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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended
JUNE 30, 2002
ORBITAL SCIENCES CORPORATION
Commission file number 1-14279
------------------------------
DELAWARE 06-1209561
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(State of Incorporation) (IRS Identification number)
21839 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166 (703) 406-5000
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(Address of principal executive offices) (Telephone number)
The registrant has (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
As of July 25, 2002, 44,482,637 shares of the registrant's common stock were
outstanding.
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2002 2001
------------- --------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 57,280 $ 63,215
Restricted cash and cash equivalents 10,289 10,815
Receivables, net 126,075 125,538
Inventories, net 18,164 21,627
Other current assets 3,735 3,403
------------- --------------
TOTAL CURRENT ASSETS 215,543 224,598
------------- --------------
PROPERTY, PLANT AND EQUIPMENT, net 90,052 88,795
GOODWILL 109,088 109,088
OTHER NON-CURRENT ASSETS 11,914 10,253
------------- --------------
TOTAL ASSETS $ 426,597 $ 432,734
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations $ 101,861 $ 103,710
Accounts payable and accrued expenses 103,339 160,386
Deferred revenues 32,487 23,886
------------- --------------
TOTAL CURRENT LIABILITIES 237,687 287,982
------------- --------------
LONG-TERM OBLIGATIONS, net of current portion 28,694 4,665
OTHER NON-CURRENT LIABILITIES 4,547 5,216
ALLOCATED LOSSES OF AFFILIATE IN EXCESS OF COST OF INVESTMENT 40,586 40,586
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, 44,634,056 and
41,240,870 shares outstanding, respectively 446 412
Additional paid-in capital 552,469 539,458
Accumulated deficit (437,832) (445,585)
------------- --------------
TOTAL STOCKHOLDERS' EQUITY 115,083 94,285
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 426,597 $ 432,734
============= ==============
See accompanying notes to condensed consolidated financial statements.
1
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE QUARTERS ENDED
JUNE 30,
-------------------------------------
2002 2001
---------------- -----------------
REVENUES $ 135,435 $ 108,489
Costs of goods sold 112,383 101,891
---------------- -----------------
GROSS PROFIT 23,052 6,598
Research and development expenses 2,242 2,554
Selling, general and administrative expenses 13,568 11,094
Amortization of goodwill -- 1,441
---------------- -----------------
INCOME (LOSS) FROM OPERATIONS 7,242 (8,491)
Interest expense (2,755) (6,787)
Other income, net 874 371
Allocated share of losses of affiliate -- (10,230)
---------------- -----------------
Income (loss) before provision for income taxes and discontinued operations 5,361 (25,137)
Provision for income taxes -- --
---------------- -----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 5,361 (25,137)
Income from discontinued operations -- 91,708
---------------- -----------------
NET INCOME $ 5,361 $ 66,571
================ =================
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $ 0.12 $ (0.66)
Income from discontinued operations -- 2.41
---------------- -----------------
Net income $ 0.12 $ 1.75
================ =================
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $ 0.12 $ (0.66)
Income from discontinued operations -- 2.41
---------------- -----------------
Net income $ 0.12 $ 1.75
================ =================
See accompanying notes to condensed consolidated financial statements.
2
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------------------
2002 2001
---------------- -----------------
REVENUES $ 256,147 $ 203,378
Costs of goods sold 213,150 186,133
---------------- -----------------
GROSS PROFIT 42,997 17,245
Research and development expenses 3,948 4,221
Selling, general and administrative expenses 26,606 23,012
Amortization of goodwill -- 3,016
---------------- -----------------
INCOME (LOSS) FROM OPERATIONS 12,443 (13,004)
Interest expense (5,780) (15,810)
Other income, net 1,090 980
Allocated share of losses of affiliate -- (19,995)
---------------- -----------------
Income (loss) before provision for income taxes and discontinued operations 7,753 (47,829)
Provision for income taxes -- --
---------------- -----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 7,753 (47,829)
Income from discontinued operations -- 92,835
---------------- -----------------
NET INCOME $ 7,753 $ 45,006
================ =================
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $ 0.18 $ (1.26)
Income from discontinued operations -- 2.45
---------------- -----------------
Net income $ 0.18 $ 1.19
================ =================
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $ 0.17 $ (1.26)
Income from discontinued operations -- 2.45
---------------- -----------------
Net income $ 0.17 $ 1.19
================ =================
See accompanying notes to condensed consolidated financial statements.
3
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------------
2002 2001
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 7,753 $ 45,006
Adjustments to reconcile net income to net cash
used in operating activities:
Income from discontinued operations -- (92,835)
Depreciation and amortization 7,485 11,306
Allocated share of losses of affiliate -- 19,995
Changes in assets and liabilities and other (37,803) (35,496)
------------ -------------
Net cash used in continuing operations (22,565) (52,024)
Net cash used in discontinued operations -- (5,739)
------------ -------------
NET CASH USED IN OPERATING ACTIVITIES (22,565) (57,763)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,732) (7,150)
Net proceeds from sales of subsidiary equity -- 146,640
------------ -------------
Net cash provided by (used in) continuing operations (8,732) 139,490
Net cash provided by discontinued operations -- 2,502
------------ -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (8,732) 141,992
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments) -- (654)
Principal payments on long-term obligations (2,822) (105,176)
Net proceeds from issuances of long-term obligations 22,364 31,299
Net proceeds from issuances of common stock 5,820 1,701
------------ -------------
Net cash provided by (used in) continuing operations 25,362 (72,830)
Net cash used in discontinued operations -- (4,910)
------------ -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 25,362 (77,740)
------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,935) 6,489
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 63,215 45,076
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 57,280 $ 51,565
============ =============
See accompanying notes to condensed consolidated financial statements.
4
ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(UNAUDITED)
(1) BASIS OF PRESENTATION AND LIQUIDITY
Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or
the "company"), a Delaware corporation, is a space technology company that
designs, manufactures, operates and markets a broad range of space systems,
including launch vehicles, satellites and related space systems and electronic
systems.
The accompanying condensed 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, with
the exception of the first two quarters of 2002, the company reported losses
from operations and net losses from continuing operations for the past several
years. In addition, the company's June 30, 2002 cash balance, operating cash
flow and available borrowing capacity in 2002 will be insufficient to repay the
outstanding subordinated convertible notes that become due on October 1, 2002,
as discussed below. The company's accumulated deficit was $437.8 million as of
June 30, 2002. 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 upon its ability to
restructure its outstanding subordinated notes, meet its 2002 cash flow plan and
comply with the terms of its credit facility.
The company's liquidity has been and continues to be constrained. To meet
the company's capital and operating requirements, the company sold its interests
in four businesses in 2001 and used a substantial amount of the proceeds from
these divestitures to reduce debt. The company is also considering the sale of
its only remaining non-core business, the electronic systems segment. In
addition, during 2001, the company consolidated certain business operations,
reduced its workforce and implemented other cost-cutting measures. As of June
30, 2002, the company had $57.3 million of unrestricted cash and cash
equivalents. On March 1, 2002, Orbital entered into a three-year primary credit
facility, which includes (i) a $25 million term loan and (ii) a $35 million
revolving line of credit (see Note 9).
The company's $100 million subordinated convertible notes become due on
October 1, 2002. The company is actively pursuing various alternatives in order
to repay or restructure these notes. These alternatives include seeking to raise
additional equity capital and/or debt in order to repay the notes or pursuing an
exchange offer whereby the company would make an offer to the noteholders to
exchange the notes for new debt and/or equity securities. There can be no
assurance that the company will successfully raise enough capital in order to
repay the notes, nor can there be any assurance that an exchange offer on terms
acceptable to the company can be implemented and accepted by the company's
existing noteholders. A default by the company on
5
the subordinated convertible notes would also result in a default on the
company's primary credit facility described above.
In the opinion of management, the accompanying unaudited interim financial
information reflects all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation on a going concern basis. Certain information
and footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States
have been condensed or omitted pursuant to instructions, rules and regulations
prescribed by the Securities and Exchange Commission. The company believes that
the disclosures provided herein are adequate to make the information presented
not misleading when these unaudited interim condensed consolidated financial
statements are read in conjunction with the audited consolidated financial
statements contained in the company's Annual Report on Form 10-K for the year
ended December 31, 2001.
Operating results for the quarter and six months ended June 30, 2002 are
not necessarily indicative of the results expected for the full year.
(2) PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The preparation of condensed consolidated financial statements in
conformity with generally accepted accounting principles in the United States
requires management to make estimates and assumptions, including estimates of
future contract costs and earnings. Such estimates and assumptions affect the
reported amounts of assets and liabilities at the date of the condensed
consolidated financial statements and the reported amounts of revenues and
earnings during the current reporting period. Management periodically assesses
and evaluates the adequacy and/or deficiency of estimated liabilities recorded
for various reserves, liabilities, contract risks and uncertainties. Actual
results could differ from these estimates.
Certain reclassifications have been made to the 2001 financial statements
and footnote disclosures to conform to the 2002 financial statement
presentation. All financial amounts are stated in U.S. dollars unless otherwise
indicated.
(3) DISCONTINUED OPERATIONS
The company reclassified its condensed consolidated statements of
operations for the quarter and six months ended June 30, 2001 and cash flows for
the six months ended June 30, 2001 to report the results of operations and cash
flows of divested businesses as discontinued operations.
(4) INDUSTRY SEGMENT INFORMATION
Orbital designs, manufactures, operates and markets a broad range of
space-related products and services that are grouped into three reportable
segments: (i) launch vehicles and advanced programs, (ii) satellites and related
space systems and (iii) electronic systems. Reportable segments are generally
organized based upon product lines. Corporate and other includes the elimination
of intercompany revenues, certain corporate office general and administrative
expenses that have not been attributed to a particular segment and, for the
quarter and six months
6
ended June 30, 2001, corporate office general and administrative expenses also
include such costs which were attributable to discontinued operations.
Intersegment sales are generally negotiated and accounted for under terms
and conditions that are similar to other commercial and government contracts.
The following table presents operating information for the quarters and
six months ended June 30, 2002 and 2001 and identifiable assets at June 30, 2002
and December 31, 2001 by reportable segment (in thousands).
QUARTERS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------- ----------------------------------
2002 2001 2002 2001
---------------- -------------- ------------- ---------------
LAUNCH VEHICLES AND ADVANCED PROGRAMS:
Revenues $ 63,769 $ 36,275 $ 108,470 $ 66,116
Operating income (loss) 5,722 7,512 9,882 7,047
Identifiable assets 111,749 114,403(1) 111,749 114,403(1)
Capital expenditures 1,105 210 2,242 678
Depreciation and amortization 1,442 1,972 2,862 3,897
SATELLITES AND RELATED SPACE SYSTEMS:
Revenues $ 56,519 $ 57,799 $ 117,347 $ 109,469
Operating income (loss) 192 (13,081) 292 (14,912)
Identifiable assets 132,210 132,047(1) 132,210 132,047(1)
Capital expenditures 2,526 2,417 5,073 4,052
Depreciation and amortization 1,227 2,324 2,416 4,458
ELECTRONIC SYSTEMS:
Revenues $ 16,035 $ 15,086 $ 32,042 $ 30,020
Operating income (loss) 1,629 337 2,869 557
Identifiable assets 62,230 66,749(1) 62,230 66,749(1)
Capital expenditures 200 110 342 270
Depreciation and amortization 191 523 401 1,067
CORPORATE AND OTHER:
Revenues $ (888) $ (671) $ (1,712) $ (2,227)
Operating income (loss) (301) (3,259) (600) (5,696)
Allocated share of losses of affiliate -- (10,230) -- (19,995)
Identifiable assets 120,408 119,535(1) 120,408 119,535(1)
Capital expenditures 759 958 1,075 2,150
Depreciation and amortization 884 922 1,806 1,884
CONSOLIDATED:
Revenues $ 135,435 $ 108,489 $ 256,147 $ 203,378
Operating income (loss) 7,242 (8,491) 12,443 (13,004)
Allocated share of losses of affiliate -- (10,230) -- (19,995)
Identifiable assets 426,597 432,734(1) 426,597 432,734(1)
Capital expenditures 4,590 3,695 8,732 7,150
Depreciation and amortization 3,744 5,741 7,485 11,306
- -------------------
(1) Identifiable assets as of December 31, 2001
7
(5) INVENTORIES
Inventories consisted of the following (in thousands):
JUNE 30, 2002 DECEMBER 31, 2001
----------------- --------------------
Components and raw materials $ 8,448 $ 10,622
Work-in-process 11,343 12,395
Allowance for inventory obsolescence (1,627) (1,390)
----------------- --------------------
Total $ 18,164 $ 21,627
================= ====================
(6) EARNINGS PER SHARE
The following table presents the shares used in computing basic and diluted
earnings per share ("EPS") for the quarter and six months ended June 30, 2002:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2002
----------------- --------------------
Weighted average of outstanding shares for basic EPS 43,096,804 42,636,121
Dilutive effect of outstanding stock options and warrants 2,405,691 2,031,264
----------------- --------------------
Shares for diluted EPS 45,502,495 44,667,385
================= ====================
In periods of losses from continuing operations, such as the first quarter
and the first six months of 2001, fully diluted per-share losses are the same as
basic per-share losses. The weighted average of outstanding shares used to
compute per share amounts in the quarter and six months ended June 30, 2001 was
37,941,317 and 37,843,923, respectively.
(7) COMPREHENSIVE INCOME
Comprehensive income and associated differences are as follows (in
thousands):
QUARTERS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
COMPUTATION OF COMPREHENSIVE INCOME:
Net income, as reported $ 5,361 $ 66,571 $ 7,753 $ 45,006
Translation adjustments -- 8,208 -- 7,487
Unrealized gains on investments -- 18,511 -- 17,965
----------- ----------- ----------- ------------
Comprehensive income $ 5,361 $ 93,290 $ 7,753 $ 70,458
=========== =========== =========== ============
ACCUMULATED DIFFERENCES BETWEEN NET INCOME,
AS REPORTED, AND COMPREHENSIVE LOSS:
Beginning of period $ -- $ (8,419) $ -- $ (7,152)
Translation adjustments -- 8,208 -- 7,487
Unrealized gains on investments -- 18,511 -- 17,965
----------- ----------- ----------- ------------
End of period $ -- $ 18,300 $ -- $ 18,300
=========== =========== =========== ============
8
(8) INVESTMENTS IN AND TRANSACTIONS WITH ORBIMAGE
The company uses the equity method of accounting for its ownership interest
in Orbital Imaging Corporation ("ORBIMAGE"). In the first half of 2001, the
company recognized 100% of ORBIMAGE's losses, including preferred stock
dividends, in allocated share of losses of affiliate in the accompanying
statements of operations. During 2001, such losses exceeded the company's
investment in ORBIMAGE. The company ceased recognizing ORBIMAGE losses as of
July 1, 2001. As of both June 30, 2002 and December 31, 2001, recognized losses
exceeded the company's investment in ORBIMAGE by $40.6 million and such amount
is reported as "allocated losses of affiliate in excess of cost of investment"
on the accompanying condensed consolidated balance sheets. The $40.6 million
balance could be fully or partially reversed depending upon whether ORBIMAGE
restructures through bankruptcy or liquidates and dissolves and whether Orbital
has an equity ownership in a restructured ORBIMAGE (see Note 10).
Under a fixed-price procurement contract between Orbital and ORBIMAGE,
Orbital has produced and launched ORBIMAGE's satellites, and is continuing to
construct the OrbView-3 satellite and related launch vehicle and ground segment.
As a result of ORBIMAGE's lack of liquidity and weakened financial condition,
Orbital ceased recognizing revenues on the ORBIMAGE procurement contract in 2000
and commenced accounting for its contract with ORBIMAGE using the completed
contract method. The liabilities associated with the ORBIMAGE contract exceeded
the related assets by $9.6 million and $16.4 million as of June 30, 2002 and
December 31, 2001, respectively, and are included in accounts payable and
accrued expenses. These amounts represent the accruals for the estimated costs
to complete the ORBIMAGE contract.
(9) DEBT
On March 1, 2002, Orbital entered into a three-year primary credit facility
with Foothill Capital Corporation ("Foothill") as arranger and agent. The
facility provides for total borrowings of up to $60 million, including (i) a $25
million term loan (the "Term Loan") and (ii) a $35 million revolver (the
"Revolver"), of which up to $30 million may be available for borrowing based on
Orbital's billed and unbilled receivables. The Term Loan has an interest rate
equal to the prime rate publicly announced from time to time by Wells Fargo
Bank, National Association (the "Prime Rate") plus 6%, but not less than 11%.
Borrowings under the Revolver accrue interest at a rate equal to the Prime Rate
plus 2.25 %, but not less than 7%. Upon closing the facility, the company
borrowed the entire $25 million available under the Term Loan, which provided
$22.4 million in net proceeds to the company after deducting transaction fees
and expenses. As of June 30, 2002, the entire Term Loan was outstanding at an
interest rate of 11%. As of June 30, 2002, there were no borrowings under the
Revolver, although $18 million of the amount available for borrowing was
utilized for letters of credit and foreign exchange forward contracts.
Accordingly, $12 million of the Revolver was available for borrowing as of June
30, 2002. The borrowings under the facility are collateralized by all of the
company's assets. As of June 30, 2002, the company was in compliance with the
loan covenants. The facility imposes restrictions on the company's ability to
refinance existing indebtedness and, accordingly, Foothill's consent will be
required in order to refinance the company's convertible notes as discussed
below.
Orbital's $100 million of 5% convertible subordinated notes become due on
October 1, 2002. Accordingly, the entire balance is reported as a current
liability. Orbital is actively pursuing alternatives with respect to the payment
or refinancing of these notes (see Note 1). A default by
9
the company on the subordinated convertible notes would also result in a default
on the company's new primary credit facility described above.
(10) COMMITMENTS AND CONTINGENCIES
LITIGATION
The company is party to certain litigation or other legal proceedings
arising in the ordinary course of business. Except as discussed below, in the
opinion of management, the outcome of such legal matters will not have a
material adverse effect on the company's results of operations or financial
condition.
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 the company's 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 the company's financial
condition and/or results of operations.
ORBIMAGE CONTINGENCY
In 1999, ORBIMAGE and MacDonald, Dettwiler and Associates, Ltd. ("MDA"),
then Orbital's wholly owned subsidiary, entered into a license agreement
granting ORBIMAGE the worldwide distribution rights for data to be generated by
the RadarSat-2 satellite currently under construction by MDA for $60 million. In
June 2000, Orbital agreed to assist ORBIMAGE in negotiating a modification to
this license agreement. ORBIMAGE had previously paid $30 million of the license
fee and had a substantial installment due in January 2001. In connection with
this agreement to assist in negotiating this modification, Orbital agreed to
temporarily refund $20 million to ORBIMAGE if a modification meeting certain
requirements had not been agreed to by January 2001. At that same time, ORBIMAGE
and Orbital agreed to the termination of a stock purchase agreement pursuant to
which Orbital had agreed to make certain equity investments in ORBIMAGE based on
its cash requirements.
On February 9, 2001, the parties signed a new agreement that granted
ORBIMAGE a license to distribute RadarSat-2 data in the United States. In view
of this agreement, Orbital did not (and does not believe it was required to)
temporarily refund the $20 million to ORBIMAGE because the delay from the date
set in the June 2000 agreement was not material. Under the terms of the new
agreement, ORBIMAGE agreed to pay a total of $40 million to MDA ($30 million of
which was credited from payment made under the original contract) with the
remaining $10 million to be paid in two $5 million installments, which are due
from ORBIMAGE in July and December of 2002. Orbital also agreed that it would
purchase receivables from ORBIMAGE in an amount
10
equal to the installment obligation, and to forward such payments to MDA if
ORBIMAGE is unable to make these payments to MDA and if so requested by
ORBIMAGE. Any purchase would be subject to bankruptcy court procedures and
approval and Orbital may not be able to monetize any receivables to the full
extent of the price it pays. ORBIMAGE did not take the actions necessary to
trigger Orbital's purchase obligation with respect to the July 2002 installment.
ORBIMAGE is currently in default on its interest payment obligations under
its senior notes. On April 5, 2002, ORBIMAGE filed a voluntary petition of
reorganization under Chapter 11 of the U.S. Federal Bankruptcy Code in the
Eastern District of Virginia. ORBIMAGE has not yet filed a plan of
reorganization. While Orbital is attempting to negotiate a consensual plan of
reorganization with ORBIMAGE, certain of its major preferred stockholders and
the Creditors Committee, to date Orbital has been unable to reach a mutually
satisfactory agreement.
Under the procurement agreement, Orbital is continuing to construct the
OrbView-3 satellite and related launch vehicle and ground segment. OrbView-3 is
scheduled for launch in the second half of 2002. Orbital also has continued to
provide ORBIMAGE with certain administrative services and technical support,
generally on a cost-reimbursement basis. All amounts due from ORBIMAGE have been
fully reserved.
On June 19, 2002, the Official Committee of Unsecured Creditors appointed
in the bankruptcy proceeding filed a motion in the Bankruptcy Court for
authority to conduct discovery against Orbital under Federal Rules of Bankruptcy
Procedure 2004. The stated purpose of the Creditors Committee in seeking such
discovery is to investigate the details of ORBIMAGE's relationship and
transactions with Orbital in order to reveal whether claims are warranted
against the company or certain of its directors, officers and former officers on
theories that might include, among others, wrongful control and domination,
breach of fiduciary duty, breach of contract, fraud and misrepresentation.
On July 24, 2002, ORBIMAGE filed a civil action in the U.S. Bankruptcy
Court for the Eastern District of Virginia against Orbital and two
officer/directors seeking $30 million plus unspecified damages alleging, among
other things, breach of contract, conversion of property, breach of fiduciary
duty, fraud and misrepresentation, and civil conspiracy in connection with
various transactions among Orbital, ORBIMAGE and MDA. On an expedited basis,
ORBIMAGE is seeking , among other things, specific performance of Orbital's
alleged obligation to temporarily refund it $20 million as discussed above.
Orbital believes it has valid defenses to those claims that ORBIMAGE and the
Creditors Committee have articulated to date and Orbital is vigorously defending
these actions.
(11) RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets," was issued in June 2001. Under SFAS No. 142,
goodwill and other intangible assets with indefinite lives are no longer
amortized, but are reviewed at least annually for impairment. A two-step
impairment test is used to first identify potential goodwill
11
impairment and second, measure the amount of goodwill impairment loss, if any.
SFAS No. 142 is effective for the company beginning in 2002, and is required to
be applied as of January 1, 2002. Any impairment loss that is recorded in
connection with the initial application of SFAS No. 142 will be reported as a
cumulative effect of a change in accounting principle. As required by SFAS No.
142, Orbital has completed the first step of the goodwill impairment test, and
has identified a potential impairment of goodwill related to its electronic
systems segment. The company has not yet completed the second step of the test
that will measure the amount of impairment loss. In accordance with SFAS No.
142, the second step of the impairment test will be completed prior to the
issuance of the consolidated financial statements for the year ending December
31, 2002, and the company expects to record a charge of up to $14 million upon
completing this test.
In accordance with SFAS No. 142, goodwill amortization was discontinued as
of January 1, 2002. The following table adjusts the reported loss from
continuing operations for the quarter and six months ended June 30, 2001 and the
related basic and diluted per share amounts to exclude goodwill amortization (in
thousands, except per share amounts):
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2001
----------------- --------------------
Reported loss from continuing operations $ (25,137) $ (47,829)
Goodwill amortization 1,441 3,016
----------------- --------------------
Adjusted loss from continuing operations $ (23,696) $ (44,813)
================= ====================
Reported loss per share from continuing operations $ (0.66) $ (1.26)
Goodwill amortization 0.04 0.08
----------------- --------------------
Adjusted loss per share from continuing operations $ (0.62) $ (1.18)
================= ====================
In April 2002, SFAS No. 145, "Rescission on FASB Statements 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections" was issued. Under
SFAS No. 145, gains and losses related to the extinguishment of debt should no
longer be segregated on the income statement as extraordinary items. Instead,
such gains and losses should be included as a component of income from
continuing operations. The provisions of SFAS No. 145 are effective for fiscal
years beginning after May 15, 2002 with early adoption encouraged. The company
is currently reviewing the provisions of SFAS No. 145 to determine the
standard's impact on the company's financial statements.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
With the exception of historical information, the matters discussed below
under the headings "Consolidated Results of Operations for the Quarters and Six
Months Ended June 30, 2002 and 2001," "Liquidity and Capital Resources" and
elsewhere in this report on Form 10-Q include forward-looking statements that
involve risks and uncertainties, many of which are beyond our control. A number
of important factors, including those identified in our Annual Report on Form
10-K for the year ended December 31, 2001 under the heading "Business - Risk
Factors Related to Our Business and Our Industry," may affect our actual results
and may cause actual results to differ materially from those anticipated or
expected in any forward-looking statement. We assume no obligation to update any
forward-looking statements.
Orbital designs, manufactures, operates and markets a broad range of
space-related systems for commercial, civil government and military customers.
Our primary products include low-orbit, geosynchronous-orbit and planetary
spacecraft for communications, remote sensing and scientific missions; ground-
and air-launched rockets that deliver satellites into orbit; and missile defense
boosters that are used as interceptor and target vehicles for missile defense
systems. We also offer space-related technical services to government agencies
and develop and build satellite-based transportation management systems for
public transit agencies and private vehicle fleet operators.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE QUARTERS AND SIX MONTHS ENDED
JUNE 30, 2002 AND 2001
Revenues - Our consolidated revenues were $135.4 million and $108.5 million
in the second quarters of 2002 and 2001, respectively, and $256.1 million and
$203.4 million for the six months ended June 30, 2002 and 2001, respectively.
Revenues increased in the quarter and six months ended June 30, 2002 as compared
to the same periods in 2001 primarily due to substantial revenue growth in our
launch vehicle business. Our satellite and related space systems business also
contributed to the increase for the first half of 2002.
Gross Profit - Our consolidated gross profit was $23.1 million and $6.6
million in the second quarters of 2002 and 2001, respectively, and $43.0 million
and $17.2 million for the six months ended June 30, 2002 and 2001, respectively.
Gross profit in the quarter and six months ended June 30, 2002 increased as
compared to the same periods in 2001 primarily as a result of increased revenues
in our launch vehicle business, increased gross profit in our satellite and
related space systems business, an improvement in profit in our electronic
systems business and the absence in 2002 of costs recorded in 2001 related to
the termination of the X-34 program.
Research and Development Expenses - Research and development expenses were
$2.2 million and $2.6 million in the second quarters of 2002 and 2001,
respectively, and $3.9 million and $4.2 million for the six months ended June
30, 2002 and 2001, respectively. These expenses related primarily to the
electronic systems segment in 2002 and to the launch vehicles and advanced
programs segment in 2001.
13
Selling, General and Administrative Expenses - Selling, general and
administrative expenses were $13.6 million and $11.1 million in the second
quarters of 2002 and 2001, respectively, and $26.6 million and $23.0 million for
the six months ended June 30, 2002 and 2001, respectively. Selling, general and
administrative expenses increased in the second quarter and the first half of
2002 as compared to the same periods in 2001 primarily as a result of the
benefit in 2001 of a favorable $3.4 million contract earnings adjustment on the
X-34 contract which was terminated in March 2001.
Goodwill Amortization - In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, which is effective for Orbital beginning
in 2002, goodwill and other intangible assets with indefinite lives are no
longer amortized, but are reviewed at least annually for impairment.
Accordingly, the amortization of goodwill was discontinued as of January 1,
2002. Goodwill amortization expense was $1.4 million and $3.0 million for the
quarter and six months ended June 30, 2001, respectively.
Interest Expense - Interest expense was $2.8 million and $6.8 million for
the second quarters of 2002 and 2001, respectively, and $5.8 million and $15.8
million for the six months ended June 30, 2002 and 2001, respectively. Interest
expense was higher in the second quarter and first half of 2001 than in the same
periods of 2002 primarily due to higher average borrowings in 2001.
Additionally, interest expense in the second quarter of 2001 included $1.2
million of accelerated amortization of prepaid financing costs related to the
permanent reduction of borrowing capacity on our prior credit facility. Interest
expense in the first half of 2001 also included $2.6 million of fees related to
an amendment of our prior credit facility.
Other income, net - Gains of $0.8 million related to foreign currency
translation and technology license fees accounted for a large portion of other
income, net in the second quarter and first half of 2002. Interest earnings on
cash equivalents and short-term investments accounted for the majority of other
income, net in the second quarter and first half of 2001.
Allocated Share of Losses of Affiliate - In the second quarter and first
half of 2001, we recognized $9.7 million and $19.0 million, respectively, or
100% of ORBIMAGE's losses and preferred stock dividends, as allocated share of
losses of affiliate. Additionally, $0.5 million and $0.9 million of other
adjustments related to our interest in ORBIMAGE were reported as allocated
shares of losses of affiliate in the second quarter and first half of 2001,
respectively. We ceased recognizing ORBIMAGE's losses after the second quarter
of 2001.
Provision for Income Taxes - We did not record an income tax expense in the
quarter or six months ended June 30, 2002 due to the availability of net
operating loss carry forwards. We did not record an income tax benefit in the
quarter or six months ended June 30, 2001 related to the loss for those periods
because such benefit could not be reasonably assured from future operating
results.
14
Discontinued Operations - We reported as discontinued operations net income
of $91.7 million and $92.8 million for the quarter and six months ended June 30,
2001, respectively, related to our divested businesses.
Net Income - Our consolidated income (loss) from continuing operations was
$5.4 million and ($25.1) million in the second quarters of 2002 and 2001,
respectively, and $7.8 million and ($47.8) million for the first half of 2002
and 2001, respectively. Net income was $5.4 million and $66.6 million in the
second quarters of 2002 and 2001, respectively, and $7.8 million and $45.0
million for the first half of 2002 and 2001, respectively.
SEGMENT RESULTS
Our products and services are grouped into three reportable segments: (i)
launch vehicles and advanced programs, (ii) satellites and related space systems
and (iii) electronic systems. All other activities of the company, as well as
consolidating eliminations and adjustments, are reported in corporate and other.
The following table summarizes revenues and income (loss) from operations for
our reportable business segments and corporate and other (in thousands):
QUARTERS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
REVENUES:
Launch Vehicles and Advanced Programs $ 63,769 $ 36,275 $ 108,470 $ 66,116
Satellites and Related Space Systems 56,519 57,799 117,347 109,469
Electronic Systems 16,035 15,086 32,042 30,020
Corporate and Other (888) (671) (1,712) (2,227)
------------- --------------- ------------- -------------
TOTAL $ 135,435 $ 108,489 $ 256,147 $ 203,378
============= =============== ============= =============
INCOME (LOSS) FROM OPERATIONS:
Launch Vehicles and Advanced Programs $ 5,722 $ 7,512 $ 9,882 $ 7,047
Satellites and Related Space Systems 192 (13,081) 292 (14,912)
Electronic Systems 1,629 337 2,869 557
Corporate and Other (301) (3,259) (600) (5,696)
------------- --------------- ------------- -------------
TOTAL $ 7,242 $ (8,491) $ 12,443 $ (13,004)
============= =============== ============= =============
Launch Vehicles and Advanced Programs - Revenues in this segment increased
in the quarter and six months ended June 30, 2002 as compared to the same
periods of 2001 primarily as a result of work on our missile defense booster
vehicle program under a multi-year contract with The Boeing Company.
Additionally, revenue in the second quarter of 2002 increased as a result of
work on a new space launch vehicle contract for an international customer.
Partly offsetting these increases in revenue was a net reduction in other space
launch vehicle revenues.
Operating income for launch vehicles and advanced programs decreased in
the second quarter of 2002 as compared to the second quarter of 2001 as a result
of a $2.0 million decrease in advanced programs operating income that was partly
offset by a $0.2 million increase in launch vehicle operating income. Operating
income for advanced programs decreased in the second quarter of 2002 as compared
to the same period in 2001 primarily due to a favorable $3.4 million contract
earnings adjustment on the X-34 program recorded in the second quarter of 2001.
Notwithstanding the overall increase in launch vehicle revenues, operating
income from our launch vehicle programs was relatively constant in the second
quarter of 2002 as compared to the
15
same period in 2001 as a result of reduced revenues on higher-margin space
launch vehicle contracts. Additionally, the absence of goodwill amortization in
2002, which was $0.4 million in the second quarter of 2001, contributed to an
improvement in launch vehicle operating income.
Operating income for launch vehicles and advanced programs increased in the
first half of 2002 as compared to the same period in 2001 as a result of a $2.2
million increase in launch vehicle operating income and a $0.6 million increase
in advanced programs operating income. Operating income for launch vehicles
increased in the first half of 2002 as compared to the same period in 2001 as a
result of the aforementioned second quarter factors, including the absence of
goodwill amortization in 2002 which was $0.8 million in the first half of 2001.
Operating income for advanced programs increased in the first half of 2002 as
compared to the same period in 2001 primarily due to the absence in 2002 of
costs incurred related to the termination of the X-34 program, which for the
first half of 2001 more than offset the aforementioned favorable $3.4 million
contract earnings adjustment.
Satellites and Related Space Systems - Revenues from satellites and related
space systems decreased slightly in the second quarter of 2002 as compared to
the same period in 2001 and increased significantly in the first half of 2002 as
compared to the same period in 2001. The increase in the first half of 2002 was
largely a result of higher revenues from our commercial geosynchronous satellite
product line. The growth in this product line is attributable to the production
of two more geosynchronous satellites in the first half of 2002 as compared to
2001. This increase in revenue was more than offset by a reduction in science
and technology satellite revenues in the second quarter of 2002 as compared to
the second quarter of 2001.
Operating income from satellites and related space systems increased
significantly in the second quarter and first half of 2002 as compared to the
same periods in 2001 primarily as a result of improved operating results on
geosynchronous satellite contracts and the ORBIMAGE procurement contract, which
generated significantly lower losses in the second quarter of 2002 as compared
to the second quarter of 2001. Results in the second quarter of 2002 include a
charge of approximately $2.5 million for increased costs related to a
geosynchronous spacecraft delivered in June and launched in July 2002 and $1.0
million of profit related to the sale of inventory previously fully reserved in
a prior year. Additionally, the absence of goodwill amortization in 2002, which
was $0.7 million and $1.5 million for the three and six months ended June 30,
2001, respectively, contributed to the improvement in satellite and related
space systems operating income.
Electronic Systems - Revenues from electronic systems increased in the
second quarter and in the first half of 2002 as compared to the same periods in
2001 primarily attributable to several new contracts for transportation
management systems.
Operating income from electronic systems increased in the quarter and six
months ended June 30, 2002 as compared to the same periods in 2001 primarily as
a result of the profit related to higher revenues in 2002 in addition to higher
average margins on new and existing contracts and the absence of goodwill
amortization in 2002, which was $0.3 million and $0.7 million, respectively, for
the quarter and six months ended June 30, 2001.
16
Corporate and Other - Corporate and other includes the elimination of
intercompany revenues. The reduction in such eliminations in the six months
ended June 30, 2002 as compared to the same period in 2001 is due primarily to
the absence in 2002 of intercompany work associated with the terminated X-34
contract.
Corporate and other operating loss includes expenses for corporate general
and administrative activities that are not allocated to the operating segments
or were attributable to discontinued operations. The reduction in such expenses
in the quarter and six months ended June 30, 2002 as compared to the same
periods in 2001 was attributable to the absence in 2002 of costs related to
discontinued operations.
BACKLOG
During the second quarter of 2002 we received $89 million in new firm
orders, and $98 million in new option backlog. During the first half of 2002 we
received $496 million in new firm orders and $651 million in new option backlog.
The major contributor to our backlog was a $930 million award, of which
approximately $307 million was firm, to supply missile defense-related vehicles
under the Ground-based Midcourse Defense Boost Vehicle missile defense contract
through the end of the decade. As a result of new orders, offset by the
expiration of several contract options and revenues recognized during the first
half of 2002, our firm and total backlog increased from $582 million and $2.55
billion, respectively, as of December 31, 2001, to $799.5 million and $2.60
billion, respectively, as of June 30, 2002. 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 includes firm backlog in addition to unexercised options,
indefinite-quantity contracts and undefinitized orders and contract award
selections. Backlog at June 30, 2002 does not give effect to new orders received
or any terminations or cancellations since that date.
LIQUIDITY AND CAPITAL RESOURCES
Although we had $57.3 million of unrestricted cash and cash equivalents as
of June 30, 2002, our liquidity has been and continues to be constrained. We
will not have sufficient cash to repay our $100 million subordinated convertible
notes that become due on October 1, 2002. Additionally, while we currently
expect that our cash on hand and our primary credit facility (discussed below)
will be sufficient to meet our operating and capital expenditure requirements in
2002, there can be no assurance that this will be the case.
During the first half of 2002, we reported net cash used in operations of
$22.6 million, which included approximately $50.0 million in payments related to
our vendor financing agreement from a launch services provider and a $13.0
million receipt from NASA as final settlement of the termination of the X-34
contract. Our investing activities used $8.7 million for capital expenditures
for the first half of 2002.
17
Our financing activities provided $25.4 million during the first half of
2002 primarily as a result of $22.4 million in net proceeds from our new credit
facility term loan discussed below. Additionally, we received $5.8 million in
the first half of 2002 from the issuance of shares of common stock under the
company's employee stock purchase plan and the exercise of stock options and
warrants. In August 2001, we issued warrants in connection with the settlement
of a class action lawsuit. The warrants are exercisable for up to 4,631,121
shares of common stock at an exercise price of $4.82 per share, for a period of
three years from the date of their issuance. During the first half of 2002, a
total of 18,522 warrants were exercised. During the first half of 2002, we made
$2.8 million of principal payments on capital leases and other debt.
On March 1, 2002, we entered into a three-year primary credit facility with
Foothill Capital Corporation ("Foothill") as arranger and agent. This facility
provides for total borrowings of up to $60 million, including (i) a $25 million
term loan (the "Term Loan") and (ii) a $35 million revolver (the "Revolver"), of
which up to $30 million may be available for borrowing based on our billed and
unbilled receivables. The Term Loan has an interest rate equal to the prime rate
publicly announced from time to time by Wells Fargo Bank, National Association
(the "Prime Rate") plus 6.00%, but not less than 11%. Borrowings under the
Revolver accrue interest at a rate equal to the Prime Rate plus 2.25 %, but not
less than 7%. Upon closing the facility, we borrowed the entire $25 million
available under the Term Loan, which provided $22.4 million in net proceeds to
us after deducting transaction fees and expenses. As of June 30, 2002, the
entire Term Loan was outstanding at an interest rate of 11%. As of June 30,
2002, there were no borrowings under the Revolver, although $18 million of the
amount available for borrowing was utilized for letters of credit and foreign
exchange forward contracts. Accordingly, $12 million of the Revolver was
available for borrowing as of June 30, 2002. The borrowings under the facility
are collateralized by all of our assets. As of June 30, 2002, we were in
compliance with loan covenants. The facility also imposes restrictions on our
ability to refinance existing indebtedness and, accordingly, Foothill's consent
will be required in order to refinance our convertible notes as discussed below.
Our $100 million subordinated convertible notes become due on October 1,
2002. We are actively pursuing alternatives in order to repay or restructure
these notes. These alternatives include seeking to raise additional equity
and/or debt capital in order to repay the notes or pursuing an exchange offer
whereby we would make an offer to the noteholders to exchange the notes for new
debt and/or equity securities. We are engaged in discussions with financial
advisors, potential investors and the existing noteholders regarding possible
transactions. Any securities offered, sold or exchanged pursuant to the
foregoing potential transactions have not been registered under the Securities
Act of 1933, as amended and may not be offered, sold or exchanged in the United
States absent registration or an applicable exemption from registration
requirements. There can be no assurance that we will successfully raise enough
capital in order to repay the notes, nor can there be any assurance that an
exchange offer on terms acceptable to us can be implemented and accepted by our
existing noteholders. A default by us on the convertible notes would also result
in a default on our new primary credit facility described above. Our ability to
continue as a going concern is contingent upon, among other factors, a
successful refinancing or restructuring of the convertible notes.
18
In each of the first and second quarters of 2002, the company paid
approximately $25 million of a $50 million vendor financing agreement that was
outstanding as of the end of 2001, thereby liquidating this obligation.
Certain international contracts and many of our electronic systems
contracts customarily require us to post performance bonds or letters of credit
pending completion of work. We had $26.2 million of standby letters of credit
outstanding at June 30, 2002, of which $10.2 million was collateralized by our
restricted cash and cash equivalents and $16 million was issued under the
Revolver.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets," was issued in June 2001. Under SFAS No. 142, goodwill
and other intangible assets with indefinite lives are no longer amortized, but
are reviewed at least annually for impairment. A two-step impairment test is
used to first identify potential goodwill impairment and second, measure the
amount of goodwill impairment loss, if any. SFAS No. 142 is effective for the
company beginning in 2002, and is required to be applied as of January 1, 2002.
Any impairment loss that is recorded in connection with the initial application
of SFAS No. 142 will be reported as a cumulative effect of a change in
accounting principle. As required by SFAS No. 142, we have completed the first
step of the goodwill impairment test, and has identified a potential impairment
of goodwill related to its electronic systems segment. We have not yet completed
the second step of the test that will measure the amount of impairment loss. In
accordance with SFAS No. 142, the second step of the impairment test will be
completed prior to the issuance of the consolidated financial statements for the
year ending December 31, 2002, and we expect to record a charge of up to $14
million upon completing this test.
In April 2002, SFAS No. 145, "Rescission on FASB Statements 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections" was issued. Under
SFAS No. 145, gains and losses related to the extinguishment of debt should no
longer be segregated on the income statement as extraordinary items. Instead,
such gains and losses should be included as a component of income from
continuing operations. The provisions of SFAS No. 145 are effective for fiscal
years beginning after May 15, 2002 with early adoption encouraged. We are
currently reviewing the provisions of SFAS No. 145 to determine the standard's
impact on our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have significant 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 on specific receivables denominated in Japanese Yen.
Accordingly, we are subject to market risk for the possibility that future
changes in market prices may make the forward exchange contracts less valuable.
At June 30, 2002, the company had foreign currency forward exchange contracts to
sell a total of 855
19
million Japanese Yen for $6.9 million. The market value of these contracts was a
$0.3 million loss as of June 30, 2002.
The fair market value of our $100 million 5% convertible subordinated notes
that are due on October 1, 2002 was $95.2 million at June 30, 2002.
We have a deferred compensation plan for senior managers and executive
officers, with a total liability balance of $4.5 million at June 30, 2002. This
liability is subject to fluctuation based upon the market value of underlying
securities.
20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 19, 2002, the Official Committee of Unsecured Creditors
appointed in the ORBIMAGE bankruptcy proceeding filed a motion in
the Bankruptcy Court for authority to conduct discovery against us
under Federal Rules of Bankruptcy Procedure 2004. The stated purpose
of the Creditors Committee in seeking such discovery is to
investigate the details of ORBIMAGE's relationship and transactions
with us in order to reveal whether claims are warranted against us
or certain of our directors, officers and former officers on
theories that might include, among others, wrongful control and
domination, breach of fiduciary duty, breach of contract, fraud and
misrepresentation.
On July 24, 2002, ORBIMAGE filed a civil action in the U.S.
Bankruptcy Court for the Eastern District of Virginia against
Orbital and two officer/directors seeking $30 million plus
unspecified damages alleging, among other things, breach of
contract, conversion of property, breach of fiduciary duty, fraud
and misrepresentation, and civil conspiracy in connection with
various transactions among Orbital, ORBIMAGE and MDA. On an
expedited basis, ORBIMAGE is seeking, among other things, specific
performance of Orbital's alleged obligation to temporarily refund it
$20 million. Orbital believes it has valid defenses to those claims
that ORBIMAGE and the Creditors Committee have articulated to date.
Orbital is vigorously defending these actions.
We are party to certain other litigation or proceedings arising in
the ordinary course of business. In the opinion of management, the
probability is remote that the outcome of any such litigation or
other proceedings would have a material adverse effect on our
results of operations or financial condition.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY- HOLDERS
(a) The annual meeting of stockholders of the Company was held on
April 25, 2002.
21
(b) Not applicable.
(c) (i) Election of four directors, each serving for a
three-year term ending in 2005:
Daniel J. Fink
Votes: For: 35,562,625
Withheld: 326,275
Robert J. Hermann
Votes: For: 35,601,982
Withheld: 286,912
Janice I. Obuchowski
Votes: For: 35,383,998
Withheld: 504,902
Frank L. Salizzoni
Votes: For: 35,340,218
Withheld: 548,682
(ii) To approve an increase in the number of shares
authorized to be issued under the Orbital Sciences
Corporation 1999 Employee Stock Purchase Plan from
1,000,000 shares to 3,000,000 shares.
For: 34,213,440
Against: 1,575,934
Abstain: 99,525
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - A complete listing of exhibits required is given in
the Exhibit Index.
(b) Reports on Form 8-K.
On July 11, 2002, the company filed a Current Report on Form
8-K, dated June 19, 2002, disclosing the filing by the
Official Committee of Unsecured Creditors of Orbital Imaging
Corporation ("ORBIMAGE") of a motion in the Bankruptcy Court
in the Eastern District of Virginia seeking authority to
conduct discovery against Orbital Sciences Corporation and
others under Federal Rule of Bankruptcy Procedure 2004.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION
DATED: July 29, 2002 By: /s/ David W. Thompson
-------------------------------------------
David W. Thompson
Chairman of the Board and
Chief Executive Officer
DATED: July 29, 2002 By: /s/ Garrett E. Pierce
-------------------------------------------
Garrett E. Pierce
Vice Chairman and Chief Financial Officer
23
EXHIBIT INDEX
The following exhibits are filed with this report unless otherwise indicated.
Exhibit No. Description
- ----------- -----------
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).
10.1 Supplemental Employment Agreement between Orbital
Sciences Corporation and Garrett E. Pierce dated
July 19, 2002. (Filed herewith)
24