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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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ANNUAL REPORT ON
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER 1-14279
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ORBITAL SCIENCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 06-1209561
(STATE OF INCORPORATION OF REGISTRANT) (I.R.S. EMPLOYER I.D. NO.)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(703) 406-5000
(REGISTRANT'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01
(LISTED ON THE NEW YORK STOCK EXCHANGE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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Indicate by check mark whether the registrant (1) has 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing sales price as reported on the New York
Stock Exchange on April 10, 2001 was approximately $120,411,788.
As of April 10, 2001, 37,746,634 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement dated April 16,
2001 are incorporated by reference in Part III of this Report.
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TABLE OF CONTENTS
ITEM PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
Item 4A Executive Officers of the Registrant........................ 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 24
Item 8. Financial Statements and Supplementary Data................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 58
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 59
Item 11. Executive Compensation...................................... 59
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 59
Item 13. Certain Relationships and Related Transactions.............. 59
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 60
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Pegasus is a registered trademark and service mark of Orbital Sciences
Corporation; Taurus is a registered trademark of Orbital Sciences Corporation;
Orbital is a trademark of Orbital Sciences Corporation; OrbView and ORBIMAGE are
registered service marks of Orbital Imaging Corporation; and ORBCOMM is a
registered service mark of ORBCOMM Global L.P.
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PART I
ITEM 1. BUSINESS
BACKGROUND
Orbital Sciences Corporation, together with its subsidiaries ("Orbital" or
the "company"), is a leading space technology systems company that designs,
manufactures, operates and markets a broad range of space-related products and
services. Our products and services include:
- launch vehicles and advanced programs,
- satellites and related space systems,
- electronics and sensor systems, and
- space robotics, satellite ground systems, and mapping and land
information products and services.
Orbital was incorporated in Delaware in 1987 to consolidate the assets,
liabilities and operations of Space Systems Corporation and Orbital Research
Partners, L.P. Since inception, it has been our strategy to develop and grow a
core integrated business of space systems technologies and products, starting
with the design and manufacturing of lightweight rockets, small satellites and
other inexpensive space systems intended to capitalize on the commercial
development of space. A major part of this strategy has centered on market-
expanding innovations that we have pioneered, including the world's first
privately-developed space launch vehicle, the first commercial orbit transfer
vehicle, the first operational low-Earth orbit commercial communications network
and the first hand-held satellite navigation and communications devices.
During 2000, we adopted a strategy intended to focus on our core space
technology businesses, primarily involving our satellites, launch vehicles and
related space systems. Part of this strategy involves the sale of certain
non-core assets. In October 2000, we sold our Fairchild Defense electronics
business unit ("Fairchild") for approximately $100 million. In July 2000, our
Canadian subsidiary, MacDonald, Dettwiler and Associates Ltd. ("MDA"), completed
an initial public offering on the Toronto Stock Exchange, raising gross proceeds
for itself of approximately $37,500,000 and $18,800,000 for Orbital. On April
12, 2001, our wholly owned subsidiary, MDA Holdings Corporation ("MDA
Holdings"), which holds our shares in MDA, entered into an agreement with a
group of Canadian institutional and private equity investors to sell 12,350,000
MDA shares at approximately $9.00 per share. The agreement is subject to
customary closing conditions, including the receipt of regulatory approvals, and
the parties expect to close the sale by mid-May 2001. Certain of the purchasers
also have an option to acquire MDA Holdings' remaining 5,650,000 shares of MDA
by May 31, 2001.
We recently adopted a formal plan to dispose of our subsidiary, Magellan
Corporation ("Magellan"), which designs, produces, distributes, sells and
licenses Global Positioning System ("GPS")-based satellite access products, and
our investment in Navigation Solutions LLC ("NavSol"), a joint venture engaged
in satellite-aided automotive guidance and related value-added information
services. We are continuing to explore the disposition of other non-core assets.
We also have developed and funded several space-based services businesses,
primarily through the following joint ventures:
- Orbital Imaging Corporation ("ORBIMAGE"), which develops and operates
commercial remote imaging satellites, and
- ORBCOMM Global L.P. ("ORBCOMM"), which operates a low-Earth orbit
satellite communications system designed to serve the global market for
two-way data communications.
ORBCOMM and ORBIMAGE have both recently experienced serious financial
difficulties. ORBCOMM filed for protection under Chapter 11 of the U.S.
Bankruptcy Code in September 2000. On April 12, 2001, ORBCOMM, Teleglobe Holding
Corporation ("Teleglobe Holdings"), ORBCOMM's creditors committee, our
subsidiary, Orbital Communications Corporation ("OCC"), and we signed a
preliminary non-binding term sheet providing for a sale of ORBCOMM's assets to a
newly formed consortium called International Licensees, LLC and for a
comprehensive liquidating plan of reorganization for
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ORBCOMM. There can be no assurance that the sale will be consummated, and if it
is not, we expect that ORBCOMM's Chapter 11 reorganization proceeding would be
converted to a Chapter 7 liquidation proceeding.
In March 2001, ORBIMAGE defaulted on the interest payment obligations under
its $225,000,000 11 5/8% Senior Notes due 2005. This debt is non-recourse to us.
ORBIMAGE management currently estimates that ORBIMAGE has sufficient resources
to meet its capital and operating requirements through May 2001. ORBIMAGE is
seeking to restructure the Senior Notes and to obtain additional capital from
third parties as well as its existing shareholders. There can be no assurance
that such capital will be available on a timely basis or at all.
DESCRIPTION OF ORBITAL'S PRODUCTS AND SERVICES
Our products and services include launch vehicles and advanced programs,
satellites and related space systems, electronics and sensor systems, and space
robotics, satellite ground systems, and mapping and land information products
and services, and are described more fully below. Our overall business is not
seasonal to any significant extent. Customers that accounted for 10% or more of
our consolidated 2000 revenues were the National Aeronautics and Space
Administration ("NASA"), the U.S. Department of Defense ("DoD") and the Canadian
Space Agency.
LAUNCH VEHICLES AND ADVANCED PROGRAMS. We developed and produce the
Pegasus and Taurus space launch vehicles that place small satellites into
low-Earth orbit, and in 2000, we completed development of and successfully
launched our first Minotaur space launch vehicle. Our Pegasus launch vehicle is
launched from beneath our L-1011 carrier aircraft to deploy satellites weighing
up to 1,000 pounds into low-Earth orbit. The Taurus launch vehicle is a
ground-launched derivative of the Pegasus vehicle that can carry payloads
weighing up to 3,000 pounds to low-Earth orbit. The ground-launched Minotaur
launch vehicle combines Minuteman II rocket motors with our Pegasus technology
to launch payloads of up to 1,500 pounds into low-Earth orbit.
The Pegasus has performed a total of 30 missions, including two successful
launches in 2000, one of which represented the first equatorial mission of a
small-class commercial space launch vehicle. The Taurus has performed a total of
five launches, including one successful mission in 2000 for the U.S. Department
of Energy. Pegasus and Taurus customers have included various U.S. and
international government and commercial customers. We perform Minotaur missions,
including the first two launches in 2000, under a contract with the U.S. Air
Force.
Orbital's space launch technology has also been the basis for several other
space and suborbital programs, including supporting efforts to develop
technologies that could be applied to reusable launch vehicles, hypersonic
aircraft, and missile defense systems.
We also produce suborbital launch vehicles, which place payloads into a
variety of high-altitude trajectories but, unlike space launch vehicles, do not
place payloads into orbit around the Earth. Our suborbital launch products
include suborbital vehicles and their principal subsystems, payloads carried by
such vehicles, and related launch support installations and systems used in
their assembly and operation. Customers typically use our suborbital launch
vehicles to launch scientific and other payloads and for defense-related
applications such as target signature and interceptor experiments. During 2000,
the U.S. Navy awarded us a contract for the Supersonic Sea-Skimming Target
Missile, which broadens the scope of our target launch vehicle products from
ballistic missiles to supersonic, low-altitude, air-breathing cruise missiles.
Our primary customers for suborbital launch vehicles include NASA and various
branches of the U.S. military. Since 1982, we, including a predecessor company,
have performed 106 suborbital missions.
SATELLITES AND RELATED SPACE SYSTEMS. We design and manufacture small and
medium-class satellites to be used in low-Earth orbit and in geosynchronous
orbit. Since 1982, we, including two predecessor companies, have built and
delivered 88 satellites for various commercial and governmental customers for a
wide range of communications, broadcasting, remote imaging, scientific and
military missions. In March 2001, the BSAT-2a satellite, based on our smaller
geosynchronous orbit satellite platforms and the first of a pair of
direct-to-home
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digital television broadcasting satellites that we are building for Japan's
Broadcasting Satellite System Corporation, was successfully launched aboard an
Ariane 5 rocket.
We design and manufacture various other space systems, including satellite
command and data handling, attitude control and structural subsystems for a
variety of government and commercial customers. In addition, we provide a broad
range of spacecraft design and engineering services, including specialized
space-related analytical engineering services for U.S. government agencies,
including NASA, the Jet Propulsion Laboratory, DoD, the Naval Research
Laboratory and the U.S. Department of Energy.
ELECTRONICS AND SENSOR SYSTEMS. We design, develop and manufacture
sophisticated sensors and analytical instruments for space, defense and
industrial applications. Our instruments have successfully operated in space
measuring ozone concentrations around the world. We also developed and produced
an atmospheric monitoring system that was successfully activated in February
2001 aboard the International Space Station. We provide sensors performing
similar functions for U.S. and British Navy nuclear submarines, and we are
developing sensors for the DoD for use in the detection of chemical and
biological weapons. In addition, we manufacture and market sensors that analyze
gas properties for commercial customers in the petrochemical, natural gas,
chemical, pharmaceutical, steel and other industries.
Our transportation management systems division develops and produces fleet
management systems using satellite-based automatic vehicle location systems that
have been used primarily for metropolitan mass transit operators in the U.S.
During 2000, we entered the international market with a major transportation
management systems contract award in Singapore. Our transportation management
systems combine GPS vehicle tracking technology with local area wireless and
terrestrial communications to help transit agencies manage public bus and light
rail systems. Major customers for our transportation management systems include
the metropolitan mass transit authorities in Chicago, Houston, Denver, Oakland,
Philadelphia, Baltimore, Washington, DC, Atlanta, Santa Clara and San Mateo
(California) and Las Vegas, as well as a number of smaller state and municipal
transit systems and vehicle fleets.
Prior to the sale of Fairchild in October 2000, we developed and
manufactured defense electronics products, including advanced avionics and data
management systems for aircraft flight operations and ground support
applications for U.S. and foreign military customers. We sold this business unit
to a U.S. subsidiary of Smiths Industries plc for approximately $100,000,000.
SPACE ROBOTICS, SATELLITE GROUND SYSTEMS, AND MAPPING AND LAND INFORMATION
PRODUCTS AND SERVICES. Our space robotics, satellite ground systems, and mapping
and land information products and services segment is conducted through our
Vancouver, Canada-based MDA subsidiary. Through MDA Holdings, we owned
18,000,000 common shares, or 52% of MDA, at December 31, 2000, but as discussed
above, MDA Holdings recently entered into an agreement to sell our remaining
interest in MDA.
MDA provides mission-critical information systems for space applications,
natural resource and land management, automated aeronautical information and air
traffic control systems and other command and control systems for military and
civilian purposes. MDA has built a majority of the world's non-military imaging
satellite ground stations, many of which are designed to receive and process
data from major civil and commercial earth observation satellites currently in
operation. Under a contract with the Canadian Space Agency, MDA is developing,
constructing and will operate the Radarsat-2 high-resolution radar satellite,
expected to be launched in 2003. MDA also designs, manufactures, markets and
supports robotics systems primarily used on Space Shuttle missions and on the
International Space Station. Since its first use in 1981, MDA's principal
robotics product, the Shuttle Remote Manipulator System, or Canadarm, has
performed successfully on 55 Space Shuttle missions involving satellite
deployment and retrieval, Space Station assembly and other tasks.
Over the last three years, MDA has leveraged its information systems
capabilities to become an integrated land information products supplier,
providing electronic access to land-related databases to support land purchase
and related financing transactions, various other land-related information, and
satellite and aircraft-based mapping services. MDA's BC OnLine operation is an
advanced, online land information business providing businesses and individuals
with access to government database information that is critical
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for real estate and other transactions. In April 2000, MDA acquired the
DataQuick Products division of Acxiom Corporation in order to expand into the
U.S. market for real property information used by the real estate, mortgage and
title insurance industries. The aggregate purchase price was approximately
$56,000,000 paid in cash. In November 2000, MDA acquired all the assets of
Atlantic Technologies LLC, a Huntsville, Alabama-based supplier of mapping and
data services, for $8,500,000 in cash, and up to $6,000,000 in MDA shares to be
issued over three years subject to specified conditions. In July 2000, MDA was
selected by the British government's Land Registry and Improvement and
Development Agency to provide a sophisticated e-commerce system for electronic
delivery of comprehensive land ownership information for England and Wales.
As previously noted, on April 12, 2001, our wholly owned subsidiary, MDA
Holdings, entered into an agreement with a group of Canadian institutional and
private equity investors to sell 12,350,000 MDA shares for approximately $9.00
per share. The parties expect this sale to close by mid-May 2001. Certain of the
purchasers also have an option to acquire MDA Holdings' remaining MDA shares by
May 31, 2001. Upon the closing of the initial sale, our existing agreements with
MDA's other major shareholders, which, among other things, granted them a right,
under certain circumstances, to exchange their MDA stock for common stock of
Orbital pursuant to a specified formula, will terminate.
SATELLITE SERVICES. We have also participated in satellite-based
communications and remote imaging services, primarily through joint ventures
that we account for on an equity method basis.
ORBIMAGE Digital Imagery Services. ORBIMAGE is a provider of global
space-based imagery, and currently operates two satellites that collect, process
and distribute digital imagery of the Earth's surface, atmosphere and weather
conditions. ORBIMAGE's imaging products and services are designed to provide
customers with direct access to timely and competitively priced information
concerning, among other things, the location and movement of military assets,
urban growth, forestry and crop health, land and ocean-based natural resources
and weather patterns and wind conditions.
ORBIMAGE's principal satellite, OrbView-2 (operated under a licensing
agreement with us), commenced commercial service in 1997 and is used by ORBIMAGE
to deliver high-quality multispectral ocean imagery and land surface imagery to
various scientific, government and commercial customers. ORBIMAGE expects to
launch its first one-meter high-resolution satellite, OrbView-4, in the summer
of 2001, with its second one-meter high resolution satellite, OrbView-3, planned
to be launched in the first quarter of 2002. We believe that OrbView-4 will be
the world's first satellite with commercially available hyperspectral imaging
capability.
Under a procurement agreement between Orbital and ORBIMAGE, Orbital is
producing and launching the OrbView-3 and OrbView-4 satellites, and is
constructing the related ground segment on a fixed-price basis. Orbital also
provides ORBIMAGE with administrative services and technical support, generally
on a cost-reimbursable basis. In addition, MDA is a supplier to ORBIMAGE of
ORBIMAGE's regional ground stations. Pursuant to a license agreement, ORBIMAGE
also will be MDA's exclusive U.S. distributor of Radarsat-2 data when the
Radarsat-2 satellite is launched. ORBIMAGE is currently MDA's U.S. distributor
of Radarsat-1 data. In the third quarter of 2000, as a result of ORBIMAGE's
financial difficulties discussed below, we ceased recognizing revenues on the
ORBIMAGE system procurement contract. We are, however, currently continuing to
work under the procurement agreement to complete the production and launch of
the satellites.
We own approximately 100% of ORBIMAGE's outstanding common stock and
approximately 54% of the voting interest in ORBIMAGE (after giving effect to the
conversion of ORBIMAGE's convertible preferred stock), with the remainder of the
voting interests owned primarily by the preferred stockholders. As a result of
certain rights granted to the preferred stockholders, including the right to
elect certain directors and have such directors participate in significant
management decisions, we do not control the operational and financial affairs of
ORBIMAGE.
In March 2001, ORBIMAGE defaulted on its interest payment obligations under
its $225,000,000 11 5/8% Senior Notes due 2005. ORBIMAGE management currently
estimates that ORBIMAGE has sufficient
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resources to meet its capital and operating requirements through May 2001.
ORBIMAGE is seeking to restructure the Senior Notes and to obtain additional
capital from third parties as well as its existing shareholders. We cannot be
assured that such capital will be available on a timely basis or at all.
ORBCOMM Communications Services. The ORBCOMM System consists of a network
of 33 small LEO satellites in commercial service and ground segments designed to
provide continuous low-cost monitoring, tracking and messaging communications
coverage over most of the Earth's surface. ORBCOMM provides commercial data
communications service primarily in the monitoring and tracking applications.
The system is intended to be a reliable, cost-effective method of providing
fixed asset monitoring, mobile asset tracking and data messaging services to a
broad range of industrial and commercial customers around the world, enabling
customers to collect data from multiple locations, track assets on a global
basis and transmit and receive messages outside the coverage area of terrestrial
services. It is designed to permit subscribers to use inexpensive communicators
to send and receive short messages, high-priority alerts and other information,
such as the location and condition of automobiles, trucks, railcars, industrial
equipment, shipping vessels and other remote or mobile assets.
In September 2000, ORBCOMM and its subsidiaries commenced reorganization
proceedings under Chapter 11 of the U.S. Bankruptcy Code. On April 12, 2001,
ORBCOMM, Teleglobe Holding Corporation, ORBCOMM's creditors committee, OCC and
we signed a preliminary non-binding term sheet providing for a sale of ORBCOMM's
assets to a newly formed consortium called International Licensees, LLC and for
a comprehensive plan of reorganization for ORBCOMM. Under the liquidating plan
of reorganization, we would contribute shares of our common stock having a
market value of $6,500,000 (subject to a floor price of $3.75 per share and a
ceiling price of $6.50 per share); OCC would transfer its Federal Communications
Commission licenses relating to the ORBCOMM System; and we would release claims
against ORBCOMM and receive releases from the ORBCOMM estate, including releases
of potential preference claims of the ORBCOMM estate, and a release of OCC from
the holders of at least a majority in principal amount of ORBCOMM's senior
notes. We would also receive a substantial equity interest in the successor
ORBCOMM entity. There can be no assurance that the sale and reorganization plan
will be consummated, and if it is not, we expect that ORBCOMM's Chapter 11
reorganization proceeding would be converted to a Chapter 7 liquidation
proceeding.
DISCONTINUED OPERATIONS
As a result of our recent adoption of a formal plan to dispose of Magellan
and our investment in NavSol, our satellite access products line is now
accounted for as discontinued operations.
Magellan's product line consists of GPS-enabled navigation and positioning
products for consumer markets as well as similar products that are used for
professional and other high-precision industrial applications. During 2000,
Magellan produced approximately 400,000 access product units. Its consumer
products are marketed to recreational marine and general aviation customers and
outdoor recreation users such as campers, hunters and hikers. Certain of
Magellan's satellite guidance devices combine GPS and wireless data
communications functions. Magellan has also entered the market for GPS-based car
navigation products with its automotive navigation system, which uses satellite
signals to provide electronic map guidance to individual motorists.
Professional and industrial applications include using GPS for precision
surveying, guiding aircraft under low-visibility conditions, monitoring
movements of the Earth's surface for researchers, and managing natural
resources. In addition, some of Magellan's higher-performance products
incorporate technology that provides access to both the U.S. GPS satellites and
GLONASS, the comparable Russian satellite navigation system, and improves
performance and accuracy.
Through a wholly owned subsidiary, we indirectly hold a 60% interest in
NavSol, our satellite-based automotive information services joint venture with
The Hertz Corporation. NavSol has installed 40,000 Magellan-supplied
satellite-based car navigation systems that form the basis for the Hertz
NeverLost rental car service.
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Magellan's financial results are no longer included in our operational
results and our equity interest in NavSol is no longer included in our earnings
(losses) of affiliates for the year ended December 31, 2000 and prior years.
Both operations are now reflected as a component of discontinued operations.
* * *
Financial information about the company's products and services, domestic
and foreign operations and export sales is included in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the notes to
the company's consolidated financial statements, and is incorporated herein by
reference.
COMPETITION
Orbital believes that competition for sales of its products and services is
based on performance and other technical features, price, reliability,
scheduling and customization.
The primary domestic competition for the Pegasus and Taurus launch vehicles
comes from the Athena launch vehicles developed by Lockheed Martin Corporation
("Lockheed Martin"). In addition, the Israeli Shavit vehicle and other potential
foreign launch vehicles could also pose competitive challenges to Pegasus.
Competition for Taurus could come from various Russian launch vehicles.
Competition to Pegasus and Taurus vehicles also exists in the form of partial or
secondary payload capacity on larger boosters, including the Ariane, Atlas and
Delta launch vehicles. Our primary competitors in the suborbital launch vehicle
product line are Lockheed Martin, L-3 Communications and Space Vector
Corporation.
Our satellites and spacecraft subsystems products compete with products
produced or provided by government entities and numerous private entities,
including TRW Inc., Ball Aerospace and Technology Corporation ("Ball
Aerospace"), Lockheed Martin, Boeing Corporation ("Boeing"), Spectrum Astro,
Inc., EADS/Astrium, Alenia Aerospazio and Alcatel. Our sensors and instruments
face competition from several established manufacturers, including Lockheed
Martin, Ball Aerospace and ITT Industries, as well as from NASA, and various
universities and research institutes. Our primary competition in transportation
management systems is Siemens Corporation. MDA's information products face
competition from First American Title Insurance Company, NationsData.com Inc.
and Transamerica Intellitech. Major competitors in its information systems
product lines include Raytheon Company, Lockheed Martin and Boeing.
Many of our competitors are larger and have substantially greater resources
than we do. Furthermore, it is possible that other domestic or foreign companies
or governments, some with greater experience in the space industry and greater
financial resources than Orbital, will seek to produce products or services that
compete with our products or services. Any such foreign competitor could benefit
from subsidies from or other protective measures by its home country.
RESEARCH AND DEVELOPMENT
We invest in product-related research and development to conceive and
develop new products and services, to enhance existing products and services and
to seek customer and, where appropriate, third-party strategic investments in
these products and services. Our research and development expenses, excluding
direct customer-funded development, were approximately $17,355,000, $25,021,000
and $28,790,000 for the fiscal years ended December 31, 2000, 1999 and 1998,
respectively.
PATENTS AND TRADEMARKS
We rely, in part, on patents, trade secrets and know-how to develop and
maintain our competitive position and technological advantage. We hold and have
applications pending for various U.S. and foreign patents relating to the
Pegasus vehicle, our satellites, and other systems and products. Certain of the
trademarks and service marks used in connection with our products and services
have been registered with the U.S. Patent and Trademark Office, the Canadian
Intellectual Property Office and certain other foreign trademark authorities.
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COMPONENTS, RAW MATERIALS AND CARRIER AIRCRAFT
We purchase a significant percentage of our product components, including
rocket propulsion motors, structural assemblies, electronic equipment and
computer chips, from third parties. We also occasionally obtain from the U.S.
government parts and equipment that are used in the production of our products
or in the provision of our services. We have not experienced material difficulty
in obtaining product components or necessary parts and equipment and we believe
that alternatives to our existing sources of supply are available, although
increased costs and possible delays could be incurred in securing alternative
sources of supply. Our ability to launch our Pegasus vehicle depends on the
availability of an aircraft with the capability of carrying and launching such
space launch vehicle. We own the modified Lockheed L-1011 carrier aircraft that
is used for the Pegasus vehicle. In the event that the L-1011 carrier aircraft
were to be unavailable, we would experience significant delays, expenses and
loss of revenues as a result of having to acquire and modify a new carrier
aircraft.
U.S. GOVERNMENT CONTRACTS
During 2000, 1999 and 1998, approximately 34%, 39% and 46% of our total
annual revenues were derived from contracts with the U.S. government and its
agencies or from subcontracts with the U.S. government's prime contractors. Most
of our U.S. government contracts are funded incrementally on a year-to-year
basis. Changes in government policies, priorities or funding levels through
agency or program budget reductions by the U.S. Congress or executive agencies
or the imposition of budgetary constraints could materially adversely affect our
financial condition or results of operations.
The accuracy and appropriateness of our direct and indirect costs and
expenses under our contracts with the U.S. government are subject to extensive
regulation and audit by the Defense Contract Audit Agency or by other
appropriate agencies of the U.S. government. These agencies have the right to
challenge our cost estimates or allocations with respect to any such contract.
Additionally, a substantial portion of payments to Orbital under U.S. government
contracts are provisional payments that are subject to potential adjustment upon
audit by such agencies. We believe that any adjustments likely to result from
inquiries or audits of our contracts will not have a material adverse impact on
our financial condition or results of operations. Since Orbital's inception, we
have not experienced any material adjustments as a result of any such inquiries
or audits.
Orbital's major contracts with the U.S. government fall into three
categories: firm fixed-price contracts, fixed-price incentive fee contracts and
cost-plus-fee contracts. Under firm fixed-price contracts, work performed and
products shipped are paid for at a fixed price without adjustment for actual
costs incurred in connection with the contract. Therefore, we bear the risk of
loss due to increased cost, although some of this risk may be passed on to
subcontractors. Under fixed-price government contracts, we may receive progress
payments, generally in an amount equal to between 80% and 95% of monthly costs
and profits, or we may receive milestone payments upon the occurrence of certain
program achievements, with final payments occurring at project completion.
Fixed-price incentive fee contracts provide for sharing by Orbital and the
customer of unexpected costs incurred or savings realized within specified
limits, and may provide for adjustments in price depending on actual contract
performance other than costs. Costs in excess of the negotiated maximum
(ceiling) price and the risk of loss by reason of such excess costs are borne by
Orbital, although some of this risk may be passed on to subcontractors. Under a
cost-plus-fee contract, we recover our actual allowable costs incurred and
receive a fee consisting of a base amount that is fixed at the inception of the
contract and/or an award amount that is based on the U.S. government's
subjective evaluation of the contractor's performance in terms of the criteria
stated in the contract.
All our U.S. government contracts and, in general, our subcontracts with
the U.S. government's prime contractors provide that such contracts may be
terminated for convenience by the U.S. government or the prime contractor,
respectively. Furthermore, any of these contracts may become subject to a
government-issued stop work order under which we would be required to suspend
production. In the event of a termination for convenience, contractors should be
entitled to receive the purchase price for delivered items, reimbursement for
allowable costs for work in process and an allowance for reasonable profit
thereon or adjustment for
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loss if completion of performance would have resulted in a loss. From time to
time we experience contract suspensions and terminations.
In March 2001, NASA terminated for convenience our X-34 research and
development contract. Although we are seeking to recover from NASA a significant
portion of our costs associated with the X-34 program, including costs
associated with modifications we made to our L-1011 aircraft to accommodate the
X-34, as well as other termination and settlement costs, we cannot be assured
that such recovery will occur on a timely basis, if at all.
REGULATION
Our ability to pursue our business activities is regulated by various
agencies and departments of the U.S. government and, in certain circumstances,
the governments of other countries. Commercial space launches require licenses
from the U.S. Department of Transportation and operation of our L-1011 aircraft
requires licenses from certain agencies of the DoT, including the Federal
Aviation Administration.
There can be no assurance that we will be successful in our efforts to
obtain necessary licenses or regulatory approvals. The inability of Orbital to
secure or maintain any necessary licenses or approvals or significant delays in
obtaining such licenses or approvals could have a material adverse effect on the
financial condition or results of operations of Orbital.
BACKLOG
Our firm backlog at December 31, 2000, was approximately $900,000,000. Firm
backlog consists of aggregate contract values for firm product orders, excluding
the portion previously included in operating revenues on the basis of percentage
of completion accounting, and including government contract orders not yet
funded. Total backlog was approximately $4,200,000,000 at December 31, 2000.
Total backlog includes firm backlog in addition to unexercised options,
undefinitized orders, certain outstanding bids, indefinite quantity contracts,
and the projected revenue stream related to an exclusive government license.
Firm and total backlog at December 31, 2000 does not give effect to new orders
received or contract terminations that occurred since that date.
EMPLOYEES
As of March 1, 2001, Orbital had approximately 4,200 full-time permanent
employees. Certain employees of MDA's Ontario-based space robotics division are
subject to collective bargaining agreements with the Canadian Auto Workers Union
and Spar Professional and Allied Technical Association. None of our other
employees are subject to collective bargaining agreements. We believe our
employee relations are good.
BUSINESS CONSIDERATIONS
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor, in certain circumstances, for certain forward-looking statements made by
or on behalf of Orbital. All statements other than those of historical facts
included in this Annual Report on Form 10-K, including those related to the
company's financial outlook, liquidity, goals, business strategy, projected
plans and objectives of management for future operating results, are
forward-looking statements. Such "forward-looking statements" involve unknown
risks and uncertainties that may cause the actual results, performance or
achievements of the company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. The forward-looking statements are and will be based on management's
then-current views and assumptions regarding future events and operating
performance.
The following are some of the factors that could cause actual results to
differ materially from information contained in our forward-looking statements:
Our cash flow from operations in 2001 is expected to be insufficient to
cover our capital requirements, operating requirements and debt service, and we
expect to incur a net loss in 2001 before considering gains or losses from any
asset sales. To meet our capital and operating requirements, we are seeking to
sell certain non-
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core assets, such as our interests in MDA, Magellan and NavSol, as discussed
above, and to restructure business operations. We believe that the foregoing
should facilitate our ability to raise additional capital from outside sources,
but there can be no assurance that we will successfully implement this strategy.
We need to pay down a significant portion of debt by June 30, 2001 in order to
comply with certain covenants under our primary debt facilities. Our inability
to raise additional capital during the second quarter of 2001 could have a
material adverse effect on our business. Given these uncertainties, and in view
of our failure to close the foregoing asset sales by mid-April 2001, our
independent auditors have concluded there exists substantial doubt as to our
ability to continue as a going concern, and accordingly, have included "going
concern" uncertainty paragraph in their report on our December 31, 2000
consolidated financial statements.
It is customary for commercial and international contracts to require the
contractor to post performance bonds or letters of credit pending completion of
work, or to provide other assurances with respect to the contractor's financial
condition. This is the case with several of our existing contracts. Due to our
liquidity constraints, we may be unable to comply with such requirements under
existing contracts or pending contract awards; in such circumstances, the
customer may be entitled to terminate its contract with us without penalty. In
addition, we may be constrained in our ability to bid on contracts with these
requirements.
Government contracting rules typically require a contracting officer to
make a determination of financial responsibility prior to awarding a new
contract. The U.S. government may also seek assurances that a contractor's
financial condition will not impair its continued performance under contracts.
Our liquidity constraints and financial condition may impact our ability to win
new U.S. government contracts or the government's determination to exercise
options under existing contracts.
The majority of our contracts are long-term contracts. We recognize
revenues on long-term contracts using the percentage of completion method of
accounting, whereby revenue, and therefore profit, is recognized based on actual
costs incurred in relation to total estimated costs to complete the contract or
based on specific delivery terms and conditions. Revenue recognition and
profitability, if any, from a particular contract may be adversely affected to
the extent that original cost estimates, estimated costs to complete or
incentive or award fee estimates are revised, delivery schedules are delayed, or
progress under a contract is otherwise impeded.
Most of the products we develop and manufacture are technologically
advanced and sometimes novel systems that must function under demanding
operating conditions and are subject to significant technological change and
innovation. We have experienced product failures or other operational problems.
In addition to any costs resulting from product warranties or required remedial
action, product failures may result in increased costs or loss of revenues due
to postponement or cancellation of subsequently scheduled operations or product
deliveries.
Our financial performance generally, and investments that we make in the
development of new technologies for new products or existing product
enhancements, depend on several factors including, among other things, the
successful and timely funding and implementation of innovative and novel
technologies involving complex systems in a cost-effective manner, the
establishment and expansion of commercial markets and customer acceptance,
competition and such entities' ability to raise necessary capital. If we
conclude at any time that our investments are not recoverable, we may be
required to write off part or all of such investments. In 2000, we wrote off our
investment in ORBCOMM. In 2001, we were required to cease development and
production of the X-34 reusable launch vehicle, which we had been developing
pursuant to a research and development contract that NASA terminated for
convenience.
In March 2001, ORBIMAGE defaulted on its interest payment obligations under
its outstanding public debt. The debt is non-recourse to Orbital. ORBIMAGE
management currently estimates that ORBIMAGE has sufficient resources to meet
its capital and operating requirements through May 2001. ORBIMAGE is seeking to
restructure its outstanding debt and to obtain additional capital from third
parties as well as its existing shareholders. There can be no assurance that
such capital will be available on a timely basis or at all.
At December 31, 2000, a significant portion of our total firm contract
backlog was attributable to contracts with the U.S. government and its agencies
or from subcontracts with prime contractors to the U.S. government. Most of our
government contracts are funded incrementally on a year-to-year basis. Changes
in
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government policies, priorities or funding levels through agency or program
budget reductions by the U.S. Congress or executive agencies could materially
adversely affect our financial condition or results of operations. Furthermore,
contracts with the U.S. government may be terminated or suspended by the U.S.
government at any time, with or without cause. Such contract suspensions or
terminations could result in unreimbursable expenses or charges or otherwise
adversely affect our business. In March 2001, NASA terminated for convenience
our X-34 research and development contract. Although we are seeking to recover
from NASA a significant portion of our costs associated with such termination
for convenience, there can be no assurance that we will be successful in
recovering all our costs on a timely basis, if at all.
The accuracy and appropriateness of our direct and indirect costs and
expenses under our contracts with the U.S. government are subject to extensive
regulation and audit by the Defense Contract Audit Agency or by other
appropriate agencies of the U.S. government. These agencies have the right to
challenge our cost estimates or allocations with respect to any such contract. A
substantial portion of payments to us under U.S. government contracts are
provisional payments that are subject to potential adjustment upon audit by such
agencies.
The creditors committee of ORBCOMM has notified us that they believe
ORBCOMM's bankruptcy estate is entitled to recover approximately $57,000,000 in
allegedly preferential payments that we received in connection with the sale of
satellites and launch services to ORBCOMM during the one-year period preceding
ORBCOMM's bankruptcy filing. The creditors committee has also asserted that the
ORBCOMM estate is entitled to recover approximately $900,000 in allegedly
preferential payments received by MDA. We believe that all such claims are
without merit and that we have adequate defenses to all such claims. As
previously discussed, the current proposed ORBCOMM liquidating plan of
reorganization, if implemented, would include a release of the foregoing claims.
The costs and other effects of pending or possible litigation or
governmental investigations could have an adverse effect on our business and
could divert the attention of management from ongoing business matters.
Orbital (not including MDA) leases approximately 1,500,000 square feet of
office, engineering and manufacturing space, which exceeds our current
operational needs. We sublease approximately 125,000 square feet to ORBCOMM, and
we have an agreement with ORBIMAGE pursuant to which ORBIMAGE is required to
reimburse us for use of our facilities. ORBIMAGE is in default on its rent
payments, and there can be no assurance that ORBCOMM and ORBIMAGE will be able
to pay us their rent on a timely basis, or at all. Our inability to sublease
significant portions of our facilities on commercially reasonable terms could
have a material adverse impact on our financial condition.
Virtually all our products and services face significant competition from
existing competitors, many of whom are larger and have substantially greater
resources than we do. Furthermore, the possibility exists that other domestic or
foreign companies or governments will seek to produce products or services that
compete with our products or services. A foreign competitor could benefit from
subsidies from, or other protective measures by, its home country.
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ITEM 2. PROPERTIES
We lease almost 2,000,000 square feet of office, engineering and
manufacturing space in various locations, primarily in the United States and
Canada, as summarized in the table below:
BUSINESS UNIT PRINCIPAL LOCATION(S)
- ------------- ---------------------
Corporate Headquarters....................... Dulles, Virginia
Launch Systems and Advanced Programs......... Dulles, Virginia; Chandler, Arizona
Satellite and Related Space Systems.......... Dulles, Virginia; Germantown, Maryland
(currently being consolidated into Dulles
location); Greenbelt, Maryland
Electronics and Sensor Systems............... Pomona, California; Columbia, Maryland
MDA.......................................... Richmond, British Columbia; Brampton,
Ontario; San Diego, California; Huntsville,
Alabama
We also own a 125,000 square foot state-of-the-art satellite manufacturing
facility that houses our satellite manufacturing, assembly and testing
activities, in Dulles, Virginia. This facility, and our leasehold interest in
our corporate headquarters, have been pledged as collateral under our primary
credit facility.
We believe that our existing facilities are adequate for our requirements.
ITEM 3. LEGAL PROCEEDINGS
PT Media Citra Indostar ("MCI") and Orbital are involved in an arbitration
proceeding pursuant to which MCI is seeking to recover $163,000,000 in
connection with the Indostar satellite constructed by CTA Incorporated ("CTA")
under a contract that was assigned to Orbital in connection with our CTA
acquisition. In this proceeding, we are also seeking to recover $14,000,000 for
amounts still owed to Orbital in connection with the project. The parties are
currently engaged in discovery and a hearing on the merits is scheduled to
commence in February 2002. In addition, under the terms of the CTA acquisition,
we believe we are entitled to indemnification from CTA for all or a part of any
damages arising from the MCI litigation and that CTA retains liability for
certain fraud claims being made by MCI.
Orbital is also arbitrating a claim filed by Thomas van der Heyden alleging
that Orbital is in actual or anticipatory breach of obligations allegedly
imposed on Orbital in a judgment in a previous action brought by Mr. van der
Heyden against CTA. Mr. van der Heyden claims that he is entitled to a sum
exceeding $30,000,000 from Orbital, as successor-in-interest to CTA. In
addition, under the terms of the CTA acquisition, we believe we are entitled to
indemnification from CTA for all or a part of any damages arising from the van
der Heyden litigation.
We believe that the allegations in the legal proceedings described above
are without merit and intend to vigorously defend against the allegations.
In March 2001, MDA and certain of its executive officers, as well as the
Province of British Columbia and various provincial government officials, were
named in a lawsuit brought by Infowest Services Inc. alleging various
conspiracies among MDA and others, breach of contract, abuse of government power
and other related allegations in connection with the BC Online procurement
during 1997 to 1999. The lawsuit seeks over $80,000,000 in damages. MDA believes
that these claims are without merit and intends to vigorously defend against the
allegations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote of our security holders during the
fourth quarter of 2000.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each of the
executive officers of Orbital as of March 1, 2001. All executive officers are
elected annually and serve at the discretion of the Board of Directors.
NAME AGE POSITION
- ---- --- --------
David W. Thompson.................................. 46 Chairman of the Board and Chief Executive
Officer
James R. Thompson.................................. 64 Director, President and Chief Operating
Officer, Acting General Manager/Space
Systems Group
Garrett E. Pierce.................................. 56 Director, Executive Vice President and
Chief Financial Officer
Leslie C. Seeman................................... 48 Executive Vice President, General Counsel
and Secretary
Ronald J. Grabe.................................... 55 Executive Vice President and General
Manager/ Launch Systems Group
Michael D. Griffin................................. 51 Executive Vice President and Chief
Technical Officer, and Acting President,
Magellan
Robert D. Strain................................... 44 Executive Vice President and General
Manager/ Electronics and Sensor Systems
Group
Antonio L. Elias................................... 51 Senior Vice President, Advanced Programs
Group
Daniel E. Friedmann................................ 44 President, MDA
David W. Thompson is a co-founder of Orbital and has been Chairman of the
Board and Chief Executive Officer of Orbital since 1982. From 1982 until October
1999, he also served as our President. Prior to founding Orbital, Mr. Thompson
was employed by Hughes Electronics Corporation as special assistant to the
President of its Missile Systems Group and by NASA at the Marshall Space Flight
Center as a project manager and engineer, and also worked on the Space Shuttle's
autopilot design at the Charles Stark Draper Laboratory. Mr. Thompson serves as
Chairman of the Board of both ORBIMAGE and MDA. Mr. Thompson is a Fellow of the
American Institute of Aeronautics and Astronautics, the American Astronautical
Society and the Royal Aeronautical Society.
James R. Thompson (who is not related to David W. Thompson) has been
President and Chief Operating Officer since October 1999 and a director of the
Company since 1992. From 1993 until October 1999, Mr. Thompson served as
Executive Vice President and General Manager/Launch Systems Group. Mr. Thompson
was Executive Vice President and Chief Technical Officer of Orbital from 1991 to
1993. He was Deputy Administrator of NASA from 1989 to 1991. From 1986 until
1989, Mr. Thompson was Director of NASA's Marshall Space Flight Center. Mr.
Thompson was Deputy Director for Technical Operations at Princeton University's
Plasma Physics Laboratory from 1983 through 1986. Before that, he had a 20-year
career with NASA at the Marshall Space Flight Center. He is a director of MDA,
Nichols Research Corp. and SPACEHAB Incorporated.
Garrett E. Pierce has been Executive Vice President and Chief Financial
Officer since August 2000 and a director of the Company since August 2000. From
1996 until July 2000, he was Executive Vice President and Chief Financial
Officer of Sensormatic Electronics Corp., where he was also named Chief
Administrative Officer in July 1998. From 1993 to 1996, Mr. Pierce was the
Executive Vice President and Chief Financial Officer of California Microwave,
Inc., a leading supplier of microwave, radio frequency, and satellite systems
and products for communications and wireless networks. From 1980 to 1993, Mr.
Pierce was with Materials Research Corporation, a leading provider of thin film
equipment and high purity materials to the semiconductor, telecommunications and
media storage industries, where he progressed from Chief Financial Officer to
President and Chief Executive Officer. Materials Research Corporation was
acquired by Sony Corporation as
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a whollyowned subsidiary in 1989. From 1972 to 1980, Mr. Pierce held various
management positions with AlliedSignal.
Michael D. Griffin has been Executive Vice President and Chief Technical
Officer since 1997, and has served as acting President of Magellan since July
2000. From 1996 to 1997, Dr. Griffin served as Executive Vice President/Space
Systems Group. Dr. Griffin joined Orbital in 1995 when he was appointed Senior
Vice President and Chief Technical Officer. From 1994 to 1995, he was Senior
Vice President for Program Development at Space Industries International. From
1991 to 1994, he served as Chief Engineer of NASA and, from 1989 to 1991, was
Deputy Director for Technology at the Strategic Defense Initiative Organization.
Leslie C. Seeman has been Executive Vice President and General Counsel of
Orbital since January 2000 and served as Senior Vice President and General
Counsel from 1993 to January 2000. From 1989 to 1993, she was Vice President and
General Counsel of Orbital, and from 1987 to 1989, Ms. Seeman was Assistant
General Counsel of Orbital. From 1984 to 1987, she was General Counsel of Source
Telecomputing Corporation, a telecommunications company. Prior to that, she was
an attorney at the law firm of Wilmer, Cutler and Pickering.
Ronald J. Grabe has been Executive Vice President and General
Manager/Launch Systems Group since 1999. From 1996 to 1999, he was Senior Vice
President and Assistant General Manager of the Launch Systems Group, and Senior
Vice President of the Launch Systems Group since 1995. From 1994 to 1995, Mr.
Grabe served as Vice President for Business Development in the Launch Systems
Group. From 1980 to 1993, Mr. Grabe was a NASA astronaut during which time he
flew four Space Shuttle missions and was lead astronaut for development of the
International Space Station.
Robert D. Strain has been Executive Vice President and General
Manager/Electronics and Sensor Systems and Transportation Management Systems
Group since 1996. From 1994 until 1996, he was Vice President for Finance and
Manufacturing at Orbital. Prior to that, he served in a variety of senior-level
financial positions with Fairchild Space and Defense Corporation, including Vice
President of Finance, Treasurer and Controller.
Antonio L. Elias has been Senior Vice President/Advanced Programs Group
since August 1997. From January 1996 until August 1997, Dr. Elias served as
Senior Vice President and Chief Technical Officer. From May 1993 through
December 1995 he was Senior Vice President for Advanced Projects and was Senior
Vice President/Space Systems Division from 1990 to April 1993. He was Vice
President/Engineering of Orbital from 1989 to 1990 and was Chief Engineer from
1986 to 1989. From 1980 to 1986, Dr. Elias was an Assistant Professor of
Aeronautics and Astronautics at Massachusetts Institute of Technology.
Daniel E. Friedmann has been President and Chief Executive Officer of MDA
since 1995. From 1992 to 1995, he served as Executive Vice President and Chief
Operating Officer of MDA. Between 1979 and 1992, he held a variety of positions
at MDA, including serving as Vice President of various divisions.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On March 20, 2001, there were 1,315 Orbital stockholders of record.
Our common stock began trading on the New York Stock Exchange ("NYSE") on
July 10, 1998 under the symbol ORB. Prior to that our common stock was traded on
the Nasdaq National Market under the symbol ORBI. The range of high and low
sales prices of Orbital common stock from 1998 through 2000, as reported on
Nasdaq or the NYSE, as applicable, was as follows:
2000 HIGH LOW
- ---- ---- ---
4th Quarter................................................. $ 9 $ 3 11/16
3rd Quarter................................................. $15 1/2 $ 7 5/8
2nd Quarter................................................. $15 5/16 $11
1st Quarter................................................. $19 1/2 $12 13/16
1999 HIGH LOW
- ---- ---- ---
4th Quarter................................................. $19 1/4 $10 3/5
3rd Quarter................................................. $26 1/4 $16 1/4
2nd Quarter................................................. $29 3/4 $19 1/2
1st Quarter................................................. $45 1/3 $19 1/3
1998 HIGH LOW
- ---- ---- ---
4th Quarter................................................. $44 $19 1/2
3rd Quarter................................................. $39 $17
2nd Quarter................................................. $50 $32 1/4
1st Quarter................................................. $46 1/2 $29
We have never paid any cash dividends on our common stock, nor do we
anticipate paying cash dividends on our common stock at any time in the
foreseeable future. In addition, we are prohibited from paying cash dividends
under our credit facility.
The transfer agent for our common stock is:
The First National Bank of Boston
c/o Equiserve
P.O. Box 8040
Boston, MA 02266-8040
Telephone: (781) 575-3170
www.equiserve.com
The trustee for our 5% convertible subordinated notes due 2002 is:
Deutsche Bank AG, New York Branch
31 W. 52nd St.
New York, NY 10019
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto
included in this Annual Report on Form 10-K. The consolidated operating data for
the three-year period ended December 31, 2000 and the consolidated balance sheet
data at December 31, 2000 and 1999 are derived from and should be read in
conjunction with our consolidated financial statements and notes thereto
included in this Annual Report on Form 10-K. The consolidated operating data for
the years ended December 31, 1997 and 1996 and the consolidated balance sheet
data at December 31, 1998, 1997 and 1996 are derived from our consolidated
financial statements not included or incorporated by reference herein. Certain
information has been reclassified for the discontinued operations discussed in
Note 2 to the consolidated financial statements.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
OPERATING DATA:
Revenues..................................... $ 725,669 $ 766,372 $ 628,995 $ 491,133 $ 385,200
Costs of goods sold.......................... 640,531 667,970 475,953 373,524 285,527
---------- ---------- ---------- ---------- ----------
Gross profit................................. 85,138 98,402 153,042 117,609 99,673
Operating expenses........................... 211,429 141,649 110,691 99,860 83,666
---------- ---------- ---------- ---------- ----------
Income (loss) from operations................ (126,291) (43,247) 42,351 17,749 16,007
Equity in earnings (losses) of affiliates.... (121,482) (97,190) (76,815) (25,094) (7,008)
Other income, net............................ 35,340 46,412 3,312 23,537 1,804
---------- ---------- ---------- ---------- ----------
Income (loss) before provision for income
taxes, discontinued operations............. (212,433) (94,025) (31,152) 16,192 10,803
Provision for income taxes................... 15,791 11,104 5,216 12,933 1,831
---------- ---------- ---------- ---------- ----------
Income (loss) before discontinued
operations................................. (228,224) (105,129) (36,368) 3,259 8,972
Income (loss) from discontinued operations... (49,966) (16,808) (20,184) (14,664) 970
---------- ---------- ---------- ---------- ----------
Net income (loss)............................ $ (278,190) $ (121,937) $ (56,552) $ (11,405) $ 9,942
========== ========== ========== ========== ==========
INCOME (LOSS) PER COMMON SHARE(1):
Income (loss) before discontinued
operations................................. $ (6.09) $ (2.82) $ (1.02) $ 0.10 $ 0.31
---------- ---------- ---------- ---------- ----------
Net income (loss)............................ $ (7.42) $ (3.27) $ (1.59) $ (0.35) $ 0.34
---------- ---------- ---------- ---------- ----------
Shares used in computing per share amounts... 37,467,520 37,281,065 35,624,888 32,283,138 29,137,361
BALANCE SHEET DATA:
Cash and investments......................... $ 79,655 $ 109,058 $ 23,064 $ 8,918 $ 33,441
Net working capital.......................... (169,233) (39,031) (53,053) 53,203 60,275
Total assets................................. 763,258 1,054,525 855,079 714,576 479,512
Short-term borrowings........................ 137,227 131,066 26,294 29,317 38,969
Long-term obligations, net................... 165,717 239,664 180,626 198,394 33,076
Stockholders' equity......................... 44,151 306,792 419,352 313,984 323,795
- ---------------
(1) Income (loss) per common share is calculated using the weighted average
number of shares outstanding during the periods. Income (loss) per common
share, assuming dilution, is calculated using the weighted average number of
shares and dilutive equivalent shares outstanding during the periods, plus
the dilutive effect of an assumed conversion of our convertible subordinated
notes. Per share amounts assuming dilution for 1996 through 2000 are the
same as the per share amounts shown in this table.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
With the exception of historical information, the matters discussed below
under the headings "Recent Developments," "Results of Operations," "Liquidity
and Capital Resources" and elsewhere in this Annual Report include
forward-looking statements that involve risks and uncertainties, many of which
are beyond our control. We wish to caution readers that a number of important
factors, including those identified above in "Item 1 -- Business
Considerations," may affect our actual results and may cause actual results to
differ materially from those anticipated or expected in any forward-looking
statement.
We have adopted a strategy intended to focus on our core space technology
business units. This strategy includes the disposition of certain non-core
assets. Subsequent to December 31, 2000, we adopted a formal plan to dispose of
Magellan Corporation ("Magellan"), which designs, produces, distributes, sells
and licenses satellite access products, and our investment in Navigation
Solutions LLC ("NavSol"), a joint venture engaged in satellite-aided automotive
guidance and related value-added information services. Accordingly, Magellan's
financial results are no longer included in our operational results and our
equity interest in NavSol is no longer included in our earnings (losses) of
affiliates for the year ended December 31, 2000 and prior years, but are now
reported as "Discontinued Operations." For the year ended December 31, 2000, we
recorded a $49,966,000 loss from discontinued operations, including an estimated
$33,053,000 loss on the planned disposition of Magellan's and NavSol's net
assets.
We own substantially all the common stock of Orbital Imaging Corporation
("ORBIMAGE"). We exercise significant influence over ORBIMAGE's operational and
financial affairs, but we do not control such affairs. We use the equity method
of accounting for our ownership interest in ORBIMAGE. We also accounted for our
investment in ORBCOMM Global L.P. ("ORBCOMM") using the equity method of
accounting through the second quarter of 2000. We held an approximately 32%
limited partnership interest in ORBCOMM as of December 31, 2000.
We recognized 100% of the revenues earned and costs incurred on sales of
products and services to ORBCOMM and ORBIMAGE. We eliminated our share of
profits from these sales to the extent these entities were capitalizing system
construction costs. As a result of the weakened financial condition of ORBCOMM
and ORBIMAGE, however, we stopped recognizing revenues on sales to ORBCOMM and
ORBIMAGE effective June and July 2000, respectively.
In September 2000, ORBCOMM and its subsidiaries commenced a reorganization
proceeding under Chapter 11 of the U.S. Federal Bankruptcy Code. Accordingly, we
recorded non-cash charges totaling $113,123,000 in 2000 to fully write off our
investment in ORBCOMM and to write down ORBCOMM-related receivables and related
inventories. Although management believes at this time that these write-offs are
sufficient to cover our current exposure, such reserves do not include any
additional charges to Orbital that might result should any disputes, litigation
or unforeseen contingencies related to ORBCOMM arise.
RECENT DEVELOPMENTS
X-34 Program
Since 1996, we have been developing, constructing and testing several X-34
reusable rocketplanes under a contract with the National Aeronautics and Space
Administration ("NASA"). NASA terminated this contract for convenience in March
2001. We determined that our estimated future cash flows from X-34 related
plant, property and equipment would not be sufficient to recover the recorded
cost. Accordingly, we recorded an asset impairment charge of $15,911,000 in the
fourth quarter of 2000 to write down X-34 related property, plant and equipment
to their estimated realizable values. We also recorded a $3,400,000 provision
for potentially uncollectible accounts receivable (recorded as selling, general
and administrative expense). While we are seeking to recover from NASA a
significant portion of our costs associated with the X-34 contract, there can be
no assurance that such a recovery will occur on a timely basis, if at all.
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Sale of MDA Shares
On April 12, 2001, our wholly owned subsidiary, MDA Holdings Inc. ("MDA
Holdings"), which holds our shares in MacDonald, Dettwiler and Associates Ltd.
("MDA"), entered into an agreement with a group of Canadian institutional and
private equity investors to sell 12,350,000 shares for approximately $9.00 per
share before fees and expenses. The agreement is subject to customary closing
conditions, including the receipt of regulatory approvals, and the parties
expect to close the sale by mid-May 2001. Certain of the purchasers also have an
option to acquire MDA Holdings' remaining 5,650,000 shares of MDA by May 31,
2001.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Our products and services are grouped into four reportable segments: (i)
launch vehicles and advanced programs, (ii) satellites and related space
systems, (iii) electronics and sensor systems, and (iv) space robotics,
satellite ground systems, and mapping and land information products and
services. All other activities of the company are reported in corporate and
other.
As noted previously, for all periods, the financial information for
Magellan and NavSol has been reflected as discontinued operations.
REVENUES
Our consolidated revenues for the year ended December 31, 2000 were
$725,669,000 as compared to $766,372,000 for 1999 and $628,995,000 for 1998.
Consolidated revenues in 2000, 1999 and 1998 included approximately $32,909,000,
$97,069,000 and $125,602,000, respectively, from sales to ORBCOMM and ORBIMAGE.
The following table summarizes revenues from our business segments:
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Launch Vehicles and Advanced Programs(1)........... $119,588 $157,032 $179,591
Satellites and Related Space Systems(2)............ 206,339 257,431 227,042
Electronics and Sensor Systems(3).................. 146,387 149,991 125,758
Space Robotics, Satellite Ground Systems, and
Mapping and Land Information Products and
Services(4)...................................... 253,230 199,792 95,845
Corporate and Other................................ 125 2,126 759
-------- -------- --------
TOTAL.............................................. $725,669 $766,372 $628,995
======== ======== ========
- ---------------
(1) Revenues from launch vehicles and advanced programs decreased significantly
from 1999 to 2000 primarily due to the suspension of revenue recognition
under the company's procurement agreements with ORBCOMM and ORBIMAGE, as
discussed previously. Additionally, revenues from the X-34 program declined
in 2000 due to a decrease in the percentage of the contract completed in
2000 as compared to 1999.
The decrease in revenues from 1998 to 1999 related primarily to
customer-induced launch schedule delays by our government customers and
slowed demand from our commercial customers.
(2) Revenues from satellites and related space systems decreased significantly
from 1999 to 2000 primarily due to the suspension of revenue recognition
under the company's procurement agreements with ORBCOMM and ORBIMAGE and the
cancellation of a major satellite construction contract in the fourth
quarter of 1999 by a Canadian customer because of difficulties in obtaining
the necessary U.S. government export authorizations. Additionally, revenues
from a commercial geosynchronous satellite contract declined in 2000 due to
a decrease in the percentage of the contract completed in 2000 as compared
to 1999.
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The increase in satellite revenues from 1998 to 1999 was due, in part, to
revenues recognized from a commercial geosynchronous satellite contract on
which work commenced in 1999, offset, in part, by reduced revenues resulting
from estimated contract cost increases on certain satellite contracts in
1999.
(3) Revenues from electronics and sensor systems decreased in 2000 as compared
to 1999 primarily due to the sale of our Fairchild Defense electronics
business unit ("Fairchild") in October 2000. The decrease in revenues was
largely offset by an increase in transportation management systems revenues
under existing and new contracts.
The increase in electronics and sensor systems revenues from 1998 to 1999
was primarily due to defense electronics contract awards in early 1999, as
well as to an increase in transportation management systems revenues
primarily as a result of the December 1998 acquisition of Raytheon Company's
("Raytheon") transportation management systems business.
(4) Revenues from space robotics, satellite ground systems, and mapping and land
information products and services increased significantly from 1999 to 2000
primarily as a result of MDA's acquisition of the DataQuick Products
division of Acxiom Corporation ("DataQuick") in April 2000, a full year of
revenues attributable to our space robotics business and the BC OnLine
license, both of which were acquired in May 1999, and orders received in
late 1999 for several satellite ground systems and system upgrades.
The increase in revenues in space robotics, satellite ground systems, and
mapping and land information products and services in 1999 as compared to
1998 was attributable to the acquisition of our space robotics product line
in 1999, which accounted for $92,111,000 of the 1999 revenues for this
segment.
GROSS PROFIT/COSTS OF GOODS SOLD
Gross profits and margins depend on a number of factors, including the mix
of contract types and costs incurred thereon in relation to revenues recognized.
Costs of goods sold include the costs of personnel, materials, subcontracts and
overhead related to commercial products and to costs incurred under various
development and production contracts. Gross profits and margins by business
segment were as follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
2000 1999 1998
------------------ ----------------- ------------------
GROSS % OF GROSS % OF GROSS % OF
PROFIT REVENUE PROFIT REVENUE PROFIT REVENUE
-------- ------- ------- ------- -------- -------
(IN THOUSANDS)
Launch Vehicles and Advanced
Programs(1)............................ $ 24,994 21% $ 8,572 5% $ 43,591 24%
Satellites and Related Space
Systems(2)............................. (26,707) (13) 9,557 4 50,052 22
Electronics and Sensor Systems(3)........ 29,840 20 36,206 24 36,620 29
Space Robotics, Satellite Ground Systems,
and Mapping and Land Information
Products and Services(4)............... 56,886 22 44,161 22 23,057 24
Corporate and Other...................... 125 -- (94) -- (278) --
-------- --- ------- -- -------- --
TOTAL.................................... $ 85,138 12% $98,402 13% $153,042 24%
======== === ======= == ======== ==
- ---------------
(1) Gross margins for launch vehicles and advanced programs increased
significantly from 1999 to 2000 primarily due to more efficient execution of
several launch vehicle contracts, improved margins on the X-34 contract and
a $2,600,000 settlement on the closeout of a contract with NASA relating to
one of our early launch vehicle products. In addition, 1999 gross margins
were negatively impacted by a $14,820,000 write-down in 1999 to costs of
goods sold relating to certain software and inventory produced under a
contract that was cancelled in 1999. Gross margins for this segment
decreased between 1998 and 1999 primarily due to the write-down described
above, as well as cost increases on certain advanced launch vehicle
contracts principally occurring in the fourth quarter of 1999.
(2) Gross margins for satellites and related space systems decreased
significantly from 1999 to 2000 primarily due to significant cost growth on
a large number of our satellite construction programs. The cost growth is
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primarily associated with schedule delays resulting from non-recurring
design and production activities on geosynchronous and remote sensing
satellite construction contracts. The estimated costs to complete these
programs exceed the applicable contract values and, accordingly, we recorded
provisions in 2000 with respect to the anticipated losses. As these
contracts are in a loss position, they will not contribute to gross margins
in 2001. Profit margins in this product line decreased significantly from
1998 to 1999 primarily as a result of a change in the mix of satellite
contracts to include lower margin geosynchronous satellite contracts and
cost growth on certain other satellite contracts.
(3) Gross margins for electronics and sensor systems decreased from 1999 to 2000
primarily due to the sale of our higher margin Fairchild unit in October
2000, as well as to lower margins attributable to cost growth on certain
transportation management system contracts. In addition, we recorded a
provision for costs related to the termination of a transportation
management systems contract in the third quarter of 2000, which also
contributed to the decline in gross margins for this business segment.
Profit margins in this product line decreased from 1998 to 1999 primarily as
a result of a change in the mix of contracts following the December 1998
acquisition of Raytheon's transportation management systems product line.
(4) Gross margins for space robotics, satellite ground systems, and mapping and
land information products and services increased slightly from 1999 to 2000,
primarily due to the April 2000 acquisition of DataQuick, which is a higher
margin land information products business, offset in part by lower margin
work on space robotics contracts and on several ground system contracts.
Gross margins for this product line decreased from 1998 to 1999 primarily as
a result of sales of lower margin land information products and services and
an increase in the amount of lower margin subcontract work on several ground
systems contracts.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses include our self-funded product
development activities and exclude direct customer-funded development. Research
and development expenses for 2000, 1999 and 1998 were $17,355,000 (2% of
revenues) $25,021,000 (3% of revenues) and $28,790,000 (5% of revenues),
respectively. Research and development expenses relate primarily to the
development of improved launch vehicles and new satellite and robotics systems.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses include the costs of
marketing, advertising, promotional and other selling expenses as well as the
costs of our finance, legal, administrative and general management functions.
Selling, general and administrative expenses were $112,811,000 (16% of
revenues), $92,171,000 (12% of revenues) and $73,562,000 (12% of revenues) in
2000, 1999 and 1998, respectively. The increase in selling, general and
administrative expenses in 2000 was primarily attributable to an accrual in 2000
for projected facility sublease losses, provisions for X-34 and ORBIMAGE-related
receivables, expenses associated with MDA's acquisition activity and higher
professional services fees. The increase in selling, general and administrative
expenses in 1999 as compared to 1998 is attributable to the expansion of our
business and the acquisition of product lines and businesses.
PROVISION FOR DOUBTFUL ORBCOMM ACCOUNTS
As a result of ORBCOMM's Chapter 11 filing, we recorded a $53,713,000
charge to write down ORBCOMM receivables to their estimated realizable value.
ASSET IMPAIRMENTS
As noted previously, we recorded an asset impairment charge of $15,911,000
in the fourth quarter of 2000 to write down X-34-related property, plant and
equipment to their estimated realizable values.
In December 1999, we determined that the carrying value of a specialized
voice communications satellite system that we constructed and launched would no
longer be recoverable through the expected future sales of
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the related products or services. We recorded a $15,217,000 asset impairment
charge with respect to this asset in the fourth quarter of 1999.
INTEREST EXPENSE
Interest cost, before deducting capitalized interest, was $30,355,000,
$25,896,000 and $17,585,000 for 2000, 1999 and 1998, respectively. We
capitalized interest costs totaling $1,846,000, $3,083,000 and $11,638,000 in
2000, 1999 and 1998, respectively. Interest expense increased in 2000 as a
result of higher average borrowings and higher interest rates. Interest expense
increased in 1999 from 1998 primarily due to an increase in debt outstanding and
a decision to stop capitalizing interest on our investment in ORBCOMM when it
began commercial operations at the end of 1998.
INTEREST INCOME AND OTHER, NET
Interest income and other, net, includes interest earnings on short-term
investments and realized gains and losses on investments. Interest income and
other, net was $5,887,000, $4,693,000 and $7,497,000 for 2000, 1999 and 1998,
respectively.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES
Equity in earnings (losses) of affiliates were as follows:
YEARS ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- -------- --------
(IN THOUSANDS)
ORBCOMM(1)........................................ $ (92,723) $(73,560) $(34,827)
ORBIMAGE(2)....................................... (28,223) (5,614) (40,550)
CCI and other(3).................................. 536 (18,016) (1,438)
--------- -------- --------
$(121,482) $(97,190) $(76,815)
========= ======== ========
- ---------------
(1) In the second half of 2000, we wrote off our remaining $56,852,000
investment in ORBCOMM. ORBCOMM's losses increased in 1999 as compared to
1998 due to (i) higher operating expenses relating to the rollout of global
commercial services, (ii) increased interest expense and (iii) increased
system depreciation expense. ORBCOMM stopped capitalizing interest and began
depreciating its full satellite constellation in the fourth quarter of 1998.
We eliminated our proportionate share of profits on sales to ORBCOMM based
on our partnership interest.
(2) Equity in earnings (losses) of affiliates includes Orbital's 100% share of
ORBIMAGE's losses, including preferred stock dividends. In the first half of
2000, we recognized equity losses totaling $8,094,000 until our investment
balance was reduced to zero. We then suspended recognition of additional
ORBIMAGE losses when we determined that we would not provide additional
equity funding to ORBIMAGE. During the first quarter of 2001, as a result
industry and market conditions we reconsidered our intentions regarding
potential future investments of additional capital to ORBIMAGE. As a result,
we commenced recognizing ORBIMAGE's losses in the fourth quarter of 2000,
including $16,038,000 of ORBIMAGE's losses not previously recognized through
December 31, 2000. We also eliminate our 100% share of profits on sales to
ORBIMAGE.
(3) In 1998, we acquired an equity interest in, and entered into a satellite
procurement contract with, CCI International, N.V. ("CCI"), a start-up
satellite voice communications provider. We had an investment in CCI of
$9,942,000 at December 31, 1998. We provided substantially all of CCI's
funding in 1998. Accordingly, we did not recognize any revenue in connection
with our satellite contract with CCI and we recognized all of CCI's losses.
We concluded in 1999 that our investment in CCI was impaired and recorded a
non-cash charge of $11,128,000 in 1999 to write off our investment in CCI.
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MINORITY INTERESTS
Minority interests in (earnings) losses of consolidated subsidiaries were
($3,244,000) $2,250,000 and $1,762,000 in 2000, 1999 and 1998, respectively.
Substantially all of the minority interest charge in 2000 is attributable to the
minority stockholders' proportionate share of MDA's net income for 2000. MDA was
a wholly owned subsidiary until late December 1999. Substantially all of the
minority interest in 1999 and 1998 is attributable to the minority shareholders'
proportionate share of the losses of an ORBCOMM-related partnership that we
consolidated in 1999 and 1998.
LITIGATION SETTLEMENT
In July 2000, we reached an agreement to settle the outstanding
class-action lawsuit filed in 1999 alleging violations of federal securities
laws. The settlement agreement provides for the plaintiffs to receive a cash
payment of $11,000,000 to be made by our insurance carrier, and warrants to be
issued by us in 2001, which had an aggregate fair value of $11,500,000 as of the
settlement date. Accordingly, we accrued a litigation settlement provision of
$11,500,000 in the second quarter of 2000.
GAINS ON SALES OF ASSETS AND SUBSIDIARY EQUITY
On October 30, 2000, we sold Fairchild for approximately $100,000,000 in
cash and realized a $41,982,000 gain.
In July 2000, MDA completed an initial public offering on the Toronto Stock
Exchange of 6,600,000 shares of common stock, raising gross proceeds of
approximately $37,500,000 for itself, $18,800,000 for Orbital and $5,600,000 for
other selling shareholders. We recorded a $30,724,000 gain on this transaction.
In December 1999, MDA issued common stock in a private placement and
immediately provided to us a dividend of $75,000,000 in gross proceeds,
resulting in a one-time gain of approximately $62,282,000 ($58,610,000 net of
taxes, fees and expenses).
PROVISION FOR INCOME TAXES
We recorded income tax provisions of $15,791,000, $11,104,000 and
$5,216,000 in 2000, 1999 and 1998, respectively. In 2000, due to the continuing
losses from operations and consideration of anticipated future results, it was
determined that a full valuation allowance should be recorded against the U.S.
deferred tax assets, resulting in an expense of $9,886,000. The remaining 2000
provision and the 1999 provision were due to foreign taxes attributable to our
Canadian operations, as well as a tax charge of $3,672,000 associated with the
sale of MDA's common stock in 1999. As of December 31, 2000, we had provided a
$214,063,000 valuation allowance against our net deferred tax assets. Valuation
allowances are used to reduce net deferred tax assets to the amount considered
more likely than not to be realized. Changes in estimates of future taxable
income can materially change the amount of such valuation allowances.
DISCONTINUED OPERATIONS
In the first quarter of 2001, the company adopted a formal plan to dispose
of Magellan and our investment in NavSol. Accordingly, a $49,966,000 loss from
discontinued operations was recorded in 2000, including an estimated $33,053,000
loss on the planned disposition of Magellan's and NavSol's net assets. The loss
on the disposal includes $4,500,000 for projected operating losses through the
end of the second quarter of 2001, by which time we expect to have completed the
disposition.
LIQUIDITY AND CAPITAL RESOURCES
During 2000, we funded our capital requirements for operations through cash
from operations combined with cash on hand and the proceeds from the disposition
of certain of our MDA shares and Fairchild. Our liquidity has been, and
continues to be, constrained and we anticipate that in 2001 cash flow from
operations will be insufficient to cover our capital requirements, operating
requirements and debt service. To meet our capital and operating requirements,
we have entered into an agreement to sell 12,350,000 of our MDA shares,
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at approximately $9.00 per share. The agreement is subject to customary closing
conditions, including receipt of regulatory approvals, and the parties expect to
close the sale by mid-May 2001. Certain of the purchasers also have an option to
acquire MDA Holdings' remaining 5,650,000 shares of MDA by May 31, 2001.
Further, we are negotiating to sell our interests in Magellan and NavSol, which
we consider to be non-core assets. Management's plans also include restructuring
business operations, which, combined with the above-described asset sales should
facilitate our ability to raise additional equity capital and refinance our
debt. We also intend to explore sales of additional non-core assets. Management
expects that this strategy will generate sufficient additional liquidity to
satisfy our obligations; however, no assurance can be given that we will be
successful in achieving such goal. Our ability to continue as a going concern is
contingent upon our success in implementing the foregoing strategy on a timely
basis, and we are accordingly focusing our near-term efforts on executing
certain asset sales and restructuring our business operations.
During the years ended December 31, 2000, 1999 and 1998, we incurred net
losses of ($278,190,000), ($121,937,000) and ($56,552,000), respectively. The
company expects to incur a net loss in 2001 before considering gains or losses
from any asset sales. As of December 31, 2000, we had $70,958,000 of
unrestricted cash and short-term investments. Our accumulated deficit was
$464,536,000 as of December 31, 2000. Current liabilities exceed current assets
by $169,233,000 at December 31, 2000.
We invested $39,687,000 in capital expenditures for various satellites,
launch vehicles and other infrastructure production, manufacturing and test
equipment, buildings and leasehold improvements and office equipment in 2000.
During 2000, our continuing operations provided net cash of $35,986,000 and net
cash used to fund discontinued operations was $6,530,000.
Cash and investments were $79,655,000 and total debt obligations were
$302,944,000 at December 31, 2000. Orbital's outstanding debt at December 31,
2000 included $100,000,000 convertible 5% subordinated notes due 2002,
$115,000,000 outstanding under our primary credit facility (the "Primary
Facility") which is discussed below, $8,145,000 of short-term debt of Magellan
that was guaranteed by us, $54,562,000 borrowed by MDA under its credit facility
which is non-recourse to us, $6,666,000 outstanding under our secured note with
The Northwestern Mutual Life Insurance Company, and other unsecured notes and
asset-based financings. Cash and investments at December 31, 2000 included
approximately $8,697,000 restricted to support bank covenants and outstanding
letters of credit. Our current ratio (defined as current assets divided by
current liabilities) was .65 and .92 at December 31, 2000 and 1999,
respectively. Our ratio of total debt less cash and investments to total debt
plus total stockholders' equity was approximately 64% at December 31, 2000 as
compared to 43% at December 31, 1999.
Our Primary Facility is with an international syndicate of banks and
provided for total borrowings of $115,000,000, all of which was drawn and
outstanding as of December 31, 2000, at a weighted average interest rate of
10.56%. The Primary Facility had mandatory prepayment requirements to reduce the
total amount outstanding. We satisfied these requirements in 2000 when we paid
down $8,000,000 with proceeds from the sale of MDA shares in the third quarter
of 2000 and $46,000,000 with proceeds from the sale of Fairchild in the fourth
quarter of 2000.
On February 23, 2001, we entered into a $30,000,000 364-day loan (the
"Secondary Facility") with this bank syndicate. At that same time, we amended
and restated the Primary Facility (the "Amended and Restated Primary Facility")
in order to, among other things, modify the prepayment terms, expand the
collateral provided to the banks and change the expiration date from December
2002 to July 2002. Our borrowings are now collateralized by accounts receivable,
intellectual property, inventory, equipment, real estate and certain other
assets, including the stock of the company's wholly owned subsidiaries, which
include MDA Holdings, the holder of all shares of MDA that we beneficially own.
The Amended and Restated Primary Facility and the Secondary Facility prohibit
the payment of cash dividends and the making of investments, and contain certain
covenants with respect to our working capital levels, operating cash flows,
leverage and net worth. During the first quarter of 2001, we defaulted under
several financial covenants dealing with minimum consolidated net worth,
consolidated leverage and senior leverage under both the Amended and Restated
Primary Facility and the Secondary Facility. These defaults were waived by the
bank group in amendments signed in April 2001.
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The Amended and Restated Primary Facility and the Secondary Facility
require that we reduce outstanding balances under the facilities in connection
with debt issuances, equity issuances or asset sales consummated by us. We must
apply 100% of the first $50,000,000 of net cash proceeds from any asset sale,
43.75% of the next $80,000,000 and 70% thereafter to pay down amounts owing
under the Secondary Facility first, and then the Amended and Restated Primary
Facility. In addition, we must apply 100% of net cash proceeds from any debt
issuances and 55% of the net cash proceeds of any equity issuance by us to pay
down the facilities. We will default under the leverage covenant in both the
Secondary Facility and the Amended and Restated Primary Facility unless we
complete asset sales by June 30, 2001 that raise sufficient proceeds to pay down
a significant portion of debt.
In June 2000, we made a scheduled payment of principal on our 12% note
payable to Northwestern Mutual Life Insurance Company, reducing the outstanding
balance from $13,333,000 to approximately $6,666,000. The remaining balance
matures in June 2001. We also agreed that the interest rate on the balance of
the note would be retroactively increased if we did not prepay the note. We have
not prepaid the note and, accordingly, at December 31, 2000, the interest rate
on this note increased to 15%. In January 2001, we also agreed to make pro rata
payments under this note at the time payments are made to our lenders under the
Amended and Restated Primary Facility in connection with asset sales, equity
issuances or debt issuances.
In August 2000, Magellan amended its credit facility with Silicon Valley
Bank. In connection with the amendment, we guaranteed payment of amounts owed by
Magellan. In the first quarter of 2001, we paid Silicon Valley Bank $1,100,000
under the guarantee in order to avoid a default by Magellan on its tangible net
worth covenant.
MDA has a credit facility with a syndicate of six banks, which is
non-recourse to us. The facility provides for total availability of
approximately $126,650,000 (of which approximately $54,445,000 was outstanding
at December 31, 2000) and contains certain operational and financial covenants
including certain restrictions on the payment of dividends. The total available
amount includes a program-specific letter of credit facility of $33,325,000.
In July 2000, MDA completed an initial public offering on the Toronto Stock
Exchange of 6,600,000 shares of common stock, raising gross proceeds of
approximately $37,500,000 for itself, $18,800,000 for us and $5,600,000 for
other selling shareholders. Our ownership interest in MDA declined to
approximately 52% as of December 31, 2000 as a result of the public offering.
In October 2000, we sold Fairchild for approximately $100,000,000. In
addition to paying down $46,000,000 on our Primary Facility as described above,
we repaid approximately $15,000,000 of debt that had been secured by assets of
Fairchild, and have used the balance to fund general operations.
During the second quarter of 2000, we agreed to temporarily refund
$20,000,000 to ORBIMAGE in January 2001 from amounts previously paid by ORBIMAGE
under its procurement agreement with us, provided, however, that such obligation
would be terminated if we were to successfully broker a renegotiation of
ORBIMAGE's license agreement for worldwide RadarSat-2 satellite distribution
rights with MDA. The existing RadarSat-2 agreement was terminated in February
2001 and replaced by a new agreement between MDA and ORBIMAGE for exclusive U.S.
Radarsat-2 distribution rights. We believe that as a result, our obligation to
temporarily refund $20,000,000 was extinguished. Notwithstanding the
renegotiation of the license agreement, ORBIMAGE has notified us of its position
that the $20,000,000 refund is now due and payable, which we dispute. The
parties are in discussion to resolve this matter. Under the new RadarSat-2
license agreement, $10,000,000 will be due from ORBIMAGE in 2002. We have agreed
to purchase up to $10,000,000 of receivables from ORBIMAGE in 2002, subject to
certain conditions, if ORBIMAGE is unable to make its 2002 payments to MDA.
ORBIMAGE management currently estimates that ORBIMAGE has sufficient
resources to meet its capital and operating requirements through May 2001. In
March 2001, due to a delay in the OrbView-4 launch, we paid $1,000,000 to
ORBIMAGE as partial payment of a $2,500,000 launch delay penalty that is
otherwise due in May 2001. ORBIMAGE is seeking to restructure its outstanding
debt, which is non-recourse to us, and to obtain additional capital from third
parties as well as its existing shareholders. There can be no
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assurance that such capital will be available on a timely basis or at all. As a
result of ORBIMAGE's weakened financial condition, we ceased recognizing
revenues on the ORBIMAGE system procurement contract during the third quarter of
2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company does not have any material exposure to interest rate changes,
commodity price changes, foreign currency fluctuation or similar market risks,
although we do enter into forward exchange contracts to hedge against specific
foreign currency fluctuations, principally with respect to the Canadian dollar
and Japanese yen. At December 31, 2000, the majority of the company's long-term
debt consisted of its $100,000,000 convertible 5% subordinated notes due 2002.
The fair market value of these convertible securities fluctuates with the
company's stock price and was $45,500,000 at December 31, 2000.
The company has a deferred compensation plan for senior managers and
executive officers, with a total liability balance of $5,959,000 at December 31,
2000, based on the market value of the investments elected by the plan
participants. This liability is subject to fluctuation based upon the market
value of underlying securities.
The company enters into forward exchange contracts in an effort to hedge
against foreign currency fluctuations on certain receivables and payables
denominated in foreign currencies. Accordingly, Orbital is subject to
off-balance sheet market risk for the possibility that future changes in market
prices may make the forward exchange contracts less valuable. The following
table summarizes at December 31, 2000, outstanding foreign exchange contracts to
sell (purchase) foreign currencies, along with current market values:
CURRENCIES CURRENT UNREALIZED
HEDGED CONTRACT MARKET GAIN
FOREIGN CURRENCY HEDGED AGAINST AMOUNT VALUE (LOSS)
----------------------- ---------- -------- ------- ----------
(U.S. DOLLARS, IN THOUSANDS)
EURO...................................... CD $ 1,137 $ 1,170 $ 33
Pounds Sterling........................... CD 232 237 5
Norwegian Kroner.......................... CD 350 355 5
U.S. Dollars.............................. CD (8,821) (8,788) 33
Italian Lire.............................. CD (36) (34) (2)
Japanese Yen.............................. US 14,659 13,763 (896)
- ---------------
CD -- Canadian Dollars
US -- U.S. Dollars
ITEM 509. INTERESTED PARTIES
We have agreed to indemnify and hold KPMG LLP ("KPMG") harmless against and
from any and all legal costs and expenses incurred by KPMG in successful defense
of any legal action or proceeding that arises as a result of KPMG's consent to
the incorporation by reference of its audit report on the company's, ORBIMAGE's
and ORBCOMM's past financial statements incorporated by reference into any
applicable registration statement.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Reports of Independent Accountants.......................... 26
Consolidated Statements of Operations....................... 28
Consolidated Balance Sheets................................. 29
Consolidated Statements of Stockholders' Equity............. 30
Consolidated Statements of Cash Flows....................... 31
Notes to Consolidated Financial Statements.................. 32
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REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Stockholders of Orbital Sciences Corporation:
In our opinion, based on our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of Orbital Sciences Corporation
and its subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements as of December 31, 2000 of ORBCOMM Global L.P., an equity affiliate,
which statements reflect total assets of $11,895,000 as of December 31, 2000,
and net losses of $543,227,000, and total revenues of $7,797,000 for the year
ended December 31, 2000. We did not audit the December 31, 1999 financial
statements of Orbital Communications Corporation, a majority owned subsidiary,
which statements reflect total assets of $31,539,000 as of December 31, 1999,
and equity in net losses of affiliates of $69,914,000, and total revenues of
$2,126,000 for the year ended December 31, 1999. Those statements were audited
by other auditors whose reports thereon have been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for
ORBCOMM Global L.P., for the year ended December 31, 2000 and as it relates to
the amounts included for Orbital Communications Corporation for the year ended
December 31, 1999, is based solely on the reports of the other auditors. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for the opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net working capital deficit that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters, including efforts to consummate certain sales of
assets, among which is the agreement to sell all or a portion of its shares in
MacDonald, Dettwiler and Associates Ltd., are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We have audited the adjustments described in Note 2 to the consolidated
financial statements that were applied to reclassify the 1998 consolidated
financial statements for the impact of discontinued operations. In our opinion,
such adjustments are appropriate and have been properly applied to the 1998
financial statements.
/S/ PRICEWATERHOUSECOOPERS LLP
McLean, Virginia
April 16, 2001
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Sciences Corporation:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Orbital Sciences Corporation and
subsidiaries for the year ended December 31, 1998, before the reclassification
to reflect Magellan Corporation as a discontinued operation as described in Note
2 to the consolidated financial statements. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, before the
reclassification to reflect Magellan Corporation as a discontinued operation as
described in Note 2 to the consolidated financial statements, referred to above
present fairly, in all material respects, the results of operations and cash
flows of Orbital Sciences Corporation and subsidiaries for the year ended
December 31, 1998, in conformity with generally accepted accounting principles.
KPMG LLP
Washington, D.C.
February 16, 1999, except as to note 3A
which is as of April 17, 2000
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ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
REVENUES............................................... $ 725,669 $ 766,372 $ 628,995
Costs of goods sold.................................... 640,531 667,970 475,953
---------- ---------- ----------
GROSS PROFIT........................................... 85,138 98,402 153,042
Research and development expenses...................... 17,355 25,021 28,790
Selling, general and administrative expenses........... 112,811 92,171 73,562
Amortization of goodwill............................... 11,639 9,240 5,860
Provision for doubtful ORBCOMM accounts................ 53,713 -- --
Asset impairment charges............................... 15,911 15,217 2,479
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS.......................... (126,291) (43,247) 42,351
Interest expense, net of amounts capitalized........... (28,509) (22,813) (5,947)
Interest income and other, net......................... 5,887 4,693 7,497
Equity in losses of affiliates......................... (121,482) (97,190) (76,815)
Litigation settlement.................................. (11,500) -- --
Gains on sales of assets and subsidiary equity......... 72,706 62,282 --
Minority interests..................................... (3,244) 2,250 1,762
---------- ---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES AND DISCONTINUED
OPERATIONS........................................... (212,433) (94,025) (31,152)
Provision for income taxes............................. 15,791 11,104 5,216
---------- ---------- ----------
NET LOSS FROM CONTINUING OPERATIONS.................... (228,224) (105,129) (36,368)
Discontinued operations:
Loss from operations................................. (16,913) (16,808) (20,184)
Loss on disposal..................................... (33,053) -- --
---------- ---------- ----------
Loss from discontinued operations...................... (49,966) (16,808) (20,184)
---------- ---------- ----------
NET LOSS............................................... $ (278,190) $ (121,937) $ (56,552)
========== ========== ==========
LOSS PER COMMON AND DILUTIVE SHARE:
Loss from continuing operations...................... $ (6.09) $ (2.82) $ (1.02)
---------- ---------- ----------
Loss from discontinued operations.................... (1.33) (.45) (.57)
---------- ---------- ----------
Net loss............................................. $ (7.42) $ (3.27) $ (1.59)
========== ========== ==========
Shares used in computing loss per common and dilutive
share................................................ 37,467,520 37,281,065 35,624,888
========== ========== ==========
See accompanying notes to consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-----------------------
2000 1999
--------- ----------
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 62,523 $ 74,428
Restricted cash and short-term investments, at market..... 17,132 34,630
Receivables, net.......................................... 142,345 268,629
Inventories, net.......................................... 61,580 40,536
Current assets of discontinued operations, net............ 9,212 15,826
Deferred income taxes and other assets.................... 21,314 16,346
--------- ----------
Total current assets.............................. 314,106 450,395
--------- ----------
Non-current assets of discontinued operations, net.......... 53,975 86,979
Property, plant and equipment, at cost, less accumulated
depreciation and amortization of $115,364 and $114,173,
respectively.............................................. 128,713 130,248
Investments in and advances to affiliates................... 2,327 119,282
Goodwill, less accumulated amortization of $42,766 and
$35,712, respectively..................................... 219,691 210,287
Deferred income taxes and other assets, less accumulated
amortization of $3,744 and $2,520, respectively........... 44,446 57,334
--------- ----------
TOTAL ASSETS...................................... $ 763,258 $1,054,525
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-term
obligations............................................ $ 137,227 $ 131,066
Accounts payable.......................................... 94,713 70,492
Accrued expenses.......................................... 105,137 130,646
Due to joint venture partner.............................. -- 28,418
Deferred revenues......................................... 146,262 128,804
--------- ----------
Total current liabilities......................... 483,339 489,426
--------- ----------
Long-term obligations, net of current portion............... 165,717 239,664
Recognized losses in excess of investment in affiliate...... 16,038 --
Other liabilities........................................... 14,218 16,207
--------- ----------
Total liabilities................................. 679,312 745,297
--------- ----------
Minority interests.......................................... 39,795 2,436
--------- ----------
Commitments and contingencies
Stockholders' Equity:
Preferred Stock, par value $.01; 10,000,000 shares
authorized, none outstanding........................... -- --
Common Stock, par value $.01; 80,000,000 shares
authorized, 37,729,476 and 37,400,814 shares
outstanding, respectively.............................. 377 374
Additional paid-in capital................................ 515,462 497,923
Accumulated other comprehensive loss...................... (7,152) (5,159)
Accumulated deficit....................................... (464,536) (186,346)
--------- ----------
Total stockholders' equity........................ 44,151 306,792
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 763,258 $1,054,525
========= ==========
See accompanying notes to consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER RETAINED
------------------- PAID-IN COMPREHENSIVE EARNINGS
SHARES AMOUNT CAPITAL LOSS (DEFICIT) TOTAL
---------- ------ ---------- ------------- --------- ---------
Balance, December 31, 1997....... 32,481,719 $325 $326,187 $(4,671) $ (7,857) $ 313,984
Shares issued in equity
offering....................... 3,450,000 34 150,118 -- -- 150,152
Shares issued to employees and
directors................... 1,086,537 11 14,235 -- -- 14,246
Comprehensive income:
Net loss.................... -- -- -- -- (56,552) (56,552)
Translation adjustment...... -- -- -- (2,282) -- (2,282)
Unrealized losses on
short-term investments.... -- -- -- (196) -- (196)
---------
Total comprehensive loss....... -- -- -- -- -- (59,030)
---------- ---- -------- ------- --------- ---------
Balance, December 31, 1998....... 37,018,256 370 490,540 (7,149) (64,409) 419,352
Shares issued to employees and
directors................... 382,558 4 7,383 -- -- 7,387
Comprehensive income:
Net loss.................... -- -- -- -- (121,937) (121,937)
Translation adjustment...... -- -- -- 1,990 -- 1,990
---------
Total comprehensive loss....... -- -- -- -- -- (119,947)
---------- ---- -------- ------- --------- ---------
Balance, December 31, 1999....... 37,400,814 374 497,923 (5,159) (186,346) 306,792
Gain on investment in
ORBCOMM..................... -- -- 15,367 -- -- 15,367
Shares issued to employees and
directors................... 328,662 3 2,172 -- -- 2,175
Comprehensive loss:
Net loss.................... -- -- -- -- (278,190) (278,190)
Translation adjustment...... -- -- -- (2,253) -- (2,253)
Unrealized gain on
short-term investments.... -- -- -- 260 -- 260
---------
Total comprehensive loss....... -- -- -- -- -- (280,183)
---------- ---- -------- ------- --------- ---------
Balance, December 31, 2000....... 37,729,476 $377 $515,462 $(7,152) $(464,536) $ 44,151
========== ==== ======== ======= ========= =========
See accompanying notes to consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(278,190) $(121,937) $ (56,552)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Loss from discontinued operations....................... 49,966 16,808 20,184
Depreciation and amortization expenses.................. 42,759 43,880 24,525
Amortization of prepaid financing costs................. 5,729 2,227 443
Equity in losses of affiliates.......................... 121,482 97,190 76,815
Minority interests...................................... 3,244 (2,250) (1,762)
Loss (gain) on sale of fixed assets and investments..... (512) 13,716 (1,002)
Gains on sales of subsidiary stock and assets........... (72,706) (62,282) --
Asset impairment charges................................ 15,911 15,217 --
Deferred income taxes................................... 15,367 (8,936) 3,822
Provision for doubtful ORBCOMM accounts................. 53,713 -- --
Changes in assets and liabilities, net of divestitures and
acquisitions:
(Increase) decrease in receivables...................... 77,748 9,565 (34,079)
(Increase) decrease in inventories...................... (33,082) 8,951 (9,431)
(Increase) decrease in other assets..................... (6,777) (24,441) (8,682)
Decrease in accounts payable and accrued expenses....... 12,087 53,730 14,782
Increase (decrease) in deferred revenue................. 28,561 10,545 (14,608)
Increase (decrease) in other liabilities................ 686 (916) (1,307)
--------- --------- ---------
Net cash provided by continuing operations........... 35,986 51,067 13,148
Net cash used in discontinued operations............. (6,530) (20,979) (6,759)
--------- --------- ---------
Net cash provided by operating activities............ 29,456 30,088 6,389
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (39,687) (55,648) (36,294)
Payments for business combinations, net of cash
acquired................................................ (40,248) (33,860) (22,751)
Purchases of other assets................................. -- (14,006) --
Net proceeds from sales of subsidiary equity and assets... 115,605 73,432 --
Purchases of available-for-sale investment securities..... (12,196) (10,912) (2,500)
Sales of available-for-sale investment securities......... 18,290 -- --
Maturities of available-for-sale investment securities.... 3,006 9,025 2,409
Investments in and advances to affiliates................. (2,095) (65,060) (101,700)
--------- --------- ---------
Net cash provided by (used in) investing
activities......................................... 42,675 (97,029) (160,836)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net of (repayments)................ 1,800 338 1,940
Principal payments on long-term obligations............... (157,588) (125,813) (79,556)
Net proceeds from issuance of long-term obligations....... 57,965 241,342 63,000
Sale of subsidiary equity................................. 37,500 -- --
Net proceeds from issuances of common stock............... 2,176 7,387 164,398
(Repayments to) advances from joint venture partner....... (28,418) -- 21,829
--------- --------- ---------
Net cash provided by (used in) financing
activities......................................... (86,565) 123,254 171,611
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... 2,529 2,973 (2,206)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (11,905) 59,286 14,958
CASH AND CASH EQUIVALENTS, beginning of period.............. 74,428 15,142 184
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 62,523 $ 74,428 $ 15,142
========= ========= =========
See accompanying notes to consolidated financial statements.
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ORBITAL SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS AND LIQUIDITY
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or
the "company"), a Delaware corporation, is a leading space technology and
information systems company that designs, manufactures, operates and markets a
broad range of affordable space systems, including launch vehicles, satellites
and related space systems, electronics and sensor systems, and space robotics,
satellite ground systems, and mapping and land information products and
services.
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. However, as
reflected in the accompanying consolidated financial statements, the company
continues to suffer recurring losses from operations and has a net working
capital deficit. In addition, the company has not yet completed the sale of
certain non-core assets, as discussed below, that the company believes will be
required in order to meet certain loan covenants and provide adequate liquidity
for operations for the remainder of 2001. The financial statements do not
include any adjustments relating to the recoverability of assets and
classification of liabilities that might be necessary should the company be
unable to continue as a going concern. The company's continuation as a going
concern is dependent on its ability to sell certain non-core assets, restructure
its business operations, meet its 2001 budgeted cash flow objectives, and comply
with the terms of its credit facilities.
The company incurred losses of $278,190,000, $121,937,000 and $56,552,000,
in 2000, 1999 and 1998, respectively. The company expects to incur a net loss in
2001 before considering gains or losses from any asset sales. As of December 31,
2000, the company had $70,958,000 of unrestricted cash and short-term
investments. Current liabilities exceeded current assets by $169,233,000 at
December 31, 2000. The company's accumulated deficit was $464,536,000 as of
December 31, 2000.
The company's liquidity has been, and continues to be, constrained. During
2000, the company funded capital requirements for operations through cash from
operations combined with cash on hand and the proceeds from the dispositions of
both the Fairchild Defense electronics business unit ("Fairchild") and a portion
of its existing MacDonald, Dettwiler and Associates Ltd. ("MDA") shares. To meet
the company's capital and operating requirements in 2001, on April 12, 2001, the
company entered into an agreement to sell 12,350,000 of its MDA shares for
approximately $9 per share. The agreement is subject to customary closing
conditions, including receipt of regulatory approval, and the parties expect to
close the sale by mid-May 2001. Certain of the purchasers also have an option to
acquire MDA Holdings Corporation's remaining 5,650,000 shares of MDA by May 31,
2001. Further, the company is negotiating to sell its interests in Magellan
Corporation ("Magellan") and Navigation Solutions LLC ("NavSol"). Management's
plans also include restructuring business operations which, combined with the
above-described asset sales, management believes should facilitate its ability
to raise additional capital and to refinance the company's debt (see Note 8).
The company will also continue to pursue opportunities to make its operations
more efficient in the future in order to minimize its losses from operations.
The company's ability to continue as a going concern is contingent upon
management's success in implementing the foregoing strategy on a timely basis,
and the company is accordingly focusing its near-term efforts on executing
certain asset sales and restructuring its business operations. Management
expects that this strategy will generate sufficient additional liquidity to
satisfy its obligations; however, no assurance can be given that the company
will be successful in achieving such goal. If this strategy is not successfully
implemented in a timely manner, the company anticipates that in 2001, cash flow
from operations will be insufficient to cover capital requirements, operating
requirements and debt service.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Orbital, all
wholly and majority owned subsidiaries controlled by Orbital, and partnerships
in which Orbital directly or indirectly controls the general
32
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partner interests. Orbital uses the equity method of accounting for affiliates
that the company does not control. Such affiliates include Orbital Imaging
Corporation ("ORBIMAGE"), and have included ORBCOMM Global, L.P. ("ORBCOMM") and
CCI International NV ("CCI"). All material transactions and accounts among
consolidated entities have been eliminated in consolidation.
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of consolidated financial statements, in conformity with
generally accepted accounting principles in the United States, requires
management to make estimates and assumptions, including estimates of anticipated
contract costs and revenues utilized in the earnings recognition process that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management periodically assesses and evaluates the adequacy
and/or deficiency of estimated liabilities recorded for various reserves,
liabilities, programmatic risks and uncertainties. Actual results could differ
from these estimates.
Certain reclassifications have been made to the 1999 and 1998 financial
statements to conform to the 2000 financial statement presentation. All
financial amounts are stated in U.S. dollars unless otherwise indicated.
REVENUE RECOGNITION
Orbital generally recognizes revenues on long-term contracts using the
percentage-of-completion method of accounting (see Note 5). Revenues on
cost-plus-fee contracts are recognized to the extent of costs incurred plus a
proportionate amount of fee earned. Revenues on fixed-price contracts are
recognized based on costs incurred in relation to total estimated costs, or
based on specific delivery terms and conditions. To the extent that estimated
costs of completion are adjusted, revenue and profit recognized from a
particular contract will be affected in the period of the adjustment.
Anticipated contract losses, excluding future estimated general and
administrative costs, are recognized as they become known. Fees under certain
long-term contracts may be increased or decreased in accordance with cost or
performance incentive provisions which measure actual performance against
established targets or other criteria. Incentive fee awards or penalties are
included in estimated contract revenues at the time the amounts can be
reasonably determined.
COMPREHENSIVE INCOME (LOSS)
The company's comprehensive income (loss) is presented in the consolidated
statements of stockholders' equity. Other comprehensive income (loss) consists
primarily of foreign currency translations adjustments and unrealized gains and
losses on available-for-sale securities.
FOREIGN CURRENCY
Orbital's operating entities conduct business in a number of countries and
deal in a number of foreign currencies. The financial results of foreign
operations are translated into U.S. dollars using year-end exchange rates for
assets and liabilities and using weighted average exchange rates for revenues,
expenses, gains and losses.
Gains and losses arising from the translation of the functional currency to
the U.S. dollar relating to foreign operations that are self-contained and
integrated within a particular country or economic environment are recognized as
a component of accumulated other comprehensive income (loss) in stockholders'
equity until there is a realized reduction in Orbital's net investment in the
foreign operation. Transaction gains and losses relating to foreign operations
that are a direct and integral component or extension of Orbital's domestic
operations, and therefore are dependent on the U.S. dollar, are reported
currently as a component of net income (loss).
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Orbital enters into forward exchange contracts to hedge against foreign
currency fluctuations on certain receivables and payables. Gains and losses on
contracts to hedge specific foreign currency commitments are deferred and
accounted for as part of the underlying transaction.
RESEARCH AND DEVELOPMENT
Research and development expenses include self-funded product development
activities and exclude direct customer-funded development and are expensed as
incurred. Research and development expenses are allocated, when appropriate, to
U.S. government contracts under government-mandated cost accounting standards.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation and
amortization are provided using the straight-line method as follows:
Buildings........................... 18 to 20 years
Machinery, equipment, software and
intellectual property............. 3 to 12 years
Satellite systems................... 5 to 7 years
Leasehold improvements.............. Shorter of estimated useful life or lease term
RECOVERABILITY OF LONG-LIVED ASSETS
Orbital's policy is to review its long-lived assets, including goodwill,
investments in and advances to affiliates, self-constructed assets, internally
developed software and specialized equipment used to support specific
space-related products, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset.
The amount of the impairment is measured as the difference between the asset's
estimated fair value and its book value. Given the inherent technical and
commercial risks within the space industry, it is possible that the company's
current expectation that it will recover the carrying amount of its long-lived
assets from future operations could change.
INCOME TAXES
The company recognizes income taxes, foreign and domestic, using the asset
and liability method. Under the asset and liability 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 and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a tax rate change on deferred tax assets and
liabilities is recognized in income in the period that includes the enactment
date. Valuation allowances are used to reduce net deferred tax assets to the
amount considered more likely than not to be realized. Changes in estimates of
future taxable income can materially change the amount of such valuation
allowances.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), requires companies to (i) recognize as
expense the fair value of all stock-based awards on the date of grant, or (ii)
continue to apply the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issues to Employees" ("APB 25"), and provide pro forma
operating results and pro forma earnings per share disclosures for employee
stock option grants as if the fair-value-based method defined in SFAS 123 had
been applied. The company elected to continue to apply the provisions of APB 25
and provide the pro forma disclosure in accordance with the provisions of SFAS
123.
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EARNINGS PER SHARE
Net income (loss) per common share is calculated using the weighted average
number of common shares outstanding during the periods. Net income (loss) per
common share assuming dilution is calculated using the weighted average number
of common shares and dilutive common equivalent shares outstanding during the
periods, plus the effects of an assumed conversion of the company's convertible
notes if dilutive, after giving effect to all adjustments that would result from
the assumed conversion.
In periods of net loss, the assumed conversion of convertible notes and
stock options are anti-dilutive. Assuming conversion of the convertible notes
(see Note 8) and the dilutive impact of outstanding stock options (see Note 11),
diluted shares would have been 41,106,669 for 2000, 41,599,939 for 1999 and
40,336,587 for 1998.
CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS
Orbital considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Restricted cash consists of
compensating cash balances for contractual obligations. Investments in
securities that do not meet the definition of cash equivalents are classified as
short-term investments. Orbital classifies investments in debt and equity
securities as either available-for-sale or trading securities and, accordingly,
reports such investments at fair value. Any temporary difference between the
fair value and the underlying cost of the available-for-sale securities is
excluded from current period earnings and is reported as a component of
accumulated other comprehensive income (loss) in stockholders' equity. Temporary
differences between the fair value and the underlying cost of trading securities
is included in net investment income.
INVENTORIES
Inventories consist of components and raw materials inventory,
work-in-process inventory and finished goods inventory and are generally stated
at the lower of cost or net realizable value on a first-in, first-out ("FIFO")
or specific identification basis. Components and raw materials are purchased to
support future production efforts. Work-in-process inventory consists primarily
of (i) costs incurred under long-term fixed-price contracts accounted for using
the completed contract method of accounting and using the percentage-of-
completion method of accounting applied on a units of delivery basis, and (ii)
partially assembled commercial products. Work-in-process inventory generally
includes direct production costs and certain allocated indirect costs (including
an allocation of general and administrative costs).
SELF-CONSTRUCTED ASSETS AND INTERNALLY DEVELOPED SOFTWARE
The company self-constructs much of its ground and airborne support and
special test equipment used in the manufacture, production and delivery of many
of its products. Orbital capitalizes direct costs incurred in constructing such
equipment and certain allocated indirect costs. General and administrative and
research and development costs are expensed as incurred.
Pursuant to the requirements of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 86, "Accounting for the Cost of
Computer Software to be Sold, Leased or Otherwise Marketed," Orbital capitalizes
certain costs of developing product software to be sold or leased once
technological feasibility has been established. Capitalized costs generally
include direct software coding costs and certain allocated indirect costs, and
exclude general and administrative and research and development costs.
The company capitalizes its internal use software in accordance with
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," ("SOP 98-1"). SOP 98-1 requires
computer software costs related to internal-use software that are incurred in
the preliminary project stage be expensed as incurred. Once the capitalization
criteria of SOP 98-1 have been met, external direct costs of materials and
services consumed in developing or obtaining internal-use computer software and
payroll and payroll-related costs for employees who are directly associated with
and who devote time to the internal-use computer software project, are
capitalized.
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INVESTMENTS IN AND ADVANCES TO AFFILIATES
The company uses the equity method of accounting for its investments in and
advances to affiliates in which the company has the ability to significantly
influence, but not control, the affiliates' operations. In accordance with the
equity method of accounting, the company's carrying amount of an investment in
an affiliate is initially recorded at cost and is increased to reflect the
company's proportionate share of the affiliate's income and is reduced to
reflect its proportionate share of the affiliate's losses based on the company's
common stock or partnership interest, including all preferred dividends
attributable to other investors in such entities. For those investments for
which Orbital has provided substantially all of the investee's funding, the
company uses a modified equity method of accounting whereby 100% of the
investee's current period losses are recognized. Further, Orbital does not
recognize revenues on sales to investees for which Orbital has provided
substantially all such investees' funding. Orbital's investment is also
increased to reflect contributions to, and decreased to reflect distributions
received from the affiliate. Any excess of the amount of Orbital's investment
over the amount of the underlying equity in each affiliate's net assets is
amortized in a manner similar to goodwill. The company capitalizes interest
costs on equity method investments when an affiliate has significant assets
under construction and has not yet commenced planned principal operations. No
interest was capitalized during 2000 related to such affiliates. During 1999 and
1998, the company capitalized interest totaling $372,000 and $9,555,000,
respectively, on investments in and advances to affiliates. The company uses the
cost method of accounting for investments in which it has no significant
influence.
GOODWILL
The company amortizes goodwill related to business combinations on a
straight-line basis over its estimated useful life, generally 10 to 40 years.
Orbital periodically assesses and evaluates the recoverability of such goodwill
based on current facts and circumstances and the operational performance of the
related acquired businesses.
ISSUANCES OF SUBSIDIARY EQUITY
At times, the company may divest a portion or all its ownership in its
subsidiaries through the issuance of additional subsidiary equity or through the
sale of its shares to the public. The company recognizes the difference between
the carrying amount of its interest in the subsidiary equity sold and the fair
market value of the equity as a gain or loss upon divestiture or issuance when
the company believes the realization of the gain or loss is assured.
DEFERRED REVENUE
The company receives advances and program payments from customers in excess
of costs incurred on certain contracts, including contracts with the U.S.
government. These advances or program payments are classified as deferred
revenues.
WARRANTIES
The company occasionally accepts warranty clauses in its commercial and
government contracts. The company records a liability for estimated warranty
claims. The company may provide limited warranties on certain commercial
products and accrues an estimate of expected warranty costs based on historical
experience.
NEW ACCOUNTING PRONOUNCEMENTS
The company adopted Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements" ("SAB 101"), in 2000. SAB 101 provides guidance on
applying generally accepted accounting principles to revenue recognition issues
in financial statements. The impact of that adoption on the results of
operations was not material.
36
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Effective January 1, 2001, the company adopted Statement of Financial
Accounting Standard No. 133, as amended, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" ("SFAS No. 133"), which changes the
way in which the company will account for its derivative transactions to require
the company to recognize the fair value of all derivative transactions,
including embedded derivatives, as a recognized asset or liability. The
accounting for the gains or losses resulting from the changes in the fair value
of derivatives is dependent on whether the derivative is designated as a hedge,
the intended use of the hedge and the extent to which a designated hedge is
effective. Adjustments to reflect changes in the fair value of derivatives that
are not designated as a hedge or that are not considered to be highly effective
are reflected in earnings. Adjustments to reflect changes in fair value of
derivatives that are designated as hedges and considered highly effective are
either reflected in earnings and offset by corresponding adjustments related to
the fair values of the hedged items, or reflected in other comprehensive income
until the hedged transaction matures and the entire transaction is recognized in
earnings. The change in fair value of the ineffective portion of a hedge and the
change in the fair value of all derivatives not designated as a hedge are
recognized immediately in earnings. Upon adoption of SFAS 133, the company
anticipates recognizing a loss of less than $1,000,000 related to derivative
contracts that were not designated as hedges as of January 1, 2001.
2. DISCONTINUED OPERATIONS
Magellan manufactures and sells GPS-enabled navigation and positioning
products for consumer markets, as well as similar products that are used for
professional and other high-precision industrial applications. Magellan also
sells automotive navigation products to NavSol, a joint venture between The
Hertz Corporation ("Hertz") and Orbital, in which Orbital holds a 60% interest.
NavSol collects fees from Hertz customers for the use of these products. The
company had been accounting for its non-controlled investment in NavSol using
the equity method of accounting and had consolidated the financial results of
Magellan, in which it owns a 66 2/3% interest.
Subsequent to December 31, 2000, the company adopted a formal plan to sell
its entire interest in Magellan and its entire interest in NavSol. The company
is negotiating an agreement to sell Magellan and its interest in NavSol in a
combined transaction. As a result of this plan, the assets, liabilities and
results of operations related to these businesses have been reported in the
accompanying financial statements as discontinued operations for the current and
all prior periods presented. The company anticipates that a sale will occur by
the end of the second quarter of 2001, although there can be no assurance that
such transaction will occur. The company recorded a $33,053,000 loss on disposal
of the discontinued operations including a provision of $4,500,000 for the
estimated losses during the 2001 phase-out period. The loss provision was based
on the estimated proceeds from the sale and has been recorded as a reduction to
goodwill as of December 31, 2000. The carrying values of assets and liabilities
are as follows:
DECEMBER 31,
-------------------
2000 1999
------- --------
(IN THOUSANDS)
Current assets, net..................................... $ 9,212 $ 15,826
------- --------
Non-current assets, net:
Investment in NavSol.................................. 20,312 19,991
Property, plant and equipment, net.................... 5,692 7,374
Goodwill, net......................................... 29,932 68,022
Other, net............................................ (1,961) (8,408)
------- --------
Net non-current assets............................. 53,975 86,979
------- --------
Net assets of discontinued operations.............. $63,187 $102,805
======= ========
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The following summarizes the operating results of the discontinued
operations for the year ended December 31, 2000:
2000
--------------
(IN THOUSANDS)
Revenues.................................................... $ 97,311
Net loss.................................................... (16,913)
The company reclassified its consolidated balance sheet as of December 31,
1999, and its consolidated statements of operations and cash flows for the years
ended December 31, 1999 and 1998 to reflect the assets, liabilities, results of
operations and cash flows related to Magellan and NavSol as discontinued
operations. The following table summarizes the various adjustments:
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- --------------------------------------
PREVIOUSLY PREVIOUSLY
REPORTED ADJUSTMENTS AS REPORTED REPORTED ADJUSTMENTS AS REPORTED
---------- ----------- ----------- ---------- ----------- -----------
(IN THOUSANDS)
Revenues...................... $ 874,911 $(108,539) $ 766,372 $730,662 $(101,667) $628,995
Costs of goods sold........... 738,526 (70,556) 667,970 549,628 (73,675) 475,953
Operating expenses............ 195,034 (53,385) 141,649 168,388 (57,697) 110,691
Income (loss) from
operations.................. (58,649) 15,402 (43,247) 12,646 29,705 42,351
Net loss...................... (121,937) -- (121,937) (56,552) -- (56,552)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- --------------------------------------
PREVIOUSLY PREVIOUSLY
REPORTED ADJUSTMENTS AS REPORTED REPORTED ADJUSTMENTS AS REPORTED
---------- ----------- ----------- ---------- ----------- -----------
(IN THOUSANDS)
Net cash provided by operating
activities.................. $ 30,058 $29 $ 30,088 $ 308 $6,081 $ 6,389
Net cash used in investing
activities.................. (97,029) -- (97,029) (160,836) -- (160,836)
Net cash provided by financing
activities.................. 123,254 -- 123,254 171,611 -- 171,611
Net increase (decrease) in
cash and cash equivalents... 59,256 29 59,286 8,877 6,081 14,958
CONSOLIDATED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1999
--------------------------------------
PREVIOUSLY
REPORTED ADJUSTMENTS AS REPORTED
---------- ----------- -----------
(IN THOUSANDS)
Total current assets..................................... $ 476,139 $(25,744) $ 450,395
Non-current assets....................................... 616,773 (12,643) 604,130
Total assets............................................. 1,092,912 (38,387) 1,054,525
Current liabilities...................................... 515,169 (25,743) 489,426
Non-current liabilities.................................. 255,880 (9) 255,871
Minority interests....................................... 15,071 (12,635) 2,436
Stockholders' equity..................................... 306,792 -- 306,792
Magellan recognized revenues from sales of products to NavSol of
approximately $8,555,000 and $2,667,000 for the years ended December 31, 2000
and 1999, respectively. Revenues on sales from Magellan to NavSol are deferred
and recognized ratably over a five-year period through 2004. At December 31,
2000 and 1999, deferred revenues were $29,281,000 and $37,085,000, respectively.
In 2000, the company received $2,200,000 of dividends from NavSol.
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41
3. RESTATEMENT MATTERS AND SPECIAL GAINS AND CHARGES
A. RESTATEMENT MATTERS
In connection with the 1999 Form 10-K filing, management restated its
previously issued consolidated financial statements as of and for the year ended
December 31, 1998. Accordingly, the original Annual Report on Form 10-K for 1998
was amended and an Annual Report on Form 10-K/A was filed in April 2000.
B. SPECIAL GAINS AND CHARGES
During 2000 and 1999, the company recorded the following non-recurring
special gains and charges:
Gain on Issuance of Subsidiary Equity. In July 2000, MDA completed an
initial public offering on the Toronto Stock Exchange of 6,600,000 shares
of common stock, raising gross proceeds of approximately $37,500,000 for
itself, $18,800,000 for Orbital and $5,600,000 for other selling
shareholders. The company recognized a gain on the sale of such stock of
$30,724,000 in 2000. In December 1999, the company's then wholly owned
subsidiary, MDA, issued common stock to a group of minority investors, and
immediately provided a dividend to the company for the gross amount of the
proceeds from the sale of $75,000,000. Pursuant to its policy with respect
to issuances of subsidiary equity, the company recorded a $62,282,000 gain
on the sale of such stock (approximately $58,610,000 net of taxes). The
company's ownership interest in MDA was approximately 52% and 66% at
December 31, 2000 and 1999, respectively.
Gain on Sale of Assets. On October 30, 2000, the company sold
Fairchild for approximately $100,000,000 in cash. The company recognized a
gain of $41,982,000 in 2000 related to the sale.
Asset Impairments Charges. Since 1996, Orbital has been developing,
constructing and testing several X-34 reusable rocketplanes under a
contract with the National Aeronautics and Space Administration ("NASA").
NASA terminated this contract for convenience in March 2001. The company
determined that its estimated future cash flows from X-34-related plant,
property and equipment would not be sufficient to recover the recorded
cost. Accordingly, the company recorded an asset impairment charge in the
fourth quarter of 2000 of $15,911,000 to write down X-34-related property,
plant and equipment to their estimated realizable values. The company also
recorded a $3,400,000 provision for potentially uncollectible accounts
receivable (recorded as selling, general and administrative expense).
Although the company is seeking to recover from NASA a significant portion
of costs associated with the X-34 contract, there can be no assurance that
such recovery will occur.
In December 1999, the company determined that the carrying value of a
specialized voice communication satellite system it had constructed and launched
would no longer be recoverable through the expected future sales of the related
products or services. The company recorded a $15,217,000 asset impairment charge
with respect to this asset in the fourth quarter of 1999.
In addition, a commercial airline navigation and communications contract
was cancelled in the fourth quarter of 1999. Consequently, the carrying value of
the software and inventory in the amount of $14,820,000 was written off as a
component of cost of goods sold in the fourth quarter of 1999.
4. INDUSTRY SEGMENT INFORMATION
Orbital designs, manufactures, operates and markets a broad range of
space-related products and services that are grouped into four reportable
segments: (i) launch vehicles and advanced programs, (ii) satellites and related
space systems, (iii) electronics and sensor systems, and (iv) space robotics,
satellite ground systems, and mapping and land information products and
services. Reportable segments are generally organized based upon product lines.
All other activities of the company are reported in the corporate and other
segment, which includes certain general and administrative expenses of corporate
finance, legal, administrative and general management functions. The company's
investment in, as well as its share of the income or loss of ORBCOMM, ORBIMAGE
and CCI are also included in corporate and other. In 2000, corporate and other
also includes a $29,462,000 write-off of ORBCOMM-related receivables.
39
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Orbital reports industry segment information in conformance with Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 established standards
for reporting information about operating segments in financial statements and
requires selected information about operating segments. It also established
standards for disclosures about products, services and geographic areas.
In 2000, the company recast the composition of certain reportable segments
as a result of new reporting mechanisms and as a result of Magellan and NavSol
being considered discontinued operations. The corresponding segment information
for the prior years has been revised to conform to the 2000 presentation.
The following table presents operating information and identifiable assets
by reportable segment. Intersegment sales are generally negotiated and accounted
for under terms and conditions that are similar to other commercial and
government contracts. There were no significant sales or transfers between
segments.
YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- ---------- --------
(IN THOUSANDS)
LAUNCH VEHICLES AND ADVANCED PROGRAMS:
Revenues............................................... $ 119,588 $ 157,032 $179,591
Operating income (loss)................................ (20,621) (8,452) 23,476
Identifiable assets.................................... 102,885 125,157 96,190
Capital expenditures................................... 4,073 13,665 8,270
Depreciation and amortization.......................... 6,327 7,130 5,370
SATELLITES AND RELATED SPACE SYSTEMS:
Revenues............................................... $ 206,339 $ 257,431 $227,042
Operating income (loss)................................ (66,580) (13,517) 17,388
Identifiable assets.................................... 55,653 58,153 109,922
Capital expenditures................................... 8,920 7,481 4,499
Depreciation and amortization.......................... 5,824 5,066 4,835
ELECTRONICS AND SENSOR SYSTEMS:
Revenues............................................... $ 146,387 $ 149,991 $125,758
Operating income (loss)................................ (2,075) (248) 11,312
Identifiable assets.................................... 53,109 114,765 109,907
Capital expenditures................................... 2,228 3,373 5,563
Depreciation and amortization.......................... 3,682 4,689 3,125
SATELLITE GROUND SYSTEMS AND SPACE ROBOTICS, AND MAPPING
AND LAND INFORMATION PRODUCTS AND SERVICES:
Revenues............................................... $ 253,230 $ 199,792 $ 95,845
Operating income (loss)................................ 14,834 17,199 5,232
Equity in earnings (losses) of affiliates.............. (2,299) (182) --
Identifiable assets.................................... 269,969 221,389 67,422
Capital expenditures................................... 10,148 13,949 2,524
Depreciation and amortization.......................... 16,675 9,650 2,339
CORPORATE AND OTHER:
Revenues............................................... $ 125 $ 2,126 $ 759
Operating income (loss)................................ (51,849) (38,229) (15,057)
Minority interests..................................... (3,244) 2,250 1,762
Gains on sales of subsidiary equity and assets......... 72,706 62,282 --
Equity in earnings (losses) of affiliates.............. (119,183) (97,008) (76,815)
Identifiable assets.................................... 281,642 535,061 471,638
Capital expenditures................................... 14,318 17,180 15,438
Depreciation and amortization.......................... 10,251 17,345 8,856
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YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- ---------- --------
(IN THOUSANDS)
CONSOLIDATED:
Revenues............................................... $ 725,669 $ 766,372 $628,995
Operating income (loss)................................ (126,291) (43,247) 42,351
Equity in earnings (losses) of affiliates.............. (121,482) (97,190) (76,815)
Minority interest...................................... (3,244) 2,250 1,762
Gains on sales of subsidiary equity and assets......... 72,706 62,282 --
Identifiable assets.................................... 763,258 1,054,525 855,079
Capital expenditures................................... 39,687 55,648 36,294
Depreciation and amortization.......................... 42,759 43,880 24,525
DOMESTIC AND NON-U.S. OPERATIONS
The following table presents Orbital's revenues from continuing operations,
operating income (loss) and identifiable assets by originating location:
YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- ---------- --------
(IN THOUSANDS)
REVENUES:
United States.................................. $ 505,466 $ 586,575 $551,859
Canada and Mexico.............................. 218,213 175,923 72,642
Other.......................................... 1,990 3,874 4,494
--------- ---------- --------
Total....................................... $ 725,669 $ 766,372 $628,995
========= ========== ========
OPERATING INCOME (LOSS):
United States.................................. $(137,548) $ (59,355) $ 39,672
Canada and Mexico.............................. 11,169 15,725 2,277
Other.......................................... 88 383 402
--------- ---------- --------
Total....................................... $(126,291) $ (43,247) $ 42,351
========= ========== ========
IDENTIFIABLE ASSETS:
United States.................................. $ 593,737 $ 848,423
Canada and Mexico.............................. 168,765 205,369
Other.......................................... 756 733
--------- ----------
Total....................................... $ 763,258 $1,054,525
========= ==========
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EXPORT SALES AND MAJOR CUSTOMERS
Orbital's sales to geographic areas were as follows:
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
United States...................................... $463,929 $486,735 $488,773
Canada............................................. 157,340 153,155 43,522
Southeast Asia..................................... 54,162 67,815 28,942
Middle East and other.............................. 29,252 23,930 28,622
Far East........................................... 11,155 25,592 30,272
Europe............................................. 9,831 9,145 8,864
-------- -------- --------
Total......................................... $725,669 $766,372 $628,995
======== ======== ========
Approximately 34%, 39% and 46% of the company's revenues in 2000, 1999 and
1998, respectively, were generated under contracts with the U.S. government and
its agencies or under subcontracts with the U.S. government's prime contractors.
5. INVESTMENTS IN AND ADVANCES TO AFFILIATES
ORBCOMM
In 1993, the company's subsidiary, Orbital Communications Corporation
("OCC"), and Teleglobe Mobile Partners ("Teleglobe Mobile"), an affiliate of
Teleglobe Inc. ("Teleglobe"), formed a partnership, ORBCOMM, for the design,
development, construction, integration, testing and operation of a low-Earth
orbit satellite communications system (the "ORBCOMM System"). Through December
31, 1999, OCC and Teleglobe Mobile were both 50% general partners in ORBCOMM.
Pursuant to the terms of the partnership agreements, until December 31,
1999, OCC and Teleglobe Mobile shared equal responsibility for the operational
and financial affairs of ORBCOMM. The company accounted for its investment in
ORBCOMM using the equity method of accounting.
In January 2000, Orbital entered into an agreement (the "Omnibus
Agreement") with ORBCOMM, Teleglobe, OCC, and Teleglobe Mobile pursuant to which
Teleglobe Mobile became ORBCOMM's sole general partner and majority owner. As a
result of the increase in Teleglobe's ownership interest in ORBCOMM, Orbital's
share of ORBCOMM's total capital exceeded the book value of Orbital's investment
in ORBCOMM. Accordingly, Orbital recorded a change-in-interest gain of
$15,367,000 on reduction in ORBCOMM investment as an increase in additional
paid-in capital.
Orbital was the primary supplier to ORBCOMM of its communications
satellites, launch vehicles and certain of its satellite ground systems and
software. During 2000, 1999 and 1998, Orbital recorded sales to ORBCOMM totaling
$22,849,000, $44,302,000 and $36,596,000, respectively. During 2000 and 1999,
Orbital recognized operating losses of $1,839,000 and $311,000, respectively.
The company eliminated profit on these sales based on its ownership interest in
ORBCOMM. This elimination is reported in equity in losses of affiliates. During
1999 and 1998, Orbital deferred invoicing ORBCOMM for approximately $37,000,000
and $33,000,000, respectively, for work performed under satellite and launch
procurement agreements. Approximately $33,000,000 (including interest) of these
amounts was advanced from an affiliate of Teleglobe to Orbital. As part of the
Omnibus Agreement, Orbital, Teleglobe and ORBCOMM agreed to settle the deferred
invoicing and related cash advances. ORBCOMM paid the company approximately
$33,000,000 in cash, which was then used by the company to repay the advances
from Teleglobe. In addition, in March 2000, the company converted approximately
$33,000,000 of its deferred invoices into partnership interests in ORBCOMM.
Also, in January 2000, the company converted $2,962,000 of invoices due to
Orbital from ORBCOMM pursuant to an administrative services agreement into an
equity contribution to ORBCOMM. Finally, ORBCOMM, using funds contributed for
this purpose by Teleglobe, paid one-third of the $25,000,000 remaining balance
due Orbital in the first quarter of 2000.
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During the second quarter of 2000, ORBCOMM failed to meet payment
obligations to Orbital under the ORBCOMM system procurement agreement.
Accordingly, effective June 2000, the company ceased recognizing revenue on the
ORBCOMM system procurement agreements. In September 2000, ORBCOMM defaulted on
its interest payment obligations under its $170,000,000 Senior Notes (the
"Notes"). Teleglobe Mobile and OCC are guarantors of the Notes. OCC's guarantee
is non-recourse to Orbital.
In September 2000, ORBCOMM and its subsidiaries commenced reorganization
proceedings under Chapter 11 of the U.S. Federal Bankruptcy Code. On April 12,
2001, ORBCOMM, Teleglobe Holdings, ORBCOMM's creditors committee, OCC and the
company signed a preliminary non-binding term sheet providing for a sale of
ORBCOMM's assets to a newly formed consortium called International Licensees,
LLC and for a comprehensive liquidating plan of reorganization for ORBCOMM.
There can be no assurance that the sale and reorganization plan will be
consummated, in which case, we expect that ORBCOMM's Chapter 11 reorganization
proceeding would be converted to a Chapter 7 liquidation proceeding.
Orbital recorded non-cash charges totaling $113,123,000 in the second half
of 2000 to fully write off its $56,852,000 investment in ORBCOMM as of June 30,
2000, and to write down ORBCOMM-related receivables totaling $54,527,000,
including $813,000 of receivables written off by Magellan. Magellan's write down
in the third quarter of 2000 of $2,753,000 of ORBCOMM-related inventory, less
minority interest of $1,009,000, was included in the results from discontinued
operations. At December 31, 2000, the estimated realizable values of such
receivables and inventory were $196,000 and $12,854,000, respectively. Although
management believes that these write-offs were sufficient to cover the company's
current exposure, such reserves do not include any additional charges that might
result should any disputes, litigation or unforeseen contingencies related to
ORBCOMM arise.
At December 31, 2000 and 1999, ORBCOMM had approximately $11,895,000 and
$389,812,000 in total assets, $316,352,000 and $299,063,000 in total liabilities
and ($304,457,000) and $90,749,000 of total partner's capital (deficit),
respectively. At December 31, 2000 and 1999, ORBCOMM had approximately
$3,895,000 and $31,121,000 in total current assets and $16,655,000 and
$127,543,000 in total current liabilities, respectively. ORBCOMM recorded
approximately $7,797,000, $2,772,000 and $1,262,000 in revenues, approximately
$509,317,000, $116,034,000 and $62,996,000 in losses from operations, and
$543,227,000, $144,548,000 and $69,628,000 in net losses for the years ended
December 31, 2000, 1999 and 1998, respectively. Orbital recognized equity in
losses of affiliates of $92,723,000, $73,560,000 and $34,827,000 for the years
ended December 31, 2000, 1999 and 1998, respectively, for its share of ORBCOMM's
losses, elimination of profits on sales to ORBCOMM and, for 2000, the write-off
of the remaining investment balance.
ORBIMAGE
In 1997, the company's subsidiary, ORBIMAGE, completed a private placement
of preferred equity. Although Orbital owns substantially all of the common stock
of ORBIMAGE, Orbital is unable to control, but is able to exercise significant
influence over, ORBIMAGE's operational and financial affairs. Accordingly, the
company uses the equity method of accounting for its ownership interest in
ORBIMAGE.
Equity in earnings (losses) of affiliates includes Orbital's 100% share of
ORBIMAGE's losses, including preferred stock dividends. As of December 31, 1999,
the company's investments in and advances to ORBIMAGE were $8,094,000. During
the second quarter of 2000, the company's share of ORBIMAGE's losses exceeded
the company's investment balance and the company suspended recognition of
additional ORBIMAGE losses when its investment balance was reduced to zero. At
that time the company concluded that it did not intend to provide additional
future equity funding to ORBIMAGE. During the first quarter of 2001, as a result
of industry and market conditions, the company reconsidered its intentions
regarding potential future funding to ORBIMAGE. As a result, the company
commenced recognizing ORBIMAGE's losses in the fourth quarter of 2000, including
$16,038,000 of ORBIMAGE's losses, representing the cumulative amount of losses
incurred by ORBIMAGE, including preferred dividends, not previously recognized
by Orbital through December 31, 2000. Such losses are in excess of the company's
investment in ORBIMAGE and have been reflected as a liability in the
accompanying consolidated financial statements.
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46
During the second quarter of 2000, Orbital agreed to temporarily refund
$20,000,000 to ORBIMAGE in January 2001 from amounts previously paid by ORBIMAGE
under its procurement agreement with Orbital, provided, however, that such
obligation would be terminated if Orbital were to successfully broker a
renegotiation of ORBIMAGE's license agreement for worldwide RadarSat-2 satellite
distribution rights with MDA by January 2001. The existing RadarSat-2 agreement
was terminated in February 2001 and replaced by a new agreement between MDA and
ORBIMAGE for exclusive U.S. Radarsat-2 distribution rights. Orbital believes
that as a result, its obligation to temporarily refund $20,000,000 was
extinguished. ORBIMAGE has notified Orbital of its position, notwithstanding the
renegotiation of the license agreement, that the $20,000,000 refund is now due
and payable, which Orbital disputes. The parties are currently in discussions to
resolve this matter. Under the new RadarSat-2 license agreement, $10,000,000
will be due from ORBIMAGE in 2002. Orbital has agreed to purchase up to
$10,000,000 of receivables from ORBIMAGE in 2002, subject to certain conditions,
if ORBIMAGE is unable to make its 2002 payments to MDA.
In March 2001, ORBIMAGE defaulted on its interest payment obligations under
its $225,000,000 Senior Notes due 2005. The Senior Notes are non-recourse to
Orbital. ORBIMAGE management currently estimates that ORBIMAGE has sufficient
resources to meet its capital and operating requirements through April 2001.
ORBIMAGE is seeking to restructure the Senior Notes and to obtain capital from
third parties as well as its existing shareholders. There can be no assurance
that such capital will be available on a timely basis or at all.
Under a procurement agreement between Orbital and ORBIMAGE, Orbital is
providing and launching the OrbView-3 and OrbView-4 satellites, and constructing
the related ground segment on a fixed-price basis. As a result of ORBIMAGE's
lack of liquidity and weakened financial condition, Orbital ceased recognizing
revenues on the ORBIMAGE system procurement contract beginning in the third
quarter of 2000 and commenced accounting for its contract with ORBIMAGE using
the completed contract method.
During the years ended December 31, 2000, 1999 and 1998, Orbital recorded
sales to ORBIMAGE of approximately $10,060,000, $50,100,000 and $89,006,000,
respectively. During 2000 and 1999, Orbital recognized operating losses of
$21,323,000 and $12,199,000, respectively. The company eliminated 100% of the
profit on these sales. This elimination is reported in equity in losses of
affiliates. Additionally, Orbital provides certain administrative services to
ORBIMAGE on a cost-reimbursable basis. During 2000, 1999 and 1998, Orbital was
reimbursed approximately $471,000, $1,513,000 and $1,985,000, respectively, for
such administrative services.
At December 31, 2000 and 1999, the company had total receivables due from
ORBIMAGE of approximately $500,000 and $10,899,000, respectively. At December
30, 2000, the company also had approximately $18,524,000 of ORBIMAGE-related
inventory. Under the completed contract method, costs incurred under the
contract are capitalized as inventory. Should ORBIMAGE be unsuccessful in its
efforts to raise additional capital, Orbital's ORBIMAGE-related receivables and
inventory could become impaired.
At December 31, 2000 and 1999, ORBIMAGE had approximately $344,329,000 and
$359,838,000 in total assets, $247,463,000 and $253,604,000 in total liabilities
and ($9,237,000) and $14,671,000 of total stockholders' (deficit) equity,
respectively. At December 31, 2000 and 1999, ORBIMAGE had approximately
$14,898,000 and $55,719,000 in total current assets and $240,493,000 and
$23,618,000 in total current liabilities, respectively. ORBIMAGE recorded
approximately $24,123,000, $18,587,000 and $11,663,000 in revenues, $2,573,000,
$2,625,000 and $3,552,000 in gross losses, $9,552,000, $6,722,000, and
$5,679,000 in net losses and $24,092,000, $19,796,000 and $26,538,000 in net
losses available to common shareholders after considering preferred stock
dividends for the years ended December 31, 2000, 1999 and 1998, respectively.
CCI INTERNATIONAL, N.V.
In 1998, the company acquired an equity interest in, and entered into a
satellite procurement contract with CCI International, N.V. ("CCI"), a start-up
satellite voice communications provider. The company had an investment in CCI of
$9,942,000 at December 31, 1998. CCI ceased operations in 2000. The company
provided substantially all of CCI's funding in 1998, and accordingly, the
company did not recognize any revenue in connection with its satellite contract
with CCI and recognized all of CCI's losses. Orbital
44
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concluded in 1999 that its investment in CCI was impaired and recorded a
non-cash charge of $11,128,000 in 1999 to write off its investment in CCI. This
loss is included in equity in losses of affiliates in the accompanying
statements of operations.
OTHER INVESTMENTS
The company owns equity interests in several emerging companies. The
carrying value of these investments was approximately $2,327,000 and $5,198,000,
respectively, at December 31, 2000 and 1999.
6. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
ATLANTIC TECHNOLOGIES
In November 2000, the company, through its MDA subsidiary, acquired all of
the assets of Atlantic Technologies, LLC for approximately $8,500,000 in cash
with up to $6,000,000 in MDA shares to be issued over three years, subject to
specified conditions.
The company accounted for its acquisition using the purchase method of
accounting. The purchase price exceeded the fair value of identifiable tangible
and intangible assets acquired resulting in goodwill of approximately
$10,809,000, which is being amortized on a straight-line basis over 20 years.
DATAQUICK PRODUCTS
In April 2000, the company, through its MDA subsidiary, acquired certain of
the assets and liabilities of the DataQuick Products division of Acxiom
Corporation for approximately $56,000,000. The company has accounted for its
acquisition using the purchase method of accounting. The purchase price exceeded
the fair value of the net tangible assets and identifiable intangible assets by
approximately $44,275,000, which is being amortized on a straight-line basis
over twenty years.
ROBOTICS DIVISION OF SPAR AEROSPACE LTD.
In May 1999, the company, through its MDA subsidiary, acquired all the
assets and certain liabilities of the space robotics division of Toronto-based
Spar Aerospace Ltd. ("Robotics") for approximately $43,000,000. MDA paid half of
the purchase price in cash at closing and issued an unsecured 8% note, which was
paid in May 2000, for the remainder. The company has accounted for the
acquisition using the purchase method of accounting. The liabilities recorded
exceeded the fair value of tangible and identifiable intangible assets acquired
resulting in goodwill of approximately $56,000,000 which is being amortized on a
straight-line basis over 30 years.
RAYTHEON
On December 31, 1998, the company acquired the transportation management
systems business of Raytheon Company for approximately $21,000,000 in cash. The
acquired business produces satellite-based automatic vehicle location systems
for public transit fleets. The company accounted for the acquisition using the
purchase method of accounting. The purchase price exceeded the fair value of the
net tangible and identifiable intangible assets acquired by approximately
$20,000,000, which is being amortized on a straight-line basis over 15 years.
The following unaudited, supplemental financial information presents the
consolidated results of operations, on a pro forma basis, as though the above
acquisitions were consummated on January 1, 1998:
DECEMBER 31,
----------------------------------
2000 1999 1998
--------- --------- --------
(IN THOUSANDS EXCEPT SHARE DATA)
Revenues......................................... $ 751,344 $ 822,839 $774,167
Net loss......................................... (274,656) (117,169) (54,628)
Net loss per common and diluted share............ (7.33) (3.14) (1.53)
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LICENSE AGREEMENT
In May 1999, MDA entered into a $37,000,000 long-term license agreement
with the British Columbia provincial government whereby MDA obtained the
exclusive rights to use certain government information databases (the "License
Agreement"). MDA provides Internet-based services pursuant to the License
Agreement. For the license, MDA paid approximately $13,000,000 in cash and
borrowed approximately $7,000,000 under an existing line of credit and
$17,000,000 pursuant to a loan that was repaid in 2000. The cost of this license
is classified as an other long-term asset and is being amortized on a
straight-line basis over its 10-year term.
7. BALANCE SHEET ACCOUNTS
RESTRICTED CASH AND SHORT-TERM INVESTMENTS
At December 31, 2000 and 1999, the company had approximately $8,697,000 and
$17,041,000, respectively, of cash restricted to support bank covenants and
outstanding letters of credit.
Short-term investments consist of the following:
DECEMBER 31,
-----------------
2000 1999
------ -------
(IN THOUSANDS)
AVAILABLE-FOR-SALE SECURITIES
Canadian mortgage bonds................................... $ -- $10,912
Commercial paper securities............................... 8,435 --
------ -------
TRADING SECURITIES
Mutual funds at fair value................................ -- 6,677
------ -------
Total.................................................. $8,435 $17,589
====== =======
At December 31, 1999, the gross unrealized gains and losses on short-term
trading securities were $1,087,000. Amortized cost approximated fair value for
available-for-sale securities at December 31, 2000 and 1999.
At December 31, 2000, available-for-sale securities with a fair value of
$1,991,000 were included in other non-current assets. Unrealized gains on these
securities were $335,000 at December 31, 2000.
INVENTORY
Inventories, net of allowances for obsolescence, consisted of the
following:
DECEMBER 31,
------------------
2000 1999
------- -------
(IN THOUSANDS)
Components and raw materials................................ $20,602 $12,227
Work-in-process............................................. 46,473 36,725
Allowance for inventory obsolescence........................ (5,495) (8,416)
------- -------
Total.................................................. $61,580 $40,536
======= =======
Work-in-process inventory includes $18,524,000 at December 31, 2000 related
to the costs incurred in the second half of 2000 in connection with the ORBIMAGE
system procurement contract (see Note 5). Should ORBIMAGE be unsuccessful in its
efforts to raise additional capital, the related inventory amounts may be
impaired.
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ACCOUNTS RECEIVABLE
The components of receivables were as follows:
DECEMBER 31,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Billed and billable......................................... $ 94,524 $166,776
Recoverable costs and accrued profit not billed............. 64,816 104,103
Retainages due upon contract completion..................... 5,632 13,707
Allowance for doubtful accounts............................. (22,627) (15,957)
-------- --------
Total.................................................. $142,345 $268,629
======== ========
Approximately 80% of recoverable costs and accrued profit not billed and
retainages due upon contract completion at December 31, 2000 is due within one
year and will be billed on the basis of contract terms and delivery schedules.
At December 31, 2000 and 1999, $27,856,000 and $45,749,000, respectively, were
receivable from non-U.S. customers.
The accuracy and appropriateness of Orbital's direct and indirect costs and
expenses under its government contracts, and, therefore, its receivables
recorded pursuant to such contracts, are subject to extensive regulation and
audit by the Defense Contract Audit Agency or by other appropriate governmental
agencies. These agencies have the right to challenge Orbital's cost estimates or
allocations with respect to any such contract. Additionally, a substantial
portion of the payments to the company under government contracts are
provisional payments that are subject to potential adjustment upon audit by such
agencies. In the opinion of management, any adjustments likely to result from
inquiries or audits of its contracts will not have a material adverse impact on
the company's financial condition or results of operations.
The company enters into forward exchange contracts in an effort to hedge
against foreign currency fluctuations on certain receivables and payables
denominated in foreign currencies. Accordingly, Orbital is subject to
off-balance sheet market risk for the possibility that future changes in market
prices may make the forward exchange contracts less valuable. The following
table summarizes at December 31, 2000, outstanding foreign exchange contracts to
sell (purchase) foreign currencies, along with current market values:
CURRENCIES CURRENT UNREALIZED
HEDGED CONTRACT MARKET GAIN
FOREIGN CURRENCY HEDGE AGAINST AMOUNT VALUE (LOSS)
- ---------------------- ---------- -------- ------- ----------
(U.S. DOLLARS, IN THOUSANDS)
EURO...................................... CD $ 1,137 $ 1,170 $ 33
Pounds Sterling........................... CD 232 237 5
Norwegian Kroner.......................... CD 350 355 5
U.S. Dollars.............................. CD (8,821) (8,788) 33
Italian Lire.............................. CD (36) (34) (2)
Japanese Yen.............................. US 14,659 13,763 (896)
- ---------------
CD -- Canadian Dollars, US -- U.S. Dollars
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PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
DECEMBER 31,
----------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Land........................................................ $ 4,061 $ 4,061
Buildings and leasehold improvements........................ 43,512 31,910
Machinery and equipment..................................... 162,565 169,572
Equipment and satellite systems under construction.......... 2,021 22,446
Software, intellectual property and technical drawings...... 31,918 16,432
Accumulated depreciation and amortization................... (115,364) (114,173)
--------- ---------
Total.................................................. $ 128,713 $ 130,248
========= =========
Interest expense totaling $1,846,000, $2,711,000, and $1,705,000 was
capitalized during 2000, 1999 and 1998, respectively, as part of the historical
cost of buildings and equipment under construction.
ACCRUED EXPENSES
Accrued expenses consisted of the following:
DECEMBER 31,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Payroll, payroll taxes and fringe benefits.................. $ 34,539 $ 43,449
Payable to subcontractors................................... 6,183 5,902
Accrued contract costs...................................... 27,217 40,106
Accrued financing and acquisition costs..................... 2,848 13,973
Accrued income taxes........................................ 1,550 12,533
Accrued warranty reserves................................... 3,793 --
Accrued litigation settlement............................... 11,500 --
Accrued sublease losses..................................... 5,159 --
Other accrued expenses...................................... 12,348 14,683
-------- --------
Total.................................................. $105,137 $130,646
======== ========
In 2000, the company established a $5,159,000 liability for estimated
losses on unutilized subleased facilities.
VENDOR FINANCING
In 2000, the company secured vendor financing that provided for the
deferral of payments under certain contracts. The deferred payments are due by
the end of 2001 along with accrued interest at the annual interest rate of
8.25%. As of December 31, 2000, $31,562,000 of deferred vendor payments and
interest was recorded in accounts payable.
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8. DEBT OBLIGATIONS
The following table sets forth long-term obligations, excluding capital
lease obligations (see Note 9):
DECEMBER 31,
----------------------
2000 1999
--------- ---------
(IN THOUSANDS)
7.6% -- 9.09% notes, principal and interest due monthly
through 2004.............................................. $ 7,444 $ 27,326
8.41% note, principal and interest due monthly through
2004...................................................... 6,239 7,385
Non-interest bearing notes, principal due semi-annually
through 2005.............................................. 1,561 2,100
6% note, due in 2000........................................ -- 1,450
6.22% -- 7.125% bank notes, principal and interest due
monthly through 2002...................................... -- 21,569
Revolving credit facility, interest due monthly at LIBOR
plus 0.75% to 1.3%, principal due two years from last date
of revolving period, currently 2003....................... 35,261 --
Term credit facility, interest due monthly at LIBOR plus
0.75% to 1.3% through 2005 and principal due in 2005...... 19,184 --
8% note, due in 2000........................................ -- 22,976
15% note, interest due semi-annually, principal due in June
2001...................................................... 6,666 13,333
Primary credit facility, interest due quarterly at LIBOR
plus 3.75% through July 2002 and principal due July
2002...................................................... 115,000 165,000
5% convertible subordinated notes, interest due
semi-annually, principal due 2002......................... 100,000 100,000
--------- ---------
291,355 361,139
LESS CURRENT PORTION........................................ (127,426) (123,361)
--------- ---------
LONG-TERM PORTION........................................... $ 163,929 $ 237,778
========= =========
The 7.6% -- 9.09% notes are collateralized by certain office, computer and
test equipment. The 8.41% note is collateralized by the company's L-1011
aircraft.
MDA paid the remaining outstanding principal balances on the
6.22% -- 7.125% bank notes in 2000 and entered into a new credit facility with a
syndicate of six banks. The new agreement provides a total facility to MDA and
its subsidiaries of $126,650,000, consisting of a $73,325,000 revolving
facility, a $20,000,000 term facility and a $33,325,000 program-specific letter
of credit facility. At December 31, 2000, $35,261,000 and $19,184,000 were
outstanding under the revolving and term facilities, respectively. Letters of
credit outstanding at December 31, 2000 totaled $22,041,000. Interest rates on
the facility are based on LIBOR plus 0.75% to 1.3%, or 7.55% to 8.1% at December
31, 2000. The new credit facility is collateralized by MDA's assets and includes
certain operational and financial covenants, including certain restrictions on
the payment of dividends. MDA's credit facility is non-recourse to Orbital.
The 15% note restricts the payment of cash dividends and contains certain
covenants with respect to fixed charges ratio, leverage ratio and tangible net
worth, and includes certain cross-default provisions. A portion of the
collateral for the primary credit facility described below is pledged for this
note.
Orbital's primary credit facility (the "Primary Facility") is with an
international syndicate of banks and provided for total borrowings of
$115,000,000, all of which was drawn and outstanding at December 31, 2000, at a
weighted average interest rate of 10.56%. It was amended several times in 2000
to waive noncompliance with certain financial covenants and to amend other
covenants, including net worth, leverage, fixed charges capital expenditures and
subsidiary debt and to reduce the credit facility. The Primary Facility had
mandatory prepayment requirements to reduce the total amount outstanding.
Orbital satisfied these requirements in 2000 when it paid down $8,000,000 with
proceeds from the sale of MDA shares and $46,000,000 with proceeds from the sale
of Fairchild in 2000.
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On February 23, 2001, the company entered into a $30,000,000 364-day loan
(the "Secondary Facility") with this bank syndicate. At that same time, the
company amended and restated the Primary Facility (the "Amended and Restated
Primary Facility") in order to, among other things, modify the prepayment terms,
expand the collateral provided to the banks and change the expiration date from
December 2002 to July 2002. Orbital's borrowings are now collateralized by
accounts receivable, intellectual property, inventory, equipment, real estate
and certain other assets, including the stock of the company's wholly owned
subsidiaries, which include MDA Holdings Corporation, the holder of all shares
of MDA that the company beneficially owns. The Amended and Restated Primary
Facility and the Secondary Facility prohibit the payment of cash dividends and
the making of investments, and contain certain covenants with respect to working
capital levels, operating cash flows, leverage and net worth. During the first
quarter of 2001, the company defaulted under several financial covenants dealing
with minimum consolidated net worth, consolidated leverage and senior leverage
under both the Amended and Restated Primary Facility and the Secondary Facility.
The defaults were waived by the bank group in amendments signed in April 2001.
The Amended and Restated Primary Facility and the Secondary Facility
require that the company reduce outstanding balances under the facilities in
connection with debt issuances, equity issuances or asset sales. The company
must apply 100% of the first $50,000,000 of net cash proceeds from any asset
sale, 43.75% of the next $80,000,000 and 70% thereafter to pay down amounts
owing under the Secondary Facility first, and then the Amended and Restated
Primary Facility. In addition, the company must apply 100% of net cash proceeds
from any debt issuances and 55% of the net cash proceeds of any equity issuance
to pay down the facilities. Orbital will default under the leverage covenant in
both the Secondary Facility and the Amended and Restated Primary Facility unless
it completes asset sales by June 30, 2001 that raise sufficient proceeds to pay
down a significant portion of debt.
In September 1997, Orbital sold $100,000,000 of 5% convertible subordinated
notes due October 2002. The notes are convertible at the option of the holders
into Orbital common stock at a conversion price of $28.00 per share, subject to
adjustment in certain events.
The fair value of Orbital's convertible subordinated notes at December 31,
2000 and 1999 is estimated at approximately $45,500,000 and $85,625,000,
respectively. Fair value estimates are based on quoted market prices or on
current rates offered for debt of similar remaining maturities. The carrying
amounts of the other outstanding debt approximate their fair values. Scheduled
maturities of long-term debt for each of the years in the five-year period
ending December 31, 2005 are $127,426,000, $104,300,000, $37,750,000, $2,016,000
and $19,862,000, respectively.
Magellan maintains a short-term credit facility that is guaranteed by
Orbital. At December 31, 2000 and 1999, approximately $8,145,000 and $6,345,000
was outstanding on this facility at an average borrowing rate of 11.50% and
10.25%, respectively. These borrowings are collateralized by Magellan's accounts
receivable, inventory, equipment and general intangibles. In the first quarter
of 2001, the company paid Silicon Valley Bank $1,100,000 under the guarantee in
order to avoid a default on Magellan's tangible net worth covenant.
In 1996, ORBCOMM issued $170,000,000 14% senior unsecured notes due 2004
(the "ORBCOMM Notes") to institutional investors. ORBCOMM defaulted on the
ORBCOMM Notes, in September 2000. The ORBCOMM Notes are fully and
unconditionally guaranteed on a joint and several basis by OCC and Teleglobe
Mobile. On April 5, 2001, HSBC Bank USA, the indenture trustee for the ORBCOMM
Notes, submitted to OCC and other guarantors of the ORBCOMM Notes a formal
demand for payment of the outstanding principal amount of the notes, plus
accrued unpaid interest from February 15, 2000 and related expenses. OCC's
obligation is non-recourse to Orbital.
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9. COMMITMENTS AND CONTINGENCIES
LEASES
Aggregate minimum rental commitments under non-cancelable operating and
capital leases (primarily for office space and equipment) at December 31, 2000
were as follows:
OPERATING CAPITAL
--------- -------
(IN THOUSANDS)
2001........................................................ $ 23,635 $ 1,826
2002........................................................ 22,865 743
2003........................................................ 22,824 600
2004........................................................ 22,559 577
2005........................................................ 21,139 183
2006 and hereafter.......................................... 134,525 108
-------- -------
4,037
Less interest at 10%........................................ $247,547 (578)
--------
Less current portion........................................ (1,671)
-------
Long-term portion........................................... $ 1,788
=======
Rent expense for 2000, 1999 and 1998 was approximately $23,170,000,
$18,385,000 and $14,124,000, respectively.
LITIGATION
In the first quarter of 2000, PT Media Citra Indostar, an Indonesian
company ("PT-MCI"), commenced arbitration seeking a refund of $163,000,000
PT-MCI asserts it paid in connection with a communications satellite constructed
by CTA under a contract that was assigned to Orbital in connection with its 1997
acquisition of CTA. PT-MCI's allegations include fraud and multiple breaches of
contract. The company's claims against PT-MCI for unpaid invoices in the
approximate amount of $14,000,000 are also part of the arbitration proceedings.
Orbital believes that PT-MCI's allegations are without merit and intends to
vigorously defend against the allegations. In addition, under the terms of the
CTA acquisition, Orbital believes it is entitled to indemnification from CTA for
all or a part of any damages arising from the PT-MCI litigation and that CTA
retains liability for certain fraud claims being made by PT-MCI.
The company is currently arbitrating a claim brought by Thomas van der
Heyden alleging that the company is in actual or anticipatory breach of
obligations allegedly imposed on the company in a judgment in a previous action
brought by the plaintiff against CTA. Mr. van der Heyden claims that he is
entitled to a sum exceeding $30,000,000 from the company, as
successor-in-interest to CTA. Management believes that Mr. van der Heyden's
allegations in these proceedings are without merit and intends to vigorously
defend against the allegations. In addition, under the terms of the CTA
acquisition, Orbital believes it is entitled to indemnification from CTA for all
or a part of any damages arising from this litigation.
In March 2001, MDA and certain of its executive officers, as well as the
Province of British Columbia and various provincial government officials, were
named in a lawsuit brought by Infowest Services Inc. alleging various
conspiracies among MDA and others, breach of contract, abuse of government power
and other related allegations in connection with the BC Online procurement
during 1997 to 1999. The lawsuit seeks over $80,000,000 in damages. MDA believes
that these claims are without merit and intends to vigorously defend against the
allegations.
The eventual outcome of the foregoing legal matters is uncertain and could
have a material adverse impact on the company's results of operations and
financial condition.
In July 2000, the company reached an agreement to settle the outstanding
class-action lawsuit filed in 1999 alleging violations of federal securities
laws. The settlement agreement provides for the plaintiffs to
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receive a cash payment of $11,000,000 to be made by the company's insurance
carrier, and warrants to be issued by the company in 2001, which had an
aggregate fair market value of $11,500,000 as of the settlement date.
Accordingly, an expense and liability of $11,500,000 were recorded in the second
quarter of 2000.
The creditors committee of ORBCOMM has notified the company that they
believe ORBCOMM's bankruptcy estate is entitled to recover approximately
$57,000,000 in allegedly preferential payments that Orbital received in
connection with the sale of satellites and launch services to ORBCOMM during the
one-year period preceding ORBCOMM's bankruptcy filing. The creditors committee
has also asserted that the ORBCOMM estate is entitled to recover approximately
$900,000 in allegedly preferential payments received by MDA. Orbital believes
that all such claims are without merit and that the company has adequate
defenses to all such claims. As previously discussed, the current proposed
ORBCOMM liquidating plan of reorganization, if implemented, would include a
release of the foregoing claims.
In addition, the company and its subsidiaries are parties to certain other
litigation or proceedings arising in the ordinary course of business. In the
opinion of management, the probability is remote that the outcome of any such
other litigation or proceedings will have a material adverse effect on our
results of operations or financial position.
CONTRACTS
Most of the company's government contracts are funded incrementally on a
year-to-year basis. Changes in government policies, priorities or funding levels
through agency or program budget reductions by the U.S. Congress or executive
agencies could materially adversely affect our financial condition or results of
operations. Furthermore, contracts with the U.S. government may be terminated or
suspended by the U.S. government at any time, with or without cause. Such
contract suspensions or terminations could result in unreimbursable expenses or
charges or otherwise adversely affect our business. In March 2001, NASA
terminated for convenience the company's X-34 research and development contract
(see Note 3). Although Orbital is seeking to recover from NASA a significant
portion of its costs associated with such termination for convenience, there can
be no assurance that the company will be successful in recovering all its costs
on a timely basis, if at all.
10. INCOME TAXES
The provisions for income taxes consisted of the following:
YEARS ENDED DECEMBER 31,
----------------------------
2000 1999 1998
------- ------- ------
(IN THOUSANDS)
CURRENT PROVISION:
U.S. Federal......................................... $ -- $ -- $ --
Foreign.............................................. 424 20,040 1,394
State................................................ -- -- --
DEFERRED PROVISION (BENEFIT):
U.S. Federal......................................... 9,886 -- --
Foreign.............................................. 5,481 (8,936) 3,822
State................................................ -- -- --
------- ------- ------
Total............................................. $15,791 $11,104 $5,216
======= ======= ======
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The income tax provisions were different from those computed using the
statutory U.S. Federal income tax rate as set forth below:
YEARS ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
U.S. Federal statutory rate................................. (35.0)% (35.0)% (35.0)%
Changes in valuation allowance.............................. 45.5 51.8 44.2
Investments in affiliates and minority interests in net
assets of consolidated subsidiaries....................... 1.2 (2.6) 3.3
Intangible amortization..................................... 1.0 2.9 5.1
Foreign income taxes in excess of statutory rate............ 0.5 4.4 3.6
Other, net.................................................. (5.8) (9.7) (4.5)
----- ----- -----
Effective rate......................................... 7.4% 11.8% 16.7%
===== ===== =====
The tax effects of significant temporary differences were as follows:
DECEMBER 31,
----------------------
2000 1999
--------- ---------
(IN THOUSANDS)
TAX ASSETS:
U.S. Federal and state net operating loss carryforward.... $ 168,277 $ 128,095
Non-deductible financial statement accruals............... 101,305 80,307
U.S. Federal and foreign tax credit carryforward.......... 2,998 2,998
Intangible assets......................................... 6,029 6,511
--------- ---------
278,609 217,911
Valuation allowance....................................... (214,063) (118,119)
--------- ---------
Tax assets, net........................................ $ 64,546 $ 99,792
========= =========
TAX LIABILITIES:
Excess deductions for tax reporting purposes.............. $ 14,641 $ 52,841
Excess tax depreciation................................... 27,594 19,895
Investments in subsidiaries/affiliates.................... 5,441 5,719
Percentage-of-completion accounting....................... 2,702 2,702
--------- ---------
Tax liabilities........................................ $ 50,378 $ 81,157
========= =========
In 2000, 1999 and 1998, approximately $11,106,000, $16,213,000 and
$8,300,000, respectively, of income before provision for income taxes was
generated from foreign sources. At December 31, 2000, the company had U.S.
Federal net operating loss carryforwards (portions of which expire beginning in
2004) of approximately $444,791,000, and U.S. research and experimental tax
credit carryforwards of approximately $2,998,000. Such net operating loss
carryforwards and tax credits are subject to certain limitations and other
restrictions. The increase in the valuation allowance of $95,944,000 is
primarily due to current year operating losses and management's assessment of
anticipated future taxable income. There is a potential for near-term reversal
of the valuation allowance dependent on the future operating results. Management
currently believes that it is more likely than not that its existing net
deferred tax assets will be realized in the future.
Due to adjustments in the allocation of the purchase price accounting for
the recent acquisitions by MDA, the net deferred tax assets attributable to MDA
were increased by $10,900,000. This increase to the net deferred tax assets was
adjusted through a corresponding decrease in recorded goodwill for these
acquisitions.
11. COMMON STOCK AND STOCK OPTION PLANS
In October 1998, the company adopted a stockholder rights plan in which
preferred stock purchase rights were granted as a dividend at the rate of one
right for each share of common stock to stockholders of record on
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November 13, 1998. The plan is designed to deter coercive or unfair takeover
tactics. The rights become exercisable only if a person or group in the future
becomes the beneficial owner of 15% or more of Orbital's common stock, or
announces a tender or exchange offer that would result in its ownership of 15%
or more of the company's common stock. The rights are generally redeemable by
Orbital's Board of Directors at a redemption price of $0.005 per right and
expire on October 31, 2008.
In 1999, the company adopted an Employee Stock Purchase Plan ("ESPP") for
employees of the company (including its consolidated U.S. subsidiaries). Under
the ESPP, eligible employees may purchase up to 1,000,000 shares of Orbital's
common stock, subject to certain limitations. The ESPP has semi-annual offering
periods beginning on January 1 and July 1 and allows employees to purchase
shares of stock at the lesser of 85% of the fair market value of shares at
either the beginning or the end of the offering period.
As of December 31, 2000, the company's 1997 Stock Option and Incentive
Plan, as amended in 1999 (the "1997 Plan"), provided for awards of up to
6,800,000 incentive or non-qualified stock options and shares of restricted
stock to employees, directors, consultants and advisors of the company and its
subsidiaries. Under the terms of the 1997 Plan, options may not be issued at
less than 100% of the fair market value of the company's common stock on the
date of grant. Options under the 1997 Plan vest at a rate set forth by the Board
of Directors in each individual option agreement, generally in one-third
increments over a three-year period following the date of grant. Options granted
in 2000 were vested one-third immediately, with the remaining two-thirds vesting
in equal increments over two years. Options expire no more than ten years
following the grant date. The 1997 Plan provides for automatic grants of
non-qualified stock options to nonemployee directors of the company. The company
also has options outstanding that were issued pursuant to two predecessor plans
to the 1997 Plan, as well as replacement options issued in connection with
certain acquisitions.
The following two tables summarize information regarding options under the
company's stock option plans for the last three years:
WEIGHTED
AVERAGE OUTSTANDING
NUMBER OF OPTION PRICE EXERCISE AND
ORBITAL OPTIONS SHARES PER SHARE PRICE EXERCISABLE
--------------- ---------- ------------ -------- -----------
Outstanding at December 31, 1997... 4,007,291 $ 1.84-24.00 $15.16 1,549,185
Granted.......................... 2,236,700 18.38-38.44 32.49
Exercised........................ (1,086,537) 1.76-20.75 13.39
Cancelled or expired............. (713,898) 3.51-36.50 35.07
----------
Outstanding at December 31,
1998............................. 4,443,556 3.51-38.44 21.09 1,548,218
Granted.......................... 2,070,400 12.50-43.31 25.88
Exercised........................ (218,346) 3.51-24.00 13.50
Cancelled or expired............. (282,888) 3.51-38.44 23.17
----------
Outstanding at December 31, 1999... 6,012,722 3.51-43.31 22.66 2,602,819
Granted.......................... 1,746,033 8.00-36.50 12.34
Exercised........................ (17,587) 3.51-12.25 6.74
Canceled or expired.............. (766,167) 3.51-40.00 24.94
----------
Outstanding at December 31, 2000... 6,975,001 $ 3.51-43.31 $19.86 4,409,970
========== ============ ====== =========
54
57
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT DEC. 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 2000 EXERCISE PRICE
--------------- ---------------- ---------------- -------------- ---------------- --------------
$ 3.5100-$13.5000.. 2,359,886 7.75 $12.1688 1,189,340 $12.4545
$13.6200-$22.6250.. 3,266,720 6.99 $19.4997 2,329,243 $18.5024
$24.000-$43.3100.. 1,348,395 7.61 $34.1891 891,387 $33.5075
- ----------------- --------- ---- -------- --------- --------
$ 3.5100-$43.3100.. 6,975,001 7.37 $19.8592 4,409,970 $19.9043
================= ========= ==== ======== ========= ========
OCC adopted a stock option plan in 1992 (the "OCC Plan"), which provided
for grants of incentive and non-qualified stock options to purchase OCC common
stock to officers and employees of ORBCOMM and the company. No OCC options have
been granted since 1998. Options were granted under the OCC Plan at the fair
market value of OCC common stock at the date of grant as determined by OCC's
Board of Directors. Options under the OCC Plan vest in one-fourth increments
over a four-year period following the date of grant. Certain provisions of the
OCC Plan require OCC to repurchase, with cash or promissory notes, the common
stock acquired pursuant to the options. During 2000, 1999, and 1998, OCC
repurchased zero, 9,700 and 1,000 shares, respectively, of OCC common stock
under this provision.
The following two tables summarize information regarding options under the
OCC Plan for the last three years:
WEIGHTED
AVERAGE OUTSTANDING
NUMBER OF OPTION PRICE EXERCISE AND
OCC OPTIONS SHARES PER SHARE PRICE EXERCISABLE
----------- --------- ------------ -------- -----------
Outstanding at December 31, 1997.... 749,830 $ 1.50-26.50 $15.22 415,804
Granted........................... 305,300 26.50-39.75 32.37
Exercised......................... (32,600) 1.50-13.00 3.15
Cancelled or expired.............. (17,700) 1.50-26.50 23.94
---------
Outstanding at December 31, 1998.... 1,004,830 1.50-39.75 20.40 520,864
Granted........................... 36,000 39.75-43.67 43.34
Exercised......................... (35,000) 1.50-26.50 8.02
Cancelled or expired.............. (287,825) 4.00-43.67 27.84
---------
Outstanding at December 31, 1999.... 718,005 1.50-43.67 19.18 531,739
Granted........................... -- -- --
Exercised......................... -- -- --
Cancelled or expired.............. (148,440) 1.50-39.75 23.87
---------
Outstanding at December 31, 2000.... 569,565 $ 1.50-43.67 $18.10 501,574
========= ============ ====== =======
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT DEC. 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 2000 EXERCISE PRICE
- --------------- ---------------- ---------------- -------------- ---------------- --------------
$1.50-$25.00... 290,290 2.43 $ 6.43 290,290 $ 6.43
$26.50-$43.67.. 279,650 7.05 $30.22 211,284 $28.31
- --------------- ------- ---- ------ ------- ------
$1.50-$43.67... 569,940 4.69 $18.10 501,574 $15.65
=============== ======= ==== ====== ======= ======
Magellan adopted a stock option plan in 1998 (the "1998 Magellan Plan").
The 1998 Magellan Plan authorizes the issuance of incentive or non-qualified
options to purchase up to 19,900,000 shares of Magellan common stock to Magellan
and Orbital employees, consultants or advisors. Stock options may not be granted
with an exercise price less than 85% of the fair market value of the common
stock at the date of grant as determined by Magellan's Board of Directors.
Options under the 1998 Magellan Plan vest at a rate set forth by the Board of
Directors in each individual option agreement, generally in one-third increments
over a three-
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58
year period following the date of the grant. Additionally, Magellan options that
were issued pursuant to an option plan adopted in 1996 are still outstanding.
The following two tables summarize information regarding options under
Magellan's stock option plans for the last three years:
WEIGHTED OUTSTANDING
NUMBER OF OPTION PRICE AVERAGE AND
MAGELLAN OPTIONS SHARES PER SHARE EXERCISE PRICE EXERCISABLE
- ---------------- ---------- ------------ -------------- -----------
Outstanding at December 31,
1997............................ 6,779,660 $ 1.10 $1.10 2,528,097
Granted......................... 15,307,204 0.40 0.40
Exercised....................... (21,300) 0.40-1.10 0.98
Cancelled or expired............ (5,093,210) 0.40-1.10 1.03
----------
Outstanding at December 31,
1998............................ 16,972,354 0.40-1.10 0.47 5,389,208
Granted......................... 2,253,025 0.40-0.50 0.45
Exercised....................... (52,737) 0.40-1.10 0.46
Cancelled or expired............ (4,558,786) 0.40-1.10 0.45
----------
Outstanding at December 31,
1999............................ 14,613,856 0.40-1.10 0.46 8,044,552
Granted......................... 3,260,362 0.30 0.30
Exercised....................... (148,583) 0.30-0.40 0.40
Cancelled or expired............ (7,321,866) 0.30-1.10 0.48
----------
Outstanding at December 31,
2000............................ 10,403,769 $0.30-1.10 $0.39 6,337,100
========== ========== ===== =========
WEIGHTED
RANGE OF NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
PRICES AT DEC. 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE AT DEC. 31, 2000 EXERCISE PRICE
- -------------- ---------------- ---------------- -------------- ---------------- --------------
$0.30-$0.30 2,691,713.00 9.37 $0.30 61,675.00 $0.30
$0.40-$1.10 7,712,056.58 6.52 $0.42 6,275,424.50 $0.42
- -------------- ------------- ---- ----- ------------ -----
$0.30-$1.10 10,403,769.58 7.25 $0.39 6,337,099.50 $0.42
============== ============= ==== ===== ============ =====
In connection with Magellan's merger with Ashtech on December 31, 1997,
Magellan assumed Ashtech's option plan and issued replacement options that are
exercisable into Magellan common stock. At December 31, 2000, 10,403,770
non-qualified replacement options were outstanding, 6,337,100 of which were
exercisable at prices ranging from $0.30 to $1.10. The weighted average
remaining contractual life on these outstanding options is 7.25 years.
MDA adopted a stock option plan in 1999 (the "1999 MDA Plan"). The 1999 MDA
Plan authorizes the issuance of options to purchase up to 6,000,000 shares of
MDA common stock to MDA and Orbital employees, consultants or advisors, and the
issuance of options to purchase 127,500 shares of MDA common stock to certain
MDA shareholders. Stock options may not be issued at less than 100% of the fair
market value of the common stock at the date of grant as determined by MDA's
Board of Directors. Options under the 1999 MDA Plan vest generally in one-third
increments over a three-year period following the date of the grant. There were
no options exercised during 2000, and at December 31, 2000, none of the
outstanding options were exercisable. The following table summarizes information
regarding options under the MDA stock option plan as of and for the year ended
December 31, 2000:
56
59
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
MDA OPTIONS SHARES PER SHARE PRICE
- ----------- --------- ------------ --------
Outstanding at December 31, 1999................. -- -- --
Granted........................................ 4,553,250 $7.17-12.87 $7.28
Cancelled or expired........................... (138,750) 7.17 7.17
---------
Outstanding at December 31, 2000................. 4,414,500 $7.17-12.87 $7.29
========= =========== =====
WEIGHTED
NUMBER AVERAGE WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE
EXERCISE PRICES AT DEC. 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE
- --------------- ---------------- ---------------- --------------
$ 7.17-$ 7.17 4,308,500 9.2 $7.17
$10.68-$12.87 106,000 9.8 11.88
-------------- --------- --- -----
$ 7.17-$12.87 4,414,500 9.2 $7.28
============== ========= === =====
12. STOCK-BASED COMPENSATION
The company uses the Black-Scholes option pricing model to determine the
pro forma impact under SFAS 123 to the company's net income and earnings per
share. The model utilizes certain information, such as the interest rate on a
risk-free security maturing generally at the same time as the option being
valued, and requires certain assumptions, such as the expected amount of time an
option will be outstanding until it is exercised or it expires, to calculate the
weighted average fair value per share of stock options granted. This information
and the assumptions used for 2000, 1999 and 1998 for all option plans is
summarized as follows:
ADDITIONAL SHARES WEIGHTED AVERAGE
AVAILABLE AT RISK-FREE FAIR VALUE
DECEMBER 31, VOLATILITY INTEREST RATE PER SHARE AT GRANT DATE
---------------------------------- ------------------ ------------------ ------------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998 2000 1999 1998
---------- --------- --------- ---- ---- ---- ---- ---- ---- ------ ------ ------
Orbital Plans........ 969,012 277,085 271,619 59% 58% 55% 6.3% 5.4% 5.8% $12.34 $25.88 $32.49
OCC Plan............. 456,815 308,750 56,925 N/A 30% 30% N/A 5.6% 5.4% N/A $43.34 $32.37
Magellan Plans....... 10,869,701 6,808,198 9,892,346 30% 30% 30% 6.7% 5.1% 5.5% $ 0.30 $ 0.45 $ 0.40
MDA Plan............. 1,585,500 N/A N/A 30% N/A N/A 6.5% N/A N/A $ 7.28 N/A N/A
- ---------------
The assumed expected dividend yield was zero for all years for all option plans.
The assumed average expected life for all options for all years was 4.5 years.
Had the company determined compensation expense in accordance with the
provisions of SFAS 123, based on the calculated fair value of stock options at
the grant date, the company's net loss and net loss per common and dilutive
share would have been $296,198,000 and $7.90, respectively, for the year ended
December 31, 2000; $141,428,000 and $3.78, respectively, for the year ended
December 31, 1999; and $76,176,000 and $2.14, respectively, for the year ended
December 31, 1998. Pro forma net loss reflects only options granted in 2000,
1999 and 1998 and, therefore, may not be representative of the effects for
future periods.
In 1996, the company issued 150,000 stock appreciation rights that vested
annually through 1998. Payment was dependent on appreciation of the company's
common stock over the vesting period. The company recorded approximately
$250,000 in compensation expense during 1998 (none in 2000 and 1999) with
respect to these rights. Additional awards for 200,000 stock appreciation rights
were granted in 1999 that did not result in any additional compensation expense.
13. SUPPLEMENTAL DISCLOSURES
DEFINED CONTRIBUTION PLANS
At December 31, 2000, the company had several defined contribution plans
(the "Plans") generally covering all full-time employees in the U.S. and Canada.
Company contributions to the Plans are made based
57
60
on certain plan provisions and at the discretion of the Board of Directors, and
were approximately $8,661,000, $9,363,000 and $10,370,000 during 2000, 1999 and
1998, respectively. In addition, the company has a deferred compensation plan
for senior managers and executive officers. At December 31, 2000 and 1999,
liabilities related to this plan totaling $5,959,000 and $7,570,000,
respectively, were included in accrued expenses. The liability amounts are based
on the market value of the investments elected by the plan participants.
CASH FLOWS
Cash payments for interest and income taxes were as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Interest paid......................................... $23,591 $18,458 $16,032
Income taxes paid, net of refunds..................... 7,981 2,257 1,624
14. SUMMARY SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for the
previous two years:
QUARTER ENDED
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- --------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
2000
Revenues....................................... $198,852 $205,808 $ 185,603 $135,406
Gross profit................................... 33,426 34,362 18,594 (1,244)
Income (loss) from continuing operations....... 5,901 1,107 (72,915) (60,384)
Net income (loss) from continuing operations... (22,175) (39,003) (114,933) (52,113)
Net income (loss) from discontinued
operations................................... (4,349) (3,126) (6,389) (36,102)
Net loss per common and dilutive share,
continuing operations........................ (.59) (1.04) (3.06) (1.40)
Net loss per common and dilutive share,
discontinued operations...................... (.12) (.09) (.17) (.96)
1999
Revenues....................................... 173,177 199,709 202,470 191,016
Gross profit................................... 32,558 38,904 36,503 (9,563)
Income (loss) from continuing operations....... 4,310 9,394 2,695 (59,646)
Net income (loss) from continuing operations... (22,848) (23,363) (34,019) (24,899)
Net income (loss) from discontinued
operations................................... (3,315) (2,708) (5,547) (5,238)
Net loss per common and dilutive share,
continuing operations........................ (.62) (.63) (.91) (.66)
Net loss per common and dilutive share,
discontinuing operations..................... (.08) (.07) (.15) (.13)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
58
61
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included in Item 4A above and
under the caption "Election of Directors -- Directors to be Elected at the 2001
Annual Meeting, -- Directors Whose Terms Expire in 2002 and -- Directors Whose
Terms Expire in 2003" and "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Proxy Statement filed pursuant to Regulation 14A on or about
April 16, 2001 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the captions
"Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values,"
"Indemnification Agreements," "Executive Employment Agreements" and "Information
Concerning the Board and Its Committees" of the Proxy Statement filed pursuant
to Regulation 14A on or about April 16, 2001 and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included under the caption
"Ownership of Common Stock" of the Proxy Statement filed pursuant to Regulation
14A on or about April 16, 2001 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included under the caption
"Related Transactions" of the Proxy Statement filed pursuant to Regulation 14A
on or about April 16, 2001 and is incorporated herein by reference.
59
62
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements. The following financial statements, together
with the reports of PricewaterhouseCoopers LLP, KPMG LLP and Arthur Andersen LLP
are filed as a part of this report:
A. Reports of Independent Auditors
B. Consolidated Statements of Operations
C. Consolidated Balance Sheets
D. Consolidated Statements of Changes in Stockholders' Equity
E. Consolidated Statements of Cash Flows
F. Notes to Consolidated Financial Statements
2. Financial Statements of 50% Owned Subsidiary and Financial Statement
Schedules.
The financial statements of Orbital Imaging Corporation, ORBCOMM Global,
L.P. and Orbital Communications Corporation are transmitted with this report as
Exhibits 99.1, 99.2 and 99.3, respectively.
The following additional financial data are transmitted with this report
and should be read in conjunction with the consolidated financial statements
contained herein. Schedules other than those listed below have been omitted
because they are inapplicable or are not required.
Reports of Independent Accountants on Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits. A complete listing of exhibits required is given in the
Exhibit Index that precedes the exhibits filed with this report.
(b) Reports on Form 8-K.
Not applicable.
(c) See Item 14(a)(3) of this report.
(d) See Item 14(a)(2) of this report.
60
63
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 16, 2001 ORBITAL SCIENCES CORPORATION
By: /s/ DAVID W. THOMPSON
------------------------------------
David W. Thompson
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Dated: April 16, 2001
SIGNATURE: TITLE:
- ------------------------------------------------ --------------------------------------------------
/s/ David W. Thompson Chairman of the Board, Chief Executive
- ------------------------------------------------ Officer and Director
DAVID W. THOMPSON
/s/ James R. Thompson President and Chief Operating Officer,
- ------------------------------------------------ Director
JAMES R. THOMPSON
/s/ Garrett E. Pierce Executive Vice President, Chief Financial
- ------------------------------------------------ Officer and Director
GARRETT E. PIERCE
/s/ Hollis M. Thompson Vice President and Controller
- ------------------------------------------------
HOLLIS M. THOMPSON
/s/ Fred C. Alcorn Director
- ------------------------------------------------
FRED C. ALCORN
/s/ Kelly H. Burke Director
- ------------------------------------------------
KELLY H. BURKE
Director
- ------------------------------------------------
BRUCE W. FERGUSON
/s/ Daniel J. Fink Director
- ------------------------------------------------
DANIEL J. FINK
/s/ Lennard A. Fisk Director
- ------------------------------------------------
LENNARD A. FISK
/s/ Jack L. Kerrebrock Director
- ------------------------------------------------
JACK L. KERREBROCK
Director
- ------------------------------------------------
DOUGLAS S. LUKE
/s/ Janice I. Obuchowski Director
- ------------------------------------------------
JANICE I. OBUCHOWSKI
61
64
SIGNATURE: TITLE:
---------- ------
/s/ Frank L. Salizzoni Director
- ------------------------------------------------
FRANK L. SALIZZONI
/s/ Harrison H. Schmitt Director
- ------------------------------------------------
HARRISON H. SCHMITT
/s/ Scott L. Webster Director
- ------------------------------------------------
SCOTT L. WEBSTER
62
65
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Orbital Sciences Corporation
Our audit of the consolidated financial statements referred to in our report
dated April 16, 2001 appearing in this Annual Report on Form 10-K also included
an audit of the financial statement schedule as of and for the years ended
December 31, 2000 and 1999 listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
McLean, VA
April 16, 2001
63
66
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Sciences Corporation:
Under date of February 16, 1999, except as to note 3A, which is as of April 17,
2000, we reported on the consolidated statements of operations, stockholders'
equity, and cash flows of Orbital Sciences Corporation and subsidiaries for the
year ended December 31, 1998, before the reclassification to reflect Magellan
Corporation as a discontinued operation as described in Note 2 to the
consolidated financial statements, included in the Company's 2000 annual report
on Form 10-K. In connection with our audit of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statements schedule in the Company's 2000 Form 10-K, before the reclassification
to reflect Magellan Corporation as a discontinued operation as described in Note
2 to the consolidated financial statements. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audit.
In our opinion, such consolidated statement schedule (before reclassification),
when considered in relation to the basic consolidated financial statements,
before the reclassification to reflect Magellan Corporation as a discontinued
operation as described in Note 2 to the consolidated financial statements, taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
KMPG LLP
Washington, DC
February 16, 1999, except as to note 3A
which is as of April 17, 2000
64
67
ORBITAL SCIENCES CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FORM 10-K FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
ADDITIONS
-----------------------------------------------------------------------
BALANCE AT CHARGED TO CHARGED/ BALANCE
START OF COSTS AND CREDITED TO OTHER AT END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
- ----------- ---------- ---------- ----------------- ------------- ---------
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful
accounts.................... $ 18,077 $ 4,635 $ 794 $ (1,936) $ 21,570
Allowance for obsolete
inventory................... 10,900 6,023 4,161 (12,869) 8,215
Allowance for unrecoverable
investments................. 4,886 552 (1,100) -- 4,338
Deferred income tax valuation
reserve..................... 66,889 27,296 -- -- 94,185
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful
accounts.................... 21,570 3,733 -- (6,383) 18,920
Allowance for obsolete
inventory................... 8,215 7,969 -- (1,704) 14,480
Allowance for unrecoverable
investments................. 4,338 -- -- (4,338) --
Deferred income tax valuation
reserve..................... 94,185 56,659 -- -- 150,844
YEAR ENDED DECEMBER 31, 2000
Allowance for doubtful
accounts.................... 18,920 10,362 -- (4,112) 25,170
Allowance for obsolete
inventory................... 14,480 9,348 -- (11,037) 12,791
Deferred income tax valuation
reserve..................... 150,844 63,219 -- -- 214,063
- ---------------
(1) Amounts charged/credited to other accounts represent valuation and
qualifying accounts recorded pursuant to purchase business combinations as
described in Note 4 to the consolidated financial statements incorporated by
reference elsewhere herein, and certain other reclassifications.
(2) Deduction for revaluation of allowance account.
65
68
EXHIBIT INDEX
The following exhibits are filed as part of this report. Where such filing
is made by incorporation by reference to a previously filed statement or report,
such statement or report is identified in parentheses.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 4.1 to the company's Registration
Statement on Form S-3 (File Number 333-08769) filed and
effective on July 25, 1996).
3.2 By-Laws of Orbital Sciences Corporation, as amended on July
27, 1995 (incorporated by reference to Exhibit 3 to the
company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995).
3.3 Certificate of Amendment to Restated Certificate of
Incorporation, dated April 29, 1997 (incorporated by
reference to Exhibit 3.3 to the company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
3.4 Certificate of Designation, Preferences and Rights of Series
B Junior Participating Preferred Stock, dated November 2,
1998 (incorporated by reference to Exhibit 2 to the
company's Report on Form 8-A filed on November 2, 1998).
4.1 Form of Certificate of Common Stock (incorporated by
reference to Exhibit 4.1 to the company's Registration
Statement on Form S-1 (File Number 33-33453) filed on
February 9, 1990 and effective on April 24, 1990).
4.2 Indenture dated as of September 16, 1997 between the company
and Deutsche Bank AG, New York Branch, as Trustee
(incorporated by reference to Exhibit 4.1 to the company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).
4.3 First Supplemental Indenture dated as of December 15, 1997
between the company and Deutsche Bank AG, New York Branch,
as Trustee (incorporated by reference to Exhibit 4.4 to the
company's Registration Statement on Form S-3 (File Number
333-42271) filed on December 15, 1997 and effective on March
12, 1998).
4.4 Form of 5% Convertible Subordinated Note (incorporated by
reference to Exhibit 4.5 to the company's Registration
Statement on Form S-3 (File Number 333-42271) filed on
December 15, 1997 and effective on March 12, 1998).
4.5 Registration Rights Agreement dated as of September 16, 1997
among the company and Deutsche Morgan Grenfell Inc. and J.P.
Morgan Securities Inc. (incorporated by reference to Exhibit
4.6 to the company's Registration Statement on Form S-3
(File Number 333-42271) filed on December 15, 1997 and
effective on March 12, 1998).
4.6 Rights Agreement dated as of October 22, 1998 between the
company and BankBoston N.A., as Rights Agent (incorporated
by reference to Exhibit 1 to the company's Report on Form
8-A filed on November 2, 1998).
4.7 Form of Rights Certificate (incorporated by reference to
Exhibit 3 to the company's Report on Form 8-A filed on
November 2, 1998).
10.1 Third Amended and Restated Credit Agreement, dated as of
December 21, 1998 among the company, Magellan Corporation,
the Banks listed therein, Morgan Guaranty Trust Company of
New York, as Administrative Agent and Collateral Agent (the
"Credit Agreement") (incorporated by reference to Exhibit
10.1 to the company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998).
10.1.1 Amendment No. 1, dated as of March 25, 1999, to the Credit
Agreement (incorporated by reference to Exhibit 10.1.1 to
the company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999).
69
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.1.2 Amendment No. 2, dated as of May 26, 1999, to the Credit
Agreement (incorporated by reference to Exhibit 10.1.2 to
the company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).
10.1.3 Amendment No. 3, dated as of July 26, 1999, to the Credit
Agreement (incorporated by reference to Exhibit 10.1.3 to
the company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).
10.1.4 Intentionally omitted.
10.1.5 Amendment No. 5, dated as of September 30, 1999, to the
Credit Agreement (incorporated by reference to Exhibit 10.26
to the company's Current Report on Form 8-K filed on January
7, 2000).
10.1.6 Amendment No. 6, dated as of December 21, 1999, to the
Credit Agreement (incorporated by reference to Exhibit 10.27
to the company's Current Report on Form 8-K filed on January
7, 2000).
10.1.7 Amendment No. 7, dated as of February 16, 2000, to the
Credit Agreement (incorporated by reference to Exhibit
10.1.7 to the company's Annual Report on Form 10-K for the
year ended December 31, 1999 filed on April 19, 2000).
10.1.8 Amendment No. 8, dated as of April 13, 2000, to the Credit
Agreement (incorporated by reference to Exhibit 10.1.8 to
the company's Annual Report on Form 10-K for the year ended
December 31, 1999 filed on April 19, 2000).
10.1.9 Amendment No. 9, dated as of May 31, 2000, to the Credit
Agreement (incorporated by reference to Exhibit 10.1 to the
company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 filed on August 14, 2000).
10.1.10 Amendment No. 10, dated as of June 7, 2000, to the Credit
Agreement (incorporated by reference to Exhibit 10.2 to the
company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 filed on August 14, 2000).
10.1.11 Amendment No. 11, dated as of July 31, 2000, to the Credit
Agreement (incorporated by reference to Exhibit 10.1 to the
company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 filed on August 14, 2000).
10.1.12 Amendment No. 12, dated as of November 1, 2000, to the
Credit Agreement (incorporated by reference to Exhibit 10.1
to the company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000 filed on November 14,
2000).
10.1.13 Amendment No. 13, dated as of February 23, 2001, to the
Credit Agreement (transmitted herewith).
10.1.14 Amendment No. 14 and Waiver, dated as of April 12, 2001, to
the Credit Agreement (transmitted herewith).
10.2 Note Agreement, dated as of June 14, 1995 between the
company and The Northwestern Mutual Life Insurance Company
(the "NWML Note Agreement") (incorporated by reference to
Exhibit 4.7.1 to the company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995).
10.2.1 First Amendment to the NWML Note Agreement, dated as of June
30, 1995, between the company and The Northwestern Mutual
Life Insurance Company (incorporated by reference to the
company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995).
10.2.2 Second Amendment to the NWML Note Agreement, dated as of
March 15, 1996 (incorporated by reference to Exhibit 10.2.2
to the company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
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EXHIBIT
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10.2.3 Third Amendment to NWML Note Agreement, dated as of July 13,
1996 (incorporated by reference to Exhibit 10.2 to the
company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
10.2.4 Fourth Amendment to NWML Note Agreement, dated as of March
31, 1997 (incorporated by reference to Exhibit 10.2.4 to the
company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997).
10.2.5 Fifth Amendment to NWML Note Agreement, dated as of December
23, 1997 (incorporated by reference to Exhibit 10.2.5 to the
company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
10.2.6 Sixth Amendment to NWML Note Agreement, dated as of August
14, 1998 (incorporated by reference to Exhibit 10.2.6 to the
company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
10.2.7 Seventh Amendment to NWML Note Agreement, dated as of May
27, 1999 (incorporated by reference to Exhibit 10.2.7 to the
company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).
10.2.8 Eighth Amendment to NWML Note Agreement, dated as of
December 21, 1999 (incorporated by reference to Exhibit
10.30 to the company's Current Report on Form 8-K filed on
January 7, 2000).
10.2.9 Ninth Amendment to NWML Note Agreement, dated as of January
31, 2000 (incorporated by reference to Exhibit 10.2.9 to the
company's Annual Report on Form 10-K filed on April 19,
2000).
10.2.10 Tenth Amendment to NWML Note Agreement, dated as of February
22, 2000 (incorporated by reference to Exhibit 10.2.10 to
the company's Annual Report on Form 10-K filed on April 29,
2000.
10.2.11 Eleventh Amendment to NWML Note Agreement, dated as of April
12, 2000 (transmitted herewith).
10.2.12 Twelfth Amendment to NWML Note Agreement, dated as of
January 17, 2001 (transmitted herewith).
10.3 364-Day Senior Credit Agreement dated as of February 23,
2001 among the company, the banks listed therein and Morgan
Guaranty Trust Company of New York, as Administrative Agent
and as Collateral Agent (the "364-Day Senior Credit
Agreement") (transmitted herewith).
10.3.1 Amendment No. 1 and Waiver, dated as of April 12, 2001, to
the 364-Day Senior Credit Agreement (transmitted herewith).
10.4 Third Amended and Restated Security Agreement, dated as of
February 23, 2001, among the company, Morgan Guaranty Trust
Company of New York, as Collateral Agent, and Bank of
America, N.A., as Designated Lockbox Bank (transmitted
herewith).
10.5 Bank Agreement between MacDonald, Dettwiler and Associates
Ltd. and Royal Bank of Canada dated April 20, 2000
(incorporated by reference to Exhibit 10.4 to the company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000 filed on August 14, 2000).
10.6 Orbital Sciences Corporation 1990 Stock Option Plan,
restated as of April 27, 1995 (incorporated by reference to
Exhibit 10.5.1 to the company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995).*
10.7 Orbital Sciences Corporation 1990 Stock Option Plan for
Non-Employee Directors, restated as of April 27, 1995
(incorporated by reference 10.7 to Exhibit 10.5.2 to the
company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).*
71
EXHIBIT
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10.8 MacDonald Dettwiler and Associates Ltd. 1999 Stock Option
and Incentive Plan (incorporated by reference to Exhibit
10.4 to the company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 filed on August 14, 2000).*
10.9 Orbital Sciences Corporation 1995 Deferred Compensation Plan
(incorporated by reference to Exhibit 10.9 to the company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).*
10.10 Magellan Corporation 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.3 to the company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996).*
10.11 Orbital Imaging Corporation 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.11 to the company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).*
10.12 Performance Share Agreement dated July 21, 1999 between the
company and Mr. D. W. Thompson (incorporated by reference to
Exhibit 10.12.3 to the company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999).*
10.12.1 Performance Share Agreement between the company and James R.
Thompson dated July 21, 1999 (incorporated by reference to
Exhibit 10.12.4 to the company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999).*
10.12.2 Performance Share Agreement between the company and Garrett
E. Pierce dated August 9, 2000 (incorporated by reference to
Exhibit 10.5 to the company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000 filed on November
14, 2000).*
10.13 Executive Employment Agreement dated as of August 9,2000 by
and between the company and Garrett E. Pierce (incorporated
by reference to Exhibit 10.3 to the company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000
filed on November 14, 2000).*
10.14 Executive Employment and Change of Control Agreement dated
as of August 9,2000 by and between the company and Garrett
E. Pierce (incorporated by reference to Exhibit 10.4 to the
company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000 filed on November 14, 2000).*
10.15 Agreement between Robert D. Strain and the company dated
July 7, 2000 (transmitted herewith).*
10.16 Agreement between Robert D. Strain and the company dated
January 29, 2001 (transmitted herewith).*
10.17 Intentionally omitted.
10.18 Amended and Restated Orbital Sciences Corporation 1997 Stock
Option and Incentive Plan (incorporated by reference to
Exhibit 10.18 to the company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998).
10.19 Promissory Note dated June 27, 1997 from the company payable
to the order of General Electric Capital Corporation
("GECC") (incorporated by reference to Exhibit 10.19 to the
company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
10.20 Aircraft Security Agreement dated as of June 27, 1997 from
the company to GECC (incorporated by reference to Exhibit
10.20 to the company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
10.21 1998 Magellan Stock Option Plan (incorporated by reference
to Exhibit 10.21 to the company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998).
10.22 Intentionally omitted.
10.23 Form of 1998 Indemnification Agreement (incorporated by
reference to Exhibit 10.23 to the company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).*
72
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.24 Form of 1998 Executive Employment Agreement (incorporated by
reference to Exhibit 10.24 to the company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).*
10.25 Amended and Restated Pledge Agreement dated as of February
23, 2001 among the company, certain of its subsidiaries and
Morgan Guaranty Trust Company of New York, as collateral
agent (transmitted herewith).
10.26 Exchange and Registration Agreement, dated as of December
22, 1999, among the company and the investors identified
therein (incorporated by reference to Exhibit 10.25 to the
company's Current Report on Form 8-K filed on January 7,
2000).
21 Subsidiaries of the Company (incorporated by reference to
Exhibit 21 to the company's Annual Report on Form 10-K for
the year ended December 31, 1999 filed on April 19, 2000).
23.1 Consent of PricewaterhouseCoopers LLP (transmitted
herewith).
23.2.1 Consent of KPMG LLP regarding the Company (transmitted
herewith).
23.2.2 Consent of KPMG LLP regarding ORBCOMM (transmitted
herewith).
23.2.3 Consent of KPMG LLP regarding ORBIMAGE (transmitted
herewith).
23.3 Consent of Arthur Andersen LLP (transmitted herewith).
99.1 Financial Statements of Orbital Imaging Corporation.
99.2 Financial Statements of ORBCOMM Global, L.P.
99.3 Financial Statements of Orbital Communication Corporation.
- ---------------
* Management Contract or Compensatory Plan or Arrangement.