<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
JUNE 30, 1999
ORBITAL SCIENCES CORPORATION
Commission file number 0-18287
------------------------------
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 06-1209561
- --------------------------------------------- -------------------------------
(State of Incorporation) (IRS Identification number)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
- --------------------------------------------- -------------------------------
(Address of principal executive offices) (Telephone number)
</TABLE>
The registrant has (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
As of August 12, 1999 37,396,444 shares of the registrant's common stock were
outstanding.
<PAGE> 2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
------
JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 35,245 $ 17,764
Restricted cash and short-term investments, at market 7,585 7,922
Receivables, net 269,146 205,409
Inventories, net 68,094 64,710
Deferred income taxes and other assets 12,813 8,252
------------- -------------
TOTAL CURRENT ASSETS 392,883 304,057
PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED
depreciation and amortization of $117,154 and $103,450, respectively 180,071 157,075
INVESTMENTS IN AND ADVANCES TO AFFILIATES, NET 266,762 237,589
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED,
less accumulated amortization of $34,042 and $27,542, respectively 277,866 228,624
DEFERRED INCOME TAXES, INTELLECTUAL PROPERTY AND OTHER ASSETS 71,910 35,393
------------- -------------
TOTAL ASSETS $ 1,189,492 $ 962,738
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings and current portion of
long-term obligations $ 52,160 $ 26,814
Accounts payable 74,994 39,093
Accrued expenses 108,192 110,833
Deferred revenues 137,187 73,987
------------- -------------
TOTAL CURRENT LIABILITIES 372,533 250,727
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 302,452 181,281
OTHER LIABILITIES 15,080 3,007
------------- -------------
TOTAL LIABILITIES 690,065 435,015
NON-CONTROLLING INTERESTS IN
NET ASSETS OF CONSOLIDATED SUBSIDIARIES 11,229 17,150
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized:
none outstanding -- --
Common Stock, par value $.01; 80,000,000 shares authorized,
37,204,523 and 37,018,256 shares outstanding, respectively
after deducting 20,877 shares held in treasury 372 370
Additional paid-in capital 493,018 490,540
Accumulated other comprehensive income (6,060) (7,225)
Retained earnings 868 26,888
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 488,198 510,573
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,189,492 $ 962,738
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-2-
<PAGE> 3
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
-------------------------------
1999 1998
------------ -------------
<S> <C> <C>
REVENUES $ 232,286 $ 184,516
COSTS OF GOODS SOLD 177,454 133,665
------------ ------------
GROSS PROFIT 54,832 50,851
RESEARCH AND DEVELOPMENT EXPENSES 10,116 11,451
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 28,983 29,171
AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 3,229 1,978
------------ ------------
INCOME FROM OPERATIONS 12,504 8,251
NET INVESTMENT INCOME (EXPENSE) (3,362) 154
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (19,537) (8,213)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 2,274 2,235
GAIN ON SALE OF SUBSIDIARY EQUITY -- 4,793
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (8,121) 7,220
PROVISION FOR INCOME TAXES 2,028 1,222
------------ ------------
NET INCOME (LOSS) $ (10,149) $ 5,998
============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (0.27) $ 0.17
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE 37,196,970 35,979,989
============ ============
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING DILUTION $ (0.27) $ 0.17
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, ASSUMING DILUTION 37,196,970 40,815,134
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-3-
<PAGE> 4
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES $ 436,624 $ 370,675
COSTS OF GOODS SOLD 335,481 268,450
------------ ------------
GROSS PROFIT 101,143 102,225
RESEARCH AND DEVELOPMENT EXPENSES 20,118 20,016
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 58,796 56,655
AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 6,089 3,938
------------ ------------
INCOME FROM OPERATIONS 16,140 21,616
NET INVESTMENT INCOME (EXPENSE) (4,450) 414
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (40,137) (18,890)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 5,753 5,115
GAIN ON SALE OF SUBSIDIARY EQUITY -- 4,793
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (22,694) 13,048
PROVISION FOR INCOME TAXES 3,326 2,305
------------ ------------
NET INCOME (LOSS) $ (26,020) $ 10,743
============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (0.70) $ 0.31
SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON SHARE 37,167,662 34,408,545
============ ============
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING DILUTION $ (0.70) $ 0.31
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, ASSUMING DILUTION 37,167,662 39,284,011
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE> 5
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------------------
1999 1998
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME (LOSS) $ (26,020) $ 10,743
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expenses 22,807 18,437
Amortization of prepaid financing costs 1,297 129
Equity in losses of affiliates 40,062 19,164
Non-controlling interests in losses of consolidated subsidiaries (5,753) (5,115)
Gain on sale of subsidiary equity -- (4,793)
Foreign currency translation adjustment 1,165 (515)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in current and other non-current assets (31,225) (34,277)
Increase (decrease) in current and other non-current liabilities 43,909 (11,689)
--------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 46,243 (7,916)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (31,442) (20,978)
Payments for business combinations (22,501) --
Purchase of other assets (14,006) --
Purchases, sales and maturities of available-for-sale investment securities, net -- 2,134
Investments in and advances to affiliates, net (63,028) (45,534)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (130,976) (64,377)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) (1,176) (3,316)
Principal payments on long-term obligations (55,090) (74,207)
Net proceeds from issuances of long-term obligations 156,000 22,000
Net proceeds from issuances of common stock 2,480 161,020
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 102,214 105,497
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17,481 33,204
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 17,764 12,553
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 35,245 $ 45,757
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-5-
<PAGE> 6
ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(UNAUDITED)
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
information reflects all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation thereof. Certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to instructions, rules and regulations prescribed by the Securities and Exchange
Commission. The company believes that the disclosures provided are adequate to
make the information presented not misleading when these unaudited interim
condensed consolidated financial statements are read in conjunction with the
audited consolidated financial statements and the footnotes thereto included in
the company's Annual Report on Form 10-K for the year ended December 31, 1998.
Operating results for the three- and six-month periods ended June 30, 1999 are
not necessarily indicative of the results expected for the full year. Orbital
Sciences Corporation, together with its subsidiaries, is hereafter referred to
as "Orbital" or the "company."
(1) PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The preparation of condensed 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 the 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. Management periodically assesses and
evaluates the sufficiency and/or deficiency of estimated liabilities recorded
for various operational and business risks and uncertainties. Actual results
could differ from these estimates.
Certain reclassifications have been made to the 1998 financial statements and
footnote disclosures to conform to the 1999 financial statement presentation.
All financial amounts are stated in U.S. dollars unless otherwise indicated.
(2) 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 or specific identification
basis, net of allowances for estimated obsolescence.
6
<PAGE> 7
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-progress inventory has been reduced by
contractual progress payments received. Finished goods inventory consists of
fully assembled commercial products awaiting shipment.
(3) DISAGGREGATED FINANCIAL INFORMATION
Orbital's operations are organized into three business sectors, which correspond
to different product and service types, the different markets served by such
products and services, and the manner in which these products and services are
managed. Orbital's three business sectors are: 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, satellite ground systems and software,
and transportation management systems. Satellite access products include
satellite-based navigation, positioning and communications products. Satellite
services include satellite-based mobile data communications services,
satellite-based remote imaging services, satellite-based automotive information
services and satellite-based voice communications services.
The following table presents operating information for the three and six months
ended June 30, 1999 and 1998 by business 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 business.
There were no significant sales or transfers between consolidated sectors.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
(In thousands) 1999 1998 1999 1998
- -------------- ---- ---- ---- ----
SPACE AND GROUND
INFRASTRUCTURE SYSTEMS:
<S> <C> <C> <C> <C>
Revenues $ 195,356 $ 155,701 $ 370,604 $ 312,042
Operating income 17,373 16,630 32,482 35,509
Identifiable assets (1) -- -- 757,376 593,818
Capital expenditures 14,138 11,686 26,417 19,291
Depreciation and amortization 8,639 9,000 17,452 16,331
SATELLITE ACCESS PRODUCTS:
Revenues $ 32,411 $ 28,556 $ 58,583 $ 58,310
Operating loss (2,222) (7,597) (5,055) (11,473)
Non-controlling interests in (earnings)
losses of consolidated subsidiaries 1,662 1,886 3,189 3,999
Identifiable assets (1) -- -- 140,647 127,392
Capital expenditures 690 761 1,371 1,265
Depreciation and amortization 2,194 1,000 4,163 2,472
SATELLITE SERVICES:
Revenues $ 4,519 $ 259 $ 7,437 $ 323
</TABLE>
7
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C>
Operating loss (2,647) (782) (11,287) (2,420)
Equity in earnings (losses) of
affiliates (19,537) (8,213) (40,137) (18,890)
Non-controlling interests in (earnings)
losses of consolidated subsidiaries 612 349 2,564 1,116
Identifiable assets (1) -- -- 291,469 241,528
Capital expenditures 4,459 28 4,462 441
Depreciation and amortization 499 -- 1,125 --
CONSOLIDATED:
Revenues $ 232,286 $ 184,516 $ 436,624 $ 370,675
Operating income 12,504 8,251 16,140 21,616
Equity in earnings (losses) of
affiliates (19,537) (8,213) (40,137) (18,890)
Non-controlling interests in (earnings)
losses of consolidated subsidiaries 2,274 2,235 5,753 5,115
Identifiable assets (1) -- -- 1,189,492 962,738
Capital expenditures 19,287 12,475 32,250 20,997
Depreciation and amortization 11,332 10,000 22,740 18,803
-------------- --------------- -------------- --------------
</TABLE>
(1) Identifiable assets are as of June 30, 1999 and December 31, 1998.
(4) BUSINESS COMBINATIONS AND INVESTMENTS IN AND ADVANCES TO AFFILIATES
During the second quarter of 1999, the company finalized a $50,000,000 joint
venture with The Hertz Corporation ("Hertz") whereby Hertz will offer Orbital's
automotive navigation systems in its rental cars in the U.S., Canada and
Europe. Under the terms of the joint venture agreement, the company will
receive a 60% interest in the venture in exchange for a $30,000,000 investment.
The company had contributed $3,000,000 of its total investment through June 30,
1999, with the balance to be paid over the next nine months.
In May 1999, the company acquired all the assets and certain liabilities of the
space robotics division of Toronto-based Spar Aerospace Limited ("Spar") for
approximately $43,000,000. The company paid one-half of the purchase price in
cash at closing and issued an unsecured 8% note, due May 2000, for the
remainder. The company will account for the acquisition using the purchase
method of accounting. The purchase price exceeded the fair value of the net
assets acquired by approximately $48,000,000. Orbital anticipates that the
excess of purchase price over net assets acquired will be amortized on a
straight-line basis over 30 years. However, the final amortization period as
well as the final allocation of purchase price to net assets acquired will be
determined as appraisals and other studies are completed.
In May 1999, the company also entered into a $37,000,000 long-term license
agreement with the British Columbia provincial government whereby the company
obtained the exclusive rights to use certain government information databases
(the "License Agreement"). The company intends to provide internet-based
services pursuant to the License Agreement. The company paid approximately
$14,000,000 in cash and issued a note for $23,000,000 due 2001 to acquire the
license.
The company provided ORBCOMM Global, L.P. $34,000,000 in capital and $7,000,000
of deferred invoicing for work performed under a satellite and launch
procurement
8
<PAGE> 9
contract (approximately one-half of the deferred invoicing has been advanced to
Orbital by an affiliate of Teleglobe, Inc.) during the first half of 1999.
(5) INCOME TAXES
The company has recorded its interim income tax provision (for U.S. Federal and
state taxes and foreign taxes) based on an estimate of its full-year provision.
Estimated provisions recorded during interim periods may be periodically
revised, if necessary, to reflect current estimates.
(6) EARNINGS PER SHARE
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 and 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.
Net income (loss) 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>
Three Months Ended
June 30, 1999 Three Months Ended June 30, 1998
------------- --------------------------------
Net Income Net Income Net Income Per
(Loss) Per Per Common Common Share,
(In thousands) Common Share Share Assuming Dilution
- -------------- ------------ ------ -----------------
<S> <C> <C> <C>
Net income (loss) $ (10,149) $ 5,998 $ 5,998
Assuming conversion of convertible notes -- -- 1,145
-------------- ------------ ------------
Net income (loss), as adjusted $ (10,149) $ 5,998 $ 7,143
============== ============ ============
Outstanding common shares 37,205 36,902 36,902
Effect of weighting outstanding shares (8) (922) (922)
Stock options (treasury method) -- -- 1,264
Convertible notes -- -- 3,571
-------------- ------------ ------------
Adjusted shares 37,197 35,980 40,815
============== ============ ============
<CAPTION>
Six Months Ended
June 30, 1999 Six Months Ended June 30, 1998
------------- ------------------------------
Net Income Net Income Net Income Per
(Loss) Per Per Common Common Share,
(In thousands) Common Share Share Assuming Dilution
- -------------- ------------ ------ -----------------
<S> <C> <C> <C>
Net income (loss) $ (26,020) $ 10,743 $ 10,743
Assuming conversion of convertible notes -- -- 1,460
-------------- ------------ ------------
Net income (loss), as adjusted $ (26,020) $ 10,743 $ 12,203
============== ============ ============
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
Outstanding common shares 37,205 36,902 36,902
Effect of weighting outstanding shares (37) (2,493) (2,493)
Stock options (treasury method) -- -- 1,304
Convertible notes -- -- 3,571
-------------- ------------ ------------
Adjusted shares 37,168 34,409 39,284
============== ============ ============
</TABLE>
In periods of net loss, the assumed conversion of convertible notes and stock
options are anti-dilutive. For the three and six months ended June 30, 1999,
adjusted shares, assuming conversion of convertible notes and the dilutive
impact of outstanding stock options, would have been 41,544,655 and 41,733,440,
respectively.
(7) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) and associated differences are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 1999 1998 1999 1998
-------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Differences between net income (loss), as
reported, and comprehensive income (loss):
Net income (loss), as reported $ (10,149) $ 5,998 $ (26,020) $ 10,473
Unrealized gains (losses) on
short-term investments -- -- -- (136)
Translation adjustments 840 (758) 1,165 (515)
------------ ------------ ----------- ------------
Comprehensive income (loss) $ (9,309) $ 4,852 $ (24,855) $ 9,822
============ ============ =========== ============
Accumulated differences between
net income (loss), as reported, and
comprehensive income (loss):
Beginning of period $ (6,900) $ (4,564) $ (7,225) $ (4,671)
Unrealized gains (losses) on
short-term investments -- -- -- (136)
Translation adjustments 840 (758) 1,165 (515)
------------ ------------ ------------ ------------
End of period $ (6,060) $ (5,322) $ (6,060) $ (5,322)
============ ============ ============ ============
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
In March 1999, the company signed a merger agreement with Lowrance Electronics,
Inc. ("Lowrance"), a leading manufacturer of marine and recreational electronics
using GPS-satellite navigation and sonar technology. Under the terms of the
merger, the company will acquire all the outstanding common stock of Lowrance
and Lowrance stockholders will receive between 745,000 and 1,250,000 shares of
Orbital common stock, based on the fair market value of its stock prior to
closing. The transaction is expected to close in the second half of 1999.
Closing is subject to completion of securities registration requirements,
regulatory approvals and Lowrance stockholder approval.
10
<PAGE> 11
During the first quarter of 1999, a number of class action lawsuits were filed
in the U.S. District Court for the Eastern District of Virginia (the "District
Court") against the company, an officer and an officer/director alleging
violations of the federal securities laws, on behalf of purchasers of the
company's stock during the period from April 21, 1998 through February 16, 1999,
and seeking monetary damages. On May 21,1999, the cases were consolidated into a
single class action and, on May 28, 1999, an amended consolidated class action
complaint was filed with the District Court. An additional class action
complaint was filed on behalf of purchasers of call options on July 1, 1999. The
District Court consolidated that case with the previous action on July 30, 1999.
While the amounts to be claimed may be substantial, the company believes that
the allegations are without merit and intends to defend vigorously against such
allegations.
On July 15, 1999, a class action complaint was filed by Veston W. Bush, Jr. on
behalf of a class comprised of purchasers and lessees of a high precision GPS
product manufactured by the company (as a successor to Ashtech Inc.) against
Sokkia Corporation and certain of its affiliates, the company and others in the
Circuit Court of Henry County, Alabama. The complaint alleges breach of contract
and warranty claims and seeks unspecified compensatory and punitive damages.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Certain statements included in this discussion relating to future revenues,
expenses, growth rates, net income, new business, operational performance,
schedules, sources and uses of funds, "Year 2000" issues, the outcome of pending
litigation and the performance of our affiliates, Orbital Imaging Corporation
("ORBIMAGE"), ORBCOMM Global L.P. ("ORBCOMM") and CCI International NV ("CCI"),
are forward-looking statements that involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance,
achievements or investments of Orbital to differ materially from any future
results, performance, achievements, or investments expressed or implied by such
forward-looking statements. Such factors include general economic and business
conditions, launch results, product performance, risks associated with
government contracts, market acceptance of consumer and industrial products, the
introduction of products and services by competitors, risks associated with
acquired businesses, the availability of required capital, our ability and the
ability of our customers and suppliers to assess and correct timely and
accurately "Year 2000" issues, market acceptance of new products and
technologies, risks associated with long-term contracts, the effects of pending
or possible litigation or government investigations and other factors more fully
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Outlook: Issues and Uncertainties" included in our
Annual Report on Form 10-K for the year ended December 31, 1998.
Our 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 and
related space systems, electronics and sensor systems, satellite ground systems
and software and transportation management systems. Our satellite access
products sector consists of satellite-based navigation, positioning and
communications products. Satellite services include the following services
provided by our affiliates, ORBCOMM, ORBIMAGE and CCI and our subsidiaries,
Radarsat International Inc. ("RSI") and Orbital Navigation Corporation
("ORBNAV"): satellite-based mobile data communications services, satellite-based
remote imaging services, satellite-based automotive information services and
satellite-based voice communications services. We do not control the operational
and financial affairs of ORBCOMM, ORBIMAGE or CCI and consequently their
financial results are not consolidated with our results.
RECENT DEVELOPMENTS. During the second quarter of 1999, we finalized a
$50,000,000 joint venture with The Hertz Corporation ("Hertz") whereby Hertz
will offer our automotive navigation systems in its rental cars in the U.S.,
Canada and Europe. Under the terms of
12
<PAGE> 13
the joint venture agreement we will receive a 60% interest in the venture in
exchange for a $30,000,000 investment. We have contributed $3,000,000 of our
total investment through June 30, 1999, with the balance to be paid in several
installments through March 31, 2000.
In May 1999, we acquired all the assets and certain liabilities of the space
robotics division of Toronto-based Spar Aerospace Limited for approximately
$43,000,000, (the "Spar Acquisition"). We paid approximately one-half of the
purchase price in cash at closing and issued an unsecured 8% note, due May 2000
for the remainder. We will account for the acquisition using the purchase method
of accounting. The purchase price exceeded the fair value of the net assets
acquired by approximately $48,000,000. Orbital anticipates that the excess of
purchase price over net assets acquired will be amortized on a straight-line
basis over 30 years. However, the final amortization period as well as the final
allocation of purchase price to net assets acquired will be determined as
appraisals and other studies are completed.
In May 1999, we also entered into a $35,000,000 long-term license agreement with
the British Columbia provincial government, whereby we obtained the exclusive
rights to use certain government information databases (the "License
Agreement"). We intend to provide internet-based services using these databases
pursuant to the License Agreement. We paid approximately $14,000,000 in cash and
issued a note for $23,000,000 due 2001 to acquire the license.
In March 1999, we signed a merger agreement with Lowrance Electronics, Inc.
("Lowrance"), a leading manufacturer of marine and recreational electronics
using GPS-satellite navigation and sonar technology. Under the terms of the
merger, we will acquire all the outstanding common stock of Lowrance and
Lowrance stockholders will receive between 745,000 and 1,250,000 shares of our
common stock, based on the fair market value of our stock prior to closing. The
transaction is expected to close in the second half of 1999. Closing is subject
to completion of securities registration requirements, regulatory approvals and
Lowrance stockholder approval.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUES. Our consolidated revenues for the three-month periods ended June 30,
1999 and 1998 were $232,286,000 and $184,516,000, respectively. Consolidated
revenues for the six-month periods ended June 30, 1999 and 1998 were
$436,624,000 and $370,675,000, respectively.
13
<PAGE> 14
Space and Ground Infrastructure Systems. Revenues from our space and ground
infrastructure systems sector totaled $195,356,000 and $155,701,000 for the
three months ended June 30, 1999 and 1998, respectively. Revenues from this
sector totaled $370,604,000 and $312,042,000 for the six months ended June 30,
1999 and 1998, respectively.
Revenues from launch vehicles decreased to $36,834,000 in the second quarter of
1999 from $47,387,000 in the second quarter of 1998, and to $80,306,000 for the
six months ended June 30, 1999 from $93,427,000 for the six months ended June
30, 1998. The decrease in 1999 revenues compared to 1998 revenues is primarily
attributable to launch delays caused by late delivery of customer satellites and
payloads.
For the three months ended June 30, 1999, satellite and related space systems
revenues were $86,902,000 as compared to $57,051,000 for the three months ended
June 30, 1998. Satellite and related space systems revenues increased to
$154,174,000 for the six months ended June 30, 1999 as compared to $118,583,000
for the six months ended June 30, 1998. Revenues during the first half of 1999
included sales generated by the Spar Acquisition of approximately $13,738,000
for the three- and six-month periods ended June 30, 1999. The remaining
increase in satellite and related space systems revenues is due to revenues
generated, in part, from a new commercial geosynchronous satellite contract
received in 1998.
Revenues from electronics and sensor systems increased to $36,804,000 for the
three months ended June 30, 1999 from $29,464,000 for the three months ended
June 30, 1998, and to $72,617,000 for the six months ended June 30, 1999 from
$56,812,000 for the six months ended June 30, 1998. The overall increase in 1999
is primarily due to an increase in revenues of transportation management systems
attributable to an acquisition in late 1998 as well as new contract awards in
early 1999.
Revenues from our satellite ground systems and software products were
$34,816,000 for the three months ended June 30, 1999 as compared to $21,799,000
for the three months ended June 30, 1998, and $63,507,000 for the six months
ended June 30, 1999 as compared to $43,220,000 for the six months ended June 30,
1998. Revenues during the first half of 1999 included sales generated pursuant
to the License Agreement of $5,530,000 for the three- and six-month periods
ended June 30, 1999. The remaining increase in 1999 revenues is due to work
performed on orders received in 1998 for a new remote imaging system and other
satellite ground systems and system upgrades.
Space and ground infrastructure revenues include sales to our noncontrolled and
unconsolidated affiliates of $32,963,000 for the three months ended June 30,
1999 and $27,119,000 for the three months ended June 30, 1998. Sales to
affiliates decreased for the six months ended June 30, 1999 to $65,170,000 from
$70,270,000 for the six months ended June 30, 1998.
Satellite Access Products. Revenues from sales of satellite-based navigation,
positioning and communications products increased to $32,411,000 for the three
months ended June
14
<PAGE> 15
30, 1999 from $28,556,000 for the three months ended June 30, 1998. Satellite
access products revenues were $58,583,000 for the six months ended June 30, 1999
as compared to $58,310,000 for the six months ended June 30, 1998.
Satellite Services. Revenues for this sector of $4,519,000 and $7,437,000 for
the three and six months ended June 30, 1999, respectively, includes those
revenues generated by ORBCOMM USA, L.P. ("ORBCOMM USA"), ORBNAV and RSI. We
expect these revenues to increase throughout 1999.
GROSS MARGINS/COSTS OF GOODS SOLD. Costs of goods sold include the costs of
personnel, materials, subcontracts and overhead related to sales of commercial
products and under various development and production contracts. Gross profit
margin depends on a number of factors, including our mix of contract types and
costs incurred thereon in relation to estimated costs. Our gross margins for the
second quarter of 1999 were $54,832,000 as compared to $50,851,00 in the second
quarter of 1998. Orbital's gross margins for the first half of 1999 were
$101,143,000 as compared to $102,225,000 for the first half of 1998. Gross
profit margins as a percentage of revenues were approximately 23% for the three-
and six-month periods ended June 30, 1999 and 27% for the three- and six-month
periods ended June 30, 1998.
Space and Ground Infrastructure Systems. Gross margins from our space and ground
infrastructure systems sector were $42,585,000 (or 22% of sector revenues) and
$41,988,000 (or 27% of sector revenues) for the three months ended June 30, 1999
and 1998, respectively. Gross margins for this sector were $81,051,000 (or 22%
of sector revenues) and $84,828,000 (or 27% of sector revenues) for the six
months ended June 30, 1999 and 1998, respectively. Gross margins for the
different infrastructure product lines were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Launch vehicles 24% 25% 22% 26%
Satellites and related space systems 21% 28% 21% 28%
Electronics and sensor systems 25% 27% 26% 28%
Ground systems and software 18% 29% 21% 28%
</TABLE>
The decrease in launch vehicle gross margins in 1999 is primarily due to launch
delays caused by late deliveries of customer satellites and payloads and to
completing work on certain less profitable space and suborbital launch vehicle
contracts. The decrease in gross margins for satellites and related space
systems is due to work performed on a large, commercial, geosynchronous
satellite contract won in late 1998 that contains a significant amount of lower
margin, external subcontract effort, and from lower margins from work performed
on contracts assumed in the Spar Acquisition. Gross margins for ground systems
and software decreased due to (i) an increase in the amount of lower margin,
subcontract work on several contracts, (ii) lower margins on various new defense
contracts and (iii) lower margins from sales pursuant to the License Agreement.
15
<PAGE> 16
Satellite Access Products. Gross margins for satellite access products were
generally consistent at 34% for the three and six months ended June 30, 1999 and
1998.
Satellite Services. This sector had gross margins (losses) of $1,528,000 and
($721,000) during the second quarter of 1999 and 1998, respectively, and $13,000
and ($2,295,000) during the first half of 1999 and 1998, respectively. The
improvement in 1999 gross margins is primarily attributable to higher margins on
sales generated by RSI.
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 for the three
months ended June 30, 1999 and 1998 were $10,116,000 (or 4% of revenues) and
$11,451,000 (or 6% of revenues), respectively. Research and development expenses
were $20,118,000 (or 5% of revenues) and $20,016,000 (or 5% of revenues) for the
six months ended June 30, 1999 and 1998, respectively. Research and development
expenses relate primarily to the development of new or improved satellite access
products, improved launch vehicles and new satellite initiatives.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include the costs of marketing, advertising, promotional
and other selling expenses as well as the costs of the finance, legal,
administrative and general management functions of the company. Selling, general
and administrative expenses for the three months ended June 30, 1999 and 1998
were $28,983,000 (or 13% of revenues) and $29,171000 (or 16% of revenues),
respectively. Selling, general and administrative expenses for the six months
ended June 30, 1999 and 1998 were $58,796,000 (or 14% of revenues) and
$56,655,000 (or 15% of revenues), respectively.
NET INVESTMENT INCOME (EXPENSE). Net investment income (expense) was
($3,362,000) and $154,000 for the three months ended June 30, 1999 and 1998,
respectively. Net investment income (expense) was ($4,450,000) and $414,000 for
the six months ended June 30, 1999 and 1998, respectively. Investment income
(expense) reflects interest earnings on short-term investments and realized
gains and losses on investments, reduced by interest expense of $4,122,000 and
$1,272,000 on outstanding debt for the three months ended June 30, 1999 and
1998, respectively, and by $5,888,000 and $1,460,000 for the six months ended
June 30, 1999 and 1998, respectively. Interest expense has been reduced by
capitalized interest of $2,610,000 and $4,655,000 for the second quarter of 1999
and 1998, respectively, and by $5,272,000 and $8,754,000 for the first half of
1999 and 1998, respectively.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN
(EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES. Equity in earnings (losses) of
affiliates net of non-controlling interests in (earnings) losses of consolidated
subsidiaries were ($17,263,000) and ($5,978,000) for the three months ended June
30, 1999 and 1998, respectively, and were ($34,384,000) and ($13,775,000) for
the six months ended June
16
<PAGE> 17
30, 1999 and 1998, respectively. These amounts primarily represent (i)
elimination of proportionate profits or losses on sales of infrastructure
systems to ORBCOMM, ORBIMAGE and CCI, (ii) our proportionate share of
ORBCOMM's, ORBCOMM International Partners. L.P.'s, ORBIMAGE's and CCI's current
period earnings and losses and (iii) non-controlling stockholders' proportionate
share of ORBCOMM USA's, and Magellan Corporation's current period earnings and
losses. The increase in losses during the first half of 1999 is primarily due to
ORBCOMM's (i) increased operational expenses relating to the roll-out of global
commercial services, (ii) increased interest expense and (iii) increased system
depreciation expenses resulting from ORBCOMM's satellites being placed in
service in late 1998. We expect equity in losses of affiliates in 1999 to be
significantly higher than 1998, primarily due to increased losses at ORBCOMM.
PROVISION FOR INCOME TAXES. We recorded an income tax provision of $2,028,000
and $1,222,000 for the three months ended June 30, 1999 and 1998, respectively,
and of $3,326,000 and $2,305,000 for the six months ended June 30, 1999 and
1998, respectively. The provision in both periods was entirely due to foreign
taxes attributable to our Canadian operations. Our interim income tax provision
is based on an estimate of our full-year provision. Estimated provisions
recorded during interim periods may be periodically revised, if necessary, to
reflect current estimates.
At December 31, 1998, we had approximately $278,000,000 of U.S. Federal net
operating loss carryforwards (portions of which expire beginning in 2004),
$3,148,000 of U.S. Federal research and experimental income tax credit
carryforwards and $5,000,000 of foreign investment income tax credit
carryforwards (subject to expiration in 2008). Such net operating loss
carryforwards and tax credits are available to reduce future income tax
obligations, subject to certain annual limitations and other restrictions.
NET INCOME (LOSS). Our consolidated net income (loss) for the three months ended
June 30, 1999 and 1998 was ($10,149,000) and $5,998,000, respectively, and
($26,020,000) and $10,473,000 for the six months ended June 30, 1999 and 1998,
respectively. Our space and ground infrastructure systems sector generated net
income of $16,621,000 and $18,487,000 for the second quarter of 1999 and 1998,
respectively, and $31,207,000 and $33,671,000 for the first half of 1999 and
1998, respectively. The satellite access products sector reported net losses of
$1,270,000 and $5,761,000 for the second quarter of 1999 and 1998, respectively,
and $2,836,000 and $7,527,000 for the first half of 1999 and 1998, respectively.
Our satellite services sector reported net losses of $25,499,000 and $6,728,000
for the second quarter of 1999 and 1998, respectively, and $54,390,000 and
$15,401,000 for the first half of 1999 and 1998, respectively.
Our satellite access products sector has introduced new products and formed new
business alliances in early 1999 and has implemented significant cost savings
measures. Consequently, we expect the trend of reduced losses to continue in
1999. The increased losses experienced in our satellite services sector are
expected to continue in 1999, primarily as a result of increased losses at
ORBCOMM as discussed above. The satellite
17
<PAGE> 18
services sector also includes the results of our equity-method investment in
CCI. We are currently renegotiating the terms of our investment with CCI. If CCI
is unable to raise additional capital and make operational progress, or if an
adequate market for its products and services does not develop, we may be
required to write-off all, or a portion, of our $20,200,000 investment.
LIQUIDITY AND CAPITAL RESOURCES
Our growth has required, and continues to require, substantial capital to fund
investments in affiliates, business acquisitions, expanding working capital
needs, new business initiatives, research and development and capital
expenditures. We have funded these requirements to date, and expect to fund our
future requirements, through cash generated by operations, working capital, loan
facilities, asset-based financings, joint venture arrangements and private and
public equity and debt offerings. We expect to continue to pursue potential
acquisitions, new business opportunities and equity investments that we believe
would enhance our businesses and to fund such transactions through existing cash
and loan facilities as well as through the issuance of new equity, debt and/or
asset-based financings along with cash from operations.
Cash and investments were $42,830,000, and total debt obligations were
$354,612,000 at June 30, 1999. The outstanding debt is comprised primarily of
our $100,000,000 5% convertible subordinated notes, advances under our revolving
credit facilities, secured and unsecured notes, and asset-based financings. Cash
and investments at June 30, 1999 included approximately $7,585,000 restricted
against outstanding letters of credit. Our current ratio was 1.1 and 1.2 at June
30, 1999 and December 31, 1998, respectively.
Our primary revolving credit facility provides for total borrowings from a
syndicate of banks of up to $200,000,000. Borrowings of $152,000,000 were
outstanding under the facility at June 30, 1999 at a weighted average interest
rate of 7% and are secured by accounts receivable. The facility prohibits the
payment of cash dividends, contains certain covenants with respect to our
working capital levels, fixed charges ratio, leverage ratio and net worth, and
expires in December 2002. We also issued $45,200,000 of new debt in the first
half of 1999 related to various business acquisitions. (See Recent
Developments.)
During the first half of 1999, we provided $34,000,000 in capital to ORBCOMM. In
addition, during the first half of 1999, we deferred invoicing ORBCOMM for
approximately $7,000,000 of work performed under our ORBCOMM satellite and
launch procurement agreement and will defer additional invoicing during the
remainder of 1999. Approximately one-half of the deferred invoice amounts has
been, and is expected to continue to be, advanced to Orbital by Teleglobe Inc.
ORBCOMM will require additional funding in 1999, and is analyzing different
capital raising alternatives. If ORBCOMM is unsuccessful at raising any outside
capital, we estimate that our portion of
18
<PAGE> 19
the remaining projected ORBCOMM funding requirements for 1999 may be up to
$30,000,000.
In addition to our investment in ORBCOMM, for the six months ended June 30,
1999, we invested approximately $36,500,000 in business and other asset
acquisitions (See Recent Developments) and $31,442,000 in capital expenditures
for various satellite, launch vehicle and other infrastructure production,
manufacturing and test equipment, leasehold improvements and office equipment.
Our operations provided net cash of approximately $46,243,000 in the first half
of 1999.
During the first half of 1999, we amended our credit facility and our
$20,000,000 term loan to allow us to provide additional capital to ORBCOMM and
to complete certain transactions. In addition, we obtained a waiver on a
leverage ratio in our primary credit facility to provide full availability under
that facility. We expect to amend our facility prior to the September 1999
expiration of the waiver and/or to pursue new equity and debt financings that if
successful, may not require any modification or amendment to the facility. We
expect that our capital needs for the remainder of 1999 will be provided by
potential new equity and/or debt financings, as well as by working capital, cash
flows from operations, existing credit facilities, and operating lease
arrangements. No assurance can be given that we will be successful in completing
any new equity or debt financings or in modifying our credit facility.
We are expanding our offices and satellite-related engineering, manufacturing
and operations facilities adjacent to our Dulles, Virginia headquarters in order
to consolidate certain operational facilities and office space and provide for
future growth. Construction has commenced and is expected to continue into
2001. To finance the majority of this expansion, Orbital has negotiated a
built-to-suit agreement with a developer for the office expansion and expects
to obtain third-party financing for the engineering, manufacturing and
operating facilities.
YEAR 2000 ISSUES
We have developed a plan to prepare for potential "Year 2000" issues with
respect to various operational, technical and financial computer-related
systems. The plan has been designed to minimize risk to the company and its
customers using a standard industry five-phase approach. The five phases are
awareness, assessment, renovation, validation and implementation. We have
substantially completed the awareness and assessment phases, including a
comprehensive inventory of potentially affected systems. In many cases
renovation work is well underway and validation testing has been completed with
respect to certain critical systems.
We plan to achieve our overall goal of Year 2000 readiness by September 1999.
The first half of 1999 was devoted to renovating, validating and implementing
our corrective action plan by reprogramming affected software when appropriate
and feasible, obtaining vendor-provided software upgrades when available and
completely replacing affected systems when necessary.
19
<PAGE> 20
The total costs to implement the plan, which costs include the already planned
replacement of existing systems to support our overall growth, are estimated to
be less than 1% of 1998 revenues. Approximately 85% of the estimated costs to
implement the plan have been incurred to date and the remaining costs are
expected to be incurred during the remainder of 1999. All costs, including the
costs of internal personnel, outside consultants, system replacements and other
equipment, will be expensed as incurred, except for long-lived assets, which
will be capitalized in accordance with our capitalization policies. We have not
postponed the implementation or upgrade of other systems as a result of focusing
on the Year 2000 plan.
As part of the plan, we are surveying our customers, suppliers and other
service providers regarding their Year 2000 readiness. At this point we do not
believe that any "Year 2000" issues will negatively affect our significant
customers (including the U.S. government), key suppliers, or critical service
providers and consequently, will not materially impact the company's cash flows
or operating results. A "reasonably likely worst case" scenario of the Year
2000 issue for us could include isolated performance problems with engineering,
financial and administrative systems; isolated interruption of deliveries from
suppliers; product liability or warranty issues; and the temporary inability of
key customers to pay amounts due us. Contingency plans are being prepared, and
will be implemented if necessary, including having sufficient liquidity
available to sustain a temporary interruption of cash receipts during early
2000 and the identification of alternative suppliers for critical components.
There can be no assurance that we have identified, or will identify, all "Year
2000" affected systems, suppliers, customers and service providers, or that our
corrective action plan will be timely and successful.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company does not have any material exposure to interest rate changes,
commodity price changes, foreign currency fluctuation, or similar market risks,
although we do enter into forward exchange contracts to hedge against specific
foreign currency fluctuations, principally with respect to the Canadian dollar
and Japanese yen. At June 30, 1999, the majority of the company's long term debt
consisted of its $100,000,000, 5% convertible subordinated notes, due 2002. The
fair market value of these convertible securities fluctuates with the company's
stock price, and was $93,000,000 at June 30, 1999.
20
<PAGE> 21
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the first quarter of 1999, a number of class action lawsuits
were filed in the U.S. District Court for the Eastern District of
Virginia (the "District Court") against the company, an officer and
an officer/director alleging violations of the federal securities
laws, on behalf of purchasers of the company's stock during the
period from April 21, 1998 through February 16, 1999, and seeking
monetary damages. On May 21,1999, the cases were consolidated into a
single class action and, on May 28, 1999, an amended consolidated
class action complaint was filed with the District Court. An
additional class action complaint was filed on behalf of purchasers
of call options on July 1, 1999. The District Court consolidated that
case with the previous action on July 30, 1999. The District Court
also denied the company's motion to dismiss. While the amounts to be
claimed may be substantial, the company believes that the allegations
are without merit and intends to defend vigorously against such
allegations.
On July 15, 1999, a class action complaint was filed by Veston W.
Bush, Jr. on behalf of a class comprised of purchasers and lessees of
a high precision GPS product manufactured by the company (as a
successor to Ashtech Inc.) against Sokkia Corporation and certain of
its affiliates, the company and others in the Circuit Court of Henry
County, Alabama. The complaint alleges breach of contract and
warranty claims and seeks unspecified compensatory and punitive
damages.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The annual meeting of stockholders of the Company was held on
May 14, 1999.
(b) Not applicable.
(c)(i) Election of five directors, each serving for a three-year term
ending in 2002:
Kelly H. Burke
--------------
Votes: For: 30,139,420
Withheld: 2,187,515
Bruce W. Ferguson
------------------
Votes: For: 30,155,648
Withheld: 2,171,287
Daniel J. Fink
--------------
Votes: For: 30,117,288
Withheld: 2,209,648
Janice I. Obuchowski
--------------------
Votes: For: 30,147,234
Withheld: 2,179,701
Frank L. Salizzoni
------------------
Votes: For: 30,139,794
Withheld: 2,187,141
(ii) Proposal to approve the adoption of the Orbital Sciences
Corporation 1999 Employee Stock Purchase Plan
Votes: For: 31,370,971 Against: 763,260
Abstain: 192,704
21
<PAGE> 22
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - A complete listing of exhibits required is given in
the Exhibit Index that precedes the exhibits filed with this
report.
(b) Reports on Form 8-K.
(i) On April 29, 1999, the company filed a Current Report on
Form 8-K, dated April 22, 1990, disclosing a change in the
company's auditors.
(ii) On May 3, 1999, the company filed a Current Report on
Form 8-K, dated April 29, 1999, disclosing its financial
results for the quarter ended March 31, 1999.
(iii) On May 11, 1999, the company filed a Current Report on
Form 8-K, dated May 10, 1999, disclosing its engagement of
Pricewaterhouse Coopers LLP as its independent auditor to
audit the company's financial statements for the year ended
December 31, 1999.
(iv) On May 14, 1999, the company filed a Current Report on
Form 8-K/A, dated May 13, 1999, filing the response letter of
its former auditors to the company's Current Report on Form
8-K filed on April 29, 1999.
(v) On May 24, 1999, the company filed a Current Report on
Form 8-K, dated May 7, 1999, disclosing its acquisition of
assets, including the stock of certain subsidiaries, and
assumption of certain liabilities, relating to the Spar
Acquisition (the "Spar 8-K").
(vi) On May 27, 1999, the company filed a Current Report on
Form 8-K/A, dated May 7, 1999, amending the Spar 8-K to
include exhibits, other than financial information.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: August 16, 1999 By:/s/ DAVID W. THOMPSON
-------------------------------------------
David W. Thompson, President
and Chief Executive Officer
DATED: August 16, 1999 By:/s/ JEFFREY V. PIRONE
-------------------------------------------
Jeffrey V. Pirone, Executive Vice President
and Principal Financial Officer
23
<PAGE> 24
EXHIBIT INDEX
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1.2 Amendment No. 2, dated as of May 26, 1999, to the Third Amended
and Restated Credit and Reimbursement Agreement, dated as of
December 21, 1998 among the company and Morgan Guaranty Trust
Company of New York, as Administrative Agent. (transmitted
herewith)
10.1.3 Amendment No. 3, dated as of July 26, 1999, to the Third
Amended and Restated Credit and Reimbursement Agreement, dated
as of December 21, 1998 among the company and Morgan Guaranty
Trust Company of New York, as Administrative Agent.
(transmitted herewith).
10.2.7 Seventh Amendment, dated as of May 27, 1999, to the Note
Agreement, dated as of June 14, 1995 between the company and
Northwestern Mutual Life Insurance Company (transmitted
herewith).
27 Financial Data Schedule (such schedule is furnished for the
information of the Securities and Exchange Commission and is
not to be deemed "filed" as part of the Form 10-Q, or otherwise
subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934) (transmitted herewith).
</TABLE>
<PAGE> 1
EXHIBIT 10.1.2
AMENDMENT NO. 2
TO
THIRD AMENDED AND RESTATED
CREDIT AND REIMBURSEMENT AGREEMENT
AMENDMENT No. 2 dated as of May 26, 1999 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 Third
Amended and Restated Credit and Reimbursement Agreement dated as of December 21,
1998 (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 5 below) refer to the Credit Agreement as
amended hereby.
SECTION 2. Additional Permitted Investments. Section 5.07 of the
Credit Agreement is amended by:
(i) substituting the dollar amount "$122,000,000" for the dollar
amount "$110,000,000" set forth in clause (d) thereof;
(ii) redesignating clause (l) thereof as clause (n) and
substituting a reference to "this clause (n)" for the reference to "this
clause (l)" contained therein;
(iii) deleting the "and" at the end of clause (k) thereof; and
<PAGE> 2
(iv) adding the following new clauses (l) and (m) immediately
after clause (k)
thereof:
"(l) Investments by the Company or any of its Subsidiaries
made in an aggregate amount not to exceed $30,000,000 pursuant to
a joint venture agreement between the Company or any of its
Subsidiaries and The Hertz Corporation ("HERTZ") to develop and
market Magellan automotive navigation Systems in Hertz rental cars
substantially on the terms described by the Company to the Banks
prior to the date of effectiveness of Amendment No. 2 to this
Agreement;
(m) Investments by the Company or any of its Subsidiaries
made in an aggregate amount not to exceed $6,000,000 pursuant to a
joint venture agreement between the Company or any of its
Subsidiaries and LandAmerica Financial Group, Inc. to develop and
market electronic land the Company to the Banks prior to the date
of effectiveness of Amendment No. 2 to this Agreement;"
SECTION 3. Waiver of Compliance With Leverage Ratio. The Banks
waive (i) compliance by the Company with the provisions of Section 5.09 of the
Credit Agreement and (ii) any Default arising under Section 6.01 (c) of the
Credit Agreement by reason of such noncompliance; provided that the waivers
granted pursuant to this Section 3 shall expire on the 60th day after the
Amendment Effective Date. Except as provided in the immediately preceding
sentence, this Section 3 shall not operate as a waiver of any right, remedy,
power or privilege of the Banks under any Financing Document or of any other
term or condition of any Financing Document.
SECTION 4. New York Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5. Counterparts; Effectiveness. This Amendment may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective on the date (the "AMENDMENT
EFFECTIVE DATE") on which the Administrative Agent shall have received duly
executed counterparts hereof signed by the Company and the Required Banks (or,
in the case of any party as to which an executed counterpart shall not have been
received, the Administrative Agent shall have received telegraphic, telex or
other written confirmation from such party of execution of a counterpart hereof
by such party).
<PAGE> 3
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
21700 Atlantic Boulevard
Dulles, VA 20166
Attention: Kenneth H. Sunshine
Facsimile number: (703) 406-3502
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/Robert Bottamedi
---------------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/James R. Trimble
---------------------------------------
Title: Senior Relationship Manager
NATIONSBANK, N.A.
By: /s/Michael Brick
---------------------------------------
Title: Vice President
FIRST UNION COMMERCIAL CORPORATION
By: /s/Michael Landini
---------------------------------------
Title: Vice President
<PAGE> 4
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLAND BRANCHES
By: /s/Jon D. Storck
---------------------------------------
Title: Vice President
By: /s/Sangita Gupte
---------------------------------------
Title: Associate
KEYBANK NATIONAL ASSOCIATION
By: /s/Marianne T. Meil
---------------------------------------
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:
---------------------------------------
Title:
WACHOVIA BANK, N.A.
By:
---------------------------------------
Title:
CHEVY CHASE BANK
By: /s/Gill Waller
---------------------------------------
Title: Vice President
<PAGE> 5
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /s/Robert Bottamedi
---------------------------------------
Title: Vice President
60 Wall Street
New York, NY 10260-0060
Attention: Diana H. Imhof
Facsimile number: (212) 648-5232
<PAGE> 1
EXHIBIT 10.1.3
AMENDMENT NO. 3
TO
THIRD AMENDED AND RESTATED
CREDIT AND REIMBURSEMENT AGREEMENT
AMENDMENT No. 3 dated as of July 26, 1999 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 Third
Amended and Restated Credit and Reimbursement Agreement dated as of December 21,
1998 (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 5 below) refer to the Credit Agreement as
amended hereby.
SECTION 2. Additional Permitted Investments. Section 5.07 of the
Credit Agreement is amended by substituting the dollar amount "$134,000,000" for
the dollar amount "$122,000,000" set forth in clause (d) thereof.
SECTION 3. Waiver of Compliance With Leverage Ratio. The Banks
waive (i) compliance by the Company with the provisions of Section 5.09 of the
Credit Agreement and (ii) any Default arising under Section 6.01 (c) of the
Credit Agreement by reason of such noncompliance; provided that the waivers
granted pursuant to this Section 3 shall expire on the 60th day after the
Amendment Effective Date. Except as provided in the immediately preceding
sentence, this Section 3 shall not operate as a waiver of any right, remedy,
power or
<PAGE> 2
privilege of the Banks under any Financing Document or of any other term or
condition of any Financing Document.
SECTION 4. New York Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5. Counterparts; Effectiveness. This Amendment may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective on the date (the "AMENDMENT
EFFFECTIVE DATE") on which the Administrative Agent shall have received (i) duly
executed counterparts hereof signed by the Company and the Required Banks (or,
in the case of any party as to which an executed counterpart shall not have been
received, the Administrative Agent shall have received telegraphic, telex or
other written confirmation from such party of execution of a counterpart hereof
by such party) and (ii) for the account of each Bank with respect to which the
Administrative Agent has received a duly executed counterpart hereof (or
telegraphic, telex or other written confirmation from such Bank of execution of
a counterpart hereof by such Bank), an amendment fee in an amount equal to 1/8
of 1% of such Bank's commitment as in effect on the Amendment Effective Date.
<PAGE> 3
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
21700 Atlantic Boulevard
Dulles, VA 20166
Attention: Kenneth H. Sunshine
Facsimile number: (703) 406-3502
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/Diana H. Imhof
--------------------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/James R. Trimble
--------------------------------------------
Title: Senior Relationship Manager
BANK OF AMERICA, N.A., d/b/a
NATIONSBANK, N.A.
By: /s/Michael Brick
--------------------------------------------
Title: Vice President
FIRST UNION COMMERCIAL CORPORATION
By: /s/Barbara Boehm
--------------------------------------------
Title: Vice President
<PAGE> 4
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLAND BRANCHES
By: /s/Jon D. Storck
--------------------------------------------
Title: Vice President
By: /s/Alexander Richarz
--------------------------------------------
Title: Associate
KEYBANK NATIONAL ASSOCIATION
By: /s/Marianne Meil
--------------------------------------------
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:
--------------------------------------------
Title:
WACHOVIA BANK, N.A.
By: /s/Roberts A. Bass
--------------------------------------------
Title: Senior Vice President
CHEVY CHASE BANK
By: /s/Steven Hass
--------------------------------------------
Title: Vice President
<PAGE> 5
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /s/Diana H. Imhof
--------------------------------------------
Title: Vice President
60 Wall Street
New York, NY 10260-0060
Attention: Diana H. Imhof
Facsimile number: (212) 648-5232
<PAGE> 1
EXHIBIT 10.2.7
SEVENTH AMENDMENT TO NOTE AGREEMENT
THIS SEVENTH AMENDMENT to Note Agreement dated as of May 27, 1999
("Seventh Amendment"), is entered into between ORBITAL SCIENCES CORPORATION, a
Delaware corporation (the "Company"), and THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY (the "Purchaser").
R E C I T A L S:
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,
the Fourth Amendment to Note Agreement dated as of March 31, 1997, the Fifth
Amendment to Note Agreement dated as of December 23, 1997 and the Sixth
Amendment to Note Agreement dated as of August 14, 1998 (as amended, the "Note
Agreement").
B. The Company and the Purchaser now desire to further amend,
effective on and as of May 27, 1997 (the "Effective Date"), certain of the terms
of the Note Agreement.
C Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Note Agreement unless herein defined or the context
shall otherwise require.
D. All requirements of law have been fully complied with and all
other acts and things necessary to make this Seventh 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 8.1 of the Note Agreement is hereby amended as
follows:
(a) The definition of "Restricted Investments," clause (i) is
hereby amended by deleting the word "and" at the end thereof;
(b) The definition of "Restricted Investments," clause (j) is
hereby amended by substituting a semicolon for the period and adding the
word "and" at the end thereof; and
(c) The definition of "Restricted Investments," is hereby amended
by adding a new Clause (k) to read in its entirety as follows:
"(k) Investments by the Company or any Subsidiary made in an
aggregate amount not to exceed $30,000,000 pursuant to a joint
venture agreement between the Company or any Subsidiary and The
Hertz Corporation ("Hertz") to develop and market Magellan
automotive navigation systems in Hertz rental cars substantially
on the terms described by the Company to the Purchaser prior to
the Effective Date of Amendment No. 7 to this Agreement."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
<PAGE> 2
Section 2.1. To induce the Purchaser to execute and deliver this Seventh
Amendment, the Company represents and warrants to the Purchaser (which
representations shall survive the execution and delivery of this Seventh
Amendment) that:
(a) this Seventh Amendment has been duly authorized, executed and
delivered by the Company 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 Seventh 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
Seventh 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 Seventh
Amendment, no Default or Event of Default has occurred which is
continuing.
SECTION 3. CONDITIONS TO EFFECTIVENESS OF SEVENTH AMENDMENT.
Section 3.1. This Seventh Amendment shall not become effective until, and
shall become effective when, each and every one of the following conditions
shall have been satisfied:
(a) executed counterparts of this Seventh Amendment, duly executed by
the Company and the Purchaser, shall have been delivered to the
Purchaser; and
(b) 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 Seventh Amendment shall on the
Effective Date become effective.
SECTION 4. MISCELLANEOUS.
Section 4.1. Except as modified and expressly amended by this Seventh
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.
<PAGE> 3
Section 4.2. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Seventh Amendment may refer to the Note Agreement without making specific
reference to this Seventh Amendment but nevertheless all such references shall
include this Seventh Amendment unless the context otherwise requires.
Section 4.3. This Seventh Amendment shall be governed by and construed in
accordance with the laws of the State of Illinois.
Section 4.4. This Seventh Amendment may be executed and delivered in any
number of counterparts, each of such counterparts constituting an original, but
all together only one Seventh 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
-----------------------------------------
Kenneth H. Sunshine
Vice President and Treasurer
Accepted and Agreed to:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/Jerome R. Baier
-----------------------------------------
Jerome R. Baier
Its Authorized Representative
<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 SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 35,245
<SECURITIES> 7,585
<RECEIVABLES> 289,716
<ALLOWANCES> (20,570)
<INVENTORY> 68,094
<CURRENT-ASSETS> 392,883
<PP&E> 297,225
<DEPRECIATION> (117,154)
<TOTAL-ASSETS> 1,189,492
<CURRENT-LIABILITIES> 372,533
<BONDS> 302,452
0
0
<COMMON> 372
<OTHER-SE> 487,826
<TOTAL-LIABILITY-AND-EQUITY> 1,189,492
<SALES> 436,624
<TOTAL-REVENUES> 436,624
<CGS> 335,481
<TOTAL-COSTS> 335,481
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 241
<INTEREST-EXPENSE> 4,122
<INCOME-PRETAX> (22,694)
<INCOME-TAX> 3,326
<INCOME-CONTINUING> (26,020)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,020)
<EPS-BASIC> (0.70)
<EPS-DILUTED> (0.70)
</TABLE>
