10-Q/A 1 e10-qa.txt FORM 10-Q/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A AMENDMENT NO. 1 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended SEPTEMBER 30, 1995 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 November 9, 1995, 22,693,669 shares of the registrant's common stock were outstanding. 2 EXPLANATORY NOTE Orbital Sciences Corporation ("Orbital") has determined to restate its consolidated financial statements for the year ended December 31, 1995 and its condensed consolidated quarterly financial statements for 1995. This amendment includes in Item 1 such restated condensed consolidated financial statements and related footnotes thereto for the three and nine months ended September 30, 1995, and other information relating to such restated condensed consolidated financial statements. Item 2 includes Orbital's amended and restated discussion and analysis of financial condition and results of operations. Except for Items 1 and 2 and Exhibits 11 and 27, no other information included in the original report on Form 10-Q is amended by this amendment. For current information regarding risks, uncertainties and other factors that may affect Orbital's future performance, please see "Outlook: Issues and Uncertainties" included in Item 7 of Orbital's Annual Report on Form 10-K for the year ended December 31, 1999. 2 3 PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 1995 1994 ----------------- ---------------- (RESTATED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,200 $ 21,156 Short-term investments, at market 32,697 12,426 Receivables, net 89,710 94,236 Inventories, net 25,980 26,098 Deferred income taxes and other current assets 12,218 5,914 ------------ ------------- TOTAL CURRENT ASSETS 171,805 159,830 PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $32,932 and $33,432, respectively 95,365 102,061 INVESTMENTS IN AFFILIATES 67,566 54,721 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, less accumulated amortization of $12,177 and $10,042, respectively 70,517 68,878 DEFERRED INCOME TAXES AND OTHER ASSETS 19,313 17,238 ------------ ------------- TOTAL ASSETS $ 424,566 $ 402,728 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings and current portion of long-term obligations $ 5,924 $ 28,160 Accounts payable 19,132 14,961 Accrued expenses 26,824 37,439 Payable to subcontractors 2,071 13,695 Deferred revenues 20,730 13,272 ------------ ------------- TOTAL CURRENT LIABILITIES 74,681 107,527 LONG-TERM OBLIGATIONS, net of current portion 93,833 81,163 DEFERRED INCOME TAXES AND OTHER LIABILITIES 16,630 11,992 ------------ ------------- TOTAL LIABILITIES 185,144 200,682 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, par value $.01; 10,000,000 shares authorized, no shares issued or outstanding -- -- Common stock, par value $.01; 40,000,000 shares authorized, 22,679,643 and 20,170,196 shares outstanding, after deducting 15,735 shares held in treasury 227 202 Additional paid-in capital 238,395 201,328 Unrealized gains (losses) on short-term investments (80) (462) Retained earnings 880 978 ------------ ------------- TOTAL STOCKHOLDERS' EQUITY 239,422 202,046 ------------ ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 424,566 $ 402,728 ============ =============
See accompanying notes to condensed consolidated financial statements. 3 4 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 1995 1994 ----------------- ----------------- (RESTATED) REVENUES $ 79,400 $ 58,205 Costs of goods sold 58,020 40,891 --------------- ---------------- GROSS PROFIT 21,380 17,314 Research and development expenses 3,512 3,159 Selling, general and administrative expenses 12,415 10,184 Amortization of excess of purchase price over net assets acquired 791 567 --------------- ---------------- INCOME FROM OPERATIONS 4,662 3,404 Net interest income (expense) (649) (238) Equity in earnings (losses) of affiliates (596) (995) --------------- ---------------- INCOME BEFORE PROVISION FOR INCOME TAXES 3,417 2,171 Provision for income taxes 944 658 =============== ================ NET INCOME $ 2,473 $ 1,513 =============== ================ NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.11 $ 0.08 =============== ================ Shares used in computing net income per common and common equivalent share 22,986,160 19,213,903 =============== ================ NET INCOME PER COMMON SHARE, ASSUMING FULL DILUTION $ 0.11 $ 0.08 =============== ================ SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE, ASSUMING FULL DILUTION 26,881,696 23,318,078 =============== ================
See accompanying notes to condensed consolidated financial statements. 4 5 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------- 1995 1994 -------------- ---------------- (RESTATED) REVENUES $ 212,786 $ 156,880 Costs of goods sold 155,652 114,514 --------------- ---------------- GROSS PROFIT 57,134 42,366 Research and development expenses 12,276 9,665 Selling, general and administrative expenses 35,240 24,656 Amortization of excess of purchase price over net assets acquired 2,191 1,375 --------------- ---------------- INCOME FROM OPERATIONS 7,427 6,670 Net interest income (expense) (2,187) 693 Equity in earnings (losses) of affiliates (234) (1,539) --------------- ---------------- INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 5,006 5,824 Provision for income taxes 2,727 1,575 --------------- ---------------- Income before cumulative effect of accounting change 2,279 4,249 Cumulative effect of accounting change, net of tax (2,377) -- --------------- ---------------- NET INCOME (LOSS) (98) 4,249 =============== ================ NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Income before cumulative effect of accounting change 0.11 0.23 Cumulative effect of accounting change, net of tax $ (0.11) $ -- --------------- ---------------- $ 0.00 $ 0.23 =============== ================ Shares used in computing net income (loss) per common and common equivalent share 21,640,635 18,346,929 =============== ================ NET INCOME (LOSS) PER COMMON SHARE, ASSUMING FULL DILUTION: Income before cumulative effect of accounting change 0.11 0.21 Cumulative effect of accounting change, net of tax $ (0.11) $ -- --------------- ---------------- $ 0.00 $ 0.21 =============== ================ SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON SHARE, assuming full dilution 21,640,635 22,452,493 =============== ================
See accompanying notes to condensed consolidated financial statements. 5 6 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED; IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 1995 1994 ----------------- ----------------- (RESTATED) CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME (LOSS) $ (98) $ 4,249 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Depreciation and amortization expenses 13,186 8,454 Equity in (earnings) losses of affiliates 234 1,539 Cumulative effect of accounting change, net of tax 2,377 -- CHANGES IN ASSETS AND LIABILITIES: (Increase) decrease in contract receivables 13,852 7,221 (Increase) decrease in components inventory 118 (970) (Increase) decrease in other current assets (3,272) (1,381) (Increase) decrease in deposits and other assets (5,701) 3,621 Increase (decrease) in payables and accrued expenses (21,725) (8,671) Increase (decrease) in deferred revenue 7,667 (18,777) Increase (decrease) in deferred income taxes and other assets 4,638 604 -------------- ---------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 11,276 (4,111) -------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (16,620) (18,262) Proceeds from sales of fixed assets 125 -- Purchase of investment securities (24,199) (8,916) Sale of investment securities 4,310 14,210 Investments in affiliates (12,374) (10,539) Payment for business acquisition -- (40,718) -------------- ---------------- NET CASH USED IN INVESTING ACTIVITIES (48,758) (64,225) -------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowings (repayments) (22,649) 13,546 Principal payments on long-term obligations (3,917) (896) Proceeds from issuance of long-term obligations 20,000 24,200 Net proceeds from issuances of common stock 34,092 1,276 Adjustment to recast pooled companies' year end -- (1,138) -------------- ---------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 27,526 36,988 -------------- ---------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (9,956) (31,348) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,156 49,458 -------------- ---------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,200 $ 18,110 ============== ================
See accompanying notes to condensed consolidated financial statements. 6 7 ORBITAL SCIENCES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 AND 1994 (UNAUDITED) BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, consisting of normal recurring accruals, necessary for a fair presentation thereof. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the Securities and Exchange Commission ("the Commission"). Although the Company believes that the disclosures provided are adequate to make the information presented not misleading, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. Operating results for the three- and nine-month periods ended September 30, 1995 and 1994 are not necessarily indicative of the results expected for the full year. Orbital Sciences Corporation is hereafter referred to as "Orbital" or the "Company." (1) RESTATEMENTS Management has determined to restate its previously issued consolidated financial statements for 1995 with respect to its accounting treatment for capitalized costs and certain other matters. For a full description of the restatement matters, refer to Notes 1A and 16 to the Company's consolidated financial statements included in the Company's 1995 Annual Report on Form 10K/A previously filed with the Commission. The effect of the restatement matters on the company's previously reported revenues, gross profit, income (loss) from operations, net income (loss) and net income (loss) per common and dilutive share for the periods is as follows (in thousands, except per share data):
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, 1995 SEPTEMBER 30, 1995 ----------------------------------------------------------------- RESTATED: Revenues $ 79,400 $ 212,786 Gross Profit 21,380 57,134 Income from operations 4,662 7,427 Net income (loss) 2,473 (98) Net income (loss) per common share 0.11 0.00 Net income (loss) per dilutive share 0.11 0.00
7 8
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, 1995 SEPTEMBER 30, 1995 ----------------------------------------------------------------- AS PREVIOUSLY REPORTED: Revenues $ 79,172 $ 212,102 Gross profit 21,321 56,957 Income from operations 4,662 7,427 Net income (loss) 2,202 (717) Net income (loss) per common share 0.10 (0.03) Net income per dilutive share 0.10 (0.03)
(2) NEW ACCOUNTING PRONOUNCEMENT The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121"), which (i) requires that long-lived assets "to be held and used" be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, (ii) requires that long-lived assets "to be disposed of" be reported at the lower of carrying amount or fair value less cost to sell, and (iii) provides guidelines and procedures for measuring an impairment loss that are significantly different from existing guidelines and procedures. The Company adopted the provisions of SFAS 121 during the quarter ended March 31, 1995. As a result, as of January 1, 1995 Orbital recorded a cumulative adjustment for a change in accounting principle of $2,377,000, net of tax benefit of $1,783,000, related to the impairment in the carrying amount of certain assets to be disposed of that supported its orbit transfer vehicle product line. The effect of adopting SFAS 121 on income from continuing operations for the quarter and nine months ended September 30, 1995 was not material. (3) INVENTORIES Inventories consist of components inventory, work-in-process inventory and finished goods inventory and are generally stated at the lower of cost or net realizable value on a first-in, first-out or specific identification basis. Components inventory consists primarily of components and raw materials purchased to support future production efforts. Work-in-process inventory consists primarily of (i) costs incurred under U.S. Government fixed-price contracts accounted for using the percentage of completion method of accounting applied on a units of delivery basis and (ii) partially assembled commercial products, and generally includes direct production costs and certain allocated indirect costs (including an allocation of general and administrative costs). Work in process inventory has been reduced by contractual progress payments received. Finished goods inventory consists of fully assembled commercial products awaiting shipment. 8 9 (4) EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED During the quarter ended September 30, 1995, as a result of obtaining additional information subsequent to the acquisition of Fairchild Space and Defense Corporation ("Fairchild") on August 11, 1994, the Fairchild purchase price was reallocated to reflect a more accurate valuation of assets and liabilities acquired. As a result of the reallocation, the value of net liabilities acquired increased by approximately $3,800,000 with a resulting increase in the excess of purchase price over net assets acquired. (5) INVESTMENTS IN AFFILIATES The Company's majority-owned subsidiary, Orbital Communications Corporation ("OCC"), and Teleglobe Mobile Partners, an affiliate of Teleglobe Inc., formed a partnership, ORBCOMM Global, L.P. ("ORBCOMM Global"), formerly known as ORBCOMM Development Partners, L.P., for the two-phased design, development, construction, integration, test and operation of a low-Earth orbit satellite communications system (the "ORBCOMM System"). Pursuant to the terms of the amended partnership agreement, OCC and Teleglobe Mobile Partners are each 50% general partners in ORBCOMM Global. Additionally, OCC owns 51% and 49%, respectively, in ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM International") (ORBCOMM Global, ORBCOMM USA and ORBCOMM International are, collectively, the "ORBCOMM Partnerships"), two partnerships formed to market the ORBCOMM System. Teleglobe Mobile Partners owns 49% and 51%, respectively, in the two marketing partnerships. During the quarter ended September 30, 1995, Teleglobe Mobile increased its capital commitments to ORBCOMM Global to $85 million, of which $30 million has been contributed to date. OCC also increased its total capital commitments to $75 million, of which approximately $59 million has been contributed to date. Orbital is the primary supplier of the communications satellites, launch vehicles, and the U.S. ground tracking systems to ORBCOMM Global, and successfully launched the first two ORBCOMM System satellites in April 1995. Several anomalies initially observed on the spacecraft have been resolved and, in July 1995, Orbital successfully completed on-orbit functional testing of the satellites. With the testing complete, ORBCOMM Global can begin conducting communications testing with customers in actual operating conditions. Based on its current assessment of the overall business prospects of the ORBCOMM Partnerships and the ORBCOMM System, the Company currently believes its investment of approximately $67 million in ORBCOMM Global is fully recoverable. If, in the future, implementation of the ORBCOMM System is significantly delayed, significantly restricted or abandoned, the Company may be required to expense part or all of its investment. (6) DEBT In June 1995, the Company entered into a $20 million fixed-rate unsecured debt financing arrangement with a private insurance company. The debt has a six-year term and bears interest at 10 1/2% per annum. 9 10 In September 1995, Orbital entered into a $7 million unsecured line of credit with an international bank. The line is repayable upon demand and bears interest at LIBOR plus 80 basis points, which was approximately 6% at September 30, 1995. No amounts were outstanding on the line at September 30, 1995. (7) COMMON STOCK AND INCOME PER SHARE In June 1995, the Company completed a private placement of two million shares of its Common Stock, receiving net proceeds of approximately $32 million. The Company's shares were placed with various international institutional investors and the private placement was exempt from registration pursuant to Regulation S of the Securities Act of 1933, as amended. Income per common and common equivalent share is calculated using the weighted average number of common and common equivalent shares, to the extent dilutive, outstanding during the periods. Income per common share assuming full dilution is calculated using the weighted average number of common and common equivalent shares outstanding during the periods plus the effects of an assumed conversion of the Company's 6 3/4% convertible subordinated debentures, after giving effect to all net income adjustments that would result from the assumed conversion. Any reduction of less than three percent in the aggregate has not been considered dilutive in the calculation and presentation of income per common share assuming full dilution. (8) INCOME TAXES The Company has recorded its interim income tax provision based on estimates of the Company's effective tax rate expected to be applicable for the full fiscal year. Estimated effective rates recorded during interim periods may be periodically revised, if necessary, to reflect current estimates. (9) HERCULES INCORPORATED In November 1988, Orbital and Hercules Incorporated ("Hercules") entered into an joint venture agreement relating to the development and production of the Pegasus space launch vehicle (the "Joint Venture Agreement"). In 1994, Alliant Techsystems, Inc. ("Alliant") acquired the assets of Hercules Aerospace Company (a wholly owned subsidiary of Hercules) and, in connection therewith, assumed the rights and responsibilities of Hercules with respect to the Joint Venture Agreement. During the second quarter of 1995, Orbital and Alliant replaced the Joint Venture Agreement with a joint teaming agreement to provide for the continuation of joint performance on the Pegasus and Taurus space launch vehicle programs (the "Joint Teaming Agreement"). The Joint Teaming Agreement provides, among other things, that Orbital will perform as the system prime contractor for all present and future Pegasus and Taurus missions and Alliant will perform as a solid rocket motor and payload fairing subcontractor to Orbital on the Pegasus program and as a solid rocket motor subcontractor to Orbital on the Taurus program. As a subcontractor, Alliant will receive firm-fixed prices for its subcontracts and will no longer share in contract profits and losses, but will share in the costs and benefits associated with certain defined outstanding issues on current contracts. The Joint Teaming Agreement will continue through December 31, 2005, unless terminated earlier by mutual agreement. 10 11 Orbital and Alliant have also agreed to a final dismissal with prejudice of all present and future claims and litigation related to the Joint Venture Agreement, including (i) the January 1994 lawsuit filed by Hercules against Orbital alleging breaches of certain representations and warranties by Orbital in the 1988 stock purchase agreement between Hercules and Orbital, and (ii) the July 1994 lawsuit filed by Hercules against Orbital alleging breach of fiduciary duty and breach of contract in the determination of Orbital's recoverable costs pursuant to the Joint Venture Agreement. (10) RECLASSIFICATIONS Certain reclassifications have been made to the 1994 condensed consolidated financial statements to conform to the 1995 condensed consolidated financial statement presentation. The December 1994 acquisition of Magellan Corporation was recorded using the pooling of interests method of accounting for business combinations and, accordingly, Orbital's 1994 historical financial statements have been restated to reflect this transaction. (11) BUSINESS COMBINATION On August 31, 1995, Orbital signed an agreement (the "Combination Agreement") to acquire MacDonald, Dettwiler and Associates Ltd. ("MDA"), a leading supplier of commercial remote sensing ground stations, headquartered in Vancouver, British Columbia. During its recently completed fiscal year ended March 31, 1995, MDA reported pre-tax income of approximately US $5,500,000 on sales of approximately US $80,000,000. The transaction will be structured as a tax-free merger and accounted for as a pooling of interests. Pursuant to the terms of the Combination Agreement, a newly formed Canadian subsidiary of Orbital will issue exchangeable preferred shares (the "Exchangeable Shares") for all of MDA's outstanding common stock based on an exchange ratio to be determined according to the average closing price of Orbital's stock in the month prior to closing. The Exchangeable Shares will be exchangeable on a one-for-one basis for Orbital common stock. The transaction is expected to close by the end of November. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 Certain of the 1995 financial information has been restated. See note 1 to the condensed consolidated financial statements. Revenues. Orbital's revenues for the three-month periods ended September 30, 1995 and 1994 were $79,400,000 and $58,205,000, respectively. The Company's revenues for the nine-month periods ended September 30, 1995 and 1994 were $212,786,000 and $156,880,000, respectively. Revenues from the Company's space launch vehicle products decreased to $7,521,000 during the 1995 three-month period from $17,838,000 during the comparable 1994 period. Space launch vehicle revenues were $19,486,000 and $47,599,000 for the nine-month periods ended September 30, 1995 and 1994, respectively. The significant decrease in revenues during the periods is attributable primarily to the continuing effects of production delays caused by the Company's two failed launches of its new Pegasus XL launch vehicle in June 1994 and in June 1995. Orbital expects total 1995 space launch vehicle revenues to be less than 1994 as a result of the ongoing failure review and return to flight process, although fourth quarter sales are expected to be higher than third quarter sales due to work performed on newly awarded contracts and option exercises for Taurus launches. Sales of space launch vehicles to ORBCOMM Global were $4,463,000 and $3,629,000 for the three-month periods ended September 30, 1995 and 1994, respectively. Revenues from suborbital launch vehicle products increased to $5,400,000 in the 1995 three-month period as compared to $4,699,000 in the 1994 period. Suborbital revenues were $16,891,000 and $16,325,000 for the nine-month periods ended September 30, 1995 and 1994, respectively. While suborbital revenues have decreased significantly during the past few years as U.S. Government defense spending has been reduced, the Company expects 1995 revenues to remain approximately consistent with, or to slightly increase from, revenue levels achieved in 1994. The increase in 1995 third quarter sales as compared to 1994's third quarter sales was the first such increase since 1992. For the three months ended September 30, 1995, spacecraft systems revenues increased to $32,337,000 from $11,043,000 in the 1994 period, and revenues for the nine-month period ended September 30, 1995 were $61,238,000 as compared to $26,775,000 in the same period in 1994. The increase in spacecraft system sales is primarily due to additional revenues generated from the Company's Germantown operations, acquired in August 1994 (the "Germantown Acquisition") and from sales to ORBCOMM Global. The 1995 and 1994 three-month periods included $19,198,000 and $3,685,000, respectively, in sales of MicroStar spacecraft to ORBCOMM Global. Revenues generated from sales of space sensors and instruments of $2,028,000 during the 1995 quarter decreased from the 12 13 comparable 1994 quarter sales of $4,591,000. Space sensors and instruments sales were $8,575,000 and $13,363,000 for the 1995 and 1994 nine- month periods, respectively, and are expected to remain lower than 1994 levels throughout 1995. Revenues from defense electronics and avionics products were approximately $12,676,000 for the three-month period ended September 30, 1995 as compared to $2,651,000 in the 1994 period. Defense electronics and avionics products sales were $42,466,000 and $8,511,000 in the 1995 and 1994 nine-month periods, respectively. These products were acquired as part of the Germantown Acquisition and the September 1993 acquisition of the Applied Science Operation of The Perkin-Elmer Corporation. Revenues from sales of navigation and positioning products increased to $14,564,000 for the three months ended September 30, 1995 as compared to $8,185,000 for the 1994 period, and to $41,023,000 for the nine months ended September 30, 1995 as compared to $26,738,000 for the 1994 period, primarily due to a substantial increase in unit sales offset, in part, by lower unit prices for GPS navigators. Revenues from the Company's newly established Advanced Projects Group were $2,489,000 during the third quarter of 1995 and $12,349,000 for the first nine months of 1995 as a result of work performed under a cooperative agreement with NASA awarded earlier in 1995 for the development of a new small reusable launch vehicle and under contract to the U.S. Government's Advanced Research Projects Agency for the preliminary design of a new advanced unmanned, long-duration, high-flying aircraft. Gross Profit. Gross profit depends on a number of factors, including the Company's mix of contract types and costs incurred thereon in relation to estimated costs. The Company's gross profit for the three-month periods ended September 30, 1995 and 1994 was $21,380,000 and $17,314,000, respectively. Gross margin for the nine-month periods ended September 30, 1995 and 1994 was $57,134,000 and $42,366,000, respectively. Gross profit margin as a percentage of sales for those periods was approximately 26.9% and 29.7%, respectively, and 26.9% and 27.0%, respectively. The decreasing gross profit margin as a percentage of sales during 1995 is primarily attributable to cost increases on the Pegasus program as a result of the Pegasus XL failures in June of 1994 and 1995, which more than offset increased margins for spacecraft systems and navigation and positioning products. Research and Development Expenses. Research and development expenses represent Orbital's self-funded product development activities, and exclude direct customer-funded development. Research and development expenses during the three-month periods ended September 30, 1995 and 1994 were $3,512,000 and $3,159,000, respectively. Research and development expenses for the 1995 and 1994 nine-month periods were $12,276,000 and $9,665,000, respectively. Research and development expenses in 1995 relate primarily to the development of new or improved navigation products and development efforts on the Company's Pegasus program, and include estimated expenses related to the 1995 Pegasus XL failure. 13 14 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 September 30, 1995 and 1994 were $12,415,000 (or 15.6% of revenues) and $10,184,000 (or 17.5% of revenues), respectively. Selling, general and administrative expenses for the nine months ended September 30, 1995 and 1994 were $35,240,000 (or 16.6% of revenues) and $24,656,000 (or 15.7% of revenues), respectively. The increase in selling, general and administrative expenses during 1995 as compared to 1994 was primarily attributable to substantially expanded marketing efforts related to the Company's ORBCOMM project, various remote sensing systems, and to the Germantown Acquisition. Interest Income and Interest Expense. Net interest expense was $649,000 for the three months ended September 30, 1995 as compared to net interest expense of $238,000 during the 1994 quarter. Net interest expense for the 1995 nine-month period was $2,187,000 as compared to $693,000 of net interest income for the 1994 nine-month period. Interest income for the periods reflects interest earnings on short-term investments. Interest expense is primarily for outstanding amounts on Orbital's revolving credit facility, on the Company's public debentures, on acquisition debt incurred for the Germantown Acquisition and, in 1995, on private debt issued in June 1995. Interest expense has been reduced by capitalized interest of $4,040,000 and $3,900,000 for the 1995 and 1994 nine-month periods, respectively. Equity in Earnings (Losses) of Affiliates. Equity in earnings (losses) of affiliates for the three-month periods ended September 30, 1995 and 1994 of ($596,000) and ($995,000), respectively, and for the nine-month periods ended September 30, 1995 of ($234,000) and ($1,539,000), respectively, represents elimination of 50% of the profits on sales to ORBCOMM Global, as well as the Company's pro rata share of ORBCOMM Global's current period earnings and losses. During the construction phase of the ORBCOMM project and prior to the commencement of planned operations, ORBCOMM Global is capitalizing substantially all construction-related costs and is expensing as incurred all selling, general and administrative costs as period costs. Provision for Income Taxes. The Company recorded an income tax provision of $944,000 and $658,000 for the three-month periods ended September 30, 1995 and 1994, respectively, and provisions of $2,727,000 and $1,575,000, respectively, for the nine-month periods ended September 30, 1995 and 1994. The Company records its interim income tax provisions based on estimates of the Company's effective tax rate expected to be applicable for the full fiscal year. Estimated effective rates recorded during interim periods may be periodically revised, if necessary, to reflect current estimates. LIQUIDITY AND CAPITAL RESOURCES The Company's growth has required substantial capital to fund both an expanding business base and significant research and development and capital investment expenditures. Additionally, the Company has historically made strategic acquisitions of businesses and routinely evaluates potential acquisition candidates. The Company expects to continue to 14 15 pursue potential acquisitions that it believes would augment its marketing, technical, manufacturing or financial capabilities. The Company has funded these requirements to date, and expects to fund its requirements in the future, through cash generated by operations, working capital loan facilities, asset-based financings, joint venture arrangements, and private and public equity and debt offerings. During the quarter ended June 30, 1995, Orbital entered into a $20 million fixed-rate unsecured debt financing arrangement with a private insurance company. The debt has a six-year term and bears interest at 10 1/2% per annum. The debt arrangement restricts the payment of dividends and contains certain covenants with respect to the Company's working capital, fixed charge ratio, leverage ratio and tangible net worth. Additionally, in June 1995, the Company completed a private placement of two million shares of its Common Stock, receiving net proceeds of approximately $32 million. The Company's shares were placed with various offshore institutional investors and the private placement was exempt from registration pursuant to Regulation S of the Securities Act of 1933, as amended. In August 1994, Orbital issued secured notes totaling approximately $24,200,000 to eight financial institutions, to support the Germantown Acquisition. The notes have an average interest rate of approximately 8 3/4% and generally mature on a monthly basis over a three- to five-year period. Cash, cash equivalents and short-term investments were $43,897,000 at September 30, 1995, and the Company had short-term and long-term debt obligations outstanding of approximately $99,757,000. The outstanding debt relates primarily to secured notes issued in connection with the Germantown Acquisition, unsecured notes issued in 1995, fixed asset financings and the Company's public debentures. During the quarter ended June 30, 1995, Orbital converted approximately $3,000,000 of its convertible debentures at the request of certain debenture holders, issuing approximately 209,000 shares of Common Stock. The Company's primary revolving credit facility provides for total borrowings from an international syndicate of six banks of up to $65,000,000, subject to a defined borrowing base comprised of certain contract receivables. No borrowings were outstanding under the facility at September 30, 1995, and the available facility limit was approximately $25,000,000. At September 30, 1995, the average interest rate on outstanding borrowings under this facility was approximately 8%. Borrowings are secured by contract receivables and certain other assets. The facility restricts the payment of dividends and contains certain covenants with respect to the Company's working capital, fixed charge ratio, leverage ratio and tangible net worth, and expires in September 1997. The Company (or its subsidiaries) also maintains two additional, smaller revolving credit facilities, under which no amounts were outstanding at September 30, 1995. The Company's operations provided net cash of approximately $11,276,000 in the nine months ended September 30, 1995. The Company also invested approximately $12,374,000 in its ORBCOMM project and $16,620,000 in capital expenditures related primarily to spacecraft production and test equipment and various remote sensing and Earth observation satellite systems. 15 16 Orbital expects to invest up to $15,000,000 in various ORBIMAGE remote sensing projects. Orbital also intends to invest an additional $5,000,000 in the ORBCOMM System. Orbital expects that its 1995 capital needs for its existing operations, including its planned $5,000,000 additional investment in the ORBCOMM project, will in part be provided by working capital, cash flows from operations, credit facilities, asset-based financings, customer financings and operating lease arrangements. Additionally, as part of a joint venture to be partially funded by NASA and Rockwell International Corporation, Orbital intends to invest at least $73,000,000 in the development of a new small reusable launch vehicle, which investment will be required over the next four years, including approximately $5,000,000 in 1995. Orbital believes that it may require additional equity and/or debt financing to fully fund its currently planned operations and capital requirements, to meet its potential increased investment in the ORBCOMM System and to meet its investment requirements for the new launch vehicle and other potential projects. On August 31, 1995, Orbital signed an agreement (the "Combination Agreement") to acquire MacDonald, Dettwiler and Associates Ltd. ("MDA"), a leading supplier of commercial remote sensing ground stations, headquartered in Vancouver, British Columbia. During its recently completed fiscal year ended March 31, 1995, MDA reported pre-tax income of approximately US$5,500,000 on sales of approximately US$80,000,000. Pursuant to the terms of the Combination Agreement, a newly formed Canadian subsidiary of Orbital will issue exchangeable preferred shares (the "Exchangeable Shares") for all of MDA's outstanding common stock based on an exchange ratio to be determined according to the average closing price of Orbital's stock in the month prior to closing. The Exchangeable Shares will be exchangeable on a one- for-one basis for Orbital common stock. The transaction is expected to close by the end of November. 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 SECURITIES HOLDERS NOT APPLICABLE. ITEM 5. OTHER INFORMATION NOT APPLICABLE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - A complete listing of exhibits required is given in the Exhibit Index that precedes the exhibits filed with this report. (b) On November 2, 1995, the Company filed a report on Form 8-K reporting the proposed acquisition of MacDonald, Dettwiler and Associates Ltd. On November 6, 1995 the Company filed Amendment No. 1 on Form 8-K/A. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10Q/A to be signed on its behalf by the undersigned thereunto duly authorized. ORBITAL SCIENCES CORPORATION DATED: June 28, 2000 By: /s/ Jeffrey V. Pirone --------------------- Jeffrey V. Pirone, Executive Vice President and Chief Financial Officer 18 19 EXHIBIT INDEX THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT.
EXHIBIT DESCRIPTION NO. 2 Combination Agreement dated as of August 31, 1995 among Orbital Sciences Corporation, 3173623 Canada Inc. and MacDonald, Dettwiler and Associates Ltd. (Incorporated by reference to Exhibit 2 filed with the Company's Report on Form 8-K filed with the Commission on November 2, 1995). 3 By-laws of Orbital Sciences Corporation, as amended on July 27, 1995 (previously filed). 10.1 First Amendment, dated as of June 30, 1995, to Note Agreement between the Company and The Northwestern Mutual Life Insurance Company dated as of June 1, 1995 (previously filed). 10.2 Amendment No. 2 to the Credit Agreement dated as of July 5, 1995 among the Company, Orbital Imaging Corporation and Fairchild Space and Defense Corporation, the Banks listed therein, Morgan Guaranty Trust Company of New York, as Administrative Agent, and J.P. Morgan Delaware, as Collateral Agent (previously filed). 10.3 Amendment No. 3 to the Credit Agreement dated as of August 23, 1995 among the Company, Orbital Imaging Corporation and Fairchild Space and Defense Corporation, the Banks listed therein, Morgan Guaranty Trust Company of New York, as Administrative Agent, and J.P. Morgan Delaware, as Collateral Agent (previously filed). 11 Statement re: Computation of Earnings Per Share (transmitted herewith). 27 Financial Data Schedule (such schedule is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of the Form 10-Q/A, or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934) (transmitted herewith).
19