Amortization of goodwill 742 782
------------ ------------
Income (loss) from operations (9,150) 6,191
Net investment income (expense) 323 (444)
Equity in earnings (losses) of affiliates (690) (2,696)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries 563 341
------------ ------------
Income (loss) before provision for income taxes (8,954) 3,392
Provision for income taxes 11,320 338
------------ ------------
Net income (loss) $ (20,274) $ 3,054
============ ============
Net income (loss) per common and common equivalent share $ (0.62) $ 0.11
============ ============
Shares used in computing net income (loss) per common and
common equivalent share 32,688,563 27,378,722
============ ============
Net income (loss) per common share, assuming full dilution $ (0.62) $ 0.11
============ ============
Shares used in computing net income (loss) per common share,
assuming full dilution 32,688,563 31,303,789
============ ============
See accompanying notes to condensed consolidated financial statements.
4
5
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE SIX MONTHS ENDED
JUNE 30,
-----------------------------------
1997 1996
------------ ------------
(RESTATED) (RESTATED)
Revenues $ 203,536 $ 219,864
Costs of goods sold 151,079 154,464
------------ ------------
Gross Profit 52,457 65,400
Research and development expenses 15,623 12,438
Selling, general and administrative expenses 41,566 39,731
Amortization of goodwill 1,483 1,580
------------ ------------
Income (loss) from operations (6,215) 11,651
Net investment income (expense) 747 (622)
Equity in earnings (losses) of affiliates (2,067) (4,938)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries 1,184 598
------------ ------------
Income (loss) before provision for income taxes (6,351) 6,689
Provision for income taxes 11,616 669
------------ ------------
Net income (loss) $ (17,967) $ 6,020
============ ============
Net income (loss) per common and common equivalent share $ (0.55) $ 0.22
============ ============
Shares used in computing net income (loss) per common and
common equivalent share 32,753,415 27,270,385
============ ============
Net income (loss) per common share, assuming full dilution $ (0.55) $ 0.22
============ ============
Shares used in computing net income (loss) per common share,
assuming full dilution 32,753,415 31,260,083
============ ============
See accompanying notes to condensed consolidated financial statements.
5
6
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JUNE 30,
-----------------------------------
1997 1996
------------ ------------
(RESTATED) (RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (17,967) $ 6,020
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expenses 12,115 11,628
Equity in losses of affiliates 2,067 4,938
Non-controlling interests in losses of consolidated subsidiaries (1,184) (598)
Loss (gain) on sale of fixed assets and investments -- (17)
Deferred tax asset valuation adjustment 10,898 --
Foreign currency translation adjustment (323) (415)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in current and other non-current assets 784 (8,409)
Increase (decrease) in current and other non-current liabilities 7,451 (19,189)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 13,841 (6,042)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15,587) (12,908)
Investments in satellite systems -- (5,715)
Proceeds from sales of fixed assets 34,085 --
Purchases, sales and maturities of available-for-sale investment securities, net 1,631 9,569
Investments in affiliates (72,307) (13,235)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (52,178) (22,289)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net of (repayments) (5,210) 30,200
Principal payments on long-term obligations (3,129) (4,114)
Net proceeds from issuance of long-term obligations 22,893 --
Proceeds from issuance of short-term bridge loan 25,000 --
Net proceeds from issuances of common stock to employees 919 1,040
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 40,473 27,126
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,136 (1,205)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 27,923 15,317
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 30,059 $ 14,112
============ ============
See accompanying notes to condensed consolidated financial statements.
6
7
ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(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 (the "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/A
for the year ended December 31, 1996. Operating results for the three-and
six-month periods ended June 30, 1997 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) RESTATEMENTS
Management has determined to restate its previously issued consolidated
financial statements for 1997 and 1996 with respect to its accounting treatment
for certain matters, including among other things, its accounting for equity
method investments, capitalized costs and certain other matters. Restatement
matters for equity method accounting include adjustments related to: revenue
recognized on sales to affiliates, preferred dividends paid to other affiliate
investors, calculation of ownership interest and capitalized interest on equity
method investments. For a full description of the restatement matters, refer to
Notes 1A and 14 to the company's consolidated financial statements included in
the company's 1997 Annual Report on Form 10-K/A previously filed with the
Commission.
The effect of the restatement matters on the company's previously reported
revenues, gross profit, income (loss) from operations, net income (loss) and net
income (loss) per common and dilutive share for the periods is as follows:
QUARTER ENDED SIX MONTHS ENDED
(in thousands except share data) JUNE 30, JUNE 30,
--------------- ----------------
1997 RESTATED:
Revenues $ 90,263 $ 203,536
Gross profit 22,439 52,457
Loss from operations (9,150) (6,215)
7
8
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------- ----------------
Net loss (20,274) (17,967)
Net loss per common and dilutive share (0.62) (0.55)
1997 AS PREVIOUSLY REPORTED:
Revenues $ 142,226 $ 264,338
Gross profit 39,673 73,351
Income from operations 11,005 17,052
Net income 5,603 10,697
Net income per common share 0.17 0.33
Net income per common share, assuming dilution 0.17 0.33
1996 RESTATED:
Revenues $ 115,063 $ 219,864
Gross profit 32,336 65,400
Income from operations 6,191 11,651
Net income 3,054 6,020
Net income per common share 0.11 0.22
Net income per common share, assuming dilution 0.11 0.22
1996 AS PREVIOUSLY REPORTED:
Revenues $ 116,512 $ 221,406
Gross profit 32,888 65,200
Income from operations 7,324 13,196
Net income 3,839 6,967
Net income per common share 0.14 0.26
Net income per common share, assuming dilution 0.14 0.26
(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
consist 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) COMMON STOCK AND INCOME PER SHARE
Income per common and common equivalent share ("primary EPS") 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
8
9
dilution ("fully-diluted EPS") is calculated using the weighted average number
of common and common equivalent shares outstanding during the periods. 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. Subsidiary stock options that enable holders to obtain the
subsidiary's common stock pursuant to stock option plans are included in
computing the subsidiary's earnings per share, to the extent dilutive. Those
earnings per share data are included in the company's consolidated per share
computations based on the company's holdings of the subsidiary's stock.
(4) 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.
(5) DEBT
On June 13, 1997, the company issued a $13,210,000 note to a financial
institution. The note bears interest at 7.19%, subject to adjustment, principal
and interest are payable monthly over sixty months, and the note is secured by
certain equipment located in the company's Germantown, Maryland facilities. On
June 19, 1997, the company issued a $10,000,000 note to a financial institution.
The note bears interest at 8.64%, principal and interest are payable monthly
over sixty months, and the note is secured by certain office, computer and test
equipment related to the company's launch vehicle operations in Chandler,
Arizona, and Dulles, Virginia.
Additionally, on June 27, 1997, the company terminated its L-1011 aircraft
lease, and purchased the L-1011 aircraft for approximately $9,860,000 from
General Electric Capital Corporation ("GECC"). The company financed the purchase
with a note to GECC for approximately $9,860,000, which is secured by the
aircraft. The note bears interest at 8.4% and principal and interest are payable
monthly over 94 months.
(6) RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 condensed consolidated
financial statements to conform to the 1997 condensed consolidated financial
statement presentation.
(7) INVESTMENTS IN AFFILIATES
On May 8, 1997, the company's then-subsidiary, Orbital Imaging Corporation
("ORBIMAGE"), completed a private placement of 300,100 shares of 12% Series A
Cumulative Convertible Preferred Stock (the "Preferred Stock"), raising gross
proceeds of $30,010,000. Also on that date, Orbital purchased ORBIMAGE common
stock, bringing its total equity invested to approximately $56,100,000. On July
3, 1997, ORBIMAGE sold an additional 72,605 shares of Preferred Stock, raising
an additional $7,260,500. Each share of Preferred Stock entitles its holder to
receive annual cumulative dividends of 12% per annum payable in cash or
additional shares of Preferred
9
10
Stock, at the discretion of ORBIMAGE's Board of Directors. Pursuant to the terms
of this transaction, Orbital owns approximately 75% of the total voting interest
in ORBIMAGE after giving effect to the conversion of ORBIMAGE's convertible
preferred stock. Orbital no longer controls ORBIMAGE's financial and operational
affairs as a result of certain rights provided to ORBIMAGE's preferred
stockholders. Consequently the company no longer consolidates ORBIMAGE's
financial results, but rather uses the equity method of accounting for its
investment in, and earnings or losses attributable to ORBIMAGE.
Pursuant to a firm-fixed price contract with ORBIMAGE, Orbital is the primary
supplier to ORBIMAGE of imaging satellites, launch services and ground systems.
ORBIMAGE's second satellite, OrbView-2, was successfully launched on August 1,
1997. As Orbital owns 100% of ORBIMAGE's outstanding common stock, the company
will eliminate 100% of profits on sales to ORBIMAGE. Orbital also provides
certain administrative support to ORBIMAGE on a cost-reimbursable basis,
including office space, utilities, administrative supplies, management and
accounting services, and certain other administrative services on a
cost-reimbursable basis.
(8) NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
Per Share." SFAS No. 128 provides new procedures for the computation,
presentation and disclosure of primary EPS and fully-diluted EPS, simplifying
the calculations and making them more comparable with international accounting
standards. Pursuant to SFAS No. 128, the company will adopt the new requirements
in the fourth quarter of 1997, restating all prior periods. The company expects
that the adoption of SFAS No. 128 will not materially impact 1997, or previously
reported, primary EPS or fully-diluted EPS.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements. The Company will adopt
the provisions of SFAS No. 130 in 1998. The disclosure of comprehensive income
in accordance with the provisions of SFAS No. 130 will impact the manner of
presentation of the company's financial statements as currently and previously
reported. Upon adoption, the company will be required to reclassify previously
reported annual and interim financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes new procedures for
the determination of a business segment and for the presentation and disclosure
of segment information. SFAS No. 131 requires that companies disclose segment
data based on how management makes decisions about allocating resources to
segments and measuring their performance. SFAS No. 131 also requires the
disclosure of selected segment information in interim financial statements. The
company will adopt the provisions of SFAS No. 131 in 1998. The company is
currently assessing the requirements of SFAS No. 131 and can not currently
predict the impact of the statement on segment disclosures.
10
11
(9) SUBSEQUENT EVENTS
CTA INCORPORATED ACQUISITION. On July 11, 1997, Orbital entered into an
agreement to acquire substantially all the assets, including all the stock of
certain subsidiaries, and certain liabilities relating to the satellite
manufacturing and communications services businesses of CTA INCORPORATED
("CTA"). As consideration, Orbital will (a) pay $12,000,000 in cash and (b)
refinance $27,000,000 of outstanding debt related to the acquired business.
Total consideration is subject to adjustment based on the difference between net
tangible assets as of May 1997 and as of the closing date. The payment at
closing is subject to a $3,000,000 holdback by Orbital pending calculation of
the net tangible assets. During the five years following the closing, CTA will
also be entitled to receive (a) royalties from $500,000 to $3,000,000 per
STARbus satellite sale after at least five satellites have been sold (the
STARbus satellite is a geosynchronous orbit communications satellite developed
by CTA), and (b) 3% of cumulative revenues in excess of $50,000,000 accrued
during such period from the acquired GEMtrak transportation management business.
The acquisition is subject to government regulatory approval and other customary
closing conditions. The transaction is expected to close by mid-August 1997. The
company will account for the acquisition using the purchase method of
accounting.
ROCKWELL INTERNATIONAL CORPORATION ACQUISITION. On July 31, 1997, Orbital
acquired from Rockwell International Corporation ("Rockwell") the assets and
certain liabilities associated with Rockwell's PathMaster automotive navigation
product line. Orbital paid approximately $3,550,000 in cash and provided to
Rockwell a $4,350,000 note, which bears interest at 6% and is repayable
semi-annually over three years. The company will account for the acquisition
using the purchase method of accounting.
DEBT. On August 6, 1997, Orbital amended and restated its existing revolving
credit facility (the "facility") to provide for total borrowings from an
international syndicate of six banks of up to $100,000,000. The new facility
includes the company's subsidiary, Magellan Corporation ("Magellan"), as a
borrower. The facility includes a $35,000,000 term loan, which matures July
2001, and a $65,000,000 revolving line of credit, borrowings under which are
subject to a defined borrowing base composed of certain receivables of Orbital
and its Magellan subsidiary. The principal amount of the term loan is payable in
quarterly installments beginning December 31, 1997. In addition, the company is
required to reduce borrowings outstanding under the term loan to $25,000,000 to
the extent the company receives certain net cash proceeds from the issuance of
additional debt or equity or asset sales. The interest rate charged under the
facility is a variable rate based on the prime rate or LIBOR. The interest rate
on the initial August 1997 borrowing under the facility was approximately 7.2%.
The facility restricts the payment of cash dividends and contains certain
covenants with respect to the company's working capital levels, fixed charge
ratio, leverage ratio and tangible net worth, and expires in August 2001.
11
12
The facility amends and restates the company's previous $65,000,000 revolving
credit facility under which no borrowings were outstanding at June 30, 1997. In
addition, the facility replaces (i) Magellan's $10,000,000 line of credit under
which $7,490,000 was outstanding at June 30, 1997, and (ii) a $25,000,000
six-month short-term bridge loan that the company obtained on May 7, 1997, under
which $25,000,000 was outstanding at June 30, 1997. In August 1997, the company
repaid these outstanding balances with proceeds from the new facility.
12
13
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, 1997
AND 1996
In addition to the historical information contained herein, Management's
Discussion and Analysis of Financial Condition and Results of Operations also
includes forward-looking statements that involve risks and uncertainties, many
of which may be beyond the company's control. These may include, but are not
limited to, general and economic business conditions, launch success, satellite
and communications product performance, availability of required capital, market
acceptance of new products and technologies, performance of the company's
affiliates ORBCOMM Global, L.P. ("ORBCOMM") and Orbital Imaging Corporation
("ORBIMAGE"), and U.S. government policies, priorities and funding of programs
related to the company's launch, satellite, and electronics and sensor systems
lines of business. The actual results that Orbital achieves may differ
materially from any forward-looking statements due to such risks and
uncertainties.
RECENT DEVELOPMENTS. On July 11, 1997, Orbital entered into an agreement to
acquire substantially all the assets, including all the stock of certain
subsidiaries, and certain liabilities relating to the satellite manufacturing
and communications services businesses of CTA INCORPORATED ("CTA").
Additionally, on July 31, 1997, Orbital acquired from Rockwell International
Corporation ("Rockwell") the assets and certain liabilities, associated with
Rockwell's PathMaster automotive navigation product line.
The company's products and services are grouped into three business sectors:
Space and Ground Infrastructure Systems, Satellite Access Products, and
Satellite-Delivered Services. Space and Ground Infrastructure Systems include
Launch Systems, Satellites, Electronics and Sensor Systems, and Ground Systems.
The company's Satellite Access Products sector consists of satellite-based
navigation and communications products and transportation management systems.
The company's Satellite-Delivered Services sector includes satellite-based,
two-way mobile data communications services and satellite-based imagery
services.
Certain of the 1997 and 1996 financial information has been restated. See Note 1
to the condensed consolidated financial statements.
REVENUES. Orbital's revenues for the three-month periods ended June 30, 1997 and
1996 were $90,263,000 and $115,063,000, respectively. Revenues for the six-month
periods ended June 30, 1997 and 1996 were $203,536,000 and $219,864,000,
respectively.
Revenues for the 1997 second quarter include sales to ORBCOMM, a Delaware
limited partnership in which Orbital holds a 50% non-controlling interest, of
$15,621,000, as compared to $15,762,000 for the 1996 second quarter. Sales to
ORBCOMM for the six-
13
14
month periods ended June 30, 1997 and 1996 were $27,224,000 and $29,470,000,
respectively.
Space and Ground Infrastructure Systems
Revenues from the company's Space and Ground Infrastructure Systems totaled
$70,560,000 and $96,050,000 for the three months ended June 30, 1997 and 1996,
respectively, and $167,920,000 and $177,618,000 for the six months ended June
30, 1997 and 1996, respectively.
Revenues from the company's launch systems of $27,799,000 in the second quarter
of 1997 were consistent with the $26,089,000 in the second quarter of 1996.
Launch system revenues were $54,853,000 for the six months ended June 30, 1997
as compared to $45,329,000 for the comparable 1996 period. The increase in
year-to-year revenues is attributable to increased revenues from the company's
Taurus launch vehicle program, and from the resumption of production and launch
of the company's Pegasus launch vehicle in 1997. Additionally, the company was
just beginning to perform work under the X-34 reusable launch vehicle program in
the first quarter of 1996, and did not generate significant revenues until the
second quarter of 1996. Accordingly, the year-to-date 1997 X-34 revenues are
significantly higher than the comparable 1996 period, but on a
quarter-to-quarter comparison, X-34 revenues are generally consistent.
For the three months ended June 30, 1997, satellite revenues decreased to
$3,943,000 from $28,000,000 in the second quarter of 1996. Satellite revenues
were $28,745,000 for the six months ended June 30, 1997 as compared to
$50,541,000 for the comparable 1996 period.
Revenues from electronics and sensor systems were $22,128,000 for the three
months ended June 30, 1997 as compared to $21,367,000 in the 1996 comparable
period. Electronics and sensor systems revenues for the six months ended June
30, 1997 and 1996 were $50,194,000 and $37,849,000, respectively. The increase
in revenues is primarily a result of work performed on defense electronics and
sensor systems orders received during the second half of 1996 and first quarter
of 1997.
Revenues from the company's ground systems products were $16,690,000 in the
second quarter of 1997 as compared to $20,594,000 in the 1996 quarter. Ground
systems product revenues were $34,128,000 for the six months ended June 30, 1997
as compared to $43,899,000 for the comparable 1996 period. Revenues for the
three- and six-month periods ended June 30, 1996 included approximately
$4,664,000 and $9,138,000, respectively, of sales generated by the company's
former subsidiary, The PSC Communications Group Inc. ("PSC"); the company sold
substantially all the assets of PSC during the fourth quarter of 1996. Excluding
the decrease attributable to the PSC sale, ground systems revenues increased
slightly on a quarter-to-quarter basis, and are consistent on a year-to-year
basis.
Satellite Access Products
14
15
Revenues from sales of navigation and communications products and transportation
management systems increased to $19,889,000 for the 1997 second quarter as
compared to $18,688,000 for the comparable 1996 period. Satellite access product
revenues were $35,535,000 for the six-months ended June 30, 1997 as compared to
$41,456,000 for the comparable 1996 period. The significant decrease in year to
year revenues is primarily attributable to increased competition in certain
markets for consumer global positioning system ("GPS") products.
Satellite-Delivered Services
The company's ORBCOMM start-up business generated virtually no U.S. service
revenues in 1997 or 1996 and is not expected to generate significant revenues
until 1998. As a result of the ORBIMAGE private placement transaction, Orbital
no longer consolidates ORBIMAGE's service revenues.
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 second quarter of 1997 was
$22,439,000 as compared to $32,336,000 in the 1996 second quarter. Gross profit
margin as a percentage of sales for those periods was approximately 25% and 28%,
respectively. The company's gross profit for the first half of 1997 was
$52,457,000 as compared to $65,400,000 for the first half of 1996. Gross profit
margin as a percentage of sales for those periods was approximately 26% and 30%,
respectively. The decreased gross profit margin as a percentage of sales in 1997
is primarily attributable to (i) completing work on certain lower margin launch
vehicle contracts in 1997, (ii) increased revenues generated from lower margin
transportation management systems and (iii) lower margins realized on navigation
and communications products as a result of increased competition.
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, 1997 and 1996 were $7,603,000 and $5,534,000,
respectively. Research and development expenses during the six-month periods
ended June 30, 1997 and 1996 were $15,623,000 and $12,438,000, respectively.
Research and development expenses in 1997 and 1996 relate primarily to the
development of new or improved navigation and communications products, improved
launch vehicles and new satellite initiatives.
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 second quarters of 1997 and 1996 were
$23,244,000 (or 26% of revenues) and $19,829,000 (or 17% of revenues),
respectively. Selling, general and administrative expenses for the first half of
1997 and 1996 were $41,566,000 (or 20% of revenues) and $39,731,000 (or 18% of
revenues), respectively.
15
16
INTEREST INCOME AND INTEREST EXPENSE. Net interest income was $323,000 for the
three months ended June 30, 1997 as compared to net interest expense of $444,000
in the 1996 second quarter. Net interest income during the six-months ended June
30, 1997 was $747,000 as compared to net interest expense of $622,000 during the
1996 comparable period. Interest income for the periods reflects interest
earnings on short-term investments. Interest expense in 1997 is primarily for
outstanding amounts on Orbital's revolving credit facilities and on other
secured and unsecured debt. In 1996, interest expense included interest on the
company's convertible debentures, which were converted to common stock in August
1996. Interest expense has been reduced by capitalized interest of $3,408,000
and $4,056,000 in 1997 and 1996, respectively.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN
CONSOLIDATED SUBSIDIARIES. Equity in losses of affiliates and non-controlling
interests in losses of consolidated subsidiaries for the second quarter of 1997
and 1996 were ($127,000) and ($2,355,000), respectively, and ($883,000) and
($4,340,000) for the six month periods ended June 30, 1997 and 1996,
respectively. These amounts primarily represent (i) elimination of 50% and 100%
of the profits on sales of infrastructure products to ORBCOMM and ORBIMAGE,
respectively, (ii) the company's pro rata share of ORBCOMM's, ORBCOMM
International Partners L.P.'s ("ORBCOMM International"), and ORBIMAGE's current
period earnings and losses, (iii) preferred dividends and beneficial conversion
rights to other investors in ORBIMAGE, and (iv) non-controlling shareholders'
pro rata share of ORBCOMM USA L.P.'s ("ORBCOMM USA") current period earnings and
losses.
PROVISION FOR INCOME TAXES. The company recorded an income tax provision of
$11,320,000 and $338,000 for the three-month periods ended June 30, 1997 and
1996, respectively. For the six-month periods ended June 30, 1997 and 1996, the
company recorded an income tax provision of $11,616,000 and $669,000,
respectively. The 1997 tax provision includes a deferred tax provision of
approximately $10,898,000 relating to the ORBIMAGE preferred stock transaction.
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.
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 expenditures.
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. 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 enhance its businesses. The
company has historically financed its acquisitions, and expects to
16
17
finance its future acquisitions, through cash on hand, cash generated by
operations, the issuance of debt and/or equity securities, and/or asset-based
financings.
At June 30, 1997, cash, cash equivalents and short-term investments were
$34,235,000, and the company had short-term and long-term debt obligations
outstanding of approximately $121,011,000. The outstanding debt relates
primarily to advances under the company's line of credit facilities, secured and
unsecured notes, and fixed asset financings.
On August 6, 1997, Orbital amended and restated its existing revolving credit
facility (the "facility") to provide for total borrowings from an international
syndicate of six banks of up to $100,000,000. This facility includes the
company's subsidiary, Magellan Corporation ("Magellan"), as a borrower. The
facility contains a $35,000,000 term loan, which matures July 2001, and a
$65,000,000 revolving line of credit, borrowings under which are subject to a
defined borrowing base composed of certain receivables of Orbital and its
Magellan subsidiary. The principal amount of the term loan is payable in
quarterly installments beginning December 31, 1997. In addition, the company is
required to reduce borrowings outstanding under the term loan to $25,000,000 to
the extent the company receives certain net cash proceeds from the issuance of
additional debt or equity or asset sales. The interest rate charged under the
facility is a variable rate based on the prime rate or LIBOR. The interest rate
on the initial August 1997 borrowing under the facility was approximately 7.2%.
The facility restricts the payment of cash dividends and contains certain
covenants with respect to the company's working capital levels, fixed charge
ratio, leverage ratio, and tangible net worth, and expires in August 2001.
The facility amends and restates the company's previous $65,000,000 revolving
credit facility under which no borrowings were outstanding at June 30, 1997. In
addition, the facility replaces (i) Magellan's $10,000,000 line of credit under
which $7,490,000 was outstanding at June 30, 1997, and (ii) a $25,000,000
six-month short-term bridge loan that the company obtained on May 7, 1997, under
which $25,000,000 was outstanding at June 30, 1997. In August 1997, the company
repaid these outstanding balances with proceeds from the new facility.
On June 13, 1997, the company issued a $13,210,000 note to a financial
institution. The note bears interest at 7.19%, subject to adjustment, principal
and interest are payable monthly over sixty months, and the note is secured by
certain equipment located in the company's Germantown, Maryland facilities. On
June 19, 1997, the company issued an additional $10,000,000 note to a financial
institution. The note bears interest at 8.64%, principal and interest are
payable monthly over sixty months, and the note is secured by certain office,
computer and test equipment related to the company's launch vehicle operations
in Chandler, Arizona, and Dulles, Virginia.
Additionally, on June 27, 1997, the company terminated its L-1011 aircraft
lease, and purchased the L-1011 aircraft for approximately $9,860,000 from
General Electric Capital Corporation ("GECC"). The company financed the purchase
with a note to
17
18
GECC for approximately $9,860,000, which is secured by the aircraft. The note
bears interest at 8.4% and principal and interest are payable monthly over 94
months.
The company's operations provided net cash of approximately $13,841,000 in the
first half of 1997. The company invested approximately $3,278,000 in ORBCOMM
(consisting solely of capitalized interest costs), and incurred approximately
$13,112,000 in capital expenditures for office equipment, capitalized software
and various spacecraft, launch vehicle and other production and test equipment
in the first half of 1997. In addition, as a result of the transactions
involving ORBIMAGE, the company increased its investment in ORBIMAGE to
approximately $60,767,000 during the second quarter.
On May 8, 1997, the company's subsidiary, ORBIMAGE, completed a private
placement of 300,100 shares of Series A Cumulative Convertible Preferred Stock
(the "Preferred Stock"), raising gross proceeds of $30,010,000. On that date,
Orbital also purchased ORBIMAGE common stock, bringing its total equity invested
to approximately $60,767,000. On July 3, 1997, ORBIMAGE placed an additional
72,605 shares of Preferred Stock, raising an additional $7,260,500.
ORBIMAGE currently expects that it will require additional financing to fully
fund its current business plan. To the extent some or all of the additional
funding can not be raised from third-party investors on specified terms, Orbital
has agreed to purchase up to approximately $42,000,000 in preferred stock (up to
$22,000,000 by December 31, 1997 and up to an additional $20,000,000 by June 30,
1998) on terms defined in the private placement.
Based on its current assessment of the overall business prospects of ORBIMAGE,
the company believes its investment in ORBIMAGE at June 30, 1997 of $60,767,000
is fully recoverable. If, in the future, the ORBIMAGE business is not
successful, the company may be required to expense part or all of its
investment.
On July 11, 1997, Orbital entered into an agreement to acquire substantially all
the assets, including all the stock of certain subsidiaries, and certain
liabilities relating to the satellite manufacturing and communications services
businesses of CTA. As consideration, Orbital will (a) pay $12,000,000 in cash
and (b) refinance $27,000,000 of outstanding debt related to the acquired
business. Total consideration is subject to adjustment based on the difference
between net tangible assets as of May 1997 and as of the closing date. The
payment at closing is subject to a $3,000,000 holdback by Orbital pending
calculation of the net tangible assets. The transaction is expected to close by
mid-August 1997, and the company expects to fund the acquisition utilizing its
existing line of credit. The company will account for the acquisition using the
purchase method of accounting.
On July 31, 1997, Orbital acquired from Rockwell the assets and certain
liabilities associated with Rockwell's PathMaster automotive navigation product
line. Orbital paid approximately $3,550,000 in cash and provided to Rockwell a
$4,350,000 note, which bears interest at 6% and is repayable semi-annually over
three-years. The company will account for the acquisition using the purchase
method of accounting.
18
19
Orbital expects that its capital needs for the remainder of 1997, including the
payment and refinancing related to the CTA acquisition, will in part be provided
by working capital, cash flows from operations, existing credit facilities,
customer financings and operating lease arrangements. The company may also
consider new debt and equity financings to realign its capital structure and to
fund potential capital requirements in 1998 and 1999.
19
20
ORBITAL SCIENCES CORPORATION
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 SECURITY- HOLDERS
(a) The annual meeting of stockholders of the Company was
held on April 24, 1997
(b) Not applicable.
(c)(i) Election of four directions, each serving for a
three- year term:
Douglas S. Luke
Votes: For: 26,782,864 Against: 0
Withheld: 198,421 Abstain: 0
Broker Non-Votes: 0
John L. McLucas
Votes: For: 26,779,339 Against: 0
Withheld: 201,946 Abstain: 0
Broker Non-Votes: 0
Harrison H. Schmitt
Votes: For: 26,783,987 Against: 0
Withheld: 197,298 Abstain: 0
Broker Non-Votes: 0
20
21
Scott L. Webster
Votes: For: 26,492,439 Against: 0
Withheld: 488,846 Abstain: 0
Broker Non-Votes: 0
(i) Proposal to approve the adoption of an
amendment to Section 5 of the Company's
Restated Certificate of Incorporation
increasing the number of authorized shares
of Common Stock from 40,000,000 to
80,000,000.
Votes: For: 25,430,097 Against: 1,459,408
Withheld: 0 Abstain: 91,780
Broker Non-Votes: 0
(i) Proposal to approve the adoption of the
Orbital Sciences Corporation 1997 Stock
Option and Incentive Plan.
Votes: For: 20,797,605 Against: 6,042,032
Withheld: 0 Abstain: 141,648
Broker Non-Votes: 0
(i) Proposal to ratify the selection of KPMG
Peat Marwick LLP as the Company's
independent accountants for the fiscal year
ending December 1997.
Votes: For: 26,793,067 Against: 123,797
Withheld: 0 Abstain: 64,421
Broker Non-Votes: 0
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) Not applicable.
21
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q/A to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: June 28, 2000 By: /s/ JEFFREY V. PIRONE
-----------------------------------------
Jeffrey V. Pirone, Executive Vice President
and Chief Financial Officer
22
23
EXHIBIT INDEX
The following exhibits are filed as part of this report.
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule (such schedule is furnished for the
information of the Securities and Exchange Commission and is
not to e deemed "filed" as part of the Form 10Q, or otherwise
subject to the liabilities of Section 18 of the Securities Act
of 1934) (transmitted herewith).
23