SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1994
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from __________ to __________
Commission file number 0-18287
ORBITAL SCIENCES CORPORATION
21700 Atlantic Boulevard
Dulles, Virginia 20166
(703) 406-5000
(Address and telephone number
of principal executive offices)
Delaware 06-1209561
(State of incorporation) (I.R.S. Employer I.D. No.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 (listed on The Nasdaq National Market
System)
________________________
Indicate by check mark whether the registrant (1) has 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing price on March 6, 1995 was approximately
$335,678,381.
As of March 6, 1995, 20,211,540 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for fiscal year ended
December 31, 1994 (the "Annual Report") are incorporated by reference in
Parts I, II and IV of this Report. Portions of the registrant's definitive
Proxy Statement dated March 27, 1995 (the "Proxy Statement") are incorporated
by reference in Part III of this Report.
<PAGE>
ORBITAL SCIENCES CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1994
PART I Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .11
Item 4a. Executive Officers of the Registrant . . . . . . . . . . . . . . . .11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . .13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . .13
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . .13
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . .13
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . .13
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .13
Item 12. Security Ownership of Certain Beneficial Owners and Management . . .13
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . .14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . .14
<PAGE>
ITEM 1. BUSINESS
Background and Recent Acquisitions
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or
the "Company") is a space technology company that designs, manufactures,
operates and markets a broad range of space products and services that are
grouped into three categories: Launch Systems, Space and Electronics Systems,
and Communications and Information Systems. Launch Systems include space and
suborbital launch vehicles and orbit transfer vehicles; Space and Electronics
Systems include satellites, spacecraft platforms, space sensors and instruments,
space payloads and experiments, as well as advanced avionics and data management
systems; and Communications and Information Systems include satellite-based two-
way mobile data communications systems, remote sensing systems and satellite-
based navigation products, along with satellite tracking systems and
environmental monitoring products.
Orbital was incorporated in Delaware in 1987 to consolidate the assets,
liabilities and operations of Space Systems Corporation (formerly named Orbital
Sciences Corporation) ("SSC") and Orbital Research Partners, L.P. (the
"Partnership") through an exchange offer to the Partnership and to the
stockholders of SSC (the "Consolidation"). As a result of the consummation of
the Consolidation in 1988, SSC became a wholly owned subsidiary of Orbital, and
Orbital acquired substantially all of the assets and liabilities of the
Partnership. The Company acquired Space Data Corporation ("Space Data") in
1988, thereby expanding its product lines and increasing its vertical
integration in production and testing. In late 1992, SSC and Space Data were
merged into Orbital, with the Company being the surviving corporation. In
September 1993, Orbital acquired all the assets of the Applied Science
Operation, a division of The Perkin-Elmer Corporation ("ASO"). This operation
designs, develops and produces satellite-borne scientific sensors for space and
terrestrial research and in situ atmospheric monitoring equipment for human
space flight programs.
In August 1994 and December 1994, Orbital acquired Fairchild Space and
Defense Corporation ("Fairchild") and Magellan Corporation ("Magellan"),
respectively. The Fairchild acquisition has enhanced Orbital's satellite system
and subsystem development and production capabilities and has expanded Orbital's
existing product lines by adding various sophisticated electronics products.
Magellan designs, manufactures and markets hand-held receivers for Global
Positioning System ("GPS") satellite-based navigation and positioning for
commercial and consumer markets.
Description of Orbital's Products and Services
The space products and services provided by the Company are grouped into
three categories: Launch Systems, Space and Electronics Systems, and
Communications and Information Systems. Orbital's business is not seasonal to
any significant extent.
Launch Systems
The Company's Launch Systems Group's products include space and suborbital
launch vehicles and orbit transfer vehicles.
Space Launch Vehicles. The Company has developed three space launch
vehicles: the Pegasus(TM) launch vehicle; the Pegasus XL(R) launch vehicle; and
the Taurus(R) launch vehicle. Orbital's Pegasus vehicle is launched from
beneath a modified large aircraft such as a Lockheed L-1011 to deploy 500- to
1,000-pound satellites into low-Earth orbit. The Pegasus vehicle has been
developed and is being produced and marketed pursuant to a joint venture
agreement with Hercules Incorporated ("Hercules"). Through December 1994, the
Company has conducted a total of seven Pegasus missions (including one Pegasus
XL), six of which were fully or partially successful. The modified Pegasus XL,
developed to deploy heavier satellites into orbit, had an unsuccessful first
flight in June 1994. The Company believes it has identified the cause of this
failure and has implemented what it currently believes to be the necessary
corrective actions. In 1992, Orbital entered into a ten-year lease for a
Lockheed L-1011 aircraft, which has been modified to enable it to launch both
the Pegasus and Pegasus XL vehicles. There is no assurance that, in the event
that the L-1011 were unavailable for any reason, another aircraft could be
obtained on a timely or cost-effective basis.
Customers for Pegasus launch vehicles include the National Aeronautics and
Space Administration ("NASA"), the U.S. Air Force, the Advanced Research
Projects Agency ("ARPA"), the Ballistic Missile Defense Organization ("BMDO"),
Spain's National Institute of Aerospace Technology and the Company's majority
owned subsidiary, Orbital Communications Corporation ("ORBCOMMsm"). Orbital
also anticipates Pegasus launches in connection with certain programs of the
Company's wholly owned subsidiary, Orbital Imaging Corporation ("ORBIMAGEsm").
The higher-capacity Taurus vehicle is a ground-launched derivative of the
Pegasus vehicle that can carry payloads weighing up to 3,000 pounds to low-Earth
orbit and payloads weighing up to 800 pounds to geosynchronous orbit. In March
1994, Orbital successfully launched the first Taurus vehicle, deploying two
satellites for ARPA.
The Company continues to explore new, longer-term research and development
opportunities for more affordable and flexible space launch vehicles. In March
1995, the Company and Rockwell International Corporation were selected by NASA
to develop, operate and market the X-34 small reusable launch system.
Suborbital Launch Vehicles. Suborbital launch vehicles place payloads
into a variety of high-altitude trajectories but, unlike space launch vehicles,
do not place payloads into orbits around the Earth. The Company's suborbital
launch products include suborbital vehicles and their principal subsystems,
payloads carried by such vehicles and related launch support installations and
systems used in their assembly and operation. The Company offers its customers
customized vehicle and payload design, manufacturing and integration, launch and
mission support and tracking and recovery services, as well as construction and
activation of launch pads and other infrastructure elements. Customers
typically use the Company's suborbital launch vehicles to launch scientific and
other payloads and for defense-related applications such as target and
interceptor experiments. Primary customers of the Company's suborbital launch
vehicles include the U.S. Army, the U.S. Navy and BMDO.
Orbital's primary programs in 1994 for suborbital launch vehicles and
related systems included the STORM contract pursuant to which Orbital provided
ballistic and maneuvering tactical target suborbital vehicles for use with the
Patriot and Extended Range Interceptor anti-missile defense systems for target
and interceptor experiments for the U.S. Army, the Navy LEAP contract with BMDO
and the High-Gear contract with the Massachusetts Institute of Technology -
Lincoln Laboratory pursuant to which Orbital provided suborbital vehicles that
serve as targets for U.S. Air Force testing of anti-missile defense systems.
Since January 1991, the Company has conducted a total of 37 launches of
suborbital vehicles, of which 33 have been fully or partially successful and
four have been failures.
Orbit Transfer Vehicles. Orbit transfer vehicles carry satellite payloads
from lower- to higher-energy orbits or to interplanetary trajectories. The
Company's Transfer Orbit Stage(TM) ("TOS(TM)") orbit transfer vehicle completed
successful missions in September 1992 (NASA's Mars Observer spacecraft) and
September 1993 (NASA's Advanced Communications Technology Satellite). While
Orbital currently has no bookings for TOS, the Company continues to explore
potential future missions for the vehicle.
Space and Electronics Systems
The Company's Space and Electronics Systems products enable Orbital to
provide its customers fully integrated, low-cost space networks and related
services. The Company's most significant Space and Electronics Systems products
are spacecraft systems and payloads, engineering services, defense avionics and
sensors.
The Company's Dulles, Virginia operations manage the design and production
of the Company's small satellite platforms such as PegaStar(TM), MicroStar(TM)
and PicoStar(TM). The PegaStar spacecraft platform is deployed by the Pegasus
or Taurus launch vehicle for use as a general purpose spacecraft, and is planned
to be used for certain of the Company's satellite-based remote sensing systems,
such as the SeaStar(TM) project. The PegaStar spacecraft platform was first
successfully used in August 1994 in the Company's launch on a Pegasus launch
vehicle of the U.S. Air Force's Advanced Photovoltaic and Electronics Experiment
satellite. Orbital's MicroStar spacecraft platform, which is placed into orbit
by the Pegasus launch vehicle, is designed for use in ORBCOMM's satellite-based
two-way data communications network (the "ORBCOMM System") and also for a
variety of small space science and remote sensing projects, including some of
those being pursued by ORBIMAGE. Customers for the Company's small spacecraft
and related ground station equipment include NASA, the U.S. Air Force, the
University Corporation for Atmosphere Research and ORBCOMM.
The Company's Germantown, Maryland operations (formerly Fairchild) have
enhanced Orbital's satellite system and subsystem development and production
capabilities and have expanded Orbital's existing product lines by adding
various sophisticated electronics products. The Company designs, produces and
tests small and medium class spacecraft for scientific, military and commercial
applications. In addition, Orbital designs and manufactures spacecraft command
and data handling, attitude control and structural subsystems for a variety of
government and commercial customers, and provides a broad range of spacecraft
design engineering services as well as specialized analytical engineering
services for NASA, the Department of Defense ("DoD"), the Department of Energy
and other customers.
The Company develops, manufactures and markets defense avionics, including
advanced electronics and data management systems for aircraft flight operations
and ground support. These systems collect, process and store mission-critical
data for, among other things, mission planning and flight operations, and manage
on-board equipment for strategic tactical military aircraft, helicopters,
satellites and surface vehicles. The primary customers for data management
systems are the U.S. Navy, the U.S. Air Force, and various DoD prime contractors
and foreign governments. The Company is the leading supplier of certain
avionics systems and products, including mission data loaders for the U.S. Navy,
and data transfer equipment and digital terrain systems for the U.S. Air Force.
In addition, as a result of the Fairchild acquisition, the Company now provides
stores management systems, including weapons arming and firing functions for use
on tactical aircraft and helicopters. The avionics systems and products are
deployed on a number of aircraft, including the F-14, F-15, F-16, F-22 and the
LAMPS Helicopter.
Orbital's Pomona, California operations include satellite-borne scientific
sensors and instruments, such as atmospheric ozone monitoring instruments and
environmental sensors. The Total Ozone Mapping Spectrometer ("TOMS") instrument
is being produced by the Company for launch on a Pegasus vehicle for NASA. TOMS
measures ozone concentrations around the world for the purpose of monitoring the
effect of man-made chemicals and atmospheric conditions on the ozone layer. In
addition, Orbital is currently developing and producing various in situ
monitoring products for space and defense applications. These products include
an atmospheric monitoring system for use on the Space Station called the
Atmospheric Composition Monitoring Assembly ("ACMA"). The ACMA, developed under
a contract with The Boeing Company, will measure various atmospheric gases in
the crew's living quarters on the Space Station for the purpose of ensuring a
healthy living environment for astronauts. The Company also produces the
Central Atmospheric Monitoring System for the U.S. Navy for use on submarines.
Communications and Information Systems
Orbital's Communications and Information Systems include products and
services provided by Orbital's Magellan, ORBCOMM and ORBIMAGE subsidiaries.
Magellan manufactures GPS-based navigation and positioning products for
commercial and consumer markets including marine and aviation applications,
outdoor recreational users such as hunters and hikers, professional users such
as geologists, geographers, surveyors, natural resource managers and contractors
and, to a lesser extent, the government. ORBCOMM and ORBIMAGE are developing
satellite-based services to address the expanding markets for global two-way
data communications and information derived from remote sensing of the
atmosphere, oceans and land surfaces. The Company believes that the ORBCOMM and
ORBIMAGE systems will require significant capital investments. Although the
Company believes the long-term profit potential of such service businesses
developed and supported by the Company's proprietary product technologies is
significant, there can be no assurance that the Company will be able to
successfully develop these businesses.
Satellite-Based Navigation and Positioning Products. The Company's
Magellan subsidiary designs, manufactures and markets hand-held GPS receivers
that provide users with precise positioning and navigation information. The
need for positioning and navigation information is central to a broad range of
personal and professional activities including marine navigation, outdoor
recreation (hiking and hunting), surveying and general aviation. Magellan
focuses its research, design and engineering activities on the development of
GPS receivers that are reliable, portable, easy to use and affordable, recently
targeting the growing recreational market. Magellan is also expected to be a
significant supplier of personal communicators for the ORBCOMM System and to be
involved in the continued development of satellite-based communications and
tracking technology for the ORBCOMM System.
In addition, Orbital's Germantown operations produce data management
systems that have been applied to the design, development and manufacture of
"intelligent transportation systems," primarily for metropolitan transit
operators, that provide GPS-based location of vehicles and allow for
communications and schedule management.
ORBCOMM System. The ORBCOMM System, which is being designed, developed,
constructed and launched in two phases, is designed to provide virtually
continuous mobile data communications coverage over much of the Earth's surface.
Under this design, subscribers will be able to use inexpensive, pocket-sized
personal communicators to send and receive short messages, emergency alerts and
other critical information, and to use the position-determining capability of
the communicators to obtain data concerning the location and condition of
automobiles, trucks, shipping vessels and other valuable assets. The Company
expects that the ability to send and receive other short messages and data
without the geographic limitations of existing data communications systems will
stimulate the growth of new markets for satellite-based data communications and
will be used to supplement terrestrial communications systems by providing
relatively low-cost coverage in areas outside the range of these systems.
The ORBCOMM System design consists of a constellation of small low-Earth
orbit satellites, a satellite control center operating and positioning the
satellites, network control centers controlling the flow of information through
the system, local ground stations sending and receiving signals between the
network control centers and nearby satellites, and the mobile communicators used
by subscribers to transmit and receive messages to and from nearby satellites.
In early 1993, the Company successfully launched two experimental satellite
payloads that obtained information concerning spectrum occupancy by existing
users in the frequency bands allocated to low-Earth orbit mobile satellite
systems. The satellite payloads also performed successfully in a variety of
other ORBCOMM System tests.
The Company expects that, using at least 26 satellites and appropriately
located gateway Earth stations, the ORBCOMM System will provide communications
availability generally exceeding 95% during each 24-hour period in the United
States and other temperate zones in the Northern and Southern hemispheres and
exceeding 75% of each 24-hour period in the equatorial region. Equatorial
region availability could be improved to generally exceed 90% with an additional
plane of eight satellites. Outages will be dispersed in brief intervals over the
24-hour period, thereby minimizing the effect of any unavailability of the
system. The ORBCOMM System will only be available in areas where appropriate
licenses have been obtained and generally only where there is a proximate
gateway Earth station.
Development and Financing. Effective June 30, 1993, ORBCOMM and Teleglobe
Mobile Partners ("Teleglobe Mobile"), an affiliate of Teleglobe Inc., created
a partnership, ORBCOMM Development Partners, L.P. ("ORBCOMM Development") for
the design, development, construction, testing and operation of the ORBCOMM
System, and created two marketing partnerships to market the ORBCOMM System in
the United States and internationally. ORBCOMM U.S. L.P. and ORBCOMM
International L.P. (together, the "Marketing Partnerships") each have the
exclusive right to market the ORBCOMM System in the United States and
internationally, respectively. Also effective June 30, 1993, Orbital entered
into the ORBCOMM System Design, Development and Operations Agreement (the
"System Agreement") with ORBCOMM Development pursuant to which ORBCOMM continues
to have responsibility for the overall design, development, integration and
testing of the ORBCOMM System. ORBCOMM has retained control over applicable
licenses issued by the Federal Communications Commission ("FCC"), consistent
with FCC regulations. The System Agreement provides that ORBCOMM will
subcontract with Orbital for construction and launch of the two satellites for
the ORBCOMM Phase 1 System and the 24 satellites for the ORBCOMM Phase 2 System,
and for construction of the satellite control center, the United States network
control center and the four United States gateway Earth stations. The System
Agreement also contains options for the construction and launch by the Company
of an additional eight satellites. Under the System Agreement, Orbital is
providing satellites and launch services and vehicles and the gateway Earth
stations on a fixed-price basis, and is providing the other products and
services on a cost reimbursable basis. Consistent with industry practice for
many launch contracts, the System Agreement contains certain performance
warranties with respect to the satellites and their launch.
Under ORBCOMM Development's partnership agreement, action by the
partnership generally requires the approval of general partners holding a
majority of the participating interests (i.e., interests participating in
profits and losses) held by the general partners. Each of ORBCOMM and Teleglobe
Mobile is a general partner of ORBCOMM Development and holds 50% of the
participating interests in ORBCOMM Development, with the result that the
approval of both the Company and Teleglobe Mobile is necessary for ORBCOMM
Development to act. The partnership agreements for the Marketing Partnerships
contain management provisions generally similar to those of ORBCOMM Development.
Currently, the Company holds 85% of the participating interests in each of the
Marketing Partnerships, and thus is generally able to control these
partnerships.
ORBCOMM Development intends to construct and implement the ORBCOMM System
in two phases: the ORBCOMM Phase 1 System, consisting of the satellite control
center, the United States network control center, four United States gateway
Earth stations and two MicroStar satellites; and the ORBCOMM Phase 2 System,
consisting of an additional 24 MicroStar satellites. ORBCOMM is licensed by the
FCC to launch an additional ten satellites. The decision as to when to deploy
additional satellites will depend upon market and financial factors. The
Company currently expects to complete the construction of the ground portion of
the ORBCOMM Phase 1 System and the construction and launch of the two ORBCOMM
Phase 1 System satellites in the first half of 1995. Subject to the technical
success of the ORBCOMM Phase 1 System and to the ability of ORBCOMM Development
to secure sufficient financing from, among other sources, the exercise of the
Phase 2 Option (as described below), the construction and launch of the 24
additional satellites comprising the ORBCOMM Phase 2 System is targeted to be
completed in late 1996 or early 1997.
Orbital estimates that implementation of the ORBCOMM Phase 1 System in the
United States will cost approximately $66 million, and that implementation in
the United States of the ORBCOMM Phase 2 System will cost approximately an
additional $104 million. Although construction of the ORBCOMM Phase 1 System
is almost completed, development and construction of the ORBCOMM Phase 2 System
is in an early stage and the actual cost of the system and the amount and
structure of anticipated investment in ORBCOMM Development may vary
significantly from current estimates. Teleglobe Mobile has invested $10 million
in ORBCOMM Development in exchange for a 50% participating interest. Orbital
has invested approximately $55 million in ORBCOMM Development, and has committed
to invest the balance of the funding necessary to implement the ORBCOMM Phase
1 System, in exchange for a 50% participating interest and a non-participating
interest in an amount equal to the excess of its investment over $10 million.
In addition, Orbital and Teleglobe Mobile hold 85% and 15% participating
interests, respectively, in each of the Marketing Partnerships.
Teleglobe Mobile has an option (the "Phase 2 Option") to increase its
aggregate investment in ORBCOMM Development to at least $80 million. The Phase
2 Option is exercisable from the launch of the first ORBCOMM satellite and until
the later of 90 days after such launch and initial satellite signal acquisition
or 30 days after completion of on-orbit satellite acceptance testing. If the
Phase 2 Option is exercised, the Company will be obligated to increase its
aggregate investment in ORBCOMM Development to at least $66 million. ORBCOMM
Development intends to seek additional equity contributions and/or bank or other
debt financing for up to $20 to $25 million. ORBCOMM Development has already
obtained asset-based financing of $5 million to fund a portion of its
development and startup costs for the ORBCOMM Phase 2 System. The Company has
guaranteed ORBCOMM Development's outstanding indebtedness, and may be required
to guarantee or provide credit support in connection with additional
indebtedness incurred by ORBCOMM Development. Assuming exercise of the Phase
2 Option, each of Teleglobe Mobile's and Orbital's non-participating interest
in ORBCOMM Development will be increased by the amount of such additional
contribution, and each will continue to hold a 50% participating interest in
ORBCOMM Development. The Company has been informed that Teleglobe Mobile has
obtained a $44 million commitment from Technologies Resources Industries Bhd.,
a Malaysian telecommunications company, to acquire up to 30% of Teleglobe
Mobile's interest in ORBCOMM Development, and that Teleglobe Mobile intends to
seek additional investors to participate in its investment in ORBCOMM
Development. In the event that Teleglobe Mobile does not exercise the Phase 2
Option, Orbital may solicit additional equity or debt investors for ORBCOMM
Development and, if any additional commitment is obtained, Orbital has the
option, under certain circumstances, to purchase, or cause ORBCOMM Development
to purchase, Teleglobe Mobile's interest in ORBCOMM Development and the
Marketing Partnerships. There can be no assurance such funding can be obtained
or, if such funding is available, it will be at acceptable rates. Upon
investment by Teleglobe Mobile in ORBCOMM Development for construction of the
ORBCOMM Phase 2 System, 98% of the participating interests in the Marketing
Partnerships will be transferred to ORBCOMM Development, with ORBCOMM and
Teleglobe Mobile each retaining a 2% participating interest in ORBCOMM U.S. and
ORBCOMM International, respectively.
In the event that Teleglobe Mobile does not exercise the Phase 2 Option or
ORBCOMM Development does not otherwise receive the necessary capital,
implementation and commercial development of the ORBCOMM System may be delayed,
significantly restricted or possibly abandoned, and the Company could be
required to expense part or all of its investment (approximately $55 million as
of December 31, 1994) in the ORBCOMM System. In addition, start-up of the
ORBCOMM System will produce significant ORBCOMM Development operating losses for
several years. Because Orbital has a 50% participating interest in ORBCOMM
Development, Orbital expects to recognize its pro rata share of ORBCOMM
Development profits and losses.
As of December 31, 1994, certain officers and employees of ORBCOMM and
Orbital held options to acquire 599,074 shares of ORBCOMM's common stock (or
approximately 13 percent of ORBCOMM's outstanding common stock) at option
exercise prices ranging from $1.50 to $14.00 per share. Commencing in September
1995, and annually thereafter, holders of ORBCOMM common stock acquired on
exercise of these options may, subject to certain conditions, require ORBCOMM
to purchase such ORBCOMM common stock at its then fair market value.
Regulatory Approvals. In October 1994, ORBCOMM became the first company
to be awarded full FCC authority to construct, launch and operate a low-Earth
orbit satellite-based messaging and data communications network in the United
States. This license, which provides that the ORBCOMM System must be
constructed within six years from the date the license was granted, extends for
a period of ten years from the date the first ORBCOMM System satellite is
operational. At the end of the seventh year of the ten-year term, a renewal
application must be filed with the FCC. As with any such license, the ORBCOMM
System license may be revoked and a license renewal application may be denied
for cause. In late 1994, two other applicants for FCC licenses similar to that
awarded to ORBCOMM petitioned the FCC to reconsider the grant of the license to
ORBCOMM. ORBCOMM has opposed the petition, which the Company and ORBCOMM
believe are without merit. In addition, for the ORBCOMM System to be operated
in other countries throughout the world, the Company or the foreign licensees
must obtain from the appropriate foreign regulatory bodies authority to do so.
The Company anticipates that the cost of these activities will be borne
primarily by foreign licensees. ORBCOMM International has entered into
preliminary agreements with 22 candidate licensees serving 69 countries to seek
such licenses and to initiate country-specific market development in such
countries. There can be no assurance that the Company or foreign licensees will
be granted all licenses or approvals necessary to operate the ORBCOMM System in
any other country.
ORBIMAGE Remote Sensing and Imaging Systems. The Company is currently
seeking to develop and market a broad range of information services to identify
and monitor global environmental changes and to collect and disseminate other
remote sensing information. Small Earth-viewing satellites and related sensors
and instruments to be placed in relatively low orbits are expected to offer
cost-efficient data collection, daily global coverage and high-resolution
imaging services.
In March 1991, Orbital entered into a contract with NASA to provide
worldwide, daily ocean imagery using Orbital's SeaStar environmental monitoring
satellite system, based on the PegaStar spacecraft. The Company plans to
develop, produce, launch and operate the SeaStar system to deliver high-quality
multi-spectral ocean imagery for up to five years, currently scheduled to
commence during 1995. In addition to providing unprocessed real-time ocean data
to NASA, the Company plans to use value-added resellers and other marketing
agents to sell the SeaStar data to other U.S. Government users and to potential
domestic and international customers such as commercial fishermen, oil and gas
companies, ocean transportation companies and oceanographers.
ORBIMAGE is developing and marketing other small satellite-based Earth
observation, remote sensing and environmental monitoring services using, among
other things, the Company's PegaStar and MicroStar spacecraft platforms, Pegasus
and Taurus launch vehicles, space sensors and instruments and other space
products. Services to be provided by ORBIMAGE could include high-resolution
optical imaging of land surfaces for geographic information services, mapping
and news-gathering, sensing of ocean and atmospheric conditions and measuring
of ozone and other gaseous concentrations in the atmosphere. The Company is
currently exploring potential strategic arrangements for the development of
several remote sensing businesses, with Orbital providing launch services,
spacecraft and other related products. There can be no assurance that the
Company will be able to conclude such strategic arrangements or develop
profitable commercial Earth observation, remote sensing or environmental
monitoring businesses.
Satellite Tracking Systems. Orbital's ground tracking systems, installed
at approximately 75 sites around the world, consist of meteorological and
satellite tracking and telemetry stations that are used to collect weather data
and to communicate with and control orbiting spacecraft. Orbital's current
customers for satellite tracking systems include Lockheed Martin Corporation
("Lockheed Martin"), as well as certain ORBCOMM and ORBIMAGE programs.
Financial information, including revenue and gross profit contributions,
concerning the Company's primary products and services is included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company's Annual Report, and is incorporated herein
by reference.
Competition
Orbital believes that competition for sales of its products and services
is based on price, performance and other technical features, reliability,
scheduling and customization.
The primary competition to the Pegasus and Taurus vehicles is expected to
come from the smaller and larger classes, respectively, of LLV launch vehicles
currently being developed by Lockheed Martin. Direct competition to the Taurus
vehicle also comes from EER Systems' Conestoga launch vehicle. Potential
competition to the Pegasus may come from launch systems derived from surplus
ballistic missiles that could be made available by the U.S. Government and
various foreign governments including Russia. In August 1994, the President
signed the National Space Transportation Policy Presidential Decision Directive
pursuant to which agencies of the U.S. Government are authorized to use excess
ballistic missiles to launch payloads into orbit on a case-by-case basis. Such
use may only be permitted after the DoD has determined, among other things, that
such use would meet the agency's needs and would result in a cost savings to the
U.S. Government compared to a commercial launch service. Competition for Taurus
could also come from surplus Titan II launch vehicles, although Titan II
production has been discontinued and only a limited inventory remains. Indirect
competition to Pegasus and Taurus vehicles also exists in the form of secondary
or "piggyback" payload capacity on large boosters such as Ariane, Titan, Long
March and Proton launch vehicles. While secondary payloads offer a low-cost
method of launching satellites in some cases, the secondary status of the
payload often requires customers to accept less desirable orbits, "standby"
launch scheduling and potentially more complicated and costly payload
integration procedures. The Company's TOS vehicle primarily competes with The
Boeing Company's Inertial Upper Stage. In addition, foreign launch vehicles
such as Europe's Ariane IV may compete with TOS for certain satellite launches,
while certain satellites themselves have an integrated orbit transfer stage and
do not require a separate rocket such as the TOS vehicle.
Orbital's suborbital launch vehicles, spacecraft systems and payloads,
satellite-based services and space support products compete with products and
services produced or provided by numerous companies and government entities.
The Company's space instruments and airborne and ground-based electronics, data
management systems and defense-oriented avionics products face competition from
several established manufacturers.
The ORBCOMM System will face direct and indirect competition from numerous
existing and potential alternative communication products and services from
various large and small companies, ranging from one-way tower-based data and
messaging services to sophisticated two-way satellite-based data and voice
communications services. Depending on the requirement of the specific market,
the ORBCOMM System may both compete with and complement existing services such
as paging (offered by SkyTel, PageNet, MobileComm, Metrocall and others),
cellular data (offered by McCaw, Bell Atlantic, and others), specialized mobile
radio (such as that offered by Nextel) and private networks (including Ram and
Ardis). ORBIMAGE may face competition from private and U.S. government entities
that provide satellite-based and other land imaging, environmental monitoring
and atmospheric sensing products. Satellite-based navigation and positioning
products manufactured by the Company's recently acquired Magellan operations
face competition from other producers of GPS receivers. The Company believes
that Magellan's success will depend on its ability to continue to develop new
lower-cost and enhanced performance products and to enter into and develop new
markets for GPS receivers. The Company's space sensors and instruments face
competition from a number of companies and university research laboratories
capable of designing and producing space instruments.
Many of the Company's competitors are larger and have substantially
greater resources than the Company. Furthermore, the possibility exists that
other domestic or foreign companies or governments, some with greater experience
in the space industry and greater financial resources than Orbital, will seek to
produce products or services that compete with those of the Company, including
the Pegasus and Taurus launch vehicles, various suborbital launch vehicles, the
TOS orbit transfer vehicle, PegaStar, MicroStar and other satellite systems, GPS
receivers and ORBCOMM and other satellite services. Any such foreign competitor
could benefit from subsidies from, or other protective measures by, its home
country. In addition, in response to reductions in the U.S. defense budget,
Orbital may face competition from companies, such as missile manufacturers, that
could attempt to adapt existing or future products for non-defense, space and
suborbital launch applications.
Research and Development
The Company expects to continue to invest in product-related research and
development, to conceive and develop new products and services, to enhance
existing products and to seek customer and, where appropriate, strategic partner
investments in these products. Orbital's research and development expenses,
excluding direct customer-funded development, were approximately $14.4 million,
$14.9 million, and $10.6 million, respectively, for the fiscal years ended
December 31, 1994, 1993 and 1992. It is expected that the Company's research
and development expenses during 1995 will be primarily for new or modified
launch systems, spacecraft programs, including possible ORBIMAGE projects, and
satellite-based navigation and positioning products.
Patents and Trademarks
Orbital relies, in part, on patents, trade secrets and know-how to develop
and maintain its competitive position and technological advantage. The Company
holds U.S. and foreign patents relating to the Pegasus vehicle as well as for
other components and products produced by the Company. The Company also has
various pending patent applications relating to Pegasus and the ORBCOMM System.
Certain of the trademarks and service marks used in connection with the
Company's products and services have been registered with the U.S. Patent and
Trademark Office.
Components and Raw Materials
Orbital purchases a significant percentage of its product components,
including rocket propulsion motors and electronic equipment, from third parties.
From time to time, Orbital obtains parts and equipment from the U.S. Government
that are used in the production of the Company's products or in the provision
of the Company's services. Orbital to date has not experienced material
difficulty in obtaining such parts and equipment and believes that, if any
difficulty should arise, alternative sources of supply would be available.
However, increased costs could be incurred in securing alternative sources of
supply.
Orbital's Pegasus program Joint Venture Agreement with Hercules provides
that neither joint venturer will contract with other parties for the scope of
work to be performed by the other under the Pegasus Joint Venture Agreement
without the consent of the other party. From time to time, issues have arisen
between the Company and Hercules relating to the Joint Venture Agreement,
particularly with respect to the determination of each party's recoverable
recurring costs under the joint venture including the recoverability by the
Company of certain general and administrative expenses. See "Legal
Proceedings."
Government Contracts
During 1994, 1993 and 1992, approximately 60 percent, 70 percent and 80
percent, respectively, of the Company's total annual revenues were derived from
contracts with the U.S. Government and its agencies or from subcontracts with
the U.S. Government's prime contractors. Orbital's government contracts are
subject to regular audit and periodic reviews and may be modified, increased,
reduced or terminated in the event of changes in government requirements or
policies, Congressional appropriations and program progress and scheduling.
U.S. Government curtailment of expenditures for space research and development
and related products and services could have a material adverse effect on
Orbital's revenues and results from operations. Agencies within the U.S.
Government and commercial customers to which sales by the Company accounted for
ten percent or more of the Company's consolidated 1994 revenues were NASA, DoD
and ORBCOMM.
Orbital's major contracts with the U.S. Government fall into three
categories: firm fixed-price contracts, fixed-price incentive fee contracts and
cost-plus-fee contracts. Under firm fixed-price contracts, work performed and
products shipped are paid for at a fixed price without adjustment for actual
costs incurred in connection with the contract. Risk of loss due to increased
cost, therefore, is borne by the Company although some of this risk may be
passed on to subcontractors. Under fixed-price government contracts requiring
work with lead times in excess of six months prior to delivery, Orbital may
receive progress payments, generally in an amount equal to between 80 and
95 percent of monthly costs, or it may receive milestone payments upon the
occurrence of certain program achievements. Fixed-price incentive fee contracts
provide for sharing by the customer and the supplier of unexpected costs
incurred or savings realized within specified limits, and may provide for
adjustments in price depending on actual contract performance other than costs.
Costs in excess of the negotiated maximum (ceiling) price and the risk of loss
by reason of such excess costs are borne by the Company, although some of this
risk may be passed on to subcontractors. Under a cost-plus-fee contract,
Orbital recovers its actual allowable costs incurred and receives a fee
consisting of a base amount that is fixed at the inception of the contract
and/or an award amount that is based on the Government's subjective evaluation
of the contractor's performance in terms of the criteria stated in the contract.
All of Orbital's U.S. Government contracts and, in general, its
subcontracts with the U.S. Government's prime contractors provide that such
contracts may be terminated at will by the U.S. Government or the prime
contractor, respectively. Furthermore, any of these contracts may become
subject to a government-issued stop work order under which the Company is
required to suspend production. In the event of a termination at will, Orbital
is normally entitled to recognize the purchase price for delivered items,
reimbursement for allowable costs for work in process, and an allowance for
reasonable profit thereon or adjustment for loss if completion of performance
would have resulted in a loss. The Company has experienced several contract
suspensions and terminations in the past.
Backlog
The Company's backlog at December 31, 1994 and 1993 was approximately $335
million and $210 million, respectively. As of December 31, 1994, approximately
60 percent of the Company's backlog was with the U.S. Government and its
agencies or from subcontracts with the U.S. Government's prime contractors.
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 contracts awarded but not
signed and orders not yet funded in the amounts of approximately $171 million
and $108 million as of December 31, 1994 and 1993, respectively. Approximately
$143 million of backlog is currently scheduled to be performed beyond 1995.
Backlog excludes unexercised contract options having an aggregate potential
contract value at December 31, 1994 of approximately $828 million.
Environmental Regulation
The Company's operations are subject to a variety of Federal, state and
local environmental regulations, including laws regulating air and water quality
and hazardous materials and regulations implementing those laws. The Company
is one of several potentially responsible parties involved in a California
mandated clean-up of a manufacturing facility near Salinas, California. Through
December 31, 1994, Orbital and two other potentially responsible parties have
shared certain investigation and monitoring costs, resulting in total Company
expenditures after insurance recoveries of approximately $85,000. Based on the
cost allocations among responsible parties to date, the Company currently
believes that its share of total clean-up costs, which would be payable over a
number of years, should not exceed $600,000 before insurance recoveries.
Orbital believes that it will receive insurance reimbursement for a significant
portion of its clean-up costs. The Company does not believe that its total
exposure in this clean-up, or that other compliance by it with applicable
environmental regulations, will have a material adverse effect on its
operations.
Employees
As of December 31, 1994, Orbital had 1,845 full-time permanent employees.
ITEM 2. PROPERTIES
In 1993, Orbital entered into a 12-year lease agreement for approximately
100,000 square feet of office and engineering space in Dulles, Virginia, which
serves as its corporate headquarters. In 1994, the Company completed
construction of an approximately 30,000 square-foot satellite engineering and
manufacturing facility on land adjacent to the Dulles office facility. Orbital
also leases approximately 320,000 square feet of office, engineering and
manufacturing space in Germantown, Maryland; 305,000 square feet of office,
engineering and manufacturing space in Chandler, Arizona; approximately 135,000
square feet of office, engineering and manufacturing space in Pomona,
California; and approximately 40,000 square feet of office, engineering and
manufacturing space in San Dimas, California. The Company leases or owns other
small facilities or offices in Huntsville, Alabama; Edwards Air Force Base,
California; Vandenberg Air Force Base, California; and Greenbelt, Maryland.
Although completion of the Company's existing and pending contracts may in the
future require additional manufacturing capacity, Orbital believes that its
existing facilities are adequate for its near and medium-term requirements.
ITEM 3. LEGAL PROCEEDINGS
In 1993, Hercules commenced arbitration proceedings against the Company
relating to certain insurance proceeds obtained by the Company in connection
with the second Pegasus mission which occurred in 1991. In 1994, the
arbitration panel unanimously held in favor of the Company and denied all of
Hercules' claims. On January 3, 1994, Hercules filed a lawsuit against the
Company in Arizona Superior Court in Phoenix, Arizona. The action concerns
alleged breaches of certain representations and warranties in the 1988 stock
purchase agreement between Hercules and Orbital, pursuant to which Hercules
purchased 20 percent of Orbital's common stock. These shares were sold by
Hercules in June 1991. Hercules is seeking unspecified monetary damages in an
amount up to $15,000,000. On July 21, 1994, Hercules filed a lawsuit against
the Company in the Delaware Chancery Court for New Castle County. The action
concerns alleged breaches by the Company, in its joint venture with Hercules,
of certain fiduciary duties and certain terms of the joint venture agreement.
Hercules is seeking unspecified monetary damages, including up to $3,000,000 for
one count. In March 1995, this action was dismissed with prejudice and is now
subject to adjudication by an arbitration panel. Orbital believes that the
claims in both pending suits are without merit and will not have a material
adverse effect on the financial condition of the Company. Orbital is disputing
vigorously Hercules' claims. Although the Company believes that regardless of
the outcome, Hercules' claims do not affect its obligations under the Pegasus
joint venture agreement, the failure to resolve these claims could adversely
affect the joint venture and the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote of the Company's security holders
during the fourth quarter of 1994.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each of the
Executive Officers of Orbital as of March 1, 1995. All Executive Officers are
elected annually and serve at the discretion of the Board of Directors.
Name Age Position
David W. Thompson 40 Chairman of the Board, President and Chief
Executive Officer
Bruce W. Ferguson 40 Executive Vice President and General
Manager/Communications and Information Systems
Group
James R. Thompson 58 Executive Vice President and General Manager/
Launch Systems Group
Jack A. Frohbieter 59 Executive Vice President and General Manager/
Space and Electronics Systems Group
Alan L. Parker 55 Senior Vice President
John H. Mehoves 47 Senior Vice President
Albert F. Tillman 59 Senior Vice President
Donald W. Tutwiler 59 Senior Vice President
Antonio L. Elias 45 Senior Vice President
Carlton B. Crenshaw 49 Senior Vice President/Finance and Administration
and Treasurer
Leslie C. Seeman 42 Senior Vice President, General Counsel and
Secretary
David W. Thompson is a founder of Orbital and has been Chairman of the
Board, President and Chief Executive Officer of the Company since 1982.
Bruce W. Ferguson is a founder of Orbital and has been Executive Vice
President and General Manager/Communications and Information Systems Group since
October 1993 and a Director of the Company since 1982. Mr. Ferguson was
Executive Vice President and Chief Operating Officer of Orbital from 1989 to
October 1993 and Senior Vice President/Finance and Administration and General
Counsel of Orbital from 1985 to 1989.
James R. Thompson (who is not related to David W. Thompson) has been
Executive Vice President and General Manager/Launch Systems Group since October
1993 and a Director since January 1992. Mr. Thompson was Executive Vice
President and Chief Technical Officer of Orbital from 1991 to October 1993. He
was Deputy Administrator of NASA from 1989 to 1991. From 1986 until 1989, Mr.
Thompson was Director of the Marshall Space Flight Center. Mr. Thompson was
Deputy Director for Technical Operations at Princeton University's Plasma
Physics Laboratory from 1983 through 1986. Before that, he had a 20-year career
with NASA at the Marshall Space Flight Center.
Jack A. Frohbieter has been a Director of the Company since August 1994,
and Executive Vice President and General Manager/Space and Electronics Systems
since September 1994. From 1990 until August 1994, Mr. Frohbieter was
President and Chief Operating Officer of Fairchild. From 1988 to 1990, he was
Vice President and General Manager of General Electric Company's Government
Electronics Systems Division, and from 1966 to 1987, he held a variety of
positions at RCA's Astro Space Division, including Vice President and Division
Manager from 1986 to 1987.
Alan L. Parker has been Senior Vice President of the Company since October
1993 and President of ORBCOMM since 1990. From 1991 to October 1993, he served
as President/Satellite Services Division of the Company. From 1988 until 1990,
he was President of Business Development Resources, a management consulting
firm. From 1987 until 1988, he was Senior Vice President of Technology
Applications, Inc., a professional services company. From 1962 until 1986, he
held a variety of managerial positions with Ford Motor Company and Ford
Aerospace Corporation, including President of Ford Aerospace Satellite Services
Corporation from 1982 until 1986.
John H. Mehoves has been Senior Vice President since October 1993. From
1990 to October 1993, he was Executive Vice President/Space Systems Division of
Orbital, from 1987 to 1989, he was Vice President/Space Transportation and from
1985 to 1987, he was Vice President/Operations.
Albert F. Tillman has been Senior Vice President since October 1993. From
1988 to September 1993, he was a Vice President of The Perkin-Elmer Corporation
and General Manager of ASO, and from 1982 to 1988, he was a Group Director at
the Central Intelligence Agency.
Donald W. Tutwiler has been Senior Vice President since February 1994.
From 1991 to October 1993, he was Executive Vice President/Space Data Division
of Orbital. From 1963 to 1991, Mr. Tutwiler held a variety of positions at
McDonnell Douglas Astronautics Company, including the position of Director of
the Delta launch vehicle program for NASA, the Strategic Defense Initiative
Organization and commercial customers from 1984 until 1991.
Antonio L. Elias has been Senior Vice President since May 1993 and was
Senior Vice President/Space Systems Division from 1990 to April 1993. He was
Vice President/Engineering of Orbital from 1989 to 1990 and was Chief Engineer
from 1986 to 1989. From 1980 to 1986, Dr. Elias was an Assistant Professor of
Aeronautics and Astronautics at Massachusetts Institute of Technology.
Carlton B. Crenshaw has been Senior Vice President/Finance and
Administration and Treasurer of Orbital since January 1993. From 1989 to
January 1993, he was Vice President/Finance and Administration and Treasurer of
the Company. From 1985 to 1989, Mr. Crenshaw was Vice President/Finance and
Administration and Chief Financial Officer of Software AG Systems, Inc.
Leslie C. Seeman has been Senior Vice President of the Company since
October 1993 and General Counsel and Secretary of the Company since 1989. From
1989 to October 1993, she was Vice President of the Company, and from 1987 to
1989, Ms. Seeman was Assistant General Counsel of Orbital. From 1984 to 1987,
she was General Counsel of Source Telecomputing Corporation, a
telecommunications company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information required by this Item is included under the captions
"Market Information" and "Corporate Information - Dividends" of the Annual
Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is included under the caption
"Selected Consolidated Financial Data" of the Annual Report and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Annual Report and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in pages 31 through 47
of the Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item and not given in Item 4A, Executive
Officers of the Registrant, is included under the caption "Election of Directors
- -- Directors to be Elected at the 1995 Annual Meeting, -- Directors Whose Term
Expires in 1996, and -- Directors Whose Term Expires in 1997" and "Compliance
with Section 16(a) of the Exchange Act" of the Proxy Statement filed pursuant
to Regulation 14A on March 27, 1995 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the captions
"Election of Directors -- Summary Compensation Table," "Election of Directors -
- - Option Grants in Last Fiscal Year," "Election of Directors -- Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,"
"Election of Directors -- Indemnification Agreements," "Election of Directors -
- - Executive Employment Agreements" and "Election of Directors - Information
Concerning the Board and Its Committees" of the Proxy Statement filed pursuant
to Regulation 14A on March 27, 1995 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included under the caption
"Ownership of Common Stock" of the Proxy Statement filed pursuant to
Regulation 14A on March 27, 1995 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements. The following financial statements,
together with the report of KPMG Peat Marwick LLP, appearing in
the portions of the Annual Report, filed as Exhibit 13, are
incorporated herein by reference and filed as a part of this
report:
A. Independent Auditors' Report (Annual Report page 31)
B. Consolidated Statements of Earnings (Annual Report page 32)
C. Consolidated Balance Sheets (Annual Report page 33)
D. Consolidated Statements of Stockholders' Equity (Annual
Report page 34)
E. Consolidated Statements of Cash Flows (Annual Report
page 35)
F. Notes to Consolidated Financial Statements (Annual Report
pages 36 through 47)
2. Financial Statement Schedules. The following additional
financial data should be read in conjunction with the
Consolidated Financial Statements in the Annual Report.
Schedules other than those listed below have been omitted
because they are inapplicable or are not required.
Form 10-K Page
Independent Auditors' Report on
Consolidated Financial Statement Schedule 17
VIII Valuation and Qualifying Accounts 18
3. Exhibits. A complete listing of exhibits required is
given in the Exhibit Index that precedes the exhibits
filed with this report on page 19-22 hereof.
(b) Reports on Form 8-K
On August 26, 1994, the Company filed a report on Form 8-
K, reporting the acquisition of Fairchild on August 11,
1994. The following amendments on Form 8-K/A were filed
with respect to this report: Amendment No. 1 filed on
September 14, 1994; Amendment No. 2 filed on October 11,
1994; Amendment No. 3 filed on October 12, 1994;
Amendment No. 4 filed on November 29, 1994; and Amendment
No. 5 filed on December 9, 1994.
On November 29, 1994 the Company filed a report on Form
8-K, reporting the proposed acquisition of Magellan
Corporation. On January 11, 1995, the Company filed
Amendment No. 1 on Form 8-K/A to the Company's Report on
Form 8-K filed with the Commission on November 29, 1994
reporting consummation of the Magellan acquisition.
(c) See Item 14(a)(3) of this report.
(d) See Item 14(a)(2) of this report.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 1995 By /s/ David W. Thompson
David W. Thompson, Chairman of the
Board, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated. Each individual whose signature appears below hereby
authorizes each of David W. Thompson, Bruce W. Ferguson and Leslie
C. Seeman, and appoints each of them singly, his true and lawful
attorney, each with full power of substitution, to sign for him,
and in his name and in the capacity indicated below, the Annual
Report on Form 10-K for the fiscal year ended December 31, 1994,
and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission, hereby ratifying and confirming
his signature as it may be signed by said attorneys, and each of
them, to said report and any and all amendments and supplements
thereto, and generally to do all such things in his name and on his
behalf in his capacity as director to enable Orbital Sciences
Corporation to comply with the provisions of the Securities Act of
1933, the Securities Exchange Act of 1934, and all requirements of
the Securities and Exchange Commission.
DATED: March 28, 1995
Signature: Title:
/s/ David W. Thompson
David W. Thompson Chairman of the Board, Principal Executive
Officer and Director
/s/ Carlton B. Crenshaw
Carlton B. Crenshaw Principal Financial Officer
/s/ Jeffrey V. Pirone
Jeffrey V. Pirone Controller and Principal Accounting
Officer
/s/ Fred C. Alcorn
Fred C. Alcorn Director
/s/ Kelly H. Burke
Kelly H. Burke Director
/s/ Bruce W. Ferguson
Bruce W. Ferguson Director
/s/ Daniel J. Fink
Daniel J. Fink Director
/s/ Lennard A. Fisk
Lennard A. Fisk Director
/s/ Jack A. Frohbieter
Jack A. Frohbieter Director
/s/ Jack L. Kerrebrock
Jack L. Kerrebrock Director
/s/ J. Paul Kinloch
J. Paul Kinloch Director
/s/ Douglas S. Luke
Douglas S. Luke Director
/s/ John L. McLucas
John L. McLucas Director
/s/ Harrison H. Schmitt
Harrison H. Schmitt Director
/s/ James R. Thompson
James R. Thompson Director
/s/ Scott L. Webster
Scott L. Webster Director
C:\LEGAL\SEC-FILE\10K.94
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Sciences Corporation
Under date of February 6, 1995, we reported on the consolidated
balance sheets of Orbital Sciences Corporation and subsidiaries
(the "Company") as of December 31, 1994 and 1993, and the related
statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1994,
as contained in the 1994 annual report to stockholders. These
consolidated financial statements and our report thereon are
incorporated by reference in the Company's annual report on Form
10-K for the year 1994. In connection with our audits of the
aforementioned consolidated financial statements, we also have
audited the related consolidated financial statement schedule as
listed in Item 14(a)2 in the Company's Form 10-K for the year 1994.
This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is
to express an opinion on the consolidated financial statement
schedule based on our audits.
In our opinion, based on our audits and the reports of other
auditors, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Washington, D.C.
February 6, 1995
<PAGE>
<TABLE>
<CAPTION>
ORBITAL SCIENCES CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in Thousands)
Column A Column B Column C Column D Column E
Additions
__________________________________
Charged/credited
Balance at Charged to costs to Balance at
Description start of period and expenses other accounts <F2> Deductions end of period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1992
Allowance for doubtful accounts $ 289 $ 150 - $ (47) <F3> $ 392
Allowance for obsolete inventory 1,034 39 - (175) <F3> 898
Deferred income tax valuation reserve - 588 - - 588
Year ended December 31, 1993
Allowance for doubtful accounts $ 392 $ 55 $ 15 - $ 462
Allowance for obsolete inventory 898 416 910 - 2,224
Deferred income tax valuation reserve 588 - - (303) <F4> 285
Year ended December 31, 1994
Allowance for doubtful accounts $ 462 $ 136 $ 80 - $ 678
Allowance for obsolete inventory 2,224 216 1,571 (111) <F4> 3,900
Allowance for unrecoverable investment - - 3,100 - 3,100
Deferred income tax valuation reserve 285 - 32,003 (168) <F4> 32,120
<FN>
<F1> All historical balances have been restated to reflect the Company's acquisition of Magellan Corporation. The acquisition
was accounted for using the pooling of interests method of accounting.
<F2> Additions charged/credited to other accounts represent valuation and qualifying accounts recorded pursuant
to purchase business combinations as described in Note 4 to the consolidated financial statements incorporated
by reference elsewhere herein, and adjustments required to recast pooled company's year end as described in
Note <F4> to the consolidated financial statements incorporated by reference elsewhere herin.
<F3> Deduction of specific charge-offs previously reserved.
<F4> Deduction for re-valuation of allowance account.
</FN>
</TABLE>
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this report. Where such
filing is made by incorporation by reference to a previously filed statement
or report, such statement or report is identified in parentheses. In
addition, the registrant has executed certain instruments reflecting long-term
debt, the total amount of which does not exceed 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis. In accordance with
section 4(iii) of Item 601 under Regulation S-K, the registrant agrees to
furnish to the Securities and Exchange Commission copies of each instrument
relating to such long-term debt not otherwise filed herewith or incorporated
herein by reference.
Exhibit
No. Description
2.1 Asset Acquisition Agreement dated as of September 16, 1993
between The Perkin-Elmer Corporation and the Company
(incorporated by reference to Exhibit 2 to the Company's
Report on Form 8-K, dated September 27, 1993).
2.2 Acquisition Agreement dated as of July 29, 1994 between
Matra Aerospace, Inc., and the Company (incorporated by
reference to Exhibit 2 to the Company's Report on Form 8-K,
dated August 11, 1994).
2.3 Agreement and Plan of Merger dated as of November 25, 1994
among the Company, Orbital Acquisition Corporation and
Magellan Corporation (incorporated by reference to Exhibit
2 to the Company's Report on Form 8-K, dated November 25,
1994).
3.1 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (File Number 33-33453) filed on
February 9, 1990 and effective on April 24, 1990).
3.2 By-Laws (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (File Number
33-33453) filed on February 9, 1990 and effective on
April 24, 1990).
4.1 Form of Certificate of Common Stock (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (File Number 33-33453) filed on
February 9, 1990 and effective on April 24, 1990).
4.2 Stock Purchase Agreement, dated November 9, 1988, by and
between the Company and Hercules Incorporated (incorporated
by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-1 (File Number 33-33453) filed on
February 9, 1990 and effective on April 24, 1990).
4.3 Indenture dated as of February 25, 1993 among the Company
and Security Trust Company, National Association, as
Trustee (incorporated by reference to Exhibit 4.4 to the
Company's Annual Report on Form 10-K, dated March 31,
1993).
4.4 Form of 6 3/4% Convertible Subordinated Debenture due 2003
(incorporated by reference to Exhibit 4.5 to the Company's
Annual Report on Form 10-K, dated March 31, 1993).
4.5 Registration Rights Agreement dated as of August 11, 1994
between Matra Aerospace, Inc. and the Company (incorporated
by reference to Exhibit 10.1 to the Company's Report on
Form 8-K, dated August 11, 1994).
4.6 Promissory Notes dated as of August 31, 1994 made by
Fairchild Space and Defense Corporation and Corporate
Guaranty dated August 31, 1994 made by the Company
(incorporated by reference to Exhibit 10.7 to the Company's
Report on Form 10-Q for the Quarter ended September 30,
1994, dated November 14, 1994).
10.2 Sale/Leaseback Agreement, dated September 29, 1989, by and
among Corporate Property Associates 8, L.P., Corporate
Property Associates 9, L.P. and Space Data Corporation
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (File Number 33-33453)
filed on February 9, 1990 and effective on April 24, 1990).
10.2.1 First Amendment to Sale/Leaseback Agreement, dated as of
December 27, 1990, by and among Corporate Property
Associates 8, L.P., Corporate Property Associates 9, L.P.
and Space Data Corporation (incorporated by reference to
Exhibit 10.2.1 to the Company's Annual Report on Form 10-K,
dated March 23, 1992).
10.3 Office Lease, dated July 17, 1992, between S.C. Realty,
Inc. and the Company (incorporated by reference to Exhibit
10.3 to the Company's Annual Report on Form 10-K, dated
March 31, 1993).
10.4 Lease Agreement dated as of August 11, 1994 between
Germantown Holding Corp. and Fairchild Space and Defense
Corporation (incorporated by reference to Exhibit 10.3 to
the Company's Report on Form 8-K, dated August 11, 1994).
10.5.1 Orbital Sciences Corporation 1990 Stock Option Plan
(incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-8 (File Number 33-47789)
dated May 11, 1992).**
10.5.2 Orbital Sciences Corporation 1990 Stock Option Plan for
Non-Employee Directors (incorporated by reference to
Exhibit 4.5 to the Company's Registration Statement on
Form S-8 (File Number 33-47789) dated May 11, 1992).**
10.5.3 Orbital Communications Corporation Restated 1992 Stock
Option Plan (transmitted herewith).**
10.6 Amended and Restated Credit Agreement dated as of September
27, 1994 among the Company, Orbital Imaging Corporation and
Fairchild Space and Defense Corporation, the Banks listed
therein, Morgan Guaranty Trust Company of New York, as
Administrative Agent and J.P. Morgan Delaware, as
Collateral Agent (the "Credit Agreement") (incorporated by
reference to Exhibit 10.6 to the Company's Report on Form
10-Q for the Quarter ended September 30, 1994, dated
November 14, 1994).
10.6.1 Amendment No. 1 to the Credit Agreement dated October 26,
1994 among the Company, Orbital Imaging Corporation and
Fairchild Space and Defense Corporation, the Banks listed
therein, Morgan Guaranty Trust Company of New York, as
Administrative Agent, and J.P. Morgan Delaware, as
Collateral Agent (transmitted herewith).
10.6.2 Waiver No. 1 to the Credit Agreement dated December 19,
1994 among the Company, Orbital Imaging Corporation and
Fairchild Space and Defense Corporation, the Banks listed
therein, Morgan Guaranty Trust Company of New York, as
Administrative Agent, and J.P. Morgan Delaware, as
Collateral Agent (transmitted herewith).
10.7 Security Agreement dated as of June 30, 1992 among the
Company, J.P. Morgan Delaware, as Collateral Agent and
American Security Bank, N.A., as Audit Agent (incorporated
by Reference to Exhibit 10.6.1 to the Company's Report on
Form 10-Q for the Quarter Ended September 30, 1994, dated
November 14, 1994).
10.8 Master Security Agreement dated as of August 31, 1994
between Fairchild Space and Defense Corporation and General
Electric Capital Corporation (incorporated by reference to
Exhibit 10.7 to the Company's Report on Form 10-Q for the
Quarter ended September 30, 1994, dated November 14, 1994).
10.9 Participation Agreement dated August 20, 1992 by and
between ITT Commercial Finance Corp. and the Company, as
amended through August 26, 1992 (incorporated by reference
to Exhibit 10.14 to Amendment No. 2 to the Company's Report
on Form 10-Q for the Quarter Ended September 30, 1992,
dated January 27, 1993).
10.10 Form of Executive Employment Agreement entered into between
the Company and Executive Officers and certain other
Officers of the Company (incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement on
Form S-1 (File Number 33-33453) filed on February 9, 1990
and effective on April 24, 1990).**
10.10.1 Employment Agreement between Jack A. Frohbieter and
Fairchild Space and Defense Corporation, dated August 26,
1992 (transmitted herewith).**
10.11 Form of Indemnification Agreement entered into between the
Company and Directors, Executive Officers and certain other
Officers of the Company (incorporated by reference to
Exhibit 10.18 to the Company's Registration Statement on
Form S-1 (File Number 33-33453) filed on February 9, 1990
and effective on April 24, 1990).**
10.11.1 Amendment dated October 22, 1992 to form of Indemnification
Agreement entered into between the Company and Directors,
Executive Officers and certain other Officers of the
Company (incorporated by reference to Exhibit 19 to the
Company's Report on Form 10-Q for the Quarter Ended
September 30, 1992, dated November 16, 1992).**
10.12 Joint Venture Agreement, dated November 9, 1988, by and
among the Company, Space Systems Corporation and Hercules
Incorporated (incorporated by reference to Exhibit 10.14 to
the Company's Registration Statement on Form S-1 (File
Number 33-33453) filed on February 9, 1990 and effective on
April 24, 1990).
10.13.1 Master Agreement dated as of June 30, 1993 among the
Company, Orbital Communications Corporation, Teleglobe Inc.
and Teleglobe Mobile Partners (the "Master Agreement")
(incorporated by reference to Exhibit 10.24.1 to the
Company's Report on Form 10-Q for the Quarter Ended June
30, 1993, dated August 13, 1993).+
10.13.1.1 Amendment No. 1 to Master Agreement dated as of April 1,
1994 (incorporated by reference to Exhibit 10.16.1.1 to the
Company's Report on Form 10-Q for the Quarter Ended June
30, 1994, dated August 15, 1994).+
10.13.1.2 Amendment No. 2 to Master Agreement dated as of October 1,
1994 (transmitted herewith).*
10.14 Agreement of Limited Partnership of ORBCOMM Development
Partners, L.P. dated as of June 30, 1993 between Orbital
Communications Corporation and Teleglobe Mobile Partners
(incorporated by reference to Exhibit 10.24.2 for the
Company's Report on Form 10-Q for the Quarter ended June
30, 1993, dated August 13, 1993).+
10.14.1 Amendment No.1 to Agreement of Limited Partnership of
ORBCOMM Development Partners, L.P. dated as of April 1,
1994 (incorporated by reference to Exhibit 10.16.2.1 to the
Company's Report on Form 10-Q for the Quarter Ended June
30, 1994, dated August 15, 1994).+
10.15 Agreement of Limited Partnership of ORBCOMM U.S. Partners,
L.P. dated as of June 30, 1993 between Orbital
Communications Corporation and Teleglobe Mobile Partners
(incorporated by reference to Exhibit 10.24.3 of the
Company's Report on Form 10-Q for the Quarter ended June
30, 1993, dated August 13, 1993).
10.16 Agreement of Limited Partnership of ORBCOMM International
Partners, L.P. dated as of June 30, 1993 between Orbital
Communications Corporation and Teleglobe Mobile Partners
(incorporated by reference to Exhibit 10.24.3 to the
Company's Report on Form 10-Q for the Quarter Ended June
30, 1993, dated August 13, 1993).
10.17 ORBCOMM System Construction Agreement dated as of June 30,
1993 between Orbital Communications Corporation and ORBCOMM
Development Partners, L.P (incorporated by reference to
Exhibit 10.24.5 to the Company's Report on Form 10-Q for
the Quarter Ended June 30, 1993, dated August 13, 1993).
10.18 ORBCOMM System Design, Development and Operations Agreement
dated as of June 30, 1993 between Orbital Communications
Corporation and ORBCOMM Development Partners, L.P. (the
"System Design, Development and Operations Agreement")
(incorporated by reference to Exhibit 10.24.6 to the
Company's Report on Form 10-Q for the Quarter Ended June
30, 1993, dated August 13, 1993).+
10.18.1 Amendments No. 1 and No. 2 to System Design, Development
and Operations Agreement dated March 1, 1994 (incorporated
by reference to Exhibit 10.16.6.1 to the Company's Report
on Form 10-Q for the Quarter Ended March 31, 1994, dated
May 12, 1994).+
10.18.2 Amendment No. 3 to System Design, Development and
Operations Agreement dated April 1, 1994 (incorporated by
reference to Exhibit 10.16.6.2 to the Company's Report on
Form 10-Q for the Quarter Ended June 30, 1994, dated August
15, 1994).+
10.19 System Charge and Marketing (U.S.) Agreement dated as of
June 30, 1993 between Orbital Communications Corporation
and ORBCOMM U.S. Partners, L.P. (incorporated by reference
to Exhibit 10.24.8 to the Company's Report on Form 10-Q for
the Quarter Ended June 30, 1993, dated August 13, 1993).
10.19.1 Amendment No. 1 to System Charge and Marketing (U.S.)
Agreement dated as of June 30, 1994 (transmitted herewith).
10.20 International System Charge and Marketing (Non-U.S.)
Agreement dated as of June 30, 1993 among ORBCOMM
Development Partners, L.P., Teleglobe Mobile Partners and
ORBCOMM International Partners, L.P (incorporated by
reference to Exhibit 10.24.8 to Company's Report on Form
10-Q for the Quarter Ended June 30, 1993, dated August 13,
1993).
10.20.1 Amendment No. 1 to International System Charge and
Marketing (Non-U.S.) Agreement dated as of June 30, 1993
among ORBCOMM Development Partners, L.P., Teleglobe Mobile
Partners and ORBCOMM International Partners, L.P dated as
of June 30, 1994 (transmitted herewith).
10.21 Proprietary Information and Non-Competition Agreement dated
as of June 30, 1993 among the Company, Orbital
Communications Corporation, Teleglobe Inc., Teleglobe
Mobile Partners, ORBCOMM Development Partners, L.P.,
ORBCOMM U.S. Partners, L.P. and ORBCOMM International
Partners, L.P (incorporated by reference to Exhibit 10.24.9
to the Company's Report on Form 10-Q for the Quarter Ended
June 30, 1993, dated August 13, 1993).
11 Statement re: Computation of Earnings Per Share
(transmitted herewith).
13 Portions of the 1994 Annual Report to Stockholders
(transmitted herewith).
21 Subsidiaries of the Company (transmitted herewith).
23 Consent of KPMG Peat Marwick LLP (transmitted herewith).
24 Power of Attorney (included on Signature Page).
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-K, or
otherwise subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934) (transmitted herewith).
______________________
* Confidential treatment requested pursuant to Rule 24b-2 of the Exchange
Act.
+ Confidential treatment previously granted by the Commission.
** Management Contract or Compensatory Plan or Arrangement.
ORBITAL COMMUNICATIONS CORPORATION
1992 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
The purpose of this 1992 Stock Option Plan is to promote
the growth and profitability of Orbital Communications Corporation
by providing, through the ownership of Shares, incentives to
attract and retain highly talented persons to provide managerial
and administrative services to the Company and to motivate such
persons to use their best effort on behalf of the Company.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following terms shall
have the meanings set forth in this Article II:
2.01 Accrued Installment. The term "Accrued Installment"
shall mean any vested installment of an Option.
2.02 Board. The term "Board" shall mean the Board of
Directors of the Company.
2.03 Committee. The term "Committee" shall mean a committee
appointed by the Board pursuant to Section 3.04 and constituting
not less than two (2) members of the Board.
2.04 Company. The term "Company" shall mean Orbital
Communications Corporation, a Delaware corporation, or any
successor thereof.
2.05 Director. The term "Director" shall mean a member of
the Board, or a member of the board of directors of any
Participating Company.
2.06 Disinterested Person. The term "Disinterested Person"
shall mean any person defined as a disinterested person under
Rule 16b-3 of the Securities and Exchange Commission as promulgated
under the Exchange Act.
2.07 Effective Date. The term "Effective Date" shall mean
September 29, 1992.
2.08 Eligible Person. The term "Eligible Person" shall mean
any employee or officer of any Participating Company, but shall not
include any Director of any Participating Company who is not also
an employee or officer of a Participating Company.
2.09 Exchange Act. The term "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended from time to time.
2.10 Fair Market Value. The term "Fair Market Value" shall
mean the closing sale price of a Share on the national securities
exchange on which Shares are then principally traded or, if that
measure of price is not available, on a composite index of such
exchanges or, if that measure of price is not available, in a
national market system for securities on the date in question. In
the event that there are no sales of Shares on any such exchange or
market on such date, the fair market value of a Share shall be
deemed to be the closing sales price on the next preceding day on
which Shares were sold on any such exchange or market. In the
event that such Shares are not listed on any such market or
exchange on such date, a reasonable valuation of the fair market
value of a Share shall be made by the Board. Any determination of
fair market value made in good faith by the Board shall be
conclusive and binding on the Company and all Optionees and/or
holders of Shares.
2.11 I.R.C. The term "I.R.C." shall mean the Internal
Revenue Code of 1986, as amended from time to time.
2.12 Incentive Stock Option. The term "Incentive Stock
Option" shall mean any Option intended to satisfy the requirements
under I.R.C. Section 422(b) as an incentive stock option.
2.13 Nonstatutory Stock Option. The term "Nonstatutory Stock
Option" shall mean any Option granted under the Plan that does not
qualify as an Incentive Stock Option.
2.14 Option. The term "Option" shall mean an option to
acquire Shares granted under the Plan.
2.15 Optionee. The term "Optionee" shall mean an Eligible
Person who has been granted Options.
2.16 Parent Corporation. The term "Parent Corporation" shall
mean a corporation as defined in I.R.C. Section 424(e).
2.17 Participating Company. The term "Participating Company"
shall mean the Company and any Parent Corporation of the Company,
any Subsidiary Corporation of the Company and any Subsidiary
Corporation of the Parent Corporation.
2.18 Plan. The term "Plan" shall refer to the Stock Option
Plan of the Company set forth herein that provides for the granting
of Incentive Stock Options and Nonstatutory Stock Options.
2.19 Restricted Shareholder. The term "Restricted
Shareholder" shall mean an Optionee granted an Incentive Stock
Option who, at the time the Incentive Stock Option is granted, owns
stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company, with stock
ownership determined in accordance with the attribution rules of
I.R.C. Section 424(d).
2.20 Shares. The term "Shares" shall mean shares of the
Company's authorized Common Stock, $0.01 par value, and may be
unissued shares or treasury shares or shares purchased for purposes
of the Plan.
2.21 Subsidiary Corporation. The term "Subsidiary
Corporation" shall mean a corporation as defined in I.R.C. Section
424(f).
2.22 Terminating Transaction. The term "Terminating
Transaction" shall mean any of the following events: (a) the
dissolution or liquidation of the Company; (b) a reorganization,
merger or consolidation of the Company with one or more other
corporations as a result of which the Company goes out of existence
or becomes a subsidiary of a corporation other than a corporation
that was a Participating Company immediately prior to such event
(which shall be deemed to have occurred only if such a corporation
shall own, directly or indirectly, eighty percent (80%) or more of
the aggregate voting power of all outstanding equity securities of
the Company); (c) a sale of all or substantially all of the
Company's assets to a person or persons other than a corporation
that was a Participating Company immediately prior to such event;
or (d) a sale to one person (or two or more persons acting in
concert), other than to a corporation that was a Participating
Company immediately prior to such event, of equity securities of
the Company representing eighty percent (80%) or more of the
aggregate voting power of all outstanding equity securities of the
Company. As used herein or elsewhere in this Plan, the word
"person" shall mean an individual, corporation, partnership,
association or other person or entity, or any group of two or more
of the foregoing that have agreed to act together.
2.23 Termination Date. The term "Termination Date" shall
mean September 29, 2002.
2.24 Total Disability. The term "Total Disability" shall
mean a permanent and total disability as that term is defined in
I.R.C. Section 22(e)(3).
ARTICLE III
ADMINISTRATION OF PLAN
3.01 Administration by Board. The Plan shall be administered
by the Board. The Board shall have full and absolute power and
authority in its sole discretion to (a) determine which Eligible
Persons shall receive Options; (b) determine the time when Options
shall be granted; (c) determine the terms and conditions, not
inconsistent with the provisions of this Plan, of any Option
granted hereunder; (d) determine the number of Shares which may be
issued upon exercise of the Options; and (e) interpret the
provisions of this Plan and of any Option granted under this Plan.
3.02 Rules and Regulations. The Board may adopt such rules
and regulations as the Board may deem necessary or appropriate to
carry out the purposes of the Plan and shall have authority to do
everything necessary or appropriate to administer the Plan.
3.03 Binding Authority. All decisions, determinations,
interpretations or other actions by the Board shall be final,
conclusive and binding on all Eligible Persons, Optionees,
Participating Companies and any successors-in-interest to such
parties.
3.04 Administration by Committee.
(a) The Board, from time to time, may appoint, and at
any time the Company has a class of equity securities registered
under the Exchange Act shall appoint, a Committee to administer the
Plan and exercise all of the powers, authority and discretion of
the Board under the Plan, other than the power and authority to
amend and terminate the Plan under Section 7.01.
(b) At any time the Company has a class of equity
securities registered under the Exchange Act, each member of the
Committee must be a Disinterested Person, and the Board may, but is
not required to, take such other actions as are deemed necessary or
advisable to conform the Plan to the requirements of Rule 16b-3 as
promulgated under the Exchange Act.
(c) The Committee shall report to the Board the names of
Eligible Persons granted Options, the number of Shares covered by
each Option, and the terms and conditions of each such Option.
(d) Prior to the time that it appoints a Committee to
administer the Plan, the Board shall consult with, and obtain the
concurrence of, the Human Resources Committee of the Board of
Directors of Orbital Sciences Corporation in administering the
Plan.
ARTICLE IV
NUMBER OF SHARES AVAILABLE FOR GRANT
Subject to the following provisions of this Article IV,
the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 700,000. In the event that Options granted
under the Plan shall, for any reason, terminate, lapse, be
forfeited or expire without being exercised, the Shares subject to
such unexercised Options shall again be available for the granting
of Options under the Plan. In the event that Shares which were
previously issued by the Company, upon exercise of an Option, are
reacquired by the Company as part of the consideration received (in
accordance with Section 6.05(b) hereof) upon the subsequent
exercise of an Option, such reacquired Shares shall again be
available for the granting of Options hereunder.
ARTICLE V
TERM OF PLAN
The Plan shall be effective as of the Effective Date and
shall terminate on the Termination Date. No Option may be granted
hereunder after the Termination Date.
ARTICLE VI
OPTION TERMS
6.01 Form of Option Agreement. Any Option granted under the
Plan shall be evidenced by an agreement ("Option Agreement") in
such form as the Board, in its discretion, may, from time to time,
approve. Any Option Agreement shall contain such terms and
conditions as the Board may deem necessary or appropriate and which
are not inconsistent with the provisions of the Plan.
6.02 Option Exercise Price. The option exercise price for
Shares to be issued under this Plan shall be determined by the
Board in its sole discretion, but in no event shall the option
exercise price be less than the Fair Market Value of the Shares in
the case of an Incentive Stock Option (or one hundred and ten
percent (110%) of such Fair Market Value in the case of an
Incentive Stock Option granted to a Restricted Shareholder), or
less than eighty-five percent (85%) of the Fair Market Value in the
case of a Nonstatutory Stock Option.
6.03 Vesting and Exercisability of Options. Subject to the
limitations set forth herein and/or in any applicable Option
Agreement entered into hereunder, Options granted under the Plan
shall vest and be exercisable in accordance with the rules set
forth in this Section 6.03:
(a) General. Subject to the other provisions of this
Section 6.03, Options shall vest and become exercisable at such
time and in such installments as the Board shall provide in each
individual Option Agreement. Notwithstanding the foregoing, the
Board may, in its sole discretion, accelerate the time at which an
Option or installment thereof may be exercised. Unless otherwise
provided in this Section 6.03, in Section 6.04(a) or in the Option
Agreement pursuant to which an Option is granted, an Option may be
exercised when Accrued Installments accrue as provided in such
Option Agreement and at any time thereafter until, and including,
the day before the Option Termination Date.
(b) Termination of Options. All installments of an
Option shall expire and terminate on such date as the Board shall
determine ("Option Termination Date"), which in no event shall be
later than ten (10) years from the date such Option was granted
(five (5) years in the case of an Incentive Stock Option granted to
a Restricted Shareholder).
(c) Termination of Employment other than by Death,
Retirement or Total Disability. In the event that the employment
of an Optionee with a Participating Company is terminated for any
reason (other than death or Total Disability or retirement on or
after reaching age 60), any installments under an Option held by
such Optionee which have not accrued as of the employment
termination date shall expire and become unexercisable as of the
employment termination date. All Accrued Installments as of the
employment termination date shall expire and become unexercisable
as of the earlier of (i) three (3) months following the employment
termination date; or (ii) the original Option Termination Date.
For purposes of the Plan, an Optionee who is an employee or officer
of any Participating Company shall not be deemed to have incurred
a termination of his employment so long as such Optionee is an
employee or officer of any Participating Company.
(d) Leave of Absence. An approved leave of absence
shall not constitute a termination of employment under the Plan.
An approved leave of absence shall mean an absence approved
pursuant to the policy of a Participating Company for military
leave, sick leave, or other bona fide leave, not to exceed ninety
(90) days or, if longer, as long as the employee's right to
re-employment is guaranteed by contract, statute or the policy of
a Participating Company. Notwithstanding the foregoing, in no
event shall an approved leave of absence operate to make an Option
exercisable after the original Option Termination Date.
(e) Death, Retirement or Total Disability of Optionee.
In the event that the employment of an Optionee with a
Participating Company is terminated by reason of death, Total
Disability, or retirement on or after reaching age sixty (60), any
unexercised Accrued Installments of Options granted hereunder to
such Optionee shall expire and become unexercisable as of the
earlier of:
(i) The applicable Option Termination Date; or
(ii) The first anniversary of the date of
termination of employment of such Optionee by reason of the
Optionee's death, Total Disability or retirement.
Any such Accrued Installments of a deceased Optionee may
be exercised prior to their expiration only by the person or
persons to whom the Optionee's Option rights pass by will or the
laws of descent and distribution. Any Option installments under
such a deceased, disabled or retired Optionee's Option that have
not accrued as of the date of the employee's termination of
employment due to death, Total Disability or retirement shall
expire and become unexercisable as of the employment termination
date.
(f) Termination of Affiliation of Participating Company.
Notwithstanding the foregoing provisions of this Section 6.03, in
the case of an Optionee who is an employee or officer of a
Participating Company other than the Company, upon an Affiliation
Termination (as defined herein) of such Participating Company other
than the Company, such Optionee shall be deemed (for all purposes
of the Plan) to have incurred a termination of his employment for
reasons other than death, retirement or Total Disability, with such
termination to be deemed effective as of the effective date of said
Affiliation Termination. As used herein, the term "Affiliation
Termination" shall mean, with respect to a Participating Company,
the termination of such Participating Company's status as a Parent
or Subsidiary Corporation of the Company or of Orbital Sciences
Corporation.
6.04 Exercise of Options.
(a) Subject to Section 6.09(b), no Options may be
exercised by any Optionee until the Board has determined that the
value of Orbital Sciences Corporation's share of the Company is
equal to at least one hundred twenty-five percent (125%) of the
amount of Orbital Sciences Corporation's investment in the Company,
or until September 1, 2001, whichever is earlier. For purposes of
this Section 6.04(a), (i) the "value of Orbital Sciences
Corporation's share of the Company" shall mean the sum of the
percentage of the Company's Common Stock owned by Orbital Sciences
Corporation multiplied by the then Fair Market Value of the Common
Stock of the Company as determined by the Board, plus the principal
amount of net intercompany indebtedness owed by the Company to
Orbital Sciences Corporation; and (ii) "Orbital Sciences
Corporation's investment in the Company" shall mean Orbital
Sciences Corporation's investment in, and to the extent not
reflected in the computation of such investment, the cumulative
total of all unreimbursed expenses incurred, and expenditures made
by Orbital Sciences Corporation on behalf of, the Company, net of
expenditures that are charged to Independent Research and
Development or directly reimbursed by customers. Any such
determination of the value of Orbital Sciences Corporation's share
of the Company, or of Orbital Sciences Corporation's investment in
the Company, made in good faith by the Board shall be conclusive
and binding on the Company and all Optionees.
(b) Subject to the restrictions in Section 6.04(a), an
Option may be exercised in accordance with this Section 6.04 as to
all or any portion of the Shares covered by an Accrued Installment
of the Option, from time to time during the applicable option
period, except that an Option shall not be exercisable with respect
to fractions of a Share. Options may be exercised, in whole or in
part, by giving written notice of exercise to the Company, which
notice shall specify the number of Shares to be purchased and shall
be accompanied by payment in full of the purchase price in
accordance with Section 6.05. An Option shall be deemed exercised
when such written notice of exercise has been received by the
Company. No Shares shall be issued until full payment has been
made and the Optionee has satisfied such other conditions as may be
required by this Plan, as may be required by applicable laws, rules
or regulations, or as may be adopted or imposed by the Board.
Until the issuance of stock certificates, no right to vote or
receive dividends or any other rights as a stockholder shall exist
with respect to Shares subject to an Option notwithstanding the
exercise of the Option. No adjustment will be made for a dividend
or other rights for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 6.09(a).
6.05 Payment of Option Exercise Price.
(a) Except as otherwise provided in Section 6.05(b), the
entire option exercise price shall be paid at the time the Option
is exercised by cashier's check or such other means as deemed
acceptable by the Board.
(b) In the discretion of the Board (which, in the case
of an Incentive Stock Option, shall be exercised only at the time
of grant), an Optionee may elect to pay for all or some of the
Optionee's Shares with Shares the Optionee has held for at least
six (6) months, subject to all restrictions and limitations of
applicable laws, rules and regulations and subject to the
satisfaction of any conditions the Board may impose, including, but
not limited to, the making of such representations and warranties
and the providing of such other assurances that the Board may
require with respect to the Optionee's title to the Shares used for
payment of the exercise price. Such payment shall be made by
delivery of certificates representing Shares, duly endorsed or with
duly signed stock power attached, such Shares to be valued at the
Fair Market Value of such Shares on the day immediately preceding
the day notice of exercise is received by the Company.
6.06 Purchase by the Company of Shares Acquired Pursuant to
Exercise of Option.
(a) Valuation. Provided that there has not yet been a
public offering (within the meaning of the Securities Act of 1933
as amended, and the rules and regulations thereunder) of the
Company's Common Stock, all Shares acquired pursuant to exercise of
an Option that as of the applicable Valuation Date (as hereinafter
defined), have been held by an Optionee at least six (6) months
from the date of exercise of the Option (such Shares, in each year,
the "Payable Shares"), shall, at the election of the Optionee
exercised in the manner set forth herein, be purchased by the
Company at a price per share equal to the Fair Market Value of a
share of Common Stock on September 1, 1995, and in subsequent years
on the annual anniversaries of such date (each such date is
referred to as a "Valuation Date"); provided further that on the
Valuation Date in 1995 only, no more than fifty percent (50%) of
each Optionee's Payable Shares shall become subject to purchase by
the Company. Within thirty (30) days after each such Valuation
Date, the Company shall cause the Fair Market Value of the Shares
to be determined in accordance with Section 6.06(b) and shall
notify each holder of Shares acquired pursuant to exercise of an
Option of such Fair Market Value. Within thirty (30) days after
receipt of such notice, each such holder of Shares may elect to
have all or any portion of his or her Payable Shares be purchased
by the Company at a price per share equal to such Fair Market Value
by submitting to the Committee an irrevocable written notice of
such election. The rights of an Optionee under this Section 6.06
may be exercised by the Optionee and any transferee specified in
clause (ii) of Section 6.08(a) (in which case all references herein
to "Optionee" shall refer to such transferee), but shall not be
exercisable by any other holder of Shares, whether or not such
holder acquired such Shares in a transfer permitted by Section
6.08(a).
(b) Method of Valuation. The value of a Share of
Company Common Stock on each Valuation Date shall be determined in
good faith by the Board, and any such determination shall be
conclusive and binding on the Company and all Optionees and/or
holders of Shares. In making any such determination of Fair Market
Value, the Board may, but shall not be required to, rely on a
determination of Fair Market Value made by an independent appraiser
or other appropriate financial professional selected by the Board
in its sole discretion and reasonably believed to be competent to
make such determination. No member of the Board shall have any
personal liability to any Optionee and/or holder of Shares for any
determination of Fair Market Value under this Section 6.06, or any
act or omission in connection therewith, unless the Optionee and/or
holder of Shares shall establish that such determination, act or
omission was not made in good faith.
(c) Closing of Purchase of Shares. The closing for any
purchase of Shares pursuant to this Section 6.06 shall occur on
such date within sixty (60) days of the giving by the Company of
the notification required by Section 6.06(a) as the Company shall
specify by five (5) business days' notice to each selling Optionee,
at the offices of the Company at 11:00 a.m. local time, or at such
other time and place as the parties to such sale may mutually
agree. At the closing, the Optionee shall deliver to the Company
a certificate or certificates representing the Shares to be
purchased by the Company, duly endorsed for transfer, free and
clear of any lien or encumbrance, in exchange for payment of the
purchase price (i) by check, (ii) by delivery of certificates
representing shares of Common Stock of Orbital Sciences Corporation
having a Fair Market Value (determined in the manner provided in
Section 2.10) as of the business day preceding the closing equal to
the purchase price of the Shares, (iii) by delivery of a
subordinated promissory note of the Company in the principal amount
of the purchase price of the Shares, bearing interest at a rate
equal to the then applicable federal short-term rate (determined
pursuant to Section 1274(d) of the I.R.C.), providing for quarterly
payments of interest and payment of the full principal amount on
the first anniversary of the date of issuance, and containing
provisions as approved by the Board in its sole discretion
providing for the subordination of such notes to such indebtedness,
whether then existing or thereafter created, of the Company as is
specified by the Board, including, without limitation, indebtedness
for money borrowed or similar indebtedness, or (iv) any combination
of the foregoing; provided, however, that no more than fifty
percent (50%) of the purchase price for Shares may be paid by
subordinated promissory note. Any payment in the form of shares of
Orbital Sciences Corporation Common Stock shall be subject to all
applicable federal and state securities laws restrictions and all
other restrictions.
(d) Limitations on Repurchase Obligations.
Notwithstanding any other provision of this Section 6.06, the
Company shall not be obligated to purchase Payable Shares (i) to
the extent such purchase is not permitted under applicable law or
under the terms of any of (A) the Company's then-existing debt
instruments or agreements governing such debt instruments, (B) the
then-existing terms of any class of preferred stock of the Company,
or (C) a then-existing stockholders agreement to which the Company
is a party; or (ii) in the event there has been a public offering
(within the meaning of the Securities Act of 1933 as amended, and
the rules and regulations thereunder) of the Company's Common
Stock.
6.07 Options Not Transferable. Options granted under this
Plan may not be sold, pledged, hypothecated, assigned, encumbered,
gifted or otherwise transferred or alienated in any manner, whether
voluntarily, by operation of law, pursuant to judicial process or
otherwise, other than by will or the laws of descent and
distribution, and may be exercised during the lifetime of an
Optionee only by such Optionee.
6.08 Restrictions on Issuance or Transfer of Shares.
(a) Until such time as the Company shall have
consummated an underwritten public offering of Shares involving an
aggregate public offering price of at least Five Million Dollars
($5,000,000), or the Shares are registered under the Exchange Act,
no Shares issuable upon exercise of an Option shall be sold,
assigned, encumbered, pledged, hypothecated, given away or in any
other manner disposed of or transferred, whether voluntarily, by
operation of law, pursuant to judicial process or otherwise, except
(i) to the Company pursuant to Section 6.06 hereof, or (ii) upon
the death of the holder thereof, Shares may be transferred and
distributed by will or other instrument taking effect at death or
by the laws of descent and distribution to such holder's estate,
executors, administrators and personal representatives, and then to
such holder's heirs, legatees or distributees, provided that no
such transfer shall be effective until the recipient has delivered
to the Company a written acknowledgment in form and substance
reasonably satisfactory to the Company that such Shares are subject
to the restrictions on disposition or transfer set forth in this
Section 6.08(a). Any attempted transfer of Shares not in
accordance with this Section 6.08(a) shall be null and void, and
the Company shall not in any way give effect to any such
disposition or transfer.
(b) No Shares shall be issued or delivered upon exercise
of an Option unless and until there shall have been compliance with
all applicable requirements of the Securities Act of 1933, as
amended, all applicable listing or quotation requirements of any
national securities exchange or market on which Shares are then
listed or quoted, and any other requirement of law or of any
regulatory body having jurisdiction over such issuance and
delivery. The inability of the Company to obtain any required
permits, authorizations or approvals necessary for the lawful
issuance and sale of any Shares hereunder on terms deemed
reasonable by the Board shall relieve the Company, the Board and
any Committee of any liability in respect of the non-issuance or
sale of such Shares as to which such requisite permits,
authorizations or approvals shall not have been obtained.
(c) As a condition to the granting or exercise of any
Option, the Board may require the person receiving or exercising
such Option to make any representation and/or warranty to the
Company as may be required under any applicable law or regulation,
including, but not limited to, a representation that the Option
and/or Shares are being acquired only for investment and without
any present intention to sell or distribute such Option and/or
Shares, if such a representation is required under the Securities
Act of 1933, as amended, or any other applicable law, rule or
regulation.
(d) The exercise of Options under the Plan is
conditioned on approval of the Plan by the vote or written consent
of a majority of the holders of outstanding Shares of the Company's
Common Stock within twelve (12) months of the adoption of the Plan.
In the event such stockholder approval is not obtained within such
time period, any Options granted hereunder shall be void.
6.09 Option Adjustments.
(a) If the outstanding Shares of Common Stock of the
Company are increased, decreased, changed into or exchanged for a
different number or kind of shares of the Company through
reorganization, recapitalization, reclassification, stock dividend,
stock split or reverse stock split or other similar transaction,
the Board shall make a proportionate adjustment in the number or
kind of shares and the per-share option price thereof, which may be
issued in the aggregate and to individual Optionees upon exercise
of Options granted under the Plan; provided, however, that no such
adjustment need be made if, upon the advice of counsel, the Board
determines that such adjustment may result in the receipt of
federally taxable income to holders of Options granted hereunder or
the holders of Common Stock or other classes of the Company's
securities.
(b) Upon the occurrence of a Terminating Transaction, as
of the effective date of such Terminating Transaction, the Plan and
any then outstanding Options (whether or not vested) shall
terminate unless (i) provision is made in writing in connection
with such transaction for the continuance of the Plan and for the
assumption of such Options, or for the substitution for such
Options of new options covering the securities of any successor or
survivor corporation in the Terminating Transaction or an affiliate
thereof, with such adjustments as the Board deems appropriate with
respect to the number and kind of securities and the per-share
exercise price under such substituted options, in which event the
Plan and such outstanding Options shall continue or be replaced, as
the case may be, in the manner and under the terms so provided; or
(ii) the Board otherwise shall provide in writing for such
adjustments as it deems appropriate in the terms and conditions of
the then outstanding Options (whether or not vested), including,
without limitation, (A) accelerating the vesting of outstanding
Options; and/or (B) providing for the cancellation of Options and
their automatic conversion into the right to receive the securities
or other properties which a holder of Shares underlying such
Options would have been entitled to receive upon the consummation
of such Terminating Transaction had such Shares been issued and
outstanding (net of the appropriate option exercise prices). If,
pursuant to the foregoing provisions of this paragraph (b), the
Plan and the Options shall terminate by reason of occurrence of a
Terminating Transaction without provision for any of the action(s)
described in clause (i) and/or (ii) hereof, then any Optionee
holding outstanding Options shall have the right, at such time
immediately prior to the consummation of the Terminating
Transaction as the Board shall designate, to exercise their Options
to the full extent not theretofore exercised, including any
installments which have not yet become Accrued Installments.
(c) Except to the extent required in order to retain the
qualification of an Option as an Incentive Stock Option under
I.R.C. Section 422, to the maximum extent possible, any adjustments
authorized under this Section 6.09 with respect to any outstanding
Options shall be made by means of appropriate adjustments to the
number of Shares (or other securities) and the option exercise
price therefor under the unexercised portions of such outstanding
Options, but without changing the aggregate exercise price
applicable to said unexercised portions. In all cases, the nature
and extent of adjustments under this Section 6.09 shall be
determined by the Board in its sole discretion, and any such
determination as to what adjustments shall be made, and the extent
thereof, shall be final and binding. No fractional shares of stock
shall be issued under the Plan pursuant to any such adjustment.
6.10 Taxes. The Board shall make such provisions and take
such steps as it deems necessary or appropriate for the withholding
of any federal, state, local and other tax required by law to be
withheld with respect to the grant or exercise of an Option under
the Plan, or with respect to the disposition of Shares acquired
pursuant to the exercise of an Option pursuant to the Plan,
including, but without limitation, the deduction of the amount of
any such withholding tax from any compensation or other amounts
payable to an Optionee by any member of the Participating
Companies, or requiring an Optionee (or the Optionee's beneficiary
or legal representative), as a condition of granting or exercising
an Option, to pay to any member of the Participating Companies any
amount required to be withheld, or to execute such other documents
as the Board deems necessary or desirable in connection with the
satisfaction of any applicable withholding obligation. If
permitted by the Board, either at the time of the grant of an
Option or the time of exercise, the Optionee and/or holder of
Shares may elect, at such time and in such manner as the Board may
prescribe, to satisfy such withholding obligation by (i) delivering
to the Company Shares owned by such individual having a Fair Market
Value equal to such withholding obligation, or (ii) requesting that
the Company withhold from the Shares to be delivered upon the
exercise a number of Shares having a Fair Market Value equal to
such withholding obligation.
6.11 Legends on Options and Stock Certificates. Each Option
Agreement and each certificate representing Shares acquired upon
exercise of an Option shall be endorsed with all legends, if any,
required by applicable federal and state securities laws to be
placed on the Option Agreement and/or the certificate, as well as
legends setting forth the restrictions contained in Section 6.08(a)
hereof. The determination of which legends, if any, shall be
placed upon Stock Option Agreements and/or said Shares shall be
made by the Board in its sole discretion, and such decision shall
be final and binding.
6.12 Employment Rights. Neither the adoption of the Plan nor
the grant of Options will confer upon any person any right to
continued employment with the Company or any subsidiary or affect
in any way the right of the Company or subsidiary to terminate an
employment relationship at any time. Except as specifically
provided by the Board in any particular case, the loss of existing
or potential profit in connection with Options granted under the
Plan will not constitute an element of damages in the event of
termination of an employment relationship.
6.13 Non-Competition Provisions. In consideration for the
grant of Options, the Committee may require that Optionees enter
into a non-competition agreement with the Company.
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
7.01 Board Authority. The Board may amend, alter and/or
terminate the Plan at any time; provided, however, that no change
shall be effective unless approved by the stockholders of the
Company if such change would cause the Option Plan to fail to meet
the qualification requirements for Incentive Stock Option Plans as
set forth in the Internal Revenue Code or, if the Company then has
a class of equity security registered under the Exchange Act, to
comply with Rule 16b-3 of the Exchange Act or any successor rule
under such Act as in effect on the date of such amendment.
7.02 Limitation on Board Authority. The Board may amend the
terms of any Option previously granted, prospectively or
retroactively, and may amend the Plan in accordance with the
provisions of Section 7.01; provided, however, that unless required
by applicable law, rule or regulation, no amendment of the Plan or
of any Option Agreement shall affect, in a material and adverse
manner, Options granted prior to the date of any such amendment
without the consent of any Optionee holding any such affected
Options.
7.03 Substitution of Options. In the Board's discretion, the
Board may, with an Optionee's consent, substitute Nonstatutory
Stock Options for outstanding Incentive Stock Options, and any such
substitution shall not constitute a new Option grant for the
purposes of the Plan, and shall not require a revaluation of the
Option exercise price for the substituted Option. Any such
substitution may be implemented by an amendment to the applicable
Option Agreement or in such other manner as the Board in its
discretion may determine.
ARTICLE VIII
GENERAL PROVISIONS
8.01 Availability of the Plan. A copy of the Plan shall be
delivered to the Secretary of the Company and shall be shown by the
Secretary to any Eligible Person making reasonable inquiry
concerning the Plan.
8.02 Notice. Any notice or other communication required or
permitted to be given pursuant to the Plan or under any Option
Agreement must be in writing and may be given by registered or
certified mail and, if given by registered or certified mail, shall
be determined to have been given and received when a registered or
certified letter containing such notice, properly addressed with
postage prepaid, is deposited in the United States mails and, if
given otherwise than by registered or certified mail, shall be
deemed to have been given when delivered to and received by the
party to whom addressed. Notice shall be given to Eligible Persons
at their most recent addresses shown in the Company's records.
Notice to the Company shall be addressed to the Company at the
address of the Company's principal executive offices, to the
attention of the Secretary of the Company.
8.03 Titles and Headings. Titles and headings of sections of
the Plan are for convenience of reference only and shall not affect
the construction of any provision of the Plan.
8.04 Governing Law. The Plan shall be governed by,
interpreted under and construed and enforced in accordance with the
internal laws, and not the laws pertaining to conflicts or choice
of laws, of the State of Delaware, applicable to agreements made
and to be performed wholly within the State of Delaware.
LEGAL\OPTPLAN.OCC
[CONFORMED COPY]
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT NO. 1 dated as of October 26, 1994 among
ORBITAL SCIENCES CORPORATION, ORBITAL IMAGING CORPORATION
and FAIRCHILD SPACE AND DEFENSE CORPORATION (collectively,
the "Borrowers"), the BANKS listed on the signature pages
hereof, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Administrative Agent (the "Administrative Agent"), and J.P.
MORGAN DELAWARE, as Collateral Agent.
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore
entered into an Amended and Restated Credit and
Reimbursement Agreement dated as of September 27, 1994 (the
"Agreement"); and
WHEREAS, the parties hereto desire to amend the
Agreement as set forth below;
NOW, THEREFORE, the parties hereto agree as
follows:
SECTION 1. Definitions; References. Unless
otherwise specifically defined herein, each term used herein
which is defined in the Agreement shall have the meaning
assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and
each other similar reference contained in the Agreement
shall from and after the date hereof refer to the Agreement
as amended hereby.
SECTION 2. Definition of Borrowing Base. The
definition of "Borrowing Base" contained in Section 1.01 of
the Agreement is amended by:
(a) changing the phrase "one month" in clause (B)
to "two months";
(b) deleting clause (C)(1) in its entirety and
renumbering clauses (C)(2) and (C)(3) as (C)(1) and (C)(2),
respectively; and
(c) deleting clause (D)(1) in its entirety and
renumbering clauses (D)(2) and (D)(3) as (D)(1) and (D)(2),
respectively.
SECTION 3. Amendment of Guaranty. Section 9.06
of the Agreement is amended to read in its entirety as
follows:
"SECTION 9.06. Subrogation. Upon making any
payment with respect to any Borrower hereunder, the
Guarantor making such payment shall be subrogated to the
rights of the payee against the Borrower with respect to
such payment; provided that such Guarantor shall not enforce
or accept any payment by way of subrogation until all
amounts of principal of and interest on the Notes and all
other amounts payable by all Borrowers under the Financing
Documents have been paid in full.".
SECTION 4. Governing Law. This Amendment shall
be governed by and construed in accordance with the laws of
the State of New York.
SECTION 5. Counterparts; Effectiveness. This
Amendment may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective as of
October 26, 1994 when the Administrative Agent shall have
received duly executed counterparts hereof signed by the
Borrowers and all the Banks (or, in the case of any party as
to which an executed counterpart shall not have been
received, the Administrative Agent shall have received
telegraphic, telex or other written confirmation from such
party of execution of a counterpart hereof by such party).
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed as of the date first
above written.
ORBITAL SCIENCES CORPORATION
By /s/ Carlton B. Crenshaw
Title: Sr. V.P./Finance &
Administration and
Treasurer
ORBITAL IMAGING CORPORATION
By /s/ Carlton B. Crenshaw
Title: Chief Financial Officer
and Treasurer
FAIRCHILD SPACE AND DEFENSE
CORPORATION
By /s/ Carlton B. Crenshaw
Title: Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Kevin J. O'Brien
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ James R. Trimble
Title: Sr. Relationship Manager
SIGNET BANK/VIRGINIA
By /s/ Ronald K. Hobson
Title: Vice President
NATIONSBANK, N.A.
By /s/ Douglas T. Brown
Title: Vice President
THE BANK OF TOKYO TRUST COMPANY
By /s/ J. Andrew Don
Title: Vice President
THE DAIWA BANK, LIMITED
By /s/ Keith W. Rauschenberger
Title: Vice President
By /s/ Louanne Baily
Title: Vice President and
Manager
[CONFORMED COPY]
WAIVER NO. 1 TO CREDIT AGREEMENT
WAIVER No. 1 dated as of December 19, 1994 among
ORBITAL SCIENCES CORPORATION (the "Company"), ORBITAL
IMAGING CORPORATION and FAIRCHILD SPACE AND DEFENSE
CORPORATION (together with the Company, the "Borrowers"),
the BANKS listed on the signature pages hereof, MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent
(the "Administrative Agent"), and J.P. MORGAN DELAWARE, as
Collateral Agent.
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore
entered into an Amended and Restated Credit and
Reimbursement Agreement dated as of September 27, 1994 (as
amended, the "Agreement"); and
WHEREAS, the Company has entered into an Agreement
and Plan of Merger dated as of November 25, 1994 (as in
effect on the date hereof, the "Merger Agreement") with
Orbital Acquisition Corporation and Magellan Corporation, a
Delaware corporation ("Magellan"), pursuant to which the
Company will acquire all of the issued and outstanding
capital stock of Magellan (the "Acquisition"); and
WHEREAS, pursuant to the Agreement, the Company
has agreed for itself and each of its Subsidiaries (as
defined in the Agreement) to comply with the covenants set
forth in the Agreement; and
WHEREAS, in the absence of this Waiver, the
consummation of the Acquisition will cause the Company to be
in noncompliance with certain of such covenants; and
WHEREAS, the Company has asked the Banks, and the
Banks are willing, on the terms and conditions set forth
below, to waive, among other things, compliance with certain
of such covenants and the Defaults (as defined in the
Agreement) caused by such noncompliance;
NOW, THEREFORE, the parties hereto agree as
follows:
SECTION 1. Definitions. Unless otherwise
specifically defined herein, each term used herein that is
defined in the Agreement shall have the meaning assigned to
such term in the Agreement.
SECTION 2. Waiver of Certain Misrepresentations.
The Banks hereby waive any inaccuracy of the representations
and warranties set forth in Section 4.07 or 4.08 of the
Agreement, solely to the extent such inaccuracy is
attributable to the matters concerning Magellan disclosed in
the letter dated December 13, 1994 from the Company to the
Banks.
SECTION 3. Waiver of Compliance with the
Insurance Covenant. The Banks waive (i) compliance by the
Company with the terms of Section 5.03(c) and 5.03(d) of the
Agreement and (ii) any Default arising under the Agreement
by reason of noncompliance with such Sections 5.03(c) and
5.03(d); provided that, the waivers granted under this
Section 3 shall be effective solely with respect to any
insurance policies maintained by Magellan and subject to a
Lien granted by Magellan to Silicon Valley Bank under the
Loan and Security Agreement between Magellan and such Bank
dated as of December 2, 1990, as amended prior to the date
hereof and as in effect on the date hereof.
SECTION 4. Waiver of Compliance with the
Investments Covenant. The Banks waive (i) compliance by the
Company with the terms of Section 5.07 of the Agreement and
(ii) any Default arising under the Agreement by reason of
noncompliance with such Section 5.07; provided that, the
waivers granted under this Section 4 shall be effective only
to the extent necessary to permit the Company to make an
Investment in an aggregate principal amount not exceeding
the aggregate value of 3,300,000 shares of the common stock
of the Company (determined at the time the Acquisition is
consummated) in order to consummate the Acquisition on the
terms and conditions set forth in the Merger Agreement, and
provided further that, any such Investment shall not be
deemed to be an Investment for purposes of Section 5.07(b),
(d) or (e) of the Agreement.
SECTION 5. Compliance With Certain Sections Of
The Agreement. For purposes of determining compliance by
the Company with Sections 5.01 through 5.18, inclusive, of
the Agreement, Magellan will be a Subsidiary of the Company
as of any date on or after the consummation of the
Acquisition.
SECTION 6. No Other Waivers. Other than as
specifically provided herein, this Waiver shall not operate
as a waiver of any right, remedy, power or privilege of the
Banks under the Agreement or any other Financing Document or
of any other term or condition of the Agreement or any other
Financing Document.
SECTION 7. New York Law. This Waiver shall be
governed by and construed in accordance with the laws of the
State of New York.
SECTION 8. Counterparts; Effectiveness. This
Waiver may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
This Waiver shall become effective upon (i) receipt by the
Administrative Agent of duly executed counterparts hereof
signed by the Borrowers and the Required Banks (or, in the
case of any party as to which an executed counterpart shall
not have been received, the Administrative Agent shall have
received telegraphic, telex or other written confirmation
from such party of execution of a counterpart hereof by such
party), (ii) receipt by the Administrative Agent of evidence
reasonably satisfactory to it that the Acquisition shall
have been consummated on the terms set forth in the Merger
Agreement and (iii) receipt by each Bank of a copy of the
Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have caused
this Waiver to be duly executed as of the date first above
written.
ORBITAL SCIENCES CORPORATION
By /s/ Carlton B. Crenshaw
Title: Sr. V.P./Finance &
Admin. and Treasurer
ORBITAL IMAGING CORPORATION
By /s/ Carlton B. Crenshaw
Title: Chief Financial
Officer and Treasurer
FAIRCHILD SPACE AND DEFENSE
CORPORATION
By /s/ Carlton B. Crenshaw
Title: Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Vance B. Barbour
Title: Associate
THE BANK OF NOVA SCOTIA
By /s/ J.R. Trimble
Title: Sr. Relationship Mgr.
SIGNET BANK/VIRGINIA
By /s/ Ronald K. Hobson
Title: Vice President
NATIONSBANK, N.A.
By /s/ Douglas T. Brown
Title: Vice President
THE BANK OF TOKYO TRUST COMPANY
By
Title:
THE DAIWA BANK, LIMITED
By /s/ Keith W. Rauschenberger
Title: Vice President
By /s/ Louanne Baily
Title: Vice President and Mgr.
[FAIRCHILD LOGO] FAIRCHILD
Joseph A. Boyd
Chairman and
Chief Executive Officer
August 26, 1992
Mr. Jack A. Frohbieter
Fairchild Space & Defense Corporation
20301 Century Boulevard
Germantown, Maryland 20874
Dear Jack:
Although the Company does not intend to extend your Executive
Employment Agreement ("Contract"), it recognizes your value as an
employee and desires that you continue employment.
If you continue employment, you will be provided severance benefits
if, prior to your 65th birthday, your employment is terminated by
the Company, or any successor, for reason other than for cause.
Termination for cause shall mean willful misconduct or conduct
involving bad faith.
The benefits will include: (1) an amount equal to twice your then
current annual base pay; and (2) an amount equal to the sum of the
two short-term incentive compensation awards for the two years
immediately prior to the termination; however, you will not receive
any incentive compensation for the year of the termination.
Also, to the extent permitted under the Plans, you will be entitled
to continue to participate for a period up to two years in the
Company's "welfare" benefit plans (Health, Life, Disability,
Insurance, but not Pension or Savings plans or vacation or other
fringe benefits) to the same extent as if you were an employee.
These benefits will be in lieu of and not in addition to any other
Company severance benefits, except that, any severance benefits
under this arrangement will be reduced by the amount of termination
benefits, if any, that are provided under the Contract.
Fairchild Space & Defense Corporation - 20301 Century Boulevard -
Germantown, Maryland 20874 - (301) 353-8649
<PAGE>
[Fairchild Logo]
Jack A. Frohbieter
August 26, 1992
Page Two
In addition to the above described benefits relating to
termination, you will continue during your employment to
participate in the Company's Supplemental Executive Retirement Plan
as set forth in your Contract.
Sincerely,
/s/ Joseph A. Boyd
Joseph A. Boyd
Chairman and CEO
JAB/ahe
CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2
AMENDMENT NO. 2
TO
MASTER AGREEMENT
This Amendment No. 2 to the Master Agreement ("Amendment No.
2") is made and entered into as of this 1st day of October 1994 by
and among Orbital Sciences Corporation ("Orbital"), Orbital
Communications Corporation ("ORBCOMM"), Teleglobe Inc.
("Teleglobe") and Teleglobe Mobile Partners ("Teleglobe Mobile").
W I T N E S S E T H
WHEREAS, Orbital, ORBCOMM, Teleglobe and Teleglobe Mobile
previously entered into a Master Agreement dated as of June 30,
1993 (the "Master Agreement") and Amendment No. 1 to the Master
Agreement dated as of April 1, 1994; and
WHEREAS, Orbital, ORBCOMM, Teleglobe and Teleglobe Mobile
desire to further amend and modify the Master Agreement.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Terms used but not otherwise defined herein shall
have the meanings assigned thereto in the Master Agreement.
SECTION 2. Appendix D to the Master Agreement, which Appendix
sets forth the Amended and Restated Agreement of Limited
Partnership of ORBCOMM Development Partners, L.P. (the "Amended and
Restated ORBCOMM Development Partnership Agreement"), is hereby
amended and modified as follows:
A. A new Section 3.2(e) is added to the Amended and Restated
ORBCOMM Partnership Agreement following Section 3.2(d) that reads
as follows:
"(e) In addition to the capital contributions made or
required to be made pursuant to the Original Agreement or
specified in this Section 3.2, Teleglobe Mobile hereby agrees
to contribute in cash or in immediately available funds up to
$250,000 for all international business development activities
expenses (actual salary, fringe benefit, travel and related
overhead and general and administrative expenses) associated
with the ORBCOMM System incurred from September 1, 1994
through the exercise of the Teleglobe Mobile Option (as such
term is defined in the Master Agreement)."
B. Section 6.9 is hereby deleted in its entirety and
replaced with the following:
"6.9. The System Charge. The System Charge for any
calendar quarter shall be equal to the sum of (a) Output
Capacity Charge (as such term is defined in Section 4.1(a) of
the System Charge and Marketing (U.S.) Agreement) for such
calendar month minus [CONFIDENTIAL TREATMENT REQUESTED
PURSUANT TO RULE 24b-2]% of Total Aggregate Revenues and (b)
the International Output Capacity Charge (as such term is
defined in Section 6.1(a) of the International System Charge
and Marketing (Non-U.S.) Agreement) for such calendar month
minus [CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-
2]% of Total Aggregate Revenues. For purposes of this Section
6.9, "Total Aggregate Revenues" shall mean the total aggregate
revenues invoiced by both ORBCOMM U.S. and ORBCOMM
International to their respective Subscribers, Resellers and
Licensees in connection with the operation, marketing and use
of the ORBCOMM System in such calendar quarter; provided that
revenues invoiced by either ORBCOMM U.S. or ORBCOMM
International in connection with the sale of network control
centers, gateway earth stations and subscriber communicators
shall be excluded from the calculation of total aggregate
revenues; and provided further that, within five (5) days of
the receipt by the Partnership from ORBCOMM U.S. and ORBCOMM
International of the amount of total aggregate revenues
invoiced by them during a calendar quarter, the Partnership
shall notify each of ORBCOMM and Teleglobe Mobile of the
amount of the Total Aggregate Revenues for such quarter. The
amount determined pursuant to clause (a) above shall be
ORBCOMM's allocated portion of the System Charge and the
amount determined pursuant to clause (b) above shall be
Teleglobe Mobile's allocated portion of the System Charge.
SECTION 3. Article V of the Master Agreement is hereby
amended and modified as follows:
A. Section 5.2 of the Master Agreement is amended and
modified to insert the following new sections immediately following
Section 5.2(c):
"(d) The ORBCOMM System Construction Agreement shall be
amended as provided in Amendment No. 1 to the ORBCOMM
System Construction Agreement in the form attached hereto
as Appendix G, provided that such Amendment No. 1 shall
be dated the date of the exercise of the Teleglobe Mobile
Option by Teleglobe Mobile;
(e) The System Charge and Marketing (U.S.) Agreement shall be
amended as provided in Amendment No. 2 to the System
Charge and Marketing (U.S.) Agreement in the form
attached hereto as Appendix H, provided that such
Amendment No. 2 shall be dated the date of the exercise
of the Teleglobe Mobile Option by Teleglobe Mobile; and
(f) The International System Charge and Marketing (Non-U.S.)
Agreement shall be amended as provided in Amendment No.
2 to the International System Charge and Marketing (Non-
U.S.) Agreement in the form attached hereto as Appendix
I, provided that such Amendment No. 2 shall be dated the
date of the exercise of the Teleglobe Mobile Option by
Teleglobe Mobile.
B. The following new Section 5.3 shall be inserted in the
Master Agreement immediately following Section 5.2 thereof:
"5.3 Failure to Exercise Teleglobe Mobile Option. In the
event Teleglobe Mobile does not exercise the Teleglobe Mobile
Option, the ORBCOMM Development Partnership Agreement shall be
amended as provided in the Amendment to the Agreement of
Limited Partnership of ORBCOMM Development Partners, L.P. in
the form attached hereto as Appendix J, provided that such
Amendment shall be numbered and dated accordingly."
SECTION 4. The Master Agreement is hereby amended and
modified to add Appendixes G, H, I and J thereto in the forms
attached to this Amendment No. 2.
IN WITNESS WHEREOF, the parties have caused this Amendment No.
2 to be executed as of the day and year first written above.
ORBITAL SCIENCES CORPORATION TELEGLOBE INC.
By:/s/ Bruce W. Ferguson By: /s/ Guthrie J. Stewart
Bruce W. Ferguson Guthrie J. Stewart
Executive Vice President Executive Vice President,
and General Manager/Communications Corporate Development and
and Information Systems Group and Corporate Secretary
ORBITAL COMMUNICATIONS CORPORATION TELEGLOBE MOBILE PARTNERS
By: Teleglobe Mobile Investment
Inc., its Managing Partner
By:/s/ Alan L. Parker By:/s/ Guthrie J. Stewart
Alan L. Parker Guthrie J. Stewart
President Chairman of the Board and
Chief Executive Officer
<PAGE>
APPENDIX G
AMENDMENT NO. 1 TO
ORBCOMM SYSTEM CONSTRUCTION AGREEMENT
This Amendment No. 1 to the ORBCOMM System Construction
Agreement ("Amendment No. 1") is made and entered into as of this
______ day of ________ 199_ by and between Orbital Communications
Corporation ("ORBCOMM") and ORBCOMM Development Partners, L.P.
("ORBCOMM Development").
W I T N E S S E T H
WHEREAS, ORBCOMM and ORBCOMM Development previously entered
into the ORBCOMM System Construction Agreement dated as of June 30,
1993 (the "System Construction Agreement"); and
WHEREAS, ORBCOMM and ORBCOMM Development desire to amend and
modify the System Construction Agreement.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Terms used but not otherwise defined herein shall
have the meanings assigned thereto in the System Construction
Agreement.
SECTION 2. Article 2 of the System Construction Agreement is
hereby amended and modified as follows:
A. Section 2.2(a) of the System Construction Agreement is
hereby deleted in its entirety and replaced with the following:
"(a) Within ten (10) days of receipt by ORBCOMM of the
Output Capacity Charge (as such term is defined in the System
Charge and Marketing (U.S.) Agreement) for any calendar
quarter, ORBCOMM shall remit to ORBCOMM Development ORCOMM's
allocated portion of the system charge (the "System Charge")
calculated in accordance with Section 6.9 of the Amended and
Restated Agreement of Limited Partnership of ORBCOMM
Development Partners, L.P. (the "Amended ORBCOMM Development
Partnership Agreement"), provided that if the Output Capacity
Charge for such calendar quarter is less than [CONFIDENTIAL
TREATMENT REQUESTED PURSUANT TO RULE 24b-2]% of Total Aggregate
Revenues (as such term is defined in the Amended ORBCOMM
Development Partnership Agreement), then ORBCOMM shall not be
required to pay, and it shall not owe ORBCOMM Development, any
portion of the System Charge for such calendar quarter."
B. Sections 2.2(b), (c) and (d) of the System Construction
Agreement are deleted in their entirety.
C. Sections 2.2(e) and (f) of the System Construction
Agreement are hereby renumbered as Sections 2.2(b) and (c),
respectively.
IN WITNESS WHEREOF, the parties have caused this Amendment No.
1 to be executed as of the day and year first above written.
ORBITAL COMMUNICATIONS CORPORATION
By:________________________________
Alan L. Parker
President
ORBCOMM DEVELOPMENT PARTNERS, L.P.
By: Orbital Communications
Corporation, General Partner
By:_________________________
Alan L. Parker
President
By: Teleglobe Mobile Partners,
General Partner
By: Teleglobe Mobile Investment
Inc., its Managing Partner
By:__________________________
Guthrie J. Stewart
Chairman of the Board and
Chief Executive Officer
<PAGE>
APPENDIX H
AMENDMENT NO. 2 TO
SYSTEM CHARGE AND MARKETING (U.S.) AGREEMENT
This Amendment No. 2 to the System Charge and Marketing (U.S.)
Agreement ("Amendment No. 2") is made and entered into as of this
______ day of ________ 199_ by and between Orbital Communications
Corporation ("ORBCOMM") and ORBCOMM U.S. Partners, L.P. ("ORBCOMM
U.S.").
W I T N E S S E T H
WHEREAS, ORBCOMM and ORBCOMM U.S. previously entered into the
System Charge and Marketing (U.S.) Agreement dated as of June 30,
1993 and Amendment No. 1 thereto dated as of June 30, 1994 (as such
agreement has been and may be modified, the "Agreement"); and
WHEREAS, ORBCOMM and ORBCOMM U.S. desire to further amend and
modify the Agreement.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Terms used but not otherwise defined herein shall
have the meanings assigned thereto in the Agreement.
SECTION 2. Section 4 of the Agreement is hereby amended and
modified as follows:
A. Section 4.1(a) of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(a) Within thirty (30) days of the end of each calendar
quarter, the Operator shall (i) notify ORBCOMM Development of
the Total Aggregate Revenues invoiced by the Operator during
such calendar quarter and (ii) remit to ORBCOMM [CONFIDENTIAL
TREATMENT REQUESTED PURSUANT TO RULE 24b-2] percent
([CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2]%)
of the Total Aggregate Revenues invoiced by the Operator in
such calendar quarter (the "Output Capacity Charge"). For
purposes of this Agreement, "Total Aggregate Revenues" shall
mean the total aggregate revenues invoiced by the Operator to
its Subscribers, Resellers and Licensees in connection with
the operation, marketing and use of the ORBCOMM System in such
calendar quarter; provided that revenues invoiced by the
Operator in connection with the sale of network control
centers, gateway earth stations and subscriber communicators
shall be excluded from the calculation of total aggregate
revenues. The Operator shall have the sole discretion to set
the fees to be paid by its Subscribers, Resellers and
Licensees for use of the ORBCOMM System."
B. Sections 4.1(b) and (c) of the Agreement are deleted in
their entirety.
C. Section 4.2 of the Agreement is deleted in its entirety
and replaced with the following:
"4.2 Payment Terms. The Operator shall remit all Output
Capacity Charges in lawful money of the United States pursuant
to written instructions to the Operator furnished by ORBCOMM.
Payment of the Output Capacity Charge shall be deemed to have
been made on the date received in full in collectable funds.
If any date on which a payment of the Output Capacity Charge
becomes due and payable is not a business day in the State of
New York, the Output Capacity Charge payment otherwise due and
payable on such date shall be due and payable on the next
succeeding business day."
IN WITNESS WHEREOF, the parties have caused this Amendment No.
2 to be executed as of the day and year first above written.
ORBITAL COMMUNICATIONS CORPORATION
By:________________________________
Alan L. Parker
President
ORBCOMM U.S. PARTNERS, L.P.
By: Orbital Communications
Corporation, General Partner
By:___________________________
Alan L. Parker
President
By: Teleglobe Mobile Partners,
General Partner
<PAGE>
By: Teleglobe Mobile Investment
Inc., its Managing Partner
By:___________________________
Guthrie J. Stewart
Chairman of the Board and
Chief Executive Officer
<PAGE>
APPENDIX I
AMENDMENT NO. 2 TO
INTERNATIONAL SYSTEM CHARGE AND
MARKETING (NON-U.S.) AGREEMENT
This Amendment No. 2 to the International System Charge and
Marketing (Non-U.S.) Agreement ("Amendment No. 2") is made and
entered into as of this ______ day of ________ 199_ by and among
Orbital Development Partners, L.P. ("ORBCOMM Development"),
Teleglobe Mobile Partners ("Teleglobe Mobile") and ORBCOMM
International Partners, L.P. ("ORBCOMM International").
W I T N E S S E T H
WHEREAS, ORBCOMM Development, Teleglobe Mobile and ORBCOMM
International previously entered into the International System
Charge and Marketing (Non-U.S.) Agreement dated as of June 30, 1993
and Amendment No. 1 thereto dated as of June 30, 1994 (as such
agreement has been and may be modified, the "Agreement"); and
WHEREAS, ORBCOMM Development, Teleglobe Mobile and ORBCOMM
International desire to further amend and modify the Agreement.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Terms used but not otherwise defined herein shall
have the meanings assigned thereto in the Agreement.
SECTION 2. Section 4.1 of the Agreement is hereby deleted in
its entirety and replaced with the following:
"4.1 Calculation of System Charge. In consideration of
the grant to Teleglobe Mobile of the exclusive right to
market, sell, lease and franchise all ORBCOMM System output
capacity in the Non-U.S. Area, within ten (10) days of receipt
by Teleglobe Mobile of the International Output Capacity
Charge (as defined in Section 6.1(a)), Teleglobe Mobile shall
remit to ORBCOMM Development Teleglobe Mobile's allocated
portion of the System Charge calculated in accordance with
Section 6.9 of the Amended and Restated Agreement of Limited
Partnership of ORBCOMM Development Partners, L.P. (the
"Amended ORBCOMM Development Partnership Agreement), provided
that if the International Output Capacity Charge for such
calendar quarter is less than [CONFIDENTIAL TREATMENT
REQUESTED PURSUANT TO RULE 24b-2]% of Total Aggregate Revenues
(as such term is defined in the Amended ORBCOMM Development
Partnership Agreement), then Teleglobe Mobile shall not be
required to pay, and it shall not owe ORBCOMM Development, any
portion of the System Charge for such calendar quarter."
SECTION 3. Sections 4.2, 4.3 and 4.4 of the Agreement are
hereby deleted in their entirety.
SECTION 4. Section 4.5 of the Agreement is deleted in its
entirety and replaced with the following:
"4.5. Payment Terms. Teleglobe Mobile shall remit all
System Charges in lawful money of the United States pursuant
to written instructions to it furnished by ORBCOMM
Development. Payment of the System Charge shall be deemed to
have been made on the date received in full in collectable
funds. If any date on which a payment of the System Charge
becomes due and payable is not a business day in the State of
New York, the System Charge payment otherwise due and payable
on such date shall be due and payable on the next succeeding
business day."
SECTION 5. Section 6 of the Agreement is amended and modified
as follows:
A. Section 6.1(a) of the Agreement is deleted in its
entirety and replaced with the following:
"(a) Within thirty (30) days of the end of each calendar
quarter, the Operator shall (i) notify ORBCOMM Development of
the Total Aggregate Revenues invoiced by the Operator during
such calendar quarter and (ii) remit to Teleglobe Mobile
[CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2]
percent ([CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE
24b-2]%) of the Total Aggregate Revenues invoiced by the
Operator in such calendar quarter (the "International Output
Capacity Charge") For purposes of this Agreement, "Total
Aggregate Revenues" shall mean the total aggregate revenues
invoiced by the Operator to its Subscribers, Resellers and
Licensees in connection with the operation, marketing and use
of the ORBCOMM System in such calendar quarter; provided that
revenues invoiced by the Operator in connection with the sale
of network control centers, gateway earth stations and
subscriber communicators shall be excluded from the
calculation of total aggregate revenues. The Operator shall
have the sole discretion to set the fees to be paid by its
Subscribers, Resellers and Licensees for use of the ORBCOMM
System."
B. Sections 6.1(b) and (c) of the Agreement are deleted in
their entirety.
C. Section 6.2 of the Agreement is deleted in its entirety
and replaced with the following:
"Section 6.2 Payment Terms. The Operator shall remit
all International Output Capacity Charges in lawful money of
the United States pursuant to written instructions to the
Operator furnished by Teleglobe Mobile. Payment of the
International Output Capacity Charge shall be deemed to have
been made on the date received in full in collectable funds.
If any date on which a payment of the International Output
Capacity Charge becomes due and payable is not a business day
in the State of New York, the International Output Capacity
Charge payment otherwise due and payable on such date shall be
due and payable on the next succeeding business day."
IN WITNESS WHEREOF, the parties have caused this Amendment No.
2 to be executed as of the day and year first above written.
ORBCOMM DEVELOPMENT PARTNERS, L.P.
By: Orbital Communications
Corporation, General Partner
By:___________________________
Alan L. Parker
President
By: Teleglobe Mobile Partners,
General Partner
By: Teleglobe Mobile Investment
Inc., its Managing Partner
By:___________________________
Guthrie J. Stewart
Chairman of the Board and
Chief Executive Officer
<PAGE>
TELEGLOBE MOBILE PARTNERS
By: Teleglobe Mobile Investment
Inc., its Managing Partner
By:___________________________
Guthrie J. Stewart
Chairman of the Board and
Chief Executive Officer
ORBCOMM INTERNATIONAL PARTNERS, L.P.
By: Orbital Communications
Corporation, General Partner
By:___________________________
Alan L. Parker
President
By: Teleglobe Mobile Partners,
General Partner
By: Teleglobe Mobile Investment
Inc., its Managing Partner
By:__________________________
Guthrie J. Stewart
Chairman of the Board and
Chief Executive Officer
<PAGE>
APPENDIX J
AMENDMENT NO. __ TO
AGREEMENT OF LIMITED PARTNERSHIP OF
ORBCOMM DEVELOPMENT PARTNERS, L.P.
This Amendment No. __ to the Agreement of Limited Partnership
of ORBCOMM Development Partners, L.P. (the "Amendment") is made and
entered into as of this ______ day of ________ 199_ by and among
Teleglobe Mobile Partners ("Teleglobe Mobile") and Orbital
Communications Corporation ("ORBCOMM").
W I T N E S S E T H
WHEREAS, ORBCOMM and Teleglobe Mobile previously entered into
the Agreement of Limited Partnership of ORBCOMM Development
Partners, L.P. and Amendment No. 1 thereto dated as of April 1,
1994 (the "ORBCOMM Development Partnership Agreement"); and
WHEREAS, ORBCOMM and Teleglobe Mobile desire to further amend
and modify the ORBCOMM Development Partnership Agreement.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Terms used but not otherwise defined herein shall
have the meanings assigned thereto in the ORBCOMM Development
Partnership Agreement.
SECTION 2. The following new Section 3.2(d) shall be inserted
in the ORBCOMM Development Partnership Agreement immediately
following Section 3.2(c) thereof:
"(e) In addition to the capital contributions made or
required to be made pursuant to this Agreement, ORBCOMM hereby
agrees to contribute in cash or in immediately available funds
up to $250,000 for all international business development
activities expenses (actual salary, fringe benefit, travel and
related overhead and general and administrative expenses)
associated with the ORBCOMM System incurred from September 1,
1994 through the earlier of the expiration of the Teleglobe
Mobile Option Period (as such term is defined in the Master
Agreement) and written notice from Teleglobe Mobile that it
will not exercise the Teleglobe Mobile Option (as such term is
defined in the Master Agreement)."
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment No.
__ to be executed as of the day and year first above written.
ORBITAL COMMUNICATIONS CORPORATION
By: ____________________________
Alan L. Parker
President
TELEGLOBE MOBILE PARTNERS
By: Teleglobe Mobile Investment
Inc., its Managing Partner
By:______________________________
Guthrie J. Stewart
Chairman of the Board and
Chief Executive Officer
AMENDMENT NO. 1 TO
SYSTEM CHARGE AND MARKETING (U.S.) AGREEMENT
This Amendment No. 1 to the System Charge and Marketing (U.S.)
Agreement ("Amendment No. 1") is made and entered into as of this
30th day of June 1994 by and between Orbital Communications
Corporation ("ORBCOMM") and ORBCOMM U.S. Partners, L.P. ("ORBCOMM
U.S.").
W I T N E S S E T H
WHEREAS, ORBCOMM and ORBCOMM U.S. previously entered into the
System Charge and Marketing (U.S.) Agreement dated as of June 30,
1993 (the "Agreement"); and
WHEREAS, ORBCOMM and ORBCOMM U.S. desire to amend and modify
the Agreement.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Terms used but not otherwise defined herein shall
have the meanings assigned thereto in the Agreement.
SECTION 2. Section 6.4 of the Agreement is hereby deleted in
its entirety and replaced with the following:
"6.4 Term of Marketing Services. The Operator shall
perform the Marketing Services from the date hereof until the
earlier of the expiration of the Teleglobe Mobile Option
Period and the exercise by Teleglobe Mobile of the Teleglobe
Mobile Option."
IN WITNESS WHEREOF, the parties have caused this Amendment No.
1 to be executed as of the day and year first above written.
ORBITAL COMMUNICATIONS CORPORATION
By: /s/ Alan L. Parker
Alan L. Parker
President
ORBCOMM U.S. PARTNERS, L.P.
By: Orbital Communications
Corporation, General Partner
By: /s/ Alan L. Parker
Alan L. Parker
President
By: Teleglobe Mobile Partners,
General Partner
By: Teleglobe Mobile Investment Inc.,
its Managing Partner
By: /s/ Guthrie J. Stewart
Guthrie J. Stewart
Secretary
AMENDMENT NO. 1 TO INTERNATIONAL
SYSTEM CHARGE AND MARKETING (NON-U.S.) AGREEMENT
This Amendment No. 1 to the International System Charge and
Marketing (Non-U.S.) Agreement ("Amendment No. 1") is made and
entered into as of this 30th day of June 1994 by and among Orbital
Development Partners, L.P. ("ORBCOMM Development"), Teleglobe
Mobile Partners ("Teleglobe Mobile") and ORBCOMM International
Partners, L.P. ("ORBCOMM International").
W I T N E S S E T H
WHEREAS, ORBCOMM Development, Teleglobe Mobile and ORBCOMM
International previously entered into the International System
Charge and Marketing (Non-U.S.) Agreement dated as of June 30, 1993
(the "Agreement"); and
WHEREAS, ORBCOMM Development, Teleglobe Mobile and ORBCOMM
International desire to amend and modify the Agreement.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Terms used but not otherwise defined herein shall
have the meanings assigned thereto in the Agreement.
SECTION 2. Section 8.2 of the Agreement is hereby deleted in
its entirety and replaced with the following:
"8.2 Term of Marketing Services. The Operator shall
perform the International Marketing Services from the date
hereof until the earlier of the expiration of the Teleglobe
Mobile Option Period and the exercise by Teleglobe Mobile of
the Teleglobe Mobile Option."
IN WITNESS WHEREOF, the parties have caused this Amendment No.
1 to be executed as of the day and year first above written.
ORBCOMM DEVELOPMENT PARTNERS, L.P.
By: Orbital Communications
Corporation, General Partner
By: /s/ Alan L. Parker
Alan L. Parker
President
By: Teleglobe Mobile Partners,
General Partner
By: Teleglobe Mobile Investment Inc.,
its Managing Partner
By: /s/ Guthrie J. Stewart
Guthrie J. Stewart
Secretary
TELEGLOBE MOBILE PARTNERS
By: Teleglobe Mobile Investment Inc.,
its Managing Partner
By: /s/ Guthrie J. Stewart
Guthrie J. Stewart
Secretary
ORBCOMM INTERNATIONAL PARTNERS, L.P.
By: Orbital Communications
Corporation, General Partner
By: /s/ Alan L. Parker
Alan L. Parker
President
By: Teleglobe Mobile Partners,
General Partner
By: Teleglobe Mobile Investment Inc.,
its Managing Partner
By: /s/ Guthrie J. Stewart
Guthrie J. Stewart
Secretary
<TABLE>
<CAPTION>
Exhibit 11.
Statement re: Computation of Earnings Per Share
Three Month Period Ended December 31, 1994 Twelve Month Period Ended December 31, 1994
<S> <C> <C> <S> <C> <C>
Weighted average Weighted average
of outstanding shares 17,527,250 17,527,250 of outstanding shares 16,021,978 16,021,978
Weighted average of outstanding Weighted average of outstanding
shares issued in pooling shares issued in pooling
transaction <F1> 2,640,439 2,640,439 transaction <F1> 2,640,439 2,640,439
Common equivalent shares: Common equivalent shares:
outstanding stock options <F2> 480,670 502,082 outstanding stock options <F2> 442,010 455,458
Other potentially dilutive securities: Other potentially dilutive securities:
Convertible debentures N/A 4,104,335 convertible debentures N/A 4,104,335
Shares used in computing
net income per share 20,648,359 24,774,106 Shares used in computing net
Net income $1,140,322 $1,140,322 Net income $ 5,388,387 $5,388,387
Adjustments assuming full dilution: Adjustments assuming full dilution:
Interest expense, net of taxes N/A 556,399 interest expense, net of taxes N/A 1,053,378
Net income, assuming full Net income, assuming
dilution $1,140,322 $1,696,721 full dilution $ 5,388,387 $6,441,765
Net income per share $ 0.06 $ 0.07 Net income per share $ 0.28 $ 0.28
Dilution percentage Dilution percentage
assuming full dilution <F3> N/A (24.014)% assuming full dilution <F3> N/A 1.650%
Net income per share used $ 0.06 $ 0.06 Net income per share used $ 0.28 $ 0.28
<FN>
Notes:
<F1> - OSC shares issued in Magellan pooling are assumed outstanding for the entire year.
<F2> - Magellan stock options are assumed outstanding from original grant date.
<F3> - Provided that dilution is greater than 3%, the convertible debentures are considered dilutive in the calculation and
presentation of per share data.
</FN>
</TABLE>
<PAGE>
FINANCIAL INFORMATION
INDEX TO FINANCIAL REVIEW AND DISCUSSION
<TABLE>
<S> <C>
Selected Consolidated Financial Data page 24
Management's Discussion and Analysis
of Financial Condition and
Results of Operations page 25
Independent Auditors' Report page 31
Consolidated Statements of Earnings page 32
Consolidated Balance Sheets page 33
Consolidated Statements of
Stockholders' Equity page 34
Consolidated Statements of Cash Flows page 35
Notes to Consolidated Financial
Statements page 36
</TABLE>
MARKET INFORMATION
The Company's Common Stock is traded on the Nasdaq National Market System under
the symbol ORBI. The number of shareholders of record as of March 6, 1995 was
1,414. The Company's Convertible Debentures are traded on the Nasdaq System
under the symbol ORBIG.
The range of high and low closing sales prices of Orbital Common Stock for 1992
through 1994, as reported on the Nasdaq National Market System, was as follows:
<TABLE>
<CAPTION>
1994 High Low
<S> <C> <C>
Fourth Quarter $22 1/2 $15
Third Quarter $18 1/2 $14 1/2
Second Quarter $24 1/2 $14
First Quarter $26 1/2 $15 1/4
</TABLE>
<TABLE>
<CAPTION>
1993 High Low
<S> <C> <C>
Fourth Quarter $23 $16 1/2
Third Quarter $19 $12 1/4
Second Quarter $13 3/4 $10 1/4
First Quarter $14 1/4 $10 3/4
</TABLE>
<TABLE>
<CAPTION>
1992 High Low
<S> <C> <C>
Fourth Quarter $15 $12
Third Quarter $15 3/4 $11 1/4
Second Quarter $17 1/2 $11 1/2
First Quarter $19 $13 1/4
</TABLE>
twenty-three Orbital Sciences Corporation
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) Years Ended December 31,
1994 1993 1992 1991 1990
--------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data (1):
Revenues $ 221,946 $ 223,087 $ 204,190 $ 161,556 $ 122,752
Costs of Goods Sold 157,066 170,204 158,661 127,070 98,302
--------- --------- --------- --------- ---------
Gross Profit 64,880 52,883 45,529 34,486 24,450
Research and Development Expenses 14,389 14,885 10,586 7,876 4,850
Selling, General and Administrative Expenses 39,749 25,897 28,615 22,032 19,775
Amortization of Excess of Purchase Price
Over Net Assets Acquired 2,045 1,537 1,495 1,495 1,598
Interest Income (Expense), Net 37 356 738 1,011 (414)
Equity in Earnings (Losses) of Affiliates (1,264) (2,436) -- -- --
--------- --------- --------- --------- ---------
Income (Loss) Before Provision
for Income Taxes, Cumulative Effect of
Accounting Change and Extraordinary Item 7,470 8,484 5,571 4,094 (2,187)
Provision for Income Taxes 2,081 2,288 1,630 2,290 206
--------- --------- --------- --------- ---------
Income (Loss) Before Cumulative Effect of
Accounting Change and Extraordinary Item 5,389 6,196 3,941 1,804 (2,393)
Cumulative Effect of Change in Accounting for
Income Taxes -- 200 -- -- --
Extraordinary Item (2) -- -- -- 1,748 --
--------- --------- --------- --------- ---------
Net Income (Loss) $ 5,389 $ 6,396 $ 3,941 $ 3,552 $ (2,393)
========= ========= ========= ========= =========
Net Income (Loss) per Common and
Common Equivalent Share (3):
Income (Loss) Before Cumulative Effect of Accounting
Change and Extraordinary Item $ 0.28 $ 0.43 $ 0.27 $ 0.13 $ (0.21)
Cumulative Effect of Change in Accounting for
Income Taxes -- 0.01 -- -- --
Extraordinary Item -- -- -- 0.13 --
--------- --------- --------- --------- ---------
$ 0.28 $ 0.44 $ 0.27 $ 0.26 $ (0.21)
--------- --------- --------- --------- ---------
Shares Used in Computing Net Income (Loss)
Per Common and Common Equivalent Share 19,104,427 14,641,854 14,404,933 13,492,284 11,633,994
---------- ---------- ---------- ---------- ----------
Net Income (Loss) Per Share, Assuming Full Dilution (4):
Income Before Cumulative Effect of Accounting
Change and Extraordinary Item $ 0.28 $ 0.38 $ 0.27 $ 0.13 $ (0.21)
Cumulative Effect of Change in Accounting for
Income Taxes -- 0.01 -- -- --
Extraordinary Item -- -- -- 0.13 --
--------- --------- --------- --------- ---------
$ 0.28 $ 0.39 $ 0.27 $ 0.26 $ (0.21)
========= ========= ========= ========= =========
Shares Used in Computing Net Income (Loss)
Per Common Share, Assuming Full Dilution 23,222,210 18,256,276 14,404,933 13,492,284 11,633,994
---------- ---------- ---------- ---------- ----------
Balance Sheet Data (1):
Cash and Cash Equivalents and Short-Term Investments $ 33,582 $ 76,671 $ 15,007 $ 38,683 $ 12,669
Net Working Capital 52,303 87,558 37,340 52,660 10,501
Total Assets 402,728 322,099 175,740 168,692 102,729
Short-Term Borrowings 28,160 15,039 5,028 102 3,867
Long-Term Obligations 81,163 61,551 584 171 2,725
Stockholders' Equity $ 202,046 $ 165,652 $ 107,951 $ 103,163 $ 56,505
========= ========= ========= ========= =========
</TABLE>
1/ All historical balances have been restated to reflect the Company's 1994
acquisition of Magellan Corporation. The acquisition was accounted for
using the pooling of interests method of accounting.
2/ Represents an income tax benefit from net operating loss carryforwards.
3/ Net income (loss) per common and common equivalent share is calculated
using the weighted average number of shares and dilutive equivalent shares
outstanding during the periods, after giving effect to various stock
splits.
4/ Net income (loss) per share, assuming full dilution, is calculated using
the weighted average number of shares and dilutive equivalent shares
outstanding during the periods, plus the effect of an assumed conversion
of the Company's convertible subordinated debentures, after giving effect
to various stock splits.
Orbital Sciences Corporation twenty-four
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
A significant portion of the Company's revenues are generated under fixed-price
incentive fee, firm fixed-price, and cost-plus-fee contracts with various
agencies of the U.S. Government, including NASA, the U.S. Air Force, ARPA, the
U.S. Army, the U.S. Navy and the Ballistic Missile Defense Organization
("BMDO"). Orbital recognizes revenues using the percentage of completion method
of accounting, whereby revenue is recognized based on actual costs incurred in
relation to total estimated costs to complete the contract or based on specific
delivery terms and conditions. In the case of fixed-price incentive fee
contracts, the final revenue amount can be increased or decreased in accordance
with cost incentive provisions that measure actual financial performance
against established targets. The incentive fee is included in revenue at the
time the amount of such fee can reasonably be determined. In the case of
cost-plus award fee contracts, revenues are recognized to the extent of costs
incurred plus a proportionate amount of a base fee fixed at the inception of
the contract, if any. The award fee is included in revenue as work is performed
based on the Company's on-going estimates of the amount of the fee to be
awarded. To the extent that estimated costs of completion are adjusted, revenue
recognized from a particular contract will be affected in the period of the
adjustment.
The Company is accounting for its investment in ORBCOMM Development Partners,
L.P. ("ORBCOMM Development") using the equity method of accounting and will
continue to use the equity method as long as the Company's interest in the
profits and losses of ORBCOMM Development does not exceed the current 50%. In
accordance with the equity method of accounting, Orbital consolidates 100% of
the revenues earned and costs incurred pursuant to contracts with ORBCOMM
Development. The Company also recognizes as equity in earnings (losses) of
affiliates its pro rata share of ORBCOMM Development's profits and losses.
Pending commencement of operation of the ORBCOMM system, ORBCOMM Development is
capitalizing substantially all system construction costs, including amounts
paid under contracts with the Company. To the extent ORBCOMM Development
capitalizes its purchases from Orbital, the Company eliminates as equity in
earnings (losses) of affiliates 50% of the Company's profits and losses related
to those sales.
Orbital acquired Magellan Corporation ("Magellan") on December 28, 1994, in a
transaction accounted for as a pooling of interests. Orbital's historical
financial information has been restated to reflect the pooling of interests
with Magellan as of the earliest period presented.
On August 11, 1994, Orbital acquired Fairchild Space and Defense Corporation
("Fairchild"), a subsidiary of Matra Aerospace, Inc., in a transaction
accounted for as a purchase business combination. Fairchild's results of
operations for the nineteen-week period ended December 31, 1994 have been
included in Orbital's consolidated results of operations for the year ended
December 31, 1994.
Orbital acquired the Applied Science Operation ("ASO"), a business unit of The
Perkin-Elmer Corporation, on September 17, 1993, in a transaction accounted for
as a purchase business combination. ASO's results of operations for the
fourteen-week period ended December 31, 1993 have been included in Orbital's
consolidated results of operations for the year ended December 31, 1993.
The following table shows the Company's revenues, gross profit or loss and
gross profit margin, by major product category, for each of the three years
ended December 31, 1994, 1993 and 1992 (in thousands, except percentages):
twenty-five Orbital Sciences Corporation
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
Revenues Gross Profit Margin Revenues Gross Profit Margin Revenues Gross Profit Margin
----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Launch Systems $74,832 $12,648 16.90% $120,410 $20,818 17.29% $150,357 $26,615 17.70%
Space launch vehicles 52,200 8,158 15.63% 55,988 7,216 12.89% 42,048 6,133 14.59%
Suborbital launch vehicles 22,632 5,690 25.15% 48,990 12,428 25.37% 82,061 17,777 21.66%
Orbit transfer vehicles -- (1,200) NA 15,432 1,174 7.61% 26,248 2,705 10.31%
Space and Electronics Systems 88,305 24,007 27.19% 31,287 6,519 20.84% 20,715 3,961 19.12%
Spacecraft systems and payloads 35,031 9,231 26.35% 25,160 4,907 19.50% 20,715 3,961 19.12%
Space sensors and instruments 17,670 4,894 27.70% 3,710 895 24.12% -- -- NA
Defense avionics and sensors 35,604 9,882 27.76% 2,417 717 29.66% -- -- NA
Communications and Information Systems 58,809 28,225 47.99% 71,390 25,546 35.78% 33,118 14,953 45.15%
Navigation and positioning products 38,517 17,802 46.22% 32,900 14,995 45.58% 29,557 14,356 48.57%
Satellite-based services 10,154 6,117 60.24% 20,609 3,269 15.86% -- -- NA
Satellite tracking systems 10,138 4,306 42.47% 17,881 7,282 40.72% 3,561 597 16.76%
-------- ------- ------ -------- ------- ------ -------- ------- ------
$221,946 $64,880 29.23% $223,087 $52,883 23.71% $204,190 $45,529 22.30%
======== ======= ====== ======== ======= ====== ======== ======= ======
</TABLE>
RESULTS OF OPERATIONS
Orbital's financial information as of and for the years ended December 31,
1994, 1993 and 1992 has been restated to reflect the pooling of interests with
Magellan.
Revenues. Orbital's revenues for 1994, 1993 and 1992 were $221,946,000,
$223,087,000 and $204,190,000, respectively. Revenues in 1994 included
approximately $30,000,000 in sales to ORBCOMM Development, as compared to
$38,000,000 in 1993.
Revenues from the Company's space launch vehicle products decreased from
$55,988,000 in 1993 to $52,200,000 in 1994. The unexpected decrease is
primarily attributable to a significant delay in production of the Company's
Pegasus space launch vehicle products as a result of the June 1994 Pegasus XL
launch failure. Orbital believes it has identified the cause of this failure,
has implemented what it believes to be the necessary corrective actions and
anticipates fully resuming production of its Pegasus products in the first half
of 1995. As a result, the Company expects Pegasus revenues to increase in 1995
as it fully resumes its production program and planned launches. Revenues from
space launch vehicle products increased in 1993, as compared to 1992, due to
work performed on Pegasus contracts awarded in 1992 by BMDO and Brazil's
national space agency and initial work performed on the commercial contract
awarded by ORBCOMM Development.
Revenues from suborbital launch vehicle products decreased to $22,632,000 in
1994 as compared to $48,990,000 in 1993. Revenues from suborbital launch
vehicle products also decreased in 1993 from 1992's record revenues of
$82,061,000. Revenues from suborbital launch vehicles, which are primarily
purchased by various agencies within the Department of Defense for military
purposes, have decreased significantly as defense spending by the U.S.
Government has been reduced. The Company expects suborbital launch vehicle
product revenues in 1995 to remain approximately consistent with 1994 levels.
Orbital Sciences Corporation twenty-six
<PAGE>
The Company's sole contract with NASA for its orbit transfer vehicle product
was completed in 1993 after two successful launches. The Company currently
does not have firm orders for this product and does not expect significant
revenues from new orbit transfer vehicle business in 1995.
Space and Electronics Systems revenues increased to $88,305,000 in 1994 as
compared to $31,287,000 in 1993, due primarily to a full year of sales of
sensors and instruments equal to $28,482,000 following the September 1993
acquisition of ASO and 19 weeks of sales of spacecraft subsystems and defense
electronics and avionics equal to $44,998,000 following the August 1994
acquisition of Fairchild. The Company expects its Space and Electronics Systems
revenues to increase substantially in 1995 due to a full year of revenues from
Fairchild. Space systems revenues increased to $31,287,000 in 1993 from
$20,715,000 in 1992, primarily as a result of sales of sensors and instruments,
and sales of MicroStar satellites to ORBCOMM Development. Space Systems
revenues in 1992 consisted solely of sales of satellite systems to NASA and the
U.S. Air Force.
Communications and Information Systems revenues decreased to $58,809,000 in
1994 from $71,390,000 in 1993. The decrease is attributable primarily to a
decrease in sales to ORBCOMM Development of $10,455,000 as the initial contract
for network software nears completion, and a decrease in sales of satellite
tracking systems of $8,443,000 as a large contract was completed in 1994.
Sales of Magellan's satellite navigation products were $37,144,000 in 1994 as
compared to $32,900,000 in 1993 and $29,557,000 in 1992. The increase from 1993
was due to a significant increase in the number of products sold offset, in
part, by lower average unit sales prices. Orbital expects Communications and
Information Systems revenues to increase in 1995 due to increasing unit sales
of satellite navigation projects offset, in part, by lower average unit sales
prices, and increasing sales of satellite tracking systems. In 1995, the
Company also expects to generate its first service revenues from the ORBCOMM
system, currently scheduled to become operational in mid-1995. Communications
and Information Systems revenues increased in 1993 as compared to 1992 as a
result of sales of network software and satellite tracking systems to ORBCOMM
Development under a contract awarded in 1993, and as a result of work performed
on a large satellite tracking system contract awarded in 1992.
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. Costs of goods sold include the costs of personnel and
materials under the Company's various development and production contracts,
including costs of subcontracts. The Company's gross profit for 1994, 1993 and
1992 was $64,880,000, $52,883,000 and $45,529,000, respectively. Gross profit
margin as a percentage of sales for those periods was approximately 29.2%,
23.7% and 22.3%, respectively. Gross profit margin during 1994 reflects higher
profit margins on ASO and Fairchild products offset, in part, by cost growth on
the Taurus space launch vehicle development program, the first product of which
was successfully launched in March 1994. Additionally, gross profit margin was
decreased by cost growth on the Pegasus program as a result of the June 1994
Pegasus XL launch failure. The Company believes that its gross profit margin in
1995 will increase slightly as compared to 1994 as a result of a full year of
revenues from Fairchild, among other factors.
twenty-seven Orbital Sciences Corporation
<PAGE>
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 1994,
1993 and 1992 were $14,389,000, $14,885,000 and $10,586,000, respectively.
Research and development spending during 1994 and 1993 reflected Orbital's
continued development of its Pegasus XL and Taurus space launch vehicles and
development of lower-cost satellite navigation products. In 1994, Orbital
incurred approximately $2,500,000 of unexpected research and development costs
related to the failure of its Pegasus XL vehicle. The Company expects its
research and development expenditures, primarily related to development of new
spacecraft programs and continued research in developing lower-cost satellite
navigation products, to decrease in 1995, but still remain above 1992 levels.
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 1994, 1993 and 1992 were $39,749,000
(or 17.9% of revenues), $25,897,000 (or 11.6% of revenues) and $28,615,000 (or
14.0% of revenues), respectively. The significant increase in selling, general
and administrative expenses and its related percentage of revenues in 1994 is
attributable to a full year of ASO's expenses ($4,666,000, or 16.8% of ASO's
revenues), nineteen weeks of Fairchild's expenses ($6,409,000, or 14.0% of
Fairchild's revenues) and significant selling, general and administrative
expenses related to initial marketing and other activities for the Company's
ORBCOMM project ($5,470,000 in 1994, with revenues first expected in mid-1995)
offset, in part, by significant Company-wide cost reduction initiatives
adopted during 1994 and 1993. Orbital expects its selling, general and
administrative expenses (as a percentage of revenues) in 1995 to roughly
approximate 1994 levels.
Interest Income and Interest Expense. Net interest income was $37,000, $356,000
and $738,000 for 1994, 1993 and 1992, respectively. Interest income reflects
interest earnings on short-term investments reduced by interest expense (net of
capitalized interest of $5,500,000, $3,500,000 and $850,000 in 1994, 1993 and
1992, respectively) for outstanding amounts on Orbital's revolving credit
facility, on the public debentures and on debt incurred in 1994 related to the
Fairchild acquisition.
Equity in Earnings (Losses) of Affiliates. Equity in earnings (losses) of
affiliates in 1994 and 1993 primarily represents elimination of $1,264,000 and
$2,436,000, respectively, of profits on sales to ORBCOMM Development, due to
ORBCOMM Development's capitalization of its purchases from the Company. There
were no sales to ORBCOMM Development prior to 1993.
Provision for Income Taxes. The Company adopted Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"), effective January 1, 1993.
The cumulative effect on prior years of this change in accounting principle
increased net income for 1993 by approximately $200,000. The effect of adopting
SFAS 109 on income from operations for 1993 was not material.
The Company recorded income tax provisions of $2,081,000, $2,288,000 and
$1,630,000 for 1994,
Orbital Sciences Corporation twenty-eight
<PAGE>
1993 and 1992, respectively. The Company's effective tax rate for these periods
of approximately 28% is primarily a result of non-tax deductible goodwill
amortization related to its acquisition of Space Data Corporation in 1988 and
Fairchild in 1994, offset by tax-exempt interest earnings and Federal research
and experimental tax credits.
At December 31, 1994 and primarily as a result of the Fairchild acquisition,
Orbital had approximately $50,000,000 of net operating loss carryforwards and
$900,000 of Federal research and experimental tax credit carryforwards for tax
reporting purposes that, subject to certain annual limitations, are available
to reduce certain future income tax obligations. Orbital has provided a
valuation allowance against the entire net operating loss carryforward at
December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
In June 1991, Orbital completed a public offering of approximately 2,100,000
primary shares of its common stock, receiving net proceeds of approximately
$34,500,000. At December 31, 1992, the Company had cash and cash equivalents of
approximately $15,007,000 and had short- and long-term debt obligations
outstanding of approximately $5,612,000, relating primarily to advances under
its line of credit facility.
During the first quarter of 1993, Orbital completed its public offering of the
convertible debentures, receiving net proceeds of approximately $57,000,000.
During the fourth quarter of 1993, Orbital completed a public offering of
approximately 2,923,000 primary shares of its common stock, receiving net
proceeds of approximately $45,300,000. At December 31, 1993, cash, cash
equivalents and short-term investments were approximately $76,671,000, and
Orbital had approximately $76,590,000 of short- and long-term debt outstanding.
Orbital's current ratio improved from 1.6 at December 31, 1992 to 2.0 at
December 31, 1993.
The Company's operations provided net cash of approximately $10,700,000 in
1993. During 1993, the Company invested approximately $40,300,000 in ORBCOMM
Development and invested approximately $36,000,000 in capital assets to support
its launch vehicle and spacecraft products.
The Company's operations provided net cash of approximately $7,410,000 in 1994.
During 1994, Orbital invested approximately $15,200,000 in ORBCOMM Development
and invested approximately $27,100,000 in capital assets to support its launch
vehicle and spacecraft products. Additionally, Orbital used approximately
$40,700,000 in cash to acquire Fairchild in August 1994; the Company issued
long-term debt of approximately $24,200,000 to satisfy a portion of this cash
requirement.
At December 31, 1994, cash, cash equivalents and short-term investments were
approximately $33,582,000 and Orbital had approximately $109,323,000 of short-
and long-term debt outstanding. Additionally, at December 31, 1994, Orbital had
approximately $8,000,000 of cash reserved against outstanding letters of credit
and was guarantor on approximately $5,000,000 of debt held by ORBCOMM
Development. Orbital's current ratio was 1.5 at December 31, 1994.
The Company maintains a line of credit facility that provides for total
borrowings from an international syndicate of six banks of up to $65,000,000,
subject to a defined borrowing base composed of certain contract
twenty-nine Orbital Sciences Corporation
<PAGE>
receivables. Approximately $22,500,000 of borrowings were outstanding against
the facility at December 31, 1994, against an available facility limit of
approximately $24,800,000. The interest rate charged under the facility is a
variable rate based on Morgan Guaranty Trust Company of New York's prime rate,
the Federal Funds rate, or Adjusted LIBOR. At December 31, 1994, the interest
rate under this facility was approximately 7.75%. Borrowings are secured by
contract receivables and other assets such as insurance policies and proceeds,
and certain books and records. 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 1997.
Orbital's capital expenditures for 1995 are expected to approximate 1994 and
1993 levels, including continued investments in space and suborbital launch
vehicle and spacecraft production, test, airborne and ground support equipment.
Additionally, in 1995 the Company expects to invest approximately $5,000,000 to
$10,000,000 in new ORBIMAGE remote sensing and monitoring products and services
and approximately $10,000,000 in ORBCOMM Development. Orbital expects that its
1995 capital needs, including its investment in the ORBCOMM system, will in
part be provided by working capital, cash flows from operations, credit
facilities, customer financing and operating lease arrangements, but will also
require proceeds from equity and/or debt offerings that the Company is
actively pursuing.
Orbital Sciences Corporation thirty
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Sciences Corporation:
We have audited the accompanying consolidated balance sheets of Orbital
Sciences Corporation and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of Magellan Corporation, a wholly-owned subsidiary, which statements
reflect total assets constituting six percent at December 31, 1993 and total
revenues constituting 15 percent and 14 percent in 1993 and 1992, respectively,
of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Magellan Corporation, is based solely on
the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Orbital Sciences
Corporation and subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 11 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," as of January 1, 1993.
KPMG Peat Marwick LLP
Washington, D.C.
February 6, 1995
thirty-one Orbital Sciences Corporation
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) For the years ended December 31,
1994 1993 1992
--------- -----------------------
<S> <C> <C> <C>
Revenues $ 221,946 $ 223,087 $ 204,190
Costs of Goods Sold 157,066 170,204 158,661
--------- --------- ---------
Gross Profit 64,880 52,883 45,529
Research and Develoment Expenses 14,389 14,885 10,586
Selling, General and Administrative Expenses 39,749 25,897 28,615
Amortization of Excess of Purchase Price Over
Net Assets Acquired 2,045 1,537 1,495
--------- --------- ---------
Income from Operations 8,697 10,564 4,833
Interest Income, net of interest expense of
$1,459, $1,009 and $91, respectively 37 356 738
Equity in Earnings (Losses) of Affiliates (1,264) (2,436) --
--------- --------- ---------
Income Before Provision for Income Taxes and
Cumulative Effect of Accounting Change 7,470 8,484 5,571
Provision for Income Taxes 2,081 2,288 1,630
--------- --------- ---------
Income Before Cumulative Effect of
Accounting Change 5,389 6,196 3,941
Cumulative Effect of Change in Accounting
for Income Taxes -- 200 --
--------- --------- ---------
Net Income $ 5,389 $ 6,396 $ 3,941
========= ========= =========
Net Income per Common and Common
Equivalent Share:
Income before cumulative effect of accounting change $ 0.28 $ 0.43 $ 0.27
Cumulative effect of change in accounting for income taxes -- 0.01 --
--------- --------- ---------
$ 0.28 $ 0.44 $ 0.27
========= ========= =========
Shares Used in Computing Net Income Per Common and
Common Equivalent Share 19,104,427 14,641,854 14,404,933
========== ========== ==========
Net Income Per Common Share, Assuming Full Dilution:
Income before cumulative effect of accounting change $ 0.28 $ 0.38 $ 0.27
Cumulative effect of change in accounting for income taxes -- 0.01 --
--------- --------- ---------
$ 0.28 $ 0.39 $ 0.27
========= ========= =========
Shares Used in Computing Net Income Per Common Share,
Assuming Full Dilution 23,222,210 18,256,276 14,404,933
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Orbital Sciences Corporation thirty-two
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In Thousands, Except Share Data)
December 31, December 31,
ASSETS 1994 1993
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 21,156 $ 49,458
Short-term investments, at market 12,426 27,213
Receivables, net 94,236 82,488
Inventories, net 26,098 13,797
Other current assets 5,914 5,983
--------- ---------
Total current assets 159,830 178,939
Property, Plant and Equipment, at cost, less accumulated
depreciation and amortization of $33,432 and $21,317, respectively 102,061 67,304
Investments in Affiliates, net 54,721 40,307
Excess of Purchase Price Over Net Assets Acquired,
less accumulated amortization of $10,042 and $7,971, respectively 68,878 25,560
Deferred Income Taxes and Other Assets, net 17,238 9,989
--------- ---------
Total Assets $ 402,728 $ 322,099
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term obligations $ 28,160 $ 15,039
Accounts payable 14,961 15,866
Accrued expenses 37,439 22,996
Payable to subcontractors 13,695 12,126
Deferred revenue 13,272 25,354
--------- ---------
Total current liabilities 107,527 91,381
Long-Term Obligations, net of current portion 81,163 61,551
Deferred Income Taxes and Other Liabilities 11,992 3,515
--------- ---------
Total Liabilities 200,682 156,447
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 10,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, par value $.01; 40,000,000 shares authorized,
20,170,196 and 17,638,567 shares outstanding, after
deducting 15,735 shares held in treasury 202 176
Additional paid-in capital 201,328 168,737
Unrealized gains (losses) on short-term investments (462) 12
Retained earnings (deficit) 978 (3,273)
--------- ---------
Total stockholders' equity 202,046 165,652
--------- ---------
Total Liabilities and Stockholders' Equity $ 402,728 $ 322,099
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
thirty-three Orbital Sciences Corporation
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) Unrealized
Gains (Losses) Retained
Common Stock Additional on Short-Term Earnings
Shares Amount Paid-In Capital Investments (Deficit) Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,1991,
as previously reported 11,615,368 $ 116 $ 102,739 $ -- $(13,298) $ 89,557
Adjustment for pooling of interests 2,640,441 26 13,892 -- (312) 13,606
---------- ----- --------- --------- -------- --------
Balance, December 31, 1991, restated 14,255,809 142 116,631 -- (13,610) 103,163
Shares issued to employees 55,284 1 435 -- -- 436
Transactions of pooled company -- -- 411 -- -- 411
Net income -- -- -- -- 3,941 3,941
---------- ----- --------- --------- -------- --------
Balance, December 31, 1992 14,311,093 143 117,477 -- (9,669) 107,951
Shares issued to employees
and directors 84,474 1 1,012 -- -- 1,013
Shares issued in purchase
business combination 320,000 3 4,997 -- -- 5,000
Transactions of pooled company -- -- 7 -- -- 7
Net proceeds from public offering 2,923,000 29 45,244 -- -- 45,273
Net income -- -- -- -- 6,396 6,396
Unrealized gains on short-term
investments -- -- -- 12 -- 12
---------- ----- --------- --------- -------- --------
Balance, December 31, 1993 17,638,567 176 168,737 12 (3,273) 165,652
Shares issued to employees 107,387 2 1,619 -- -- 1,621
Shares issued in purchase
business combination 2,424,242 24 30,976 -- -- 31,000
Transactions of pooled company -- -- (4) -- -- (4)
Adjustment to recast year end of
pooled company -- -- -- -- (1,138) 1,138
Net income -- -- -- -- 5,389 5,389
Unrealized losses on short-term
investments -- -- -- (474) -- (474)
---------- ----- --------- --------- -------- --------
Balance, December 31, 1994 20,170,196 $ 202 $ 201,328 $ (462) $ 978 $202,046
========== ===== ========= ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Orbital Sciences Corporation thirty-four
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In Thousands) For the years ended December 31,
1994 1993 1992
--------- -----------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 5,389 $ 6,396 $ 3,941
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 14,250 7,866 7,659
Equity in (earnings) losses of affiliates 1,264 2.436 --
Cumulative effect of accounting change -- (200) --
Changes in assets and liabilities:
(Increase) decrease in receivables 10,402 (1,868) (13,447)
(Increase) decrease in inventories (3,643) (2,950) 2,430
(Increase) decrease in other current assets 3,000 (3,308) 432
(Increase) decrease in other non-current assets (4,938) (2,742) (767)
Increase (decrease) in payables and accrued expenses (8,999) (9,130) 1,966
Increase (decrease) in deferred revenue (15,651) 13,635 (5,969)
Increase (decrease) in deferred income taxes and other liabilities 6,336 596 1,154
--------- --------- ---------
Net cash provided by (used in) operating activities 7,410 10,731 (2,601)
--------- --------- ---------
Cash Flows From Investing Activities:
Capital expenditures (27,096) (35,584) (41,740)
Proceeds from sales of fixed assets -- 10,335 14,443
Purchase of investment securities (8,916) (51,299) (13,011)
Sales of investment securities 23,229 24,098 17,222
Investments in affiliates (15,208) (40,307) --
Payment for purchase business combination (40,718) (794) --
--------- --------- ---------
Net cash provided by (used in) investing activities (68,709) (93,551) (23,086)
--------- --------- ---------
Cash Flows From Financing Activities:
Net short-term borrowings 9,405 10,006 4,000
Principal payments on long-term obligations (1,089) (1,028) (625)
Proceeds from issuances of long-term obligations 24,200 62,000 1,964
Proceeds from issuances of common stock 1,619 46,293 847
Adjustment to recast pooled company's year end (1,138) -- --
--------- --------- ---------
Net cash provided by (used in) financing activities 32,997 117,271 6,186
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (28,302) 34,451 (19,501)
Cash and Cash Equivalents, beginning of period 49,458 15,007 34,508
--------- --------- ---------
Cash and Cash Equivalents, end of period $ 21,156 $ 49,458 $ 15,007
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
thirty-five Orbital Sciences Corporation
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
1/ SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or the
"Company"), a Delaware corporation, is a space technology company that designs,
manufactures, operates and markets a broad range of space products and services
that are grouped into three categories, Launch Systems, Space and Electronics
Systems, and Communications and Information Systems. Launch Systems include
space and suborbital launch vehicles and orbit transfer vehicles; Space and
Electronics Systems include satellites, space sensors and instruments, and
space payloads and experiments, as well as avionics and other electronics
equipment; and Communications and Information Systems include satellite-based
mobile data communications, navigation products and Earth observation services,
along with satellite tracking systems and environmental monitoring products.
Approximately 60%, 70% and 80% of the Company's 1994, 1993 and 1992 revenues,
respectively, were generated under contracts with the U.S. Government and its
agencies or under subcontracts with the U.S. Government's prime contractors.
Presentation
Certain reclassifications have been made to the 1993 and 1992 financial
statements to conform to the 1994 financial statement presentation. The
acquisition of Magellan Corporation (see Note 4) was recorded using the pooling
of interests method of accounting for business combinations and, accordingly,
Orbital's 1993 and 1992 historical financial statements have been restated to
reflect this transaction.
Principles of Consolidation
The consolidated financial statements include the accounts of Orbital, its
wholly- and majority-owned subsidiaries, and partnerships in which Orbital
directly or indirectly controls a majority of the general partner interests.
All material transactions and accounts among consolidated entities have been
eliminated in consolidation.
Revenue Recognition
Revenues on cost-plus-fee contracts are recognized to the extent of costs
incurred plus a proportionate amount of fee earned. Revenues on long-term
fixed-price contracts are recognized using the percentage-of-completion method
of accounting based on costs incurred in relation to total estimated costs or
based on specific delivery terms and conditions. Anticipated contract losses
are recognized as they become known.
Revenues from sales of commercial products and services are generally
recognized when the product is shipped or the service is performed.
Research and Development
Research and development expenses include self-funded product development
activities and exclude direct customer-funded development and are expensed as
incurred. Research and development expenses are allocated, when appropriate, to
Government contracts under Government-mandated cost accounting procedures.
Depreciation and Amortization
Depreciation and amortization are provided using the straight-line or units of
production methods as follows:
Buildings 18 to 20 years
Machinery, Equipment
and Software 3 to 10 years, or
units of production
Leasehold Improvements shorter of estimated
useful life or lease
term
Income Taxes
During 1992, the Company recorded its provisions for Federal and state income
taxes using the deferred method of accounting as prescribed by Accounting
Principles Board's Opinion No. 11, "Accounting for Income Taxes" ("APB 11").
Under the deferred method, provisions for Federal and state income taxes were
Orbital Sciences Corporation thirty-six
<PAGE>
computed at current tax rates on reported financial statement income. Deferred
income tax provisions represented the tax effect of significant "timing
differences" between financial statement income and current taxable earnings.
In 1992, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
requires a change from the deferred method to the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. Under SFAS 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company adopted SFAS 109 effective January 1, 1993. The cumulative effect
on prior years of this change in accounting principle of approximately $200,000
is reported in the 1993 consolidated statement of earnings. The effect of
adopting SFAS 109 on income from continuing operations for 1993 was not
material. Prior year financial statements have not been restated to apply the
provisions of SFAS 109.
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 number of common and common equivalent
shares outstanding during the periods, plus the effects of an assumed
conversion of the Company's convertible subordinated debentures, after giving
effect to all net income adjustments that would result from the assumed
conversion. Any reduction of less than 3% in the aggregate has not been
considered dilutive in the calculation and presentation of income per common
share assuming full dilution.
Common equivalent shares are comprised solely of stock options.
Cash and Cash Equivalents and Short-Term Investments
Orbital considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Investments in securities that do
not meet the definition of cash equivalents are classified as short-term
investments. Since Orbital does not intend to hold its investments in debt and
equity securities until maturity and does not actively trade the securities to
maximize trading gains, Orbital classifies these securities as "available for
sale" and, accordingly, reports such securities at fair value plus accrued
interest. Any temporary excess (deficiency) of market value over (under) the
underlying cost of the short-term investment is excluded from current period
earnings and is reported as unrealized gains (losses) as a separate component
of stockholders' equity.
At December 31, 1994 and 1993, the Company had approximately $7,800,000 and
$5,800,000, respectively, of cash restricted in support of outstanding letters
of credit.
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 ("FIFO") or specific identification
basis. Inventories consisted of the following at December 31, 1994 and 1993 (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Components and raw materials $13,421 $11,212
Work-in-process 11,922 1,936
Finished goods, net 755 649
------- -------
Total $26,098 $13,797
======= =======
</TABLE>
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
thirty-seven Orbital Sciences Corporation
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 of
$4,122,000 and $1,547,000 at December 31, 1994 and 1993, respectively. Finished
goods inventory consists of fully assembled commercial products awaiting
shipment.
Investments in Affiliates
The Company uses the equity method of accounting for its investments in and
earnings of affiliates in which the Company has the ability to significantly
influence, but not control, an affiliate's financial operations. In accordance
with the equity method of accounting, the Company's carrying amount of an
investment in an affiliate is initially recorded at cost and is increased to
reflect its share of the affiliate's income and is reduced to reflect its share
of the affiliate's losses. Orbital's investment is also increased to reflect
contributions to, and decreased to reflect distributions received from, the
affiliate. Any difference between the amount of Orbital's investment and the
amount of the underlying equity in each affiliate's net assets is amortized
over a period of 20 years. The Company uses the cost method of accounting for
investments in which it cannot significantly influence operations.
The Company provides a valuation allowance against an investment when it is
determined that recovery of the investment is not probable. At December
31,1994, approximately $3,100,000 of allowance had been provided against
certain investments acquired in conjunction with Fairchild Space and Defense
Corporation (see Note 4). No such allowance was provided at December 31, 1993.
Excess of Purchase Price Over Net Assets Acquired
The Company amortizes the excess of purchase price over net assets acquired
related to prior business combinations on a straight-line basis over their
estimated useful life, generally 20-40 years. Orbital periodically assesses and
evaluates the recoverability of such assets based on current facts and
circumstances and the operational viability of its acquired businesses.
During the three months ended June 30, 1994, as a result of obtaining
additional information subsequent to the September 1993 acquisition of the
Applied Science Operation (see Note 4), the purchase price was reallocated to
reflect a more accurate valuation of assets and liabilities acquired. As a
result of the reallocation, the value of net tangible and identifiable
intangible assets acquired increased by approximately $3,000,000, with a
resulting decrease to the excess of purchase price over net assets acquired.
During the three months ended December 31, 1994, as a result of obtaining
additional information subsequent to the August 1994 acquisition of Fairchild
Space and Defense Corporation (see Note 4), the purchase price was reallocated
to reflect a more accurate valuation of assets and liabilities acquired. As a
result of the reallocation, the value of net tangible and identifiable
intangible assets acquired increased by approximately $10,000,000, with a
resulting decrease to the excess of purchase price over net assets acquired.
Additionally, at the date of the acquisition, Fairchild had certain
contingencies relating primarily to the appropriateness and allowability of
certain severance costs charged to its U.S. Government contracts from 1989
through 1992, to which a reasonable estimate of fair value could not be
determined and assigned at the date of acquisition. During 1995, Orbital
expects to revise the allocation of purchase price based on the final
determination of fair values of the assets and liabilities acquired and
ultimate outcome of pre-acquisition contingencies.
Warranties
The Company occasionally accepts warranty clauses in its commercial and
government contracts. In the event the Company does not purchase insurance
coverage to protect itself in connection with such warranty clauses, the
Company records a liability for warranty claims
Orbital Sciences Corporation thirty-eight
<PAGE>
when it determines that a specific material liability exists. Orbital has not
recorded any liability for potential warranty claims on its existing contracts
because these expenses, if any, are not expected to have a material adverse
impact on the Company's financial condition or results of operations.
The Company at times provides limited warranties on certain commercial products
and accrues an estimate of expected warranty costs based on historical
experience.
2/ TRANSACTIONS WITH HERCULES
INCORPORATED
Development and Production Agreement
In 1988, Orbital and Hercules Incorporated ("Hercules") entered into an
agreement relating to the development and production of the Pegasus launch
vehicle (the "Agreement"), which provides that each party will bear the
development costs arising from the performance of its responsibilities pursuant
to the Agreement. Under the terms of the Company's Pegasus contracts, the
Company is the prime contractor and Hercules is a subcontractor and,
accordingly, 100% of Pegasus sales and costs of sales have been included in
Orbital's consolidated statements of earnings. Initially, profits and losses on
Pegasus sales will be shared on an equal basis until Hercules' development
costs have been recovered, at which time the Company will receive 60% and
Hercules will receive 40% of such profits and losses. During 1994, 1993 and
1992, the Company made payments to Hercules of approximately $11,013,000,
$23,767,000 and $12,134,000, respectively, representing Hercules' share of
contract payments received on Pegasus contracts.
From time to time, issues have arisen between the Company and Hercules
regarding various matters relating to the Agreement. In 1993, Hercules
commenced arbitration proceedings against the Company relating to certain
insurance proceeds obtained by the Company in connection with a Pegasus
mission. The arbitration was decided in Orbital's favor in August 1994. In July
1994, Hercules filed a lawsuit against the Company seeking monetary and other
damages arising out of Orbital's alleged breach of fiduciary duty and breach of
contract in the determination of its recoverable costs and other matters
pursuant to the Agreement. Orbital believes that this lawsuit is without merit
and will not have a material adverse effect on the financial condition of the
Company, and Orbital plans to dispute vigorously Hercules' claims.
Stock Purchase Agreement
Hercules acquired 1,606,842 shares of the Company's Common Stock in 1988
pursuant to a stock purchase agreement and subsequently sold all of its shares
in the Company's second public offering in 1991 (see Note 12). Hercules has
filed a lawsuit against the Company seeking unspecified damages in an amount up
to $15 million arising out of a dispute concerning its 1988 investment. The
complaint alleges breaches of certain representations and warranties by Orbital
in the 1988 stock purchase agreement.
Orbital believes that the claims are without merit and will not have a
material adverse effect on the financial condition of the Company, and Orbital
plans to dispute vigorously Hercules' claims.
Orbital believes that regardless of the outcome of these lawsuits, the claims
do not affect Hercules' obligations under the Agreement.
3/ INVESTMENTS IN AFFILIATES
In 1993, the Company's majority-owned subsidiary, Orbital Communications
Corporation ("OCC"), and Teleglobe Mobile Partners ("Teleglobe Mobile"), an
affiliate of Teleglobe Inc., formed a partnership, ORBCOMM Development
Partners, L.P. ("ORBCOMM Development"), for the design, development,
construction, integration and test of a low-Earth orbit satellite
communications system (the "ORBCOMM System"). OCC and Teleglobe Mobile also
formed two marketing partnerships to market the ORBCOMM System in the United
States and internationally. OCC is an 85% general partner in each of the
marketing partnerships.
thirty-nine Orbital Sciences Corporation
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the terms of the partnership agreement, OCC and Teleglobe Mobile
are each 50% general partners in ORBCOMM Development and share equal
responsibility for the operational and financial affairs of ORBCOMM
Development. OCC also has a nonparticipating limited partnership interest in
ORBCOMM Development. Neither OCC nor Teleglobe Mobile is able to control, but
both are able to exercise significant influence over, ORBCOMM Development's
operating and financial policies. Accordingly, the Company is accounting for
its investment in ORBCOMM Development using the equity method of accounting.
Orbital and OCC are the primary suppliers of communications satellites, launch
vehicles, ground tracking systems, system software and integration services to
ORBCOMM Development and have entered into long-term contracts for providing
these goods and services. During 1994 and 1993, Orbital recorded contract
revenues on sales to ORBCOMM Development of approximately $30,000,000 and
$38,000,000, respectively, and eliminated as equity in earnings (losses) of
affiliates 50% of its profits on those sales since ORBCOMM Development is
capitalizing substantially all of its purchases from Orbital and OCC. At
December 31, 1994, Orbital had approximately $7,900,000 in unbilled receivables
from ORBCOMM Development arising under these contracts.
At December 31, 1994, ORBCOMM Development had total assets, total liabilities
and total partners' capital of $73,647,000, $15,137,000 and $58,510,000,
respectively. During the construction phase of the project and prior to the
commencement of planned operations, ORBCOMM Development is capitalizing
substantially all construction-related costs and is expensing as incurred all
selling, general and administrative costs as period costs. ORBCOMM Development
had no revenues in 1994 and had a net loss of approximately $9,000 during the
period.
4/ BUSINESS COMBINATIONS
On September 17, 1993, Orbital acquired the Applied Science Operation ("ASO"),
a business unit of The Perkin-Elmer Corporation (the "ASO Acquisition"). As a
result of the ASO Acquisition, the Company now produces and markets sensors and
instruments primarily for agencies of the U.S. Government and commercial
aerospace companies.
The ASO Acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price of approximately $5,800,000
(consisting of 320,000 shares of the Company's Common Stock, $600,000 in cash
and $200,000 in transaction expenses) was allocated to assets and liabilities
acquired based on estimates of fair values as of the date of acquisition. The
excess of purchase price over net assets acquired is being amortized on a
straight-line basis over 20 years.
On August 11, 1994, the Company acquired all of the outstanding common stock of
Fairchild Space and Defense Corporation ("Fairchild") from Matra Aerospace,
Inc. ("MAI") (the "Fairchild Acquisition"). Immediately prior to the Fairchild
Acquisition, Fairchild transferred its environmental controls systems and air
turbine operations to a subsidiary of MAI, and transferred certain real estate
to other subsidiaries of MAI. Fairchild's operations now consist of its space
systems operations and its advanced electronics and data management systems
operations. As a result of the Fairchild Acquisition, the Company has expanded
its spacecraft systems and payload product lines and enhanced its spacecraft
production capabilities.
The Fairchild Acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price of approximately $71,000,000
(consisting of 2,424,242 shares of the Company's Common Stock, $40,000,000 in
cash and approximately $800,000 in transaction expenses) was allocated to
assets and liabilities acquired based on estimates of fair values as of the
date of the acquisition. The excess of
Orbital Sciences Corporation forty
<PAGE>
purchase price over net assets acquired is being amortized on a straight-line
basis over 40 years.
The following supplemental financial information presents Orbital's
consolidated results of operations on a pro forma basis as though the Company
had acquired ASO and Fairchild on January 1, 1993 (in thousands, except per
share data):
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Revenues $280,000 $379,000
Net income 5,275 4,838
Earnings per share:
Primary .26 .27
Assuming full dilution .26 .27
</TABLE>
ASO's results of operations for the 14-week period ended December 31, 1993 are
included in Orbital's 1993 consolidated results of operations and Fairchild's
results of operations for the 19-week period ended December 31, 1994 are
included in Orbital's 1994 consolidated results of operations.
On December 28, 1994, the Company acquired all of the outstanding common stock
of Magellan Corporation ("Magellan") from Magellan's former shareholders (the
"Magellan Acquisition") in a tax-free merger. As a result of the Magellan
Acquisition, Orbital now manufactures, markets and sells satellite-based
navigation equipment for consumer and industrial markets worldwide and has
expanded its GPS satellite-based navigation applications.
The Magellan Acquisition was consummated by exchanging 2,640,441 shares of the
Company's Common Stock for all of Magellan's outstanding common stock. The
Company also granted 409,556 options to acquire Orbital Common Stock (see Note
12) to Magellan employees who, at the date of the acquisition, held options to
acquire Magellan common stock. The Magellan Acquisition is accounted for using
the pooling of interests method of accounting and, accordingly, Orbital's
historical consolidated financial statements have been restated to include
Magellan's financial position, results of operations and cash flows. Merger
expenses relating to the Magellan Acquisition of approximately $500,000 were
charged to earnings during the three months ended December 31, 1994.
Prior to the acquisition, Magellan's financial results were prepared on a June
30 fiscal year basis. Orbital's restated consolidated financial statements for
1993 and 1992 include Magellan's historical financial results for its fiscal
years ended June 30, 1994 and 1993, respectively. Orbital's consolidated
financial statements for the year ended December 31, 1994 include Magellan's
financial results for the twelve-month period ended December 31, 1994. The
effect of recasting Magellan's year end for 1994 has been charged to Orbital's
retained earnings as of January 1, 1994. The charge to retained earnings
eliminates the effect of including Magellan's results of operations for the
six-month period ended June 30, 1994 of $1,138,000 in Orbital's 1994 and 1993
consolidated results of operations. Magellan's revenues for the same six-month
period were approximately $18,500,000.
The following table reconciles Orbital's previously reported operating results
to operating results restated to reflect the pooling of interests with Magellan
(in thousands):
<TABLE>
<CAPTION>
Nine
Months Ended Years Ended
September 30, December 31,
1994 1993 1992
(unaudited)
----------- ----------------------
<S> <C> <C> <C>
Revenues, as
previously reported $ 130,142 $ 190,186 $ 174,633
Magellan revenues 26,738 32,901 29,557
--------- --------- ---------
Revenues, restated $ 156,880 $ 223,087 $ 204,190
========= ========= =========
Net income, as
previously reported $ 3,178 $ 4,640 $ 3,824
Magellan net income 1,071 1,756 117
--------- --------- ---------
Net income, restated $ 4,249 $ 6,396 $ 3,941
--------- --------- ---------
</TABLE>
forty-one Orbital Sciences Corporation
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5/ SHORT-TERM INVESTMENTS
The following sets forth the aggregate amortized cost, aggregate fair value and
gross unrealized gains and losses for Orbital's short-term investments in debt
and equity securities at December 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair Unrealized
1994 Cost Value Gains Losses
-------------------------------------------
<S> <C> <C> <C> <C>
Debt securities and
political subdivisions $ 8,755 $ 8,663 $ -- $ 92
Equity securities -
preferred stock 4,133 3,763 -- 370
------- ------- ------- ----
Total $12,888 $12,426 $ -- $462
======= ======= ======= ====
1993
Debt securities and
political subdivisions $23,198 $23,178 $ 11 $ 32
Equity securities -
preferred stock 4,003 4,035 33 --
------- ------- ------- ----
Total $27,201 $27,213 $ 44 $ 32
======= ======= ======= ====
</TABLE>
Orbital recognized approximately $353,000 in realized losses on sales of
short-term investments in 1994. Debt securities (at fair value) with
contractually scheduled maturities scheduled to mature in 1995, 1996 through
1999, and beyond 1999 are in the amounts of $4,557,000, $3,123,000 and
$983,000, respectively.
6/ RECEIVABLES
The components of receivables are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
-------- --------
<S> <C> <C>
Billed and billable $ 39,085 $ 36,409
Recoverable costs and accrued
profit not billed 47,720 40,270
Retainages due upon contract
completion 8,109 5,974
Allowance for doubtful accounts (678) (165)
-------- --------
Total $ 94,236 $ 82,488
======== ========
</TABLE>
Recoverable costs and accrued profit not billed and retainages due upon
contract completion are amounts primarily due after one year and will be billed
on the basis of contract terms and delivery schedules. Additionally, provisions
of certain of the Company's agreements with subcontractors provide for payments
to subcontractors on the basis of contract terms and delivery schedules, which
are primarily due after one year.
The accuracy and appropriateness of Orbital's direct and indirect costs and
expenses under its government contracts, and therefore its receivables recorded
pursuant to such contracts, are subject to extensive regulation and audit by
the Defense Contract Audit Agency or by other appropriate agencies of the U.S.
Government, which have the right to challenge Orbital's cost estimates or
allocations with respect to any such contract. Additionally, a substantial
portion of the payments to the Company under U.S. Government contracts are
provisional payments that are subject to potential adjustment upon audit by
such agencies. In the opinion of management, any adjustments likely to result
from inquiries or audits of its contracts will not have a material adverse
impact on the Company's financial condition or results of operations.
At December 31, 1994 and 1993, $8,121,000 and $3,244,000, respectively, were
receivable from foreign customers.
7/ PROPERTY, PLANT AND
EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
-------- --------
<S> <C> <C>
Land $ 1,349 $ 937
Buildings and leasehold
improvements 12,979 9,673
Machinery and equipment 71,818 41,822
Assets under construction 44,050 31,139
Purchased software and
technical drawings 5,297 5,050
Accumulated depreciation
and amortization (33,432) (21,317)
-------- --------
Total $102,061 $ 67,304
======== ========
</TABLE>
Approximately $11,000,000 of machinery and equipment used to support the
Company's orbit transfer vehicle product is being depreciated on a units of
production method based on estimated missions of that vehi-
Orbital Sciences Corporation forty-two
<PAGE>
cle. During 1992, the Company changed its estimate of expected missions,
resulting in $1,200,000 of additional annual depreciation expense beginning in
1992.
Interest expense of approximately $5,500,000, $3,500,000 and $850,000 was
capitalized during 1994, 1993 and 1992, respectively, as part of the historical
cost of assets under construction and investments in affiliates.
8/ ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
-------- --------
<S> <C> <C>
Payroll, payroll taxes and
fringe benefits $15,451 $ 9,112
Accrued contract costs 9,176 3,910
Deferred income taxes 4,083 5,280
Other accrued expenses 8,729 4,694
------- -------
Total $37,439 $22,996
======= =======
</TABLE>
9/ SHORT-TERM BORROWINGS
The Company has a revolving credit facility that provides for total borrowings
from an international syndicate of six banks of up to $65,000,000, subject to a
defined borrowing base composed of certain contract receivables. At December
31, 1994, approximately $22,500,000 of borrowings were outstanding against an
available facility limit of approximately $24,800,000. Borrowings of
$13,000,000 were outstanding at December 31, 1993. The interest rate charged
under the facility is a variable rate based on the prime rate, the Federal
Funds rate or adjusted LIBOR. As of December 31, 1994, the interest rate on
outstanding borrowings under this facility was approximately 7.75%. Borrowings
are secured by contract receivables and other assets such as insurance policies
and proceeds, and certain books and records. 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 1997.
10/ LONG-TERM OBLIGATIONS
The following sets forth the Company's long-term obligations, excluding capital
lease obligations (see Note 13), at December 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
-------- --------
<S> <C> <C>
7.00% Secured Note, principal
and interest due monthly
through December 1998 $ 2,422 $ 3,000
7.74-9.35% Secured Notes,
principal and interest due
monthly through September
1997-October 1999 23,065 --
8.50% Secured Note, principal
and interest due monthly
through May 1994 -- 408
8.95% Secured Bank Note,
principal and interest due
monthly through
September 1999 2,336 --
6.75% Convertible Subordinated
Debentures, interest due
semi-annually, principal due
March 2003 59,000 59,000
------- -------
86,823 62,408
Less current portion (5,798) (942)
------- -------
Total $81,025 $61,466
======= =======
</TABLE>
The 7.00% secured note is collateralized by certain equipment located at the
Company's Pomona, California facility. The 7.74-9.35% secured notes are
collateralized by certain equipment located at the Company's Germantown,
Maryland facility. The 8.95% secured bank note is collateralized by the
Company's satellite integration and test facility located in Dulles, Virginia.
Additionally, Orbital is guarantor on approximately $5,000,000 of debt incurred
by ORBCOMM Development.
In February 1993, the Company completed a public offering of $59,000,000 in
convertible subordinated debentures (the "Convertible Debentures"). The
Convertible Debentures mature in March 2003, are convertible into the Company's
Common Stock at any time prior to maturity at a conversion price of $14 3/8
forty-three Orbital Sciences Corporation
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
per share, and bear interest payable semi-annually in arrears at 6.75%. The
Convertible Debentures are redeemable at the option of the Company, in whole or
in part, at any time on or after March 1, 1996 at certain defined redemption
prices, plus accrued interest to the date of redemption. Upon a defined change
in control, each holder of Convertible Debentures has the right to require the
Company to repurchase the Convertible Debentures for the principal amount, plus
accrued interest. The Convertible Debentures are subordinated to all existing
and future defined senior indebtedness of the Company.
The fair value of Orbital's long-term obligations at December 31, 1994 and 1993
is estimated at approximately $107,000,000 and $93,000,000, respectively, based
on quoted market prices or on current rates offered for debt of similar
remaining maturities. Scheduled maturities of long-term debt for 1995, 1996,
1997, 1998 and 1999 are $5,419,000, $5,901,000, $5,813,000, $5,041,000 and
$5,278,000, respectively.
11/ INCOME TAXES
The Company adopted SFAS 109 effective January 1, 1993. Prior to 1993, the
Company provided for income taxes pursuant to APB 11. The provisions for income
taxes for 1994, 1993 and 1992 consist of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
------ ------------------
<S> <C> <C> <C>
Current provision
Federal $ 563 $ 599 $ 123
State 732 502 1
Deferred provision
Federal 342 1,006 1,029
State 444 181 477
------ ------ ------
Total $2,081 $2,288 $1,630
====== ====== ======
</TABLE>
The income tax provisions are different from those computed using the statutory
Federal income tax rate as set forth below:
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
------ ------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
Tax-exempt interest ( 5.7) ( 5.5) ( 3.0)
Non-deductible depreciation -- -- 4.1
Intangible amortization 9.2 8.0 9.4
Federal tax credits ( 7.2) (13.1) (20.9)
State income taxes, net
of Federal benefits 2.3 2.0 5.7
Foreign sales corporation ( 1.3) ( 0.1) --
Other, net ( 3.4) 1.7 --
----- ----- -----
Effective rate 27.9% 27.0% 29.3%
===== ===== =====
</TABLE>
The tax effects of significant temporary differences at December 31, 1994 and
1993 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
-------- --------
<S> <C> <C>
Tax Assets:
Non-deductible financial
statement accruals $ 12,867 $ 4,537
Federal net operating loss
carryforward 24,485 156
Federal tax credit
carryforward 942 2,023
38,294 6,716
Valuation allowance (32,120) ( 285)
-------- -------
Tax assets, net $ 6,174 $ 6,431
======== =======
Tax Liabilities:
Percentage of completion accounting $ 512 $ 3,001
Excess tax depreciation 4,288 2,495
Excess deductions for tax
reporting purposes 1,851 1,842
Other 1,867 1,117
-------- -------
Tax liabilities $ 8,518 $ 8,445
======== =======
</TABLE>
The Company established deferred tax assets in connection with its September
1993 and August 1994 purchase business combinations (see Note 4) in the amounts
of $2,425,000 and $35,446,000, respectively, and deferred tax liabilities of
$2,175,000 and $2,337,000, respectively. The Company also established a
valuation allowance of approximately $33,109,000 against certain deferred tax
assets acquired in connection with the Fairchild Acquisition.
Orbital Sciences Corporation forty-four
<PAGE>
Components of the 1992 deferred tax provision are set forth below (in
thousands):
<TABLE>
<S> <C>
Percentage of completion accounting $ (204)
Contract cost reserves (716)
Excess tax depreciation --
Non-deductible accruals (406)
Federal tax credits (1,100)
Net operating loss carryforward 4,049
Other (117)
-------
Total $ 1,506
=======
</TABLE>
The Company had Federal net operating loss and tax credit carryforwards of
approximately $50,000,000 and $900,000, respectively, at December 31, 1994 that
may be utilized through the year 2004, subject to certain annual limitations
and other restrictions, and that expire beginning in 2001.
12/ COMMON STOCK, STOCK
OPTIONS AND OTHER
COMPENSATION PLANS
In December 1993, the Company completed its third public offering of Common
Stock consisting of 2,923,000 primary shares, receiving net proceeds of
approximately $45,300,000.
The Company's 1990 Stock Option Plan (the "1990 Plan") provides for grants of
either incentive or non-qualified stock options to officers, employee directors
and general employees of the Company and its subsidiaries. Under the terms of
the 1990 Plan, incentive stock options may not be granted at less than 100% of
the fair market value at the date of option grant, and non-qualified options
may not be granted at less than 85% of the fair market value at the date of
option grant. Each option under the 1990 Plan vests at a rate set forth by the
Board of Directors in each individual option agreement, generally in one-third
increments over a three-year period following the date of grant. Options expire
no more than ten years following the grant date. The 1990 Plan currently
provides for the granting of up to 2,000,000 shares of the Company's Common
Stock.
The following summarizes the option activity under the 1990 Plan for the last
three years:
<TABLE>
<CAPTION>
Outstanding
Number of Option Price and
Shares Per Share Exercisable
---------------------------------------------------
<S> <C> <C> <C>
Outstanding,
December 31, 1991 637,619 $ 7.50-$20.00 347,786
Grants 249,900 $ 10.20-$13.71
Exercised (55,284) $ 7.50-$14.50
Cancelled/Expired (24,367) $ 10.50-$15.30
--------- --------------
Outstanding,
December 31, 1992 807,868 $ 7.50-$20.00 424,201
Grants 168,750 $ 9.90-$11.50
Exercised (84,474) $ 7.50-$15.30
Cancelled/Expired (44,989) $ 10.50-$20.00
--------- --------------
Outstanding,
December 31, 1993 847,155 $ 7.50-$20.00 481,880
Grants 720,700 $ 12.96-$22.00
Exercised (107,387) $ 7.50-$15.30
Cancelled/Expired (78,409) $ 10.20-$22.00
--------- --------------
Outstanding,
December 31, 1994 1,382,059 $ 7.50-$22.00 545,435
========= ============== =======
</TABLE>
Pursuant to the terms of the Magellan Acquisition (see Note 4), Orbital granted
409,556 options to acquire Orbital Common Stock to Magellan employees who held
Magellan options at the date of the acquisition (the "Replacement Options").
Approximately 266,000 of the Replacement Options are fully vested and the
remaining vest over a four-year period. The Replacement Options have an
exercise price of $3.51 per share and are excluded from the above table.
The Company also maintains the 1990 Stock Option Plan for Non-Employee
Directors, which provides solely for automatic grants of non-qualified stock
options to purchase shares to eligible non-employee directors of the Company.
Of the 82,000 options issued under this plan, 64,000 were exercisable as of
December 31, 1994 at prices ranging from $10.20 to $13.92 per share.
ORBCOMM adopted a stock option plan in 1992 (the "ORBCOMM Plan"). The ORBCOMM
Plan provides for grants of incentive and non-qualified stock options to
purchase ORBCOMM common stock to officers and employees of ORBCOMM and the
Company. Under the terms of the ORBCOMM Plan, incentive stock options may not
be granted at less than 100% of the fair
forty-five Orbital Sciences Corporation
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
market value at the date of option grant and non-qualified options may be
granted at not less than 85% of the fair market value of ORBCOMM common stock
at the date of option grant as determined by the ORBCOMM Board of Directors.
The options vest at a rate set forth by the Board of Directors in each
individual option agreement, generally in one-fourth increments over a
four-year period. Certain provisions of the ORBCOMM Plan may require ORBCOMM
to repurchase the common stock acquired pursuant to the options beginning in
1995 if a public market for ORBCOMM common stock has not been established.
During 1994, 1993 and 1992, 118,650, 99,500 and 413,650 options, respectively,
were granted under the ORBCOMM Plan at prices ranging from $1.50 to $14.00 per
share. At December 31, 1994, 1993 and 1992, 599,074, 496,274 and 413,650
options, respectively, were outstanding, and 298,657 options were exercisable
at December 31, 1994.
Compensation expense of approximately $234,000, $356,000 and $372,000 related
to various option grants under the Company's plans was recognized for the years
ended December 31, 1994, 1993 and 1992, respectively.
As of December 31, 1994, and as a result of the Fairchild and Magellan
acquisitions, the Company now has four Deferred Salary Profit-Sharing Plans
(the "Plans") in accordance with Section 401(k) of the Internal Revenue Code of
1986, as amended. Generally, all full-time employees are eligible for
participation in the Plans. Company contributions to the Plans are made based
on certain Plan provisions and at the discretion of the Board of Directors, and
were approximately $2,991,000, $2,418,000 and $2,048,000 in 1994, 1993 and
1992, respectively.
As part of the Fairchild Acquisition, the Company also acquired a defined
benefit plan covering substantially all Fairchild employees. Shortly after the
Fairchild Acquisition, Orbital curtailed the defined benefit plan by "freezing"
future participation in the plan. The approximate $2,500,000 excess of fair
value of plan assets over the projected benefit obligation at the date of
curtailment was recorded in the allocation of the purchase price. As a result
of the curtailment, periodic pension cost was not material in 1994 and is not
expected to be material in the future. Also as part of the Fairchild
Acquisition, the Company acquired a post-retirement health care plan covering
employees retiring from Fairchild on or after attaining age 55 who have
rendered at least 10 years of service. Orbital also curtailed the
post-retirement plan by "freezing" future participation in the plan. The
approximate $2,800,000 unfunded accumulated post-retirement benefit obligation
at the date of curtailment was recorded in the allocation of the purchase
price. As a result of the curtailment, post-retirement benefit cost was not
material in 1994 and is not expected to be material in the future.
Additionally, Fairchild had a supplemental executive retirement plan and a
deferred compensation plan for certain key employees. Orbital terminated both
of these plans shortly after the Fairchild Acquisition.
13/LEASE COMMITMENTS
Aggregate minimum rental commitments under non-cancelable operating and capital
leases (primarily for office space and equipment) as of December 31, 1994, are
as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
---------------------
<S> <C> <C>
1995 $10,300 $100
1996 8,300 100
1997 5,900 60
1998 8,300 --
1999 5,300 --
2000 and thereafter 31,600 --
------- ----
$69,700 $260
=======
Less: Interest portion at 11% (40)
----
220
Less: Current portion (80)
----
Total $140
====
</TABLE>
In 1992, the Company purchased an L-1011 carrier aircraft to be used with its
Pegasus launch vehicle for approximately $9,100,000 in cash and a two-year note
of approximately $1,800,000. Orbital paid off the loan in full in 1994 (see
Note 10). In 1992, the Company sold the aircraft for approximately $10,900,000
Orbital Sciences Corporation forty-six
<PAGE>
and entered into an operating lease arrangement with the buyer. The ten-year
lease requires approximately $1,700,000 in annual rentals and obligates the
Company to maintain a letter of credit of approximately $5,700,000 for at least
the first five years of the lease.
Rent expense under operating leases for 1994, 1993 and 1992 was $8,399,000,
$7,526,000 and $4,639,000, respectively.
14/ SUPPLEMENTAL CASH FLOW
DISCLOSURES
Supplemental cash flow disclosures related to the ASO and Fairchild purchase
business combinations for the years ended December 31, 1994 and 1993 are as
follows (in thousands):
<TABLE>
<CAPTION>
Fairchild ASO
1994 1993
--------- -------
<S> <C> <C>
Fair value of assets acquired $ 95,000 $11,037
Liabilities assumed or established (23,200) (5,437)
Value of common stock issued to seller (31,000) (5,000)
Cash paid for acquisition $ 40,800 $ 600
</TABLE>
Cash payments for interest and income taxes for 1994, 1993 and 1992 were as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1994 1993 1992
------ ------------------
<S> <C> <C> <C>
Interest paid $5,990 $4,733 $1,137
Income taxes paid, net of refunds $1,630 $1,718 $2,092
</TABLE>
15/ SUMMARY SELECTED QUARTERLY
FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for the years
ended December 31, 1994 and 1993 (in thousands, except share data), restated to
reflect the Magellan Acquisition:
<TABLE>
<CAPTION>
Quarter Ended
1994 Mar 31 Jun 30 Sep 30 Dec 31
--------------------------------------------
<S> <C> <C> <C> <C>
Revenues, as
previously reported $41,388 $38,734 $50,020 $ NA
Magellan revenues 8,922 9,631 8,185 NA
Revenues, restated 50,310 48,365 58,205 65,068
Income (loss) from operations,
as previously reported 2,304 (336) 3,573 NA
Magellan income (loss) from
operations 599 699 (169) NA
Income from operations,
restated 2,903 363 3,404 2,026
Net income (loss), as
previously reported $ 1,660 $ (62) $ 1,580 $ NA
Magellan net income (loss) 515 623 (67) NA
Net income, restated 2,175 561 1,513 1,140
Earnings per share, as
previously reported:
primary .11 .00 .10 NA
fully diluted .09 .00 .10 NA
Earnings per share, restated:
primary .12 .03 .08 .06
fully diluted .10 .03 .09 .06
1993
Revenues, as
previously reported 44,263 52,306 48,741 44,876
Magellan revenues 6,236 8,112 8,922 9,631
Revenues, restated 50,499 60,418 57,663 54,507
Income from operations, as
previously reported 1,115 4,001 2,053 1,392
Magellan income from
operations 46 659 599 699
Income from operations,
restated 1,161 4,660 2,652 2,091
Net income before cumulative
effect of accounting change,
as previously reported 807 1,116 1,156 1,361
Magellan net income before
cumulative effect of
accounting change 46 572 515 623
Net income before cumulative
effect of accounting change,
restated 853 1,688 1,671 1,984
Net income, as previously
reported 1,007 1,116 1,156 1,361
Magellan net income 46 572 515 623
Net income, restated 1,053 1,688 1,671 1,984
Earnings per share, as
previously reported:
primary .09 .10 .10 .11
fully diluted .09 .09 .08 .09
Earnings per share, restated:
primary .07 .12 .12 .13
fully diluted .08 .10 .10 .11
</TABLE>
forty-seven Orbital Sciences Corporation
<PAGE>
CORPORATE INFORMATION
COMPANY OFFICES
Headquarters
Orbital Sciences Corporation
21700 Atlantic Boulevard
Dulles, VA 20166
(703) 406-5000
Other Major Facilities:
Orbital Germantown Operations
20301 Century Boulevard
Germantown, MD 20874
(301) 428-6000
Orbital Chandler Operations
3380 South Price Road
Chandler, AZ 85248
(602) 899-6000
Orbital Pomona Operations
2771 North Garey Avenue
Pomona, CA 91767
(909) 593-3581
Orbital San Dimas Operations
960 Overland Court
San Dimas, CA 91773
(909) 394-5000
Orbital Greenbelt Facility
7500 Greenway Center Drive
Suite 700
Greenbelt, MD 20770
(301) 220-5600
Orbital Huntsville Facility
620 Discovery Drive
Suite 120
Huntsville, AL 35806
(205) 971-0800
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Washington, D.C.
TRANSFER AGENT
The First National Bank of Boston
Shareholders may obtain information with respect to share position, transfer
requirements, lost certificates and IRS Form 1099 by writing or telephoning:
The First National Bank of Boston
Stock Transfer Department
100 Federal Street
P.O. Box 644
Boston, MA 02102
Telephone: (617) 575-2900
INVESTOR AND PUBLIC RELATIONS
General inquiries from investors, analysts, media or the general public should
be directed to:
Orbital Sciences Corporation
21700 Atlantic Boulevard
Dulles, Virginia 20166
(703) 406-5000
Attention: Investor Relations or
Attention: Public Relations
FORM 10-K REPORT
A copy of the Company's report on Form 10-K can be obtained by writing or
telephoning the Company's headquarters.
ANNUAL MEETING
The annual meeting of Orbital Sciences Corporation will be held on April 27,
1995 at 9:00 a.m. at the Company's headquarters.
DIVIDENDS
Orbital has never paid a cash dividend on its Common Stock. The Company
currently intends to retain earnings primarily for working capital and product
development and therefore does not anticipate paying dividends in the
forseeable future. In addition, the Company is subject to certain contractual
restrictions on its ability to pay dividends.
EQUAL EMPLOYMENT OPPORTUNITY
Orbital Sciences Corporation is an equal opportunity employer.
Orbital Sciences Corporation forty-eight
EXHIBIT 21
ORBITAL SCIENCES CORPORATION
LIST OF SUBSIDIARIES
Orbital Communications Corporation
Orbital Imaging Corporation
Orbital Services Corporation
Fairchild Space and Defense Corporation
Magellan Corporation
Exhibit 23
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Orbital Sciences Corporation:
We consent to incorporation by reference in the registration statements on Form
S-3 (No. 33-85058) and Form S-8 (No. 33-84296) of our reports dated February 6,
1995, relating to the consolidated balance sheets of Orbital Sciences
Corporation as of December 31, 1994 and 1993, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1994, and the
related consolidated financial statement schedule, which reports appear in the
December 31, 1994 Annual Report on Form 10-K of Orbital Sciences Corporation.
KPMG Peat Marwick LLP
Washington, D.C.
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AT AND
FOR THE YEAR ENDED DECEMBER 31, 1994 AND SCHEDULE VIII AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000820736
<NAME> ORBITAL SCIENCES CORP /DE/
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 21,156
<SECURITIES> 12,426
<RECEIVABLES> 94,914
<ALLOWANCES> (678)
<INVENTORY> 26,098
<CURRENT-ASSETS> 5,914
<PP&E> 135,493
<DEPRECIATION> (33,432)
<TOTAL-ASSETS> 402,728
<CURRENT-LIABILITIES> 107,527
<BONDS> 81,163
<COMMON> 202
0
0
<OTHER-SE> 201,844
<TOTAL-LIABILITY-AND-EQUITY> 402,728
<SALES> 221,946
<TOTAL-REVENUES> 221,946
<CGS> 157,066
<TOTAL-COSTS> 157,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 136
<INTEREST-EXPENSE> 1,459
<INCOME-PRETAX> 7,470
<INCOME-TAX> 2,081
<INCOME-CONTINUING> 5,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,389
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
