<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
JUNE 30, 1998
ORBITAL SCIENCES CORPORATION
Commission file number 0-18287
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)
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 July 31, 1998, 36,766,746 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>
A S S E T S
-----------
RESTATED
JUNE 30, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 45,757 $ 12,553
Short-term investments, at market 439 2,573
Receivables, net 217,155 190,204
Inventories, net 47,898 50,925
Deferred income taxes and other assets 10,486 8,190
--------- ---------
TOTAL CURRENT ASSETS 321,735 264,445
PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED
depreciation and amortization of $93,030 and $79,347, respectively 143,397 137,498
INVESTMENTS IN AND ADVANCES TO AFFILIATES, NET 196,267 159,230
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED,
less accumulated amortization of $23,877 and $19,794, respectively 185,623 181,955
DEFERRED INCOME TAXES AND OTHER ASSETS 28,084 28,511
--------- ---------
TOTAL ASSETS $ 875,106 $ 771,639
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings and current portion of
long-term obligations $ 16,079 $ 29,317
Accounts payable 40,493 36,217
Accrued expenses 88,633 100,274
Deferred revenues 47,766 46,138
--------- ---------
TOTAL CURRENT LIABILITIES 192,971 211,946
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 156,109 198,394
OTHER LIABILITIES 1,172 2,443
--------- ---------
TOTAL LIABILITIES 350,252 412,783
NON-CONTROLLING INTERESTS IN
NET ASSETS OF CONSOLIDATED SUBSIDIARIES (1,359) 3,755
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized:
Series A Special Voting Preferred Stock, none and one share
authorized and outstanding, respectively -- --
Common Stock, par value $.01; 80,000,000 shares authorized,
36,901,818 and 32,481,719 shares outstanding, respectively
after deducting 20,877 shares held in treasury 368 325
Additional paid-in capital 487,164 326,187
Unrealized gains on short-term investments 136 272
Cumulative translation adjustments (5,458) (4,943)
Retained earnings 44,003 33,260
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 526,213 355,101
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 875,106 $ 771,639
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 3
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
RESTATED
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES $ 184,516 $ 142,226
COSTS OF GOODS SOLD 133,665 102,553
------------ ------------
GROSS PROFIT 50,851 39,673
RESEARCH AND DEVELOPMENT EXPENSES 11,451 4,682
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 29,171 23,244
AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 1,978 742
------------ ------------
INCOME FROM OPERATIONS 8,251 11,005
NET INVESTMENT INCOME (EXPENSE) 154 50
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (8,213) (5,393)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 2,235 563
GAIN ON SALE OF SUBSIDIARY STOCK 4,793 --
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,220 6,225
PROVISION FOR INCOME TAXES 1,222 622
------------ ------------
NET INCOME $ 5,998 $ 5,603
============ ============
NET INCOME PER COMMON SHARE $ 0.17 $ 0.17
SHARES USED IN COMPUTING NET INCOME
PER COMMON SHARE 35,979,989 32,688,563
============ ============
NET INCOME PER COMMON SHARE, ASSUMING DILUTION $ 0.17 $ 0.17
SHARES USED IN COMPUTING NET INCOME
PER COMMON SHARE, ASSUMING DILUTION 40,815,134 32,743,578
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
RESTATED
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES $ 370,675 $ 264,338
COSTS OF GOODS SOLD 268,450 190,987
------------ ------------
GROSS PROFIT 102,225 73,351
RESEARCH AND DEVELOPMENT EXPENSES 20,016 11,694
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 56,655 43,122
AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 3,938 1,483
------------ ------------
INCOME FROM OPERATIONS 21,616 17,052
NET INVESTMENT INCOME (EXPENSE) 414 310
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (18,890) (6,661)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 5,115 1,184
GAIN ON SALE OF SUBSIDIARY STOCK 4,793 --
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 13,048 11,885
PROVISION FOR INCOME TAXES 2,305 1,188
------------ ------------
NET INCOME $ 10,473 $ 10,697
============ ============
NET INCOME PER COMMON SHARE $ 0.31 $ 0.33
SHARES USED IN COMPUTING NET INCOME PER SHARE 34,408,545 32,753,415
============ ============
NET INCOME PER COMMON SHARE, ASSUMING DILUTION $ 0.31 $ 0.33
SHARES USED IN COMPUTING NET INCOME
PER COMMON SHARE, ASSUMING DILUTION 39,284,011 32,753,689
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
RESTATED
------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 10,743 $ 10,697
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expense 18,566 12,115
Equity in losses of affiliates 19,164 6,661
Non-controlling interests in losses of consolidated subsidiaries (5,115) (1,184)
Gain on sale of subsidiary stock (4,793) --
Foreign currency translation adjustment (515) (323)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in current and other non-current assets (34,277) 1,649
Increase (decrease) in current and other non-current liabilities (11,689) 11,411
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (7,916) 41,026
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,978) (18,656)
Proceeds from sales of fixed assets -- 34,085
Purchases, sales and maturities of available-for-sale investment securities, net 2,134 1,631
Investments in and advances to affiliates (45,534) (92,884)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (64,377) (75,824)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net of (repayments) (3,316) (5,210)
Principal payments on long-term obligations (74,207) (5,604)
Net proceeds from issuance of long-term obligations 22,000 22,893
Net proceeds from issuances of common stock 161,020 919
Proceeds from issuance of short-term bridge loan -- 25,000
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 105,497 37,998
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 33,204 3,200
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,553 26,859
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 45,757 $ 30,059
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(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. Although the company believes that the disclosures provided are
adequate to make the information presented not misleading, these unaudited
interim condensed consolidated financial statements should be 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, 1997. Operating results for the three- and six-month periods ended
June 30, 1998 are not necessarily indicative of the results expected for the
full year.
Orbital Sciences Corporation is hereafter referred to as "Orbital" or the
"company."
(1) RESTATEMENT
The accompanying condensed consolidated financial statements for the three- and
six-month periods ended June 30, 1998 have been restated. Based on accounting
decisions made in connection with the preparation of the company's consolidated
year-end financial statements, the company has restated the aforementioned
financial statements to consistently apply accounting policies to certain
transactions recorded in the three- and six-month periods ended June 30, 1998,
as summarized below.
The company recorded $1,000,000 and $2,500,000 for the three- and six-month
periods, respectively, of additional research and development expenses related
to certain product enhancements at its Magellan subsidiary (Satellite Access
sector) that had been previously capitalized (before considering the associated
minority interests of $340,000 and $850,000). For the six-month period ended
June 30, 1998, the company recorded $1,200,000 of additional general and
administrative expenses in the Space and Ground Infrastructure Systems sector
(the "SGIS sector") for estimated post-retirement health benefit obligations
related to a plan acquired in a prior business combination (none for the
three-month period ended June 30, 1998). The company increased net interest
expense in the SGIS sector by approximately $200,000 and reduced net interest
expense by approximately $600,000 for the three- and six-month periods ended
June 30, 1998, respectively, to reflect the appropriate amount of interest
capitalized on certain assets in process. In addition, the company recorded
approximately $200,000 of additional general and administrative expenses in the
Satellite Services sector related to stock option compensation expense for the
three-month period ended June 30, 1998. Lastly, the company revised its tax
provision to reflect the impact of these adjustments and to reflect the
company's revised estimate of its effective tax rate for the year.
6
<PAGE> 7
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
As Reported As Restated As Reported As Restated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Retained Earnings $47,198,000 $44,003,000 $47,198,000 $44,003,000
Net Income $ 7,419,000 $ 5,998,000 $13,938,000 $10,743,000
Diluted EPS $ 0.21 $ 0.17 $ 0.41 $ 0.31
</TABLE>
The restatement noted above is included in the accompanying condensed
consolidated financial statements.
(2) INVENTORIES
Inventories consist of components inventory, work-in-process inventory and
finished goods inventory and are generally stated at the lower of cost or net
realizable value on a first-in, first-out, or specific identification basis, net
of allowances for estimated obsolescence. 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. Finished goods inventory consists of fully assembled commercial
products awaiting shipment.
(3) EARNINGS PER SHARE
Net income per common share is calculated using the weighted average number of
common shares outstanding during the periods. Net income 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 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
NET INCOME PER COMMON SHARE,
COMMON SHARE ASSUMING DILUTION
------------ -----------------
<S> <C> <C>
Three months ended June 30, 1998:
Net income $ 5,998,000 $ 5,998,000
Assuming conversion of convertible notes N/A 1,145,000
------------ ------------
Net income, as adjusted $ 5,998,000 $ 7,143,000
============ ============
Outstanding common shares 36,901,818 36,901,818
Effect of weighting outstanding shares (921,829) (921,829)
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C> <C>
Stock options (treasury method) N/A 1,263,716
Convertible notes N/A 3,571,429
------------ ------------
Adjusted shares 35,979,989 40,815,134
============ ============
Six months ended June 30, 1998
Net income $ 10,743,000 $ 10,743,000
Assuming conversion of convertible notes N/A 1,460,000
------------ ------------
Net income, as adjusted $ 10,743,000 $ 12,203,000
============ ============
Outstanding common shares 36,901,818 36,901,818
Effect of weighting outstanding shares (2,493,273) (2,493,273)
Stock options (treasury method) N/A 1,304,037
Convertible notes N/A 3,571,429
------------ ------------
Adjusted shares 34,408,545 39,284,011
============ ============
Three months ended June 30, 1997:
Net income $ 5,603,000 $ 5,603,000
Assuming conversion of convertible notes N/A N/A
------------ ------------
Net income, as adjusted $ 5,603,000 $ 5,603,000
============ ============
Outstanding common shares 32,269,326 32,269,326
Effect of weighting outstanding shares (33,742) (33,742)
Stock options (treasury method) N/A 507,994
Convertible notes N/A N/A
------------ ------------
Adjusted shares 32,235,584 32,743,578
============ ============
Six months ended June 30, 1997
Net income $ 10,697,000 $ 10,697,000
Assuming conversion of convertible notes N/A N/A
------------ ------------
Net income, as adjusted $ 10,697,000 $ 10,697,000
============ ============
Outstanding common shares 32,269,326 32,269,326
Effect of weighting outstanding shares (60,623) (60,623)
Stock options (treasury method) N/A 544,986
Convertible notes N/A N/A
------------ ------------
Adjusted shares 32,208,703 32,753,689
============ ============
</TABLE>
(4) INCOME TAXES
The company has recorded its interim income tax provision based on estimates of
the company's effective tax rate expected to be applicable for the full fiscal
year. Estimated effective rates recorded during interim periods may be
periodically revised, if necessary, to reflect current estimates.
(5) RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 condensed consolidated
financial statements to conform to the 1998 condensed consolidated financial
statement presentation.
8
<PAGE> 9
(6) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income."
Disclosure requirements with respect to comprehensive income, as of and for the
six months ended June 30, 1998 and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Comprehensive income:
Net income, as reported $10,743 $10,697
Unrealized losses on
short-term investments (136) (20)
Translation adjustments (515) (323)
------- -------
Total $10,092 $10,354
======= =======
Accumulated differences between
net income, as reported and
comprehensive income:
Beginning of period $(4,671) $(3,667)
Unrealized losses on
short-term investments (136) (20)
Translation adjustments (515) (323)
------- -------
End of period $(5,322) $(4,010)
======= =======
</TABLE>
(7) COMMON STOCK
In April 1998, the company sold 3,450,000 shares of its common stock in a public
offering at $45.81 per share, generating net proceeds to the company of
approximately $150,000,000 after deducting underwriters' discounts and other
offering expenses.
(8) COMMITMENTS AND SUBSEQUENT EVENTS
In June 1998, the company signed a satellite and launch vehicle procurement
contract with CCI International N.V. ("CCI") valued at approximately
$480,000,000. Subject to negotiation of definitive documentation, the company
may also provide CCI with up to $100,000,000 in equity, debt and/or vendor
financing, with an option to invest up to an additional $50,000,000.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Certain statements included in this discussion relating to future revenues,
sales, expenses, growth rates, net income, new business, operational
performance, schedules, sources and uses of funds, "Year 2000" issues, and the
performance of the company's affiliates, Orbital Imaging Corporation
("ORBIMAGE") and ORBCOMM Global L.P. ("ORBCOMM"), 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 the
company to differ materially from any future results, performance, achievements
or investments expressed or implied by such forward-looking statements. Such
factors include: general and economic business conditions, launch results,
product performance, risks associated with government contracts, the
introduction of products and services by competitors, risks associated with
acquired businesses, availability of required capital, the ability of customers
and suppliers to assess timely and accurately "Year 2000" issues, market
acceptance of new products and technologies, described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Outlook: Issues and Uncertainties" incorporated in the company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997.
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,
high-precision 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, conducted through
the company's ORBCOMM and ORBIMAGE affiliates, respectively. The company does
not control the operational and financial affairs of ORBCOMM or ORBIMAGE, and
consequently their financial results are not consolidated with the company's.
RECENT DEVELOPMENTS. The company's stock began trading on the New York Stock
Exchange in early July 1998 under the ticker symbol "ORB." The company's stock
had previously traded on the Nasdaq National Market under the symbol "ORBI."
In April 1998, the company sold 3,450,000 shares of its common stock in a public
offering at $45.81 per share, generating net proceeds of approximately
$150,000,000 (see Liquidity and Capital Resources).
In July 1998, ORBCOMM Corporation announced that it elected to postpone its
proposed initial public offering of common stock. ORBCOMM Corporation was
organized for the sole purpose of investing in and acting as a general partner
of ORBCOMM. Orbital, through its subsidiary Orbital Communications Corporation,
and Teleglobe Mobile Partners, an affiliate of Teleglobe
10
<PAGE> 11
Inc., the existing fifty-percent partners in ORBCOMM, each has reaffirmed its
commitment to provide funding to ORBCOMM while considering options for future
financing at ORBCOMM (see Liquidity and Capital Resources).
In June 1998, the company signed a satellite and launch vehicle procurement
contract with CCI International N.V. ("CCI") valued at approximately
$480,000,000. Subject to negotiation of definitive documentation, the company
may also provide CCI with up to $100,000,000 in equity, debt and/or vendor
financing, with an option to invest up to an additional $50,000,000.
The company has made a preliminary assessment of potential "Year 2000" issues
with respect to various financial and operational computer-related systems. The
company has developed an initial corrective action plan that includes (i)
reprogramming affected software when appropriate and feasible, (ii) obtaining
vendor-provided software upgrades when available and (iii) completely replacing
affected systems when necessary. The company currently expects that identified
"Year 2000" affected systems will be corrected by the end of 1998. There can be
no assurance that the company has identified all "Year 2000" affected systems or
that its corrective action plan will be timely and successful. While the company
has not determined to date that "Year 2000" issues will materially impact its
customers or suppliers, it continues to assess risks associated with such third
parties and will develop corrective plans accordingly as more information
becomes available.
REVENUES. Orbital's revenues for the three-month periods ended June 30, 1998 and
1997 were $184,516,000 and $142,226,000, respectively. Revenues for the
six-month periods ended June 30, 1998 and 1997 were $370,675,000 and
$264,338,000, respectively.
Space and Ground Infrastructure Systems. Revenues from the company's Space and
Ground Infrastructure Systems sector totaled $155,701,000 and $122,523,000 for
the three months ended June 30, 1998 and 1997, respectively. Revenues from this
sector totaled $312,042,000 and $228,722,000 for the six months ended June 30,
1998 and 1997, respectively.
Revenues from the company's launch vehicles increased to $47,387,000 in the
second quarter of 1998 from $27,223,000 in the second quarter of 1997, and to
$93,427,000 for the six months ended June 30, 1998 from $57,117,000 for the six
months ended June 30, 1997. The increase in revenues in 1998 as compared to 1997
is attributable to a number of factors, including (i) increased work performed
under contracts received for the company's Taurus launch vehicle, (ii) a
significant increase in new orders received during 1997 for the company's
Pegasus and suborbital launch vehicles and (iii) increased work performed on the
X-34 reusable launch vehicle.
For the three months ended June 30, 1998, satellite revenues were $57,051,000 as
compared to $56,481,000 for the three months ended June 30, 1997. Satellite
revenues were $118,583,000 for the six months ended June 30, 1998 as compared to
$87,284,000 for the six months ended June 30, 1997. Revenues during 1998
included sales generated by the satellite business acquired from CTA
INCORPORATED in August 1997 of approximately $13,282,000 and $29,872,000,
respectively, for the three- and six-month periods ended June 30, 1998.
11
<PAGE> 12
Revenues from electronics and sensor systems increased to $29,464,000 for the
three months ended June 30, 1998 from $22,172,000 for the three months ended
June 30, 1997, and to $56,812,000 for the six months ended June 30, 1998 from
$50,193,000 for the six months ended June 30, 1997. The increase in 1998
revenues is primarily due to work performed in 1998 on new orders for defense
electronics products received during the second half of 1997.
Revenues from the company's ground systems products were $21,799,000 for the
three months ended June 30, 1998 as compared to $16,692,000 for the three months
ended June 30, 1997. Ground systems products revenues were $43,220,000 for the
six months ended June 30, 1998 as compared to $34,128,000 for the six months
ended June 30, 1997. The increase in 1998 revenues is primarily due to work
performed on orders received in 1997 for new satellite ground systems and system
upgrades.
Although overall infrastructure revenues increased, revenues under procurement
agreements with ORBCOMM and ORBIMAGE for the three months ended June 30, 1998
decreased significantly to $27,119,000 from $51,053,000 for the three months
ended June 30, 1997. Revenues from sales to ORBCOMM and ORBIMAGE also decreased
for the six months ended June 30, 1998 to $52,759,000 from $62,653,000 for the
six months ended June 30, 1997, primarily due to a lesser amount of work under
the ORBCOMM procurement agreement as it nears completion.
Satellite Access Products. Revenues from sales of navigation, communications and
transportation management systems and products increased to $28,556,000 for the
three months ended June 30, 1998 from $19,899,000 for the three months ended
June 30, 1997. Satellite access products revenues were $58,310,000 for the six
months ended June 30, 1998 as compared to $35,535,000 for the six months ended
June 30, 1997. The three- and six-month periods ended June 30, 1998 included
approximately $11,661,000 and $22,665,000, respectively, of sales generated by
the company's high-precision navigation products that were acquired as a result
of the December 1997 merger of Ashtech Inc. ("Ashtech") with the company's
subsidiary, Magellan Corporation ("Magellan").
GROSS PROFIT/COSTS OF GOODS SOLD. Costs of goods sold include the costs of
personnel, materials, subcontracts and overhead related to sales of commercial
products and revenue earned under various long-term development and production
contracts. Gross profit depends on a number of factors, including the company's
mix of contract types and costs incurred thereon in relation to estimated costs.
The company's gross profit for the second quarter of 1998 was $50,851,000 as
compared to $39,673,00 in the second quarter of 1997. The company's gross profit
for the first half of 1998 was $102,225,000 as compared to $73,351,000 for the
first half of 1997. Gross profit as a percentage of revenues was approximately
28% for the three- and six-month periods ended June 30, 1998 and 1997.
Space and Ground Infrastructure Systems. Gross profit from the company's Space
and Ground Infrastructure Systems sector was $41,988,000 (or 27% of revenues)
and $33,770,000 (or 28% of revenues) for the three months ended June 30, 1998
and 1997, respectively. Gross profit for this sector was $84,828,000 (or 27% of
revenues) and $62,362,000 (or 27% of revenues) for the six months ended June 30,
1998 and 1997, respectively.
12
<PAGE> 13
Gross profit margins from the company's space and ground infrastructure systems
for the three- and six-month periods ended June 30, 1998 were generally
consistent with comparable 1997 periods. Gross margins for the company's
satellite products decreased to 28% for the six months ended June 30, 1998 from
30% for the six months ended June 30, 1997, primarily due to production delays
experienced in 1998 on certain commercial satellite contracts.
Satellite Access Products. Gross profit for satellite access products was
$9,584,000 (or 34% of revenues) and $5,456,000 (or 27% of revenues) for the
three months ended June 30, 1998 and 1997, respectively, and $19,692,000 (or 34%
of revenues) and $11,051,000 (or 31% of revenues) for the six months ended June
30, 1998 and 1997, respectively. The overall increase in gross margins is due to
the inclusion of higher margin high-precision navigation product lines acquired
from Ashtech offset, in part, by lower margins achieved on automotive navigation
product sales.
During the three months ended June 30, 1998, Magellan disposed of approximately
$5,000,000 of certain obsolete inventory for which adequate reserves had been
previously recorded. Magellan continues to face changing market conditions
placing significant pressure on individual product life-times and inventory
levels.
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, 1998 and 1997 were $11,451,000 (or 6.2% of revenues) and
$4,682,000 (or 3.3% of revenues), respectively. Research and development
expenses were $20,016,000 (or 5.4% of revenues) and $11,694,000 (or 4.4% of
revenues) for the six months ended June 30, 1998 and 1997, respectively.
Research and development expenses for the second quarter of 1998 included
approximately $2,000,000 of costs related to identifying and correcting
anomalies experienced on certain ORBCOMM satellites. Current year expenses also
included increased research and development efforts for satellite access
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include the costs of marketing, advertising, promotional
and other selling expenses as well as the costs of the finance, administrative
and general management functions of the company. Selling, general and
administrative expenses for the three months ended June 30, 1998 and 1997 were
$29,171,000 (or 15.8% of revenues) and $23,244,000 (or 16.3% of revenues),
respectively. Selling, general and administrative expenses for the six months
ended June 30, 1998 and 1997 were $56,655,000 (or 15.3% of revenues) and
$43,122,000 (or 16.3% of revenues), respectively. The decrease in selling,
general and administrative expenses as a percentage of revenues during 1998 as
compared to 1997 was primarily attributable to substantial revenue growth,
particularly in launch vehicles and satellite systems, with only a modest growth
in selling, general and administrative expenses.
INTEREST INCOME AND INTEREST EXPENSE. Interest income for the periods reflects
interest earnings on cash equivalents and short-term investments. Interest
expense includes the cost of borrowings on Orbital's convertible subordinated
notes, revolving credit facilities and other secured and unsecured debt.
Interest income and interest expense was $1,425,000 and $1,272,000,
respectively, for the three months ended June 30, 1998 as compared to interest
13
<PAGE> 14
income and interest expense of $630,000 and $580,000, respectively, for the
three months ended June 30, 1997. The company's interest income and interest
expense for the first six months of 1998 was $1,873,000 and $1,459,000,
respectively, while for the first six months of 1997, the company incurred
interest income and interest expense of $986,000 and $676,000, respectively.
Interest expense has been reduced by capitalized interest of $5,516,000 and
$1,636,000 for the three months ended June 30, 1998 and 1997, respectively, and
by $9,181,000 and $2,971,000 for the six months ended June 30, 1998 and 1997,
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 ($5,978,000) and ($4,830,000) for the three months ended June
30, 1998 and 1997, respectively, and were ($13,775,000) and ($5,477,000) for the
six months ended June 30, 1998 and 1997, respectively. These amounts primarily
represent (i) elimination of proportionate profits or losses on sales of
infrastructure products to ORBCOMM and ORBIMAGE, (ii) the company's pro rata
share of ORBCOMM's, ORBCOMM International Partners, L.P.'s and ORBIMAGE's
current period earnings and losses and (iii) non-controlling stockholders' pro
rata share of ORBCOMM USA L.P.'s and Magellan's current period earnings and
losses. The increase in total losses during 1998 is primarily due to losses at
ORBCOMM.
PROVISION FOR INCOME TAXES. The company recorded an income tax provision of
$1,222,000 and $622,000 for the three months ended June 30, 1998 and 1997,
respectively and of $2,305,000 and $1,188,000 for the six months ended June 30,
1998 and 1997, respectively. The company records its interim income tax
provisions based on estimates of the company's effective tax rate expected to be
applicable for the full fiscal year. Estimated effective rates recorded during
interim periods may be periodically revised, if necessary, to reflect current
estimates. At December 31, 1997, Orbital had approximately $150,000,000 of U.S.
Federal net operating loss carryforwards and $3,000,000 of U.S. Federal research
and experimental tax credit carryforwards, which are available to reduce future
income tax obligations, subject to certain annual limitations and other
restrictions.
NET INCOME (LOSS). Net income from the company's Space and Ground Infrastructure
Systems sector was approximately $18,487,000 for the three months ended June 30,
1998 as compared to $10,597,000 for the three months ended June 30, 1997. This
sector provided net income of approximately $33,671,000 and $18,666,000 for the
six months ended June 30, 1998 and 1997, respectively.
The company's Satellite Access Products sector reported a net loss in the second
quarter of 1998 of $5,761,000 compared to net income of $634,000 in the 1997
quarter. This sector reported a net loss in the first half of 1998 of $7,527,000
as compared to net income of $1,352,000 in the 1997 six-month period.
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
14
<PAGE> 15
initiatives, research and development and capital expenditures. The company has
funded these requirements to date, and expects to fund its 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. 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 cash and loan facilities, the issuance of equity and/or debt securities
and asset-based financings.
In April 1998, the company sold 3,450,000 shares of its common stock in a public
offering, generating net proceeds of approximately $150,000,000 (the
"Offering"). Orbital plans to use the net proceeds from the Offering for (i)
investments in ORBCOMM, new projects or emerging space-related businesses, such
as CCI, (ii) expanded research and development for new products, (iii)
acquisitions of businesses and/or product lines complementary to the company's
existing businesses, and (iv) for other general corporate purposes.
In July 1998, ORBCOMM Corporation announced that it elected to postpone its
proposed initial public offering of common stock. Orbital, through its
subsidiary Orbital Communications Corporation, and Teleglobe Mobile Partners, an
affiliate of Teleglobe Inc., the existing fifty-percent partners in ORBCOMM,
each has reaffirmed its commitment to provide funding to ORBCOMM while
considering options for future financing at ORBCOMM. Orbital expects to fund its
share of ORBCOMM's capital needs through existing resources, including credit
facilities. If such funding is required, the company currently estimates that
its share of such funding could be as much as $20,000,000 through the remainder
of 1998.
Cash, cash equivalents and short-term investments were $45,757,000 at June 30,
1998, and the company had total debt obligations outstanding of approximately
$172,188,000 at June 30, 1998. The outstanding debt is comprised of the
company's convertible subordinated notes, advances under the company's line of
credit facilities, secured and unsecured notes, and asset-based financings.
The company's primary revolving credit facility provides for total borrowings
from an international syndicate of six banks of up to $100,000,000. No
borrowings were outstanding under the facility at June 30, 1998. Borrowings are
secured by contract receivables, and the facility prohibits the payment of cash
dividends, contains certain covenants with respect to the company's working
capital, fixed charge ratio, leverage ratio and consolidated net worth, and
expires in August 2001. The company (or its subsidiaries) also maintains
additional, smaller revolving credit facilities, under which approximately
$1,400,000 was outstanding at June 30, 1998 at a weighted average interest rate
of 10%. Additional borrowing capacity on these other agreements is approximately
$28,000,000 at June 30, 1998. The company used approximately $94,250,000 of
proceeds from the Offering to pay down outstanding borrowings on these credit
facilities.
The company's operations used net cash of approximately $7,916,000 during the
first half of 1998. The company provided $15,000,000 in capital and $21,513,000
in vendor financing (approximately one-half of which has been advanced to
Orbital by an affiliate of Teleglobe Inc.) to ORBCOMM during the first half of
1998. In addition, during the first half of 1998, the
15
<PAGE> 16
company invested $20,978,000 in capital expenditures for various satellite and
launch vehicle equipment and other production, manufacturing, test and office
equipment.
Orbital plans to expand its offices and its satellite-related engineering,
manufacturing and operations facilities. The company anticipates that the new
construction will be conducted in two phases during 1998-1999 and 2000-2001. To
finance the expansion, Orbital is currently pursuing various financing
alternatives, including third-party debt financings and "built-to-suit"
agreements. Consequently, the company does not expect to spend a material amount
of cash to finance this construction.
Orbital expects that its capital needs for the remainder of 1998 will be
provided by working capital, cash flows from operations, existing credit
facilities, and operating lease arrangements.
16
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
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 April 23,
1998.
(b) Not applicable.
(c) (i) Election of five directors, each serving for a three-year term ending
in 2001:
Fred C. Alcorn
Votes: For: 30,436,192
Withheld: 78,595
Lennard A. Fisk
Votes: For: 30,439,976
Withheld: 74,811
Jack L. Kerrebrock
Votes: For: 30,431,280
Withheld: 83,507
David W. Thompson
Votes: For: 30,438,551
Withheld: 76,236
James R. Thompson
Votes: For: 30,436,366
Withheld: 78,421
(ii) Proposal to approve the adoption of an amendment to the Orbital
Sciences Corporation 1997 Stock Option and Incentive Plan increasing the
number of shares of Common Stock
17
<PAGE> 18
authorized for issuance from 1,600,000 to 3,200,000.
Votes: For: 21,839,679 Against: 8,533,649
Abstain: 141,459
(iii) Proposal to ratify the selection of KPMG Peat Marwick LLP as the
Company's independent accountants for the fiscal year ending December 31,
1998.
Votes: For: 30,361,359 Against: 86,901
Abstain: 66,526
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 13, 1998, the Company filed a Current Report on Form 8-K,
dated April 1, 1998, disclosing its Pegasus launch and the current
status of testing of ORBCOMM satellites and its INDOSTAR-1
satellite.
(ii) On April 28, 1998, the Company filed a Current Report on Form 8-K,
dated April 21, 1998, disclosing the financial results of the
Company for the quarter ended March 31, 1998.
(iii) On May 6, 1998, the Company filed a Current Report on Form 8-K,
dated May 4, 1998, disclosing its selection as a space segment
contractor of CCI and announcing the termination of its discussions
with Mobile Communications Holdings, Inc.
18
<PAGE> 19
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: February 19, 1999 By: /s/ David W. Thompson
-----------------------------------------------
David W. Thompson, President
and Chief Executive Officer
DATED: February 19, 1999 By: /s/ Jeffrey V. Pirone
-----------------------------------------------
Jeffrey V. Pirone, Executive Vice President and
Principal Financial Officer
19
<PAGE> 20
EXHIBIT INDEX
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1.3 Amendment No. 3 to Second Amended and Restated Credit and Reimbursement Agreement dated as of
June 18, 1998, among Orbital Sciences Corporation, Morgan Guaranty Trust Company of New York
and the Banks listed therein (previously filed).
11 Statement re: Computation of Earnings Per Share (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/A, or otherwise
subject to the liabilities of Section 18 of the Securities Act of 1934) (transmitted herewith).
</TABLE>
20
<PAGE> 1
EXHIBIT 11.
STATEMENT re: COMPUTATION OF EARNINGS PER SHARE
THREE-MONTH PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RESTATED
RESTATED ASSUMING
BASIC DILUTION (2)
------------ ------------
<S> <C> <C>
WEIGHTED AVERAGE OF OUTSTANDING SHARES 35,979,989 35,979,989
COMMON EQUIVALENT SHARES:
OUTSTANDING STOCK OPTIONS N/A 1,263,716
OTHER POTENTIALLY DILUTIVE SECURITIES:
CONVERTIBLE NOTES (1) N/A 3,571,429
----------- -----------
SHARES USED IN COMPUTING
NET INCOME PER COMMON SHARE 35,979,989 40,815,134
=========== ===========
NET INCOME $ 5,998,000 $ 5,998,000
ADJUSTMENTS ASSUMING DILUTION:
INTEREST EXPENSE ADJUSTMENT, NET
OF APPLICABLE TAXES N/A 1,145,000
----------- -----------
NET INCOME $ 5,998,000 $ 7,143,000
=========== ===========
NET INCOME PER COMMON SHARE $ 0.17 $ 0.17
=========== ===========
</TABLE>
SIX-MONTH PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RESTATED
RESTATED ASSUMING
BASIC DILUTION (2)
------------ ------------
<S> <C> <C>
WEIGHTED AVERAGE OF OUTSTANDING SHARES 34,408,545 34,408,545
COMMON EQUIVALENT SHARES:
OUTSTANDING STOCK OPTIONS N/A 1,304,037
OTHER POTENTIALLY DILUTIVE SECURITIES:
CONVERTIBLE NOTES (1) N/A 3,571,429
------------ -----------
SHARES USED IN COMPUTING
NET INCOME PER COMMON SHARE 34,408,545 39,284,011
============ ===========
NET INCOME $ 10,743,000 $10,743,000
ADJUSTMENTS ASSUMING DILUTION:
INTEREST EXPENSE ADJUSTMENT, NET
OF APPLICABLE TAXES N/A 1,460,000
----------- -----------
NET INCOME $ 10,743,000 $12,203,000
============ ===========
NET INCOME PER COMMON SHARE $ 0.31 $ 0.31
============ ===========
</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 and six
months ended June 30, 1998, all such subsidiary stock options were
anti-dilutive.
<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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000820736
<NAME> ORBITAL SCIENCES CORP/DE/
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 45,757
<SECURITIES> 439
<RECEIVABLES> 225,256
<ALLOWANCES> (8,101)
<INVENTORY> 47,898
<CURRENT-ASSETS> 321,735
<PP&E> 236,427
<DEPRECIATION> (93,030)
<TOTAL-ASSETS> 875,106
<CURRENT-LIABILITIES> 192,971
<BONDS> 156,109
0
0
<COMMON> 368
<OTHER-SE> 525,845
<TOTAL-LIABILITY-AND-EQUITY> 875,106
<SALES> 370,675
<TOTAL-REVENUES> 370,675
<CGS> 268,450
<TOTAL-COSTS> 268,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 721
<INTEREST-EXPENSE> 1,460
<INCOME-PRETAX> 13,048
<INCOME-TAX> 2,305
<INCOME-CONTINUING> 10,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,743
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
