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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
MARCH 31, 2001
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 May 9, 2001, 38,024,222 shares of the registrant's common stock were
outstanding.
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PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2001 2000
------------------ ------------------
(unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 22,138 $ 62,523
Restricted cash and short-term investments, at market 6,838 17,132
Receivables, net 192,743 142,345
Inventories, net 69,741 61,580
Current assets of discontinued operations, net 13,650 9,212
Deferred income taxes and other current assets 25,104 21,314
------------------ ------------------
TOTAL CURRENT ASSETS 330,214 314,106
------------------ ------------------
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS, NET 52,285 53,975
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation
and amortization of $110,715 and $115,364, respectively 127,548 128,713
INVESTMENTS IN AND ADVANCES TO AFFILIATES 2,152 2,327
GOODWILL, less accumulated amortization of $45,074 and $42,766, respectively 214,715 219,691
DEFERRED INCOME TAXES AND OTHER ASSETS 42,390 44,446
------------------ ------------------
TOTAL ASSETS $ 769,304 $ 763,258
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 137,296 $ 137,227
Accounts payable and accrued expenses 205,489 199,850
Deferred revenues 136,793 146,262
------------------ ------------------
TOTAL CURRENT LIABILITIES 479,578 483,339
------------------ ------------------
LONG-TERM OBLIGATIONS, net of current portion 186,935 165,717
RECOGNIZED LOSSES IN EXCESS OF INVESTMENT IN AFFILIATE 25,403 16,038
OTHER LIABILITIES 15,726 14,218
------------------ ------------------
TOTAL LIABILITIES 707,642 679,312
------------------ ------------------
MINORITY INTERESTS 40,265 39,795
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized,
none outstanding -- --
Common Stock, par value $.01; 80,000,000 shares authorized, 37,751,039 and
37,729,476 shares outstanding, respectively 378 377
Additional paid-in capital 515,541 515,462
Accumulated other comprehensive loss (8,419) (7,152)
Accumulated deficit (486,103) (464,536)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 21,397 44,151
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 769,304 $ 763,258
================== ==================
See accompanying notes to condensed consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE QUARTER ENDED
MARCH 31,
----------------------------
2001 2000
------------ ------------
REVENUES $ 174,662 $ 198,851
Costs of goods sold 146,504 165,424
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GROSS PROFIT 28,158 33,427
Research and development expenses 2,563 4,020
Selling, general and administrative expenses 22,290 20,878
Amortization of goodwill 3,291 2,628
------------ ------------
INCOME FROM OPERATIONS 14 5,901
Other income (expense), net 980 1,281
Interest expense, net of capitalized interest (10,237) (4,278)
Equity in earnings (losses) of affiliates (9,945) (23,434)
Minority interests (724) (521)
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES AND DISCONTINUED OPERATIONS (19,912) (21,051)
Provision for income taxes 1,655 1,273
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NET LOSS FROM CONTINUING OPERATIONS (21,567) (22,324)
Loss from discontinued operations -- (4,200)
------------ ------------
NET LOSS $ (21,567) $ (26,524)
============ ============
NET LOSS PER COMMON AND DILUTIVE SHARE
Loss from continuing operations $ (0.57) $ (0.60)
Loss from discontinued operations -- (0.11)
------------ ------------
Net loss $ (0.57) $ (0.71)
============ ============
Shares used in computing net loss per common and dilutive share 37,745,045 37,409,030
============ ============
See accompanying notes to condensed consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
FOR THE QUARTER ENDED
MARCH 31,
--------------------------------------
2001 2000
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(21,567) $ (26,524)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Loss from discontinued operations -- 4,200
Depreciation and amortization expenses 10,442 10,313
Equity in losses of affiliates 9,945 23,434
Other 1,387 2,042
Changes in assets and liabilities (62,785) (10,345)
----------------- ----------------
Net cash provided by (used in) continuing operations (62,578) 3,120
Net cash provided by (used in) discontinued operations (1,872) 961
----------------- ----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (64,450) 4,081
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,921) (10,556)
Purchases of available-for-sale investment securities -- (1,698)
Maturities of available-for-sale investment securities 8,397 --
Investments in and advances to affiliates, net -- (4,050)
----------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES 1,476 (16,304)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) 729 (986)
Principal payments on long-term obligations (9,474) (2,608)
Net proceeds from issuances of long-term obligations 30,000 --
Repayment to joint venture partner -- (28,418)
Net proceeds from issuances of common stock 80 --
----------------- ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 21,335 (32,012)
----------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 1,254 750
----------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (40,385) (43,485)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 62,523 74,428
----------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,138 $ 30,943
================= ================
See accompanying notes to condensed consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
(UNAUDITED)
(1) BASIS OF PRESENTATION AND LIQUIDITY
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or the
"company"), a Delaware corporation, is a leading space technology and
information systems company that designs, manufactures, operates and markets a
broad range of affordable space systems, including launch vehicles, satellites
and related space systems, sensors and electronics systems, and space robotics,
satellite ground systems, and mapping and land information products and
services.
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. However, the
company reported losses from operations for the past several years and had a net
working capital deficit at December 31, 2000 and March 31, 2001. In addition,
the company has not yet completed the sale of certain non-core assets, as
discussed below, that the company believes will be required in order to meet
certain loan covenants and provide adequate liquidity for operations for the
remainder of 2001. The financial statements do not include any adjustments
relating to the recoverability of assets and classification of liabilities that
might be necessary should the company be unable to continue as a going concern.
The company's continuation as a going concern is dependent on its ability to
sell certain non-core assets, restructure its business operations, meet its
budgeted cash flow objectives and comply with the terms of its credit
facilities.
The company incurred a net loss for the quarter ended March 31, 2001, and
expects to incur a net loss for the year ending December 31, 2001 before
considering gains or losses from any asset sales. As of March 31, 2001, the
company had $22,138,000 of unrestricted cash and short-term investments. Current
liabilities exceeded current assets by $149,364,000 at March 31, 2001. The
company's accumulated deficit was $486,103,000 as of March 31, 2001.
The company's liquidity has been, and continues to be, constrained. To meet the
company's capital and operating requirements in 2001, on April 12, 2001,
Orbital's wholly owned subsidiary, MDA Holdings Corporation ("MDA Holdings"),
entered into an agreement to sell 12,350,000 of its MacDonald Dettwiler and
Associates Ltd. ("MDA") shares for $14 Canadian or approximately $9 U.S. per
share. The agreement is subject to certain contingencies, including customary
closing conditions and certain required third party consents. The parties expect
to close the sale by May 31, 2001. Certain of the purchasers also have an option
to acquire MDA Holdings' remaining 5,650,000 shares of MDA, which they must
exercise by May 31, 2001. Further, the company is negotiating to sell its
interests in Magellan Corporation ("Magellan") and Navigation Solutions LLC
("NavSol") (see Note 3). Management's plans also include restructuring business
operations which, combined with the above-described asset sales, management
believes should facilitate its ability to raise additional capital and to
refinance the company's debt (see Note 10). The company will also continue to
pursue opportunities to make
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its operations more efficient in the future in order to improve its
profitability and cash flow from operations. The company's ability to continue
as a going concern is contingent upon management's success in implementing the
foregoing strategy on a timely basis, and the company is accordingly focusing
its near-term efforts on executing certain asset sales and restructuring its
business operations. Management expects that this strategy will generate
sufficient additional liquidity to satisfy its obligations; however, no
assurance can be given that the company will be successful in achieving such
goal. If this strategy is not successfully implemented in a timely manner, the
company anticipates that cash flow from operations in 2001 will be insufficient
to cover capital requirements, operating requirements and debt service.
In the opinion of management, the accompanying unaudited interim financial
information reflects all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation on a going concern basis. Certain information
and footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States
have been condensed or omitted pursuant to instructions, rules and regulations
prescribed by the Securities and Exchange Commission (the "Commission"). The
company believes that the disclosures provided herein are adequate to make the
information presented not misleading when these unaudited interim condensed
consolidated financial statements are read in conjunction with the company's
Annual Report on Form 10-K for the year ended December 31, 2000. Orbital's
consolidated results of operations include the results of operations of its
subsidiaries, including but not limited to MDA Holdings and MDA, which are
separate and distinct entities in all respects. As a result of the company's
formal plan to sell its entire interests in Magellan and NavSol, the assets and
liabilities and results of operations related to these subsidiaries have been
reported in the accompanying financial statements as discontinued operations.
Operating results for the quarter ended March 31, 2001 are not necessarily
indicative of the results expected for the full year.
(2) PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions, including estimates of anticipated contract costs and
revenues utilized in the earnings recognition process, that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Management periodically assesses and evaluates the sufficiency and/or deficiency
of estimated liabilities recorded for various operational and business risks and
uncertainties. Actual results could differ from these estimates.
Certain reclassifications have been made to the 2000 financial statements and
footnote disclosures to conform to the 2001 financial statement presentation.
All financial amounts are stated in U.S. dollars unless otherwise indicated.
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(3) DISCONTINUED OPERATIONS
Magellan manufactures and sells GPS-enabled navigation and positioning products
for consumer markets, as well as similar products that are used for professional
and other high-precision industrial applications. Magellan also sells automotive
navigation products to NavSol, a joint venture between The Hertz Corporation
("Hertz") and Orbital, in which Orbital holds a 60% interest. NavSol collects
fees from Hertz customers for the use of these products. The company had been
accounting for its non-controlled investment in NavSol using the equity method
of accounting and had consolidated the financial results of Magellan, in which
it owns a 66 2/3% interest.
Subsequent to December 31, 2000, the company adopted a formal plan to sell its
entire interest in Magellan and its entire interest in NavSol. The company is
negotiating an agreement to sell Magellan and its interest in NavSol in a
combined transaction. As a result of this plan, the assets, liabilities and
results of operations related to these businesses have been reported in the
accompanying financial statements as discontinued operations for the current and
all prior periods presented. The company anticipates that a sale will occur by
the end of the second quarter of 2001, although there can be no assurance that
such transaction will occur. The carrying values of assets and liabilities of
these businesses are as follows:
MARCH 31, DECEMBER 31,
2001 2000
----------------- ------------
(IN THOUSANDS)
Current assets, net................................ $ 13,650 $ 9,212
Non-current assets, net:
Investment in NavSol............................ 19,985 20,312
Property, plant and equipment, net.............. 5,244 5,692
Goodwill and other, net......................... 27,056 27,971
--------- -------
Net non-current assets............................. 52,285 53,975
--------- -------
Net assets of discontinued operations.............. $ 65,935 $63,187
========= =======
The following summarizes the operating results of the discontinued
operations for the quarters ended March 31, 2001 and 2000:
QUARTER ENDED MARCH 31,
------------------------
2001 2000
---- ----
(IN THOUSANDS)
Revenues ........................................... $23,192 $24,691
Net loss ........................................... (2,127) (4,200)
The company reclassified its consolidated statement of operations and cash flows
for the quarter ended March 31, 2000 to reflect the results of operations and
cash flows related to Magellan and NavSol as discontinued operations. In
accordance with the required accounting for discontinued operations, the company
recorded an accrual in the fourth quarter of 2000 for the estimated losses
incurred during the 2001 phase-out period and, accordingly, the 2001 net loss
shown above is not reported in the 2001 condensed consolidated statement of
operations.
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(4) INVENTORIES
Inventories consist of components and raw materials 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, net of allowances for estimated obsolescence.
Components and raw materials are purchased to support future production efforts.
Work-in-process inventory consists primarily of (i) costs incurred under
long-term fixed-price contracts accounted for using the completed contract
method of accounting and using the percentage-of-completion method of accounting
applied on a units of delivery basis, and (ii) partially assembled commercial
products. Work-in-process inventory generally includes direct production costs
and certain allocated indirect costs (including an allocation of general and
administrative costs).
(5) INDUSTRY SEGMENT INFORMATION
Orbital designs, manufactures, operates and markets a broad range of
space-related products and services that are grouped into four reportable
segments: (i) launch vehicles and advanced programs, (ii) satellites and related
space systems, (iii) sensors and electronics systems, and (iv) space robotics,
satellite ground systems, and mapping and land information products and
services. Reportable segments are generally organized based upon product lines.
The space robotics, satellite ground systems, and mapping and land information
products and services segment is comprised solely of the financial results of
MDA. All other activities of the company are reported in the corporate and other
segment, which includes certain general and administrative expenses of corporate
finance, legal, administrative and general management functions. The company's
investment in, as well as its share of the income or loss of ORBCOMM Global,
L.P. ("ORBCOMM") (for 2000) and Orbital Imaging Corporation ("ORBIMAGE"), are
also included in corporate and other.
Orbital reports industry segment information in conformance with Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 established standards
for reporting information about operating segments in financial statements and
requires selected information about operating segments. It also established
standards for disclosures about products, services and geographic areas.
In 2001, the company recast the composition of certain reportable segments as a
result of new reporting mechanisms and as a result of Magellan and NavSol being
considered discontinued operations. In addition, goodwill and other intangible
assets and the related amortization expense was transferred from corporate and
other to the applicable business segments at January 1, 2001. The corresponding
segment information as of December 31, 2000 and for the quarter ended March 31,
2000 has been revised to conform to the new presentation.
The following table presents operating information for the quarters ended March
31, 2001 and 2000 and identifiable assets at March 31, 2001 and December 31,
2000 by reportable segment. Intersegment sales are generally negotiated and
accounted for under terms and conditions that are
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similar to other commercial and government contracts. There were no significant
sales or transfers between segments.
-----------------------------------
2001 2000
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(IN THOUSANDS)
LAUNCH VEHICLES AND ADVANCED PROGRAMS:
Revenues $ 29,841 $ 36,279
Operating income (loss) (464) 3,767
Identifiable assets 115,148 115,297
Capital expenditures 468 626
Depreciation and amortization 1,925 1,970
SATELLITES AND RELATED SPACE SYSTEMS:
Revenues $ 51,670 $ 68,024
Operating income (loss) (1,831) (471)
Identifiable assets 170,837 144,224
Capital expenditures 1,635 1,484
Depreciation and amortization 2,134 2,273
SENSORS AND ELECTRONICS SYSTEMS:
Revenues $ 22,069 $ 36,569
Operating income (loss) 412 1,424
Identifiable assets 75,891 70,374
Capital expenditures 211 404
Depreciation and amortization 753 1,578
SPACE ROBOTICS, SATELLITE GROUND SYSTEMS, AND MAPPING
AND LAND INFORMATION PRODUCTS AND SERVICES:
Revenues $ 72,638 $ 61,470
Operating income (loss) 3,541 3,673
Equity in earnings (losses) of affiliates (181) (90)
Identifiable assets 268,350 269,969
Capital expenditures 3,285 1,478
Depreciation and amortization 4,668 2,491
CORPORATE AND OTHER:
Revenues $ (1,556) $ (3,491)
Operating income (loss) (1,644) (2,492)
Equity in earnings (losses) of affiliates (9,764) (23,344)
Minority interest (724) (521)
Identifiable assets 139,078 163,394
Capital expenditures 1,322 6,564
Depreciation and amortization 962 2,001
CONSOLIDATED:
Revenues $ 174,662 $ 198,851
Operating income (loss) 14 5,901
Equity in earnings (losses) of affiliates (9,945) (23,434)
Minority interest (724) (521)
Identifiable assets 769,304 763,258
Capital expenditures 6,921 10,556
Depreciation and amortization 10,442 10,313
(6) EARNINGS PER SHARE
Net loss per common share is calculated using the weighted average number of
common shares outstanding during the periods. Net loss per common share,
assuming 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 convertible notes, after giving effect to
all net income adjustments that would result from the assumed conversion.
In periods of net loss, the assumed conversion of convertible notes and stock
options is anti-dilutive. Accordingly, fully diluted per-share losses are the
same as basic losses per share
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disclosed on the accompanying statements of operations. If the company had
reported net income, the number of shares used in calculating diluted earnings
per share for the quarters ended March 31, 2001 and 2000, would have been
41,327,436 and 41,220,187, respectively.
(7) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) and associated differences are as follows:
QUARTER ENDED MARCH 31,
-----------------------
2001 2000
---- ----
(IN THOUSANDS)
Differences between net loss, as
reported, and comprehensive loss:
Net loss, as reported $ (21,567) $ (26,524)
Translation adjustments (721) (613)
Unrealized gains on investments (546) --
-------------- -------------
Comprehensive loss $ (22,834) $ (27,137)
============== =============
Accumulated differences between net loss, as reported, and
comprehensive loss:
Beginning of period $ (7,152) $ (5,159)
Translation adjustments (721) (613)
Unrealized gains on investments (546) --
-------------- -------------
End of period $ (8,419) $ (5,772)
============== ==============
(8) INVESTMENTS IN AND TRANSACTIONS WITH ORBCOMM
During 2000, Orbital owned a limited partnership interest in ORBCOMM and
accounted for this investment using the equity method of accounting in the first
half of 2000. In September 2000, ORBCOMM and its subsidiaries commenced
reorganization proceedings under Chapter 11 of the U.S. Federal Bankruptcy Code.
As a result, Orbital wrote off its investment in ORBCOMM and wrote down
ORBCOMM-related receivables and inventory to their estimated recoverable value
in 2000. Although management believes that these write-offs were sufficient to
cover the company's current exposure, such reserves do not include any
additional charges that might result should any disputes, litigation or
unforeseen contingencies related to ORBCOMM arise. Orbital discontinued
recognizing ORBCOMM equity losses in the second half of 2000.
Until 2000, Orbital was the primary supplier to ORBCOMM of its communications
satellites, launch vehicles and certain of its satellite ground systems and
software. During the second quarter of 2000, ORBCOMM failed to meet payment
obligations to Orbital under the ORBCOMM system procurement agreements.
Accordingly, effective June 2000, the company ceased recognizing revenue on the
ORBCOMM system procurement agreements.
On April 23, 2001, immediately following approval of such sale by the United
States Bankruptcy Court for the District of Delaware, ORBCOMM sold a majority of
its assets to a newly formed acquisition entity called OGLP Acquisition Sub LLC
("OGLP Acquisition"). In conjunction with the acquisition, ORBCOMM, Teleglobe
Holdings, OGLP Acquisition, ORBCOMM's unsecured
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creditors' committee, the holders of more than $90 million in principal amount
of ORBCOMM's senior notes, Orbital's subsidiary Orbital Communications
Corporation ("OCC"), and Orbital entered into an agreement providing for a
consensual liquidating plan of reorganization for ORBCOMM. Under the liquidating
plan, the company would contribute shares of its common stock having a market
value of $6,500,000 (subject to a floor price of $3.75 per share and a ceiling
price of $6.50 per share) and would release claims against ORBCOMM and receive
releases from the ORBCOMM estate, including releases of potential preference
claims, and a release of OCC from the holders of at least a majority in
principal amount of ORBCOMM's senior notes. Also in conjunction with the
acquisition of ORBCOMM's assets, OCC entered into an asset purchase agreement
with OGLP Acquisition and OGLP Acquisition Sub II Corp., a wholly owned
subsidiary of OGLP Acquisition, pursuant to which OCC has agreed to transfer to
OGLP Acquisition Sub II Corp., subject to fulfillment of certain conditions, the
Federal Communications Commission licenses relating to the ORBCOMM System. Upon
consummation of the proposed liquidating plan, the company would receive a
substantial equity interest in OGLP Acquisition. There can be no assurance that
the plan will be consummated; if it is not consummated, Orbital expects that
ORBCOMM's reorganization proceeding would be converted to a Chapter 7
liquidation proceeding.
(9) INVESTMENTS IN AND TRANSACTIONS WITH ORBIMAGE
The company uses the equity method of accounting for its ownership interest in
ORBIMAGE. As of March 31, 2001 and December 31, 2000, the company's share of
ORBIMAGE's losses exceeded the company's investment in ORBIMAGE. This excess,
totaling $25,403,000, is reported as a liability in the accompanying
consolidated balance sheet as of March 31, 2001.
Under a procurement agreement between Orbital and ORBIMAGE, Orbital is providing
and launching the OrbView-3 and OrbView-4 satellites, and constructing the
related ground segment on a fixed-price basis. As a result of ORBIMAGE's lack of
liquidity and weakened financial condition, Orbital ceased recognizing revenues
on the ORBIMAGE system procurement contract beginning in the third quarter of
2000 and commenced accounting for its contract with ORBIMAGE using the completed
contract method. Under the completed contract method, costs incurred under the
contract are capitalized as inventory. At March 31, 2001, the company had total
billed and unbilled receivables due from ORBIMAGE of approximately $500,000 and
approximately $27,362,000 of ORBIMAGE-related inventory. In March 2001, due to a
delay in the OrbView-4 launch, Orbital paid $1,000,000 to ORBIMAGE as partial
payment of a $2,500,000 launch delay penalty that is otherwise due after May
2001.
In March 2001, ORBIMAGE defaulted on its interest payment obligations under its
$225,000,000 Senior Notes due 2005. The Senior Notes are non-recourse to
Orbital. ORBIMAGE management currently estimates that ORBIMAGE has sufficient
resources to meet its capital and operating requirements through the second
quarter of 2001. ORBIMAGE is seeking to restructure the Senior Notes and to
obtain capital from third parties as well as its existing shareholders. There
can be no assurance that such capital will be available on a timely basis or at
all. Should ORBIMAGE be unsuccessful in its efforts to raise additional capital,
Orbital's ORBIMAGE-related receivables and inventory totaling $27,862,000 at
March 31, 2001
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could become impaired. Furthermore, Orbital could be subject to litigation by
ORBIMAGE and/or its creditors.
(10) DEBT OBLIGATIONS
Orbital's primary credit facility (the "Primary Facility") is with an
international syndicate of banks and provided for total borrowings of
$115,000,000, all of which was drawn and outstanding at March 31, 2001. On
February 23, 2001, the company entered into a $30,000,000 364-day loan (the
"Secondary Facility") with this bank syndicate. At that same time, the company
amended and restated the Primary Facility (the "Amended and Restated Primary
Facility") in order to, among other things, modify the prepayment terms, expand
the collateral provided to the banks and change the expiration date from
December 2002 to July 2002. Orbital's borrowings are now collateralized by
accounts receivable, intellectual property, inventory, equipment, real estate
and certain other assets, including the stock of the company's wholly owned
subsidiaries, which include MDA Holdings, the holder of all shares of MDA that
the company beneficially owns. The Amended and Restated Primary Facility and the
Secondary Facility prohibit the payment of cash dividends and the making of
investments, and contain certain covenants with respect to working capital
levels, operating cash flows, leverage and net worth. During the first quarter
of 2001, the company defaulted under several financial covenants dealing with
minimum consolidated net worth, consolidated leverage and senior leverage under
both the Amended and Restated Primary Facility and the Secondary Facility. The
defaults were waived by the bank group in amendments signed in April 2001.
The Amended and Restated Primary Facility and the Secondary Facility require
that the company reduce outstanding balances under the facilities in connection
with debt issuances, equity issuances or asset sales. The company must apply
100% of the first $50,000,000 of net cash proceeds from any asset sale, 43.75%
of the next $80,000,000 and 70% thereafter to pay down amounts owing under the
Secondary Facility first, and then the Amended and Restated Primary Facility. In
addition, the company must apply 100% of net cash proceeds from any debt
issuances and 55% of the net cash proceeds of any equity issuance to pay down
the facilities. Orbital will default under the leverage covenant in both the
Secondary Facility and the Amended and Restated Primary Facility unless it
completes one or more asset sales by June 30, 2001 that raise sufficient
proceeds to pay down a significant portion of debt.
MDA has a credit facility with a syndicate of six banks that provides a total
facility to MDA and its subsidiaries of $126,650,000, consisting of a
$73,325,000 revolving facility, a $20,000,000 term facility and a $33,325,000
program-specific letter of credit facility. At March 31, 2001, $29,162,000 and
$18,622,000 were outstanding under the revolving and term facilities,
respectively. The credit facility is collateralized by MDA's assets and includes
certain operational and financial covenants, including certain restrictions on
the payment of dividends. MDA's credit facility is non-recourse to Orbital.
Magellan maintains a short-term credit facility that is guaranteed by Orbital.
At March 31, 2001, approximately $8,874,000 was outstanding on this facility.
These borrowings are collateralized by Magellan's accounts receivable,
inventory, equipment and general intangibles. In the first
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quarter of 2001, the company repaid $1,100,000 of this credit facility under the
guarantee in order to avoid a default on Magellan's tangible net worth covenant.
(11) COMMITMENTS AND CONTINGENCIES
LITIGATION
In the first quarter of 2000, PT Media Citra Indostar, an Indonesian company
("PT-MCI"), commenced arbitration seeking a refund of $163,000,000 PT-MCI
asserts it paid in connection with a communications satellite constructed by CTA
Incorporated ("CTA") under a contract that was assigned to Orbital in connection
with its 1997 acquisition of CTA. PT-MCI's allegations include fraud and
multiple breaches of contract. The company's claims against PT-MCI for unpaid
invoices in the approximate amount of $14,000,000 are also part of the
arbitration proceedings. Orbital believes that PT-MCI's allegations are without
merit and intends to vigorously defend against the allegations. In addition,
under the terms of the CTA acquisition, Orbital believes it is entitled to
indemnification from CTA for all or a part of any damages arising from the
PT-MCI litigation and that CTA retains liability for certain fraud claims being
made by PT-MCI.
The company is currently arbitrating a claim brought by Thomas van der Heyden
alleging that the company is in actual or anticipatory breach of obligations
allegedly imposed on the company in a judgment in a previous action brought by
the plaintiff against CTA. Mr. van der Heyden claims that he is entitled to a
sum exceeding $30,000,000 from the company, as successor-in-interest to CTA.
Management believes that Mr. van der Heyden's allegations in these proceedings
are without merit and intends to vigorously defend against the allegations. In
addition, under the terms of the CTA acquisition, Orbital believes it is
entitled to indemnification from CTA for all or a part of any damages arising
from this litigation.
In March 2001, MDA and certain of its executive officers, as well as the
Province of British Columbia and various provincial government officials, were
named in a lawsuit brought by Infowest Services Inc. alleging various
conspiracies among MDA and others, breach of contract, abuse of government power
and other related allegations in connection with the BC Online procurement
during 1997 to 1999. The lawsuit seeks over $80,000,000 in damages. MDA believes
that these claims are without merit and intends to vigorously defend against the
allegations.
The eventual outcome of the foregoing legal matters is uncertain and could have
a material adverse impact on the company's results of operations and financial
condition.
The company and its subsidiaries are parties to certain other litigation or
proceedings arising in the ordinary course of business. In the opinion of
management, the probability is remote that the outcome of any such other
litigation or proceedings will have a material adverse effect on our results of
operations or financial position.
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CONTRACTS
Most of the company's government contracts are funded incrementally on a
year-to-year basis. Changes in government policies, priorities or funding levels
through agency or program budget reductions by the U.S. Congress or executive
agencies could materially adversely affect our financial condition or results of
operations. Furthermore, contracts with the U.S. government may be terminated or
suspended by the U.S. government at any time, with or without cause. Such
contract suspensions or terminations could result in unreimbursable expenses or
charges or otherwise adversely affect our business.
Since 1996, Orbital had been developing, constructing and testing several X-34
reusable rocketplanes under a contract with the National Aeronautics and Space
Administration ("NASA"). NASA terminated this contract for convenience in March
2001. The company wrote down X-34-related property, plant and equipment, and
accounts receivable to their estimated realizable values in the fourth quarter
of 2000. Although Orbital is seeking to recover from NASA a significant portion
of its uncompensated costs associated with the X-34 contract, there can be no
assurance that the company will be successful in recovering such costs on a
timely basis, if at all.
CONTINGENCIES
In 1996, ORBCOMM issued $170,000,000 14% senior unsecured notes due 2004 (the
"ORBCOMM Notes") to institutional investors. ORBCOMM defaulted on the ORBCOMM
Notes, in September 2000. The ORBCOMM Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC and Teleglobe Mobile. On April 5,
2001, HSBC Bank USA, the indenture trustee for the ORBCOMM Notes, submitted to
OCC and other guarantors of the ORBCOMM Notes a formal demand for payment of the
outstanding principal amount of the notes, plus accrued unpaid interest from
February 15, 2000 and related expenses. OCC's obligation is non-recourse to
Orbital.
The creditors committee of ORBCOMM has notified the company that they believe
ORBCOMM's bankruptcy estate is entitled to recover approximately $57,000,000 in
allegedly preferential payments that Orbital received in connection with the
sale of satellites and launch services to ORBCOMM during the one-year period
preceding ORBCOMM's bankruptcy filing. The creditors committee has also asserted
that the ORBCOMM estate is entitled to recover approximately $900,000 in
allegedly preferential payments received by MDA. Orbital believes that all such
claims are without merit and that the company has adequate defenses to all such
claims. As discussed in Note 8 above, the proposed ORBCOMM liquidating plan of
reorganization would, if consummated, include a release of the foregoing claims.
During the second quarter of 2000, Orbital agreed to temporarily refund
$20,000,000 to ORBIMAGE in January 2001 from amounts previously paid by ORBIMAGE
under its procurement agreement with Orbital, provided, however, that such
obligation would be terminated if Orbital were to successfully broker a
renegotiation of ORBIMAGE's license agreement for worldwide RadarSat-2 satellite
distribution rights with MDA by January 2001.
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The existing RadarSat-2 agreement was terminated in February 2001 and replaced
by a new agreement between MDA and ORBIMAGE for exclusive U.S. Radarsat-2
distribution rights. Orbital believes that as a result, its obligation to
temporarily refund $20,000,000 was extinguished. ORBIMAGE has notified Orbital
of its position, notwithstanding the renegotiation of the license agreement,
that the $20,000,000 refund is now due and payable, which Orbital disputes. The
parties are currently in discussions to resolve this matter. Under the new
RadarSat-2 license agreement, $10,000,000 will be due from ORBIMAGE to MDA in
2002. Orbital has agreed to purchase up to $10,000,000 of receivables from
ORBIMAGE in 2002, subject to certain conditions, if ORBIMAGE is unable to make
its 2002 payments to MDA.
(12) RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the company adopted Statement of Financial Accounting
Standard No. 133, as amended, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" ("SFAS No. 133"), which changes the way in which the
company will account for its derivative transactions to require the company to
recognize the fair value of all derivative transactions, including embedded
derivatives, as a recognized asset or liability. The accounting for the gains or
losses resulting from the changes in the fair value of derivatives is dependent
on whether the derivative is designated as a hedge, the intended use of the
hedge and the extent to which a designated hedge is effective. Adjustments to
reflect changes in the fair value of derivatives that are not designated as a
hedge or that are not considered to be highly effective are reflected in
earnings. Adjustments to reflect changes in fair value of derivatives that are
designated as hedges and considered highly effective are either reflected in
earnings and offset by corresponding adjustments related to the fair values of
the hedged items, or reflected in other comprehensive income until the hedged
transaction matures and the entire transaction is recognized in earnings. The
change in fair value of the ineffective portion of a hedge and the change in the
fair value of all derivatives not designated as a hedge are recognized
immediately in earnings. The company engages in derivative transactions and
hedging activities on a very limited basis. The adoption of SFAS 133 did not
have a material impact on the company's financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
With the exception of historical information, the matters discussed below and
elsewhere in this report on Form 10-Q include forward-looking statements that
involve risks and uncertainties, many of which are beyond our control. A number
of important factors, including those identified in "Item 1 - Business
Considerations," in our Annual Report on Form 10-K for the year ended December
31, 2000, may affect our actual results and may cause actual results to differ
materially from those anticipated or expected in any forward-looking statement.
We assume no obligation to update any forward-looking statements.
We have adopted a strategy intended to increase Orbital's focus on our core
space technology business units. This strategy includes the disposition of
certain non-core assets. In the first quarter of 2001, we adopted a formal plan
to dispose of Magellan Corporation ("Magellan"), which designs, produces,
distributes, sells and licenses satellite access products, and our investment in
Navigation Solutions LLC ("NavSol"), a joint venture engaged in satellite-aided
automotive guidance and related value-added information services. Accordingly,
Magellan's financial results are no longer included in our financial results
from continuing operations and our equity interest in NavSol is no longer
included in our earnings (losses) of affiliates for all periods presented.
We own substantially all the common stock of Orbital Imaging Corporation
("ORBIMAGE"). We exercise significant influence over ORBIMAGE's operational and
financial affairs, but we do not control such affairs. Accordingly, we use the
equity method of accounting for our ownership interest in ORBIMAGE.
In the first half of 2000, we recognized all of the revenues earned and costs
incurred on sales of products and services to ORBCOMM and ORBIMAGE. We
eliminated our share of profits from these sales to the extent these entities
were capitalizing system construction costs. As a result of the weakened
financial condition of ORBCOMM and ORBIMAGE, however, we stopped recognizing
revenues on sales to ORBCOMM and ORBIMAGE effective June and July 2000,
respectively.
In September 2000, ORBCOMM Global, L. P. ("ORBCOMM") and its subsidiaries
commenced reorganization proceedings under Chapter 11 of the U.S. Federal
Bankruptcy Code. Accordingly, we wrote off our investment in ORBCOMM and wrote
down ORBCOMM-related receivables and related inventories to their estimated
recoverable value in the second half of 2000. We had accounted for this
investment using the equity method of accounting through the second quarter of
2000. Although management believes that these write-offs are sufficient to cover
our current exposure, such reserves do not include any additional charges to
Orbital that might result should any disputes, litigation or unforeseen
contingencies related to ORBCOMM arise.
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RECENT DEVELOPMENT
On April 12, 2001, our wholly owned subsidiary, MDA Holdings Corporation ("MDA
Holdings"), which holds our shares in MacDonald, Dettwiler and Associates Ltd.
("MDA"), entered into an agreement with a group of Canadian institutional and
private equity investors to sell 12,350,000 shares for $14 Canadian or
approximately $9 U.S. per share before fees and expenses. The agreement is
subject to certain contingencies including customary closing conditions and
certain required third party consents. The parties expect to close the sale by
May 31, 2001. Certain of the purchasers also have an option to acquire MDA
Holdings' remaining 5,650,000 shares of MDA, which must be exercised by May 31,
2001.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2001 AND 2000
Our products and services are grouped into four reportable segments: (i) launch
vehicles and advanced programs, (ii) satellites and related space systems, (iii)
sensors and electronics systems, and (iv) space robotics, satellite ground
systems, and mapping and land information products and services. All other
activities of the company, as well as consolidating eliminations and adjustments
are reported in corporate and other.
As noted previously, the financial information for Magellan and NavSol is not
included in the results from continuing operations for all periods presented.
REVENUES
The following table summarizes revenues from our reportable business segments
and corporate and other:
QUARTER ENDED MARCH 31,
-------------------------------------------
2001 2000
---- ----
(IN THOUSANDS)
Launch Vehicles and Advanced Programs (1) $29,841 $ 36,279
Satellites and Related Space Systems (2) 51,670 68,024
Sensors and Electronics Systems (3) 22,069 36,569
Space Robotics, Satellite Ground Systems, and
Mapping and Land Information Products and
Services (4) 72,638 61,470
Corporate and Other (5) (1,556) (3,491)
-------- --------
TOTAL $174,662 $198,851
======== ========
(1) Revenues in this segment decreased in the first quarter of 2001 as
compared to the first quarter of 2000 due to decreases in revenues from
launch vehicles as well as advanced programs. Revenues from launch
vehicles decreased primarily as a result of the suspension of revenue
recognition under the company's procurement agreements with ORBCOMM and
ORBIMAGE which accounted for approximately $4,500,000 revenues in the
aggregate in the first quarter of 2000. In addition, launch vehicle
revenues for the first quarter of 2000 included revenues recognized on a
Taurus launch vehicle contract with the U. S. Air Force
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that was completed in March 2000. The impact of the reduction in
revenues from these programs was partially offset by revenues recognized
in the first quarter of 2001 on the Navy Supersonic Sea Skimming Target
(SSST), a suborbital program that was awarded to the company in July
2000. Revenues from advanced programs decreased largely as a result of
the termination of the X-34 reusable rocketplane development contract
with the National Aeronautics and Space Administration ("NASA"), which
contract NASA terminated for convenience in March 2001.
(2) Revenues from satellites and related space systems decreased in the
first quarter of 2001 as compared to the first quarter of 2000 primarily
as a result of the suspension of revenue recognition under the company's
procurement agreements with ORBCOMM and ORBIMAGE which accounted for
approximately $14,000,000 in the aggregate of revenues in the first
quarter of 2000. The remainder of the decrease in revenues is primarily
attributable to lower revenues in our science and technology satellites
business area.
(3) Revenues from sensors and electronics systems decreased in the first
quarter of 2001 as compared to the first quarter of 2000 primarily due
to the sale in October 2000 of our Fairchild Defense electronics
business unit ("Fairchild"), which reported $16,900,000 of revenues in
the first quarter of 2000. The absence of Fairchild's revenues in 2001
was offset in part by increases in revenues from a number of
transportation management programs.
(4) The space robotics, satellite ground systems, and mapping and land
information products and services segment is comprised solely of the
financial results of MDA. Revenues increased in the first quarter of
2001 as compared to the first quarter of 2000 primarily as a result of
the acquisition of the DataQuick products division of Axciom Corporation
("DataQuick") in the second quarter of 2000.
(5) Corporate and other includes the elimination of intercompany revenues,
as well as adjustments to properly report revenues on certain contracts
that are subdivided among more than one business unit.
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INCOME (LOSS) FROM OPERATIONS
Income (loss) from operations by reportable business segment and corporate and
other activities was as follows:
QUARTER ENDED MARCH 31,
-------------------------------------------
2001 2000
---- ----
(IN THOUSANDS)
Launch Vehicles and Advanced Programs (1) $ (464) $ 3,767
Satellites and Related Space Systems (2) (1,831) (471)
Sensors and Electronics Systems (3) 412 1,424
Space Robotics, Satellite Ground Systems, and
Mapping and Land Information Products and
Services (4) 3,541 3,673
Corporate and Other (5) (1,644) (2,492)
-------- --------
TOTAL $ 14 $ 5,901
======== ========
(1) Operating results for launch vehicles and advanced programs decreased in
the first quarter of 2001 as compared to the first quarter of 2000
primarily as a result of the suspension of revenues and profits from the
ORBCOMM procurement agreements during the second quarter of 2000, the
completion of the Taurus launch vehicle contract for the U.S. Air Force
in the first quarter of 2000 and termination of the X-34 contract in
March 2001. The decrease in profits from these programs was offset in
part by the profit contributed by the SSST program in the first quarter
of 2001.
(2) The operating loss from satellites and related space systems increased
in the first quarter of 2001 as compared to the first quarter of 2000
primarily as a result of the suspension of revenues and profits from the
ORBCOMM contract.
(3) Operating income from sensors and electronics systems decreased in the
first quarter of 2001 as compared to the first quarter of 2000 primarily
due to the sale in October 2000 of our Fairchild Defense unit, partially
offset by an increase of profits from several transportation management
systems programs.
(4) Operating income from space robotics, satellite ground systems, and
mapping and land information products and services decreased slightly in
the first quarter of 2001 as compared to the first quarter of 2000
primarily due to an increase in general and administrative expenses and
new business start-up costs which offset the increase in profits related
to the DataQuick acquisition last year.
(5) Corporate and other includes expenses for various corporate general and
administrative activities that are not allocated to the operating
segments.
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INTEREST EXPENSE
Interest cost, before deducting capitalized interest, was $10,237,000 and
$4,744,000 for the quarters ended March 31, 2001 and 2000, respectively. No
interest was capitalized in the first quarter of 2001 and $466,000 was
capitalized in the first quarter of 2000. Interest expense increased in the
first quarter of 2001 as compared to the first quarter of 2000 primarily as a
result of fees incurred to amend our primary credit facility and to enter into a
secondary credit facility in the first quarter of 2001 in addition to interest
accrued on a vendor financing arrangement.
OTHER INCOME (EXPENSE), NET
Other income (expense), net includes interest earnings on short-term investments
and realized gains and losses on investments. Interest income and other, net was
$980,000 and $1,281,000 for the first quarter of 2001 and 2000, respectively.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES
Equity in (earnings) losses of affiliates is primarily comprised of (i)
elimination of our proportionate share of profits on sales to ORBCOMM and
ORBIMAGE, (ii) our proportionate share of earnings and losses of ORBCOMM and
ORBIMAGE, and (iii) preferred dividends and beneficial conversion rights to
other investors in ORBIMAGE.
Equity in earnings (losses) of affiliates were as follows:
QUARTER ENDED MARCH 31,
-----------------------
2001 2000
---- ----
(IN THOUSANDS)
ORBCOMM (1)........................ $ --- $(17,073)
ORBIMAGE (2) ....................... (9,365) (6,270)
Other .................................... (580) (91)
------- ---------
$ (9,945) $(23,434)
======= =========
(1) In the second half of 2000, we wrote off our investment in ORBCOMM;
accordingly, we no longer recognize equity losses for ORBCOMM.
(2) Beginning in January 2001, ORBIMAGE discontinued capitalizing interest
on satellites under construction. As a result, ORBIMAGE's net loss
increased significantly in the first quarter of 2001 as compared to the
first quarter of 2000 due to the increase in interest expensed.
MINORITY INTERESTS
The minority stockholders' proportionate share of MDA's net income was $724,000
and $521,000 in the first quarter of 2001 and 2000, respectively.
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PROVISION FOR INCOME TAXES
We recorded income tax provisions of $1,655,000 and $1,273,000 in the first
quarter of 2001 and 2000, respectively. The provision in both periods is
attributable to foreign taxes recognized by MDA. Our interim income tax
provision is based on an estimate of our full-year provision. Estimated
provisions recorded during interim periods may be periodically revised, if
necessary, to reflect current estimates.
DISCONTINUED OPERATIONS
As discussed previously, in the first quarter of 2001, the company adopted a
formal plan to dispose of Magellan and our investment in NavSol. We expect to
complete an agreement to sell these businesses in the second quarter of 2001. We
recorded an accrual in the fourth quarter of 2000 for the estimated losses
during the 2001 phase-out period. Accordingly, the first quarter 2001 losses for
these businesses are not reflected in our 2001 condensed consolidated statement
of operations.
BACKLOG
Our firm backlog at March 31, 2001, was $896,077,000. Firm backlog consists of
aggregate contract values for firm product orders, excluding the portion
previously included in operating revenues on the basis of percentage of
completion accounting, and including government contract orders not yet funded.
Total backlog was $3,993,550,000 at March 31, 2001. Total backlog includes firm
backlog in addition to unexercised options, undefinitized orders, contract award
selections, indefinite quantity contracts, and the projected revenue stream
related to an exclusive government license. Firm and total backlog at March 31,
2001 included approximately $347,787,000 and $715,521,000, respectively,
attributable to MDA. Firm and total backlog at March 31, 2001 does not give
effect to new orders received or any terminations or cancellations since that
date.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2001, we funded our capital requirements for
operations through cash from operations combined with cash on hand and the
proceeds from a $30,000,000 loan from our bank syndicate discussed below. Our
liquidity has been, and continues to be, constrained and we anticipate that in
2001 cash flow from operations will be insufficient to cover our capital
requirements, operating requirements and debt service. To meet our capital and
operating requirements, we have entered into an agreement to sell 12,350,000 of
our MDA shares, at approximately $9.00 per share. The agreement is subject to
customary closing conditions, including certain required third party consents,
and the parties expect to close the sale by May 31, 2001. Certain of the
purchasers also have an option to acquire MDA Holdings' remaining 5,650,000
shares of MDA by May 31, 2001. Further, we are negotiating to sell our interests
in Magellan and NavSol, which we consider to be non-core assets. Management's
plans also include restructuring business operations, which, combined with the
above-described asset sales should facilitate our ability to raise additional
equity capital and refinance our debt. Management
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expects that this strategy will generate sufficient additional liquidity to
satisfy our obligations; however, no assurance can be given that we will be
successful in achieving such goal. Our ability to continue as a going concern is
contingent upon our success in implementing the foregoing strategy on a timely
basis, and we are accordingly focusing our near-term efforts on executing
certain asset sales and restructuring our business operations.
We incurred a net loss in the first quarter of 2001 and expect to incur a net
loss for the year ending December 31, 2001 before considering gains or losses
from any asset sales. As of March 31, 2001, we had $22,138,000 of unrestricted
cash and short-term investments. Our accumulated deficit was $486,103,000 as of
March 31, 2001. Current liabilities exceeded current assets by $149,364,000 at
March 31, 2001.
We invested $6,921,000 in capital expenditures for various satellites, launch
vehicles and other infrastructure production, manufacturing and test equipment,
buildings and leasehold improvements and office equipment in the first quarter
of 2001. In the quarter ended March 31, 2001, we reported a $62,578,000 net use
of cash for our continuing operations and a $1,872,000 net use of cash to fund
discontinued operations.
Cash and investments were $28,976,000 and total debt obligations were
$324,231,000 at March 31, 2001. Orbital's outstanding debt at March 31, 2001
included $100,000,000 of convertible 5% subordinated notes due October 2002,
$144,500,000 outstanding under our primary and secondary credit facilities which
are discussed below, $8,874,000 of short-term debt of Magellan that was
guaranteed by us, $47,784,000 borrowed by MDA under its credit facility which is
non-recourse to us, $6,666,000 outstanding under our secured note with The
Northwestern Mutual Life Insurance Company, and other unsecured notes and
asset-based financings. Cash and investments at March 31, 2001 included
approximately $6,838,000 restricted to support bank covenants and outstanding
letters of credit. Our current ratio (defined as current assets divided by
current liabilities) was 69% at March 31, 2001. Our ratio of total debt less
cash and investments to total debt plus total stockholders' equity was
approximately 85% at March 31, 2001.
Our primary credit facility is with an international syndicate of banks and
provided for total borrowings of $115,000,000, all of which was drawn and
outstanding as of March 31, 2001, at a weighted average interest rate of 10.56%
(the "Primary Facility"). On February 23, 2001, we entered into a $30,000,000
364-day loan (the "Secondary Facility") with this bank syndicate. At that same
time, we amended and restated the Primary Facility (the "Amended and Restated
Primary Facility") in order to, among other things, modify the prepayment terms,
expand the collateral provided to the banks and change the expiration date from
December 2002 to July 2002. Our borrowings are now collateralized by accounts
receivable, intellectual property, inventory, equipment, real estate and certain
other assets, including the stock of the company's wholly owned subsidiaries,
which include MDA Holdings, the holder of all shares of MDA that we beneficially
own. The Amended and Restated Primary Facility and the Secondary Facility
prohibit the payment of cash dividends and the making of investments, and
contain certain covenants with respect to our working capital levels, operating
cash flows, leverage and net worth. During the first quarter of 2001, we
defaulted under several financial covenants dealing
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with minimum consolidated net worth, consolidated leverage and senior leverage
under both the Amended and Restated Primary Facility and the Secondary Facility.
These defaults were waived by the bank group in amendments signed in April 2001.
The Amended and Restated Primary Facility and the Secondary Facility require
that we reduce outstanding balances under the facilities in connection with debt
issuances, equity issuances or asset sales consummated by us. We must apply 100%
of the first $50,000,000 of net cash proceeds from any asset sale, 43.75% of the
next $80,000,000 and 70% thereafter to pay down amounts owing under the
Secondary Facility first, and then the Amended and Restated Primary Facility. In
addition, we must apply 100% of net cash proceeds from any debt issuances and
55% of the net cash proceeds of any equity issuance by us to pay down the
facilities. We will default under the leverage covenant in both the Secondary
Facility and the Amended and Restated Primary Facility unless we complete one or
more asset sales by June 30, 2001 that raise sufficient proceeds to pay down a
significant portion of debt.
In January 2001, we also agreed to make pro rata payments under our note payable
to Northwestern Mutual Life Insurance Company at the time payments are made to
our lenders under the Amended and Restated Primary Facility in connection with
asset sales, equity issuances or debt issuances.
We have guaranteed payment of amounts owed by Magellan under its credit facility
with a bank. In the first quarter of 2001, we repaid $1,100,000 of this credit
facility under the guarantee in order to avoid a default by Magellan on its
tangible net worth covenant.
MDA has a credit facility with a syndicate of six banks, which is non-recourse
to us. The facility provides for total availability of approximately
$126,650,000 (of which approximately $47,784,000 was outstanding at March 31,
2001) and contains certain operational and financial covenants including certain
restrictions on the payment of dividends. The total available amount includes a
program-specific letter of credit facility of $33,325,000.
ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources
to meet its capital and operating requirements through the second quarter of
2001. In March 2001, due to a delay in the OrbView-4 launch, we paid $1,000,000
to ORBIMAGE as partial payment of a $2,500,000 launch delay penalty that is
otherwise due after May 2001. ORBIMAGE is seeking to restructure its outstanding
debt, which is non-recourse to us, and to obtain additional capital from third
parties as well as its existing shareholders. There can be no assurance that
such capital will be available on a timely basis or at all.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company does not have any material exposure to interest rate changes,
commodity price changes, foreign currency fluctuation, or similar market risks,
although we have entered into forward exchange contracts to hedge against
specific foreign currency fluctuations, principally with respect to the Canadian
dollar and Japanese yen. At March 31, 2001, the majority of the company's
long-term debt consisted of its $100,000,000 5% convertible subordinated notes,
due October 2002. The fair market value of these convertible securities
fluctuates with the company's stock price, and was $57,570,000 at March 31,
2001.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The company and its subsidiaries are parties to certain other
litigation or proceedings arising in the ordinary course of business.
In the opinion of management, the probability is remote that the
outcome of any such litigation or other proceedings would have a
material adverse effect on our results of operations or financial
positions.
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
Not a pplicable.
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. None.
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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 SCIENCES CORPORATION
DATED: May 15, 2001 By: /s/ David W. Thompson
--------------------------------------------
David W. Thompson
Chief Executive Officer
DATED: May 15, 2001 By: /s/ Garrett E. Pierce
--------------------------------------------
Garrett E. Pierce
Executive Vice President, Chief
Financial Officer
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EXHIBIT INDEX
The following exhibit is filed as part of this report.
Exhibit No. Description
10.1 Amendment No. 15 dated as of May 1, 2001 to the Third Amended and
Restated Credit and Reimbursement Agreement dated as of December 21,
1998 among Orbital Sciences Corporation, the banks party thereto and
Morgan Guaranty Trust Company of New York as Collateral Agent.
10.2 Amendment No. 2 dated as of May 1, 2001 to the 364-Day Senior Credit
Agreement dated as of February 23, 2001 among Orbital Sciences
Corporation, the banks party thereto and Morgan Guaranty Trust
Company of New York as Collateral Agent.
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