<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
JUNE 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 August 10, 1995, 22,662,618 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 six months ended June 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>
JUNE 30, DECEMBER 31,
1995 1994
---------- -------------
(RESTATED)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 18,377 $ 21,156
Short-term investments, at market 21,440 12,426
Receivables, net 83,376 94,236
Inventories, net 28,320 26,098
Deferred income taxes and other current assets 8,145 5,914
--------- ---------
TOTAL CURRENT ASSETS 159,658 159,830
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation
and amortization of $30,366 and $33,432, respectively 101,942 102,061
INVESTMENTS IN AFFILIATES 64,381 54,721
GOODWILL, less accumulated amortization of $11,426 and $10,042, respectively 67,464 68,878
DEFERRED INCOME TAXES AND OTHER ASSETS 15,737 17,238
--------- ---------
TOTAL ASSETS $ 409,182 $ 402,728
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 11,752 $ 28,160
Accounts payable 13,823 14,961
Accrued expenses 26,381 37,439
Payable to subcontractors 3,259 13,695
Deferred revenues 11,557 13,272
--------- ---------
TOTAL CURRENT LIABILITIES 66,772 107,527
LONG-TERM OBLIGATIONS, net of current portion 95,203 81,163
DEFERRED INCOME TAXES AND OTHER LIABILITIES 11,245 11,992
--------- ---------
TOTAL LIABILITIES 173,220 200,682
--------- ---------
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, 22,636,351
and 20,170,196 shares outstanding, after deducting 15,735 shares held
in treasury 227 202
Additional paid-in capital 237,549 201,328
Unrealized gains (losses) on short-term investments (221) (462)
Retained earnings (accumulated deficit) (1,593) 978
--------- ---------
Total stockholders' equity 235,962 202,046
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 409,182 $ 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
JUNE 30,
-------------------------------
1995 1994
-------------- ------------
(RESTATED)
<S> <C> <C>
REVENUES $ 64,817 $ 48,365
Costs of goods sold 47,975 37,594
----------- ------------
GROSS PROFIT 16,842 10,771
Research and development expenses 4,932 2,808
Selling, general and administrative expenses 11,556 7,215
Amortization of excess of purchase price over net assets acquired 740 385
----------- ------------
INCOME (LOSS) FROM OPERATIONS (386) 363
Net investment income (expense) (925) 420
Equity in earnings (losses) of affiliates (65) (121)
----------- ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (1,376) 662
Provision (benefit) for income taxes (843) 101
----------- ------------
NET INCOME (LOSS) (533) $ 561
=========== ============
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE $ (0.03) $ 0.03
=========== ============
Shares used in computing net income (loss) per common and
common equivalent share 21,220,824 17,943,673
=========== ============
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION $ (0.03) $ 0.03
=========== ============
Shares used in computing net income (loss) per common share,
assuming full dilution 21,220,824 22,048,014
=========== ============
</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 SIX MONTHS ENDED
JUNE 30,
-----------------------------
1995 1994
-------------- -----------
(RESTATED)
<S> <C> <C>
REVENUES $ 133,386 $ 98,675
Costs of goods sold 97,631 73,623
----------- -----------
GROSS PROFIT 35,755 25,052
Research and development expenses 8,764 6,506
Selling, general and administrative expenses 22,825 14,472
Amortization of excess of purchase price over net assets acquired 1,400 808
----------- -----------
INCOME FROM OPERATIONS 2,766 3,266
Net investment income (expense) (1,539) 931
Equity in earnings (losses) of affiliates 362 (544)
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 1,589 3,653
Provision for income taxes 1,783 917
----------- -----------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (194) 2,736
Cumulative effect of accounting change, net of tax (2,377) --
----------- -----------
NET INCOME (LOSS) $ (2,571) $ 2,736
=========== ===========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Income (loss) before cumulative effect of accounting change $ (0.01) $ 0.15
Cumulative effect of accounting change, net of tax (0.11) --
----------- -----------
$ (0.12) $ 0.15
=========== ===========
Shares used in computing net income (loss) per common and
common equivalent share 20,954,359 17,904,561
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION
Income (loss) before cumulative effect of accounting change $ (0.01) $ 0.12
Cumulative effect of accounting change, net of tax (0.11) --
----------- -----------
$ (0.12) $ 0.12
=========== ===========
Shares used in computing net income (loss) per common share,
assuming full dilution 20,954,907 22,011,237
=========== ===========
</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 SIX MONTHS ENDED
JUNE 30,
------------------------------
1995 1994
----------- -----------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (2,571) $ 2,736
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
USED IN OPERATING ACTIVITIES:
Depreciation and amortization expenses 9,619 4,976
Equity in (earnings) losses of affiliates 362 544
Cumulative effect of accounting change, net of tax 2,377 --
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables 10,860 402
(Increase) decrease in inventory (2,222) 727
(Increase) decrease in other current assets (744) (629)
(Increase) decrease in deposits and other assets 1,236 3,043
Increase (decrease) in payables and accrued expenses (24,132) (9,660)
Increase (decrease) in deferred revenue (2,216) (11,904)
Increase (decrease) in deferred income taxes and other assets (747) (428)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (8,178) (10,193)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,854) (10,287)
Proceeds from sales of fixed assets 125 --
Purchase of investment securities (13,083) (8,916)
Sale of investment securities 4,310 4,990
Investments in affiliates (9,977) (5,125)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (28,479) (19,338)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) (16,435) (2,667)
Principal payments on long-term obligations (2,933) (751)
Proceeds from issuance of long-term obligations 20,000 --
Net proceeds from issuances of common stock 33,246 1,161
Adjustment to recast pooled companies' year end -- (1,138)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 33,878 (3,395)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,779) (32,926)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,156 49,458
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,377 $ 16,532
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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
six-month periods ended June 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) RESTATEMENT
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 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 (in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1995
----------------- --------------------
<S> <C> <C>
RESTATED:
Revenues $ 64,817 $ 133,386
Gross profit 16,842 35,755
Income (loss) from operations (386) 2,766
Net income (loss) (533) (2,571)
Net income (loss) per common and
dilutive share (0.03) (0.12)
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1995
----------------- --------------------
<S> <C> <C>
AS PREVIOUSLY REPORTED:
Revenues $ 64,589 $ 132,930
Gross profit 16,783 35,637
Income (loss) from operations (386) 2,766
Net income (loss) (727) (2,919)
Net income (loss) per common and
dilutive share (0.03) (0.14)
</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 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 support its orbit
transfer vehicle product line. The effect of adopting SFAS 121 on income from
continuing operations for the quarter and six months ended June 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.
(4) 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 Development Partners, L.P. ("ORBCOMM Development"), for the
two-phased design, development, construction, integration, test and operation of
a 26-satellite low-Earth orbit communications system (the "ORBCOMM System").
Pursuant to the terms of the partnership
8
<PAGE> 9
agreement, OCC and Teleglobe Mobile Partners are each 50% general partners in
ORBCOMM Development. Teleglobe Mobile has an option to invest an additional
$70,000,000 in the next phase of the ORBCOMM System implementation.
Orbital and OCC are the primary suppliers of communications satellites, launch
vehicles, ground tracking systems, system software and integration services to
ORBCOMM Development, and successfully launched the first two ORBCOMM System
satellites in April 1995. In July 1995, Orbital successfully completed on-orbit
functional testing of the satellites. With the testing complete, ORBCOMM can
begin conducting communications testing with customers in actual operating
conditions.
Based on its current assessment of the overall business prospects of ORBCOMM
Development and the ORBCOMM System, the Company currently believes its
investment in ORBCOMM Development of approximately $64,000,000 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.
(5) EQUITY IN EARNINGS (LOSSES) OF AFFILIATES
During the six months ended June 30, 1995 and for the years ended December 31,
1994 and 1993, Orbital recorded contract revenues on sales to ORBCOMM
Development of approximately $12,000,000, $30,000,000 and $38,000,000,
respectively, and eliminated as equity in earnings of affiliates 50% of its
profits on those sales. At June 30, 1995, Orbital had approximately $7,900,000
in unbilled receivables from ORBCOMM Development.
During the construction phase of the ORBCOMM System and prior to the
commencement of planned operations, ORBCOMM Development is capitalizing
substantially all construction-related costs and is expensing as incurred all
selling, general and administrative costs as period costs.
(6) LONG-TERM UNSECURED 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.
(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 offshore institutional investors and
the issuance was exempt from public 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
9
<PAGE> 10
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 a
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 specified portions of
current contracts. The Joint Teaming Agreement will continue through December
31, 2005, unless terminated earlier by mutual agreement.
Orbital and Alliant have also agreed to release all present and future claims
related to the Joint Venture Agreement, including (i) a final dismissal with
prejudice of 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) a final dismissal with
prejudice of 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.
10
<PAGE> 11
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, 1995
AND 1994
The ORBCOMM System. The Company's majority-owned subsidiary, Orbital
Communications Corporation ("OCC"), and Teleglobe Mobile Partners, an affiliate
of Teleglobe Inc., formed a partnership, ORBCOMM Development Partners, L.P.
("ORBCOMM Development"), for the two-phased design, development, construction,
integration, test and operation of a 26-satellite low-Earth orbit communications
system (the "ORBCOMM System"). Pursuant to the terms of the partnership
agreement, OCC and Teleglobe Mobile Partners are each 50% general partners in
ORBCOMM Development. Teleglobe Mobile has an option to invest an additional
$70,000,000 in the next phase of the ORBCOMM System implementation, and the
parties are currently in discussions concerning the exercise of such option.
Orbital and OCC are the primary suppliers of communications satellites, launch
vehicles, ground tracking systems, system software and integration services to
ORBCOMM Development, and successfully launched the first two ORBCOMM System
satellites in April 1995. In July 1995, Orbital successfully completed on- orbit
functional testing of the satellites. With the testing complete, ORBCOMM can
begin conducting communications testing with customers in actual operating
conditions.
Based on its current assessment of the overall business prospects of ORBCOMM
Development and the ORBCOMM System, the Company currently believes its
investment in ORBCOMM Development of approximately $64,000,000 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.
Adoption of New Accounting Standard. 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 support its orbit transfer vehicle product
line.
Certain of the 1995 financial information has been restated. See note 1 to the
condensed consolidated financial statements.
11
<PAGE> 12
Revenues. Orbital's revenues for the three-month periods ended June 30, 1995 and
1994 were $64,817,000 and $48,365,000, respectively. The Company's revenues for
the six-month periods ended June 30, 1995 and 1994 were $133,386,000 and
$98,675,000, respectively.
Revenues from the Company's space launch vehicle products decreased to
$5,307,000 during the 1995 three-month period from $14,152,000 during the
comparable 1994 period. Space launch vehicle revenues were $11,965,000 and
$29,762,000 for the six- month periods ended June 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 failed first launch of its new Pegasus XL launch vehicle in June
1994, and was impacted to some extent by the failed second launch of the Pegasus
XL in June 1995. Sales of space launch vehicles to ORBCOMM Development were
$1,360,000 and $2,074,000 for the three- month periods ended June 30, 1995 and
1994, respectively, and were $1,452,000 and $4,150,000 for the 1995 and 1994
six-month periods, respectively.
Revenues from suborbital launch vehicle products increased to $5,772,000 in the
1995 three-month period as compared to $4,529,000 in the 1994 period. Suborbital
revenues were $11,492,000 and $11,626,000 for the six-month periods ended June
30, 1995 and 1994, respectively. Suborbital revenues have decreased
significantly during the past few years as U.S. Government defense spending has
been reduced.
For the three months ended June 30, 1995, spacecraft systems revenues increased
to $14,382,000 from $4,065,000 in the 1994 period, and revenues for the
six-month period ended June 30, 1995 were $28,901,000 as compared to $11,043,000
in the same period in 1994. The increase in spacecraft system sales is primarily
as a result of additional revenues generated from the Company's Germantown
operations, acquired in August 1994 (the "August 1994 Acquisition"). The 1995
and 1994 three-month periods included $1,535,000 and $1,414,000, respectively,
in sales of MicroStar spacecraft to ORBCOMM Development and the six-month
periods included $3,395,000 and $4,496,000 in such sales, respectively. Revenues
generated from sales of space sensors and instruments of $3,062,000 during the
1995 quarter decreased from the comparable 1994 quarter sales of $5,386,000.
Space sensors and instruments sales were $6,547,000 and $8,773,000 for the 1995
and 1994 six- month periods, respectively, and are expected to remain lower than
1994 levels throughout 1995.
Revenues from defense electronics and avionics products were approximately
$14,327,000 for the three-month period ended June 30, 1995 as compared to
$2,639,000 in the 1994 period. Defense electronics and avionics products sales
were $29,790,000 and $5,860,000 in the 1995 and 1994 six-month periods,
respectively. The Company acquired these products as part of the August 1994
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
$12,573,000 for the three months ended June 30, 1995 as compared to $9,631,000
for the 1994 period, and to $26,459,000 for the six months ended June 30, 1995
as compared to $18,553,000 for the 1994 period, primarily due to increased unit
sales offset, in part, by lower unit prices for GPS navigators.
12
<PAGE> 13
Revenues from the Company's newly established Advanced Projects Group were
$6,068,000 during the second quarter of 1995 (and $9,860,000 for the first half
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 work under a contract with the U.S. Government's Advanced Research
Projects Agency, completed in April 1995, for the study 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
June 30, 1995 and 1994 were $16,842,000 and $10,771,000, respectively. Gross
profit for the six-month periods ended June 30, 1995 and 1994 was $35,755,000
and $25,052,000, respectively. Gross profit margin as a percentage of sales was
approximately 26% and 22.3% for the three-month periods ended June 30, 1995 and
1994, respectively, and 26.8% and 25.4%, for the six-month periods ended June
30, 1995 and 1994, respectively. The increased gross profit margin during 1995
was primarily attributable to increased margins for spacecraft systems and
navigation and positioning products, offset in part by cost increases on the
Pegasus program as a result of the Pegasus XL failures in June of 1994 and 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, 1995 and 1994 were $4,932,000 and $2,808,000,
respectively. Research and development expenses for the 1995 and 1994 six-month
periods were $8,764,000 and $6,506,000, 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 XL program,
and include estimated expenses related to the recent Pegasus XL failure.
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 June 30, 1995 and 1994 were
$11,556,000 (or 17.8% of revenues) and $7,215,000 (or 14.9% of revenues),
respectively. Selling, general and administrative expenses for the six months
ended June 30, 1995 and 1994 were $22,825,000 (or 17.1% of revenues) and
$14,472,000 (or 14.7% of revenues), respectively. The increase in selling,
general and administrative expenses during 1995 as compared to 1994 was
primarily attributable to expanded marketing efforts related to the Company's
ORBCOMM project ($3,304,000 of expenses in 1995 as compared to $1,714,000 in
1994) and to various remote sensing systems ($408,000 of expenses in 1995 with
no corresponding expenses in 1994), and to the August 1994 Acquisition
($12,188,000 of expenses in 1995).
Interest Income and Interest Expense. Net interest expense was $925,000 for the
three months ended June 30, 1995 as compared to net interest income of $420,000
during the 1994 quarter. Net interest expense for the 1995 six-month period was
$1,539,000 as compared to $931,000 of net interest income for the 1994 six-
month period. Interest income for the periods reflects interest earnings on
short-term investments. Interest expense is primarily for outstanding
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<PAGE> 14
amounts on Orbital's revolving credit facility, on the Company's public
debentures and, during 1995, on acquisition debt incurred in connection with the
August 1994 Acquisition. Interest expense has been reduced by capitalized
interest of $1,368,000 and $1,275,000 for the 1995 and 1994 three- month
periods, respectively, and by $2,726,000 and $2,517,000 for the 1995 and 1994
six-month periods, respectively.
Equity in Earnings (Losses) of Affiliates. Equity in earnings (losses) of
affiliates for the three-month periods ended June 30, 1995 and 1994 of ($65,000)
and ($121,000), respectively, and for the six-month periods ended June 30, 1995
of $362,000 and ($544,000), respectively, represents elimination of 50% of the
profits on sales to ORBCOMM Development, as well as the Company's pro rata share
of ORBCOMM Development's current period earnings and losses. During the
construction phase of the project and prior to the commencement of planned
operations, ORBCOMM Development 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 a provision (benefit) for
income taxes of ($843,000) and $1,783,000 for the three- and six-month periods
ended June 30, 1995, respectively. The Company recorded an income tax provision
of $101,000 and $917,000 for the three- and six-month periods ended June 30,
1994, respectively. 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.
At December 31, 1994, Orbital had approximately $50,000,000 and $900,000 of net
operating loss and tax credit carryforwards, respectively, which are available
to reduce future income tax obligations, subject to certain annual limitations
and other restrictions.
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 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 issuance was exempt
from public registration pursuant to Regulation S of the
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<PAGE> 15
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 August 1994 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 $39,817,000 at June 30,
1995, and the Company had short-term and long-term debt obligations outstanding
of approximately $106,955,000. The outstanding debt relates primarily to
advances under the Company's line of credit facility, secured notes issued in
connection with the August 1994 Acquisition, unsecured notes issued in 1995,
fixed asset financings and the Company's public debentures. During the quarter
ended June 30, 1995, Orbital converted, at a premium, 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 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
$6,113,000 of borrowings were outstanding under the facility at June 30, 1995,
against an available facility limit of approximately $25,491,000. At June 30,
1995, the average interest rate on outstanding borrowings under this facility
was approximately 8.2%. 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's operations used net cash of approximately $8,178,000 in the six
months ended June 30, 1995. The Company also incurred approximately $9,977,000
of investment related to the ORBCOMM System and $9,854,000 in capital
expenditures related primarily to spacecraft production and test equipment.
Orbital's capital expenditures for 1995 are expected to approximate 1994 and
1993 levels, including continued investments in space launch vehicle and
spacecraft production, test, and airborne and ground support equipment.
Additionally, Orbital expects to invest up to $10,000,000 in various ORBIMAGE
remote sensing projects. Assuming that Teleglobe Mobile exercises its option to
invest in the next phase of the ORBCOMM System, Orbital intends to invest
approximately $5,000,000 in the ORBCOMM System over the next two years. In the
event Teleglobe Mobile chooses not to exercise its option to invest in the next
phase of the project and Orbital desires to proceed, additional investment by
Orbital or that of other potential investors could exceed $80,000,000 over the
next two years.
Orbital expects that its 1995 capital needs for its existing operations,
including its planned $5,000,000 investment in the ORBCOMM System, 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 has committed to invest at least
$67,500,000 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
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<PAGE> 16
believes that it may require additional equity and/or debt financing to fund
fully 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.
On July 31, 1995, Orbital signed a letter of intent to acquire MacDonald,
Dettwiler and Associates Ltd. ("MDA"), a leading supplier of commercial remote
sensing ground stations, located in Vancouver, British Columbia. During its
recently completed fiscal year ended March 31, 1995, MDA reported net income of
approximately US $5,500,000 on sales of approximately US $80,000,000. Pursuant
to the terms of the preliminary agreement, Orbital will exchange approximately
3,600,000 shares of its Common Stock for all of MDA's outstanding common stock.
The transaction is to be accounted for as a pooling of interests combination and
is expected to be completed later in 1995.
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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 SECURITIES HOLDERS
(a) The annual meeting of stockholders of the Company was held on April 27,
1995.
(b) Not applicable.
(c) (i) Election of five directors, each serving for a three-year term:
<TABLE>
<CAPTION>
<S> <C> <C>
Fred C. Alcorn
--------------
Votes: For: 16,447,193 Against: 0
Withheld: 102,969 Abstain: 0
Broker Non-Votes: 0
Lennard A. Fisk
---------------
Votes: For: 16,443,042 Against: 0
Withheld: 107,120 Abstain: 0
Broker Non-Votes: 0
Jack L. Kerrebrock
------------------
Votes: For: 16,447,643 Against: 0
Withheld: 102,519 Abstain: 0
Broker Non-Votes: 0
David W. Thompson
-----------------
Votes: For: 16,451,464 Against: 0
Withheld: 98,698 Abstain: 0
Broker Non-Votes: 0
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C> <C>
James R. Thompson
-----------------
Votes: For: 16,451,363 Against: 0
Withheld: 98,799 Abstain: 0
Broker Non-Votes: 0
(ii) Proposal to approve the increase in the
number of shares of common stock
authorized for issuance under the 1990
Stock Option Plan from 2,000,000 to
2,975,000 shares.
Votes: For: 9,607,196 Against: 1,846,991
Withheld: 0 Abstain: 193,249
Broker Non-Votes: 4,902,726
(iii) Proposal approving amendments to the 1990
Stock Option Plan for Non-Employee
directors to increase the option exercise
price to 100% of the fair market value; to
increase the number of shares of common
stock automatically granted annually to
3,000 shares; and to increase the number
of shares of common stock authorized for
issuance to 170,000 shares.
Votes: For: 10,799,307 Against: 578,459
Withheld: 0 Abstain: 269,670
Broker Non-Votes: 4,902,726
(iv) Ratification of selection of the Company's independent auditors.
Votes: For: 16,377,182 Against: 61,786
Withheld: 0 Abstain: 111,194
Broker Non-Votes: 4,902,726
</TABLE>
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.
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<PAGE> 19
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 there unto duly authorized.
ORBITAL SCIENCES CORPORATION
<TABLE>
<CAPTION>
<S> <C>
DATED: June 28, 2000 By: /s/ Jeffrey V. Pirone
---------------------
Jeffrey V. Pirone, Executive Vice President
and Chief Financial Officer
</TABLE>
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<PAGE> 20
Exhibit Index
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
Exhibit No Description
---------- -----------
<S> <C>
4.7.1 Promissory Note dated as of June 14, 1995 made by Corporation
and The Northwestern Mutual Life Insurance Company (previously filed).
4.7.2 Note Agreement dated as of June 14, 1995 between the Corporation
and the Northwestern Mutual Life Insurance Company (previously filed).
10.5.1 Orbital Sciences Corporation 1990 Stock Option Plan, restated
as of April 27, 1995 (previously filed).
10.5.2 Orbital Sciences Corporation 1990 Stock Option Plan for Non-Employee
Directors, restated as of April 27, 1995 (previously filed).
10.6.3 Amendment No. 2 dated July 5, 1995 to the Credit Agreement dated September 27, 1994
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, or otherwise subject to the liabilities of Section 18 of the Securities Exchange
Act of 1934) (transmitted herewith).
</TABLE>
20
