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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
JUNE 30, 1996
ORBITAL SCIENCES CORPORATION
Commission file number 0-18287
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<S> <C>
DELAWARE 06-1209561
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(State of Incorporation) (IRS Identification number)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
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(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 July 31, 1996, 26,974,891 shares of the registrant's common stock were
outstanding.
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EXPLANATORY NOTE
Orbital Sciences Corporation ("Orbital") has determined to restate its
annual consolidated financial statements and its condensed consolidated
quarterly financial statements for 1996 and 1995. This amendment includes in
Item 1 such restated condensed consolidated financial statements for the three
and six months ended June 30, 1996, 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. For
current information regarding risks, uncertainties and other factors that may
affect Orbital's future performance, please see "Outlook: Issues and
Uncertainties" included in Item 7 of Orbital's Annual Report on Form 10-K for
the year ended December 31, 1999.
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PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
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<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------------- ---------------
(RESTATED) (RESTATED)
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ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 14,112 $ 15,317
Short-term investments, at market 10,113 19,713
Receivables, net 126,506 116,761
Inventories, net 38,475 38,527
Deferred income taxes and other assets 5,817 6,886
--------------- ---------------
TOTAL CURRENT ASSETS 195,023 197,204
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation
and amortization of $59,074 and $53,067, respectively 94,850 91,538
SATELLITE SYSTEMS, AT COST, LESS ACCUMULATED
depreciation of $958 and $547, respectively 19,667 14,363
INVESTMENTS IN AFFILIATES 84,137 75,020
GOODWILL, less accumulated amortization of $15,203 and $13,697, respectively 74,660 75,395
DEFERRED INCOME TAXES AND OTHER ASSETS 18,458 19,380
--------------- ---------------
TOTAL ASSETS $ 486,795 $ 472,900
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 42,513 $ 11,907
Accounts payable 18,548 25,903
Accrued expenses 34,798 36,563
Payable to subcontractors 5,592 11,552
Deferred revenues 31,659 32,501
--------------- ---------------
TOTAL CURRENT LIABILITIES 133,110 118,426
LONG-TERM OBLIGATIONS, net of current portion 92,351 96,990
OTHER LIABILITIES 17,359 19,740
--------------- ---------------
TOTAL LIABILITIES 242,820 235,156
NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES (875) (422)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized: Series A
Special Voting Preferred Stock, 1 share authorized and outstanding
Class B Preferred Stock, 10,000 shares authorized and outstanding -- --
Common Stock, par value $.01; 40,000,000 shares authorized,
26,926,758 and 26,766,029 shares outstanding,
after deducting 15,735 shares held in treasury 269 268
Additional paid-in capital 248,738 247,580
Unrealized gains (losses) on short-term investments (12) 68
Cumulative translation adjustment (3,771) (3,356)
Accumulated deficit (374) (6,394)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 244,850 238,166
--------------- ---------------
$
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 486,795 472,900
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
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FOR THE THREE MONTHS ENDED
JUNE 30,
---------------------------------
1996 1995
--------------- --------------
(RESTATED) (RESTATED)
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Revenues $ 115,063 $ 81,994
Costs of goods sold 82,727 61,205
--------------- --------------
Gross Profit 32,336 20,789
Research and development expenses 5,534 5,282
Selling, general and administrative expenses 19,829 15,660
Amortization of goodwill 782 819
--------------- --------------
Income (loss) from operations 6,191 (972)
Net interest expense (444) (818)
Equity in earnings (losses) of affiliates (2,696) (65)
Non-controlling interests in (earnings) losses of
consolidated subsidiaries 341 --
--------------- --------------
Income (loss) before provision (benefit) for income taxes 3,392 (1,855)
Provision (benefit) for income taxes 338 (423)
--------------- --------------
Net income (loss) $ 3,054 $ (1,432)
=============== ==============
Net income (loss) per common and common equivalent share $ 0.11 $ (0.06)
=============== ==============
Shares used in computing net income (loss)
per common and common equivalent share 27,378,722 25,307,950
=============== ==============
Net income (loss) per common share, assuming dilution $ 0.11 $ (0.06)
=============== ==============
Shares used in computing net income (loss)
per common share, assuming dilution 31,303,789 25,307,950
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
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FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------------
1996 1995
--------------- --------------
(RESTATED) (RESTATED)
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Revenues $ 219,864 $ 171,197
Costs of goods sold 154,464 124,836
--------------- --------------
Gross Profit 65,400 46,361
Research and development expenses 12,438 10,334
Selling, general and administrative expenses 39,731 30,827
Amortization of excess of purchase price over net assets acquired 1,580 1,558
--------------- --------------
Income from operations 11,651 3,642
Net interest expense (622) (1,359)
Equity in earnings (losses) of affiliates (4,938) 362
Non-controlling interests in (earnings) losses of
consolidated subsidiaries 598 --
--------------- --------------
Income before provision for income taxes
and cumulative effect of accounting changes 6,689 2,645
Provision for income taxes 669 2,688
--------------- --------------
Income (loss) before cumulative effect of accounting changes 6,020 (43)
Cumulative effect of accounting changes, net of taxes -- (2,377)
--------------- --------------
Net income (loss) $ 6,020 $ (2,420)
=============== ==============
Net income (loss) per common and common equivalent share:
Income (loss) before cumulative effect of accounting changes $ 0.22 $ (0.00)
Cumulative effect of accounting changes -- (0.10)
--------------- --------------
$ 0.22 $ (0.10)
=============== ==============
Shares used in computing net income (loss)
per common and common equivalent share 27,270,385 25,041,485
=============== ==============
Net income (loss) per common share, assuming dilution:
Income (loss) before cumulative effect of accounting changes $ 0.22 $ (0.00)
Cumulative effect of accounting changes -- (0.10)
--------------- --------------
$ 0.22 $ (0.10)
=============== ==============
Shares used in computing net income (loss)
per common share, assuming dilution 31,260,083 25,041,485
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
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FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------------
1996 1995
--------------- --------------
(RESTATED) (RESTATED)
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 6,020 $ (2,420)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation and amortization expenses 11,628 10,370
Equity in (earnings) losses of affiliates 4,938 74
Non-controlling interests in earnings (losses) of consolidated subsidiaries (598) --
Gain (loss) on sale of fixed assets and investments (17) --
Cumulative effect of accounting change -- 2,377
Foreign currency translation adjustment (415) 994
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in current and non-current assets (8,409) 14,480
(Increase) decrease in current and non-current liabilities (19,189) (28,502)
--------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (6,042) (2,627)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,908) (10,275)
Investments in Satellite Systems (5,715) --
Proceeds from sales of fixed assets -- 125
Purchases, sales and maturities of investment securities, net 9,569 (8,773)
Investments in affiliates (13,235) (9,689)
--------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (22,289) (28,612)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings net of (repayments) 30,200 (16,435)
Principal payments on long-term obligations (4,114) (2,933)
Proceeds from issuance of long-term obligations -- 21,143
Net proceeds from issuances of common stock 1,040 33,246
Adjustment to recast pooled companies' year end -- (1,050)
--------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 27,126 33,971
--------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,205) 2,732
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,317 27,919
--------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,112 $ 30,651
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995 (UNAUDITED)
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
information reflects all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation thereof. Certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to instructions, rules and regulations prescribed by the Securities and Exchange
Commission (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, 1995. Operating results for the three- and
six-month periods ended June 30, 1996 are not necessarily indicative of 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 1996 and 1995 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. For a full
description of the restatements matters, refer to Notes 1A and 14 to the
Company's consolidated financial statements included in the Company's 1996
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:
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QUARTER ENDED SIX MONTHS ENDED
(in thousands, except share data) JUNE 30, JUNE 30,
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1996 RESTATED:
Revenues $ 115,063 $ 219,864
Gross profit 32,336 65,400
Income from operations 6,191 11,651
Net income 3,054 6,020
Net income per common share 0.11 0.22
Net income per common share, assuming
dilution 0.11 0.22
</TABLE>
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QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
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1996 AS PREVIOUSLY REPORTED:
Revenues $ 116,512 $ 221,406
Gross profit 32,888 65,200
Income from operations 7,324 13,196
Net income 3,839 6,967
Net income per common share 0.14 0.26
Net income per common share, assuming
dilution 0.14 0.26
1995 RESTATED:
Revenues $ 81,994 $ 171,197
Gross profit 20,789 46,361
Income (loss) from operations (972) 3,642
Net loss (1,432) (2,420)
Net loss per common and dilutive share (0.06) (0.10)
1995 AS PREVIOUSLY REPORTED:
Revenues $ 81,766 $ 170,741
Gross profit 20,730 46,243
Income (loss) from operations (972) 3,642
Net loss (1,626) (2,768)
Net loss per common and dilutive share (0.07) (0.11)
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(2) INVENTORIES
Inventories consist of components inventory, work-in-process inventory and
finished goods inventory and are generally stated at the lower of cost or net
realizable value on a first-in, first-out or specific identification basis.
Components inventory consists primarily of components and raw materials
purchased to support future production efforts. Work-in-process inventory
consists primarily of (i) costs incurred under U.S. Government fixed-price
contracts accounted for using the percentage of completion method of accounting
applied on a units of delivery basis and (ii) partially assembled commercial
products, and generally includes direct production costs and certain allocated
indirect costs (including an allocation of general and administrative costs).
Work-in-process inventory has been reduced by contractual progress payments
received. Finished goods inventory consists of fully assembled commercial
products awaiting shipment.
(3) COMMON STOCK AND INCOME PER SHARE
Income per common and common equivalent share is calculated using the weighted
average number of common and common equivalent shares, to the extent dilutive,
outstanding during the periods. Income per common share assuming full 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 6 3/4% convertible subordinated debentures (the "Convertible
Debentures"),
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after giving effect to all net income adjustments that would result from the
assumed conversion. Any reduction of less than three percent in the aggregate
has not been considered dilutive in the calculation and presentation of income
per common share assuming full dilution.
(4) INCOME TAXES
The Company has recorded its interim income tax provision based on estimates of
the Company's effective tax rate expected to be applicable for the full fiscal
year. Estimated effective rates recorded during interim periods may be
periodically revised, if necessary, to reflect current estimates.
(5) STOCKHOLDERS' EQUITY AND COMMON STOCK
On July 25, 1996, the Company called all its outstanding Convertible Debentures
for redemption on August 14, 1996. Pursuant to the terms of the indenture
governing the Convertible Debentures, the holders of the Convertible Debentures
may redeem their Debentures for a cash payment of (i) $1,000 in principal, plus
(ii) a premium of $47.25, plus (iii) $30.56 of interest accrued from March 1,
1996 to the date of redemption for each $1,000 principal amount of Convertible
Debentures. Alternatively, at their option, the holders may convert their
Convertible Debentures into Orbital Common Stock at a price of $14.375 per
share, or approximately 69.565 shares for each $1,000 principal amount of
Convertible Debentures.
The Company has entered into a standby underwriting agreement with an investment
bank whereby the investment bank has agreed, subject to certain customary
conditions, to purchase from the Company shares of its Common Stock to provide
proceeds to the Company to satisfy any redemption by the holders of the
Convertible Debentures.
In June 1996, Magellan Corporation ("Magellan"), a wholly owned subsidiary of
the Company, adopted its 1996 Stock Option Plan (the "Magellan Plan"), pursuant
to which options to purchase up to 12.3% of Magellan's common stock (on a fully
diluted basis) may be granted to Magellan and Orbital employees. In July 1996,
options were granted for approximately six million shares of Magellan common
stock under the Magellan Plan.
(6) INVESTMENTS IN AFFILIATES
On August 7, 1996, ORBCOMM Global, L.P. ("ORBCOMM Global") completed a private
financing involving the issuance and sale of $170,000,000 Senior Notes (the
"Notes") to certain institutional investors. Net proceeds from the sale of the
Notes (approximately $164,500,000) will be applied to (i) the design,
construction, launch, operation and marketing of ORBCOMM Global's
satellite-based, two-way data communications network (the "ORBCOMM System") and
related development, operating and management expenses (including cost
contingencies) and (ii) the first two years of fixed interest on the Notes. The
obligations of ORBCOMM Global under the Notes are nonrecourse to the Company.
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The Notes have a term of eight years and generally may not be redeemed prior to
August 15, 2001. The Notes bear interest at the fixed rate of 14% per annum. In
addition, the Notes provide for revenue participation interest in an aggregate
amount of 5% of the ORBCOMM System revenues, payment of which may be deferred by
ORBCOMM Global to the extent that certain fixed charge ratios are not met. The
obligations under the Notes are guaranteed, jointly and severally, by the
Company's majority-owned subsidiary, Orbital Communications Corporation ("OCC"),
Teleglobe Mobile Partners ("Teleglobe"), ORBCOMM USA, L.P. and ORBCOMM
International, L.P. Such guarantees are also nonrecourse to the Company. Upon
closing of the financing, OCC and Teleglobe contributed the balance of their
capital commitments in ORBCOMM Global for an aggregate equity investment of
approximately $160 million. The Company and Teleglobe have agreed to commit
additional capital in an amount up to $15 million each in the event of certain
limited contingencies in the future.
(7) DEBT
The Company maintains several short-term borrowing arrangements to meet working
capital requirements. During the quarter ended June 30, 1996, the Company
modified two of these agreements to provide for additional borrowing capacity.
Orbital's demand line of credit was increased from $7 million to $25 million and
remains unsecured. Magellan's existing line of credit was increased from
approximately $5 million to $10 million and remains collateralized by all of
Magellan's assets.
Orbital's $20 million unsecured loan agreement with The Northwestern Mutual Life
Insurance Company was amended as of July 31, 1996 to waive non-compliance with a
financial ratio requirement, as well as to amend certain financial covenants and
to permit the completion of the ORBCOMM System financing (see Note (4) above).
In connection with this amendment, the interest rate on the note was increased
from 10 1/2% to 11 1/2% effective July 1, 1996.
(8) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 condensed consolidated
financial statements to conform to the 1996 condensed consolidated financial
statement presentation. The November 1995 acquisition of MacDonald, Dettwiler
and Associates Ltd. was recorded using the pooling of interests method of
accounting for business combinations and, accordingly, Orbital's 1995 historical
financial statements have been restated to reflect this transaction.
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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 SIX-MONTH PERIODS ENDED JUNE 30, 1996
AND 1995
Certain statements included in this discussion constitute "forward-looking
statements" within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. In addition, factors such as general economic and
business conditions, product performance, market acceptance of products and
technologies, and dependence upon long-term contracts with commercial and
government customers impact the Company's revenues, expenses and gross profit
from period to period. (Refer to Exhibit 99, previously filed, for further
discussion of some of these factors.)
The Company's products and services are grouped into three business sectors:
Space Infrastructure Systems, Satellite Access Products, and Satellite-Provided
Services. Space Infrastructure includes Launch Systems, Satellites and Space
Systems, Electronics and Sensor Systems, and Ground Systems and Software. The
Company's Satellite Access Products sector consists of satellite-based
navigation and communications products. The Company's Satellite-Provided
Services sector includes satellite-based, two-way mobile data communications
services and Earth imagery remote sensing services.
Certain of the 1996 and 1995 financial information has been restated. See Note 1
to the condensed consolidated financial statements.
REVENUES. Orbital's revenues for the three-month periods ended June 30, 1996 and
1995 were $115,063,000 and $81,994,000, respectively. Revenues for the six-month
periods ended June 30, 1996 and 1995 were $219,864,000 and $171,197,000,
respectively.
SPACE INFRASTRUCTURE SYSTEMS
Revenues from the Company's space infrastructure systems totaled $96,050,000 and
$66,729,000 for the three months ended June 30, 1996 and 1995, respectively, and
$177,618,000 and $140,219,000 for the six months ended June 30, 1996 and 1995,
respectively. Space infrastructure revenues include sales to ORBCOMM Global,
L.P. ("ORBCOMM") of $15,762,000 and $3,395,000 for the second quarter of 1996
and 1995, respectively. Infrastructure sales to ORBCOMM for the six month
periods ended June 30, 1996 and June 30, 1995 were $29,470,000 and $3,395,000,
respectively.
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Revenues from the Company's launch systems increased to $26,089,000 in the
second quarter of 1996, from $17,549,000 in the second quarter of 1995. Launch
systems revenues were $45,329,000 for the six months ended June 30, 1996 as
compared to $34,638,000 for the comparable 1995 period. The significant increase
in revenues in 1996 is attributable primarily to the resumption of production
and launch of the Company's Pegasus XL launch vehicle. Orbital has successfully
completed all three of its Pegasus launches to date in 1996, consisting of two
Pegasus XL launches and one standard Pegasus launch. Additionally, revenues
generated from the Company's Taurus launch vehicle also increased as a result of
work performed on two orders received subsequent to June 30, 1995.
For the three months ended June 30, 1996, satellite systems revenues increased
to $28,000,000 from $14,382,000 in the 1995 quarter. Satellite systems revenues
were $50,541,000 for the six months ended June 30, 1996 as compared to
$28,901,000 for the comparable 1995 period. The increase in satellite systems
sales is primarily due to additional revenues generated from new satellite
orders from government and commercial customers, including 1996 sales to
ORBCOMM.
Revenues from electronics and sensors systems were approximately $21,367,000 for
the three months ended June 30, 1996 as compared to $17,621,000 for the
comparable 1995 period. Electronics and sensors systems revenues were
$37,849,000 for the six months ended June 30, 1996 as compared to $38,869,000
for the comparable 1995 period. The increase in revenues for the quarter ending
June 30, 1996 as compared to the quarter ending June 30, 1995 is primarily a
result of work performed on defense electronics and transportation management
systems orders received during 1996.
Revenues from the Company's satellite ground systems and other software products
were $20,594,000 in the second quarter of 1996 as compared to $17,177,000 for
the comparable 1995 period. Satellite ground systems revenues were $43,899,000
for the six months ended June 30, 1996 as compared to $37,811,000 for the
comparable 1995 period. The 1996 increase in revenues reflects work performed on
new contract awards received in 1995.
SATELLITE ACCESS PRODUCTS
Revenues from sales of navigation and communications products increased to
$18,688,000 for the second quarter of 1996 as compared to $12,341,000 for the
comparable 1995 period, primarily due to a substantial increase in unit sales
offset, in part, by lower unit prices, for GPS navigators. Satellite access
product revenues were $41,456,000 for the six months ended June 30, 1996 as
compared to $23,927,000 for the comparable 1995 period.
SATELLITE-PROVIDED SERVICES
The Company's satellite-based services include communications and information
services. Orbital's subsidiary, Orbital Imaging Corporation ("ORBIMAGE"), is
seeking
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to develop and market a broad range of satellite remote sensing-based
information services. The Company's ORBCOMM USA, L.P. and ORBIMAGE start-up
businesses generated service revenues of approximately $325,000 in the 1996
second quarter, and $790,000 for the six months ended June 30, 1996.
GROSS PROFIT. Gross profit depends on a number of factors, including the
Company's mix of contract types and costs incurred thereon in relation to
estimated costs. The Company's gross profit for the second quarter of 1996 was
$32,336,000, as compared to $20,789,000 for the comparable 1995 period. Gross
profit margin as a percentage of sales for those periods was approximately 28%
and 25%, respectively. The Company's gross profit for the first half of 1996 was
$65,400,000, as compared to $46,361,000 for the first half of 1995. Gross profit
margin as a percentage of sales for those periods was approximately 30% and 27%,
respectively. During 1996, the Company recognized an increase in gross profit of
$2,523,000 related to the write-off or expiration of certain Canadian
development loans no longer required or not expected to be repaid. The increased
gross profit margin as a percentage of sales in 1996 is also attributable to the
resumption of Pegasus production after launch failures in June 1994 and June
1995.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses represent
Orbital's self-funded product development activities, and exclude direct
customer-funded development. Research and development expenses during the
three-month periods ended June 30, 1996 and 1995 were $5,534,000 and $5,282,000,
respectively. Research and development expenses during the six-month periods
ended June 30, 1996 and 1995 were $12,438,000 and $10,334,000, respectively.
Research and development expenses in 1996 relate primarily to the development of
new or improved navigation and communications products, improved launch vehicles
and new satellite programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include the costs of marketing, advertising, promotional
and other selling expenses as well as the costs of the finance, administrative
and general management functions of the Company. Selling, general and
administrative expenses for the second quarters of 1996 and 1995 were
$19,829,000 (or 17% of revenues) and $15,660,000 (or 19% of revenues),
respectively. Selling, general and administrative expenses for the first half of
1996 and 1995 were $39,731,000 (or 18% of revenues) and $30,827,000 (or 18% of
revenues), respectively.
INTEREST INCOME AND INTEREST EXPENSE. Net interest expense was $444,000 and
$818,000 for the three months ended June 30, 1996 and 1995, respectively. Net
interest expense was $622,000 and $1,359,000 for the six months ended June 30,
1996 and 1995, respectively. Interest income for the periods reflects interest
earnings on short-term investments. Interest expense is primarily for
outstanding amounts on Orbital's revolving credit facility, on the Company's
Convertible Debentures and on secured and unsecured debt. Interest expense for
the first half of 1996 and 1995 has been reduced by capitalized interest of
$4,056,000 and $2,533,000, respectively.
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EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN
CONSOLIDATED SUBSIDIARIES. Equity in earnings (losses) of affiliates and
non-controlling interests in (earnings) losses of consolidated subsidiaries for
the second quarters of 1996 and 1995 were ($2,355,000) and ($65,000),
respectively. Equity in earnings (losses) of affiliates and non-controlling
interests in (earnings) losses of consolidated subsidiaries for the six-month
periods ended June 30, 1996 and 1995 were ($4,340,000) and $362,000,
respectively. These amounts primarily represent (i) elimination of 50% of the
profits on sales to ORBCOMM Global, (ii) the Company's pro rata share of ORBCOMM
Global's and ORBCOMM International Partners L.P.'s ("ORBCOMM International")
current period earnings and losses and (iii) non-controlling shareholders' pro
rata share of ORBCOMM USA L.P.'s ("ORBCOMM USA") current period earnings and
losses. ORBCOMM International and ORBCOMM USA are marketing partnerships for the
ORBCOMM System.
PROVISION FOR INCOME TAXES. The Company recorded an income tax provision of
$338,000 and $669,000 for the three- and six-month periods ended June 30, 1996.
The Company recorded an income tax benefit of $423,000 for the three-month
period ended June 30, 1995 and an income tax provision of $2,688,000 for the
six-month period ended June 30, 1995. The Company records its interim income tax
provisions based on estimates of the Company's effective tax rate expected to be
applicable for the full fiscal year. Estimated effective rates recorded during
interim periods may be periodically revised, if necessary, to reflect current
estimates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's growth has required substantial capital to fund both an expanding
business base and significant research and development and capital expenditures.
Additionally, the Company has historically made strategic acquisitions of
businesses and routinely evaluates potential acquisition candidates. The Company
expects to continue to pursue potential acquisitions that it believes would
augment its marketing, technical, manufacturing or financial capabilities. The
Company has funded these requirements to date, and expects to fund its
requirements in the future through cash generated by operations, working capital
loan facilities, asset-based financings, joint venture arrangements, and private
and public equity and debt offerings.
Cash, cash equivalents and short-term investments were $24,225,000 at June 30,
1996, and the Company had short-term and long-term debt obligations outstanding
of approximately $134,864,000. The outstanding debt relates primarily to
advances under the Company's lines of credit facilities, secured and unsecured
notes, fixed asset financings and the Convertible Debentures.
On July 25, 1996, the Company called all its outstanding 6 3/4% convertible
subordinated debentures (the "Convertible Debentures") for redemption on August
14, 1996. Pursuant to the terms of the indenture governing the Convertible
Debentures, the holders of the Convertible Debentures may redeem their
Debentures for a cash payment of (i) $1,000 in principal, plus (ii) a premium of
$47.25, plus (iii) $30.56 of interest
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accrued from March 1, 1996 to the date of redemption for each $1,000 principal
amount of Convertible Debentures. Alternatively, at their option, the holders
may convert their Convertible Debentures into Orbital Common Stock at a price of
$14.375 per share, or approximately 69.565 shares for each $1,000 principal
amount of Convertible Debentures. The Company has entered into a standby
underwriting agreement with an investment bank whereby the investment bank has
agreed, subject to customary conditions, to purchase from the Company shares of
its Common Stock to provide proceeds to the Company to satisfy any redemption by
the holders of the Convertible Debentures.
Orbital's $20,000,000 unsecured loan agreement with The Northwestern Mutual Life
Insurance Company was amended as of July 31, 1996 to waive non-compliance with a
financial ratio requirement, as well as to amend certain financial covenants and
to permit the completion of the ORBCOMM System financing. In connection with
this amendment, the interest rate on the note was increased from 10 1/2% to 11
1/2% effective July 1, 1996.
The Company's primary revolving credit facility provides for total borrowings
from an international syndicate of six banks of up to $65,000,000, subject to a
defined borrowing base comprised of certain contract receivables. Approximately
$21,000,000 of borrowings were outstanding under the facility at June 30, 1996,
and the available facility limit was approximately $25,000,000. At June 30,
1996, the average interest rate on outstanding borrowings under this facility
was approximately 9%. Borrowings are secured by contract receivables and certain
other assets. The facility restricts the payment of dividends and contains
certain covenants with respect to the Company's working capital, fixed charge
ratio, leverage ratio and tangible net worth, and expires in September 1997. The
Company (or its subsidiaries) also maintains two additional, smaller revolving
credit facilities, under which approximately $14,200,000 was outstanding at June
30, 1996. During the quarter ended June 30, 1996, the Company modified the two
additional agreements to increase borrowing capacity from approximately
$12,000,000 to approximately $35,000,000.
The Company's operations used net cash of approximately $6,042,000 in the first
half of 1996. The Company also invested approximately $13,235,000 in ORBCOMM
Global, incurred $5,715,000 in capital expenditures related to ORBIMAGE
satellite remote sensing systems, and incurred approximately $12,908,000 in
capital expenditures for various spacecraft production and test equipment.
On August 7, 1996, ORBCOMM Global completed a private financing involving the
issuance and sale of $170,000,000 Senior Notes (the "Notes") to certain
institutional investors. Net proceeds from the sale of the Notes (approximately
$164,500,000) will be applied to (i) the design, construction, launch, operation
and marketing of the ORBCOMM System and related development, operating and
management expenses (including cost contingencies) and (ii) the first two years
of fixed interest on the Notes. The obligations of ORBCOMM Global under the
Notes are nonrecourse to the Company.
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The Notes have a term of eight years and generally may not be redeemed prior to
August 15, 2001. The Notes bear interest at the fixed rate of 14% per annum. In
addition, the Notes provide for revenue participation interest in an aggregate
amount of 5% of the ORBCOMM System revenues, payment of which may be deferred by
ORBCOMM Global to the extent that certain fixed charge ratios are not met. The
obligations under the Notes are guaranteed, jointly and severally, by OCC,
Teleglobe, ORBCOMM USA and ORBCOMM International. Such guarantees also are
nonrecourse to the Company. Upon closing of the financing, OCC and Teleglobe
contributed the balance of their capital commitments in ORBCOMM Global for an
aggregate equity investment of approximately $160 million. The Company and
Teleglobe have agreed to commit additional capital in an amount up to
$15,000,000 each in the event of certain limited contingencies in the future.
Orbital expects to invest up to $15,000,000 in various ORBIMAGE satellite remote
sensing projects for all of 1996. Orbital expects that its capital needs for the
second half of 1996, including its planned investment in its ORBIMAGE projects,
will in part be provided by working capital, cash flows from operations, credit
facilities, asset-based financings, customer financings and operating lease
arrangements. Orbital believes that it is likely to require additional equity
and/or debt financing to fully fund its currently planned operations and capital
requirements in 1997.
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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) NOT APPLICABLE.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q/A to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: June 27, 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.
EXHIBIT DESCRIPTION
NO.
10.1 Amendment No. 5 to Credit Agreement among Orbital Sciences
Corporation, Orbital Imaging Corporation, Fairchild Space and
Defense Corporation, the Banks (listed on the signature pages),
Morgan Guaranty Trust Company of New York and J.P. Morgan
Delaware, dated July 19, 1996 (previously filed).
10.2 Third Amendment to Note Agreement between Orbital Sciences
Corporation and The Northwestern Mutual Life Insurance Company,
dated July 31, 1996 (previously filed).
10.3 Magellan Corporation 1996 Stock Option Plan (previously filed).
11 Statement re: Computation of Earnings Per Share (transmitted
herewith).
27 Financial Data Schedule (such schedule is furnished for the
information of the Securities and Exchange Commission and is not
to be deemed "filed" as part of the Form 10-Q, or otherwise
subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934) (transmitted herewith).
99 Important Factors Regarding Forward-Looking Statements
(previously filed).
19
