-----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, J7CsuZadkImuGsZMCapPbpt32DElarSGz9gXXVOKXz0r5uC4u2wOblN1J+c90V2s FdUWLRzQpdPxtTAWRQ63Hg== 0000950133-99-002450.txt : 19990722 0000950133-99-002450.hdr.sgml : 19990722 ACCESSION NUMBER: 0000950133-99-002450 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990507 ITEM INFORMATION: FILED AS OF DATE: 19990721 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-14279 FILM NUMBER: 99667972 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 8-K/A 1 FORM 8-K/A 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM 8-K/A CURRENT REPORT AMENDMENT NO. 2 Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 7, 1999 -------------------------- ORBITAL SCIENCES CORPORATION DELAWARE 0-18287 06-1209561 (State of incorporation) (Commission File Number) (I.R.S. Employer I.D. No.) 21700 ATLANTIC BOULEVARD DULLES, VIRGINIA 20166 (703) 406-5000 (Address and telephone number of principal executive offices) ================================================================================ 2 EXPLANATORY NOTE: Orbital Sciences Corporation ("Orbital") hereby amends and restates in its entirety Item 7 of Orbital's Current Report on Form 8-K dated May 7, 1999 and filed with the Securities and Exchange Commission on May 24, 1999 as follows: ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired (filed herewith) (i) Combined Financial Statements of Robotics Division of Spar Aerospace Limited and Spar Operations & Engineering Corporation, together with Independent Auditors' Report, as of December 31, 1998 and 1997 and for each of the years in the two-year period ended December 31, 1998; and (b) Pro Forma Financial Information (filed herewith) (i) As of and for the three-month period ended March 31, 1999; and (ii) For the year ended December 31, 1998. (c) Exhibits. The following exhibits were previously filed as part of this report: 10.1 Asset Acquisition Agreement dated as of March 18, 1999 between MacDonald Dettwiler and Associates Ltd ("MDA") and Spar Aerospace Limited ("Spar"). 10.2 Promissory Note dated May 7, 1999 from MacDonald, Dettwiler Space and Advanced Robotics Ltd. in favor of Spar. 10.3 Guaranty dated May 7, 1999 from Orbital Sciences Corporation and MDA in favor of Spar. The following exhibit is filed herewith: 23.2 Consent of Ernst & Young, LLP 3 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 Date: July 21, 1999 By: /s/ Jeffrey V. Pirone ---------------------------------- Jeffrey V. Pirone Executive Vice President and Chief Financial Officer 4 COMBINED FINANCIAL STATEMENTS ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] DECEMBER 31, 1998 AND 1997 5 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Orbital Sciences Corporation We have audited the accompanying combined balance sheets of the ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] [collectively, the "Division"] as of December 31, 1998 and 1997 and the related combined statements of income and net investment by Spar Aerospace Limited and cash flows for the years then ended. These financial statements are the responsibility of the management of Spar Aerospace Limited and the Division's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Division as of December 31, 1998 and 1997 and the combined results of its operations and its combined statements of cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. As disclosed in note 1 to the combined financial statements, the Robotics Division is a component of Spar Aerospace Limited and has no separate legal status or existence. Transactions with other divisions and affiliates of Spar Aerospace Limited are described in note 9 to the combined financial statements. Toronto, Canada, June 25, 1999. Ernst & Young, LLP Chartered Accountants 6 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] COMBINED BALANCE SHEETS [See basis of presentation - note 1]
As of December 31 1998 1997 $ $ - ---------------------------------------------------------------------------------------------- [Cdn. $000's] ASSETS CURRENT Cash -- 187 Accounts receivable [notes 3 and 11] 38,437 24,443 Work-in-process 336 158 Prepaid expenses 259 299 - ---------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 39,032 25,087 - ---------------------------------------------------------------------------------------------- Capital assets, net [note 4] 8,750 6,507 Investment in Radarsat International Inc. (298) (298) - ---------------------------------------------------------------------------------------------- 47,484 31,296 ============================================================================================== LIABILITIES AND NET INVESTMENT BY SPAR AEROSPACE LIMITED CURRENT Overdraft 47 -- Accounts payable 10,921 4,484 Accrued liabilities 5,520 6,437 Customer advance payments and unearned revenue 20,166 2,899 Warranty provision and other 3,058 1,300 Deferred income taxes [note 6] 240 2,174 - ---------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 39,952 17,294 - ---------------------------------------------------------------------------------------------- Long-term liabilities [note 5] 19,500 34,500 - ---------------------------------------------------------------------------------------------- Commitments and contingencies [note 8] NET INVESTMENT BY SPAR AEROSPACE LIMITED [note 7] (11,968) (20,498) - ---------------------------------------------------------------------------------------------- 47,484 31,296 ==============================================================================================
See accompanying notes 7 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] COMBINED STATEMENTS OF INCOME AND NET INVESTMENT BY SPAR AEROSPACE LIMITED
Years ended December 31 1998 1997 $ $ - -------------------------------------------------------------------------------------------------------- [Cdn. $000's] REVENUES [notes 9 and 11] 128,036 106,572 Cost of revenues [notes 8 and 10] 102,532 76,196 - -------------------------------------------------------------------------------------------------------- 25,504 30,376 - -------------------------------------------------------------------------------------------------------- EXPENSES Administrative and selling [note 9] 7,818 10,547 Research and development costs [note 10] 1,920 3,164 Depreciation 2,388 2,242 Restructuring recovery [note 5] (13,000) -- Other 9 -- - -------------------------------------------------------------------------------------------------------- (865) 15,953 - -------------------------------------------------------------------------------------------------------- Income before the following 26,369 14,423 - -------------------------------------------------------------------------------------------------------- Interest and other income 2 -- Foreign exchange gain (loss) 6 (4) - -------------------------------------------------------------------------------------------------------- Income before income taxes 26,377 14,419 Provision for income taxes [note 6] 4,550 4,948 - -------------------------------------------------------------------------------------------------------- NET INCOME FOR THE YEAR 21,827 9,471 Net investment by Spar Aerospace Limited, beginning of year (20,498) (13,660) Additional investment by Spar Aerospace Limited (13,297) (16,309) - -------------------------------------------------------------------------------------------------------- NET INVESTMENT BY SPAR AEROSPACE LIMITED, END OF YEAR (11,968) (20,498) ========================================================================================================
See accompanying notes 8 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31 1998 1997 $ $ - -------------------------------------------------------------------------------------------------------- [Cdn. $000's] OPERATING ACTIVITIES Net income for the year 21,827 9,471 Add (deduct) items not involving cash Depreciation 2,388 2,242 Deferred income taxes (1,934) (174) Restructuring recovery (13,000) -- - -------------------------------------------------------------------------------------------------------- 9,281 11,539 Net change in non-cash working capital balances [note 13] 10,413 6,530 - -------------------------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATING ACTIVITIES 19,694 18,069 - -------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of capital assets (4,631) (2,036) Increase in investment in Radarsat International Inc. -- 405 - -------------------------------------------------------------------------------------------------------- CASH USED IN INVESTING ACTIVITIES (4,631) (1,631) - -------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Investment by Spar Aerospace Limited (13,297) (16,309) Decrease in long-term liabilities (2,000) (500) - -------------------------------------------------------------------------------------------------------- CASH USED IN FINANCING ACTIVITIES (15,297) (16,809) - -------------------------------------------------------------------------------------------------------- NET DECREASE IN CASH DURING THE YEAR (234) (371) Cash, beginning of year 187 558 - -------------------------------------------------------------------------------------------------------- CASH (OVERDRAFT), END OF YEAR (47) 187 ========================================================================================================
See accompanying notes 9 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 1. BASIS OF PRESENTATION [a] The Robotics Division of Spar Aerospace Limited and Spar Operations & Engineering Corporation carry on the business of the design, assembly, manufacture, marketing and support of robotic systems for space and entertainment applications. [b] The accompanying financial statements combine the accounts of the Robotics Division of Spar Aerospace Limited and Spar Operations & Engineering Corporation [a wholly-owned subsidiary of Spar Aerospace Limited] [collectively, the "Division"] and have been prepared by management in accordance with accounting principles generally accepted in the United States ["U.S. GAAP"] for purposes of the acquisition described in note 14. All significant inter-company transactions and balances have been eliminated upon combination. Certain expenses which were previously incurred by Spar Aerospace Limited on behalf of the Division have been reflected in these combined financial statements as if the Division had been a separate legal entity [note 9]. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Revenue is accrued using the percentage-of-completion method relative to total costs incurred as the work is performed. A provision is made for the total anticipated loss when the estimate of total costs on a contract indicates a loss. Revisions to cost and profit estimates during the course of the work are reflected in the period in which the need for the revisions becomes known. Some contracts contain incentive and/or penalty provisions based on performance relative to established targets. Such awards or penalties are included in revenues or cost estimates when amounts can be reasonably determined. Provisions for potential warranty claims are provided for at the time revenues are recognized based on warranty terms and claims experience. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. 1 10 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 WORK-IN-PROCESS Work-in-process is valued at the lower of cost of components, purchased parts, direct labour plus an applicable share of overhead expenses properly chargeable to production or net realizable value. CAPITAL ASSETS Capital assets are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method to amortize the cost of the assets over their estimated useful lives as follows: Leasehold improvements over term of the lease Machinery and equipment 10% - 33 1/3% Computer equipment 33 1/3% INVESTMENT IN RADARSAT INTERNATIONAL INC. The Division exercises significant influence but not control of its investment in Radarsat International Inc. ["Radarsat"] and therefore accounts for its investment using the equity method of accounting. Losses from operations have been recorded as a reduction to the investment. As of December 31, 1998 Spar Aerospace Limited has provided a guarantee for bank indebtedness of $298,000 [1997 - $298,000]. INCOME TAXES The Division accounts for income taxes by the liability method under SFAS 109. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Robotics Division of Spar Aerospace Limited's operations are included in Spar Aerospace Limited's income tax return. Spar Aerospace Limited's income tax provision has been allocated to the Robotics Division as if the Robotics Division filed separate income tax returns. As there has been no formal tax sharing arrangement between Spar Aerospace Limited and the Robotics Division, the Division's current income tax liability has been reflected as an adjustment to net investment by Spar Aerospace Limited. Spar Operations and Engineering Corporation's current income tax liability has been reflected as income taxes payable. EMPLOYEES' POST RETIREMENT COSTS AND OBLIGATIONS Employees of the Division are members of various defined benefit pension plans. Pension costs are recognized on an as funded basis. 2 11 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 The Division provides certain health care, dental care and life insurance benefits to eligible retirees and their dependents pursuant to such plans materialized by Spar Aerospace Limited. The cost of providing these benefits is expensed as incurred. FOREIGN CURRENCY EXCHANGE Transactions denominated in foreign currencies are translated into Canadian dollars at the approximate prevailing rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at rates prevailing at the period end and the resulting foreign exchange gains and losses are recorded in income in the period incurred. Non-monetary assets and liabilities and related revenue and expense items are translated at historical rates in the period incurred. FAIR VALUE OF FINANCIAL INSTRUMENTS Cash, accounts receivable, overdraft and accounts payable and accrued liabilities reported in the combined balance sheets approximate their fair value given the relatively short periods to maturity of these instruments. USE OF ESTIMATES The preparation of these combined financial statements requires management's best estimates related to events whose outcome will not be fully resolved until future periods. The Division's revenues are derived primarily from long-term fixed price contracts, some of which are subject to significant technology risk. The preparation of these combined financial statements is based on management's estimates of revenues and the costs required to complete the projects. These estimates are subject to periodic adjustment and these adjustments could have a material impact on income. Revenues under such contracts may include incentive payments for specialized performance and costs may include performance-related penalties. 3 12 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 PENDING ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board ["FASB"] has issued SFAS 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 was initially to be effective for financial statements for fiscal years beginning after June 15, 1999. On May 19, 1999, FASB voted to delay the effective date of SFAS 133 by one year. SFAS 133 is expected to have no impact on the Division. 3. ACCOUNTS RECEIVABLE Accounts receivable consist of the following:
1998 1997 $ $ - -------------------------------------------------------------------------------------------- Trade receivables, net 21,371 12,313 Customer holdbacks 1,416 2,872 Contract costs and profit margin in excess of billings 15,650 9,258 - -------------------------------------------------------------------------------------------- 38,437 24,443 ============================================================================================
The allowance for doubtful accounts was nil in 1998 and 1997. Customer holdbacks amounting to $1,046,000 as of December 31, 1998 [1997 - $2,169,000] are anticipated to be received in 1999 through 2005 [1997 - 1998 through 2005]. 4 13 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 4. CAPITAL ASSETS
Capital assets consist of the following: 1998 ----------------------------------------------- NET ACCUMULATED BOOK COST DEPRECIATION VALUE $ $ $ - ------------------------------------------------------------------------------------------ Leasehold improvements 6,081 4,218 1,863 Machinery and equipment 13,867 11,775 2,092 Computer equipment 20,798 16,003 4,795 - ------------------------------------------------------------------------------------------ 40,746 31,996 8,750 ========================================================================================== 1997 ----------------------------------------------- NET ACCUMULATED BOOK COST DEPRECIATION VALUE $ $ $ - ------------------------------------------------------------------------------------------ Leasehold improvements 5,720 3,550 2,170 Machinery and equipment 13,630 11,411 2,219 Computer equipment 16,765 14,647 2,118 - ------------------------------------------------------------------------------------------ 36,115 29,608 6,507 ==========================================================================================
5. LONG-TERM LIABILITIES In 1996, the Division recorded a $35,000,000 provision for future committed costs of excess space at the Division's leased facility in Brampton, Ontario, of which $32,500,000 was classified as a non-current liability. In 1998, the Division recorded a $13,000,000 recovery representing a partial recovery of the $35,000,000 restructuring provision recorded in 1996 for estimated future committed costs of excess space at the Division's leased facility in Brampton, Ontario. The recovery is due to the configuration of the Division's Robotics business which requires more workspace than previously estimated. 5 14 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 6. INCOME TAXES For the years ended December 31, 1998 and 1997, the Division has computed its income taxes in accordance with the provisions of SFAS 109 as if it had been operating as a stand-alone entity. The significant components of the provision for income taxes include the following:
1998 1997 $ $ - ------------------------------------------------------------------------------------------ Current 6,484 5,122 Deferred (reduction) (1,934) (174) - ------------------------------------------------------------------------------------------ Provision for income taxes 4,550 4,948 ========================================================================================== Income taxes differ from the amounts computed by applying the Canadian federal and provincial income tax rate of 45% to income before income taxes as a result of the following: 1998 1997 $ $ - ------------------------------------------------------------------------------------------ Income taxes at Canadian statutory income tax rate of 45% 11,870 6,489 Manufacturing and processing deduction (1,325) (1,398) Permanent differences (5,995) (143) - ------------------------------------------------------------------------------------------ Provision for income taxes 4,550 4,948 ========================================================================================== The tax effects of temporary differences that give rise to significant components of the deferred tax assets and liabilities include the following: 1998 1997 $ $ - ------------------------------------------------------------------------------------------ Deferred tax assets: Non-deductible provisions 1,346 383 Deferred revenue on long-term contracts 245 -- Deferred tax liabilities: Deferred revenue on long-term contracts -- (1,070) Investment tax credits (1,244) (1,008) Capital assets (587) (479) - ------------------------------------------------------------------------------------------ Net deferred tax liability (240) (2,174) ==========================================================================================
6 15 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 7. NET INVESTMENT BY SPAR AEROSPACE LIMITED Because the Division's operations are conducted as a division of Spar Aerospace Limited, and not as a distinct legal entity, there are no capital accounts for the Division. The Division's operations are funded out of operating cash flows and by Spar Aerospace Limited. Operating cash flows and funds provided by Spar Aerospace Limited are reflected in the net investment by Spar Aerospace Limited account. Funds provided by Spar Aerospace Limited represent a significant source of funding which, if the Division had been a stand-alone entity, would have been financed at fair market rates of interest. No interest expense has been charged by Spar Aerospace Limited and, accordingly, the accompanying combined financial statements do not reflect interest expense that would otherwise be incurred if the Division had borrowed money as a stand-alone entity. Transactions and other charges and credits between the Division and Spar Aerospace Limited are described in note 9. 8. COMMITMENTS AND CONTINGENCIES [a] CONTINGENT LIABILITY In prior years, the Division received assistance under the Government of Canada's former Defense Industry Productivity Program. As a result, revenue - based royalties may be repayable in future years. The repayment is program specific and is calculated based on 1 - 2% of revenues over the first ten years the Division generates sales. No amounts have been paid to date. As of December 31, 1998 and 1997, no amount has been accrued. 7 16 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 [b] LEASE COMMITMENTS The future minimum annual lease payments under operating leases are as follows:
$ - ------------------------------------------------------------------------ 1999 3,798 2000 3,890 2001 3,890 2002 3,890 2003 3,890 Thereafter 31,296 - ------------------------------------------------------------------------ 50,654 ========================================================================
9. RELATED PARTY TRANSACTIONS The Division provides certain administrative services and information support systems to the corporate office and other divisions and affiliates of Spar Aerospace Limited. Administrative and selling expenses are net of recoveries in the amount of $1,428,000 [1997 - $2,299,022] and cost of revenues include reserves in the amount of $3,792,000 [1997 - $3,979,000] from Spar Aerospace Limited for such services. The corporate office and other divisions and affiliates of Spar Aerospace Limited incur on behalf of its business units certain costs for insurance, legal and other services. The amount allocated to the Division and included in administrative and selling expenses amounted to $900,000 [1997 - $850,000]. These transactions have been recorded at their exchange amounts. The Division also uses engineering services provided by Spar Aerospace Limited's Space Systems and Products Division. Costs in the amount of $28,649,000 [1997 - $19,192,000] relating to these services are included in cost of revenues and are based on cost plus 5% mark-up for general and administrative costs plus a 4% to 12% fee. These transactions have been recorded at their exchange amounts. Division management believes that the methodologies used to allocate and charge intercompany costs to the Division are reasonable. No interest expense has been charged by Spar Aerospace Limited on its net investment and accordingly the accompanying combined financial statements do not reflect interest expense that would otherwise be incurred if the Division had borrowed money as a stand-alone entity. 10. INVESTMENT TAX CREDITS Investment tax credits earned during the year have been applied to reduce the cost of revenues by $3,000,000 [1997 - $1,900,000] and research and development costs by $3,000,000 [1997 - $1,900,000]. 8 17 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 11. REVENUE AND ACCOUNTS RECEIVABLE RISK CONCENTRATION The Division derived 84% of its revenue for 1998 and 1997, directly or indirectly from contracts with the Canadian government. The Division has 31% and 61% receivable from one significant customers as of December 31, 1998 and 1997, respectively. 12. GEOGRAPHIC SALES INFORMATION The table below provides information pertaining to the Division's revenues by geographic area:
1998 1997 $ $ - ------------------------------------------------------------------------------- REVENUES Canada 111,980 94,152 United States 13,724 8,237 Other 2,332 4,183 - ------------------------------------------------------------------------------- 128,036 106,572 ===============================================================================
9 18 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 13. STATEMENTS OF CASH FLOWS The net change in non-cash working capital balances related to operations consists of the following:
1998 1997 $ $ - -------------------------------------------------------------------------------------- Accounts receivable (13,994) 5,912 Work-in-process (178) (58) Prepaid expenses 40 6 Accounts payable 6,437 (516) Accrued liabilities (917) 2,687 Customer advance payments and unearned revenue 17,267 (301) Warranty provision and other 1,758 (1,200) - -------------------------------------------------------------------------------------- 10,413 6,530 ======================================================================================
14. SUBSEQUENT EVENTS Pursuant to an asset purchase agreement dated March 18, 1999, MacDonald, Dettwiler and Associates Ltd. ["MDA"] closed the purchase from Spar Aerospace Limited on May 7, 1999, of the Division as described in note 1[b] for total proceeds of approximately $63.0 million subject to post closing adjustments based on net asset balances. Effective January 29, 1999, EMS Technologies, Inc. "EMS" purchased the Space Systems and Products Division of Spar Aerospace Limited. In connection with this agreement, EMS agreed to provide engineering services for certain contracts held by the Division at cost plus a 5% mark-up for general and administrative costs plus a 4% to 12% fee. EMS and MDA have also agreed to share the costs, 2/3 and 1/3 respectively, required to complete the implementation of the Enterprise Resource Planning system being implemented by the Division and EMS. 15. YEAR 2000 ISSUE [UNAUDITED] The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Division's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on a recent assessment, the Division determined that it will be required to modify or replace significant portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Division presently believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose 10 19 ROBOTICS DIVISION OF SPAR AEROSPACE LIMITED AND SPAR OPERATIONS & ENGINEERING CORPORATION [a wholly-owned subsidiary of Spar Aerospace Limited] NOTES TO COMBINED FINANCIAL STATEMENTS [Tabular amounts in thousands of Canadian dollars] December 31, 1998 and 1997 significant operational problems for its computer system. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Division. The Division has initiated formal communications with all of its significant suppliers and large customers to determine the extent to which the Division's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 Issues. The Division's total year 2000 project cost and estimates to complete include the estimated costs and time associated with the impact of third party Year 2000 Issues based on presently available information. However, there can be no guarantee that the systems of other companies on which the Division's systems rely will be timely converted and would not have an adverse effect on the Division's systems. The Division has determined it has no exposure to contingencies related to the Year 2000 Issue for the products it has sold. The Division will utilize both internal and external resources to reprogram, or replace, and test the software for Year 2000 modifications. The Division anticipates completing the Year 2000 project no later than October 1999, which is prior to any anticipated impact on its operating systems. The total cost of the Year 2000 project is estimated at $6.9 million and is being funded through operating cash flows. Of the total project cost, approximately $4.9 million is attributable to the purchase of new software which will be capitalized. The remaining $2.0 million, which will be expensed as incurred, is not expected to have a material effect on the results of operations. To date, the Division has incurred approximately $5.3 million ($1.2 million expensed and $4.1 million capitalized for new systems), related to the assessment of, and preliminary efforts on, its Year 2000 project and the development of a modification plan purchase of new systems and systems modifications. The costs of the project and the date on which the Division believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. 11 20 ORBITAL SCIENCES CORPORATION PRO FORMA FINANCIAL INFORMATION On May 7, 1999, MacDonald, Dettwiler and Associates Ltd. ("MDA"), a wholly owned subsidiary of Orbital Sciences Corporation ("Orbital"), purchased all the assets, including the stock of certain subsidiaries, and assumed certain liabilities relating to the space robotics business (the "Robotics Division") of Spar Aerospace Inc. ("SPAR") for approximately $43,000,000. The following pro forma financial information consists of the unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 1999 and the year ended December 31, 1998 and the unaudited pro forma condensed consolidated balance sheet as of March 31, 1999. The unaudited pro forma condensed consolidated balance sheet gives effect to the acquisition as if it occurred on March 31, 1999. The Robotics Division's balances as of March 31, 1999 were converted from Canadian dollars to U.S. dollars using the exchange rate on that date of 1.51. The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 1999 and for the year ended December 31, 1998 give effect to the acquisition as if it occurred on January 1, 1998. The Robotics Division's results of operations for the three months ended March 31, 1999 and year ended December 31, 1999 were converted from Canadian dollars to U.S. dollars using the average exchange rates during the periods of 1.51 and 1.48, respectively. The acquisition will be accounted for as a purchase transaction in accordance with generally accepted accounting principles. Accordingly, the purchase price has been allocated to assets and liabilities acquired from SPAR based on preliminary estimates of their fair values. The final allocation of purchase price will be adjusted during the year following closing of the acquisition as appraisals and other studies are completed. The following unaudited pro forma financial information does not purport to represent what Orbital's consolidated financial position or results of operations would actually have been had the acquisition occurred on March 31, 1999 or January 1, 1998 or to project Orbital's consolidated financial position or results of operations for any future date or periods indicated. The unaudited pro forma information should be read in conjunction with the financial statements of Orbital and Robotics Division and the related notes thereto. Certain reclassifications have been made to the historical Robotics Division financial information to conform to the presentation of the historical Orbital financial statement presentation. 21 ORBITAL SCIENCES CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1999 (THOUSANDS)
Historical Orbital Sciences Historical Pro Forma Pro Forma Corporation Robotics Division Adjustments Results ----------------- ----------------- ------------- ------------- ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 13,856 $ - $ (10,855)(1) $ 3,001 Restricted cash and short-term investments, at market 7,387 - - 7,387 Receivables, net 278,039 29,894 - 307,933 Inventories, net 66,419 17 - 66,436 Deferred income taxes and other assets 14,412 322 - 14,734 --------------- --------------- -------------- ------------- TOTAL CURRENT ASSETS 380,113 30,233 (10,855) 399,491 PROPERTY, PLANT AND EQUIPMENT, NET 164,482 5,945 - 170,427 INVESTMENTS IN AND ADVANCES TO AFFILIATES, NET 253,734 (197) 1,986 (2) 255,523 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, NET 228,486 - 52,434 (8) 280,920 DEFERRED INCOME TAXES AND OTHER ASSETS 29,639 - 29,639 --------------- --------------- -------------- ------------- TOTAL ASSETS $ 1,056,454 $ 35,981 $ 43,565 $ 1,136,000 =============== =============== ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Short-term borrowings and current portion of long-term obligations $ 26,098 $ - $ 20,843 (1) $ 46,941 Accounts payable 74,139 6,188 - 80,327 Accrued expenses 103,122 7,457 5,712 (3) 117,086 795 (4) Deferred revenues 116,550 19,001 135,551 --------------- --------------- -------------- ------------- TOTAL CURRENT LIABILITIES 319,909 32,646 27,350 379,905 LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 225,091 - 10,000 (1) 235,091 OTHER LIABILITIES 1,205 12,662 662 (5) 10,755 (3,774)(6) --------------- --------------- -------------- ------------- TOTAL LIABILITIES 546,205 45,308 34,238 625,751 NON-CONTROLLING INTERESTS IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES 13,113 - - 13,113 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock -- -- - -- Common Stock 372 - - 372 Additional paid-in capital 492,647 (9,327) 9,327 (7) 492,647 Cumulative translation adjustment (6,900) - - (6,900) Retained earnings 11,017 - - 11,017 --------------- --------------- -------------- ------------- TOTAL STOCKHOLDERS' EQUITY 497,136 (9,327) 9,327 497,136 --------------- --------------- -------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,056,454 $ 35,981 $ 43,565 $ 1,136,000 =============== =============== ============== =============
See Accompanying Notes to the Unaudited Pro Forma Consensed Consolidated Financial Information (Pro Forma Adjustments - Balance Sheet) 22 ORBITAL SCIENCES CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 (THOUSANDS, EXCEPT SHARE DATA)
Historical Orbital Sciences Historical Pro Forma Pro Forma Corporation Robotics Division Adjustments Results ----------------- ----------------- ----------------- ---------------- REVENUES $ 204,338 $ 16,230 $ - $ 220,568 COSTS OF GOODS SOLD 158,027 12,644 79 (2) 170,275 (475) (3) ----------------- ---------------- ----------------- ---------------- GROSS PROFIT 46,311 3,586 396 50,293 RESEARCH AND DEVELOPMENT EXPENSES 10,002 287 - 10,289 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 29,813 1,532 - 31,345 AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED 2,860 - 437 (1) 3,297 ----------------- ---------------- ----------------- ---------------- INCOME FROM OPERATIONS 3,636 1,767 (41) 5,362 NET INVESTMENT INCOME (EXPENSE) (1,088) (5) (617) (4) (1,710) EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (20,600) - - (20,600) NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES 3,479 - - 3,479 ----------------- ---------------- ----------------- ---------------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (14,573) 1,762 (658) (13,469) PROVISION FOR INCOME TAXES 1,298 705 (263) (5) 1,740 ----------------- ---------------- ----------------- ---------------- NET INCOME (LOSS) $ (15,871) $ 1,057 $ (395) $ (15,209) ================= ================ ================= ================ NET INCOME (LOSS) PER COMMON SHARE $ (0.43) $ (0.41) SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON SHARE 37,138,029 37,138,029 ================= ================
See Accompanying Notes to the Unaudited Pro Forma Consensed Consolidated Financial Information (Pro Forma Adjustments - Statements of Operations) 23 ORBITAL SCIENCES CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (THOUSANDS, EXCEPT SHARE DATA)
Historical Orbital Sciences Historical Pro Forma Pro Forma Corporation Robotics Division Adjustments Results ------------ ---------------- ----------- ------------ REVENUES $ 734,277 $ 86,511 $ - $ 820,788 COSTS OF GOODS SOLD 546,721 69,278 314 (7) 614,417 (1,896)(8) ------------ ------------ ----------- ------------ GROSS PROFIT 187,556 17,233 1,582 206,371 RESEARCH AND DEVELOPMENT EXPENSES 44,597 1,297 - 45,894 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 109,727 6,902 - 116,629 AMORTIZATION OF EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED 7,939 - 1,747 (6) 9,686 RESTRUCTURING RECOVERY - (8,784) 8,784 (7) - ------------ ------------ ----------- ------------ INCOME FROM OPERATIONS 25,293 17,818 (8,949) 34,162 NET INVESTMENT INCOME (EXPENSE) 2,567 5 (2,468)(9) 104 EQUITY IN EARNINGS (LOSSES) OF AFFILIATES (45,092) - - (45,092) NON-CONTROLLING INTERESTS IN (EARNINGS) LOSSES OF CONSOLIDATED SUBSIDIARIES 10,610 - - 10,610 GAIN ON SALE OF SUBSIDIARY EQUITY 4,793 4,793 ------------ ------------ ----------- ------------ INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (1,829) 17,823 (11,417) 4,577 PROVISION FOR INCOME TAXES 4,543 3,074 (895)(10) 6,722 ------------ ------------ ----------- ------------ NET INCOME (LOSS) $ (6,372) $ 14,749 $ (10,522) $ (2,145) ============ ============ =========== ============ NET INCOME (LOSS) PER COMMON SHARE $ (0.18) $ (0.06) SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON SHARE 35,624,888 35,624,888 ============ ============
See Accompanying Notes to the Unaudited Pro Forma Consensed Consolidated Financial Information (Pro Forma Adjustments - Statements of Operations) 24 ORBITAL SCIENCES CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN 000'S) The acquisition has been accounted for using the purchase method of accounting, and accordingly, the purchase price has been allocated to assets acquired and liabilities assumed from SPAR based on preliminary estimates of their fair value. The final allocation of purchase price will be determined during the year following closing of the acquisition as appraisals and other studies are completed. As a result of the final allocation, a portion of the purchase price may be allocated to other identified tangible and intangible assets and liabilities, which may have estimated useful lives different than the thirty year estimated useful life used for the excess of the purchase price over net assets acquired. Accordingly, actual amortization expense may differ materially from the amounts included in the unaudited pro forma condensed consolidated statements of operations. PRO FORMA ADJUSTMENTS - BALANCE SHEET The following adjustments have been reflected in the March 31, 1999 unaudited pro forma condensed consolidated balance sheet to reflect the impact of the acquisition as if it had closed on March 31, 1999: 1) The purchase price consisted of $20,855 in cash and a one-year note payable to SPAR for $20,843 bearing interest at 8%. The note was recorded as short-term debt. Orbital funded the cash due at closing with $10,855 in cash on hand and $10,000 drawn from the company's primary credit facility, which was recorded as long-term debt. 2) To record the fair value of Robotic's investment in Radarsat International, Ltd. 3) To adjust long-term contract commitments to fair value based on contract values remaining and estimated costs to complete. 4) To accrue for estimated transaction fees, including legal, accounting and investment banking fees paid to third parties. 5) The Robotics Division historically participated in SPAR's defined benefit plans and post-retirement health benefit plan. Subsequent to the acquisition, the Robotics Division will adopt separate plans for its employees, giving credit for length of service under SPAR's prior plans. This adjustment remeasures the projected benefit obligations and fair value of plan assets and records the net liabilities associated with the defined benefit and post-retirement health plans. 6) At March 31, 1999, the Robotics Division had a $12,662 unfavorable lease restructuring reserve on its balance sheet that was initially established in 1996. This adjustment remeasures the unfavorable lease commitment as of March 31, 1999, reducing the balance by $3,744 to its estimated fair value. 7) To reverse the net deficit of assets over liabilities. 8) To record the excess of purchase price over the estimated fair value of the assets acquired and liabilities assumed. 25 ORBITAL SCIENCES CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN 000'S) PRO FORMA ADJUSTMENTS - STATEMENTS OF OPERATIONS The following adjustments have been reflected in the unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 1999 to reflect the impact of the acquisition as if it had closed on January 1, 1998: 1) We anticipate that goodwill will be amortized on a straight-line basis over thirty years, however the final amortization period will be determined as appraisals and other studies are completed. This adjustment records three months of amortization expense based on a thirty-year amortization period. 2) This adjustment records three months of amortization for the reduction to the unfavorable lease commitment. 3) The unfavorable long-term contract commitments will be amortized as work is completed on the underlying contracts. This adjustment reduces cost of goods sold for three months of amortization. 4) This adjustment records three months of interest expense using an average borrowing rate of 8% on the $31,562 in total debt incurred to fund the purchase price. 5) To record the income tax expense adjustment associated with the pro forma adjustments using the effective rate for the period. The following adjustments have been reflected in the pro forma condensed consolidated statement of operations for the year ended December 31, 1998 to reflect the impact of the acquisition as if it had closed on January 1, 1998: 6) We anticipate that goodwill will be amortized on a straight-line basis over thirty years, however the final amortization period will be determined as appraisals and other studies are completed. This adjustment records twelve months of amortization expense based on a thirty-year amortization period. 7) This adjustment records twelve months of amortization for the reduction to the unfavorable lease commitment. Additionally, during 1998 the Robotics Division recorded a $8,784 recovery of the lease restructuring provision it initially recorded in 1996. Had the acquisition occurred at January 1, 1998, the Company would have remeasured the lease restructuring reserve at that time. Accordingly, the $8,784 recovery would not have been included in income during 1998. The recovery included in income has been reversed for the pro forma condensed consolidated statement of operations for the year ended December 31, 1998. 8) The unfavorable long-term contract commitments will be amortized as work is completed on the underlying contracts. This adjustment reduces cost of goods sold for twelve months of amortization. 9) This adjustment records twelve months of interest expense using an average borrowing rate of 8% on the $31,562 in total debt incurred to fund the purchase price. 26 ORBITAL SCIENCES CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN 000'S) 10) To record the income tax expense adjustment associated with the pro forma adjustments using the effective tax rate for the period. The effective tax rate calculation excludes the lease restructuring recovery. The unaudited condensed consolidated pro forma statements of operations for the three months ended March 31, 1999 and year ended December 31, 1998 do not include any pro forma adjustments to reflect potential cost savings achieved by combining duplicative functions at the Robotics Division with MDA or Orbital. 27 EXHIBIT INDEX The following exhibits are filed as part of this report. Exhibit No. Description 23.2 Consent of Ernst & Young, LLP EX-23.2 2 CONSENT OF ERNST & YOUNG, LLP 1 Exhibit 23.2 CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS We consent to the use of our report dated June 25, 1999 on the Combined Financial Statements of the Robotics Division of Spar Aerospace Limited and Spar Operations & Engineering Corporation for the years ended December 31, 1997 and 1998 included in the Current Report on Form 8-K/A of Orbital Sciences Corporation filed with the Securities and Exchange Commission. Dated: July 21, 1999 Toronto, Canada ERNST & YOUNG, LLP -----END PRIVACY-ENHANCED MESSAGE-----