<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
MARCH 31, 2000
ORBITAL SCIENCES CORPORATION
Commission file number 0-18287
-------------------------------
<TABLE>
<CAPTION>
DELAWARE 06-1209561
------------------------------------------------- ------------------------------------------
(State of Incorporation) (IRS Identification number)
<S> <C>
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 May 10, 2000, 37,417,317 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; UNAUDITED)
<TABLE>
<CAPTION>
A S S E T S
-------------
MARCH 31 DECEMBER 31,
2000 1999
---------------------- ----------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 31,294 $ 74,524
Restricted cash and short-term investments, at market 34,532 34,630
Receivables, net 261,610 295,315
Inventories, net 59,454 54,483
Deferred income taxes and other current assets 21,011 17,187
---------------------- ----------------------
TOTAL CURRENT ASSETS 407,901 476,139
---------------------- ----------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
$126,498 AND $122,129, RESPECTIVELY 129,829 137,622
INVESTMENTS IN AND ADVANCES TO AFFILIATES, NET 127,944 141,273
GOODWILL, LESS ACCUMULATED AMORTIZATION OF
$46,065 AND $28,744,
RESPECTIVELY 274,490 278,309
DEFERRED INCOME TAXES AND OTHER ASSETS, LESS
ACCUMULATED AMORTIZATION OF $3,478 AND $2,520,
RESPECTIVELY 58,414 59,569
---------------------- ----------------------
TOTAL ASSETS $ 998,578 $ 1,092,912
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings and current portion of
long-term obligations $ 129,585 $ 131,073
Accounts payable 54,334 83,566
Accrued expenses 125,520 138,613
Due to joint venture partner -- 28,418
Deferred revenues 123,528 133,499
---------------------- ----------------------
TOTAL CURRENT LIABILITIES 432,967 515,169
---------------------- ----------------------
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 237,566 239,672
OTHER LIABILITIES 14,072 16,208
---------------------- ----------------------
TOTAL LIABILITIES 684,605 771,049
---------------------- ----------------------
NON-CONTROLLING INTERESTS IN
NET ASSETS OF CONSOLIDATED SUBSIDIARIES 22,581 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, -- --
37,417,245 and 37,400,814 shares outstanding, respectively 374 374
Additional paid-in capital 509,660 497,923
Accumulated other comprehensive loss (5,772) (5,159)
Accumulated deficit (212,870) (186,346)
---------------------- ----------------------
TOTAL STOCKHOLDERS' EQUITY 291,392 306,792
---------------------- ----------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 998,578 $ 1,092,912
====================== ======================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 3
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
------------------------------------------------------
2000 1999
--------------------- -------------------
<S> <C> <C>
REVENUES $223,541 $200,171
COSTS OF GOODS SOLD 181,653 159,121
--------------------- ---------------------
GROSS PROFIT 41,888 41,050
RESEARCH AND DEVELOPMENT EXPENSES 8,089 10,082
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 28,132 28,541
AMORTIZATION OF GOODWILL 3,599 2,866
--------------------- ---------------------
INCOME (LOSS) FROM OPERATIONS 2,068 (439)
NET INVESTMENT INCOME (EXPENSE) NET OF INTEREST
EXPENSE OF $6,038 AND $4,121, RESPECTIVELY (4,449) (3,297)
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (24,119) (24,390)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 1,249 3,261
---------------------- ---------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (25,251) (24,865)
PROVISION FOR INCOME TAXES 1,273 1,298
---------------------- ---------------------
NET LOSS $ (26,524) $ (26,163)
===================== =====================
NET LOSS PER COMMON AND DILUTIVE SHARE $ (0.71) $ (0.70)
===================== =====================
SHARES USED IN COMPUTING NET LOSS PER COMMON AND DILUTIVE SHARE 37,409,030 37,138,029
===================== =====================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
<PAGE> 4
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------------------------
2000 1999
------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET LOSS $ (26,524) $ (26,163)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expenses 12,040 10,180
Amortization of prepaid financing costs 1,355 773
Equity in losses of affiliates 24,119 24,390
Non-controlling interests in losses of consolidated subsidiaries (1,249) (3,261)
Loss on sale of fixed assets and investments 360 --
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables 53,980 (62,094)
(Increase) decrease in inventories (4,971) (1,082)
(Increase) decrease in other assets (3,207) (7,764)
Increase (decrease) in accounts payable and accrued expenses (42,419) 28,215
Increase (decrease) in deferred revenue (7,012) 27,860
Increase (decrease) in other liabilities (2,136) (1,801)
---------------- ---------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,336 (10,747)
---------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,556) (9,716)
Payments for business combinations -- (1,064)
Purchases of investment securities (1,698) --
Investments in and advances to affiliates (4,050) (18,716)
---------------- ---------------------
NET CASH USED IN INVESTING ACTIVITIES (16,304) (29,496)
---------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net of (repayments) (986) 1,462
Principal payments on long-term obligations (2,608) (9,252)
Net proceeds from issuances of long-term obligations -- 49,000
Net proceeds from issuances of common stock -- 2,109
Repayments to joint venture partner (28,418) (4,918)
---------------- --------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (32,012) 38,401
---------------- --------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 750 430
---------------- --------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (43,230) (1,412)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 74,524 15,268
---------------- --------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,294 $ 13,856
================ ====================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
<PAGE> 5
ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 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. Operating results for the three -month period ended
March 31, 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 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
5
<PAGE> 6
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
and transportation management systems, and satellite ground systems, space
robotics, 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. In 1999, the company recast the composition of its
reportable segments as a result of new reporting mechanisms and operating
decision making procedures. The corresponding segment information for the prior
years has been revised to conform to the 1999 presentation.
The following table presents operating information for the three months ended
March 31, 2000 and 1999 and identifiable assets at March 31, 2000 and December
31, 1999 by reportable segment. Intersegment and intersector sales are accounted
for based on prices negotiated by the parties. There were no significant sales
or transfers between segments.
6
<PAGE> 7
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(In thousands)
2000 1999
---- ----
LAUNCH VEHICLES AND ADVANCED PROGRAMS:
<S> <C> <C>
Revenues $ 34,900 $ 43,411
Operating income (loss) 3,531 2,665
Identifiable assets 120,906 125,157
Capital expenditures 626 3,093
Depreciation and amortization 1,596 1,808
SATELLITES AND RELATED SPACE SYSTEMS:
Revenues $ 67,400 $ 63,166
Operating income (loss) 69 8,179
Identifiable assets 72,599 58,153
Capital expenditures 1,484 2,167
Depreciation and amortization 1,499 1,721
ELECTRONICS AND SENSOR SYSTEMS AND TRANSPORTATION MANAGEMENT SYSTEMS:
Revenues $ 35,397 $ 35,813
Operating income (loss) 1,850 (217)
Identifiable assets 104,341 114,765
Capital expenditures 404 246
Depreciation and amortization 1,083 29
SATELLITE GROUND SYSTEMS, SPACE ROBOTICS, MAPPING
AND LAND INFORMATION SERVICES:
Revenues $ 57,691 $ 28,691
Operating income (loss) 2,680 3,612
Equity in earnings (losses of affiliates) (90) --
Identifiable assets 201,230 213,301
Capital expenditures 1,423 2,377
Depreciation and amortization 2,177 488
TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS:
Revenues $ 195,388 $171,081
Operating income (loss) 8,130 14,239
Equity in earnings (losses of affiliates) (90) --
Identifiable assets 499,076 511,376
Capital expenditures 3,937 7,883
Depreciation and amortization 6,355 4,046
SATELLITE ACCESS PRODUCTS:
Revenues $ 24,691 $ 26,994
Operating income (loss) (3,553) (4,749)
Identifiable assets 107,996 92,939
Capital expenditures 300 700
Depreciation and amortization 1,727 1,996
SATELLITE SERVICES:
Revenues $ 3,462 $ 2,096
Operating income (loss) 292 (5,852)
Equity in earnings (losses of affiliates) (24,029) (24,390)
Non-controlling interest in (earnings) losses consolidated
subsidiaries 103 1,280
Identifiable assets 158,649 147,072
Capital expenditures 55 24
Depreciation and amortization 314 139
CORPORATE AND OTHER:
Operating income (loss) $ (2,801) $ (4,077)
Non-controlling interest in (earnings) losses consolidated
subsidiaries 1,146 1,981
Identifiable assets 216,639 341,525
Capital expenditures 6,264 1,109
Depreciation and amortization 3,644 3,999
CONSOLIDATED:
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(In thousands)
2000 1999
---- ----
<S> <C> <C>
Revenues $ 223,541 $ 200,171
Operating income (loss) 2,068 (439)
Equity in earnings (losses of affiliates) (24,119) (24,390)
Non-controlling interest in (earnings) losses consolidated
Subsidiaries 1,249 3,261
Identifiable assets 982,360 1,092,912
Capital expenditures 10,556 9,716
Depreciation and amortization 12,040 10,180
</TABLE>
(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 for the three months ended
March 31, 2000 and 1999, the number of shares used in calculating diluted
earnings per share would have been 41,220,187 and 41,751,171, respectively.
8
<PAGE> 9
(6) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) and associated differences are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
(In thousands)
Differences between net income (loss), as
reported, and comprehensive income (loss):
<S> <C> <C>
Net loss, as reported $ (26,524) $ (26,163)
Translation adjustments (613) 325
------------ -----------
Comprehensive loss $ (27,137) $ (25,838)
============ ============
Accumulated differences between
net loss, as reported, and
comprehensive loss:
Beginning of period $ (5,159) $ (7,149)
Translation adjustments (613) 325
------------ -----------
End of period $ (5,772) $ (6,824)
============ ============
</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, until 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.
In January 2000, Orbital entered into an agreement (the "Omnibus Agreement")
with ORBCOMM, Teleglobe, OCC, and Teleglobe Mobile pursuant to which:
9
<PAGE> 10
- Teleglobe Mobile became ORBCOMM's sole general partner and majority owner,
with an interest of approximately 66% as of March 31, 2000;
- OCC remained as a limited partner to ORBCOMM, with a minority ownership
interest of approximately 34% as of March 31, 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 $11,736,000 increase in additional paid-in capital in the first
quarter of 2000 as a result of this transaction. A deferred tax obligation of
$4,448,000 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>
<CAPTION>
<S> <C>
Decrease in accounts receivable and other current assets $ (742)
Decrease in accounts payable and other accrued liabilities 414
Decrease in 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 from 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, 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 paid
one-third of the balance in the first quarter of 2000 and the balance is due by
June 2001.
10
<PAGE> 11
At March 31, 2000 and December 31, 1999, Orbital's investments in and advances
to ORBCOMM was approximately $97,605,000 and $107,989,000, respectively. In
addition, ORBCOMM owed the company a total of $30,222,000 and $48,711,000 at
March 31, 2000 and December 31, 1999, respectively, which is included in
receivables in the accompanying balance sheet.
(8) DEBT OBLIGATIONS
Orbital has a credit facility with an international syndicate of nine banks.
This credit facility contains certain financial and operating covenants. In
April 2000, Orbital and the banks signed an amendment that waived Orbital's
noncompliance with certain covenants for all periods prior to the amendment date
and established new covenant levels for 2000 net worth, leverage (including
senior leverage), fixed charges, capital expenditures and subsidiary debt.
Orbital also agreed with its banks to further reduce the total amount that is
available under the facility on August 1, 2000, by either (i) an additional
$40,000,000 if Orbital and the banks restructure the facility by May 31, 2000,
or (ii) by an additional $60,000,000 if Orbital is unsuccessful in restructuring
the facility by that date. Orbital is required to apply toward this reduction
50% of the net cash proceeds that Orbital receives from any equity offering,
asset sale or debt issuance by Orbital or its domestic wholly owned
subsidiaries. In addition, Orbital agreed to further reduce the facility to
$85,000,000 by July 2001.
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 April
2000, Orbital and the noteholder signed an amendment that waived noncompliance
with certain financial covenants for all periods prior to the amendment date and
for 2000.
(9) COMMITMENTS AND CONTINGENCIES
In the first quarter of 1999, a number of class action lawsuits were filed
against the company alleging violations of the federal securities laws on behalf
of purchasers of the company's stock during the period from April 21, 1998
through February 16, 1999, and seeking monetary damages. An additional class
action complaint was filed in 1999 on behalf of purchasers of call options. In
the fourth quarter of 1999, in connection with the company's announcement of the
restatement of its financial statements for fiscal years 1997, 1998 and the
first two quarters of 1999, a class action lawsuit was filed against the company
alleging violations of the federal securities laws, on behalf of purchasers of
the company's stock and call options during the period from April 22, 1997
through October 29, 1999. These class action lawsuits have been consolidated.
While the amounts to be claimed may be substantial, the company believes that
the allegations are without merit and intends to defend vigorously against such
allegations.
11
<PAGE> 12
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 alleges breach of contract and warranty claims and seeks
unspecified compensatory and punitive damages. The company believes that the
allegations are without merit and intends to defend vigorously against such
allegations.
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
under a contract that was assigned to Orbital in connection with its 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 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.
The company is currently arbitrating a claim brought by a claimant alleging that
the company is in actual or anticipatory breach of obligations allegedly imposed
on the company in a decision in a previous arbitration proceeding brought by the
claimant against CTA. The claimant claims that he is entitled to a sum exceeding
$30,000,000 from the company, as successor-in-interest to CTA. Management
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 it is entitled to indemnification from CTA
for all or a part of any damages arising from this litigation.
The eventual outcome of the foregoing matters is uncertain and could have a
material adverse impact on the company's results of operations and financial
condition.
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.
(10) SUBSEQUENT EVENT
In April, 2000, our MacDonald, Dettwiler and Associates Ltd. ("MDA") subsidiary
entered into a revised credit facility with its commercial bank. The new
facility provides for total borrowings of approximately $133,000,000 and
includes certain operational and financial covenants including certain
restrictions on the payment of dividends. The facility is non-recourse to
Orbital.
In April 2000, the company's MDA subsidiary acquired certain of the assets and
liabilities of the DataQuick Products division of Acxiom Corporation for
$55,500,000 (the "DataQuick Acquisition"). MDA paid $30,000,000 of the purchase
price in cash at closing and deferred payment of the remaining portion until
October 2000. This acquisition will be accounted for using the purchase method
of accounting.
12
<PAGE> 13
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 future revenues, expenses, growth rates, net income,
new business, operational performance, schedules, sources and uses of funds,
financing plans, the outcome of pending litigation and the performance of our
affiliates, Orbital Imaging Corporation ("ORBIMAGE"), ORBCOMM Global L.P.
("ORBCOMM") and CCI International NV ("CCI"), 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,
risks associated with government contracts, market acceptance of consumer
products, the introduction of products and services by competitors, risks
associated with acquired businesses, availability of required capital, market
acceptance of new products and technologies, risks associated with long-term
contracts, 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.
Our 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 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 and 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 CCI
and our subsidiaries Radarsat International Inc. ("RSI") and Orbital Navigation
Corporation ("ORBNAV"): 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 and financial affairs of ORBCOMM, ORBIMAGE and CCI and
consequently their financial results are not consolidated with our results.
RECENT DEVELOPMENTS. In April 2000, our MDA subsidiary acquired certain of the
assets and liabilities of the DataQuick Products division of Acxiom Corporation
for $55,500,000 (the "DataQuick Acquisition"). We paid $30,000,000 of the
purchase price in cash at closing and deferred payment of the remaining portion
until October 2000. We will account for the acquisition using the purchase
method of accounting.
13
<PAGE> 14
In April, 2000, our MDA subsidiary entered into a revised credit facility with
its commercial bank. The new facility provides for total borrowings of
approximately $133,000,000 and includes certain operational and financial
covenants, including certain restrictions on the payment of dividends. The
facility is non-recourse to Orbital.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
REVENUES. Our consolidated revenues for the three-month periods ended March 31,
2000 and 1999 were $223,541,000 and $200,171,000, respectively. Revenues for the
three months ended March 31, 2000 and 1999 include sales to non-controlled and
unconsolidated affiliates of $24,447,000 and $36,327,000, respectively.
Space and Ground Infrastructure Systems. Revenues from our space and ground
infrastructure systems sector totaled $195,388,000 and $171,081,000 for the
three months ended March 31, 2000 and 1999, respectively.
Revenues from our launch vehicles and advanced programs decreased to $34,900,000
in the first quarter of 2000, from $43,411,000 in the first quarter of 1999. The
decrease in revenues in 2000 as compared to a year ago is primarily attributable
to customer-induced launch schedule changes by our government customers and
reduced demand from our commercial customers.
For the three months ended March 31, 2000, revenues from satellites and related
space systems increased to $67,400,000 from $63,166,000 in the first three
months of 1999. The increase in satellite sales is primarily due to additional
revenues generated from two commercial geosynchronous satellite contracts
received since late 1998.
Revenues from electronics and sensor systems and transportation management
systems decreased slightly to $35,397,000 for the three months ended March 31,
2000 from $35,813,000 in the comparable 1999 period.
Revenues from satellite ground systems, space robotics and mapping and land
information services increased to $57,691,000 in the first quarter of 2000 as
compared to $28,691,000 in the comparable 1999 quarter. The significant increase
in 2000 revenues resulted primarily from the acquisition of the space robotics
division of Spar Aerospace Ltd. (completed in May 1999) and the acquisition of
an operating license for our land information services (acquired from the
British Columbia government in April 1999), as well as from work performed on
orders received in late 1998 for a new satellite remote imaging system and in
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 first quarter of 2000 were
$24,691,000 as compared to $26,994,000 for the first quarter of 1999. The slight
decrease in sector revenues is attributable to reduced sales of high-precision
industrial navigation and positioning products.
14
<PAGE> 15
Satellite Services. Revenues for this sector totaled $3,462,000 and $2,096,000
in the first quarters of 2000 and 1999, respectively. 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, 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
first quarter of 2000 was $41,888,000 (19% of revenues) as compared to
$41,050,000 (21% of revenues) for the first quarter of 1999.
Space and Ground Infrastructure Systems. Gross profit margins from our space and
ground infrastructure systems totaled $32,340,000 (17% of sector revenues) and
$33,206,000 (19% of sector revenues) for the three months ended March 31, 2000
and 1999, respectively.
Gross profit margins from launch vehicles and advanced programs were 21% for the
first quarter of 2000 as compared to 15% for the first quarter of 1999. The
lower gross margin for launch vehicles in 1999 was primarily due to completing
work in that quarter on certain less profitable space and suborbital launch
vehicle contracts. Satellites contributed gross margins of 9% during the first
quarter of 2000 as compared to 17% during the first quarter of 1999. The
decrease in satellite gross margins in 2000 is due to work performed on two
large, commercial geosynchronous satellite contracts won in late 1998 and early
1999. These contracts contain a significant amount of lower margin, external
subcontract effort, as well as substantial non-recurring engineering costs
incurred in modifying the design of these products for specific customer
requirements. For the three months ended March 31, 2000 and 1999, electronics
and sensor systems and transportation management systems gross margins were 25%
and 26%, respectively. Finally, gross margins for ground systems, space robotics
and mapping and land information services were 18% and 23% for the first quarter
of 2000 and 1999, respectively. The decrease in gross margins is due to an
increase in lower margin, subcontract work on several contracts, and to lower
margins on certain new international defense contracts and land information
services.
Satellite Access Products. Gross margins for satellite access products increased
slightly to 34% of revenues for the first quarter of 2000 as compared to 31% for
the first quarter of 1999.
Satellite Services. Gross margins for this sector in 2000 include those
generated by ORBNAV and RSI. Gross margins for this sector in 1999 also included
those generated by ORBCOMM USA. This sector had a gross profit margin of
$1,086,000 during the first quarter of 2000, as compared to a gross margin loss
of $648,000 for the first quarter of 1999.
15
<PAGE> 16
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-month periods
ended March 31, 2000 and 1999 were $8,089,000 (4% of revenues) and $10,082,000
(5% of revenues), respectively. Research and development expenses in both
quarters relate primarily to the development of new or improved satellite access
products, improved launch vehicles and new satellite initiatives.
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 March 31, 2000 and 1999 were
$28,132,000 (13% of revenues) and $28,541,000 (14% of revenues), respectively.
NET INVESTMENT INCOME (EXPENSE). Net investment income (expense) was
($4,449,000) and ($3,297,000) for the three months ended March 31, 2000 and
1999, respectively. Investment income reflects interest earnings on short-term
investments and realized gains and losses on investments, reduced by interest
expense of $6,038,000 and $4,121,000 on outstanding debt for the three months
ended March 31, 2000 and 1999, respectively. Interest expense has been reduced
by capitalized interest of $466,000 and $779,000 in the first three months of
2000 and 1999, respectively.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN
(EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES. Equity in earnings (losses) of
affiliates and non-controlling interests in (earnings) losses of consolidated
subsidiaries for the three months ended March 31, 2000 and 1999 were
($22,870,000) and ($21,129,000), respectively. These amounts primarily represent
(i) elimination of proportionate profits or losses on sales of infrastructure
products to ORBCOMM and ORBIMAGE, (ii) our proportionate share of ORBCOMM'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' proportionate share of our consolidated
subsidiaries' current period earnings and losses. Our proportionate share of
ORBCOMM's losses declined in the first quarter of 2000 due to a reduction in our
ownership interest in ORBCOMM from 50% in 1999 to approximately 34% in the first
quarter of 2000. In 1999, non-controlling interests also included
non-controlling stockholders' proportionate share of RSI's and ORBCOMM USA's
current period earnings and losses.
PROVISION FOR INCOME TAXES. We recorded an income tax provision of $1,273,000
and $1,298,000 for the three-month periods ended March 31, 2000 and 1999,
respectively. The provision in both periods was entirely 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 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 March 31, 2000
and 1999 was $26,524,000 and $26,163,000, respectively.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Our growth has required, and continues to require, substantial capital to fund
investments in affiliates, business acquisitions, expanding working capital
needs, new business initiatives, research and development and capital
expenditures. We have funded these requirements to date through cash generated
by operations, working capital, loan facilities, asset-based financings, joint
venture arrangements and private and public equity and debt offerings of Orbital
and its subsidiaries. Our liquidity has been constrained primarily as a result
of our inability to access capital markets prior to the completion of the
restatement of our financial statements. In addition, we agreed to a permanent
reduction in the outstanding amount under our primary credit facility in the
fourth quarter of 1999 and we cannot borrow additional funds under such
facility.
We expect that our capital requirements for our operations for 2000 will be
provided by cash from operations combined with cash on hand. To satisfy our
additional capital requirements, including potential investments in ORBIMAGE and
required repayment of debt, management's plans include the possibility of
raising additional equity and/or debt capital, sales of certain assets and
restructuring or refinancing of our credit facility. Management expects that
such plans will generate sufficient additional liquidity to satisfy these
required obligations.
We also expect to pursue certain additional investments and/or acquisitions
during 2000. Such plans would likely require that we raise additional capital or
otherwise generate sufficient capital by sale of certain assets. No assurance
can be given that we will be successful in completing additional investments or
acquisitions or new equity or debt financings or asset sales.
Cash and investments were $65,826,000 and total debt obligations were
$367,151,000 at March 31, 2000. The outstanding debt is comprised primarily of
our $100,000,000 convertible 5% subordinated notes due in 2002, advances under
several credit facilities, secured and unsecured notes, and asset-based
financings. Cash and investments at March 31, 2000 included approximately
$11,641,000 restricted to support bank covenants and outstanding letters of
credit. Our current ratio was .94 at March 31, 2000. Our ratio of total debt
less cash and investments to total debt plus total stockholders' equity was
approximately 47% at March 31, 2000.
Our primary credit facility provides for total borrowings from an international
syndicate of banks of up to $165,000,000, all of which was drawn and outstanding
as of March 31, 2000 at a weighted average interest rate of 9.83%. These
borrowings are collateralized by accounts receivable, intellectual property and
certain other assets, including the stock of our wholly owned subsidiaries and
MDA. 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. We amended this
facility several times in the past twelve months to waive noncompliance with
certain financial covenants and to amend other covenants (including with respect
to net worth, leverage and fixed charges). We also permanently reduced the total
amount available under the facility from an original $200,000,000 to the current
level of
17
<PAGE> 18
$165,000,000. In April 2000, we signed an amendment that waived
noncompliance with certain covenants for all periods prior to the amendment
date, and established new covenant levels for 2000 for net worth, leverage
(including senior leverage), fixed charges, capital expenditures, and subsidiary
debt. We also agreed with our banks to further reduce the total amount that is
available under the facility on August 1, 2000 by either (i) an additional
$40,000,000 if we and the banks restructure the facility by May 31, 2000 or (ii)
by an additional $60,000,000 if we are unsuccessful in restructuring the
facility by that date. We are required to apply toward this reduction 50% of the
net cash proceeds that we receive from any equity offering, asset sale or debt
issuance by us or our domestic wholly owned subsidiaries. In addition, we agreed
to further reduce the facility to $85,000,000 by July 2001. We are currently in
discussions with our banks on restructuring the facility.
We are no longer obligated to provide additional capital to ORBCOMM. ORBCOMM
will require additional funding in 2000, and we understand that ORBCOMM and
Teleglobe are currently analyzing different capital raising and funding
alternatives, including continued capital contributions from Teleglobe and/or
obtaining additional equity participants.
We invested approximately $10,556,000 in capital expenditures for various
satellite, launch vehicle and other infrastructure production, manufacturing and
test equipment, leasehold improvements and office equipment in the first quarter
of 2000. Our operations provided net cash of $4,336,000 during the first quarter
of 2000.
We have a contingent commitment to provide additional equity financing to
ORBIMAGE in the amount of up to $12,500,000 based on ORBIMAGE's cash
requirements. In addition to our contingent commitment, ORBIMAGE will require
additional funding in 2000 and is currently analyzing different capital raising
and funding alternatives, including obtaining additional equity and debt
capital.
Under the company's 12% note, we are scheduled to pay down principal in the
amount of $6,667,000 in June 2000. This payment reduces the outstanding
principal amount of the note from $13,333,000 to $6,666,000. The remaining
principal amount is due in June 2001.
We are scheduled to pay the $25,500,000 deferred portion of the DataQuick
Acquisition in October 2000 using proceeds from MDA's new credit facility.
We are expanding our offices and satellite-related engineering, manufacturing
and operations facilities adjacent to our Northern Virginia corporate
headquarters in order to consolidate certain operational facilities and office
space and provide for future growth. Construction has commenced and is expected
to continue into 2001. To finance the majority of this expansion, we have
negotiated a built-to-suit agreement with a developer for the office expansion.
We are actively pursing third-party financing for the engineering, manufacturing
and operating facilities.
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<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOUSRES 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 March 31, 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 $75,000,000 at March 31, 2000.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 under a contract that was assigned to
Orbital in connection with its 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 arbitration proceedings. Orbital
believes that PT-MCI's allegations are without merit and intends to
vigorously defend against the 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. The eventual outcome of the foregoing is
uncertain and could have a material adverse impact on the company's
results of operations and financial condition.
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.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
19
<PAGE> 20
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 January 7, 2000, we filed a Current Report on Form 8-K,
dated December 22, 1999, disclosing, under Item 5, the sale of
one-third of the stock of MDA and certain bank matters.
20
<PAGE> 21
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.
<TABLE>
<CAPTION>
ORBITAL SCIENCES CORPORATION
<S> <C>
DATED: May 15, 2000 By: /s/ David W. Thompson
------------------------
David W. Thompson, Chairman
and Chief Executive Officer
DATED: May 15, 2000 By: /s/ Jeffrey V. Pirone
------------------------
Jeffrey V. Pirone, Executive Vice President
and Principal Financial Officer
</TABLE>
21
<PAGE> 22
EXHIBIT INDEX
The following exhibit is filed as part of this report.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
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>
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AT AND FOR
THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000820736
<NAME> ORBITAL SCIENCE CORP/DE/
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 31,294
<SECURITIES> 34,532
<RECEIVABLES> 280,530
<ALLOWANCES> (19,543)
<INVENTORY> 59,454
<CURRENT-ASSETS> 407,901
<PP&E> 256,327
<DEPRECIATION> (126,498)
<TOTAL-ASSETS> 998,578
<CURRENT-LIABILITIES> 432,967
<BONDS> 237,566
0
0
<COMMON> 374
<OTHER-SE> 291,018
<TOTAL-LIABILITY-AND-EQUITY> 998,578
<SALES> 223,541
<TOTAL-REVENUES> 223,541
<CGS> 181,653
<TOTAL-COSTS> 181,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 623
<INTEREST-EXPENSE> 6,038
<INCOME-PRETAX> (25,251)
<INCOME-TAX> 1,273
<INCOME-CONTINUING> (26,524)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,524)
<EPS-BASIC> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
