<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
SEPTEMBER 30, 2000
ORBITAL SCIENCES CORPORATION
Commission file number 0-18287
------------------------------
<TABLE>
<S> <C>
DELAWARE 06-1209561
------------------------------------------------------------ -------------------------------------------------
(State of Incorporation) (IRS Identification number)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
------------------------------------------------------------ -------------------------------------------------
(Address of principal executive offices) (Telephone number)
</TABLE>
The registrant has (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
As of November 2, 2000, 37,547,457 shares of the registrant's common stock were
outstanding.
<PAGE> 2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------ ------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 42,942 $ 74,524
Restricted cash and short-term investments, at market 35,458 34,630
Receivables, net 184,278 295,315
Inventories, net 70,708 54,483
Deferred income taxes and other current assets 24,554 17,187
------------------ ------------------
TOTAL CURRENT ASSETS 357,940 476,139
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation
and amortization of $138,845 and $122,129, respectively 157,421 137,622
INVESTMENTS IN AND ADVANCES TO AFFILIATES 37,244 141,273
GOODWILL, less accumulated amortization of $53,714 and $42,515, respectively 307,624 278,309
DEFERRED INCOME TAXES AND OTHER ASSETS 48,727 59,569
------------------ ------------------
TOTAL ASSETS $ 908,956 $1,092,912
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 126,014 $ 131,073
Accounts payable 136,306 83,566
Accrued expenses 96,064 138,613
Due to joint venture partner -- 28,418
Deferred revenues 119,124 133,499
------------------ ------------------
TOTAL CURRENT LIABILITIES 477,508 515,169
LONG-TERM OBLIGATIONS, net of current portion 241,375 239,672
OTHER LIABILITIES 12,774 16,208
------------------ ------------------
TOTAL LIABILITIES 731,657 771,049
MINORITY INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES 46,073 15,071
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized,
none outstanding -- --
Common Stock, par value $.01; 80,000,000 shares authorized, 37,524,497 and
37,400,814 shares outstanding, respectively 375 374
Additional paid-in capital 514,259 497,923
Accumulated other comprehensive loss (7,086) (5,159)
Accumulated deficit (376,322) (186,346)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 131,226 306,792
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 908,956 $ 1,092,912
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
REVENUES $ 208,052 $ 228,994
Costs of goods sold 185,323 184,478
----------------- -----------------
GROSS PROFIT 22,729 44,516
Research and development expenses 8,080 10,675
Selling, general and administrative expenses 36,169 31,753
Amortization of goodwill 4,174 3,861
Provision for doubtful ORBCOMM accounts 54,948 --
----------------- -----------------
INCOME (LOSS) FROM OPERATIONS (80,642) (1,773)
Net investment income (expense) (10,358) (6,697)
Equity in earnings (losses) of affiliates (51,438) (30,896)
Minority interests 1,531 2,082
Gain on sale of subsidiary stock 30,724 --
----------------- -----------------
LOSS BEFORE PROVISION FOR INCOME TAXES (110,183) (37,284)
Provision for income taxes 11,139 2,282
----------------- -----------------
NET LOSS $ (121,322) $ (39,566)
================= =================
NET LOSS PER COMMON AND DILUTIVE SHARE $ (3.23) $ (1.06)
================= =================
Shares used in computing net loss per common and dilutive share 37,518,656 37,384,519
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
REVENUES $ 663,068 $ 655,649
Costs of goods sold 554,468 520,829
----------------- -----------------
GROSS PROFIT 108,600 134,820
Research and development expenses 24,168 31,375
Selling, general and administrative expenses 97,774 89,189
Amortization of goodwill 11,470 9,960
Provision for doubtful ORBCOMM accounts 54,948 --
----------------- -----------------
INCOME (LOSS) FROM OPERATIONS (79,760) 4,296
Net investment income (expense) (22,467) (15,404)
Equity in earnings (losses) of affiliates (95,861) (82,618)
Minority interests 3,088 7,536
Litigation settlement (11,500) --
Gain of sale of subsidiary stock 30,724 --
----------------- -----------------
LOSS BEFORE PROVISION FOR INCOME TAXES (175,776) (86,190)
Provision for income taxes 14,200 5,610
----------------- -----------------
NET LOSS $ (189,976) $ (91,800)
================= =================
NET LOSS PER COMMON AND DILUTIVE SHARE $ (5.07) $ (2.47)
================= =================
Shares used in computing net loss per common and dilutive share 37,445,408 37,240,742
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(189,976) $ (91,800)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization expenses 37,199 36,330
Amortization of prepaid financing costs 4,500 1,664
Equity in losses of affiliates 95,861 82,618
Minority interests (3,088) (7,536)
Loss on sale of fixed assets and investments 995 992
Gain on sale of subsidiary stock (30,724) --
Deferred income tax valuation allowance 9,886 --
Provision for doubtful ORBCOMM accounts 54,948 --
Provision for ORBCOMM inventory 2,753 --
CHANGES IN ASSETS AND LIABILITIES, NET OF BUSINESSES ACQUIRED:
(Increase) decrease in current assets 44,100 (26,236)
(Increase) decrease in non-current assets (2,053) 2,165
Increase (decrease) in current liabilities 11,848 45,365
Increase (decrease) in non-current liabilities (3,434) (4,415)
----------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 32,815 39,147
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (30,016) (36,242)
Payment for business combinations, net of cash acquired (31,400) (26,374)
Net proceeds from sale of subsidiary equity 54,698 --
Purchase of other assets -- (14,006)
Purchases of available-for-sale investment securities (12,196) (8,276)
Sales of available-for-sale investment securities 10,969 --
Maturities of available-for-sale investment securities 1,348 --
Investments in and advances to affiliates, net (2,025) (79,074)
----------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (8,622) (163,972)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) 1,944 135
Principal payments on long-term obligations (71,886) (90,476)
Net proceeds from issuances of long-term obligations 39,418 205,000
Advances (repayments) from/to joint venture partner (28,418) 1,589
Net proceeds from issuances of common stock 1,054 6,115
----------------- ----------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (57,888) 122,363
----------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,113 1,711
----------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (31,582) (751)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 74,524 15,268
----------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,942 $ 14,517
================= ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
information reflects all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation thereof. Certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles in the United States have been
condensed or omitted pursuant to instructions, rules and regulations prescribed
by the Securities and Exchange Commission (the "Commission"). The company
believes that the disclosures provided herein are adequate to make the
information presented not misleading when these unaudited interim condensed
consolidated financial statements are read in conjunction with the company's
Annual Report on Form 10-K for the year ended December 31, 1999. Orbital's
consolidated results of operations include the results of operations of its
subsidiaries, including but not limited to MDA Holdings Corporation and
MacDonald, Dettwiler and Associates Ltd. ("MDA"), which are separate and
distinct entities in all respects. Operating results for the three- and
nine-month periods ended September 30, 2000 are not necessarily indicative of
the results expected for the full year. Orbital Sciences Corporation, together
with its subsidiaries, is hereafter referred to as "Orbital" or the "company."
(2) PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Management periodically assesses and
evaluates the sufficiency and/or deficiency of estimated liabilities recorded
for various operational and business risks and uncertainties. Actual results
could differ from these estimates.
Certain reclassifications have been made to the 1999 financial statements and
footnote disclosures to conform to the 2000 financial statement presentation.
All financial amounts are stated in U.S. dollars unless otherwise indicated.
(3) INVENTORIES
Inventories consist of components and raw materials inventory, work-in-process
inventory and finished goods inventory and are generally stated at the lower of
cost or net realizable value on a first-in, first-out or specific identification
basis, net of allowances for estimated obsolescence.
Components and raw materials are purchased to support future production efforts.
Work-in-process inventory consists primarily of (i) costs incurred under
long-term fixed-price contracts accounted for using the percentage-of-completion
method of accounting applied on a units of
6
<PAGE> 7
delivery basis, and (ii) partially assembled commercial products, and generally
includes direct production costs and certain allocated indirect costs (including
an allocation of general and administrative costs). Work-in-process inventory
has been reduced by contractual progress payments received. Finished goods
inventory consists of fully assembled commercial products available for sale.
(4) INDUSTRY SECTOR INFORMATION
Orbital designs, manufactures, operates and markets a broad range of
space-related products and services that are grouped into three sectors: space
and ground infrastructure systems, satellite access products and satellite
services. Space and ground infrastructure systems include launch vehicles and
advanced programs, satellites and related space systems, electronics and sensor
systems and transportation management systems, and satellite ground systems,
space robotics, and mapping and land information services. Satellite access
products include satellite-based navigation, positioning and communications
products. Satellite services include satellite-based mobile data communications,
satellite-based remote imaging services, satellite-based automotive information
systems and other satellite-based services.
Orbital reports industry sector information in conformance with Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 established standards
for reporting information about operating segments in financial statements and
requires selected information about operating segments.
Reportable segments within the space and ground infrastructure systems sector
have been determined generally based upon product lines. Certain operating
business units within this sector have been aggregated as they exhibit similar
long-term financial performance characteristics and do not meet certain
quantitative thresholds. At December 31, 1999, the company recast the
composition of its reportable segments as a result of new reporting mechanisms
and operating decision-making procedures. The corresponding quarterly segment
information for 1999 has been reclassified to conform to the 2000 presentation.
The following table presents operating information for the three and nine months
ended September 30, 2000 and 1999 and identifiable assets at September 30, 2000
and December 31, 1999 by reportable segment. Intersegment and intersector sales
are accounted for based on prices negotiated by the parties. In the second
quarter of 2000, certain receivables from ORBCOMM that had in the past been
included in launch vehicles and advanced programs, satellites and related space
systems, electronics and sensor systems and transportation management systems
and satellite access products were reclassified to investment in and advances to
ORBCOMM which is reflected in the satellite services sector. In the third
quarter of 2000, the company recorded reserves against its investment in and
advances to ORBCOMM and wrote down the investment in and advances to ORBCOMM to
the estimated realizable value of the related receivables and inventory (see
note 7). There were no other significant sales or transfers between segments.
7
<PAGE> 8
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- --------------------------------
(In thousands)
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
LAUNCH VEHICLES AND ADVANCED PROGRAMS:
Revenues $ 27,090 $ 37,648 $ 100,713 $ 117,157
Operating income (loss) (1) (836) 3,125 7,271 6,326
Identifiable assets (2) 109,131 125,157 109,131 125,157
Capital expenditures 1,420 2,165 2,690 8,439
Depreciation and amortization 1,636 1,759 4,795 5,301
SATELLITES AND RELATED SPACE SYSTEMS:
Revenues $ 37,572 $ 70,500 $ 167,830 $ 207,400
Operating income (loss) (1) (33,344) (1,753) (39,571) 16,136
Identifiable assets (2) 43,576 58,153 43,576 58,153
Capital expenditures 2,155 150 6,302 3,626
Depreciation and amortization 1,454 1,296 4,468 4,304
ELECTRONICS AND SENSOR SYSTEMS AND TRANSPORTATION
MANAGEMENT SYSTEMS:
Revenues $ 46,253 $ 34,557 $ 124,793 $ 107,174
Operating income (loss) (1) (4,280) 228 (165) (367)
Identifiable assets (2) 105,021 114,765 105,021 114,765
Capital expenditures 482 550 1,496 2,315
Depreciation and amortization 1,056 1,052 3,194 2,898
SATELLITE GROUND SYSTEMS, SPACE ROBOTICS, MAPPING
AND LAND INFORMATION SERVICES:
Revenues $ 71,018 $ 55,497 $ 186,415 $ 132,742
Operating income (loss) 3,434 3,818 9,763 11,125
Equity in earnings (losses) of affiliates (108) -- (313) --
Identifiable assets (2) 269,859 213,301 269,859 213,301
Capital expenditures 2,038 4,957 6,029 8,212
Depreciation and amortization 4,240 1,902 11,139 4,307
TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS:
Revenues $ 181,933 $ 198,202 $ 579,751 $ 564,473
Operating income (loss) (35,026) 5,418 (22,702) 33,220
Equity in earnings (losses) of affiliates (108) -- (313) --
Identifiable assets (2) 527,587 511,376 527,587 511,376
Capital expenditures 6,095 7,822 16,517 22,592
Depreciation and amortization 8,386 6,009 23,596 16,810
SATELLITE ACCESS PRODUCTS:
Revenues $ 22,448 $ 26,524 $ 72,805 $ 79,471
Operating income (loss) (1) (3) (6,892) (4,452) (12,395) (12,167)
Identifiable assets (2) 105,260 92,939 105,260 92,939
Capital expenditures 291 741 1,368 2,112
Depreciation and amortization 1,601 1,885 4,905 5,769
SATELLITE SERVICES:
Revenues $ 3,671 $ 4,268 $ 10,512 $ 11,705
Operating income (loss) 641 (537) 1,044 (7,115)
Equity in earnings (losses) of affiliates (51,330) (30,896) (95,548) (82,618)
Identifiable assets (2) 52,799 147,072 52,799 147,072
Capital expenditures 327 1,574 931 3,114
Depreciation and amortization 318 320 933 804
CORPORATE AND OTHER:
Operating income (loss) $ (39,365) $ (2,202) $ (45,707) $ (9,642)
Minority interest 1,531 2,082 3,088 7,536
Gain on sale of subsidiary equity 30,724 -- 30,724 --
Identifiable assets (2) 223,310 341,525 223,310 341,525
Capital expenditures 1,894 1,191 11,200 8,424
Depreciation and amortization 2,642 5,682 7,765 12,947
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C>
CONSOLIDATED:
Revenues $ 208,052 $ 228,994 $ 663,068 $ 655,649
Operating income (loss) (80,642) (1,773) (79,760) 4,296
Equity in earnings (losses) of affiliates (51,438) (30,896) (95,861) (82,618)
Minority interest 1,531 2,082 3,088 7,536
Gain on sale of subsidiary equity 30,724 -- 30,724 --
Identifiable assets (2) 908,956 1,092,912 908,956 1,092,912
Capital expenditures 8,607 11,328 30,016 36,242
Depreciation and amortization 12,947 13,896 37,199 36,330
</TABLE>
(1) The $54,948,000 provision for doubtful ORBCOMM accounts negatively
impacted operating income for the three and nine months ended September
30, 2000 as follows (in thousands):
<TABLE>
<S> <C>
Launch Vehicles and Advanced Programs $ 3,730
Satellites and Related Space Systems 17,940
Electronics and Sensor Systems and Transportation Management Systems 2,236
Satellite Access Products 214
Corporate 30,828
------
CONSOLIDATED $54,948
=======
</TABLE>
(2) Identifiable assets are as of September 30, 2000 and December 31, 1999.
(3) A $2,753,000 reserve for ORBCOMM-related inventory increased Satellite
Access Products' loss for the three and nine months ended September 30,
2000.
(5) EARNINGS PER SHARE
Net income (loss) per common share is calculated using the weighted average
number of common shares outstanding during the periods. Net income (loss) per
common share, assuming dilution, is calculated using the weighted average number
of common and common equivalent shares outstanding during the periods, plus the
effects of an assumed conversion of the company's convertible notes, after
giving effect to all net income adjustments that would result from the assumed
conversion.
In periods of net loss, the assumed conversion of convertible notes and stock
options is anti-dilutive. Accordingly, fully diluted per-share losses are the
same as basic losses per share disclosed on the accompanying statements of
operations. If the company had reported net income, the number of shares used in
calculating diluted earnings per share for the three and nine months ended
September 30, 2000, would have been 41,115,013 and 41,129,790, respectively, and
41,569,899 and 41,749,105 for the three and nine months ended September 30,
1999, respectively.
9
<PAGE> 10
(6) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) and associated differences are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(In thousands) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Differences between net loss, as
reported, and comprehensive loss:
Net loss, as reported $ (121,322) $ (39,566) $ (189,976) $ (91,800)
Translation adjustments (2,059) (59) (3,308) 1,106
Unrealized gains on investments 1,784 -- 1,381 --
------------- ------------- ------------- -------------
Comprehensive loss $ (121,597) $ (39,625) $ (191,903) $ (90,694)
============== ============== ============== ==============
Accumulated differences between net loss,
as reported, and comprehensive loss:
Beginning of period $ (6,811) $ (5,984) $ (5,159) $ (7,149)
Translation adjustments (2,059) (59) (3,308) 1,106
Unrealized gains on investments 1,784 -- 1,381 --
------------- ------------- ------------- -------------
End of period $ (7,086) $ (6,043) $ (7,086) $ (6,043)
============== ============== ============== ==============
</TABLE>
(7) INVESTMENTS IN AND ADVANCES TO ORBCOMM
In 1993, the company's subsidiary, Orbital Communications Corporation ("OCC"),
and Teleglobe Mobile Partners ("Teleglobe Mobile"), an affiliate of Teleglobe
Inc. ("Teleglobe"), formed a partnership, ORBCOMM Global, L.P. ("ORBCOMM"), for
the design, development, construction, integration, testing and operation of a
low-Earth orbit satellite communications system (the "ORBCOMM System"). Through
December 31, 1999, OCC and Teleglobe Mobile were both 50% general partners in
ORBCOMM. Additionally, through December 31, 1999, OCC was a 2% general partner
in ORBCOMM USA, L.P. ("ORBCOMM USA") and Teleglobe Mobile was a 2% general
partner in ORBCOMM International Partners, L.P. ("ORBCOMM International"), two
partnerships formed to market the ORBCOMM System. ORBCOMM was a 98% general
partner in each of the two marketing partnerships through December 31, 1999.
These partnership agreements were amended as of January 1, 2000, as discussed
below.
Pursuant to the terms of the partnership agreements, through December 31, 1999,
(i) OCC and Teleglobe Mobile shared equal responsibility for the operational and
financial affairs of ORBCOMM, (ii) OCC controlled and consolidated the
operational and financial affairs of ORBCOMM USA, and (iii) Teleglobe Mobile
controlled the operational and financial affairs of ORBCOMM International. Since
OCC was unable to control, but was able to exercise significant influence over
ORBCOMM's and ORBCOMM International's operational and financial affairs, the
company accounted for its investments in ORBCOMM and ORBCOMM International using
the equity method of accounting.
10
<PAGE> 11
In January 2000, Orbital entered into an agreement (the "Omnibus Agreement")
with ORBCOMM, Teleglobe, OCC, and Teleglobe Mobile pursuant to which:
- Teleglobe Mobile became ORBCOMM's sole general partner and majority
owner, with an interest of approximately 68% as of September 30, 2000;
- OCC remained as a limited partner of ORBCOMM, with a minority ownership
interest of approximately 32% as of September 30, 2000; and
- Orbital received a payment plan from ORBCOMM to settle deferred invoice
amounts.
As a result of the Omnibus Agreement and the related reduction in the company's
ownership interest in ORBCOMM, the company's share of ORBCOMM's total capital
exceeded the book value of Orbital's investment in ORBCOMM. Accordingly, Orbital
recorded a $15,367,000 increase in additional paid-in capital in the first half
of 2000 as a result of this transaction. A deferred tax obligation of $7,790,000
was established with a corresponding reduction in the deferred tax valuation
allowance.
As part of the Omnibus Agreement, on January 26, 2000, OCC and Teleglobe Mobile
each contributed its 2% direct participation interest in ORBCOMM USA and ORBCOMM
International, respectively, to ORBCOMM. As a result of this contribution, these
companies ceased doing business as separate entities and ORBCOMM assumed their
business operations. Consequently, Orbital no longer consolidates ORBCOMM USA's
financial statements. The contribution of ORBCOMM USA to ORBCOMM resulted in a
decrease in Orbital's investments in affiliates of $9,008,000 and non-cash
changes to balance sheet accounts as follows (in thousands):
<TABLE>
<S> <C>
Decrease in accounts receivable and other current assets $ (742)
Decrease in accounts payable and other accrued liabilities 414
Decrease in amounts due to affiliates 17,992
Increase in non controlling interest in net assets of consolidated subsidiary (8,656)
----------
Net $ 9,008
==========
</TABLE>
Through December 31, 1999, the company had deferred invoicing ORBCOMM for
approximately $91,000,000. Additionally, approximately $33,000,000 (including
interest) of these amounts was advanced against the invoiced amounts by an
affiliate of Teleglobe to Orbital. As part of the Omnibus Agreement, Orbital,
Teleglobe and ORBCOMM agreed, among other things, to settle the deferred
invoicing and related cash advances. In January 2000, using funds contributed
for this purpose by Teleglobe, ORBCOMM paid the company approximately
$33,000,000 in cash, which was then used by the company to repay the advances
from Teleglobe. In addition, in March 2000, Orbital converted approximately
$33,000,000 of its deferred invoices into partnership interests of ORBCOMM.
Also, in January 2000, the company converted $2,962,000 of invoices due to
Orbital from ORBCOMM pursuant to an administrative services agreement into an
equity contribution to ORBCOMM. Finally, of the remaining $25,000,000 owed to
Orbital, ORBCOMM, using funds contributed for this purpose by Teleglobe, paid
one-third of the balance in the first quarter of 2000.
During the second quarter of 2000, ORBCOMM failed to meet payment obligations to
Orbital under the ORBCOMM system procurement agreement. Accordingly, effective
June 2000, the company ceased recognizing revenue on the ORBCOMM system
procurement agreements.
11
<PAGE> 12
In September 2000, ORBCOMM and its subsidiaries commenced a reorganization
proceeding under Chapter 11 of the U.S. Federal Bankruptcy Code and are
currently operating as debtors-in-possession under that Chapter. ORBCOMM is in
default on its $170,000,000 Senior Notes (the "Notes"). Teleglobe Mobile and OCC
are guarantors of the Notes. OCC's guarantee is non-recourse to Orbital. In
August 2000, Teleglobe Inc. ("Teleglobe"), ORBCOMM's general partner, informed
ORBCOMM that they would discontinue any further equity funding to ORBCOMM, but
agreed to provide ORBCOMM with $17,000,000 in additional cash, through
pre-bankruptcy secured financing and/or debtor-in-possession financing. ORBCOMM
has indicated that these funds should support operations through the end of
2000. ORBCOMM is in the process of seeking additional equity investors, seeking
to sell certain assets and seeking to restructure the Notes. There can be no
assurances that additional equity will be available, that an asset sale will be
completed, or that the Notes will be restructured on a timely basis or at all.
Consequently, Orbital recorded non-cash charges totaling $107,268,000 in the
third quarter of 2000 to fully reserve the $50,576,000 investment in ORBCOMM
balance at June 30, 2000, and to write down $54,948,000 of ORBCOMM-related
receivables and $2,753,000 of ORBCOMM-related inventory, less minority interest
of $1,009,000, to their estimated realizable values. The estimated realizable
value of all remaining ORBCOMM receivables and inventory of $12,801,000 at
September 30, 2000 has been classified as investments in and advances to
ORBCOMM. Although management believes that these reserves are sufficient to
cover the company's current exposure, such reserves do not include any
additional charges that might result should any litigation related to ORBCOMM
arise.
(8) INVESTMENTS IN AND ADVANCES TO ORBIMAGE
During the second quarter of 2000, Orbital agreed to advance in January 2001,
$20,000,000 to ORBIMAGE from amounts previously paid by ORBIMAGE under its
procurement agreement with Orbital, provided, however, that such obligation is
terminated if Orbital successfully brokers a renegotiation of ORBIMAGE's license
agreement for RadarSat-2 satellite distribution rights with MDA, to, among other
things, eliminate ORBIMAGE's future RadarSat-2 payments to MDA. A preliminary
agreement between ORBIMAGE and MDA has been reached. There can be no assurance,
however, that the final terms of such agreement will satisfy all the conditions
necessary to relieve Orbital of its obligations with respect to the advance.
Equity in earnings (losses) of affiliates includes Orbital's 100% share of
ORBIMAGE's losses, including preferred stock dividends, totaling $8,054,000,
through June 30, 2000. During the second quarter of 2000, Orbital's investment
balance was reduced to zero, and Orbital suspended recognition of additional
equity losses at that time. Additionally, Orbital did not recognize losses in
the third quarter of 2000, and will not recognize additional equity losses in
future periods from its investment in ORBIMAGE absent a future change in
Orbital's funding obligations. Presently the company has no intention to provide
further equity funding to ORBIMAGE. Had the company continued to recognize
equity accounting losses for ORBIMAGE, additional losses of $7,606,000 and
$12,423,000 would have been recorded for the three and nine month periods ended
September 30, 2000. Orbital's share of future income from ORBIMAGE, if any, will
not be recognized until such income exceeds previously unrecognized losses.
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<PAGE> 13
ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources
to meet its capital and operating requirements through January 2001. ORBIMAGE is
seeking additional capital from third parties as well as its existing
shareholders. There can be no assurance that such capital will be available on a
timely basis or at all. As a result of ORBIMAGE's current financial condition,
Orbital ceased recognizing revenues on the ORBIMAGE system procurement contract
during the third quarter of 2000. Should ORBIMAGE be unsuccessful in its efforts
to raise additional capital, approximately $6,300,000 of Orbital's inventory
related to ORBIMAGE could be impaired.
(9) BUSINESS COMBINATIONS
In April 2000, MDA acquired certain of the assets and liabilities of the
DataQuick Products division of Acxiom Corporation for approximately $56,000,000.
MDA paid $31,400,000 of the purchase price in cash at closing, with the
remaining amount paid in October 2000. MDA accounted for the acquisition using
the purchase method of accounting. The purchase price exceeded the fair value of
the net tangible assets and identifiable intangible assets by approximately
$43,400,000, which is being amortized on a straight-line basis over twenty
years.
(10) GAIN ON SALE OF SUBSIDIARY STOCK
In July 2000, MDA completed an initial public offering on the Toronto Stock
Exchange of 6,600,000 shares of common stock (including shares issued pursuant
to the underwriters' overallotment option), raising gross proceeds of
approximately $37,500,000 for itself, $18,800,000 for Orbital and $5,600,000 for
other selling shareholders. The company recorded a $30,724,000 gain on the sale
of such stock in the third quarter 2000. Orbital made payments in July to reduce
its primary credit facility by $8,000,000 with the proceeds raised from the MDA
public offering. As a result of the public offering, Orbital's ownership
interest in MDA was approximately 52% at September 30, 2000.
(11) DEBT OBLIGATIONS
Orbital's primary credit facility provided for total borrowings from an
international syndicate of banks of up to $157,000,000, all of which was drawn
and outstanding as of September 30, 2000, at a weighted average interest rate of
10.5%. These borrowings are collateralized by accounts receivable, intellectual
property and certain other assets, including the stock of the company's wholly
owned subsidiaries, which include MDA Holdings Corporation, the holder of all
shares of MDA that we beneficially own. The facility prohibits the payment of
cash dividends, contains certain covenants with respect to our working capital
levels, fixed charges ratio, leverage ratio and net worth, and expires in
December 2002.
The bank group requires that the company pay down the outstanding balance of the
credit facility with 55% of the net cash proceeds received from any equity
offering, asset sale or debt issuance by us or our domestic wholly owned
subsidiaries. As a result, the company paid down $8,000,000 with proceeds from
the sale of MDA shares in the third quarter of 2000. In October 2000, the
company paid down $46,000,000 with proceeds from the sale of the Fairchild
Defense
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<PAGE> 14
electronics division (see Note 16). These payments satisfied a requirement to
reduce the total balance of the facility to $125,000,000 by December 31, 2000.
The outstanding balance of the credit facility was $111,000,000 as of November
1, 2000. Orbital has until July 1, 2001 to reduce the outstanding balance of the
credit facility to $85,000,000. Orbital now has the ability to borrow up to
$4,000,000 under the credit facility. Orbital amended this facility several
times this year to waive noncompliance with certain financial covenants and to
amend other covenants, including net worth, leverage (including senior
leverage), fixed charges, capital expenditures and subsidiary debt. The company
is in compliance with these amended covenants.
The company's 12% note payable restricts the payment of cash dividends and
contains certain covenants with respect to fixed charges ratio, leverage ratio
and tangible net worth, and includes certain cross-default provisions. In June
2000, the company agreed that if it were to prepay the remaining principal
amount of $6,666,000, which matures June 2001, on or prior to October 31, 2000,
the interest rate on the balance of the note would be adjusted retroactively to
13% for the period June 1 through August 31, 2000 and to 14% from September 1,
2000 until it is repaid. The company did not prepay the note in October.
MDA has a credit facility with a syndicate of six banks that provides for total
availability to MDA and its subsidiaries of approximately $126,000,000, of which
approximately $37,256,000 was outstanding as of September 30, 2000, and includes
certain operational and financial covenants including certain restrictions on
the payment of dividends. The amount available includes a program-specific
letter of credit facility of $33,178,000. MDA's credit facility is non-recourse
to Orbital.
(12) COMMITMENTS AND CONTINGENCIES
In July 2000, the company reached an agreement to settle the outstanding
consolidated class-action lawsuit filed on May 28, 1999 in the U.S. District
Court for the Eastern District of Virginia against the company, a former officer
and an officer/director alleging violations of federal securities laws, on
behalf of purchasers of the company's stock and call options during the period
from April 27, 1997 through October 29, 1999. The settlement agreement provides
for the plaintiffs to receive a cash payment of $11,000,000 to be made by the
company's insurance carrier, and warrants to be issued by the company having an
aggregate fair value of $11,500,000 that are exercisable for the company's
common stock at a ten percent discount to the market price at the time the
settlement is approved by the court. Consequently, an expense and liability of
$11,500,000 were recorded in the second quarter of 2000. A hearing on the final
settlement documentation is scheduled for mid-December and the company
anticipates that final court approval could occur before year-end 2000.
In the first quarter of 2000, PT Media Citra Indostar, an Indonesian company
("PT-MCI"), commenced arbitration seeking a refund of $163,000,000 PT-MCI
asserts it paid in connection with a communications satellite constructed by CTA
INCORPORATED ("CTA") under a contract that was assigned to Orbital in connection
with its 1997 acquisition of CTA. PT-MCI's allegations include fraud and
multiple breaches of contract. The company's claims against PT-MCI for unpaid
invoices in the approximate amount of $14,000,000 are also part of the
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<PAGE> 15
arbitration proceedings. Orbital believes that PT-MCI's allegations are without
merit and intends to vigorously defend against such allegations. In addition,
under the terms of the CTA acquisition, Orbital believes it is entitled to
indemnification from CTA for all or a part of any damages arising from the
PT-MCI litigation and that CTA retains liability for certain fraud claims being
made by PT-MCI. There can be no assurances, however, that CTA will meet its
indemnification obligations. The eventual outcome of the foregoing matter is
uncertain and could have a material adverse impact on the company's results of
operations and financial condition.
The company is currently arbitrating a claim by Thomas van der Heyden alleging
that Orbital is in actual or anticipatory breach of obligations allegedly
imposed on Orbital in a decision in a previous arbitration proceeding brought by
Mr. van der Heyden against CTA. Mr. van der Heyden claims that he is entitled to
a sum exceeding $30,000,000 from Orbital, as successor-in-interest to CTA. The
company believes that the allegations in these proceedings are without merit and
intends to vigorously defend against such allegations. In addition, under the
terms of the CTA acquisition, Orbital believes that it is entitled to
indemnification from CTA for all or a part of any damages arising from this
litigation. There can be no assurances, however, that CTA will meet its
indemnification obligations. The eventual outcome of the foregoing matter is
uncertain and could have a material adverse impact on the company's results of
operations and financial condition.
In July 1999, a class action complaint was filed on behalf of a class comprised
of purchasers and lessees of a high precision GPS product manufactured by
Magellan (as a successor to Ashtech Inc.) against Sokkia Corporation and certain
of its affiliates, Magellan and others. In October 2000, the case was dismissed
pursuant to a summary judgment motion.
In August 2000, the company was notified by a customer of its intent to
terminate a transportation management systems contract alleging default on the
part of the company. During the third quarter of 2000, the company recorded a
$4,000,000 accrual to cover management's estimate of Orbital's liability related
to this matter, in addition to approximately $3,500,000 of reserves for related
receivables and contract cost increases. Any potential insurance recovery has
not been considered in recording such accruals.
In addition, the company and its subsidiaries are parties to certain other
litigation or proceedings arising in the ordinary course of business. In the
opinion of management, the probability is remote that the outcome of any such
litigation or other proceedings will have a material adverse effect on our
results of operations or financial position.
(13) INCOME TAXES
Due to the pretax losses for the first nine months of 2000, the company
determined that a full valuation allowance should be recorded against the
deferred tax asset. Accordingly, the tax provision for the third quarter of 2000
included an expense of $9,886,000 to fully reserve the company's U. S. deferred
tax assets.
(14) RISKS AND UNCERTAINTIES
Orbital's growth has required substantial capital to fund investments in and
advances to affiliates, business acquisitions, expanding working capital needs,
new business initiatives, research and development and capital expenditures.
Orbital's liquidity has been, and continues to be, constrained because the
company has been unable to access capital markets due to uncertainty surrounding
the restatement of its financial results and the company and its affiliates'
financial prospects. During 2000, the company has funded capital requirements
for operations through cash from operations combined with cash on hand and the
proceeds from the disposition of certain of our MDA shares and the Fairchild
Defense electronics division. The company anticipates that in 2001 cash flow
from operations will be insufficient to cover capital requirements, operating
requirements and debt service, including the company's obligation to
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<PAGE> 16
reduce the outstanding balance of the company's primary credit facility as
described in Note 11. To meet the company's capital and operating requirements,
management's plans include additional sales of certain assets, the possibility
of raising additional equity and/or debt capital, restructuring business
operations and refinancing the company's credit facility. Management expects
that such plans will generate sufficient additional liquidity to satisfy the
company's required obligations; however, no assurance can be given that the
company will be successful in achieving such plans.
(15) RECENT ACCOUNTING PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" which amends SFAS No. 133
to (i) expand the scope of the "normal sales and normal purchases" exception;
(ii) introduce the benchmark interest rate that may be hedged; (iii) permit a
recognized foreign currency denominated asset to be hedged; and (iv) allow
certain intercompany derivatives that are offset net to be designated as hedging
instruments. The company does not anticipate that SFAS No. 138 will have a
material impact on its financial statements.
In December 1999, the Commission issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements," to provide guidance
regarding the recognition, presentation and disclosure of revenue in the
financial statements. While management is continuing to make further
assessments, the company does not anticipate that the adoption of SAB 101 will
have a material impact on its financial statements.
(16) SUBSEQUENT EVENTS
On October 30, 2000, the company sold its Fairchild Defense electronics business
to a U.S. subsidiary of Smiths Industries plc for approximately $100,000,000 in
cash, subject to a working capital adjustment that will be finalized in early
2001. The company expects to record a gain in the range of $40,000,000 -
$45,000,000 in the fourth quarter of 2000 as a result of this sale. Fairchild
had revenues of $21,937,000 and $55,069,000 for the three and nine months ended
September 30, 2000. The proceeds of the sale were used to reduce Orbital's
overall debt by approximately $61,000,000, of which $46,000,000 reduced
outstanding amounts under the company's primary credit facility. The company
intends to use the remaining amount for general corporate purposes.
On November 3, 2000, MDA acquired all the assets of Atlantic Technologies, LLC,
a Huntsville, Alabama-based supplier of land information products. The aggregate
purchase price was $14,500,000, with approximately $8,500,000 paid in cash and
up to approximately $6,000,000 in MDA shares to be issued over three years.
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<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
With the exception of historical information, certain statements included in
this discussion relating to capital requirements, growth, liquidity, new
business, operational performance, schedules, sources and uses of funds,
backlog, financing plans, and the performance of our affiliates, Orbital Imaging
Corporation ("ORBIMAGE") and ORBCOMM Global L.P. ("ORBCOMM"), are
forward-looking statements that involve known and unknown risks, uncertainties
and other factors that may cause our actual results, performance, achievements
or investments to differ materially from any future results, performance,
achievements, or investments expressed or implied by such forward-looking
statements. Such factors include: general and economic business conditions,
launch results, product performance, governmental or regulatory changes, risks
associated with government contracts, the introduction of products and services
by competitors, risks associated with acquired businesses, availability of
required capital for Orbital and its affiliates, the financial condition of
major customers, market acceptance of products and technologies, risks
associated with long-term contracts and licensing agreements with commercial and
government customers, lack of control over certain subsidiaries and affiliates,
the effects of pending or possible litigation or government investigations and
other factors more fully described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Outlook: Issues and
Uncertainties" included in our Annual Report on Form 10-K for the year ended
December 31, 1999. We assume no obligation to update any such forward-looking
statements.
Our products and services are grouped into three business sectors: space and
ground infrastructure systems, satellite access products and satellite services.
The space and ground infrastructure systems sector consists of several
reportable segments, including launch vehicles and advanced programs, satellites
and related space systems, electronics and sensor systems and transportation
management systems, and satellite ground systems, space robotics, mapping and
land information services. Our satellite access products sector consists of
satellite-based navigation, positioning and communications products. Satellite
services include the following services conducted by our affiliates, ORBCOMM,
ORBIMAGE and, for 1999, CCI International NV ("CCI"), and our subsidiaries
Radarsat International Inc. ("RSI") and Orbital Navigation Corporation, which
holds our 60% interest in Navigation Solutions LLC ("NavSol"): satellite-based
two-way mobile data communications services, remote imaging services,
satellite-based automotive information services and satellite-based voice
communications services. We do not control the operational or financial affairs
of ORBCOMM, ORBIMAGE and CCI and consequently their financial results are not
consolidated with our results.
RECENT DEVELOPMENTS
On October 30, 2000, the company sold its Fairchild Defense electronics business
to a U.S. subsidiary of Smiths Industries plc for approximately $100,000,000 in
cash, subject to a working capital adjustment that will be finalized in early
2001. The price was determined based on a bidding process. The assets sold
included property, plant, equipment, inventory, contracts and
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<PAGE> 18
intellectual property. The company expects to record a gain in the range of
$40,000,000 - $45,000,000 in the fourth quarter of 2000 as a result of this
sale. Fairchild had revenues of $21,937,000 and $55,069,000 for the three and
nine months ended September 30, 2000, respectively. The proceeds of the sale
were used to reduce Orbital's overall debt by approximately $61,000,000,
including $46,000,000 to reduce outstanding amounts under the company's primary
credit facility. We intend to use the remaining amount for general corporate
purposes.
On November 3, 2000, MDA acquired all the assets of Atlantic Technologies, LLC
("ATI"), a Huntsville, Alabama-based supplier of land information products. The
aggregate purchase price was $14,500,000, with approximately $8,500,000 paid in
cash and up to approximately $6,000,000 in MDA shares to be issued over three
years.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30,
2000 AND 1999
In September 2000, ORBCOMM and its subsidiaries commenced a reorganization
proceeding under Chapter 11 of the U.S. Federal Bankruptcy Code and are
currently operating as debtors-in-possession under that Chapter. ORBCOMM is in
default on its $170,000,000 Senior Notes (the "Notes"). Teleglobe Mobile and OCC
are guarantors of the Notes. OCC's guarantee is non-recourse to us in August
2000, Teleglobe Inc. ("Teleglobe"), ORBCOMM's general partner, informed ORBCOMM
that they would discontinue any further equity funding to ORBCOMM, but agreed to
provide ORBCOMM with $17,000,000 in additional cash, through pre-bankruptcy
secured financing and/or debtor-in-possession financing. ORBCOMM has indicated
that these funds should support operations through the end of 2000. ORBCOMM is
in the process of seeking additional equity investors, seeking to sell certain
assets and seeking to restructure the Notes. There can be no assurances that
additional equity will be available, that an asset sale will be completed, or
that the Notes will be restructured on a timely basis or at all. Consequently,
we recorded non-cash charges totaling $107,268,000 in the third quarter of 2000
to fully reserve the $50,576,000 investment in ORBCOMM balance at June 30, 2000,
and to write down $54,948,000 of ORBCOMM-related receivables and $2,753,000 of
ORBCOMM-related inventory, less minority interest of $1,009,000, to their
estimated realizable value. The estimated realizable value of all remaining
ORBCOMM receivables and inventory of $12,801,000 at September 30, 2000 has been
classified as investments in and advances to ORBCOMM. Although management
believes that these reserves are sufficient to cover the company's current
exposure, such reserves do not include any additional charges that might result
should any litigation related to ORBCOMM arise.
During the second quarter of 2000, ORBCOMM failed to meet its payment
obligations to us under the ORBCOMM system procurement agreement. Accordingly,
effective June 2000, the company ceased recognizing revenue on the ORBCOMM
system procurement agreements. The suspension of ORBCOMM-related space systems
work had a significant adverse impact on revenues, gross profit and operating
income for the three and nine months ended September 30, 2000 as described
below.
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ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources
to meet its capital and operating requirements through January 2001. ORBIMAGE is
seeking additional capital from third parties as well as its existing
shareholders. There can be no assurance that such capital will be available on a
timely basis or at all. As a result of ORBIMAGE's current financial condition,
Orbital ceased recognizing revenues on the ORBIMAGE system procurement contract
during the third quarter of 2000. While our revenues were adversely impacted,
gross profit and operating income were not affected since this contract had been
in a loss position and losses had previously been accrued.
REVENUES. Our consolidated revenues for the three-month periods ended September
30, 2000 and 1999 were $208,052,000 and $228,994,000, respectively. Our
consolidated revenues for the nine-month periods ended September 30, 2000 and
1999 were $663,068,000 and $655,649,000, respectively. Revenues for the three
months ended September 30, 2000 and 1999 include sales to non-controlled and
unconsolidated affiliates of $8,015,000 and $21,257,000, respectively. Revenues
for the nine months ended September 30, 2000 and 1999 include sales to
non-controlled and unconsolidated affiliates of $48,139,000 and $84,127,000,
respectively.
Space and Ground Infrastructure Systems. Revenues from our space and ground
infrastructure product lines were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------------------------- ------------------------------
(In thousands) 2000 1999 2000 1999
-------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Launch Vehicles and Advanced Programs (1) $27,090 $ 37,648 $100,713 $117,157
Satellites and Related Space Systems (2) 37,572 70,500 167,830 207,400
Electronics and Sensor Systems and Transportation Management
Systems (3) 46,253 34,557 124,793 107,174
Satellite Ground Systems, Space Robotics, Mapping and Land
Information Services (4) 71,018 55,497 186,415 132,742
-------- -------- -------- ----------
TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS $181,933 $198,202 $579,751 $564,473
======== ======== ======== ==========
</TABLE>
(1) The decrease in revenues from launch vehicles and advanced programs in
2000 as compared to last year is primarily attributable to suspending
work under contracts with ORBCOMM and the deferral of revenues associated
with certain other customer-requested launch schedule delays. In
addition, launch vehicle revenues in 2000 declined as a result of
suspending ORBIMAGE revenue recognition in the third quarter of 2000.
(2) The decrease in revenues from satellites and related space systems in
2000 as compared to last year is largely due to suspending revenue
recognition under the ORBCOMM and ORBIMAGE procurement contracts.
Additionally, the cost estimates to complete certain contracts increased
during the third quarter of 2000 resulting in a reduction in the
percentage of completion and the corresponding revenue recognizable on
these contracts.
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<PAGE> 20
(3) The increase in electronics and sensor systems and transportation
management systems revenues in 2000 as compared to 1999 is primarily
attributable to growth in transportation management systems revenues
under existing and new contracts. Revenues from this sector as a whole
will decrease significantly beginning in the fourth quarter of 2000 as a
result of the sale of the Fairchild Defense electronics business in
October 2000.
(4) The revenue growth in satellite ground systems, space robotics, mapping
and land information services in 2000 as compared to 1999 is primarily
attributable to the acquisitions of the DataQuick Products division of
Acxiom Corporation ("DataQuick") in April 2000, the space robotics
division of Spar Aerospace Ltd. in May 1999 and the BC Online license in
May 1999, in addition to orders received in late 1999 for several
satellite ground systems and system upgrades.
Satellite Access Products. Revenues from sales of satellite-based navigation,
positioning and communications products in the third quarter of 2000 were
$22,448,000 as compared to $26,524,000 for the third quarter of 1999. Revenues
for the nine months ended September 30, 2000 were $72,805,000 as compared to
$79,471,000 for the same period last year. The decrease in sector revenues is
attributable to reduced sales of high-precision industrial navigation and
positioning products due to increased competition in the market. In addition,
revenues in the consumer products sector decreased because our Magellan
subsidiary discontinued several products in the third quarter of 2000, and
successor products were unavailable for shipment until the fourth quarter.
Satellite Services. Revenues from satellite services declined to $3,671,000 in
the third quarter of 2000 as compared to $4,268,000 in the third quarter of
1999. Revenues for the nine months ended September 30, 2000 were $10,512,000 as
compared to $11,705,000 for the same period last year. Revenues in 2000 and 1999
include those generated by our consolidated subsidiary, RSI. In 1999, sector
revenues also included ORBCOMM's domestic operation, ORBCOMM USA, L.P. ("ORBCOMM
USA"), which we consolidated in 1999. Effective January 1, 2000, ORBCOMM USA was
merged into ORBCOMM and we no longer consolidate ORBCOMM USA's results of
operations.
GROSS PROFIT/COSTS OF GOODS SOLD. Costs of goods sold include the costs of
personnel, materials, subcontracts and overhead related to commercial products
and under various development and production contracts. Gross profit depends on
a number of factors, including the mix of contract types and costs incurred
thereon in relation to estimated costs. Our consolidated gross profit for the
third quarter of 2000 was $22,729,000 (11% of revenues) as compared to
$44,516,000 (19% of revenues) for the third quarter of 1999. Our gross margins
for the nine months ended September 30, 2000 were $108,600,000 (16% of revenues)
as compared to $134,820,000 (21% of revenues) for the nine months ended
September 30, 1999.
Space and Ground Infrastructure Systems. Gross profit from our space and ground
infrastructure systems totaled $20,685,000 (11% of sector revenues) and
$34,628,000 (17% of sector revenues) for the quarters ended September 30, 2000
and 1999, respectively. Gross profit totaled
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<PAGE> 21
$86,254,000 (15% of sector revenues) and $105,209,000 (19% of sector revenues)
for the nine months ended September 30, 2000 and 1999, respectively.
Gross profit and margins for our space and ground infrastructure product lines
were as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------------------------------------------
(In thousands) 2000 1999
-------------- ---- ----
Gross % of Gross % of
Profit Revenue Profit Revenue
------ -------- ------ --------
<S> <C> <C> <C> <C>
Launch Vehicles and Advanced Programs (1) $ 8,047 30% $ 9,038 24%
Satellites and Related Space Systems (2) (9,835) (26)% 4,244 6%
Electronics and Sensor Systems and Transportation Management
Systems (3) 9,167 20% 9,350 27%
Satellite Ground Systems, Space Robotics, Mapping and Land
Information Services (4) 13,306 19% 11,996 22%
------- --- ------- ---
TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS $20,685 11% $34,628 17%
======= === ======= ===
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------------------------------------
(In thousands) 2000 1999
-------------- ---- ----
Gross % of Gross % of
Profit Revenue Profit Revenue
------ -------- ------ --------
<S> <C> <C> <C> <C>
Launch Vehicles and Advanced Programs (1) $25,787 26% $ 20,061 17%
Satellites and Related Space Systems (2) (5,366) (3)% 29,201 14%
Electronics and Sensor Systems and Transportation Management
Systems (3) 27,951 22% 28,014 26%
Satellite Ground Systems, Space Robotics, Mapping and Land
Information Services (4) 37,882 20% 27,933 21%
------- --- -------- ---
TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS $86,254 15% $105,209 19%
======= === ======== ===
</TABLE>
(1) The improved gross margin for launch vehicles and advanced programs in
2000 is primarily due to completing work in 1999 on certain less
profitable space and suborbital launch vehicle contracts.
(2) The negative gross margin for satellites and related space systems in
2000 is primarily due to the suspension of work on profitable ORBCOMM
contracts, and cost growth and schedule delays on several satellite
construction programs. Also, certain of these programs contain a
significant amount of lower margin, external subcontract effort, as well
as substantial non-recurring engineering costs incurred in developing
these products to meet a range of specific customer requirements.
(3) The decrease in gross margins in 2000 for electronics and sensor systems
and transportation management systems is due to an increase in lower
margin, subcontract work and to lower margins on certain international
defense contracts and cost growth on certain transportation management
systems contracts. In addition, we accrued costs related to the
termination of a
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transportation management systems contract in the third quarter of 2000.
(4) The decrease in gross margins for satellite ground systems, space
robotics, mapping and land information services in the third quarter of
2000 is primarily due to lower margins on land information products and
changes in the mix of products sold.
Satellite Access Products. Gross profit for our satellite access products sector
was $4,822,000 and $22,905,000 for the three and nine months ended September 30,
2000, respectively, as compared to $8,012,000 and $26,032,000 for the three and
nine months ended September 30, 1999, respectively. Gross margins for satellite
access products decreased to 21% of revenues for the third quarter of 2000 as
compared to 30% for the third quarter of 1999. Gross margins decreased to 31%
for the nine months ended September 30, 2000 as compared to 33% for the
comparable period of 1999. The decrease in satellite access products' gross
margins for the three and nine months ended September 30, 2000 is primarily due
to the write down of $2,753,000 inventory in the third quarter of 2000 as a
result of ORBCOMM's Chapter 11 filing.
Satellite Services. Our satellite services sector had gross profit of $1,271,000
during the third quarter of 2000, which reflects a decrease from $1,876,000 of
gross profit for the third quarter of 1999 due to industry pricing reductions.
Gross profit for this sector was $3,490,000 for the nine months ended September
30, 2000 as compared to $3,578,000 for the nine months ended September 30, 1999.
Substantially all of the positive gross profit in this sector is generated by
RSI.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses represent
self-funded product development activities, and exclude direct customer-funded
development. Research and development expenses during the three months ended
September 30, 2000 and 1999 were $8,080,000 (4% of revenues) and $10,675,000 (5%
of revenues), respectively. Research and development expenses during the nine
month periods ended September 30, 2000 and 1999 were $24,168,000 (4% of
revenues) and $31,375,000 (5% of revenues), respectively. Research and
development expenses relate primarily to the development of new or improved
satellite access products, improved launch vehicles and new satellite and
robotics systems.
PROVISION FOR DOUBTFUL ORBCOMM ACCOUNTS. As previously noted, as a result of
ORBCOMM's Chapter 11 filing, we recorded charges totaling $107,268,000 in the
third quarter of 2000. Included in the total charges were reserves of
$54,948,000 to write down ORBCOMM receivables to their net realizable value.
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 our finance, legal,
administrative and general management functions. Selling, general and
administrative expenses for the three months ended September 30, 2000 and 1999
were $36,169,000 (17% of revenues) and $31,753,000 (14% of revenues),
respectively. Selling, general and administrative expenses for the nine months
ended September 30, 2000 and 1999 were $97,774,000 (15% of revenues) and
$89,189,000 (14% of revenues), respectively. The increase in such expenses for
the third quarter of 2000 as compared to the third quarter of 1999
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<PAGE> 23
was primarily related to a $4,000,000 accrual for a claim related to a
transportation management systems contract. The increase for the nine months
ended September 30, 2000 as compared to the same period last year was also
attributable to the acquisitions of DataQuick and Spar Aerospace and higher
corporate general and administrative expenses.
INCOME (LOSS) FROM OPERATIONS. Losses from operations for the three months ended
September 30, 2000 and 1999 were $80,642,000 and $1,773,000, respectively. The
loss from operations for the nine months ended September 30, 2000 was
$79,760,000 which compares to income from operations of $4,296,000 for the same
period in 1999. Charges totaling $57,701,000 related to the ORBCOMM write-off
recorded in the third quarter of 2000 represent the most significant portion of
the decline in the operating income. Also, the other primary factor contributing
to the increase in the operating loss for the third quarter 2000 as compared to
the comparable period in 1999 were the decreases in revenues due to the
suspension of ORBCOMM-related space systems production work and cost growth and
schedule delays on several satellite construction programs.
NET INVESTMENT INCOME (EXPENSE). Interest expense, net of investment income and
net of interest capitalized, increased to $10,358,000 from $6,697,000 for the
three months ended September 30, 2000 and 1999, respectively, and to $22,467,000
from $15,404,000 for the nine months ended September 30, 2000 and 1999,
respectively. The increase in net interest expense is a result of higher average
borrowings and higher rates in 2000 as well as decreases in investment income as
a result of lower investment balances in 2000. Interest capitalized totaled
$326,000 and $687,000 in the third quarter of 2000 and 1999, respectively, and
$1,452,000 and $2,283,000 for the nine months ended September 30, 2000 and 1999,
respectively. Investment income was $600,000 and $1,238,000 for the three months
ended September 30, 2000 and 1999, respectively, and $3,712,000 and $3,052,000
for the nine months ended September 30, 2000 and 1999, respectively. Investment
income includes interest earnings on short-term investments and realized gains
and losses on investments.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES. Equity in losses of affiliates for
the three months ended September 30, 2000 and 1999 were $51,438,000 and
$30,896,000, respectively, and $95,861,000 and $82,618,000 for the nine months
ended September 30, 2000 and 1999, respectively. These amounts primarily
represent (i) a $50,576,000 write down of our investment in ORBCOMM in the third
quarter of 2000, (ii) elimination of proportionate profits or losses on sales of
infrastructure products to ORBCOMM and ORBIMAGE, (iii) our proportionate share
of ORBCOMM, ORBIMAGE and NavSol current period earnings and losses, and (iv)
preferred dividends and beneficial conversion rights to other investors in
ORBIMAGE prior to June 2000.
Equity in earnings (losses) of affiliates includes Orbital's 100% share of
ORBIMAGE's losses, including preferred stock dividends, totaling $8,054,000,
through June 30, 2000. During the second quarter of 2000, Orbital's investment
balance was reduced to zero, and Orbital suspended recognition of additional
equity losses at that time. Additionally, Orbital did not recognize losses in
the third quarter of 2000, and will not recognize additional equity losses in
future periods from its investment in ORBIMAGE absent a future change in
Orbital's funding obligations. Presently the company has no intention to provide
further equity funding to ORBIMAGE. Had the company continued to recognize
equity accounting losses for ORBIMAGE, additional losses of
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<PAGE> 24
$7,606,000 and $12,423,000 would have been recorded for the three and nine month
periods ended September 30, 2000, respectively. Orbital's share of future income
from ORBIMAGE, if any, will not be recognized until such income exceeds
previously unrecognized losses.
ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources
to meet its capital and operating requirements through January 2001. ORBIMAGE is
seeking additional capital from third parties as well as its existing
shareholders, however, there can be no assurance that such capital will be
available on a timely basis or at all.
Our proportionate share of ORBCOMM's losses declined beginning the first quarter
of 2000 due to a reduction in our ownership interest in ORBCOMM from 50% in 1999
to approximately 34%, 33% and 32% in the first, second and third quarters,
respectively, of 2000. In the second quarter of 2000, ORBCOMM recorded a
provision to write down inventory. Our pro rata share of this write down was
$3,335,000.
MINORITY INTERESTS. Minority interests in losses of consolidated subsidiaries
for the three months ended September 30, 2000 and 1999 were $1,531,000 and
$2,082,000, respectively, and $3,088,000 and $7,536,000 for the nine months
ended September 30, 2000 and 1999, respectively. These amounts primarily
represent minority stockholders' proportionate share of Magellan's losses and
MDA's earnings for the three and nine months ended September 30, 2000. For the
three and nine months ended September 30, 1999, these amounts were primarily
minority stockholders' proportionate share of Magellan's and ORBCOMM USA's
losses.
LITIGATION SETTLEMENT. A litigation settlement loss of $11,500,000 was recorded
in the second quarter of 2000 as a result of a settlement agreement reached in
July 2000 related to the consolidated shareholder class action lawsuit. The
settlement provides for the plaintiffs to receive a cash payment of $11,000,000
to be made by our insurance carrier and warrants issued by us having an
aggregate fair value of $11,500,000.
GAIN ON SALE OF SUBSIDIARY STOCK. In July 2000, MDA completed an initial public
offering on the Toronto Stock Exchange of 6,600,000 shares of common stock
(including shares issued pursuant to the underwriters' overallotment option),
raising gross proceeds of approximately $37,500,000 for itself, $18,800,000 for
Orbital and $5,600,000 for other selling shareholders. We recorded a $30,724,000
gain on the sale of such stock in the third quarter 2000.
PROVISION FOR INCOME TAXES. We recorded an income tax provision of $11,139,000
and $2,282,000 for the three month periods ended September 30, 2000 and 1999,
respectively, and $14,200,000 and $5,610,000 for the nine month periods ended
September 30, 2000 and 1999, respectively. The provision in the three and nine
month periods ended September 30, 2000 included an expense of $9,886,000 to
fully reserve our U. S. deferred tax assets. Due to the pretax losses for the
first nine months of 2000, it was determined that a full valuation allowance
should be recorded against the deferred tax asset. The remaining provision in
2000 and the provision in 1999 was due to foreign taxes attributable to our
Canadian operations. Our interim income tax provision is based on an estimate of
our full-year provision. Estimated provisions
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<PAGE> 25
recorded during interim periods may be periodically revised, if necessary, to
reflect current estimates.
NET LOSS. Our consolidated net loss for the three months ended September 30,
2000 and 1999 was $121,322,000 and $39,566,000, respectively, and $189,976,000
and $91,800,000 for the nine months ended September 30, 2000 and 1999,
respectively.
ENTERPRISE REVENUE. Enterprise revenue was $222,676,000 and $239,888,000 for the
three months ended September 30, 2000 and 1999, respectively, and $699,769,000
and $689,163,000 for the nine months ended September 30, 2000 and 1999,
respectively. Enterprise revenue consists of Orbital's consolidated revenues and
100% of the revenues of Orbital's unconsolidated affiliates, NavSol, ORBCOMM and
ORBIMAGE.
EBITDA. The following table sets forth earnings before interest, taxes,
depreciation, amortization, and equity in earnings (losses) of affiliates
("EBITDA") on a consolidated basis and for our business sectors.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------------------------------------------------
(In thousands) 2000 (1) 1999
-------------- ---- ----
<S> <C> <C>
Space and Ground Infrastructure Systems $(63,750) $11,700
Satellite Access Products (3,373) 1,651
Satellite Services 958 852
--------- -------
CONSOLIDATED $(66,165) $14,203
========== =======
</TABLE>
(1) Includes the ORBCOMM write-off in the third quarter of 2000.
EBITDA is provided because it is a measure often used in the industry. EBITDA
should not be considered as an alternative to operating or net income (as
determined in accordance with generally accepted accounting principles), as
indicative of performance, as an alternative to cash flow from operations (as
determined in accordance with generally accepted accounting principles), or as a
measure of liquidity.
BACKLOG. Orbital's contract backlog is primarily attributable to its space and
ground infrastructure business. Our firm backlog at September 30, 2000, was
$1,338,000,000. Firm backlog consists of aggregate contract values for firm
product orders, excluding the portion previously included in operating revenues
on the basis of percentage of completion accounting, and including government
contract orders not yet funded. Total backlog was $4,498,000,000 at September
30, 2000. Total backlog includes firm backlog in addition to unexercised
options, undefinitized orders, certain outstanding bids, indefinite quantity
contracts, and the projected revenue stream related to an exclusive government
license. In addition to the ordinary course fluctuations in backlog due to
revenue recognition and changes and cancellations of orders, firm backlog
decreased from the second quarter of 2000 primarily as a result of the ORBCOMM
writeoff, the reclassification of certain e-commerce backlog into option backlog
and certain other adjustments. Firm and total backlog at September 30, 2000
included approximately
25
<PAGE> 26
$125,000,000 and $140,000,000, respectively, attributable to the Fairchild
Defense unit that was sold in October 2000. Firm and total backlog at September
30, 2000 does not give effect to new orders received since that date or the
termination for convenience of an approximately $260,000,000 contract that
occurred after the end of the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our growth has required substantial capital to fund investments in
and advances to affiliates, business acquisitions, expanding working capital
needs, new business initiatives, research and development and capital
expenditures. Our liquidity has been, and continues to be, constrained because
we have been unable to access capital markets due to uncertainty surrounding the
restatement of our financial results and our and our affiliates' financial
prospects. During 2000, we have funded our capital requirements for operations
through cash from operations combined with cash on hand and the proceeds from
the disposition of certain of our MDA shares and the Fairchild Defense
electronics division. We anticipate that in 2001 cash flow from operations will
be insufficient to cover our capital requirements, operating requirements and
debt service, including our obligation to reduce the outstanding balance of our
primary credit facility as described below. To meet our capital and operating
requirements, management's plans include additional sales of certain assets, the
possibility of raising additional equity and/or debt capital, restructuring
business operations and refinancing our credit facility. Management expects that
such plans will generate sufficient additional liquidity to satisfy our required
obligations; however, no assurance can be given that we will be successful in
achieving such plans.
Cash and investments were $78,400,000 and total debt obligations were
$367,389,000 at September 30, 2000. Orbital's outstanding debt at September 30,
2000 included our $100,000,000 convertible 5% subordinated notes due in 2002,
advances under several credit facilities, including our $157,000,000 primary
credit facility and MDA's $126,000,000 facility that is non-recourse to us,
secured and unsecured notes, and asset-based financings. Cash and investments at
September 30, 2000 included approximately $17,410,000 restricted to support bank
covenants and outstanding letters of credit. Our current ratio was 75% at
September 30, 2000 as compared to 92% at December 31, 1999. Our ratio of total
debt less cash and investments to total debt plus total stockholders' equity was
approximately 58% at September 30, 2000 as compared to 38% at December 31, 1999.
Our primary credit facility provided for total borrowings from an international
syndicate of banks of up to $157,000,000, all of which was drawn and outstanding
as of September 30, 2000, at a weighted average interest rate of 10.5%. These
borrowings are collateralized by accounts receivable, intellectual property and
certain other assets, including the stock of our wholly owned subsidiaries,
which includes MDA Holdings Corporation, the holder of all shares of MDA that we
beneficially own. The facility prohibits the payment of cash dividends, contains
certain covenants with respect to our working capital levels, fixed charges
ratio, leverage ratio and net worth, and expires in December 2002.
Our bank group requires us to pay down the outstanding balance of our credit
facility with 55% of the net cash proceeds that we receive from any equity
offering, asset sale or debt issuance by
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<PAGE> 27
us or our domestic wholly owned subsidiaries. As a result, we paid down
$8,000,000 with proceeds from the sale of our MDA shares in the third quarter.
In October, we paid down $46,000,000 with proceeds from the sale of our
Fairchild Defense electronics division. These payments satisfied a requirement
to reduce the total balance of the facility to $125,000,000 by December 31,
2000, and the outstanding balance of the credit facility was $111,000,000 as of
November 1, 2000. We have until July 1, 2001 to reduce the outstanding balance
of the credit facility to $85,000,000. We now have the ability to borrow up to
$4,000,000 under the credit facility. We amended this facility several times
this year to waive noncompliance with certain financial covenants and to amend
other covenants, including net worth, leverage (including senior leverage),
fixed charges, capital expenditures, and subsidiary debt. Our most recent
amendment in November 2000 permitted MDA's acquisition of ATI and adjusted
financial ratios to take into account the effect of our non-cash charges related
to ORBCOMM.
In June 2000, we made a scheduled payment of principal on the 12% note payable
reducing the outstanding balance from $13,333,000 to approximately $6,666,000.
At that time, we agreed that if we did not prepay the remaining principal
amount, which matures June 2001, on or prior to October 31, 2000, the interest
rate on the balance of the note would be retroactively increased to 13% for the
period June 1 through August 31, 2000 and to 14% from September 1, 2000 until it
is repaid. We did not prepay the balance in October 2000, and our waiver of
noncompliance of covenants under that note expires on December 31, 2000. Rather
than extend or renegotiate the waiver, the noteholder may require us to prepay
the note at that time.
In October 2000, we sold our Fairchild Defense electronics business unit for
approximately $100,000,000. In addition to paying down $46,000,000 on our
primary credit facility as described above, we also repaid approximately
$15,000,000 of debt that had been secured by assets of the Fairchild Defense
unit. The balance will be used to fund general operations.
We invested approximately $30,016,000 in capital expenditures for various
satellites, launch vehicle and other infrastructure production, manufacturing
and test equipment, buildings and leasehold improvements and office equipment in
the nine months ended September 30, 2000. Our operations provided net cash of
$32,815,000 during the nine months ended September 30, 2000.
During the second quarter of 2000, we agreed to advance in January 2001,
$20,000,000 to ORBIMAGE from amounts previously paid by ORBIMAGE under its
procurement agreement with us, provided, however, that such obligation is
terminated if Orbital successfully brokers a renegotiation of ORBIMAGE's license
agreement for RadarSat-2 satellite distribution rights with the company's MDA
subsidiary to, among other things, eliminate ORBIMAGE's future Radarsat-2
payments to MDA. A preliminary agreement between ORBIMAGE and MDA has been
reached. There can be no assurances, however, that the final terms of such
agreement will satisfy all the conditions necessary to relieve us of our
obligations with respect to the advance.
ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources
to meet its capital and operating requirements through January 2001. ORBIMAGE is
seeking additional capital from third parties as well as its existing
shareholders. There can be no assurance that such capital will be available on a
timely basis or at all. As a result of ORBIMAGE's current financial
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<PAGE> 28
condition, Orbital ceased recognizing revenues on the ORBIMAGE system
procurement contract during the third quarter of 2000.
In July 2000, MDA completed an initial public offering on the Toronto Stock
Exchange of 6,600,000 shares of common stock (including shares issued pursuant
to the underwriters' overallotment option), raising gross proceeds of
approximately $37,500,000 for itself, $18,800,000 for us and $5,600,000 for
other selling shareholders. Also, as a result of the public offering, our
ownership interest in MDA has declined to approximately 52%. MDA has a credit
facility with a syndicate of six banks, which is non-recourse to us. The
facility provides for total availability of approximately $126,000,000 (of which
approximately $37,256,000 was outstanding at September 30, 2000) and includes
certain operational and financial covenants including certain restrictions on
the payment of dividends. The total available amount includes a program-specific
letter of credit facility of $33,178,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The company does not have any material exposure to interest rate changes,
commodity price changes, foreign currency fluctuation, or similar market risks,
although we do enter into forward exchange contracts to hedge against specific
foreign currency fluctuations, principally with respect to the Canadian dollar
and Japanese yen. At September 30, 2000, the majority of the company's long-term
debt consisted of its $100,000,000 5% convertible subordinated notes, due 2002.
The fair market value of these convertible securities fluctuates with the
company's stock price, and was $57,000,000 at September 30, 2000.
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<PAGE> 29
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 1999, a class action complaint was filed on behalf of a
class comprised of purchasers and lessees of a high precision GPS
product manufactured by Magellan (as a successor to Ashtech Inc.)
against Sokkia Corporation and certain of its affiliates, Magellan
and others in the Circuit Court of Henry County, Alabama. The
complaint alleged breach of contract and warranty claims and seeks
unspecified compensatory and punitive damages. In October 2000,
the case was dismissed pursuant to a summary judgment motion.
In addition, the company and its subsidiaries are parties to
certain other litigation or proceedings arising in the ordinary
course of business. In the opinion of management, the probability
is remote that the outcome of any such litigation or other
proceedings would have a material adverse effect on our results of
operations or financial positions.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In August 2000, ORBCOMM Global L.P. ("ORBCOMM") defaulted on its
$170,000,000 14% senior notes due 2004. Orbital Communications
Corporation, a wholly owned subsidiary of Orbital, is a guarantor
on the senior notes. The guarantee is non-recourse to Orbital. In
September 2000, ORBCOMM commenced a reorganization proceeding
under Chapter 11 of the U.S. Federal Bankruptcy Code.
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<PAGE> 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY- HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - A complete listing of exhibits required is given
in the Exhibit Index that precedes the exhibits filed with
this report.
(b) Reports on Form 8-K. Not applicable.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: November 14, 2000 By: /s/ David W. Thompson
-----------------------------------
David W. Thompson
Chief Executive Officer
DATED: November 14, 2000 By: /s/ Garrett E. Pierce
-----------------------------------
Garrett E. Pierce
Executive Vice President, Chief
Financial Officer
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<PAGE> 32
EXHIBIT INDEX
The following exhibit is filed as part of this report.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2 Asset Sale and Purchase Agreement dated as of September
26, 2000 by and between Orbital Sciences Corporation,
Sijag Acquisitions, Inc., a subsidiary of Smiths
Industries Aerospace & Defense Systems Inc. and Smiths
Industries Aerospace & Defense Systems Inc. (transmitted
herewith).
10.1 Amendment No. 12 dated as of November 1, 2000 to Third
Amended and Restated Credit and Reimbursement Agreement
by and between Orbital Sciences Corporation and Morgan
Guaranty Trust Company of New York (transmitted
herewith).
10.2 Severance Agreement dated as of August 2, 2000 by and
between Orbital Sciences Corporation and Jeffrey V.
Pirone (transmitted herewith).
10.3 Executive Employment Agreement dated as of August 9,
2000 by and between Orbital Sciences Corporation and
Garrett E. Pierce (transmitted herewith).
10.4 Executive Employment Change of Control Agreement dated
as of August 9, 2000 by and between Orbital Sciences
Corporation and Garrett E. Pierce (transmitted
herewith).
10.5 Performance Share Agreement dated as of August 9, 2000
by and between Orbital Sciences Corporation and Garrett
E. Pierce (transmitted herewith).
27 Financial Data Schedule (such schedule is furnished for
the information of the Securities and Exchange
Commission and is not to be deemed "filed" as part of
the Form 10-Q, or otherwise subject to the liabilities
of Section 18 of the Securities Exchange Act of 1934)
(transmitted herewith).
</TABLE>
32
