<PAGE> 1
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
SEPTEMBER 30, 1995
ORBITAL SCIENCES CORPORATION
Commission file number 0-18287
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 06-1209561
---------------------------------------------------------- -------------------------------------------------
(State of Incorporation) (IRS Identification number)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
---------------------------------------------------------- -------------------------------------------------
(Address of principal executive offices) (Telephone number)
</TABLE>
The registrant has (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
As of November 9, 1995, 22,693,669 shares of the registrant's common stock were
outstanding.
<PAGE> 2
EXPLANATORY NOTE
Orbital Sciences Corporation ("Orbital") has determined to restate its
consolidated financial statements for the year ended December 31, 1995 and its
condensed consolidated quarterly financial statements for 1995. This amendment
includes in Item 1 such restated condensed consolidated financial statements
and related footnotes thereto for the three and nine months ended September 30,
1995, 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.
2
<PAGE> 3
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
----------------- ----------------
(RESTATED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,200 $ 21,156
Short-term investments, at market 32,697 12,426
Receivables, net 89,710 94,236
Inventories, net 25,980 26,098
Deferred income taxes and other current assets 12,218 5,914
------------ -------------
TOTAL CURRENT ASSETS 171,805 159,830
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation
and amortization of $32,932 and $33,432, respectively 95,365 102,061
INVESTMENTS IN AFFILIATES 67,566 54,721
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, less accumulated
amortization of $12,177 and $10,042, respectively 70,517 68,878
DEFERRED INCOME TAXES AND OTHER ASSETS 19,313 17,238
------------ -------------
TOTAL ASSETS $ 424,566 $ 402,728
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 5,924 $ 28,160
Accounts payable 19,132 14,961
Accrued expenses 26,824 37,439
Payable to subcontractors 2,071 13,695
Deferred revenues 20,730 13,272
------------ -------------
TOTAL CURRENT LIABILITIES 74,681 107,527
LONG-TERM OBLIGATIONS, net of current portion 93,833 81,163
DEFERRED INCOME TAXES AND OTHER LIABILITIES 16,630 11,992
------------ -------------
TOTAL LIABILITIES 185,144 200,682
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, par value $.01; 40,000,000 shares authorized,
22,679,643 and 20,170,196 shares outstanding,
after deducting 15,735 shares held in treasury 227 202
Additional paid-in capital 238,395 201,328
Unrealized gains (losses) on short-term investments (80) (462)
Retained earnings 880 978
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 239,422 202,046
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 424,566 $ 402,728
============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------
1995 1994
----------------- -----------------
(RESTATED)
<S> <C> <C>
REVENUES $ 79,400 $ 58,205
Costs of goods sold 58,020 40,891
--------------- ----------------
GROSS PROFIT 21,380 17,314
Research and development expenses 3,512 3,159
Selling, general and administrative expenses 12,415 10,184
Amortization of excess of purchase price over net assets acquired 791 567
--------------- ----------------
INCOME FROM OPERATIONS 4,662 3,404
Net interest income (expense) (649) (238)
Equity in earnings (losses) of affiliates (596) (995)
--------------- ----------------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,417 2,171
Provision for income taxes 944 658
=============== ================
NET INCOME $ 2,473 $ 1,513
=============== ================
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.11 $ 0.08
=============== ================
Shares used in computing net income
per common and common equivalent share 22,986,160 19,213,903
=============== ================
NET INCOME PER COMMON SHARE, ASSUMING FULL DILUTION $ 0.11 $ 0.08
=============== ================
SHARES USED IN COMPUTING NET INCOME
PER COMMON SHARE, ASSUMING FULL DILUTION 26,881,696 23,318,078
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
1995 1994
-------------- ----------------
(RESTATED)
<S> <C> <C>
REVENUES $ 212,786 $ 156,880
Costs of goods sold 155,652 114,514
--------------- ----------------
GROSS PROFIT 57,134 42,366
Research and development expenses 12,276 9,665
Selling, general and administrative expenses 35,240 24,656
Amortization of excess of purchase price over net assets acquired 2,191 1,375
--------------- ----------------
INCOME FROM OPERATIONS 7,427 6,670
Net interest income (expense) (2,187) 693
Equity in earnings (losses) of affiliates (234) (1,539)
--------------- ----------------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 5,006 5,824
Provision for income taxes 2,727 1,575
--------------- ----------------
Income before cumulative effect of accounting change 2,279 4,249
Cumulative effect of accounting change, net of tax (2,377) --
--------------- ----------------
NET INCOME (LOSS) (98) 4,249
=============== ================
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Income before cumulative effect of accounting change 0.11 0.23
Cumulative effect of accounting change, net of tax $ (0.11) $ --
--------------- ----------------
$ 0.00 $ 0.23
=============== ================
Shares used in computing net income (loss)
per common and common equivalent share 21,640,635 18,346,929
=============== ================
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION:
Income before cumulative effect of accounting change 0.11 0.21
Cumulative effect of accounting change, net of tax $ (0.11) $ --
--------------- ----------------
$ 0.00 $ 0.21
=============== ================
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, assuming full dilution 21,640,635 22,452,493
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------
1995 1994
----------------- -----------------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (98) $ 4,249
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expenses 13,186 8,454
Equity in (earnings) losses of affiliates 234 1,539
Cumulative effect of accounting change, net of tax 2,377 --
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in contract receivables 13,852 7,221
(Increase) decrease in components inventory 118 (970)
(Increase) decrease in other current assets (3,272) (1,381)
(Increase) decrease in deposits and other assets (5,701) 3,621
Increase (decrease) in payables and accrued expenses (21,725) (8,671)
Increase (decrease) in deferred revenue 7,667 (18,777)
Increase (decrease) in deferred income taxes and other assets 4,638 604
-------------- ----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 11,276 (4,111)
-------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16,620) (18,262)
Proceeds from sales of fixed assets 125 --
Purchase of investment securities (24,199) (8,916)
Sale of investment securities 4,310 14,210
Investments in affiliates (12,374) (10,539)
Payment for business acquisition -- (40,718)
-------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (48,758) (64,225)
-------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) (22,649) 13,546
Principal payments on long-term obligations (3,917) (896)
Proceeds from issuance of long-term obligations 20,000 24,200
Net proceeds from issuances of common stock 34,092 1,276
Adjustment to recast pooled companies' year end -- (1,138)
-------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 27,526 36,988
-------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,956) (31,348)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,156 49,458
-------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,200 $ 18,110
============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
ORBITAL SCIENCES CORPORATION NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994 (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 for the year ended December 31, 1994. Operating results for the
three- and nine-month periods ended September 30, 1995 and 1994 are not
necessarily indicative of the results expected for the full year.
Orbital Sciences Corporation is hereafter referred to as "Orbital" or the
"Company."
(1) RESTATEMENTS
Management has determined to restate its previously issued consolidated
financial statements for 1995 with respect to its accounting treatment for
capitalized costs and certain other matters. For a full description of the
restatement matters, refer to Notes 1A and 16 to the Company's consolidated
financial statements included in the Company's 1995 Annual Report on Form 10K/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
(in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
-----------------------------------------------------------------
<S> <C> <C>
RESTATED:
Revenues $ 79,400 $ 212,786
Gross Profit 21,380 57,134
Income from operations 4,662 7,427
Net income (loss) 2,473 (98)
Net income (loss) per common share 0.11 0.00
Net income (loss) per dilutive share 0.11 0.00
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
-----------------------------------------------------------------
<S> <C> <C>
AS PREVIOUSLY REPORTED:
Revenues $ 79,172 $ 212,102
Gross profit 21,321 56,957
Income from operations 4,662 7,427
Net income (loss) 2,202 (717)
Net income (loss) per common share 0.10 (0.03)
Net income per dilutive share 0.10 (0.03)
</TABLE>
(2) NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121"), which (i)
requires that long-lived assets "to be held and used" be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, (ii) requires that
long-lived assets "to be disposed of" be reported at the lower of carrying
amount or fair value less cost to sell, and (iii) provides guidelines and
procedures for measuring an impairment loss that are significantly different
from existing guidelines and procedures.
The Company adopted the provisions of SFAS 121 during the quarter ended March
31, 1995. As a result, as of January 1, 1995 Orbital recorded a cumulative
adjustment for a change in accounting principle of $2,377,000, net of tax
benefit of $1,783,000, related to the impairment in the carrying amount of
certain assets to be disposed of that supported its orbit transfer vehicle
product line. The effect of adopting SFAS 121 on income from continuing
operations for the quarter and nine months ended September 30, 1995 was not
material.
(3) INVENTORIES
Inventories consist of components inventory, work-in-process inventory and
finished goods inventory and are generally stated at the lower of cost or net
realizable value on a first-in, first-out or specific identification basis.
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.
8
<PAGE> 9
(4) EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
During the quarter ended September 30, 1995, as a result of obtaining
additional information subsequent to the acquisition of Fairchild Space and
Defense Corporation ("Fairchild") on August 11, 1994, the Fairchild purchase
price was reallocated to reflect a more accurate valuation of assets and
liabilities acquired. As a result of the reallocation, the value of net
liabilities acquired increased by approximately $3,800,000 with a resulting
increase in the excess of purchase price over net assets acquired.
(5) INVESTMENTS IN AFFILIATES
The Company's majority-owned subsidiary, Orbital Communications Corporation
("OCC"), and Teleglobe Mobile Partners, an affiliate of Teleglobe Inc., formed a
partnership, ORBCOMM Global, L.P. ("ORBCOMM Global"), formerly known as ORBCOMM
Development Partners, L.P., for the two-phased design, development,
construction, integration, test and operation of a low-Earth orbit satellite
communications system (the "ORBCOMM System"). Pursuant to the terms of the
amended partnership agreement, OCC and Teleglobe Mobile Partners are each 50%
general partners in ORBCOMM Global. Additionally, OCC owns 51% and 49%,
respectively, in ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International
Partners, L.P. ("ORBCOMM International") (ORBCOMM Global, ORBCOMM USA and
ORBCOMM International are, collectively, the "ORBCOMM Partnerships"), two
partnerships formed to market the ORBCOMM System. Teleglobe Mobile Partners owns
49% and 51%, respectively, in the two marketing partnerships.
During the quarter ended September 30, 1995, Teleglobe Mobile increased its
capital commitments to ORBCOMM Global to $85 million, of which $30 million has
been contributed to date. OCC also increased its total capital commitments to
$75 million, of which approximately $59 million has been contributed to date.
Orbital is the primary supplier of the communications satellites, launch
vehicles, and the U.S. ground tracking systems to ORBCOMM Global, and
successfully launched the first two ORBCOMM System satellites in April 1995.
Several anomalies initially observed on the spacecraft have been resolved and,
in July 1995, Orbital successfully completed on-orbit functional testing of the
satellites. With the testing complete, ORBCOMM Global can begin conducting
communications testing with customers in actual operating conditions.
Based on its current assessment of the overall business prospects of the ORBCOMM
Partnerships and the ORBCOMM System, the Company currently believes its
investment of approximately $67 million in ORBCOMM Global is fully recoverable.
If, in the future, implementation of the ORBCOMM System is significantly
delayed, significantly restricted or abandoned, the Company may be required to
expense part or all of its investment.
(6) DEBT
In June 1995, the Company entered into a $20 million fixed-rate unsecured debt
financing arrangement with a private insurance company. The debt has a six-year
term and bears interest at 10 1/2% per annum.
9
<PAGE> 10
In September 1995, Orbital entered into a $7 million unsecured line of credit
with an international bank. The line is repayable upon demand and bears interest
at LIBOR plus 80 basis points, which was approximately 6% at September 30, 1995.
No amounts were outstanding on the line at September 30, 1995.
(7) COMMON STOCK AND INCOME PER SHARE
In June 1995, the Company completed a private placement of two million shares of
its Common Stock, receiving net proceeds of approximately $32 million. The
Company's shares were placed with various international institutional investors
and the private placement was exempt from registration pursuant to Regulation S
of the Securities Act of 1933, as amended.
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, 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.
(8) 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.
(9) HERCULES INCORPORATED
In November 1988, Orbital and Hercules Incorporated ("Hercules") entered into an
joint venture agreement relating to the development and production of the
Pegasus space launch vehicle (the "Joint Venture Agreement"). In 1994, Alliant
Techsystems, Inc. ("Alliant") acquired the assets of Hercules Aerospace Company
(a wholly owned subsidiary of Hercules) and, in connection therewith, assumed
the rights and responsibilities of Hercules with respect to the Joint Venture
Agreement. During the second quarter of 1995, Orbital and Alliant replaced the
Joint Venture Agreement with a joint teaming agreement to provide for the
continuation of joint performance on the Pegasus and Taurus space launch vehicle
programs (the "Joint Teaming Agreement"). The Joint Teaming Agreement provides,
among other things, that Orbital will perform as the system prime contractor for
all present and future Pegasus and Taurus missions and Alliant will perform as a
solid rocket motor and payload fairing subcontractor to Orbital on the Pegasus
program and as a solid rocket motor subcontractor to Orbital on the Taurus
program. As a subcontractor, Alliant will receive firm-fixed prices for its
subcontracts and will no longer share in contract profits and losses, but will
share in the costs and benefits associated with certain defined outstanding
issues on current contracts. The Joint Teaming Agreement will continue through
December 31, 2005, unless terminated earlier by mutual agreement.
10
<PAGE> 11
Orbital and Alliant have also agreed to a final dismissal with prejudice of all
present and future claims and litigation related to the Joint Venture Agreement,
including (i) the January 1994 lawsuit filed by Hercules against Orbital
alleging breaches of certain representations and warranties by Orbital in the
1988 stock purchase agreement between Hercules and Orbital, and (ii) the July
1994 lawsuit filed by Hercules against Orbital alleging breach of fiduciary duty
and breach of contract in the determination of Orbital's recoverable costs
pursuant to the Joint Venture Agreement.
(10) RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 condensed consolidated
financial statements to conform to the 1995 condensed consolidated financial
statement presentation. The December 1994 acquisition of Magellan Corporation
was recorded using the pooling of interests method of accounting for business
combinations and, accordingly, Orbital's 1994 historical financial statements
have been restated to reflect this transaction.
(11) BUSINESS COMBINATION
On August 31, 1995, Orbital signed an agreement (the "Combination Agreement") to
acquire MacDonald, Dettwiler and Associates Ltd. ("MDA"), a leading supplier of
commercial remote sensing ground stations, headquartered in Vancouver, British
Columbia. During its recently completed fiscal year ended March 31, 1995, MDA
reported pre-tax income of approximately US $5,500,000 on sales of approximately
US $80,000,000. The transaction will be structured as a tax-free merger and
accounted for as a pooling of interests.
Pursuant to the terms of the Combination Agreement, a newly formed Canadian
subsidiary of Orbital will issue exchangeable preferred shares (the
"Exchangeable Shares") for all of MDA's outstanding common stock based on an
exchange ratio to be determined according to the average closing price of
Orbital's stock in the month prior to closing. The Exchangeable Shares will be
exchangeable on a one-for-one basis for Orbital common stock. The transaction is
expected to close by the end of November.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30,
1995 AND 1994
Certain of the 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 September 30,
1995 and 1994 were $79,400,000 and $58,205,000, respectively. The Company's
revenues for the nine-month periods ended September 30, 1995 and 1994 were
$212,786,000 and $156,880,000, respectively.
Revenues from the Company's space launch vehicle products decreased to
$7,521,000 during the 1995 three-month period from $17,838,000 during the
comparable 1994 period. Space launch vehicle revenues were $19,486,000 and
$47,599,000 for the nine-month periods ended September 30, 1995 and 1994,
respectively. The significant decrease in revenues during the periods is
attributable primarily to the continuing effects of production delays caused by
the Company's two failed launches of its new Pegasus XL launch vehicle in June
1994 and in June 1995. Orbital expects total 1995 space launch vehicle revenues
to be less than 1994 as a result of the ongoing failure review and return to
flight process, although fourth quarter sales are expected to be higher than
third quarter sales due to work performed on newly awarded contracts and option
exercises for Taurus launches. Sales of space launch vehicles to ORBCOMM Global
were $4,463,000 and $3,629,000 for the three-month periods ended September 30,
1995 and 1994, respectively.
Revenues from suborbital launch vehicle products increased to $5,400,000 in the
1995 three-month period as compared to $4,699,000 in the 1994 period. Suborbital
revenues were $16,891,000 and $16,325,000 for the nine-month periods ended
September 30, 1995 and 1994, respectively. While suborbital revenues have
decreased significantly during the past few years as U.S. Government defense
spending has been reduced, the Company expects 1995 revenues to remain
approximately consistent with, or to slightly increase from, revenue levels
achieved in 1994. The increase in 1995 third quarter sales as compared to 1994's
third quarter sales was the first such increase since 1992.
For the three months ended September 30, 1995, spacecraft systems revenues
increased to $32,337,000 from $11,043,000 in the 1994 period, and revenues for
the nine-month period ended September 30, 1995 were $61,238,000 as compared to
$26,775,000 in the same period in 1994. The increase in spacecraft system sales
is primarily due to additional revenues generated from the Company's Germantown
operations, acquired in August 1994 (the "Germantown Acquisition") and from
sales to ORBCOMM Global. The 1995 and 1994 three-month periods included
$19,198,000 and $3,685,000, respectively, in sales of MicroStar spacecraft to
ORBCOMM Global. Revenues generated from sales of space sensors and instruments
of $2,028,000 during the 1995 quarter decreased from the
12
<PAGE> 13
comparable 1994 quarter sales of $4,591,000. Space sensors and instruments
sales were $8,575,000 and $13,363,000 for the 1995 and 1994 nine- month
periods, respectively, and are expected to remain lower than 1994 levels
throughout 1995.
Revenues from defense electronics and avionics products were approximately
$12,676,000 for the three-month period ended September 30, 1995 as compared to
$2,651,000 in the 1994 period. Defense electronics and avionics products sales
were $42,466,000 and $8,511,000 in the 1995 and 1994 nine-month periods,
respectively. These products were acquired as part of the Germantown Acquisition
and the September 1993 acquisition of the Applied Science Operation of The
Perkin-Elmer Corporation.
Revenues from sales of navigation and positioning products increased to
$14,564,000 for the three months ended September 30, 1995 as compared to
$8,185,000 for the 1994 period, and to $41,023,000 for the nine months ended
September 30, 1995 as compared to $26,738,000 for the 1994 period, primarily due
to a substantial increase in unit sales offset, in part, by lower unit prices
for GPS navigators.
Revenues from the Company's newly established Advanced Projects Group were
$2,489,000 during the third quarter of 1995 and $12,349,000 for the first nine
months of 1995 as a result of work performed under a cooperative agreement with
NASA awarded earlier in 1995 for the development of a new small reusable launch
vehicle and under contract to the U.S. Government's Advanced Research Projects
Agency for the preliminary design of a new advanced unmanned, long-duration,
high-flying aircraft.
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 three-month periods ended
September 30, 1995 and 1994 was $21,380,000 and $17,314,000, respectively. Gross
margin for the nine-month periods ended September 30, 1995 and 1994 was
$57,134,000 and $42,366,000, respectively. Gross profit margin as a percentage
of sales for those periods was approximately 26.9% and 29.7%, respectively, and
26.9% and 27.0%, respectively. The decreasing gross profit margin as a
percentage of sales during 1995 is primarily attributable to cost increases on
the Pegasus program as a result of the Pegasus XL failures in June of 1994 and
1995, which more than offset increased margins for spacecraft systems and
navigation and positioning products.
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 September 30, 1995 and 1994 were $3,512,000 and
$3,159,000, respectively. Research and development expenses for the 1995 and
1994 nine-month periods were $12,276,000 and $9,665,000, respectively. Research
and development expenses in 1995 relate primarily to the development of new or
improved navigation products and development efforts on the Company's Pegasus
program, and include estimated expenses related to the 1995 Pegasus XL failure.
13
<PAGE> 14
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 three months ended September 30,
1995 and 1994 were $12,415,000 (or 15.6% of revenues) and $10,184,000 (or 17.5%
of revenues), respectively. Selling, general and administrative expenses for
the nine months ended September 30, 1995 and 1994 were $35,240,000 (or 16.6% of
revenues) and $24,656,000 (or 15.7% of revenues), respectively. The increase in
selling, general and administrative expenses during 1995 as compared to 1994
was primarily attributable to substantially expanded marketing efforts related
to the Company's ORBCOMM project, various remote sensing systems, and to the
Germantown Acquisition.
Interest Income and Interest Expense. Net interest expense was $649,000 for the
three months ended September 30, 1995 as compared to net interest expense of
$238,000 during the 1994 quarter. Net interest expense for the 1995 nine-month
period was $2,187,000 as compared to $693,000 of net interest income for the
1994 nine-month period. 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
public debentures, on acquisition debt incurred for the Germantown Acquisition
and, in 1995, on private debt issued in June 1995. Interest expense has been
reduced by capitalized interest of $4,040,000 and $3,900,000 for the 1995 and
1994 nine-month periods, respectively.
Equity in Earnings (Losses) of Affiliates. Equity in earnings (losses) of
affiliates for the three-month periods ended September 30, 1995 and 1994 of
($596,000) and ($995,000), respectively, and for the nine-month periods ended
September 30, 1995 of ($234,000) and ($1,539,000), respectively, represents
elimination of 50% of the profits on sales to ORBCOMM Global, as well as the
Company's pro rata share of ORBCOMM Global's current period earnings and
losses. During the construction phase of the ORBCOMM project and prior to the
commencement of planned operations, ORBCOMM Global is capitalizing
substantially all construction-related costs and is expensing as incurred all
selling, general and administrative costs as period costs.
Provision for Income Taxes. The Company recorded an income tax provision of
$944,000 and $658,000 for the three-month periods ended September 30, 1995 and
1994, respectively, and provisions of $2,727,000 and $1,575,000, respectively,
for the nine-month periods ended September 30, 1995 and 1994. 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 investment
expenditures. Additionally, the Company has historically made strategic
acquisitions of businesses and routinely evaluates potential acquisition
candidates. The Company expects to continue to
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<PAGE> 15
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.
During the quarter ended June 30, 1995, Orbital entered into a $20 million
fixed-rate unsecured debt financing arrangement with a private insurance
company. The debt has a six-year term and bears interest at 10 1/2% per annum.
The debt arrangement 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. Additionally, in June 1995, the Company
completed a private placement of two million shares of its Common Stock,
receiving net proceeds of approximately $32 million. The Company's shares were
placed with various offshore institutional investors and the private placement
was exempt from registration pursuant to Regulation S of the Securities Act of
1933, as amended. In August 1994, Orbital issued secured notes totaling
approximately $24,200,000 to eight financial institutions, to support the
Germantown Acquisition. The notes have an average interest rate of
approximately 8 3/4% and generally mature on a monthly basis over a three- to
five-year period.
Cash, cash equivalents and short-term investments were $43,897,000 at September
30, 1995, and the Company had short-term and long-term debt obligations
outstanding of approximately $99,757,000. The outstanding debt relates
primarily to secured notes issued in connection with the Germantown
Acquisition, unsecured notes issued in 1995, fixed asset financings and the
Company's public debentures. During the quarter ended June 30, 1995, Orbital
converted approximately $3,000,000 of its convertible debentures at the request
of certain debenture holders, issuing approximately 209,000 shares of Common
Stock.
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. No borrowings
were outstanding under the facility at September 30, 1995, and the available
facility limit was approximately $25,000,000. At September 30, 1995, the
average interest rate on outstanding borrowings under this facility was
approximately 8%. 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 no amounts were outstanding at
September 30, 1995.
The Company's operations provided net cash of approximately $11,276,000 in the
nine months ended September 30, 1995. The Company also invested approximately
$12,374,000 in its ORBCOMM project and $16,620,000 in capital expenditures
related primarily to spacecraft production and test equipment and various
remote sensing and Earth observation satellite systems.
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<PAGE> 16
Orbital expects to invest up to $15,000,000 in various ORBIMAGE remote sensing
projects. Orbital also intends to invest an additional $5,000,000 in the
ORBCOMM System. Orbital expects that its 1995 capital needs for its existing
operations, including its planned $5,000,000 additional investment in the
ORBCOMM project, will in part be provided by working capital, cash flows from
operations, credit facilities, asset-based financings, customer financings and
operating lease arrangements. Additionally, as part of a joint venture to be
partially funded by NASA and Rockwell International Corporation, Orbital
intends to invest at least $73,000,000 in the development of a new small
reusable launch vehicle, which investment will be required over the next four
years, including approximately $5,000,000 in 1995. Orbital believes that it may
require additional equity and/or debt financing to fully fund its currently
planned operations and capital requirements, to meet its potential increased
investment in the ORBCOMM System and to meet its investment requirements for
the new launch vehicle and other potential projects.
On August 31, 1995, Orbital signed an agreement (the "Combination Agreement")
to acquire MacDonald, Dettwiler and Associates Ltd. ("MDA"), a leading supplier
of commercial remote sensing ground stations, headquartered in Vancouver,
British Columbia. During its recently completed fiscal year ended March 31,
1995, MDA reported pre-tax income of approximately US$5,500,000 on sales of
approximately US$80,000,000. Pursuant to the terms of the Combination
Agreement, a newly formed Canadian subsidiary of Orbital will issue
exchangeable preferred shares (the "Exchangeable Shares") for all of MDA's
outstanding common stock based on an exchange ratio to be determined according
to the average closing price of Orbital's stock in the month prior to closing.
The Exchangeable Shares will be exchangeable on a one- for-one basis for
Orbital common stock. The transaction is expected to close by the end of
November.
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<PAGE> 17
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 SECURITIES 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) On November 2, 1995, the Company filed a report on Form 8-K reporting
the proposed acquisition of MacDonald, Dettwiler and Associates Ltd.
On November 6, 1995 the Company filed Amendment No. 1 on Form 8-K/A.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10Q/A to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: June 28, 2000 By: /s/ Jeffrey V. Pirone
---------------------
Jeffrey V. Pirone, Executive Vice President
and Chief Financial Officer
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<PAGE> 19
EXHIBIT INDEX
THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NO.
<S> <C>
2 Combination Agreement dated as of August 31, 1995
among Orbital Sciences Corporation, 3173623 Canada
Inc. and MacDonald, Dettwiler and Associates Ltd.
(Incorporated by reference to Exhibit 2 filed with
the Company's Report on Form 8-K filed with the
Commission on November 2, 1995).
3 By-laws of Orbital Sciences Corporation, as amended
on July 27, 1995 (previously filed).
10.1 First Amendment, dated as of June 30, 1995, to Note
Agreement between the Company and The Northwestern
Mutual Life Insurance Company dated as of June 1,
1995 (previously filed).
10.2 Amendment No. 2 to the Credit Agreement dated as of
July 5, 1995 among the Company, Orbital Imaging
Corporation and Fairchild Space and Defense
Corporation, the Banks listed therein, Morgan
Guaranty Trust Company of New York, as Administrative
Agent, and J.P. Morgan Delaware, as Collateral Agent
(previously filed).
10.3 Amendment No. 3 to the Credit Agreement dated as of
August 23, 1995 among the Company, Orbital Imaging
Corporation and Fairchild Space and Defense
Corporation, the Banks listed therein, Morgan
Guaranty Trust Company of New York, as Administrative
Agent, and J.P. Morgan Delaware, as Collateral Agent
(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/A, or otherwise subject to the
liabilities of Section 18 of the Securities Exchange
Act of 1934) (transmitted herewith).
</TABLE>
19
