1
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
SEPTEMBER 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 October 31, 1996, 30,817,649 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
(Unaudited; in thousands, except share data)
A S S E T S
-----------
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $5,251 $15,317
Short-term investments, at market 10,334 19,713
Receivables, net 137,485 118,358
Inventories, net 33,653 38,527
Deferred income taxes and other assets 7,835 7,330
--------- ---------
TOTAL CURRENT ASSETS 194,558 199,245
PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED
depreciation and amortization of $64,067 and $53,067, respectively 100,194 91,512
SATELLITE SYSTEMS, AT COST, LESS ACCUMULATED
depreciation of $1,163 and $547, respectively 21,904 14,363
INVESTMENTS IN AFFILIATES, NET 87,691 74,063
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED,
less accumulated amortization of $15,995 and $13,695, respectively 73,864 75,395
DEFERRED INCOME TAXES AND OTHER ASSETS 9,786 12,330
--------- ---------
TOTAL ASSETS $487,997 $466,908
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings and current portion of
long-term obligations $50,431 $11,907
Accounts payable 18,543 25,808
Accrued expenses 27,213 29,922
Payable to subcontractors 5,775 11,552
Deferred revenue 30,543 32,503
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TOTAL CURRENT LIABILITIES 132,505 111,692
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 34,460 96,990
OTHER LIABILITIES 17,655 19,740
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TOTAL LIABILITIES 184,620 228,422
NON-CONTROLLING INTERESTS IN
NET ASSETS OF CONSOLIDATED SUBSIDIARIES (1,271) (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,
30,869,028 and 26,766,029 shares outstanding,
after deducting 15,735 shares held in treasury 309 268
Additional paid-in capital 302,667 247,580
Unrealized gains (losses) on short-term investments (27) 68
Cumulative translation adjustment (4,072) (3,356)
Retained earnings (deficit) 5,771 (5,652)
--------- ---------
Total stockholders' equity 304,648 238,908
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $487,997 $466,908
========= =========
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)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1996 1995
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REVENUES $119,571 $95,817
COSTS OF GOODS SOLD 87,696 70,741
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GROSS PROFIT 31,875 25,076
RESEARCH AND DEVELOPMENT EXPENSES 3,918 4,087
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 20,039 16,255
AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 794 871
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INCOME FROM OPERATIONS 7,124 3,863
NET INTEREST EXPENSE (26) (987)
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (2,543) (596)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 396 -
----------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,951 2,280
PROVISION FOR INCOME TAXES 495 523
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NET INCOME $4,456 $1,757
=========== ============
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $0.15 $0.06
SHARES USED IN COMPUTING NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE 29,803,856 27,073,286
=========== ============
NET INCOME PER COMMON SHARE, ASSUMING FULL DILUTION $0.15 $0.06
SHARES USED IN COMPUTING NET INCOME
PER COMMON SHARE, ASSUMING FULL DILUTION 31,663,151 30,968,822
=========== ============
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 NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1996 1995
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REVENUES $340,977 $266,558
COSTS OF GOODS SOLD 243,902 195,239
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GROSS PROFIT 97,075 71,319
RESEARCH AND DEVELOPMENT EXPENSES 15,249 14,421
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 59,133 46,652
AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 2,373 2,429
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INCOME FROM OPERATIONS 20,320 7,817
NET INTEREST EXPENSE (1,475) (3,006)
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (7,147) (234)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 994 -
----------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 12,692 4,577
PROVISION FOR INCOME TAXES 1,269 1,428
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INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 11,423 3,149
CUMULATIVE EFFECT OF ACCOUNTING CHANGES, net of taxes -- (4,160)
----------- -------------
NET INCOME (LOSS) $11,423 ($1,011)
=========== =============
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Income Before Cumulative Effect of Accounting Changes $0.41 $0.12
Cumulative Effect of Accounting Changes -- (0.16)
----------- -------------
$0.41 ($0.04)
=========== =============
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON AND COMMON EQUIVALENT SHARE 28,176,215 25,727,761
=========== =============
NET INCOME (LOSS) PER COMMON SHARE, assuming full dilution:
Income Before Cumulative Effect of Accounting Changes $0.41 $0.12
Cumulative Effect of Accounting Changes -- (0.16)
----------- -------------
$0.41 ($0.04)
=========== =============
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, assuming full dilution 31,575,334 29,623,531
=========== =============
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 NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $11,423 ($1,011)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization expense 17,828 14,782
Equity in (earnings) losses of affiliates 7,147 234
Non-controlling interests in earnings (losses) of consolidated subsidiaries (994) --
Gain (loss) on sale of fixed assets and investments (17) --
Cumulative effect of accounting change -- 4,160
Foreign currency translation adjustment (716) (491)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables (19,127) 18,901
(Increase) decrease in inventories 4,767 (50)
(Increase) decrease in other current assets (505) (5,515)
(Increase) decrease in other non-current assets 2,907 (5,694)
Increase (decrease) in payables and accrued expenses (17,225) (20,484)
Increase (decrease) in deferred revenue (2,422) 9,663
Increase (decrease) in other liabilities (2,085) 4,638
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NET CASH PROVIDED BY OPERATING ACTIVITIES 981 19,133
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22,844) (11,880)
Investments in satellite systems (8,704) (6,118)
Proceeds from sales of fixed assets -- 125
Purchases of investment securities (9,163) (24,199)
Sales of investment securities 9,576 4,310
Maturities of investment securities 8,920 --
Investments in affiliates (19,662) (11,853)
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NET CASH USED IN INVESTING ACTIVITIES (41,877) (49,615)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) 38,200 (22,649)
Principal payments on long-term obligations (6,206) (3,917)
Proceeds from issuance of long-term obligations -- 20,955
Fees associated with conversion of debentures (2,571) --
Net proceeds from issuances of common stock 1,406 34,401
Adjustment to recast pooled company's year end -- (1,050)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 30,829 27,740
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,067) (2,742)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,317 27,919
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CASH AND CASH EQUIVALENTS, END OF PERIOD $5,250 $25,177
========== ============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 ("SEC"). 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 nine-month periods ended September 30, 1996 and 1995 are not
necessarily indicative of the results expected for the full year.
Orbital Sciences Corporation is hereafter referred to as "Orbital" or the
"Company."
(1) 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
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share assuming full dilution ("fully-diluted earnings per share") is
calculated using the weighted average number of common and common
equivalent shares outstanding during the periods plus the effects of
an assumed conversion of the Company's 6 3/4% convertible subordinated
debentures (the "Convertible Debentures"), after giving effect to all
net income adjustments that would result from the assumed conversion.
The Convertible Debentures were converted to Orbital Common Stock on
August 14, 1996 (see Note 4). Accordingly, the effects of an assumed
conversion on fully diluted earnings per share are included only
through August 14, 1996. 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 August 14, 1996, the Company completed the redemption of the entire
$55,880,000 outstanding principal amount of Convertible Debentures.
Pursuant to the terms of the indenture governing the Convertible
Debentures, the holders of the Convertible Debentures had the option
of (a) redeeming their holdings for cash payments of (i) $1,000 in
principal, plus (ii) $47.25 in redemption premium, plus (iii) $30.56
of accrued interest to the date of redemption, or (b) choosing to
convert their holdings into Orbital Common Stock at a predetermined
conversion rate of 69.565 shares per each $1,000 principal amount of
Convertible Debentures.
The Company entered into a standby underwriting agreement with an
investment bank whereby the investment bank agreed, subject to
customary conditions, to purchase from the Company shares of its
Common Stock in an amount sufficient to provide proceeds to the
Company to satisfy any redemption by the holders of the Convertible
Debentures. As a result of conversions by the holders and the standby
arrangement, the entire principal amount was converted into
approximately 3,887,304 shares of Common Stock.
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(5) Investments in Affiliates
On August 7, 1996, ORBCOMM Global L.P. ("ORBCOMM Global"), a
partnership 50%-owned by the Company's majority owned subsidiary,
Orbital Communications Corporation ("OCC"), issued $170,000,000 of
senior unsecured notes (the "Notes") in a private placement to
institutional investors. The Notes are non-recourse to Orbital, bear
interest at a fixed rate of 14% per annum, and provide for revenue
participation interest in an aggregate amount of 5% of ORBCOMM System
revenues, payment of which may be deferred by ORBCOMM Global to the
extent that certain fixed charge ratios are not met. 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 interest on the Notes. In connection with the closing of
the financing, OCC contributed the remainder of its capital commitment
to ORBCOMM Global, for an aggregate commitment of approximately
$75,000,000.
The Notes are expected to be exchangeable for an equal principal
amount of 14% Series B Senior Notes due 2004 with Revenue
Participation Interest (the "Exchange Notes"). The Exchange Notes
will be substantially identical in form and term to the Notes except
that the Exchange Notes will be registered under the Securities Act
of 1933, as amended, and will not bear legends restricting the
transfer thereof. The Exchange Notes will be, and the Notes are,
fully and unconditionally guaranteed on a joint and several basis by
OCC. The guarantee is non-recourse to the Company.
(6) 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 NINE-MONTH PERIODS ENDED SEPTEMBER 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, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things,
general economic and business conditions, launch success, product performance,
market acceptance of new products and technologies and the other factors more
fully described in the Company's Registration Statement filed on July 25, 1996,
pursuant to the Securities Act of 1933, as amended, and in Exhibit 99 filed
herewith.
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 September 30,
1996 and 1995 were $119,571,000 and $95,817,000, respectively. Revenues for
the nine-month periods ended September 30, 1996 and 1995 were $340,977,000 and
$266,558,000, respectively.
Space Infrastructure Systems
Revenues from the Company's Space Infrastructure Systems totaled $103,151,000
and $79,259,000 for the three months ended September 30, 1996 and 1995,
respectively, and $282,312,000 and $217,756,000 for the nine months ended
September 30, 1996 and 1995, respectively. Revenues from the Company's launch
systems increased to $28,246,000 in the third quarter of 1996, from $15,441,000
in the third quarter of 1995. Launch systems revenues were $75,117,000 for the
nine months ended September 30, 1996 as compared to $49,623,000 for the
comparable 1995 period. The significant increase in revenues in 1996 is
attributable to additional revenues generated from new orders of the Company's
Taurus launch vehicle, and from the resumption of production and launch of the
Company's Pegasus XL launch vehicle. During 1996, Orbital has carried out five
Pegasus launches, consisting of four Pegasus XL launches and one standard
Pegasus launch. The fourth Pegasus XL launch, which occurred in November
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1996, delivered two NASA satellites to their targeted orbits, but the two
spacecraft did not separate from the launch vehicle. The Company and NASA have
each convened investigation boards to analyze the problem further. The Company
does not currently anticipate that the launch problem will result in
significant launch delays. Orbital expects total 1996 launch systems revenues
to exceed 1995's total revenues.
For the three months ended September 30, 1996, satellite systems revenues
decreased to $29,475,000 from $32,328,000 in the third quarter of 1995.
Satellite systems revenues were $80,016,000 for the nine months ended September
30, 1996 as compared to $61,229,000 for the comparable 1995 period. Revenues
decreased from the corresponding prior year quarter primarily as a result of a
significant amount of revenue recognized in the prior period for work performed
on a contract that was awarded in the third quarter of 1995. The increase in
satellite systems sales on a year-to-year basis is primarily due to additional
revenues generated from new satellite orders from government and commercial
customers. Revenues for the nine months ended September 30, 1996 include sales
to ORBCOMM Global of $34,353,000 as compared to 1995 sales to ORBCOMM Global of
$42,188,000.
Revenues from sensors and electronics systems were approximately $25,572,000
for the three months ended September 30, 1996 as compared to $14,845,000 in the
comparable 1995 period. Sensors and electronics systems revenues were
$63,421,000 for the nine months ended September 30, 1996 as compared to
$52,448,000 for the comparable 1995 period. The increase in revenues in the
third quarter is primarily a result of work performed on defense electronics
and transportation management systems orders received during 1996. Orbital
expects sales of sensors and electronics 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 $19,859,000 in the third quarter of 1996 as compared to
$16,645,000 in the 1995 quarter. Satellite ground systems revenues were
$63,758,000 for the nine months ended September 30, 1996 as compared to
$54,456,000 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 satellite-based navigation and communications products
increased to $15,989,000 for the 1996 third quarter as compared to $14,423,000
for the comparable 1995 period, primarily due to a substantial increase in unit
sales of GPS navigators offset, in part, by lower unit prices. Satellite
access product revenues were $57,445,000 for the nine months ended September
30, 1996 as compared to $39,616,000 for the comparable 1995 period. For the
remainder of 1996, the Company expects navigation and communications products
unit sales to continue to increase as compared to 1995 levels, although at
lower levels than achieved during the first nine months of 1996. Revenues are
expected to be comparable to 1995 levels due to lower unit prices caused by
changes in product line mix and competitive pricing pressure.
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Satellite-Provided Services
The Company's ORBCOMM and ORBIMAGE start-up businesses generated service
revenues of approximately $430,000 in the 1996 third quarter, and $1,220,000
for the nine months ended September 30, 1996. Satellite-provided services
revenues in 1995 of approximately $2,135,000 and $9,185,000 for the three- and
nine-month periods ended September 30, 1995, respectively, primarily
represented sales of ground and network software to ORBCOMM Global; 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 third quarter of 1996 was
$31,875,000 as compared to $25,076,000 in the 1995 third quarter. Gross
profit margin as a percentage of sales for those periods was approximately
26.7% and 26.2%, respectively. The Company's gross profit for the first three
quarters of 1996 was $97,075,000 as compared to $71,319,000 in the first three
quarters of 1995. Gross profit margin as a percentage of sales for those
periods was approximately 28.5% and 26.8%, 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 generally consistent with the margin achieved so far in 1996.
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 September 30, 1996 and 1995 were $3,918,000 and
$4,087,000, respectively. Research and development expenses during the
nine-month periods ended September 30, 1996 and 1995 were $15,249,000 and
$14,421,000, 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
dollars.
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 third quarters of 1996 and 1995
were $20,039,000 (or 16.8% of revenues) and $16,255,000 (or 17.0% of revenues),
respectively. Selling, general and administrative expenses for the first three
quarters of 1996 and 1995 were $59,133,000 (or 17.3% of revenues) and
$46,652,000 (or 17.5% of revenues), respectively. The increase in selling,
general and administrative expenses during 1996 as compared to 1995 was
primarily attributable to substantially expanded marketing efforts related to
the Company's ORBCOMM 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 three quarters of
1996.
INTEREST INCOME AND INTEREST EXPENSE. Net interest expense was $26,000 and
$987,000 for the three months ended September 30, 1996 and 1995, respectively.
Net interest expense was $1,475,000 and $3,006,000 for the nine months ended
September 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 facilities, on
the Company's Convertible Debentures through August 14, 1996, and on other
secured and unsecured debt. Interest expense has been reduced by capitalized
interest of $5,208,000 and $3,769,000 in 1996 and 1995, respectively. The
Company expects interest expense in the fourth quarter of 1996 to be less than
that in any of the first three quarters as a result of the conversion of its
Convertible Debentures during the third quarter of 1996 (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 third quarters of 1996 and 1995 were ($2,147,000) and ($596,000),
respectively. Equity in earnings (losses) of affiliates and non-controlling
interests in (earnings) losses of consolidated subsidiaries for the nine-month
periods ended September 30, 1996 and 1995 were ($6,153,000) and ($243,000),
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 current period
earnings and losses and (iii) non-controlling shareholders' pro rata share of
ORBCOMM USA L.P.'s current period earnings and losses.
PROVISION FOR INCOME TAXES. The Company recorded an income tax provision of
$495,000 and $1,269,000, respectively, for the three-and nine-month periods
ended September 30, 1996. The Company recorded an income tax provision of
$523,000 and $1,428,000 for the three- and nine-month period ended September
30, 1995, respectively. The Company records its interim income tax provisions
based on estimates of the Company's effective tax rate expected to be
applicable for the full fiscal year. Estimated effective rates recorded during
interim periods may be periodically revised, if necessary, to reflect current
estimates.
At December 31, 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.
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
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Company has historically made strategic acquisitions of businesses and
routinely evaluates potential acquisition candidates. The Company expects to
continue to pursue potential acquisitions that it believes would enhance its
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 $15,585,000 at September
30, 1996, and the Company had short-term and long-term debt obligations
outstanding of approximately $84,891,000. The outstanding debt relates
primarily to advances under the Company's line of credit facilities, secured
and unsecured notes, and fixed asset financings.
On August 14, 1996, the Company completed the redemption of the entire
$55,880,000 outstanding principal amount of Convertible Debentures. Pursuant
to the terms of the indenture governing the Convertible Debentures, the holders
of the Convertible Debentures had the option of (a) redeeming their holdings
for cash payments of (i) $1,000 in principal, plus (ii) $47.25 in redemption
premium, plus (iii) $30.56 of accrued interest to the date of redemption, or
(b) choosing to convert their holdings into Orbital Common Stock at a
predetermined conversion rate of 69.565 shares per each $1,000 principal amount
of Convertible Debentures.
The Company entered into a standby underwriting agreement with an investment
bank whereby the investment bank agreed, subject to customary conditions,
to purchase from the Company shares of its Common Stock in an amount sufficient
to provide proceeds to the Company to satisfy any redemption by the holders of
the Convertible Debentures. As a result of conversions by the holders and the
standby arrangement, the entire principal amount was converted into
approximately 3,887,304 shares of Common Stock.
Orbital amended its $20 million unsecured note agreement during the third
quarter of 1996 to facilitate compliance with certain financial covenants as
well as to permit the completion of the ORBCOMM System financing. In
connection with this amendment, the interest rate on the note was increased
from 10 1/2% to 11 1/2% effective July 1, 1996. The Company is currently
considering restructuring or refinancing this debt to obtain a lower interest
rate and/or more flexible terms.
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 $19,000,000 of borrowings were outstanding under the facility at
September 30, 1996, and the available facility limit was approximately
$32,000,000. At September 30, 1996, the average interest rate on outstanding
borrowings under this facility was approximately 8%. Borrowings are secured by
contract receivables and certain other assets. The facility restricts the
payment of dividends and contains certain covenants with respect to the
Company's working capital, fixed charge ratio, leverage ratio and tangible net
worth, and expires in September
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1997. The Company (or its subsidiaries) also maintains two additional, smaller
revolving credit facilities, under which approximately $24,200,000 was
outstanding at September 30, 1996. The borrowing capacity of the two
additional agreements is approximately $35,000,000, consisting of a $10,000,000
line of credit collateralized by substantially all the assets of the Company's
subsidiary, Magellan Corporation, and an unsecured $25,000,000 demand line of
credit.
The Company's operations provided net cash of approximately $981,000 in the
first three quarters of 1996. The Company also invested approximately
$12,958,000 in ORBCOMM Global, incurred $8,704,000 in capital expenditures
related to ORBIMAGE satellite remote sensing systems and incurred approximately
$22,844,000 in capital expenditures for various production and test equipment.
On August 7, 1996, ORBCOMM Global issued $170,000,000 of senior unsecured notes
(the "Notes") in a private placement to institutional investors. The Notes are
non-recourse to Orbital, bear interest at a fixed rate of 14% and provide for
revenue participation interest in an aggregate amount of 5% of ORBCOMM System
revenues, payment of which may be deferred by ORBCOMM Global to the extent
certain fixed charge ratios are not met. 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 (iii) the first two years of interest on the Notes.
The Notes are expected to be exchangeable for an equal principal amount of 14%
Series B Senior Notes due 2004 with Revenue Participation Interest ("the
Exchange Notes"). The Exchange Notes will be substantially identical in form
and term to the Notes except that the Exchange Notes will be registered under
the Securities Act of 1933, as amended, and will not bear legends restricting
the transfer thereof. The Exchange Notes will be, and the Notes are, fully and
unconditionally guaranteed on a joint and several basis by OCC. The guarantee
is non-recourse to the Company.
Orbital expects to invest up to $15,000,000 in various ORBIMAGE satellite
remote sensing projects in 1996, and is exploring various alternatives for
fully funding such projects. Orbital expects that its capital needs for the
fourth quarter of 1996 will in part be provided by working capital, cash flows
from operations, credit facilities, customer financings and operating lease
arrangements. Orbital expects to raise additional funds through equity and/or
debt financings at the parent company or subsidiary level for its currently
planned operations and capital requirements through 1997.
As previously discussed, in November 1996, the Company's Pegasus XL rocket
launched two scientific spacecraft for NASA into their targeted orbit, but the
two spacecraft did not separate from the rocket's third stage as planned. The
Company does not currently expect the launch problem to affect materially its
liquidity requirements, but should future
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scheduled launches be significantly delayed causing delays in contract
receipts, the Company's liquidity could be negatively impacted.
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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) On July 18, 1996, the Company filed a Current Report
on Form 8-K, dated July 18, 1996, disclosing
financial results for the quarter ended June 30, 1996
and certain matters in connection with the ORBCOMM
System financing.
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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: November 14, 1996 By: /s/ David W. Thompson
---------------------------------------
David W. Thompson, President
and Chief Executive Officer
DATED: November 14, 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
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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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