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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 13, 1999
ORBITAL SCIENCES CORPORATION
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<S> <C> <C>
DELAWARE 0-18287 06-1209561
(State of incorporation) (Commission File Number) (I.R.S. Employer I.D. No.)
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21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(703) 406-5000
(Address and telephone number
of principal executive offices)
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ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On May 13, 1999, Orbital Sciences Corporation ("Orbital" or the
"Company") received the response (the "Response Letter") of its former auditors,
KPMG LLP ("KPMG"), to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 29, 1999. The Response Letter, which
KPMG was required to deliver to the Company pursuant to Item 304(a)(3) of
Regulation S-K, is attached as Exhibit 16.1 hereto.
The Company disagrees with a number of the statements made by KPMG in
its Response Letter. Of particular significance:
- The Company believes its Form 8-K correctly summarizes the
Company's restatement of its quarterly financial statements for the
first three quarters of 1998. The Company believed that its
interpretation and application of accounting standards in its quarterly
financial statements as originally filed were reasonable. Nevertheless,
the Company accepted KPMG's interpretation of complex accounting
standards and agreed to the restatement proposed by KPMG.
- The Company believes that KPMG's characterizations and
enumerations of the fourth quarter adjustments proposed in the course
of its audit are unnecessary. Any audit involves adjustments proposed
by an auditor that are then discussed with its client. Based on
additional analyses of facts by the client and the auditor, the auditor
may then modify its proposed adjustments or not. That was the process
engaged in by Orbital and KPMG. What is significant is that (1) in
Orbital's audited financial statements, all adjustments finally
proposed by KPMG were recorded by the Company and (2) as indicated in
KPMG's unqualified opinion, the Company's financial statements for the
year ended December 31, 1998 complied with GAAP and contained all
appropriate disclosures.
- The Company continues to disagree with KPMG's assertions
with respect to alleged material weaknesses. What is significant
is that Orbital's new auditors, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), have been given full authorization by the
Company to speak with KPMG, and have done so.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ORBITAL SCIENCES CORPORATION
Date: May 14, 1999 By: /s/ Jeffrey V. Pirone
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Jeffrey V. Pirone
Executive Vice President and
Chief Financial Officer
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EXHIBITS
The following exhibit is filed as part of this report.
Exhibit No. Description
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16.1 Letter regarding change in
certifying accountant
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EXHIBIT 16.1
May 13, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
KPMG LLP ("KPMG") was previously the principal accountants for Orbital Sciences
Corporation ("Orbital" or the "Company") and under date of February 16, 1999,
except as to note 12 which is as of March 18, 1999, we reported on the
consolidated financial statements of the Company as of and for the years ended
December 31, 1998 and 1997. Our appointment as principal accountants was
terminated by the Company on April 22, 1999. We have read the Company's
statements included in Item 4 of its Form 8-K dated April 28, 1999 ("Item 4")
and we agree with those statements, except as follows:
KPMG is not in a position to agree or disagree with the Company's statement in
the first sentence in the first paragraph of Item 4, to the effect that the
Company had determined to change auditors "at the direction of the Audit and
Finance Committee of the Board of Directors".
KPMG is not in a position to agree or disagree with the Company's statement in
the second sentence of the first paragraph of Item 4 that, "The Company has
selected a major international independent auditing firm, subject to the firm's
completion of its pre-acceptance procedures, to audit the Company's consolidated
financial statements for the year ending December 31, 1999."
KPMG believes that the statements in the third paragraph of Item 4 should be
clarified to indicate the unaudited nature of quarterly financial information
restated by the Company.
KPMG does not agree with the second sentence of the third paragraph of Item 4
because we believe it does not accurately characterize the nature of the
adjustments the Company made to its unaudited quarterly financial statements for
the first three quarters of the fiscal year ended December 31, 1998 and to the
unaudited financial information for the fourth quarter of that fiscal year.
Specifically, KPMG believes that the adjustments were not based solely on
"KPMG's interpretation of the specific accounting standards." To the contrary,
KPMG believes that Item 4 should have disclosed that the adjustments included:
(a) adjustments required to correct errors by the Company in recording certain
transactions, which errors caused the Company to record those transactions in a
manner that was inconsistent with generally accepted accounting principles; and
(b) adjustments required to correct the Company's incorrect application or
incorrect interpretation of specific generally accepted accounting principles.
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KPMG does not agree with the fourth paragraph of Item 4. KPMG believes that Item
4 should have explicitly disclosed the adjustments that constituted reportable
disagreements. The matters which led to these adjustments were as follows:
- - During each of the four quarters of 1998, the Company capitalized an
aggregate of approximately $6.6 million of product enhancement costs at
its Magellan subsidiary based on an incorrect application of generally
accepted accounting principles.
- - During the third quarter of 1998, the Company recognized approximately
$5.8 million in revenue on a contract at the Company's MacDonald
Dettwiler & Associates subsidiary based on an incorrect application of
generally accepted accounting principles.
- - During the fourth quarter of 1998, the Company recognized approximately
$1.5 million of revenue with respect to a contract, the terms of which
was not finalized with the customer until after the conclusion of the
quarter.
- - During the fourth quarter of 1998, the Company recognized approximately
$5.4 million of revenue with respect to certain of its long-term
contracts through incorrect reductions to cost estimates to complete
those contracts.
- - During the fourth quarter of 1998, the Company recognized approximately
$3.8 million of revenue with respect to a certain contract based on an
incorrect application of generally accepted accounting principles.
- - During the fourth quarter of 1998, the Company recognized approximately
$5.1 million of revenue relating to sales to an equity method investee
based on an incorrect application of generally accepted accounting
principles.
For each of the matters described above, KPMG proposed adjustments, all of which
were recorded by the Company, to reverse the amounts originally recorded by the
Company.
KPMG also believes that Item 4 should have disclosed the following additional
matters:
- - In connection with the audit of the Company's consolidated financial
statements as of and for the year ended December 31, 1998, KPMG advised
the Company and the Audit and Finance Committee that the items referred
to in KPMG's material weakness letter, dated April 14, 1999, had caused
KPMG to expand significantly the scope of its audit procedures.
- - On or about April 14, 1999, KPMG advised the Company that, as a result of
the items identified in KPMG's material weakness letter, the restatement
of the Company's unaudited results for each of the first three quarters
of 1998, and the adjustments made to the Company's unaudited fourth
quarter results, KPMG had re-evaluated its auditor-client relationship
with the Company. KPMG further advised the Company that, as a result of
that re-evaluation, KPMG had determined that it would stand for
re-appointment as the
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Company's principal accountants only if the Company hired an experienced
chief accounting officer who would have the ultimate authority to make
accounting decisions at the Company. KPMG advised the Company that it
wished to discuss this condition of KPMG accepting re-appointment with
the full Audit and Finance Committee of the Company's Board of Directors.
However, before KPMG could have any such discussions with the full Audit
and Finance Committee, and before the Company had indicated to KPMG if
the condition for re-appointment would be met, the Company terminated
KPMG's appointment.
KPMG believes that the statement in the first sentence of the fifth paragraph of
Item 4 should be clarified to indicate that KPMG's April 14, 1999 material
weakness letter advised the Company that "[d]uring the performance of our audit,
we identified areas of material weakness in the system of internal control over
the Company's financial reporting process."
Very truly yours,
KPMG LLP
