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EXHIBIT 16.1
May 13, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
KPMG LLP ("KPMG") was previously the principal accountants for Orbital Sciences
Corporation ("Orbital" or the "Company") and under date of February 16, 1999,
except as to note 12 which is as of March 18, 1999, we reported on the
consolidated financial statements of the Company as of and for the years ended
December 31, 1998 and 1997. Our appointment as principal accountants was
terminated by the Company on April 22, 1999. We have read the Company's
statements included in Item 4 of its Form 8-K dated April 28, 1999 ("Item 4")
and we agree with those statements, except as follows:
KPMG is not in a position to agree or disagree with the Company's statement in
the first sentence in the first paragraph of Item 4, to the effect that the
Company had determined to change auditors "at the direction of the Audit and
Finance Committee of the Board of Directors".
KPMG is not in a position to agree or disagree with the Company's statement in
the second sentence of the first paragraph of Item 4 that, "The Company has
selected a major international independent auditing firm, subject to the firm's
completion of its pre-acceptance procedures, to audit the Company's consolidated
financial statements for the year ending December 31, 1999."
KPMG believes that the statements in the third paragraph of Item 4 should be
clarified to indicate the unaudited nature of quarterly financial information
restated by the Company.
KPMG does not agree with the second sentence of the third paragraph of Item 4
because we believe it does not accurately characterize the nature of the
adjustments the Company made to its unaudited quarterly financial statements for
the first three quarters of the fiscal year ended December 31, 1998 and to the
unaudited financial information for the fourth quarter of that fiscal year.
Specifically, KPMG believes that the adjustments were not based solely on
"KPMG's interpretation of the specific accounting standards." To the contrary,
KPMG believes that Item 4 should have disclosed that the adjustments included:
(a) adjustments required to correct errors by the Company in recording certain
transactions, which errors caused the Company to record those transactions in a
manner that was inconsistent with generally accepted accounting principles; and
(b) adjustments required to correct the Company's incorrect application or
incorrect interpretation of specific generally accepted accounting principles.
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KPMG does not agree with the fourth paragraph of Item 4. KPMG believes that Item
4 should have explicitly disclosed the adjustments that constituted reportable
disagreements. The matters which led to these adjustments were as follows:
- - During each of the four quarters of 1998, the Company capitalized an
aggregate of approximately $6.6 million of product enhancement costs at
its Magellan subsidiary based on an incorrect application of generally
accepted accounting principles.
- - During the third quarter of 1998, the Company recognized approximately
$5.8 million in revenue on a contract at the Company's MacDonald
Dettwiler & Associates subsidiary based on an incorrect application of
generally accepted accounting principles.
- - During the fourth quarter of 1998, the Company recognized approximately
$1.5 million of revenue with respect to a contract, the terms of which
was not finalized with the customer until after the conclusion of the
quarter.
- - During the fourth quarter of 1998, the Company recognized approximately
$5.4 million of revenue with respect to certain of its long-term
contracts through incorrect reductions to cost estimates to complete
those contracts.
- - During the fourth quarter of 1998, the Company recognized approximately
$3.8 million of revenue with respect to a certain contract based on an
incorrect application of generally accepted accounting principles.
- - During the fourth quarter of 1998, the Company recognized approximately
$5.1 million of revenue relating to sales to an equity method investee
based on an incorrect application of generally accepted accounting
principles.
For each of the matters described above, KPMG proposed adjustments, all of which
were recorded by the Company, to reverse the amounts originally recorded by the
Company.
KPMG also believes that Item 4 should have disclosed the following additional
matters:
- - In connection with the audit of the Company's consolidated financial
statements as of and for the year ended December 31, 1998, KPMG advised
the Company and the Audit and Finance Committee that the items referred
to in KPMG's material weakness letter, dated April 14, 1999, had caused
KPMG to expand significantly the scope of its audit procedures.
- - On or about April 14, 1999, KPMG advised the Company that, as a result of
the items identified in KPMG's material weakness letter, the restatement
of the Company's unaudited results for each of the first three quarters
of 1998, and the adjustments made to the Company's unaudited fourth
quarter results, KPMG had re-evaluated its auditor-client relationship
with the Company. KPMG further advised the Company that, as a result of
that re-evaluation, KPMG had determined that it would stand for
re-appointment as the
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Company's principal accountants only if the Company hired an experienced
chief accounting officer who would have the ultimate authority to make
accounting decisions at the Company. KPMG advised the Company that it
wished to discuss this condition of KPMG accepting re-appointment with
the full Audit and Finance Committee of the Company's Board of Directors.
However, before KPMG could have any such discussions with the full Audit
and Finance Committee, and before the Company had indicated to KPMG if
the condition for re-appointment would be met, the Company terminated
KPMG's appointment.
KPMG believes that the statement in the first sentence of the fifth paragraph of
Item 4 should be clarified to indicate that KPMG's April 14, 1999 material
weakness letter advised the Company that "[d]uring the performance of our audit,
we identified areas of material weakness in the system of internal control over
the Company's financial reporting process."
Very truly yours,
KPMG LLP