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FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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/X/
For the fiscal year ended December 31, 1995
or
/ /
Transition report pursuant to Section 13 or 15(d) of the Securities for the
transition period from __ to __
Commission file number 0-18287
ORBITAL SCIENCES CORPORATION
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21700 ATLANTIC BOULEVARD 06-1209561
DULLES, VIRGINIA 20166 (I.R.S. Employer I.D. No.)
(Address of principal executive offices)
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(703) 406-5000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $0.01 (listed on The Nasdaq National Market System)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing price as reported on the Nasdaq Stock Market
on March 20, 1996 was approximately $350,131,005.
As of March 20, 1996, 25,935,630 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for fiscal year
ended December 31, 1995 (the "Annual Report") are incorporated by reference in
Parts I and II of this Report. Portions of the registrant's definitive Proxy
Statement dated March 25, 1996 (the "Proxy Statement") are incorporated by
reference in Part III of this Report.
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EXPLANATORY NOTE
Orbital Sciences Corporation ("Orbital") has determined to restate its
consolidated financial statements for the year ended December 31, 1995 and its
condensed consolidated quarterly financial statements for 1995. This Amendment
includes in Item 8 such restated financial statements as of and for the year
ended December 31, 1995, and other information relating to such restated
financial statements, including Business (Item 1), Selected Financial Data (Item
6) and Management's Discussion and Analysis of Financial Condition and Results
of Operation (Item 7). Information regarding the effect of the restatements on
Orbital's results of operations is included in the Notes to Financial Statements
included in Item 8 of this Amendment.
Except for Items 1, 6, 7 and 8 and Exhibits 11 and 27, no other information
included in the original report on Form 10-K is amended by this Amendment. For
current information regarding risks, uncertainties and other factors that may
affect Orbital's future performance, please see "Outlook: Issues and
Uncertainties" included in Item 7 of Orbital's Annual Report on Form 10-K for
the year ended December 31, 1999.
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ORBITAL SCIENCES CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K/A
FOR YEAR ENDED DECEMBER 31, 1995
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PAGE
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PART I
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ITEM 1 BUSINESS 1
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 10
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY 12
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 47
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 46
ITEM 11. EXECUTIVE COMPENSATION 46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 46
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 46
FORM 8-K
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ITEM 1. BUSINESS
BACKGROUND
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or
the "Company") is a space technology and satellite services company that
designs, manufactures, operates and markets a broad range of space-related
products and services. Orbital's products and services are grouped into four
categories: Launch Systems, Space and Electronics Systems, Ground Systems and
Software, and Communications and Information Services. Launch Systems include
space and suborbital launch vehicles, and orbit transfer and other advanced
vehicles; Space and Electronics Systems include satellites, spacecraft
platforms, space sensors and instruments, space payloads and experiments, as
well as advanced electronics and data management systems; Ground Systems and
Software products include commercial satellite remote sensing ground station and
related information processing software, automated aeronautical information and
air traffic management systems, defense system software and network systems
consulting services; and Communications and Information Services include
satellite-based two-way mobile data communications systems and services,
satellite-based navigation and communications products and remote sensing
services.
Orbital was incorporated in Delaware in 1987 to consolidate the assets,
liabilities and operations of Space Systems Corporation (formerly named Orbital
Sciences Corporation) ("SSC") and Orbital Research Partners, L.P. (the
"Partnership") through an exchange offer to the Partnership and to the
stockholders of SSC (the "Consolidation"). As a result of the consummation of
the Consolidation in 1988, SSC became a wholly owned subsidiary of Orbital, and
Orbital acquired substantially all the assets and liabilities of the
Partnership. The Company acquired Space Data Corporation ("Space Data") in 1988,
thereby expanding its product lines and increasing its vertical integration in
production and testing. In late 1992, SSC and Space Data were merged into
Orbital, with the Company being the surviving corporation. In September 1993,
Orbital acquired all the assets of the Applied Science Operation, a division of
The Perkin-Elmer Corporation ("ASO"). This operation designs, develops and
produces satellite-borne scientific sensors for space and terrestrial research
and in situ atmospheric monitoring equipment for human space flight programs. In
August 1994 and December 1994, Orbital acquired Fairchild Space and Defense
Corporation ("Fairchild") and Magellan Corporation ("Magellan"), respectively.
The Fairchild acquisition enhanced Orbital's satellite system and subsystem
development and production capabilities and expanded Orbital's existing product
lines by adding various sophisticated electronics products. Magellan designs,
manufactures and markets hand-held receivers for Global Positioning System
("GPS") satellite-based navigation and positioning for commercial and consumer
markets, along with portable satellite communications equipment. In November
1995, Orbital acquired MacDonald, Dettwiler and Associates, Ltd. ("MDA"), a
leading supplier of commercial space remote sensing ground stations and related
information processing software headquartered in Vancouver, British Columbia.
MDA complements Orbital's satellite information collection businesses and has
strengthened Orbital's ability to offer a broader range of space-based
information services.
DESCRIPTION OF ORBITAL'S PRODUCTS AND SERVICES
The space products and services provided by the Company are grouped into
four categories: Launch Systems, Space and Electronics Systems, Ground Systems
and Software, and Communications and Information Services. Orbital's business is
not seasonal to any significant extent.
LAUNCH SYSTEMS
The Company's Launch Systems Group's products include space and suborbital
launch vehicles and orbit transfer and other advanced vehicles.
SPACE LAUNCH VEHICLES. The Company has developed three space launch
vehicles: the Pegasus(R) launch vehicle; the Pegasus XL(TM) launch vehicle; and
the Taurus(R) launch vehicle. Orbital's Pegasus and Pegasus XL vehicles are
launched from beneath a modified large aircraft such as the Company's leased
Lockheed L-1011 to deploy satellites weighing up to 1,000 pounds into low-Earth
orbit. Through December 1995, the Company had conducted a total of seven
standard Pegasus missions, all of which were fully or partially successful.
Whether a mission is fully or partially successful depends on the particular
mission requirements designated by the customer. Prior to its first successful
flight in March 1996, the modified Pegasus XL, developed to deploy heavier
satellites into orbit, had two unsuccessful flights, one occurring in June 1994
and the other in June 1995. The first Pegasus XL failure was caused by
inaccurate aerodynamic modeling of the vehicle. The second Pegasus XL failure
resulted from human assembly error involving the improper installation of a
small component that prevented the Stage 1/Stage 2 interstage from properly
separating from Stage 2. Following a comprehensive review of design, assembly,
test and operations procedures, the Pegasus XL returned to flight on March 8,
1996, successfully launching a satellite for the U.S. Air Force to its targeted
orbit.
Customers for Pegasus launch vehicles include the National Aeronautics and
Space Administration ("NASA"), the U.S. Air Force, the Defense Advanced Research
Projects Agency ("DARPA"), the Ballistic Missile Defense Organization ("BMDO"),
Spain's
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National Institute of Aerospace Technology, the Company's affiliated
partnership, ORBCOMM Global L.P. ("ORBCOMM Global") and the Company's wholly
owned subsidiary, Orbital Imaging Corporation ("ORBIMAGE").
The higher capacity Taurus vehicle is a ground-launched derivative of the
Pegasus vehicle that can carry payloads weighing up to 3,000 pounds to low-Earth
orbit and payloads weighing up to 800 pounds to geosynchronous orbit. In March
1994, Orbital successfully launched the first Taurus vehicle, deploying two
satellites for DARPA. The Company received several new Taurus orders in 1995,
including a commercial launch for Ball Corporation ("Ball") carrying a U.S. Navy
satellite scheduled for late 1996, a launch for the U.S. Air Force in 1997, and
options for up to 11 Taurus missions pursuant to a contract award under NASA's
Med-Lite program. The Taurus mission for Ball is also expected to launch two
satellites for ORBCOMM Global as a secondary payload.
During 1995, Orbital and Rockwell International Corporation ("Rockwell")
teamed together to develop and construct the X-34 reusable launch vehicle in a
project to be jointly funded by Orbital, Rockwell and NASA. The X-34 was
intended as a next-generation space launch vehicle that would significantly
reduce the costs of placing a satellite in orbit. Following an assessment that
the design of the vehicle would not achieve the economic and performance goals
of the project, development efforts on the vehicle were terminated in early
1996. Orbital continues to explore new, longer-term research and development
opportunities for more affordable and flexible space launch vehicles.
SUBORBITAL LAUNCH VEHICLES. Suborbital launch vehicles place payloads into
a variety of high-altitude trajectories but, unlike space launch vehicles, do
not place payloads into orbit around the Earth. The Company's suborbital launch
products include suborbital vehicles and their principal subsystems, payloads
carried by such vehicles and related launch support installations and systems
used in their assembly and operation. The Company offers its customers
customized vehicle and payload design, manufacturing and integration, launch and
mission support and tracking and recovery services, as well as construction and
activation of launch pads and other infrastructure elements. Customers typically
use the Company's suborbital launch vehicles to launch scientific and other
payloads and for defense-related applications such as target and interceptor
experiments. Primary customers of the Company's suborbital launch vehicles
include the U.S. Army, the U.S. Navy and BMDO.
Orbital's primary programs in 1995 for suborbital launch vehicles and
related systems included the STORM contract pursuant to which Orbital provided
ballistic and maneuvering tactical target suborbital vehicles for use with the
PATRIOT and Theater High Altitude Area Defense Interceptor anti-missile defense
systems for target and interceptor experiments for the U.S. Army, the Navy LEAP
contract with BMDO and the High-Gear contract with the Massachusetts Institute
of Technology - Lincoln Laboratory pursuant to which Orbital provided suborbital
vehicles to serve as targets for U.S. Air Force testing of anti-missile defense
systems. Orbital conducted ten suborbital launches in 1995, all of which were
successful. Since January 1993, the Company has conducted a total of 26 launches
of suborbital vehicles, all of which were successful.
SPACE AND ELECTRONICS SYSTEMS
The Company's Space and Electronics Systems Group's products enable Orbital
to provide its customers fully integrated, low-cost space systems, networks and
related services. The Company's most significant Space and Electronics Systems
products are satellite systems and payloads, space sensors and instruments,
defense electronics and sensors, and transit management systems.
The Company designs and produces small and medium class satellites for
scientific, military and commercial applications. The Company's small satellite
platforms such as PegaStar(TM), MicroStar(TM) and PicoStar(TM) are designed and
produced to be launched by the Pegasus or Taurus launch vehicle. The PegaStar
spacecraft is a general purpose spacecraft that has successfully performed one
mission for the U.S. Air Force measuring space radiation and carrying out
related experiments. It will also be used for certain of the Company's
satellite-based remote sensing systems, such as the SeaStar(TM) ocean and land
surface environmental monitoring satellite system. Orbital's MicroStar
spacecraft platform, which is placed into orbit by the Pegasus launch vehicle,
is designed for use in ORBCOMM Global's satellite-based two-way data
communications network (the "ORBCOMM System") and also for a variety of small
space science and remote sensing projects, including some of those being pursued
by ORBIMAGE. In April 1995, the first three MicroStar spacecraft were deployed,
two for the ORBCOMM System, and the other for ORBIMAGE to monitor lightning and
severe weather patterns for NASA. Customers for the Company's small spacecraft
include NASA, the U.S. Air Force and ORBCOMM Global. In late 1995, DARPA
selected the Company for a contract to develop a specialized MicroStar
communications satellite.
Orbital's medium class satellites, such as NASA's TOPEX/Poseidon, NASA's
Upper Atmosphere Research satellite, and the National Oceanic and Atmospheric
Administration's Landsat 4 and Landsat 5 have been in space for several years,
and are used to gather various scientific data, such as ocean topography and
Earth imaging information. In August 1995, Orbital was selected to become the
spacecraft supplier to Johns Hopkins University, which is leading NASA's Far
Ultraviolet Spectroscopy Explorer (FUSE) program to measure the early universe's
radiation.
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In addition, Orbital designs and manufactures satellite command and data
handling, attitude control and structural subsystems for a variety of government
and commercial customers, and provides a broad range of spacecraft design and
engineering services as well as specialized analytical engineering services for
NASA, the Department of Defense ("DoD"), the Department of Energy and other
customers. Orbital provided engineering support and services for the first
repair mission for the orbiting Hubble Space Telescope.
The Company also develops, manufactures and markets defense electronics,
including advanced avionics and data management systems for aircraft flight
operations and ground support. These systems collect, process and store
mission-critical data for, among other things, mission planning and flight
operations, and manage on-board equipment for strategic and tactical military
aircraft, helicopters, satellites and surface vehicles. The primary customers
for data management systems are the U.S. Navy, the U.S. Air Force, and various
DoD prime contractors and foreign governments. The Company is the leading
supplier of certain avionics systems and products, including mission data
loaders for the U.S. Navy and data transfer equipment and digital terrain
systems for the U.S. Air Force. In addition, the Company provides stores
management systems, including weapons arming and firing functions for use on
tactical aircraft and helicopters. The avionics systems and products are
deployed on a number of aircraft, including the F-4, F-14, F-16, F-18 and F-22
and the LAMPS Helicopter.
In addition, Orbital produces electronics and data management systems that
have been applied to the development and manufacture of "intelligent
transportation systems," primarily for metropolitan mass transit operators, that
provide GPS-based tracking of vehicles and allow for communications and schedule
management. Customers for Orbital's intelligent transportation systems include
several metropolitan mass transit operators, such as the Chicago Transit
Authority.
Orbital's Pomona, California operations produce satellite-borne scientific
sensors and instruments, such as atmospheric ozone monitoring instruments and
environmental sensors. For example, the Total Ozone Mapping Spectrometer
("TOMS") instrument is being produced by the Company for launch on a Pegasus
vehicle for NASA. TOMS measures ozone concentrations around the world for the
purpose of monitoring the effect of man-made chemicals and atmospheric
conditions on the ozone layer. In addition, Orbital is currently developing and
producing various in situ monitoring products for space and defense
applications. These products include an atmospheric monitoring system for use on
the Space Station called the Atmospheric Composition Monitoring Assembly
("ACMA"). The ACMA, developed under a contract with The Boeing Company, will
measure various atmospheric gases in the crew's living quarters on the Space
Station for the purpose of ensuring a healthy environment for astronauts. The
Company also produces the Central Atmospheric Monitoring System for the U.S.
Navy for use on submarines.
GROUND SYSTEMS AND SOFTWARE
As a result of the Company's November 1995 acquisition of MDA, Orbital's
Ground Systems and Software Group is a leading supplier of commercial satellite
remote sensing ground stations and a provider of advanced space-qualified
software, air navigation systems, and network communications training and
consulting services. The Company's defense electronics systems have also
expanded to include software-intensive systems designed for naval operations,
artillery command and control, radar deception systems and logistics support.
The Company develops, provides and upgrades commercial satellite remote
sensing ground stations and related information processing software. Of the 27
major non-military satellite ground stations around the world, MDA has built or
been involved in the construction of 23 ground stations in 20 countries. These
ground stations are designed to receive and process data from the eight major
civil and commercial Earth observation satellites currently in operation. In
1995, the Company completed the ground station and mission control and
management systems for the Canadian Space Agency's RADARSAT-1 remote sensing
satellite that was launched successfully in November 1995. MDA also develops and
markets software that generates and processes imagery and mapping products from
satellites and airborne sensors. Customers for the Company's ground stations and
Earth information systems include the European and Canadian Space Agencies as
well as Canadian and foreign government customers.
The Company's aviation systems products include automated aeronautical
information and air traffic management systems. The Company has developed the
Pegasus-AIS(TM) (not related to the Pegasus launch vehicle), an off-the shelf,
automated aeronautical information management system that delivers weather and
route information directly to a pilot by computer. These systems are designed to
address a growing trend toward commercialization and automation of air traffic
control systems. Faster and less expensive to operate than traditional manual
systems, automated aeronautical information systems provide pilots and other
users with aeronautical and meteorological information on a timely basis.
Customers for the Company's aviation systems products include the military and
civil aviation authorities in various countries such as Australia, Belgium,
Canada, Norway and Switzerland.
The Ground Systems and Software Group also provides computer network
communications consulting, training and other services to network equipment
vendors and telecommunications carriers in Canada, the United States, Australia
and Asia.
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COMMUNICATIONS AND INFORMATION SERVICES
Orbital's Communications and Information Services include products and
services provided by Magellan, the Company's majority owned subsidiary Orbital
Communications Corporation ("ORBCOMM"), and ORBIMAGE. Magellan manufactures GPS
satellite-based navigation and communications products for commercial and
consumer markets including commercial and recreational marine and aviation
markets, outdoor recreational users such as hunters and hikers, and professional
users such as geologists, geographers, surveyors, natural resource managers and
contractors. ORBCOMM and ORBIMAGE are developing satellite-based services to
address the expanding markets for global two-way data communications and
information derived from remote sensing of the atmosphere, oceans and land
surfaces. The ORBCOMM and ORBIMAGE systems will require significant capital
investments and market development. Although the Company believes the long-term
profit potential of such service businesses, developed and supported by the
Company's proprietary product technologies, is significant, there can be no
assurance that the Company will be able to successfully develop these
businesses.
SATELLITE-BASED NAVIGATION AND COMMUNICATIONS PRODUCTS. The Company's
Magellan subsidiary designs, manufactures and markets hand-held GPS navigators
that provide users with precise positioning and location information. The need
for positioning and location information is central to a broad range of personal
and professional activities including marine navigation, outdoor recreation
(e.g., hiking and hunting), surveying and general aviation. Magellan focuses its
research, design and engineering activities on the development of GPS navigators
that are reliable, portable, easy to use and highly affordable, targeting the
growing recreational market. During 1995, Magellan introduced the low-cost GPS
2000(TM) personal navigation unit that is widely distributed in mass
merchandising outlets and mail order catalogs. Magellan has also started
production of the microCOM-M(TM), a small, lightweight and low-priced INMARSAT
satellite telephone for worldwide voice, fax and data communications. Magellan
is also expected to be a significant supplier of personal communicators for the
ORBCOMM System and to be involved in the continued development of
satellite-based communications and tracking technology that is compatible with
the ORBCOMM System.
ORBCOMM COMMUNICATIONS SERVICES. The ORBCOMM System is designed to provide
virtually continuous mobile data communications coverage over much of the
Earth's surface. Under this system, subscribers are able to use inexpensive
communicators to send and receive short messages, high priority alerts and other
information, such as the location and condition of automobiles, trucks, shipping
vessels and other remote assets. The Company expects that the ability to send
and receive messages and data without the geographic limitations of existing
data communications systems will stimulate the growth of new markets for
satellite-based data communications and will be used to supplement
terrestrial-based communications systems by providing relatively low-cost
coverage in areas outside the range of such tower-based systems.
The global ORBCOMM System design consists of a constellation of small
low-Earth orbit satellites, a satellite control center operating and positioning
the satellites, the mobile communicators used by subscribers to transmit and
receive messages to and from the satellites, and the gateways that transmit and
control the flow of data and message communications and other information for
the system. A gateway generally will consist of gateway Earth stations and a
software-based gateway message switching system that processes the message
traffic and provides the interconnection to terrestrial networks. The U.S.
gateway, for example, includes four gateway Earth stations located in New York,
Washington, Arizona and Georgia with the message switching system located at
ORBCOMM Global's network operations center in Dulles, Virginia. Gateways are
planned to be owned and operated by ORBCOMM Global licensees in strategic
locations around the world.
In April 1995, the Company successfully launched the first two satellites
that will comprise the ORBCOMM System constellation. Certain technical problems
with both spacecraft resulted in a delay of several months in the completion of
on-orbit testing. The Company believes that it has identified and implemented
the appropriate corrective actions with respect to these problems, and does not
believe that they will impact continued development of the ORBCOMM System.
During 1995, in addition to the launch of the first two satellites, the Company
completed construction and testing of various network management systems
including the satellite control center and the network operations center, and
substantially completed the four United States gateway Earth stations. Prototype
communicators also transmitted hundreds of thousands of messages. Following
comprehensive testing of the space and ground network during 1995, intermittent
commercial service in the United States commenced in February 1996. Several
consumer electronics manufacturers are developing communicators that monitor
fixed assets and hand-held communicators for personal use for shipment during
1996.
The two ORBCOMM System satellites currently in orbit and the U.S. gateway
provide communications availability in the United States approximately 10% of
each 24-hour period, with maximum outages of approximately nine hours. With the
launch of additional satellites, such as the two scheduled to be launched as a
secondary payload on a Taurus mission scheduled for late 1996, communications
availability will also increase. The Company expects that, with a planned
constellation of at least 26 satellites and appropriately situated gateways, the
ORBCOMM System will provide communications availability generally exceeding 95%
of each 24-hour period in the United States and other temperate zones in the
Northern and Southern hemispheres and exceeding 75% of each 24-hour period in
the equatorial region. Equatorial region availability could be improved to
generally exceed 90% with an additional
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plane of eight satellites. Outside the United States, the ORBCOMM System will
only be available in countries and regions where appropriate licenses have been
obtained and where there is a gateway that can serve the applicable market.
DEVELOPMENT AND FINANCING. In 1993, ORBCOMM and Teleglobe Mobile Partners
("Teleglobe Mobile"), an affiliate of Teleglobe Inc., formed a partnership,
ORBCOMM Global (formerly known as ORBCOMM Development Partners, L.P.) for the
two-phased design, development, construction, integration, testing and operation
of the ORBCOMM System. ORBCOMM and Teleglobe Mobile also formed two marketing
partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International
Partners, L.P. ("ORBCOMM International"), each with the exclusive right to
market the ORBCOMM System in the United States and internationally,
respectively. ORBCOMM has retained control over applicable licenses issued by
the Federal Communications Commission ("FCC"), consistent with FCC regulations.
Also in 1993, Orbital entered into an agreement with ORBCOMM Global whereby
Orbital had responsibility for the overall design, construction and integration
for the first phase of the ORBCOMM project, which was completed during 1995. In
September 1995, Orbital and ORBCOMM Global executed the ORBCOMM System
Procurement Agreement (the "Procurement Agreement"), which provides that Orbital
will, among other things, construct and launch an additional 26 satellites, and
construct an additional eight satellites. Under the Procurement Agreement,
Orbital is providing satellites and launch services on a fixed-price basis.
Consistent with industry practice for many launch contracts, the Procurement
Agreement contains certain performance incentives with respect to the satellites
and their launch.
Under ORBCOMM Global's partnership agreement, action by the partnership
generally requires the approval of general partners holding a majority of the
participating interests (i.e., interests participating in profits and losses).
ORBCOMM and Teleglobe Mobile are each 50% general partners in ORBCOMM Global,
with the result that ORBCOMM and Teleglobe Mobile share equal responsibility for
the operational and financial affairs of ORBCOMM Global and the approval of both
ORBCOMM and Teleglobe Mobile is necessary for ORBCOMM Global to act. ORBCOMM
holds indirectly a 51% participating interest in ORBCOMM USA and Teleglobe
Mobile holds indirectly a 51% participating interest in ORBCOMM International,
with the result that ORBCOMM acting alone can generally control the operational
and financial affairs of ORBCOMM USA, and Teleglobe Mobile acting alone can
generally control the operational and financial affairs of ORBCOMM
International.
In September 1995, Teleglobe Mobile exercised its option to participate in
the second phase of the ORBCOMM System and, accordingly, Orbital and Teleglobe
Mobile's total capital commitments to ORBCOMM Global are approximately $75
million and $85 million, respectively, of which approximately $62 million and
$35 million, respectively, had been contributed through December 31, 1995.
Although construction of the first phase of the ORBCOMM System is completed,
development and construction of the second phase is in an early stage, and the
actual cost of the system and the amount and structure of anticipated investment
in ORBCOMM Global may vary significantly from current estimates. Orbital expects
that the total estimated required capital for the ORBCOMM System will be
approximately $225-$250 million. ORBCOMM Global intends to seek additional
equity contributions and/or bank or other debt financing to fund the remaining
requirements. ORBCOMM Global already obtained asset-based financing of $5
million to fund a portion of its development costs for the first phase of the
ORBCOMM System. The Company has guaranteed ORBCOMM Global's outstanding
indebtedness, and may be required to guarantee or provide credit support in
connection with additional indebtedness incurred by ORBCOMM Global.
In the event that ORBCOMM Global does not otherwise receive the necessary
capital, full development and implementation of the ORBCOMM System may be
delayed, significantly restricted or possibly abandoned, and the Company could
be required to expense part or all of its investment in the ORBCOMM System. In
addition, start-up of the ORBCOMM System will produce significant ORBCOMM Global
operating losses for several years. Even if the ORBCOMM System is fully
constructed and operational, there can be no assurance that an adequate market
will develop for ORBCOMM System services, that ORBCOMM Global will achieve
profitable operations or that Orbital will recover any of its past or
anticipated investment in the ORBCOMM System. Because Orbital (through ORBCOMM)
has a 50% participating interest in ORBCOMM Global, Orbital expects to recognize
its pro rata share of ORBCOMM Global profits and losses.
As of March 1, 1996, certain officers and employees of ORBCOMM Global and
Orbital held options to acquire 555,100 shares of ORBCOMM's common stock (or
approximately 12 percent of ORBCOMM's outstanding common stock) at option
exercise prices ranging from $1.50 to $17.00 per share. On an annual basis,
holders of ORBCOMM common stock acquired on exercise of these options may,
subject to certain conditions, require ORBCOMM to purchase such ORBCOMM common
stock at its then fair market value. As of March 1, 1996, there were 52,286
shares of ORBCOMM common stock outstanding that were acquired in connection with
option exercises by current or former ORBCOMM and Orbital employees.
REGULATORY APPROVALS. In October 1994, ORBCOMM became the first company to
be awarded full FCC authority to construct, launch and operate a low-Earth orbit
satellite-based messaging and data communications network in the United States.
This license, which provides that the ORBCOMM System must be constructed within
six years from the date the license was granted,
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extends for a period of ten years from the date the first ORBCOMM System
satellite was operational. At the end of the seventh year of the ten-year term,
a renewal application must be filed with the FCC. As with any such license, the
ORBCOMM System license may be revoked and a license renewal application may be
denied for cause. In October 1995, ORBCOMM requested a modification of its FCC
license with respect to ORBCOMM's channel plan for purposes of facilitating
frequency coordination of the ORBCOMM System with foreign governments. This
request has completed the public comment cycle and ORBCOMM believes its request
will be granted within the next several months. In addition, for the ORBCOMM
System to be operated in other countries throughout the world, the Company or
the foreign licensees must obtain from the appropriate foreign regulatory bodies
authority to do so. The Company anticipates that the cost of these activities
will be borne primarily by foreign licensees. ORBCOMM International has entered
into a definitive license agreement with ORBCOMM Canada Inc., which is expected
to begin providing ORBCOMM service in Canada in Spring 1996. ORBCOMM has signed
preliminary agreements with 19 candidate licensees serving 71 other countries to
seek such regulatory approvals and to initiate territory-specific market
development in such countries. There can be no assurance that ORBCOMM or its
foreign licensees will be granted all licenses or approvals necessary to operate
the ORBCOMM System in any other country.
ORBIMAGE REMOTE SENSING AND IMAGING SERVICES. The Company is currently
seeking to develop and market a broad range of information services that involve
identifying and monitoring global environmental changes and weather patterns and
collecting and disseminating digital land maps and other remote sensing
information. Small Earth-viewing satellites and related sensors and instruments
to be placed in relatively low orbits are planned to offer cost-efficient data
collection, daily global coverage and high-resolution imaging services.
In April 1995, ORBIMAGE's first MicroStar satellite, MicroLab-1, was
successfully launched to monitor lightning and severe weather patterns for NASA.
In 1991, Orbital entered into a contract with NASA to provide worldwide, daily
ocean imagery using Orbital's SeaStar environmental monitoring satellite system,
based on the PegaStar spacecraft. The Company plans to develop, produce, launch
and operate the SeaStar system to deliver high-quality multi-spectral ocean
imagery and land surface imagery for up to five years. The SeaStar launch has
been delayed several years, primarily due to technical challenges associated
with the development of the spacecraft and launch delays relating to the Pegasus
XL failures in 1994 and 1995. In addition to providing unprocessed real-time
ocean data to NASA, ORBIMAGE plans to market the SeaStar data directly and
through value-added resellers and other marketing agents to other U.S.
Government users and to potential domestic and international customers such as
commercial fishing fleets, oil and gas companies, ocean transportation
operators, oceanographers and agricultural companies.
ORBIMAGE is developing and marketing other small satellite-based Earth
observation, remote sensing and environmental monitoring services using, among
other things, the Company's PegaStar and MicroStar spacecraft platforms, Pegasus
and Taurus launch vehicles, space sensors and instruments and other space
products. Services to be provided by ORBIMAGE could include high-resolution
optical imaging of land surfaces for geographic information services, mapping,
sensing of ocean and atmospheric conditions and measuring of ozone and other
gaseous concentrations in the atmosphere. The Company is currently exploring
potential strategic arrangements for development of the high-resolution remote
sensing business, with Orbital providing launch services, spacecraft, ground
stations and other related products. During 1995, ORBIMAGE signed preliminary
agreements with several potential imagery distributors and initiated preliminary
discussions with potential strategic partners. There can be no assurance that
the Company will be able to conclude such strategic arrangements or develop
profitable commercial Earth observation, remote sensing or environmental
monitoring businesses.
* * * *
Financial information about the Company's products and services, foreign
and domestic operations and export sales is included in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" set forth below
in Item 7 and the notes to the Company's consolidated financial statements set
forth below in Item 8 and is incorporated herein by reference.
COMPETITION
Orbital believes that competition for sales of its products and services is
based on performance and other technical features, price, reliability,
scheduling and customization.
The primary competition to the Pegasus and Taurus vehicles is expected to
come from the smaller and larger classes, respectively, of LMLV launch vehicles
currently being developed by Lockheed Martin Corporation ("Lockheed Martin").
The LMLV had an unsuccessful first flight in August 1995. Potential competition
to the Pegasus may also come from launch systems derived from surplus ballistic
missiles that are primarily being made available by the U.S. Government and
Russia. The National Space Transportation Policy (the "NSTP") authorizes U.S.
Government agencies to use excess ballistic missiles to launch payloads into
orbit on a case-by-case basis. While Lockheed Martin currently has a contract
with the DoD to convert excess Minuteman missiles into space launch vehicles,
the NSTP established that such use may only be permitted after the DoD has
determined, among other things,
6
<PAGE> 10
that such use would meet the agency's needs and would result in a cost savings
to the U.S. Government compared to a commercial launch service. Competition for
Taurus could also come from surplus Titan II launch vehicles, although Titan II
production has been discontinued and only a very limited inventory remains. In
addition, in 1995 the Japanese space agency successfully launched a booster that
directly competes with Taurus in terms of launch capacity, but is more expensive
than the Taurus. Indirect competition to Pegasus and Taurus vehicles also exists
in the form of secondary or "piggyback" payload capacity on large boosters such
as the Ariane, Titan, Long March and Proton launch vehicles. While secondary
payloads offer a low-cost method of launching satellites in some cases, the
secondary status of the payload often requires customers to accept less
desirable orbits, "standby" launch scheduling and potentially more complicated
and costly payload integration procedures.
While several companies design and manufacture suborbital launch vehicles,
Orbital's primary competitor in this product line is Coleman Research Corp.
Satellite systems and payloads and space support products compete with products
and services produced or provided by numerous companies and government entities,
including TRW Inc. and CTA, Inc. The Company's space instruments and airborne
and ground-based electronics, data management systems, defense-oriented avionics
products and software systems, and aviation systems face competition from
several established manufacturers. The Company's space sensors and instruments
face competition from a number of companies and university research laboratories
capable of designing and producing space instruments. The Company's main
competition in the area of ground stations include Datron Systems Inc. and
Hughes-STX Corp.
Magellan's marine and outdoor recreation GPS satellite-based navigation
products primarily face competition from Garmin International. Magellan competes
with a larger number of producers of GPS navigation and communications products
in its other markets. The Company believes that Magellan's success will depend
on its ability to continue to develop new lower-cost and enhanced performance
products and to enter into and develop new markets for GPS navigators.
The ORBCOMM System will face competition from numerous existing and
potential alternative communications products and services provided by various
large and small companies, including sophisticated two-way satellite-based data
and voice communications services. For specific markets, the ORBCOMM System may
complement existing tower-based services such as one-way and two-way paging,
cellular data, specialized mobile radio and private networks. ORBIMAGE may face
competition from U.S. and foreign government and private entities that provide
or are seeking to provide satellite-based and other land imaging, environmental
monitoring and atmospheric sensing products.
Many of the Company's competitors are larger and have substantially greater
resources than the Company. Furthermore, the possibility exists that other
domestic or foreign companies or governments, some with greater experience in
the space industry and greater financial resources than Orbital, will seek to
produce products or services that compete with those of the Company. Any such
foreign competitor could benefit from subsidies from, or other protective
measures by, its home country.
7
<PAGE> 11
RESEARCH AND DEVELOPMENT
The Company expects to continue to invest in product-related research and
development, to conceive and develop new products and services, to enhance
existing products and to seek customer and, where appropriate, strategic partner
investments in these products. Orbital's research and development expenses,
excluding direct customer-funded development, were approximately $28.6 million,
$17.3 million, and $19.7 million, respectively, for the fiscal years ended
December 31, 1995, 1994 and 1993.
PATENTS AND TRADEMARKS
Orbital relies, in part, on patents, trade secrets and know-how to develop
and maintain its competitive position and technological advantage. The Company
holds U.S. and foreign patents relating to the Pegasus vehicle and U.S. patents
relating to the ORBCOMM System as well as for other components and products
produced by the Company. The Company also has various pending patent
applications relating to Pegasus and the ORBCOMM System along with other
products. Certain of the trademarks and service marks used in connection with
the Company's products and services have been registered with the U.S. Patent
and Trademark Office and the Canadian Intellectual Property Office.
COMPONENTS AND RAW MATERIALS
Orbital purchases a significant percentage of its product components,
including rocket propulsion motors, structural assemblies and electronic
equipment, from third parties. Orbital also occasionally obtains from the U.S.
Government parts and equipment that are used in the production of the Company's
products or in the provision of the Company's services. Orbital has not
experienced material difficulty in obtaining product components or necessary
parts and equipment and believes that alternative sources of supply would be
available, although increased costs could be incurred in securing alternative
sources of supply. The Company's ability to launch its Pegasus and Pegasus XL
vehicles depends on the availability of an aircraft with the capability of
carrying and launching such space launch vehicles. Orbital entered into a
10-year lease in 1992 for a Lockheed L-1011 for the air-launch of the Pegasus
and Pegasus XL vehicles.
U.S. GOVERNMENT CONTRACTS
During 1995, 1994 and 1993, approximately 40 percent, 45 percent and 45
percent, respectively, of the Company's total annual revenues were derived from
contracts with the U.S. Government and its agencies or from subcontracts with
the U.S. Government's prime contractors. Orbital's government contracts are
subject to regular audit and periodic reviews and may be modified, increased,
reduced or terminated in the event of changes in government requirements or
policies, Congressional appropriations and program progress and scheduling. U.S.
Government curtailment of expenditures for space research and development and
related products and services could have a material adverse effect on Orbital's
revenues and results from operations. Agencies within the U.S. Government and
commercial customers to which sales by the Company accounted for ten percent or
more of the Company's consolidated 1995 revenues were NASA, DoD and ORBCOMM
Global.
Orbital's major contracts with the U.S. Government fall into three
categories: firm fixed-price contracts, fixed-price incentive fee contracts and
cost-plus-fee contracts. Under firm fixed-price contracts, work performed and
products shipped are paid for at a fixed price without adjustment for actual
costs incurred in connection with the contract. Risk of loss due to increased
cost, therefore, is borne by the Company although some of this risk may be
passed on to subcontractors. Under fixed-price government contracts, Orbital may
receive progress payments, generally in an amount equal to between 80 and 95
percent of monthly costs, or it may receive milestone payments upon the
occurrence of certain program achievements. Fixed-price incentive fee contracts
provide for sharing by the customer and the Company of unexpected costs incurred
or savings realized within specified limits, and may provide for adjustments in
price depending on actual contract performance other than costs. Costs in excess
of the negotiated maximum (ceiling) price and the risk of loss by reason of such
excess costs are borne by the Company, although some of this risk may be passed
on to subcontractors. Under a cost-plus-fee contract, Orbital recovers its
actual allowable costs incurred and receives a fee consisting of a base amount
that is fixed at the inception of the contract and/or an award amount that is
based on the Government's subjective evaluation of the contractor's performance
in terms of the criteria stated in the contract.
All of Orbital's U.S. Government contracts and, in general, its
subcontracts with the U.S. Government's prime contractors provide that such
contracts may be terminated at will by the U.S. Government or the prime
contractor, respectively. Furthermore, any of these contracts may become subject
to a government-issued stop work order under which the Company is required to
suspend production. In the event of a termination at will, Orbital is normally
entitled to recognize the purchase price for delivered items, reimbursement for
allowable costs for work in process, and an allowance for reasonable profit
thereon or adjustment for loss if completion of performance would have resulted
in a loss. The Company has experienced several contract suspensions and
terminations in the past.
8
<PAGE> 12
BACKLOG
The Company's backlog at December 31, 1995 and 1994 was approximately $530
million and $419 million, respectively. As of December 31, 1995, approximately
60 percent of the Company's backlog was with the U.S. Government and its
agencies or from subcontracts with the U.S. Government's prime contractors.
Backlog consists of aggregate contract values for firm product orders, excluding
the portion previously included in operating revenues on the basis of percentage
of completion accounting, and including government contracts awarded but not
signed and orders not yet funded in the amounts of approximately $355 million
and $171 million as of December 31, 1995 and 1994, respectively. Approximately
$303 million of backlog is currently scheduled to be performed beyond 1996.
Backlog excludes unexercised and undefinitized contract options having an
aggregate potential contract value at December 31, 1995 of approximately $910
million.
EMPLOYEES
As of December 31, 1995, Orbital had 2,729 full-time permanent employees.
ITEM 2. PROPERTIES
In 1993, Orbital entered into a 12-year lease agreement for approximately
100,000 square feet of office and engineering space in Dulles, Virginia, which
serves as its corporate headquarters. The Company owns an approximately 30,000
square-foot satellite engineering and manufacturing facility on land adjacent to
the Dulles office facility. Orbital also leases approximately 320,000 square
feet of office, engineering and manufacturing space in Germantown, Maryland;
305,000 square feet of office, engineering and manufacturing space in Chandler,
Arizona; approximately 212,000 square feet of office and engineering space in
Richmond, British Columbia; approximately 135,000 square feet of office,
engineering and manufacturing space in Pomona, California; approximately 40,000
square feet of office, engineering and manufacturing space in San Dimas,
California. The Company leases or owns other smaller facilities, offices or
manufacturing space around the United States, including Huntsville, Alabama;
Edwards Air Force Base, California; Vandenberg Air Force Base, California and
Greenbelt, Maryland; in other locations in Canada such as Ottawa, Ontario, as
well as in England, Malaysia, Mexico and Australia. Although completion of the
Company's existing and pending contracts may in the future require additional
manufacturing capacity, Orbital believes that its existing facilities are
adequate for its near- and medium-term requirements.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote of the Company's security holders
during the fourth quarter of 1995.
9
<PAGE> 13
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each of the
Executive Officers of Orbital as of March 1, 1996. All Executive Officers are
elected annually and serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David W. Thompson 41 Chairman of the Board, President and Chief Executive Officer
Bruce W. Ferguson 41 Executive Vice President and General Manager/Communications and Information Services Group
James R. Thompson 59 Executive Vice President and General Manager/Launch Systems Group
Jack A. Frohbieter 59 Executive Vice President and General Manager/Space and Electronics Systems Group
Daniel E. Friedmann 39 Executive Vice President and General Manager/Ground Systems and Software Group
Michael D. Griffin 46 Executive Vice President and General Manager/Advanced Systems Group
Carlton B. Crenshaw 50 Executive Vice President and Chief Financial Officer
Antonio L. Elias 46 Senior Vice President and Chief Technical Officer
John H. Mehoves 48 Senior Vice President/Corporate Strategy
Leslie C. Seeman 43 Senior Vice President, General Counsel and Secretary
</TABLE>
David W. Thompson is a founder of Orbital and has been Chairman of the
Board, President and Chief Executive Officer of the Company since 1982.
Bruce W. Ferguson is a founder of Orbital and has been Executive Vice
President and General Manager/Communications and Information Services Group
since October 1993 and a Director of the Company since 1982. Mr. Ferguson was
Executive Vice President and Chief Operating Officer of Orbital from 1989 to
October 1993 and Senior Vice President/Finance and Administration and General
Counsel of Orbital from 1985 to 1989.
James R. Thompson (who is not related to David W. Thompson) has been
Executive Vice President and General Manager/Launch Systems Group since October
1993 and a Director since January 1992. Mr. Thompson was Executive Vice
President and Chief Technical Officer of Orbital from 1991 to October 1993. He
was Deputy Administrator of NASA from 1989 to 1991. From 1986 until 1989, Mr.
Thompson was Director of the Marshall Space Flight Center. He was Deputy
Director for Technical Operations at Princeton University's Plasma Physics
Laboratory from 1983 through 1986. Before that, he had a 20-year career with
NASA at the Marshall Space Flight Center.
Jack A. Frohbieter has been a Director of the Company since August 1994,
and Executive Vice President and General Manager/Space and Electronics Systems
since September 1994. From 1990 until August 1994, Mr. Frohbieter was President
and Chief Operating Officer of Fairchild. From 1988 to 1990, he was Vice
President and General Manager of General Electric Company's Government
Electronics Systems Division, and from 1966 to 1987, he held a variety of
positions at RCA's Astro Space Division, including Vice President and General
Manager from 1986 to 1987.
Daniel E. Friedmann has been Executive Vice President and General
Manager/Ground Systems and Software since January 1996. He continues to serve as
President and Chief Executive Officer of MDA, a position he has held since March
1995. From 1992 to March 1995, he served as Executive Vice President and Chief
Operating Officer of MDA. Between 1979 and 1992, he held a variety of positions
at MDA, including serving as Vice President of various divisions.
Michael D. Griffin has been Executive Vice President/Advanced Systems Group
since January 1996. Dr. Griffin joined Orbital in August 1995 when he was
appointed Senior Vice President and Chief Technical Officer. From 1994 to August
1995, he was Senior Vice President for Program Development at Space Industries
International. From September 1991 to January 1994 he served as Chief Engineer
of NASA and was Deputy Director for Technology at the Strategic Defense
Initiative Organization from 1989 to 1991.
Carlton B. Crenshaw has been Executive Vice President and Chief Financial
Officer since February 1996. He was Senior Vice President/Finance and
Administration from August 1995 to January 1996 and was Senior Vice
President/Finance and Administration and Treasurer of Orbital from January 1993
to August 1995. From 1989 to January 1993, he was Vice President/Finance and
Administration and Treasurer of the Company. From 1985 to 1989, Mr. Crenshaw was
Vice President/Finance and Administration and Chief Financial Officer of
Software AG Systems, Inc.
Antonio L. Elias has been Senior Vice President and Chief Technical Officer
since January 1996. From May 1993 through December 1995 he was Senior Vice
President for Advanced Projects and was Senior Vice President/Space Systems
Division from 1990 to April 1993. He was Vice President/Engineering of Orbital
from 1989 to 1990 and was Chief Engineer from 1986 to 1989. From 1980 to 1986,
Dr. Elias was an Assistant Professor of Aeronautics and Astronautics at
Massachusetts Institute of Technology.
10
<PAGE> 14
John H. Mehoves has been Senior Vice President/Corporate Strategy since
January 1996. From October 1993 to December 1995, he was Senior Vice President,
from 1990 to October 1993, he was Executive Vice President/Space Systems
Division of Orbital, from 1987 to 1989, he was Vice President/Space
Transportation and from 1985 to 1987, he was Vice President/Operations.
Leslie C. Seeman has been Senior Vice President of the Company since
October 1993 and General Counsel and Secretary of the Company since 1989. From
1989 to October 1993, she was Vice President of the Company, and from 1987 to
1989, Ms. Seeman was Assistant General Counsel of Orbital. From 1984 to 1987,
she was General Counsel of Source Telecomputing Corporation, a
telecommunications company. Prior to that, she was an associate with the law
firm of Wilmer, Cutler & Pickering.
11
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol ORBI. The number of stockholders of record as of March 7, 1996 was 1,479.
The Company's Convertible Debentures are traded on the Nasdaq Stock Market under
the symbol ORBIG.
The range of high and low closing sales prices of Orbital Common Stock for
1993 through 1995, as reported on the Nasdaq Stock Market, was as follows:
<TABLE>
<CAPTION>
1995 HIGH LOW
--------- ---------
<S> <C> <C>
Fourth Quarter $16 5/8 $12 3/16
Third Quarter $19 1/4 $16
Second Quarter $22 $15 1/2
First Quarter $20 1/2 $16 1/2
1994 HIGH LOW
--------- ---------
Fourth Quarter $22 1/2 $15
Third Quarter $18 1/2 $14 1/2
Second Quarter $24 1/2 $14
First Quarter $26 1/2 $15 1/4
1993 HIGH LOW
--------- ---------
Fourth Quarter $23 $16 1/2
Third Quarter $19 $12 1/4
Second Quarter $13 3/4 $10 1/4
First Quarter $14 1/4 $10 3/4
</TABLE>
Orbital has never paid a cash dividend on its Common Stock. The Company
currently intends to retain earnings primarily for working capital and product
development and therefore does not anticipate paying dividends in the
foreseeable future. In addition, the Company is subject to certain contractual
restrictions on its ability to pay dividends.
12
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
Management has determined to restate its previously issued consolidated
financial statements as of and for the year ended December 31, 1995 with respect
to certain matters described in Note 1A to the Company's consolidated financial
statements. The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto
included in this Report. The consolidated operating data and other data for the
three-year period ended December 31, 1995 and the consolidated balance sheet
data at December 31, 1995 and 1994 are derived from and should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in this Report. The consolidated operating data for the years ended
December 31, 1992 and 1991 and the consolidated balance sheet data at December
31, 1993, 1992 and 1991 are derived from consolidated financial statements not
included or incorporated by reference herein.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA) YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
----------- -------------------------------------------------------
(RESTATED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA (1):
Revenues $ 359,840 $ 301,576 $ 300,184 $ 273,171 $ 223,955
Costs of Goods Sold 271,146 216,417 228,289 207,834 170,531
---------- ---------- ---------- ---------- ----------
Gross Profit 88,694 85,159 71,895 65,337 53,424
Research and Development Expenses 28,558 17,259 19,703 15,565 9,950
Selling, General and Administrative Expenses 64,170 53,165 38,270 41,723 36,169
Amortization of Goodwill 3,221 2,360 1,634 1,606 1,542
---------- ---------- ---------- ---------- ----------
Income (loss) from operations (7,255) 12,375 12,288 6,443 5,763
Net Investment Income (Expense) 1,131 (244) (44) 860 1,579
Equity in Earnings (Losses) of Affiliates (644) (1,264) (2,436) -- --
Non-Controlling Interests in (Earnings) Losses of
Consolidated Subsidiaries 427 -- -- -- --
Acquisition Expenses (3,441) (503) -- -- --
---------- ---------- ---------- ---------- ----------
Income (Loss) Before Provision (Benefit)
for Income Taxes, Cumulative Effect of
Accounting Changes and Extraordinary Item (9,782) 10,364 9,808 7,303 7,342
Provision (Benefit) for Income Taxes (6,569) 2,744 2,403 1,997 3,132
---------- ---------- ---------- ---------- ----------
Income (Loss) Before Cumulative Effect of
Accounting Changes and Extraordinary Item (3,213) 7,620 7,405 5,306 4,210
Cumulative Effect of Accounting Change, Net of Tax (2,377) -- 200 -- --
Extraordinary Item (2), Net of Tax -- -- -- -- 1,748
---------- ---------- ---------- ---------- ----------
Net Income (Loss) $ (5,590) $ 7,620 $ 7,605 $ 5,306 $ 5,958
========== ========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE (3):
Income (Loss) Before Cumulative Effect of Accounting
Changes and Extraordinary Item $ (0.12) $ 0.33 $ 0.40 $ 0.29 $ 0.24
Cumulative Effect of Accounting Change, Net of Tax (0.09) -- 0.01 -- --
Extraordinary Item, Net of Tax -- -- -- -- 0.10
---------- ---------- ---------- ---------- ----------
$ (0.21) $ 0.33 $ 0.41 $ 0.29 $ 0.34
========== ========== ========== ========== ==========
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON AND COMMON EQUIVALENT SHARE 26,207,746 23,191,553 18,728,980 18,492,059 17,579,410
========== ========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE, ASSUMING FULL DILUTION (4):
Income (Loss) Before Cumulative Effect of Accounting
Changes and Extraordinary Item $ (0.12) $ 0.32 $ 0.36 $ 0.29 $ 0.24
Cumulative Effect of Accounting Change, Net of Tax (0.09) -- 0.01 -- --
Extraordinary Item, Net of Tax -- -- -- -- 0.10
---------- ---------- ---------- ---------- ----------
$ (0.21) $ 0.32 $ 0.37 $ 0.29 $ 0.34
========== ========== ========== ========== ==========
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, ASSUMING FULL DILUTION 26,207,746 27,309,336 22,343,402 18,492,059 17,579,410
========== ========== ========== ========== ==========
BALANCE SHEET DATA (1):
Cash and Cash Equivalents and Short-Term Investments $ 35,030 $ 40,345 $ 85,347 $ 16,019 $ 51,088
Net Working Capital 78,778 57,449 92,036 41,527 64,723
Total Assets 472,900 441,042 367,979 212,151 213,780
Short-Term Borrowings 11,907 28,977 15,793 6,377 1,494
Long-Term Obligations 96,990 86,068 73,165 10,818 9,724
Stockholders' Equity 238,166 206,943 169,389 111,687 115,042
</TABLE>
1. All historical balances have been restated to reflect the Company's
acquisitions of Magellan Corporation and MacDonald, Dettwiler and
Associates Ltd. Both acquisitions were accounted for using the pooling of
interests method.
13
<PAGE> 17
2. Represents an income tax benefit from net operating loss carryforwards.
3. Net income (loss) per common and common equivalent share is calculated
using the weighted average number of shares and dilutive equivalent shares
outstanding during the periods.
4. Net income (loss) per share, assuming full dilution, is calculated using
the weighted average number of shares and dilutive equivalent shares
outstanding during the periods, plus the effect of an assumed conversion of
the Company's convertible subordinated debentures.
14
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
A significant portion of the Company's revenues are generated under
long-term contracts with various agencies of the U.S. Government, various
foreign governments and commercial customers. Orbital recognizes revenues on
long-term contracts using the percentage of completion method of accounting,
whereby revenue, and therefore profit, is recognized based on actual costs
incurred in relation to total estimated costs to complete the contract or based
on specific delivery terms and conditions. In the case of incentive fee and
award fee contracts, such fees are included in revenue at the time the amount of
such fee can reasonably be determined or based on the Company's ongoing
estimates of the amount of the fee to be received. To the extent that estimated
costs of completion are adjusted, revenue recognized from a particular contract
will be affected in the period of the adjustment.
The Company is accounting for its investment in ORBCOMM Global, L. P.
("ORBCOMM Global") using the equity method of accounting. In accordance with the
equity method of accounting, Orbital consolidates 100% of the revenues earned
and costs incurred pursuant to sales to ORBCOMM Global. The Company also
recognizes as equity in earnings (losses) of affiliates its pro rata share of
ORBCOMM Global's profits and losses. During the construction phase of the
ORBCOMM System, ORBCOMM Global is capitalizing substantially all system
construction costs, including amounts paid to Orbital. To the extent ORBCOMM
Global capitalizes its purchases from Orbital, the Company eliminates as equity
in earnings (losses) of affiliates 50% of its profits and losses from those
sales.
In 1995, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), which (i) requires that long-lived assets "to be
held and used" be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, (ii) requires that long-lived assets "to be disposed of" be
reported at the lower of carrying amount or fair value less cost to sell, and
(iii) provides guidelines and procedures for measuring an impairment loss that
are significantly different from previous guidelines and procedures. The
cumulative effect of adopting SFAS 121 on prior years' earnings, relating to the
impairment in the carrying amount of certain assets to be disposed of that
supported its orbit transfer vehicle product line, was $2,377,000, net of tax
benefit of $1,783,000, and is reported in the 1995 consolidated statement of
operations. The effect of adopting SFAS 121 on income from continuing operations
for 1995 was not material.
Certain of the 1995 financial information has been restated. See Notes 1A
and 16 to the consolidated financial statements.
ACQUISITIONS
Orbital acquired MacDonald, Dettwiler and Associates Ltd. ("MDA") on
November 17, 1995 and Magellan Corporation ("Magellan") on December 29, 1994.
Both transactions were accounted for using the pooling of interests method of
accounting for business combinations. Orbital's historical financial information
has been restated to effect the pooling of interests with MDA and Magellan as of
the earliest period presented. Orbital incurred transaction expenses of
approximately $3,400,000 for the MDA acquisition and $500,000 for the Magellan
acquisition in 1995 and 1994, respectively.
On August 11, 1994, Orbital acquired Fairchild Space and Defense
Corporation ("Fairchild"), a subsidiary of Matra Aerospace, Inc., in a
transaction accounted for as a purchase business combination. Fairchild's
results of operations for the nineteen-week period ended December 31, 1994 have
been included in Orbital's consolidated results of operations for the year ended
December 31, 1994. On April 6, 1994, the Company (as a result of its acquisition
of MDA) acquired The PSC Communications Group Inc. ("PSC") from PSC's former
shareholders in a transaction accounted for as a purchase business combination.
As a result of recasting MDA's fiscal year end, Orbital's consolidated results
of operations for 1994 include PSC's financial results for the full year. On
September 17, 1993, Orbital acquired the Applied Science Operation ("ASO"), a
business unit of The Perkin-Elmer Corporation, in a transaction accounted for as
a purchase business combination. ASO's results of operations for the
fourteen-week period ended December 31, 1993 have been included in Orbital's
consolidated results of operations for the year ended December 31, 1993.
15
<PAGE> 19
The following table shows the Company's revenues, gross profits and gross
profit margin, by major product category, for each of the three years ended
December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995(RESTATED) 1994 1993
------------------------------ ------------------------------ --------------------------------
(IN THOUSANDS) GROSS GROSS GROSS
REVENUES PROFIT MARGIN REVENUES PROFIT MARGIN REVENUES PROFIT MARGIN
------------------------------ ----------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LAUNCH VEHICLES $ 65,354 $ 6,913 10.6% $ 74,832 $12,652 16.9% $120,410 $20,818 17.3%
Space launch vehicles 33,157 4,223 12.7 52,200 8,067 15.5 55,988 7,216 12.9
Suborbital launch vehicles 22,016 5,368 24.4 22,632 5,785 25.6 48,990 12,428 25.4
Orbit transfer vehicles and
other 10,181 (2,678) N/A -- (1,200) N/A 15,432 1,174 7.6
SATELLITE AND ELECTRONICS
SYSTEMS 152,189 32,425 21.3 88,305 24,007 27.2 31,287 6,519 20.8
Satellite systems and
payloads 82,859 9,849 11.9 35,031 9,231 26.4 25,160 4,907 19.5
Space sensors and
instruments 11,416 2,583 22.6 17,670 4,894 27.7 3,710 895 24.1
Defense electronics and
sensors 57,914 19,993 34.5 35,604 9,882 27.8 2,417 717 29.7
GROUND SYSTEMS AND
SOFTWARE 73,473 22,871 31.1 79,630 20,279 25.5 77,097 19,012 24.7
COMMUNICATIONS AND
INFORMATION SERVICES 68,824 26,485 38.5 58,809 28,221 48.0 71,390 25,546 35.8
Navigation and
communications products 55,183 22,107 40.1 38,517 17,802 46.2 32,900 14,995 45.6
Satellite-based services 11,191 3,831 34.2 10,154 6,117 60.2 20,609 3,269 15.9
Satellite tracking systems
and other 2,450 547 22.3 10,138 4,302 42.4 17,881 7,282 40.7
-------- -------- ---- -------- -------- ---- -------- -------- ----
CONSOLIDATED TOTAL $359,840 $ 88,694 24.6% $301,576 $85,159 28.2% $300,184 $71,895 24.0%
======== ======== ==== ======== ======== ==== ======== ======== ====
</TABLE>
RESULTS OF OPERATIONS
REVENUES. Orbital's revenues for 1995, 1994 and 1993 were $359,840,000,
$301,576,000 and $300,184,000, respectively. Revenues include sales to ORBCOMM
Global of approximately $49,187,000, $30,048,000 and $38,207,000 in 1995, 1994
and 1993, respectively.
Revenues from the Company's space launch vehicle products decreased from
$55,988,000 in 1993 to $52,200,000 in 1994, and were $33,157,000 in 1995. The
decreases in 1994 and 1995 are primarily attributable to significant delays in
production of the Company's Pegasus space launch vehicle as a result of the June
1994 and June 1995 Pegasus XL launch failures. Orbital has completed its failure
review and return-to-flight processes, successfully launched a Pegasus XL
vehicle in March 1996 and expects to launch several more Pegasus XL vehicles in
1996.
Revenues from suborbital launch vehicle products were $22,016,000 in 1995,
$22,632,000 in 1994 and $48,990,000 in 1993. Revenues from suborbital launch
vehicles, which are primarily purchased by various agencies within the U. S.
Department of Defense for military purposes, have decreased significantly over
the past few years as defense spending by the U.S. Government has been reduced.
Revenues from orbit transfer vehicles and other products were $10,181,000
in 1995. These revenues are primarily attributable to work performed on
developing a technologically advanced reusable launch vehicle, pursuant to a
cooperative agreement with NASA awarded in 1995. Orbital recorded charges of
$3,000,000 related to a termination of the development effort in early 1996.
Satellite and electronics systems revenues increased to $152,189,000 in
1995, from $88,305,000 in 1994, and $31,287,000 in 1993. The increase in sales
in 1995 is primarily attributable to a full year's sales of satellite systems
and electronics following the August 1994 acquisition of Fairchild. The increase
in 1994 sales as compared to 1993 sales is primarily as a result of the
Fairchild acquisition in August 1994, and a full year's sales of sensors and
instruments following the September 1993 acquisition of ASO.
Ground systems and software revenues were $73,473,000, $79,630,000 and
$77,097,000 in 1995, 1994 and 1993, respectively. The change in revenues from
1994 to 1995 is attributable primarily to a continued decrease in sales of
satellite ground systems offset, in part, by an increase in revenues generated
by communication services provided by PSC. The decrease in sales of satellite
ground systems is primarily a result of fewer Earth observation satellites being
placed into operation during the past few years. The slight increase in total
revenues from 1993 to 1994 is attributable to the first year of PSC's sales
after its acquisition in April 1994 offset, in part, by a decrease in sales of
satellite ground systems due to completion of a specific project for the
Canadian Space Agency. The
16
<PAGE> 20
change in revenues between 1995 and 1994 is also partially attributable to the
fluctuation of the exchange rate between the Canadian dollar and the U.S. dollar
during the periods.
Communications and information services revenues increased to $68,824,000
in 1995, from $58,809,000 in 1994, but were still below 1993's revenues of
$71,390,000. The decrease in total sales from 1993 to 1994 is attributable
primarily to a decrease in sales of ground systems and software (used to operate
the ORBCOMM System) to ORBCOMM Global. The largest component of communications
and information services revenues is from sales of Magellan's satellite
navigation and communications equipment. Magellan's sales were $52,480,000 in
1995 as compared to $37,144,000 in 1994 and $32,900,000 in 1993. The
year-to-year increases in Magellan's sales are due to a significant increase in
the number of products sold offset, in part, by lower average unit sales prices.
COSTS OF GOODS SOLD. Costs of goods sold include the costs of personnel and
materials under the Company's various development and production contracts,
including costs of subcontracts. Orbital's costs of goods sold for 1995, 1994
and 1993 were $271,146,000 (75.4% of revenues), $216,417,000 (71.8% of revenues)
and $228,289,000 (76.0% of revenues), respectively. The increase in costs of
sales as a percentage of revenues in 1995 results in part from approximately
$2,100,000 of cost increases on the Company's Pegasus program resulting from the
two launch failures, and cost increases on certain satellite programs. Other
contributing factors include lower average unit sales prices of satellite
navigation equipment offset, in part, by increasing profit margins on certain
satellite and ground systems contracts contributed by recent acquisitions. Costs
of goods sold in 1994 and 1993 also reflect cost increases on the Taurus space
launch vehicle development program.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
represent Orbital's self-funded product development activities, and exclude
direct customer-funded development. Research and development expenses during
1995, 1994 and 1993 were $28,558,000, $17,259,000 and $19,703,000, respectively.
Research and development spending during 1995 and 1994 reflected Orbital's
continued development of its Pegasus XL vehicle, including certain failure
review and return-to-flight efforts totaling $7,900,000 in 1995 and $2,500,000
in 1994. Additionally, 1994 and 1993 expenses included continuing costs for
Orbital's development of its Taurus space launch vehicle and development of
lower-cost satellite navigation and communications equipment.
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 1995, 1994 and 1993 were $64,170,000 (17.8% of
revenues), $53,165,000 (17.6% of revenues) and $38,270,000 (12.7% of revenues),
respectively. The increase in selling, general and administrative expenses and
its related percentage of revenues from 1993 levels to 1995 levels is primarily
attributable to the three significant purchase business combinations that have
been concluded since September 1993. The acquired businesses have higher
historical selling, general and administrative rates than Orbital's original
businesses. Increasing selling, general and administrative expenses related to
initial marketing activities for the Company's ORBCOMM project ($5,671,000 in
1995 and $5,470,000 in 1994) have also contributed to higher costs in 1995 and
1994.
NET INVESTMENT INCOME (EXPENSE). Net investment income (expense) was
$1,131,000, ($244,000) and ($44,000) for 1995, 1994 and 1993, respectively.
Investment income reflects interest earnings on short-term investments and
realized gains and losses on investments, reduced by interest expense (net of
capitalized interest of $6,685,000, $5,500,000 and $3,500,000 in 1995, 1994 and
1993, respectively) on outstanding debt.
EQUITY AND NON-CONTROLLING INTERESTS IN EARNINGS (LOSSES) OF AFFILIATES AND
CONSOLIDATED SUBSIDIARIES. Equity in earnings (losses) of affiliates in 1995,
1994 and 1993 represents elimination of $644,000, $1,264,000 and $2,436,000,
respectively, of profits on sales to ORBCOMM Global, due to ORBCOMM Global's
capitalization of its purchases from the Company, and Orbital's share of ORBCOMM
Global's net income (loss). Non-controlling interests in earnings (losses) of
consolidated subsidiaries represent the portion of earnings (losses) allocable
to other shareholders.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109") effective January 1, 1993. The
cumulative effect on prior years of this change in accounting principle
increased net income for 1993 by approximately $200,000. The effect of adopting
SFAS 109 on income from operations for 1993 was not material.
The Company recorded a consolidated income tax benefit of approximately
$6,569,000 in 1995, primarily as a result of reducing the deferred tax valuation
allowance related to the realizability of certain tax credits and other tax
assets and the carryback and recapture of previously paid U.S. Federal
alternative minimum taxes and management's determination that certain Canadian
investment tax credit carryforwards will be realized in the near future. Orbital
recorded income tax provisions of $2,744,000 and $2,403,000 for 1994 and 1993,
respectively. The Company's effective tax rate for these periods (26.5% and
24.5% in 1994 and 1993, respectively) is primarily a result of non-tax
deductible goodwill amortization related to its acquisition of Space Data
Corporation in 1988 and Fairchild in 1994, offset by tax-exempt interest
earnings, U.S. Federal research and experimental tax credits and Canadian
investment tax credits.
17
<PAGE> 21
At December 31, 1995, Orbital had approximately $102,000,000 of U.S.
Federal net operating loss carryforwards and $3,000,000 of U.S. Federal research
and experimental tax credit carryforwards which, subject to certain annual
limitations, are available to reduce future U.S. Federal income tax obligations.
At December 31, 1995 and 1994, Orbital provided a valuation allowance of
approximately $68,021,000 and $43,596,000, respectively, against certain of its
consolidated deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1993, Orbital completed a public offering of
convertible debentures, receiving net proceeds of approximately $57,000,000.
During the fourth quarter of 1993, Orbital completed a public offering of
approximately 2,923,000 shares of its common stock, receiving net proceeds of
approximately $45,300,000. In June 1995, the Company completed a private
placement of 2,000,000 shares of its common stock, receiving net proceeds of
approximately $32,400,000. The Company's shares were placed with various
international institutional investors.
At December 31, 1995, cash, cash equivalents and short-term investments
were approximately $35,030,000 and Orbital had approximately $108,897,000 of
short- and long-term debt outstanding. Additionally, at December 31, 1995,
Orbital had approximately $11,000,000 of cash reserved against outstanding
letters of credit and was guarantor on approximately $5,000,000 of debt held by
ORBCOMM Global. Orbital's current ratio was 1.7 at December 31, 1995, compared
to 1.4 and 1.8 at December 31, 1994 and 1993.
The Company maintains a line of credit facility that provides for total
borrowings from an international syndicate of six banks of up to $65,000,000,
subject to a defined borrowing base composed of certain contract receivables.
Approximately $3,000,000 of borrowings were outstanding against the facility at
December 31, 1995, against an available facility limit of approximately
$23,500,000. The interest rate charged under the facility is a variable rate
based on Morgan Guaranty Trust Company of New York's prime rate, the Federal
Funds rate, or adjusted LIBOR. At December 31, 1995, the interest rate on
outstanding borrowings under this facility was approximately 9.5%. Borrowings
are secured by contract receivables and certain other assets. The facility
restricts the payment of dividends and contains certain covenants with respect
to the Company's working capital, fixed charge ratio, leverage ratio and
tangible net worth. The facility expires in September 1997. The Company also
maintains several other short-term domestic line of credit facilities, totaling
approximately $12,000,000, of which $2,000,000 was outstanding as of December
31, 1995, as well as a facility for its Canadian operations.
The Company's operations used net cash of $734,000 in 1995. During 1995
Orbital invested approximately $20,201,000 in ORBCOMM Global and invested
$17,265,000 in capital assets to support its launch vehicle and satellite
products and various satellite systems. Orbital expects that its 1996 capital
needs, including its planned investment in the ORBCOMM System, will be provided
by working capital, cash flows from operations, credit facilities, customer
financing and operating lease arrangements. If ORBCOMM Global fails to raise
sufficient capital to complete construction of its planned satellite
constellation, Orbital may be required to increase its equity position by an
additional $30,000,000 to $50,000,000 over the next several years.
18
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 20
Consolidated Statements of Operations 21
Consolidated Balance Sheets 22
Consolidated Statements of Stockholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25
</TABLE>
19
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
ORBITAL SCIENCES CORPORATION:
We have audited the accompanying consolidated balance sheets of Orbital
Sciences Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of Magellan Corporation, a wholly owned subsidiary, in 1993, which
statements reflect total revenues constituting 11% of the related consolidated
total in that year. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for Magellan Corporation, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orbital
Sciences Corporation and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," as of January 1, 1995. As discussed in notes 1 and 11
to the consolidated financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," as of January 1, 1993.
As discussed in note 1A, the accompanying consolidated balance sheet as of
December 31, 1995, and the consolidated statements of operations, stockholders'
equity and cash flows for the year then ended have been restated.
/s/KPMG LLP
Washington, D.C.
February 5, 1996, except as to note 1A,
which is as of April 17, 2000
20
<PAGE> 24
ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
------------ ----------------------------
(restated)
<S> <C> <C> <C>
Revenues $ 359,840 $ 301,576 $ 300,184
Costs of Goods Sold 271,146 216,417 228,289
----------- ----------- ----------
Gross Profit 88,694 85,159 71,895
Research and Development Expenses 28,558 17,259 19,703
Selling, General and Administrative Expenses 64,170 53,165 38,270
Amortization of Excess of Purchase Price Over Net Assets Acquired 3,221 2,360 1,634
----------- ----------- ----------
Income (Loss) from Operations (7,255) 12,375 12,288
Net Investment Income (Expense), Net of Interest Expense of
$2,952, $1,740, and $1,409, Respectively 1,131 (244) (44)
Equity in Earnings (Losses) of Affiliates (644) (1,264) (2,436)
Non-Controlling Interests in (Earnings) Losses of
Consolidated Subsidiaries 427 -- --
Acquisition Expenses (3,441) (503) --
----------- ----------- ----------
Income (Loss) Before Provision (Benefit) for Income Taxes
and Cumulative Effect of Accounting Changes (9,782) 10,364 9,808
Provision (Benefit) for Income Taxes (6,569) 2,744 2,403
----------- ----------- ----------
Income (Loss) Before Cumulative Effect of Accounting Changes (3,213) 7,620 7,405
Cumulative Effect of Accounting Changes, Net of Tax (2,377) -- 200
----------- ----------- ----------
Net Income (Loss) $ (5,590) $ 7,620 $ 7,605
=========== =========== ==========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Income (Loss) Before Cumulative Effect of Accounting Changes $ (0.12) $ 0.33 $ 0.40
Cumulative Effect of Accounting Changes, Net of Tax (0.09) -- 0.01
----------- ----------- ----------
$ (0.21) $ 0.33 $ 0.41
============ =========== ==========
Shares Used in Computing Net Income (Loss)
per Common and Common Equivalent Share 26,207,746 23,191,553 18,728,980
============ =========== ==========
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION:
Income (Loss) Before Cumulative Effect of Accounting Changes $ (0.12) $ 0.32 $ 0.36
Cumulative Effect of Accounting Changes, Net of Tax (0.09) -- 0.01
----------- ----------- ----------
$ (0.21) $ 0.32 $ 0.37
=========== =========== ==========
Shares Used in Computing Net Income (Loss)
per Common Share, Assuming Full Dilution 26,207,746 27,309,336 22,343,402
=========== =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE> 25
ORBITAL SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---------- ---------
A S S E T S (restated)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 15,317 $ 27,919
Short-term investments, at market 19,713 12,426
Receivables, net 116,761 116,021
Inventories, net 38,527 26,445
Deferred income taxes and other current assets 6,886 3,871
--------- --------
TOTAL CURRENT ASSETS 197,204 186,682
--------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $53,067 and $46,409, respectively 91,538 103,090
SATELLITE SYSTEMS, at cost, less accumulated
depreciation of $547 and $0, respectively 14,363 6,788
INVESTMENTS IN AFFILIATES, net 75,020 54,721
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED,
less accumulated amortization of $13,695 and $10,612, respectively 75,395 74,599
DEFERRED INCOME TAXES AND OTHER ASSETS 19,380 15,162
--------- --------
TOTAL ASSETS $ 472,900 $441,042
========= ========
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 11,907 $ 28,977
Accounts payable 25,903 17,457
Accrued expenses 36,563 43,603
Payable to subcontractors 11,552 13,695
Deferred revenue 32,501 25,501
--------- --------
TOTAL CURRENT LIABILITIES 118,426 129,233
--------- --------
LONG-TERM OBLIGATIONS, net of current portion 96,990 86,068
OTHER LIABILITIES 19,740 18,798
--------- --------
TOTAL LIABILITIES 235,156 234,099
--------- --------
NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES (422) --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Special Voting Preferred Stock, par value $.01;
one share authorized and outstanding -- --
Class B Preferred Stock, no par value;
10,000 shares authorized and outstanding -- --
Preferred Stock, par value $.01; 10,000,000 shares
authorized, no shares outstanding -- --
Common Stock, par value $.01; 40,000,000 shares authorized, 26,766,029 and
24,257,322 shares outstanding, after deducting 15,735 shares held in treasury 268 243
Additional paid-in capital 247,580 210,030
Unrealized gains (losses) on short-term investments 68 (462)
Cumulative translation adjustment (3,356) (3,111)
Retained earnings (accumulated deficit) (6,394) 243
--------- --------
TOTAL STOCKHOLDERS' EQUITY 238,166 206,943
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 472,900 $441,042
========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
<PAGE> 26
ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED RETAINED
COMMON STOCK ADDITIONAL GAINS (LOSSES) CUMULATIVE EARNINGS
------------------ PAID-IN ON SHORT-TERM TRANSLATION (ACCUMULATED
SHARES AMOUNT CAPITAL INVESTMENTS ADJUSTMENT DEFICIT) TOTAL
------------------------------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992,
AS INITIALLY REPORTED 11,670,652 $ 117 $ 103,174 $ -- $ -- $ (9,474) $ 93,817
Adjustment for Magellan Corporation business
combination, accounted for as a pooling
of interests 2,640,441 26 14,303 -- -- (195) 14,134
Adjustment for MacDonald, Dettwiler and
Associates Ltd. business combination,
accounted for as a pooling of interests 4,087,126 41 8,601 -- (1,708) (3,198) 3,736
---------- ---- --------- -------- ------ ------- --------
BALANCE, DECEMBER 31, 1992,
(restated for pooling of interests) 18,398,219 184 126,078 -- (1,708) (12,867) 111,687
Shares issued to employees and directors 84,474 1 1,012 -- -- -- 1,013
Shares issued in purchase business
combination 320,000 3 4,997 -- -- -- 5,000
Net proceeds from public offering 2,923,000 29 45,244 -- -- -- 45,273
Transactions of pooled companies -- -- 48 -- -- (622) (574)
Translation adjustment -- -- -- -- (627) -- (627)
Net income -- -- -- -- -- 7,605 7,605
Unrealized gains on short-term investments -- -- -- 12 -- -- 12
---------- ---- --------- -------- ------ ------- --------
BALANCE, DECEMBER 31, 1993 21,725,693 217 177,379 12 (2,335) (5,884) 169,389
Shares issued to employees and directors 107,387 2 1,619 -- -- -- 1,621
Shares issued in purchase business
combination 2,424,242 24 30,976 -- -- -- 31,000
Adjustment to recast year end of pooled
company -- -- -- -- -- (1,138) (1,138)
Transactions of pooled companies -- -- 56 -- -- (355) (299)
Translation adjustment -- -- -- -- (776) -- (776)
Net income -- -- -- -- -- 7,620 7,620
Unrealized losses on short-term investments -- -- -- (474) -- -- (474)
---------- ---- --------- -------- ------ ------- --------
BALANCE, DECEMBER 31, 1994 24,257,322 243 210,030 (462) (3,111) 243 206,943
Shares issued to employees and directors 300,011 3 1,857 -- -- -- 1,860
Shares issued in private placement 2,000,000 20 32,366 -- -- -- 32,386
Conversion of convertible debentures 208,696 2 2,914 -- -- -- 2,916
Adjustment to recast year end of pooled
company -- -- -- -- -- (1,047) (1,047)
Transactions of pooled company -- -- 413 -- -- -- 413
Translation adjustment -- -- -- -- (245) -- (245)
Net loss -- -- -- -- -- (5,590) (5,590)
Unrealized gains on short-term investments -- -- -- 530 -- -- 530
---------- ---- --------- -------- ------ ------- --------
BALANCE, DECEMBER 31, 1995 (restated) 26,766,029 $268 $247,580 $ 68 $(3,356) $ (6,394) $238,166
========== ==== ========= ======== ====== ======= ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE> 27
ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
---------- --------- ---------
(restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (5,590) $ 7,620 $ 7,605
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expense 22,229 17,198 10,467
Equity in (earnings) losses of affiliates 644 1,264 2,436
Non-controlling interests in earnings (losses) of consolidated
subsidiaries (427) -- --
(Gain) loss on sale of fixed assets and investments (2,196) 4 5
Cumulative effect of accounting changes 2,377 -- (200)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables (739) 12,536 (3,350)
(Increase) decrease in inventories (12,082) (3,638) (2,906)
(Increase) decrease in other current assets 115 5,215 (2,585)
(Increase) decrease in other assets (8,878) 169 (4,406)
Increase (decrease) in payables and accrued expenses (4,687) (10,929) (8,035)
Increase (decrease) in deferred revenue 7,558 (22,609) 21,221
Increase (decrease) in other liabilities 942 2,761 596
--------- -------- --------
Net cash provided by (used in) operating activities (734) 9,591 20,848
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (17,265) (29,939) (38,350)
Proceeds from sales of fixed assets 293 -- 10,335
Purchase of investment securities (61,685) (35,731) (51,299)
Sale of investment securities 49,168 42,255 24,098
Maturities of investment securities 8,100 7,789 --
Investments in affiliates (20,201) (15,208) (40,307)
Payment for business acquisition -- (45,063) (794)
--------- -------- --------
Net cash used in investing activities (41,590) (75,897) (96,317)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) (17,483) 9,405 10,006
Principal payments on long-term obligations (5,749) (1,883) (2,398)
Proceeds from issuance of long-term obligations 20,000 28,730 64,154
Net proceeds from issuances of common stock 34,246 1,753 46,449
Adjustment to recast pooled companies' year ends (1,047) (1,138) --
--------- -------- --------
Net cash provided by financing activities 29,967 36,867 118,211
--------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (245) (776) (627)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,602) (30,215) 42,115
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 27,919 58,134 16,019
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,317 $ 27,919 $ 58,134
========= ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE> 28
ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31 , 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or
the "Company"), a Delaware corporation, is an international space technology and
satellite services company that designs, manufactures, operates and markets a
broad range of space products and services that are grouped into four general
categories: Launch Vehicles, Satellite and Electronics Systems, Ground Systems
and Software, and Communications and Information Services. Disaggregated
financial information is presented in Note 15.
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 financial statement presentation. The
acquisitions of MacDonald, Dettwiler and Associates Ltd. ("MDA") in November
1995 (the "MDA Acquisition") and Magellan Corporation ("Magellan") in December
1994 (the "Magellan Acquisition") (see Note 4) were recorded using the pooling
of interests method of accounting for business combinations and, accordingly,
Orbital's 1994 and 1993 historical consolidated financial statements have been
restated to reflect these transactions. All financial amounts are stated in U.S.
dollars unless otherwise indicated.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Orbital, all
wholly and partially owned subsidiaries controlled by Orbital, and partnerships
in which Orbital directly or indirectly controls the general partner interests.
All material transactions and accounts among consolidated entities have been
eliminated in consolidation.
REVENUE RECOGNITION
Orbital recognizes revenues on long-term contracts using the percentage of
completion method of accounting. Accordingly, (i) revenues on cost-plus-fee
contracts are recognized to the extent of costs incurred plus a proportionate
amount of fee earned, and (ii) revenues on long-term fixed-price contracts are
recognized based on costs incurred in relation to total estimated costs, or
based on specific delivery terms and conditions. Anticipated contract losses are
recognized as they become known.
Revenues from sales of commercial products and services are generally
recognized when the product is shipped or the service is performed.
FOREIGN CURRENCY
Orbital's foreign operating entities operate in a number of economic
environments and deal in a number of foreign currencies. The financial results
of foreign operations are translated to U.S. dollars using the current exchange
rates for assets and liabilities and using weighted average exchange rates for
revenues, expenses, gains and losses.
Translation gains and losses relating to foreign operations that are
self-contained and integrated within a particular country or economic
environment, and therefore are not dependent on the U.S. dollar, are deferred in
a separate component of stockholders' equity until there is a realized reduction
in Orbital's net investment in the foreign operation. Translation losses (net of
related income tax effect) deferred in 1995, 1994 and 1993 were approximately
$245,000, $776,000 and $627,000, respectively. Translation gains and
losses relating to foreign operations that are a direct and integral component
or extension of Orbital's domestic operations, and therefore are dependent on
the U.S. dollar, are reported currently as a component of net income.
Orbital enters into forward exchange contracts to hedge against foreign
currency fluctuations on certain receivables and payables. Gain and losses on
contracts to hedge specific foreign currency commitments are deferred and
accounted for as part of the transaction.
25
<PAGE> 29
RESEARCH AND DEVELOPMENT
Research and development expenses include self-funded product development
activities and exclude direct customer-funded development and are expensed as
incurred. Research and development expenses are allocated, when appropriate, to
U.S. Government contracts under government-mandated cost accounting standards.
DEPRECIATION, AMORTIZATION AND RECOVERABILITY OF LONG-LIVED ASSETS
Depreciation and amortization are provided using the straight-line method
as follows:
<TABLE>
<S> <C>
Buildings 18 to 20 years
Machinery, Equipment
and Software 3 to 10 years
Satellite Systems estimated useful life
of satellite
Leasehold Improvements shorter of estimated
useful life or lease term
</TABLE>
In 1995, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"), which (i) requires that long-lived assets "to be
held and used" be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, (ii) requires that long-lived assets "to be disposed of" be
reported at the lower of carrying amount or fair value less cost to sell, and
(iii) provides guidelines and procedures for measuring an impairment loss that
are significantly different from previous guidelines and procedures. The
cumulative effect of adopting SFAS 121 on prior years' earnings, relating to the
impairment in the carrying amount of certain assets to be disposed of that
supported Orbital's orbit transfer vehicle product line, was $2,377,000, net of
tax benefit of $1,783,000, and is reported in the 1995 consolidated statement of
operations. The effect of adopting SFAS 121 on income from continuing operations
for 1995 was not material.
Orbital's policy is to review its long-lived assets, including specialized
equipment used to support specific space-related products and satellite systems,
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company recognizes an
impairment loss when the sum of expected future cash flows is less than the
carrying amount of the asset. Given the inherent technical and commercial risks
within the space industry, it is reasonably possible that the Company's current
estimate that it will recover the carrying amount of its long-lived assets from
future operations may change.
INCOME TAXES
Prior to 1993, the Company recorded its provisions for income taxes using
the deferred method. Under the deferred method, provisions for income taxes were
computed at current tax rates on reported financial statement income. Deferred
income tax provisions represented the tax effect of significant "timing
differences" between financial statement income and current taxable earnings.
In 1993, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), which required a change from the
deferred method to the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities, and the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. SFAS 109
requires that deferred taxes be determined separately for each tax-paying
component in each tax jurisdiction.
The cumulative effect of adopting SFAS 109 on prior years' earnings was
approximately $200,000, and is reported in the 1993 consolidated statement of
operations. The effect of adopting SFAS 109 on income from continuing operations
for the year ended December 31, 1993 was not material.
INCOME (LOSS) PER SHARE
Income (loss) per common and common equivalent share is calculated using
the weighted average number of common shares (including the Exchangeable Shares
(see Note 4)) and common equivalent shares, to the extent dilutive, outstanding
during the periods. Income (loss) per common share assuming full dilution is
calculated using the weighted average number of common
26
<PAGE> 30
(including the Exchangeable Shares) and common equivalent shares outstanding
during the periods, plus the effects of an assumed conversion of the Company's
convertible subordinated debentures, after giving effect to all net income
adjustments that would result from the assumed conversion. Any reduction of less
than 3% in the aggregate has not been considered dilutive in the calculation and
presentation of income (loss) per common share assuming full dilution. Common
equivalent shares are comprised solely of stock options. Since the Exchangeable
Shares have voting and economic rights identical to Orbital common shares, the
Exchangeable Shares have been included as common shares in the accompanying
consolidated balance sheets.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Orbital considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Investments in securities that do
not meet the definition of cash equivalents are classified as short-term
investments. Since Orbital does not intend to hold its investments in debt and
equity securities until maturity and does not actively trade the securities to
maximize trading gains, Orbital classifies these securities as "available for
sale" and, accordingly, reports such securities at fair value plus accrued
interest. Any temporary excess (deficiency) of market value over (under) the
underlying cost of the short-term investment is excluded from current period
earnings and is reported as unrealized gains (losses) as a separate component of
stockholders' equity.
At December 31, 1995 and 1994, the Company had approximately $10,700,000
and $7,800,000, respectively, of cash restricted in support of outstanding
letters of credit.
INVENTORIES
Inventories consist of components inventory, work-in-process inventory and
finished goods inventory and are generally stated at the lower of cost or net
realizable value on a first-in, first-out ("FIFO") or specific identification
basis. Inventories, net of allowances for obsolescence of $3,778,000 and
$3,936,000 in 1995 and 1994, respectively, consisted of the following at
December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Components and raw materials $ 17,756 $ 13,623
Work-in-process 19,430 12,043
Finished goods 1,341 779
-------- --------
Total $ 38,527 $ 26,445
======== ========
</TABLE>
Components inventory consists primarily of components and raw materials
purchased to support future production efforts. Work-in-process inventory
consists primarily of (i) costs incurred under long-term fixed-price contracts
accounted for using the percentage-of-completion method of accounting applied on
a units of delivery basis, and (ii) partially assembled commercial products, and
generally includes direct production costs and certain allocated indirect costs
(including an allocation of general and administrative costs). Work-in-process
inventory has been reduced by contractual progress payments received of
$2,631,000 and $4,122,000 at December 31, 1995 and 1994, respectively. Finished
goods inventory consists of fully assembled commercial products awaiting
shipment.
SELF-CONSTRUCTED ASSETS
The Company self-constructs much of its ground support equipment, airborne
support equipment and special test equipment used in the manufacture, production
and delivery of many of its space-technology products. Orbital also builds and
operates satellite systems used in providing commercial services.
Orbital capitalizes certain costs incurred in constructing ground and
airborne support and test equipment and satellite systems. Capitalized costs
generally include direct construction costs and certain allocated indirect
costs, and exclude general and administrative and research and development
costs.
INVESTMENTS IN AFFILIATES
The Company uses the equity method of accounting for its investments in and
earnings of affiliates in which the Company has the ability to significantly
influence, but not control, such affiliate's operations. In accordance with the
equity method of accounting, the Company's carrying amount of an investment in
an affiliate is initially recorded at cost and is increased to reflect its share
of the
27
<PAGE> 31
affiliate's income and is reduced to reflect its share of the affiliate's
losses. Orbital's investment is also increased to reflect contributions to, and
decreased to reflect distributions received from, the affiliate. Any difference
between the amount of Orbital's investment and the amount of the underlying
equity in each affiliate's net assets is amortized in a manner similar to
goodwill. The Company capitalizes interest costs on equity method investments
when such affiliate has significant assets under construction and has not yet
commenced principal operations. At December 31, 1995 and 1994, approximately
$10,914,000 and $5,500,000, respectively, of interest costs had been capitalized
as part of the historical cost of investments in affiliates. The Company uses
the cost method of accounting for investments in affiliates in which it cannot
control or significantly influence operations.
The Company provides a valuation allowance against an investment in an
affiliate when it is determined that recovery of all or part of the investment
is not probable. At December 31, 1995 and 1994, approximately $1,100,000 and
$3,100,000, respectively, of allowance had been provided to fully reserve
against certain investments in affiliates. Approximately $2,000,000 of gain on
the sale of an investment was realized in 1995 when Orbital sold one such
investment. The gain is reported in net investment income in the accompanying
consolidated statement of operations.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The Company amortizes the excess of purchase price over net assets acquired
related to prior business combinations on a straight-line basis over their
estimated useful life, generally 20-40 years. Orbital periodically assesses and
evaluates the recoverability of such assets based on current facts and
circumstances and the operational viability of its acquired businesses.
During 1994, as a result of obtaining additional information subsequent to
the September 1993 acquisition of the Applied Science Operation ("ASO") (see
Note 4), the purchase price was reallocated to reflect a more accurate valuation
of assets and liabilities acquired. As a result of the reallocation, the value
of net tangible and identifiable intangible assets acquired increased by
approximately $3,000,000, with a resulting decrease to the excess of purchase
price over net assets acquired.
During 1995 and 1994, as a result of obtaining additional information
subsequent to the August 1994 acquisition of Fairchild Space and Defense
Corporation ("Fairchild") (see Note 4), the purchase price was reallocated to
reflect a more accurate valuation of assets and liabilities acquired. As a
result of the reallocations, the value of net tangible and identifiable
intangible assets acquired increased by approximately $6,700,000, with a
resulting decrease to the excess of purchase price over net assets acquired.
Additionally, at the date of the acquisition, Fairchild had certain
contingencies relating primarily to the appropriateness and allowability of
certain severance costs charged to its U.S. Government contracts from 1989
through 1992, for which a reasonable estimate of fair value could not be
determined. During 1995, an estimate of the ultimate outcome of pre-acquisition
contingencies was determined, and Orbital accordingly revised the allocation of
purchase price to increase liabilities acquired by approximately $500,000, with
a resulting increase in the excess of purchase price over net assets acquired.
WARRANTIES
The Company occasionally accepts warranty clauses in its commercial and
government contracts. In the event the Company does not purchase insurance
coverage to protect itself in connection with such warranty clauses, the Company
records a liability for warranty claims when it determines that a specific
material liability exists. Orbital has not recorded any liability for potential
warranty claims on its existing contracts because these expenses, if any, are
not expected to have a material adverse impact on the Company's financial
condition or results of operations.
The Company at times provides limited warranties on certain commercial
products and accrues an estimate of expected warranty costs based on historical
experience.
1A. RESTATEMENTS
Management has determined to restate its previously issued consolidated
financial statements as of and for the year ended December 31, 1995 with respect
to its accounting treatment for the matters described below. The following table
summarizes the various adjustments by financial statement line item for 1995.
The impact of these matters on the unaudited interim financial results for 1995
is summarized in Note 16.
28
<PAGE> 32
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Consolidated Statement of Operations
(In thousands, except per share data)
For The Year Ended December 31, 1995
------------------------------------------------------------------------------
As
Previously
Reported Adjustments Restated
-------- ----------- --------
<S> <C> <C> <C>
Revenues $ 364,320 $ (4,480) (b) (c) $ 359,840
Costs of goods sold 268,016 3,130 (b) (c) 271,146
Research and development expenses 28,512 46 (b) 28,558
Selling, general and administrative
expenses 63,427 743 (c) 64,170
Net investment income (expense) 639 492 (a) (c) 1,131
Equity in earnings (losses) of affiliates (759) 115 (c) (644)
Provisions (benefit) for income taxes (1,302) (5,267) (c) (6,569)
Net income (loss) (4,848) (5,590)
Net income (loss) per common share, basic
and assuming dilution (0.19) (0.21)
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(In thousands)
12/31/95
As 12/31/95
Previously As
Reported Adjustments Restated
---------- ----------- -----------
<S> <C> <C> <C>
Receivables, net $ 118,358 $ (1,597) (b) (d) $ 116,761
Deferred taxes and other current assets 7,330 (444) (d) 6,886
Property, plant and equipment, net 105,875 26 (a) (b) 105,901
Investments in affiliates, net 74,063 957 (a) (d) 75,020
Deferred income taxes and other assets 12,330 7,050 (d) 19,380
Accrued expenses 41,474 6,641 (d) 48,115
Accumulated deficit (5,652) (742) (6,394)
</TABLE>
The Company uses the equity method of accounting for its investments in
affiliates' in which the Company has the ability to significantly influence, but
not control, such affiliates operations. Accordingly, Orbital uses the equity
method of accounting for its investment in ORBCOMM Global, L.P. ("ORBCOMM") or
("ORBCOMM Global").
(a) Previously, the Company's consolidated financial statements reflected the
Company's capitalization of interest expense on various assets, including
on its equity investment in ORBCOMM. As reflected in the restated
consolidated financial statements presented herein, Orbital has revised the
capitalization of interest on certain assets including its equity method
investment in ORBCOMM. These revisions include the compounding impact of
interest, and the reduction of eligible investment amounts for losses
recognized for equity method investors. These revisions had the effect of
decreasing interest expense in 1995 by $985,000.
(b) The Company has historically capitalized certain costs associated with
certain product enhancements. Previously, the Company's consolidated
financial statements reflected such costs as capitalized assets. As
reflected in the restated consolidated financial statements presented
herein, the Company has expensed all previously capitalized enhancement
costs. These revisions resulted in an increase in research and development
expenses and costs of goods sold and a decrease in revenues for 1995 of
$46,000, $10,000 and $1,257,000, respectively.
(c) Certain reclassification adjustments were made to the 1995 statement of
operations that resulted in increases (decreases) to revenues, cost of
goods sold, selling, general and administrative expenses, net investment
income (expense), equity in earnings (losses) of affiliates and the tax
benefit of ($3,223,000), $3,120,000, $743,000, $493,000, $115,000 and
$7,050,000, respectively. The tax benefit of $1,783,000 was also netted
against the cumulative effect of the accounting change with a corresponding
decrease in the benefit for income taxes in 1995.
(d) Certain reclassification adjustments were made to the 1995 balance sheet
related to the items noted above, including an increase in the deferred tax
asset of $7,050,000 and an increase in accrued expenses of $7,600,000.
29
<PAGE> 33
2. TRANSACTIONS WITH ALLIANT TECHSYSTEMS, INC.
In November 1988, Orbital and Hercules Incorporated ("Hercules") entered
into a joint venture agreement relating to the development and production of the
Pegasus space launch vehicle (the "Joint Venture Agreement"). In 1994, Alliant
Techsystems, Inc. ("Alliant") acquired the assets of Hercules Aerospace Company
(a wholly owned subsidiary of Hercules) and, in connection therewith, assumed
the rights and responsibilities of Hercules with respect to the Joint Venture
Agreement. During 1995, Orbital and Alliant replaced the Joint Venture Agreement
with a joint teaming agreement to provide for the continuation of joint
performance on the Pegasus and Taurus space launch vehicle programs (the "Joint
Teaming Agreement"). The Joint Teaming Agreement provides, among other things,
that Orbital will perform as the prime contractor for all present and future
Pegasus and Taurus missions and Alliant will perform as a solid rocket motor and
payload fairing subcontractor to Orbital on the Pegasus program and as a solid
rocket motor subcontractor to Orbital on the Taurus program. As a subcontractor,
Alliant will receive firm-fixed prices for its subcontracts and will no longer
share in overall contract profits and losses, but will share in the costs and
benefits associated with certain defined outstanding contingencies on current
contracts. The Joint Teaming Agreement will continue through December 31, 2005,
unless terminated earlier by mutual agreement.
Alliant has also agreed to a final dismissal with prejudice of all present
and future claims and litigation related to the Joint Venture Agreement,
including (i) the January 1994 lawsuit filed by Hercules against Orbital
alleging breaches of certain representations and warranties by Orbital in the
1988 stock purchase agreement between Hercules and Orbital, and (ii) the July
1994 lawsuit filed by Hercules against Orbital alleging breach of fiduciary duty
and breach of contract in the determination of Orbital's recoverable costs
pursuant to the Joint Venture Agreement.
3. INVESTMENTS IN AFFILIATES
ORBCOMM Partnerships. In 1993, the Company's majority owned subsidiary,
Orbital Communications Corporation ("OCC"), and Teleglobe Mobile Partners, an
affiliate of Teleglobe Inc., formed a partnership, ORBCOMM Global, formerly
known as ORBCOMM Development Partners, L.P., for the two-phased design,
development, construction, integration, test and operation of a low-Earth orbit
satellite communications system (the "ORBCOMM System"). OCC and Teleglobe
Mobile Partners are each 50% general partners in ORBCOMM Global. OCC's and
Teleglobe Mobile's total capital commitments to ORBCOMM Global are
approximately $75,000,000 and $85,000,000, respectively, of which approximately
$62,000,000 and $35,000,000, respectively, had been contributed through
December 31, 1995.
Additionally, OCC is a 2% general partner in ORBCOMM USA, L.P. ("ORBCOMM
USA") and Teleglobe Mobile is a 2% general partner in ORBCOMM International
Partners, L.P. ("ORBCOMM International"), two partnerships formed to market the
ORBCOMM System. ORBCOMM Global is a 98% general partner in each of the two
marketing partnerships.
Pursuant to the terms of the partnership agreements, (i) OCC and Teleglobe
Mobile share equal responsibility for the operational and financial affairs of
ORBCOMM Global; (ii) OCC controls the operational and financial affairs of
ORBCOMM USA; and (iii) Teleglobe Mobile controls the operational and financial
affairs of ORBCOMM International. Since OCC is unable to control, but is able to
exercise significant influence over, ORBCOMM Global's and ORBCOMM
International's operating and financial policies, the Company is accounting for
its investments in ORBCOMM Global and ORBCOMM International using the equity
method of accounting. Since OCC is able to control the operational and financial
affairs of ORBCOMM USA, the Company consolidates the accounts of ORBCOMM USA.
Orbital is the primary supplier of the communications satellites, launch
vehicles and ground systems to ORBCOMM Global, and successfully launched the
first two ORBCOMM System satellites in April 1995. During 1995, 1994 and 1993,
Orbital recorded contract revenues on sales to ORBCOMM Global of approximately
$49,187,000, $30,048,000 and $38,207,000, respectively, and eliminated as equity
in earnings (losses) of affiliates 50% of its profits on those sales since
ORBCOMM Global is capitalizing substantially all its purchases from Orbital. At
December 31, 1995 and 1994, Orbital had approximately $8,900,000 and $7,900,000,
respectively, in receivables from ORBCOMM Global.
At December 31, 1995, ORBCOMM Global had total assets, total liabilities
and total partners' capital of $109,030,000, $14,428,000 and $94,602,000,
respectively. ORBCOMM Global had approximately $900,000 in international
distribution fee revenues in 1995 (none in 1994) and net income (loss) of
approximately $55,000 and ($9,000) for the years ended December 31, 1995 and
1994, respectively.
Based on its current assessment of the overall business prospects of the
ORBCOMM partnerships and the ORBCOMM System, the Company currently believes its
investment of approximately $73,000,000 in ORBCOMM Global is fully recoverable.
If, in the future, implementation of the ORBCOMM System is significantly
delayed, significantly restricted or abandoned, the Company may be required to
expense part or all of its investment.
30
<PAGE> 34
Radarsat International Inc. The Company owns an approximate 25% equity
interest in Radarsat International Inc. ("RSI"), a Canadian-based company
specializing in satellite-based remote sensing. RSI successfully launched its
first remote sensing satellite in November 1995 and expects to begin generating
revenues in 1996. Orbital is accounting for its investment in RSI using the
equity method of accounting.
EarthWatch, Incorporated. The Company owns an approximate 1% equity
interest in EarthWatch, Incorporated ("EarthWatch"), a U.S.-based company
developing high-resolution commercial imaging services. The Company has agreed
to acquire 300,000 Series B Preferred Shares of EarthWatch for approximately
$3,000,000, payable in equal quarterly installments beginning in 1995. At
December 31, 1995, Orbital had paid approximately $1,000,000 of this commitment.
Orbital accounts for this investment using the cost method of accounting.
American Space Lines. During 1995, Orbital and Rockwell International
Corporation, pursuant to a cooperative agreement with NASA, endeavored to
establish American Space Lines, a joint venture for the development of a
technologically advanced reusable launch system. The joint venture agreement was
not formally signed and, in the fourth quarter of 1995, Orbital expensed
$3,000,000 of costs related to the termination of the development effort in
early 1996.
4. BUSINESS COMBINATIONS
Purchase Transactions. On September 17, 1993, Orbital acquired ASO, a
business unit of The Perkin-Elmer Corporation (the "ASO Acquisition"). As a
result of the ASO Acquisition, the Company now produces and markets space- and
ground-based sensors and instruments primarily for agencies of the U.S.
Government and commercial aerospace companies.
The ASO Acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price of approximately $5,800,000
(consisting of 320,000 shares of the Company's Common Stock, $600,000 in cash
and $200,000 in transaction expenses) was allocated to assets and liabilities
acquired based on estimates of fair values as of the date of acquisition. The
excess of purchase price over net assets acquired is being amortized on a
straight-line basis over 20 years.
On April 6, 1994, the Company (as a result of its acquisition of MDA, see
below) acquired all the outstanding common shares of The PSC Communications
Group Inc. ("PSC") from PSC's former shareholders (the "PSC Acquisition"). As a
result of the PSC Acquisition, the Company now provides network communications
training and consulting for various commercial and governmental entities.
The PSC Acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price of approximately $3,750,000
(excluding a maximum of approximately 100,000 shares of Orbital Common Stock
issuable based on future earnings levels achieved by PSC) was allocated to
assets and liabilities acquired based on estimates of fair values as of the date
of acquisition. The excess of purchase price over net assets acquired is being
amortized on a straight-line basis over 20 years.
On August 11, 1994, the Company acquired all the outstanding common stock
of Fairchild from Matra Aerospace, Inc. (the "Fairchild Acquisition"). As a
result of the Fairchild Acquisition, the Company has expanded its satellite
systems and space payload product lines and enhanced its spacecraft production
capabilities.
The Fairchild Acquisition has been accounted for using the purchase method
of accounting and, accordingly, the purchase price of approximately $71,000,000
(consisting of 2,424,242 shares of the Company's Common Stock, $40,000,000 in
cash and approximately $800,000 in transaction expenses) was allocated to assets
and liabilities acquired based on estimates of fair values as of the date of
acquisition. The excess of purchase price over net assets acquired is being
amortized on a straight-line basis over 40 years. ASO's results of operations
for the 14-week period ended December 31, 1993 and Fairchild's results of
operations for the 19-week period ended December 31, 1994 are included in
Orbital's 1993 and 1994 consolidated results of operations, respectively. As a
result of recasting MDA's fiscal year end, Orbital's consolidated results of
operations for 1994 include PSC's financial results for the full year.
Pooling of Interests Transactions. On December 28, 1994, the Company
acquired all the outstanding common stock of Magellan from Magellan's former
shareholders in a tax-free merger. As a result of the Magellan Acquisition,
Orbital now manufactures, markets and sells satellite-based navigation and
communications equipment for consumer and industrial markets worldwide and has
expanded its GPS satellite-based navigation applications.
The Magellan Acquisition was consummated by exchanging 2,640,441 shares of
the Company's Common Stock for all of Magellan's outstanding common stock. The
Company also granted 409,556 options to acquire Orbital Common Stock (see Note
12) to Magellan employees who, at the date of the acquisition, held options to
acquire Magellan common stock. The Magellan Acquisition is accounted for using
the pooling of interests method of accounting and, accordingly, Orbital's
historical consolidated financial statements have been restated to include
Magellan's financial position, results of operations and cash flows. Merger
expenses relating
31
<PAGE> 35
to the Magellan Acquisition of approximately $500,000 were charged to earnings
during the three months ended December 31, 1994 and are included in other
expenses in the accompanying consolidated statement of operations.
Prior to the acquisition, Magellan's financial results were prepared on a
June 30 fiscal year basis. Orbital's restated consolidated financial statements
for 1993 and 1992 include Magellan's historical financial results for its fiscal
years ended June 30, 1994 and 1993, respectively. Orbital's consolidated
financial statements for the year ended December 31, 1994 include Magellan's
financial results for the twelve-month period ended December 31, 1994. The
effect of recasting Magellan's year end for 1994 has been charged to Orbital's
retained earnings as of January 1, 1994. The charge to retained earnings
eliminates the effect of including Magellan's results of operations for the
six-month period ended June 30, 1994 of $1,138,000 in Orbital's 1994 and 1993
consolidated results of operations. Magellan's revenues for the same six-month
period were approximately $18,500,000.
On November 17, 1995, the Company acquired all the outstanding common
shares of MDA from MDA's former shareholders in a merger designed to be tax-free
to MDA's Canadian shareholders. As a result of the MDA Acquisition, Orbital is
now a leading supplier of commercial satellite remote sensing ground systems,
capable of handling all major optical and radar imaging satellites. Orbital also
now provides advanced space-qualified software, air traffic control systems,
defense electronics systems and network communications training and consulting.
Pursuant to the terms of the MDA Acquisition, a newly established, wholly
owned Canadian subsidiary of Orbital ("Acquisition Subsidiary") issued
exchangeable shares (the "Exchangeable Shares") in exchange for all the issued
and outstanding MDA common shares. The Exchangeable Shares have voting and
economic rights with respect to Orbital identical to Orbital Common Stock and
are exchangeable into Orbital Common Stock at the option of the holders. As part
of the MDA Acquisition, Acquisition Subsidiary also issued 10,000 shares of
Class B Preferred Stock to a financial advisor in satisfaction of a portion of
the fees owed to that advisor. Additionally, Orbital issued one share of Series
A Special Voting Preferred Stock to a voting trust to act as voting trustee on
behalf of the holders of the Exchangeable Shares. The Orbital Series A Special
Voting Preferred Stock has voting rights, privileges and preferences required to
secure the voting rights relating to the Orbital Common Stock granted for the
benefit of the holders of the Exchangeable Shares.
The MDA Acquisition was consummated by issuing 4,087,126 Exchangeable
Shares for all of MDA's outstanding common shares. The Company also granted
328,399 options to acquire Orbital Common Stock (see Note 12) to MDA employees
who, at the date of the acquisition, held options to acquire MDA common shares.
The MDA Acquisition is accounted for using the pooling of interests method of
accounting and, accordingly, Orbital's historical consolidated financial
statements have been restated to include MDA's financial position, results of
operations and cash flows. Merger expenses relating to the MDA Acquisition of
approximately $3,400,000 were charged to earnings during the three months ended
December 31, 1995 and are included in other expenses in the accompanying
consolidated statement of operations.
Prior to the acquisition, MDA's financial results were prepared on a March
31 fiscal year basis. Orbital's restated consolidated financial statements for
1994 and 1993 include MDA's historical financial results for its fiscal years
ended March 31, 1995 and 1994, respectively. Orbital's consolidated financial
statements for the year ended December 31, 1995 include MDA's financial results
for the twelve-month period ended December 31, 1995. The effect of recasting
MDA's year end for 1995 has been charged to Orbital's retained earnings as of
January 1, 1995. The charge to retained earnings eliminates the effect of
including MDA's results of operations for the three-month period ended March 31,
1995 of $1,047,000 in Orbital's 1995 and 1994 consolidated results of
operations. MDA's revenues for the same three-month period were approximately
$20,634,000.
32
<PAGE> 36
The following table reconciles Orbital's previously reported operating
results to operating results restated to reflect the pooling of interests with
Magellan and MDA (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993
--------- --------
<S> <C> <C>
REVENUES:
As previously reported $ 221,946 $190,186
Magellan NA 32,901
MDA 79,630 77,097
--------- --------
Restated for pooling of interests $ 301,576 $300,184
========= ========
NET INCOME:
As previously reported $ 5,389 $ 4,640
Magellan NA 1,756
MDA 2,231 1,209
--------- --------
Restated for pooling of interests $ 7,620 $ 7,605
========= ========
</TABLE>
5. SHORT-TERM INVESTMENTS
The following table sets forth the aggregate amortized cost, aggregate fair
value and gross unrealized gains and losses for Orbital's short-term investments
in debt and equity securities at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
AMORTIZED FAIR UNREALIZED
1995 COST VALUE GAINS LOSSES
---------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities $ 19,645 $ 19,713 $ 70 $ (2)
========= ======== ======= =====
1994
Debt securities $ 8,755 $ 8,663 $ -- $ (92)
Preferred stock 4,133 3,763 -- (370)
--------- -------- ------- ------
Total $ 12,888 $ 12,426 $ -- $ (462)
========= ======== ======= ======
</TABLE>
Orbital realized net losses of approximately $261,000 and $353,000 on sales
of short-term investments in 1995 and 1994, respectively. Debt securities (at
fair value) with contractually scheduled maturities scheduled to mature in 1996,
1997 through 2000, and beyond 2000 are in the amounts of $14,690,000, $4,034,000
and $989,000, respectively.
6. RECEIVABLES AND ACCRUED EXPENSES
The components of receivables are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
--------- ---------
(RESTATED)
<S> <C> <C>
Billed and billable $ 63,119 $ 56,912
Recoverable costs and
accrued profit not billed 46,691 51,859
Retainages due upon
contract completion 7,724 8,109
Allowance for doubtful
accounts (773) (859)
--------- ---------
Total $ 116,761 $ 116,021
========= =========
</TABLE>
Recoverable costs and accrued profit not billed and retainages due upon
contract completion at December 31, 1995 are amounts due primarily within one
year and will be billed on the basis of contract terms and delivery schedules.
Additionally, provisions of
33
<PAGE> 37
certain of the Company's agreements with subcontractors provide for payments to
subcontractors on the basis of contract terms and delivery schedules, which at
December 31, 1995 are also due primarily within one year.
The accuracy and appropriateness of Orbital's direct and indirect costs and
expenses under its government contracts, and therefore its receivables recorded
pursuant to such contracts, are subject to extensive regulation and audit,
including by the U. S. Defense Contract Audit Agency or by other appropriate
agencies of the U.S. Government, which have the right to challenge Orbital's
cost estimates or allocations with respect to any such contract. Additionally, a
substantial portion of the payments to the Company under government contracts
are provisional payments that are subject to potential adjustment upon audit by
such agencies. In the opinion of management, any adjustments likely to result
from inquiries or audits of its contracts will not have a material adverse
impact on the Company's financial condition or results of operations.
At December 31, 1995 and 1994, $26,470,000 and $27,792,000, respectively,
were receivable from foreign customers. The Company enters into forward exchange
contracts to hedge against foreign currency fluctuations on certain receivables
and payables denominated in such foreign currencies. Accordingly, Orbital is
subject to off-balance sheet market risk for the possibility that future changes
in market prices may make the forward exchange contracts less valuable or more
onerous. The following table summarizes outstanding foreign exchange contracts
at December 31, 1995 to (purchase) sell foreign currencies, along with current
market values (U.S. dollars, in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
FOREIGN CURRENCY CURRENT UNREALIZED
CURRENCY HEDGED CONTRACT MARKET GAIN
HEDGED AGAINST AMOUNT VALUE (LOSS)
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars CD $ (73) $ (74) $ 1
Belgian Francs CD 2,762 2,850 (88)
Swiss Francs CD (1) (1) -
ECU CD 7,628 7,406 222
ECU PS 106 110 (4)
Pounds Sterling CD (241) (244) 3
Japanese Yen CD 2,831 2,701 130
Malaysian Riggits CD 56 53 3
U.S. Dollars CD 1,284 1,288 (4)
- ---------------------------------------------------------------
CD = Canadian Dollars PS = Pounds Sterling
- ---------------------------------------------------------------
</TABLE>
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
--------- ---------
(RESTATED)
<S> <C> <C>
Payroll, payroll taxes
and fringe benefits $ 17,856 $ 19,113
Accrued contract costs 9,787 10,257
Other accrued expenses 8,920 14,233
--------- ---------
Total $ 36,563 $ 43,603
========= =========
</TABLE>
34
<PAGE> 38
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
--------- ---------
(RESTATED)
<S> <C> <C>
Land $ 1,422 $ 1,349
Buildings and leasehold
improvements 17,455 18,433
Machinery and equipment 90,000 85,348
Equipment under
construction 28,388 37,262
Purchased software and
technical drawings 7,340 7,107
Accumulated depreciation
and amortization (53,067) (46,409)
--------- ---------
Total $ 91,538 $ 103,090
========= =========
</TABLE>
Interest expense of approximately $6,685,000, $5,500,000 and $3,500,000 was
capitalized during 1995, 1994 and 1993, respectively, as part of the historical
cost of equipment under construction, satellite systems under construction and
investments in affiliates.
8. SATELLITE SYSTEMS
Orbital owns and operates several satellite systems, and is in the process
of constructing additional satellite systems, that provide or will provide
high-resolution imaging, remote sensing services and Earth observation services
to government and commercial customers. Generally, the Company does not begin
construction of a specific project until a customer has committed to purchase
future services generated by or provided from the specific satellite system.
Orbital expenses the costs of developing and constructing these systems until
such time that technological and economic feasibility have been established.
Once established, Orbital capitalizes remaining construction costs, net of
non-refundable payments received from customers. Any refundable advance payments
for data received from customers are deferred until such time as the data is
delivered. At December 31, 1995 and 1994, Orbital had capitalized approximately
$14,910,000 and $6,788,000, respectively, relating to various satellite systems
that are either operating or under construction.
9. SHORT-TERM BORROWINGS
The Company has a revolving credit facility that provides for total
borrowings from an international syndicate of six banks of up to $65,000,000,
subject to a defined borrowing base composed of certain contract receivables. At
December 31, 1995 and 1994, approximately $3,000,000 and $22,500,000,
respectively, of borrowings were outstanding against an available facility limit
of approximately $23,500,000 and $24,800,000, respectively. The interest rate
charged under the facility is a variable rate based on the prime rate, the
Federal Funds rate or adjusted LIBOR. As of December 31, 1995, the interest rate
on outstanding borrowings under this facility was approximately 9.5%. Borrowings
are secured by contract receivables and certain other assets. The facility
restricts the payment of dividends and contains certain covenants with respect
to the Company's working capital, fixed charge ratio, leverage ratio and
tangible net worth, and expires in September 1997.
In September 1995, Orbital entered into a $7,000,000 unsecured demand line
of credit with an international bank. The line is repayable upon demand and
bears interest at the prime rate or LIBOR. No amounts were outstanding on the
line at December 31, 1995.
The Company maintains a $5,000,000 line of credit with a domestic bank,
subject to a defined borrowing base. At December 31, 1995, $2,000,000 was
outstanding against a facility limit of $3,000,000, and was secured by all of
Magellan's assets. The interest rate on outstanding borrowings was approximately
9% at December 31, 1995.
35
<PAGE> 39
10. LONG-TERM OBLIGATIONS
The following sets forth the Company's long-term obligations, excluding
capital lease obligations (see Note 13), at December 31, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---------- ----------
<S> <C> <C>
7.00% Secured Note, principal
and interest due monthly
through December 1998 $ 1,876 $ 2,422
7.74-9.35% Secured Notes,
principal and interest due
monthly through September
1997-October 1999 17,816 23,065
8.95% Secured Bank Note,
principal and interest due
monthly through
September 1999 2,310 2,336
8.25% Secured Bank Note,
principal and interest due
monthly through July 1997 1,707 1,779
8.25% Secured Bank Note,
interest due monthly
through July 1997 2,633 2,751
6.75% Convertible Subordinated
Debentures, interest due
semi-annually, principal due
March 2003 56,000 59,000
10.50% Unsecured Notes,
interest due monthly, principal
due June 2001 20,000 --
---------- ----------
102,342 91,353
Less current portion (6,084) (5,798)
---------- ----------
Total $ 96,258 $ 85,555
========== ==========
</TABLE>
The 7.00% secured note is collateralized by certain equipment located at
the Company's Pomona, California facility. The 7.74-9.35% secured notes are
collateralized by certain equipment located at the Company's Germantown,
Maryland facility. The 8.95% secured bank note is collateralized by the
Company's satellite integration and test facility located in Dulles, Virginia.
Additionally, Orbital is guarantor on approximately $5,000,000 of debt incurred
by ORBCOMM Global.
The Company has two secured bank borrowing agreements, totaling
approximately $60,000,000, of which $13,500,000 was available at December 31,
1995. The secured bank notes, pursuant to a pari-passu agreement between two
international banks, provide for borrowings at a variable rate based on the
prime rate (approximately 8.25% at December 31, 1995), and are collateralized by
receivables, inventory and certain other assets.
In February 1993, the Company completed a public offering of $59,000,000 in
convertible subordinated debentures (the "Convertible Debentures"). The
Convertible Debentures mature in March 2003, are convertible into the Company's
Common Stock at any time prior to maturity at a conversion price of $14 3/8 per
share, and bear interest payable semi-annually in arrears at 6.75%. The
Convertible Debentures are redeemable at the option of the Company, in whole or
in part, at any time on or after March 1, 1996 at certain defined redemption
prices, plus accrued interest to the date of redemption. Upon a defined change
in control, each holder of Convertible Debentures has the right to require the
Company to repurchase the Convertible Debentures for the principal amount, plus
accrued interest. The Convertible Debentures are subordinated to all existing
and future defined senior indebtedness of the Company. During 1995, $3,000,000
of Convertible Debentures were converted to Common Stock at the request of the
holders.
The fair value of Orbital's long-term obligations at December 31, 1995 and
1994 is estimated at approximately $106,000,000 and $111,000,000, respectively,
based on quoted market prices or on current rates offered for debt of similar
remaining maturities. Scheduled maturities of long-term debt for 1996, 1997,
1998, 1999 and 2000 are $6,100,000, $8,700,000, $5,200,000, $5,600,000 and
$263,000, respectively.
36
<PAGE> 40
11. INCOME TAXES
The provisions (benefit) for income taxes for 1995, 1994 and 1993 consist
of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
--------- --------- --------
(RESTATED)
<S> <C> <C> <C>
CURRENT PROVISION:
Federal $ 33 $ 563 $ 599
Foreign 1,180 756 128
State -- 732 502
DEFERRED PROVISION:
Federal (5,623) 342 1,006
Foreign (2,159) (93) (13)
State -- 444 181
--------- --------- --------
Total $ (6,569) $ 2,744 $ 2,403
========= ========= ========
</TABLE>
The income tax provisions (benefit) are different from those computed using
the statutory U.S. Federal income tax rate as set forth below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
-------- -------- -------
(RESTATED)
<S> <C> <C> <C>
U.S. Federal statutory rate (34.0)% 34.0% 34.0%
Tax-exempt interest (13.7) (5.7) (5.5)
Intangible amortization 10.2 9.2 8.0
U.S. Federal tax credits -- (7.2) (13.1)
State income taxes, net
of Federal benefits -- 2.3 2.0
Foreign sales corporation -- (1.3) (0.1)
Foreign income taxes, net (10.8) (1.4) (2.5)
Changes in Valuation Allowance 249.7 -- --
Other, net (268.6) (3.4) 1.7
-------- -------- -------
Effective Rate (67.2)% 26.5% 24.5%
======== ======== =======
</TABLE>
37
<PAGE> 41
The tax effects of significant temporary differences at December 31, 1995
and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
--------- ---------
(RESTATED)
<S> <C> <C>
TAX ASSETS:
Non-deductible financial
statement accruals $ 34,684 $ 11,996
Federal net operating loss
carryforward 44,655 28,214
Intangible assets 6,865 8,900
Federal and foreign tax credit
carryforward 19,587 16,342
--------- ---------
105,791 65,452
Valuation allowance (68,021) (43,596)
--------- ---------
Tax assets, net $ 37,770 $ 21,856
========= =========
TAX LIABILITIES:
Percentage of completion
accounting $ 2,555 $ 2,585
Excess tax depreciation 7,198 5,349
Excess deductions for tax
reporting purposes 18,007 13,475
--------- ---------
Tax liabilities $ 27,760 $ 21,409
========= =========
</TABLE>
The Company established deferred tax assets in connection with its ASO and
Fairchild acquisitions (see Note 4) in the amounts of $2,425,000 and
$35,446,000, respectively, and deferred tax liabilities of $2,175,000 and
$2,337,000, respectively. The Company also established a valuation allowance of
approximately $33,109,000 against certain deferred tax assets acquired in
connection with the Fairchild Acquisition.
In 1995, approximately $2,100,000 of income before benefit for income taxes
and cumulative effect of an accounting change was generated from foreign
sources. Approximately 27.9% and 13.5% of the Company's 1994 and 1993 income
before provision for income taxes and cumulative effect of accounting changes,
respectively, was generated from foreign sources. The Company had Federal net
operating loss and tax credit carryforwards of approximately $102,000,000 and
$3,000,000, respectively, at December 31, 1995 that may be utilized through the
year 2004, subject to certain annual limitations and other restrictions, of
which portions expire beginning in 2001.
12. COMMON STOCK, STOCK OPTIONS AND OTHER COMPENSATION PLANS
In December 1993, the Company completed its third public offering of Common
Stock consisting of 2,923,000 shares, receiving net proceeds of approximately
$45,300,000. In June 1995, the Company completed a private placement of
2,000,000 shares of its Common Stock, receiving net proceeds of approximately
$32,400,000. The Company's shares were placed with various international
institutional investors and the private placement was exempt from public
registration pursuant to Regulation S of the Securities Act of 1933, as amended.
The Company's 1990 Stock Option Plan (the "1990 Plan") provides for grants
of either incentive or non-qualified stock options to officers, employee
directors and general employees of the Company and its subsidiaries. Under the
terms of the 1990 Plan, incentive stock options may not be granted at less than
100% of the fair market value at the date of grant, and non-qualified options
may not be granted at less than 85% of the fair market value at the date of
grant. Each option under the 1990 Plan vests at a rate set forth by the Board of
Directors in each individual option agreement, generally in one-third increments
over a three-year period following the date of grant. Options expire no more
than ten years following the grant date. The 1990 Plan currently provides for
the granting of up to 2,975,000 shares of the Company's Common Stock. The
Company also maintains the 1990 Stock Option Plan for Non-Employee Directors,
which provides solely for automatic grants of non-qualified stock options to
purchase shares to eligible non-employee directors of the Company.
38
<PAGE> 42
The following table summarizes the option activity under the Company's
stock option plans (including option plans assumed by the Company as a result of
the Magellan and MDA acquisitions) for the last three years:
<TABLE>
<CAPTION>
OUTSTANDING
NUMBER OF OPTION PRICE AND
SHARES PER SHARE EXERCISABLE
--------- ------------- ----------
<S> <C> <C> <C>
OUTSTANDING AT
DECEMBER 31, 1992 1,223,102 $ 1.82-$20.00 502,802
Grants 234,559 $ 3.51-$11.50
Exercised (84,474) $ 7.50-$15.30
Cancelled/Expired (48,989) $10.50-$20.00
--------- -------------
OUTSTANDING AT
DECEMBER 31, 1993 1,324,198 $ 1.82-$20.00 558,422
Grants 978,560 $ 3.51-$22.00
Exercised (107,387) $ 3.51-$15.30
Cancelled/Expired (78,476) $10.20-$22.00
--------- -------------
OUTSTANDING AT
DECEMBER 31, 1994 2,116,895 $ 1.82-$22.00 997,981
Grants 553,966 $ 7.47-$18.81
Exercised (300,011) $ 3.51-$15.30
Cancelled/Expired (130,325) $ 3.51-$22.00
--------- -------------
OUTSTANDING AT
DECEMBER 31, 1995 2,240,525 $ 1.82-$22.00 1,133,713
--------- -------------
</TABLE>
OCC adopted a stock option plan in 1992 (the "ORBCOMM Plan"). The ORBCOMM
Plan provides for grants of incentive and non-qualified stock options to
purchase OCC common stock to officers and employees of OCC and the Company.
Under the terms of the ORBCOMM Plan, incentive stock options may not be granted
at less than 100% of the fair market value at the date of grant and
non-qualified options may not be granted at less than 85% of the fair market
value of OCC common stock at the date of grant as determined by a committee
consisting of two OCC Board members and two members appointed by Teleglobe
Mobile. The options vest at a rate set forth by the Board of Directors in each
individual option agreement, generally in one-fourth increments over a four-year
period. Certain provisions of the ORBCOMM Plan require OCC to repurchase the
common stock acquired pursuant to the options beginning in 1995 if a public
market for OCC common stock has not been established. During 1994 and 1993,
118,650 and 99,500 options, respectively, were granted under the ORBCOMM Plan at
prices ranging from $1.50 to $14.00 per share; none were granted in 1995. At
December 31, 1995, 1994 and 1993, 545,900 options, 599,074 options and 496,274
options, respectively, were outstanding, and 411,086 options were exercisable at
December 31, 1995. Approximately 9,000 and 44,000 ORBCOMM options were exercised
and cancelled, respectively, during 1995. These OCC options are excluded from
the above table.
Compensation expense of approximately $55,000, $234,000 and $356,000
related to various option grants under the Company's plans was recognized for
the years ended December 31, 1995, 1994 and 1993, respectively. In 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which
is effective for Orbital's year ending December 31, 1996. SFAS 123 recommends,
but does not require, the adoption of fair value accounting for stock-based
compensation, including common stock options issued to employees. Orbital does
not currently intend to adopt fair value accounting for stock-based compensation
as recommended by SFAS 123.
As of December 31, 1995, the Company had five Deferred Salary
Profit-Sharing Plans (the "Plans") in accordance with Section 401(k) of the
Internal Revenue Code of 1986, as amended. Generally, all full-time employees
are eligible for participation in the Plans. Company contributions to the Plans
are made based on certain Plan provisions and at the discretion of the Board of
Directors, and were approximately $5,015,000, $2,991,000 and $2,418,000 in 1995,
1994 and 1993, respectively. Total Company contributions to foreign defined
contribution plans in 1995, 1994 and 1993 were $1,518,000, $1,436,000 and
$1,292,000, respectively. Orbital also adopted a deferred compensation plan in
1995; participation in the plan in 1995 was not material.
As part of the Fairchild Acquisition, the Company also acquired a defined
benefit plan covering substantially all Fairchild employees. Shortly after the
Fairchild Acquisition, Orbital curtailed the defined benefit plan by suspending
future participation in the plan. The approximate $2,500,000 excess of fair
value of plan assets over the projected benefit obligation at the date of
curtailment was recorded in the allocation of the purchase price. As a result of
the curtailment, periodic pension cost was not material in 1995 and 1994 and is
not expected to be material in the future. Also as part of the Fairchild
Acquisition, the Company acquired a post-
39
<PAGE> 43
retirement health care plan covering employees retiring from Fairchild on or
after attaining age 55 who have rendered at least 10 years of service. Orbital
also curtailed the post-retirement plan by suspending future participation in
the plan. The approximate $2,800,000 unfunded accumulated post-retirement
benefit obligation at the date of curtailment was recorded in the allocation of
the purchase price. As a result of the curtailment, post-retirement benefit cost
was not material in 1995 and 1994 and is not expected to be material in the
future.
13. LEASE COMMITMENTS
Aggregate minimum rental commitments under non-cancelable operating and
capital leases (primarily for office space and equipment) as of December 31,
1995, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- ----------
<S> <C> <C>
1996 $ 11,300 $ 935
1997 8,800 608
1998 8,200 200
1999 8,100 --
2000 8,100 --
2001 and thereafter 40,200 --
--------- -------
$ 84,700 1,743
=========
Less: Interest portion at 10% (188)
-------
1,555
Less: Current portion (823)
-------
$ 732
=======
</TABLE>
Rent expense under operating leases for 1995, 1994 and 1993 was
$11,215,000, $10,624,000 and $9,300,000, respectively.
14. SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental cash flow disclosures related to the ASO, PSC and Fairchild
purchase business combinations are as follows (in thousands):
<TABLE>
<CAPTION>
FAIRCHILD PSC ASO
1994 1994 1993
--------- ------- --------
<S> <C> <C> <C>
Fair value of assets
acquired $95,000 $ 4,585 $ 11,037
Liabilities assumed
or established (23,200) (835) (5,437)
Value of common stock
issued to seller (31,000) -- (5,000)
--------- ------- --------
Cash paid for
acquisition $40,800 $ 3,750 $ 600
========= ======= ========
</TABLE>
Cash payments for interest and income taxes for 1995, 1994 and 1993 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Interest paid $ 9,906 $ 11,831 $ 8,765
Income taxes paid,
net of refunds 1,339 2,447 2,643
</TABLE>
15. DISAGGREGATED FINANCIAL INFORMATION
40
<PAGE> 44
Industry Segment Information. Orbital's operations have been classified
into two industry segments, "Space-Technology Products" and "Satellite-Based
Services." Space-Technology Products include Launch Vehicles, including space
and suborbital launch vehicles and technologically advanced launch vehicles;
Satellite and Electronics Systems, including satellites, space sensors and
instruments, and space payloads and experiments, as well as avionics and other
electronics equipment; and Ground Systems and Software, including satellite
ground systems and various software products and network consulting services.
Satellite-Based Services include satellite-based mobile data
communications, navigation and communications products and services and Earth
observation services, along with various environmental monitoring products.
The following table presents revenues, operating income, identifiable
assets, capital expenditures and depreciation and amortization by industry
segment for 1995, 1994 and 1993. Operating income is total revenues less costs
of goods sold, research and development expenses, selling, general and
administrative expenses and amortization of goodwill (where applicable);
identifiable assets are those assets used in the operations of each industry
segment. There were no significant intersegment sales or transfers during 1995,
1994 and 1993.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1995 1994 1993
--------- --------- ---------
(RESTATED)
<S> <C> <C> <C>
SPACE-TECHNOLOGY PRODUCTS:
Revenues $ 291,048 $ 242,767 $ 230,093
Operating Income (Loss) (1,132) 9,787 10,794
Identifiable Assets 242,771 236,305 189,686
Capital Expenditures 12,134 26,158 2,639
Depreciation and
Amortization 15,412 11,507 6,533
Impairment Losses, Net of Tax 2,377 -- --
SATELLITE-BASED SERVICES:
Revenues 68,824 58,809 71,390
Operating Income (Loss) (1,439) 4,587 2,787
Identifiable Assets 94,672 87,360 61,664
Capital Expenditures 2,178 2,617 2,770
Depreciation and
Amortization 872 1,048 570
CORPORATE, ADJUSTMENTS AND
GOODWILL:
Revenues (32) -- (1,299)
Operating Income (Loss) (4,684) (1,999) (1,293)
Identifiable Assets 60,062 42,778 89,380
Goodwill 75,395 74,599 27,249
Capital Expenditures 2,953 1,164 2,941
Depreciation and
Amortization 2,724 2,285 1,730
Goodwill Amortization 3,221 2,358 1,634
CONSOLIDATED:
Revenues 359,840 301,576 300,184
Operating Income (Loss) (7,255) 12,375 12,288
Identifiable Assets and
Goodwill 472,900 441,042 367,979
Capital Expenditures 17,265 29,939 38,350
Depreciation and Total
Amortization 22,229 17,198 10,467
Impairment Losses, Net of Tax 2,377 -- --
</TABLE>
41
<PAGE> 45
Domestic and Foreign Operations. Orbital's operations are conducted
primarily from office, manufacturing and integration facilities in the United
States and Canada, as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
-------- -------- ---------
(RESTATED)
<S> <C> <C> <C>
REVENUES:
United States $ 286,434 $221,946 $ 223,087
Canada 68,997 74,408 72,477
United Kingdom and Other 4,409 5,222 4,620
--------- -------- ---------
$ 359,840 $301,576 $ 300,184
========= ======== =========
OPERATING INCOME (LOSS):
United States $ (10,476) 9,662 10,969
Canada 3,628 2,796 1,052
United Kingdom and Other (407) (83) 267
--------- -------- ---------
$ (7,255) $ 12,375 $ 12,288
========= ======== =========
IDENTIFIABLE ASSETS:
United States $ 426,313 $396,228 $ 322,099
Canada 44,048 42,302 44,002
United Kingdom and Other 2,539 2,512 1,878
--------- -------- ---------
$ 472,900 $441,042 $ 367,979
========= ======== =========
</TABLE>
Major Customers and Export Sales. A summary of Orbital's export sales by
geographic area for the years ended December 31, 1995, 1994 and 1993 follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
-------- -------- -------
(RESTATED)
<S> <C> <C> <C>
United States $ 271,227 $213,606 $209,873
Canada 45,558 46,839 51,392
Europe 23,594 24,468 17,938
Far East 15,242 13,998 15,489
Middle East and Other 4,219 2,665 5,492
-------- -------- --------
Total $ 359,840 $301,576 $300,184
======== ======== ========
</TABLE>
Approximately 40% of the Company's revenues in 1995, and 45% in each of
1994 and 1993, was generated under contracts with the U.S. Government and its
agencies or under subcontracts with the U.S. Government's prime contractors.
42
<PAGE> 46
16. SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for the
years ended December 31, 1995 and 1994, restated to reflect the MDA and Magellan
acquisitions (in thousands, except share data):
<TABLE>
<CAPTION>
QUARTERS ENDED
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-----------------------------------------------------
1995, AS PREVIOUSLY REPORTED
<S> <C> <C> <C> <C>
Revenues, as initially reported $ 68,341 $ 64,589 $ 79,172 $ NA
MDA revenues 20,634 17,177 16,645 NA
-------- -------- ------- ------
Revenues, restated for pooling of interests 88,975 81,766 95,817 97,762
======== ======== ======== ======
Income (loss) from operations, as initially
reported 3,152 (386) 4,662 NA
MDA income (loss) from operations 1,462 (586) (979) NA
-------- -------- ------- ------
Income (loss) from operations, restated for
poolings of interests 4,614 (972) 3,683 (6,179)
======== ======== ======== ======
Net income (loss) before cumulative effect of
accounting change, as initially reported 1,968 (727) 2,202 NA
MDA net income (loss) before cumulative effect
of accounting change 1,047 (899) (445) NA
-------- -------- ------- ------
Net income (loss) before cumulative effect of
accounting change, restated for poolings of
intersts 3,015 (1,626) 1,757 (3,837)
======== ======== ======== ======
Net income (loss), as initially reported (2,192) (727) 2,202 NA
MDA net income (loss) 1,047 ( 899) (445) NA
-------- -------- ------- ------
Net income (loss), restated for poolings of
interest (1,139) (1,626) 1,757 (3,837)
======== ======== ======== ======
Net income (loss) per common and dilutive share,
as initially reported (.11) (.03) .10 NA
Net income (loss) per common and dilutive share,
restated for poolings of interest (.05) (.07) .06 (.14)
</TABLE>
43
<PAGE> 47
<TABLE>
<CAPTION>
QUARTER ENDED
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
---------------------------------------------------
1994
----
<S> <C> <C> <C> <C>
Revenues, as initially
reported $ 41,388 $ 38,734 $ 50,020 $ 65,066
Magellan and MDA
revenues 28,878 30,044 26,812 20,634
-------- -------- -------- --------
Revenues, restated
for poolings of interest 70,266 68,778 76,832 85,700
======== ======== ======== ========
Income (loss) from
operations, as initially
reported 2,304 (336) 3,573 2,530
Magellan and MDA income
(loss) from operations 1,213 1,244 (77) 1,462
-------- -------- -------- --------
Income from operations,
restated for poolings
of interests 3,517 908 3,496 3,992
======== ======== ======== ========
Net income (loss), as
initially reported 1,660 (62) 1,580 1,140
Magellan and MDA net
income 1,069 1,082 101 1,047
-------- -------- -------- --------
Net income, restated for
poolings of interest 2,729 1,020 1,681 2,187
======== ======== ======== ========
Earnings per share,
as initially reported:
primary .11 -- .10 .06
fully diluted .09 -- .10 .06
Earnings per share, restated
for poolings of interest:
primary .12 .05 .07 .09
fully diluted .10 .04 .08 .09
</TABLE>
RESTATEMENTS
Management has determined to restate its previously issued consolidated
financial statements for each of the quarters in 1995 with respect to its
accounting treatment for certain matters described below. The following is a
summary of selected quarterly financial data as restated for 1995 (in
thousands, except share data).
<TABLE>
<CAPTION>
QUARTER ENDED
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
---------------------------------------------------
1995 (AS RESTATED)
------------------
<S> <C> <C> <C> <C>
Revenues $ 89,203 $ 81,994 $ 96,045 $ 92,598
Gross profit 25,572 20,789 25,135 17,198
Income (loss) from operations 4,614 (972) 3,683 (14,580)
Income (loss) before cumulative
effect of accounting change 1,390 (1,432) 2,039 (5,210)
Net income (loss) (987) (1,432) 2,039 (5,210)
Income (loss) per common and
dilutive share (0.04) (0.06) 0.08 (0.19)
</TABLE>
Previously, the Company's consolidated financial statements reflected the
Company's capitalization of interest expense on various assets, including on its
equity investment in ORBCOMM. As reflected in the restated consolidated
financial statements presented herein, Orbital has revised the capitalization of
interest on certain assets, including its equity method investment in ORBCOMM.
These revisions include the compounding impact of interest, and the reduction of
eligible investment amounts for losses recognized
44
<PAGE> 48
for equity method investors. These revisions had the effect of decreasing
interest expense for each quarter of 1995 as follows (in thousands):
<TABLE>
<CAPTION>
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1995 $155 $193 $271 $366
</TABLE>
The Company has historically capitalized and depreciated certain product
enhancements. Previously, the Company's consolidated financial statements
reflected such costs as capitalized assets. As reflected in the Company's
restated consolidated financial statements, the Company has expensed all
previously capitalized enhancement costs. These revisions resulted in a
$1,313,000 decrease in operating income in the fourth quarter of 1995.
In the first quarter of 1995, a tax benefit of $1,783,000 was netted
against the cumulative effect of the accounting change with a corresponding
decrease in the benefit for income taxes.
The Company has recorded certain other adjustments, the net effect of which
is not significant individually or in the aggregate.
45
<PAGE> 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item and not given in Item 4A, Executive
Officers of the Registrant, is included under the caption "Election of Directors
-- Directors to be Elected at the 1996 Annual Meeting, -- Directors Whose Term
Expires in 1997, and -- Directors Whose Term Expires in 1998" and "Compliance
with Section 16(a) of the Exchange Act" of the Proxy Statement filed pursuant to
Regulation 14A on March 28, 1996 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the captions
"Election of Directors -- Summary Compensation Table," "Election of Directors --
Option Grants in Last Fiscal Year," "Election of Directors -- Aggregated Option
Exercises in Last Fiscal Year and Fiscal Year-End Option Values," "Election of
Directors -- Indemnification Agreements," "Election of Directors -- Executive
Employment Agreements" and "Election of Directors Information Concerning the
Board and Its Committees" of the Proxy Statement filed pursuant to Regulation
14A on March 28, 1996 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included under the caption
"Ownership of Common Stock" of the Proxy Statement filed pursuant to Regulation
14A on March 28, 1996 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. FINANCIAL STATEMENTS. The following financial statements,
together with the report of KPMG LLP are filed as a part of this
report:
A. Independent Auditors' Report
B. Consolidated Statements of Operations
C. Consolidated Balance Sheets
D. Consolidated Statements of Stockholders' Equity
E. Consolidated Statements of Cash Flows
F. Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES. The following additional financial
data are transmitted with this report and should be read in
conjunction with the consolidated financial statements contained
herein. Schedules other than those listed below have been omitted
because they are inapplicable or are not required.
Independent Auditors' Report on Consolidated Financial
Statement Schedule
II Valuation and Qualifying Accounts
3. EXHIBITS. A complete listing of exhibits required is given in the
Exhibit Index that precedes the exhibits filed with this report.
(b) Reports on Form 8-K
46
<PAGE> 50
1. On November 2, 1995, the Company filed a Form 8-K reporting its
potential acquisition of MacDonald, Dettwiler and Associates,
Ltd. ("MDA") pursuant to Item 5. The following financial
statements were filed as part of that report:
Consolidated Financial Statements of MDA, together with report of
the independent auditors, as of March 31, 1995, 1994 and 1993;
Unaudited Consolidated Financial Statements of MDA, as of June
30, 1995 and for the three-month periods ended June 30, 1995 and
1994;
Pro Forma Financial Information of Orbital Sciences Corporation
as of and for the six-month period ended June 30, 1995, and for
the years ended December 31, 1994, 1993 and 1992.
2. On December 4, 1995, the Company filed a Form 8-K reporting the
consummation of its acquisition of MDA pursuant to Item 2.
(c) See Item 14(a)(3) of this report.
(d) See Item 14(a)(2) of this report.
47
<PAGE> 51
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
ORBITAL SCIENCES CORPORATION
<S> <C>
DATED: June 26, 2000 By /s/ Jeffrey V. Pirone
-------------------------------------------------
Jeffrey V. Pirone, Executive Vice President
and Chief Financial Officer
</TABLE>
48
<PAGE> 52
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
ORBITAL SCIENCES CORPORATION
Under date of February 5, 1996, except as to note 1A, which is as of April
17, 2000, we reported on the consolidated balance sheets of Orbital Sciences
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1995, included in
the Company's 1995 annual report on Form 10K/A. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule in the Company's 1995 Form
10-K/A. This consolidated financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
The accompanying consolidated financial statement schedule as of December
31, 1995 and for the year then ended has been restated.
KPMG LLP
Washington, D.C.
February 5, 1996, except as to note 1A,
which is as of April 17, 2000
49
<PAGE> 53
ORBITAL SCIENCES CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------------------------ ------------------- ------------------------------------ --------------- ---------
ADDITIONS
------------------------------------
CHARGED/ BALANCE AT
BALANCE AT CHARGED TO COSTS CREDITED TO END OF
DESCRIPTION START OF PERIOD (1) AND EXPENSES OTHER ACCOUNTS (2) DEDUCTIONS (3) PERIOD
------------------------------------------ ------------------- ---------------- ------------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts $ 475 $ 97 $ 15 $ $ 587
Allowance for obsolete inventory 929 421 910 - 2,260
Deferred income tax valuation reserve 14,759 (4) - - (303) 14,456(4)
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts $ 587 $ 230 $ 42 - $ 859
Allowance for obsolete inventory 2,260 216 1,571 $ (111) 3,936
Allowance for unrecoverable
investments - - 3,100 - 3,100
Deferred income tax valuation reserve 14,456 - 29,308 (168) 43,596
YEAR ENDED DECEMBER 31, 1995 (Restated)
Allowance for doubtful accounts $ 859 $ 108 $ - $ (194) $ 773
Allowance for obsolete inventory 3,936 580 - (738) 3,778
Allowance for unrecoverable
investments 3,100 - - (2,000) 1,100
Deferred income tax valuation reserve 43,596 21,445 2,980 - 68,021
</TABLE>
(1) All historical balances have been restated to reflect the Company's
acquisitions of Magellan Corporation and MacDonald, Dettwiler and
Associates, Ltd. The acquisitions were accounted for using the pooling of
interests method of accounting.
(2) Amounts charged/credited to other accounts represent valuation and
qualifying accounts recorded pursuant to purchase business combinations as
described in Note (4) to the consolidated financial statements incorporated
by reference elsewhere herein, adjustments required to recast pooled
company's year end as described in Note (4) to the consolidated financial
statements incorporated by reference elsewhere herein, and certain
reclassifications of deferred tax accounts.
(3) Deduction for revaluation of allowance account.
(4) The deferred income tax valuation reserve at December 31, 1993 and 1992 has
been provided based on estimated deferred tax assets and liabilities in a
foreign taxing jurisdiction, converting to generally accepted accounting
principles as applied in the U.S. (SFAS 109), after recasting pooled
Company's year end as described in Note (4) to the consolidated financial
statements incorporated by reference elsewhere herein.
50
<PAGE> 54
EXHIBIT INDEX
The following exhibits are filed as part of this report. Where such filing
is made by incorporation by reference to a previously filed statement or report,
such statement or report is identified in parentheses. In addition, the
registrant has executed certain instruments reflecting long-term debt, the total
amount of which does not exceed 10% of the total assets of the registrant and
its subsidiaries on a consolidated basis. In accordance with section 4(iii) of
Item 601 under Regulation S-K, the registrant agrees to furnish to the
Securities and Exchange Commission copies of each instrument relating to such
long-term debt not otherwise filed herewith or incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- --------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File
Number 33-33453) filed on February 9, 1990 and
effective on April 24, 1990).
3.2 By-Laws of Orbital Sciences Corporation, as
amended on July 27, 1995 (incorporated by
reference to Exhibit 3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1995, dated November 14, 1995).
4.1 Form of Certificate of Common Stock (incorporated
by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (File Number
33-33453) filed on February 9, 1990 and effective
on April 24, 1990).
4.3 Indenture dated as of February 25, 1993 among the
Company and Security Trust Company, National
Association, as Trustee (incorporated by reference
to Exhibit 4.4 to the Company's Annual Report on
Form 10-K, dated March 31, 1993).
4.4 Form of 6 3/4% Convertible Subordinated Debenture
due 2003 (incorporated by reference to Exhibit 4.5
to the Company's Annual Report on Form 10-K, dated
March 31, 1993).
9 Voting and Exchange Trust Agreement between the
Company, MacDonald Dettwiler Holdings Inc. and
State Street Bank and Trust Company (previously filed).
10.1 Amended and Restated Credit Agreement, dated as of
September 27, 1994 among the Company, Orbital
Imaging Corporation and Fairchild Space and
Defense Corporation, the Banks listed therein,
Morgan Guaranty Trust Company of New York, as
Administrative Agent and J.P. Morgan Delaware, as
Collateral Agent (the "Credit Agreement")
(incorporated by reference to Exhibit 10.6 to the
Company's Report on Form 10-Q for the Quarter
ended September 30, 1994, dated November 14,
1994).
10.1.1 Amendment No. 1 to the Credit Agreement, dated as
of October 26, 1994 (incorporated by reference to
Exhibit 10.6.1 to the Company's Annual Report on
Form 10-K, dated March 28, 1995).
10.1.2 Amendment No. 2 to the Credit Agreement, dated as
of July 5, 1995 (incorporated by reference to
Exhibit 10.6.3 to the Company's Report on Form
10-Q for the quarter ended June 30, 1995 filed on
August 14, 1995).
10.1.3 Amendment No. 3 to the Credit Agreement, dated as
of August 23, 1995 (incorporated by reference to
Exhibit 10.3 to the Company's Report on Form 10-Q
for the quarter ended September 30, 1995, dated
November 14, 1995).
10.1.4 Amendment No. 4 to the Credit Agreement, dated as of
November 15, 1995 (previously filed).
10.1.5 Waiver No. 1 to the Credit Agreement, dated as of
December 19, 1994 (incorporated by reference to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, dated March 28,
1995).
10.1.6 Waiver No. 2 to the Credit Agreement, dated as of
February 29, 1996 (previously filed).
10.2 Note Agreement, dated as of June 14, 1995 between
the Corporation and The Northwestern Mutual Life
Insurance Company (the "NWML Note Agreement")
(incorporated by reference to Exhibit 4.7.1 to the
Company's Report on Form 10-Q for the quarter
ended June 30, 1995, dated August 14, 1995).
10.2.1 1st Amendment to the NWML Note Agreement ,dated as
of June 30, 1995, between the Corporation and The
Northwestern Mutual Life Insurance Company
(incorporated by reference to the Company's Report
on Form 10-Q for the quarter ended September 30,
1995, dated November 14, 1995).
10.2.2 Second Amendment to the NWML Note Agreement, dated as
of March 15, 1996 (previously filed).
10.3 Promissory Notes dated as of August 31, 1994 made
by Fairchild Space and Defense Corporation and
Corporate Guaranty dated August 31, 1994 made by
the Company (incorporated by reference to Exhibit
10.7 to the Company's Report on Form 10-Q for the
Quarter ended September 30, 1994, dated November
14, 1994).
</TABLE>
51
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- --------------------------------------------------------------
<S> <C>
10.4 Security Agreement dated as of June 30, 1992 among
the Company, J.P. Morgan Delaware, as Collateral
Agent and American Security Bank, N.A., as Audit
Agent (incorporated by Reference to Exhibit 10.6.1
to the Company's Report on Form 10-Q for the
Quarter Ended September 30, 1994, dated November
14, 1994).
10.5 Master Security Agreement dated as of August 31,
1994 between Fairchild Space and Defense
Corporation and General Electric Capital
Corporation (incorporated by reference to Exhibit
10.7 to the Company's Report on Form 10-Q for the
Quarter ended September 30, 1994, dated November
14, 1994).
10.6 Orbital Sciences Corporation 1990 Stock Option
Plan, restated as of April 27, 1995 (incorporated
by reference to Exhibit 10.5.1 to the Company's
Report on Form 10-Q for the quarter ended June 30,
1995, dated August 14, 1995).**
10.7 Orbital Sciences Corporation 1990 Stock Option
Plan for Non-Employee Directors, restated as of
April 27, 1995 (incorporated by reference to
Exhibit 10.5.2 to the Company's Report on Form
10-Q for the quarter ended June 30, 1995, dated
August 14, 1995).**
10.8 Orbital Communications Corporation Restated 1992 Stock
Option Plan, restated as of September 12, 1995
(previously filed).**
10.9 Orbital Sciences Corporation 1995 Deferred Compensation
Plan.** (previously filed)
10.10 Fairchild Space and Defense Corporation Supplemental
Executive Retirement Plan.** (previously filed)
10.11 Form of Executive Employment Agreement entered
into between the Company and Executive Officers
and certain other Officers of the Company
(incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1 (File
Number 33-33453) filed on February 9, 1990 and
effective on April 24, 1990).**
10.11.1 Employment Agreement between Jack A. Frohbieter
and Fairchild Space and Defense Corporation, dated
August 26, 1992 (incorporated by reference to
Exhibit 10.10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994,
filed March 28, 1995).**
10.12 Form of Indemnification Agreement entered into
between the Company and Directors, Executive
Officers and certain other Officers of the Company
(incorporated by reference to Exhibit 10.18 to the
Company's Registration Statement on Form S-1 (File
Number 33-33453) filed on February 9,
1990 and effective on April 24, 1990).**
10.12.1 Amendment dated October 22, 1992 to form of
Indemnification Agreement entered into between the
Company and Directors, Executive Officers and
certain other Officers of the Company
(incorporated by reference to Exhibit 19 to the
Company's Report on Form 10-Q for the Quarter
Ended September 30, 1992, dated November 16,
1992).**
10.13 Participation Agreement dated August 20, 1992 by
and between ITT Commercial Finance Corp. and the
Company, as amended through August 26, 1992
(incorporated by reference to Exhibit 19.14 to
Amendment No. 2 to the Company's Report on Form
10-Q for the Quarter Ended September 30, 1992,
dated January 27, 1993).
10.14 Master Agreement dated as of June 30, 1993 among
the Company, Orbital Communications Corporation,
Teleglobe Inc. and Teleglobe Mobile Partners (the
"Master Agreement") (incorporated by reference to
Exhibit 10.24.1 to the Company's Report on Form
10-Q for the Quarter Ended June 30, 1993, dated
August 13, 1993).+
10.14.1 Amendment No. 1 to Master Agreement dated as of
April 1, 1994 (incorporated by reference to
Exhibit 10.16.1.1 to the Company's Report on Form
10-Q for the Quarter Ended June 30, 1994, dated
August 15, 1994).+
10.14.2 Amendment No. 2 to Master Agreement dated as of
October 1, 1994 (incorporated by reference to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994 dated March 28, 1995).+
10.14.3 Amendment No. 3 to Master Agreement dated as of
September 12, 1995 (previously filed).
10.15 Agreement of Limited Partnership of ORBCOMM Development
Partners, L.P. dated as of June 30, 1993 between Orbital
Communications Corporation and Teleglobe Mobile Partners
(incorporated by reference to Exhibit 10.24.2 for the
Company's Report on Form 10-Q for the Quarter ended
June 30, 1993, dated August 13, 1993).+
10.15.1 Amendment No.1 to Agreement of Limited Partnership
of ORBCOMM Development Partners, L.P. dated as of
April 1, 1994 (incorporated by reference to
Exhibit 10.16.2.1 to the Company's Report on
Form 10-Q for the Quarter Ended June 30, 1994, dated
August 15, 1994).
</TABLE>
52
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- --------------------------------------------------------------
<S> <C>
10.16 Agreement of Limited Partnership of ORBCOMM U.S.
Partners, L.P. dated as of June 30, 1993 between
Orbital Communications Corporation and Teleglobe
Mobile Partners (incorporated by reference to
Exhibit 10.24.3 of the Company's Report on Form
10-Q for the Quarter ended June 30, 1993, dated
August 13, 1993).
10.16.1 Amendment No. 1 to Agreement of Limited Partnership of
ORBCOMM U.S. Partners, L.P. dated as of September 12,
1995 between Orbital Communications Corporation and
ORBCOMM Global Partners (previously filed).
10.17 Agreement of Limited Partnership of ORBCOMM
International Partners, L.P. dated as of June 30,
1993 between Orbital Communications Corporation
and Teleglobe Mobile Partners (incorporated by
reference to Exhibit 10.24.3 to the Company's
Report on Form 10-Q for the Quarter Ended June 30,
1993, dated August 13, 1993).
10.17.1 Amendment No.1 to Agreement of Limited Partnership
of ORBCOMM International Partners, L.P. dated as
of September 12, 1995 between Orbital
Communications Corporation and ORBCOMM Global
Partners (previously filed).
10.18 Proprietary Information and Non-Competition
Agreement dated as of June 30, 1993 among the
Company, Orbital Communications Corporation,
Teleglobe Inc., Teleglobe Mobile Partners, ORBCOMM
Development Partners, L.P., ORBCOMM U.S. Partners,
L.P. and ORBCOMM International Partners, L.P.
(incorporated by reference to Exhibit 10.24.9 to
the Company's Report on Form 10-Q for the Quarter
Ended June 30, 1993, dated August 13, 1993).
10.18.1 Amendment No.1 to Proprietary Information and
Non-Competition Agreement dated as of September
12, 1995 among the Company, Orbital Communications
Corporation, Teleglobe Inc., Teleglobe Mobile
Partners, ORBCOMM Global, L.P., ORBCOMM USA, L.P.,
and ORBCOMM International Partners, L.P.
(previously filed).
10.19 Support Agreement between the Company and MacDonald,
Dettwiler Holdings, Inc., dated November 17, 1995.
(previously filed)
11 Statement re: Computation of Earnings Per Share
(transmitted herewith).
21 Subsidiaries of the Company (previously filed).
23 Consent of KPMG LLP (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-K, or otherwise
subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934) (transmitted
herewith).
</TABLE>
------------
* Confidential treatment requested pursuant to Rule 24b-2 of the Exchange
Act.
+ Confidential treatment previously granted by the Commission.
** Management Contract or Compensatory Plan or Arrangement.
53
