-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IDlknXHRl5WUPzW95nx46UNknpH80ssiyrz7GnSZ5vsD9ECGSLABe8qLnOLP+Ast VG8P0+e/D08Y19uOp6bq0A== 0000950133-99-000562.txt : 19990222 0000950133-99-000562.hdr.sgml : 19990222 ACCESSION NUMBER: 0000950133-99-000562 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19990219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORBITAL SCIENCES CORP /DE/ CENTRAL INDEX KEY: 0000820736 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 061209561 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-14279 FILM NUMBER: 99546108 BUSINESS ADDRESS: STREET 1: 21700 ATLANTIC BLVD CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 7034065000 MAIL ADDRESS: STREET 1: 21700 ATLANTIC BLVD STREET 2: 21700 ATLANTIC BLVD CITY: DULLES STATE: VA ZIP: 20166 FORMER COMPANY: FORMER CONFORMED NAME: ORBITAL SCIENCES CORP II DATE OF NAME CHANGE: 19900212 10-Q/A 1 FORM 10-Q/A DATED 6/30/98 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended JUNE 30, 1998 ORBITAL SCIENCES CORPORATION Commission file number 0-18287 DELAWARE 06-1209561 ------------------------ --------------------------- (State of Incorporation) (IRS Identification number) 21700 ATLANTIC BOULEVARD DULLES, VIRGINIA 20166 (703) 406-5000 - ---------------------------------------- ------------------ (Address of principal executive offices) (Telephone number) 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 July 31, 1998, 36,766,746 shares of the registrant's common stock were outstanding. 2 PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
A S S E T S ----------- RESTATED JUNE 30, DECEMBER 31, 1998 1997 --------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 45,757 $ 12,553 Short-term investments, at market 439 2,573 Receivables, net 217,155 190,204 Inventories, net 47,898 50,925 Deferred income taxes and other assets 10,486 8,190 --------- --------- TOTAL CURRENT ASSETS 321,735 264,445 PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED depreciation and amortization of $93,030 and $79,347, respectively 143,397 137,498 INVESTMENTS IN AND ADVANCES TO AFFILIATES, NET 196,267 159,230 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, less accumulated amortization of $23,877 and $19,794, respectively 185,623 181,955 DEFERRED INCOME TAXES AND OTHER ASSETS 28,084 28,511 --------- --------- TOTAL ASSETS $ 875,106 $ 771,639 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Short-term borrowings and current portion of long-term obligations $ 16,079 $ 29,317 Accounts payable 40,493 36,217 Accrued expenses 88,633 100,274 Deferred revenues 47,766 46,138 --------- --------- TOTAL CURRENT LIABILITIES 192,971 211,946 LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 156,109 198,394 OTHER LIABILITIES 1,172 2,443 --------- --------- TOTAL LIABILITIES 350,252 412,783 NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES (1,359) 3,755 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, par value $.01; 10,000,000 shares authorized: Series A Special Voting Preferred Stock, none and one share authorized and outstanding, respectively -- -- Common Stock, par value $.01; 80,000,000 shares authorized, 36,901,818 and 32,481,719 shares outstanding, respectively after deducting 20,877 shares held in treasury 368 325 Additional paid-in capital 487,164 326,187 Unrealized gains on short-term investments 136 272 Cumulative translation adjustments (5,458) (4,943) Retained earnings 44,003 33,260 --------- --------- TOTAL STOCKHOLDERS' EQUITY 526,213 355,101 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 875,106 $ 771,639 ========= =========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 3 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE THREE MONTHS ENDED JUNE 30, RESTATED ---------------------------- 1998 1997 ------------ ------------ REVENUES $ 184,516 $ 142,226 COSTS OF GOODS SOLD 133,665 102,553 ------------ ------------ GROSS PROFIT 50,851 39,673 RESEARCH AND DEVELOPMENT EXPENSES 11,451 4,682 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 29,171 23,244 AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED 1,978 742 ------------ ------------ INCOME FROM OPERATIONS 8,251 11,005 NET INVESTMENT INCOME (EXPENSE) 154 50 EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (8,213) (5,393) NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES 2,235 563 GAIN ON SALE OF SUBSIDIARY STOCK 4,793 -- ------------ ------------ INCOME BEFORE PROVISION FOR INCOME TAXES 7,220 6,225 PROVISION FOR INCOME TAXES 1,222 622 ------------ ------------ NET INCOME $ 5,998 $ 5,603 ============ ============ NET INCOME PER COMMON SHARE $ 0.17 $ 0.17 SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE 35,979,989 32,688,563 ============ ============ NET INCOME PER COMMON SHARE, ASSUMING DILUTION $ 0.17 $ 0.17 SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE, ASSUMING DILUTION 40,815,134 32,743,578 ============ ============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 4 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE SIX MONTHS ENDED JUNE 30, RESTATED ---------------------------- 1998 1997 ------------ ------------ REVENUES $ 370,675 $ 264,338 COSTS OF GOODS SOLD 268,450 190,987 ------------ ------------ GROSS PROFIT 102,225 73,351 RESEARCH AND DEVELOPMENT EXPENSES 20,016 11,694 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 56,655 43,122 AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED 3,938 1,483 ------------ ------------ INCOME FROM OPERATIONS 21,616 17,052 NET INVESTMENT INCOME (EXPENSE) 414 310 EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (18,890) (6,661) NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES 5,115 1,184 GAIN ON SALE OF SUBSIDIARY STOCK 4,793 -- ------------ ------------ INCOME BEFORE PROVISION FOR INCOME TAXES 13,048 11,885 PROVISION FOR INCOME TAXES 2,305 1,188 ------------ ------------ NET INCOME $ 10,473 $ 10,697 ============ ============ NET INCOME PER COMMON SHARE $ 0.31 $ 0.33 SHARES USED IN COMPUTING NET INCOME PER SHARE 34,408,545 32,753,415 ============ ============ NET INCOME PER COMMON SHARE, ASSUMING DILUTION $ 0.31 $ 0.33 SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE, ASSUMING DILUTION 39,284,011 32,753,689 ============ ============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 5 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED; IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, RESTATED ------------------------ 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $ 10,743 $ 10,697 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Depreciation and amortization expense 18,566 12,115 Equity in losses of affiliates 19,164 6,661 Non-controlling interests in losses of consolidated subsidiaries (5,115) (1,184) Gain on sale of subsidiary stock (4,793) -- Foreign currency translation adjustment (515) (323) CHANGES IN ASSETS AND LIABILITIES: (Increase) decrease in current and other non-current assets (34,277) 1,649 Increase (decrease) in current and other non-current liabilities (11,689) 11,411 --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (7,916) 41,026 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (20,978) (18,656) Proceeds from sales of fixed assets -- 34,085 Purchases, sales and maturities of available-for-sale investment securities, net 2,134 1,631 Investments in and advances to affiliates (45,534) (92,884) --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (64,377) (75,824) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings, net of (repayments) (3,316) (5,210) Principal payments on long-term obligations (74,207) (5,604) Net proceeds from issuance of long-term obligations 22,000 22,893 Net proceeds from issuances of common stock 161,020 919 Proceeds from issuance of short-term bridge loan -- 25,000 --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 105,497 37,998 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 33,204 3,200 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,553 26,859 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 45,757 $ 30,059 ========= =========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 6 ORBITAL SCIENCES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 AND 1997 (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. Although the company believes that the disclosures provided are adequate to make the information presented not misleading, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto included in the company's Annual Report on Form 10-K for the year ended December 31, 1997. Operating results for the three- and six-month periods ended June 30, 1998 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 The accompanying condensed consolidated financial statements for the three- and six-month periods ended June 30, 1998 have been restated. Based on accounting decisions made in connection with the preparation of the company's consolidated year-end financial statements, the company has restated the aforementioned financial statements to consistently apply accounting policies to certain transactions recorded in the three- and six-month periods ended June 30, 1998, as summarized below. The company recorded $1,000,000 and $2,500,000 for the three- and six-month periods, respectively, of additional research and development expenses related to certain product enhancements at its Magellan subsidiary (Satellite Access sector) that had been previously capitalized (before considering the associated minority interests of $340,000 and $850,000). For the six-month period ended June 30, 1998, the company recorded $1,200,000 of additional general and administrative expenses in the Space and Ground Infrastructure Systems sector (the "SGIS sector") for estimated post-retirement health benefit obligations related to a plan acquired in a prior business combination (none for the three-month period ended June 30, 1998). The company increased net interest expense in the SGIS sector by approximately $200,000 and reduced net interest expense by approximately $600,000 for the three- and six-month periods ended June 30, 1998, respectively, to reflect the appropriate amount of interest capitalized on certain assets in process. In addition, the company recorded approximately $200,000 of additional general and administrative expenses in the Satellite Services sector related to stock option compensation expense for the three-month period ended June 30, 1998. Lastly, the company revised its tax provision to reflect the impact of these adjustments and to reflect the company's revised estimate of its effective tax rate for the year. 6 7
Three Months Ended Six Months Ended June 30, 1998 June 30, 1998 As Reported As Restated As Reported As Restated ----------- ----------- ----------- ----------- Retained Earnings $47,198,000 $44,003,000 $47,198,000 $44,003,000 Net Income $ 7,419,000 $ 5,998,000 $13,938,000 $10,743,000 Diluted EPS $ 0.21 $ 0.17 $ 0.41 $ 0.31
The restatement noted above is included in the accompanying condensed consolidated financial statements. (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, net of allowances for estimated obsolescence. Components and raw materials are purchased to support future production efforts. Work-in-process inventory consists primarily of (i) costs incurred under long-term fixed-price contracts accounted for using the percentage- of-completion method of accounting applied on a units of delivery basis and (ii) partially assembled commercial products, and generally includes direct production costs and certain allocated indirect costs (including 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) EARNINGS PER SHARE Net income per common share is calculated using the weighted average number of common shares outstanding during the periods. Net income per common share assuming dilution is calculated using the weighted average number of common and common equivalent shares outstanding during the periods, plus the effects of an assumed conversion of the company's convertible notes, after giving effect to all net income adjustments that would result from the assumed conversion. Net income and outstanding shares of common stock used in calculating earnings per share differed from those amounts reported in the consolidated financial statements as follows:
NET INCOME PER NET INCOME PER COMMON SHARE, COMMON SHARE ASSUMING DILUTION ------------ ----------------- Three months ended June 30, 1998: Net income $ 5,998,000 $ 5,998,000 Assuming conversion of convertible notes N/A 1,145,000 ------------ ------------ Net income, as adjusted $ 5,998,000 $ 7,143,000 ============ ============ Outstanding common shares 36,901,818 36,901,818 Effect of weighting outstanding shares (921,829) (921,829)
7 8
Stock options (treasury method) N/A 1,263,716 Convertible notes N/A 3,571,429 ------------ ------------ Adjusted shares 35,979,989 40,815,134 ============ ============ Six months ended June 30, 1998 Net income $ 10,743,000 $ 10,743,000 Assuming conversion of convertible notes N/A 1,460,000 ------------ ------------ Net income, as adjusted $ 10,743,000 $ 12,203,000 ============ ============ Outstanding common shares 36,901,818 36,901,818 Effect of weighting outstanding shares (2,493,273) (2,493,273) Stock options (treasury method) N/A 1,304,037 Convertible notes N/A 3,571,429 ------------ ------------ Adjusted shares 34,408,545 39,284,011 ============ ============ Three months ended June 30, 1997: Net income $ 5,603,000 $ 5,603,000 Assuming conversion of convertible notes N/A N/A ------------ ------------ Net income, as adjusted $ 5,603,000 $ 5,603,000 ============ ============ Outstanding common shares 32,269,326 32,269,326 Effect of weighting outstanding shares (33,742) (33,742) Stock options (treasury method) N/A 507,994 Convertible notes N/A N/A ------------ ------------ Adjusted shares 32,235,584 32,743,578 ============ ============ Six months ended June 30, 1997 Net income $ 10,697,000 $ 10,697,000 Assuming conversion of convertible notes N/A N/A ------------ ------------ Net income, as adjusted $ 10,697,000 $ 10,697,000 ============ ============ Outstanding common shares 32,269,326 32,269,326 Effect of weighting outstanding shares (60,623) (60,623) Stock options (treasury method) N/A 544,986 Convertible notes N/A N/A ------------ ------------ Adjusted shares 32,208,703 32,753,689 ============ ============
(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) RECLASSIFICATIONS Certain reclassifications have been made to the 1997 condensed consolidated financial statements to conform to the 1998 condensed consolidated financial statement presentation. 8 9 (6) COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income." Disclosure requirements with respect to comprehensive income, as of and for the six months ended June 30, 1998 and 1997, are as follows (in thousands):
1998 1997 ---- ---- Comprehensive income: Net income, as reported $10,743 $10,697 Unrealized losses on short-term investments (136) (20) Translation adjustments (515) (323) ------- ------- Total $10,092 $10,354 ======= ======= Accumulated differences between net income, as reported and comprehensive income: Beginning of period $(4,671) $(3,667) Unrealized losses on short-term investments (136) (20) Translation adjustments (515) (323) ------- ------- End of period $(5,322) $(4,010) ======= =======
(7) COMMON STOCK In April 1998, the company sold 3,450,000 shares of its common stock in a public offering at $45.81 per share, generating net proceeds to the company of approximately $150,000,000 after deducting underwriters' discounts and other offering expenses. (8) COMMITMENTS AND SUBSEQUENT EVENTS In June 1998, the company signed a satellite and launch vehicle procurement contract with CCI International N.V. ("CCI") valued at approximately $480,000,000. Subject to negotiation of definitive documentation, the company may also provide CCI with up to $100,000,000 in equity, debt and/or vendor financing, with an option to invest up to an additional $50,000,000. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 Certain statements included in this discussion relating to future revenues, sales, expenses, growth rates, net income, new business, operational performance, schedules, sources and uses of funds, "Year 2000" issues, and the performance of the company's affiliates, Orbital Imaging Corporation ("ORBIMAGE") and ORBCOMM Global L.P. ("ORBCOMM"), are forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance, achievements or investments of the company to differ materially from any future results, performance, achievements or investments expressed or implied by such forward-looking statements. Such factors include: general and economic business conditions, launch results, product performance, risks associated with government contracts, the introduction of products and services by competitors, risks associated with acquired businesses, availability of required capital, the ability of customers and suppliers to assess timely and accurately "Year 2000" issues, market acceptance of new products and technologies, described in "Management's Discussion and Analysis of Financial Condition and Results of Operations Outlook: Issues and Uncertainties" incorporated in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. The company'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 sensor systems, and satellite ground systems. The company's Satellite Access Products sector consists of recreational, high-precision and automotive satellite-based navigation products, satellite communications products and transportation management systems. The company's Satellite Services sector includes satellite-based, two-way mobile data communications services and satellite-based imagery services, conducted through the company's ORBCOMM and ORBIMAGE affiliates, respectively. The company does not control the operational and financial affairs of ORBCOMM or ORBIMAGE, and consequently their financial results are not consolidated with the company's. RECENT DEVELOPMENTS. The company's stock began trading on the New York Stock Exchange in early July 1998 under the ticker symbol "ORB." The company's stock had previously traded on the Nasdaq National Market under the symbol "ORBI." In April 1998, the company sold 3,450,000 shares of its common stock in a public offering at $45.81 per share, generating net proceeds of approximately $150,000,000 (see Liquidity and Capital Resources). In July 1998, ORBCOMM Corporation announced that it elected to postpone its proposed initial public offering of common stock. ORBCOMM Corporation was organized for the sole purpose of investing in and acting as a general partner of ORBCOMM. Orbital, through its subsidiary Orbital Communications Corporation, and Teleglobe Mobile Partners, an affiliate of Teleglobe 10 11 Inc., the existing fifty-percent partners in ORBCOMM, each has reaffirmed its commitment to provide funding to ORBCOMM while considering options for future financing at ORBCOMM (see Liquidity and Capital Resources). In June 1998, the company signed a satellite and launch vehicle procurement contract with CCI International N.V. ("CCI") valued at approximately $480,000,000. Subject to negotiation of definitive documentation, the company may also provide CCI with up to $100,000,000 in equity, debt and/or vendor financing, with an option to invest up to an additional $50,000,000. The company has made a preliminary assessment of potential "Year 2000" issues with respect to various financial and operational computer-related systems. The company has developed an initial corrective action plan that includes (i) reprogramming affected software when appropriate and feasible, (ii) obtaining vendor-provided software upgrades when available and (iii) completely replacing affected systems when necessary. The company currently expects that identified "Year 2000" affected systems will be corrected by the end of 1998. There can be no assurance that the company has identified all "Year 2000" affected systems or that its corrective action plan will be timely and successful. While the company has not determined to date that "Year 2000" issues will materially impact its customers or suppliers, it continues to assess risks associated with such third parties and will develop corrective plans accordingly as more information becomes available. REVENUES. Orbital's revenues for the three-month periods ended June 30, 1998 and 1997 were $184,516,000 and $142,226,000, respectively. Revenues for the six-month periods ended June 30, 1998 and 1997 were $370,675,000 and $264,338,000, respectively. Space and Ground Infrastructure Systems. Revenues from the company's Space and Ground Infrastructure Systems sector totaled $155,701,000 and $122,523,000 for the three months ended June 30, 1998 and 1997, respectively. Revenues from this sector totaled $312,042,000 and $228,722,000 for the six months ended June 30, 1998 and 1997, respectively. Revenues from the company's launch vehicles increased to $47,387,000 in the second quarter of 1998 from $27,223,000 in the second quarter of 1997, and to $93,427,000 for the six months ended June 30, 1998 from $57,117,000 for the six months ended June 30, 1997. The increase in revenues in 1998 as compared to 1997 is attributable to a number of factors, including (i) increased work performed under contracts received for the company's Taurus launch vehicle, (ii) a significant increase in new orders received during 1997 for the company's Pegasus and suborbital launch vehicles and (iii) increased work performed on the X-34 reusable launch vehicle. For the three months ended June 30, 1998, satellite revenues were $57,051,000 as compared to $56,481,000 for the three months ended June 30, 1997. Satellite revenues were $118,583,000 for the six months ended June 30, 1998 as compared to $87,284,000 for the six months ended June 30, 1997. Revenues during 1998 included sales generated by the satellite business acquired from CTA INCORPORATED in August 1997 of approximately $13,282,000 and $29,872,000, respectively, for the three- and six-month periods ended June 30, 1998. 11 12 Revenues from electronics and sensor systems increased to $29,464,000 for the three months ended June 30, 1998 from $22,172,000 for the three months ended June 30, 1997, and to $56,812,000 for the six months ended June 30, 1998 from $50,193,000 for the six months ended June 30, 1997. The increase in 1998 revenues is primarily due to work performed in 1998 on new orders for defense electronics products received during the second half of 1997. Revenues from the company's ground systems products were $21,799,000 for the three months ended June 30, 1998 as compared to $16,692,000 for the three months ended June 30, 1997. Ground systems products revenues were $43,220,000 for the six months ended June 30, 1998 as compared to $34,128,000 for the six months ended June 30, 1997. The increase in 1998 revenues is primarily due to work performed on orders received in 1997 for new satellite ground systems and system upgrades. Although overall infrastructure revenues increased, revenues under procurement agreements with ORBCOMM and ORBIMAGE for the three months ended June 30, 1998 decreased significantly to $27,119,000 from $51,053,000 for the three months ended June 30, 1997. Revenues from sales to ORBCOMM and ORBIMAGE also decreased for the six months ended June 30, 1998 to $52,759,000 from $62,653,000 for the six months ended June 30, 1997, primarily due to a lesser amount of work under the ORBCOMM procurement agreement as it nears completion. Satellite Access Products. Revenues from sales of navigation, communications and transportation management systems and products increased to $28,556,000 for the three months ended June 30, 1998 from $19,899,000 for the three months ended June 30, 1997. Satellite access products revenues were $58,310,000 for the six months ended June 30, 1998 as compared to $35,535,000 for the six months ended June 30, 1997. The three- and six-month periods ended June 30, 1998 included approximately $11,661,000 and $22,665,000, respectively, of sales generated by the company's high-precision navigation products that were acquired as a result of the December 1997 merger of Ashtech Inc. ("Ashtech") with the company's subsidiary, Magellan Corporation ("Magellan"). GROSS PROFIT/COSTS OF GOODS SOLD. Costs of goods sold include the costs of personnel, materials, subcontracts and overhead related to sales of commercial products and revenue earned under various long-term development and production contracts. 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 second quarter of 1998 was $50,851,000 as compared to $39,673,00 in the second quarter of 1997. The company's gross profit for the first half of 1998 was $102,225,000 as compared to $73,351,000 for the first half of 1997. Gross profit as a percentage of revenues was approximately 28% for the three- and six-month periods ended June 30, 1998 and 1997. Space and Ground Infrastructure Systems. Gross profit from the company's Space and Ground Infrastructure Systems sector was $41,988,000 (or 27% of revenues) and $33,770,000 (or 28% of revenues) for the three months ended June 30, 1998 and 1997, respectively. Gross profit for this sector was $84,828,000 (or 27% of revenues) and $62,362,000 (or 27% of revenues) for the six months ended June 30, 1998 and 1997, respectively. 12 13 Gross profit margins from the company's space and ground infrastructure systems for the three- and six-month periods ended June 30, 1998 were generally consistent with comparable 1997 periods. Gross margins for the company's satellite products decreased to 28% for the six months ended June 30, 1998 from 30% for the six months ended June 30, 1997, primarily due to production delays experienced in 1998 on certain commercial satellite contracts. Satellite Access Products. Gross profit for satellite access products was $9,584,000 (or 34% of revenues) and $5,456,000 (or 27% of revenues) for the three months ended June 30, 1998 and 1997, respectively, and $19,692,000 (or 34% of revenues) and $11,051,000 (or 31% of revenues) for the six months ended June 30, 1998 and 1997, respectively. The overall increase in gross margins is due to the inclusion of higher margin high-precision navigation product lines acquired from Ashtech offset, in part, by lower margins achieved on automotive navigation product sales. During the three months ended June 30, 1998, Magellan disposed of approximately $5,000,000 of certain obsolete inventory for which adequate reserves had been previously recorded. Magellan continues to face changing market conditions placing significant pressure on individual product life-times and inventory levels. 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 for the three months ended June 30, 1998 and 1997 were $11,451,000 (or 6.2% of revenues) and $4,682,000 (or 3.3% of revenues), respectively. Research and development expenses were $20,016,000 (or 5.4% of revenues) and $11,694,000 (or 4.4% of revenues) for the six months ended June 30, 1998 and 1997, respectively. Research and development expenses for the second quarter of 1998 included approximately $2,000,000 of costs related to identifying and correcting anomalies experienced on certain ORBCOMM satellites. Current year expenses also included increased research and development efforts for satellite access products. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses include the costs of marketing, advertising, promotional and other selling expenses as well as the costs of the finance, administrative and general management functions of the company. Selling, general and administrative expenses for the three months ended June 30, 1998 and 1997 were $29,171,000 (or 15.8% of revenues) and $23,244,000 (or 16.3% of revenues), respectively. Selling, general and administrative expenses for the six months ended June 30, 1998 and 1997 were $56,655,000 (or 15.3% of revenues) and $43,122,000 (or 16.3% of revenues), respectively. The decrease in selling, general and administrative expenses as a percentage of revenues during 1998 as compared to 1997 was primarily attributable to substantial revenue growth, particularly in launch vehicles and satellite systems, with only a modest growth in selling, general and administrative expenses. INTEREST INCOME AND INTEREST EXPENSE. Interest income for the periods reflects interest earnings on cash equivalents and short-term investments. Interest expense includes the cost of borrowings on Orbital's convertible subordinated notes, revolving credit facilities and other secured and unsecured debt. Interest income and interest expense was $1,425,000 and $1,272,000, respectively, for the three months ended June 30, 1998 as compared to interest 13 14 income and interest expense of $630,000 and $580,000, respectively, for the three months ended June 30, 1997. The company's interest income and interest expense for the first six months of 1998 was $1,873,000 and $1,459,000, respectively, while for the first six months of 1997, the company incurred interest income and interest expense of $986,000 and $676,000, respectively. Interest expense has been reduced by capitalized interest of $5,516,000 and $1,636,000 for the three months ended June 30, 1998 and 1997, respectively, and by $9,181,000 and $2,971,000 for the six months ended June 30, 1998 and 1997, respectively. EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES. Equity in earnings (losses) of affiliates net of non-controlling interests in (earnings) losses of consolidated subsidiaries were ($5,978,000) and ($4,830,000) for the three months ended June 30, 1998 and 1997, respectively, and were ($13,775,000) and ($5,477,000) for the six months ended June 30, 1998 and 1997, respectively. These amounts primarily represent (i) elimination of proportionate profits or losses on sales of infrastructure products to ORBCOMM and ORBIMAGE, (ii) the company's pro rata share of ORBCOMM's, ORBCOMM International Partners, L.P.'s and ORBIMAGE's current period earnings and losses and (iii) non-controlling stockholders' pro rata share of ORBCOMM USA L.P.'s and Magellan's current period earnings and losses. The increase in total losses during 1998 is primarily due to losses at ORBCOMM. PROVISION FOR INCOME TAXES. The company recorded an income tax provision of $1,222,000 and $622,000 for the three months ended June 30, 1998 and 1997, respectively and of $2,305,000 and $1,188,000 for the six months ended June 30, 1998 and 1997, respectively. The company records its interim income tax provisions based on estimates of the company's effective tax rate expected to be applicable for the full fiscal year. Estimated effective rates recorded during interim periods may be periodically revised, if necessary, to reflect current estimates. At December 31, 1997, Orbital had approximately $150,000,000 of U.S. Federal net operating loss carryforwards and $3,000,000 of U.S. Federal research and experimental tax credit carryforwards, which are available to reduce future income tax obligations, subject to certain annual limitations and other restrictions. NET INCOME (LOSS). Net income from the company's Space and Ground Infrastructure Systems sector was approximately $18,487,000 for the three months ended June 30, 1998 as compared to $10,597,000 for the three months ended June 30, 1997. This sector provided net income of approximately $33,671,000 and $18,666,000 for the six months ended June 30, 1998 and 1997, respectively. The company's Satellite Access Products sector reported a net loss in the second quarter of 1998 of $5,761,000 compared to net income of $634,000 in the 1997 quarter. This sector reported a net loss in the first half of 1998 of $7,527,000 as compared to net income of $1,352,000 in the 1997 six-month period. LIQUIDITY AND CAPITAL RESOURCES The company's growth has required substantial capital to fund expanding working capital needs, investments in ORBCOMM and ORBIMAGE, certain business acquisitions, new business 14 15 initiatives, research and development and capital expenditures. The company has funded these requirements to date, and expects to fund its future requirements, through cash generated by operations, working capital, loan facilities, asset-based financings, joint venture arrangements and private and public equity and debt offerings. The company expects to continue to pursue potential acquisitions and equity investments that it believes would enhance its businesses and to fund such transactions through cash generated by operations, existing cash and loan facilities, the issuance of equity and/or debt securities and asset-based financings. In April 1998, the company sold 3,450,000 shares of its common stock in a public offering, generating net proceeds of approximately $150,000,000 (the "Offering"). Orbital plans to use the net proceeds from the Offering for (i) investments in ORBCOMM, new projects or emerging space-related businesses, such as CCI, (ii) expanded research and development for new products, (iii) acquisitions of businesses and/or product lines complementary to the company's existing businesses, and (iv) for other general corporate purposes. In July 1998, ORBCOMM Corporation announced that it elected to postpone its proposed initial public offering of common stock. Orbital, through its subsidiary Orbital Communications Corporation, and Teleglobe Mobile Partners, an affiliate of Teleglobe Inc., the existing fifty-percent partners in ORBCOMM, each has reaffirmed its commitment to provide funding to ORBCOMM while considering options for future financing at ORBCOMM. Orbital expects to fund its share of ORBCOMM's capital needs through existing resources, including credit facilities. If such funding is required, the company currently estimates that its share of such funding could be as much as $20,000,000 through the remainder of 1998. Cash, cash equivalents and short-term investments were $45,757,000 at June 30, 1998, and the company had total debt obligations outstanding of approximately $172,188,000 at June 30, 1998. The outstanding debt is comprised of the company's convertible subordinated notes, advances under the company's line of credit facilities, secured and unsecured notes, and asset-based financings. The company's primary revolving credit facility provides for total borrowings from an international syndicate of six banks of up to $100,000,000. No borrowings were outstanding under the facility at June 30, 1998. Borrowings are secured by contract receivables, and the facility prohibits the payment of cash dividends, contains certain covenants with respect to the company's working capital, fixed charge ratio, leverage ratio and consolidated net worth, and expires in August 2001. The company (or its subsidiaries) also maintains additional, smaller revolving credit facilities, under which approximately $1,400,000 was outstanding at June 30, 1998 at a weighted average interest rate of 10%. Additional borrowing capacity on these other agreements is approximately $28,000,000 at June 30, 1998. The company used approximately $94,250,000 of proceeds from the Offering to pay down outstanding borrowings on these credit facilities. The company's operations used net cash of approximately $7,916,000 during the first half of 1998. The company provided $15,000,000 in capital and $21,513,000 in vendor financing (approximately one-half of which has been advanced to Orbital by an affiliate of Teleglobe Inc.) to ORBCOMM during the first half of 1998. In addition, during the first half of 1998, the 15 16 company invested $20,978,000 in capital expenditures for various satellite and launch vehicle equipment and other production, manufacturing, test and office equipment. Orbital plans to expand its offices and its satellite-related engineering, manufacturing and operations facilities. The company anticipates that the new construction will be conducted in two phases during 1998-1999 and 2000-2001. To finance the expansion, Orbital is currently pursuing various financing alternatives, including third-party debt financings and "built-to-suit" agreements. Consequently, the company does not expect to spend a material amount of cash to finance this construction. Orbital expects that its capital needs for the remainder of 1998 will be provided by working capital, cash flows from operations, existing credit facilities, and operating lease arrangements. 16 17 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY- HOLDERS (a) The annual meeting of stockholders of the Company was held on April 23, 1998. (b) Not applicable. (c) (i) Election of five directors, each serving for a three-year term ending in 2001: Fred C. Alcorn Votes: For: 30,436,192 Withheld: 78,595 Lennard A. Fisk Votes: For: 30,439,976 Withheld: 74,811 Jack L. Kerrebrock Votes: For: 30,431,280 Withheld: 83,507 David W. Thompson Votes: For: 30,438,551 Withheld: 76,236 James R. Thompson Votes: For: 30,436,366 Withheld: 78,421 (ii) Proposal to approve the adoption of an amendment to the Orbital Sciences Corporation 1997 Stock Option and Incentive Plan increasing the number of shares of Common Stock 17 18 authorized for issuance from 1,600,000 to 3,200,000. Votes: For: 21,839,679 Against: 8,533,649 Abstain: 141,459 (iii) Proposal to ratify the selection of KPMG Peat Marwick LLP as the Company's independent accountants for the fiscal year ending December 31, 1998. Votes: For: 30,361,359 Against: 86,901 Abstain: 66,526 ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - A complete listing of exhibits required is given in the Exhibit Index that precedes the exhibits filed with this report. (b) Reports on Form 8-K (i) On April 13, 1998, the Company filed a Current Report on Form 8-K, dated April 1, 1998, disclosing its Pegasus launch and the current status of testing of ORBCOMM satellites and its INDOSTAR-1 satellite. (ii) On April 28, 1998, the Company filed a Current Report on Form 8-K, dated April 21, 1998, disclosing the financial results of the Company for the quarter ended March 31, 1998. (iii) On May 6, 1998, the Company filed a Current Report on Form 8-K, dated May 4, 1998, disclosing its selection as a space segment contractor of CCI and announcing the termination of its discussions with Mobile Communications Holdings, Inc. 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ORBITAL SCIENCES CORPORATION DATED: February 19, 1999 By: /s/ David W. Thompson ----------------------------------------------- David W. Thompson, President and Chief Executive Officer DATED: February 19, 1999 By: /s/ Jeffrey V. Pirone ----------------------------------------------- Jeffrey V. Pirone, Executive Vice President and Principal Financial Officer 19 20 EXHIBIT INDEX The following exhibits are filed as part of this report.
Exhibit No. Description - ----------- ----------- 10.1.3 Amendment No. 3 to Second Amended and Restated Credit and Reimbursement Agreement dated as of June 18, 1998, among Orbital Sciences Corporation, Morgan Guaranty Trust Company of New York and the Banks listed therein (previously filed). 11 Statement re: Computation of Earnings Per Share (transmitted herewith). 27 Financial Data Schedule (such schedule is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of the Form 10-Q/A, or otherwise subject to the liabilities of Section 18 of the Securities Act of 1934) (transmitted herewith).
20 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11. STATEMENT re: COMPUTATION OF EARNINGS PER SHARE THREE-MONTH PERIOD ENDED JUNE 30, 1998 - --------------------------------------------------------------------------------
RESTATED RESTATED ASSUMING BASIC DILUTION (2) ------------ ------------ WEIGHTED AVERAGE OF OUTSTANDING SHARES 35,979,989 35,979,989 COMMON EQUIVALENT SHARES: OUTSTANDING STOCK OPTIONS N/A 1,263,716 OTHER POTENTIALLY DILUTIVE SECURITIES: CONVERTIBLE NOTES (1) N/A 3,571,429 ----------- ----------- SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE 35,979,989 40,815,134 =========== =========== NET INCOME $ 5,998,000 $ 5,998,000 ADJUSTMENTS ASSUMING DILUTION: INTEREST EXPENSE ADJUSTMENT, NET OF APPLICABLE TAXES N/A 1,145,000 ----------- ----------- NET INCOME $ 5,998,000 $ 7,143,000 =========== =========== NET INCOME PER COMMON SHARE $ 0.17 $ 0.17 =========== ===========
SIX-MONTH PERIOD ENDED JUNE 30, 1998 - --------------------------------------------------------------------------------
RESTATED RESTATED ASSUMING BASIC DILUTION (2) ------------ ------------ WEIGHTED AVERAGE OF OUTSTANDING SHARES 34,408,545 34,408,545 COMMON EQUIVALENT SHARES: OUTSTANDING STOCK OPTIONS N/A 1,304,037 OTHER POTENTIALLY DILUTIVE SECURITIES: CONVERTIBLE NOTES (1) N/A 3,571,429 ------------ ----------- SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE 34,408,545 39,284,011 ============ =========== NET INCOME $ 10,743,000 $10,743,000 ADJUSTMENTS ASSUMING DILUTION: INTEREST EXPENSE ADJUSTMENT, NET OF APPLICABLE TAXES N/A 1,460,000 ----------- ----------- NET INCOME $ 10,743,000 $12,203,000 ============ =========== NET INCOME PER COMMON SHARE $ 0.31 $ 0.31 ============ ===========
NOTES: (1)- On September 16, 1997, the company sold $100 million of 5% convertible subordinated notes due October 2002. The notes are convertible at the option of the holders into Orbital common stock at a conversion price of $28.00 per share. (2)- Subsidiary stock options that enable holders to obtain subsidiary's common stock pursuant to effective stock option plans are included in computing the subsidiary's earnings per share, to the extent dilutive. Those earnings per share data are included in the company's per share computations based on the company's holdings of the subsidiary's stock. For the three and six months ended June 30, 1998, all such subsidiary stock options were anti-dilutive. EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AT AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000820736 ORBITAL SCIENCES CORP/DE/ 1000 YEAR DEC-31-1998 JAN-01-1998 JUN-30-1998 45,757 439 225,256 (8,101) 47,898 321,735 236,427 (93,030) 875,106 192,971 156,109 0 0 368 525,845 875,106 370,675 370,675 268,450 268,450 0 721 1,460 13,048 2,305 10,743 0 0 0 10,743 0.31 0.31
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