<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
SEPTEMBER 30, 1998
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 4, 1998 36,826,023 shares of the registrant's common stock were
outstanding.
<PAGE> 2
EXPLANATORY NOTE
Orbital Sciences Corporation ("Orbital") has determined to restate its
consolidated financial statements for the years ended December 31, 1998, 1997,
1996 and 1995 and its condensed consolidated quarterly financial statements for
1998, 1997, 1996 and 1995. This amendment includes in Item 1 such restated
condensed consolidated financial statements and related footnotes thereto for
the three and nine months ended September 30, 1998 and 1997, and other
information relating to such restated condensed consolidated financial
statements. Item 2 includes Orbital's amended and restated discussion and
analysis of financial condition and results of operations.
Except for Items 1 and 2 and Exhibits 11 and 27, no other information included
in the original report on Form 10-Q is amended by this amendment. Exhibit 11,
Computation of Earnings per Share, has been intentionally omitted from this
filing as it is not required for this form 10-Q/A. 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.
2
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PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------- ---------
(RESTATED) (RESTATED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 39,482 $ 6,391
Short-term investments, at market 225 8,735
Receivables, net 215,372 206,417
Inventories, net 30,232 59,239
Deferred income taxes and other assets 10,248 5,889
--------- ---------
TOTAL CURRENT ASSETS 295,559 286,671
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation
And amortization of $95,507 and $79,319, respectively 135,727 125,327
INVESTMENTS IN AND ADVANCES TO AFFILIATES, net 173,990 130,402
GOODWILL, less accumulated amortization of $26,469 and $19,794,
respectively 203,768 207,523
DEFERRED INCOME TAXES AND OTHER ASSETS 26,517 27,962
--------- ---------
TOTAL ASSETS $ 835,561 $ 777,885
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 40,065 $ 29,767
Accounts payable 42,730 36,218
Accrued expenses 76,988 98,018
Deferred revenues 40,860 69,467
--------- ---------
TOTAL CURRENT LIABILITIES 200,643 233,470
DUE TO AFFILIATE 21,246 --
LONG-TERM OBLIGATIONS, net of current portion 152,803 200,194
OTHER LIABILITIES 1,936 2,443
--------- ---------
TOTAL LIABILITIES 376,628 436,107
NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES 16,178 27,794
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,
36,955,050 and 32,481,719 shares outstanding, respectively
after deducting 20,877 shares held in treasury 370 325
Additional paid-in capital 486,919 326,187
Accumulated other comprehensive loss (5,747) (4,671)
Accumulated deficit (38,787) (7,857)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 442,755 313,984
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 835,561 $ 777,885
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1997
---------- ------------
(RESTATED) (RESTATED)
<S> <C> <C>
REVENUES $187,028 $163,310
Costs of goods sold 140,939 117,669
---------- ------------
GROSS PROFIT 46,089 45,641
Research and development expenses 14,652 7,968
Selling, general and administrative expenses 19,858 26,334
Amortization of goodwill 2,283 956
---------- ------------
INCOME FROM OPERATIONS 9,296 10,383
Net investment income (expense) (244) (878)
Equity in earnings (losses) of affiliates (12,844) (7,837)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries 2,560 533
---------- ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (1,232) 2,201
Provision for income taxes 994 1,200
---------- ------------
NET INCOME (LOSS) $ (2,226) $ 1,001
========== ============
NET INCOME (LOSS) PER COMMON SHARE $ (0.06) $ 0.03
========== ============
Shares used in computing net income (loss) per common share 36,757,055 33,347,734
========== ============
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING DILUTION $ (0.06) $ 0.03
========== ============
Shares used in computing net income (loss) per common share, assuming
dilution 36,757,055 34,492,637
========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1998 1997
------------ ------------
(RESTATED) (RESTATED)
<S> <C> <C>
REVENUES $ 554,981 $ 366,846
Costs of goods sold 414,375 268,748
------------ ------------
GROSS PROFIT 140,606 98,098
Research and development expenses 37,284 23,591
Selling, general and administrative expenses 75,028 67,899
Amortization of goodwill 6,822 2,439
------------ ------------
INCOME FROM OPERATIONS 21,472 4,169
Net investment income (expense) (3,109) (132)
Equity in earnings (losses) of affiliates (57,154) (9,905)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries 11,617 1,717
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (27,174) (4,151)
Provision for income taxes 3,756 12,816
------------ ------------
NET LOSS $ (30,930) $ (16,967)
============ ============
NET LOSS PER COMMON AND DILUTIVE SHARE $ (0.88) $ (0.52)
============ ============
Shares used in computing net loss per common and
dilutive share 35,199,984 32,941,540
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1997
----------- ------------
(RESTATED) (RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (30,930) $ (16,967)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expenses 25,423 18,433
Equity in losses of affiliates 57,154 9,905
Non-controlling interests in losses of consolidated subsidiaries (11,617) (1,717)
Deferred tax asset valuation adjustment -- 10,898
Foreign currency translation adjustment (1,076) (528)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in current and other non-current assets 8,654 (5,636)
Increase (decrease) in current and other non-current liabilities (51,141) (12,528)
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,533) 1,860
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (31,566) (22,334)
Proceeds from sales of fixed assets -- 34,699
Payments for business combinatios -- (44,116)
Purchases, sales and maturities of available-for-sale investment
securities, net 8,510 (14,028)
Investments in and advances to affiliates (87,500) (88,507)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (110,556) (134,286)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) 17,440 (14,710)
Principal payments on long-term obligations (74,283) (22,690)
Net proceeds from issuances of long-term obligations 27,000 159,223
Advances from joint venture partner 16,246 --
Net proceeds from issuances of common stock 160,777 1,803
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 147,180 123,626
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 33,091 (8,800)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,391 27,923
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 39,482 $ 19,123
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated financial
information reflects all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation thereof. Certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to instructions, rules and regulations prescribed by the Securities and Exchange
Commission (the "Commission"). Although the company believes that the
disclosures provided are adequate to make the information presented not
misleading, these unaudited interim condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and the footnotes thereto included in the company's Annual Report on Form 10-K/A
for the year ended December 31, 1997. Operating results for the three- and
nine-month periods ended September 30, 1998 are not necessarily indicative of
the results expected for the full year.
Orbital Sciences Corporation is hereafter referred to as "Orbital" or the
"company."
(1) RESTATEMENT
Management has determined to restate its previously issued consolidated
financial statements for 1998 and 1997 with respect to its accounting treatment
for certain matters, including among other things, its accounting for equity
method investments, capitalized costs and certain other matters. Restatement
matters for equity method accounting include adjustments related to: revenue
recognized on sales to affiliates, preferred dividends paid to other affiliate
investors, calculation of ownership interest, capitalized interest on equity
method investments and gain recognition on an affiliate's warrant issuance. For
a full description of the restatement matters, refer to Notes 1A and 12 to the
company's consolidated financial statements included in the company's 1998
Annual Report on Form 10-K/A previously filed with the Commission.
The effect of the restatement matters on the company's previously reported
revenues, gross profit, income (loss) from operations, net income (loss) and net
income (loss) per common and dilutive share for the periods is as follows:
7
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<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
(in thousands, except share data) SEPTEMBER 30, SEPTEMBER 30,
-------------- ----------------
<S> <C> <C>
1998 RESTATED:
Revenues $ 187,028 $ 554,981
Gross profit 46,089 140,606
Income from operations 9,296 21,472
Net loss (2,226) (30,930)
Net loss per common and dilutive share (0.06) (0.88)
1998 AS PREVIOUSLY REPORTED IN AMENDMENT NO. 1:
Revenues $ 187,688 $ 558,363
Gross profit 46,493 148,718
Income from operations 9,292 30,908
Net income 2,436 13,179
Net income per common share 0.07 0.37
Net income per dilutive share 0.06 0.37
1997 RESTATED:
Revenues $ 163,310 $ 366,846
Gross profit 45,641 98,098
Income from operations 10,383 4,169
Net income (loss) 1,001 (16,967)
Net income (loss) per common share 0.03 (0.52)
Net income (loss) per dilutive share 0.03 (0.52)
1997 AS PREVIOUSLY REPORTED:
Revenues $ 164,670 $ 429,008
Gross profit 46,015 119,366
Income from operations 12,249 29,301
Net income 6,130 16,827
Net income per common share 0.18 0.51
Net income per dilutive share 0.18 0.50
</TABLE>
(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 1997 financial statement to
conform to the 1998 financial statement presentation. All financial amounts are
stated in U.S. dollars unless otherwise indicated.
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(3) INVENTORIES
Inventories consist of components inventory, work-in-process inventory and
finished goods inventory and are generally stated at the lower of cost or net
realizable value on a first-in, first-out, or specific identification basis, net
of allowances for estimated obsolescence.
Components and raw materials are purchased to support future production efforts.
Work-in-process inventory consists primarily of (i) costs incurred under
long-term fixed-price contracts accounted for using the percentage-
of-completion method of accounting applied on a units of delivery basis and (ii)
partially assembled commercial products, and generally includes direct
production costs and certain allocated indirect costs (including an allocation
of general and administrative costs). Work-in-process inventory has been reduced
by contractual progress payments received. Finished goods inventory consists of
fully assembled commercial products awaiting shipment.
(4) INVESTMENTS IN AND ADVANCES TO AFFILIATES AND GOODWILL
The company provided $22,500,000 in cash and $53,737,000 in vendor financing
(approximately one-half of the vendor financing has been advanced to Orbital by
an affiliate of Teleglobe Inc.) to its affiliate ORBCOMM Global, L.P.
("ORBCOMM") during the first nine months of 1998.
In August 1998, the company entered into a Stock Purchase Agreement (the
"Agreement") with CCI International N.V. ("CCI") pursuant to which the company
agreed, subject to the satisfaction by CCI of certain conditions and achievement
of certain milestones, to purchase up to $50,000,000 of CCI's nonvoting Series A
Convertible Preferred Stock (the "Preferred Shares"), with an option to purchase
an additional $50,000,000 of Preferred Shares. In addition, the company agreed
to provide vendor financing contingent on CCI meeting such milestones.
Concurrently with the execution of the Agreement, the company and CCI entered
into a satellite and launch vehicle procurement contract valued at approximately
$480,000,000 for the satellites and a price for the launch vehicles to be
determined. As of September 30, 1998, the company had a net investment of
$9,063,000 in CCI.
During 1998, as a result of additional information becoming available with
respect to the fair value of the acquired assets and liabilities, increases were
made to the goodwill related to the 1997 acquisition of certain assets of CTA
Incorporated.
(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
dilutive effects of stock options and the 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 the
exercise of options are anti-dilutive. Accordingly, fully diluted per-share
losses are the same as basic losses per share disclosed in the accompanying
statements of operations. If the company had reported net income, the number of
shares used in calculating dilutive earnings per share would have been
41,172,222 and 39,925,234, for the three and nine months ended September 30,
1998, respectively, and 33,960,724 for the nine months ended September 30,
1997.
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(6) INCOME TAXES
The company has recorded its interim income tax provision based on estimates of
the company's effective tax rate expected to be applicable for the full fiscal
year. Estimated effective rates recorded during interim periods may be
periodically revised, if necessary, to reflect current estimates.
(7) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income."
Disclosure requirements with respect to comprehensive income, as of and for the
nine months ended September 30, 1998 and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
(Restated) (Restated)
<S> <C> <C>
Differences between net loss, as reported, and
comprehensive loss:
Net loss, as reported $ (30,930) $ (16,967)
Unrealized gains on short-term investments 115 30
Translation adjustments (1,191) (528)
---------- ----------
Comprehensive loss $ (32,006) $ (17,465)
=========== ==========
Accumulated differences between net loss, as reported,
and comprehensive loss:
Beginning of period $ (4,671) $ (3,667)
Unrealized gains (losses) on short term investments 115 30
Translation adjustments (1,191) (528)
----------- ----------
End of period $ (5,747) $ (4,165)
=========== ==========
</TABLE>
(8) COMMON STOCK
In April 1998, the company sold 3,450,000 shares of its common stock in a public
offering at $45.81 per share, generating net proceeds to the company of
approximately $150,000,000 after deducting underwriters' discounts and other
offering expenses.
(9) SUBSEQUENT EVENT
In October 1998, the company's Board of Directors adopted a stockholder rights
plan in which preferred stock purchase rights will be granted as a dividend at
the rate of one right for each share of common stock to stockholders of record
on November 13, 1998. The plan is designed to deter coercive or unfair takeover
tactics. The rights become exercisable only if a person or group in the future
becomes the beneficial owner of 15% or more of Orbital's common stock, or
announces a tender or exchange offer that would result in its ownership of 15%
or more of the Company's common stock. The rights are generally redeemable by
the Company's Board of Directors at a redemption price of $0.005 per right and
expire on October 31, 2008.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997
Certain statements included in this discussion relating to future revenues,
expenses, growth rates, net income, new business, operational performance,
schedules, sources and uses of funds, "Year 2000" issues, and the performance of
the company's affiliates, Orbital Imaging Corporation ("ORBIMAGE") and ORBCOMM
Global, L.P. ("ORBCOMM"), are forward-looking statements that involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance and achievements of the company to differ materially from
any future results, performance, achievements expressed or implied by such
forward-looking statements. Such factors include: general and economic business
conditions, launch results, product performance, risks associated with
government contracts, market acceptance of consumer products, the introduction
of products and services by competitors, risks associated with acquired
businesses including their successful integration into the company in terms of
operating efficiencies, among other things, availability of required capital,
the ability of the company itself, customers and suppliers to assess and correct
timely and accurately "Year 2000" issues, market acceptance of new products and
technologies, and other factors that are described more fully in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Outlook: Issues and Uncertainties" incorporated in the company's Annual Report
on Form 10-K/A for the fiscal year ended December 31, 1997.
The company's products and services are grouped into three business sectors:
Space and Ground Infrastructure Systems, Satellite Access Products and Satellite
Services. Space and Ground Infrastructure Systems include launch vehicles,
satellites, electronics and sensor systems, and satellite ground systems. The
company's Satellite Access Products sector consists of consumer, high-precision
and automotive satellite-based navigation products, satellite communications
products and transportation management systems. The company's Satellite Services
sector includes satellite-based two-way mobile data communications services and
satellite-based imagery services, conducted through the company's ORBCOMM and
ORBIMAGE affiliates, respectively. The company does not control the operational
and financial affairs of ORBCOMM or ORBIMAGE, and consequently their financial
results are not consolidated with the company's results.
RECENT DEVELOPMENTS. In July 1998, the company's stock began trading on the New
York Stock Exchange under the ticker symbol "ORB." The company's stock had
previously traded on the Nasdaq National Market under the symbol "ORBI." In
April 1998, the company sold 3,450,000 shares of its common stock in a public
offering at $45.81 per share, generating net proceeds of approximately
$150,000,000 (see Liquidity and Capital Resources).
In July 1998, ORBCOMM Corporation announced that it elected to postpone its
proposed initial public offering of common stock. ORBCOMM Corporation was
organized for the sole purpose of investing in and acting as a general partner
of ORBCOMM. Orbital, through its subsidiary Orbital Communications Corporation,
and Teleglobe Mobile Partners, an affiliate of Teleglobe Inc., the existing
fifty-percent partners in ORBCOMM, each has reaffirmed its commitment to
11
<PAGE> 12
provide funding to ORBCOMM while considering options for future financing at
ORBCOMM (see Liquidity and Capital Resources).
In August 1998, the company entered into a Stock Purchase Agreement (the
"Agreement") with CCI International, N.V. ("CCI") pursuant to which the company
agreed, subject to the satisfaction by CCI of certain conditions prior to
December 31, 1998, including meeting certain milestones, to purchase up to
$50,000,000 of CCI's nonvoting Series A Convertible Preferred Stock (the
"Preferred Shares"), with an option to purchase an additional $50,000,000 of
Preferred Shares. Concurrently with the execution of the Agreement, the company
and CCI entered into a satellite and launch vehicle procurement contract valued
at approximately $480,000,000 for the satellites and a price to be determined
for the launch vehicles. In addition, Orbital agreed to provide vendor financing
contingent on CCI meeting such milestones. As of September 30, 1998, the
company's net investment in CCI was $9,063,000. Should CCI not ultimately
achieve its financial or operational milestones, some of which entail raising
capital, Orbital may be required to write-off all, or a portion of, its
investment.
In October 1998, the company adopted a stockholder rights plan in which
preferred stock purchase rights will be granted as a dividend at the rate of one
right for each share of common stock to stockholders of record on November 13,
1998. The plan is designed to deter coercive or unfair takeover tactics. The
rights become exercisable only if a person or group in the future becomes the
beneficial owner of 15% or more of Orbital's common stock, or announces a tender
or exchange offer that would result in its ownership of 15% of more of the
Company's common stock. The rights are generally redeemable by the Company's
Board of Directors at a redemption price of $0.005 per right and expire on
October 31, 2008. For more information regarding Orbital's stockholders rights
plan, refer to the company's Form 8-K filed with the Securities and Exchange
Commission on October 22, 1998.
Certain of the 1998 and 1997 financial information has been restated. See Note 1
to the condensed consolidated financial statements.
REVENUES. Orbital's revenues for the three-month periods ended September 30,
1998 and 1997 were $187,028,000 and $163,310,000, respectively. Revenues for the
nine-month periods ended September 30, 1998 and 1997 were $554,981,000 and
$366,846,000, respectively.
Space and Ground Infrastructure Systems. Revenues from the company's Space and
Ground Infrastructure Systems sector totaled $159,926,000 and $148,027,000 for
the three months ended September 30, 1998 and 1997, respectively. Revenues from
this sector totaled $469,246,000 and $315,947,000 for the nine months ended
September 30, 1998 and 1997, respectively.
Revenues from the company's launch vehicles increased to $34,993,000 in the
third quarter of 1998 from $28,546,000 in the third quarter of 1997, and to
$128,729,000 for the nine months ended September 30, 1998 from $83,399,000 for
the nine months ended September 30, 1997. The increase in revenues in 1998 as
compared to 1997 is attributable to a number of factors, including (i) increased
work performed under contracts received for the company's Taurus launch vehicle,
(ii) a significant increase in new orders received during 1997 for the company's
Pegasus and suborbital launch vehicles and (iii) increased work performed on the
X-34 reusable launch vehicle.
12
<PAGE> 13
For the three months ended September 30, 1998, satellite revenues were
$74,498,000 as compared to $74,485,000 for the three months ended September 30,
1997. Satellite revenues were $190,050,000 for the nine months ended September
30, 1998 as compared to $103,230,000 for the nine months ended September 30,
1997. The Increase in overall 1998 satellite revenues is due to increased sales
on the procurement agreement with ORBIMAGE. In addition, revenues included sales
generated by the satellite business acquired from CTA Incorporated ("CTA") in
August 1997 of approximately $21,903,000 and $51,775,000, respectively, for the
three- and nine-month periods ended September 30, 1998, and of approximately
$21,964,000 for the three-month period ended September 30, 1997. The company
periodically assesses and evaluates the recoverability of the related excess of
purchase price over net assets acquired based on current facts and circumstances
and the operational performance of the acquired CTA business.
Revenues from electronics and sensor systems were $25,729,000 for the three
months ended September 30, 1998 as compared to $26,914,000 for the three months
ended September 30, 1997, and increased to $82,541,000 for the nine months ended
September 30, 1998 from $77,108,000 for the nine months ended September 30,
1997. Although consistent on a quarter-to-quarter basis, the increase in overall
1998 revenues is primarily due to work performed in 1998 on new orders for
defense electronics products received during the second half of 1997 and in
early 1998.
Revenues from the company's ground systems products increased to $24,706,000 for
the three months ended September 30, 1998 from $18,082,000 for the three months
ended September 30, 1997. Ground systems products revenues increased to
$67,926,000 for the nine months ended September 30, 1998 from $52,210,000 for
the nine months ended September 30, 1997. The increase in 1998 revenues is
primarily due to work performed on orders received in 1997 and in early 1998,
including work on a new remote imaging system.
Although overall infrastructure revenues increased, revenues under procurement
agreements with ORBCOMM and ORBIMAGE for the three months ended September 30,
1998 decreased to $24,798,000 from $28,299,000 for the three months ended
September 30, 1997. Revenues from sales to ORBCOMM and ORBIMAGE were $95,343,000
for the nine months ended September 30, 1998 as compared to $55,523,000 for the
nine months ended September 30, 1997. The increase in year to date revenues is
primarily due to increased work under the ORBIMAGE procurement agreement.
Satellite Access Products. Revenues from sales of satellite-based navigation,
communications and transportation management systems and products increased to
$26,963,000 for the three months ended September 30, 1998 from $15,261,000 for
the three months ended September 30, 1997. Satellite access products revenues
were $85,273,000 for the nine months ended September 30, 1998 as compared to
$50,796,000 for the nine months ended September 30, 1997. The three- and
nine-month periods ended September 30, 1998 included approximately $10,654,000
and $32,557,000, respectively, of sales generated by the company's
high-precision navigation products that were acquired as a result of the
December 1997 merger of Ashtech Inc. ("Ashtech") with the company's subsidiary,
Magellan Corporation ("Magellan").
Although 1998 revenues from satellite access products were greater than 1997
revenues, revenues are below management's expectations due to increased
competition in consumer products and slower sales of automotive navigation
products. Such revenue levels, combined with costs associated with the
integration and restructuring of Ashtech and Magellan, have led to
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<PAGE> 14
operating losses within this segment for the 1998 periods. While the company
expects this trend to continue for the next several months, Magellan believes
the trend will reverse with the introduction of new products and the
implementation of further cost-related efficiencies during the same period.
GROSS PROFIT/COSTS OF GOODS SOLD. Costs of goods sold include the costs of
personnel, materials, subcontracts and overhead related to sales of commercial
products and revenue earned under various long-term contracts. Gross profit
depends on a number of factors, including the company's mix of contract types
and costs incurred thereon in relation to estimated costs. The company's gross
profit for the third quarter of 1998 was $46,089,000 as compared to $45,641,000
in the third quarter of 1997. The company's gross profit for the first nine
months of 1998 was $140,606,000 as compared to $98,098,000 for the first nine
months of 1997. Gross profit as a percentage of revenues was between 25% and 28%
for all periods.
Space and Ground Infrastructure Systems. Gross profit from the company's Space
and Ground Infrastructure Systems sector was $38,202,000 and $41,522,000 for the
three months ended September 30, 1998 and 1997, respectively (or approximately
24% and 28% of sector revenues, respectively for each period). Gross profit for
this sector was $122,624,000 and $82,989,000 for the nine months ended September
30, 1998 and 1997, respectively, (or 26% of sector revenues for both periods).
Gross profit margins from the company's space and ground infrastructure systems
for the three- and nine-month periods ended September 30, 1998 were generally
consistent with comparable 1997 periods. Gross profit margins for the company's
launch vehicles decreased to 25% for the nine months ended September 30, 1998
from 28% for the nine months ended September 30, 1997, primarily due to work
performed on a lower margin Taurus contract and increased activity on the lower
margin X-34 contract.
Satellite Access Products. Gross profit for satellite access products was
$8,785,000 (or 33% of sector revenues) and $4,195,000 (or 27% of sector
revenues) for the three months ended September 30, 1998 and 1997, respectively,
and $21,175,000 (or 25% of sector revenues) and $15,246,000 (or 30% of sector
revenues) for the nine months ended September 30, 1998 and 1997, respectively.
During the nine months ended September 30, 1998, Magellan recognized
approximately $12,500,000 of charges for inventory obsolescence relating to
consumer navigation products. Magellan continues to face changing market
conditions, which places significant pressure on inventory components and
individual product lifetimes and inventory levels.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses represent
Orbital's self-funded product development activities and exclude direct
customer-funded development. Research and development expenses for the three
months ended September 30, 1998 and 1997 were $14,652,000 (or 8% of revenues)
and $7,968,000 (or 5% of revenues), respectively. Research and development
expenses were $37,284,000 (or 7% of revenues) and $23,591,000 (or 6% of
revenues) for the nine months ended September 30, 1998 and 1997, respectively.
Research and development expenses for the three and nine months ended September
30, 1998 included approximately $3,000,000 and $5,000,000, respectively, of
costs related to identifying and addressing technical issues arising on certain
ORBCOMM advanced data communications
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<PAGE> 15
satellites. Current year expenses also include increased research and
development efforts for satellite access products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include the costs of marketing, advertising, promotional
and other selling expenses as well as the costs of the finance, legal,
administrative and general management functions of the company. Selling, general
and administrative expenses for the three months ended September 30, 1998 and
1997 were $19,858,000 (or 11% of revenues) and $26,334,000 (or 16% of revenues),
respectively. Selling, general and administrative expenses for the nine months
ended September 30, 1998 and 1997 were $75,028,000 (or 14% of revenues) and
$67,899,000 (or 19% of revenues), respectively. The decrease in selling, general
and administrative expenses as a percentage of revenues during 1998 as compared
to 1997 was primarily attributable to operational efficiencies gained as a
result of the acquisition of CTA's space business.
INTEREST INCOME AND INTEREST EXPENSE. Interest income for the periods reflects
interest earnings on cash equivalents and short-term investments. Interest
expense includes the cost of borrowings on Orbital's convertible subordinated
notes, revolving credit facilities and other secured and unsecured debt.
Interest income and interest expense, net of amounts capitalized, were
$1,001,000 and $1,245,000, respectively, for the three months ended September
30, 1998 as compared to interest income and interest expense of $419,000 and
$1,297,000, respectively, for the three months ended September 30, 1997. The
company's interest income and interest expense for the first nine months of 1998
were $2,875,000 and $5,984,000, respectively, while for the first nine months of
1997, the company earned interest income and incurred interest expense of
$1,405,000 and $1,537,000, respectively. Interest expense has been reduced by
capitalized interest of $3,118,000 and $2,167,000 for the three months ended
September 30, 1998 and 1997, respectively, and by $8,248,000 and $5,575,000 for
the nine months ended September 30, 1998 and 1997, respectively.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN
(EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES. Equity in earnings (losses) of
affiliates net of non-controlling interests in (earnings) losses of consolidated
subsidiaries were ($10,284,000) and ($7,304,000) for the three months ended
September 30, 1998 and 1997, respectively, and were ($45,537,000) and
($8,188,000) for the nine months ended September 30, 1998 and 1997,
respectively. These amounts primarily represent (i) elimination of proportionate
profits or losses on sales of infrastructure products to ORBCOMM and ORBIMAGE,
(ii) the company's pro rata share of ORBCOMM's, ORBCOMM International Partners,
L.P.'s and ORBIMAGE's current period earnings and losses (iii) preferred
dividends and beneficial conversion rights to other investors in ORBIMAGE and
(iv) non-controlling stockholders' pro rata share of ORBCOMM USA L.P.'s and
Magellan's current period earnings and losses. The increase in total losses
during 1998 is primarily due to increased start-up expenses and resulting losses
at ORBCOMM.
PROVISION FOR INCOME TAXES. The company recorded an income tax provision of
$994,000 and $1,200,000 for the three months ended September 30, 1998 and 1997,
respectively, and of $3,756,000 and $12,816,000 for the nine months ended
September 30, 1998 and 1997, respectively. The 1997 tax provision includes a
deferred tax provision of approximately $10,898,000 relating to the ORBIMAGE
preferred stock transaction. The company records its interim income tax
provisions based on estimates of the company's effective tax rate expected to
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<PAGE> 16
be applicable for the full fiscal year. Estimated effective rates recorded
during interim periods may be periodically revised, if necessary, to reflect
current estimates.
LIQUIDITY AND CAPITAL RESOURCES
The company's growth has required substantial capital to fund expanding working
capital needs, investments in ORBCOMM and ORBIMAGE, certain business
acquisitions, new business initiatives, research and development and capital
expenditures. The company has funded these requirements to date, and expects to
fund its future requirements, through cash generated by operations, working
capital, loan facilities, asset-based financings, joint venture arrangements and
private and public equity and debt offerings. The company expects to continue to
pursue potential acquisitions and equity investments that it believes would
enhance its businesses and to fund such transactions through existing cash and
loan facilities, joint ventures or the issuance of equity and/or debt
securities, asset-based financings, and cash generated by operations.
In April 1998, the company sold 3,450,000 shares of its common stock in a public
offering, generating net proceeds of approximately $150,000,000 (the
"Offering"). Orbital plans to continue to use the net proceeds from the Offering
for (i) investments in ORBCOMM, new projects or emerging space-related
businesses, such as CCI, (ii) expanded research and development for new
products, (iii) acquisitions of businesses and/or product lines complementary to
the company's existing businesses, and (iv) for other general corporate
purposes.
In July 1998, ORBCOMM Corporation announced that it elected to postpone its
proposed initial public offering of common stock. The company provided
$22,500,000 in cash and $53,737,000 in vendor financing to ORBCOMM during the
first nine months of 1998. Orbital, through its subsidiary Orbital
Communications Corporation, and Teleglobe Mobile Partners, an affiliate of
Teleglobe Inc., the existing fifty-percent partners in ORBCOMM, each has
reaffirmed its commitment to provide funding to ORBCOMM while considering
options for future financing at ORBCOMM. The company currently estimates that
its additional funding obligation could be as much as $10,000,000 through the
remainder of 1998. Orbital expects to fund its share of ORBCOMM's capital needs
through existing resources, including credit facilities.
Cash, cash equivalents and short-term investments were $39,707,000 at September
30, 1998, and the company had total debt obligations outstanding of
approximately $192,868,000 at September 30, 1998. The outstanding debt is
comprised of the company's convertible subordinated notes, advances under the
company's line of credit facilities, secured and unsecured notes, and
asset-based financings.
The company's primary revolving credit facility provides for total borrowings
from an international syndicate of six banks of up to $100,000,000. No
borrowings were outstanding under the facility at September 30, 1998. Borrowings
are secured by contract receivables, and the facility prohibits the payment of
cash dividends, contains certain covenants with respect to the company's working
capital, fixed charge ratio, leverage ratio and consolidated net worth, and
expires in August 2001. The company is currently in discussions with its lead
bank to amend and restate its primary credit facility, and to increase the
amount of total borrowings. The company (or its subsidiaries) also maintains
additional, smaller revolving credit facilities, under which approximately
$25,940,000 was outstanding at September 30, 1998 at a weighted average
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interest rate of approximately 7%. Additional borrowing capacity on these other
agreements was approximately $5,100,000 at September 30, 1998.
The company's operations used net cash of approximately $3,533,000 during the
first nine months of 1998. Also, during the first nine months of 1998, in
addition to its investment in ORBCOMM, the company invested approximately
$9,000,000 in CCI and $31,566,000 in capital expenditures for various satellite
and launch vehicle equipment and other production, manufacturing, test and
office equipment.
Orbital plans to consolidate its offices and its satellite-related engineering,
manufacturing and operations facilities adjacent to its Dulles, Virginia
headquarters. The company anticipates that the new construction will be
conducted in two phases during 1999 and 2000-2001. To finance the expansion,
Orbital is currently pursuing various financing alternatives, including
third-party debt financings and "built-to-suit" agreements. Consequently, the
company does not expect to use existing resources to finance this expansion.
Orbital expects that its capital needs for the remainder of 1998 will be
provided by working capital, cash flows from operations, existing credit
facilities, and operating lease arrangements.
YEAR 2000 ISSUES
The company has developed a plan to prepare for potential "Year 2000" issues
with respect to various operational, technical and financial computer-related
systems. The plan has been designed to minimize risk to the company and its
customers using a standard industry five-phase approach. The five phases are
awareness, assessment, renovation, validation and implementation. The company
has substantially completed the awareness and assessment phases, including a
comprehensive inventory of potentially affected systems. In many cases
renovation work is well underway and validation testing has begun with respect
to certain critical systems.
The company currently plans to achieve its overall goal of Year 2000 readiness
in mid-1999. During the remainder of 1998, the company expects to complete the
assessment phase, and the first half of 1999 will be devoted to renovating,
validating and implementing its corrective action plan by (i) reprogramming
affected software when appropriate and feasible, (ii) obtaining vendor-provided
software upgrades when available and (iii) completely replacing affected systems
when necessary.
The total costs to implement the plan, which costs include the already planned
replacement of existing systems to support the company's overall growth, are
estimated to be well less than one percent of anticipated 1998 annual revenues.
Approximately 70% of the estimated costs to implement the plan have been
incurred to date and the remaining costs are expected to be incurred over the
remainder of 1998 and 1999. All costs, including the cost of internal personnel,
outside consultants, system replacements and other equipment, will be expensed
as incurred, except for long-lived assets, which will be capitalized in
accordance with the company's capitalization policies. The company has not
postponed the implementation or upgrade of other systems as a result of focusing
on the Year 2000 plan.
As part of the plan, formal communication with the company's suppliers,
customers and other service providers has been initiated. To date, however, the
company has not determined whether "Year 2000" issues affecting key suppliers,
significant customers (including the U.S.
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government), or critical service providers will materially impact the company's
cash flows or operating results. A "reasonably likely worst case" scenario of
the Year 2000 issue for Orbital could include: isolated performance problems
with engineering, financial and administrative systems; isolated interruption of
deliveries from critical suppliers; product liability or warranty issues; and
the temporary inability of key customers to pay amounts due to the company.
Contingency plans are being prepared, and will be implemented if necessary,
including having sufficient liquidity available to sustain a temporary
interruption of cash receipts during early 2000 and the identification of
alternative suppliers for critical components. There can be no assurance that
the company has identified, or will identify, all "Year 2000" affected systems,
suppliers, customers and service providers, or that its corrective action plan
will be timely and successful.
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ORBITAL SCIENCES CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY- HOLDERS
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.
(i) On July 2, 1998, the Company filed a Current
Report on Form 8-K, dated July 2, 1998,
disclosing ORBCOMM Corporation's election to
postpone its proposed initial public offering
of common stock.
(ii) On July 23, 1998, the Company filed a Current
Report on Form 8-K, dated July 21, 1998,
disclosing the financial results of the Company
for the quarter ended June 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: June 28, 2000 By:/S/ Jeffrey V. Pirone
---------------------------------
Jeffrey V. Pirone, Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
10.2.6 Sixth Amendment to Note Agreement dated as of August 14, 1998
between Orbital Sciences Corporation and The Northwestern Mutual
Life Insurance Company (previously filed).
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 10Q/A, or otherwise
subject to the liabilities of Section 18 of the Securities Act of
1934) (transmitted herewith).
</TABLE>
21
