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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
MARCH 31, 1999
ORBITAL SCIENCES CORPORATION
Commission file number 0-18287
------------------------------
<TABLE>
<S> <C>
DELAWARE 06-1209561
- ------------------------------------------------- --------------------------------------
(State of Incorporation) (IRS Identification number)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
- ------------------------------------------------- --------------------------------------
(Address of principal executive offices) (Telephone number)
</TABLE>
The registrant has (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
As of May 14, 1999, 37,207,862 shares of the registrant's common stock were
outstanding.
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EXPLANATORY NOTE
Orbital Sciences Corporation ("Orbital") has determined to restate its
consolidated financial statements for the years ended December 31, 1998, 1997,
1996 and 1995 and its condensed consolidated quarterly financial statements for
1999, 1998, 1997, 1996 and 1995. This amendment includes in Item 1 such restated
condensed consolidated financial statements and related footnotes thereto for
the three months ended March 31, 1999 and 1998, and other information relating
to such restated condensed consolidated financial statements. This amendment
also includes in Note 2 of Item 1 the company's restated results of operations,
as described in Management's 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.
2
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PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
A S S E T S
-----------
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
CURRENT ASSETS: (RESTATED) (RESTATED)
Cash and cash equivalents $ 13,856 $ 15,268
Restricted cash and short-term investments, at market 7,387 7,922
Receivables, net 279,157 215,110
Inventories, net 59,223 58,141
Deferred income taxes and other assets 13,846 7,686
--------- ---------
TOTAL CURRENT ASSETS 373,469 304,127
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $106,311 and $99,839, respectively 144,974 139,401
INVESTMENTS IN AND ADVANCES TO AFFILIATES, net 197012 199,267
GOODWILL, less accumulated amortization of $32,050 and $28,744, respectively 227,278 227,351
DEFERRED INCOME TAXES AND OTHER ASSETS 26,542 25,046
========= =========
TOTAL ASSETS $ 969,275 $ 895,192
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings and current portion of
long-term obligations $ 26,098 $ 26,814
Accounts payable 74,140 39,095
Accrued expenses 103,224 108,488
Deferred revenues 112,049 76,678
--------- ---------
TOTAL CURRENT LIABILITIES 315,511 251,075
DUE TO JOINT VENTURE PARTNER 21,911 26,829
LONG-TERM OBLIGATIONS, net of current portion 225,091 181,281
OTHER LIABILITIES 1,205 3,007
--------- ---------
TOTAL LIABILITIES 563,718 462,192
NON-CONTROLLING INTERESTS IN
NET ASSETS OF CONSOLIDATED SUBSIDIARIES 9,934 13,648
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,
37,174,394 and 37,018,256 shares outstanding, respectively
after deducting 20,877 shares held in treasury 372 370
Additional paid-in capital 492,647 490,540
Accumulated other comprehensive loss (6,824) (7,149)
Accumulated deficit (90,572) (64,409)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 395,623 419,352
========= =========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 969,275 $ 895,192
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------------------
1999 1998
-------------- --------------
(RESTATED) (RESTATED)
<S> <C> <C>
REVENUES $ 200,171 $ 186,027
COSTS OF GOODS SOLD 159,121 135,057
------------ ------------
GROSS PROFIT 41,050 50,970
RESEARCH AND DEVELOPMENT EXPENSES 10,082 10,618
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 28,541 27,239
AMORTIZATION OF GOODWILL 2,866 2,260
------------ ------------
INCOME (LOSS) FROM OPERATIONS (439) 10,853
NET INVESTMENT INCOME (EXPENSE) (3,297) (2,064)
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (24,390) (29,732)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 3,261 2,982
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (24,865) (17,961)
PROVISION FOR INCOME TAXES 1,298 1,370
------------ ------------
NET LOSS $ (26,163) $ (19,331)
============ ============
NET LOSS PER COMMON AND DILUTIVE SHARE $ (0.70) $ (0.59)
SHARES USED IN COMPUTING NET LOSS
PER COMMON AND DILUTIVE SHARE 37,138,029 32,819,641
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
------------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES: (RESTATED) (RESTATED)
<S> <C> <C>
NET LOSS $(26,163) $(19,212)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expenses 10,180 8,538
Amortization of prepaid financing costs 773 265
Equity in losses of affiliates 24,390 29,732
Non-controlling interests in losses of consolidated subsidiaries (3,261) (2,982)
Foreign currency translation adjustment 430 243
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in current and other non-current assets (70,940) 15,915
Increase (decrease) in current and other non-current liabilities 54,274 (22,456)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (10,317) 10,043
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,716) (6,234)
Payments for business acquisitions (1,064) --
Investments in and advances to affiliates, net (18,716) (35,238)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (29,496) (41,472)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) 1,462 15,461
Principal payments on long-term obligations (9,252) (3,568)
Net proceeds from issuances of long-term obligations 49,000 27,464
Advances (repayments) from (to) joint venture partner (4,918) 5,529
Net proceeds from issuances of common stock 2,109 9,610
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 38,401 54,496
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,412) 23,067
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,268 6,391
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,856 $ 29,458
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(UNAUDITED)
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
information reflects all adjustments, consisting of normal recurring
adjustments, 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. 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, 1998. Operating results for the three-month
period ended March 31, 1999 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."
(1) 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 1998 financial statements to
conform to the 1999 financial statement presentation. All financial amounts are
stated in U.S. dollars unless otherwise indicated.
(2) RESTATEMENTS
Management has determined to restate its previously issued unaudited
consolidated financial statements for 1999 and 1998 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 restatement matters, refer to Notes 2A
and 13 to the company's consolidated financial statements
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included in the company's 1999 Annual Report on Form 10-K 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:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
RESTATED:
Revenues $ 200,171 $ 186,027
Gross profit 41,050 50,970
Income (loss) from operations (439) 10,853
Net loss (26,163) (19,331)
Net loss per common and dilutive share (0.70) (0.59)
AS PREVIOUSLY REPORTED:
Revenues $ 204,338 $ 186,159
Gross profit 46,311 51,374
Income (loss) from operations 3,636 13,365
Net income (loss) (15,871) 4,745
Net income (loss) per common share (0.43) 0.14
Net income (loss) per common share, assuming dilution (0.43) 0.13
</TABLE>
(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, in certain circumstances, an
allocation of general and administrative costs). Work-in-process inventory has
been reduced by contractual progress payments received. Finished goods inventory
consists of fully assembled commercial products awaiting shipment.
(4) DISAGGREGATED FINANCIAL INFORMATION
Industry Sector Information. Orbital's operations are organized into three
business sectors, which correspond to product and service types, different
markets served by the company's products and services, as well as the manner in
which these products and services are managed. Orbital's three business sectors
are space and ground infrastructure systems, satellite access products and
satellite services. Space and ground
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infrastructure systems include launch vehicles, satellites and related space
systems, electronics and sensor systems, satellite ground systems and software
and transportation management systems. Satellite access products include
satellite-based navigation, positioning and communications products. Satellite
services include satellite-based two-way mobile data communications services,
satellite-based remote imaging services, satellite-based automotive information
services and satellite-based voice communications services.
The following table presents operating information for the three months ended
March 31, 1999 and 1998 and identifiable assets at March 31, 1999 and at
December 31, 1998 by business sector. Operating income (loss) is total revenues
less costs of goods sold, research and development expenses, selling, general
and administrative expenses, and amortization of goodwill. Identifiable assets
are those assets used in the operations of each business or investments in those
businesses. There were no significant sales or transfers between consolidated
sectors.
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- -------------- ---- ----
(Restated) (Restated)
<S> <C> <C>
SPACE AND GROUND
INFRASTRUCTURE SYSTEMS:
Revenues $ 171,081 $ 159,423
Operating income 11,039 16,667
Identifiable assets 565,154 605,316
Capital expenditures 9,032 5,730
Depreciation and amortization 8,044 6,766
SATELLITE ACCESS PRODUCTS:
Revenues $ 26,172 $ 26,540
Operating loss (2,817) (4,176)
Non-controlling interests in (earnings) losses
of consolidated subsidiaries 1,334 2,215
Identifiable assets 121,715 121,196
Capital expenditures 681 504
Depreciation and amortization 2,266 1,772
SATELLITE SERVICES:
Revenues $ 2,918 $ 64
Operating loss (8,661) (1,638)
Equity in earnings (losses) of affiliates (24,390) (29,732)
Non-controlling interests in (earnings) losses
of consolidated subsidiaries 1,927 767
Identifiable assets 282,406 168,680
Capital expenditures 3 --
Depreciation and amortization 187 --
CONSOLIDATED:
Revenues $ 200,171 $ 186,027
Operating income (439) 10,853
Equity in earnings (losses) of affiliates (24,390) (29,732)
Non-controlling interests in (earnings)
losses of consolidated subsidiaries 3,261 2,982
Identifiable assets 969,275 895,192
Capital expenditures 9,716 6,234
Depreciation and amortization 10,180 8,538
=========== ===========
</TABLE>
8
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(5) BUSINESS COMBINATIONS AND INVESTMENTS IN AND ADVANCES TO AFFILIATES
During the first quarter of 1999, the company's wholly owned Canadian
subsidiary, MacDonald, Dettwiler and Associates, Ltd. ("MDA"), increased its
ownership of a Canadian remote imaging company, Radarsat International ("RSI").
As a result of the transaction, at March 31, 1999 MDA held a majority and
controlling interest in RSI and, accordingly, consolidated RSI's results of
operations. The net purchase price, after cash acquired and foreign currency
adjustments, was approximately $1,000,000, which exceeded the fair value of the
net liabilities acquired by approximately $4,200,000. This excess is being
amortized on a straight-line basis over 20 years. The allocation of purchase
price to net liabilities acquired may be adjusted over the next year if
additional information becomes known about certain business assumptions used to
estimate the fair value of such net liabilities. In connection with the May 1999
acquisition of Spar Aerospace's space robotics business (see note 9), MDA
acquired the remaining outstanding shares of RSI, and accordingly, owns all
outstanding shares.
During the first three months of 1999, the company provided ORBCOMM Global, L.P.
$18,450,000 in additional capital and provided $2,000,000 of deferred invoicing
for work performed under a satellite and launch procurement contract during the
first three months of 1999.
(6) INCOME TAXES
The company has recorded its interim consolidated income tax provision based on
an estimate of its full-year provision. The company's tax provision is for U.S.
Federal and state, and foreign income taxes. Estimated provisions recorded
during interim periods may be periodically revised, if necessary, to reflect
current estimates.
(7) EARNINGS PER SHARE
Net income (loss) per common share is calculated using the weighted average
number of common shares outstanding during the periods. Net income (loss) per
common share, assuming dilution is calculated using the weighted average number
of common and common equivalent shares outstanding during the periods, plus the
dilutive effects of stock options and the assumed conversion of the company's
convertible notes, after giving effect to all net income adjustments that would
result from the assumed conversion.
In periods of net loss, the assumed conversion of convertible notes and exercise
of stock options are anti-dilutive. Assuming conversion of convertible notes and
the dilutive impact of outstanding stock options, dilutive shares would have
been 41,751,171 for the three months ended March 31,1999 and 37,721,780 for the
three months ended March 31, 1998.
9
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(8) COMPREHENSIVE LOSS
Comprehensive loss and associated differences are as follows:
<TABLE>
<CAPTION>
MARCH 31,
(In thousands) 1999 1998
- -------------- ---- ----
(Restated) (Restated)
<S> <C> <C>
Differences between net loss,
as reported, and comprehensive loss:
Net loss, as reported $ (26,163) $ (19,331)
Unrealized gains (losses) on
short-term investments -- (136)
Translation adjustments 325 243
---------- ----------
Comprehensive loss $ (25,838) $ (19,224)
========== ==========
Accumulated differences between net loss, as reported, and
comprehensive loss:
Beginning of period $ (7,149) $ (4,671)
Unrealized gains (losses) on
short-term investments -- (136)
Translation adjustments 325 243
---------- ----------
End of period $ (6,824) $ (4,564)
========== ==========
</TABLE>
(9) SUBSEQUENT EVENTS AND OTHER MATTERS
Business Combinations. In May 1999, the company acquired all the assets and
certain liabilities of the space robotics division of Toronto-based Spar
Aerospace Limited ("Spar") for approximately $43,000,000. The company paid
one-half of the purchase price in cash at closing and issued an unsecured 8%
note, due May 2000, for the remainder. The company will account for the
acquisition using the purchase method of accounting. The purchase price exceeded
the fair value of the net liabilities acquired by approximately $48,000,000,
which will be amortized on a straight-line basis over 20 years. The allocation
of purchase price to net liabilities acquired in the Spar acquisition may be
adjusted over the next year if additional information becomes known about
certain assumptions used to estimate the fair value of such net liabilities.
In May 1999, the company entered into a $35,000,000 long-term license agreement
with the British Columbia provincial government whereby the company obtained the
exclusive rights to use certain government information databases. The company
intends to provide Internet-based services using these databases.
Litigation. During the first quarter of 1999, a number of class action lawsuits
were filed in federal court against the company, an officer and an
officer/director alleging violations of the federal securities laws during the
period from April 21, 1998 through February 16,
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1999 and seeking monetary damages. The company believes that these allegations
are without merit and intends to defend vigorously against such allegations.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Certain statements included in this discussion relating to future revenues,
expenses, growth rates, net income, new business, operational performance,
schedules, sources and uses of funds, "Year 2000" issues, 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, our ability and the ability of our
customers and suppliers to assess and correct timely and accurately "Year 2000"
issues, market acceptance of new products and technologies, risks associated
with long-term contracts, 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 include launch vehicles, satellites and
related space systems, electronics and sensor systems, satellite ground systems
and software and transportation management systems. 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 ("RSI") and Orbital Navigation Corporation:
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 May 1999, we acquired all the assets and certain
liabilities of the space robotics division of Toronto-based Spar Aerospace
Limited for approximately $43,000,000 (the "Spar Acquisition"). We paid
approximately one-half of the purchase price in cash at closing and issued an
unsecured 8% note due May 2000 for the remainder. We will account for the
acquisition using the purchase method of accounting.
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The purchase price exceeded the fair value of the net liabilities acquired by
approximately $48,000,000, which will be amortized on a straight-line basis over
20 years.
In May 1999, we entered into a $35,000,000 long-term license agreement with the
British Columbia provincial government, whereby we obtained the exclusive rights
to use certain government information databases. We intend to provide
internet-based services using these databases.
During the first quarter of 1999, we increased our ownership of RSI. As a result
of the transaction, at March 31, 1999 we held a majority and controlling
interest in RSI and, accordingly, consolidated RSI's results of operations. The
net purchase price, after cash acquired and foreign currency adjustments, was
approximately $1,000,000, which exceeded the fair value of the net liabilities
acquired by approximately $4,200,000. This excess is being amortized on a
straight-line basis over 20 years. In connection with the Spar Acquisition, we
acquired additional shares of RSI, and accordingly, now own all outstanding
shares.
In March 1999, we signed a merger agreement with Lowrance Electronics, Inc.
("Lowrance"), a leading manufacturer of marine and recreational electronics
products using GPS-satellite navigation and sonar technology. Under the terms of
the merger, we will acquire all of the outstanding common stock of Lowrance in
exchange for shares of our common stock based on an acquisition price of
$27,500,000. The transaction is expected to close in the second half of 1999,
subject to regulatory approvals and Lowrance shareholder approval.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Certain of the 1999 and 1998 financial information has been restated. See note
2 to the condensed consolidated financial statements.
REVENUES. Our consolidated revenues for the three-month periods ended March 31,
1999 and 1998 were $200,171,000 and $186,027,000, respectively.
Space and Ground Infrastructure Systems. Revenues from our space and ground
infrastructure systems sector totaled $171,081,000 and $159,423,000 for the
three months ended March 31, 1999 and 1998, respectively.
Revenues from our launch vehicles decreased to $43,411,000 in the first quarter
of 1999, from $45,908,000 in the first quarter of 1998. The decrease in revenues
in 1999 as compared to a year ago is primarily attributable to a decrease in
space launch vehicle revenues under existing contracts with affiliates.
For the three months ended March 31, 1999, satellite revenues increased to
$63,166,000 from $61,532,000 in the first quarter of 1998. The increase in
satellite sales is primarily
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due to additional revenues generated from a new commercial geosynchronous
satellite contract received in 1998.
Revenues from electronics and sensor systems and transportation management
systems increased to $35,813,000 for the three months ended March 31, 1999 from
$30,562,000 in the comparable 1998 period. This increase is largely due to the
December 1998 acquisition of the transportation management systems business of
Raytheon Company, which contributed revenues of $3,600,000 during the first
quarter of 1999.
Revenues from satellite ground systems and software increased to $28,691,000 in
the first quarter of 1999 as compared to $21,421,000 in the comparable 1998
quarter. The increase in 1999 revenues is due to work performed on orders
received in 1998 for a new satellite remote imaging system and for several
satellite ground systems and system upgrades.
Revenues for the three months ended March 31, 1999 include sales to affiliates
of $36,327,000 as compared to first quarter 1998 sales to affiliates of
$43,426,000.
Satellite Access Products. Revenues from sales of satellite-based navigation,
positioning and communications products in the first quarter of 1999 were
$26,172,000 as compared to $26,540,000 for the first quarter of 1998.
Satellite Services. Revenues for this sector include those generated by
ORBCOMM's domestic operation, ORBCOMM USA, L.P. ("ORBCOMM USA"), which we
consolidate, Orbital Navigation Corporation ("ORBNAV") and RSI. Revenues from
this sector are expected to increase throughout 1999.
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 1999 was $41,050,000 (21% of revenues) as compared to
$50,970,000 (27% of revenues) for the first quarter of 1998.
Space and Ground Infrastructure Systems. Gross profit margins from our space and
ground infrastructure systems totaled $33,206,000 (19% of sector revenues) and
$43,273,000 (27% of sector revenues) for the three months ended March 31, 1999
and 1998, respectively.
Gross profit margins from launch vehicles were 15% for the first quarter of 1999
as compared to 27% for the first quarter of 1998. The decrease in launch vehicle
gross margins in 1999 is primarily due to completing work on certain less
profitable space and suborbital launch vehicle contracts and low margins from
advanced vehicle contracts. Satellites contributed gross margins of 17% during
the first quarter of 1999 as compared to 28% during the first quarter of 1998.
The decrease is due to work performed on a
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large, commercial geosynchronous satellite contract won in late 1998 that
contains a significant amount of lower margin, external subcontract effort.
Revenues recognized and subcontractor costs incurred on this contract during the
first quarter of 1999 also resulted in a significant increase in accounts
receivable and accounts payable since December 31, 1998; such
receivables/payables were collected/paid in April 1999. For the three months
ended March 31, 1999 and 1998, electronics and sensor systems and transportation
management systems had consistent gross margins of 26%. Gross margins for ground
systems and software were 23% and 27% for each of the first quarters in 1999 and
1998, respectively. This decrease is due to an increase in lower margin,
subcontract work on several contracts and to lower margins on various new
international defense contracts.
Satellite Access Products. Gross margins for satellite access products were
generally consistent at 33% for the first quarter of 1999 and 35% for the first
quarter of 1998.
Satellite Services. Gross margins for this sector include those generated by
ORBCOMM USA, ORBNAV and RSI. This sector had a gross loss of $881,000 during the
first quarter of 1999, as compared to a gross loss of $1,574,000 for the first
quarter of 1998.
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, 1999 and 1998 were $10,082,000 (5% of revenues) and $10,618,000
(6% 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 the finance, legal,
administrative and general management functions of the company. Selling, general
and administrative expenses for the first quarters of 1999 and 1998 were
$28,542,000 (14% of revenues) and $27,239,000 (15% of revenues), respectively.
NET INVESTMENT INCOME (EXPENSE). Net investment income (expense) was
($3,297,000) and ($2,064,000) for the three months ended March 31, 1999 and
1998, respectively. Investment income reflects interest earnings on short-term
investments and realized gains and losses on investments, reduced by interest
expense of $4,121,000 and $2,512,000 on outstanding debt for the three months
ended March 31, 1999 and 1998, respectively. Interest expense has been reduced
by capitalized interest of $779,000 and $2,368,000 in 1999 and 1998,
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
15
<PAGE> 16
the first quarters of 1999 and 1998 were ($21,129,000) and ($26,750,000),
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, ORBCOMM International Partners
L.P.'s, ORBIMAGE's and CCI'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 ORBCOMM USA, RSI's and
Magellan's current period earnings and losses. The decrease in losses during the
first quarter of 1999 is primarily due to beneficial conversion rights relating
to the issuance of preferred shares to other investors in ORBIMAGE during 1998.
PROVISION FOR INCOME TAXES. We recorded an income tax provision of $1,298,000
and $1,370,000 for the three-month periods ended March 31, 1999 and 1998,
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 INCOME (LOSS). Our consolidated net income (loss) for the three months ended
March 31, 1999 and 1998 was ($26,163,000) and ($19,331,000), respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our growth has required substantial capital to fund investments in affiliates,
expanding working capital needs, certain business acquisitions, new business
initiatives, research and development and capital expenditures. We have funded
these requirements to date, and expect to fund our future requirements, through
cash generated by operations, working capital, loan facilities, asset-based
financings, joint venture arrangements and private and public equity and debt
offerings. We expect to continue to pursue potential acquisitions, new business
opportunities and equity investments that we believe would enhance our
businesses and to fund such transactions through existing cash, cash generated
by operations, loan facilities, joint ventures, the issuance of equity and/or
debt securities and/or asset-based financings.
Cash and investments were $21,243,000, and total debt obligations were
approximately $251,189,000 at March 31, 1999. The outstanding debt is comprised
primarily of our $100,000,000 5% convertible subordinated notes, advances under
our line of credit facilities, secured and unsecured notes, and asset-based
financings. At March 31, 1999, approximately $7,387,000 of cash and investments
was restricted because of outstanding letters of credit. Our current ratio was
1.2 at March 31, 1999 and December 31, 1998.
Our primary revolving credit facility provides for total borrowings from a
syndicate of banks of up to $200,000,000. Borrowings of $81,000,000 were
outstanding under the facility at March 31, 1999 at a weighted average interest
rate of 7% and were secured by accounts receivable. During the first quarter of
1999, the facility was amended to modify
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<PAGE> 17
a financial covenant to provide full availability under the facility. 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.
During the first quarter of 1999, we provided $18,450,000 in capital to ORBCOMM.
In addition, during the first quarter of 1999, we deferred invoicing ORBCOMM for
approximately $2,000,000 of work performed under our ORBCOMM satellite and
launch procurement agreement and will defer additional invoicing during the
remainder of 1999. Approximately one-half of the deferred invoice amounts is
expected to be advanced to Orbital by Teleglobe Inc. ORBCOMM will require
additional funding in 1999, and is analyzing different capital raising
alternatives. If ORBCOMM is unsuccessful in raising outside capital, we may
provide up to $35,000,000 of additional capital as required during the remainder
of 1999.
Our operations used net cash of approximately $10,317,000 in the first quarter
of 1999. During the first quarter of 1999, in addition to our investment in
ORBCOMM, we invested approximately $9,716,000 in capital expenditures for
various satellite and launch vehicle production, manufacturing and test
equipment and office equipment, and $1,064,000 in business acquisitions.
During the first quarter, we announced plans for a joint venture and an
acquisition. We continue to move toward completion of our $50,000,000 joint
venture with The Hertz Corporation ("Hertz") whereby Hertz will offer Magellan
automotive navigation systems in rental cars in the U.S., Canada and Europe. The
joint venture agreement, which is under negotiation, contemplates that we will
receive a 60% interest in exchange for a $30,000,000 investment to be made
primarily in the second half of 1999. In addition, we signed a merger agreement
with Lowrance under which we plan to acquire Lowrance and merge it into Magellan
in a stock-for-stock acquisition valued at approximately $27,500,000, subject to
receipt of all regulatory approvals and Lowrance shareholder approval. To
complete these transactions and to provide additional capital to ORBCOMM, we
need to amend several covenants in our primary credit facility and in our
$20,000,000 term loan. We are currently pursuing these amendments with our
lenders.
We are expanding our offices and satellite-related engineering, manufacturing
and operations facilities adjacent to our Dulles, Virginia headquarters.
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 and expect to obtain third party debt
financing for the engineering, manufacturing and operating facilities.
Subsequent to March 31, 1999, we closed various business combinations (See
Recent Developments), with aggregate purchase prices of approximately
$78,000,000.
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<PAGE> 18
Approximately $22,000,000 was financed through existing cash on hand and credit
facilities, while the balance was financed by issuing new debt obligations.
We expect that our capital needs for the remainder of 1999 will, in part, be
provided by working capital, cash flows from operations, existing or new credit
facilities, and operating lease arrangements. We will also consider new equity
and debt financings.
YEAR 2000 ISSUES
We have developed a plan to prepare for potential "Year 2000" issues with
respect to various operational, technical and financial computer-related
systems. The plan has been designed to minimize risk to Orbital and its
customers using a standard industry five-phase approach. The five phases are
awareness, assessment, renovation, validation and implementation. We have
substantially completed the awareness and assessment phases, including a
comprehensive inventory of potentially affected systems. In many cases
renovation work is well under way and validation testing has begun with respect
to certain critical systems.
We plan to achieve our overall goal of Year 2000 readiness in mid-1999. The
first half of 1999 will be devoted to renovating, validating and implementing
its corrective action plan by reprogramming affected software when appropriate
and feasible, obtaining vendor-provided software upgrades when available and
completely replacing affected systems when necessary.
The total costs to implement the plan, which costs include the already planned
replacement of existing systems to support our overall growth, are estimated to
be less than 1% of 1998 revenues. Approximately 85% of the estimated costs to
implement the plan have been incurred to date and the remaining costs are
expected to be incurred during the remainder of 1999. All costs, including the
costs of internal personnel, outside consultants, system replacements and other
equipment, will be expensed as incurred, except for long-lived assets, which
will be capitalized in accordance with our capitalization policies. We have not
postponed the implementation or upgrade of other systems as a result of focusing
on the Year 2000 plan.
As part of the plan, formal communication with our suppliers, customers and
other service providers has been initiated. To date, however, we have not
determined whether "Year 2000" issues affecting key suppliers, significant
customers (including the U.S. government), or critical service providers will
materially impact the company's cash flows or operating results. A "reasonably
likely worst case" scenario of the Year 2000 issue for us could include:
isolated performance problems with engineering, financial and administrative
systems; isolated interruption of deliveries from critical suppliers; product
liability or warranty issues; and the temporary inability of key customers to
pay amounts due us. Contingency plans are being prepared, and will be
implemented if necessary, including having sufficient liquidity available to
sustain a temporary interruption of cash receipts during early 2000 and the
identification of alternative suppliers for critical
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components. There can be no assurance that we have identified, or will identify,
all "Year 2000" affected systems, suppliers, customers and service providers, or
that our corrective action plan will be timely and successful.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do 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. At March 31,
1999, the majority of our 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 our stock price, and was $81,375,000 at
March 31, 1999.
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<PAGE> 20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the first quarter of 1999, a number of class action lawsuits
were filed in the U.S. District Court for the Eastern District of
Virginia against Orbital, an officer and an officer/director,
alleging violations of the federal securities laws during the period
from April 21, 1998 through February 16, 1999 and seeking monetary
damages. We believe that the allegations are without merit and intend
to defend vigorously against such allegations.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - A complete listing of exhibits required is given
in the Exhibit Index that precedes the exhibits filed with
this report.
(b) Reports on Form 8-K.
(i) On February 25, 1999, the company filed a Current Report
on Form 8-K, dated February 16, 1999 disclosing the
financial results of the company for the fiscal year ending
December 31, 1998 and the fourth quarter of 1998, and
litigation filed against the company in connection with its
restatement of financial results for the quarters ended
March 31, June 30 and September 30, 1998.
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<PAGE> 21
EXHIBIT INDEX
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1.1 Amendment No. 1, dated as of March 25, 1999, to the Third
Amended and Restated Credit and Reimbursement Agreement,
dated as of December 21, 1998 among the company and Morgan
Guaranty Trust Company of New York, as Administrative Agent.
(previously filed)
27 Financial Data Schedule (such schedule is furnished for the
information of the Securities and Exchange Commission and is
not to be deemed "filed" as part of the Form 10-Q, or
otherwise subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934) (transmitted herewith).
</TABLE>
22
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: May 12, 2000 By: /s/ David W. Thompson
----------------------------------
David W. Thompson, Chairman of the
Board and Chief Executive Officer
DATED: May 12, 2000 By: /s/ Jeffrey V. Pirone
----------------------------------
Jeffrey V. Pirone, Executive Vice
President and Chief Financial Officer
21
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000820736
<NAME> ORBITAL SCIENCES CORP /DE/
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 13,856
<SECURITIES> 7,387
<RECEIVABLES> 300,727
<ALLOWANCES> (21,570)
<INVENTORY> 59,223
<CURRENT-ASSETS> 373,469
<PP&E> 251,285
<DEPRECIATION> (106,311)
<TOTAL-ASSETS> 969,275
<CURRENT-LIABILITIES> 315,511
<BONDS> 225,091
0
0
<COMMON> 372
<OTHER-SE> 395,251
<TOTAL-LIABILITY-AND-EQUITY> 969,275
<SALES> 200,171
<TOTAL-REVENUES> 200,171
<CGS> 159,121
<TOTAL-COSTS> 159,121
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 395
<INTEREST-EXPENSE> 4,121
<INCOME-PRETAX> (24,865)
<INCOME-TAX> 1,298
<INCOME-CONTINUING> (26,163)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,163)
<EPS-BASIC> (0.70)
<EPS-DILUTED> (0.70)
</TABLE>
