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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
For the fiscal year ended December 31, 1997
Commission file number 0-18287
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ORBITAL SCIENCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 06-1209561
(State of Incorporation of Registrant) (I.R.S. Employer I.D. No.)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(Address of principal executive offices)
(703) 406-5000
(Registrant's telephone number)
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 (quoted on the Nasdaq National Market)
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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
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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 sales price as reported on
the Nasdaq National Market on March 6, 1998 was approximately $1,390,090,721.
As of March 24, 1998, 33,035,347 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, 1997 (the "Annual Report") are incorporated by reference in
Parts I and II of this Report. Portions of the registrant's definitive Proxy
Statement dated March 24, 1998 (the "Proxy Statement") are incorporated by
reference in Part III of this Report.
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ORBITAL SCIENCES CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1997
<TABLE>
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PART I Page
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Item 1. Business................................................................... 1
Item 2. Properties................................................................. 11
Item 3. Legal Proceedings.......................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders........................ 11
Item 4A. Executive Officers of the Registrant....................................... 12
PART II
Item 5. Market for Registrant's Common Equity...................................... 13
Item 6. Selected Financial Data.................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 14
Item 8. Financial Statements and Supplementary Data................................ 14
Item 9. Changes in and Disagreements with Accountants.............................. 14
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 14
Item 11. Executive Compensation..................................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 14
Item 13. Certain Relationships and Related Transactions............................. 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 15
</TABLE>
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Pegasus(R) is a registered trademark and service mark of Orbital Sciences
Corporation; Taurus(R) is a registered trademark of Orbital Sciences
Corporation; Orbital(SM) is a service mark of Orbital Sciences Corporation;
OrbView(R) and ORBIMAGE(R) are registered service marks of Orbital Imaging
Corporation; ORBCOMM(R) is a registered service mark of ORBCOMM Global, L.P.;
and PathMaster(TM) is a trademark of Magellan Corporation.
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ITEM 1. BUSINESS
BACKGROUND
Orbital Sciences Corporation (together with its subsidiaries,
"Orbital" or the "Company") is a leading space and information systems company
that designs, manufactures, operates and markets a broad range of space-related
products and services. Orbital's products and services are grouped into three
general business sectors: Space and Ground Infrastructure Systems, Satellite
Access Products and Satellite Services. Space and Ground Infrastructure Systems
include launch vehicles, satellites and related space systems, electronics and
sensor systems, and ground systems and software. Satellite Access Products
include satellite-based navigation and communications products and
transportation management systems. Satellite Services include satellite-based
two-way mobile data communications and satellite-based imagery services. Orbital
operates launch vehicle, satellite and electronics engineering, manufacturing
and test facilities in Dulles and McLean, Virginia, Germantown and Greenbelt,
Maryland and Chandler, Arizona; a launch vehicle and satellite integration and
test facility at Vandenberg Air Force Base, California; a space sensors and
instruments facility in Pomona, California; a ground systems facility in
Vancouver, British Columbia; and facilities for its navigation and
communications products in Sunnyvale and San Dimas, California and Rochester
Hills, Michigan.
Orbital was incorporated in Delaware in 1987 to consolidate the
assets, liabilities and operations of Space Systems Corporation and Orbital
Research Partners, L.P. Since 1988, the Company has expanded its space-based
product lines and services through a number of acquisitions. For example, in
1994, Orbital acquired Fairchild Space and Defense Corporation ("Fairchild") and
Magellan Corporation ("Magellan"). The Fairchild acquisition enhanced Orbital's
satellite system and subsystem development and production capabilities and
expanded Orbital's existing product lines by adding various sophisticated
electronics products. Through the Magellan acquisition, Orbital expanded its
product lines into the commercial and consumer markets for hand-held receivers
for Global Positioning System ("GPS") satellite-based navigation and
positioning. In 1995, Orbital acquired MacDonald, Dettwiler and Associates Ltd.
("MDA"), a leading supplier of commercial, satellite-imaging ground stations and
related information processing software.
During 1997, Orbital completed several acquisitions. In July, the
Company acquired the GPS automotive navigation product line from Rockwell
International Corporation ("Rockwell"). In August, Orbital purchased the space
systems and communications service businesses of CTA INCORPORATED ("CTA"),
broadening Orbital's satellite production capabilities and enhancing its
transportation management systems. In December, Magellan merged with Ashtech
Inc. ("Ashtech"), a privately-held developer and supplier of high-performance
GPS and related satellite-based navigation products, components and
technologies. After the merger, Orbital and former Ashtech security holders own
approximately 66% and 34%, respectively, of Magellan.
In 1992, Orbital established a wholly owned subsidiary, Orbital
Imaging Corporation ("ORBIMAGE"), to develop and operate commercial Earth
imaging satellites and to market the products derived from such satellites.
ORBIMAGE raised equity in private placements of preferred stock in 1997 and
1998, and as a result Orbital owns approximately 60% of ORBIMAGE. Based on
certain rights granted to the preferred equity investors, Orbital does not
control ORBIMAGE's operational or financial affairs and therefore does not
consolidate its results of operations. See "Description of Orbital's Products
and Services -- Satellite Services."
In 1993, the Company's majority-owned subsidiary, Orbital
Communications Corporation ("OCC"), and Teleglobe Mobile Partners ("Teleglobe
Mobile"), an affiliate of Teleglobe Inc., formed ORBCOMM Global, L.P.
("ORBCOMM"), for the design, development, construction, integration, testing and
operation of a low-Earth orbit satellite communications system (the "ORBCOMM
System"). OCC and Teleglobe Mobile are each 50% general partners in ORBCOMM, and
have contributed to ORBCOMM $75,275,000 and $84,525,000, respectively, through
December 31, 1997. At December 31, 1997, OCC and Teleglobe Mobile each had a
remaining commitment to fund $15,000,000 to ORBCOMM, of which each had funded
$7,500,000 through March 23, 1998. Additionally, OCC is a 2% general partner in
ORBCOMM USA, L.P. ("ORBCOMM USA") and Teleglobe Mobile is a 2% general partner
in ORBCOMM International Partners, L.P. ("ORBCOMM International"), two
partnerships formed to market the
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ORBCOMM System. ORBCOMM is a 98% general partner in each of the two marketing
partnerships. Orbital does not control ORBCOMM's operational or financial
affairs and therefore does not consolidate its results of operations.
For more information related to ORBCOMM and ORBIMAGE, see
"Description of Orbital's Products and Services -- Satellite Services."
DESCRIPTION OF ORBITAL'S PRODUCTS AND SERVICES
The Company's products and services are grouped into three general
business sectors: Space and Ground Infrastructure Systems, Satellite Access
Products and Satellite Services. Orbital's overall business is not seasonal to
any significant extent.
SPACE AND GROUND INFRASTRUCTURE SYSTEMS
The Company's Space and Ground Infrastructure Systems currently
include launch vehicles, satellites and related space systems, electronics and
sensor systems, and ground systems and software.
LAUNCH VEHICLES. The Company has developed and produces the Pegasus
and Taurus space launch vehicles that place small satellites into Earth orbit.
Orbital's Pegasus launch vehicle is launched from beneath the Company's Lockheed
L-1011 aircraft to deploy satellites weighing up to 1,000 pounds into low-Earth
orbit. The Taurus launch vehicle is a ground-launched derivative of the Pegasus
vehicle that can carry payloads weighing up to 3,000 pounds into low-Earth orbit
and payloads weighing up to 800 pounds into geosynchronous orbit.
Each of Orbital's five Pegasus missions in 1997 and one Pegasus
mission in 1998 was successful, bringing the Company's total number of Pegasus
missions to 20, with an approximate 90% success rate. The 1997 Pegasus launches
included a mission for the Spanish national space agency that was the first ever
space launch conducted from Western Europe, a successful launch of ORBIMAGE's
OrbView-2 remote imaging satellite, and the successful launch of ORBCOMM's first
plane of eight communications satellites. In February 1998, the Pegasus
successfully launched a satellite for the National Aeronautics and Space
Administration ("NASA") and a satellite for Teledesic Corporation ("Teledesic").
Orbital has successfully completed its first two Taurus missions, most recently
launching a U.S. Navy satellite and two ORBCOMM satellites in February 1998.
Customers for Pegasus launch services have included NASA, the U.S.
Air Force, ORBCOMM, ORBIMAGE, the Defense Advanced Research Projects Agency
("DARPA") and the national space agency of Brazil. Customers for Taurus launch
vehicles have included the U.S. Air Force, the U.S. Navy, South Korea's space
agency and ORBCOMM.
Under a contract with NASA, Orbital is designing and constructing
three X-34 unmanned reusable launch vehicles that are being designed to be
launched from the Company's L-1011 aircraft. The X-34 will test and demonstrate
advanced reusable launch system technologies and materials as part of NASA's
program that is focused on the development of next-generation, lower cost
reusable launch vehicles. The Company has completed the fundamental design of
the X-34 and has begun vehicle fabrication and construction.
The Company also produces suborbital launch vehicles, which place
payloads into a variety of high-altitude trajectories but, unlike space launch
vehicles, do not place payloads into orbit 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. Customers
typically use the Company's suborbital launch vehicles to launch scientific and
other payloads above the atmosphere and for defense-related applications such as
target signature and interceptor experiments. The Company's primary customers
for suborbital launch vehicles are various branches of the U.S. military.
Orbital conducted six successful suborbital launches in 1997 and, since 1982,
the Company has performed almost 100 suborbital missions, with an approximate
97% success rate. During 1997, Orbital won a major suborbital contract with the
U.S. Air Force to combine surplus government ballistic missile equipment with
Pegasus and Taurus launch vehicle technology to conduct up to 24 space launches
and suborbital missions over the next several years. Additionally, in 1998, the
Company was one of three
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companies awarded a suborbital launch contract by the U.S. Army with the
potential for up to 300 suborbital missions over the next 10 years, to be
allocated by the U.S. Army among the three companies.
SATELLITES AND RELATED SPACE SYSTEMS. The Company designs and
produces small and medium-class satellites to be used in low-Earth orbit ("LEO")
and small geosynchronous orbit ("GEO") satellites. The Company's satellites are
used by various commercial and governmental customers on a wide range of
commercial, scientific and military missions. Since 1982, Orbital (including two
predecessor companies) has built and delivered more than 50 satellites. In
addition, the Company is in the process of designing small and medium-class
satellites to be used in medium-Earth orbit ("MEO"). In many cases, Orbital's
small satellites have been designed to be integrated with and launched by the
Pegasus or Taurus launch vehicles, in order to reduce the cost of the overall
system.
Fifteen Orbital satellites were deployed during 1997 and in 1998
through the date hereof, including ORBIMAGE's OrbView-2 multispectral imaging
satellite and ten ORBCOMM communications satellites. Orbital is in the process
of constructing 24 additional communications satellites for ORBCOMM and two
additional remote imaging satellites for ORBIMAGE. Orbital's medium satellites,
such as NASA's TOPEX/Poseidon and the National Oceanic and Atmospherics
Administration's Landsat 4 and Landsat 5 satellites, have been in space for a
number of years and are used to gather various scientific data, such as ocean
topography and Earth imaging information. As a result of the CTA acquisition,
Orbital's first GEO satellite was successfully deployed in November 1997. This
GEO satellite, owned and operated by MediaCitra Indostar, will provide
direct-to-home television in Indonesia.
Customers for Orbital's satellites have included ORBCOMM, ORBIMAGE,
Johns Hopkins University, NASA, the U.S. Air Force and Teledesic. An Orbital
satellite was also recently selected by the Canadian Space Agency for a remote
imaging satellite project. In 1997, Orbital was selected as the satellite
manufacturer to build 17 communications satellites for the Mobile Communications
Holdings, Inc. ("MCHI") "Ellipso" global voice satellite communications system.
The Company and MCHI are currently in the early stage of negotiations for a
definitive procurement agreement. In connection with such procurement agreement,
the Company and MCHI are also discussing a possible investment by Orbital in
MCHI and/or vendor financing alternatives, which could potentially be
significant in amount.
Orbital also designs and manufactures satellite 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 and
engineering services as well as specialized analytical engineering services for
NASA, the Jet Propulsion Laboratory, the Department of Defense ("DoD"), the
Department of Energy and other customers.
ELECTRONICS AND SENSOR SYSTEMS. Orbital develops, manufactures and
markets defense electronics products, including advanced avionics and data
management systems for aircraft flight operations and ground support
applications. 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 and tactical aircraft and similar military
platforms. 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 equipment for the U.S. Navy and data transfer equipment
and digital terrain systems for the U.S. Air Force and foreign military
customers. In addition, the Company 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
platforms, including the F-4, F-14, F-15, F-16, F-18 and F-22 aircraft and the
LAMPS helicopter.
Orbital also produces satellite-borne scientific sensors and
instruments, such as atmospheric ozone monitoring instruments and environmental
sensors. For example, the Company's instruments have successfully operated in
space, measuring ozone concentrations around the world. Orbital has also
developed and produced an atmospheric monitoring system for use on the proposed
International Space Station, and sensors performing similar functions for U.S.
Navy nuclear submarines. Orbital is developing sensors for the DoD for use in
the detection of the presence of chemical or biological weapons. In addition,
Orbital's commercial base of sensor products includes the manufacturing
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and marketing of sensors that analyze fuel properties in the chemical,
biotechnology, pharmaceutical and steel industries.
GROUND SYSTEMS AND SOFTWARE. Orbital is the leading supplier of
turn-key commercial satellite imaging ground stations and is a major provider of
advanced image processing software used in such stations. During 1997, Orbital
introduced the Fast TRACS mobile satellite ground station, which is a fully
transportable satellite ground station that can be rapidly deployed and easily
activated. In recent years, the Company's ground systems have also expanded to
include software-intensive products designed for air and sea transportation
systems, along with a variety of military applications, including naval
mine-hunting operations, artillery command and control, radar deception and
logistics support.
The Company develops, provides and upgrades commercial satellite
remote imaging ground stations and related information-processing software. Of
approximately 30 major non-military imaging satellite ground stations around the
world, Orbital has been the prime contractor or a major supplier in the
construction of 25 ground stations in 20 countries. These ground stations are
designed to receive and process data from the major civil and commercial Earth
observation satellites currently in operation. Orbital also develops and markets
software that generates and processes imagery from satellites and airborne
sensors. Customers for the Company's ground stations and Earth information
systems include the European and Canadian space agencies as well as ORBIMAGE,
EarthWatch Incorporated ("EarthWatch") and various other commercial and
government customers in the United States, Japan, Korea, Saudi Arabia, Brazil,
China, Malaysia, Taiwan and the Philippines.
The Company also produces automated aeronautical information and air
traffic control systems. Faster and less expensive to operate than traditional
manual systems, automated aeronautical information systems provide pilots and
other users with aeronautical and meteorological information on a timely basis.
Customers for the Company's aeronautical information systems products include
military and civil aviation authorities in various countries such as Australia,
Belgium, Canada, Norway, Malaysia and Switzerland.
SATELLITE ACCESS PRODUCTS
The Company's Satellite Access Products include the satellite-based
navigation, positioning and communications products of its Magellan subsidiary,
as well as certain of its transportation management systems.
SATELLITE NAVIGATION, POSITIONING AND COMMUNICATIONS PRODUCTS.
Traditionally, Magellan's product line primarily consisted of inexpensive
satellite-based navigation and positioning products for commercial and consumer
markets, including recreational marine and aviation customers and outdoor
recreational customers such as campers, hunters and hikers. In December 1997,
Orbital completed the merger of Ashtech with its Magellan subsidiary. With the
addition of the Ashtech product lines, Magellan now also develops and
manufactures GPS products that are used for professional and other
high-precision industrial applications, such as guiding aircraft under
low-visibility conditions, monitoring movements of the Earth's surface for
researchers, precision surveying for construction projects and urban planning,
and natural resource management. In addition, some of Magellan's
higher-performance products incorporate technology that provides access to both
the U.S. GPS satellites and GLONASS, the comparable Russian satellite navigation
system, which improves performance and accuracy.
In connection with the Ashtech merger, Orbital entered into a
stockholders' agreement with certain substantial holders of Ashtech securities
(the "Ashtech Holders"). The Ashtech Holders were granted certain rights with
respect to Magellan, including, among others, the right to (i) designate two
members of Magellan's seven-member board of directors and (ii) demand
registration of their Magellan common stock after the earlier of 180 days after
an initial public offering of the common stock of Magellan or December 31, 1999.
In July 1997, Magellan entered the emerging market for GPS-based
automotive navigation products with the purchase of the PathMaster product line
from Rockwell. PathMaster uses GPS information to provide electronic map
guidance to individual motorists. The PathMaster system is currently in use in
approximately 8,000 Hertz rental cars
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and the product design is being enhanced with more functionality and features to
address broader private passenger vehicle and rental car markets.
Magellan also provides satellite telephones used with the INMARSAT
satellite system and has developed technology and products for the ORBCOMM
satellite data network, including a hand-held messaging communicator combining
data communication and GPS features for ORBCOMM customers.
TRANSPORTATION MANAGEMENT SYSTEMS. In addition, Orbital produces
satellite-related vehicle location and fleet management systems that have been
used primarily for metropolitan mass transit operators. The ORBTRAC
transportation management systems combine GPS vehicle tracking technology with
local-area wireless terrestrial communications to help manage public bus and
light rail systems, provide for voice and data communications and transmit
precise GPS-based location information in emergency situations. Customers for
Orbital's transportation management systems include the metropolitan mass
transit authorities in Chicago, Oakland, New York City and Baltimore, as well as
a number of other state and municipal transit systems and vehicle fleets.
SATELLITE SERVICES
In Orbital's Satellite Services sector, the Company's ORBCOMM and
ORBIMAGE affiliates are developing satellite-based services to address markets
for global two-way mobile data communications and digital imagery of the Earth's
land surface, oceans, atmosphere and weather conditions.
ORBCOMM COMMUNICATIONS SERVICES. The ORBCOMM System is designed to
provide continuous low-cost monitoring, tracking and messaging communications
coverage over most of the Earth's surface. The system is intended to be a
reliable, cost-effective method of providing fixed asset monitoring, mobile
asset tracking and data messaging services to a broad range of industrial and
commercial customers around the world, enabling customers to collect data from
multiple locations, track assets on a global basis and transmit and receive
messages outside the coverage area of terrestrial services. It is designed to
permit subscribers to use inexpensive communicators to send and receive short
messages, high-priority alerts and other information, such as the location and
condition of automobiles, trucks, railcars, industrial equipment, shipping
vessels and other remote assets. The Company expects that the ability to send
and receive data and messages without the geographic limitations of existing
terrestrial communications systems will stimulate the growth of new markets for
satellite-based monitoring, tracking and messaging communications and will be
used to supplement terrestrial-based communications systems by providing
relatively low-cost wide-area geographic coverage in areas these systems are
unable to reach.
The ORBCOMM System is planned to consist of a constellation of up to
36 small LEO satellites, with a satellite control center that operates and
positions the satellites, fixed and mobile communicators used by subscribers to
transmit messages to and receive message from the satellites, and the regional
ground gateway systems that transmit and control the flow of data and message
communications and other information for the system. A gateway generally
consists of an Earth-tracking station that sends signals to and receives signals
from the satellites and a message switching system that processes the message
traffic.
Since early 1996, ORBCOMM has been providing limited commercial
service in the United States, primarily in monitoring and tracking applications,
through its first two satellites that were launched in 1995. A plane of eight
satellites was launched on a Pegasus launch vehicle in December 1997, and two
additional satellites were launched on Orbital's Taurus rocket in February 1998.
These satellites are expected to be placed into commercial service in the second
quarter of 1998. To date in the in-orbit check-out process, certain of these
satellites are generating lower than expected solar power levels, although the
Company and ORBCOMM anticipate that such power levels will be sufficient to meet
planned service requirements, and certain of these satellites have experienced
anomalies in certain radio transmitters. The Company and ORBCOMM believe they
have determined the causes of the lower power level and radio transmitter
anomalies, which they believe will be corrected in future ORBCOMM satellites,
and are developing procedures to minimize the effects of and/or bypass these
anomalies on the existing in-orbit ORBCOMM
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satellites. There can be no assurance that the Company and ORBCOMM will be
successful in their efforts or, if unsuccessful, that ORBCOMM's commercial
operations would not be adversely affected.
The next 16 ORBCOMM satellites are expected to be launched by
mid-1998, at which time ORBCOMM will begin offering global service to its
customers. ORBCOMM is scheduled to expand its real-time global service with the
launch of eight additional satellites in mid-1999. Under the ORBCOMM System
Procurement Agreement between Orbital and ORBCOMM (the "ORBCOMM Procurement
Agreement"), Orbital is completing construction of, and will launch, the
remaining 24 satellites, all on a fixed-price basis. Consistent with industry
practices for similar contracts, the ORBCOMM Procurement Agreement contains
certain performance incentives with respect to the satellites and their
launches.
There are currently four operational U.S. gateway Earth stations
located in New York, Washington, Arizona and Georgia. Gateways are also planned
to be owned and operated by ORBCOMM licensees in strategic locations around the
world. For example, a gateway Earth station located in Italy has successfully
completed acceptance testing and is now in pre-commercial service, and gateway
Earth stations are under construction in South Korea and Japan. ORBCOMM has
agreements with several manufacturers, including Magellan, for the development
and manufacture of hand-held communicators and various types of industrial
communicators that monitor fixed and mobile assets. Subscriber communication
manufacturers also include Panasonic and Scientific Atlanta.
Orbital developed the "ORBCOMM" concept in 1990, and formed the
ORBCOMM partnership in 1993 with Teleglobe Mobile for the design, development,
construction, integration, testing and operation of the ORBCOMM System. OCC and
Teleglobe Mobile each hold a 50% interest in ORBCOMM and have invested
approximately $75,000,000 and $85,000,000, respectively, through December 31,
1997. OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA and ORBCOMM International, each with the exclusive right to market the
ORBCOMM System in the U.S. and internationally, respectively.
Pursuant to the terms of the partnership agreements, (i) OCC and
Teleglobe Mobile share equal responsibility for the operational and financial
affairs of ORBCOMM, (ii) OCC indirectly holds a 51% interest in ORBCOMM USA,
with the result that OCC controls the operational and financial affairs of
ORBCOMM USA, and (iii) Teleglobe Mobile indirectly holds a 51% interest in
ORBCOMM International, with the result that Teleglobe Mobile controls the
operational and financial affairs of ORBCOMM International. Since OCC is unable
to control, but is able to exercise significant influence over, ORBCOMM's and
ORBCOMM International's operating and financial policies, the Company accounts
for its investments in ORBCOMM and ORBCOMM International using the equity method
of accounting. Since OCC is able to control the operational and financial
affairs of ORBCOMM USA, the Company consolidates ORBCOMM USA's results of
operations.
In accordance with the equity method of accounting, Orbital
recognizes 100% of the revenues earned and costs incurred on sales of products
and services to ORBCOMM. The Company also recognizes as equity in earnings
(losses) of affiliates its proportionate share of ORBCOMM's profits and losses.
ORBCOMM is currently capitalizing substantially all system construction costs,
including amounts paid to Orbital. To the extent ORBCOMM capitalizes its
purchases from Orbital, the Company eliminates as equity in earnings (losses) of
affiliates approximately 50% (the Company's current equity ownership in ORBCOMM)
of its profits and losses from sales to ORBCOMM.
The Company believes that ORBCOMM, which has a highly leveraged
capital structure, will require additional funding in 1998, and ORBCOMM is
currently in the process of exploring financing alternatives to complete the
construction of the ORBCOMM System and to fund its initial operations. Such
alternatives include, but are not limited to, additional capital contributions
from its existing partners, vendor financing, equity or debt transactions and
other strategic alternatives. There can be no assurance that any financing will
be completed or be available on terms commercially acceptable to ORBCOMM.
Orbital is committed to provide up to an additional $15,000,000 to ORBCOMM, of
which $7,500,000 has been funded so far in 1998. In addition, Orbital has
provided approximately $24,000,000 in vendor financing to ORBCOMM (one-half of
which has been advanced to Orbital by an affiliate of Teleglobe Inc.) and
expects this amount to increase.
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Orbital anticipates that start-up of the ORBCOMM System will produce
substantial operating losses for several more years. The ORBCOMM System is
subject to various technological risks and limitations inherent in any
satellite-based communications system. Even if the ORBCOMM System is fully
constructed and operational, there can be no assurance that an adequate market
will develop for ORBCOMM services, that ORBCOMM will achieve profitable
operations or that Orbital will recover its past or anticipated investment in
ORBCOMM.
ORBIMAGE IMAGERY SERVICES. ORBIMAGE operates, and is further
developing, a fleet of satellites that collect, process and distribute digital
imagery of the Earth's surface (land and oceans), the atmosphere and weather
conditions. Small Earth-viewing satellites and related sensors and instruments
placed in low-Earth orbits are planned to offer cost-efficient image collection
and processing, together with daily global coverage and high-resolution imaging
quality.
In April 1995, ORBIMAGE launched its first satellite, OrbView-1,
which provides dedicated weather-related imagery and meteorological products to
NASA and other U.S. government-related users. ORBIMAGE's second satellite,
OrbView-2, was launched in August 1997 on a Pegasus vehicle and is used by
ORBIMAGE to deliver high-quality multi-spectral (color and infra-red) ocean
imagery and land surface imagery to government and commercial customers.
ORBIMAGE is in the process of completing the design of two high-resolution
imaging satellites, OrbView-3 and OrbView-4, which are being developed to
provide high-spatial resolution and, in the case of OrbView-4, hyper-spectral
(enhanced color and infra-red) imagery. OrbView-3 and OrbView-4 are scheduled to
be launched in 1999 and 2000, respectively. The Company believes that OrbView-3
and OrbView-4 will be among the first commercial satellites with high-resolution
imagery capability and that OrbView-4 will be the world's first satellite with
commercially available hyper-spectral capability.
Under the ORBIMAGE System Procurement Agreement between Orbital and
ORBIMAGE (the "ORBIMAGE Procurement Agreement"), Orbital is designing,
manufacturing and providing the launch service for the OrbView-3 and OrbView-4
satellites, and is constructing the related ground segment, generally on a
fixed-price basis. Consistent with industry practices for similar contracts, the
ORBIMAGE Procurement Agreement contains certain performance incentives with
respect to the satellites and their launches. Orbital also provides ORBIMAGE
with general, administrative and technical support pursuant to an Administrative
Services Agreement. These services are provided on a cost-reimbursable basis or,
in some cases, a cost plus fee basis.
In February 1998, ORBIMAGE completed a private financing of
$150,000,000 of units consisting of 11 5/8% Senior Notes due 2005 and warrants
to purchase an aggregate of approximately 3% of ORBIMAGE's outstanding common
stock. Concurrently, the existing preferred stockholders in ORBIMAGE exercised
an option to purchase additional preferred stock of ORBIMAGE, resulting in net
proceeds to ORBIMAGE of approximately $21,000,000.
Currently, Orbital owns approximately 60% of ORBIMAGE, with the
remainder owned by a group of preferred stockholders. As a result of certain
rights granted to the preferred stockholders, including the right to elect
certain directors and have such directors participate in significant management
decisions, Orbital does not control the operational and financial affairs of
ORBIMAGE. As a consequence, Orbital accounts for its investment in ORBIMAGE
using the equity method, recognizing revenues earned and costs incurred on sales
of products and services and its proportionate share (approximately 75% at
December 31, 1997 and approximately 60% following the February 1998 transactions
described in the preceding paragraph) of ORBIMAGE profits and losses, in the
manner described above under "-- ORBCOMM Communications Services." In addition,
the preferred stockholders have certain demand registration rights with respect
to their shares after June 30, 2002. As of December 31, 1997, Orbital had
invested approximately $89 million in ORBIMAGE. Orbital anticipates that
ORBIMAGE will incur operating losses at least in the near term. There can be no
assurance that an adequate market will develop for ORBIMAGE's products and
services, that it will achieve profitable operations or that Orbital will
recover its investment in ORBIMAGE.
* * * *
Financial information about the Company's products and services,
domestic and foreign operations and export sales is included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
-7-
<PAGE> 10
Notes to the Company's Consolidated Financial Statements 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 performance and other technical features, reliability,
scheduling, customization and price.
The primary domestic competition for the Pegasus and Taurus launch
vehicles comes from the Athena launch vehicles developed by Lockheed Martin
Corporation ("Lockheed"). In addition, Pegasus may face competition from launch
systems derived from U.S. government surplus ballistic missiles. The Israeli
Shavit vehicle and other potential foreign launch vehicles could also pose
competitive challenges to Pegasus, although U.S. government policy currently
prohibits the launch of foreign vehicles from U.S. territory. Competition for
Taurus could come from surplus Titan II launch vehicles, although a very limited
inventory remains, and from the Russian Cosmos SL-8 launch vehicle. Competition
to Pegasus and Taurus vehicles also exists in the form of partial or secondary
("piggyback") payload capacity on larger boosters such as the Ariane, Atlas and
Delta launch vehicles. Orbital's primary competitors in the suborbital launch
vehicle product line are Coleman Research Corporation, Lockheed and Space Vector
Corporation.
The Company's satellites and satellite subsystems products compete
with products and services produced or provided by government entities and
numerous private entities, including TRW Inc., Ball Aerospace and Technology
Corporation, Lockheed, GM Hughes Electronics Corporation ("Hughes"), Spar
Aerospace Limited and Spectrum Astro, Inc. The Company's airborne and
ground-based electronics systems, including defense-oriented data management
systems, defense-oriented avionics products and imagery processing systems,
aviation systems and space sensors and instruments face competition from several
established manufacturers, including Smiths Industries, Lockheed Sanders and
Honeywell Inc. The Company's main competitors in the area of satellite ground
stations include Datron Systems Inc., Matra Marconi Space N.V. and Raytheon
Corp. The Company's Satellite Access Products primarily face competition from
Trimble Navigation Ltd., Garmin International, Lowrance Electronics, Philips
Automotive Electronics, Alpine Electronics and several other producers. The main
competitors with Orbital's transportation management systems are Rockwell,
Harris Corporation and TMS (Raytheon).
ORBCOMM, which provides satellite-based data communications
services, may face competition from numerous existing and proposed
satellite-based and terrestrial systems providing data communications services.
ORBIMAGE may face competition from U.S. and foreign governmental entities, and
private entities including Space Imaging EOSAT, EarthWatch and SPOT Image, that
provide or are seeking to provide satellite-based or aerial imagery products.
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. Any such
foreign competitor could benefit from subsidies from, or other protective
measures by, its home country.
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 services and to seek customer and, where
appropriate, strategic partner investments in these products and services.
Orbital's research and development expenses, excluding direct customer-funded
development, were approximately $26.4 million, $22.2 million and $28.5 million,
respectively, for the fiscal years ended December 31, 1997, 1996 and 1995.
-8-
<PAGE> 11
PATENTS AND TRADEMARKS
Orbital relies, in part, on patents, trade secrets and design and
production 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, U.S. patents relating to certain components of the ORBCOMM
satellites, U.S. patents relating to certain of its GPS products, as well as
patents for other systems and products produced by the Company. The Company also
has various pending patent applications relating to Pegasus, the ORBCOMM System
and its GPS products along with other products. 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, the Canadian
Intellectual Property Office and certain other foreign trademark authorities.
COMPONENTS, RAW MATERIALS AND CARRIER AIRCRAFT
Orbital purchases a significant percentage of its product
components, including rocket propulsion motors, structural assemblies,
electronic equipment and computer chips, from third parties. Orbital also
occasionally obtains from the U.S. government parts and equipment that are used
in the production of the Company's products or in the provision of the Company's
services. Orbital has not experienced material difficulty in obtaining product
components or necessary parts and equipment and believes that alternative
sources of supply would be available, although increased costs and possible
delays could be incurred in securing alternative sources of supply. The
Company's ability to launch its Pegasus vehicle, the X-34 vehicle and certain
new suborbital vehicles depends on the availability of an aircraft with the
capability of carrying and launching such launch vehicles. In June 1997, Orbital
purchased the modified Lockheed L-1011 used for its Pegasus vehicle. Prior to
that date, Orbital had leased the L-1011 since 1991 from a commercial lending
institution. In the event that the L-1011 were to be unavailable, Orbital would
experience significant delays, expenses and loss of revenues as a result of
having to acquire and modify a new carrier aircraft.
U.S. GOVERNMENT CONTRACTS
During 1997, 1996 and 1995, approximately 38%, 45% and 40%,
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. Most of Orbital's U.S. government contracts are
funded incrementally on a year-to-year basis. Changes in government policies,
priorities or funding levels through agency or program budget reductions by the
U.S. Congress or executive agencies or the imposition of budgetary constraints
could materially adversely affect Orbital's financial condition or results of
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 1997 revenues were NASA, DoD and ORBIMAGE.
The accuracy and appropriateness of Orbital's direct and indirect
costs and expenses under its contracts with the U.S. government are subject to
extensive regulation and audit by the Defense Contract Audit Agency or by other
appropriate agencies of the U.S. government. These agencies have the right to
challenge Orbital's cost estimates or allocations with respect to any such
contract. Additionally, a substantial portion of payments to the Company under
U.S. government contracts are provisional payments that are subject to potential
adjustment upon audit by such agencies. Orbital believes that any adjustments
likely to result from inquiries or audits of its contracts will not have a
material adverse impact on its financial condition or results of operations.
Since Orbital's inception, it has not experienced any material adjustments as a
result of any such inquiries or audits.
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, Orbital may
receive progress payments, generally in an amount equal to between 80% and 95%
of monthly costs and profits, or it may receive milestone payments upon the
occurrence of certain program achievements, with final payments occurring at
project completion.
-9-
<PAGE> 12
Fixed-price incentive fee contracts provide for sharing by the customer and the
Company 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 U.S.
government's subjective evaluation of the Company's performance in terms of the
criteria stated in the contract.
All 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 (at the request of the U.S. government), respectively. Furthermore,
any of these contracts may become subject to a government-issued stop work order
under which the Company would be required to suspend production. In the event of
a termination at will, Orbital would normally be entitled to recovery of 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 from
time to time experiences contract suspensions and terminations.
REGULATION
The ability of Orbital to pursue its business activities is
regulated by various agencies and departments of the U.S. government and, in
certain circumstances, the governments of other countries. Commercial space
launches require licenses from the U.S. Department of Transportation (the "DoT")
and operation by Orbital of its L-1011 aircraft requires licenses from certain
agencies of the DoT, including the Federal Aviation Administration.
Construction, launch and operation of commercial communications satellites,
including the satellite-based two-way data communications network to be provided
by ORBCOMM, require licenses from the U.S. Federal Communications Commission
(the "FCC") and frequently require the approval of international and individual
country regulatory authorities. ORBCOMM has its necessary FCC regulatory
authority to operate its system but still must obtain certain foreign regulatory
approvals. In addition, commercial remote imagery satellite systems such as
ORBIMAGE require licenses from the U.S. Department of Commerce (the "DoC") and
the FCC for the construction, launch and operation of remote imaging satellites.
ORBIMAGE has its DoC remote sensing licenses and has filed an application with
the FCC for a license to construct, launch and operate the OrbView-3 and
OrbView-4 satellites. Exports of Orbital's products, services and technical
information frequently require licenses from the U.S. Department of State or the
DoC. There can be no assurance that the Company will continue to be successful
in its efforts to obtain necessary licenses or regulatory approvals. The
inability of the Company, ORBCOMM or ORBIMAGE to secure any necessary licenses
or approvals could have a material adverse effect on the financial condition or
results of operations of the Company.
BACKLOG
Orbital's contract backlog is attributable to its Space and Ground
Infrastructure Systems business. The Company's firm backlog at December 31, 1997
and 1996 was approximately $1,040,000,000 and $710,000,000, respectively. As of
December 31, 1997, approximately 50% 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. Firm backlog consists of aggregate contract values for firm
product orders, excluding the portion previously included in operating revenues
on the basis of percentage of completion accounting, and including government
contract orders not yet funded in the amounts of approximately $435,000,000 and
$265,000,000 as of December 31, 1997 and 1996, respectively. Approximately
$550,000,000 of backlog is currently scheduled to be performed beyond 1998. Firm
backlog excludes unexercised contract options and undefinitized contracts having
an aggregate potential contract value at December 31, 1997 of approximately
$1,900,000,000.
-10-
<PAGE> 13
EMPLOYEES
As of December 31, 1997, Orbital had nearly 4,000 full-time
permanent employees. The Company does not have any collective bargaining
agreements with its employees and believes its employee relations are good.
ITEM 2. PROPERTIES
Orbital owns or leases over 1.5 million square feet of office,
engineering and manufacturing space in various locations throughout the world.
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. The Company owns an approximately 59,200
square-foot satellite development facility on land adjacent to the Dulles office
facility for engineering and manufacturing space. Orbital also leases
approximately 73,000 square feet of office, engineering and manufacturing space
in McLean, Virginia; 350,000 square feet of office, engineering and
manufacturing space in Germantown, Maryland; 310,000 square feet of office,
engineering and manufacturing space in Chandler, Arizona; 181,000 square feet of
office and engineering space in Richmond, British Columbia; 135,000 square feet
of office, engineering and manufacturing space in Pomona, California; 75,000
square feet of office, engineering and manufacturing space in San Dimas,
California; and 74,000 square feet of office, engineering and manufacturing in
Sunnyvale, California. The Company leases or owns other smaller facilities,
offices or manufacturing space around the United States, including Huntsville,
Alabama; Edwards Air Force Base, California; Vandenberg Air Force Base,
California; Beltsville, Greenbelt and Lanham, Maryland; Rochester Hills,
Michigan; and Plano, Texas. The Company also leases or owns smaller facilities,
offices or manufacturing space in locations around the world including Canada,
England, Russia and Indonesia. 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-term
requirements.
ITEM 3. LEGAL PROCEEDINGS
On October 10, 1996, Thomas van der Heyden, a former employee of
CTA, filed a lawsuit in the Circuit Court for Montgomery County, Maryland
against CTA and certain of its subsidiaries alleging that such companies
breached a profit sharing agreement with respect to the satellite contract for
PT MediaCitra Indostar, and initially seeking $30 million in compensatory
damages and $150 million in punitive damages. The dispute is now in arbitration.
As a result of the CTA acquisition, Orbital acquired the stock of the
subsidiaries that are parties to the proceedings. Under the terms of the CTA
acquisition, CTA has agreed to indemnify Orbital against damages arising from
the arbitration proceeding. The case was heard by a board of arbitrators in
February 1998 and a decision is pending.
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 1997.
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<PAGE> 14
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, 1998. All Executive Officers
are appointed annually and serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David W. Thompson...................... 43 Chairman of the Board, President and Chief Executive Officer
James R. Thompson...................... 61 Director, Executive Vice President and General Manager/Launch
Systems Group
Robert R. Lovell....................... 60 Executive Vice President and General Manager/Space Systems Group
Robert D. Strain....................... 41 Executive Vice President and General Manager/Electronics and Sensor
Systems Group
Daniel E. Friedmann.................... 41 Executive Vice President and General Manager/Systems Integration and
Software Group
Charles M. Boesenberg.................. 49 Executive Vice President and General Manager/Satellite Access Products
Group; President and Chief Executive Officer of Magellan
Michael D. Griffin..................... 48 Executive Vice President and Chief Technical Officer
Jeffrey V. Pirone...................... 37 Executive Vice President and Chief Financial Officer
Leslie C. Seeman....................... 45 Senior Vice President, General Counsel and Secretary
Antonio L. Elias....................... 48 Senior Vice President and General Manager/Advanced Programs Group
</TABLE>
David W. Thompson is co-founder of Orbital and has been Chairman of
the Board, President and Chief Executive Officer of the Company since 1982.
Prior to founding Orbital, Mr. Thompson was employed by Hughes Electronics
corporation as special assistant to the President of its Missile Systems Group
and by NASA at the Marshall Space Flight Center as a project manager and
engineer, and also worked at the Charles Stark Draper Laboratory on the Space
Shuttle's autopilot design. Mr. Thompson serves as Chairman of the Board and
Chief Executive Officer of ORBIMAGE, as Chairman of Magellan, and as a Director
of ORBCOMM, each an Orbital affiliate.
James R. Thompson (who is not related to David W. Thompson) has been
Executive Vice President and General Manager/Launch Systems Group since 1993 and
a Director of the Company since 1992. Mr. Thompson was Executive Vice President
and Chief Technical Officer of Orbital from 1991 to 1993. He was Deputy
Administrator of NASA from 1989 to 1991. From 1986 until 1989, Mr. Thompson was
Director of NASA's Marshall Space Flight Center. He 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. He is a director of SPACEHAB Incorporated and
Nichols Research Corp.
Robert R. Lovell has been Executive Vice President and General
Manager/Space Systems Group since 1997. From 1994 to 1997, he was Senior Vice
President for Special Projects at Orbital. Mr. Lovell previously served as
Executive Vice President and General Manager/Space Systems Group from 1993 to
1994. From 1990 to 1993, he was President/Space Systems Division of Orbital and,
from 1987 to 1989, he served as Vice President/Space Applications. From 1980 to
1987, Mr. Lovell was employed by NASA as Director of the Communications Division
in the Office of Space Science and Applications. Before that, he had an 18-year
career with NASA at the Lewis Research Center.
Robert D. Strain has been Executive Vice President and General
Manager/Electronics and Sensor Systems Group since 1996. From 1994 until 1996,
he was Vice President for Finance and Manufacturing at Orbital. Prior to that he
served in a variety of senior-level financial positions with Fairchild,
including Vice President of Finance, Treasurer and Controller. Before joining
Fairchild, Mr. Strain held several senior financial positions with NWL Control
Systems.
Daniel E. Friedmann has been Executive Vice President and General
Manager/Systems Integration and Software Group since 1996. He also continues to
serve as President and Chief Executive Officer of Orbital's Canadian subsidiary,
MDA, a position he has held since 1995. From 1992 to 1995, he served as
Executive Vice President and
-12-
<PAGE> 15
Chief Operating Officer of MDA. Between 1979 and 1992, he held a variety of
positions at MDA, including serving as Vice President of various divisions.
Charles M. Boesenberg has been President and Chief Executive Officer
of Magellan and Executive Vice President and General Manager, Satellite Access
Products since January 1998, upon the merger of Ashtech with Magellan. From 1994
until 1997, Mr. Boesenberg was President, Chief Executive Officer and a director
of Ashtech. From 1992 to 1994, Mr. Boesenberg was Chairman of the Board,
President and Chief Executive Officer of Central Point Software, Inc. From 1991
to 1992, Mr. Boesenberg was President of MIPS Computer Systems, Inc. ("MIPS"), a
semiconductor and computer systems company, now a subsidiary of Silicon
Graphics, Inc. He joined MIPS in 1989 as Executive Vice President of Marketing.
From 1987 to 1989, Mr. Boesenberg was Senior Vice President, U.S. Sales and
Marketing of Apple Computer, Inc.
Michael D. Griffin has been Executive Vice President and Chief
Technical Officer since 1997. From 1996 to 1997, Dr. Griffin served as Executive
Vice President and General Manager/Space Systems Group. Dr. Griffin joined
Orbital in 1995 when he was appointed Senior Vice President and Chief Technical
Officer. From 1994 to 1995, he was Senior Vice President for Program Development
at Space Industries International. From 1991 to 1994, he served as Chief
Engineer of NASA and, from 1989 to 1991, was Deputy Director for Technology at
the Strategic Defense Initiative Organization.
Jeffrey V. Pirone has been Executive Vice President and Chief
Financial Officer since January 1998, and was Senior Vice President and Chief
Financial Officer since 1996. From 1993 until 1996, Mr. Pirone served as Vice
President and Controller of Orbital. Mr. Pirone joined Orbital as Controller in
1991, and prior to that was a Senior Manager at KPMG Peat Marwick LLP.
Leslie C. Seeman has been Senior Vice President of the Company since
1993 and General Counsel and Secretary of the Company since 1989. From 1989 to
1993, Ms. Seeman was Vice President of the Company, and from 1987 to 1989, she
was Assistant General Counsel of Orbital. From 1984 to 1987, she was General
Counsel of Source Telecomputing Corporation, a telecommunications company. Prior
to that, she was an attorney at the law firm of Wilmer, Cutler and Pickering.
Antonio L. Elias has been Senior Vice President and General
Manager/Advanced Programs Group since 1997. From 1996 until 1997, Dr. Elias
served as Senior Vice President and Chief Technical Officer of Orbital. From
1993 through 1995 he was Senior Vice President for Advanced Projects and was
Senior Vice President/Space Systems Division from 1990 to 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
On March 24, 1998, there were 1,351 Orbital stockholders of record.
Additional 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.
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<PAGE> 16
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 65 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 is included in Item 4A above
and under the caption "Election of Directors -- Directors to be Elected at the
1998 Annual Meeting, "-- Directors Whose Terms Expire in 1999" and "--
Directors Whose Terms Expire in 2000" and "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Proxy Statement filed pursuant to Regulation 14A on
March 24, 1998 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the captions
"Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,"
"Indemnification Agreements," "Executive Employment Agreements" and "Information
Concerning the Board and Its Committees" of the Proxy Statement filed pursuant
to Regulation 14A on March 24, 1998 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 24, 1998 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included under the caption
"Related Transactions" of the Proxy Statement filed pursuant to Regulation 14A
on March 24, 1998 and is incorporated herein by reference.
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<PAGE> 17
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 reports of KPMG Peat
Marwick LLP, appearing in the portions of the Annual
Report, filed as Exhibit 13, are filed as a part of this
report:
A. Independent Auditors' Report (Annual
Report page 41)
B. Consolidated Statements of Earnings
(Annual Report page 42)
C. Consolidated Balance Sheets (Annual
Report page 43)
D. Consolidated Statements of Stockholders'
Equity (Annual Report page 44)
E. Consolidated Statements of Cash Flows
(Annual Report page 45)
F. Notes to Consolidated Financial
Statements (Annual Report pages 46
through 65)
2. FINANCIAL STATEMENTS OF 50% OWNED SUBSIDIARY AND
FINANCIAL STATEMENT SCHEDULES.
A. The financial statements of ORBCOMM
Global, L.P. are transmitted with this
report.
B. The following additional financial
data for the Company are transmitted
with this report and should be read
in conjunction with the Company's
Consolidated Financial Statements in
the Annual Report. Schedules other
than those listed below have been
omitted because they are
inapplicable or are not required.
Independent Auditors' Report on
Consolidated Financial Statement
Schedule
II Valuation and Qualifying Accounts
3. EXHIBITS. A complete listing of exhibits required is
given in the Exhibit Index that precedes the exhibits
filed with this report.
(b) Reports on Form 8-K
(i) On October 1, 1997, the Company filed a Current Report on
Form 8-K reporting, pursuant to Item 9, the sale of
equity securities pursuant to Regulation S under the
Securities Act of 1933, as amended.
(ii) On December 8, 1997, the Company filed a Current Report
on Form 8-K reporting, pursuant to Item 5, the merger of
Magellan and Ashtech.
(c) See Item 14(a)(3) of this report.
(d) See Item 14(a)(2) of this report.
-15-
<PAGE> 18
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 26, 1998 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.
DATED: March 26, 1998
<TABLE>
<CAPTION>
Signature: Title:
<S> <C>
/s/ David W. Thompson Chairman of the Board, Chief Executive
- --------------------------------- Officer and Director (Principal Executive
David W. Thompson Officer)
/s/ Jeffrey V. Pirone Executive Vice President and Chief Financial
- --------------------------------- Officer (Principal Financial Officer)
Jeffrey V. Pirone
/s/ Michael P. Keegan Vice President and Controller
- ---------------------------------
Michael P. Keegan
/s/ Fred C. Alcorn Director
- ---------------------------------
Fred C. Alcorn
/s/ Kelly H. Burke Director
- ---------------------------------
Kelly H. Burke
/s/ Bruce W. Ferguson Director
- ---------------------------------
Bruce W. Ferguson
/s/ Daniel J. Fink Director
- ---------------------------------
Daniel J. Fink
/s/ Lennard A. Fisk Director
- ---------------------------------
Lennard A. Fisk
</TABLE>
-16-
<PAGE> 19
/s/ Jack L. Kerrebrock Director
- ---------------------------------
Jack L. Kerrebrock
/s/ Douglas S. Luke Director
- ---------------------------------
Douglas S. Luke
/s/ John L. McLucas Director
- ---------------------------------
John L. McLucas
/s/ Janice I. Obuchowski Director
- ---------------------------------
Janice I. Obuchowski
/s/ Frank L. Salizzoni Director
- ---------------------------------
Frank L. Salizzoni
Director
- ---------------------------------
Harrison H. Schmitt
/s/ James R. Thompson Director
- ---------------------------------
James R. Thompson
/s/ Scott L. Webster Director
- ---------------------------------
Scott L. Webster
-17-
<PAGE> 20
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.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-3 (File Number 333-08769) filed and
effective on July 25, 1996.
3.2 By-Laws of Orbital Sciences Corporation, as amended on July 27, 1995 (incorporated
by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
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 Indenture dated as of September 16, 1997 between the Company and Deutsche Bank AG,
New York Branch, as Trustee (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).
4.3 First Supplemental Indenture dated as of December 15, 1997 between the Company and
Deutsche Bank AG, New York Branch, as Trustee (incorporated by reference to Exhibit
4.4 to the Company's Registration Statement on Form S-3 (File Number 333-42271)
filed on December 15, 1997 and effective on March 12, 1998).
4.4 Form of 5% Convertible Subordinated Note (incorporated by reference to Exhibit 4.5
to the Company's Registration Statement on Form S-3 (File Number 333-42271)
filed on December 15, 1997 and effective on March 12, 1998).
4.5 Registration Rights Agreement dated as of September 16, 1997 among the Company and
Deutsche Morgan Grenfell Inc. and J.P. Morgan Securities Inc. (incorporated by
reference to Exhibit 4.6 to the Company's Registration Statement on Form S-3 (File
Number 333-42271) filed on December 15, 1997 and effective on March 12, 1998).
10.1 Second Amended and Restated Credit Agreement, dated as of August 5, 1997 among the
Company, Magellan Corporation, the Banks listed therein, Morgan Guaranty Trust
Company of New York, as Administrative Agent and Collateral Agent (the "Credit
Agreement") (incorporated by reference to Exhibit 10.1 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1997).
10.1.1 Amendment No. 1 to the Credit Agreement, dated as of December 19, 1997 (transmitted
herewith).
10.1.2 Amendment No. 2 to the Credit Agreement, dated as of December 31, 1997 (transmitted
herewith).
10.2 Note Agreement, dated as of June 14, 1995 between the Corporation and The
Northwestern Mutual Life Insurance Company (the "NWML Note Agreement")
(incorporated by reference to Exhibit 4.7.1 to the Company's Report on Form 10-Q for
the quarter ended June 30, 1995).
10.2.1 1st Amendment to the NWML Note Agreement, dated as of June 30, 1995, between the
Corporation and The Northwestern Mutual Life Insurance Company (incorporated
by reference to the Company's Report on Form 10-Q for the quarter ended September
30, 1995).
10.2.2 Second Amendment to the NWML Note Agreement, dated as of March 15, 1996
(incorporated by reference to Exhibit 10.2.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
</TABLE>
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<TABLE>
<S> <C>
10.2.3 Third Amendment to NWML Note Agreement, dated as of July 13, 1996 (incorporated by
reference to Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended
June 30, 1996).
10.2.4 Fourth Amendment to NWML Note Agreement, dated as of March 31, 1997 (incorporated by
reference to Exhibit 10.2.4 to the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1997).
10.2.5 Fifth Amendment to NWML Note Agreement, dated as of December 23, 1997 (transmitted
herewith).
10.3 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).
10.4 Amended and Restated Security Agreement dated as of August 5, 1997 among the
Company, Morgan Guaranty Trust Company, as Collateral Agent, and NationsBank, N.A.,
as Designated Lockbox Bank (incorporated by Reference to Exhibit 10.4 to the
Company's Report on Form 10-Q for the quarter ended September 30, 1997).
10.4.1 Security Agreement dated as of August 5, 1997 among the Company, Morgan Guaranty
Trust Company, as Collateral Agent, and NationsBank, N.A., as Designated Lockbox
Bank (incorporated by Reference to Exhibit 10.4.1 to the Company's Report on Form
10-Q for the quarter ended September 30, 1997).
10.5 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).
10.6 Orbital Sciences Corporation 1990 Stock Option Plan, restated as of April 27,
1995 (incorporated by reference to Exhibit 10.5.1 to the Company's Report on Form
10-Q for the quarter ended June 30, 1995).*
10.7 Orbital Sciences Corporation 1990 Stock Option Plan for Non-Employee Directors,
restated as of April 27, 1995 (incorporated by reference 10.7 to Exhibit 10.5.2
to the Company's Report on Form 10-Q for the quarter ended June 30, 1995).*
10.8 Orbital Communications Corporation Restated 1992 Stock Option Plan, restated as
of September 12, 1995 (incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.8.1 Amendment to Orbital Communications Corporation Restated 1992 Stock Option Plan,
dated February 5, 1997 (incorporated by reference to Exhibit 10.8.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996).*
10.9 Orbital Sciences Corporation 1995 Deferred Compensation Plan (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).*
10.10 Magellan Corporation 1996 Stock Option Plan (incorporated by reference to Exhibit
10.3 to the Company's Report on Form 10-Q for the quarter ended June 30, 1996).*
10.11 Orbital Imaging Corporation 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).*
10.12 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).*
</TABLE>
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<PAGE> 22
<TABLE>
<S> <C>
10.12.1 Performance Share Agreement dated October 23, 1996 between the Company and Mr. D.
W. Thompson (incorporated by reference to Exhibit 10.12.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996).*
10.12.2 Amendment No. 1 to Performance Share Agreement dated January 30, 1998 between the
Company and Mr. D. W. Thompson (transmitted herewith).*
10.13 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).*
10.13.1 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).*
10.14 Promissory Note of the Company payable to the order of Deutsche Bank AG dated
July 8, 1996 (transmitted herewith).
10.15 Restated Master Agreement, dated as of September 12, 1995, by and among the
Company, OCC, Teleglobe Inc. and Teleglobe Mobile Partners (incorporated by
reference to Exhibit 10 to ORBCOMM Global L.P.'s Registration Statement on Form
S-4 (File Number 333-11149) filed on August 30, 1996).
10.15.1 Amendment No. 1 to Restated Master Agreement, restated as of September 12, 1995,
by and among the Company, OCC, Teleglobe Inc. and Teleglobe Mobile Partners filed
on August 30, 1996 (incorporated by reference to Exhibit 10.15.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).
10.16 Restated Agreement of Limited Partnership of ORBCOMM Global, L.P., dated as of
September 12, 1995, between OCC and Teleglobe Mobile Partners (incorporated by
reference to Exhibit 3.2 to ORBCOMM Global L.P.'s Registration Statement on Form
S-4 (File Number 333-11149) filed on August 30, 1996).
10.16.1 Amendment No. 1 to Restated Agreement of Limited Partnership of ORBCOMM Global,
L.P., dated December 2, 1996 (incorporated by reference to Exhibit 10.16.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).
10.17 Restated Agreement of Limited Partnership of ORBCOMM USA, L.P., dated as of
September 12, 1995 between Orbital Communications Corporation and ORBCOMM Global
(incorporated by reference to Exhibit 3.4 to ORBCOMM Global L.P.'s Registration
Statement on Form S-4 (File Number 333-11149) filed on August 30, 1996).
10.18 Orbital Sciences Corporation 1997 Stock Option and Incentive Plan (incorporated
by reference to Exhibit 10.19 to the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1997).
10.19 Promissory Note dated June 27, 1997 from the Company payable to the order of
General Electric Capital Corporation ("GECC") (transmitted herewith).
10.20 Aircraft Security Agreement dated as of June 27, 1997 from the Company to GECC
(transmitted herewith).
11 Statement re: Computation of Earnings Per Share (transmitted herewith).
13.1 Portions of the 1997 Annual Report to Stockholders (transmitted herewith).
13.2 ORBCOMM Global, L.P. financial statements (transmitted herewith).
21 Subsidiaries of the Company (transmitted herewith).
</TABLE>
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<PAGE> 23
<TABLE>
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23.1 Consent of KPMG Peat Marwick LLP (transmitted herewith).
27 Financial Data Schedule for year ended December 31, 1997 (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).
</TABLE>
- ----------------------
* Management Contract or Compensatory Plan or Arrangement.
-21-
<PAGE> 24
Independent Auditors' Report
The Board of Directors and Stockholders
Orbital Sciences Corporation:
Under date of February 4, 1998, we reported on the consolidated balance sheets
of Orbital Sciences Corporation and subsidiaries as of December 31, 1997 and
1996, 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, 1997, as contained in the 1997 annual report to stockholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year 1997. In connection
with our audits of the aforementioned consolidated financial statements, we
also audited the related consolidated financial statement schedule as listed in
Item 14(a)2 in the Company's Form 10-K as of December 31, 1997 and 1996, and
for each of the years in the three-year period ended December 31, 1997. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.
In our opinion, 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 4, 1998
<PAGE> 25
ORBITAL SCIENCES CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------------------------------
CHARGED/
BALANCE AT CHARGED TO COSTS CREDITED TO
DESCRIPTION START OF PERIOD AND EXPENSES OTHER ACCOUNTS (1)
- ------------------------------------------------- -------------------------- ------------------- --------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts $ 778 $ 189 $ -
Allowance for obsolete inventory 3,936 580 -
Allowance for unrecoverable investments 3,100 - -
Deferred income tax valuation reserve 41,291 21,445 (2,695)
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ 773 $ 603 $ -
Allowance for obsolete inventory 3,778 667 685
Allowance for unrecoverable investments 1,100 - -
Deferred income tax valuation reserve 60,041 - -
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts $ 1,368 $ 709 $ 6,550
Allowance for obsolete inventory 5,098 1,527 4,902
Allowance for unrecoverable investments 1,100 729 3,057
Deferred income tax valuation reserve 52,233 - -
<CAPTION>
COLUMN A COLUMN D COLUMN E
- -------------------------------------------------------------------------------------------------
BALANCE AT
DESCRIPTION DEDUCTIONS (2) END OF PERIOD
- ------------------------------------------------- ------------------- -------------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts $ (194) $ 773
Allowance for obsolete inventory (738) 3,778
Allowance for unrecoverable investments (2,000) 1,100
Deferred income tax valuation reserve - 60,041
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ (8) $ 1,368
Allowance for obsolete inventory (32) 5,098
Allowance for unrecoverable investments - 1,100
Deferred income tax valuation reserve (7,808) 52,233
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts $ (550) $ 8,077
Allowance for obsolete inventory (627) 10,900
Allowance for unrecoverable investments - 4,886
Deferred income tax valuation reserve (14,535) 37,698
</TABLE>
(1) - Amounts 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.
(2) - Reduction of related allowance account.
<PAGE> 1
EXHIBIT 10.1.1
CONFORMED COPY
AMENDMENT NO. 1 TO
SECOND AMENDED AND RESTATED
CREDIT AND REIMBURSEMENT AGREEMENT
AMENDMENT NO. 1 TO
AMENDED AND RESTATED
COMPANY SECURITY AGREEMENT
AMENDMENT No. 1 dated as of December 19, 1997 among ORBITAL
SCIENCES CORPORATION (the "Company"), the BANKS listed on the signature pages
hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent
(the "Administrative Agent") and as Collateral Agent (the "Collateral Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto and Magellan Corporation ("Magellan")
have heretofore entered into a Second Amended and Restated Credit and
Reimbursement Agreement dated as of August 5, 1997 (as amended from time to
time, the "Credit Agreement"); and
WHEREAS, the Company and the Collateral Agent have entered into an
Amended and Restated Company Security Agreement dated as of June 30, 1992 and
amended and restated as of August 5, 1997 (as amended from time to time, the
"Company Security Agreement"); and
WHEREAS, Magellan is currently a Borrower and a Guarantor under
the Credit Agreement and is party to a Security Agreement dated as of August 5,
1997 (as amended from time to time, the "Magellan Security Agreement") with the
Collateral Agent; and
WHEREAS, the Company has asked the Banks, and the Banks are
willing, on the terms and conditions set forth below, to release Magellan from
its obligations as Borrower and Guarantor under the Credit Agreement and to
release the security interests created under the Magellan Security Agreement;
and
1
<PAGE> 2
WHEREAS, the Company has entered into an Agreement and Plan of
Merger dated as of November 28, 1997 (the "Merger Agreement") with Ashtech Inc.
and Magellan; and
WHEREAS, in the absence of certain of the amendments effected by
this Amendment, the consummation of the transactions contemplated by the Merger
Agreement (the "Ashtech Merger") would constitute an Event of Default under the
Credit Agreement; and
WHEREAS, the parties hereto desire to amend the Credit Agreement
in order to effect the release of Magellan as a Borrower and a Guarantor, to
delete the Borrowing Base and any covenants relating thereto and to permit the
Company to consummate the Ashtech Merger without creating an Event of Default
under the Credit Agreement;
WHEREAS, the parties hereto desire to amend the Company Security
Agreement as set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein that is defined in the
Credit Agreement or the Company Security Agreement shall have the meaning
assigned to such term in the Credit Agreement or the Company Security
Agreement, as the case may be. 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 Credit
Agreement or the Company Security Agreement shall from and after the date
hereof refer to the Credit Agreement or the Company Security Agreement, as the
case may be, as amended hereby.
SECTION 2. Deletion of Definitions Relating to the Borrowing Base.
(a) The definitions of "BORROWING BASE", "BORROWING BASE CERTIFICATE",
"DESIGNATED ELIGIBLE COMMERCIAL CONTRACTOR","DESIGNATED STATE", "ELIGIBLE
ASSIGNED GOVERNMENT CONTRACT", "ELIGIBLE COMMERCIAL CONTRACT","ELIGIBLE
COMMERCIAL CONTRACTOR", "ELIGIBLE COMMERCIAL RECEIVABLE", "ELIGIBLE DD250
GOVERNMENT RECEIVABLE", "ELIGIBLE GOVERNMENT CONTRACT", "ELIGIBLE MILESTONE
GOVERNMENT RECEIVABLE", "ELIGIBLE NON-BILLED COMMERCIAL RECEIVABLES", "ELIGIBLE
NON-BILLED GOVERNMENT RECEIVABLES", "ELIGIBLE RECEIVABLE", "ELIGIBLE RETAINED
GOVERNMENT RECEIVABLE", "ELIGIBLE STATE COMMERCIAL RECEIVABLE", "FOREIGN
RECEIVABLE", "GOVERNMENT","NON-BILLED RECEIVABLES", "OBLIGOR" and "OTHER
ELIGIBLE GOVERNMENT RECEIVABLE" set forth in Section 1.01 of the Credit
Agreement are hereby deleted in their entirety.
2
<PAGE> 3
(b) The definitions of "Available LC Amount", "Borrower Subsidiaries" and
"Wholly-Owned Subsidiary" set forth in Section 1.01 of the Credit Agreement are
hereby amended to read in their entirety as follows:
"AVAILABLE LC AMOUNT" means, on any date, with respect to each
Borrower, an amount equal to the excess (if any) of $15,000,000 over the
aggregate Letter of Credit Liabilities of all other Borrowers on such date.
"BORROWER SUBSIDIARIES" means any Wholly-Owned Subsidiary of the
Company as to which an Election to Participate shall have been delivered to
the Administrative Agent and as to which an Election to Terminate shall not
have been delivered to the Administrative Agent. Each such Election to
Participate and Election to Terminate shall be duly executed on behalf of
such Wholly-Owned Subsidiary and the Company in such number of copies as
the Administrative Agent may request. The delivery of an Election to
Terminate shall not affect any obligation of a Borrower Subsidiary
theretofore incurred. The Administrative Agent shall promptly give notice
to the Banks of the receipt of any Election to Participate or Election to
Terminate.
"WHOLLY-OWNED SUBSIDIARY" means any Subsidiary all of the shares
of capital stock or other ownership interests of which (except directors'
qualifying shares) are at the time directly or indirectly owned by the
Company (or if such term is used with reference to any other Person, by
such other Person).
(c) A new definition of "Magellan Financing" is added in alphabetical order
in Section 1.01 of the Credit Agreement, to read in its entirety as follows:
"MAGELLAN FINANCING" means, collectively, (i) one or more credit
agreements to which Magellan is or may become a party providing for loans
thereunder to be used by Magellan for working capital purposes and (ii) a
credit facility to which Ashtech Inc. is a party providing for loans
thereunder to be used by Ashtech Inc. for working capital purposes;
provided that the aggregate principal amount of Debt that may be incurred
under the credit agreements described in clauses (i) and (ii) shall not
exceed $20,000,000.
SECTION 3. Treatment of Magellan for Purposes of the Financial
Covenants. A new sentence is added at the end of Section 1.02 of the Credit
Agreement, to read in its entirety as follows:
"For purposes of Sections 5.08, 5.09, 5.10, and 5.17 and related
definitions, only the percentage of Debt, net income, interest expense,
rental expense, income
3
<PAGE> 4
taxes, Intangible Assets and equity of Magellan equal to the percentage of
the equity of Magellan held directly or indirectly by the Company at the
relevant time shall be included in such computations."
SECTION 4. Amendment to Article 2 of the Credit Agreement. Section
2.15 of the Credit Agreement is hereby amended to read in its entirety as
follows:
SECTION 2.15. Deficiencies in the Borrowing Base. [Intentionally
omitted].
SECTION 5. Amendments to Conditions Precedent to All Credit
Events. Section 3.03 of the Credit Agreement is hereby amended as follows:
(i) by adding the word "and" at the end of clause (c) thereof;
(ii) by amending clause (d) to read in its entirety as follows:
"(d) solely if such Credit Event is the making of a
Revolving Loan to or the issuance of a Letter of Credit for the
account of any Borrower, the fact that, immediately after such
Credit Event, the aggregate Revolver Exposures of all Revolver
Banks in respect of all Borrowers will not exceed the aggregate
amount of the Revolver Commitments."; and
(iii) by deleting clause (e) thereof.
SECTION 6. Amendments to Conditions Precedent to First Borrowing
by Each Borrower Subsidiary. Section 3.04 of the Credit Agreement is hereby
amended by deleting the parenthetical "(other than Magellan)" contained in the
introductory sentence thereof.
SECTION 7. Amendments to the Representation and Warranty Regarding
Assignments. Section 4.05 of the Credit Agreement is hereby amended by
substituting the phrase "under the government contracts described therein" for
the phrase "under the Eligible Government Contracts described therein".
SECTION 8. Amendments to the Information Covenant. Section 5.01
of the Credit Agreement is hereby amended as follows:
(i) clauses (c), (d) and (e) thereof are hereby amended to read in their
entirety as follows:
"(c) [Intentionally omitted]
4
<PAGE> 5
(d) [Intentionally omitted]; and
(e) [Intentionally omitted];" and
(ii) clause (l) is hereby amended to read in its entirety as follows:
"(l) from time to time such additional information regarding the
financial position or business of the Company and its Subsidiaries as the
Collateral Agent or the Administrative Agent, at the request of any Bank,
may reasonably request."
SECTION 9. Additional Permitted Investment. Section 5.07 of the
Credit Agreement is amended to read in its entirety as follows:
" SECTION 5.07. Investments. Neither the Company nor any
Subsidiary will make or acquire any Investment in any Person other than:
(a) Investments in any Borrower;
(b) Investments (other than (i) Investments described in clause
(a) above and (ii) the ORBCOMM Global Guaranty)) in an aggregate principal
amount not exceeding $5,000,000 in direct or indirect Subsidiaries of the
Company immediately after such Investment is made or acquired;
(c) Temporary Cash Investments;
(d) Investments made by the Company, any of its Wholly-Owned
Subsidiaries or OCC in an aggregate principal amount not exceeding
$75,250,000, in any entity or entities through which the Company, any of
its Wholly-Owned Subsidiaries or OCC will develop, construct, operate
and/or market the ORBCOMM low-earth orbit satellite communications system;
(e) Investments (other than Investments described in clause (b)
above) made or acquired or committed to be made or acquired by MDA prior to
the date MDA was acquired by the Company and listed on Schedule III;
(f) the ORBCOMM Global Guaranty;
(g) Investments in Orbital Imaging (i) made on or prior to June
15, 1997; provided that (A) the aggregate amount of such Investments
("Rollover Investments") does not exceed the aggregate amount of
Investments made by the Company in the Orbital Imaging Project on or prior
to December 1, 1996 and (B) neither the Company nor any of its Subsidiaries
shall contribute any cash or assets
5
<PAGE> 6
in connection with, or as consideration for, the making of any such
Rollover Investment and (ii) in an aggregate principal amount not exceeding
$80,000,000 (in addition to Investments described in clause (i));
(h) Investments in an aggregate amount not exceeding $38,000,000
consisting of capital stock of Engineering Technologies, Inc. and CTA
Commercial Systems Inc. purchased by the Company pursuant to an Asset
Acquisition Agreement dated as of July 11, 1997 between CTA INCORPORATED
and the Company;
(i) Investments by the Company or any of its Subsidiaries
constituting "vendor financing" under contracts entered into in the
ordinary course of business;
(j) Investments made on or before the effective date of the
Ashtech Merger (as defined in Amendment No.1 to this Agreement dated as of
December 19, 1997 among the Company, the Banks, the Administrative Agent
and the Collateral Agent) consisting of cash in an aggregate amount not
exceeding $25,000,000 paid by the Company to the shareholders of Ashtech
Inc. as merger consideration for the Ashtech Merger;
(k) Investments (x) made by the Company on or before the
effective date of the Ashtech Merger consisting of subordinated unsecured
intercompany loans to Magellan in an aggregate principal amount not in
excess of $18,000,000 and (y) made by the Company after the effective date
of the Ashtech Merger consisting of subordinated unsecured intercompany
loans to Magellan in an aggregate principal amount not in excess of
$10,000,000, but in each case solely if such Investments are evidenced by
an intercompany note issued by Magellan for the account of the Company and
in form and substance satisfactory to the Collateral Agent and such
intercompany note is subject to a perfected first priority Lien in favor of
the Collateral Agent for the benefit of the Banks; and
(l) any Investment (other than any Investment in direct or
indirect Subsidiaries of the Company immediately after such Investment is
made or acquired) not otherwise permitted by the foregoing clauses of this
Section 5.07 if, immediately after such Investment is made or acquired, the
aggregate net book value of all Investments permitted by this clause (l)
does not exceed 12% of Consolidated Tangible Net Worth."
SECTION 10. Additional Permitted Lien. Section 5.14 of the Credit
Agreement is hereby amended as follows:
(a) the word "and" at the end of clause (p) thereof is hereby deleted;
6
<PAGE> 7
(b) clause (q) thereof is hereby relettered as clause (s); and
(c) new clauses (q) and (r) are hereby added immediately after clause (p)
thereof, to read in their entirety as follows:
"(q) Liens on assets of Magellan securing Debt and other
obligations of Magellan under the Magellan Financing;
(r) solely until the first anniversary of the effective
date of the Ashtech Merger, Liens on shares of capital stock of
Magellan held by the Company to secure contingent indemnity
obligations of the Company under the Agreement and Plan of Merger
dated as of November 28, 1997 among the Company, Ashtech Inc. and
Magellan; provided that the aggregate value (determined in
accordance with the Escrow Agreement attached as Exhibit C to such
Merger Agreement) of such shares subject to such Liens shall not
exceed at any time $1,500,000; and"
SECTION 11. Conforming Amendments to the Events of Default Section
of the Credit Agreement. Section 6.01(c) of the Credit Agreement is hereby
amended by deleting the references to "Sections 5.01(c) and 5.01(d)" set forth
therein.
SECTION 12. Amendments to the Amendments Section of the Credit
Agreement. Section 10.05 of the Credit Agreement is hereby amended as follows:
(i) clauses (iv) and (v) thereof are deleted in their entirety; and
(ii) clauses (vi) and (vii) are renumbered as clauses (iv) and (v),
respectively.
SECTION 13. Changes in Participants' Rights. The proviso set forth
in Section 10.06(b) of the Credit Agreement is hereby amended as follows:
"provided that such participation agreement may provide that such Bank will not
agree to any modification, amendment or waiver of this Agreement described in
clauses (i), (ii), (iii) or (iv) of Section 10.05 without the consent of the
Participant".
SECTION 14. Amendments to Exhibit D to the Credit Agreement.
(a) A new Section (J) is added at the end of Section 4 of Exhibit D to the
Credit Agreement, to read in its entirety as follows:
"(J) Within 30 days after entering into any contract with
any United States government agency (or, with respect to any such
contract in existence on the date hereof, within 30 days after the
date hereof) under which contract payments to the Borrower in an
amount in excess of
7
<PAGE> 8
$3,000,000 may be made, the Borrower shall deliver to such
government agency an instrument of assignment duly completed and
executed by the Borrower substantially in the form of Exhibit G-2
to the Credit Agreement."
(b) The first sentence of Section 5(B) of Exhibit D to the Credit Agreement
is hereby amended to read in its entirety as follows:
"The Borrower shall instruct all account debtors and other Persons
obligated in respect of (x) all Accounts in an amount in excess of
$1,000,000 and (y) all Accounts (regardless of the amount thereof) payable
pursuant to a contract under which the aggregate amount of payments to be
made exceeds $1,000,000 to make all payments in respect thereof either (i)
directly to the Collateral Agent (by instructing that such payments be
remitted to a post office box which shall be in the name and under the
control of the Collateral Agent) or (ii) to one or more other banks in any
state in the United States (by instructing that such payments be remitted
to a post office box which shall be in the name and under the control of
such bank) under a Lockbox Letter substantially in the form of Exhibit B
hereto duly executed by the Borrower and such bank or under other
arrangements, in form and substance reasonably satisfactory to the
Collateral Agent, pursuant to which the Borrower shall have irrevocably
instructed such other bank (and such other bank shall have agreed) to remit
all proceeds of such payments directly to the Collateral Agent for deposit
into the Collateral Account or as the Collateral Agent may otherwise
instruct such bank."
SECTION 15. Amendments to the Company Security Agreement.
(a) A new Section (J) is added at the end of Section 4 of the Company
Security Agreement, to read in its entirety as follows:
"(J) Within 30 days after entering into any contract with
any United States government agency (or, with respect to any such
contract in existence on December 19, 1997, on or prior to January
19, 1998) under which contract payments to the Debtor in an amount
in excess of $3,000,000 may be made, the Debtor shall deliver to
such government agency an instrument of assignment duly completed
and executed by the Debtor substantially in the form of Exhibit
G-2 to the Credit Agreement."
(b) The first sentence of Section 6(B) of the Company Security Agreement is
hereby amended to read in its entirety as follows:
8
<PAGE> 9
"The Debtor shall instruct all account debtors and other Persons obligated
in respect of (x) all Accounts in an amount in excess of $1,000,000 and (y)
all Accounts (regardless of the amount thereof) payable pursuant to a
contract under which the aggregate amount of payments to be made exceeds
$1,000,000 to make all payments in respect thereof either (i) directly to
the Collateral Agent (by instructing that such payments be remitted to a
post office box which shall be in the name and under the control of the
Collateral Agent) or (ii) to one or more other banks in any state in the
United States (by instructing that such payments be remitted to a post
office box which shall be in the name and under the control of such bank)
under a Lockbox Letter substantially in the form of Exhibit B hereto duly
executed by the Debtor and such bank or under other arrangements, in form
and substance reasonably satisfactory to the Collateral Agent, pursuant to
which the Debtor shall have irrevocably instructed such other bank (and
such other bank shall have agreed) to remit all proceeds of such payments
directly to the Collateral Agent for deposit into the Collateral Account or
as the Collateral Agent may otherwise instruct such bank."
SECTION 16. Release of Magellan as Borrower. (a) Magellan is
hereby released from all of its obligations as a Borrower and a Guarantor under
the Credit Agreement and the other Financing Documents. The release effected
pursuant to the immediately preceding sentence shall not release, discharge or
otherwise affect in any manner the obligations of the Company or any Borrower
Subsidiary as Guarantors pursuant to the Guaranty set forth in Article 9 of the
Credit Agreement of the obligations of Magellan under the Financing Documents.
(b) The security interests created under the Magellan Security Agreement
are hereby terminated. The Banks hereby consent to such termination and
acknowledge that the Collateral Agent may execute and deliver to Magellan such
documents as Magellan shall reasonably request to evidence such termination
(including without limitation UCC termination statements and notices of
termination of assignment with respect to any Eligible Government Contracts
which constitute Collateral under the Magellan Security Agreement).
(c) On or promptly after the Amendment Effective Date, each Bank will
cancel its Notes of Magellan and return them to Magellan.
SECTION 17. New York Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 18. 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
9
<PAGE> 10
Amendment shall become effective on the date (the "Amendment Effective Date")
on which the Administrative Agent shall have received:
(i) duly executed counterparts hereof signed by the Company and
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);
(ii) evidence satisfactory to it that the aggregate outstanding
principal amount of the Loans of Magellan shall have been repaid in full,
together with all accrued and unpaid interest thereon; and
(iii) the intercompany note evidencing the intercompany loans
described in clause (x) of Section 5.07(k) of the Credit Agreement as
amended hereby, which intercompany note shall be in form and substance
satisfactory to the Collateral Agent.
10
<PAGE> 11
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/ Kenneth H. Sunshine
-----------------------------------
Title: Vice President & Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Diana H. Imhof
-----------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ J.R. Trimble
-----------------------------------
Title: Senior Relationship Manager
FIRST UNION NATIONAL BANK,
(successor by merger to Signet Bank)
By /s/ John O. Sateri
-----------------------------------
Title: Vice President
11
<PAGE> 12
NATIONSBANK, N.A.
By /s/ Michael J. Brick
-----------------------------------
Title: Assistant Vice President
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By /s/ Catherine Moeser
-----------------------------------
Title: Vice President
THE SUMITOMO BANK, LIMITED
By /s/ Nancy Z. Reimann
-----------------------------------
Title: Vice President
By /s/ James L. Hogan
-----------------------------------
Title: Vice President and Manager
12
<PAGE> 1
EXHIBIT 10.1.2
CONFORMED COPY
AMENDMENT NO. 2
TO
SECOND AMENDED AND RESTATED
CREDIT AND REIMBURSEMENT AGREEMENT
AMENDMENT No. 2 dated as of December 31, 1997 among ORBITAL
SCIENCES CORPORATION (the "Company"), MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Administrative Agent (the "Administrative Agent") and
as Collateral Agent.
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into a Second
Amended and Restated Credit and Reimbursement Agreement dated as of August 5,
1997 (as amended from time to time, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the terms of the Credit
Agreement as set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein that is defined in the
Credit Agreement shall have the meaning assigned to such term in the Credit
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 Credit Agreement shall from and after
the Amendment Effective Date (as defined in Section 14 below) refer to the
Credit Agreement as amended hereby.
SECTION 2. Changes to Definitions. (a) The definitions of
"CLASS", "MAJOR CASUALTY PROCEEDS", "NET CASH PROCEEDS", "PREPAYMENT EVENT",
"PREPAYMENT PERCENTAGE", "TERM COMMITMENT" and "TERM LOAN" set forth in Section
1.01 of the Credit Agreement are hereby deleted in their entirety.
1
<PAGE> 2
(b) The definitions of "COMMITMENT", "CONSOLIDATED LEVERAGE RATIO",
"CONSOLIDATED TANGIBLE NET WORTH", "INTEREST PERIOD" and "REQUIRED BANKS" set
forth in Section 1.01 of the Credit Agreement are hereby amended to read in
their entirety as follows:
"COMMITMENT" means a Revolver Commitment.
"CONSOLIDATED LEVERAGE RATIO" means on any date the ratio of
Consolidated Debt on such date to Consolidated EBITDA for the period of
four consecutive fiscal quarters most recently ended on or prior to such
date.
"CONSOLIDATED TANGIBLE NET WORTH" means, at any date, Consolidated
Net Worth less consolidated Intangible Assets, all determined as of such
date. For purposes of this definition "INTANGIBLE ASSETS" means the amount
(to the extent reflected in determining such consolidated stockholders'
equity) of (i) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of assets of a going concern business
made within twelve months after the acquisition of such business)
subsequent to December 31, 1996 in the book value of any asset owned by the
Company or a Consolidated Subsidiary, and (ii) all goodwill, patents,
trademarks, service marks, trade names, anticipated future benefit of tax
loss carry-forwards not fully reserved, copyrights, organization or
developmental expenses and other intangible assets.
"INTEREST PERIOD" means, with respect to each Euro-Dollar Loan,
the period commencing on the date of borrowing specified in the applicable
Notice of Borrowing or on the date specified in an applicable Notice of
Interest Rate Election and ending one, two or three months thereafter as
the Borrower may elect in such notice; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Euro-Dollar
Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall, subject to clause
(c) below, end on the last Euro- Dollar Business Day of a calendar
month; and
(c) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
2
<PAGE> 3
"REQUIRED BANKS" means at any time Banks having at least 66 2/3%
of the aggregate amount of the Revolver Commitments or, if the Revolver
Commitments shall have been terminated, having at least 66 2/3% of the
aggregate Revolver Exposures at such time.
(c) New definitions of "CONSOLIDATED EBITDA" and "CONSOLIDATED NET WORTH"
are added in alphabetical order in Section 1.01 of the Credit Agreement, to
read in their entirety as follows:
"CONSOLIDATED EBITDA" means, for any period, Consolidated Net
Income for such period plus, to the extent deducted in determining such
Consolidated Net Income, the aggregate amount of (i) consolidated interest
expense, (ii) income tax expense and (iii) depreciation, amortization and
other similar non-cash charges.
"CONSOLIDATED NET WORTH" means, at any date, the consolidated
stockholders' equity of the Company and its Consolidated Subsidiaries as of
such date.
SECTION 3. Restatement of Section Describing Types of Borrowings.
Section 1.03 of the Credit Agreement is hereby amended to read in its entirety
as follows:
SECTION 1.03. Types of Borrowings. The term "Borrowing"
denotes the aggregation of Loans of one or more Banks to be made to a
Borrower pursuant to Article 2 on the same date, all of which Loans are of
the same Type (subject to Article 8) and, except in the case of Base Rate
Loans, have the same initial Interest Period. The "Type" of a Loan refers
to the determination whether such Loan is a Euro-Dollar Loan or a Base Rate
Loan.
SECTION 4. Termination of Term Commitments and Reclassification of
Term Loans as Revolving Loans; Changes in Revolver Commitments. (a) Effective
on the Amendment Effective Date, (i) the Term Commitment of each Bank shall
terminate in its entirety and (ii) the Revolver Commitment of each Bank shall
be the amount set forth on the signature pages hereof opposite the name of such
Bank. On the Effective Date, each Term Loan of each Bank then outstanding shall
be reclassified as a Revolving Loan of such Bank, having the same Interest
Period as the Interest Period applicable to such Term Loan immediately prior to
the Effective Date and bearing interest for each day at the rate per annum
equal to the sum of the Euro-Dollar Margin for such day plus the Adjusted
London Interbank Offered Rate applicable to such Term Loan for such Interest
Period immediately prior to the Effective Date.
3
<PAGE> 4
(b) Section 2.01 of the Credit Agreement is hereby amended by (i) deleting
subsection (a) in its entirety and (ii) renumbering subsection (b) thereof as
subsection (a).
SECTION 5. Amendments to Method of Borrowing Section. Subsection
(a) of Section 2.02 of the Credit Agreement is hereby amended by deleting the
phrase "and Class" in clause (iii) thereof.
SECTION 6. Amendments to Maturity of Loans Section. Section 2.05
of the Credit Agreement is hereby amended to read in its entirety as follows:
SECTION 2.05. Maturity of Loans. Each Loan shall mature, and the
outstanding principal amount thereof shall be due and payable (together
with accrued interest thereon), on the Termination Date.
SECTION 7. Amendments to Optional Termination of Commitments
Section. The last sentence of Section 2.09 of the Credit Agreement is hereby
amended to read in its entirety as follows:
Other than as set forth in the first sentence of this Section, at no time
may the Company reduce or terminate any Revolver Commitments.
SECTION 8. Amendments to Mandatory Termination of Commitments
Section. Section 2.10 of the Credit Agreement is hereby amended by (i) deleting
subsection (a) in its entirety and (ii) renumbering subsection (b) thereof as
subsection (a).
SECTION 9. Amendments to Optional Prepayments Section. Subsection
(c) of Section 2.11 of the Credit Agreement is hereby deleted in its entirety.
SECTION 10. Amendments to the Net Worth Covenant. Section 5.08
of the Credit Agreement is hereby amended to read in its entirety as follows:
SECTION 5.08. Minimum Consolidated Net Worth. Consolidated Net
Worth at the last day of any fiscal quarter will not be less than (i)
$319,000,000 plus (ii) 50% of Consolidated Net Income for each fiscal
quarter of the Company ended after December 31, 1997 and on or prior to
such date and for which such Consolidated Net Income is positive (but with
no deduction on account of any fiscal quarter for which Consolidated Net
Income is negative) plus (iii) 100% of the aggregate amount by which
Consolidated Net Worth shall have been increased by reason of the issuance
and sale after December 31, 1997 and on or prior to such date of any
capital stock or the conversion or exchange of any Debt of the Company into
or with capital stock of the Company consummated after December 31, 1997
and on or prior to such date.
SECTION 11. Amendments to the Leverage Covenant. Section 5.09
4
<PAGE> 5
of the Credit Agreement is hereby amended to read in its entirety as follows:
SECTION 5.09. Leverage. The Consolidated Leverage Ratio will at no
time during any period set forth below exceed the ratio set forth below
opposite such period:
PERIOD RATIO
12/31/97-9/29/98 4.00:1
9/30/98-12/30/98 3.75:1
12/31/98 and thereafter 3.50:1
SECTION 12. Amendments to Assignments Section. The first sentence
of Section 10.06(c) of the Credit Agreement is hereby amended to read in its
entirety as follows:
Any Bank may at any time assign to one or more banks or other institutions
(each an "Assignee") all, or a proportionate part of all, of its rights and
obligations with respect to Revolver Commitment (and corresponding
Revolving Loans and Letter of Credit Liabilities), and such Assignee shall
assume such rights and obligations, pursuant to an Assignment and Assumption
Agreement in substantially the form of Exhibit F hereto executed by such
Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Company, the LC Bank and the Administrative Agent (which
consents shall not be unreasonably withheld); provided that (i) if an
Assignee is another Bank or an Affiliate of such transferor Bank, no such
consent shall be required, and (ii) immediately after giving effect to any
such assignment, (x) the transferor Bank's Revolver Commitment is equal to
either $0 or at least $3,000,000 and (y) the Assignee's Revolver Commitment
is at least equal to $3,000,000.
SECTION 13. New York Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 14. 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 on the date (the "Amendment
Effective Date") on which the Administrative Agent shall have received:
(i) duly executed counterparts hereof signed by the Company and
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); and
5
<PAGE> 6
(ii) an amendment fee, payable ratably to the Revolver Banks in
accordance with their Revolver Commitments as in effect on the Effective
Date immediately after giving effect to this amendment, in an amount equal
to .125% of the aggregate amount of such Revolver Commitments.
6
<PAGE> 7
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/ Kenneth H. Sunshine
-----------------------------------
Title: Vice President and Treasurer
Revolver Commitment:
$ 20,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Diana H. Imhof
-----------------------------------
Title: Vice President
$ 17,500,000 THE BANK OF NOVA SCOTIA
By: /s/ J.R. Trimble
-----------------------------------
Title: Senior Relationship Manager
$ 17,500,000 NATIONSBANK, N.A.
By: /s/ Michael Brick
-----------------------------------
Title: Assistant Vice President
7
<PAGE> 8
$ 15,000,000 FIRST UNION NATIONAL BANK
By: /s/ Barbara Boehm
-----------------------------------
Title: Vice President
$ 15,000,000 BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By: /s/ Mark R. Marron
-----------------------------------
Title: Vice President
$ 15,000,000 THE SUMITOMO BANK, LIMITED
By: /s/ Nancy Z. Reimann
-----------------------------------
Title: Vice President
By: /s/ James L. Hogan
-----------------------------------
Title: Vice President and Manager
Total Revolver Commitments:
- ---------------------------
$100,000,000
8
<PAGE> 1
EXHIBIT 10.2.5
FIFTH AMENDMENT TO NOTE AGREEMENT
THIS FIFTH AMENDMENT to Note Agreement dated as of December 23, 1997
("Fifth Amendment"), is entered into between Orbital Sciences Corporation, a
Delaware corporation (the "Company") and The Northwestern Mutual Life Insurance
Company (the "Purchaser").
RECITALS:
A. The Company and the Purchaser have heretofore entered into the
Note Agreement dated as of June 1, 1995, the First Amendment to Note Agreement
dated as of June 30, 1995, the Second Amendment to Note Agreement dated as of
March 15, 1996, the Third Amendment to Note Agreement dated as of July 31, 1996
and the Fourth Amendment to Note Agreement dated as of March 31, 1997 (as
amended, the "Note Agreement").
B. The Company has entered into an Agreement and Plan of Merger
dated as of November 28, 1997 (the "Merger Agreement") with Ashtech Inc. and
Magellan.
C. In the absence of certain of the amendments effected by this
Amendment, the consummation of the transactions contemplated by the Merger
Agreement (the "Ashtech Merger") would constitute an Event of Default under the
Note Agreement.
D. The Company and the Purchaser now desire to further amend,
effective on and as of December 29, 1997 (the "Effective Date"), certain of the
terms of the Note Agreement.
E. Capitalized terms used herein shall have the respective
meanings ascribed thereto in the Note Agreement unless herein defined or the
context shall otherwise require.
F. All requirements of law have been fully complied with and all
other acts and things necessary to make this Fifth Amendment a valid, legal and
binding instrument according to its terms for the purposes herein expressed
have been done or performed.
NOW, THEREFORE, the Company and the Purchaser, for good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, do
hereby agree as follows:
SECTION 1. AMENDMENT.
Section 1.1. Section 5.7 Consolidated Funded Debt Maintenance Ratio.
The Company will not at any time permit the ratio of Consolidated Funded Debt
(excluding Non-Recourse ORBIMAGE Debt) to Consolidated Total Capitalization to
exceed:
<TABLE>
<CAPTION>
RATIO OF CONSOLIDATED FUNDED
DEBT TO CONSOLIDATED TOTAL
CAPITALIZATION
DURING THE PERIOD
<S> <C>
Closing Date through December 30, 1995 .45 to 1.00
December 31, 1995 through December 31, 1997 .40 to 1.00
January 1, 1998 through September 29, 1998 .50 to 1.00
September 30, 1998 and thereafter .45 to 1.00
</TABLE>
1
<PAGE> 2
Section 1.2. Section 5.13 of the Note Agreement is hereby amended as
follows:
(a) Section 5.13(a)(2) of the Note Agreement is hereby amended by
adding the following at the end thereof immediately preceding
the semi-colon:
", provided that Ashtech may merge into Magellan
pursuant to the Merger Agreement (the "Ashtech
Merger")."
(b) Section 5.13(c) of the Note Agreement is hereby amended as
follows:
(i) The second proviso or clause (3) of the Note
Agreement is hereby amended (i) by deleting the
phrase "Magellan Corporation, a Delaware corporation
and a Wholly-owned Subsidiary of the Company," and
substituting therefor the phrase "Magellan
Corporation, a Delaware corporation and a Subsidiary
of the Company ("Magellan")", and (ii) by deleting
the number "15%" and substituting therefor the number
"25%";
(ii) Clause (B) of the Note Agreement is hereby amended by
substituting a semi-colon for the period and adding
the word "or" at the end thereof; and
(iii) New clauses (7) and (8) shall be added to read as
follows:
"(7) the issue of shares representing in the
aggregate not more than 34% (on a fully-diluted
basis) of the outstanding capital stock of Magellan
to the securityholders of Ashtech Inc. ("Ashtech")
pursuant to the Agreement and Plan of Merger dated as
of November 28, 1997 among the Company, Magellan and
Ashtech (the "Merger Agreement"); or
"(8) until the first anniversary of the effective
date of the Ashtech Merger, the deposit by the
Company into escrow of shares of capital stock of
Magellan held by the Company having a value of not
more than $1,500,000 to secure contingent indemnity
obligations of the Company under the Merger
Agreement."
Section 1.3. Section 5.15 of the Note Agreement is hereby amended by
adding the following at the end thereof immediately preceding the period:
", provided that the Company may guarantee or otherwise offer
its credit in support of Magellan's Indebtedness in which
event and notwithstanding Section 8.2 hereof, 100% of such
Indebtedness shall be included in all computations pursuant to
Sections 5.6, 5.7, 5.8 and 5.9 hereof."
Section 1.4. Paragraph (g) of the definition of "Consolidated Net Income"
set forth in Section 8.1 of the Note Agreement is hereby amended such that it
shall read in its entirety as follows:
"(g) any portion of the net earnings of any Subsidiary which
for any reason is unavailable for payment of dividends to the
Company or any other Subsidiary, provided that the Company
shall be permitted to include the net earnings of Magellan
which are otherwise unavailable for payment of dividends to
the Company by reason of restrictions contained in the
documentation relating to any credit facilities to which it is
a party"; and
2
<PAGE> 3
Section 1.5. Section 8.2 of the Note Agreement is hereby amended by
adding the following new sentence at the end thereof:
"Except as provided in the proviso to Section 5.15, for
purposes of Sections 5.6, 5.7, 5.8 and 5.9 and related
definitions, only the percentage of equity, gross revenues,
Indebtedness, Rentals, Interest Expense and other expenses,
charges and income equal to the percentage of the equity of
Magellan held directly or indirectly by the Company at the
time of determination shall be included in such computation."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Section 2.1. To induce the Purchaser to execute and deliver this Fifth
Amendment, the Company represents and warrants to Purchaser (which
representations shall survive the execution and delivery of this Fifth
Amendment) that:
(a) this Fifth Amendment has been duly authorized, executed and
delivered by it and constitutes the legal, valid and binding
obligation, contract and agreement of the Company, enforceable
against it in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to
or limiting creditors' rights generally;
(b) the Note Agreement, as amended by this Fifth Amendment,
constitutes the legal, valid and binding obligation, contract
and agreement of the Company, enforceable against it in
accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws or equitable principles relating to or
limiting creditors' rights generally;
(c) the execution, delivery and performance by the Company of this
Fifth Amendment (i) has been duly authorized by all requisite
corporate action and, if required, shareholder action, (ii)
does not require the consent or approval of any governmental
or regulatory body or agency, and (iii) will not (A) violate
(1) any provision of law, statute, rule or regulation or its
certificate of incorporation or bylaws, (2) any order of any
court or any rule, regulation or order of any other agency or
government binding upon it, or (3) any provision of any
material indenture, agreement or other instrument to which it
is a party or by which its properties or assets are or may be
bound, or (B) result in a breach or constitute (alone or with
due notice or lapse of time or both) a default under any
indenture, agreement or other instrument referred to in clause
(iii)(A)(3) of this Section 3.1(c); and
(d) as of the date hereof and after giving effect to this Fifth
Amendment, duly executed by the Company and the Purchaser,
shall have been delivered to the Purchaser;
SECTION 3. CONDITIONS TO EFFECTIVENESS OF FIFTH AMENDMENT.
Section 3.1. This Fifth Amendment shall not become effective until, and
shall become effective when, each and every one of the following conditions
shall have been satisfied:
(a) the Company shall have paid the Purchaser, as consideration
for its agreement to enter into this Amendment, the sum of
$50,000;
(b) executed counterparts of this Fifth Amendment, duly executed
by the Company and the Purchaser, shall have been delivered to
the Purchaser;
3
<PAGE> 4
(c) the Purchaser shall have received a copy of a fully executed
counterpart of Amendment No. 1 to the Bank Credit Agreement
substantially in the form of Exhibit A hereto; and
(d) the representations and warranties of the Company set forth in
Section 2 hereof shall be true and correct on and with respect
to the date hereof.
Upon receipt of all of the foregoing, this Fifth Amendment shall on the
Effective Date become effective.
SECTION 4. MISCELLANEOUS.
Section 4.1. Except as modified and expressly amended by this Fifth
Amendment, the Note Agreement is in all respects ratified, confirmed and
approved and all of the terms, provisions and conditions thereof shall be and
remain in full force and effect.
Section 4.2. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Fifth Amendment may refer to the Note Agreement without making specific
reference to this Fifth Amendment but nevertheless all such references shall
include this Fifth Amendment unless the context otherwise requires.
Section 4.3. This Fifth Amendment shall be governed by and construed in
accordance with the laws of the State of Illinois.
Section 4.4. This Fifth Amendment may be executed and delivered in any
number of counterparts, each of such counterparts constituting an original, but
all together only one Fifth Amendment.
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
instrument to be executed, all as of the day and year first above written.
ORBITAL SCIENCES CORPORATION
By: /s/ Kenneth H. Sunshine
------------------------------
Its Vice President & Treasurer
Accepted and Agreed to:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/ A. Kipp Koester
------------------------------
Its Vice President
4
<PAGE> 1
EXHIBIT 10.12.2
AMENDMENT NO. 1
TO THE
PERFORMANCE SHARE AGREEMENT
This Amendment No. 1 to the Performance Share Agreement ("Amendment No.
1") is made as of this 30th day of January, 1998 by and between Orbital
Sciences Corporation and David W. Thompson.
WITNESSETH
WHEREAS, the parties have previously entered into the Performance Share
Agreement (the "Agreement") dated October 23, 1996;
WHEREAS, the parties desire to amend the Agreement as set forth below.
NOW, THEREFORE, the parties agree as follows:
1. Section 1(b) is amended to replace "January 30, 1998" and
"January 30, 1999" with "January 31, 1998" and "January 31, 1999" respectively.
2. Section 1 (e) of the Agreement is deleted in its entirety and
replaced to read as follows:
e. FAIR MARKET VALUE. For purposes of this Agreement, the
Fair Market Value shall be equal to the average closing
sales price of shares 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,
calculated for all the trading days in January of the
applicable valuation year.
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the
Agreement as of the day and year first written above.
ORBITAL SCIENCES CORPORATION
By: /s/ Jeffrey V. Pirone
------------------------------------------------
Jeffrey V. Pirone
Executive Vice President and Chief Financial Officer
/s/ David W. Thompson
- ---------------------------------------------------
David W. Thompson
2
<PAGE> 1
Exhibit 10.14
[On Deutsche Bank Letterhead]
Orbital Sciences Corporation July 8, 1996
21700 Atlantic Boulevard Dept.: LEX/FGY
Dulles, Virginia 20166 Ref.: DEF/18095
Tel.: (212) 469-8180
Attention: Jeffrey V. Pirone
Vice President & Controller
Ladies and Gentlemen:
We hereby confirm to you that Deutsche Bank AG New York Branch and/or Cayman
Islands Branch is, on an uncommitted and case by case basis, prepared to
consider from time to time making advances available to you up to an aggregate
principal amount of Twenty Five Million United States Dollars (US$25,000,000).
Any such advances will be in the forte of domestic dollar loans and Eurodollar
loans in each case for a period of up to (3) months.
Prior to considering any request to utilize this uncommitted line, we need to
receive a duly executed note (the "Note"), substantially in the form of the
Exhibit A attached hereto and our standard account documentation. In order to
simplify matters, we have taken the liberty of issuing a note for the full
amount, although your borrowings from us may at times be less. You will
therefore observe that the aforementioned note will be considered by us only
for the amount of your actual outstanding obligations toward us.
Furthermore, please be advised that this letter and the Note issued pursuant
hereto supersede and replace the Bank's letter to you dated April 17, 1996 and
the note issued pursuant thereto. Your signature below shall indicate your
agreement that on and after the date of this letter all amounts outstanding
thereunder and under such note shall be considered to be outstanding hereunder
and under the Note.
By accepting this letter, you hereby acknowledge and agree that we may share
with any of our affiliates any information related to you and your subsidiaries
and affiliates (including, without limitation, any non-public customer
information regarding your creditworthiness and that of your subsidiaries and
affiliates).
THIS LETTER AND OUR RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 2
We thank you for the opportunity to be of service.
Very truly yours,
Deutsche Bank AG
New York Branch/Cayman Islands Branch
/s/ James Fox /s/ Robert Wood
-------------- ----------------
James Fox Robert Wood
Assistant Vice President Vice President
Agreed:
Orbital Sciences Corporation
By: /s/ Jeffrey Pirone By: /s/ Kenneth H. Sunshine
------------------- ------------------------
Title: Vice President, Controller Title: Treasurer
2
<PAGE> 3
NOTE
U.S.$25,000,000 July 8, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the
order of Deutsche Bank AG (the "Bank") New York and/or Cayman Islands Branches
in lawful money of the United States of America and in immediately available
funds the principal amount of Twenty Five Million United States Dollars
(U.S.$25,000,000) or, if less, the unpaid principal amount of all loans made by
the Bank's New York Branch or Cayman Islands Branch to the undersigned from
time to time at the principal office of Deutsche Bank AG New York Branch, New
York, New York, on the dates endorsed on the schedule (the "Grid") attached
hereto.
The undersigned also promises to pay interest on the unpaid
principal amounts made available by the Bank hereunder prior to maturity at the
rates per annum set forth on the Grid. The undersigned hereby promises to pay
the Bank interest, payable upon demand, on any amount of principal and, to the
extent permitted by law, interest, remaining unpaid hereunder after maturity
(whether by acceleration or otherwise) until paid in full at a rate equal to 2%
plus the Bank's Base Rate. "Base Rate" shall mean a fluctuating interest rate
per annum equal to the higher of the Bank's Prime Lending Rate or 0.50% above
the Bank's Overnight Federal Funds Rate. "Prime Lending Rate" shall mean the
rate announced by the Bank from time to time as its prime lending rate for
unsecured commercial loans within the United States (but is not intended to be
the lowest rate of interest charged by the Bank in connection with extensions
of credit to debtors). "Overnight Federal Funds Rate" shall mean the rate per
annum at which the New York Branch of the Bank, as a branch of a foreign bank,
in its sole discretion, can acquire federal funds in the interbank overnight
federal funds market including through brokers of recognized standing. Any
change in the interest rate resulting from a change in the Base Rate shall be
effective on the effective date of each change in the Base Rate. Interest
shall be based on the bank basis of a year of 360 days and the exact number of
days elapsed. Interest shall commence to accrue on the date of each loan and
be payable in lawful money of the United States of America at the office of the
Bank listed above on each such loan's maturity date stated on the Grid (unless
such loan has a maturity greater than three months in which event interest
shall also be payable quarterly in arrears). The undersigned authorizes the
Bank to debit its account with the Bank's New York Branch with respect to all
payments hereon.
At the time of the making of any loan hereunder and upon each
repayment of principal the Bank shall, and is hereby authorized to, make a
notation on the Grid of the date and the amount and maturity of each such loan,
the interest rate applicable thereto, and each principal repayment. However,
the failure to make any such notation shall not limit or otherwise affect the
undersigned's obligations hereunder with respect to any such loan or repayment
of principal. Although this Note is dated the date of issue, interest in
respect hereof shall be
<PAGE> 4
payable only for the period during which the loans evidenced hereby are
outstanding and, although the stated amount hereof may be higher, this Note
shall be enforceable, with respect to the undersigned's obligation to pay the
principal amount hereof, and interest hereon, only to the extent of the unpaid
principal amount of loans and accrued and unpaid interest evidenced hereby.
The term "Liabilities" shall include the liability evidenced
by this Note and all other liabilities, direct or contingent, joint, several or
independent, of the undersigned now or hereafter existing, due or to become due
to, or held or to be held by, the Bank, whether created directly or acquired by
assignment or otherwise.
Upon the occurrence of any of the following events (each an
"Event of Default"): (i) nonpayment when due of any of the Liabilities; (ii)
any representation in any financial or other statement of the undersigned
delivered to the Bank by or on behalf of the undersigned being untrue or
omitting any material fact; (iii) the failure of the undersigned or any of its
subsidiaries to generally pay its debts as they come due or the admission in
writing by the undersigned or any of its subsidiaries of its inability to pay
its debts generally, or the making by the undersigned or any of its
subsidiaries of an assignment for the benefit of creditors, or the institution
of any proceeding by or against the undersigned or any of its subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or the appointment of a receiver,
trustee, custodian or other similar official for the undersigned or any of its
subsidiaries or for any substantial part of the property of the undersigned or
any of its subsidiaries and, in the case of institution of any such proceeding
against the undersigned or any of its subsidiaries, either such proceeding
remaining undismissed or unstayed for a period of 30 days or any of the actions
sought in the proceeding occurring, or the undersigned or any of its
subsidiaries taking any corporate or other authorizing action in respect of the
foregoing; (iv) failure of the undersigned or any of its subsidiaries to pay
when due any principal, interest, premium, or other amount owing with respect
to any of its indebtedness for borrowed money (including guarantees thereof) in
an amount exceeding U.S.$25,000,000.00 (or its equivalent in any other
currency) or any other event occurring or condition existing and continuing
after any applicable grace period, the effect of which is to accelerate or to
permit the acceleration of the maturity of such indebtedness; (v) any judgment
or order for the payment of money in an amount exceeding U.S.$25,000,000.00 (or
its equivalent in any other currency) shall be rendered against the undersigned
or any of its subsidiaries and shall remain unpaid or unsatisfied for a period
of 10 days; (vi) the undersigned becoming a party to any merger, consolidation,
or sale of all or substantially all of its assets without the prior written
consent of the Bank; (vii) failure of the undersigned or any of its
subsidiaries to perform any agreement with the Bank; or (viii) a change in the
condition or the affairs of the undersigned or any of its subsidiaries such
that, in the opinion of the Bank, its credit risk is
2
<PAGE> 5
increased or the Bank deems itself insecure for any other reason; THEN AND IN
ANY SUCH EVENT, the Bank in its discretion may, by written notice to the
undersigned, declare the principal of and accrued interest on all Liabilities
to be, whereupon the same shall become, forthwith due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the undersigned, provided, that upon the occurrence
of any event specified in clause (iii) with respect to the undersigned such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the undersigned.
In the case of any non-payment when due of any Liabilities,
the undersigned shall pay all costs and expenses of every kind for collection,
including all attorneys' fees.
In the event that a determination is made by the Bank in its
sole discretion that reserves must be maintained with any Federal Reserve Bank
of the United States, with any other governmental authority whatsoever or
otherwise pursuant to any Regulation of the Board of Governors of the Federal
Reserve System or otherwise, in connection with the loans evidenced hereby or
the funding thereof the undersigned agrees to pay and hold the Bank harmless
from and against the cost of acquiring and/or maintaining any such reserves.
If any principal payment hereunder is made for any reason whatsoever on a date
other than the maturity date, the undersigned (i) shall pay interest accrued
thereon and (ii) shall on demand indemnify the Bank against all losses,
including loss of profit and expenses, suffered by it in liquidating or
otherwise employing deposits acquired to fund such loans until the stated
maturity. A certificate of the Bank as to the amount required to be paid by
the undersigned under this paragraph shall accompany such demand and shall be,
except in the case of manifest error or in the absence of good faith, final and
conclusive.
In the event that a determination is made by the Bank in its
sole discretion that the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Bank's capital as a consequence of its
obligations to the undersigned or of the loans to the undersigned evidenced
hereby to a level below that which the Bank could have achieved but for such
adoption, change, or compliance, the undersigned promises to pay on demand to
the Bank such additional amount or amounts as will compensate the Bank for such
reduction. A certificate of the Bank as to the amount required to be paid by
the undersigned under this paragraph shall accompany such demand and shall be,
3
<PAGE> 6
except in the case of manifest error or in the absence of good faith, final and
conclusive.
All payments to be made hereunder by the undersigned shall be
made without set-off or counterclaim and in such amounts as may be necessary in
order that every such payment (after deduction or withholding for or on account
of any present or future taxes, levies, imposts, duties or other charges of
whatever nature imposed by the country of the undersigned or any political
subdivision or taxing authority therein or thereof) shall not be less than the
amounts otherwise specified to be paid hereunder.
No delay on the part of the Bank in exercising any of its
options, powers or rights, or partial or single exercise thereof, shall
constitute a waiver thereof. The options, powers and rights of the Bank
specified herein are in addition to those otherwise created.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE UNDERSIGNED AND THE BANK
HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY MATTER
ARISING HEREUNDER.
Name: Orbital Sciences Corporation
------------------------------------------
Address: 21700 Atlantic Boulevard
------------------------------------------
Dulles, Virginia 20166
------------------------------------------
------------------------------------------
Signature(s): /s/
------------------------------------------
Signature(s):
------------------------------------------
Respective Title(s), if any:
--------------------------
4
<PAGE> 7
LOAN AND REPAYMENT SCHEDULE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Date Amount of Amount of Unpaid Maturity Interest Notation
Loan Principal Principal Date Rate Made By
Repayment Balance
- ----------------------------------------------------------------------------------------------
<S> <C>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.19
PROMISSORY NOTE
JUNE 27, 1997
-----------------------
(DATE)
21700 ATLANTIC BOULEVARD, DULLES, LOUDOUN COUNTY, VA 20166
----------------------------------------------------------------------
(ADDRESS OF MAKER)
FOR VALUE RECEIVED, ORBITAL SCIENCES CORPORATION ("MAKER") promises, jointly and
severally if more than one, to pay to the order of GENERAL ELECTRIC CAPITAL
CORPORATION or any subsequent holder hereof (each, a "PAYEE") at its office
located at 1787 SENTRY PARKWAY/WEST 16 SENTRY PARK/WEST, SUITE 200, BLUE BELL,
PA 19422 or at such other place as Payee or the holder hereof may designate, the
principal sum of NINE MILLION, EIGHT HUNDRED, SIXTY-TWO THOUSAND, ONE HUNDRED
TWO AND 00/100 DOLLARS ($9,862,102.00), with interest thereon, from the date
hereof through and including the dates of payment, at a fixed interest rate of
EIGHT AND .41 PERCENT (8.41%) per annum, to be paid in lawful money of the
United States, in NINETY-THREE (93) consecutive monthly installments of
principal and interest of ONE HUNDRED FORTY-THREE THOUSAND, FIVE HUNDRED
NINETY-FIVE AND 95/100 DOLLARS ($143,595.95) (each, a "PERIODIC INSTALLMENT")
and a final installment which shall be in the amount of the total outstanding
principal and interest. The first Periodic Installment shall be due and payable
on AUGUST 1, 1997 and the following Periodic Installments and the final
installment shall be due and payable on the same day of each succeeding month
(each, a "PAYMENT DATE"). Such installments have been calculated on the basis
of a 360 day year of twelve 30-day months. Each payment may, at the option of
the Payee, be calculated and applied on an assumption that such payment would be
made on its due date.
The acceptance by Payee of any payment which is less than payment in full of
all amounts due and owing at such time shall not constitute a waiver of Payee's
right to receive payment in full at such time or at any prior or subsequent
time.
This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which is hereinafter called a "SECURITY
AGREEMENT.")
Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
its due date, the Maker agrees to pay, in addition to the amount of each such
installment or other sum, a late payment charge of three percent (3%) of the
amount of said installment or other sum, but not exceeding any lawful maximum.
If (i) Maker fails to make payment of any amount due hereunder within ten (10)
days after the same becomes due and payable; or (ii) Maker is in default under,
or fails to perform under any term or condition contained in any Security
Agreement for 30 days after notice thereof by Payee, then the entire principal
sum remaining unpaid, together with all accrued interest thereon and any other
sum payable under this Note or any Security Agreement, at the election of
Payee, shall immediately become due and payable, with interest thereon at the
lesser of Eleven and .41 percent (11.41%) per annum or the highest rate not
prohibited by applicable law from the date of such accelerated maturity until
paid (both before and after any judgment).
The Maker may prepay in full, but not in part, its entire indebtedness
hereunder upon payment of an additional sum as a premium equal to the following
percentages of the original principal balance for the indicated period:
<TABLE>
<S> <C> <C>
Prior to the first annual anniversary date of this Note: three percent (3%)
Thereafter and prior to the second annual anniversary date of this Note: two percent (2%)
Thereafter and prior to the third annual anniversary date of this Note: one and one-half percent (1.5%)
Thereafter and prior to the fourth annual anniversary date of this Note: one percent (1%)
Thereafter and prior to the fifth annual anniversary date of this Note: one-half percent (0.5%)
</TABLE>
and zero percent (0%) thereafter, plus all other sums due hereunder or under
any Security Agreement.
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note
or any Security Agreement require the payment or permit the collection of
interest in excess of the maximum amount permitted by applicable law. If any
such excess interest is contracted for, charged or received under this Note or
any Security Agreement, or if all of the principal balance shall be prepaid, so
that under any of such circumstances the amount of interest contracted for,
charged or received under this Note or any Security Agreement on the principal
balance shall exceed the maximum amount of interest permitted by applicable
law, then in such event (a) the provisions of this paragraph shall govern and
control, (b) neither Maker nor any other person or entity now or hereafter
liable for the payment hereof shall be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of interest
permitted by applicable law, (c) any such excess which may have been collected
shall be either applied as a credit against the then unpaid principal balance
or refunded to Maker, at the option of the Payee, and (d) the effective rate of
interest shall be automatically reduced to the maximum lawful contract rate
allowed under applicable law as now or hereafter construed by the courts having
jurisdiction thereof. It is further agreed that without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received under this Note or any Security Agreement which are made for the
purpose of determining whether such rate exceeds the maximum lawful contract
rate, shall be made, to the extent permitted by applicable law, by amortizing,
prorating, allocating and spreading in equal parts during the period of the
full stated term of the indebtedness evidenced hereby, all interest at any time
contracted for, charged or received from Maker or otherwise by Payee in
connection with such indebtedness; provided, however, that if any applicable
state law is amended or the law of the United States of America preempts any
applicable state law, so that it becomes lawful for the Payee to receive a
greater interest per annum rate than is presently allowed, the Maker agrees
that, on the effective date of such amendment or preemption, as the case may
be, the lawful maximum interest rate hereunder shall be increased to the
maximum interest per annum rate allowed by the amended state law or the law of
the United States of America.
<PAGE> 2
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of fume, renewals, waivers or modifications of, and all
substitutions or releases of, security or of any party primarily or secondarily
liable on this Note or any Security agreement or any term and provision of
either, which may be made, granted or consented to by Payee, and agree that
suit may be brought and maintained against any one or more of them, at the
election of Payee without joinder of any other as a party thereto, and that
Payee shall not be required first to foreclose, proceed against, or exhaust any
security hereof in order to enforce payment of this Note. The Maker and each
Obligor hereby waives presentment, demand for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, and all other notices in
connection herewith, as well as filing of suit (if permitted by law) and
diligence in collecting this Note or enforcing any of the security hereof, and
agrees to pay (if permitted by law) all expenses incurred in collection,
including Payee's actual attorneys' fees.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY
RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supersedes all
prior understandings, agreements and representations, express or implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or
altered to conform thereto.
ORBITAL SCIENCES CORPORATION
By: /s/ Kenneth H. Sunshine (L.S.)
- --------------------------------- ----------------------------------
(Witness) (Signature)
Kenneth H. Sunshine, V.P. and Treasurer
- --------------------------------- ----------------------------------------
(Print name) Print name (and title, if applicable)
61209561
- --------------------------------- ------------------------------------
(Address) (Federal tax identification number)
<PAGE> 1
EXHIBIT 10.20
AIRCRAFT SECURITY AGREEMENT
THIS AIRCRAFT SECURITY AGREEMENT ("AGREEMENT") is made and entered into as of
June 27, 1997, by and between GENERAL ELECTRIC CAPITAL CORPORATION, a NEW YORK
corporation having an office at 1787 SENTRY PARKWAY/WEST, SUITE 200, BLUE BELL,
PA 19422 ("SECURED PARTY") and ORBITAL SCIENCES CORPORATION, a corporation
organized and existing under the laws of the State of DELAWARE and having its
chief executive offices located at 21700 ATLANTIC BOULEVARD, DULLES, VA 20166
("DEBTOR").
1. GRANT OF SECURITY INTEREST. To secure Debtor's payment and
performance of any and all debts, obligations and liabilities of any kind,
nature or description whatsoever (whether due or to become due) of Debtor to
Secured Party, including but not limited to those arising under the promissory
note of even date herewith (the "Note"), this Agreement, and/or any related
documents (the Note, this Agreement and all such related documents being
hereinafter collectively referred to as the "DEBT DOCUMENTS"), and any
renewals, extensions, replacements and modifications of such debts, obligations
and liabilities (all of the foregoing being hereinafter referred to as the
"OBLIGATIONS"), Debtor grants to Secured Party a security interest in the
aircraft and other property described below and in all additions and accessions
thereto as more fully described in the Schedule (attached hereto) and
substitutions therefor, now or hereafter owned, all unearned insurance premiums
and insurance proceeds relating to such property, and the proceeds of all of
the foregoing (all of such property and proceeds are collectively referred to
as the "AIRCRAFT"):
Aircraft Make: Lockheed; Model No.: L1011-385-1-15; Serial
No.: 193E-1067; Registration No.: N#140SC; Engine make: Rolls Royce; Model No.:
RB211-22B; Serial Numbers: 10110, 10150, 10287; together with any and all
appliances, parts, replacement parts, instruments, appurtenances, accessories,
furnishings, seats and other equipment of whatever nature which may from time
to time be incorporated or installed in or attached to the Aircraft and all
replacements thereof, exclusive of any items leased by Debtor from third
parties and not required in the navigation of the Aircraft.
2. HOME AIRPORT. The home airport of the Aircraft will be:
Bakersfield Airport, 1301 Skyway Drive, Bakersfield, CA 93308
(Name of Airport, Township, State)
and will not be changed without the prior written consent of
Secured Party.
1
<PAGE> 2
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor
represents, warrants and covenants that:
(a) Debtor (i) is, and will remain, duly organized,
existing and in good standing under the laws of the State set forth in the
preamble of this Agreement, (ii) has its chief executive offices at the
location set forth in such paragraph, (iii) is, and will remain, duly qualified
and licensed in every jurisdiction wherever necessary to carry on its business
and operations, and (iv) is and will continue to be a "citizen of the United
States", within the meaning of the Title 49, Subtitle VII of the United States
Code, as amended (the "FAA ACT"), and the regulations thereunder so long as any
Obligations are due to Secured Party under the Debt Documents or otherwise;
(b) Debtor has adequate power and capacity to enter into,
and to perform its obligations under, each of the Debt Documents and has full
right and lawful authority to grant the security interest described in this
Agreement;
(c) The Debt Documents have been duly authorized,
executed and delivered by Debtor and constitute legal, valid and binding
agreements enforceable under all applicable laws in accordance with their
terms, except to the extent that the enforcement of remedies may be limited
under applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is
required from any governmental authority or instrumentality or any other entity
with respect to the entry into, or performance by, Debtor of any of the Debt
Documents, except such as have already been obtained;
(e) The entry into, and performance by, Debtor of the
Debt Documents will not (i) violate any of Debtor's organizational documents or
any judgment, order, law or regulation applicable to Debtor, or (ii) result in
any breach of, constitute a default under, or result in the creation of any
lien, claim or encumbrance on any of Debtor's property (except for liens in
favor of Secured Party) pursuant to, any indenture mortgage, deed of trust,
bank loan, credit agreement, or other agreement or instrument to which Debtor
is a party;
(f) Except as disclosed in the Annual Report on Form 10-K
of Debtor for the year ended December 31, 1996, there are no suits or
proceedings pending or to Debtor's knowledge, threatened in court or before any
commission, board or other administrative agency against or affecting Debtor
which could, in the aggregate, have a material adverse effect on Debtor, its
business or operations, or its ability to perform its obligations under the
Debt Documents;
(g) All financial statements delivered to Secured Party
in connection with the Obligations have been prepared in accordance with
generally accepted accounting principles, and since the date of the most recent
financial
2
<PAGE> 3
statement there has been no material adverse change in Debtor's financial
condition or business prospects;
(h) Debtor is (or, to the extent that the Aircraft is to
be acquired hereafter, will be) and will remain the sole lawful owner, in sole,
open and notorious possession of the Aircraft, free from any security interest,
lien or encumbrance whatsoever other than those in favor of Secured Party and
Permitted Liens and Debtor shall defend the Aircraft against all claims and
demands of all other persons claiming any interest therein; provided, however,
that so long as no Event of Default shall have occurred and be continuing,
Debtor may (i) deliver temporary possession of any item of the Aircraft to the
manufacturer or any other supplier thereof for testing or other similar
purposes or to any organization in the United States, Canada or the United
Kingdom for service, repair, maintenance or overhaul work on such item or any
part thereof or for alterations or modifications in or additions to such item
of equipment; or (ii) sublease the Aircraft to any citizen of the United
States, as defined in the Federal Aviation Act of 1958, as amended, or a
corporation organized under the laws of any state of the United States that is
authorized pursuant to all applicable laws to operate the Aircraft and
otherwise perform its obligations under the proposed form of sublease. For
purposes of this Agreement, "Permitted Liens" shall mean (i) Liens arising as a
result of claims against Secured Party which are not related to the
transactions contemplated hereby or as a result of any act or omission of
Secured Party which is not permitted by or related to the transactions
contemplated hereby, (ii) Liens for taxes either not yet due or being contested
in good faith by appropriate proceedings (and for the payment of which adequate
reserves have been provided), but only so long as, in Secured Party's
reasonable judgment, the existence of such Liens while such proceedings are
pending do not involve any danger of the sale, forfeiture or loss of the
Aircraft, or interest therein, and (iii) inchoate carrier's, warehousemen's,
materialmen's, mechanics', workmen's, repairmen's, employees' or other like
Liens arising in the ordinary course of business and for amounts the payment of
which is either not delinquent or is being contested in good faith by
appropriate proceedings (and for the payment of which adequate reserves have
been provided), but only so long as, in Debtor's reasonable judgment, the
existence of such Liens while such proceedings are pending do not involve any
danger of criminal penalty or the sale, forfeiture or loss of any item of the
Aircraft, or any interests therein, (iv) Liens in respect of judgments or
awards against Debtor which have been (A) in force for less than the applicable
appeal period so long as execution is not levied or in respect of which Debtor
shall at the time, in good faith, be prosecuting an appeal or proceedings for
review and in respect of which a state of execution shall have been obtained
pending such appeal or review, and (B) within five (5) Business Days of such
judgment or award, bonded against for the full amount thereof with a reputable
and financially sound bonding company, and (v) pledges or deposits under
worker's compensation, unemployment insurance and other social security
legislation.
3
<PAGE> 4
(i) Debtor shall promptly pay or cause to be paid all
taxes, license fees, assessments and public and private charges, that are or
may be levied or assessed on or against the Aircraft or the ownership or use
thereof, or on this Agreement;
(j) if at the time of Debtor's execution of this
Agreement, Debtor is not the registered owner of the Aircraft, as shown in the
records of the United States Federal Aviation Administration ("FAA"), Debtor at
its own expense shall immediately register the Aircraft in its name with the
FAA and, so long as any Obligation is due to Secured Party, Debtor shall not
impair such registration or cause it to be impaired, suspended or canceled, nor
register the Aircraft under the laws of any country except the United States
of America.
(k) Debtor shall promptly notify Secured Party of any
facts or occurrences which do or, by passage of time or otherwise will,
constitute a breach of any of the above warranties and covenants;
4. DEBTOR SHALL EXECUTE AND DELIVER DOCUMENTS. Debtor shall, at
Secured Party's request, furnish Secured Party such information and execute and
deliver to Secured Party such documents and do all such acts and things as
Secured Party may reasonably request as necessary or appropriate to establish
and maintain a valid first priority security interest in the Aircraft and to
assure that the Aircraft is titled, registered and the security interest
perfected to Secured Party's satisfaction. Debtor shall pay the cost of filing
all appropriate documents in all public offices where Secured Party deems such
filings necessary or desirable.
5. USE, OPERATION, MAINTENANCE AND REPAIR. Debtor shall use,
operate, maintain and repair the Aircraft and retain actual and operational
control and possession thereof in compliance with the following provisions:
(a) Debtor shall use, operate, maintain and store the
Aircraft, and every part thereof, properly, carefully and in compliance with
all applicable statutes, ordinances and regulations of all jurisdictions in
which the Aircraft is operated or used, as well as all applicable insurance
policies, manufacturer's mandatory recommendations and operating and
maintenance manuals. Debtor shall use the Aircraft predominantly for business
purposes and only for the purposes and in the manner set forth in the
application for insurance. At all times during the term of this Agreement,
Debtor shall not operate or locate the aircraft, or suffer or permit the
aircraft to be operated, located, or otherwise permitted to go into or over (i)
any area of hostilities, or (ii) any geographic area which is not covered by
the insurance policies required by this Agreement. Notwithstanding the
foregoing, in no event shall the Aircraft be located or operated in or over
Cuba. Except as provided in this paragraph, Debtor shall locate and base the
Aircraft solely within the United States. So long as no Default or Event of
Default is then existing or created as a result thereof, Debtor shall be
permitted to locate the
4
<PAGE> 5
Aircraft for no more than 30 consecutive days in any jurisdiction which, at the
time the Aircraft is so located in such jurisdiction, is a signatory without
reservation to the Convention on the International Recognition of Rights in
Aircraft, signed at Geneva, Switzerland on June 19, 1948, and entered into
force on September 17, 1953 (the "Geneva Convention"), is then maintaining
diplomatic relations with the United States and is not then subject to civil
war or similar unrest; provided, that prior to locating the Aircraft in any
such jurisdiction, Debtor shall have filed in such jurisdiction any instruments
or documents required in the reasonable opinion of Secured Party or its counsel
to establish, preserve, perfect or otherwise protect Secured Party's interests
in the Aircraft and its rights under the Agreement. The engines identified in
Section I of this Agreement shall be used only on the airframe described in
that Section and shall only be removed for maintenance in accordance with the
provisions of this Agreement. Debtor shall not use, attempt to use, or suffer
the Aircraft to be used in any manner which may or does contravene any
applicable law, rule or regulation governing the Aircraft, including without
limitation those relating to intoxicating liquors, narcotics, firearms or
similar products, and shall not attempt to sell, assign or dispose of the
Aircraft, or any interest herein or therein, or any part thereof, without
Secured Party's prior written consent.
(b) The Aircraft will be operated at all times by a
currently certificated pilot having the minimum total pilot hours and minimum
pilot-in-command hours required by FAA rules or regulations or as required by
applicable insurance policies, whichever requirements are stricter. Debtor
shall be responsible for and pay for all expenses of owning and operating the
Aircraft, including but not limited to storage, fuel, lubricants, service,
inspections, overhauls, replacements, maintenance and repairs, all in
compliance with the manufacturer's operating and maintenance manuals and with
FAA rules and regulations. Debtor shall properly maintain all records and
other materials pertaining to the maintenance and operation of the Aircraft,
including but not limited to those required by applicable law, rule or
regulation and by the manufacturer for the enforcement of any warranty.
(c) The Aircraft is and shall at all times be maintained
by Debtor at its expense in good repair in the configuration and condition
existing on the date hereof and in airworthy condition necessary for all
aircraft licenses under the laws, ordinances, rules and regulations of all
jurisdictions in which the Aircraft will at any time be operated; provided,
however, that Debtor may from time to time make such alterations and
modifications in and additions to the Aircraft as Debtor may deem desirable in
the proper conduct of its business, provided that no such alteration,
modification or addition diminishes the fair market sales or rental value or
utility of the Aircraft as of the date hereof or impairs the condition or
airworthiness thereof below the fair market sales or rental value, utility and
condition thereof immediately prior to such alteration, modification or
addition, assuming the Aircraft was then of the value and utility and in the
condition
5
<PAGE> 6
required to be maintained by the terms of this Agreement. Debtor shall ensure
timely compliance with all applicable mandatory Service Bulletins, Service
Letters, Manufacturer's Directives and Airworthiness Directives. Debtor shall
submit written evidence of such maintenance and condition to Secured Party upon
its written request from time to time. Debtor shall use reasonable care to
prevent the Aircraft from being damaged or injured, and shall promptly (but in
no event later than 120 days after discovery) replace any part or component of
the Aircraft which may be damaged, worn out, lost, destroyed, confiscated or
otherwise rendered unsatisfactory or unavailable for use in or upon the
Aircraft.
(d) The Aircraft shall at all times have the same
utility and quality as that which it had on the date hereof. Debtor shall at
its expense timely make any alterations or modifications to the Aircraft that
may at any time during the term of this Agreement be required to maintain the
Aircraft in the condition required by this Agreement. Debtor shall in no way
alter, attempt to alter or otherwise change the identity or appearance of the
Aircraft, including but not limited to the "N" number, exterior paint and
symbols, without the express prior written consent of Secured Party.
6. INDEMNIFICATION AND INSURANCE.
(a) Debtor shall indemnify and save Secured Party
harmless from and against all claims, expenses, damages and liabilities
whatsoever, including without limitation personal injury, death and property
damage claims arising in tort or otherwise, under any legal theory including
but not limited to strict liability, in any manner occasioned by or related to
the Aircraft, its operation, use, ownership, possession, manufacture or
otherwise.
(b) Debtor shall at all times bear all risk of loss,
damage, destruction or confiscation of or to the Aircraft. Debtor shall, at
its own expense, keep the Aircraft insured at all times against confiscation,
expropriation and war risk, and all physical damage to the Aircraft including
damage or destruction by fire, theft, crash, vandalism, and all other causes
with standard loss payable clause and breach of warranty endorsement in favor
of Secured Party and shall carry liability insurance, all of which shall be in
such amounts, under such forms of policies, upon such terms, for such periods
and with such companies or underwriters as Secured Party may approve (provided,
however, Secured Party shall be deemed to have approved the insurance in place
on the date hereof), losses or refunds in all cases to be first payable to
Secured Party or its assigns, as its interest may appear. Notwithstanding any
provision of this Agreement to the contrary, failure to obtain Secured Party's
approval of any insurer or policy shall not excuse Debtor from its obligation
to maintain insurance coverage. In no event shall the amounts of such
insurance be less than the principal amount of the Obligations evidenced by the
Debt Documents. All insurance policies shall provide for at least 30 days
(seven (7) days or such shorter period as may be standard in the insurance
industry in the
6
<PAGE> 7
case of any war risk and allied perils coverage) prior written notice to
Secured Party of any cancellation or material modification, include Secured
Party as additional insured, shall waive any right of set-off against Debtor or
Secured Party, shall waive any right of subrogation against Secured Party and
shall be primary and not subject to any offset by any other insurance carried
by Debtor or Secured Party. Debtor shall pay any deductible portion of such
insurance and any expense incurred in collecting insurance proceeds. Debtor
shall furnish to Secured Party copies of all insurance policies required by
this paragraph. Debtor hereby assigns to Secured Party the proceeds of all
such insurance (including any refund of premium) to the extent of the
Obligations secured hereby, directs the insurer to pay any losses or refunds
due Debtor directly to Secured Party, and appoints Secured Party as
attorney-in-fact effective at any time upon the occurrence and during the
continuance of an Event of Default to make proof of loss and claim for all
insurance and refunds thereupon and to endorse all documents, contracts drafts,
checks or forms of payment of insurance or premiums. Upon the occurrence of an
Event of Default hereunder, Secured Party may at its option apply insurance
proceeds, in whole or in part, to (i) repair or replace the Aircraft or any
part thereof or (ii) satisfy any of Debtor's Obligations to Secured Party. Any
surplus proceeds shall be paid to Debtor.
7. DEBTOR'S POSSESSION. So long as no Event of Default shall
have occurred and be continuing, Debtor may possess the Aircraft and use it in
any lawful manner not inconsistent with this agreement. Debtor shall at all
times keep the Aircraft and any proceeds therefrom separate and distinct from
other property of the Debtor and shall keep accurate and complete records of
the Aircraft and all such proceeds. Secured Party, at its sole cost and
expense, may examine and inspect the Aircraft, wherever located, at any
reasonable time, on land and in flight.
8. DEFAULT. Debtor shall be in default under this Agreement and
each of the other Debt Documents upon the occurrence of any of the following
Events of Default:
(a) Debtor fails to pay within 15 days after its due date
any installment or other amount due or coming due under any of the Debt
Documents;
(b) Debtor fails to maintain at all times insurance
coverage as required by paragraph 6(b) of this Agreement;
(c) Any attempt by Debtor, without the prior written
consent of Secured Party, to sell, rent, lease, mortgage, grant a security
interest in or otherwise deliver possession of (except as contemplated in
Section 3(h) hereof), transfer or encumber the Aircraft;
(d) Debtor breaches any of its other Obligations under
any Debt Document and fails to cure the breach within 30 days after Secured
Party gives Debtor written notice thereof, unless such failure cannot be cured
with reasonable
7
<PAGE> 8
diligence on Debtor's part during such 30 days for reason due to acts of God,
including, but not limited to, explosions, fires or earthquakes, any
governmental act, failure of transportation, strikes or other labor disputes,
or any other cause beyond Debtor's control, in which such 30-day period shall
be extended for such additional period (not to exceed 90 more days) as may be
required with diligence and good faith to cure such failure so long as Debtor
is diligently and in good faith taking action to cure such failure;
(e) Any warranty, representation or statement made by
Debtor in any of the Debt Documents is false or misleading in any material
respect;
(f) Debtor or any guarnator or surety for the obligations
dies, becomes insolvent or ceases to conduct business;
(g) The Aircraft or any other property of Debtor is
confiscated, sequestered, seized or levied upon;
(h) The Aircraft is lost, stolen, secreted, or destroyed;
(i) Any part of the Aircraft (which would cost more than
the lesser of (i) ten percent (10%) of the original loan balance or (ii)
$250,000 to repair or replace) is damaged, lost stolen or destroyed, and such
part is not replaced or repaired within 90 days of the date that such part is
damaged, lost stolen or destroyed;
(l) Debtor or any guarantor of or surety for the
Obligations makes an assignment for the benefit of creditors, applies to or
petitions any tribunal for the appointment of a custodian, receiver or trustee
for itself or for any substantial part of its property, or commences any
proceeding under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction, or if any
such petition or application is filed or any such proceeding is commenced
against Debtor or any guarantor or surety, and such petition, application or
proceeding is not dismissed within 90 days, or Debtor or any such guarantor or
surety by any act or omission shall indicate its consent to, approval of or
acquiescence in any such petition, application, proceeding, order for relief or
such appointment of a custodian, receiver or trustee;
(m) Debtor conceals or removes, or permits to be
concealed or removed, any part of its assets, so as to hinder, delay or defraud
any of its creditors, or makes or suffers a transfer of any of its assets which
would be fraudulent under any bankruptcy, insolvency, fraudulent conveyance or
similar law or makes any transfer of its assets to or for the benefit of a
creditor at a time when other creditors similarly situated have not been paid,
or suffers or permits, while insolvent, any creditor to obtain a lien upon any
of Debtor's property through legal proceedings or distraint, or if a tax lien
is filed against Debtor.
8
<PAGE> 9
9. REMEDIES OF SECURED PARTY:
(a) Upon the occurrence of any Event of Default under
this Agreement, Secured Party, at its option, may declare any or all of the
Obligations, including but not limited to the Note, to be immediately due and
payable, without demand or notice to Debtor or any guarantor. The Obligations
and liabilities accelerated thereby shall bear interest from the Event of
Default (both before and after any judgment) until paid in full at the lesser
of the rate of interest set forth on the face of the Note plus three percent
(3%) per annum or the maximum rate not prohibited by applicable law.
(b) Upon the occurrence of any Event of Default, Secured
Party shall additionally have all of the rights and remedies of a secured party
under the Uniform Commercial Code and under any other applicable law. Without
limiting the foregoing and without notice or demand, Secured Party shall have
the right at its option to immediately exercise one or more of the following
remedies: (i) refuse to extend any further credit to Debtor; (ii) terminate
this Agreement immediately without notice; (iii) take immediate and exclusive
possession of the Aircraft, wherever it may be found; (iv) enter any of
Debtor's premises, with or without process of law, wherever the Aircraft may be
or Secured Party reasonably believes it to be, and search for it, and if the
Aircraft or any part of it is found, to take possession of and remove it; (v)
sell, lease and otherwise dispose of the Aircraft or any part of it, at public
auction or private sale, for cash or on credit, as Secured Party may elect at
its option and Secured Party shall have the right to bid and become the
purchaser at any such sale, or keep the Aircraft idle; (vi) notify, in Secured
Party's own name, or in Debtor's name, all obligors of Debtor and demand,
collect, receive, receipt for, sue, compromise and give acquittance for, any
and all amounts due on contracts and credits, and endorse Debtor's name on any
commercial paper or instrument given as full or partial payment thereon; (vii)
direct the Debtor to assemble all parts and components of the Aircraft and
deliver it to Secured Party, at Debtor's expense, at a place designated by
Secured Party which is reasonably convenient to Secured Party and Debtor;
and/or (viii) hold, appropriate, apply or set-off any and all moneys, credits
and indebtedness due from Secured Party, its affiliates, parents or
subsidiaries, to Debtor.
(c) Debtor shall pay all reasonable costs incurred by
Secured Party in collecting any of the Obligations owed Secured Party by Debtor
and enforcing any Obligations of Debtor to Secured Party, including but not
limited to reasonable attorneys' fees and legal expenses.
(d) Notwithstanding the availability of any other remedy
and in addition thereto, if Debtor fails to perform any of its Obligations
hereunder or under any of the Debt Documents, Secured Party may perform the
same, but shall not be obligated to do so, for the account of Debtor, and
Debtor shall immediately repay to Secured Party on demand any amounts paid or
incurred by Secured Party in such
9
<PAGE> 10
performance together with interest thereon accrued from the date paid or
incurred by Secured Party until repaid in full by Debtor at the lesser of the
rate of interest set forth on the fact of the Note plus three percent (3%) per
annum and the maximum interest rate permitted by applicable law to be charged
Debtor by Secured Party.
(e) Notwithstanding any other provision hereof to the
contrary, any notice required to be given by law or pursuant to this Agreement
with respect to disposition of the Aircraft or any part of it shall be deemed
reasonably and properly given if mailed by first class United States Mail,
postage prepaid, by prepaid express mail service (private or government) or by
hand delivery to Debtor at its last known address, at least ten (10) days
before the disposition of the subject matter of such notification.
(f) Any proceeds realized by Secured Party upon the sale
or other disposition of the Aircraft shall first be applied by the Secured
Party to the payment of the reasonable expenses (including interest) of
retaking, holding, preparing for sale, selling and the like, including
reasonable attorneys' fees and legal expenses and any balance of such proceeds
may be applied by the Secured Party toward the satisfaction of Debtor's
Obligations in such order of application as the Secured Party may in its sole
discretion determine. Any surplus remaining after all of Debtor's Obligations
to Secured Party shall have been paid in full shall be paid to Debtor. Debtor
shall be liable for and shall promptly pay on demand any deficiency resulting
from any such disposition of Aircraft.
(g) The foregoing remedies shall not be exclusive or
alternative but shall be cumulative and in addition to all other remedies in
favor of Secured Party existing at law or in equity.
10. PRINCIPALS AND WAIVERS. All signers and endorsers hereof are
to be regarded as principals, jointly and severally. Every maker, endorser,
guarantor and surety hereof hereby waives presentment, notice, protest and
impairment of collateral, and consents to all extensions, deferrals, partial
payments and refinancings hereof before or after maturity.
11. WAIVER OF DEFAULT. No waiver by Secured Party of any default
shall operate as a waiver of any other default or of the same default on a
future occasion.
12. REPORTS.
(a) Debtor shall promptly notify Secured Party in the
event of (i) any change in Debtor's name, (ii) any relocation of Debtor's chief
executive offices, (iii) any permanent or indefinite relocation of the Aircraft
or its home airport, (iv) the Aircraft being lost, stolen, missing,
confiscated, appropriated, seized, sequestered, destroyed, materially damaged
or worn out, (v) any accident involving the Aircraft or (vi) any lien, claim or
encumbrance attaching or being made against
10
<PAGE> 11
the Aircraft (other than liens in favor of Secured Party and Permitted Liens).
Such notice shall contain all pertinent details of the event being reported,
and shall be supplemented promptly upon Secured Party's request.
(b) Debtor agrees to furnish its annual financial
statements and such interim statements as Secured Party may require in form
satisfactory to Secured Party. Any and all financial statements submitted and
to be submitted to Secured Party have and will have been prepared on a basis of
generally accepted accounting principles consistently applied, and are and will
be complete and correct and fairly present Debtor's financial condition as at
the date thereof. Secured Party may at any reasonable time examine Debtor's
books and records and make copies thereof.
13. MISCELLANEOUS:
(a) This Agreement, the Note and/or any of the other Debt
Documents may be assigned, in whole or in part, by Secured Party without notice
to Debtor, and Debtor hereby waives and agrees not to assert against any
assignee any defense, counterclaim, right of set-off or cross-complaint Debtor
may have against Secured Party for any reason whatsoever, agreeing that Secured
Party shall be solely responsible therefor.
(b) All notices to be given in connection with this
Agreement and the Debt Documents shall be in writing, shall be addressed to the
parties at their respective addresses set forth hereinabove (unless and until
a different address may be specified in a written notice to the other party),
and shall be deemed given (i) on the date of receipt if delivered in hand or by
facsimile transmission, (ii) on the next business day after being sent by
express mail (government or private), and (iii) on the fourth business day
after being sent by regular, registered or certified mail. As used herein,
"business day" MEANS ANY DAY other than a Saturday, a Sunday, or other day on
which commercial banks in New York, New York are required or authorized to be
closed.
(c) Secured Party may correct patent errors herein and
fill in all blanks herein or in the Debt Documents consistent with the
agreement of the parties.
(d) Time is of the essence hereof. This Agreement and
the Debt Documents shall be binding, jointly and severally, upon all parties
described as the "Debtor" and their respective heirs, executors,
representatives, successors and assigns, and shall inure to the benefit of
Secured Party, its successors and assigns.
(e) The unenforceability of any provision hereof or of
the Debt Documents shall not affect the validity of any other provision hereof
or thereof.
11
<PAGE> 12
(f) This Agreement and the Debt Documents constitute the
entire agreement between the parties with respect to the subject matter hereof
and supersede all prior understandings (whether written, oral or implied) with
respect thereto, except representations made by Debtor to Secured Party. THIS
AGREEMENT AND THE DEBT DOCUMENTS SHALL NOT BE CHANGED OR TERMINATED, NOR SHALL
ANY WAIVER BE GIVEN, ORALLY OR BY COURSE OF CONDUCT, BUT ONLY BY A WRITING
SIGNED BY BOTH PARTIES HERETO. Section headings in this Agreement are for
convenience only, and shall not affect the construction or interpretation
hereof.
(g) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF,
DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE DEBT DOCUMENTS, ANY DEALINGS
BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING
ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN
ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS
IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
(h) This Agreement shall continue in full force and
effect until all of the Obligations have been indefeasibly paid in full to
Secured Party. This Agreement shall automatically be reinstated in the event
that Secured Party is ever required to return or restore the payment of all or
any portion of the Obligations (all as though such payment had never been
made).
SECURED PARTY: DEBTOR:
GENERAL ELECTRIC CAPITAL CORPORATION ORBITAL SCIENCES CORPORATION
By: /s/ William K. Bokop By: /s/ Kenneth H. Sunshine
------------------------------- ----------------------------
Name: William K. Bokop Name: Kenneth H. Sunshine
------------------------------- ----------------------------
12
<PAGE> 13
Title: Region Credit Manager Title: Vice President and Treasurer
------------------------------ -----------------------------
<PAGE> 1
EXHIBIT 11.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------
ASSUMING
BASIC DILUTION (2)
--------------- ---------------
<S> <C> <C>
WEIGHTED AVERAGE OF OUTSTANDING SHARES 32,403,312 32,403,312
COMMON EQUIVALENT SHARES:
OUTSTANDING STOCK OPTIONS N/A 1,031,089
OTHER POTENTIALLY DILUTIVE SECURITIES:
CONVERTIBLE NOTES (1) N/A 3,571,429
--------------- ---------------
SHARES USED IN COMPUTING
NET INCOME PER COMMON SHARE 32,403,312 37,005,830
=============== ===============
NET INCOME $6,178,000 $6,178,000
ADJUSTMENTS ASSUMING DILUTION:
INTEREST EXPENSE ADJUSTMENT, NET OF TAXES N/A 340,882
--------------- ---------------
NET INCOME $6,178,000 $6,518,882
=============== ===============
NET INCOME PER COMMON SHARE $0.19 $0.18
=============== ===============
<CAPTION>
TWELVE MONTH PERIOD ENDED DECEMBER 31, 1997
- ---------------------------------------------------------------------------------
ASSUMING
BASIC DILUTION (2)
------------- ----------------
<C> <C> <C>
WEIGHTED AVERAGE OF OUTSTANDING SHARES 32,283,138 32,283,138
COMMON EQUIVALENT SHARES:
OUTSTANDING STOCK OPTIONS N/A 655,942
OTHER POTENTIALLY DILUTIVE SECURITIES:
CONVERTIBLE NOTES (1) N/A 1,041,667
------------- ----------------
SHARES USED IN COMPUTING
NET INCOME PER COMMON SHARE 32,283,138 33,980,747
============= ================
NET INCOME $23,005,000 $23,005,000
ADJUSTMENTS ASSUMING DILUTION:
INTEREST EXPENSE ADJUSTMENT, NET OF TAXES N/A 429,131
------------- ----------------
NET INCOME $23,005,000 $23,434,131
============= ================
NET INCOME PER COMMON SHARE $0.71 $0.69
============= ================
</TABLE>
NOTES:
(1) - ON SEPTEMBER 16, 1997, THE COMPANY SOLD $100 MILLION OF 5% CONVERTIBLE
SUBORDINATED NOTES DUE OCTOBER 2002. THE NOTES ARE CONVERTIBLE AT THE
OPTION OF THE HOLDERS INTO ORBITAL COMMON STOCK AT A CONVERSION PRICE
OF $28.00 PER SHARE.
(2) - SUBSIDIARY STOCK OPTIONS THAT ENABLE HOLDERS TO OBTAIN SUBSIDIARY'S
COMMON STOCK PURSUANT TO EFFECTIVE STOCK OPTION PLANS ARE INCLUDED IN
COMPUTING THE SUBSIDIARY'S EARNINGS PER SHARE, TO THE EXTENT DILUTIVE.
THOSE EARNINGS PER SHARE DATA ARE INCLUDED IN THE COMPANY'S PER SHARE
COMPUTATIONS BASED ON THE COMPANY'S HOLDINGS OF THE SUBSIDIARY'S STOCK.
FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 1997, ALL SUCH
SUBSIDIARY STOCK OPTIONS WERE ANTI-DILUTIVE.
<PAGE> 1
Exhibit 13.1
FINANCIAL INFORMATION
<TABLE>
<S> <C>
SELECTED CONSOLIDATED FINANCIAL DATA 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 33
INDEPENDENT AUDITORS' REPORT 41
CONSOLIDATED STATEMENTS OF EARNINGS 42
CONSOLIDATED BALANCE SHEETS 43
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 44
CONSOLIDATED STATEMENTS OF CASH FLOWS 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 46
</TABLE>
MARKET INFORMATION
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol ORBI. The range of high and low sales prices of Orbital Common Stock
for 1995 through 1997, as reported on the Nasdaq National Market, was as
follows:
<TABLE>
<CAPTION>
1997 HIGH LOW
- ---------------------------------------
<S> <C> <C>
4th Quarter $30 3/4 $21
3rd Quarter $25 $15 7/8
2nd Quarter $18 $12 3/4
1st Quarter $19 1/4 $13 3/4
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW
- ---------------------------------------
<S> <C> <C>
4th Quarter $21 7/8 $16 1/4
3rd Quarter $20 $16 3/8
2nd Quarter $19 7/8 $13
1st Quarter $16 1/8 $11 3/4
</TABLE>
<TABLE>
<CAPTION>
1995 HIGH LOW
- ---------------------------------------
<S> <C> <C>
4th Quarter $16 5/8 $12 3/16
3rd Quarter $19 1/4 $16
2nd Quarter $22 $15 1/2
1st Quarter $20 1/2 $16 1/2
</TABLE>
DIVIDENDS
Orbital has never paid any cash dividends on its Common Stock. The Company
presently intends to retain future earnings for working capital and product
development and therefore does not anticipate paying cash dividends on the
Common Stock at any time in the foreseeable future. In addition, the Company
is prohibited from paying cash dividends under an existing credit facility.
Orbital 31
<PAGE> 2
SELECTED CONSOLIDATED
FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 605,975 $ 461,435 $ 364,320 $ 301,576 $ 300,184
Costs of goods sold 456,772 336,261 268,016 216,417 228,289
-------------------------------------------------------------------
Gross profit 149,203 125,174 96,304 85,159 71,895
Research and development expenses 26,355 22,179 28,512 17,259 19,703
Selling, general and administrative expenses 89,502 76,019 63,427 53,165 38,270
Amortization of excess of purchase price
over net assets acquired 3,852 3,134 3,221 2,360 1,634
-------------------------------------------------------------------
Income from operations 29,494 23,842 1,144 12,375 12,288
Net investment income (expense) 1,475 (1,123) 639 (244) (44)
Equity in earnings (losses of affiliates (26,034) (6,454) (759) (1,264) (2,436)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries 2,638 1,473 427 -- --
Gain on sale of subsidiary stock 21,810 -- -- -- --
Acquisition expenses (4,343) -- (3,441) (503) --
-------------------------------------------------------------------
Income (loss) before provision (benefit) for income
taxes and cumulative effect of accounting change 25,040 17,738 (1,990) 10,364 9,808
Provision (benefit) for income taxes 2,035 1,831 (1,302) 2,744 2,403
-------------------------------------------------------------------
Income (loss) before cumulative effect of
accounting change 23,005 15,907 (688) 7,620 7,405
Cumulative effect of accounting change, net of taxes -- -- (4,160) -- 200
-------------------------------------------------------------------
Net income (loss) $23,005 $ 15,907 $ (4,848) $ 7,620 $ 7,605
===================================================================
NET INCOME (LOSS) PER COMMON SHARE (1):
Income (loss) before cumulative effect of
accounting change $ 0.71 $ 0.55 $ (0.03) $ 0.33 $ 0.40
Cumulative effect of accounting change -- -- (0.16) -- 0.01
-------------------------------------------------------------------
$ 0.71 $ 0.55 $ (0.19) $ 0.33 $ 0.41
===================================================================
Shares used in computing net income (loss)
per common share 32,283,138 29,137,361 26,207,746 23,191,553 18,728,980
===================================================================
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING DILUTION (2):
Income (loss) before cumulative effect of
accounting change $ 0.69 $ 0.55 $ (0.03) $ 0.32 $ 0.36
Cumulative effect of accounting change -- -- (0.16) -- 0.01
-------------------------------------------------------------------
$ 0.69 $ 0.55 $ (0.19) $ 0.32 $0.37
===================================================================
Shares used in computing net income (loss)
per common share, assuming dilution 33,980,747 31,616,119 30,103,858 27,309,336 22,343,402
===================================================================
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments $ 15,126 $ 32,686 $ 35,030 $ 40,345 $ 85,347
Net working capital 52,499 83,673 87,553 57,449 92,036
Total assets 771,639 500,770 466,908 441,042 367,979
Short-term borrowings 29,317 38,519 11,907 28,977 15,793
Long-term obligations, net 198,394 33,076 96,990 86,068 73,165
Stockholders' equity 355,101 330,502 238,908 206,943 169,389
-------------------------------------------------------------------
</TABLE>
(1) Net income (loss) per common share is calculated using the weighted
average number of shares outstanding during the periods.
(2) Net income (loss) per common share, assuming 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 notes.
Orbital 32
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
With the exception of historical information, the matters discussed below under
the headings "Recent Developments," "Results of Operations" and "Liquidity and
Capital Resources" and in the report to stockholders include forward-looking
statements that involve risks and uncertainties, many of which are beyond the
company's control. The company wishes to caution readers that a number of
important factors, including those identified in the section "Outlook: Issues
and Uncertainties," may affect the company's actual results and cause actual
results to differ materially from those in any forward-looking statement.
References herein to "Orbital" or the "company" include Orbital Sciences
Corporation and its subsidiaries.
The company's products and services are grouped into three business sectors:
Space and Ground Infrastructure Systems, Satellite Access Products and
Satellite Services. Space and Ground Infrastructure Systems include launch
vehicles, satellites, electronics and sensor systems, and satellite ground
systems. The company's Satellite Access Products sector consists of
recreational, professional and automotive satellite-based navigation products,
satellite communications products and transportation management systems. The
company's Satellite Services sector includes satellite-based two-way mobile
data communications services and satellite-based imagery services.
A significant portion of the company's space and ground infrastructure systems
revenues are generated under long-term contracts with various agencies of the
U.S. government, various foreign governments and commercial customers. Orbital
recognizes revenues on long-term contracts using the percentage-of-completion
method of accounting, under which revenues and profits are recognized based on
actual costs incurred in relation to total estimated costs to complete the
contract or specific delivery terms and conditions. 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 investments in ORBCOMM Global, L.P.
("ORBCOMM") and in Orbital Imaging Corporation ("ORBIMAGE") using the equity
method of accounting. In accordance with the equity method of accounting,
Orbital recognizes 100% of the revenues earned and costs incurred on sales of
products and services to these entities. The company also recognizes as equity
in earnings (losses) of affiliates its proportionate share of ORBCOMM's and
ORBIMAGE's profits and losses. ORBCOMM and ORBIMAGE are currently capitalizing
substantially all system construction costs, including amounts paid to Orbital.
To the extent ORBCOMM and ORBIMAGE capitalize their purchases from Orbital, the
company eliminates as equity in earnings (losses) of affiliates approximately
50% and 75% (the company's equity ownership in ORBCOMM and ORBIMAGE in 1997,
respectively) of its profits and losses from sales to ORBCOMM and ORBIMAGE,
respectively. Orbital controls, and therefore consolidates the accounts of,
ORBCOMM USA, L.P., a partnership that markets ORBCOMM system services in the
United States.
RECENT DEVELOPMENTS
Orbital's majority owned subsidiary, Magellan Corporation, merged with Ashtech
Inc. ("Ashtech") (the combined company is hereinafter referred to as
"Magellan") in December 1997. To effect the merger, Orbital paid former
Ashtech security holders approximately $52,800,000, consisting of $25,000,000
in cash and approximately 23,954,000 shares of Magellan common stock. Orbital
now owns a controlling interest of approximately 66% of Magellan. Orbital
recognized a gain of approximately $21,810,000 on the issuance of Magellan
common stock.
The company acquired substantially all the assets, including all the stock of
certain subsidiaries, and certain liabilities relating to the satellite
manufacturing and communications services businesses of CTA Incorporated
Orbital 33
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
("CTA") in August 1997. The financial results of the acquired businesses have
been included in the company's consolidated results from August 15, 1997
through December 31, 1997. As consideration, Orbital repaid $27,000,000 of
outstanding CTA debt and paid approximately $13,000,000 in cash, which may be
reduced subject to certain post-closing adjustments.
In July 1997, Orbital formed Magellan DIS Inc. ("DIS") to acquire from Rockwell
International Corporation ("Rockwell") the assets and certain liabilities
associated with Rockwell's automotive navigation product line. Orbital paid
approximately $3,550,000 in cash and issued Rockwell a $4,350,000 unsecured
note, which bears interest at 6% and is repayable semi-annually over three
years. The stock of DIS was subsequently transferred to Magellan.
During September 1997, Orbital sold $100,000,000 of 5% convertible subordinated
notes due October 2002. The notes, which are non-callable for three years, are
convertible at the option of the holders into Orbital common stock at a
conversion price of $28.00 per share, subject to adjustment in certain events.
In May and July 1997, ORBIMAGE completed private placements of 300,100 and
72,605 shares, respectively, of 12% cumulative convertible preferred stock,
raising gross proceeds of approximately $37,270,000. Also in May 1997, Orbital
purchased ORBIMAGE common stock, bringing its total equity invested to
approximately $89,000,000. At December 31, 1997 Orbital owned approximately
75% of ORBIMAGE and as a result of certain rights provided to ORBIMAGE's
preferred shareholders, no longer controls ORBIMAGE's financial and operational
affairs. Additionally, Orbital had agreed to purchase up to approximately
$42,000,000 in ORBIMAGE preferred stock to the extent that ORBIMAGE could not
obtain additional third-party financing. In connection with certain ORBIMAGE
financing transactions consummated in February 1998, Orbital has been fully
relieved of this obligation (see "Liquidity and Capital Resources") and now
owns approximately 60% of ORBIMAGE.
The company had $158,934,000 in total consolidated export sales in 1997, of
which $68,563,000 were to Asian customers. Orbital had approximately
$18,204,000 outstanding in accounts receivable from Asian customers at December
31, 1997, $3,606,000 of which was paid in the first quarter of 1998. The
company has sought to reduce risks related to these accounts receivable and
future work commitments by obtaining letters of credit from certain customers,
and at December 31, 1997 had approximately $13,251,000 of letters of credit
with respect to such receivables. Existing backlog attributable to Asian
customers is not material to the company's operations. The company does not
have any material exposure to interest rate changes, commodity price changes,
foreign currency fluctuations, or similar market risks, although it does enter
into forward exchange contracts to hedge against specific foreign currency
fluctuations, principally with respect to the Canadian dollar.
The company has made a preliminary assessment of potential "Year 2000" issues
with respect to various computer-related systems. The company has developed an
initial corrective action plan that includes reprogramming impacted software
when appropriate and feasible, obtaining vendor-provided software upgrades when
available and completely replacing impacted systems when necessary. The
company currently expects that identified "Year 2000" impacted systems will be
corrected by the end of 1998, although there can be no assurance that the
company has identified all "Year 2000" impacted systems or that its corrective
action plan will be timely and successful. The company believes that the costs
to correct its systems will not materially affect its results of operations or
its financial condition. In addition, the company has not received any
indication to date that the impact of "Year 2000" issues on its customers and
suppliers will have a material adverse effect on the company.
Orbital 34
<PAGE> 5
RESULTS OF OPERATIONS
The following table shows the company's revenues, gross profits and gross
margins, by major product category within each business sector, for each of the
three years ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------- ----------------------------- ------------------------------
GROSS GROSS GROSS
(DOLLARS IN THOUSANDS) REVENUES PROFIT MARGIN REVENUES PROFIT MARGIN REVENUES PROFIT MARGIN
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPACE AND GROUND
INFRASTRUCTURE SYSTEMS $ 534,419 $ 131,209 24.5% $388,814 $ 101,867 26.2% $300,439 $ 72,820 24.2%
Launch Vehicles 121,631 28,631 23.5 108,478 23,356 21.5 71,826 12,469 17.4
Satellites (1) 233,989 56,940 24.3 105,148 22,406 21.3 83,156 12,062 14.5
Electronics and
Sensor Systems 100,554 26,236 26.1 92,070 26,608 28.9 71,983 25,419 35.3
Ground Systems 78,245 19,402 24.8 83,118 29,497 35.5 73,474 22,870 31.1
SATELLITE ACCESS PRODUCTS 71,384 18,205 25.5 71,188 25,134 35.3 52,681 20,235 38.4
SATELLITE SERVICES (2) 172 (211) N/A 1,433 (1,827) N/A 11,200 3,249 29.0
------------------------------------------------------------------------------------------------------
CONSOLIDATED TOTALS $ 605,975 $ 149,203 24.6% $ 461,435 $ 125,174 27.1% $ 364,320 $ 96,304 26.4%
===================================================================================================================================
</TABLE>
(1) Includes results from the CTA acquisition from August 15, 1997.
(2) Consolidates ORBIMAGE's results until May 8, 1997.
REVENUES
Orbital's consolidated revenues for the years ended December 31, 1997, 1996 and
1995 were $605,975,000, $461,435,000 and $364,320,000, respectively.
Space and Ground Infrastructure Systems. Revenues from the company's space
and ground infrastructure systems increased to $534,419,000 in 1997 from
$388,814,000 in 1996 and $300,439,000 in 1995.
Revenues from the company's launch vehicles increased to $121,631,000 in 1997,
from $108,478,000 in 1996 and $71,826,000 in 1995. The increase in launch
vehicle revenues in 1997 can be attributed to new orders received since 1995.
The company had five consecutive successful Pegasus launches and six
consecutive successful suborbital launches in 1997. Additionally, more
revenues were generated in 1997 for work performed on the X-34 reusable launch
vehicle and on the company's Taurus launch vehicle contracts. The significant
increase in revenues in 1996 was attributable to revenues generated from the
resumption of production and launch of the Pegasus launch vehicle after a 1995
launch failure and from work performed under new and existing contracts for the
company's Taurus launch vehicle.
Revenues from sales of satellites increased to $233,989,000 in 1997, from
$105,148,000 in 1996 and $83,156,000 in 1995. The significant increase in 1997
satellite revenues was primarily due to new satellite orders received in the
second half of 1996 and in 1997. Revenues in 1997 also included approximately
$54,090,000 of sales generated by the satellite business acquired from CTA.
The increase in 1996 revenues was primarily attributable to additional revenues
generated from new satellite orders from commercial and government customers
received in late 1995 and in 1996.
Orbital 35
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Electronics and sensor systems revenues increased to $100,554,000 in 1997, from
$92,070,000 in 1996 and $71,983,000 in 1995. The increase in 1997 and 1996
revenues was primarily attributable to work performed on new avionics and
mission planning systems orders received in 1996 and 1997.
Ground systems revenues were $78,245,000, $83,118,000 and $73,474,000 in 1997,
1996 and 1995, respectively. The decrease in 1997 revenues from 1996 revenues
was primarily due to the 1996 sale of a software-related business that had
generated 1996 revenues of approximately $15,755,000. The increase in revenues
in 1996 was primarily attributable to an increase in the number of satellite
ground system installations and upgrades.
Orbital's space and ground infrastructure systems sector revenues included
sales to ORBCOMM of approximately $57,988,000, $47,215,000 and $49,187,000 in
1997, 1996 and 1995, respectively, and to ORBIMAGE of approximately $88,618,000
in 1997. The company expects total 1998 sales to ORBCOMM and ORBIMAGE to be
less than those recorded in 1997, based on the remaining work to be done under
their respective procurement contracts.
Satellite Access Products. Revenues from sales of recreational and automotive
satellite-based navigation products, communications products and transportation
management systems were $71,384,000 for 1997 as compared to $71,188,000 in 1996
and $52,681,000 in 1995. The year-to-year increases were due to an increase in
the number of products sold offset, in part, by lower average unit sales
prices. Magellan's revenues in 1997 were negatively impacted by increased
competition in its recreational and marine navigational markets.
Satellite Services. The company's satellite services businesses generated
revenues of $172,000, $1,433,000 and $11,200,000 for 1997, 1996 and 1995,
respectively. As a result of ORBIMAGE's private placement of preferred stock,
subsequent to May 8, 1997, Orbital no longer consolidates ORBIMAGE's operating
revenues, resulting in a decrease in 1997 satellite services revenues.
Revenues in 1996 included modest domestic ORBCOMM sales and ORBIMAGE sales of
satellite imagery to government customers. Revenues in 1995 primarily
represented sales of ground stations and network software to ORBCOMM; no such
sales were made in 1997 or 1996.
COSTS OF GOODS SOLD
Costs of goods sold include the costs of personnel, materials, subcontracts and
overhead related to commercial products and under the company's various
development and production contracts. Orbital's costs of goods sold for 1997,
1996 and 1995 were $456,772,000 (75.4% of revenues), $336,261,000 (72.9% of
revenues) and $268,016,000 (73.6% of revenues), respectively. The increase in
costs of goods sold in 1997 for the company's electronics and sensor systems
was largely due to the completion of a defense sensors contract under which the
company had traditionally achieved higher gross margins. Costs of goods sold
in 1997 for the company's ground systems increased as a percentage of revenues
largely due to the sale of a software-related business in 1996 that also had
traditionally contributed higher gross margins. Additionally, contingency
reserves required on certain launch vehicle and satellite contracts were
increased in 1997, resulting in higher costs of goods sold in those product
lines. The increase in costs of goods sold in 1997 for the company's satellite
access products was due to lower unit sales prices for satellite navigation
products and certain fourth quarter reorganizational charges at Magellan,
leading to overall operating losses within this sector. The 1996 decrease in
costs of goods sold as a percentage of 1996 revenues was largely due to the
resumption of production of the company's Pegasus launch vehicle. Costs
incurred in 1996 as a result of the November 1996 Pegasus launch anomaly and
certain other unanticipated contract cost increases were offset, in part, by
the use of existing contingency reserves. Other contributing factors
Orbital 36
<PAGE> 7
in 1996 included increased profit margins on certain satellite and ground
systems contracts offset, in part, by lower average unit sales prices of
satellite navigation products.
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 1997, 1996 and 1995 were $26,355,000
(4.3% of revenues), $22,179,000 (4.8% of revenues) and $28,512,000 (7.8% of
revenues), respectively. Research and development spending during 1997 and
1996 related primarily to the development of new or improved satellite
navigation and communications products, improved launch vehicles, including
enhancements to the Taurus launch vehicle, and new satellite initiatives.
Research and development spending during 1995 reflected Orbital's continued
development of its Pegasus launch vehicle and costs related to an advanced
reusable launch vehicle development program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include the costs of marketing,
advertising, promotion 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 1997, 1996 and 1995 were
$89,502,000 (14.8% of revenues), $76,019,000 (16.5% of revenues) and
$63,427,000 (17.4% of revenues), respectively. The continued decrease in
selling, general and administrative expenses as a percentage of revenues in
1997 was primarily attributable to significant growth in space and ground
infrastructure systems revenues, along with only modest growth in selling,
general and administrative expenses attributable to those product lines.
Additionally, subsequent to May 1997 the company no longer consolidates
ORBIMAGE's administrative and marketing expenses.
NET INVESTMENT INCOME (EXPENSE)
Net investment income (expense) was $1,475,000, ($1,123,000) and $639,000 for
1997, 1996 and 1995, respectively. Investment income reflected interest
earnings on short-term investments and realized gains and losses on
investments, reduced by interest expense on outstanding debt of $429,000,
$2,486,000 and $3,815,000 in 1997, 1996 and 1995, respectively. Interest
expense was net of capitalized interest of approximately $9,700,000, $7,300,000
and $5,700,000 in 1997, 1996 and 1995, respectively.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN
(EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES
Equity in earnings (losses) of affiliates included Orbital's proportionate
share of ORBCOMM's and ORBIMAGE's net income or loss for the year, and
Orbital's elimination of proportionate profits or losses on sales to these
affiliates. In 1997, Orbital's share of ORBCOMM's and ORBIMAGE's net loss was
$13,004,000 and $1,887,000, respectively. In 1996, Orbital's share of
ORBCOMM's net loss was approximately $8,268,000. In 1995, Orbital's share of
ORBCOMM's net income was approximately $454,000. Non-controlling interests in
(earnings) losses of consolidated subsidiaries represent that portion of such
subsidiaries' losses allocable to other stockholders.
PROVISION (BENEFIT) FOR INCOME TAXES
The company recorded consolidated income tax provisions of $2,035,000 and
$1,831,000 for 1997 and 1996, respectively. The company's effective tax rate
for these periods (8.1% and 10.3% in 1997 and 1996, respectively) was entirely
due to foreign taxes attributable to its Canadian operations. The company
recorded an income tax
Orbital 37
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
benefit of approximately $1,302,000 in 1995, primarily as a result of the
carryback and recapture of previously paid U.S. Federal taxes and management's
determination that certain Canadian investment tax credit carryforwards would
be realized in the near future.
At December 31, 1997, Orbital had approximately $150,000,000 of U.S. Federal
net operating loss carryforwards (portions of which expire beginning in 2005)
and $3,000,000 of U.S. Federal research and experimental tax credit
carryforwards that may be used through the year 2013, subject to certain annual
limitations and other restrictions, to reduce future U.S. Federal income tax
obligations. At December 31, 1997 and 1996, Orbital provided a reserve of
$37,698,000 and $52,223,000, respectively, against certain of its consolidated
deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The company's growth has required substantial capital to fund expanding working
capital needs, investments in ORBCOMM and ORBIMAGE, certain business
acquisitions, new business initiatives, research and development and capital
expenditures. The company has funded these requirements to date, and expects
to fund its requirements in the future, through cash generated by operations,
working capital, loan facilities, asset-based financings, joint venture
arrangements and private and public equity and debt offerings. The company
expects to continue to pursue potential acquisitions and equity investments
that it believes would enhance its businesses and to fund such transactions
through cash generated by operations, existing loan facilities, the issuance of
equity and/or debt securities and asset-based financings.
Cash, cash equivalents and short-term investments were $15,126,000, and the
company had total debt obligations outstanding of approximately $227,711,000,
at December 31, 1997. The outstanding debt related primarily to the
convertible subordinated notes, advances under the company's line of credit
facilities, secured and unsecured notes, and asset-based financings. Cash and
cash equivalents at December 31, 1997 included approximately $6,162,000 of cash
reserved against outstanding letters of credit. Orbital's current ratio was
1.2 at December 31, 1997, compared to 1.7 at December 31, 1996.
In September 1997, Orbital completed the sale of $100,000,000 of 5% convertible
subordinated notes due October 2002. The notes, which are non-callable for
three years, are convertible at the option of the holders into Orbital common
stock at a conversion price of $28.00 per share, subject to adjustment in
certain events. The company used a portion of the proceeds from the sale to
pay down outstanding borrowings under its various credit facilities and
$10,000,000 on a long-term loan. The balance was invested in short-term
investments.
Orbital amended its $20,000,000 unsecured note agreement during the first
quarter of 1997 to facilitate compliance with certain financial covenants as
well as to permit the completion of the ORBIMAGE private equity financing. In
connection with this amendment, the interest rate on the note was increased
from 11.5% to 12%, effective March 31, 1997. The unsecured note contains
certain covenants with respect to fixed charge ratio, leverage ratio and
tangible net worth, and includes certain cross-default provisions.
The company issued $33,969,000 in secured notes in 1997. These notes are
collateralized by certain office, computer and test equipment located at the
company's Maryland, Arizona and Virginia facilities and by the company's L-1011
aircraft.
Orbital 38
<PAGE> 9
The company amended its primary credit facility to eliminate a term loan and to
increase the amount available under a revolving line of credit from $65,000,000
to $100,000,000. In addition, two financial covenants under this facility were
amended to facilitate compliance by the company. At December 31, 1997,
$47,750,000 was outstanding and $52,250,000 was available on the facility. The
interest rate charged under the facility is a variable rate based on the prime
rate or LIBOR. The weighted average interest rate on borrowings outstanding
under this facility at December 31, 1997 was 7.89%. The facility is secured by
accounts receivable, prohibits the payment of cash dividends, contains certain
covenants with respect to the company's working capital levels, fixed charge
ratio, leverage ratio and net worth, and expires in August 2001. The company
also maintains a $25,000,000 unsecured credit facility, under which
approximately $3,500,000 was outstanding at an average interest rate of 6.8% at
December 31, 1997. The company's operations provided net cash of approximately
$24,441,000 during 1997. The company spent approximately $45,012,000 on
capital expenditures for various satellite, launch vehicle and other
production, test and office equipment during 1997.
On February 25, 1998, ORBIMAGE issued units consisting of $150,000,000 of
115/8% Senior Notes due 2005 (the "Notes") and warrants to purchase ORBIMAGE's
common stock, raising net proceeds of approximately $145,500,000. Net proceeds
from the sale of the units will be applied to (i) the procurement of two
high-resolution imagery satellites and related launch services and associated
ground system equipment, (ii) operating expenses and (iii) the first two years
of interest on the Notes. The Notes are non-recourse to Orbital. Concurrent
with this issuance, ORBIMAGE completed a private placement of 227,295 shares of
12% cumulative convertible preferred stock, raising net proceeds of
approximately $21,000,000. After these 1998 transactions, the company is no
longer contractually obligated to purchase additional shares of ORBIMAGE's
preferred stock.
The company expects that ORBCOMM will need additional funding during 1998.
ORBCOMM's management is exploring various debt or equity placements in both the
private and public markets. If this funding cannot be raised from third-party
investors, or cannot be raised in a timely manner, Orbital has a commitment to
fund to ORBCOMM an additional $7,500,000.
Orbital expects that its capital needs for 1998 will, in part, be provided by
working capital, cash flows from operations, existing credit facilities,
customer financings and operating lease arrangements. In addition, to support
further business expansion, the company is also considering equity and debt
financings.
OUTLOOK: ISSUES AND UNCERTAINTIES
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor, in certain circumstances, for forward-looking statements made by
or on behalf of the company. The company and its representatives may from time
to time make written or verbal forward-looking statements, including statements
contained in our company's filings with the Securities and Exchange Commission
and in the report to stockholders. All statements that address operating
performance, events or developments that the company expects or anticipates
will occur in the future, including statements relating to the company's sales
and earnings growth or statements expressing general optimism about future
operating results, are forward-looking statements within the meaning of the
Act. The forward-looking statements are and will be based on management's
then-current views and assumptions regarding future events and operating
performance.
Orbital 39
<PAGE> 10
The following are some of the factors that could cause actual results to differ
materially from information contained in the company's forward-looking
statements:
Most of the products developed and manufactured by the company and its
affiliates are technologically advanced and sometimes novel systems that must
function under demanding operating conditions and are subject to significant
technological change and innovation. Orbital has occasionally experienced
product failures or problems. In addition to any costs resulting from product
warranties or required remedial action, product failures may result in
increased costs or loss of revenues due to postponement or cancellation of
subsequently scheduled operations or other product deliveries.
At December 31, 1997, approximately 50% of Orbital's total firm contract
backlog was derived from contracts with the U.S. government and its agencies or
from subcontracts with prime contractors to the U.S. government. Most of the
company's government contracts are funded incrementally on a year-to-year
basis. Changes in government policies, priorities or funding levels through
agency or program budget reductions by the U.S. Congress or executive agencies
could materially adversely affect Orbital's financial condition or results of
operations. Furthermore, contracts with the U.S. government may be terminated
or suspended by the U.S. government at any time, with or without cause. Such
contract suspensions or terminations could result in unreimbursable expenses or
charges or otherwise adversely affect the company.
The accuracy and appropriateness of Orbital's direct and indirect costs and
expenses under its contracts with the U.S. government are subject to extensive
regulation and audit by the Defense Contract Audit Agency or by other
appropriate agencies of the U.S. government. These agencies have the right to
challenge Orbital's cost estimates or allocations with respect to any such
contract. A substantial portion of payments to the company under U.S.
government contracts are provisional payments that are subject to potential
adjustment upon audit by such agencies.
Virtually all the company's products and services face significant competition
from existing competitors, many of whom are larger and have substantially
greater resources than the company. Furthermore, the possibility exists that
other domestic or foreign companies or governments will seek to produce
products or services that compete with those of the company. A foreign
competitor could benefit from subsidies from, or other protective measures by,
its home country.
The company has historically made strategic acquisitions of businesses and
routinely evaluates potential acquisition candidates that it believes would
enhance its business. The company also has historically pursued strategic
alliances through joint ventures, and routinely evaluates similar
opportunities. Such transactions commonly involve certain risks including,
among others, assimilating the acquired operations, technologies and personnel
and maintaining appropriate standards, controls, procedures and policies,
entering markets in which the company has little or no direct prior experience,
potentially losing key employees of acquired organizations and resolving
potential disputes with joint venture partners.
The recoverability of the company's investments in ORBCOMM and ORBIMAGE depends
on several factors including, among other things, the successful and timely
implementation of innovative and novel technologies involving complex systems
in a cost-effective manner, the establishment and expansion of commercial
markets and customer acceptance, and competition. If the company concludes at
any time that its investments are not recoverable, the company may be required
to expense part or all of such investments.
Orbital 40
<PAGE> 11
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, 1997 and 1996, 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, 1997.
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 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 as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Washington, D.C.
February 4, 1998
Orbital 41
<PAGE> 12
CONSOLIDATED STATEMENTS
OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 605,975 $ 461,435 $ 364,320
Costs of goods sold 456,772 336,261 268,016
----------------------------------------------------
Gross profit 149,203 125,174 96,304
Research and development expenses 26,355 22,179 28,512
Selling, general and administrative expenses 89,502 76,019 63,427
Amortization of excess of purchase price over net assets acquired 3,852 3,134 3,221
----------------------------------------------------
Income from operations 29,494 23,842 1,144
Net investment income (expense), net of interest expense of
$429, $2,486 and $3,815, respectively 1,475 (1,123) 639
Equity in earnings (losses) of affiliates (26,034) (6,454) (759)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries 2,638 1,473 427
Gain on sale of subsidiary stock 21,810 -- --
Acquisition expenses (4,343) -- (3,441)
----------------------------------------------------
Income (loss) before provision (benefit) for income taxes
and cumulative effect of accounting change 25,040 17,738 (1,990)
Provision (benefit) for income taxes 2,035 1,831 (1,302)
----------------------------------------------------
Income (loss) before cumulative effect of accounting change 23,005 15,907 (688)
Cumulative effect of accounting change, net of taxes -- -- (4,160)
----------------------------------------------------
Net income (loss) $ 23,005 $ 15,907 $ (4,848)
====================================================
NET INCOME (LOSS) PER COMMON SHARE:
Income (loss) before cumulative effect of accounting change $ 0.71 $ 0.55 $ (0.03)
Cumulative effect of accounting change -- -- (0.16)
----------------------------------------------------
$ 0.71 $ 0.55 $ (0.19)
====================================================
Shares used in computing net income (loss) per common share 32,283,138 29,137,361 26,207,746
====================================================
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING DILUTION:
Income (loss) before cumulative effect of accounting change $ 0.69 $ 0.55 $ (0.03)
Cumulative effect of accounting change -- -- (0.16)
----------------------------------------------------
$ 0.69 $ 0.55 $ (0.19)
====================================================
Shares used in computing net income (loss)
per common share, assuming dilution 33,980,747 31,616,119 30,103,858
=======================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Orbital 42
<PAGE> 13
CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $6,162 and $11,604, respectively $ 12,553 $ 26,859
Short-term investments, at market 2,573 5,827
Receivables, net 190,204 144,774
Inventories, net 50,925 27,159
Deferred income taxes and other assets 8,190 6,475
------------------------------
TOTAL CURRENT ASSETS 264,445 211,094
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization of
$79,347 and $69,534, respectively 137,498 127,862
INVESTMENTS IN AFFILIATES, net 159,230 82,582
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, less accumulated amortization of
$19,794 and $15,942, respectively 181,955 69,512
DEFERRED INCOME TAXES AND OTHER ASSETS 28,511 9,720
------------------------------
TOTAL ASSETS $771,639 $500,770
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 29,317 $ 38,519
Accounts payable 36,217 25,789
Accrued expenses 100,274 32,372
Deferred revenue 46,138 30,741
------------------------------
TOTAL CURRENT LIABILITIES 211,946 127,421
LONG-TERM OBLIGATIONS, net of current portion 198,394 33,076
OTHER LIABILITIES 2,443 11,581
------------------------------
TOTAL LIABILITIES 412,783 172,078
NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES 3,755 (1,810)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized:
Series A Special Voting Preferred Stock, one share authorized and outstanding -- --
Class B Preferred Stock, 10,000 shares authorized, none and 10,000 shares outstanding -- --
Common Stock, par value $.01; 80,000,000 shares authorized, 32,481,719 and 32,160,598
shares outstanding, after deducting 20,877 and 15,735 shares held in treasury,
respectively 325 322
Additional paid-in capital 326,187 323,592
Unrealized gains on short-term investments 272 14
Cumulative translation adjustment (4,943) (3,681)
Retained earnings 33,260 10,255
------------------------------
TOTAL STOCKHOLDERS' EQUITY 355,101 330,502
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $771,639 $500,770
========================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Orbital 43
<PAGE> 14
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES) ON
COMMON STOCK ADDITIONAL SHORT-TERM
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT PAID-IN CAPITAL INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 24,257,322 $ 243 $ 210,030 $ (462)
Shares issued to employees and directors 300,011 3 1,857 --
Shares issued in private offering 2,000,000 20 32,366 --
Conversion of convertible debentures 208,696 2 2,914 --
Adjustment to recast year end of pooled company -- -- -- --
Transactions of pooled company -- -- 413 --
Translation adjustment -- -- -- --
Net loss -- -- -- --
Unrealized gains on short-term investments -- -- -- 530
---------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 26,766,029 268 247,580 68
Shares issued to employees and directors 298,916 3 2,163 --
Shares issued in private offering 1,200,000 12 20,251 --
Conversion of convertible debentures 3,895,653 39 53,598 --
Translation adjustment -- -- -- --
Net income -- -- -- --
Unrealized losses on short-term investments -- -- -- (54)
---------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 32,160,598 322 323,592 14
Shares issued to employees and directors, net 321,121 3 2,595 --
Translation adjustment -- -- -- --
Net income -- -- -- --
Unrealized gains on short-term investments -- -- -- 258
---------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 32,481,719 $ 325 $ 326,187 $ 272
========================================================================================================================
<CAPTION>
CUMULATIVE RETAINED
TRANSLATION EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA) ADJUSTMENT (DEFICIT) TOTAL
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ (3,111) $ 243 $ 206,943
Shares issued to employees and directors -- -- 1,860
Shares issued in private offering -- -- 32,386
Conversion of convertible debentures -- -- 2,916
Adjustment to recast year end of pooled company -- (1,047) (1,047)
Transactions of pooled company -- -- 413
Translation adjustment (245) -- (245)
Net loss -- (4,848) (4,848)
Unrealized gains on short-term investments -- -- 530
-----------------------------------------------
BALANCE, DECEMBER 31, 1995 (3,356) (5,652) 238,908
Shares issued to employees and directors -- -- 2,166
Shares issued in private offering -- -- 20,263
Conversion of convertible debentures -- -- 53,637
Translation adjustment (325) -- (325)
Net income -- 15,907 15,907
Unrealized losses on short-term investments -- -- (54)
-----------------------------------------------
BALANCE, DECEMBER 31, 1996 (3,681) 10,255 330,502
Shares issued to employees and directors, net -- -- 2,598
Translation adjustment (1,262) -- (1,262)
Net income -- 23,005 23,005
Unrealized gains on short-term investments -- -- 258
-----------------------------------------------
BALANCE, DECEMBER 31, 1997 $ (4,943) $ 33,260 $ 355,101
========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Orbital 44
<PAGE> 15
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $23,005 $15,907 $ (4,848)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expense 23,854 25,096 22,229
Equity in losses of affiliates 26,034 6,454 759
Non-controlling interests in losses of consolidated subsidiaries (2,638) (1,473) (427)
Gain on sale of subsidiary stock, fixed assets and investments, net (21,810) 226 (2,196)
Cumulative effect of accounting change -- -- 4,160
Foreign currency translation adjustment (1,262) (325) (245)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables 915 (29,916) (2,337)
(Increase) decrease in inventories (18,288) 10,261 (12,082)
(Increase) decrease in other assets (8,280) 2,221 (3,940)
Decrease in accounts payable and accrued expenses (7,194) (11,051) (11,423)
Increase in deferred revenue 3,742 919 7,090
Increase (decrease) in other liabilities 6,363 (2,954) 942
-------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 24,441 15,365 (2,318)
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (45,012) (43,544) (17,239)
Proceeds from sales of assets, net 34,682 9,518 293
Purchases of available-for-sale investment securities (25,328) (5,623) (61,685)
Sales of available-for-sale investment securities 22,209 11,041 49,168
Maturities of available-for-sale investment securities 6,631 8,220 8,100
Investments in affiliates (107,110) (22,991) (18,888)
Payments for business acquisitions, net of cash acquired (66,558) -- --
-------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (180,486) (42,379) (40,251)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) (3,700) 26,200 (17,483)
Principal payments on long-term obligations (20,237) (7,502) (5,749)
Net proceeds from issuance of long-term obligations 163,078 -- 20,000
Fees associated with conversion of debentures -- (2,571) --
Net proceeds from issuances of common stock 2,598 22,429 34,246
Adjustment to recast pooled company's year end -- -- (1,047)
-------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 141,739 38,556 29,967
-------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (14,306) 11,542 (12,602)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,859 15,317 27,919
-------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $12,553 $26,859 $ 15,317
================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Orbital 45
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1/ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or the
"company"), a Delaware corporation, is an international space and information
systems company that designs, manufactures, operates and markets a broad range
of affordable products and services that are grouped into three sectors: Space
and Ground Infrastructure Systems, Satellite Access Products and Satellite
Services. Space and Ground Infrastructure Systems include launch vehicles,
satellites, electronics and sensors, and satellite ground systems; Satellite
Access Products include satellite-based navigation and communications products
and transportation management systems; and Satellite Services include
satellite-based two-way mobile data communications services and satellite-based
imagery services. Disaggregated financial information is presented in note 2.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Orbital, all
wholly and partially owned subsidiaries controlled by Orbital, and partnerships
in which Orbital directly or indirectly controls the general partner interests.
All material transactions and accounts among consolidated entities have been
eliminated in consolidation.
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 financial statement presentation. All
financial amounts are stated in U.S. dollars unless otherwise indicated.
REVENUE RECOGNITION
Orbital recognizes revenues on long-term contracts using the
percentage-of-completion method of accounting. Accordingly, (i) revenues on
cost-plus-fee contracts are recognized to the extent of costs incurred plus a
proportionate amount of fee earned, and (ii) revenues on fixed-price contracts
are recognized based on costs incurred in relation to total estimated costs, or
based on specific delivery terms and conditions. To the extent that estimated
costs of completion are adjusted, revenue and profit recognized from a
particular contract will be affected in the period of the adjustment.
Anticipated contract losses are recognized as they become known. Revenues from
sales of access products and satellite services are generally recognized when
the product is shipped or the service is performed.
FOREIGN CURRENCY
Orbital's operating entities are in a number of countries and deal in a number
of foreign currencies. The financial results of foreign operations are
translated to U.S. dollars using year end exchange rates for assets and
liabilities and using weighted average exchange rates for revenues, expenses,
gains and losses.
Translation gains and losses relating to foreign operations that are
self-contained and integrated within a particular country or economic
environment, and therefore are not dependent on the U.S. dollar, are recognized
as a separate component of stockholders' equity until there is a realized
reduction in Orbital's net investment in the foreign operation. Translation
losses in 1997, 1996 and 1995 were approximately $1,262,000, $325,000 and
$245,000, respectively. Translation gains and losses relating to foreign
operations that are a direct and integral component or extension of Orbital's
domestic operations, and therefore are dependent on the U.S. dollar, are
reported currently as a component of net income.
Orbital 46
<PAGE> 17
Orbital enters into forward exchange contracts to hedge against foreign
currency fluctuations on certain receivables and payables (see note 6). Gains
and losses on contracts to hedge specific foreign currency commitments are
deferred and accounted for as part of the underlying transaction.
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 U.S. government contracts under government-mandated cost accounting
standards.
DEPRECIATION, AMORTIZATION AND RECOVERABILITY OF LONG-LIVED ASSETS
Depreciation and amortization are provided using the straight-line method as
follows:
<TABLE>
<S> <C>
Buildings 18 to 20 years
Machinery, equipment and software 3 to 10 years
Satellite systems Estimated useful life of satellite
Leasehold improvements Shorter of estimated useful life or lease term
</TABLE>
In 1995, the company adopted the provisions of Statement of Financial
Accounting Standards 121, "Accounting for the Impairment of Long-Lived Assets
to be Disposed of" ("SFAS 121"). The cumulative effect on 1995 earnings of
adopting SFAS 121 was approximately $4,160,000. Orbital's policy is to review
its long-lived assets, including excess of purchase price over net assets
acquired, investments in affiliates, and specialized equipment used to support
specific space-related products, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The company recognizes an impairment loss when the sum of
expected future cash flows is less than the carrying amount of the asset.
Given the inherent technical and commercial risks within the space industry, it
is possible that the company's current estimate that it will recover the
carrying amount of its long-lived assets from future operations may change.
INCOME TAXES
The company recognizes income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect of a tax rate change on deferred tax assets and liabilities is
recognized as income in the period that includes the enactment date.
STOCK-BASED COMPENSATION
Prior to January 1, 1996, the company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations. Pursuant to APB 25, compensation expense is recorded only to
the extent that the current market price of the underlying stock exceeded the
exercise price on the date of grant. On January 1, 1996, the company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which requires companies to (i)
recognize as expense the fair value of all stock-based awards on the date of
grant, or (ii) continue to apply the provisions of APB 25 and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future
Orbital 47
<PAGE> 18
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
years as if the fair-value-based method defined in SFAS 123 had been applied.
The company has elected to continue to apply the provisions of APB 25 and
provide the pro forma disclosure in accordance with the provisions of SFAS 123
(see note 13).
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"), which requires companies to present basic earnings per share and
diluted earnings per share, instead of the primary and fully diluted earnings
per share that had previously been required. The company adopted SFAS 128 in
the fourth quarter of 1997 and, accordingly, has restated previously reported
quarterly data for 1997 (see note 14). The impact to prior years' amounts was
immaterial. Net income (loss) per common share is calculated using the
weighted average number of common shares outstanding during the periods. Net
income (loss) per common share assuming dilution is calculated using the
weighted average number of common shares and dilutive common equivalent shares
outstanding during the periods, plus the effects of an assumed conversion of
the company's convertible notes, after giving effect to all net income
adjustments that would result from the assumed conversion.
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. In addition, at December 31, 1997
and 1996, the company had approximately $6,162,000 and $11,604,000,
respectively, of cash restricted to support outstanding letters of credit.
INVENTORIES
Inventories consist of components and raw materials inventory, work-in-process
inventory and finished goods inventory and are generally stated at the lower of
cost or net realizable value on a first-in, first-out ("FIFO") or specific
identification basis. Inventories, net of allowances for obsolescence,
consisted of the following:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Components and raw materials $ 14,013 $ 19,090
Work-in-process 26,932 6,962
Finished goods 9,980 1,107
---------------------------
Total $ 50,925 $ 27,159
=======================================================================
</TABLE>
Orbital 48
<PAGE> 19
Components and raw materials are purchased to support future production
efforts. Work-in-process inventory consists primarily of (i) costs incurred
under long-term fixed-price contracts accounted for using the
percentage-of-completion method of accounting applied on a units of delivery
basis, and (ii) partially assembled commercial products, and generally includes
direct production costs and certain allocated indirect costs (including an
allocation of general and administrative costs). Work-in-process inventory has
been reduced by contractual progress payments received of $5,899,000 and
$26,696,000 at December 31, 1997 and 1996, respectively. Finished goods
inventory consists of fully assembled commercial products awaiting shipment.
SELF-CONSTRUCTED ASSETS AND INTERNALLY DEVELOPED SOFTWARE
The company self-constructs much of its ground and airborne support and special
test equipment used in the manufacture, production and delivery of many of its
space infrastructure products. Orbital also develops and manufactures product
improvements and enhancements to existing products for sale. Orbital
capitalizes certain costs incurred in constructing ground and airborne support
and special test equipment, product improvements and enhancements, and
satellite systems. Capitalized costs generally include direct construction
costs and certain allocated indirect costs, and exclude general and
administrative and research and development costs.
The company also capitalizes certain internal costs incurred in developing
software to be used to support various products. Capitalized costs generally
include direct software coding costs and certain allocated indirect costs, and
exclude general and administrative and research and development costs.
Amortization of capitalized costs begins when the software is placed in
service. No amortization expense is included in the accompanying consolidated
statements of earnings since the software has not yet been placed in service.
INVESTMENTS IN AFFILIATES
The company uses the equity method of accounting for its investments in and
equity in earnings (losses) of affiliates in which the company has the ability
to significantly influence, but not control, the affiliates' 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 excess of the amount of Orbital's investment over the
amount of the underlying equity in each affiliate's net assets is amortized
over a period of 20 years. The company capitalizes interest costs on equity
method investments when such affiliate has significant assets under
construction. At December 31, 1997 and 1996, approximately $25,576,000 and
$15,947,000, respectively, of interest costs had been capitalized cumulatively
as part of the historical cost of investments in affiliates. The company uses
the cost method of accounting for investments in affiliates in which it cannot
control or significantly influence operations.
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 its
estimated useful life, generally 10-40 years. Orbital periodically assesses
and evaluates the recoverability of such assets based on current facts and
circumstances and the operational performance of the acquired businesses.
Orbital 49
<PAGE> 20
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SALES OF SUBSIDIARY STOCK
The company, at times, may divest a portion or all its ownership in its
subsidiaries through the sale of such stock or through the issuance of
additional subsidiary stock. The company recognizes the difference between the
carrying amount of its interest in the subsidiary stock sold and the fair
market value of the stock as a gain or loss when the company believes the
realization of the gain or loss is assured.
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 when it determines that a
specific material liability exists. The company at times provides limited
warranties on certain commercial products and accrues an estimate of expected
warranty costs based on historical experience.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130") and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 establishes standards for
reporting and presenting comprehensive income and its components in the
consolidated financial statements. The new disclosure requirements with
respect to comprehensive income will impact the manner of presentation of the
company's annual and interim consolidated financial statements. Upon adoption,
the company will be required to reclassify previously reported annual and
interim consolidated financial statements. SFAS 131 establishes new procedures
and requirements for the (i) determination of business segments, (ii)
presentation and disclosure of segment information and (iii) disclosure of
selected segment information within interim consolidated financial statements.
The company has assessed the impact of adopting SFAS 131 and believes that it
will not be required to change the composition of its segments, although it
will be required to report segment information within its interim consolidated
financial statements. In accordance with the provisions of SFAS 130 and SFAS
131, the company will adopt these standards in 1998.
2/ DISAGGREGATED FINANCIAL INFORMATION
INDUSTRY SECTOR INFORMATION
Orbital's operations are classified into three industry sectors: Space and
Ground Infrastructure Systems, Satellite Access Products and Satellite
Services. Space and Ground Infrastructure Systems include launch vehicles,
including space and suborbital expendable launch vehicles and reusable launch
vehicles, satellites and other space systems, electronics and sensors,
including space sensors and instruments, avionics and other electronics
equipment, and satellite ground systems. Satellite Access Products include
recreational, automotive and industrial satellite-based navigation products,
satellite communications products and transportation management systems.
Satellite Services include satellite-based global data communications services
and satellite-based imagery services.
The table on the following page presents revenues, operating income (loss),
identifiable assets (including goodwill), capital expenditures, depreciation
and amortization and impairment losses by industry sector. Operating income
(loss) is total revenues less costs of goods sold, research and development
expenses, selling, general and administrative expenses, and amortization of
goodwill. Identifiable assets are those assets used in the operations of each
industry sector. There were no significant inter-sector sales or transfers.
Orbital 50
<PAGE> 21
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SPACE AND GROUND
INFRASTRUCTURE SYSTEMS
Revenues $534,419 $388,814 $300,439
Operating income 47,953 26,376 2,433
Identifiable assets 520,950 362,700 357,662
Capital expenditures 42,823 27,529 15,065
Depreciation and amortization 21,491 21,954 21,150
Impairment losses -- -- 4,160
SATELLITE ACCESS PRODUCTS
Revenues 71,384 71,188 52,681
Operating income (loss) (11,754) 4,902 3,441
Identifiable assets 117,511 32,376 27,641
Capital expenditures 1,692 3,402 1,204
Depreciation and amortization 1,962 944 532
SATELLITE SERVICES
Revenues 172 1,433 11,200
Operating loss (6,705) (7,436) (4,730)
Identifiable assets 133,178 105,694 81,605
Capital expenditures 497 12,613 970
Depreciation and amortization 401 2,198 547
CONSOLIDATED
Revenues 605,975 461,435 364,320
Operating income 29,494 23,842 1,144
Identifiable assets 771,639 500,770 466,908
Capital expenditures 45,012 43,544 17,239
Depreciation and amortization 23,854 25,096 22,229
Impairment losses -- -- 4,160
==========================================================================================
</TABLE>
DOMESTIC AND NON-U.S. OPERATIONS
The following table presents Orbital's revenues, operating income (loss) and
identifiable assets by major location:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
United States $525,144 $392,130 $ 290,914
Canada and Mexico 75,584 65,350 68,997
United Kingdom and other 5,247 3,955 4,409
---------------------------------------------
Total $605,975 $461,435 $ 364,320
=============================================
OPERATING INCOME (LOSS)
United States $ 27,959 $ 21,183 $ (2,413)
Canada and Mexico 1,465 2,416 3,964
United Kingdom and other 70 243 (407)
---------------------------------------------
Total $ 29,494 $ 23,842 $ 1,144
=============================================
IDENTIFIABLE ASSETS
United States $718,437 $450,394 $ 420,078
Canada and Mexico 50,690 46,984 44,291
United Kingdom and other 2,512 3,392 2,539
---------------------------------------------
Total $771,639 $500,770 $ 466,908
===========================================================================================
</TABLE>
EXPORT SALES AND MAJOR CUSTOMERS
Orbital's sales to geographic areas were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $447,041 $349,555 $275,707
Canada 39,274 46,742 45,558
Southeast Asia 35,688 -- --
Far East 32,875 17,517 15,242
Europe 26,771 33,762 23,594
Middle East and other 24,326 13,859 4,219
---------------------------------------------
Total $605,975 $461,435 $364,320
==========================================================================================
</TABLE>
Approximately 38%, 45% and 40% of the company's revenues in 1997, 1996 and
1995, respectively, were generated under contracts with the U.S. government and
its agencies or under subcontracts with the U.S. government's prime
contractors.
Orbital 51
<PAGE> 22
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
3/ INVESTMENTS IN AFFILIATES
ORBIMAGE
On May 8, 1997, the company's subsidiary, Orbital Imaging Corporation
("ORBIMAGE"), completed a private placement of 300,100 shares of 12% Series A
Cumulative Convertible Preferred Stock (the "Preferred Stock"), raising gross
proceeds of $30,010,000. Also on that date, Orbital purchased ORBIMAGE common
stock, bringing its total equity invested to approximately $89,187,000. On
July 3, 1997, ORBIMAGE sold an additional 72,605 shares of Preferred Stock,
raising an additional $7,260,500. Each share of Preferred Stock entitles its
holder to receive annual cumulative dividends of 12% per annum, payable in cash
or additional shares of Preferred Stock, at the discretion of ORBIMAGE's Board
of Directors. Pursuant to the terms of this transaction, at December 31, 1997,
Orbital owned approximately 75% of ORBIMAGE and no longer controls ORBIMAGE's
financial and operational affairs as a result of certain rights provided to
ORBIMAGE's preferred stockholders. Consequently, the company no longer
consolidates ORBIMAGE's financial results, but rather uses the equity method of
accounting for its investment in, and earnings or losses attributable to,
ORBIMAGE.
Pursuant to a fixed-price contract, Orbital is the primary supplier to ORBIMAGE
of imaging satellites, launch services and ground systems. During the year
ended December 31, 1997, Orbital recorded sales of approximately $88,618,000 to
ORBIMAGE pursuant to this contract. Additionally, Orbital provides certain
administrative services to ORBIMAGE on a cost-reimbursable basis; during 1997,
Orbital was reimbursed approximately $1,444,000 for such administrative
services. At December 31, 1997, the company had receivables due from ORBIMAGE
of approximately $3,548,000.
At December 31, 1997, ORBIMAGE had total assets, total liabilities and total
stockholders' equity of approximately $137,750,000, $52,389,000 and
$85,361,000, respectively. ORBIMAGE recorded approximately $2,062,000 in
revenues and $4,082,000 in net losses for the year ended December 31, 1997.
ORBCOMM
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 Global, L.P.
("ORBCOMM"), for the design, development, construction, integration, testing
and operation of a low-Earth orbit satellite communications system (the
"ORBCOMM System"). OCC and Teleglobe Mobile are each 50% general partners in
ORBCOMM, and have contributed to ORBCOMM $75,275,000 and $84,525,000,
respectively, through December 31, 1997. At December 31, 1997, OCC and
Teleglobe Mobile each had a remaining commitment to fund $15,000,000 to
ORBCOMM. Additionally, OCC is a 2% general partner in ORBCOMM USA, L.P.
("ORBCOMM USA") and Teleglobe Mobile is a 2% general partner in ORBCOMM
International Partners, L.P. ("ORBCOMM International"), two partnerships formed
to market the ORBCOMM System. ORBCOMM is a 98% general partner in each of the
two marketing partnerships.
Pursuant to the terms of the partnership agreements, (i) OCC and Teleglobe
Mobile share equal responsibility for the operational and financial affairs of
ORBCOMM, (ii) OCC controls the operational and financial affairs of ORBCOMM USA
and (iii) Teleglobe Mobile controls the operational and financial affairs of
ORBCOMM International. Since OCC is unable to control, but is able to exercise
significant influence over ORBCOMM's and ORBCOMM International's operating and
financial policies, the company accounts for its investments in ORBCOMM and
ORBCOMM International using the equity method of accounting. Since OCC is able
to control the operational and financial affairs of ORBCOMM USA, the company
consolidates ORBCOMM USA's results of operations.
Orbital 52
<PAGE> 23
Orbital is the primary supplier of the communications satellites, launch
vehicles and certain ground systems to ORBCOMM pursuant to a fixed-price
contract. During 1997, 1996 and 1995, Orbital recorded sales to ORBCOMM
pursuant to this contract of approximately $57,988,000, $47,215,000 and
$49,187,000, respectively. At December 31, 1997 and 1996, Orbital had
approximately $16,646,000 and $3,400,000, respectively, in receivables from
ORBCOMM. Additionally, since 1995 Orbital has provided certain administrative
services to ORBCOMM on a cost-reimbursable basis. During 1997, 1996 and 1995,
Orbital was reimbursed approximately $2,298,000, $1,295,000 and $297,000,
respectively, for such services.
At December 31, 1997, ORBCOMM had total assets, total liabilities and total
partners' capital of approximately $316,969,000, $210,551,000 and $106,418,000,
respectively. ORBCOMM recorded approximately $527,000 in revenues and
$31,436,000 in net losses for the year ended December 31, 1997.
OTHER INVESTMENTS
The company owns equity interests in several emerging space-related companies.
The cost basis of these investments was approximately $7,275,000 and
$2,910,000, respectively, at December 31, 1997 and 1996. The company provides
a valuation allowance against investments in affiliates when it is determined
that recovery of all or part of the investment is not probable. At December
31, 1997 and 1996, approximately $4,886,000 and $1,100,000 of allowance had
been recorded against certain of these investments. Approximately $2,000,000
of gain on the sale of an investment was realized in 1995 when Orbital sold one
such fully reserved investment. The gain was reported in net investment income
in the 1995 consolidated statement of earnings. No such gains from sales of
investments were realized in 1997 or 1996.
4/ BUSINESS COMBINATIONS
PURCHASE TRANSACTIONS
ASHTECH INC. MERGER. On December 31, 1997, Orbital merged its subsidiary,
Magellan Corporation, with Ashtech Inc. ("Ashtech") (the combined company is
hereinafter referred to as "Magellan"). To effect the merger, Orbital paid
former Ashtech security holders approximately $52,800,000, consisting of
$25,000,000 in cash and approximately 23,954,000 shares of Magellan common
stock. Orbital now owns a controlling interest of approximately 66% of
Magellan. Orbital recognized a gain of $21,810,000 on the issuance of Magellan
common stock. The merger was accounted for using the purchase method of
accounting. Accordingly, approximately $46,663,000 in excess of purchase price
over the fair value of net assets acquired was recorded and is being amortized
on a straight-line basis over 20 years.
CTA INCORPORATED ACQUISITION. On August 15, 1997, Orbital acquired
substantially all the assets, including all the stock of certain subsidiaries,
and certain liabilities relating to the satellite manufacturing and
communications services businesses of CTA Incorporated ("CTA"). The financial
results of the acquired businesses have been included in the company's
consolidated results since August 15, 1997. As consideration, Orbital repaid
$27,000,000 of outstanding debt related to the acquired businesses and paid
approximately $13,000,000 in cash, which may be reduced subject to certain
post-closing adjustments. The company accounted for the acquisition using the
purchase method of accounting. The purchase price exceeded the fair value of
the net assets acquired by approximately $65,724,000 which is being amortized
on a straight-line basis over 30 years. During the five years following the
closing, CTA will also be entitled to receive (i) royalties from $500,000 to
$3,000,000 for sales by the company of certain geostationary satellites in
excess of certain threshold sales, and (ii) 3% of cumulative revenues in excess
of $50,000,000 earned during such period from the acquired transportation
management business of CTA.
Orbital 53
<PAGE> 24
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
ROCKWELL INTERNATIONAL CORPORATION ACQUISITION. In July 1997, Orbital formed
Magellan DIS Inc. ("DIS") to acquire from Rockwell International Corporation
("Rockwell") the assets and certain liabilities associated with Rockwell's
automotive navigation product line. Orbital paid approximately $3,550,000 in
cash and issued Rockwell a $4,350,000 unsecured note, which bears interest at
6% and is repayable semi-annually over three years. The stock of DIS was
subsequently transferred to Magellan. The company accounted for the
acquisition using the purchase method of accounting. The purchase price
exceeded the fair value of the net assets acquired by approximately $2,262,000,
which is being amortized on a straight-line basis over 10 years.
The following unaudited supplemental financial information presents the
consolidated results of operations, on a pro forma basis, as though the
Ashtech, CTA and Rockwell acquisitions were consummated on January 1, 1996:
<TABLE>
<CAPTION>
December 31,
(In thousands, except share data) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 700,175 $ 560,312
Net income 21,087 16,966
Net income per common share 0.65 0.58
Net income per common share, assuming dilution 0.62 0.54
===============================================================================
</TABLE>
The allocation of purchase price to net assets acquired on the 1997
acquisitions may be adjusted in 1998 if additional information becomes known
about certain business assumptions used to estimate the fair value of such net
assets.
On April 6, 1994, the company's subsidiary, MacDonald, Dettwiler and Associates
Ltd. ("MDA"), acquired all the outstanding common shares of The PSC
Communications Group Inc. ("PSC") from PSC's former shareholders. In October
1996, Orbital sold substantially all the assets of PSC for approximately
$13,000,000, resulting in a gain of approximately $3,600,000. The gain is
included in revenues in the 1996 consolidated statement of earnings.
POOLING OF INTERESTS TRANSACTION
MACDONALD, DETTWILER AND ASSOCIATES LTD. On November 17, 1995, the company
acquired all the outstanding common shares of MDA from its former shareholders
in a merger designed to be tax free to MDA's Canadian shareholders (the "MDA
Acquisition").
Pursuant to the terms of the MDA Acquisition, a newly established, wholly owned
Canadian subsidiary of Orbital ("Acquisition Subsidiary") issued 4,087,126
exchangeable shares (the "Exchangeable Shares") in exchange for all the issued
and outstanding MDA common shares. The company also granted 328,399 options to
acquire Orbital common stock to MDA employees who, at the date of the
acquisition, held options to acquire MDA common shares. The Exchangeable
Shares were exchangeable into Orbital common stock at the option of the
holders. As part of the MDA Acquisition, Acquisition Subsidiary also issued
10,000 shares of Class B Preferred Stock to a financial advisor in satisfaction
of a portion of the fees owed to that advisor; these shares were fully
redeemed during 1997. Additionally, Orbital issued one share of Series A
Special Voting Preferred Stock to a voting trust to act as a voting trustee on
behalf of the holders of the Exchangeable Shares. Orbital accelerated the
redemption of all outstanding Exchangeable Shares in December 1997.
Orbital 54
<PAGE> 25
The MDA Acquisition was accounted for using the pooling of interests method of
accounting and, accordingly, Orbital's historical consolidated financial
statements were restated to include MDA's financial position, results of
operations and cash flows. Merger expenses relating to the MDA Acquisition of
approximately $3,400,000 were charged to earnings and were included in
acquisition expenses during 1995.
Prior to the acquisition, MDA's financial results were prepared on a March 31
fiscal year basis. Orbital's restated financial statements for 1994 include
MDA's historical financial results for its fiscal year ended March 31, 1995.
Orbital's consolidated financial statements for the year ended December 31,
1995 included MDA's financial results for the twelve-month period ended
December 31, 1995. The effect of recasting MDA's year end for 1995 was charged
to Orbital's retained earnings as of January 1, 1995. The charge to retained
earnings eliminated the effect of including MDA's results of operations for the
three-month period ended March 31, 1995 of $1,047,000 in Orbital's 1995 and
1994 consolidated results of operations. MDA's revenues for the same
three-month period were approximately $20,634,000.
5/ SHORT-TERM INVESTMENTS
The following table sets forth the aggregate amortized cost, aggregate fair
value and gross unrealized gains and losses for Orbital's short-term
investments in debt securities:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Amortized cost $ 2,301 $ 5,813
Fair value 2,573 5,827
--------------------------
Unrealized gains $ 272 $ 14
=============================================================================
</TABLE>
Orbital recognized net losses of approximately $261,000 on sales of short-term
investments in 1995 and had no such losses in 1997 or 1996. All debt
securities held at December 31, 1997 are scheduled to mature in 1998.
6/ RECEIVABLES AND ACCRUED EXPENSES
The components of receivables were as follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Billed and billable $ 118,613 $ 73,747
Recoverable costs and accrued profit not billed 73,536 62,628
Retainages due upon contract completion 6,132 9,767
Allowance for doubtful accounts (8,077) (1,368)
----------------------------
Total $ 190,204 $144,774
==============================================================================
</TABLE>
Approximately 75% of recoverable costs and accrued profit not billed and
retainages due upon contract completion at December 31, 1997 is due within one
year and will be billed on the basis of contract terms and delivery schedules.
Orbital 55
<PAGE> 26
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
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 U.S. 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 contracts. Additionally, a substantial
portion of the payments to the company under 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, 1997 and 1996, $43,294,000 and $33,690,000, respectively, were
receivable from non-U.S. customers. The company enters into forward exchange
contracts in an effort to hedge against foreign currency fluctuations on
certain receivables and payables denominated in foreign currencies.
Accordingly, Orbital is subject to off-balance sheet market risk for the
possibility that future changes in market prices may make the forward exchange
contracts less valuable. The following table summarizes, at December 31, 1997,
outstanding foreign exchange contracts to sell (purchase) foreign currencies,
along with current market values:
<TABLE>
<CAPTION>
(U.S. dollars, in thousands)
- -----------------------------------------------------------------------------------------------------------------------
Foreign Currency
Currency Hedged Hedged Against Contract Amount Current Market Value Unrealized Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Belgian Francs CD $ 569 $ 556 $ 13
ECU CD 1,477 1,492 (15)
ECU PS 1,392 1,271 121
French Francs CD (31) (28) (3)
Pounds Sterling CD 3,914 3,996 (82)
Malaysian Riggits CD 3,781 2,663 1,118
Norwegian Kroner CD 1,274 1,253 21
U.S. Dollars CD 36,090 37,377 (1,287)
U.S. Dollars PS 529 528 1
- -----------------------------------------------------------------------------------------------------------------------
CD = Canadian Dollars PS = Pounds Sterling
</TABLE>
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Payroll, payroll taxes and fringe benefits $ 28,291 $ 20,375
Payable to subcontractors 15,534 8,660
Accrued contract costs 40,552 2,027
Other accrued expenses 15,897 1,310
------------------------------
Total $ 100,274 $ 32,372
=============================================================================
</TABLE>
Approximately $26,332,000 of accrued contract costs at December 31, 1997
related to certain contingent liabilities associated with contracts acquired
from CTA.
Orbital 56
<PAGE> 27
7/ PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Land $ 852 $ 1,422
Buildings and leasehold improvements 22,112 21,239
Machinery and equipment 136,310 116,270
Equipment and satellite systems under construction 41,821 48,134
Software and technical drawings 15,750 10,331
Accumulated depreciation and amortization (79,347) (69,534)
---------------------------
Total $ 137,498 $ 127,862
===============================================================================
</TABLE>
Interest expense of approximately $9,700,000, $7,300,000 and $5,700,000 was
capitalized during 1997, 1996 and 1995, respectively, as part of the historical
cost of equipment under construction and investments in affiliates.
8/ SHORT-TERM BORROWINGS
The company has a $25,000,000 unsecured demand line of credit with an
international bank. The line is repayable upon demand and bears interest at
the prime rate or LIBOR. At December 31, 1997, the interest rate on
outstanding borrowings under this line of credit was approximately 6.8%. At
December 31, 1997 and 1996, approximately $3,500,000 and $17,500,000,
respectively, of borrowings were outstanding against this line of credit.
The company or its subsidiaries maintain other unsecured general short-term
credit facilities. At December 31, 1997, approximately $6,567,000 was
outstanding on these facilities at an average borrowing rate of 8%. There were
no outstanding borrowings on these facilities at December 31, 1996.
The company's primary $100,000,000 credit facility was amended and restated
during 1997. At December 31, 1997, the amended facility included a line of
credit and a term loan, both maturing in 2001. All of the outstanding
borrowings under this facility have been classified as long-term obligations
(see note 9) due to the three-year term of the underlying debt instruments.
The company terminated a $10,000,000 line of credit with a domestic bank during
1997. At December 31, 1996, $5,700,000 was outstanding under this facility.
9/ LONG-TERM OBLIGATIONS
The following sets forth the company's long-term obligations, excluding capital
lease obligations (see note 10):
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
7% note, principal and interest due monthly through 1998 $ 631 $ 1,275
7.74-9.35% notes, principal and interest due monthly 1998-1999 7,421 12,554
8.95% bank note, principal and interest due monthly through 1999 -- 2,284
7.19% - 8.64% notes, principal and interest due monthly through 2002 24,562 --
8.41% note, principal and interest due monthly through 2005 9,407 --
6% note, principal and interest due semi-annually through 2000 4,350 --
5% bank notes, principal and interest due monthly through 2003 1,964 1,631
7.89% bank notes, interest and principal due quarterly through 2001 47,750 8,000
12% note, interest due semi-annually, principal due 1999-2001 20,000 20,000
5% convertible subordinated notes, interest due semi-annually, principal due 2002 100,000 --
-----------------------------
216,085 45,744
Less current portion (18,189) (14,115)
-----------------------------
Total $ 197,896 $ 31,629
=======================================================================================================================
</TABLE>
Orbital 57
<PAGE> 28
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The 7% note is secured by certain equipment located at the company's Pomona,
California facility. The 7.74-9.35% notes are secured by certain equipment
located at the company's Germantown, Maryland facility. The 8.95% bank note was
secured by the company's satellite integration and test facility located in
Dulles, Virginia; the company repaid this note in full in February 1997. The
7.19% - 8.64% notes are secured by certain office, computer and test equipment
located at the company's Germantown, Maryland, Chandler, Arizona and Dulles,
Virginia facilities. The 8.41% note is secured by the company's L-1011
aircraft. In conjunction with its acquisition of Rockwell's automotive
navigation product line, on July 31, 1997 Orbital issued Rockwell a $4,350,000
unsecured note, which bears interest at 6% and is repayable semi-annually over
three years.
The company has two secured bank borrowing agreements, totaling approximately
$71,000,000, of which $54,000,000 was available and $1,964,000 was outstanding
at December 31, 1997. The secured bank notes, pursuant to an intercreditor
agreement between two international banks, provide for borrowings at a variable
rate, 5% at December 31, 1997, and are collateralized by MDA's accounts
receivable, inventory and certain other assets. The agreements contain certain
covenants with respect to MDA's leverage ratio and tangible net worth.
During 1997, Orbital amended and restated its existing revolving credit
facility to provide for total borrowings from an international syndicate of six
banks of up to $100,000,000. The facility included a $35,000,000 term loan,
and a $65,000,000 revolving line of credit; $10,000,000 of the term loan was
repaid in 1997. The interest rate charged under the facility is a variable
rate based on the prime rate or LIBOR. The weighted average interest rate on
borrowings outstanding under this facility at December 31, 1997 was 7.89%.
Outstanding borrowings are collateralized by the company's accounts receivable.
The facility prohibits the payment of cash dividends and contains certain
covenants with respect to the company's working capital levels, fixed charge
ratio, leverage ratio and net worth, and expires in August 2001.
Orbital amended its 12% unsecured note during the first quarter of 1997 to
facilitate compliance with certain financial covenants as well as to permit the
completion of the ORBIMAGE equity financing (see note 3). In connection with
this amendment, the interest rate on the note increased from 11.5% to 12%
effective March 31, 1997. The unsecured note contains certain covenants with
respect to fixed charge ratio, leverage ratio and tangible net worth, and
includes certain cross-default provisions.
On September 16, 1997, Orbital sold $100,000,000 of 5% convertible subordinated
notes due October 2002. The notes, which are non-callable for three years, are
convertible at the option of the holders into Orbital common stock at a
conversion price of $28.00 per share, subject to adjustment in certain events.
In 1996, ORBCOMM issued $170,000,000 senior unsecured notes due 2004 (the
"ORBCOMM Notes") to institutional investors. The ORBCOMM Notes bear interest
at a fixed rate of 14% and provide for noteholder participation in future
ORBCOMM service revenues. The ORBCOMM Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC and Teleglobe Mobile. The
guarantee is non-recourse to Orbital.
Orbital 58
<PAGE> 29
The fair value of Orbital's long-term obligations at December 31, 1997 and 1996
is estimated at approximately $178,455,000 and $38,521,000, respectively. Fair
value estimates are based on quoted market prices or on current rates offered
for debt of similar remaining maturities. The 1997 fair value amount is less
than the carrying value primarily as a result of the current market premium on
the convertible notes. Scheduled maturities of long-term debt for each of the
years in the five-year period ending December 31, 2002 and thereafter are
$18,189,000, $26,137,000, $24,550,000, $38,153,000, $105,138,000 and
$3,918,000, respectively.
10 / LEASE COMMITMENTS
Aggregate minimum rental commitments under non-cancelable operating and capital
leases (primarily for office space and equipment) at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
(In thousands) Operating Capital
- -----------------------------------------------------------------------------
<S> <C> <C>
1998 $ 13,479 $ 1,154
1999 12,033 537
2000 10,931 27
2001 8,706 --
2002 7,145 --
2003 and thereafter 22,634 --
----------------------------
$ 74,928 1,718
=========
Less: Interest at 10% (159)
Less: Current portion (1,061)
-----------
Total $ 498
=============================================================================
</TABLE>
Rent expense for 1997, 1996 and 1995 was approximately $10,870,000, $12,300,000
and $11,215,000, respectively.
11/ INCOME TAXES
The provisions (benefits) for income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT PROVISION:
U.S. Federal $ -- $ -- $ 33
Foreign 1,283 1,831 1,180
State -- -- --
DEFERRED PROVISION:
U.S. Federal -- -- (356)
Foreign 752 -- (2,159)
State -- -- --
--------------------------------------
Total $ 2,035 $ 1,831 $ (1,302)
=============================================================================
</TABLE>
Orbital 59
<PAGE> 30
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The income tax provisions (benefits) were different from those computed using
the statutory U.S. Federal income tax rate as set forth below:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 35.0% (34.0)%
Tax-exempt interest -- (0.6) (13.7)
Intangible amortization 5.0 13.2 50.3
Foreign income taxes, net 3.3 (12.9) (53.1)
Disqualifying stock sales -- (3.2) (16.0)
Changes in valuation allowance (36.1) (15.0) --
Other, net 0.9 (6.2) 1.1
-----------------------------------------
Effective rate 8.1% 10.3% (65.4)%
=============================================================================
</TABLE>
The tax effects of significant temporary differences were as follows:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
TAX ASSETS:
Non-deductible financial statement accruals $ 32,568 $ 37,603
U.S. Federal net operating loss carryforward 60,874 47,823
Intangible assets 5,422 6,865
U.S. Federal and foreign tax credit carryforward 11,924 13,707
-----------------------------
110,788 105,998
Valuation allowance (37,698) (52,233)
-----------------------------
Tax assets, net $ 73,090 $ 53,765
=============================
TAX LIABILITIES:
Percentage-of-completion accounting $ 1,796 $ 3,349
Excess tax depreciation 6,699 5,280
Excess deductions for tax reporting purposes 49,690 29,479
-----------------------------
Tax liabilities $ 58,185 $ 38,108
=====================================================================================
</TABLE>
In 1997 and 1996, approximately 20.6% and 27.9%, respectively, of the company's
income before provision for income taxes and cumulative effect of an accounting
change was generated from foreign sources. In 1995, approximately $2,100,000
of income before benefit for income taxes and cumulative effect of an
accounting change was generated from foreign sources. At December 31, 1997,
the company had U.S. Federal net operating loss carryforwards (portions of
which expire beginning in 2005) and research and environmental tax credit
carryforwards of approximately $150,000,000 and $3,000,000, respectively, that
may be used through the year 2013, subject to certain annual limitations and
other restrictions. Management believes that its net deferred tax assets,
largely attributable to Canadian investment tax credit carryforwards, will be
realized in the near future.
Orbital 60
<PAGE> 31
12/ COMMON STOCK AND STOCK OPTION PLANS
In 1996, the company issued 1,200,000 shares of common stock in a private
placement to various offshore investors, receiving net proceeds of
approximately $20,300,000. In addition, during 1996, the company completed the
redemption of $55,880,000 outstanding principal of its 6 3/4% convertible
subordinated debentures that had been due 2003. As a result of this
conversion, the outstanding principal was converted into 3,887,304 shares of
the company's common stock.
The company's 1997 Stock Option and Incentive Plan (the "1997 Plan") provides
for awards of incentive or non-qualified stock options and restricted stock to
employees, directors, consultants and advisors of the company and its
ubsidiaries. Under the terms of the 1997 Plan, options may not be issued at
less than 100% of the fair market value of the company's common stock on the
date of grant. Options under the 1997 Plan vest 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 1997 Plan provides
for automatic grants of non-qualified stock options to non-employee directors
of the company. Restricted stock grants under the 1997 plan vest at a rate
determined by the Board, generally vesting two years following the date of
award.
The 1997 Plan has 1,600,000 shares authorized for option grants or restricted
stock awards. In January 1998, Orbital's Board of Directors authorized an
increase in the number of shares available for grant to 3,200,000, subject to
stockholder approval. Options are also outstanding under two predecessor
option plans and pursuant to replacement options that have been granted in
connection with certain acquisitions.
The following two tables summarize information regarding options under the
company's stock option plans for the last three years:
<TABLE>
<CAPTION>
Weighted
Number of Option Price Average Outstanding
ORBITAL OPTIONS Shares Per Share Exercise Price and Exercisable
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1994 2,116,895 $ 1.82 - $22.00 $ 13.02 997,981
Granted 553,966 $ 7.47 - $18.81 $ 16.97
Exercised (300,011) $ 3.51 - $15.30 $ 6.29
Canceled or expired (130,325) $ 3.51 - $22.00 $ 20.39
------------
OUTSTANDING AT DECEMBER 31, 1995 2,240,525 $ 1.82 - $22.00 $ 14.16 1,133,713
Granted 1,372,000 $12.25 - $17.63 $ 13.26
Exercised (298,916) $ 1.82 - $17.75 $ 7.20
Canceled or expired (588,399) $ 3.51 - $22.00 $ 20.23
------------
OUTSTANDING AT DECEMBER 31, 1996 2,725,210 $ 1.82 - $22.00 $ 13.10 1,324,316
Granted 1,908,650 $13.50 - $ 24.00 $ 17.29
Exercised (326,263) $ 1.82 - $ 18.81 $ 10.43
Canceled or expired (300,306) $ 1.82 - $ 22.00 $ 15.12
------------
OUTSTANDING AT DECEMBER 31, 1997 4,007,291 $ 1.84 - $ 24.00 $ 15.16 1,549,185
==========================================================================================================================
</TABLE>
Orbital 61
<PAGE> 32
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- ------------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at Dec. 31, 1997 Contractual Life Exercise Price at Dec. 31, 1997 Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.84 - $ 13.50 1,488,479 6.25 $11.89 912,472 $ 11.35
$ 13.62 - $ 16.50 1,377,136 7.95 $15.77 307,966 $ 14.33
$ 16.63 - $ 24.00 1,141,676 8.53 $18.68 328,747 $ 17.85
- ------------------ ----------- ------ ------- ---------- ----------
$ 1.84 - $ 24.00 4,007,291 7.48 $15.16 1,549,185 $ 13.32
=======================================================================================================================
</TABLE>
OCC 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
OCC 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 market value, and non-qualified options may not be
granted at less than 85% of the fair market value, of OCC common stock at the
date of grant as determined by OCC's 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 require OCC to repurchase, with cash or promissory notes,
the common stock acquired pursuant to the options. The cash repurchase amount
is restricted by the terms of the ORBCOMM Notes to an amount not to exceed
$1,000,000 in any one year. During 1997 and 1996, OCC repurchased 43,800 and
47,760 shares, respectively, of OCC common stock under this provision.
The following two tables summarize the option activity relating to the ORBCOMM
Plan:
<TABLE>
<CAPTION>
Weighted
Number of Option Price Average Outstanding
OCC OPTIONS Shares Per Share Exercise Price and Exercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1994 599,074 $ 1.50 - $14.00 $ 5.64 298,657
Granted -- N/A N/A
Exercised (8,936) $ 1.50 - $13.00 $ 3.87
Canceled or expired (44,238) $ 1.50 - $13.00 $ 6.74
----------
OUTSTANDING AT DECEMBER 31, 1995 545,900 $ 1.50 - $14.00 $ 5.56 411,086
Granted 154,500 $17.00 - $25.00 $ 20.50
Exercised (67,270) $ 1.50 - $13.00 $ 2.43
Canceled or expired (34,300) $ 1.50 - $17.00 $ 13.81
----------
OUTSTANDING AT DECEMBER 31, 1996 598,830 $ 1.50 - $25.00 $ 9.40 393,903
Granted 284,500 $26.50 $ 26.50
Exercised (20,900) $ 1.50 - $25.00 $ 6.68
Canceled or expired (112,600) $ 1.50 - $25.00 $ 14.86
----------
OUTSTANDING AT DECEMBER 31, 1997 749,830 $ 1.50 - $26.50 $ 15.22 415,804
=========================================================================================================================
</TABLE>
Orbital 62
<PAGE> 33
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ---------------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at Dec. 31, 1997 Contractual Life Exercise Price at Dec. 31, 1997 Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.50 - $ 4.00 261,540 4.82 $ 2.38 261,540 $ 2.38
$ 5.25 - $25.00 163,790 6.52 $ 13.39 116,389 $ 11.79
$26.50 - $26.50 324,500 9.36 $ 26.50 37,875 $ 26.50
- ---------------- -------- ----- -------- ------- ----------
$ 1.50 - $26.50 749,830 7.16 $ 15.22 415,804 $ 7.21
=========================================================================================================================
</TABLE>
During 1996, Magellan adopted the 1996 Stock Option Plan (the "Magellan Plan"),
pursuant to which incentive or non-qualified options to purchase up to
7,000,000 shares of Magellan common stock may be granted to Magellan and
Orbital employees, consultants or advisors. The Magellan Plan stipulates that
stock options may not be granted with an exercise price less than 85% of the
stock's fair market value at the date of grant, as determined by Magellan's
Board of Directors. The Magellan options generally vest incrementally over a
three-year period. Certain provisions of the Magellan Plan require Magellan to
repurchase the common stock acquired pursuant to options granted prior to May
1, 1997.
The following table summarizes the option activity relating to the Magellan
Plan:
<TABLE>
<CAPTION>
Weighted
Number of Option Price Average Outstanding
MAGELLAN OPTIONS Shares Per Share Exercise Price and Exercisable
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1995 -- -- -- --
Granted 6,915,900 $ 1.10 $ 1.10
Exercised -- N/A N/A
Canceled or expired (322,300) $ 1.10 $ 1.10
OUTSTANDING AT DECEMBER 31, 1996 6,593,600 $ 1.10 $ 1.10 667,539
Granted 1,717,500 $ 1.10 $ 1.10
Exercised (103,909) $ 1.10 $ 1.10
Canceled or expired (1,427,531) $ 1.10 $ 1.10
OUTSTANDING AT DECEMBER 31, 1997 6,779,660 $ 1.10 $ 1.10 2,528,097
========================================================================================================================
</TABLE>
The weighted average remaining contractual life on outstanding options was 8.84
years.
In conjunction with the Ashtech merger (see note 4), Magellan assumed the
Ashtech option plan and issued replacement options that are exercisable into
Magellan common stock. At December 31, 1997, there were 5,316,561
non-qualified Magellan replacement options outstanding, 3,606,540 of which
were exercisable. The option price per share ranges from $0.81 to $1.72 with
an average exercise price of $1.09. The weighted average remaining contractual
life on the outstanding Magellan replacement options was 7.74 years.
Orbital 63
<PAGE> 34
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
13/ STOCK-BASED COMPENSATION
The company uses the Black-Scholes option pricing model to determine the pro
forma impact to the company's net income and earnings per share. The model
utilizes certain information, such as the interest rate on a risk-free security
maturing generally at the same time as the option being valued, and requires
certain assumptions, such as the expected amount of time an option will be
outstanding until it is exercised or it expires, to calculate the weighted
average fair value per share of stock options granted. This information and
the assumptions used for 1997, 1996 and 1995 for all option plans is summarized
as follows:
<TABLE>
<CAPTION>
Additional Shares Weighted Average
Available at Risk-Free Fair Value
December 31, Volatility Interest Rate Per Share at Grant Date
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1995 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Orbital Plan 218,868 231,955 54% 56% 58% 6.1% 5.3% 7.0% $17.29 $13.26 $16.97
ORBCOMM Plan 48,878 20,778 30% 30% N/A 6.1% 5.6% N/A $26.50 $20.50 N/A
Magellan Plan 116,431 406,400 30% 30% N/A 5.9% 6.4% N/A $ 1.10 $ 1.10 N/A
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The assumed expected dividend yield was zero for all years for all option
plans. The assumed average expected life for all options for all years was 4.5
years (except that no such assumption was applicable for the ORBCOMM and
Magellan Plans for 1995).
The company recorded compensation expense of approximately $600,000, $300,000
and $55,000 related to the various option plans for the years ended December
31, 1997, 1996 and 1995, respectively. Had the company determined compensation
expense based on the fair value at the grant date for stock options, the
company's net income (loss), net income (loss) per common share and net income
(loss) per common share, assuming dilution would have been $11,804,000, $0.37
and $0.35, respectively, for the year ended December 31, 1997; $7,202,000,
$0.25 and $0.25, respectively, for the year ended December 31, 1996; and
($6,773,000), ($0.26) and ($0.26), respectively, for the year ended December
31, 1995. Pro forma net income (loss) reflects only options granted in 1997,
1996 and 1995 and, therefore, may not be representative of the effects for
future periods.
During 1996, the company issued 150,000 stock appreciation rights that vest
over a three-year period. Payment is dependent on appreciation of the
company's common stock over the vesting period. The company recorded
approximately $1,470,000 and $175,000, respectively, in compensation expense
during 1997 and 1996 with respect to these rights.
14/ SUPPLEMENTAL DISCLOSURES
DEFINED CONTRIBUTION PLANS
At December 31, 1997, the company had several defined contribution plans (the
"Plans") generally covering all full-time employees in the U.S. and Canada.
Company contributions to the Plans are made based on certain plan provisions
and at the discretion of the Board of Directors, and were approximately
$9,108,000, $7,097,000 and $6,533,000 during 1997, 1996 and 1995,
respectively.
CASH FLOWS
Cash payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $ 10,059 $ 10,860 $ 9,906
Income taxes paid, net of refunds 544 1,327 1,339
============================================================================
</TABLE>
Orbital 64
<PAGE> 35
NET INCOME PER COMMON SHARE
Net income and outstanding shares of common stock used in calculating earnings
per share differed from those amounts reported in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
Net Income Per Common Share,
(In thousands) Net Income Per Common Share Assuming Dilution
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1997
Net income $ 23,005 $ 23,005
Assuming conversion of convertible notes -- 429
-----------------------------------------------------------
Net income, as adjusted $ 23,005 $ 23,434
===========================================================
Outstanding common shares 32,482 32,482
Effect of weighting for outstanding shares (199) (199)
Outstanding stock options -- 656
Assuming conversion of convertible notes -- 1,042
-----------------------------------------------------------
Adjusted shares 32,283 33,981
===========================================================
1996
Net income $ 15,907 $ 15,907
Assuming conversion of convertible notes -- 2,357
-----------------------------------------------------------
Net income, as adjusted $ 15,907 $ 18,264
===========================================================
Outstanding common shares 32,161 32,161
Effect of weighting for outstanding shares (3,389) (3,389)
Outstanding stock options -- 664
Assuming conversion of convertible notes -- 2,396
-----------------------------------------------------------
Adjusted shares 28,772 31,832
===========================================================
1995
Net loss $ (4,848) $ (4,848)
Assuming conversion of convertible notes -- 3,780
-----------------------------------------------------------
Net income, as adjusted $ (4,848) $ (1,068)
===========================================================
Outstanding common shares 26,766 26,766
Effect of weighting for outstanding shares (1,072) (1,072)
Outstanding stock options -- 513
Assuming conversion of convertible notes -- 3,896
-----------------------------------------------------------
Adjusted shares 25,694 30,103
====================================================================================================================
</TABLE>
SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for the
previous three years:
<TABLE>
<CAPTION>
Quarter Ended
(In thousands, except share data) March 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Revenues $ 122,112 $ 142,226 $164,670 $176,967
Income from operations 6,047 11,005 12,249 193
Net income 5,094 5,603 6,130 6,178
Net income per common share 0.16 0.17 0.19 0.20
Net income per common share, assuming dilution 0.16 0.17 0.18 0.18
1996
Revenues 104,894 116,512 119,571 120,458
Income from operations 5,872 7,324 7,124 3,522
Net income 3,128 3,839 4,456 4,484
Net income per common share 0.12 0.14 0.15 0.14
Net income per common share, assuming dilution 0.12 0.14 0.15 0.14
1995
Revenues 88,975 81,766 95,817 97,762
Income (loss) from operations 4,613 (972) 3,682 (6,179)
Net income (loss) before cumulative effect of
accounting change 3,017 (1,626) 1,758 (3,837)
Net income (loss) per common share (0.05) (0.07) 0.06 (0.14)
Net income (loss) per common share, assuming dilution (0.05) (0.07) 0.06 (0.14)
=======================================================================================================================
</TABLE>
Orbital 65
<PAGE> 1
EXHIBIT 13.2
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM Global, L.P.:
We have audited the accompanying balance sheets of ORBCOMM Global, L.P.
("ORBCOMM") (a development stage enterprise) as of December 31, 1997 and 1996,
and the related statements of operations, partners' capital, and cash flows for
each of the years in the three-year period ended December 31, 1997, and for the
period from June 30, 1993 (date of inception) through December 31, 1997. These
financial statements are the responsibility of ORBCOMM's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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 financial statements referred to above present fairly, in
all material respects, the financial position of ORBCOMM (a development stage
enterprise) as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1997, and for the period from June 30, 1993 (date of inception)
through December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
February 5, 1998
Washington, DC
<PAGE> 2
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,106 $ 56,870
Investments 22,756 54,769
Other receivables 1,931 753
Inventory 2,160 1,751
------------ ------------
Total Current Assets 42,953 114,143
Investments 0 41,843
Other receivables 0 517
ORBCOMM System, net 263,379 170,034
Other assets, net 5,527 6,138
Investments in and advances to affiliates 4,777 (3,166)
Investment in ORBCOMM Japan 333 0
------------ ------------
TOTAL ASSETS $ 316,969 $ 329,509
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Current portion of long-term debt $ 1,087 $ 991
Accounts payable - Orbital Sciences Corporation 21,100 4,648
Other accounts payable and accrued liabilities 17,174 13,650
------------ ------------
Total Current Liabilities 39,361 19,289
Long-term debt 171,190 172,278
------------ ------------
Total Liabilities 210,551 191,567
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners 57,834 73,596
Orbital Communications Corporation 48,584 64,346
------------ ------------
Total Partners' Capital 106,418 137,942
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 316,969 $ 329,509
============ ============
</TABLE>
See accompanying notes to the financial statements
<PAGE> 3
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
------------------------------------------------------- DECEMBER 31,
1997 1996 1995 1997
--------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 517 $ 268 $ 0 $ 785
Distribution fees 0 100 900 1,000
Other 10 52 0 62
--------------- ---------------- ----------------- ------------------
Total revenues 527 420 900 1,847
EXPENSES:
Costs of product sales 517 268 0 785
Depreciation 7,348 6,198 0 13,546
Engineering expenses 8,160 5,453 0 13,613
Marketing, administrative and other expenses 12,070 6,933 50 19,062
--------------- ---------------- ----------------- ------------------
Total expenses 28,095 18,852 50 47,006
--------------- ---------------- ----------------- ------------------
Income (loss) from operations (27,568) (18,432) 850 (45,159)
OTHER INCOME AND EXPENSES:
Interest income, net of interest expenses
of $833, $307 and $0, respectively 4,545 3,554 59 8,158
Equity in losses of affiliates (8,413) (4,602) (854) (13,869)
--------------- ---------------- ----------------- ------------------
NET INCOME (LOSS) $ (31,436) $ (19,480) $ 55 $ (50,870)
=============== ================ ================= ==================
</TABLE>
See accompanying notes to the financial statements
<PAGE> 4
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
------------------------------------------- DECEMBER 31,
1997 1996 1995 1997
-------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $ (31,436) $ (19,480) $ 55 $ (50,870)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation 7,348 6,198 0 13,546
Amortization of financing fees 833 307 0 1,140
Equity in losses of affiliates 8,413 4,602 854 13,869
Increase in other receivables (661) (1,270) 0 (1,931)
Increase in inventory (409) (1,304) (447) (2,160)
Increase in accounts payable - Orbital Sciences Corporation 16,452 573 1,788 21,100
Increase (decrease) in other accounts payable
and accrued liabilities 3,524 7,471 (1,670) 17,174
-------------- ------------- ----------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,064 (2,903) 580 11,868
-------------- ------------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures (100,693) (69,242) (38,343) (276,925)
Increase in amount due from affiliates (16,356) (1,608) (661) (18,625)
Investment in ORBCOMM Japan (333) 0 0 (333)
Purchase of investments (47,125) (136,532) 0 (183,657)
Proceeds from sale of investments 120,893 40,007 0 160,900
-------------- ------------- ----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (43,614) (167,375) (39,004) (318,640)
-------------- ------------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt 0 164,475 0 169,475
Repayment of long-term debt (992) (905) (825) (2,722)
Partners' contributions 0 62,733 38,065 159,800
Financing fees paid (222) (940) (2,031) (3,675)
-------------- ------------- ----------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,214) 225,363 35,209 322,878
-------------- ------------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: (40,764) 55,085 (3,215) 16,106
CASH AND CASH EQUIVALENTS:
Beginning of period 56,870 1,785 5,000 0
-------------- ------------- ----------- ------------
CASH AND CASH EQUIVALENTS:
End of period $ 16,106 $ 56,870 $ 1,785 $ 16,106
============== ============= =========== ============
</TABLE>
See accompanying notes to the financial statements
<PAGE> 5
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
TELEGLOBE ORBITAL
MOBILE COMMUNICATIONS
PARTNERS CORPORATION TOTAL
-------------- --------------- ---------------
<S> <C> <C> <C>
Capital contributions $ 10,000 $ 38,149 $ 48,149
Net income (loss) 0 0 0
Financing fees (242) (242) (484)
-------------- --------------- ---------------
PARTNERS' CAPITAL, DECEMBER 31, 1993 9,758 37,907 47,665
Capital contributions 0 10,853 10,853
Net loss (4) (5) (9)
-------------- --------------- ---------------
PARTNERS' CAPITAL, DECEMBER 31, 1994 9,754 48,755 58,509
Capital contributions 24,750 13,315 38,065
Net income 27 28 55
Financing fees (1,014) (1,014) (2,028)
-------------- --------------- ---------------
PARTNERS' CAPITAL, DECEMBER 31, 1995 33,517 61,084 94,601
Capital contributions 49,775 12,958 62,733
Net loss (9,740) (9,740) (19,480)
Unrealized gains on investments, net 44 44 88
-------------- --------------- ---------------
PARTNERS' CAPITAL, DECEMBER 31, 1996 73,596 64,346 137,942
Net loss (15,718) (15,718) (31,436)
Unrealized losses on investments, net (44) (44) (88)
-------------- --------------- ---------------
PARTNERS' CAPITAL, DECEMBER 31, 1997 $ 57,834 $ 48,584 $ 106,418
============== =============== ===============
</TABLE>
See accompanying notes to the financial statements
<PAGE> 6
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization
In 1993, Orbital Communications Corporation ("OCC"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM" or the
"Company"), a Delaware limited partnership. OCC and Teleglobe Mobile each hold
50% of the Participation Percentage in the Company, with the result that the
approval of both OCC and Teleglobe Mobile is generally necessary for the
Company to act.
OCC and Teleglobe Mobile also formed two marketing partnerships,
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International"), to market services using the ORBCOMM low-Earth orbit
satellite communications system (the "ORBCOMM System") in the United States and
internationally, respectively. In 1995, the Company became a 98% General
Partner in ORBCOMM USA, reducing OCC's direct partnership interest to 2% and
eliminating Teleglobe Mobile's direct partnerhsip interest entirely.
Simultaneously, the Company became a 98% General Partner in ORBCOMM
International, reducing Teleglobe Mobile's direct partnership interest to 2% and
eliminating OCC's direct partnership interest entirely.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction,
integration, testing and operation of the ORBCOMM System. The ORBCOMM System
comprises three operational segments: (i) a space segment consisting of a
constellation of 36 LEO satellites; (ii) a ground and control segment
consisting of a network control center which serves as the global control for
the satellites, gateway Earth stations which send signals to and receive
signals from the satellites, and gateway control centers which serve as message
switching systems that process the message traffic; and (iii) a subscriber
segment consisting of subscriber units used by customers to transmit and
receive messages to and from satellites.
The space segment will consist of a constellation of 36 satellites. At
December 31, 1997, one plane of two satellites and one plane of eight satellites
are in orbit. The ground and control segment consists of gateways strategically
located throughout the world and the facilities to monitor and manage all
network elements to ensure continuous, consistent operations in the provision of
quality service. In addition, ORBCOMM operates a network control center, which
is designed to support the full constellation of the ORBCOMM System. The
subscriber segment consists of various models of subscriber units, some of which
are intended for general use, and some are designed to support specific
applications.
The System Charge
OCC is obligated to pay to the Company a system charge that is equal to
23% of ORBCOMM USA's total service revenues minus 1.15% of its total aggregate
service revenues for a calendar quarter in consideration of the construction and
financing of the ORBCOMM System assets by the Company. Teleglobe Mobile is
obligated to pay to the Company a system charge that is equal to 23% of ORBCOMM
International's total service revenues less 1.15% of its total aggregate service
revenues for a calendar quarter in consideration of the Company's grant to
Teleglobe Mobile of the right to market, sell, lease and franchise all ORBCOMM
System output capacity outside the United States. If the Output Capacity Charge
as described above is less than 1.15% of aggregate system service revenues, then
OCC and Teleglobe Mobile are not required to pay any portion of the system
charge to ORBCOMM.
<PAGE> 7
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(1) THE ORBCOMM SYSTEM - (CONTINUED)
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to
permit ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
entities who become international licensees.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company is in its development stage, devoting substantially all of
its efforts to establishing a new data and messaging communications business.
The Company's planned principal operations are expected to commence in
mid-1998. The accompanying financial statements have been prepared on the
accrual basis of accounting in conformity with generally accepted accounting
principles in the United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation and Recoverability of Long-Lived Assets
The Company depreciates its operational assets over the estimated
economic useful life using the straight-line method as follows:
Space Segment Assets: estimated life of the satellite
Ground Segment Assets: 10 years
Furniture and Equipment: 3 to 10 years
The ORBCOMM System, which includes the worldwide network control center
(including the satellite management system), the U.S. Gateway and two
satellites, was placed into service at the beginning of 1996, at which time
ORBCOMM began depreciating those assets.
The Company's policy is to review its long-lived assets, including its
satellite systems, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company recognizes impairment losses when the sum of the expected future cash
flows is less than the carrying amount of the assets. Given the inherent
technical and commercial risks within the space communications industry, it is
possible that the Company's current estimate for recovery of the carrying
amount of its assets may change.
<PAGE> 8
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Investments in Affiliates
Pursuant to the terms of ORBCOMM USA's and ORBCOMM International's
partnership agreements, OCC controls the operational and financial affairs of
ORBCOMM USA and Teleglobe Mobile controls the operational and financial affairs
of ORBCOMM International. The Company, however, significantly influences both
marketing partnerships. Accordingly, the Company is accounting for its
investments in ORBCOMM USA and ORBCOMM International using the equity method of
accounting.
Pursuant to the equity method of accounting, the Company's carrying
amount of an investment 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. The Company's investment is also increased to
reflect contributions to, and reduced to reflect distributions from, such
affiliates.
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been
recorded within the accompanying financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
Investments
The Company maintains two investment portfolios characterized by
management's intentions as to future investment activity. Investments
classified as "held-to-maturity" are not intended to be sold prior to maturity
and are carried at cost. Investments not intended to be held until maturity or
traded to capitalize on market gains are classified as "available-for-sale"
and are carried at fair value with temporary unrealized gains (losses) charged
directly to partners' capital. Investments maturing after one year are
classified as long-term investments. The Company uses the average cost method
in determining the basis of investments sold when computing realized gains
(losses).
Inventory
Inventory is stated at the lower of cost, determined on the specific
identification basis, or market and represents subscriber communicators
available for sale to customers.
Fair Value of Financial Instruments
The carrying value of the Company's cash and cash equivalents,
receivables, and accounts payables approximates fair value since all such
instruments are short-term in nature. Fair value for the Company's long-term
debt is determined based on quoted market rates. At December 31, 1997 and 1996,
the fair value for the long-term debt approximated market value.
<PAGE> 9
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
ORBCOMM System Under Construction
During the construction of the ORBCOMM System, the Company is
capitalizing substantially all such construction costs. The Company also is
capitalizing a portion of the engineering direct labor costs that relate to
hardware and system design development and coding of the software products that
enhance the operation of the ORBCOMM System. As of December 31, 1997 and 1996,
$4,641,000 and $1,244,000, respectively, of such costs have been capitalized,
(none as of December 31, 1995). Interest expenses of $24,060,000, $10,030,000
and $426,000 have been capitalized as a part of the historical cost of the
ORBCOMM System for the years ended December 31, 1997, 1996 and 1995,
respectively.
Partners' Capital
In accordance with the Partnership Agreement, Teleglobe Mobile and OCC
are both general and limited partners in the Company. Therefore, limited and
general partner accounts are combined into one single capital account and
presented as such in the balance sheets and statements of partners' capital.
Revenue Recognition
Revenues are recognized when products are shipped or when customers
have accepted the products, depending on contractual terms. Service revenues
are recognized as such services are rendered. Distribution fees are recognized
ratably over the term of the agreement, or when ORBCOMM's obligations under the
agreement are substantially completed. License fees from service license
agreements are recognized as revenues when ORBCOMM's obligation thereunder is
substantially complete.
Reclassification of Prior Years Balances
Certain amounts in the prior years financial statements have been
reclassified to conform with the current year presentation.
(3) INVESTMENTS
Included in cash and cash equivalents is $5,420,000 and $54,527,000 of
commercial paper as of December 31, 1997 and 1996, respectively. The fair
value of the commercial paper approximates carrying value.
The following table sets forth the aggregate costs and fair values and
gross unrealized gains (losses) of available-for-sale investments as of
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
(IN THOUSANDS) (IN THOUSANDS)
-------------------------------------- -------------------------------------------
UNREALIZED UNREALIZED
COST GAINS (LOSSES) FAIR VALUE COST GAINS (LOSSES) FAIR VALUE
--------- ---------------- ----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM
- ----------
U.S. Treasury Notes $ 0 $ 0 $ 0 $ 21,152 $ 54 $ 21,206
Commercial Paper 1,278 0 1,278 10,229 (2) 10,227
--------- ---------------- ----------- ----------- ---------------- -----------
Total short-term investments 1,278 0 1,278 31,381 52 31,433
--------- ---------------- ----------- ----------- ---------------- -----------
LONG-TERM
- ---------
U.S. Treasury Notes, maturing 2-5 years 0 0 0 20,329 36 20,365
--------- ---------------- ----------- ----------- ---------------- -----------
Total available-for-sale investments $ 1,278 $ 0 $ 1,278 $ 51,710 $ 88 $ 51,798
========= ================ =========== =========== ================ ===========
</TABLE>
<PAGE> 10
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(3) INVESTMENTS - (CONTINUED)
The following table sets forth the aggregate cost and fair values of
held-to-maturity investments as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
(IN THOUSANDS) (IN THOUSANDS)
---------------------------------------- ---------------------------------------
UNREALIZED UNREALIZED
COST GAINS FAIR VALUE COST GAINS FAIR VALUE
---------- ------------- ------------ ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM
- ----------
U.S. Treasury Notes $ 21,478 $ 1,841 $ 23,319 $ 23,336 $ 525 $ 23,861
LONG-TERM
- ---------
U.S. Treasury Notes, maturing 2-5 years 0 0 0 21,478 542 22,020
---------- ------------- ----------- --------- ------------ -----------
Total held-to-maturity investments $ 21,478 $ 1,841 $ 23,319 $ 44,814 $ 1,067 $ 45,881
========== ============= =========== ========= ============ ===========
</TABLE>
Unrealized gains on held-to-maturity investments represent accrued interest
income as of December 31, 1997 and 1996, respectively.
(4) RELATED PARTY TRANSACTIONS
ORBCOMM paid Orbital $41,843,000, $56,177,000 and approximately
$38,000,000 for the periods ended December 31, 1997, 1996 and 1995,
respectively. Payments were made for work performed pursuant to the ORBCOMM
System Design, Development, and Operations Agreement, the ORBCOMM System
Procurement Agreement and the Administrative Services Agreement (for provision
of ongoing support to ORBCOMM).
In 1995, pursuant to the terms of the ORBCOMM System Design,
Development and Operations Agreement, the Company reimbursed OCC $1,375,000 for
previous costs incurred in obtaining the FCC License and other related costs.
The Company capitalized such costs as part of the ORBCOMM System.
Certain provisions of the Partnership Agreement require ORBCOMM to
reimburse OCC for OCC's repurchase of shares of OCC common stock acquired
pursuant to the OCC Stock Option Plan ("Stock Option Plan"). During 1997 and
1996, ORBCOMM reimbursed OCC approximately $598,000 and $1,100,000,
respectively, under the Stock Option Plan (none in 1995). In 1996, Orbital
contributed approximately $100,000 to OCC to repurchase such shares (none in
1997 and 1995).
(5) ORBCOMM SYSTEM
The Company's Mobile Communications Satellite System comprises the
following assets:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Space segment $ 234,110 $ 142,678
Ground segment 42,815 33,554
---------- ----------
Total 276,925 176,232
Less accumulated depreciation (13,546) (6,198)
---------- ----------
Total, net of depreciation $ 263,379 $ 170,034
========== ==========
</TABLE>
<PAGE> 11
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 of Senior Notes due 2004 with Revenue Participation Interest (the
"Old Notes"). All the Old Notes were exchanged for an equal principal amount
of registered 14% Series B Senior Notes due 2004 with Revenue Participation
Interest (the "Notes"). The Notes are fully and unconditionally guaranteed on
a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM
International (each, a "Guarantor" and collectively, the "Guarantors"), except
that the guarantees are non-recourse to the shareholders and/or partners of the
Guarantors, limited only to the extent necessary for each such guarantee not to
constitute a fraudulent conveyance under applicable law.
On the closing of the offering of the Old Notes, the Company used
$44,800,000 of the net proceeds from the sale of the Old Notes to purchase a
portfolio of U.S. Government securities to provide for payment in full of
interest on the Old Notes and Notes through August 15, 1998. Of this
investment portfolio, $23,300,000 was used to pay interest that was due on the
Notes on February 15, and August 15, 1997.
The Company also has a $5,000,000 secured note with a financial
institution of which $2,277,000 is outstanding. The note bears interest at
9.2% per annum and is due in monthly principal and interest installments of
$104,000 through December 1999. The note is secured by equipment located at
certain of the U.S. Earth stations, the network control center and the
satellite control center, and is guaranteed by Orbital. A portion of the net
proceeds from the offering of the Old Notes, sufficient to pay when due all
remaining interest and principal payments on this note, was deposited into a
segregated account.
System Procurement Agreement
Pursuant to the System Procurement Agreement with Orbital, the
Company's remaining obligation to purchase satellites, launch services and
the ground system is approximately $49,600,000 over the next two years.
Lease Commitments
In November 1997, ORBCOMM entered into a 5 year operating lease
agreement for approximately 46,000 square feet of additional office space.
ORBCOMM has an option to renew the lease for another five-year period
immediately upon the expiration of the original operating lease. Rental
expense for 1997, 1996 and 1995 amounted to approximately $825,000, $393,000,
and $48,000, respectively, which was paid to Orbital as part of the
Administrative Services Agreement. Rental expense to third parties amounted
to approximately $126,000 in 1997. The future minimum rental payments under
non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
Periods In thousands
- ------- ------------
<S> <C>
1998 $ 978
1999 1,007
2000 1,038
2001 1,062
2002 1,094
Thereafter 0
-------
Total minimum lease commitments $ 5,179
=======
</TABLE>
<PAGE> 12
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(7) SUBSEQUENT EVENTS (UNAUDITED)
In February 1998, two additional satellites for ORBCOMM's
constellation were successfully launched and have been placed in high
inclination orbit using Orbital's Taurus launch vehicle.
As of March 31, 1998, OCC and Teleglobe Mobile made additional
$10,000,000 in capital contributions (or debt financing expressly subordinated
to the Notes) as required under the Indenture Agreement.
<PAGE> 1
EXHIBIT 21
Orbital Sciences Corporation
List of Subsidiaries
Orbital Communications Corporation, a Delaware corporation
ORBCOMM USA, L.P., a Delaware limited partnership
Orbital Services Corporation, a Delaware corporation
ORBLINK LLC, a Delaware limited liability corporation
Magellan DIS, Inc., a Delaware corporation
Magellan Corporation, a Delaware corporation, d/b/a Magellan Systems
Corporation
Magellan Foreign Sales Corp., a Barbados corporation
MacDonald, Dettwiler Holdings, Inc., a Canadian corporation
MacDonald, Dettwiler and Associates Ltd., a Canadian corporation
MacDonald, Dettwiler Technologies Ltd., a British Columbia corporation
MacDonald, Dettwiler Pty Ltd., an Australian corporation
MacDonald, Dettwiler Technologies Inc., a Delaware corporation
MacDonald, Dettwiler Limited, a United Kingdom corporation
MDA Services Ltd., a Canadian corporation
Triathlon Mapping Corporation, a British Columbia corporation
Earth Observation Sciences Ltd., a United Kingdom corporation
Iotek, Inc., a Nova Scotia corporation
Orbital Commercial Systems, Inc., a Virginia corporation
Orbital International, Inc., a Virginia corporation
Orbital International Services, Inc., a Virginia corporation
Orbital International Asia, Ltd., a British West Indies corporation
Engineering Technologies, Inc., a Virginia corporation
Orbital Space Systems, Inc., a Virginia corporation
Ashtech USVI, a US Virgin Island corporation
Ashtech Europe Ltd., a United Kingdom corporation
Ashtech A/O, a Russian corporation
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Orbital Sciences Corporation and subsidiaries:
We consent to the incorporation by reference in the registration statements on
Forms S-8 (Nos. 333-47789, 333-84296, 333-62277 and 333-64517) and Form S-3 (No.
333-42271) of Orbital Sciences Corporation of (i) our reports dated February 4,
1998, relating to the consolidated balance sheets of Orbital Sciences
Corporation and subsidiaries as of December 31, 1997 and 1996, 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, 1997, and the
related consolidated financial statement schedule, and (ii) our report dated
February 5, 1998, relating to the balance sheets of ORBCOMM Global, L.P. (a
development stage enterprise) as of December 31, 1997 and 1996, and the related
statements of income and expenses, partners' capital and cash flows for each of
the years in the three-year period ended December 31, 1997, and for the period
from June 30, 1993 (inception) to December 31, 1997, which reports are
incorporated by reference or appear in the December 31, 1997 annual report on
Form 10-K of Orbital Sciences Corporation.
KPMG PEAT MARWICK LLP
Washington, D.C.
March 25, 1998
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,533
<SECURITIES> 2,573
<RECEIVABLES> 198,281
<ALLOWANCES> (8,077)
<INVENTORY> 50,925
<CURRENT-ASSETS> 264,445
<PP&E> 216,845
<DEPRECIATION> (79,347)
<TOTAL-ASSETS> 771,639
<CURRENT-LIABILITIES> 211,946
<BONDS> 198,364
0
0
<COMMON> 325
<OTHER-SE> 354,776
<TOTAL-LIABILITY-AND-EQUITY> 771,639
<SALES> 605,975
<TOTAL-REVENUES> 605,975
<CGS> 456,772
<TOTAL-COSTS> 456,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 709
<INTEREST-EXPENSE> 429
<INCOME-PRETAX> 25,040
<INCOME-TAX> 2,035
<INCOME-CONTINUING> 23,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,005
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.69
</TABLE>
