-----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, SN7jQdTqQWpzXiAVgKGoauRkuuXcKps9NApcULLOiTppGgFttE5AaBpuEPEV32l2 WuGa6iBG8RP0fac3wB+JfQ== 0000950133-00-002077.txt : 20000516 0000950133-00-002077.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950133-00-002077 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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 SEC ACT: SEC FILE NUMBER: 001-14279 FILM NUMBER: 634762 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 1 ORBITAL SCIENCES CORPORATION FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended MARCH 31, 2000 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 May 10, 2000, 37,417,317 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 (IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)
A S S E T S ------------- MARCH 31 DECEMBER 31, 2000 1999 ---------------------- ---------------------- CURRENT ASSETS: Cash and cash equivalents $ 31,294 $ 74,524 Restricted cash and short-term investments, at market 34,532 34,630 Receivables, net 261,610 295,315 Inventories, net 59,454 54,483 Deferred income taxes and other current assets 21,011 17,187 ---------------------- ---------------------- TOTAL CURRENT ASSETS 407,901 476,139 ---------------------- ---------------------- PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED DEPRECIATION AND AMORTIZATION OF $126,498 AND $122,129, RESPECTIVELY 129,829 137,622 INVESTMENTS IN AND ADVANCES TO AFFILIATES, NET 127,944 141,273 GOODWILL, LESS ACCUMULATED AMORTIZATION OF $46,065 AND $28,744, RESPECTIVELY 274,490 278,309 DEFERRED INCOME TAXES AND OTHER ASSETS, LESS ACCUMULATED AMORTIZATION OF $3,478 AND $2,520, RESPECTIVELY 58,414 59,569 ---------------------- ---------------------- TOTAL ASSETS $ 998,578 $ 1,092,912 ====================== ====================== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Short-term borrowings and current portion of long-term obligations $ 129,585 $ 131,073 Accounts payable 54,334 83,566 Accrued expenses 125,520 138,613 Due to joint venture partner -- 28,418 Deferred revenues 123,528 133,499 ---------------------- ---------------------- TOTAL CURRENT LIABILITIES 432,967 515,169 ---------------------- ---------------------- LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 237,566 239,672 OTHER LIABILITIES 14,072 16,208 ---------------------- ---------------------- TOTAL LIABILITIES 684,605 771,049 ---------------------- ---------------------- NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES 22,581 15,071 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, par value $.01; 10,000,000 shares authorized: none outstanding Common Stock, par value $.01; 80,000,000 shares authorized, -- -- 37,417,245 and 37,400,814 shares outstanding, respectively 374 374 Additional paid-in capital 509,660 497,923 Accumulated other comprehensive loss (5,772) (5,159) Accumulated deficit (212,870) (186,346) ---------------------- ---------------------- TOTAL STOCKHOLDERS' EQUITY 291,392 306,792 ---------------------- ---------------------- TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 998,578 $ 1,092,912 ====================== ======================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 3 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------------------------ 2000 1999 --------------------- ------------------- REVENUES $223,541 $200,171 COSTS OF GOODS SOLD 181,653 159,121 --------------------- --------------------- GROSS PROFIT 41,888 41,050 RESEARCH AND DEVELOPMENT EXPENSES 8,089 10,082 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 28,132 28,541 AMORTIZATION OF GOODWILL 3,599 2,866 --------------------- --------------------- INCOME (LOSS) FROM OPERATIONS 2,068 (439) NET INVESTMENT INCOME (EXPENSE) NET OF INTEREST EXPENSE OF $6,038 AND $4,121, RESPECTIVELY (4,449) (3,297) EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (24,119) (24,390) NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES 1,249 3,261 ---------------------- --------------------- LOSS BEFORE PROVISION FOR INCOME TAXES (25,251) (24,865) PROVISION FOR INCOME TAXES 1,273 1,298 ---------------------- --------------------- NET LOSS $ (26,524) $ (26,163) ===================== ===================== NET LOSS PER COMMON AND DILUTIVE SHARE $ (0.71) $ (0.70) ===================== ===================== SHARES USED IN COMPUTING NET LOSS PER COMMON AND DILUTIVE SHARE 37,409,030 37,138,029 ===================== =====================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. - 3 - 4 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS; UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, --------------------------------------------- 2000 1999 ------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET LOSS $ (26,524) $ (26,163) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Depreciation and amortization expenses 12,040 10,180 Amortization of prepaid financing costs 1,355 773 Equity in losses of affiliates 24,119 24,390 Non-controlling interests in losses of consolidated subsidiaries (1,249) (3,261) Loss on sale of fixed assets and investments 360 -- CHANGES IN ASSETS AND LIABILITIES: (Increase) decrease in receivables 53,980 (62,094) (Increase) decrease in inventories (4,971) (1,082) (Increase) decrease in other assets (3,207) (7,764) Increase (decrease) in accounts payable and accrued expenses (42,419) 28,215 Increase (decrease) in deferred revenue (7,012) 27,860 Increase (decrease) in other liabilities (2,136) (1,801) ---------------- --------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,336 (10,747) ---------------- --------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (10,556) (9,716) Payments for business combinations -- (1,064) Purchases of investment securities (1,698) -- Investments in and advances to affiliates (4,050) (18,716) ---------------- --------------------- NET CASH USED IN INVESTING ACTIVITIES (16,304) (29,496) ---------------- --------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings, net of (repayments) (986) 1,462 Principal payments on long-term obligations (2,608) (9,252) Net proceeds from issuances of long-term obligations -- 49,000 Net proceeds from issuances of common stock -- 2,109 Repayments to joint venture partner (28,418) (4,918) ---------------- -------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (32,012) 38,401 ---------------- -------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 750 430 ---------------- -------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (43,230) (1,412) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 74,524 15,268 ---------------- -------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,294 $ 13,856 ================ ====================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. - 4 - 5 ORBITAL SCIENCES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 AND 1999 (UNAUDITED) (1) 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"). The company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the company's Annual Report on Form 10-K for the year ended December 31, 1999. Operating results for the three -month period ended March 31, 2000 are not necessarily indicative of the results expected for the full year. Orbital Sciences Corporation, together with its subsidiaries, is hereafter referred to as "Orbital" or the "company." (2) PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The preparation of condensed 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 the 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. Management periodically assesses and evaluates the sufficiency and/or deficiency of estimated liabilities recorded for various operational and business risks and uncertainties. Actual results could differ from these estimates. Certain reclassifications have been made to the 1999 financial statements and footnote disclosures to conform to the 2000 financial statement presentation. All financial amounts are stated in U.S. dollars unless otherwise indicated. (3) 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 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 5 6 administrative costs). Work-in-process inventory has been reduced by contractual progress payments received. Finished goods inventory consists of fully assembled commercial products available for sale. (4) INDUSTRY SECTOR INFORMATION Orbital designs, manufactures, operates and markets a broad range of space-related products and services that are grouped into three sectors: space and ground infrastructure systems, satellite access products and satellite services. Space and ground infrastructure systems include launch vehicles and advanced programs, satellites and related space systems, electronics and sensor and transportation management systems, and satellite ground systems, space robotics, mapping and land information services. Satellite access products include satellite-based navigation, positioning and communications products. Satellite services include satellite-based mobile data communications, satellite-based remote imaging services, satellite-based automotive information systems and other satellite-based services. Orbital reports industry sector information in conformance with Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 established standards for reporting information about operating segments in financial statements and requires selected information about operating segments. Reportable segments within the space and ground infrastructure systems sector have been determined generally based upon product lines. Certain operating business units within this sector have been aggregated as they exhibit similar long-term financial performance characteristics and do not meet certain quantitative thresholds. In 1999, the company recast the composition of its reportable segments as a result of new reporting mechanisms and operating decision making procedures. The corresponding segment information for the prior years has been revised to conform to the 1999 presentation. The following table presents operating information for the three months ended March 31, 2000 and 1999 and identifiable assets at March 31, 2000 and December 31, 1999 by reportable segment. Intersegment and intersector sales are accounted for based on prices negotiated by the parties. There were no significant sales or transfers between segments. 6 7
THREE MONTHS ENDED MARCH 31, (In thousands) 2000 1999 ---- ---- LAUNCH VEHICLES AND ADVANCED PROGRAMS: Revenues $ 34,900 $ 43,411 Operating income (loss) 3,531 2,665 Identifiable assets 120,906 125,157 Capital expenditures 626 3,093 Depreciation and amortization 1,596 1,808 SATELLITES AND RELATED SPACE SYSTEMS: Revenues $ 67,400 $ 63,166 Operating income (loss) 69 8,179 Identifiable assets 72,599 58,153 Capital expenditures 1,484 2,167 Depreciation and amortization 1,499 1,721 ELECTRONICS AND SENSOR SYSTEMS AND TRANSPORTATION MANAGEMENT SYSTEMS: Revenues $ 35,397 $ 35,813 Operating income (loss) 1,850 (217) Identifiable assets 104,341 114,765 Capital expenditures 404 246 Depreciation and amortization 1,083 29 SATELLITE GROUND SYSTEMS, SPACE ROBOTICS, MAPPING AND LAND INFORMATION SERVICES: Revenues $ 57,691 $ 28,691 Operating income (loss) 2,680 3,612 Equity in earnings (losses of affiliates) (90) -- Identifiable assets 201,230 213,301 Capital expenditures 1,423 2,377 Depreciation and amortization 2,177 488 TOTAL SPACE AND GROUND INFRASTRUCTURE SYSTEMS: Revenues $ 195,388 $171,081 Operating income (loss) 8,130 14,239 Equity in earnings (losses of affiliates) (90) -- Identifiable assets 499,076 511,376 Capital expenditures 3,937 7,883 Depreciation and amortization 6,355 4,046 SATELLITE ACCESS PRODUCTS: Revenues $ 24,691 $ 26,994 Operating income (loss) (3,553) (4,749) Identifiable assets 107,996 92,939 Capital expenditures 300 700 Depreciation and amortization 1,727 1,996 SATELLITE SERVICES: Revenues $ 3,462 $ 2,096 Operating income (loss) 292 (5,852) Equity in earnings (losses of affiliates) (24,029) (24,390) Non-controlling interest in (earnings) losses consolidated subsidiaries 103 1,280 Identifiable assets 158,649 147,072 Capital expenditures 55 24 Depreciation and amortization 314 139 CORPORATE AND OTHER: Operating income (loss) $ (2,801) $ (4,077) Non-controlling interest in (earnings) losses consolidated subsidiaries 1,146 1,981 Identifiable assets 216,639 341,525 Capital expenditures 6,264 1,109 Depreciation and amortization 3,644 3,999 CONSOLIDATED:
7 8
THREE MONTHS ENDED MARCH 31, (In thousands) 2000 1999 ---- ---- Revenues $ 223,541 $ 200,171 Operating income (loss) 2,068 (439) Equity in earnings (losses of affiliates) (24,119) (24,390) Non-controlling interest in (earnings) losses consolidated Subsidiaries 1,249 3,261 Identifiable assets 982,360 1,092,912 Capital expenditures 10,556 9,716 Depreciation and amortization 12,040 10,180
(5) EARNINGS PER SHARE Net income (loss) per common share is calculated using the weighted average number of common shares outstanding during the periods. Net income (loss) 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. In periods of net loss, the assumed conversion of convertible notes and stock options is anti-dilutive. Accordingly, fully diluted per-share losses are the same as basic losses per share disclosed on the accompanying statements of operations. If the company had reported net income for the three months ended March 31, 2000 and 1999, the number of shares used in calculating diluted earnings per share would have been 41,220,187 and 41,751,171, respectively. 8 9 (6) COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) and associated differences are as follows:
THREE MONTHS ENDED MARCH 31, 2000 1999 ---- ---- (In thousands) Differences between net income (loss), as reported, and comprehensive income (loss): Net loss, as reported $ (26,524) $ (26,163) Translation adjustments (613) 325 ------------ ----------- Comprehensive loss $ (27,137) $ (25,838) ============ ============ Accumulated differences between net loss, as reported, and comprehensive loss: Beginning of period $ (5,159) $ (7,149) Translation adjustments (613) 325 ------------ ----------- End of period $ (5,772) $ (6,824) ============ ============
(7) INVESTMENTS IN AND ADVANCES TO ORBCOMM In 1993, the company's subsidiary, Orbital Communications Corporation ("OCC"), and Teleglobe Mobile Partners ("Teleglobe Mobile"), an affiliate of Teleglobe Inc. ("Teleglobe"), formed a partnership, ORBCOMM Global, L.P. ("ORBCOMM"), for the design, development, construction, integration, testing and operation of a low-Earth orbit satellite communications system (the "ORBCOMM System"). Through December 31, 1999, OCC and Teleglobe Mobile were both 50% general partners in ORBCOMM. Additionally, through December 31, 1999, OCC was a 2% general partner in ORBCOMM USA, L.P. ("ORBCOMM USA") and Teleglobe Mobile was a 2% general partner in ORBCOMM International Partners, L.P. ("ORBCOMM International"), two partnerships formed to market the ORBCOMM System. ORBCOMM was a 98% general partner in each of the two marketing partnerships through December 31, 1999. These partnership agreements were amended as of January 1, 2000, as discussed below. Pursuant to the terms of the partnership agreements, until December 31,1999, (i) OCC and Teleglobe Mobile shared equal responsibility for the operational and financial affairs of ORBCOMM, (ii) OCC controlled and consolidated the operational and financial affairs of ORBCOMM USA, and (iii) Teleglobe Mobile controlled the operational and financial affairs of ORBCOMM International. Since OCC was unable to control, but was able to exercise significant influence over ORBCOMM's and ORBCOMM International's operational and financial affairs, the company accounted for its investments in ORBCOMM and ORBCOMM International using the equity method of accounting. In January 2000, Orbital entered into an agreement (the "Omnibus Agreement") with ORBCOMM, Teleglobe, OCC, and Teleglobe Mobile pursuant to which: 9 10 - Teleglobe Mobile became ORBCOMM's sole general partner and majority owner, with an interest of approximately 66% as of March 31, 2000; - OCC remained as a limited partner to ORBCOMM, with a minority ownership interest of approximately 34% as of March 31, 2000; and - Orbital received a payment plan from ORBCOMM to settle deferred invoice amounts. As a result of the Omnibus Agreement and the related reduction in the company's ownership interest in ORBCOMM, the company's share of ORBCOMM's total capital exceeded the book value of Orbital's investment in ORBCOMM. Accordingly, Orbital recorded a $11,736,000 increase in additional paid-in capital in the first quarter of 2000 as a result of this transaction. A deferred tax obligation of $4,448,000 was established with a corresponding reduction in the deferred tax valuation allowance. As part of the Omnibus Agreement, on January 26, 2000, OCC and Teleglobe Mobile each contributed its 2% direct participation interest in ORBCOMM USA and ORBCOMM International, respectively, to ORBCOMM. As a result of this contribution, these companies ceased doing business as separate entities and ORBCOMM assumed their business operations. Consequently, Orbital no longer consolidates ORBCOMM USA's financial statements. The contribution of ORBCOMM USA to ORBCOMM resulted in a decrease in Orbital's investments in affiliates of $9,008,000 and non-cash changes to balance sheet accounts as follows (in thousands):
Decrease in accounts receivable and other current assets $ (742) Decrease in accounts payable and other accrued liabilities 414 Decrease in due to affiliates 17,992 Increase in non controlling interest in net assets of consolidated subsidiary (8,656) ---------- Net $ 9,008 ==========
Through December 31, 1999, the company had deferred invoicing ORBCOMM for approximately $91,000,000. Additionally, approximately $33,000,000 (including interest) of these amounts was advanced from an affiliate of Teleglobe to Orbital. As part of the Omnibus Agreement, Orbital, Teleglobe and ORBCOMM agreed, among other things, to settle the deferred invoicing and related cash advances. In January 2000, ORBCOMM paid the company approximately $33,000,000 in cash, which was then used by the company to repay the advances from Teleglobe. In addition, in March 2000, Orbital converted approximately $33,000,000 of its deferred invoices into partnership interests of ORBCOMM. Also, in January 2000, the company converted $2,962,000 of invoices due to Orbital from ORBCOMM pursuant to an administrative services agreement into an equity contribution to ORBCOMM. Finally, of the remaining $25,000,000 owed to Orbital, ORBCOMM paid one-third of the balance in the first quarter of 2000 and the balance is due by June 2001. 10 11 At March 31, 2000 and December 31, 1999, Orbital's investments in and advances to ORBCOMM was approximately $97,605,000 and $107,989,000, respectively. In addition, ORBCOMM owed the company a total of $30,222,000 and $48,711,000 at March 31, 2000 and December 31, 1999, respectively, which is included in receivables in the accompanying balance sheet. (8) DEBT OBLIGATIONS Orbital has a credit facility with an international syndicate of nine banks. This credit facility contains certain financial and operating covenants. In April 2000, Orbital and the banks signed an amendment that waived Orbital's noncompliance with certain covenants for all periods prior to the amendment date and established new covenant levels for 2000 net worth, leverage (including senior leverage), fixed charges, capital expenditures and subsidiary debt. Orbital also agreed with its banks to further reduce the total amount that is available under the facility on August 1, 2000, by either (i) an additional $40,000,000 if Orbital and the banks restructure the facility by May 31, 2000, or (ii) by an additional $60,000,000 if Orbital is unsuccessful in restructuring the facility by that date. Orbital is required to apply toward this reduction 50% of the net cash proceeds that Orbital receives from any equity offering, asset sale or debt issuance by Orbital or its domestic wholly owned subsidiaries. In addition, Orbital agreed to further reduce the facility to $85,000,000 by July 2001. The company's 12% note payable restricts the payment of cash dividends and contains certain covenants with respect to fixed charges ratio, leverage ratio and tangible net worth, and includes certain cross-default provisions. In April 2000, Orbital and the noteholder signed an amendment that waived noncompliance with certain financial covenants for all periods prior to the amendment date and for 2000. (9) COMMITMENTS AND CONTINGENCIES In the first quarter of 1999, a number of class action lawsuits were filed against the company alleging violations of the federal securities laws on behalf of purchasers of the company's stock during the period from April 21, 1998 through February 16, 1999, and seeking monetary damages. An additional class action complaint was filed in 1999 on behalf of purchasers of call options. In the fourth quarter of 1999, in connection with the company's announcement of the restatement of its financial statements for fiscal years 1997, 1998 and the first two quarters of 1999, a class action lawsuit was filed against the company alleging violations of the federal securities laws, on behalf of purchasers of the company's stock and call options during the period from April 22, 1997 through October 29, 1999. These class action lawsuits have been consolidated. While the amounts to be claimed may be substantial, the company believes that the allegations are without merit and intends to defend vigorously against such allegations. 11 12 In July 1999, a class action complaint was filed on behalf of a class comprised of purchasers and lessees of a high precision GPS product manufactured by Magellan (as a successor to Ashtech Inc.) against Sokkia Corporation and certain of its affiliates, Magellan and others in the Circuit Court of Henry County, Alabama. The complaint alleges breach of contract and warranty claims and seeks unspecified compensatory and punitive damages. The company believes that the allegations are without merit and intends to defend vigorously against such allegations. In the first quarter of 2000, PT Media Citra Indostar, an Indonesian company ("PT-MCI"), commenced arbitration seeking a refund of $163,000,000 PT-MCI asserts it paid in connection with a communications satellite constructed by CTA under a contract that was assigned to Orbital in connection with its acquisition of CTA. PT-MCI's allegations include fraud and multiple breaches of contract. The company's claims against PT-MCI for unpaid invoices in the approximate amount of $14,000,000 are also part of the arbitration proceedings. Orbital believes that PT-MCI's allegations are without merit and intends to vigorously defend against such allegations. In addition, under the terms of the CTA acquisition, Orbital believes it is entitled to indemnification from CTA for all or a part of any damages arising from the PT-MCI litigation and that CTA retains liability for certain fraud claims being made by PT-MCI. The company is currently arbitrating a claim brought by a claimant alleging that the company is in actual or anticipatory breach of obligations allegedly imposed on the company in a decision in a previous arbitration proceeding brought by the claimant against CTA. The claimant claims that he is entitled to a sum exceeding $30,000,000 from the company, as successor-in-interest to CTA. Management believes that the allegations in these proceedings are without merit and intends to vigorously defend against such allegations. In addition, under the terms of the CTA acquisition, Orbital believes it is entitled to indemnification from CTA for all or a part of any damages arising from this litigation. The eventual outcome of the foregoing matters is uncertain and could have a material adverse impact on the company's results of operations and financial condition. In addition, the company and its subsidiaries are parties to certain other litigation or proceedings arising in the ordinary course of business. In the opinion of management, the probability is remote that the outcome of any such litigation or other proceedings will have a material adverse effect on our results of operations or financial position. (10) SUBSEQUENT EVENT In April, 2000, our MacDonald, Dettwiler and Associates Ltd. ("MDA") subsidiary entered into a revised credit facility with its commercial bank. The new facility provides for total borrowings of approximately $133,000,000 and includes certain operational and financial covenants including certain restrictions on the payment of dividends. The facility is non-recourse to Orbital. In April 2000, the company's MDA subsidiary acquired certain of the assets and liabilities of the DataQuick Products division of Acxiom Corporation for $55,500,000 (the "DataQuick Acquisition"). MDA paid $30,000,000 of the purchase price in cash at closing and deferred payment of the remaining portion until October 2000. This acquisition will be accounted for using the purchase method of accounting. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW With the exception of historical information, certain statements included in this discussion relating to future revenues, expenses, growth rates, net income, new business, operational performance, schedules, sources and uses of funds, financing plans, the outcome of pending litigation and the performance of our affiliates, Orbital Imaging Corporation ("ORBIMAGE"), ORBCOMM Global L.P. ("ORBCOMM") and CCI International NV ("CCI"), are forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or investments 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, market acceptance of consumer products, the introduction of products and services by competitors, risks associated with acquired businesses, availability of required capital, market acceptance of new products and technologies, risks associated with long-term contracts, lack of control over certain subsidiaries and affiliates, the effects of pending or possible litigation or government investigations and other factors more fully described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook: Issues and Uncertainties" included in our Annual Report on Form 10-K for the year ended December 31, 1999. Our 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 consists of several reportable segments, including launch vehicles and advanced programs, satellites and related space systems, electronics and sensor systems and transportation management systems, and satellite ground systems, space robotics and mapping and land information services. Our satellite access products sector consists of satellite-based navigation, positioning and communications products. Satellite services include the following services conducted by our affiliates, ORBCOMM, ORBIMAGE and CCI and our subsidiaries Radarsat International Inc. ("RSI") and Orbital Navigation Corporation ("ORBNAV"): satellite-based two-way mobile data communications services, remote imaging services, satellite-based automotive information services and satellite-based voice communications services. We do not control the operational and financial affairs of ORBCOMM, ORBIMAGE and CCI and consequently their financial results are not consolidated with our results. RECENT DEVELOPMENTS. In April 2000, our MDA subsidiary acquired certain of the assets and liabilities of the DataQuick Products division of Acxiom Corporation for $55,500,000 (the "DataQuick Acquisition"). We paid $30,000,000 of the purchase price in cash at closing and deferred payment of the remaining portion until October 2000. We will account for the acquisition using the purchase method of accounting. 13 14 In April, 2000, our MDA subsidiary entered into a revised credit facility with its commercial bank. The new facility provides for total borrowings of approximately $133,000,000 and includes certain operational and financial covenants, including certain restrictions on the payment of dividends. The facility is non-recourse to Orbital. RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999 REVENUES. Our consolidated revenues for the three-month periods ended March 31, 2000 and 1999 were $223,541,000 and $200,171,000, respectively. Revenues for the three months ended March 31, 2000 and 1999 include sales to non-controlled and unconsolidated affiliates of $24,447,000 and $36,327,000, respectively. Space and Ground Infrastructure Systems. Revenues from our space and ground infrastructure systems sector totaled $195,388,000 and $171,081,000 for the three months ended March 31, 2000 and 1999, respectively. Revenues from our launch vehicles and advanced programs decreased to $34,900,000 in the first quarter of 2000, from $43,411,000 in the first quarter of 1999. The decrease in revenues in 2000 as compared to a year ago is primarily attributable to customer-induced launch schedule changes by our government customers and reduced demand from our commercial customers. For the three months ended March 31, 2000, revenues from satellites and related space systems increased to $67,400,000 from $63,166,000 in the first three months of 1999. The increase in satellite sales is primarily due to additional revenues generated from two commercial geosynchronous satellite contracts received since late 1998. Revenues from electronics and sensor systems and transportation management systems decreased slightly to $35,397,000 for the three months ended March 31, 2000 from $35,813,000 in the comparable 1999 period. Revenues from satellite ground systems, space robotics and mapping and land information services increased to $57,691,000 in the first quarter of 2000 as compared to $28,691,000 in the comparable 1999 quarter. The significant increase in 2000 revenues resulted primarily from the acquisition of the space robotics division of Spar Aerospace Ltd. (completed in May 1999) and the acquisition of an operating license for our land information services (acquired from the British Columbia government in April 1999), as well as from work performed on orders received in late 1998 for a new satellite remote imaging system and in 1999 for several satellite ground systems and system upgrades. Satellite Access Products. Revenues from sales of satellite-based navigation, positioning and communications products in the first quarter of 2000 were $24,691,000 as compared to $26,994,000 for the first quarter of 1999. The slight decrease in sector revenues is attributable to reduced sales of high-precision industrial navigation and positioning products. 14 15 Satellite Services. Revenues for this sector totaled $3,462,000 and $2,096,000 in the first quarters of 2000 and 1999, respectively. Revenues in 2000 and 1999 include those generated by our consolidated subsidiary, RSI. In 1999, sector revenues also included ORBCOMM's domestic operation, ORBCOMM USA, L.P. ("ORBCOMM USA"), which we consolidated in 1999. Effective January 1, 2000, we no longer consolidate ORBCOMM USA's results of operations. GROSS PROFIT/COSTS OF GOODS SOLD. Costs of goods sold include the costs of personnel, materials, subcontracts and overhead related to commercial products and under various development and production contracts. Gross profit depends on a number of factors, including the mix of contract types and costs incurred thereon in relation to estimated costs. Our consolidated gross profit for the first quarter of 2000 was $41,888,000 (19% of revenues) as compared to $41,050,000 (21% of revenues) for the first quarter of 1999. Space and Ground Infrastructure Systems. Gross profit margins from our space and ground infrastructure systems totaled $32,340,000 (17% of sector revenues) and $33,206,000 (19% of sector revenues) for the three months ended March 31, 2000 and 1999, respectively. Gross profit margins from launch vehicles and advanced programs were 21% for the first quarter of 2000 as compared to 15% for the first quarter of 1999. The lower gross margin for launch vehicles in 1999 was primarily due to completing work in that quarter on certain less profitable space and suborbital launch vehicle contracts. Satellites contributed gross margins of 9% during the first quarter of 2000 as compared to 17% during the first quarter of 1999. The decrease in satellite gross margins in 2000 is due to work performed on two large, commercial geosynchronous satellite contracts won in late 1998 and early 1999. These contracts contain a significant amount of lower margin, external subcontract effort, as well as substantial non-recurring engineering costs incurred in modifying the design of these products for specific customer requirements. For the three months ended March 31, 2000 and 1999, electronics and sensor systems and transportation management systems gross margins were 25% and 26%, respectively. Finally, gross margins for ground systems, space robotics and mapping and land information services were 18% and 23% for the first quarter of 2000 and 1999, respectively. The decrease in gross margins is due to an increase in lower margin, subcontract work on several contracts, and to lower margins on certain new international defense contracts and land information services. Satellite Access Products. Gross margins for satellite access products increased slightly to 34% of revenues for the first quarter of 2000 as compared to 31% for the first quarter of 1999. Satellite Services. Gross margins for this sector in 2000 include those generated by ORBNAV and RSI. Gross margins for this sector in 1999 also included those generated by ORBCOMM USA. This sector had a gross profit margin of $1,086,000 during the first quarter of 2000, as compared to a gross margin loss of $648,000 for the first quarter of 1999. 15 16 RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses represent self-funded product development activities, and exclude direct customer-funded development. Research and development expenses during the three-month periods ended March 31, 2000 and 1999 were $8,089,000 (4% of revenues) and $10,082,000 (5% of revenues), respectively. Research and development expenses in both quarters relate primarily to the development of new or improved satellite access products, improved launch vehicles and new satellite initiatives. 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 our finance, legal, administrative and general management functions. Selling, general and administrative expenses for the three months ended March 31, 2000 and 1999 were $28,132,000 (13% of revenues) and $28,541,000 (14% of revenues), respectively. NET INVESTMENT INCOME (EXPENSE). Net investment income (expense) was ($4,449,000) and ($3,297,000) for the three months ended March 31, 2000 and 1999, respectively. Investment income reflects interest earnings on short-term investments and realized gains and losses on investments, reduced by interest expense of $6,038,000 and $4,121,000 on outstanding debt for the three months ended March 31, 2000 and 1999, respectively. Interest expense has been reduced by capitalized interest of $466,000 and $779,000 in the first three months of 2000 and 1999, respectively. EQUITY IN EARNINGS (LOSSES) OF AFFILIATES AND NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES. Equity in earnings (losses) of affiliates and non-controlling interests in (earnings) losses of consolidated subsidiaries for the three months ended March 31, 2000 and 1999 were ($22,870,000) and ($21,129,000), respectively. These amounts primarily represent (i) elimination of proportionate profits or losses on sales of infrastructure products to ORBCOMM and ORBIMAGE, (ii) our proportionate share of ORBCOMM's and ORBIMAGE's current period earnings and losses, (iii) preferred dividends and beneficial conversion rights to other investors in ORBIMAGE and (iv) non-controlling stockholders' proportionate share of our consolidated subsidiaries' current period earnings and losses. Our proportionate share of ORBCOMM's losses declined in the first quarter of 2000 due to a reduction in our ownership interest in ORBCOMM from 50% in 1999 to approximately 34% in the first quarter of 2000. In 1999, non-controlling interests also included non-controlling stockholders' proportionate share of RSI's and ORBCOMM USA's current period earnings and losses. PROVISION FOR INCOME TAXES. We recorded an income tax provision of $1,273,000 and $1,298,000 for the three-month periods ended March 31, 2000 and 1999, respectively. The provision in both periods was entirely due to foreign taxes attributable to our Canadian operations. Our interim income tax provision is based on an estimate of our full-year provision. Estimated provisions recorded during interim periods may be periodically revised, if necessary, to reflect current estimates. NET LOSS. Our consolidated net loss for the three months ended March 31, 2000 and 1999 was $26,524,000 and $26,163,000, respectively. 16 17 LIQUIDITY AND CAPITAL RESOURCES Our growth has required, and continues to require, substantial capital to fund investments in affiliates, business acquisitions, expanding working capital needs, new business initiatives, research and development and capital expenditures. We have funded these requirements to date through cash generated by operations, working capital, loan facilities, asset-based financings, joint venture arrangements and private and public equity and debt offerings of Orbital and its subsidiaries. Our liquidity has been constrained primarily as a result of our inability to access capital markets prior to the completion of the restatement of our financial statements. In addition, we agreed to a permanent reduction in the outstanding amount under our primary credit facility in the fourth quarter of 1999 and we cannot borrow additional funds under such facility. We expect that our capital requirements for our operations for 2000 will be provided by cash from operations combined with cash on hand. To satisfy our additional capital requirements, including potential investments in ORBIMAGE and required repayment of debt, management's plans include the possibility of raising additional equity and/or debt capital, sales of certain assets and restructuring or refinancing of our credit facility. Management expects that such plans will generate sufficient additional liquidity to satisfy these required obligations. We also expect to pursue certain additional investments and/or acquisitions during 2000. Such plans would likely require that we raise additional capital or otherwise generate sufficient capital by sale of certain assets. No assurance can be given that we will be successful in completing additional investments or acquisitions or new equity or debt financings or asset sales. Cash and investments were $65,826,000 and total debt obligations were $367,151,000 at March 31, 2000. The outstanding debt is comprised primarily of our $100,000,000 convertible 5% subordinated notes due in 2002, advances under several credit facilities, secured and unsecured notes, and asset-based financings. Cash and investments at March 31, 2000 included approximately $11,641,000 restricted to support bank covenants and outstanding letters of credit. Our current ratio was .94 at March 31, 2000. Our ratio of total debt less cash and investments to total debt plus total stockholders' equity was approximately 47% at March 31, 2000. Our primary credit facility provides for total borrowings from an international syndicate of banks of up to $165,000,000, all of which was drawn and outstanding as of March 31, 2000 at a weighted average interest rate of 9.83%. These borrowings are collateralized by accounts receivable, intellectual property and certain other assets, including the stock of our wholly owned subsidiaries and MDA. The facility prohibits the payment of cash dividends, contains certain covenants with respect to our working capital levels, fixed charges ratio, leverage ratio and net worth, and expires in December 2002. We amended this facility several times in the past twelve months to waive noncompliance with certain financial covenants and to amend other covenants (including with respect to net worth, leverage and fixed charges). We also permanently reduced the total amount available under the facility from an original $200,000,000 to the current level of 17 18 $165,000,000. In April 2000, we signed an amendment that waived noncompliance with certain covenants for all periods prior to the amendment date, and established new covenant levels for 2000 for net worth, leverage (including senior leverage), fixed charges, capital expenditures, and subsidiary debt. We also agreed with our banks to further reduce the total amount that is available under the facility on August 1, 2000 by either (i) an additional $40,000,000 if we and the banks restructure the facility by May 31, 2000 or (ii) by an additional $60,000,000 if we are unsuccessful in restructuring the facility by that date. We are required to apply toward this reduction 50% of the net cash proceeds that we receive from any equity offering, asset sale or debt issuance by us or our domestic wholly owned subsidiaries. In addition, we agreed to further reduce the facility to $85,000,000 by July 2001. We are currently in discussions with our banks on restructuring the facility. We are no longer obligated to provide additional capital to ORBCOMM. ORBCOMM will require additional funding in 2000, and we understand that ORBCOMM and Teleglobe are currently analyzing different capital raising and funding alternatives, including continued capital contributions from Teleglobe and/or obtaining additional equity participants. We invested approximately $10,556,000 in capital expenditures for various satellite, launch vehicle and other infrastructure production, manufacturing and test equipment, leasehold improvements and office equipment in the first quarter of 2000. Our operations provided net cash of $4,336,000 during the first quarter of 2000. We have a contingent commitment to provide additional equity financing to ORBIMAGE in the amount of up to $12,500,000 based on ORBIMAGE's cash requirements. In addition to our contingent commitment, ORBIMAGE will require additional funding in 2000 and is currently analyzing different capital raising and funding alternatives, including obtaining additional equity and debt capital. Under the company's 12% note, we are scheduled to pay down principal in the amount of $6,667,000 in June 2000. This payment reduces the outstanding principal amount of the note from $13,333,000 to $6,666,000. The remaining principal amount is due in June 2001. We are scheduled to pay the $25,500,000 deferred portion of the DataQuick Acquisition in October 2000 using proceeds from MDA's new credit facility. We are expanding our offices and satellite-related engineering, manufacturing and operations facilities adjacent to our Northern Virginia corporate headquarters in order to consolidate certain operational facilities and office space and provide for future growth. Construction has commenced and is expected to continue into 2001. To finance the majority of this expansion, we have negotiated a built-to-suit agreement with a developer for the office expansion. We are actively pursing third-party financing for the engineering, manufacturing and operating facilities. 18 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOUSRES ABOUT MARKET RISK The company does not have any material exposure to interest rate changes, commodity price changes, foreign currency fluctuation, or similar market risks, although we do enter into forward exchange contracts to hedge against specific foreign currency fluctuations, principally with respect to the Canadian dollar and Japanese yen. At March 31, 2000, the majority of the company's long-term debt consisted of its $100,000,000 5% convertible subordinated notes, due 2002. The fair market value of these convertible securities fluctuates with the company's stock price, and was $75,000,000 at March 31, 2000. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the first quarter of 2000, PT Media Citra Indostar, an Indonesian company ("PT-MCI"), commenced arbitration seeking a refund of $163,000,000 PT-MCI asserts it paid in connection with a communications satellite constructed by CTA under a contract that was assigned to Orbital in connection with its acquisition of CTA. PT-MCI's allegations include fraud and multiple breaches of contract. The company's claims against PT-MCI for unpaid invoices in the approximate amount of $14,000,000 are also part of the arbitration proceedings. Orbital believes that PT-MCI's allegations are without merit and intends to vigorously defend against the allegations. In addition, under the terms of the CTA acquisition, Orbital believes it is entitled to indemnification from CTA for all or a part of any damages arising from the PT-MCI litigation and that CTA retains liability for certain fraud claims being made by PT-MCI. The eventual outcome of the foregoing is uncertain and could have a material adverse impact on the company's results of operations and financial condition. In addition, the company and its subsidiaries are parties to certain other litigation or proceedings arising in the ordinary course of business. In the opinion of management, the probability is remote that the outcome of any such litigation or other proceedings will have a material adverse effect on our results of operations or financial position. ITEM 2. CHANGES IN SECURITIES Not applicable. 19 20 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) Reports on Form 8-K (i) On January 7, 2000, we filed a Current Report on Form 8-K, dated December 22, 1999, disclosing, under Item 5, the sale of one-third of the stock of MDA and certain bank matters. 20 21 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: May 15, 2000 By: /s/ David W. Thompson ------------------------ David W. Thompson, Chairman and Chief Executive Officer DATED: May 15, 2000 By: /s/ Jeffrey V. Pirone ------------------------ Jeffrey V. Pirone, Executive Vice President and Principal Financial Officer
21 22 EXHIBIT INDEX The following exhibit is filed as part of this report.
Exhibit No. Description - ----------- ----------- 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).
22 EX-27 2 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 THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000820736 ORBITAL SCIENCE CORP/DE/ 1000 YEAR DEC-31-2000 JAN-01-2000 MAR-31-2000 31,294 34,532 280,530 (19,543) 59,454 407,901 256,327 (126,498) 998,578 432,967 237,566 0 0 374 291,018 998,578 223,541 223,541 181,653 181,653 0 623 6,038 (25,251) 1,273 (26,524) 0 0 0 (26,524) (0.71) (0.71)
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