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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
SEPTEMBER 30, 1996
ORBITAL SCIENCES CORPORATION
Commission file number 0-18287
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<S> <C>
DELAWARE 06-1209561
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(State of Incorporation) (IRS Identification number)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
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(Address of principal executive offices) (Telephone number)
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The registrant has (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
As of October 31, 1996, 30,817,649 shares of the registrant's common stock were
outstanding.
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EXPLANATORY NOTE
Orbital Sciences Corporation ("Orbital") has determined to restate its
annual consolidated financial statements and its condensed consolidated
quarterly financial statements for 1996 and 1995. This amendment includes in
Item 1 such restated condensed consolidated financial statements for the three
and nine months ended September 30, 1996, and other information relating to such
restated condensed consolidated financial statements. Item 2 contains Orbital's
amended and restated discussion and analysis of financial condition and results
of operations.
Except for Items 1 and 2 and Exhibits 11 and 27, no other information
included in the original report on Form 10-Q is amended by this amendment. For
current information regarding risks, uncertainties and other factors that may
affect Orbital's future performance, please see "Outlook: Issues and
Uncertainties" included in Item 7 of Orbital's Annual Report on Form 10-K for
the year ended December 31, 1999.
2
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PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share data)
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A S S E T S
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SEPTEMBER 30, DECEMBER 31,
1996 1995
---------------- ----------
(Restated) (Restated)
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CURRENT ASSETS:
Cash and cash equivalents $ 5,251 $ 15,317
Short-term investments, at market 10,334 19,713
Receivables, net 135,333 116,761
Inventories, net 33,653 38,527
Deferred income taxes and other assets 7,835 6,886
--------- --------
TOTAL CURRENT ASSETS 192,406 197,204
PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED
depreciation and amortization of $64,067 and $53,067, respectively 98,157 91,538
SATELLITE SYSTEMS, AT COST, LESS ACCUMULATED
depreciation of $1,163 and $547, respectively 21,904 14,363
INVESTMENTS IN AFFILIATES 89,459 75,020
GOODWILL, less accumulated amortization of $15,995 and $13,695, respectively 73,864 75,395
DEFERRED INCOME TAXES AND OTHER ASSETS 16,836 19,380
--------- --------
TOTAL ASSETS $ 492,626 $472,900
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings and current portion of
long-term obligations $ 50,431 $ 11,907
Accounts payable 18,543 25,903
Accrued expenses 33,720 36,563
Payable to subcontractors 5,775 11,552
Deferred revenue 30,873 32,501
--------- --------
TOTAL CURRENT LIABILITIES 139,342 118,426
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 34,460 96,990
OTHER LIABILITIES 17,508 19,740
--------- --------
TOTAL LIABILITIES 191,310 235,156
NON-CONTROLLING INTERESTS IN
NET ASSETS OF CONSOLIDATED SUBSIDIARIES (1,271) (422)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01; 10,000,000 shares authorized:
Series A Special Voting Preferred Stock, 1 share authorized
and outstanding - -
Class B Preferred Stock, 10,000 shares authorized and
outstanding - -
Common Stock, par value $.01; 40,000,000 shares authorized,
30,869,028 and 26,766,029 shares outstanding,
after deducting 15,735 shares held in treasury 309 268
Additional paid-in capital 302,667 247,580
Unrealized gains (losses) on short-term investments (27) 68
Cumulative translation adjustment (4,072) (3,356)
Retained earnings (deficit) 3,710 (6,394)
--------- ---------
Total stockholders' equity 302,587 238,166
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 492,626 $472,900
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; in thousands, except share data)
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FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
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(Restated) (Restated)
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REVENUES $ 119,903 $ 96,045
COSTS OF GOODS SOLD 89,535 70,910
----------- -----------
GROSS PROFIT 30,368 25,135
RESEARCH AND DEVELOPMENT EXPENSES 4,053 4,087
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 18,947 16,494
AMORTIZATION OF GOODWILL 794 871
----------- -----------
INCOME FROM OPERATIONS 6,574 3,683
NET INTEREST INCOME (EXPENSE) 219 (525)
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (2,653) (596)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 396 --
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,536 2,562
PROVISION FOR INCOME TAXES 454 523
----------- -----------
NET INCOME $ 4,082 $ 2,039
=========== ===========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.14 $ 0.08
SHARES USED IN COMPUTING NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE 29,803,856 27,073,286
=========== ===========
NET INCOME PER COMMON SHARE, ASSUMING DILUTION $ 0.14 $ 0.08
SHARES USED IN COMPUTING NET INCOME
PER COMMON SHARE, ASSUMING DILUTION 31,663,151 30,968,822
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; in thousands, except share data)
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FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1996 1995
----------- -----------
(Restated) (Restated)
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REVENUES $ 339,767 $ 267,242
COSTS OF GOODS SOLD 244,000 195,746
----------- -----------
GROSS PROFIT 95,767 71,496
RESEARCH AND DEVELOPMENT EXPENSES 16,491 14,421
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 58,678 47,321
AMORTIZATION OF GOODWILL 2,374 2,429
----------- -----------
INCOME FROM OPERATIONS 18,224 7,325
NET INTEREST EXPENSE (402) (1,884)
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (7,591) (234)
NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES
OF CONSOLIDATED SUBSIDIARIES 994 --
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 11,225 5,207
PROVISION FOR INCOME TAXES 1,121 3,211
----------- -----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 10,104 1,996
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of taxes -- (2,377)
----------- -----------
NET INCOME (LOSS) $ 10,104 $ (381)
=========== ===========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Income Before Cumulative Effect of Accounting Change $ 0.36 $ 0.08
Cumulative Effect of Accounting Change -- (0.09)
----------- -----------
$ 0.36 $ (0.01)
=========== ===========
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON AND COMMON EQUIVALENT SHARE 28,176,215 25,727,761
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE, assuming dilution:
Income Before Cumulative Effect of Accounting Change $ 0.36 $ 0.08
Cumulative Effect of Accounting Change -- (0.09)
----------- -----------
$ 0.36 $ (0.01)
=========== ===========
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE, assuming dilution 31,575,334 25,727,761
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
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FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1996 1995
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(Restated) (Restated)
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 10,104 $ (381)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization expense 17,829 14,782
Equity in (earnings) losses of affiliates 7,591 234
Non-controlling interests in earnings (losses) of
consolidated subsidiaries (994) --
Gain (loss) on sale of fixed assets and investments (17) --
Cumulative effect of accounting change -- 2,377
Foreign currency translation adjustment (716) (491)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in current and noncurrent assets (11,847) 9,325
Increase (decrease) in current and noncurrent liabilities (21,776) (6,192)
--------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 174 19,654
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,781) (11,880)
Investments in satellite systems (8,704) (6,118)
Proceeds from sales of fixed assets -- 125
Purchases, sales and maturities of investment securities, net 9,333 (19,889)
Investments in affiliates (20,917) (12,374)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (41,069) (50,136)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net of (repayments) 38,200 (22,649)
Principal payments on long-term obligations (6,206) (3,917)
Proceeds from issuance of long-term obligations -- 20,955
Fees associated with conversion of debentures (2,571) --
Net proceeds from issuances of common stock 1,406 34,401
Adjustment to recast pooled company's year end -- (1,050)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 30,829 27,740
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,066) (2,742)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,317 27,919
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,251 $ 25,177
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim financial
information reflects all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation thereof. Certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to instructions, rules and regulations prescribed by the Securities and Exchange
Commission (the "Commission"). Although the Company believes that the
disclosures provided are adequate to make the information presented not
misleading, these unaudited interim condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and the footnotes thereto included in the Company's Annual Report on Form 10-K/A
for the year ended December 31, 1995. Operating results for the three- and
nine-month periods ended September 30, 1996 are not necessarily indicative of
the results expected for the full year.
Orbital Sciences Corporation is hereafter referred to as "Orbital" or the
"Company."
(1) RESTATEMENT
Management has determined to restate its previously issued consolidated
financial statements for 1996 and 1995 with respect to its accounting
treatment for certain matters, including among other things, its accounting
for equity method investments, capitalized costs and certain other matters.
For a full description of the restatement matters, refer to Notes 1A and 14
to the company's consolidated financial statements included in the Company's
1996 Annual Report on Form 10-K/A previously filed with the Commission.
The effect of the restatement matters on the Company's previously reported
revenues, gross profit, income (loss) from operations, net income (loss) and
net income (loss) per common and dilutive share for the periods is as
follows:
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QUARTER ENDED NINE MONTHS ENDED
(in thousands, except share data) SEPTEMBER 30, SEPTEMBER 30,
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1996 RESTATED:
Revenues $ 119,903 $ 339,767
Gross profit 30,368 95,767
Income from operations 6,574 18,224
Net income 4,082 10,104
Net income per common share 0.14 0.36
Net income per common share,
assuming dilution 0.14 0.36
1996 AS PREVIOUSLY REPORTED:
Revenues $ 119,571 $ 340,977
Gross profit 31,875 97,075
Income from operations 7,124 20,320
Net income 4,456 11,423
Net income per common share 0.15 0.41
Net income per common share,
assuming dilution 0.15 0.41
1995 RESTATED:
Revenues $ 96,045 $ 267,242
Gross profit 25,135 71,496
Income from operations 3,683 7,325
Net (loss) income 2,039 (381)
Net (loss) income per common share 0.08 (0.01)
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QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
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Net income per common share,
assuming dilution 0.08 N/A
1995 AS PREVIOUSLY REPORTED:
Revenues $95,817 $ 266,558
Gross profit 25,076 71,318
Income from operations 3,683 7,325
Net (loss) income 1,757 (1,011)
Net (loss) income per common share 0.06 (0.04)
Net income per common share,
assuming dilution 0.06 N/A
</TABLE>
(2) INVENTORIES
Inventories consist of components inventory, work-in-process inventory and
finished goods inventory and are generally stated at the lower of cost or
net realizable value on a first-in, first-out or specific identification
basis.
Components inventory consists primarily of components and raw materials
purchased to support future production efforts. Work-in-process inventory
consists primarily of (i) costs incurred under U.S. Government fixed-price
contracts accounted for using the percentage of completion method of
accounting applied on a units of delivery basis and (ii) partially assembled
commercial products, and generally includes direct production costs and
certain allocated indirect costs (including an allocation of general and
administrative costs). Work-in-process inventory has been reduced by
contractual progress payments received. Finished goods inventory consists of
fully assembled commercial products awaiting shipment.
(3) COMMON STOCK AND INCOME PER SHARE
Income per common and common equivalent share is calculated using the
weighted average number of common and common equivalent shares, to the
extent dilutive, outstanding during the periods. Income per common share
assuming full dilution ("fully-diluted earnings per share") is calculated
using the weighted average number of common and common equivalent shares
outstanding during the periods plus the effects of an assumed conversion of
the Company's 6 3/4% convertible subordinated debentures (the "Convertible
Debentures"), after giving effect to all net income adjustments that would
result from the assumed conversion. The Convertible Debentures were
converted to Orbital Common Stock on August 14, 1996 (see Note 4).
Accordingly, the effects of an assumed conversion on fully diluted earnings
per share are included only through August 14, 1996. Any reduction of less
than three percent in the aggregate has not been considered dilutive in the
calculation and presentation of income per common share assuming full
dilution.
(4) INCOME TAXES
The Company has recorded its interim income tax provision based on estimates
of the Company's effective tax rate expected to be applicable for the full
fiscal year. Estimated effective rates recorded during interim periods may
be periodically revised, if necessary, to reflect current estimates.
(5) STOCKHOLDERS' EQUITY AND COMMON STOCK
On August 14, 1996, the Company completed the redemption of the entire
$55,880,000 outstanding principal amount of Convertible Debentures. Pursuant
to the terms of the indenture governing the Convertible Debentures, the
holders of the Convertible Debentures had the option of (a) redeeming their
holdings for cash payments of (i) $1,000 in principal, plus (ii) $47.25 in
redemption premium, plus (iii) $30.56 of accrued interest to the date of
redemption, or (b) choosing to convert their holdings into Orbital Common
Stock at a predetermined conversion rate of 69.565 shares per each $1,000
principal amount of Convertible Debentures.
The Company entered into a standby underwriting agreement with an investment
bank whereby the
8
<PAGE> 9
investment bank agreed, subject to customary conditions, to purchase from
the Company shares of its Common Stock in an amount sufficient to provide
proceeds to the Company to satisfy any redemption by the holders of the
Convertible Debentures. As a result of conversions by the holders and the
standby arrangement, the entire principal amount was converted into
approximately 3,887,304 shares of Common Stock.
(6) INVESTMENTS IN AFFILIATES
On August 7, 1996, ORBCOMM Global L.P. ("ORBCOMM Global"), a partnership
50%-owned by the Company's majority owned subsidiary, Orbital Communications
Corporation ("OCC"), issued $170,000,000 of senior unsecured notes (the
"Notes") in a private placement to institutional investors. The Notes are
non-recourse to Orbital, bear interest at a fixed rate of 14% per annum, and
provide for revenue participation interest in an aggregate amount of 5% of
ORBCOMM System revenues, payment of which may be deferred by ORBCOMM Global
to the extent that certain fixed charge ratios are not met. Net proceeds
from the sale of the Notes (approximately $164,500,000) will be applied to
(i) the design, construction, launch, operation and marketing of the ORBCOMM
System and related development, operating and management expenses (including
cost contingencies) and (ii) the first two years of interest on the Notes.
In connection with the closing of the financing, OCC contributed the
remainder of its capital commitment to ORBCOMM Global, for an aggregate
commitment of approximately $75,000,000.
The Notes are expected to be exchangeable for an equal principal amount of
14% Series B Senior Notes due 2004 with Revenue Participation Interest (the
"Exchange Notes"). The Exchange Notes will be substantially identical in
form and term to the Notes except that the Exchange Notes will be registered
under the Securities Act of 1933, as amended, and will not bear legends
restricting the transfer thereof. The Exchange Notes will be, and the Notes
are, fully and unconditionally guaranteed on a joint and several basis by
OCC and Teleglobe Mobile Partners. The guarantee is non-recourse to the
Company.
(7) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 condensed consolidated
financial statements to conform to the 1996 condensed consolidated financial
statement presentation. The November 1995 acquisition of MacDonald,
Dettwiler and Associates Ltd. was recorded using the pooling of interests
method of accounting for business combinations and, accordingly, Orbital's
1995 historical financial statements have been restated to reflect this
transaction.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30,
1996 AND 1995
Certain statements included in this discussion constitute "forward-looking
statements" within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things,
general economic and business conditions, launch success, product performance,
market acceptance of new products and technologies and the other factors more
fully described in the Company's Registration Statement filed on July 25, 1996,
pursuant to the Securities Act of 1933, as amended, and in Exhibit 99,
previously filed.
The Company's products and services are grouped into three business sectors:
Space Infrastructure Systems, Satellite Access Products and Satellite-Provided
Services. Space Infrastructure includes Launch Systems, Satellites and Space
Systems, Electronics and Sensor Systems, and Ground Systems and Software. The
Company's Satellite Access Products sector consists of satellite-based
navigation and communications products. The Company's Satellite-Provided
Services sector includes satellite-based, two-way mobile data communications
services and Earth imagery remote sensing services.
Certain of the 1996 and 1995 financial information has been restated. See Note 1
to the condensed consolidated financial statements.
REVENUES. Orbital's revenues for the three-month periods ended September 30,
1996 and 1995 were $119,903,000 and $96,045,000, respectively. Revenues for the
nine-month periods ended September 30, 1996 and 1995 were $339,767,000 and
$267,242,000, respectively.
Space Infrastructure Systems
Revenues from the Company's Space Infrastructure Systems totaled $103,484,000
and $79,637,000 for the three months ended September 30, 1996 and 1995,
respectively, and $281,102,000 and $219,857,000 for the nine months ended
September 30, 1996 and 1995, respectively. Revenues from the Company's launch
systems increased to $28,577,000 in the third quarter of 1996, from $15,669,000
in the third quarter of 1995. Launch systems revenues were $73,906,000 for the
nine months ended September 30, 1996 as compared to $50,307,000 for the
comparable 1995 period. The significant increase in revenues in 1996 is
attributable to additional revenues generated from new orders of the Company's
Taurus launch vehicle, and from the resumption of production and launch of the
Company's Pegasus XL launch vehicle. During 1996, Orbital has carried out five
Pegasus launches, consisting of four Pegasus XL launches and one standard
Pegasus launch. The fourth Pegasus XL launch, which occurred in November 1996,
delivered two NASA satellites to their targeted orbits, but the two spacecraft
did not separate from the launch vehicle. The Company and NASA have each
convened investigation boards to analyze the problem further. The Company does
not currently anticipate that the launch problem will result in significant
launch delays.
For the three months ended September 30, 1996, satellite systems revenues
decreased to $29,476,000 from $32,337,000 in the third quarter of 1995.
Satellite systems revenues were $80,017,000 for the nine months
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ended September 30, 1996 as compared to $61,239,000 for the comparable 1995
period. Revenues decreased from the corresponding prior year quarter primarily
as a result of a significant amount of revenue recognized in the prior period
for work performed on a contract that was awarded in the third quarter of 1995.
The increase in satellite systems sales on a year-to-year basis is primarily due
to additional revenues generated from new satellite orders from government and
commercial customers. Revenues for the nine months ended September 30, 1996
include sales to ORBCOMM Global of $34,353,000 as compared to 1995 sales to
ORBCOMM Global of $42,188,000.
Revenues from sensors and electronics systems were approximately $25,572,000 for
the three months ended September 30, 1996 as compared to $14,986,000 in the
comparable 1995 period. Sensors and electronics systems revenues were
$63,421,000 for the nine months ended September 30, 1996 as compared to
$53,855,000 for the comparable 1995 period. The increase in revenues in the
third quarter is primarily a result of work performed on defense electronics and
transportation management systems orders received during 1996.
Revenues from the Company's satellite ground systems and other software products
were $19,859,000 in the third quarter of 1996 as compared to $16,645,000 in the
1995 quarter. Satellite ground systems revenues were $63,758,000 for the nine
months ended September 30, 1996 as compared to $54,456,000 for the comparable
1995 period. The 1996 increase in revenues reflects work performed on new
contract awards received in 1995.
Satellite Access Products
Revenues from sales of satellite-based navigation and communications products
increased to $15,989,000 for the 1996 third quarter as compared to $14,282,000
for the comparable 1995 period, primarily due to a substantial increase in unit
sales of GPS navigators offset, in part, by lower unit prices. Satellite access
product revenues were $57,445,000 for the nine months ended September 30, 1996
as compared to $38,209,000 for the comparable 1995 period.
Satellite-Provided Services
The Company's ORBCOMM and ORBIMAGE start-up businesses generated service
revenues of approximately $430,000 in the 1996 third quarter, and $1,220,000 for
the nine months ended September 30, 1996, respectively. Satellite-provided
services revenues in 1995 of approximately $2,126,000 and $9,176,000 for the
three- and nine-month periods ended September 30, 1995, respectively, primarily
represented sales of ground and network software to ORBCOMM Global; no such
sales were made in 1996.
GROSS PROFIT. Gross profit depends on a number of factors, including the
Company's mix of contract types and costs incurred thereon in relation to
estimated costs. The Company's gross profit for the third quarter of 1996 was
$30,368,000 as compared to $25,135,000 in the 1995 third quarter. Gross profit
margin as a percentage of sales for those periods was approximately 25% and 26%,
respectively. The Company's gross profit for the first three quarters of 1996
was $95,767,000 as compared to $71,496,000 in the first three quarters of 1995.
Gross profit margin as a percentage of sales for those periods was approximately
28% and 27%, respectively. During 1996, the Company recognized $2,523,000
related to the write-off or expiration of certain Canadian development loans no
longer required or not expected to be repaid. The increased gross profit margin
as a percentage of sales in 1996 is also attributable to the resumption of
Pegasus production after launch failures in June 1994 and June 1995.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses represent
Orbital's self-funded product development activities, and exclude direct
customer-funded development. Research and development expenses during the
three-month periods ended September 30, 1996 and 1995 were $4,053,000 and
$4,087,000, respectively. Research and development expenses during the
nine-month periods ended
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September 30, 1996 and 1995 were $16,491,000 and $14,421,000, respectively.
Research and development expenses in 1996 relate primarily to the development of
new or improved navigation and communications products, improved launch vehicles
and new satellite programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include the costs of marketing, advertising, promotional
and other selling expenses as well as the costs of the finance, administrative
and general management functions of the Company. Selling, general and
administrative expenses for the third quarters of 1996 and 1995 were $18,947,000
(or 16% of revenues) and $16,494,000 (or 17% of revenues), respectively.
Selling, general and administrative expenses for the first three quarters of
1996 and 1995 were $58,678,000 (or 17% of revenues) and $47,321,000 (or 18% of
revenues), respectively. The increase in selling, general and administrative
expenses during 1996 as compared to 1995 was primarily attributable to
substantially expanded marketing efforts related to the Company's ORBCOMM and
ORBIMAGE projects.
INTEREST INCOME AND INTEREST EXPENSE. Net interest income (expense) was $219,000
and ($525,000) for the three months ended September 30, 1996 and 1995,
respectively. Net interest expense was ($402,000) and ($1,884,000) for the nine
months ended September 30, 1996 and 1995, respectively. Interest income for the
periods reflects interest earnings on short-term investments. Interest expense
is primarily for outstanding amounts on Orbital's revolving credit facilities,
on the Company's Convertible Debentures through August 14, 1996, and on other
secured and unsecured debt. Interest expense has been reduced by capitalized
interest of $6,198,000 and $3,769,000 in 1996 and 1995, respectively.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN
CONSOLIDATED SUBSIDIARIES. Equity in earnings (losses) of affiliates and
non-controlling interests in (earnings) losses of consolidated subsidiaries for
the third quarters of 1996 and 1995 were ($2,257,000) and ($596,000),
respectively. Equity in earnings (losses) of affiliates and non-controlling
interests in (earnings) losses of consolidated subsidiaries for the nine-month
periods ended September 30, 1996 and 1995 were ($6,597,000) and ($234,000),
respectively. These amounts primarily represent (i) elimination of 50% of the
profits on sales to ORBCOMM Global, (ii) the Company's pro rata share of ORBCOMM
Global's and ORBCOMM International Partners L.P.'s current period earnings and
losses and (iii) non-controlling shareholders' pro rata share of ORBCOMM USA
L.P.'s current period earnings and losses.
PROVISION FOR INCOME TAXES. The Company recorded an income tax provision of
$454,000 and $1,121,000, respectively, for the three-and nine-month periods
ended September 30, 1996. The Company recorded an income tax provision of
$523,000 and $3,211,000 for the three- and nine-month period ended September 30,
1995, respectively. The Company records its interim income tax provisions based
on estimates of the Company's effective tax rate expected to be applicable for
the full fiscal year. Estimated effective rates recorded during interim periods
may be periodically revised, if necessary, to reflect current estimates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's growth has required substantial capital to fund both an expanding
business base and significant research and development and capital expenditures.
Additionally, the Company has historically made strategic acquisitions of
businesses and routinely evaluates potential acquisition candidates. The Company
expects to continue to pursue potential acquisitions that it believes would
enhance its marketing, technical, manufacturing or financial capabilities. The
Company has funded these requirements to date, and expects to fund its
requirements in the future, through cash generated by operations, working
capital loan facilities, asset-based
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financings, joint venture arrangements, and private and public equity and debt
offerings.
Cash, cash equivalents and short-term investments were $15,585,000 at September
30, 1996, and the Company had short-term and long-term debt obligations
outstanding of approximately $84,891,000. The outstanding debt relates primarily
to advances under the Company's line of credit facilities, secured and unsecured
notes, and fixed asset financings.
On August 14, 1996, the Company completed the redemption of the entire
$55,880,000 outstanding principal amount of Convertible Debentures. Pursuant to
the terms of the indenture governing the Convertible Debentures, the holders of
the Convertible Debentures had the option of (a) redeeming their holdings for
cash payments of (i) $1,000 in principal, plus (ii) $47.25 in redemption
premium, plus (iii) $30.56 of accrued interest to the date of redemption, or (b)
choosing to convert their holdings into Orbital Common Stock at a predetermined
conversion rate of 69.565 shares per each $1,000 principal amount of Convertible
Debentures.
The Company entered into a standby underwriting agreement with an investment
bank whereby the investment bank agreed, subject to customary conditions, to
purchase from the Company shares of its Common Stock in an amount sufficient to
provide proceeds to the Company to satisfy any redemption by the holders of the
Convertible Debentures. As a result of conversions by the holders and the
standby arrangement, the entire principal amount was converted into
approximately 3,887,304 shares of Common Stock.
Orbital amended its $20 million 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 System financing. In connection
with this amendment, the interest rate on the note was increased from 10 1/2% to
11 1/2% effective July 1, 1996. The Company is currently considering
restructuring or refinancing this debt to obtain a lower interest rate and/or
more flexible terms.
The Company's primary revolving credit facility provides for total borrowings
from an international syndicate of six banks of up to $65,000,000, subject to a
defined borrowing base comprised of certain contract receivables. Approximately
$19,000,000 of borrowings were outstanding under the facility at September 30,
1996, and the available facility limit was approximately $32,000,000. At
September 30, 1996, the average interest rate on outstanding borrowings under
this facility was approximately 8%. Borrowings are secured by contract
receivables and certain other assets. The facility restricts the payment of
dividends and contains certain covenants with respect to the Company's working
capital, fixed charge ratio, leverage ratio and tangible net worth, and expires
in September 1997. The Company (or its subsidiaries) also maintains two
additional, smaller revolving credit facilities, under which approximately
$24,200,000 was outstanding at September 30, 1996. The borrowing capacity of the
two additional agreements is approximately $35,000,000, consisting of a
$10,000,000 line of credit collateralized by substantially all the assets of the
Company's subsidiary, Magellan Corporation, and an unsecured $25,000,000 demand
line of credit.
The Company's operations provided net cash of approximately $174,000 in the
first three quarters of 1996. The Company also invested approximately
$12,958,000 in ORBCOMM Global, incurred $8,704,000 in capital expenditures
related to ORBIMAGE satellite remote sensing systems and incurred approximately
$20,781,000 in capital expenditures for various production and test equipment.
On August 7, 1996, ORBCOMM Global issued $170,000,000 of senior unsecured notes
(the "Notes") in a private placement to institutional investors. The Notes are
non-recourse to Orbital, bear interest at a fixed rate of 14% and provide for
revenue participation interest in an aggregate amount of 5% of ORBCOMM System
revenues, payment of which may be deferred by ORBCOMM Global to the extent
certain fixed charge ratios
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are not met. Net proceeds from the sale of the Notes (approximately
$164,500,000) will be applied to (i) the design, construction, launch, operation
and marketing of the ORBCOMM System and related development, operating and
management expenses (including cost contingencies) and (iii) the first two years
of interest on the Notes.
The Notes are expected to be exchangeable for an equal principal amount of 14%
Series B Senior Notes due 2004 with Revenue Participation Interest ("the
Exchange Notes"). The Exchange Notes will be substantially identical in form and
term to the Notes except that the Exchange Notes will be registered under the
Securities Act of 1933, as amended, and will not bear legends restricting the
transfer thereof. The Exchange Notes will be, and the Notes are, fully and
unconditionally guaranteed on a joint and several basis by OCC. The guarantee is
non-recourse to the Company.
Orbital expects to invest up to $15,000,000 in various ORBIMAGE satellite remote
sensing projects in 1996, and is exploring various alternatives for fully
funding such projects. Orbital expects that its capital needs for the fourth
quarter of 1996 will in part be provided by working capital, cash flows from
operations, credit facilities, customer financings and operating lease
arrangements. Orbital expects to raise additional funds through equity and/or
debt financings at the parent company or subsidiary level for its currently
planned operations and capital requirements through 1997.
As previously discussed, in November 1996, the Company's Pegasus XL rocket
launched two scientific spacecraft for NASA into their targeted orbit, but the
two spacecraft did not separate from the rocket's third stage as planned. The
Company does not currently expect the launch problem to affect materially its
liquidity requirements, but should future scheduled launches be significantly
delayed causing delays in contract receipts, the Company's liquidity could be
negatively impacted.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY- HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - A complete listing of exhibits required is given in the
Exhibit Index that precedes the exhibits filed with this report.
(b) On July 18, 1996, the Company filed a Current Report on Form 8-K, dated
July 18, 1996, disclosing financial results for the quarter ended June
30, 1996 and certain matters in connection with the ORBCOMM System
financing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q/A to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: June 28, 2000 By: /s/ Jeffrey V. Pirone
-------------------------------------------
Jeffrey V. Pirone, Executive Vice President
and Chief Financial Officer
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EXHIBIT INDEX
The following exhibits are filed as part of this report.
EXHIBIT NO. DESCRIPTION
11 Statement re: Computation of Earnings Per Share
(transmitted herewith).
27 Financial Data Schedule (such schedule is furnished
for the information of the Securities and Exchange
Commission and is not to be deemed "filed" as part of
the Form 10-Q, or otherwise subject to the liabilities
of Section 18 of the Securities Exchange Act of 1934)
(transmitted herewith).
99 Important Factors Regarding Forward-Looking Statements
(previously filed).
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