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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 2
TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-18287
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ORBITAL SCIENCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION OF REGISTRANT)
06-1209561
(I.R.S. EMPLOYER I.D. NO.)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(703) 406-5000
(REGISTRANT'S TELEPHONE NUMBER)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 (listed on The Nasdaq National Market System)
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Indicate by check mark whether the registrant (1) has 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing sales price as reported on the Nasdaq Stock
Market on March 19, 1997 was approximately $515,228,830.
As of March 12, 1997, 32,201,802 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for fiscal
year ended December 31, 1996 (the "Annual Report") are incorporated by reference
in Parts I and II of this Report. Portions of the registrant's definitive Proxy
Statement dated March 24, 1997 (the "Proxy Statement") are incorporated by
reference in Part III of this Report.
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EXPLANATORY NOTE
Orbital Sciences Corporation ("Orbital") has determined to restate its
consolidated financial statements for the years ended December 31, 1996 and 1995
and its condensed consolidated quarterly financial statements for 1996 and 1995.
This amendment includes in Item 8 such restated financial statements as of
December 31, 1996 and 1995 and for the years in the two-year period ended
December 31, 1996, and other information relating to such restated financial
statements, including Business (Item 1), Selected Financial Data (Item 6) and
Management's Discussion and Analysis of Financial Condition and Results of
Operation (Item 7). Information regarding the effect of the restatements on
Orbital's results of operations is included in the Notes to Financial Statements
included in Item 8 of this amendment.
Except for Items 1, 6, 7 and 8 and Exhibits 11 and 27, no other
information included in the original report on Form 10-K is amended by this
amendment. For current information regarding risks, uncertainties and other
factors that may affect Orbital's future performance, please see "Outlook:
Issues and Uncertainties" included in Item 7 of Orbital's Annual Report on Form
10-K for the year ended December 31, 1999.
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ORBITAL SCIENCES CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K/A
FOR YEAR ENDED DECEMBER 31, 1996
<TABLE>
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PART I
<S> <C> <C> <C>
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 4A. Executive Officers of the Registrant 9
PART II
Item 5. Market for Registrant's Common Equity 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants 45
PART III
Item 10. Directors and Executive Officers of the Registrant 45
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners and Management 45
Item 13. Certain Relationships and Related Transactions 45
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 45
</TABLE>
Pegasus(R) and Taurus(R) are registered trademarks and service marks, and
OrbView(R) is a registered trademark of Orbital Sciences Corporation;
Orbital(TM), MicroStar(TM) and PegaStar(TM) are trademarks of Orbital Sciences
Corporation; and Orbital(sm) and ORBIMAGE(sm) are service marks of Orbital
Sciences Corporation. ORBCOMM(sm) is a service mark of ORBCOMM Global, L.P.
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ITEM 1. BUSINESS
BACKGROUND
Orbital Sciences Corporation (together with its subsidiaries, "Orbital"
or the "Company") is a space and information systems company that designs,
manufactures, operates and markets a broad range of space-related products and
services. Orbital's 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, electronics and sensors, and ground systems and software.
Satellite access products include low-cost, hand-held satellite-based navigation
and communications products. Satellite services include satellite-based two-way
mobile data communications and remote sensing and Earth imaging services.
Orbital operates major launch vehicle, satellite and electronics engineering,
manufacturing and test facilities in Dulles, Virginia, Germantown, Maryland and
Chandler, Arizona, a launch vehicle and satellite integration and test facility
at Vandenberg Air Force Base, California, a space sensors and instruments
facility in Pomona, California, a ground systems and software facility in
Vancouver, British Columbia, and facilities for its navigation and
communications products in San Dimas, California and Mexicali, Mexico.
Orbital was incorporated in Delaware in 1987 to consolidate the assets,
liabilities and operations of Space Systems Corporation and Orbital Research
Partners, L.P. The Company acquired Space Data Corporation ("Space Data") in
1988, thereby expanding its product lines and increasing its vertical
integration in production and testing. In late 1992, SSC and Space Data were
merged into Orbital, with the Company being the surviving corporation. In
September 1993, Orbital acquired all the assets of the Applied Science
Operation, a division of The Perkin-Elmer Corporation. This operation designs,
develops and produces satellite-borne scientific sensors for space and
terrestrial research, in situ atmospheric monitoring equipment for human space
flight programs and other sensors and instruments for commercial and military
applications. In August 1994 and December 1994, Orbital acquired Fairchild Space
and Defense Corporation ("Fairchild") and Magellan Corporation ("Magellan"),
respectively. The Fairchild acquisition enhanced Orbital's satellite system and
subsystem development and production capabilities and expanded Orbital's
existing product lines by adding various sophisticated electronics products.
Magellan designs, manufactures and markets hand-held receivers for Global
Positioning System ("GPS") satellite-based navigation and positioning for
commercial and consumer markets, along with portable satellite communications
equipment. In November 1995, Orbital acquired MacDonald, Dettwiler and
Associates, Ltd. ("MDA"), a leading supplier of commercial satellite imaging
ground stations and related information processing software based in Vancouver,
British Columbia.
In 1992, Orbital established a wholly owned subsidiary, Orbital Imaging
Corporation ("ORBIMAGE"), to develop and operate commercial Earth imaging and
remote sensing satellites and to market the information services derived from
such satellites.
In 1993, Orbital's majority owned subsidiary Orbital Communications
Corporation ("OCC") and Teleglobe Mobile Partners ("Teleglobe Mobile"), an
affiliate of Teleglobe Inc., formed ORBCOMM Global, L.P. ("ORBCOMM Global") to
develop, construct and operate a low-Earth orbit satellite-based two-way data
communications and messaging system (the "ORBCOMM System"). OCC and Teleglobe
Mobile also formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA")
and ORBCOMM International Partners, L.P. ("ORBCOMM International"), each with
the exclusive right to market the ORBCOMM System in the United States and
internationally, respectively.
DESCRIPTION OF ORBITAL'S PRODUCTS AND SERVICES
Orbital's products and services are grouped into three categories: space
and ground infrastructure systems, satellite access products and satellite
services. Orbital's overall business is not seasonal to any significant extent.
SPACE AND GROUND INFRASTRUCTURE SYSTEMS
The Company's space and ground infrastructure systems include launch
vehicles, satellites, electronics and sensors, and ground systems and software.
SPACE LAUNCH VEHICLES. The Company has developed and produces the Pegasus
and Taurus space launch vehicles. Orbital's Pegasus launch vehicle is launched
from beneath the Company's leased Lockheed L-1011 aircraft to deploy satellites
weighing up to 1,000 pounds into low-Earth orbit. Through December 1996, the
Company had conducted a total of fourteen Pegasus missions, twelve of which were
fully or partially successful. Whether a mission is fully or partially
successful depends on the
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particular mission requirements designated by the customer. Orbital conducted
five Pegasus missions in 1996. Following a comprehensive review of design,
assembly, test and operations procedures triggered by two earlier unsuccessful
flights, the Pegasus XL, an enhanced version of the standard Pegasus launch
vehicle, successfully launched a satellite for the U.S. Air Force to its
intended orbit in March 1996 and performed two successful National Aeronautics
and Space Administration ("NASA") missions during the summer. A standard Pegasus
also successfully launched a U.S. Department of Defense ("DoD") satellite in May
1996. In a November 1996 launch for NASA, a Pegasus XL delivered two scientific
satellites to their designated orbits, but the satellites failed to separate
from the launch vehicle. The Pegasus separation system used on this launch has
worked properly on all previous launches on which it was deployed. The Company
believes that the problem was caused by a faulty electrical power system on the
Pegasus that failed to activate certain satellite separation mechanisms, and
does not anticipate significant further delays in its launch schedule to
implement necessary corrective actions.
The higher capacity Taurus launch vehicle is a ground-launched derivative
of the Pegasus vehicle that can carry payloads weighing up to 3,000 pounds to
low-Earth orbit and payloads weighing up to 800 pounds to geosynchronous orbit.
In March 1994, Orbital successfully launched the first Taurus vehicle, deploying
two satellites for the Defense Advanced Research Projects Agency ("DARPA").
U.S. and international government customers for Pegasus launch vehicles
include NASA, the U.S. Air Force, DARPA, the Ballistic Missile Defense
Organization ("BMDO"), and the national space agencies of Spain and Brazil.
Commercial customers include ORBCOMM Global and CTA, Incorporated ("CTA"). In
addition, ORBIMAGE plans to launch a remote imaging satellite on Pegasus.
Customers for Taurus launch vehicles include NASA, the U.S. Air Force, Ball
Corporation ("Ball"), ORBCOMM Global (as a secondary payload on the Ball
mission) and South Korea's space agency.
During 1996, NASA selected Orbital to design, construct, test and operate
the X-34 reusable launch demonstrator vehicle. The X-34 will test and
demonstrate advanced reusable launch system technologies and materials as part
of NASA's Reusable Launch Vehicle Program that is spearheading the development
of next-generation, lower cost launch vehicles.
SUBORBITAL LAUNCH VEHICLES. Suborbital launch vehicles place payloads
into a variety of high-altitude trajectories but, unlike space launch vehicles,
do not place payloads into orbit around the Earth. The Company's suborbital
launch products include suborbital vehicles and their principal subsystems,
payloads carried by such vehicles and related launch support installations and
systems used in their assembly and operation. The Company offers its customers
customized vehicle and payload design, manufacturing and integration, launch and
mission support, and tracking and recovery services, as well as construction and
activation of launch pads and other infrastructure elements. Customers typically
use the Company's suborbital launch vehicles to launch scientific and other
payloads and for defense-related applications such as target signature and
interceptor experiments. Primary customers of the Company's suborbital launch
vehicles include the U.S. Army, the U.S. Navy and BMDO.
Orbital's primary programs in 1996 for suborbital launch vehicles and
related systems included the Theater Missile Defense Critical Measurement
Program pursuant to which Orbital provides ballistic and maneuvering tactical
target suborbital vehicles for use by the U.S. Army and U.S. Air Force in
developing and testing interceptor and sensor systems, and BMDO's Red Tigress
anti-missile defense research program. Orbital conducted two suborbital launches
in 1996, both of which were successful. From January 1993 through March 1997,
the Company has conducted a total of 34 launches of suborbital vehicles with a
100% success rate.
SATELLITES. The Company designs and produces small and medium class
satellites for commercial, scientific and military applications. The Company's
small satellite platforms such as MicroStar and PegaStar are designed and
produced to be launched by the Pegasus or Taurus launch vehicle. The PegaStar
spacecraft is a general purpose spacecraft that has successfully performed one
mission for the U.S. Air Force measuring space radiation and carrying out
related experiments. It will also be used for certain ORBIMAGE satellite-based
remote imaging programs, such as the OrbView-2 ocean and land surface
environmental monitoring satellite system and the OrbView-3 high-resolution
remote imagery system. Orbital's MicroStar spacecraft platform, which is placed
into orbit by the Pegasus launch vehicle, is designed for use in the ORBCOMM
System and also for a variety of small space science and remote imaging
projects. The first three MicroStar spacecraft were deployed by Orbital in 1995,
two for the ORBCOMM System and the other for ORBIMAGE to monitor lightning and
severe weather patterns, and continued to perform throughout 1996. Customers for
the Company's small spacecraft include NASA, the U.S. Air Force, DARPA and
ORBCOMM Global.
Orbital's medium class satellites, such as NASA's TOPEX/Poseidon,
NASA's Upper Atmosphere Research satellite and the National Oceanic and
Atmospheric Administration's Landsat 4 and Landsat 5, have been in space for up
to 15 years, and are used to gather various scientific data, such as ocean
topography and atmospheric imaging information. Orbital also is the spacecraft
supplier
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to Johns Hopkins University, which is leading NASA's Far Ultraviolet
Spectroscopic Explorer (FUSE) program to measure the early universe's radiation.
Orbital also designs and manufactures satellite command and data
handling, attitude control and structural subsystems for a variety of government
and commercial customers, and provides a broad range of spacecraft design and
engineering services as well as specialized analytical engineering services for
NASA, DoD, the Department of Energy and other customers. For example, Orbital
provided engineering support products and services for both the first and second
repair missions for the orbiting Hubble Space Telescope.
ELECTRONICS AND SENSORS. Orbital develops, manufactures and markets
defense electronics, including advanced avionics and data management systems for
aircraft flight operations and ground support applications. These systems
collect, process and store mission-critical data for, among other things,
mission planning and flight operations, and manage on-board equipment for
strategic and tactical military aircraft, helicopters and surface vehicles. The
primary customers for data management systems are the U.S. Navy, the U.S. Air
Force, and various DoD prime contractors and foreign governments. The Company is
the leading supplier of certain avionics systems and products, including mission
data equipment for the U.S. Navy and data transfer equipment and digital terrain
systems for the U.S. Air Force. In addition, the Company provides stores
management systems, including weapons arming and firing functions for use on
tactical aircraft and helicopters. The avionics systems and products are
deployed on a number of platforms, including the F-4, F-14, F-16, F-18 and F-22
aircraft and the LAMPS helicopter.
In addition, Orbital produces electronics and data management systems
that have been applied to the development and installation of "intelligent
transportation systems," primarily, to date, for metropolitan mass transit
operators. These systems help manage public bus and light rail systems, provide
for voice and data communications and transmit precise GPS-based location
information in emergency situations. Customers for Orbital's intelligent
transportation systems include the metropolitan mass transit authorities in
Chicago and New York City.
Orbital also produces satellite-borne scientific sensors and instruments,
such as atmospheric ozone monitoring instruments and environmental sensors. The
Company's second and third Total Ozone Mapping Spectrometer ("TOMS") instruments
were successfully launched in 1996, one on a Pegasus vehicle for NASA. TOMS
measures ozone concentrations around the world for the purpose of monitoring the
effect of man-made chemicals and atmospheric conditions on the ozone layer.
Orbital has also developed and produced an atmospheric monitoring system for use
on the Space Station called the Atmospheric Composition Monitoring Assembly,
which will measure various atmospheric gases in the crew's living quarters on
the Space Station for the purpose of ensuring a healthy environment for
astronauts. In addition, Orbital recently expanded its commercial base of
sensors products to include the manufacturing and marketing of sensors that
analyze fuel properties in the chemical, biotechnology, pharmaceutical and steel
industries.
SATELLITE GROUND SYSTEMS. Orbital is a leading supplier of commercial
satellite remote imaging ground stations and a provider of advanced
space-qualified software and air navigation systems. The Company's ground
systems have also expanded to include software-intensive systems designed for
naval operations, artillery command and control, radar deception and logistics
support.
The Company develops, provides and upgrades commercial satellite remote
imaging ground stations and related information-processing software. Of the 27
major non-military satellite ground stations around the world, Orbital's MDA
subsidiary has built or been involved in the construction of 23 ground stations
in 20 countries. These ground stations are designed to receive and process data
from the eight major civil and commercial Earth observation satellites currently
in operation. MDA also develops and markets software that generates and
processes imagery and mapping products from satellites and airborne sensors.
Customers for the Company's ground stations and Earth information systems
include the European and Canadian space agencies as well as various commercial
and government customers around the world.
The Company's aviation systems products include automated aeronautical
information and air traffic management systems. The Company has developed an
automated aeronautical information management system that delivers weather and
route information directly to a pilot by computer. This system is designed to
address a growing trend toward automation and commercial operation of air
traffic control systems. Faster and less expensive to operate than traditional
manual systems, automated aeronautical information systems provide pilots and
other users with aeronautical and meteorological information on a timely basis.
Customers for the Company's aviation systems products include the military and
civil aviation authorities in various countries such as Australia, Belgium,
Canada, Norway, Malaysia and Switzerland.
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SATELLITE ACCESS PRODUCTS
The Company's Magellan subsidiary designs, manufactures and markets
hand-held GPS navigators that provide users with precise positioning and
location information and also develops and provides personal data and voice
communicators that operate in conjunction with satellite systems. Magellan
manufactures satellite-based navigation and communications products for
commercial and consumer markets including recreational marine and aviation
users, outdoor recreational users such as hunters and hikers and professional
users such as geologists, geographers, surveyors, natural resource managers and
construction contractors. Magellan focuses its research, design and engineering
activities on the development of GPS navigators that are reliable, portable,
easy to use and highly affordable, targeting the growing recreational market.
Recently, Magellan announced the introduction of a combined GPS navigator and
personal messaging communicator for the ORBCOMM System that Magellan expects to
be ready for shipment in 1997, and Magellan will continue to develop new
satellite-based communications and tracking technology that is compatible with
the ORBCOMM System and other satellite networks.
SATELLITE SERVICES
In the Company's satellite services sector, ORBCOMM Global and ORBIMAGE
are developing satellite-based services to address markets for global two-way
data communications and information derived from remote imaging of the
atmosphere, oceans and land surfaces.
ORBCOMM COMMUNICATIONS SERVICES. The ORBCOMM System is designed to
provide virtually continuous low-cost monitoring, tracking and messaging
communications coverage over most of the Earth's surface. Under this system,
subscribers are able to use inexpensive communicators to send and receive short
messages, high priority alerts and other information, such as the location and
condition of automobiles, trucks, industrial equipment, shipping vessels and
other remote assets. The Company expects that the ability to send and receive
data and messages without the geographic limitations of existing communications
systems will stimulate the growth of new markets for satellite-based monitoring,
tracking and messaging communications and will be used to supplement
terrestrial-based communications systems by providing relatively low-cost
geographic coverage in areas these systems are unable to reach.
The global ORBCOMM System design consists of a constellation of small
low-Earth orbit satellites, a control center that monitors and manages the flow
of information throughout the System, the gateways that transmit and receive
signals and process data and other information and the communicators that are
used by subscribers to transmit and receive messages to and from the satellites.
The first two ORBCOMM Global satellites launched in April 1995 are being used to
provide initial services, primarily in monitoring and tracking applications,
following the commencement of commercial service in the United States in
February 1996. There are currently four operational U.S. "gateway" Earth
stations located in New York, Washington, Arizona and Georgia, while gateways
are also planned to be owned and operated by ORBCOMM Global licensees in
strategic locations around the world. During 1996, ORBCOMM Global reached
agreements with several manufacturers for the development and manufacture of
hand-held communicators and various types of industrial communicators that
monitor fixed assets. In March 1996, subscriber communicators became
commercially available from Panasonic, the first of ORBCOMM's manufacturers.
The ORBCOMM System will be operated throughout the world by ORBCOMM
Global licensees, who will be responsible for obtaining the applicable foreign
regulatory approvals and for constructing the ground network in their designated
territories. The ORBCOMM System is marketed in the United States through ORBCOMM
USA. ORBCOMM International has signed preliminary agreements with seven
candidate licensees serving 69 countries to seek such regulatory approvals and
to initiate territory-specific market development in such countries. ORBCOMM
International has definitive agreements with international licensees who will
provide regional services in Canada, Europe and portions of East Asia, the
Middle East and Africa.
The two ORBCOMM System satellites currently in orbit and the U.S.
gateways provide communications availability in the United States approximately
10% of each 24-hour period, with maximum outages of approximately nine hours.
This type of availability is particularly appropriate for ORBCOMM Global's
planned initial applications focusing on monitoring the status of remote assets
and tracking trucks and cargo, where several readings per day satisfy a
customer's requirements. With the launch of additional satellites,
communications availability will also increase. The Company expects that, with a
planned constellation of 28 satellites and appropriately situated gateways, the
ORBCOMM System will provide communications availability generally exceeding 95%
of each 24-hour period in the United States and other temperate zones in the
Northern and Southern hemispheres and exceeding 75% of each 24-hour period in
the equatorial region. Equatorial region availability could be improved to
generally exceed 90% with an additional group of eight satellites. Outside the
United States, the ORBCOMM System will only be available in countries and
regions where appropriate licenses have been obtained and where there is a
gateway that can serve the applicable market.
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Under the ORBCOMM System Procurement Agreement between Orbital and
ORBCOMM Global (the "Procurement Agreement"), Orbital is constructing and will
launch 26 additional satellites, and will construct an additional eight
satellites, all on a fixed-price basis. Consistent with industry practice for
similar contracts, the Procurement Agreement contains certain performance
incentives with respect to the satellites and their launches.
The ORBCOMM Partnerships. Under ORBCOMM Global's partnership agreement,
action by the partnership generally requires the approval of general partners
holding a majority of the participating interests (i.e., interests participating
in profits and losses). OCC and Teleglobe Mobile are each 50% general partners
in ORBCOMM Global, with the result that OCC and Teleglobe Mobile share equal
responsibility for the operational and financial affairs of ORBCOMM Global, and
the approval of both OCC and Teleglobe Mobile is necessary for ORBCOMM Global to
act on major matters. OCC indirectly holds a 51% participating interest in
ORBCOMM USA, and Teleglobe Mobile indirectly holds a 51% participating interest
in ORBCOMM International, with the result that OCC acting alone can generally
control the operational and financial affairs of ORBCOMM USA, and Teleglobe
Mobile acting alone can generally control the operational and financial affairs
of ORBCOMM International.
Financing. Orbital and Teleglobe Mobile's total equity capital
contributions to ORBCOMM Global are approximately $75 million and $85 million,
respectively. In 1996, ORBCOMM Global and its wholly owned subsidiary, ORBCOMM
Global Capital Corporation, issued $170,000,000 of senior unsecured notes (the
"Notes") to institutional investors. The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International. The guarantees and the Notes are non-recourse to
Orbital, bear interest at a fixed rate of 14% and provide for noteholder
participation in future ORBCOMM System revenues, payment of which may be
deferred by ORBCOMM Global to the extent certain fixed charge ratios are not
met. Net proceeds from the sale of the Notes (approximately $164,500,000) are
being applied to (i) the design, construction, launch, operation and marketing
of the ORBCOMM System and related development, operating and management expenses
(including cost contingencies) and (ii) the first two years of interest on the
Notes.
Start-up of the ORBCOMM System will produce significant ORBCOMM Global
operating losses for several more years. Even if the ORBCOMM System is fully
constructed and operational, there can be no assurance that an adequate market
will develop for ORBCOMM services, that ORBCOMM Global will achieve profitable
operations or that Orbital will recover any of its past or anticipated
investment in the ORBCOMM System. Because Orbital (through OCC) has a 50%
participating interest in ORBCOMM Global, Orbital expects to recognize its
proportionate share of ORBCOMM Global profits and losses.
As of March 14, 1997, certain officers and employees of ORBCOMM Global
and Orbital held options to acquire 611,680 shares of OCC's common stock (or
approximately 13 percent of OCC's outstanding common stock) at option exercise
prices ranging from $1.50 to $26.50 per share. On an annual basis, holders of
OCC common stock acquired on exercise of these options may, subject to certain
conditions, require OCC to purchase such OCC common stock at its then fair
market value, subject to limitations under the indenture for the senior note
financing. As of March 14, 1997, there were 48,020 shares of OCC common stock
outstanding that were acquired in connection with option exercises by current or
former OCC and Orbital employees.
Regulatory Approvals. OCC has retained control over the applicable
license issued by the Federal Communications Commission ("FCC"), consistent with
FCC regulations. This license, which provides that the ORBCOMM System must be
constructed within six years from the date the license was granted, extends for
a period of ten years from the date the first ORBCOMM System satellite was
operational. At the end of the seventh year of the ten-year term, a renewal
application must be filed with the FCC. As with any such license, the ORBCOMM
System FCC license may be revoked and a license renewal application may be
denied for cause. In addition, there can be no assurance that ORBCOMM Global or
its international licensees will be granted all licenses or approvals necessary
to operate the ORBCOMM System in any other country.
ORBIMAGE REMOTE SENSING AND IMAGING SERVICES. The Company is currently
seeking, through its ORBIMAGE subsidiary, to develop and market a broad range of
information services that involve identifying and monitoring global
environmental changes and weather patterns, and collecting and disseminating
digital land maps and other remote imaging information. Small Earth-viewing
satellites and related sensors and instruments placed in low orbits are planned
to offer cost-efficient image collection and processing, together with daily
global coverage and high-resolution imaging quality.
Since April 1995, ORBIMAGE's first satellite, OrbView-1, has been
monitoring lightning and severe weather patterns. Orbital has also entered into
a contract with NASA to provide worldwide, daily ocean imagery using Orbital's
OrbView-2 environmental monitoring satellite system. The Company plans to
develop, produce, launch and operate the OrbView-2 system to deliver
high-quality multi-spectral ocean imagery and land surface imagery for up to
five years. The OrbView-2 launch has been delayed several
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years, primarily due to technical challenges associated with the development of
the spacecraft. The OrbView-2 satellite has completed final testing and is
currently scheduled to be launched in the first half of 1997. In addition to
providing unprocessed real-time ocean data to NASA, ORBIMAGE plans to market the
OrbView-2 imagery directly and indirectly through value-added resellers and
other marketing agents to other U.S. Government users and to potential domestic
and international customers such as commercial fishing fleets, oil and gas
companies, ocean transportation operators, oceanographers and agricultural
companies.
ORBIMAGE is pursuing a one-meter high-resolution satellite imagery
business based on imagery to be provided by the OrbView-3 satellite currently
under development by the Company, with Orbital under contract to provide the
launch service, ground stations and other related products and services.
OrbView-3 would be the third in a fleet of three spacecraft, including OrbView-1
and OrbView-2, that will constitute the foundation of ORBIMAGE's commercial
satellite remote imagery business. The Company is currently pursuing a
transaction that would involve a sale of ORBIMAGE equity securities to one or
more third parties in order to finance such venture including the development
and construction of the OrbView-3 satellite and ground system. There can be no
assurance that the Company will be able to conclude such financing arrangement
or develop profitable commercial Earth observation and other remote imaging
businesses.
* * * *
Financial information about the Company's products and services, domestic
and foreign operations and export sales is included in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" set forth below
in Item 7 and the notes to the Company's consolidated financial statements set
forth below in Item 8, and is incorporated herein by reference.
COMPETITION
Orbital believes that competition for sales of its products and services
is based on performance and other technical features, price, reliability,
scheduling and customization.
While there is currently no direct domestic competition for the Pegasus
and Taurus launch vehicles, potential competition may come from launch systems
derived from the LMLV currently being developed by Lockheed Martin Corporation
("Lockheed"). Pegasus may face competition from launch systems derived from
government surplus ballistic missiles. The Israeli Shavit vehicle and other
potential foreign launch vehicles could also pose competitive challenges to
Pegasus, although U.S. government policy currently prohibits the launch of
foreign vehicles from U.S. territory. Competition for Taurus could come from
surplus Titan II launch vehicles, although a very limited inventory remains.
Japan's space agency has a launcher that directly competes with Taurus in terms
of launch capacity, but is considerably more expensive than the Taurus.
Competition to Pegasus and Taurus vehicles also exists in the form of partial or
secondary ("piggyback") payload capacity on larger boosters such as the Ariane,
Titan, Delta, Long March and Proton launch vehicles. While several companies
design and manufacture suborbital launch vehicles, Orbital's primary competitors
in this product line are Coleman Research Corp. and Space Vector Corporation.
The Company's satellite systems and subsystems products compete with
products and services produced or provided by government entities and numerous
companies, including TRW Inc., CTA, Ball and Spectrum Astro, Inc. The Company's
airborne and ground-based electronics, data management systems, defense-oriented
avionics products and software systems and aviation systems face competition
from several established manufacturers. The Company's space sensors and
instruments face competition from a number of companies and university research
laboratories capable of designing and producing space instruments. The Company's
main competitors in the area of satellite ground stations include Datron Systems
Inc., Matra Marconi Space N.V. and Hughes-STX Corp.
Magellan's marine, outdoor recreation and aviation GPS satellite-based
navigation products primarily face competition from Garmin International.
Magellan competes with a larger number of producers of satellite navigation and
communications products in its other markets. The Company believes that
Magellan's success will depend on its ability to continue to develop new
lower-cost and enhanced performance products to enter into and develop new
markets for GPS navigators and personal satellite communicators, and to develop
and strengthen sales and distribution channels for such products.
The ORBCOMM System will face competition from numerous existing and
potential alternative communications products and services provided by various
large and small companies, including sophisticated two-way satellite-based data
and voice communications services. For specific markets, the ORBCOMM System may
complement existing tower-based services such as one-way and two-way paging,
cellular data, specialized mobile radio and private networks. ORBIMAGE may face
competition from U.S.
6
<PAGE> 10
and foreign government entities and private entities, such as EarthWatch
Incorporated and Space Imaging L.P., that provide or are seeking to provide
satellite-based and other land remote imaging, environmental monitoring and
atmospheric sensing products.
Many of the Company's competitors are larger and have substantially
greater resources than the Company. Furthermore, the possibility exists that
other domestic or foreign companies or governments, some with greater experience
in the space industry and greater financial resources than Orbital, will seek to
produce products or services that compete with those of the Company. Any such
foreign competitor could benefit from subsidies from, or other protective
measures by, its home country.
RESEARCH AND DEVELOPMENT
The Company expects to continue to invest in product-related research and
development, to conceive and develop new products and services, to enhance
existing products and services and to seek customer and, where appropriate,
strategic partner investments in these products and services. Orbital's research
and development expenses, excluding direct customer-funded development, were
approximately $23.1 million, $28.6 million and $17.3 million, respectively, for
the fiscal years ended December 31, 1996, 1995 and 1994.
PATENTS AND TRADEMARKS
Orbital relies, in part, on patents, trade secrets and know-how to
develop and maintain its competitive position and technological advantage. The
Company holds U.S. and foreign patents relating to the Pegasus vehicle and U.S.
patents relating to the ORBCOMM System as well as for other systems and products
produced by the Company. The Company also has various pending patent
applications relating to Pegasus and the ORBCOMM System along with other
products. Certain of the trademarks and service marks used in connection with
the Company's products and services have been registered with the U.S. Patent
and Trademark Office, the Canadian Intellectual Property Office and certain
other foreign trademark authorities.
COMPONENTS AND RAW MATERIALS
Orbital purchases a significant percentage of its product components,
including rocket propulsion motors, structural assemblies and electronic
equipment, from third parties. Orbital also occasionally obtains from the U.S.
Government parts and equipment that are used in the production of the Company's
products or in the provision of the Company's services. Orbital has not
experienced material difficulty in obtaining product components or necessary
parts and equipment and believes that alternative sources of supply would be
available, although increased costs and possible delays could be incurred in
securing alternative sources of supply. The Company's ability to launch its
Pegasus vehicle depends on the availability of an aircraft with the capability
of carrying and launching such space launch vehicles. Orbital entered into a
10-year lease in 1992 for the modified Lockheed L-1011 used for the air-launch
of the Pegasus vehicle.
U.S. GOVERNMENT CONTRACTS
During 1996, 1995 and 1994, approximately 45 percent, 40 percent and 45
percent, respectively, of the Company's total annual revenues were derived from
contracts with the U.S. Government and its agencies or from subcontracts with
the U.S. Government's prime contractors. Orbital's government contracts are
subject to regular audit and periodic reviews and may be modified, increased,
reduced or terminated in the event of changes in government requirements or
policies, Congressional appropriations and program progress and scheduling. U.S.
Government curtailment of expenditures for space research and development and
related products and services could have a material adverse effect on Orbital's
revenues and results of operations. Agencies within the U.S. Government and
commercial customers to which sales by the Company accounted for ten percent or
more of the Company's consolidated 1996 revenues were NASA, DoD and ORBCOMM
Global.
Orbital's major contracts with the U.S. Government fall into three
categories: firm fixed-price contracts, fixed-price incentive fee contracts and
cost-plus-fee contracts. Under firm fixed-price contracts, work performed and
products shipped are paid for at a fixed price without adjustment for actual
costs incurred in connection with the contract. Risk of loss due to increased
cost, therefore, is borne by the Company, although some of this risk may be
passed on to subcontractors. Under fixed-price government contracts, Orbital may
receive progress payments, generally in an amount equal to between 80 and 95
percent of monthly costs, or it may receive milestone payments upon the
occurrence of certain program achievements, with final payments occurring at
project completion. Fixed-price incentive fee contracts provide for sharing by
the customer and the Company of unexpected costs incurred or savings realized
within specified limits, and may provide for adjustments in price depending on
actual contract performance other than costs. Costs in excess of the negotiated
maximum (ceiling) price and the risk of loss by reason of such excess costs are
borne by the
7
<PAGE> 11
Company, although some of this risk may be passed on to subcontractors. Under a
cost-plus-fee contract, Orbital recovers its actual allowable costs incurred and
receives a fee consisting of a base amount that is fixed at the inception of the
contract and/or an award amount that is based on the Government's subjective
evaluation of the contractor's performance in terms of the criteria stated in
the contract.
All Orbital's U.S. Government contracts and, in general, its subcontracts
with the U.S. Government's prime contractors provide that such contracts may be
terminated at will by the U.S. Government or the prime contractor, respectively.
Furthermore, any of these contracts may become subject to a government-issued
stop work order under which the Company is required to suspend production. In
the event of a termination at will, Orbital is normally entitled to recognize
the purchase price for delivered items, reimbursement for allowable costs for
work in process and an allowance for reasonable profit thereon or adjustment for
loss if completion of performance would have resulted in a loss. The Company
from time to time experiences contract suspensions and terminations.
BACKLOG
Orbital's contract backlog is attributable to its space and ground
infrastructure systems business. The Company's firm backlog at December 31, 1996
and 1995 was approximately $710 million and $530 million, respectively. As of
December 31, 1996, approximately 60 percent of the Company's backlog was with
the U.S. Government and its agencies or from subcontracts with the U.S.
Government's prime contractors. Backlog consists of aggregate contract values
for firm product orders, excluding the portion previously included in operating
revenues on the basis of percentage of completion accounting, and including
government contract orders not yet funded in the amounts of approximately $265
million and $355 million as of December 31, 1996 and 1995, respectively.
Approximately $325 million of backlog is currently scheduled to be performed
beyond 1997. Backlog excludes unexercised and undefinitized contract options
having an aggregate potential contract value at December 31, 1996 of
approximately $1.4 billion.
EMPLOYEES
As of December 31, 1996, Orbital had approximately 3,000 full-time
permanent employees.
ITEM 2. PROPERTIES
In 1993, Orbital entered into a 12-year lease agreement for approximately
100,000 square feet of office and engineering space in Dulles, Virginia, which
serves as its corporate headquarters. The Company owns an approximate 30,000
square-foot satellite engineering and manufacturing facility on land adjacent to
the Dulles office facility and is constructing an addition to such facility to
provide additional office, engineering and manufacturing space. Orbital also
leases approximately 320,000 square feet of office, engineering and
manufacturing space in Germantown, Maryland; 305,000 square feet of office,
engineering and manufacturing space in Chandler, Arizona; approximately 214,000
square feet of office and engineering space in Richmond, British Columbia;
approximately 135,000 square feet of office, engineering and manufacturing space
in Pomona, California; and approximately 75,000 square feet of office,
engineering and manufacturing space in San Dimas, California. The Company leases
or owns other smaller facilities, offices or manufacturing space around the
United States, including Huntsville, Alabama; Edwards Air Force Base,
California; Vandenberg Air Force Base, California and Greenbelt, Maryland; as
well as in other locations in Canada such as Ottawa, Ontario, as well as in
England, Malaysia, Mexico and Australia. Although completion of the Company's
existing and pending contracts may in the future require additional
manufacturing capacity, Orbital believes that its existing facilities are
adequate for its near- and medium-term requirements.
ITEM 3. LEGAL PROCEEDINGS
On November 12, 1996, BTG USA Inc. filed a lawsuit against Magellan in
the U.S. District Court for the Eastern District of Pennsylvania, alleging that
Magellan's GPS products infringe a United States patent and seeking an
unspecified amount of monetary damages. The patent at issue expired in November
1996. The Company believes the complaint has no merit, and the Company is
vigorously defending the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote of the Company's security holders
during the fourth quarter of 1996.
8
<PAGE> 12
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each of the
Executive Officers of Orbital as of March 1, 1997. All Executive Officers are
elected annually and serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C> <C>
David W. Thompson 42 Chairman of the Board, President and Chief Executive Officer
Bruce W. Ferguson 42 Executive Vice President and General Manager/Communications
and Information Services Group
James R. Thompson 60 Executive Vice President and General Manager/Launch Systems Group
Michael D. Griffin 47 Executive Vice President and General Manager/Space Systems Group
Robert D. Strain 40 Executive Vice President and General Manager/Electronics and Sensor
Systems Group
Daniel E. Friedmann 40 Executive Vice President and General Manager/Systems Integration
and Software Group
Jeffrey V. Pirone 36 Senior Vice President and Chief Financial Officer
Antonio L. Elias 47 Senior Vice President and Chief Technical Officer
Leslie C. Seeman 44 Senior Vice President, General Counsel and Secretary
</TABLE>
David W. Thompson is a founder of Orbital and has been Chairman of the
Board, President and Chief Executive Officer of the Company since 1982. From
1981 to 1982, Mr. Thompson was Special Assistant to the President at Hughes
Aircraft Company's Missile Systems Group. From 1977 to 1979, Mr. Thompson was
employed by NASA at the Marshall Space Flight Center as a project manager and
engineer. Prior to that, he worked on the Space Shuttle's autopilot design at
the Charles Stark Draper Laboratory.
Bruce W. Ferguson is a founder of Orbital and has been Executive Vice
President and General Manager/Communications and Information Services Group
since October 1993 and a Director of the Company since 1982. Mr. Ferguson was
Executive Vice President and Chief Operating Officer of Orbital from 1989 to
October 1993 and Senior Vice President/Finance and Administration and General
Counsel of Orbital from 1985 to 1989.
James R. Thompson (who is not related to David W. Thompson) has been
Executive Vice President and General Manager/Launch Systems Group since October
1993 and a Director since January 1992. Mr. Thompson was Executive Vice
President and Chief Technical Officer of Orbital from 1991 to October 1993. He
was Deputy Administrator of NASA from 1989 to 1991. From 1986 until 1989, Mr.
Thompson was Director of NASA's Marshall Space Flight Center. He was Deputy
Director for Technical Operations at Princeton University's Plasma Physics
Laboratory from 1983 through 1986. Before that, he had a 20-year career with
NASA at the Marshall Space Flight Center.
Michael D. Griffin has been Executive Vice President/Space Systems Group
since January 1996. Dr. Griffin joined Orbital in August 1995 when he was
appointed Senior Vice President and Chief Technical Officer. From 1994 to August
1995, he was Senior Vice President for Program Development at Space Industries
International. From September 1991 to January 1994, he served as Chief Engineer
of NASA and, from 1989 to 1991, was Deputy Director for Technology at the
Strategic Defense Initiative Organization.
Robert D. Strain has been Executive Vice President and General
Manager/Electronics and Sensor Systems Group since October 1996. From 1994 until
1996, he was Vice President for Finance and Manufacturing at Orbital. Prior to
that he served in a variety of senior-level financial positions with Fairchild,
including Vice President of Finance, Treasurer and Controller.
Daniel E. Friedmann has been Executive Vice President and General
Manager/Systems Integration and Software Group since January 1996. He continues
to serve as President and Chief Executive Officer of Orbital's subsidiary, MDA,
a position he has held since March 1995. From 1992 to March 1995, he served as
Executive Vice President and Chief Operating Officer of MDA. Between 1979 and
1992, he held a variety of positions at MDA, including serving as Vice President
of various divisions.
Jeffrey V. Pirone has been Senior Vice President and Chief Financial
Officer since August 1996, and had served as acting Chief Financial Officer as
of April 1996. From 1993 until March 1996, Mr. Pirone served as Vice President
and Controller of Orbital. Mr. Pirone joined Orbital as Controller in 1991, and
prior to that was a Senior Manager at KPMG Peat Marwick LLP.
Antonio L. Elias has been Senior Vice President and Chief Technical
Officer since January 1996. From May 1993 through December 1995 he was Senior
Vice President for Advanced Projects and was Senior Vice President/Space Systems
Division from 1990 to April 1993. He was Vice President/Engineering of Orbital
from 1989 to 1990 and was Chief Engineer from 1986 to 1989. From 1980 to 1986,
Dr. Elias was an Assistant Professor of Aeronautics and Astronautics at
Massachusetts Institute of Technology.
9
<PAGE> 13
Leslie C. Seeman has been Senior Vice President of the Company since
October 1993 and General Counsel and Secretary of the Company since 1989. From
1989 to October 1993, she was Vice President of the Company, and from 1987 to
1989, Ms. Seeman was Assistant General Counsel of Orbital. From 1984 to 1987,
she was General Counsel of Source Telecomputing Corporation, a
telecommunications company. Prior to that, she was an attorney at the law firm
of Wilmer, Cutler and Pickering.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On March 12, 1997, there were 1,549 Orbital stockholders of record. The
Company's Common Stock is traded on the Nasdaq Stock Market under the symbol
ORBI. The range of high and low closing sales prices of Orbital Common Stock for
1994 through 1996, as reported on the Nasdaq Stock Market, was as follows:
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ----------- ------------
<S> <C> <C> <C>
Fourth Quarter $ 21 7/8 $ 16 1/4
Third Quarter $ 20 $ 16
Second Quarter $ 19 7/8 $ 13
First Quarter $ 16 1/8 $ 11 3/4
1995 HIGH LOW
---- ----------- ------------
Fourth Quarter $ 16 5/8 $ 12 3/16
Third Quarter $ 19 1/4 $ 16
Second Quarter $ 22 $ 15 1/2
First Quarter $ 20 1/2 $ 16 1/2
1994 HIGH LOW
---- ----------- ------------
Fourth Quarter $ 22 1/2 $ 15
Third Quarter $ 18 1/2 $ 14 1/2
Second Quarter $ 24 1/2 $ 14
First Quarter $ 26 1/2 $ 15 1/4
</TABLE>
Orbital has never paid a cash dividend on its Common Stock. The Company
currently intends to retain earnings primarily for working capital and product
development and therefore does not anticipate paying dividends in the
foreseeable future. In addition, the Company is prohibited from paying cash
dividends under an existing credit facility.
10
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
Management has determined to restate its previously issued consolidated
financial statements as of and for the years ended December 31, 1996 and 1995
with respect to certain matters described in Note 1A to the Company's
consolidated financial statements. The following selected consolidated financial
data should be read in conjunction with the consolidated financial statements
and notes thereto included in this Report. The consolidated operating data and
other data for the three-year period ended December 31, 1996 and the
consolidated balance sheet data at December 31, 1996 and 1995 are derived from
and should be read in conjunction with the audited consolidated financial
statements and notes thereto included in this Report. The consolidated operating
and other data for the years ended December 31, 1993 and 1992 and the
consolidated balance sheet data at December 31, 1994, 1993 and 1992 are derived
from consolidated financial statements not included or incorporated by reference
herein.
SELECTED CONSOLIDATED
FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
----------------- -------------------- --------------------
<S> <C> <C> <C>
OPERATING DATA: (restated) (restated)
Revenues $ 449,787 $ 359,840 $ 301,576
Costs of goods sold 332,581 271,146 216,417
---------------- ---------------- ----------------
Gross profit 117,206 88,694 85,159
Research and development expenses 23,068 28,558 17,259
Selling, general and administrative expenses 77,247 64,170 53,165
Amortization of goodwill 3,134 3,221 2,360
---------------- ------------------ ------------------
Income (loss) from operations 13,757 (7,255) 12,375
Net investment income (expense) (49) 1,131 (244)
Equity in earnings (losses) of affiliates (7,008) (644) (1,264)
Non-controlling interests in (earnings) losses of consolidated
subsidiaries 1,473 427 --
Acquisition expenses -- (3,441) (503)
---------------- ---------------- ----------------
Income (loss) before provision (benefit) for income taxes,
extraordinary item and cumulative effect of accounting
change 8,173 (9,782) 10,364
Provision (benefit) for income taxes 211 (6,569) 2,744
---------------- ---------------- ----------------
Income (loss) before extraordinary item and cumulative effect
of accounting change 7,962 (3,213) 7,620
Extraordinary item--gain on sale of assets, net of tax 1,980 -- --
Cumulative effect of accounting change, net of tax -- (2,377) --
---------------- ---------------- ----------------
Net income (loss) $ 9,942 $ (5,590) $ 7,620
================ ================ ================
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE (1):
Income (loss) before extraordinary item and cumulative
effect of accounting change $ 0.27 $ (0.12) $ 0.33
Extraordinary item--gain on sale of assets, net of tax 0.07 -- --
Cumulative effect of accounting change, net of tax -- (0.09) --
------------ ------------ ------------
$ 0.34 $ (0.21) $ 0.33
============ ============ ============
SHARES USED IN COMPUTING NET INCOME (LOSS) PER
COMMON AND COMMON EQUIVALENT SHARE
29,137,361 26,207,746 23,191,553
============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING
FULL DILUTION (2):
Income (loss) before extraordinary item and cumulative
effect of accounting change $ 0.30 $ (0.12) $ 0.32
Extraordinary item--gain on sale of assets, net of tax 0.04 -- --
Cumulative effect of accounting change, net of tax -- (0.09) --
------------ ------------ ------------
$ 0.34 $ (0.21) $ 0.32
============ ============ ============
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, ASSUMING FULL DILUTION 31,616,119 26,207,746 27,309,336
============ ============ ============
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments $ 33,750 $ 35,030 $ 40,345
Net working capital 71,055 78,778 57,449
Total assets 509,613 472,900 441,042
Short-term borrowings 38,969 11,907 28,977
Long-term obligations, net 35,326 96,990 86,068
Stockholders' equity 323,795 238,166 206,943
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1992
-------------------- -------------------
<S> <C> <C>
OPERATING DATA:
Revenues $ 300,184 $ 273,171
Costs of goods sold 228,289 207,834
---------------- ----------------
Gross profit 71,895 65,337
Research and development expenses 19,703 15,565
Selling, general and administrative expenses 38,270 41,723
Amortization of goodwill 1,634 1,606
------------------ ------------------
Income (loss) from operations 12,288 6,443
Net investment income (expense) (44) 860
Equity in earnings (losses) of affiliates (2,436) --
Non-controlling interests in (earnings) losses of consolidated
subsidiaries -- --
Acquisition expenses -- --
---------------- ----------------
Income (loss) before provision (benefit) for income taxes,
extraordinary item and cumulative effect of accounting
change 9,808 7,303
Provision (benefit) for income taxes 2,403 1,997
---------------- ----------------
Income (loss) before extraordinary item and cumulative effect of
accounting change 7,405 5,306
Extraordinary item--gain on sale of assets, net of tax -- --
Cumulative effect of accounting change, net of tax 200 --
---------------- ----------------
Net income (loss) $ 7,605 $ 5,306
================ ================
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE (1):
Income (loss) before extraordinary item and cumulative effect of
accounting change $ 0.40 $ 0.29
Extraordinary item--gain on sale of assets, net of tax -- --
Cumulative effect of accounting change, net of tax 0.01 --
-------------- --------------
$ 0.41 $ 0.29
============ ============
SHARES USED IN COMPUTING NET INCOME (LOSS) PER
COMMON AND COMMON EQUIVALENT SHARE
18,728,980 18,492,059
================ ================
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING
FULL DILUTION (2):
Income (loss) before extraordinary item and cumulative effect of
accounting change $ 0.36 $ 0.29
Extraordinary item--gain on sale of assets, net of tax -- --
Cumulative effect of accounting change, net of tax 0.01 --
------------ -------------
$ 0.37 $ 0.29
============ ============
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, ASSUMING FULL DILUTION 22,343,402 18,492,059
================ ================
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments $ 85,347 $ 16,019
Net working capital 92,036 41,527
Total assets 367,979 212,151
Short-term borrowings 15,793 6,377
Long-term obligations, net 73,165 10,818
Stockholders' equity 169,389 111,687
</TABLE>
11
<PAGE> 15
1. Net income (loss) per common and common equivalent share is calculated using
the weighted average number of shares and dilutive equivalent shares
outstanding during the periods.
2. Net income (loss) per common share, assuming full dilution, is calculated
using the weighted average number of shares and dilutive equivalent shares
outstanding during the periods, plus the effect of an assumed conversion of
the Company's convertible subordinated debentures prior to their actual
conversion in 1996.
12
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
A significant portion of the company's space and ground infrastructure
systems revenues are generated under long-term contracts with various agencies
of the U.S. Government, various foreign governments and commercial customers.
Orbital recognizes revenues on long-term contracts using the percentage of
completion method of accounting, under which revenue and profit are recognized
based on actual costs incurred in relation to total estimated costs to complete
the contract or specific delivery terms and conditions. To the extent that
estimated costs of completion are adjusted, revenue recognized from a particular
contract will be affected in the period of the adjustment.
The company is accounting for its 50% investment in ORBCOMM Global, L.P.
("ORBCOMM Global") using the equity method of accounting. In accordance with the
equity method of accounting, Orbital consolidates 100% of the revenues earned
and costs incurred on sales of products and services to ORBCOMM Global. The
company also recognizes as equity in earnings (losses) of affiliates its
proportionate share of ORBCOMM Global's profits and losses. During the
construction phase of the ORBCOMM system, ORBCOMM Global is capitalizing
substantially all system construction costs, including amounts paid to Orbital.
To the extent ORBCOMM Global capitalizes its purchases from Orbital, the company
eliminates as equity in earnings (losses) of affiliates 50% of its profits and
losses from those sales. Orbital controls, and therefore consolidates the
accounts of, ORBCOMM USA, L.P., a partnership that markets ORBCOMM system
services in the United States.
In 1995, the company adopted the provisions of the Financial Accounting
Standards Board's 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"). The cumulative effect of adopting SFAS 121 on prior
years' earnings, relating to the impairment in the carrying amount of certain
assets to be disposed of that supported the company's orbit transfer vehicle
product line, was $2,377,000, net of tax benefit of $1,783,000, and is reported
in the 1995 consolidated statement of operations.
Statements included in this discussion and in the Annual Report relating to
future revenues, sales, expenses, growth rates, net income, new business,
operational performance, schedules, sources and uses of funds, and the level of
the company's investment in satellite imaging projects and the ORBCOMM business
are forward-looking statements that involve risks and uncertainties. Factors
that may cause the actual results, performance or achievements of the company to
differ materially from any future results, performance or achievements expressed
or implied by such forward-looking statements include, among other things,
general economic and business conditions, launch success, product performance,
availability of required capital, market acceptance of new products and
technologies and other factors more fully described in Exhibit 99 to the
company's Report on Form 10-K for the year ended December 31, 1996.
Certain of the 1996 and 1995 financial information has been restated. See
Notes 1A and 14 to the consolidated financial statements.
SIGNIFICANT RECENT ACQUISITIONS
Orbital acquired MacDonald, Dettwiler and Associates, Ltd. ("MDA") on
November 17, 1995 and Magellan Corporation ("Magellan") on December 29, 1994.
Both transactions were accounted for using the pooling of interests method of
accounting for business combinations. Orbital's historical financial information
has been restated to effect the pooling of interests with MDA and Magellan as of
the earliest period presented. Orbital incurred transaction expenses of
approximately $3,400,000 and $500,000 in 1995 and 1994, respectively, related to
these business combinations.
On August 11, 1994, Orbital acquired Fairchild Space and Defense Corporation
("Fairchild"), a subsidiary of Matra Aerospace, Inc., in a transaction accounted
for as a purchase business combination. Fairchild's results of operations for
the nineteen-week period ended December 31, 1994 have been included in Orbital's
consolidated results of operations for the year ended December 31, 1994.
13
<PAGE> 17
The following table shows the company's revenues, gross profits and margins,
by major product category within each business sector, for each of the three
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 (RESTATED) 1995 (RESTATED)
--------------------------------------------- -------------------------------------------
(DOLLARS IN THOUSANDS)
GROSS GROSS
REVENUES PROFIT MARGIN REVENUES PROFIT MARGIN
---------------- ------------ ------------ ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
SPACE AND GROUND
INFRASTRUCTURE SYSTEMS $ 377,166 $ 93,899 24.9% $ 296,109 $ 65,360 22.1%
Launch Vehicles 103,687 18,769 18.1 67,803 7,462 11.0
Satellites 101,891 22,625 22.2 82,849 10,431 12.6
Electronics and
Sensor Systems 92,070 26,608 28.9 71,983 24,597 34.2
Ground Systems
and Software 79,518 25,897 32.6 73,474 22,870 31.1
SATELLITE ACCESS PRODUCTS 71,188 25,134 35.3 52,531 20,085 38.2
SATELLITE-DELIVERED SERVICES 1,433 (1,827) N/A 11,200 3,249 29.0
------------ ------------ ----- ------------ ----------- ----
CONSOLIDATED TOTALS $ 449,787 $ 117,206 26.1% $ 359,840 $ 88,694 24.6%
============ ============ ===== ============ =========== ====
<CAPTION>
1994
-----------------------------------------
(DOLLARS IN THOUSANDS)
GROSS
REVENUES PROFIT MARGIN
---------------- ----------- ---------
<S> <C> <C> <C>
SPACE AND GROUND
INFRASTRUCTURE SYSTEMS $ 252,905 $ 61,239 24.2%
Launch Vehicles 84,970 16,954 20.0
Satellites 35,032 9,231 26.4
Electronics and
Sensor Systems 53,273 14,775 27.7
Ground Systems
and Software 79,630 20,279 25.5
SATELLITE ACCESS PRODUCTS 38,517 17,802 46.2
SATELLITE-DELIVERED SERVICES 10,154 6,118 60.3
------------ ----------- ----
CONSOLIDATED TOTALS $ 301,576 $ 85,159 28.2%
============ =========== ====
</TABLE>
RESULTS OF OPERATIONS
REVENUES
Orbital's consolidated revenues for 1996, 1995 and 1994 were $449,787,000,
$359,840,000 and $301,576,000, respectively. Revenues include sales to ORBCOMM
Global of approximately $47,215,000, $49,187,000 and $30,048,000 in 1996, 1995
and 1994, respectively.
Space and Ground Infrastructure Systems. Revenues from the company's space
and ground infrastructure systems increased to $377,166,000 in 1996, from
$296,109,000 in 1995 and $252,905,000 in 1994.
Revenues from the company's launch vehicles increased to $103,687,000 in 1996
from $67,803,000 in 1995. Launch vehicle revenues were $84,970,000 in 1994. The
decrease in revenues from 1994 to 1995 is primarily attributable to significant
delays in production of the company's Pegasus space launch vehicle as a result
of the June 1994 and June 1995 Pegasus XL launch failures. The significant
increase in revenues in 1996 is attributable to revenues generated from the
resumption of production and launch of the Pegasus XL launch vehicle and from
work performed under new and existing contracts for the company's Taurus launch
vehicle. During 1996, Orbital carried out four successful Pegasus launches. A
fifth Pegasus launch, which occurred in November 1996, delivered two NASA
satellites to their targeted orbits, but the two satellites failed to separate
from the launch vehicle. The company believes that the problem was caused by a
faulty electrical power system on the Pegasus launcher that failed to activate
certain satellite separation mechanisms, and does not anticipate significant
further launch delays as a result of this problem.
Revenues from sales of satellites increased to $101,891,000 in 1996, from
$82,849,000 in 1995 and $35,032,000 in 1994. The increase in satellite revenues
in 1995 as compared to 1994 is primarily attributable to a full year's sales of
satellites following the 1994 acquisition of Fairchild. The increase in 1996 is
primarily attributable to additional revenues generated from new satellite
orders from commercial and government customers received in late 1995 and in
1996.
Electronics and sensor systems revenues increased to $92,070,000 in 1996,
from $71,983,000 in 1995 and $53,273,000 in 1994. The increase in 1995 as
compared to 1994 is primarily due to a full year's sales of defense electronics
products following the 1994 acquisition of Fairchild offset, in part, by a
decrease in space sensors and instruments sales. The increase in 1996 revenues
is primarily attributable to work performed on defense electronics and
intelligent transportation management systems orders received in 1995 and 1996.
Ground systems and software revenues were $79,518,000, $73,474,000 and
$79,630,000 in 1996, 1995 and 1994, respectively. Sales of satellite ground
systems declined in 1995 due to a decrease in worldwide demand for ground system
installations; however, the number of installations and upgrades increased in
1996, resulting in greater revenues.
14
<PAGE> 18
Satellite Access Products. Revenues from sales of satellite navigation and
communications products were $71,188,000 for 1996, as compared to $52,531,000 in
1995 and $38,517,000 in 1994. The year-to-year increases are due to significant
growth in the number of Global Positioning System ("GPS") products sold offset,
in part, by lower average unit sales prices.
Satellite-Delivered Services. The company's start-up satellite-delivered
services businesses generated revenues of $1,433,000, $11,200,000 and
$10,154,000 for 1996, 1995 and 1994, respectively. Satellite-delivered services
revenues for 1996 were primarily attributable to sales of satellite imagery to
government and commercial customers by the company's subsidiary, Orbital Imaging
Corporation ("ORBIMAGE"), as well as modest sales of ORBCOMM services in the
United States. Revenues in 1995 and 1994 primarily represented sales of ground
stations and network software to ORBCOMM Global; no such sales were made in
1996.
COSTS OF GOODS SOLD
Costs of goods sold include the costs of personnel, materials, subcontracts
and overhead related to commercial products and under the company's various
development and production contracts. Orbital's costs of goods sold for 1996,
1995 and 1994 were $332,581,000 (73.9% of revenues), $271,146,000 (75.4% of
revenues) and $216,417,000 (71.8% of revenues), respectively. The reduction in
costs of goods sold as a percentage of revenues in 1996 is attributable in part
to resumption of production of the company's Pegasus space launch vehicle. Other
contributing factors include increased profit margins on certain satellite and
ground systems contracts offset, in part, by lower average unit sales prices of
satellite navigation products.
Profit margins in 1996 decreased as a result of the November Pegasus launch
anomaly and certain other unanticipated contract cost increases. There can be no
assurance that the company will have sufficient contingency reserves to cover
any future launch vehicle or other contract cost increases. Also during 1996,
the company recognized a decrease in costs of goods sold of $2,523,000 related
to the write-off or expiration of certain Canadian Development loans no longer
required or expected to be repaid. The increase in costs of goods sold as a
percentage of revenues in 1995 as compared to 1994 is attributable in part to
approximately $2,100,000 of cost increases on the Pegasus program resulting from
two earlier launch failures, and unanticipated cost increases on certain
satellite programs.
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 1996, 1995 and 1994 were $23,068,000,
$28,558,000 and $17,259,000, respectively. Research and development spending
during 1996 relates primarily to the development of new or improved navigation
and communications access products, improved launch vehicles, including
enhancements to the Taurus and Pegasus launch vehicles, and new satellite
initiatives. Research and development spending during 1995 and 1994 reflected
Orbital's continued development of its Pegasus XL, including certain failure
review and resolution efforts of approximately $7,900,000 in 1995. Research and
development expenses in 1995 included $3,000,000 of costs related to an advanced
reusable launch vehicle development program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include the costs of marketing,
advertising, promotion 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 1996, 1995 and 1994 were
$77,247,000 (17.2% of revenues), $64,170,000 (17.8% of revenues) and $53,165,000
(17.6% of revenues), respectively. The decrease in selling, general and
administrative expenses as a percentage of revenues from 1995 to 1996 is
primarily attributable to significant growth in space and ground infrastructure
revenues, along with only modest growth in selling, general and administrative
expenses attributable to those product lines offset, in part, by increased costs
from expanded marketing efforts related to the company's satellite-delivered
services start-up businesses.
INVESTMENT INCOME AND INTEREST EXPENSE
Net investment income (expense) was ($49,000), $1,131,000 and ($244,000) for
1996, 1995 and 1994, respectively. Investment income reflects interest earnings
on short-term investments and realized gains and losses on investments, reduced
by interest expense on outstanding debt of $1,412,000, $2,952,000 and $1,740,000
in 1996, 1995 and 1994, respectively. Investment income in 1995 included an
approximate $2,000,000 gain on the sale of an investment. Interest expense is
net of capitalized interest of approximately $8,156,000, $6,685,000 and
$5,500,000 in 1996, 1995 and 1994, respectively. On August 14, 1996, the company
completed the
15
<PAGE> 19
redemption of the remaining $55,880,000 outstanding principal amount of its
6.75% Convertible Subordinated Debentures due 2003, thereby reducing interest
payments going forward.
EQUITY IN LOSSES OF AFFILIATES AND NON-CONTROLLING INTERESTS IN LOSSES OF
CONSOLIDATED SUBSIDIARIES
Equity in losses of affiliates includes Orbital's proportionate share of
ORBCOMM Global's net income or loss for the year and Orbital's elimination of
proportionate profits or losses on sales to ORBCOMM Global. In 1996, Orbital's
share of ORBCOMM Global's net loss was $8,268,000, and Orbital eliminated
$714,000 of losses on sales to ORBCOMM Global. In 1995, Orbital's share of
ORBCOMM Global's net income was $454,000, and Orbital eliminated $1,213,000 of
profits on sales to ORBCOMM Global. In 1994, ORBCOMM Global had no net income or
loss, and Orbital eliminated $1,264,000 of profits on sales to ORBCOMM Global.
Non-controlling interests in losses of consolidated subsidiaries represents that
portion of the subsidiary's losses allocable to other shareholders.
PROVISION (BENEFIT) FOR INCOME TAXES
The company recorded consolidated income tax provisions of $211,000 and
$2,744,000 for 1996 and 1994, respectively. The company's effective tax rate for
these periods (2.6% and 26.5% in 1996 and 1994, respectively) is primarily a
result of non-tax deductible goodwill amortization related to purchase
acquisitions, offset by tax-exempt interest earnings, U.S. Federal net operating
loss carryforwards and Canadian investment tax credits. The company recorded an
income tax benefit of approximately $6,569,000 in 1995, primarily as a result of
reducing the deferred tax valuation allowance related to the realizability of
certain tax credits, and other tax assets and the carryback and recapture of
previously paid U.S. Federal taxes and management's determination that certain
Canadian investment tax credit carryforwards would be realized in the near
future.
At December 31, 1996, Orbital had approximately $120,000,000 of U.S. Federal
net operating loss carryforwards and $3,000,000 of U.S. Federal research and
experimental tax credit carryforwards which, subject to certain annual
limitations, are available to reduce future U.S. Federal income tax obligations.
At December 31, 1996 and 1995, Orbital provided an allowance of $54,432,000 and
$68,021,000, respectively, against certain of its consolidated deferred tax
assets.
EXTRAORDINARY GAIN ON SALE OF ASSETS
In the fourth quarter of 1996, the company's wholly-owned subsidiary,
MacDonald, Dettwiler and Associates (MDA), sold substantially all the assets of
The PSC Communications Group, Inc. for approximately $13,000,000, resulting in a
gain of approximately $3,600,000. The gain on sale of $1,980,000, net of tax,
has been recorded as an extraordinary item since the assets were acquired
through the acquisition of MDA in 1995, which was accounted for as a pooling of
interests.
LIQUIDITY AND CAPITAL RESOURCES
The company's growth has required substantial capital to fund both an
expanding business base and significant research and development and capital
expenditures. 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. 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 enhance its
business. The company has historically financed its acquisitions, and expects to
finance its future acquisitions, through cash on hand, cash generated by
operations, the issuance of debt and/or equity securities, and/or asset-based
financings.
Cash, cash equivalents and short-term investments were $33,750,000 at
December 31, 1996, and the company had short-term and long-term debt obligations
outstanding of approximately $74,295,000. The outstanding debt relates primarily
to advances under the company's line of credit facilities, secured and unsecured
notes, and fixed asset financings. Cash and cash equivalents included
approximately $11,604,000 of cash reserved against outstanding letters of
credit. Orbital's current ratio was 1.5 at December 31, 1996, compared to 1.7
and 1.4 at December 31, 1995 and 1994, respectively.
In December 1996 and June 1995, the company issued and sold 1,200,000 and
2,000,000 shares, respectively, of its Common Stock in private placements to
various offshore institutional investors, receiving net proceeds of
approximately $20,000,000 and $32,400,000, respectively.
16
<PAGE> 20
On August 14, 1996, the company completed the redemption of the remaining
$55,880,000 outstanding principal amount of its 6.75% Convertible Subordinated
Debentures due 2003. The outstanding principal amount was converted into
3,887,304 shares of Common Stock.
Orbital amended its $20,000,000 unsecured note agreement during the third
quarter of 1996 to facilitate compliance with certain financial covenants as
well as to permit the completion of the ORBCOMM Global debt financing. In
connection with this amendment, the interest rate on the note was increased from
10.5% to 11.5%, effective July 1, 1996. The unsecured note contains certain
covenants with respect to fixed charge ratio, leverage ratio and tangible net
worth, and includes certain cross-default provisions. The company is currently
considering restructuring or refinancing this debt.
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 receivables. Approximately
$8,000,000 of borrowings were outstanding under the facility at December 31,
1996, and the available facility limit was approximately $36,000,000. At
December 31, 1996, the average interest rate on outstanding borrowings under
this facility was approximately 7.5%. Borrowings are secured by receivables and
certain other assets. The facility prohibits the payment of cash 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. Orbital plans to extend this facility in 1997.
The company also maintains two additional revolving credit facilities, under
which approximately $23,200,000 was outstanding at December 31, 1996. The
borrowing capacity of the two additional agreements was approximately
$35,000,000, consisting of a $10,000,000 line of credit collateralized by
substantially all the assets of Magellan and an unsecured $25,000,000 demand
line of credit.
On August 7, 1996, ORBCOMM Global issued and sold $170,000,000 of senior
unsecured notes due 2004 (the "Notes") to institutional investors. The Notes
bear interest at a fixed rate of 14%, and provide for noteholder participation
in future ORBCOMM Global service revenues. Net proceeds from the sale of the
Notes are being applied to (i) the design, construction, launch, operation and
marketing of ORBCOMM Global services, (ii) operating and management expenses
(including cost contingencies) and (iii) the first two years of interest on the
Notes. The Notes are fully and unconditionally guaranteed on a joint and several
basis by the company's majority owned subsidiary, Orbital Communications
Corporation, and by Teleglobe Mobile Partners; the guarantee is non-recourse to
Orbital.
The company's operations provided net cash of approximately $14,521,000
during 1996. The company also invested approximately $21,546,000 in ORBCOMM
Global, incurred $10,355,000 in capital expenditures related to ORBIMAGE
satellite imaging systems and incurred approximately $39,844,000 in capital
expenditures for various launch vehicle, satellite and other production and test
equipment to support future growth.
Orbital expects that the capital required for the design, development,
construction, marketing and initial operations of its ORBIMAGE commercial
satellite imaging business will be approximately $225,000,000. The company has
invested approximately $60,000,000 to date on imaging satellites and related
ground systems that are currently operating, in the final testing phase, or
under design and development. Orbital expects to invest up to $30,000,000 in
ORBIMAGE satellite imaging projects in 1997. In addition, Orbital is exploring
alternatives for raising capital to fund the remaining costs of such projects,
including customer financing and the issuance of securities at the ORBIMAGE
subsidiary level.
17
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 19
Consolidated Statements of Operations 20
Consolidated Balance Sheets 21
Consolidated Statements of Stockholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 24
</TABLE>
18
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
ORBITAL SCIENCES CORPORATION:
We have audited the accompanying consolidated balance sheets of Orbital
Sciences Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orbital
Sciences Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 1A, the accompanying consolidated balance sheets as
of December 31, 1996 and 1995, and the consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1996 and
1995 have been restated.
KPMG LLP
Washington, D.C.
February 5, 1997, except as to note 1A,
which is as of April 17, 2000
19
<PAGE> 23
CONSOLIDATED STATEMENTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996
------------------------
(RESTATED)
<S> <C>
Revenues $ 449,787
Costs of goods sold 332,581
---------------
Gross profit 117,206
Research and development expenses 23,068
Selling, general and administrative expenses 77,247
Amortization of goodwill 3,134
---------------
Income (loss) from operations 13,757
Net investment income (expense), net of interest expense of
$1,412, $2,952, and $1,740, respectively (49)
Equity in earnings (losses) of affiliates (7,008)
Non-controlling interests in (earnings) losses of consolidated subsidiaries 1,473
Acquisition expenses --
---------------
Income (loss) before provision (benefit) for income taxes,
extraordinary item and cumulative effect of accounting change 8,173
Provision (benefit) for income taxes 211
---------------
Income (loss) before extraordinary item and cumulative effect of accounting change 7,962
Extraordinary item - gain on sale of assets, net of tax 1,980
Cumulative effect of accounting change, net of taxes --
---------------
Net income (loss) $ 9,942
===============
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) before extraordinary item and cumulative effect of accounting change $ 0.27
Extraordinary item--gain on sale of assets, net of tax 0.07
Cumulative effect of accounting change, net of tax --
---------------
$ 0.34
===============
Shares used in computing net income (loss)
per common and common equivalent share 29,137,361
===============
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION:
Income (loss) before extraordinary item and cumulative effect of accounting change $ 0.30
Extraordinary item--gain on sale of assets, net of tax 0.04
Cumulative effect of accounting change, net of tax --
---------------
$ 0.34
===============
Shares used in computing net income (loss)
per common share, assuming dilution 31,616,119
===============
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
------------------------ ----------------------
(RESTATED)
<S> <C> <C>
Revenues $ 359,840 $ 301,576
Costs of goods sold 271,146 216,417
--------------- ---------------
Gross profit 88,694 85,159
Research and development expenses 28,558 17,259
Selling, general and administrative expenses 64,170 53,165
Amortization of goodwill 3,221 2,360
--------------- ---------------
Income (loss) from operations (7,255) 12,375
Net investment income (expense), net of interest expense of
$1,412, $2,952, and $1,740, respectively 1,131 (244)
Equity in earnings (losses) of affiliates (644) (1,264)
Non-controlling interests in (earnings) losses of consolidated subsidiaries 427 --
Acquisition expenses (3,441) (503)
--------------- ---------------
Income (loss) before provision (benefit) for income taxes,
extraordinary item and cumulative effect of accounting change (9,782) 10,364
Provision (benefit) for income taxes (6,569) 2,744
--------------- ---------------
Income (loss) before extraordinary item and cumulative effect of accounting change (3,213) 7,620
Extraordinary item - gain on sale of assets, net of tax -- --
Cumulative effect of accounting change, net of taxes (2,377) --
--------------- ---------------
Net income (loss) $ (5,590) $ 7,620
=============== ===============
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) before extraordinary item and cumulative effect of accounting change $ (0.12) $ 0.33
Extraordinary item--gain on sale of assets, net of tax -- --
Cumulative effect of accounting change, net of tax (0.09) --
--------------- ---------------
$ (0.21) $ 0.33
=============== ===============
Shares used in computing net income (loss)
per common and common equivalent share 26,207,746 23,191,553
=============== ===============
NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION:
Income (loss) before extraordinary item and cumulative effect of accounting change $ (0.12) $ 0.32
Extraordinary item--gain on sale of assets, net of tax -- --
Cumulative effect of accounting change, net of tax (0.09) --
---------------- ---------------
$ (0.21) $ 0.32
================ ===============
Shares used in computing net income (loss)
per common share, assuming dilution 26,207,746 27,309,336
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 24
CONSOLIDATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
----------------- ------------------
ASSETS (RESTATED) (RESTATED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of
$11,604 and $10,700, respectively $ 27,923 $ 15,317
Short-term investments, at market 5,827 19,713
Receivables, net 140,973 116,761
Inventories, net 27,159 38,527
Deferred income taxes and other current assets 5,952 6,886
----------- -----------
TOTAL CURRENT ASSETS 207,834 197,204
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization of
$69,534 and $53,614, respectively 126,888 105,901
INVESTMENTS IN AFFILIATES, net 88,394 75,020
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, less accumulated amortization of
$15,942 and $13,695, respectively 69,512 75,395
DEFERRED INCOME TAXES AND OTHER ASSETS 16,985 19,380
----------- -----------
TOTAL ASSETS $ 509,613 $ 472,900
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term obligations $ 38,969 $ 11,907
Accounts payable 26,611 25,903
Accrued expenses 40,019 48,115
Deferred revenue 31,180 32,501
----------- -----------
TOTAL CURRENT LIABILITIES 136,779 118,426
----------- -----------
LONG-TERM OBLIGATIONS, net of current portion 35,326 96,990
OTHER LIABILITIES 15,523 19,740
----------- -----------
TOTAL LIABILITIES 187,628 235,156
----------- -----------
NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES (1,810) (422)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized:
Series A Special Voting Preferred Stock, one share authorized and outstanding -- --
Class B Preferred Stock, 10,000 shares authorized and outstanding -- --
Common Stock, par value $.01; 40,000,000 shares authorized, 32,160,598 and 26,766,029
shares outstanding, after deducting 15,735 shares held in treasury 322 268
Additional paid-in capital 323,592 247,580
Unrealized gains on short-term investments 14 68
Cumulative translation adjustment (3,681) (3,356)
Retained earnings (accumulated deficit) 3,548 (6,394)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 323,795 238,166
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 509,613 $ 472,900
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 25
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------- ADDITIONAL
SHARES AMOUNT PAID-IN CAPITAL
--------------------- ----------------- ---------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 21,725,693 $ 217 $ 177,379
Shares issued to employees and directors 107,387 2 1,619
Shares issued in purchase business combination 2,424,242 24 30,976
Adjustment to recast year end of pooled company -- -- --
Transactions of pooled companies -- -- 56
Translation adjustment -- -- --
Net income -- -- --
Unrealized losses on short-term investments -- -- --
------------ ------- -----------
BALANCE, DECEMBER 31, 1994 24,257,322 243 210,030
Shares issued to employees and directors 300,011 3 1,857
Shares issued in private offering 2,000,000 20 32,366
Conversion of convertible debentures 208,696 2 2,914
Adjustment to recast year end of pooled company -- -- --
Transactions of pooled company -- -- 413
Translation adjustment -- -- --
Net loss -- -- --
Unrealized gains on short-term investments -- -- --
------------ ------- -----------
BALANCE, DECEMBER 31, 1995 (restated) 26,766,029 268 247,580
Shares issued to employees and directors 298,916 3 2,163
Shares issued in private offering 1,200,000 12 20,251
Conversion of convertible debentures 3,895,653 39 53,598
Translation adjustment -- -- --
Net income -- -- --
Unrealized losses on short-term investments -- -- --
------------ ------- -----------
BALANCE, DECEMBER 31, 1996 (restated) 32,160,598 $ 322 $ 323,592
============ ======= ===========
<CAPTION>
UNREALIZED
GAINS (LOSSES) ON CUMULATIVE RETAINED EARNINGS
SHORT-TERM TRANSLATION (ACCUMULATED
INVESTMENTS ADJUSTMENT DEFICIT)
----------- ----------------------- -----------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ 12 $ (2,335) $ (5,884)
Shares issued to employees and directors -- -- --
Shares issued in purchase business combination -- -- --
Adjustment to recast year end of pooled company -- -- (1,138)
Transactions of pooled companies -- -- (355)
Translation adjustment -- (776) --
Net income -- -- 7,620
Unrealized losses on short-term investments (474) -- --
-------- ---------- -----------
BALANCE, DECEMBER 31, 1994 (462) (3,111) 243
Shares issued to employees and directors -- -- --
Shares issued in private offering -- -- --
Conversion of convertible debentures -- -- --
Adjustment to recast year end of pooled company -- -- (1,047)
Transactions of pooled company -- -- --
Translation adjustment -- (245) --
Net loss -- -- (5,590)
Unrealized gains on short-term investments 530 -- --
-------- ---------- -----------
BALANCE, DECEMBER 31, 1995 (restated) 68 (3,356) (6,394)
Shares issued to employees and directors -- -- --
Shares issued in private offering -- -- --
Conversion of convertible debentures -- -- --
Translation adjustment -- (325) --
Net income -- -- 9,942
Unrealized losses on short-term investments (54) -- --
-------- ---------- -----------
BALANCE, DECEMBER 31, 1996 (restated) $ 14 $ (3,681) $ 3,548
======== ========== ===========
<CAPTION>
TOTAL
------------------
<S> <C>
BALANCE, DECEMBER 31, 1993 $ 169,389
Shares issued to employees and directors 1,621
Shares issued in purchase business combination 31,000
Adjustment to recast year end of pooled company (1,138)
Transactions of pooled companies (299)
Translation adjustment (776)
Net income 7,620
Unrealized losses on short-term investments (474)
-----------
BALANCE, DECEMBER 31, 1994 206,943
Shares issued to employees and directors 1,860
Shares issued in private offering 32,386
Conversion of convertible debentures 2,916
Adjustment to recast year end of pooled company (1,047)
Transactions of pooled company 413
Translation adjustment (245)
Net loss (5,590)
Unrealized gains on short-term investments 530
-----------
BALANCE, DECEMBER 31, 1995 (restated) 238,166
Shares issued to employees and directors 2,166
Shares issued in private offering 20,263
Conversion of convertible debentures 53,637
Translation adjustment (325)
Net income 9,942
Unrealized losses on short-term investments (54)
-----------
BALANCE, DECEMBER 31, 1996 (restated) $ 323,795
===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 26
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
------------------ ------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (RESTATED) (RESTATED)
<S> <C> <C> <C>
NET INCOME (LOSS) $ 9,942 $ (5,590) $ 7,620
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization expense 25,096 22,229 17,198
Equity in losses of affiliates 7,008 644 1,264
Non-controlling interests in losses of consolidated subsidiaries (1,473) (427) --
Loss (gain) on sale of fixed assets and investments 226 (2,196) 4
Cumulative effect of accounting change -- 2,377 --
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables, net (27,712) (739) 12,536
(Increase) decrease in inventories, net 10,261 (12,082) (3,638)
(Increase) decrease in other current assets -- 115 5,215
(Increase) decrease in other non-current assets 2,085 (8,878) 169
Decrease in accounts payable and accrued expenses (9,318) (4,687) (10,929)
Increase (decrease) in deferred revenue 1,360 7,558 (22,609)
Increase (decrease) in other liabilities (2,954) 942 2,761
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 14,521 (734) 9,591
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (39,844) (17,265) (29,939)
Proceeds from sales of assets, net 9,518 293 --
Purchases of available-for-sale investment securities (5,623) (61,685) (35,731)
Sales of available-for-sale investment securities 11,041 49,168 42,255
Maturities of available-for-sale investment securities 8,220 8,100 7,789
Investments in and advances to affiliates (23,458) (20,201) (15,208)
Payment for business acquisition -- -- (45,063)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (40,146) (41,590) (75,897)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings net of (repayments) 26,200 (17,483) 9,405
Principal payments on long-term obligations (7,502) (5,749) (1,883)
Net proceeds from issuance of long-term obligations -- 20,000 28,730
Fees associated with conversion of debentures (2,571) -- --
Net proceeds from issuances of common stock 22,429 34,246 1,753
Adjustment to recast pooled company's year end -- (1,047) (1,138)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 38,556 29,967 36,867
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (325) (245) (776)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,606 (12,602) (30,215)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,317 27,919 58,134
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 27,923 $ 15,317 $ 27,919
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Orbital Sciences Corporation (together with its subsidiaries, "Orbital"
or the "company"), a Delaware corporation, is an international space and
information systems company that designs, manufactures, operates and markets a
broad range of affordable space and ground infrastructure systems, satellite
access products and satellite-delivered services. Space and ground
infrastructure systems include launch vehicles, satellites, electronics and
sensors, and satellite ground systems and software; satellite access products
include satellite navigation and communications products; and
satellite-delivered services include global messaging and remote imaging
services. Disaggregated financial information is presented in Note 2.
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 financial statement presentation. All
financial amounts are stated in U.S. dollars unless otherwise
indicated.
The preparation of 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
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. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Orbital,
all wholly and partially owned subsidiaries controlled by Orbital, and
partnerships in which Orbital directly or indirectly controls the general
partner interests. All material transactions and accounts among consolidated
entities have been eliminated in consolidation.
REVENUE RECOGNITION
Orbital recognizes revenues on long-term infrastructure contracts using
the percentage of completion method of accounting. Accordingly, (i) revenues on
cost-plus-fee contracts are recognized to the extent of costs incurred plus a
proportionate amount of fee earned, and (ii) revenues on long-term fixed-price
contracts are recognized based on costs incurred in relation to total estimated
costs, or based on specific delivery terms and conditions. To the extent that
estimated costs of completion are adjusted, revenue and profit recognized from a
particular contract will be affected in the period of the adjustment.
Anticipated contract losses are recognized as they become known.
Revenues from sales of access products and satellite services are
generally recognized when the product is shipped or the service is performed.
FOREIGN CURRENCY
Orbital's foreign operating entities are in a number of countries and
deal in a number of foreign currencies. The financial results of foreign
operations are translated to U.S. dollars using the current exchange rates for
assets and liabilities and using weighted average exchange rates for revenues,
expenses, gains and losses.
Translation gains and losses relating to foreign operations that are
self-contained and integrated within a particular country or economic
environment, and therefore are not dependent on the U.S. dollar, are recognized
as a separate component of stockholders' equity until there is a realized
reduction in Orbital's net investment in the foreign operation. Translation
losses in 1996, 1995 and 1994 were approximately $325,000, $245,000 and
$776,000, respectively. Translation gains and losses relating to foreign
operations that are a direct and integral component or extension of Orbital's
domestic operations, and therefore are dependent on the U.S. dollar, are
reported currently as a component of net income.
24
<PAGE> 28
Orbital enters into forward exchange contracts to hedge against foreign
currency fluctuations on certain receivables and payables. Gains and losses on
contracts to hedge specific foreign currency commitments are deferred and
accounted for as part of the underlying transaction.
RESEARCH AND DEVELOPMENT
Research and development expenses include self-funded product
development activities, exclude direct customer-funded development and are
expensed as incurred. Research and development expenses are allocated, when
appropriate, to U.S. Government contracts under government-mandated cost
accounting standards. In 1995, Orbital expensed $3,000,000 of costs related to
the termination of a reusable launch vehicle development program. Such costs are
included as research and development expenses.
DEPRECIATION, AMORTIZATION AND RECOVERABILITY OF LONG-LIVED ASSETS
Depreciation and amortization are provided using the straight-line method as
follows:
Buildings 18 to 20 years
Machinery, Equipment
and Software 3 to 10 years
Satellite Systems Estimated useful
life of satellite
Leasehold Improvements Shorter of estimated useful
life or lease term
In 1995, the company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for 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 previous guidelines and procedures. The
cumulative effect of adopting SFAS 121 on prior years' earnings, related to the
impairment in the carrying amount of certain assets to be disposed of that
supported Orbital's orbit transfer vehicle product line, was approximately
$2,377,000, net of tax benefit of $1,783,000, and is reported in the 1995
consolidated statement of operations. The effect of adopting SFAS 121 on income
from continuing operations for 1996 and 1995 was not material.
Orbital's policy is to review its long-lived assets, including
investments in affiliates, specialized equipment used to support specific
space-related products and satellite systems, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The company recognizes an impairment loss when the sum of
expected future cash flows is less than the carrying amount of the asset. Given
the inherent technical and commercial risks within the space industry, it is
reasonably possible that the company's current estimate that it will recover the
carrying amount of its long-lived assets from future operations may change.
INCOME TAXES
The company recognizes income taxes using the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized as income in the period that includes the
enactment date.
STOCK-BASED COMPENSATION
Prior to January 1, 1996, the company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related
25
<PAGE> 29
interpretations. Pursuant to APB 25, compensation expense is recorded only to
the extent that the current market price of the underlying stock exceeded the
exercise price on the date of grant. On January 1, 1996, the company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which requires companies to (i) recognize as expense
the fair value of all stock-based awards on the date of grant, or (ii) continue
to apply the provisions of APB 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS 123 had been
applied. The company has elected to continue to apply the provisions of APB 25
and provide the pro forma disclosure provisions of SFAS 123 (See Note 13).
INCOME (LOSS) PER SHARE
Income (loss) per common and common equivalent share is calculated using
the weighted average number of common shares (including the Exchangeable Shares
(See Note 4)) and common equivalent shares, to the extent dilutive, outstanding
during the periods. Income (loss) per common share assuming full dilution is
calculated using the weighted average number of common shares (including the
Exchangeable Shares) and common equivalent shares outstanding during the
periods, plus the effects of an assumed conversion of the company's Convertible
Debentures, after giving effect to all net income adjustments that would result
from the assumed conversion. The Convertible Debentures were converted to
Orbital common shares on August 14, 1996 (See Note 10). Any reduction of less
than 3% in the aggregate has not been considered dilutive in the calculation and
presentation of income (loss) per common share assuming full dilution. Common
equivalent shares are comprised solely of stock options (See Note 13). Since the
Exchangeable Shares have voting and economic rights identical to Orbital common
shares, the Exchangeable Shares have been included as common shares in the
accompanying consolidated balance sheets.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Orbital considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Investments in securities that
do not meet the definition of cash equivalents are classified as short-term
investments. Since Orbital does not intend to hold its investments in debt and
equity securities until maturity and does not actively trade the securities to
maximize trading gains, Orbital classifies these securities as
"available-for-sale" and, accordingly, reports such securities at fair value
plus accrued interest. Any temporary excess (deficiency) of market value over
(under) the underlying cost of the short-term investment is excluded from
current period earnings and is reported as unrealized gains (losses) as a
separate component of stockholders' equity.
At December 31, 1996 and 1995, the company had approximately $11,604,000
and $10,700,000, respectively, of cash restricted in support of outstanding
letters of credit.
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 ("FIFO")
or specific identification basis. Inventories, net of allowances for
obsolescence of $5,100,000 and $3,800,000 in 1996 and 1995, respectively,
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1996 1995
------------------------------------ ---------------- ----------
<S> <C> <C>
Components and raw materials $ 19,090 $ 17,756
Work-in-process 6,962 19,430
Finished goods 1,107 1,341
---------- ----------
Total $ 27,159 $ 38,527
========== ==========
</TABLE>
Components and raw materials are purchased to support future production
efforts. Work-in-process inventory consists primarily of (i) costs incurred
under long-term fixed-price contracts accounted for using the
percentage-of-completion method of accounting applied on a units of delivery
basis, and (ii) partially assembled commercial products, and generally includes
direct production costs and certain allocated indirect costs (including an
allocation of general and administrative costs). Work-in-process inventory has
been reduced by contractual progress payments received of $26,696,000 and
$2,631,000 at December 31, 1996 and 1995, respectively. Finished goods inventory
consists of fully assembled commercial products awaiting shipment.
26
<PAGE> 30
SELF-CONSTRUCTED ASSETS AND INTERNALLY DEVELOPED SOFTWARE
The company self-constructs much of its ground and airborne support and
special test equipment used in the manufacture, production and delivery of many
of its infrastructure products. Orbital also builds and operates satellite
systems used in providing commercial services. Orbital capitalizes certain costs
incurred in constructing ground and airborne support and special test equipment
and satellite systems. Capitalized costs generally include direct construction
costs and certain allocated indirect costs, and exclude general and
administrative and research and development costs.
The company also capitalizes certain internal costs incurred in
developing software to be used to support various programs and/or products.
Capitalized costs generally include direct software coding costs and certain
allocated indirect costs, and exclude general and administrative and research
and development costs. Amortization of capitalized costs begins when the
software systems are placed in service. No amortization expense is included in
the accompanying consolidated statements of operations as such software systems
have not yet been placed in service.
INVESTMENTS IN AFFILIATES
The company uses the equity method of accounting for its investments in
and earnings of affiliates in which the company has the ability to significantly
influence, but not control, such affiliate's operations. In accordance with the
equity method of accounting, the company's carrying amount of an investment in
an affiliate is initially recorded at cost and is increased to reflect its share
of the affiliate's income and is reduced to reflect its share of the affiliate's
losses. Orbital's investment is also increased to reflect contributions to, and
decreased to reflect distributions received from, the affiliate. Any excess of
the amount of Orbital's investment over the amount of the underlying equity in
each affiliate's net assets is amortized in a manner similar to goodwill. The
company capitalizes interest costs on equity method investments when such
affiliate has significant assets under construction and has not yet commenced
principal operations. During 1996 and 1995, the company capitalized interest on
investments in affiliates of approximately $6,890,000 and $5,414,000,
respectively. The company uses the cost method of accounting for investments in
affiliates in which it cannot control or significantly influence operations.
The company provides a valuation allowance against an investment in an
affiliate when it is determined that recovery of all or part of the investment
is not probable. At December 31, 1996 and 1995, approximately $1,100,000 of
allowance had been provided to fully reserve certain investments in affiliates.
Approximately $2,000,000 of gain on the sale of an investment was realized in
1995 when Orbital sold one such investment. The gain was reported in net
investment income in the 1995 consolidated statement of operations. No such
gains from sales of investments were realized in 1996 or 1994.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The company amortizes the excess of purchase price over net assets
acquired related to prior business combinations on a straight-line basis over
their estimated useful life, generally 20-40 years. Orbital periodically
assesses and evaluates the recoverability of such assets based on current facts
and circumstances and the operational viability of its acquired businesses. The
company recognizes an impairment loss when the sum of expected future cash flows
is less than the carrying amount of the asset.
WARRANTIES
The company occasionally accepts warranty clauses in its commercial and
government long-term contracts. In the event the company does not purchase
insurance coverage to protect itself in connection with such warranty clauses,
the company records a liability for warranty claims when it determines that a
specific material liability exists. Orbital has not recorded any liability for
potential warranty claims on its existing contracts because these expenses, if
any, are not expected to have a material adverse effect on the company's
financial condition or results of operations.
The company at times provides limited warranties on certain commercial
products and accrues an estimate of expected warranty costs based on historical
experience.
27
<PAGE> 31
1A. RESTATEMENTS
Management has determined to restate its previously issued consolidated
financial statements as of and for the years ended December 31, 1996 and 1995
with respect to its accounting treatment for the matters described below. The
following table summarizes the various adjustments by financial statement line
item for 1996 and 1995. The impact of these matters on the unaudited interim
financial results for 1996 and 1995 is summarized in Note 14.
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(In thousands, except per share data)
For The Years Ended December 31,
------------------------------------------------------------------
1996
------------------------------------------------------------------
As
Previously
Reported Adjustments Restated
-------- ----------- --------
<S> <C> <C> <C> <C>
Revenues $ 461,435 $ (11,648) (c) (d) (e) (f) $ 449,787
Costs of goods sold 336,261 (3,680) (c) (e) (f) 332,581
Research and development expenses 22,179 889 (c) (e) 23,068
Selling, general and administrative expenses 76,019 1,228 77,247
Net investment income (expense) (1,123) 1,074 (a) (f) (49)
Equity in earnings (losses) of affiliates (6,454) (554) (b) (f) (7,008)
Provisions for income taxes 1,831 (1,620) (d) 211
Extraordinary item - gain on sales of assets, net of tax -- 1,980 (d) 1,980
Net income (loss) 15,907 9,942
Net income (loss) per common share, basic and assuming full
dilution 0.55 0.34
<CAPTION>
------------------------------------------------------------------
1995
------------------------------------------------------------------
As
Previously
Reported Adjustments Restated
-------- -----------
<S> <C> <C> <C> <C>
Revenues $ 364,320 $ (4,480) (c) (f) $ 359,840
Costs of goods sold 268,016 3,130 (c) (f) 271,146
Research and development expenses 28,512 46 (c) 28,558
Selling, general and administrative expenses 63,427 743 (f) 64,170
Net investment income (expense) 639 492 (a) (f) 1,131
Equity in earnings (losses) of affiliates (759) 115 (f) (644)
Provisions (benefit) for income taxes (1,302) (5,267) (f) (6,569)
Net income (loss) (4,848) (5,590)
Net income (loss) per common share, basic and assuming full
dilution (0.19) (0.21)
</TABLE>
28
<PAGE> 32
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In thousands)
12/31/96
As 12/31/96
Previously As
Reported Adjustments Restated
-------- ----------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 26,859 $ 1,064 $ 27,923
Receivables, net 144,774 (3,801) (c) 140,973
Deferred income taxes and other current assets 6,475 (523) 5,952
Property, plant and equipment, net 127,862 (974) (a) (c) (g) 126,888
Investments in affiliates, net 86,524 1,870 (a) 88,394
Deferred income taxes and other assets 9,720 7,265 16,985
Short-term borrowings and current portion of long-term
obligations 38,519 450 (g) 38,969
Accounts payable 25,789 822 26,611
Accrued expenses 32,372 7,647 40,019
Deferred revenues 30,741 439 (b) 31,180
Long-term obligations 33,076 2,250 (g) 35,326
Retained earnings 10,255 (6,707) 3,548
</TABLE>
<TABLE>
<CAPTION>
12/31/95
As 12/31/95
Previously As
Reported Adjustments Restated
-------- ----------- --------
<S> <C> <C> <C> <C>
Receivables, net $ 118,358 $ (1,597) (c) (g) $ 116,761
Deferred taxes and other current assets 7,330 (444) (g) 6,886
Property, plant and equipment, net 105,875 26 (a) (c) 105,901
Investments in affiliates, net 74,063 957 (a) (g) 75,020
Deferred income taxes and other assets 12,330 7,050 (g) 19,380
Accrued expenses 41,474 6,641 (g) 48,115
Accumulated deficit (5,652) (742) (6,394)
</TABLE>
Equity Method Accounting Restatement Adjustments
The company uses the equity method of accounting for its investments in
affiliates' in which the company has the ability to significantly influence, but
not control, such affiliates' operations. Accordingly, Orbital uses the equity
method of accounting for its investment in ORBCOMM Global, L.P. ("ORBCOMM") or
("ORBCOMM Global").
(a) Previously, the company's consolidated financial statements
reflected the company's capitalization of interest expense on
various assets, including on its equity investment in ORBCOMM. As
reflected in the restated consolidated financial statements
presented herein, Orbital has revised the capitalization of interest
on certain assets including its equity method investment in ORBCOMM.
These revisions include the compounding impact of interest, and the
reduction of eligible investment amounts for losses recognized for
equity method investors. These revisions had the effect of
decreasing interest expense in 1996 and 1995 by $952,000 and
$985,000, respectively.
29
<PAGE> 33
(b) Previously, the company's consolidated financial statements did not
reflect the amortization of previously deferred profits in
connection with its sales of both satellites and ground stations to
ORBCOMM. As reflected in the restated consolidated financial
statements presented herein, Orbital is amortizing such deferred
profits over the estimated lives of both the satellites and the
ground stations. This revision had the effect of increasing the
company's equity in losses of affiliates by approximately $439,000
in 1996.
Asset Restatement Adjustments
(c) The company has historically capitalized certain costs associated
with certain product enhancements. Previously, the company's
consolidated financial statements reflected such costs as
capitalized assets. As reflected in the restated consolidated
financial statements presented herein, the company has expensed all
previously capitalized enhancement costs. These revisions resulted
in an increase (decrease) in research and development expenses,
costs of goods sold and revenues for 1996 of $1,338,000, ($204,000)
and ($4,791,000), respectively, and for 1995 of $46,000, $10,000 and
($1,257,000), respectively.
Other Restatement and Reclassification Adjustments
(d) In October 1996, the company sold substantially all the assets of
PSC Communications Group, Inc. resulting in a gain of approximately
$3,600,000. The gain which was previously reported in revenue has
been reclassified as an extraordinary gain of $1,980,000, net of
taxes of $1,620,000.
(e) The 1996 statement of operations has been reclassified to decrease
revenues by $4,464,000 and to decrease cost of goods sold and
research and development expenses by $4,014,000 and $450,000,
respectively, to reflect changes in certain contingent liabilities.
(f) Certain other reclassification adjustments were made to the 1996 and
1995 statements of operations that resulted in increases (decreases)
to revenues, cost of goods sold, selling, general and administrative
expenses, net investment income (expense), equity in earnings
(losses) of affiliates and provision (benefit) for income taxes for
1996 of $1,207,000, ($538,000), $0, $89,000, ($115,000) and $0 and
for 1995 of ($3,223,000), $3,120,000, $743,000, $493,000, $115,000
and $7,050,000, respectively. The tax benefit of $1,783,000 was also
netted against the cumulative effect of the accounting change with a
corresponding decrease in the benefit for income taxes in 1995.
(g) Property, plant and equipment increased by $2,700,000 and short-term
and long-term obligations increased by $450,000 and $2,250,000,
respectively, as a result of recording certain capital leases for
equipment in 1996 that had been previously accounted for as
operating leases.
As reflected in the restated consolidated financial statements, the
company has recorded certain other adjustments, the net effect of
which is presented in the table. None of these entries is
significant individually or in the aggregate.
2. DISAGGREGATED FINANCIAL INFORMATION
INDUSTRY SEGMENT INFORMATION
Orbital's operations have been classified into three industry segments,
"Space and Ground Infrastructure Systems," "Satellite Access Products" and
"Satellite-Delivered Services." Space and Ground Infrastructure Systems include:
launch vehicles, including space and suborbital launch vehicles and reusable
launch vehicles; satellites and other space systems; electronics and sensors,
including space sensors and instruments, as well as avionics and other
electronics equipment; and ground systems and software, including satellite
ground systems and various software products. Satellite Access Products include
satellite navigation and communications products. Satellite-Delivered Services
include satellite-based global data communications services and satellite-based
remote imaging services.
30
<PAGE> 34
The following table presents revenues, operating income (loss),
identifiable assets, capital expenditures, depreciation and amortization and
impairment losses by industry segment for 1996, 1995 and 1994. 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
industry segment. There were no significant intersegment sales or transfers
during 1996, 1995 and 1994.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1996 1995 1994
---------------------------------------------- ----------------- ----------------- ----------------
SPACE AND GROUND (RESTATED) (RESTATED)
<S> <C> <C> <C>
INFRASTRUCTURE SYSTEMS:
Revenues $ 377,166 $ 296,109 $ 252,905
Operating income (loss) 16,291 (5,816) 12,554
Identifiable assets 369,672 363,749 353,430
Capital expenditures 23,829 15,091 27,322
Depreciation and amortization 21,954 21,150 16,150
Impairment losses, net of taxes -- 2,377 --
SATELLITE ACCESS PRODUCTS:
Revenues $ 71,188 $ 52,531 $ 38,517
Operating income 4,902 3,291 3,801
Identifiable assets 32,376 27,431 22,387
Capital expenditures 3,402 1,204 708
Depreciation and amortization 944 532 581
SATELLITE-DELIVERED SERVICES:
Revenues $ 1,433 $ 11,200 $ 10,154
Operating loss (7,436) (4,730) (3,980)
Equity in earnings (losses) of affiliates (7,008) (644) (1,264)
Non-controlling interest in (earnings)
losses of consolidated subsidiaries 1,473 427 --
Identifiable assets 107,565 81,720 65,225
Capital expenditures 12,613 970 1,909
Depreciation and amortization 2,198 547 467
CONSOLIDATED:
Revenues $ 449,787 $ 359,840 $ 301,576
Operating income (loss) 13,757 (7,255) 12,375
Equity in earnings (losses) of affiliates (7,008) (644) (1,264)
Non-controlling interest in (earnings)
losses of consolidated subsidiaries 1,473 427 --
Identifiable assets 509,613 472,900 441,042
Capital expenditures 39,844 17,265 29,939
Depreciation and amortization 25,096 22,229 17,198
Impairment losses, net of taxes -- 2,377 --
</TABLE>
DOMESTIC AND NON-U.S. OPERATIONS
The following table presents Orbital's revenues, operating income (loss) and
identifiable assets by major operating location:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1996 1995 1994
--------------------------------------- ----------------- ----------------- ---------------
REVENUES: (RESTATED) (RESTATED)
<S> <C> <C> <C>
United States $ 380,482 $ 286,434 $ 221,946
Canada and Mexico 65,350 68,997 74,408
United Kingdom and other 3,955 4,409 5,222
--------------- --------------- ---------------
TOTAL $ 449,787 $ 359,840 $ 301,576
=============== =============== ===============
OPERATING INCOME (LOSS):
United States $ 11,098 $ (10,476) $ 9,662
Canada and Mexico 2,416 3,628 2,796
United Kingdom and other 243 (407) (83)
--------------- ---------------- ----------------
TOTAL $ 13,757 $ (7,255) $ 12,375
=============== ================ ===============
IDENTIFIABLE ASSETS:
United States $ 459,237 $ 426,313 $ 396,228
Canada and Mexico 46,984 44,048 42,302
United Kingdom and other 3,392 2,539 2,512
------------ ------------ ------------
Total $ 509,613 $ 472,900 $ 441,042
=============== =============== ===============
</TABLE>
31
<PAGE> 35
MAJOR CUSTOMERS AND EXPORT SALES
Orbital's sales by geographic area are as follow:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1996 1995 1994
---------------------- ----------------- ----------------- ----------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
United States $ 337,917 $ 271,227 $ 213,606
Canada 46,742 45,558 46,839
Europe 33,752 23,594 24,468
Far East 17,517 15,242 13,998
Middle East and other 13,859 4,219 2,665
----------- ----------- -----------
Total $ 449,787 $ 359,840 $ 301,576
=========== =========== ===========
</TABLE>
Approximately 45%, 40% and 45% of the company's revenues in 1996, 1995
and 1994, respectively, were generated under contracts with the U.S. Government
and its agencies or under subcontracts with the U.S. Government's prime
contractors.
3. INVESTMENTS IN AFFILIATES
ORBCOMM PARTNERSHIPS
In 1993, the company's majority owned subsidiary, Orbital Communications
Corporation ("OCC"), and Teleglobe Mobile Partners ("Teleglobe Mobile"), an
affiliate of Teleglobe Inc., formed a partnership, ORBCOMM Global, for the
design, development, construction, integration,testing and operation of a
low-Earth orbit satellite communications system (the "ORBCOMM System"). OCC and
Teleglobe Mobile are each 50% general partners in ORBCOMM Global. OCC and
Teleglobe Mobile have contributed approximately $75,275,000 and $84,525,000,
respectively, through December 31, 1996.
Additionally, OCC is a 2% general partner in ORBCOMM USA, L.P. ("ORBCOMM
USA") and Teleglobe Mobile is a 2% general partner in ORBCOMM International
Partners, L.P. ("ORBCOMM International"), two partnerships formed to market the
ORBCOMM System. ORBCOMM Global is a 98% general partner in each of the two
marketing partnerships.
Pursuant to the terms of the partnership agreements, (i) OCC and
Teleglobe Mobile share equal responsibility for the operational and financial
affairs of ORBCOMM Global; (ii) OCC controls the operational and financial
affairs of ORBCOMM USA; and (iii) Teleglobe Mobile controls the operational and
financial affairs of ORBCOMM International. Since OCC is unable to control, but
is able to exercise significant influence over, ORBCOMM Global's and ORBCOMM
International's operating and financial policies, the company is accounting for
its investments in ORBCOMM Global and ORBCOMM International using the equity
method of accounting. Since OCC is able to control the operational and financial
affairs of ORBCOMM USA, the company consolidates the accounts of ORBCOMM USA.
Orbital is the primary supplier of the communications satellites, launch
vehicles and certain ground systems to ORBCOMM Global, and successfully launched
the first two ORBCOMM System satellites in April 1995. During 1996, 1995 and
1994, Orbital recorded contract revenues on sales to ORBCOMM Global of
approximately $47,215,000, $49,187,000 and $30,048,000, respectively, and
eliminated as equity in earnings (losses) of affiliates 50% of its profits on
those sales since ORBCOMM Global is capitalizing substantially all its purchases
from Orbital. At December 31, 1996 and 1995, Orbital had approximately
$3,400,000 and $8,900,000, respectively, in receivables from ORBCOMM Global.
Additionally, since 1995 Orbital has provided certain administrative services to
ORBCOMM Global, ORBCOMM USA and ORBCOMM International, such as facility space,
utilities, administrative supplies and certain other administrative services.
During 1996 and 1995, Orbital received payments of approximately $1,295,000 and
$297,000, respectively, for such services.
At December 31, 1996, ORBCOMM Global had total assets, total liabilities
and total partners' capital of $329,509,000, $191,568,000 and $137,941,000,
respectively. ORBCOMM Global recorded approximately $420,000 in revenues and
$19,480,000 in losses for the year ended December 31, 1996.
32
<PAGE> 36
Based on its current assessment of the overall business prospects of the
ORBCOMM partnerships and the ORBCOMM System, the company currently believes its
investment in ORBCOMM Global is fully recoverable. If in the future, the ORBCOMM
business is not successful, the company may be required to expense part or all
of its investment.
RADARSAT INTERNATIONAL INC.
The company owns an approximate 25% equity interest in Radarsat
International Inc. ("RSI"), a Canadian-based company specializing in
satellite-based remote imaging. RSI successfully launched its first remote
imaging satellite in November 1995 and began generating revenues in 1996.
Orbital is accounting for its investment in RSI using the equity method of
accounting.
EARTHWATCH, INCORPORATED
The company owns an approximate one percent equity interest in
EarthWatch, Incorporated, a U.S.-based company developing high-resolution
commercial satellite imaging services. Orbital accounts for this investment
using the cost method of accounting.
4. BUSINESS COMBINATIONS
PURCHASE TRANSACTIONS
On August 11, 1994, the company acquired all the outstanding common
stock of Fairchild Space and Defense Corporation ("Fairchild") from Matra
Aerospace, Inc. (the "Fairchild Acquisition"). As a result of the Fairchild
Acquisition, the company expanded its satellites, electronics and related
product lines and technology and production capabilities.
The Fairchild Acquisition has been accounted for using the purchase
method of accounting and, accordingly, the purchase price of approximately
$71,000,000 (consisting of 2,424,242 shares of the company's Common Stock,
$40,000,000 in cash and approximately $800,000 in transaction expenses) was
allocated to assets and liabilities acquired based on estimates of fair values
as of the date of acquisition. The excess of purchase price over net assets
acquired is being amortized on a straight-line basis over 40 years. Fairchild's
results of operations for the 19-week period ended December 31, 1994 are
included in Orbital's 1994 consolidated results of operations.
In October 1996, the company's wholly-owned subsidiary, MacDonald
Dettwiler and Associates ("MDA") sold substantially all the assets of The PSC
Communications Group Inc. for approximately $13,000,000, resulting in a gain of
approximately $3,600,000. The gain on sale of $1,980,000, net of tax, has been
recorded as an extraordinary item since the assets were acquired through the
acquisition of MDA in 1995, which was accounted for as a pooling of interests.
POOLING OF INTERESTS TRANSACTIONS
On December 28, 1994, the company acquired all the outstanding common
stock of Magellan Corporation ("Magellan") from Magellan's former shareholders
in a tax-free merger (the "Magellan Acquisition"). As a result of the Magellan
Acquisition, Orbital develops, manufactures, markets and sells global
satellite-based navigation and communications access products for consumer and
industrial markets worldwide.
The Magellan Acquisition was consummated by exchanging 2,640,441 shares
of the company's Common Stock for all of Magellan's outstanding common stock.
The company also granted 409,556 options to acquire Orbital Common Stock to
Magellan employees who, at the date of the acquisition, held options to acquire
Magellan common stock. The Magellan Acquisition is accounted for using the
pooling of interests method of accounting and, accordingly, Orbital's historical
consolidated financial statements have been restated to include Magellan's
financial position, results of operations and cash flows. Merger expenses
relating to the Magellan Acquisition of approximately $500,000 were charged to
earnings during the three months ended December 31, 1994 and are included in
acquisition expenses in the accompanying 1994 consolidated statement of
operations.
33
<PAGE> 37
Prior to the acquisition, Magellan's financial results were prepared on
a June 30 fiscal year basis. Orbital's consolidated financial statements for the
year ended December 31, 1994 include Magellan's financial results for the
twelve-month period ended December 31, 1994. The effect of recasting Magellan's
year end for 1994 has been charged to Orbital's retained earnings as of January
1, 1994. The charge to retained earnings eliminated the effect of including
Magellan's results of operations for the six-month period ended June 30, 1994 of
$1,138,000 in Orbital's 1994 consolidated results of operations. Magellan's
revenues for the same six-month period were approximately $18,500,000.
On November 17, 1995, the company acquired all the outstanding common
shares of MacDonald, Dettwiler and Associates, Ltd. ("MDA") from MDA's former
shareholders in a merger designed to be tax free to MDA's Canadian shareholders
(the "MDA Acquisition"). As a result of the MDA Acquisition, Orbital is a
leading supplier of commercial satellite imaging ground systems capable of
handling all major optical and radar imaging satellites. Orbital also provides
advanced space-qualified software, air traffic control systems and defense
electronics products through MDA.
Pursuant to the terms of the MDA Acquisition, a newly established,
wholly owned Canadian subsidiary of Orbital ("Acquisition Subsidiary") issued
exchangeable shares (the "Exchangeable Shares") in exchange for all the issued
and outstanding MDA common shares. The Exchangeable Shares have voting and
economic rights with respect to Orbital identical to Orbital Common Stock and
are exchangeable into Orbital Common Stock at the option of the holders. As part
of the MDA Acquisition, Acquisition Subsidiary also issued 10,000 shares of
Class B Preferred Stock to a financial advisor in satisfaction of a portion of
the fees owed to that advisor. Additionally, Orbital issued one share of Series
A Special Voting Preferred Stock to a voting trust to act as a voting trustee on
behalf of the holders of the Exchangeable Shares. The Orbital Series A Special
Voting Preferred Stock has voting rights, privileges and preferences required to
secure the voting rights relating to the Orbital Common Stock granted for the
benefit of the holders of the Exchangeable Shares.
The MDA Acquisition was consummated by issuing 4,087,126 Exchangeable
Shares for all of MDA's outstanding common shares. The company also granted
328,399 options to acquire Orbital Common Stock to MDA employees who, at the
date of the acquisition, held options to acquire MDA common shares. The MDA
Acquisition is accounted for using the pooling of interests method of accounting
and, accordingly, Orbital's historical consolidated financial statements have
been restated to include MDA's financial position, results of operations and
cash flows. Merger expenses relating to the MDA Acquisition of approximately
$3,400,000 were charged to earnings during the three months ended December 31,
1995 and are included in acquisition expenses in the accompanying 1995
consolidated statement of operations.
Prior to the acquisition, MDA's financial results were prepared on a
March 31 fiscal year basis. Orbital's restated financial statements for 1994
include MDA's historical financial results for its fiscal year ended March 31,
1995. Orbital's consolidated financial statements for the year ended December
31, 1995 include MDA's financial results for the twelve-month period ended
December 31, 1995. The effect of recasting MDA's year end for 1995 has been
charged to Orbital's retained earnings as of January 1, 1995. The charge to
retained earnings eliminated the effect of including MDA's results of operations
for the three-month period ended March 31, 1995 of $1,047,000 in Orbital's 1995
and 1994 consolidated results of operations. MDA's revenues for the same
three-month period were approximately $20,634,000.
5. SHORT-TERM INVESTMENTS
The following table sets forth the aggregate amortized cost, aggregate
fair value and gross unrealized gains and losses for Orbital's short-term
investments in debt securities:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1996 1995
--------------------- ------------------ -----------------
<S> <C> <C>
Amortized cost $ 5,813 $ 19,645
Fair value 5,827 19,713
Unrealized gains 14 70
Unrealized losses -- (2)
----------------- --------- ----------
</TABLE>
Orbital recognized net losses of approximately $261,000 on sales of
short-term investments in 1995 and had no such losses in 1996. Debt securities
(at fair value) with contractually scheduled maturities scheduled to mature in
1997 and through 2001 are in the amounts of $1,470,000 and $4,357,000,
respectively. No securities mature after 2001.
34
<PAGE> 38
6. RECEIVABLES AND ACCRUED EXPENSES
The components of receivables are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1996 1995
-------------------------------------- ------------------- ------------------
(RESTATED) (RESTATED)
<S> <C> <C>
Billed and billable $ 73,505 $ 63,119
Recoverable costs and accrued
profit not billed 59,069 46,691
Retainages due upon contract
completion 9,767 7,724
Allowance for doubtful accounts (1,368) (773)
----------- -----------
Total $ 140,973 $ 116,761
=========== ===========
</TABLE>
Approximately 53% of recoverable costs and accrued profit not billed and
retainages due upon contract completion at December 31, 1996 is due within one
year and will be billed on the basis of contract terms and delivery schedules.
The accuracy and appropriateness of Orbital's direct and indirect costs
and expenses under its government contracts, and therefore its receivables
recorded pursuant to such contracts, are subject to extensive regulation and
audit by the U.S. Defense Contract Audit Agency or by other appropriate agencies
of the U.S. Government, which have the right to challenge Orbital's cost
estimates or allocations with respect to any such contracts. Additionally, a
substantial portion of the payments to the company under government contracts
are provisional payments that are subject to potential adjustment upon audit by
such agencies. In the opinion of management, any adjustments likely to result
from inquiries or audits of its contracts will not have a material adverse
impact on the company's financial condition or results of operations.
At December 31, 1996 and 1995, $33,690,000 and $26,470,000,
respectively, were receivable from non-U.S. customers. The company enters into
forward exchange contracts to hedge against foreign currency fluctuations on
certain receivables and payables denominated in such foreign currencies.
Accordingly, Orbital is subject to off-balance sheet market risk for the
possibility that future changes in market prices may make the forward exchange
contracts less valuable. The following table summarizes outstanding foreign
exchange contracts at December 31, 1996 to (purchase) sell foreign currencies,
along with current market values:
<TABLE>
<CAPTION>
(U.S. DOLLARS, IN THOUSANDS)
-------------------------------------------------------------------------------------------------
FOREIGN CURRENCY CURRENT UNREALIZED
CURRENCY HEDGED CONTRACT MARKET GAIN
HEDGED AGAINST AMOUNT VALUE (LOSS)
----------------------------------- ---------------------------- ---------- ---------------
<S> <C> <C> <C> <C>
Belgian Francs CD $3,043 $ 2,885 $ 158
Belgian Francs PS 2 2 --
Italian Lira CD (23) (22) (1)
ECU CD 10,484 9,638 846
ECU PS 678 619 59
French Francs CD (50) (45) (5)
Pounds Sterling CD (410) (409) (1)
Japanese Yen CD 365 329 36
Malaysian Riggits CD 8,038 8,168 (130)
Norwegian Kroner CD 1,127 1,082 45
U.S. Dollars CD 6,068 6,168 (100)
-------------------------------------------------------------------------------------------------
CD = Canadian Dollars PS = Pounds Sterling
</TABLE>
35
<PAGE> 39
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1996 1995
------------------------------ ------------------ ------------------
(RESTATED) (RESTATED)
<S> <C> <C>
Payroll, payroll taxes and
fringe benefits $ 20,422 $ 17,856
Payable to subcontractors 8,660 11,552
Accrued contract costs 2,027 9,787
Other accrued expenses 8,910 8,920
---------- ----------
Total $ 40,019 $ 48,115
========== ==========
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1996 1995
-------------------------------------- ------------------- ------------------
(RESTATED) (RESTATED)
<S> <C> <C>
Land $ 1,422 $ 1,422
Buildings and leasehold
improvements 21,239 17,455
Machinery and equipment 116,209 90,000
Equipment and satellite systems
under construction 47,221 43,298
Software and technical drawings 10,331 7,340
Accumulated depreciation and
amortization (69,534) (53,614)
------------ -----------
Total $ 126,888 $ 105,901
============ ===========
</TABLE>
Interest expense of approximately $8,156,000, $6,685,000 and $5,500,000
was capitalized during 1996, 1995 and 1994, respectively, as part of the
historical cost of equipment under construction, satellite systems under
construction and investments in affiliates.
SATELLITE SYSTEMS
Orbital and Orbital Imaging Corporation ("ORBIMAGE"), a wholly owned
subsidiary of the company, have constructed or are in the process of
constructing several of their own satellite systems that provide or will provide
high-resolution imaging, multi-spectral imaging and other Earth observation
services to commercial and government customers. Generally, the company does not
begin construction of a specific project until financing has been arranged or a
customer has committed to purchase future imaging services generated by or
provided from specific satellite systems. Orbital expenses the costs of
developing and constructing these systems until such time that the technological
and economic feasibility have been established. Once established, Orbital
capitalizes remaining construction costs, net of non-refundable payments
received from customers. Any refundable advance payments for imagery received
from customers are deferred until such time as the imagery is delivered.
Equipment and satellite systems under construction includes capitalized costs
totaling approximately, $26,562,000 and $14,910,000 at December 31, 1996 and
1995, respectively, relating to various imaging satellite systems that are
either operating or under construction.
8. SHORT-TERM BORROWINGS
The company has a revolving credit facility that provides for total
borrowings from an international syndicate of six banks of up to $65,000,000,
subject to a defined borrowing base composed of certain receivables. At December
31, 1996 and 1995, approximately $8,000,000 and $3,000,000, respectively, of
borrowings were outstanding against an available facility limit of approximately
$35,700,000 and $23,500,000, respectively. The interest rate charged under the
facility is a variable rate based on the prime rate, the Federal Funds rate or
adjusted LIBOR. As of December 31, 1996, the interest rate on outstanding
borrowings under this facility was approximately 7.5%. Borrowings are secured by
receivables and certain other assets. The facility prohibits the payment of cash
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.
36
<PAGE> 40
In September 1995, Orbital entered into a $7,000,000 unsecured demand
line of credit with an international bank, which was expanded to $25,000,000 in
1996. The line is repayable upon demand and bears interest at the prime rate or
LIBOR. At December 31, 1996, the interest rate on outstanding borrowings under
this line of credit was approximately 6%. At December 31, 1996, approximately
$17,500,000 of borrowings were outstanding against this line of credit. There
were no such borrowings outstanding at December 31, 1995.
The company increased another line of credit with a domestic bank to
$10,000,000 during 1996, subject to a defined borrowing base. At December 31,
1996 and 1995, $5,700,000 and $2,000,000, respectively, was outstanding against
an available facility limit of $6,110,000 and $3,000,000, respectively. The
interest rate on outstanding borrowings was approximately 8.25% at December 31,
1996. The facility is secured by substantially all the assets of Magellan and
contains certain covenants with respect to Magellan's working capital,
profitability, leverage ratio and tangible net worth.
9. LONG-TERM OBLIGATIONS
The following sets forth the company's long-term obligations, excluding
capital lease obligations (See Note 10):
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1996 1995
--------------------------------------------------- ------------------ ------------------
<S> <C> <C>
7.00% Secured Note, principal and
interest due monthly through
December 1998 $ 1,275 $ 1,876
7.74-9.35% Secured Notes, principal
and interest due monthly through
September 1997-October 1999 12,554 17,816
8.95% Secured Bank Note, principal
and interest due monthly through
September 1999 2,284 2,310
5.16% Secured Bank Notes, principal
and interest due monthly through
August 2003 1,631 4,340
11.5% Unsecured Note, interest due
semi-annually, principal due June 2001 20,000 20,000
6.75% Convertible Subordinated
Debentures, interest due semi-
annually, principal due 2003 -- 56,000
---------- ------------
37,744 102,342
Less current portion (6,115) (6,084)
---------- ------------
Total $ 31,629 $ 96,258
========== ============
</TABLE>
The 7.00% secured note is collateralized by certain equipment located at
the company's Pomona, California facility. The 7.74-9.35% secured notes are
collateralized by certain equipment located at the company's Germantown,
Maryland facility. The 8.95% secured bank note was collateralized by the
company's satellite integration and test facility located in Dulles, Virginia.
The company chose to repay this note in February 1997.
The company has two secured bank borrowing agreements, totaling
approximately $44,000,000, of which $19,400,000 was available at December 31,
1996. The secured bank notes, pursuant to an intercreditor agreement between two
international banks, provide for borrowings at a variable rate (5.16% at
December 31, 1996), and are collateralized by MDA's receivables, inventory and
certain other assets.
Orbital amended its 11.5% unsecured note during the third quarter of
1996 to facilitate compliance with certain financial covenants as well as to
permit the completion of the ORBCOMM Global debt financing (see below). In
connection with this amendment, the interest rate on the note increased from
10.5% to 11.5% effective July 1, 1996. The unsecured note contains certain
covenants with respect to fixed charge ratio, leverage ratio and tangible net
worth, and includes certain cross-default provisions.
On August 14, 1996, the company completed the redemption of the
remaining $55,880,000 outstanding principal amount of its 6.75% Convertible
Subordinated Debentures due 2003 (the "Debentures"). Pursuant to the terms of
the indenture governing the Debentures, the holders had the option of redeeming
their holdings for cash or converting their holdings into Orbital Common Stock
at a predetermined conversion rate. The company entered into a standby
underwriting agreement with an investment bank whereby the investment bank
agreed, subject to customary conditions,
37
<PAGE> 41
to purchase from the company shares of its Common Stock in an amount to provide
sufficient proceeds to the company to satisfy any redemptions by the holders of
the Debentures. As a result of the conversion by the holders and the standby
arrangement, the remaining outstanding principal amount of the Debentures was
converted into 3,887,304 shares of Common Stock.
On August 7, 1996, ORBCOMM Global issued $170,000,000 senior unsecured
notes due 2004 (the "ORBCOMM Notes") to institutional investors. The ORBCOMM
Notes bear interest at a fixed rate of 14% and provide for noteholder
participation in future ORBCOMM Global service revenues. The ORBCOMM Notes are
fully and unconditionally guaranteed on a joint and several basis by OCC and by
Teleglobe Mobile; the guarantee is non-recourse to Orbital.
The fair value of Orbital's long-term obligations at December 31, 1996
and 1995 is estimated at approximately $38,521,000 and $106,000,000,
respectively, based on quoted market prices or on current rates offered for debt
of similar remaining maturities. Scheduled maturities of long-term debt for
1997, 1998, 1999, 2000 and 2001 are $6,115,000, $5,349,000, $12,329,000,
$7,024,000 and $6,927,000, respectively.
10. LEASE COMMITMENTS
Aggregate minimum rental commitments under non-cancelable operating and
capital leases (primarily for office space and equipment) at December 31, 1996
are as follows (restated):
<TABLE>
<CAPTION>
(IN THOUSANDS) OPERATING CAPITAL
----------------------------- ------------- -------------
<S> <C> <C> <C>
1997 $ 10,378 $ 1,827
1998 9,611 1,525
1999 9,091 1,400
2000 8,942 850
2001 8,334 70
2002 and thereafter 32,775 --
----------- ----------
$ 79,131 5,672
===========
Less: Interest at 10% (321)
Less: Current portion (1,654)
----------
Total $ 3,697
==========
</TABLE>
Rent expense under operating leases for 1996, 1995 and 1994 was
$12,300,000, $11,215,000 and $10,624,000, respectively.
11. INCOME TAXES
The provisions (benefit) for income taxes consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1996 1995 1994
-------------------------------- ----------------- ----------------- ----------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
CURRENT PROVISION:
U.S. Federal $ -- $ 33 $ 563
Foreign 211 1,180 756
State -- -- 732
DEFERRED PROVISION:
U.S. Federal $ -- $ (5,623) $ 342
Foreign -- (2,159) (93)
State -- -- 444
--------- ---------- ---------
Total $ 211 $ (6,569) $ 2,744
========= ========== =========
</TABLE>
38
<PAGE> 42
The income tax provisions (benefit) are different from those computed
using the statutory U.S. Federal income tax rate as set forth below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
---------------- ---------------- -------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% (34.0)% 34.0%
Intangible amortization 21.9 10.2 9.2
Foreign income taxes, net (21.4) (10.8) (1.4)
Change in valuation allowance (43.6) 249.7 --
Other, net 10.7 (282.3) (15.3)
---- ------- -----
Effective Rate 2.6% (67.2)% 26.5%
=== ===== ====
</TABLE>
The tax effects of significant temporary differences are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1996 1995
---------------------------------------------- ----------------- ---------
TAX ASSETS: (RESTATED)
<S> <C> <C>
Non-deductible financial
statement accruals $ 37,603 $ 34,684
U.S. Federal net operating loss
Carryforward 51,628 44,655
Intangible assets 6,865 6,865
U.S. Federal and foreign tax credit
carryforward 16,952 19,587
----------- ------------
113,048 105,791
Valuation allowance (54,432) (68,021)
----------- ------------
Tax assets, net $ 58,616 $ 37,770
=========== ============
TAX LIABILITIES:
Percentage of completion accounting $ 3,349 $ 2,555
Excess tax depreciation 5,280 7,198
Excess deductions for tax reporting
purposes 27,280 18,007
----------- ------------
Tax liabilities $ 35,909 $ 27,760
=========== ============
</TABLE>
The company established deferred tax assets in connection with its 1994
Fairchild Acquisition (See Note 4) of $35,446,000, and deferred tax liabilities
of $2,337,000. The company also established a valuation allowance of
approximately $33,109,000 against certain deferred tax assets acquired in
connection with the Fairchild Acquisition.
In 1996 and 1994, approximately 56.6% and 27.9%, respectively, of the
company's income before provision for income taxes and cumulative effect of an
accounting change was generated from foreign sources. In 1995, approximately
$2,100,000 of income before benefit for income taxes and cumulative effect of an
accounting change was generated from foreign sources. The company had Federal
net operating loss and tax credit carryforwards of approximately $120,000,000
and $3,000,000, respectively, at December 31, 1996 that may be utilized through
the year 2012, subject to certain annual limitations and other restrictions, of
which portions expire beginning in 2001.
12. COMMON STOCK AND STOCK OPTIONS
In 1996 and 1995, the company issued and sold 1,200,000 and 2,000,000
shares, respectively, of its Common Stock in private placements to various
offshore investors, receiving net proceeds of approximately $20,300,000 and
$32,400,000, respectively.
The company's 1990 Stock Option Plan (the "1990 Plan") provides for
grants of either incentive or non-qualified stock options to officers, employee
directors and general employees of the company and its subsidiaries. Under the
terms of the 1990 Plan, incentive stock options may not be granted at less than
100% of the fair market value of the company's Common Stock at the date of
grant, and non-qualified options may not be granted at less than 85% of the fair
market value of the company's Common Stock at the date of grant. Each option
under the 1990 Plan vests at a rate set forth by the Board of Directors in each
individual option agreement, generally in one-third increments over a three-year
period following the date of grant. Options expire no more than ten years
following the grant date. The 1990 Plan currently provides for the granting of
up to 2,975,000 shares of the company's Common Stock. The company also maintains
a plan that provides solely for automatic grants of non-qualified stock options
to eligible non-employee directors of the company.
39
<PAGE> 43
In January 1997, Orbital's Board of Directors approved the company's
1997 Stock Option and Incentive Plan (the "1997 Plan"), subject to stockholder
approval. The 1997 Plan will provide for an additional 1,600,000 shares of the
company's Common Stock to be available for grants of options and restricted
stock to officers, directors, employees and consultants to the company.
Incentive and non-qualified stock options must be granted with an exercise price
not less than 100% of the stock's fair market value at the date of grant.
OCC adopted a stock option plan in 1992 (the "ORBCOMM Plan"). The
ORBCOMM Plan provides for grants of incentive and non-qualified stock options to
purchase OCC common stock to officers and employees of ORBCOMM Global and the
company. Under the terms of the ORBCOMM Plan, incentive stock options may not be
granted at less than 100% of the fair market value, and non-qualified options
may not be granted at less than 85% of the fair market value, of OCC common
stock at the date of grant as determined by a committee consisting of two OCC
Board members and two members appointed by Teleglobe Mobile. The options vest at
a rate set forth by the Board of Directors in each individual option agreement,
generally in one-fourth increments over a four-year period. Certain provisions
of the ORBCOMM Plan require OCC to repurchase, with cash or promissory notes,
the common stock acquired pursuant to the options. The cash repurchase amount is
restricted by the terms of the ORBCOMM Notes to an amount not to exceed
$1,000,000 in any one year. During 1996, OCC repurchased 47,760 shares of OCC
common stock acquired by current and former employees pursuant to OCC option
exercises.
The following tables summarize information regarding options under the
company's stock option plans (including option plans assumed by the company as a
result of the Magellan and MDA acquisitions) and the ORBCOMM Plan for the last
three years:
ORBITAL OPTIONS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTION PRICE AVERAGE OUTSTANDING
SHARES PER SHARE EXERCISE PRICE AND EXERCISABLE
------ --------- -------------- ---------------
<S> <C> <C> <C> <C>
OUTSTANDING AT
DECEMBER 31, 1993 1,324,198 $1.82 - $ 20.00 $ 9.92 558,422
Granted 978,560 $3.51 - $ 22.00 $17.63
Exercised (107,387) $3.51 - $ 15.30 $12.72
Cancelled/Expired (78,476) $10.20 - $ 22.00 $19.28
-----------
OUTSTANDING AT
DECEMBER 31, 1994 2,116,895 $1.82 - $ 22.00 $13.02 997,981
Granted 553,966 $7.47 - $ 18.81 $16.97
Exercised (300,011) $3.51 - $ 15.30 $ 6.29
Cancelled/Expired (130,325) $3.51 - $ 22.00 $20.39
-----------
OUTSTANDING AT
DECEMBER 31, 1995 2,240,525 $1.82 - $ 22.00 $14.16 1,133,713
Granted 1,372,000 $12.25 - $ 17.63 $13.26
Exercised (298,916) $1.82 - $ 17.75 $ 7.20
Cancelled/Expired (588,399) $3.51 - $ 22.00 $20.23
-----------
OUTSTANDING AT
DECEMBER 31, 1996 2,725,210 $1.82 - $ 22.00 $13.10 1,324,316
===========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------------------------------
NUMBER WEIGHTED AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE
EXERCISE PRICES AT DEC. 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE
------------------------ -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
$ 1.82 - $12.25 939,144 6.2 years $9.71
$ 12.96 - $13.71 1,018,164 7.8 years $13.52
$ 13.75 - $22.00 767,902 7.1 years $16.71
-----------
$ 1.82 - $22.00 2,725,210 7.1 years $13.10
===========
<CAPTION>
OPTIONS EXERCISABLE
------------------------------------------------
NUMBER
EXERCISABLE WEIGHTED AVERAGE
AT DEC. 31, 1996 EXERCISE PRICE
---------------- --------------------
<S> <C> <C>
491,976 $ 8.55
433,576 $13.54
398,764 $16.57
-----------
1,324,316 $12.60
===========
</TABLE>
40
<PAGE> 44
OCC OPTIONS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTION PRICE AVERAGE OUTSTANDING
SHARES PER SHARE EXERCISE PRICE AND EXERCISABLE
------ --------- -------------- ---------------
<S> <C> <C> <C> <C>
OUTSTANDING AT
DECEMBER 31, 1993 496,274 $1.50 - $ 12.50 $ 3.81 184,966
Granted 118,650 $5.25 - $ 12.50 $13.42
Exercised (4,186) $1.50 - $ 4.00 $ 1.76
Cancelled/Expired (11,664) $1.50 - $ 13.00 $ 8.17
---------
OUTSTANDING AT
DECEMBER 31, 1994 599,074 $1.50 - $ 14.00 $ 5.64 298,657
Granted -- N/A N/A
Exercised (8,936) $1.50 - $ 13.00 $ 3.87
Cancelled/Expired (44,238) $1.50 - $ 13.00 $ 6.74
---------
OUTSTANDING AT
DECEMBER 31, 1995 545,900 $1.50 - $ 14.00 $ 5.56 411,086
Granted 154,500 $17.00 - $ 25.00 $20.50
Exercised (67,270) $1.50 - $ 13.00 $ 2.43
Cancelled/Expired (34,300) $1.50 - $ 17.00 $13.81
---------
OUTSTANDING AT
DECEMBER 31, 1996 598,830 $1.50 - $ 25.00 $ 9.40 393,903
=========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------------------------------------------
NUMBER WEIGHTED AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE
EXERCISE PRICES AT DEC. 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE
--------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
$ 1.50 - $4.00 283,040 5.8 years $ 2.37
$ 5.25 - $17.00 248,290 7.5 years $13.18
$ 25.00 - $25.00 67,500 9.3 years $25.00
-----------------
$ 1.50 - $25.00 598,830 6.9 years $ 9.40
=================
<CAPTION>
OPTIONS EXERCISABLE
---------------------------------------------------
NUMBER
EXERCISABLE WEIGHTED AVERAGE
AT DEC. 31, 1996 EXERCISE PRICE
---------------- --------------
<C> <C>
283,040 $ 2.37
110,863 $11.33
0 N/A
---------
393,903 $ 4.89
---------
</TABLE>
During 1996, Magellan and ORBIMAGE each adopted a 1996 Stock Option Plan
(the "Magellan Plan" and the "ORBIMAGE Plan," respectively) pursuant to which
incentive or non-qualified options to purchase up to 7,000,000 shares of
Magellan common stock and 2,800,000 shares of ORBIMAGE common stock may be
granted to Magellan and Orbital employees, consultants or advisors in the case
of the Magellan Plan, and ORBIMAGE and Orbital employees, consultants or
advisors in the case of the ORBIMAGE Plan. Under both plans, stock options may
not be granted with an exercise price less than 85% of the stock's fair market
value at the date of grant, as determined by the respective Boards of Directors
and approved by Orbital's Audit and Finance Committee. The Magellan and ORBIMAGE
options generally vest incrementally over a three-year period.
During 1996, Magellan granted 6,915,900 options pursuant to the Magellan
Plan at $1.10 per share, the fair market value at the date of grant of Magellan
common stock. Of these grants, 322,300 were cancelled in 1996, and 667,539
options are exercisable at December 31, 1996. Certain provisions of the Magellan
Plan require Magellan to repurchase the common stock acquired pursuant to the
options. Also during 1996, ORBIMAGE granted 1,408,000 options pursuant to the
ORBIMAGE Plan at $3.60 per share, the fair market value at the date of grant of
ORBIMAGE common stock. Of these grants, 352,000 are exercisable at December 31,
1996. The weighted average remaining contractual life of outstanding options was
approximately ten years for each of the Magellan and ORBIMAGE Plans at December
31, 1996.
<TABLE>
<CAPTION>
ADDITIONAL EXPECTED
SHARES DIVIDEND RISK-FREE
AVAILABLE VOLATILITY YIELD INTEREST RATE
------------- -------------------------------------------------------- ---------------------------
DEC. 31, 1996 1996 1995 1996 1995 1996 1995
------------------------------ -------------------------- ------------- ------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Orbital Plans 231,955 56% 58% 0% 0% 5.3% 7.0%
ORBCOMM Plan 20,778 30% N/A 0% 0% 5.6% N/A
Magellan Plan 406,400 30% N/A 0% 0% 6.4% N/A
ORBIMAGE Plan 1,392,000 30% N/A 0% 0% 5.8% N/A
<CAPTION>
AVERAGE WEIGHTED AVERAGE
EXPECTED LIFE FAIR VALUE
(IN YEARS) PER SHARE
----------------------------------------------------------
1996 1995 1996 1995
-------------------------- ------------- ---------------
<S> <C> <C> <C>
4.5 4.5 $13.26 $ 16.97
4.5 N/A 20.50 N/A
4.5 N/A 1.10 N/A
4.5 N/A 3.60 N/A
</TABLE>
13. STOCK-BASED COMPENSATION
On January 1, 1996, the company adopted SFAS 123. The company uses the
Black-Scholes option pricing model to determine the pro forma impact to the
company's net income and earnings per share. The model utilizes certain
information, such as the interest rate on a risk-free security maturing
generally at the same time as the option being valued, and requires certain
assumptions, such as the expected amount of time an option will be outstanding
until it is
41
<PAGE> 45
exercised or it expires, to calculate the weighted average fair value per share
of stock options granted. This information and the assumptions used for 1996 and
1995 for all option plans is summarized as follows.
The company recorded compensation expense of approximately $300,000,
$55,000 and $234,000 related to the various option plans for the years ended
December 31, 1996, 1995 and 1994, respectively. Had the company determined
compensation expense based on the fair value at the grant date for stock options
in accordance with the alternative method prescribed by SFAS 123, the company's
net loss and primary and fully diluted loss per share, would have been
($743,000) and ($0.03), respectively, for the year ended December 31, 1996,
while net loss and primary and fully diluted loss per share would have been
($7,515,000) and ($0.29), respectively, for the year ended December 31, 1995.
Pro forma net income reflects only options granted in 1996 and 1995 and,
therefore, may not be representative of the effects for future periods.
During 1996, the company issued 150,000 stock appreciation rights that
vest over a three-year period. Payment is dependent on appreciation of the
company's Common Stock over the vesting period. The company recorded
approximately $175,000 in compensation expense during 1996 for this issuance.
14. SUPPLEMENTAL DISCLOSURES
DEFINED CONTRIBUTION PLANS
At December 31, 1996, the company had four defined contribution plans
(the "Plans") in accordance with Section 401(k) of the Internal Revenue Code of
1986, as amended. Generally, all full-time employees are eligible for
participation in the Plan applicable to their location. Company contributions to
the Plans are made based on certain plan provisions and at the discretion of the
Board of Directors, and were approximately $5,818,000, $5,015,000 and $2,991,000
during 1996, 1995 and 1994, respectively. Total company contributions to foreign
defined contribution plans during 1996, 1995 and 1994 were $1,279,000,
$1,518,000 and $1,436,000, respectively.
CASH FLOWS
Cash payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1996 1995 1994
--------------------------------------- ---------------- ---------------- ---------------
<S> <C> <C> <C>
Interest paid $ 10,860 $ 9,906 $ 11,831
Income taxes paid,
net of refunds 1,327 1,339 2,447
</TABLE>
The company paid approximately $40,800,000 in cash and issued Common
Stock with a fair value of approximately $31,000,000 in connection with the 1994
Fairchild Acquisition in return for approximately $95,000,000 in assets, and the
company assumed or established liabilities of approximately $23,200,000.
42
<PAGE> 46
SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Management has determined to restate its previously issued consolidated
financial statements for each of the quarters in 1996 and 1995 with respect to
its accounting treatment for certain matters described below. The following is a
summary of selected quarterly financial data for the previous two years (in
thousands, except share data):
<TABLE>
<CAPTION>
(IN THOUSANDS, QUARTER ENDED
EXCEPT SHARE DATA) MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------------------------------ ------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
1996 (as previously reported)
Revenues $ 104,894 $ 116,512 $ 119,571 $ 120,458
Gross profit 32,312 32,888 31,875 28,099
Income from operations 5,872 7,324 7,124 3,522
Net income 3,128 3,839 4,456 4,484
Net income per common
and dilutive share 0.12 0.14 0.15 0.14
1995 (as previously reported)
Revenues $ 88,975 $ 81,766 $ 95,817 $ 97,762
Gross profit 25,513 20,730 25,076 24,985
Income (loss) from
operations 4,614 (972) 3,683 (6,179)
Net income (loss) before
cumulative effect of
accounting change 3,015 (1,626) 1,757 (3,837)
Net income (loss) (1,139) (1,626) 1,757 (3,837)
Net income (loss) per common
and dilutive share (0.05) (0.07) 0.06 (0.14)
1996 (as restated)
Revenues $ 104,801 $ 115,063 $ 119,903 $ 110,020
Gross Profit 33,063 32,336 30,368 21,439
Income (loss) from operations 5,458 6,191 6,574 (4,466)
Net income (loss) 2,965 3,054 4,082 (159)
Net income (loss) per common
and dilutive share 0.11 0.11 0.14 (0.01)
1995 (as restated)
Revenues $ 89,203 $ 81,994 $ 96,045 $ 92,598
Gross Profit 25,572 20,789 25,135 17,198
Net income (loss) from
operations 4,614 (972) 3,683 (14,580)
Net income (loss) before
cumulative effect of
accounting changes 1,390 (1,432) 2,039 (5,210)
Net income (loss) (987) (1,432) 2,039 (5,210)
Net income (loss) per common
share (0.04) (0.06) 0.08 (0.19)
</TABLE>
43
<PAGE> 47
EQUITY METHOD ACCOUNTING RESTATEMENT ADJUSTMENTS
Previously, the company's consolidated financial statements reflected
the company's capitalization of interest expense on various assets, including on
its equity investment in ORBCOMM. As reflected in the restated consolidated
financial statements presented herein, Orbital has revised the capitalization of
interest on certain assets, including its equity method investment in ORBCOMM.
These revisions include the compounding impact of interest, and the reduction of
eligible investment amounts for losses recognized for equity method investors.
These revisions had the effect of increasing (decreasing) interest expense for
each quarter of 1996 and 1995 as follows (in thousands):
<TABLE>
<CAPTION>
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1996 $ ( 322) $ (383) $ (300) $ 53
1995 $ (155) $ (193) $ (271) (366)
</TABLE>
Previously, the company's consolidated financial statements did not
reflect the amortization of previously deferred profits in connection with its
sales of both satellite and ground stations to ORBCOMM. As reflected in the
restated consolidated financial statements presented herein, Orbital is
amortizing a portion of such deferred profits over the estimated lives of both
the satellites and the ground stations. The effect of this revision is to
increase the company's equity in losses of affiliates by approximately $110,000
in each of the quarters in 1996.
ASSET RESTATEMENT ADJUSTMENTS
The company has historically capitalized and depreciated certain product
enhancements. Previously, the company's consolidated financial statements
reflected such costs as capitalized assets in 1996 and 1995. As reflected in the
company's restated consolidated financial statements, the company has expensed
all previously capitalized enhancement costs. These revisions resulted in a
decrease in operating income as follows (in thousands):
<TABLE>
<CAPTION>
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1996 $ 209 $ 1,132 $ 1,643 $ 2,941
1995 $ 0 $ 0 $ 0 $ 1,313
</TABLE>
The company has recorded certain other adjustments, the net effect of
which is not significant individually or in the aggregate.
44
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included in Item 4A above and
under the caption "Election of Directors -- Directors to be Elected at the 1997
Annual Meeting, -- Directors Whose Terms Expire in 1998 and -- Directors Whose
Terms Expire in 1999" and "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Proxy Statement filed pursuant to Regulation 14A on or about
March 26, 1997 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the captions
"Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,"
"Indemnification Agreements," " Executive Employment Agreements and Termination
of Employment Agreements" and "Information Concerning the Board and Its
Committees" of the Proxy Statement filed pursuant to Regulation 14A on or about
March 26, 1997 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included under the caption
"Ownership of Common Stock" of the Proxy Statement filed pursuant to Regulation
14A on or about March 26, 1997 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included under the caption
"Related Transactions" of the Proxy Statement filed pursuant to Regulation 14A
on or about March 26, 1997 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. FINANCIAL STATEMENTS. The following financial statements, together with
the report of KPMG LLP, are filed as a part of this report:
A. Independent Auditors' Report
B. Consolidated Statements of Operations
C. Consolidated Balance Sheets
D. Consolidated Statements of Stockholders' Equity
E. Consolidated Statements of Cash Flows
F. Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENTS OF 50-PERCENT OWNED SUBSIDIARY AND FINANCIAL
STATEMENT SCHEDULES.
45
<PAGE> 49
The financial statements of ORBCOMM Global, L.P. were previously
transmitted with Orbital's Form 10K filed with the Securities and Exchange
Commission on March 26,1997.
The following additional financial data are transmitted with this report
and should be read in conjunction with the consolidated financial
statements contained herein. Schedules other than those listed below have
been omitted because they are inapplicable or are not required.
Independent Auditors' Report on Consolidated Financial Statement Schedule
II Valuation and Qualifying Accounts
3. 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
On December 23, 1996, the Company filed a Current Report on Form 8-K
reporting, pursuant to Item 9, its sale of 1.2 million shares of common
stock on December 13, 1996, in a transaction exempt from registration
pursuant to Regulation S under the Securities Act.
(c) See Item 14(a)(3) of this report.
(d) See Item 14(a)(2) of this report.
46
<PAGE> 50
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: June 26, 2000
By /s/ Jeffrey V. Pirone
-------------------------------------
Jeffrey V. Pirone
Executive Vice President
and Chief Financial Officer
47
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
ORBITAL SCIENCES CORPORATION
Under date of February 5, 1997, except as to note 1A, which is as of
April 17, 2000, we reported on the consolidated balance sheets of Orbital
Sciences Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
included in the Company's 1996 annual report on 1996 Form 10K/A. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule in the Company's
1996 Form 10-K/A. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
The accompanying consolidated financial statement schedule as of
December 31, 1996 and 1995, and for each of the years in the two-year period
ended December 31, 1996 has been restated.
KPMG LLP
Washington, D.C.
February 5, 1997, except as to note 1A,
which is as of April 17, 2000
48
<PAGE> 52
ORBITAL SCIENCES CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B
------------------------------------------------------- --------------------------------------------------------------
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO COSTS
DESCRIPTION START OF PERIOD AND EXPENSES
------------------------------------------------------- --------------------------- ------------------------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts $ 587 $ 230
Allowance for obsolete inventory 2,260 216
Allowance for unrecoverable investments - -
Deferred income tax valuation reserve 14,456 -
YEAR ENDED DECEMBER 31, 1995 (Restated)
Allowance for doubtful accounts $ 859 $ 108
Allowance for obsolete inventory 3,936 580
Allowance for unrecoverable investments 3,100 -
Deferred income tax valuation reserve 43,596 21,445
YEAR ENDED DECEMBER 31, 1996 (Restated)
Allowance for doubtful accounts $ 773 $ 603
Allowance for obsolete inventory 3,778 667
Allowance for unrecoverable investments 1,100 -
Deferred income tax valuation reserve 68,021 -
<CAPTION>
COLUMN A COLUMN C COLUMN D COLUMN E
------------------------------------------------------- ---------------------------------------------------------------------------
ADDITIONS
-----------------------------
CHARGED/
CREDITED TO BALANCE AT
DESCRIPTION OTHER ACCOUNTS (1) DEDUCTIONS (2) END OF PERIOD
------------------------------------------------------- ----------------------------- ----------------------- -----------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts $ 42 $ - $ 859
Allowance for obsolete inventory 1,571 (111) 3,936
Allowance for unrecoverable investments 3,100 - 3,100
Deferred income tax valuation reserve 29,308 (168) 43,596
YEAR ENDED DECEMBER 31, 1995 (Restated)
Allowance for doubtful accounts $ - $ (194) $ 773
Allowance for obsolete inventory - (738) 3,778
Allowance for unrecoverable investments - (2,000) 1,100
Deferred income tax valuation reserve 2,980 - 68,021
YEAR ENDED DECEMBER 31, 1996 (Restated)
Allowance for doubtful accounts $ - $ (8) $ 1,368
Allowance for obsolete inventory 685 (32) 5,098
Allowance for unrecoverable investments - - 1,100
Deferred income tax valuation reserve - (13,589) 54,432
</TABLE>
(1) - Amounts charged/credited to other accounts represent valuation and
qualifying accounts recorded pursuant to purchase business combinations as
described in Note (4) to the consolidated financial statements
incorporated by reference elsewhere herein, adjustments required to recast
pooled company's year end as described in Note (4) to the consolidated
financial statements incorporated by reference elsewhere herein, and
certain reclassifications of deferred tax accounts.
(2) - Deduction for revaluation of allowance account.
49
<PAGE> 53
EXHIBIT INDEX
The following exhibits are filed as part of this report. Where such
filing is made by incorporation by reference to a previously filed statement or
report, such statement or report is identified in parentheses. In addition, the
registrant has executed certain instruments reflecting long-term debt, the total
amount of which does not exceed 10% of the total assets of the registrant and it
subsidiaries on a consolidated basis. In accordance with section 4(iii) of Item
601 under Regulation S-K, the registrant agrees to furnish to the Securities and
Exchange Commission copies of each instrument relating to such long-term debt
not otherwise filed herewith or incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------- --------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (File Number 333-08769) filed and effective on
July 25, 1996.
3.1.1 Certificate of Designation for the Company's Series A Special Preferred Voting Stock
(incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3
(File Number 333-08769) filed and effective on July 25, 1996).
3.2 By-Laws of Orbital Sciences Corporation, as amended on July 27, 1995 (incorporated by
reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
4 Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990
and effective on April 24, 1990).
9 Voting and Exchange Trust Agreement between the Company, MacDonald Dettwiler Holdings Inc.
and State Street Bank and Trust Company (incorporated by reference to Exhibit 9 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.1 Amended and Restated Credit Agreement, dated as of 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 (the "Credit Agreement") (incorporated by reference to Exhibit
10.6 to the Company's Report on Form 10-Q for the quarter ended September 30, 1994).
10.1.1 Amendment No. 1 to the Credit Agreement, dated as of October 26, 1994 (incorporated by
reference to Exhibit 10.6.1 to the Company's Annual Report on Form 10-K, for the fiscal year
dated December 31, 1995).
10.1.2 Amendment No. 2 to the Credit Agreement, dated as of July 5, 1995 (incorporated by reference
to Exhibit 10.6.3 to the Company's Report on Form 10-Q for the quarter ended June 30, 1995).
10.1.3 Amendment No. 3 to the Credit Agreement, dated as of August 23, 1995 (incorporated by
reference to Exhibit 10.3 to the Company's Report on Form 10-Q for the quarter ended
September 30, 1995).
10.1.4 Amendment No. 4 to the Credit Agreement, dated as of November 15, 1995 (incorporated by
reference to Exhibit 10.1.3 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.1.5 Amendment No. 5 to the Credit Agreement , dated as of July 19, 1996 (incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended June 30,
1996).
10.1.6 Amendment No. 6 to the Credit Agreement (previously filed).
10.2 Note Agreement, dated as of June 14, 1995 between the Corporation and The Northwestern Mutual
Life Insurance Company (the "NWML Note Agreement") (incorporated by reference to Exhibit
4.7.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1995).
10.2.1 1st Amendment to the NWML Note Agreement ,dated as of June 30, 1995, between the Corporation
and The Northwestern Mutual Life Insurance Company (incorporated by reference to the
Company's Report on Form 10-Q for the quarter ended September 30, 1995).
10.2.2 Second Amendment to the NWML Note Agreement, dated as of March 15, 1996 (incorporated by
reference to Exhibit 10.2.2 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.2.3 Third Amendment to NWML Note Agreement, dated as of July 13, 1996 (incorporated by reference
to Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended June 30, 1996).
10.3 Promissory Notes dated as of August 31, 1994 made by Fairchild Space and Defense Corporation
and Corporate Guaranty dated August 31, 1994 made by the Company (incorporated by reference
to
</TABLE>
50
<PAGE> 54
<TABLE>
<S> <C>
Exhibit 10.7 to the Company's Report on Form 10-Q for the quarter ended September 30, 1994).
10.4 Security Agreement dated as of June 30, 1992 among the Company, J.P. Morgan Delaware, as
Collateral Agent and American Security Bank, N.A., as Audit Agent (incorporated by Reference
to Exhibit 10.6.1 to the Company's Report on Form 10-Q for the quarter ended September 30,
1994).
10.5 Master Security Agreement dated as of August 31, 1994 between Fairchild Space and Defense
Corporation and General Electric Capital Corporation (incorporated by reference to Exhibit
10.7 to the Company's Report on Form 10-Q for the Quarter ended September 30, 1994).
10.6 Orbital Sciences Corporation 1990 Stock Option Plan, restated as of April 27, 1995
(incorporated by reference to Exhibit 10.5.1 to the Company's Report on Form 10-Q for the
quarter ended June 30, 1995).*
10.7 Orbital Sciences Corporation 1990 Stock Option Plan for Non-Employee Directors, restated as
of April 27, 1995 (incorporated by reference to Exhibit 10.5.2 to the Company's Report on
Form 10-Q for the quarter ended June 30, 1995).*
10.8 Orbital Communications Corporation Restated 1992 Stock Option Plan, restated as of September
12, 1995 (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
1 0.8.1 Amendment to Orbital Communications Corporation Restated 1992 Stock Option Plan, dated
February 5, 1997 (previously filed).*
10.9 Orbital Sciences Corporation 1995 Deferred Compensation Plan (incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995).*
10.10 Magellan Corporation 1996 Stock Option Plan (incorporated by reference to Exhibit 10.3 to the
Company's Report on Form 10-Q for the quarter ended June 30, 1996).*
10.11 Orbital Imaging Corporation 1996 Stock Option Plan (previously filed).*
10.12 Form of Executive Employment Agreement entered into between the Company and Executive
Officers and certain other Officers of the Company (incorporated by reference to Exhibit
10.17 to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on
February 9, 1990 and effective on April 24, 1990).*
10.12.1 Performance Share Agreement dated October 23, 1996 between the Company and Mr. D. W. Thompson
(previously filed).*
10.13 Form of Indemnification Agreement entered into between the Company and Directors, Executive
Officers and certain other Officers of the Company (incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on Form S-1 (File Number 33-33453) filed on
February 9, 1990 and effective on April 24, 1990).*
10.13.1 Amendment dated October 22, 1992 to form of Indemnification Agreement entered into between
the Company and Directors, Executive Officers and certain other Officers of the Company
(incorporated by reference to Exhibit 19 to the Company's Report on Form 10-Q for the Quarter
Ended September 30, 1992).*
10.14 Participation Agreement dated August 20, 1992 by and between ITT Commercial Finance Corp. and
the Company, as amended through August 26, 1992 (incorporated by reference to Exhibit 19.14
to Amendment No. 2 to the Company's Report on Form 10-Q for the Quarter Ended September 30,
1992).
10.15 Master Agreement, restated as of September 12, 1995, by and among the Company, OCC, Teleglobe
Inc. and Teleglobe Mobile Partners (incorporated by reference to Exhibit 10. to ORBCOMM
Global L.P.'s Registration Statement on Form S-4 (File Number 333-11149) filed on August 30,
1996.
10.16 Restated Agreement of Limited Partnership of ORBCOMM Global, L.P., dated as of September 12,
1995, between OCC and Teleglobe Mobile Partners (incorporated by reference to Exhibit 3.2 to
ORBCOMM Global L.P.'s Registration Statement on Form S-4 (File Number 333-11149) filed on
August 30, 1996.
10.16.1 Amendment No. 1 to Restated Agreement of Limited Partnership of ORBCOMM Global, L.P., dated
December 2, 1996 (previously filed).
10.17 Restated Agreement of Limited Partnership of ORBCOMM USA, L.P., dated as of September 12,
1995 between Orbital Communications Corporation and ORBCOMM Global (incorporated by reference
to Exhibit 3.4. to ORBCOMM Global L.P.'s Registration Statement on Form S-4 (File Number
333-11149) filed on August 30, 1996.
10.18 Support Agreement between the Company and MacDonald, Dettwiler Holdings, Inc., dated November
17, 1995 (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form
</TABLE>
51
<PAGE> 55
<TABLE>
<S> <C>
10-K for the fiscal year ended December 31, 1995)
11 Statement re: Computation of Earnings Per Share (transmitted herewith).
21 Subsidiaries of the Company (previously filed).
23.1 Consent of KPMG LLP (transmitted herewith).
23.2 Consent of KPMG LLP with respect to financial statements of ORBCOMM Global, L.P. (transmitted
herewith).
27 Financial Data Schedule for year ended December 31, 1996 (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-K/A or therwise subject to the liabilities of Section 18 of the Securities Exchange
Act of 1934) (transmitted herewith).
</TABLE>
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* Management Contract or Compensatory Plan or Arrangement.
52
