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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
JUNE 30, 1996
ORBITAL SCIENCES CORPORATION
Commission file number 0-18287
DELAWARE 06-1209561
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(State of Incorporation) (IRS Identification number)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
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(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 July 31, 1996, 26,974,891 shares of the registrant's common stock were
outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
A S S E T S
JUNE 30, DECEMBER 31,
1996 1995
------------ -------------
CURRENT ASSETS:
Cash and cash equivalents $ 14,112 $ 15,317
Short-term investments, at market 10,113 19,713
Receivables, net 129,055 118,358
Inventories, net 38,475 38,527
Deferred income taxes and other assets 5,817 7,330
------------ -------------
TOTAL CURRENT ASSETS 197,572 199,245
PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED
depreciation and amortization of $59,074 and $53,067, respectively 94,839 91,512
SATELLITE SYSTEMS, AT COST, LESS ACCUMULATED
depreciation of $958 and $547, respectively 19,667 14,363
INVESTMENTS IN AFFILIATES, NET 82,625 74,063
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED,
less accumulated amortization of $15,203 and $13,697, respectively 74,660 75,395
DEFERRED INCOME TAXES AND OTHER ASSETS 11,408 12,330
------------ -------------
TOTAL ASSETS $480,771 $466,908
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of
long-term obligations $ 42,513 $ 11,907
Accounts payable 18,548 25,808
Accrued expenses 27,198 29,922
Payable to subcontractors 5,592 11,552
Deferred revenue 31,440 32,503
------------ -------------
TOTAL CURRENT LIABILITIES 125,291 111,692
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 92,351 96,990
OTHER LIABILITIES 17,465 19,740
------------ -------------
TOTAL LIABILITIES 235,107 228,422
NON-CONTROLLING INTERESTS IN
NET ASSETS OF CONSOLIDATED SUBSIDIARIES (875) (422)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized:
Series A Special Voting Preferred Stock, 1 share authorized and outstanding -- --
Class B Preferred Stock, 10,000 shares authorized and outstanding -- --
Common Stock, par value $.01; 40,000,000 shares authorized,
26,926,758 and 26,766,029 shares outstanding,
after deducting 15,735 shares held in treasury 269 268
Additional paid-in capital 248,738 247,580
Unrealized gains (losses) on short-term investments (12) 68
Cumulative translation adjustment (3,771) (3,356)
Retained earnings (deficit) 1,315 (5,652)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 246,539 238,908
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $480,771 $466,908
============ =============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED
JUNE 30,
---------------------------------
1996 1995
-------------- ---------------
REVENUES $ 116,512 $ 81,766
COSTS OF GOODS SOLD 83,624 61,036
-------------- ---------------
GROSS PROFIT 32,888 20,730
RESEARCH AND DEVELOPMENT EXPENSES 4,953 5,282
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 19,829 15,432
AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 782 819
-------------- ---------------
INCOME (LOSS) FROM OPERATIONS 7,324 (803)
NET INTEREST EXPENSE (814) (1,181)
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (2,586) (65)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 341 -
-------------- ---------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 4,265 (2,049)
PROVISION (BENEFIT) FOR INCOME TAXES 426 (423)
-------------- ---------------
NET INCOME (LOSS) $ 3,839 $ (1,626)
============== ===============
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE $ 0.14 ($0.07)
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON AND COMMON EQUIVALENT SHARE 27,378,722 25,307,950
============== ===============
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION $ 0.14 ($0.07)
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, ASSUMING FULL DILUTION 31,303,789 29,203,602
============== ===============
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 SIX MONTHS ENDED
JUNE 30,
-------------------------------
1996 1995
------------ -----------
REVENUES $ 221,406 $ 170,741
COSTS OF GOODS SOLD 156,206 124,498
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GROSS PROFIT 65,200 46,243
RESEARCH AND DEVELOPMENT EXPENSES 11,331 10,334
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 39,094 30,397
AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 1,579 1,558
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INCOME FROM OPERATIONS 13,196 3,954
NET INTEREST EXPENSE (1,449) (2,019)
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (4,604) 362
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 598 --
------------ -----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 7,741 2,297
PROVISION FOR INCOME TAXES 774 905
------------ -----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 6,967 1,392
CUMULATIVE EFFECT OF ACCOUNTING CHANGES, net of taxes -- (4,160)
------------ -----------
NET INCOME (LOSS) $ 6,967 $ (2,768)
============ ===========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Income Before Cumulative Effect of Accounting Changes $ 0.26 $ 0.06
Cumulative Effect of Accounting Changes -- (0.17)
------------ -----------
$0.26 ($0.11)
============ ===========
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON AND COMMON EQUIVALENT SHARE 27,270,385 25,041,485
============ ===========
NET INCOME (LOSS) PER COMMON SHARE, assuming full dilution:
Income Before Cumulative Effect of Accounting Changes $ 0.26 $ 0.06
Cumulative Effect of Accounting Changes -- (0.17)
------------ -----------
$0.26 ($0.11)
============ ===========
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, assuming full dilution 31,260,083 28,950,575
============ ===========
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 SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 6,967 $ (2,768)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expense 11,627 10,370
Equity in (earnings) losses of affiliates 4,604 362
Non-controlling interests in earnings (losses) of consolidated subsidiaries (598) --
Gain (loss) on sale of fixed assets and investments (17) --
Cumulative effect of accounting change -- 4,160
Foreign currency translation adjustment (415) 994
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables (10,697) 16,237
(Increase) decrease in inventories (55) (2,470)
(Increase) decrease in other current assets 1,513 (2,655)
(Increase) decrease in other non-current assets 323 1,645
Increase (decrease) in payables and accrued expenses p(16,444) (24,192)
Increase (decrease) in deferred revenue (1,449) (2,932)
Increase (decrease) in other liabilities (2,275) (1,378)
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (6,916) (2,627)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,923) (6,918)
Investments in satellite systems (5,715) (3,357)
Proceeds from sales of fixed assets -- 125
Purchases of investment securities (6,222) (13,083)
Sales of investment securities 9,576 4,310
Maturities of investment securities 6,215 --
Investments in affiliates (12,346) (9,689)
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NET CASH USED IN INVESTING ACTIVITIES (21,415) (28,612)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) 30,200 (16,435)
Principal payments on long-term obligations (4,114) (2,933)
Proceeds from issuance of long-term obligations -- 21,143
Net proceeds from issuances of common stock 1,040 33,246
Adjustment to recast pooled company's year end -- (1,050)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 27,126 33,971
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,205) 2,732
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,317 27,919
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,112 $ 30,651
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(UNAUDITED)
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
information reflects all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation thereof. Certain information and footnote
disclosure normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to instructions, rules and regulations prescribed by the Securities
and Exchange Commission. Although the Company believes that the disclosures
provided are adequate to make the information presented not misleading, these
unaudited interim condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995. Operating results for the three- and six-month
periods ended June 30, 1996 and 1995 are not necessarily indicative of fiscal
year performance.
Orbital Sciences Corporation is hereafter referred to as "Orbital" or the
"Company."
(1) Inventories
Inventories consist of components inventory, work-in-process inventory
and finished goods inventory and are generally stated at the lower of
cost or net realizable value on a first-in, first-out or specific
identification basis.
Components inventory consists primarily of components and raw
materials purchased to support future production efforts.
Work-in-process inventory consists primarily of (i) costs incurred
under U.S. Government fixed-price contracts accounted for using the
percentage of completion method of accounting applied on a units of
delivery basis and (ii) partially assembled commercial products, and
generally includes direct production costs and certain allocated
indirect costs (including an allocation of general and administrative
costs). Work-in-process inventory has been reduced by contractual
progress payments received. Finished goods inventory consists of
fully assembled commercial products awaiting shipment.
(2) Common Stock and Income Per Share
Income per common and common equivalent share is calculated using the
weighted average number of common and common equivalent shares, to
the extent dilutive, outstanding during the periods. Income per
common share assuming full dilution is calculated using the weighted
average
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number of common and common equivalent shares outstanding during the
periods plus the effects of an assumed conversion of the Company's 6
3/4% convertible subordinated debentures (the "Convertible
Debentures"), after giving effect to all net income adjustments that
would result from the assumed conversion. Any reduction of less than
three percent in the aggregate has not been considered dilutive in the
calculation and presentation of income per common share assuming full
dilution.
(3) 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.
(4) Stockholders' Equity and Common Stock
On July 25, 1996, the Company called all its outstanding Convertible
Debentures for redemption on August 14, 1996. Pursuant to the terms
of the indenture governing the Convertible Debentures, the holders of
the Convertible Debentures may redeem their Debentures for a cash
payment of (i) $1,000 in principal, plus (ii) a premium of $47.25,
plus (iii) $30.56 of interest accrued from March 1, 1996 to the date
of redemption for each $1,000 principal amount of Convertible
Debentures. Alternatively, at their option, the holders may convert
their Convertible Debentures into Orbital Common Stock at a price of
$14.375 per share, or approximately 69.565 shares for each $1,000
principal amount of Convertible Debentures.
The Company has entered into a standby underwriting agreement with an
investment bank whereby the investment bank has agreed, subject to
certain customary conditions, to purchase from the Company shares of
its Common Stock to provide proceeds to the Company to satisfy any
redemption by the holders of the Convertible Debentures.
In June 1996, Magellan Corporation ("Magellan"), a wholly owned
subsidiary of the Company, adopted its 1996 Stock Option Plan (the
"Magellan Plan"), pursuant to which options to purchase up to 12.3% of
Magellan's common stock (on a fully diluted basis) may be granted to
Magellan and Orbital employees. In July 1996, options were granted
for approximately six million shares of Magellan common stock under
the Magellan Plan.
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(5) Investments in Affiliates
On August 7, 1996, ORBCOMM Global, L.P. ("ORBCOMM Global") completed a
private financing involving the issuance and sale of $170,000,000
Senior Notes (the "Notes") to certain institutional investors. Net
proceeds from the sale of the Notes (approximately $164,500,000) will
be applied to (i) the design, construction, launch, operation and
marketing of ORBCOMM Global's satellite-based, two-way data
communications network (the "ORBCOMM System") and related development,
operating and management expenses (including cost contingencies) and
(ii) the first two years of fixed interest on the Notes. The
obligations of ORBCOMM Global under the Notes are nonrecourse to the
Company.
The Notes have a term of eight years and generally may not be redeemed
prior to August 15, 2001. The Notes bear interest at the fixed rate
of 14% per annum. In addition, the Notes provide for revenue
participation interest in an aggregate amount of 5% of the ORBCOMM
System revenues, payment of which may be deferred by ORBCOMM Global to
the extent that certain fixed charge ratios are not met. The
obligations under the Notes are guaranteed, jointly and severally, by
the Company's majority-owned subsidiary, Orbital Communications
Corporation ("OCC"), Teleglobe Mobile Partners ("Teleglobe"), ORBCOMM
USA, L.P. and ORBCOMM International, L.P. Such guarantees are also
nonrecourse to the Company. Upon closing of the financing, OCC and
Teleglobe contributed the balance of their capital commitments in
ORBCOMM Global for an aggregate equity investment of approximately
$160 million. The Company and Teleglobe have agreed to commit
additional capital in an amount up to $15 million each in the event of
certain limited contingencies in the future.
(6) Debt
The Company maintains several short-term borrowing arrangements to
meet working capital requirements. During the quarter ended June 30,
1996, the Company modified two of these agreements to provide for
additional borrowing capacity. Orbital's demand line of credit was
increased from $7 million to $25 million and remains unsecured.
Magellan's existing line of credit was increased from approximately $5
million to $10 million and remains collateralized by all of Magellan's
assets.
Orbital's $20 million unsecured loan agreement with The Northwestern
Mutual Life Insurance Company was amended as of July 31, 1996 to waive
non-compliance with a financial ratio requirement, as well as to amend
certain financial covenants and to permit the completion of the
ORBCOMM System financing (see Note (4) above). In connection with
this
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amendment, the interest rate on the note was increased from 10 1/2% to
11 1/2% effective July 1, 1996.
(7) Reclassifications
Certain reclassifications have been made to the 1995 condensed
consolidated financial statements to conform to the 1996 condensed
consolidated financial statement presentation. The November 1995
acquisition of MacDonald, Dettwiler and Associates Ltd. was recorded
using the pooling of interests method of accounting for business
combinations and, accordingly, Orbital's 1995 historical financial
statements have been restated to reflect this transaction.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 1996
AND 1995
Certain statements included in this discussion constitute "forward-looking
statements" within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. In addition, factors such as general economic and
business conditions, product performance, market acceptance of products and
technologies, and dependence upon long-term contracts with commercial and
government customers impact the Company's revenues, expenses and gross profit
from period to period. (Refer to Exhibit 99 filed herewith for further
discussion of some of these factors.)
The Company's products and services are grouped into three business sectors:
Space Infrastructure Systems, Satellite Access Products, and Satellite-Provided
Services. Space Infrastructure includes Launch Systems, Satellites and Space
Systems, Electronics and Sensor Systems, and Ground Systems and Software. The
Company's Satellite Access Products sector consists of satellite-based
navigation and communications products. The Company's Satellite-Provided
Services sector includes satellite-based, two-way mobile data communications
services and Earth imagery remote sensing services.
REVENUES. Orbital's revenues for the three-month periods ended June 30, 1996
and 1995 were $116,512,000 and $81,766,000, respectively. Revenues for the
six-month periods ended June 30, 1996 and 1995 were $221,406,000 and
$170,741,000, respectively.
Space Infrastructure Systems
Revenues from the Company's space infrastructure systems totaled $97,500,000
and $66,385,000 for the three months ended June 30, 1996 and 1995,
respectively, and $179,161,000 and $138,497,000 for the six months ended June
30, 1996 and 1995, respectively. Revenues from the Company's launch systems
increased to $27,554,000 in the second quarter of 1996, from $17,321,000 in the
second quarter of 1995. Launch systems revenues were $46,871,000 for the six
months ended June 30, 1996 as compared to $32,182,000 for the comparable 1995
period. The significant increase in revenues in 1996 is attributable primarily
to the resumption of production and launch of the Company's Pegasus XL launch
vehicle. Orbital has successfully completed all three of its Pegasus launches
to date in 1996, consisting of two Pegasus XL launches and one standard Pegasus
launch. Additionally, revenues generated from the Company's Taurus launch
vehicle also increased as a result of work performed on two orders received
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subsequent to June 30, 1995. As a result, Orbital expects total 1996 launch
systems revenues to continue to exceed 1995's total revenues on a quarterly
basis.
For the three months ended June 30, 1996, satellite systems revenues increased
to $27,982,000 from $14,382,000 in the 1995 quarter. Satellite systems
revenues were $50,541,000 for the six months ended June 30, 1996 as compared to
$28,901,000 for the comparable 1995 period. The increase in satellite systems
sales is primarily due to additional revenues generated from new satellite
orders from government and commercial customers, including 1996 sales to
ORBCOMM Global, L.P. ("ORBCOMM Global") of $22,835,000 as compared to 1995
sales of $3,395,000.
Revenues from electronics and sensors systems were approximately $21,370,000
for the three months ended June 30, 1996 as compared to $17,505,000 for the
comparable 1995 period. Electronics and sensors systems revenues were
$37,849,000 for the six months ended June 30, 1996 as compared to $37,603,000
for the comparable 1995 period. The increase in revenues in the second quarter
is primarily a result of work performed on defense electronics and
transportation management systems orders received during 1996. Orbital expects
sales of electronics and sensors systems to continue to increase as compared to
1995 levels throughout the remainder of 1996.
Revenues from the Company's satellite ground systems and other software
products were $20,593,000 in the second quarter of 1996 as compared to
$17,177,000 for the comparable 1995 period. Satellite ground systems revenues
were $43,899,000 for the six months ended June 30, 1996 as compared to
$37,811,000 for the comparable 1995 period. The 1996 increase in revenues
reflects work performed on new contract awards and is expected to continue at
approximately the same rate throughout 1996.
Satellite Access Products
Revenues from sales of navigation and communications products increased to
$18,688,000 for the second quarter of 1996 as compared to $12,457,000 for the
comparable 1995 period, primarily due to a substantial increase in unit sales
offset, in part, by lower unit prices, for GPS navigators. Satellite access
product revenues were $41,456,000 for the six months ended June 30, 1996 as
compared to $25,193,000 for the comparable 1995 period. The Company expects
navigation and communications products sales to continue to increase as
compared to 1995 levels throughout 1996, although at somewhat lower levels than
achieved during the first six months of 1996.
Satellite-Provided Services
The Company's satellite-based services include communications and information
services. In 1993, the Company's majority-owned subsidiary, Orbital
Communications Corporation ("OCC") and Teleglobe Mobile Partners ("Teleglobe"),
formed ORBCOMM Global for the design, development, construction, integration,
testing and operation of a satellite-based, two-way data communications network
(the "ORBCOMM System"). OCC and
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Teleglobe each hold a 50% interest in ORBCOMM Global. Orbital's subsidiary
Orbital Imaging Corporation ("ORBIMAGE") is seeking to develop and market a
broad range of satellite remote sensing-based information services.
The Company's ORBCOMM and ORBIMAGE start-up businesses generated service
revenues of approximately $325,000 in the 1996 second quarter, and $790,000 for
the six months ended June 30, 1996. Satellite-provided services revenues in
1995 represented sales of ground and network software to ORBCOMM Global of
approximately $2,924,000 and $7,050,000 for the three- and six-month periods
ended June 30, 1995, respectively; no such sales were made in 1996.
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 1996 was
$32,888,000, as compared to $20,730,000 for the comparable 1995 period. Gross
profit margin as a percentage of sales for those periods was approximately
28.2% and 25.4%, respectively. The Company's gross profit for the first half
of 1996 was $65,200,000, as compared to $46,243,000 for the first half of 1995.
Gross profit margin as a percentage of sales for those periods was
approximately 29.4% and 27.1%, respectively. The increased gross profit margin
as a percentage of sales in 1996 is primarily attributable to the resumption of
Pegasus production after launch failures in June 1994 and June 1995. The
Company expects that its gross profit margin for the remainder of 1996 will be
slightly higher than 1995 levels.
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, 1996 and 1995 were $4,953,000 and
$5,282,000, respectively. Research and development expenses during the
six-month periods ended June 30, 1996 and 1995 were $11,331,000 and
$10,334,000, respectively. Research and development expenses in 1996 relate
primarily to the development of new or improved navigation and communications
products, improved launch vehicles and new satellite programs. The Company
expects its research and development expenditures for the rest of 1996 to be
lower than 1995 expenditures both as a percentage of revenues and in absolute
dollar terms.
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 1996 and 1995
were $19,829,000 (or 17.0% of revenues) and $15,432,000 (or 18.9% of revenues),
respectively. Selling, general and administrative expenses for the first
halves of 1996 and 1995 were $39,094,000 (or 17.7% of revenues) and $30,397,000
(or 17.8% of revenues), respectively. The increase in selling, general and
administrative expenses during 1996 as compared to 1995 is primarily
attributable to substantially expanded marketing efforts related to the
Company's ORBCOMM System and ORBIMAGE projects. The Company expects selling,
general and administrative expenses
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as a percentage of revenues during the remainder of 1996 to be generally
consistent with the percentage attained during the first half of 1996.
INTEREST INCOME AND INTEREST EXPENSE. Net interest expense was $814,000 and
$1,181,000 for the three months ended June 30, 1996 and 1995, respectively.
Net interest expense was $1,449,000 and $2,019,000 for the six months ended
June 30, 1996 and 1995, respectively. Interest income for the periods reflects
interest earnings on short-term investments. Interest expense is primarily for
outstanding amounts on Orbital's revolving credit facility, on the Company's
Convertible Debentures and on secured and unsecured debt. Interest expense has
been reduced by capitalized interest of $1,682,000 and $1,188,000 in 1996 and
1995, respectively. The Company expects interest expense in the second half of
1996 to be less than that in the first half as a result of the expected
conversion of the Convertible Debentures (see Liquidity and Capital Resources).
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN
CONSOLIDATED SUBSIDIARIES. Equity in earnings (losses) of affiliates and
non-controlling interests in (earnings) losses of consolidated subsidiaries for
the second quarters of 1996 and 1995 were ($2,245,000) and ($65,000),
respectively. Equity in earnings (losses) of affiliates and non-controlling
interests in (earnings) losses of consolidated subsidiaries for the six-month
periods ended June 30, 1996 and 1995 were ($4,006,000) and $362,000,
respectively. These amounts primarily represent (i) elimination of 50% of the
profits on sales to ORBCOMM Global, (ii) the Company's pro rata share of
ORBCOMM Global's and ORBCOMM International Partners L.P.'s ("ORBCOMM
International") current period earnings and losses and (iii) non-controlling
shareholders' pro rata share of ORBCOMM USA L.P.'s ("ORBCOMM USA") current
period earnings and losses. ORBCOMM International and ORBCOMM USA are
marketing partnerships for the ORBCOMM System.
PROVISION FOR INCOME TAXES. The Company recorded an income tax provision of
$426,000 and $774,000 for the three- and six-month periods ended June 30, 1996.
The Company recorded an income tax benefit of $423,000 for the three-month
period ended June 30, 1995 and an income tax provision of $905,000 for the
six-month period ended June 30, 1995. The Company records its interim income
tax provisions based on estimates of the Company's effective tax rate expected
to be applicable for the full fiscal year. Estimated effective rates recorded
during interim periods may be periodically revised, if necessary, to reflect
current estimates.
At December 31, 1995, Orbital had approximately $100,000,000 and $2,000,000 of
net operating loss and tax credit carryforwards, respectively, which are
available to reduce future income tax obligations, subject to certain annual
limitations and other restrictions.
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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. Additionally, the Company has historically made strategic
acquisitions of businesses and routinely evaluates potential acquisition
candidates. The Company expects to continue to pursue potential acquisitions
that it believes would augment its marketing, technical, manufacturing or
financial capabilities. The Company has funded these requirements to date, and
expects to fund its requirements in the future, through cash generated by
operations, working capital loan facilities, asset-based financings, joint
venture arrangements, and private and public equity and debt offerings.
Cash, cash equivalents and short-term investments were $24,225,000 at June 30,
1996, and the Company had short-term and long-term debt obligations outstanding
of approximately $134,864,000. The outstanding debt relates primarily to
advances under the Company's lines of credit facilities, secured and unsecured
notes, fixed asset financings and the Convertible Debentures.
On July 25, 1996, the Company called all its outstanding 6 3/4% convertible
subordinated debentures (the "Convertible Debentures") for redemption on August
14, 1996. Pursuant to the terms of the indenture governing the Convertible
Debentures, the holders of the Convertible Debentures may redeem their
Debentures for a cash payment of (i) $1,000 in principal, plus (ii) a premium
of $47.25, plus (iii) $30.56 of interest accrued from March 1, 1996 to the date
of redemption for each $1,000 principal amount of Convertible Debentures.
Alternatively, at their option, the holders may convert their Convertible
Debentures into Orbital Common Stock at a price of $14.375 per share, or
approximately 69.565 shares for each $1,000 principal amount of Convertible
Debentures. The Company has entered into a standby underwriting agreement with
an investment bank whereby the investment bank has agreed, subject to customary
conditions, to purchase from the Company shares of its Common Stock to provide
proceeds to the Company to satisfy any redemption by the holders of the
Convertible Debentures.
Orbital's $20 million unsecured loan agreement with The Northwestern Mutual Life
Insurance Company was amended as of July 31, 1996 to waive non-compliance with
a financial ratio requirement, as well as to amend certain financial covenants
and to permit the completion of the ORBCOMM System financing. In connection
with this amendment, the interest rate on the note was increaseed from 10 1/2%
to 11 1/2% effective July 1, 1996.
The Company's primary revolving credit facility provides for total borrowings
from an international syndicate of six banks of up to $65,000,000, subject to a
defined borrowing base comprised of certain contract receivables.
Approximately $21,000,000 of borrowings were outstanding under the facility at
June 30, 1996, and the available facility limit was approximately $25,000,000.
At June 30, 1996, the average interest rate on outstanding borrowings under
this facility was approximately 9%. Borrowings are secured by contract
receivables and certain other assets. The facility restricts the payment of
dividends and contains certain covenants with respect to the Company's working
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capital, fixed charge ratio, leverage ratio and tangible net worth, and expires
in September 1997. The Company (or its subsidiaries) also maintains two
additional, smaller revolving credit facilities, under which approximately
$14,200,000 was outstanding at June 30, 1996. During the quarter ended June
30, 1996, the Company modified the two additional agreements to increase
borrowing capacity from approximately $12,000,000 to approximately $35,000,000.
As anticipated, the Company's operations used net cash of approximately
$6,916,000 in the first half of 1996. The Company also invested approximately
$12,346,000 in ORBCOMM Global, incurred $5,715,000 in capital expenditures
related to ORBIMAGE satellite remote sensing systems, and incurred
approximately $12,923,000 in capital expenditures for various spacecraft
production and test equipment.
On August 7, 1996, ORBCOMM Global completed a private financing involving the
issuance and sale of $170,000,000 Senior Notes (the "Notes") to certain
institutional investors. Net proceeds from the sale of the Notes
(approximately $164,500,000) will be applied to (i) the design, construction,
launch, operation and marketing of the ORBCOMM System and related development,
operating and management expenses (including cost contingencies) and (ii) the
first two years of fixed interest on the Notes. The obligations of ORBCOMM
Global under the Notes are nonrecourse to the Company.
The Notes have a term of eight years and generally may not be redeemed prior to
August 15, 2001. The Notes bear interest at the fixed rate of 14% per annum.
In addition, the Notes provide for revenue participation interest in an
aggregate amount of 5% of the ORBCOMM System revenues, payment of which may be
deferred by ORBCOMM Global to the extent that certain fixed charge ratios are
not met. The obligations under the Notes are guaranteed, jointly and
severally, by OCC, Teleglobe, ORBCOMM USA and ORBCOMM International. Such
guarantees also are nonrecourse to the Company. Upon closing of the financing,
OCC and Teleglobe contributed the balance of their capital commitments in
ORBCOMM Global for an aggregate equity investment of approximately $160
million. The Company and Teleglobe have agreed to commit additional capital in
an amount up to $15 million each in the event of certain limited contingencies
in the future.
Orbital expects to invest up to $15,000,000 in various ORBIMAGE satellite
remote sensing projects for all of 1996. Orbital expects that its capital
needs for the second half of 1996, including its planned investment in its
ORBIMAGE projects, will in part be provided by working capital, cash flows from
operations, credit facilities, asset-based financings, customer financings and
operating lease arrangements. Orbital believes that it is likely to require
additional equity and/or debt financing to fully fund its currently planned
operations and capital requirements in 1997.
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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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - A complete listing of exhibits required is given in
the Exhibit Index that precedes the exhibits filed with this
report.
(b) Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: August 12, 1996 By: /s/ David W. Thompson
----------------------------------------
David W. Thompson, President
and Chief Executive Officer
DATED: August 12, 1996 By: /s/ Jeffrey V. Pirone
----------------------------------------
Jeffrey V. Pirone, Senior Vice President
and Principal Financial Officer
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EXHIBIT INDEX
The following exhibits are filed as part of this report.
Exhibit No. Description
----------- -----------
10.1 Amendment No. 5 to Credit Agreement among Orbital Sciences Corporation,
Orbital Imaging Corporation, Fairchild Space and Defense Corporation, the
Banks (listed on the signature pages), Morgan Guaranty Trust Company of New
York and J.P. Morgan Delaware, dated July 19, 1996 (transmitted herewith).
10.2 Third Amendment to Note Agreement between Orbital Sciences Corporation and The
Northwestern Mutual Life Insurance Company, dated July 31, 1996 (transmitted
herewith).
10.3 Magellan Corporation 1996 Stock Option Plan (transmitted herewith).
11 Statement re: Computation of Earnings Per Share (transmitted herewith).
27 Financial Data Schedule (such schedule is furnished for the information of the
Securities and Exchange Commission and is not to be deemed "filed" as part of
the Form 10-Q, or otherwise subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934) (transmitted herewith).
99 Important Factors Regarding Forward-Looking Statements (transmitted herewith).
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