Back to GetFilings.com
1
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-K
For the fiscal year ended December 31, 1997
Commission file number 0-18287
------------
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: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 (quoted on the Nasdaq National Market)
------------
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 Nasdaq National Market on March 6, 1998 was approximately $1,390,090,721.
As of March 24, 1998, 33,035,347 shares of the registrant's Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for fiscal year
ended December 31, 1997 (the "Annual Report") are incorporated by reference in
Parts I and II of this Report. Portions of the registrant's definitive Proxy
Statement dated March 24, 1998 (the "Proxy Statement") are incorporated by
reference in Part III of this Report.
===============================================================================
2
ORBITAL SCIENCES CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1997
PART I Page
----
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...................................... 13
Item 6. Selected Financial Data.................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 14
Item 8. Financial Statements and Supplementary Data................................ 14
Item 9. Changes in and Disagreements with Accountants.............................. 14
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 14
Item 11. Executive Compensation..................................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 14
Item 13. Certain Relationships and Related Transactions............................. 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 15
- -----------------
Pegasus(R) is a registered trademark and service mark of Orbital Sciences
Corporation; Taurus(R) is a registered trademark of Orbital Sciences
Corporation; Orbital(SM) is a service mark of Orbital Sciences Corporation;
OrbView(R) and ORBIMAGE(R) are registered service marks of Orbital Imaging
Corporation; ORBCOMM(R) is a registered service mark of ORBCOMM Global, L.P.;
and PathMaster(TM) is a trademark of Magellan Corporation.
3
ITEM 1. BUSINESS
BACKGROUND
Orbital Sciences Corporation (together with its subsidiaries,
"Orbital" or the "Company") is a leading space and information systems company
that designs, manufactures, operates and markets a broad range of space-related
products and services. Orbital's products and services are grouped into three
general business sectors: Space and Ground Infrastructure Systems, Satellite
Access Products and Satellite Services. Space and Ground Infrastructure Systems
include launch vehicles, satellites and related space systems, electronics and
sensor systems, and ground systems and software. Satellite Access Products
include satellite-based navigation and communications products and
transportation management systems. Satellite Services include satellite-based
two-way mobile data communications and satellite-based imagery services. Orbital
operates launch vehicle, satellite and electronics engineering, manufacturing
and test facilities in Dulles and McLean, Virginia, Germantown and Greenbelt,
Maryland and Chandler, Arizona; a launch vehicle and satellite integration and
test facility at Vandenberg Air Force Base, California; a space sensors and
instruments facility in Pomona, California; a ground systems facility in
Vancouver, British Columbia; and facilities for its navigation and
communications products in Sunnyvale and San Dimas, California and Rochester
Hills, Michigan.
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 1988, the Company has expanded its space-based
product lines and services through a number of acquisitions. For example, in
1994, Orbital acquired Fairchild Space and Defense Corporation ("Fairchild") and
Magellan Corporation ("Magellan"). The Fairchild acquisition enhanced Orbital's
satellite system and subsystem development and production capabilities and
expanded Orbital's existing product lines by adding various sophisticated
electronics products. Through the Magellan acquisition, Orbital expanded its
product lines into the commercial and consumer markets for hand-held receivers
for Global Positioning System ("GPS") satellite-based navigation and
positioning. In 1995, Orbital acquired MacDonald, Dettwiler and Associates Ltd.
("MDA"), a leading supplier of commercial, satellite-imaging ground stations and
related information processing software.
During 1997, Orbital completed several acquisitions. In July, the
Company acquired the GPS automotive navigation product line from Rockwell
International Corporation ("Rockwell"). In August, Orbital purchased the space
systems and communications service businesses of CTA INCORPORATED ("CTA"),
broadening Orbital's satellite production capabilities and enhancing its
transportation management systems. In December, Magellan merged with Ashtech
Inc. ("Ashtech"), a privately-held developer and supplier of high-performance
GPS and related satellite-based navigation products, components and
technologies. After the merger, Orbital and former Ashtech security holders own
approximately 66% and 34%, respectively, of Magellan.
In 1992, Orbital established a wholly owned subsidiary, Orbital
Imaging Corporation ("ORBIMAGE"), to develop and operate commercial Earth
imaging satellites and to market the products derived from such satellites.
ORBIMAGE raised equity in private placements of preferred stock in 1997 and
1998, and as a result Orbital owns approximately 60% of ORBIMAGE. Based on
certain rights granted to the preferred equity investors, Orbital does not
control ORBIMAGE's operational or financial affairs and therefore does not
consolidate its results of operations. See "Description of Orbital's Products
and Services -- Satellite Services."
In 1993, the Company's majority-owned subsidiary, Orbital
Communications Corporation ("OCC"), and Teleglobe Mobile Partners ("Teleglobe
Mobile"), an affiliate of Teleglobe Inc., formed ORBCOMM Global, L.P.
("ORBCOMM"), for the design, development, construction, integration, testing and
operation of a low-Earth orbit satellite communications system (the "ORBCOMM
System"). OCC and Teleglobe Mobile are each 50% general partners in ORBCOMM, and
have contributed to ORBCOMM $75,275,000 and $84,525,000, respectively, through
December 31, 1997. At December 31, 1997, OCC and Teleglobe Mobile each had a
remaining commitment to fund $15,000,000 to ORBCOMM, of which each had funded
$7,500,000 through March 23, 1998. Additionally, OCC is a 2% general partner in
ORBCOMM USA, L.P. ("ORBCOMM USA") and Teleglobe Mobile is a 2% general partner
in ORBCOMM International Partners, L.P. ("ORBCOMM International"), two
partnerships formed to market the
4
ORBCOMM System. ORBCOMM is a 98% general partner in each of the two marketing
partnerships. Orbital does not control ORBCOMM's operational or financial
affairs and therefore does not consolidate its results of operations.
For more information related to ORBCOMM and ORBIMAGE, see
"Description of Orbital's Products and Services -- Satellite Services."
DESCRIPTION OF ORBITAL'S PRODUCTS AND SERVICES
The Company's products and services are grouped into three general
business sectors: Space and Ground Infrastructure Systems, Satellite Access
Products and Satellite Services. Orbital's overall business is not seasonal to
any significant extent.
SPACE AND GROUND INFRASTRUCTURE SYSTEMS
The Company's Space and Ground Infrastructure Systems currently
include launch vehicles, satellites and related space systems, electronics and
sensor systems, and ground systems and software.
LAUNCH VEHICLES. The Company has developed and produces the Pegasus
and Taurus space launch vehicles that place small satellites into Earth orbit.
Orbital's Pegasus launch vehicle is launched from beneath the Company's Lockheed
L-1011 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 into low-Earth orbit
and payloads weighing up to 800 pounds into geosynchronous orbit.
Each of Orbital's five Pegasus missions in 1997 and one Pegasus
mission in 1998 was successful, bringing the Company's total number of Pegasus
missions to 20, with an approximate 90% success rate. The 1997 Pegasus launches
included a mission for the Spanish national space agency that was the first ever
space launch conducted from Western Europe, a successful launch of ORBIMAGE's
OrbView-2 remote imaging satellite, and the successful launch of ORBCOMM's first
plane of eight communications satellites. In February 1998, the Pegasus
successfully launched a satellite for the National Aeronautics and Space
Administration ("NASA") and a satellite for Teledesic Corporation ("Teledesic").
Orbital has successfully completed its first two Taurus missions, most recently
launching a U.S. Navy satellite and two ORBCOMM satellites in February 1998.
Customers for Pegasus launch services have included NASA, the U.S.
Air Force, ORBCOMM, ORBIMAGE, the Defense Advanced Research Projects Agency
("DARPA") and the national space agency of Brazil. Customers for Taurus launch
vehicles have included the U.S. Air Force, the U.S. Navy, South Korea's space
agency and ORBCOMM.
Under a contract with NASA, Orbital is designing and constructing
three X-34 unmanned reusable launch vehicles that are being designed to be
launched from the Company's L-1011 aircraft. The X-34 will test and demonstrate
advanced reusable launch system technologies and materials as part of NASA's
program that is focused on the development of next-generation, lower cost
reusable launch vehicles. The Company has completed the fundamental design of
the X-34 and has begun vehicle fabrication and construction.
The Company also produces 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. The Company's
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 the Company's suborbital launch vehicles to launch scientific and
other payloads above the atmosphere and for defense-related applications such as
target signature and interceptor experiments. The Company's primary customers
for suborbital launch vehicles are various branches of the U.S. military.
Orbital conducted six successful suborbital launches in 1997 and, since 1982,
the Company has performed almost 100 suborbital missions, with an approximate
97% success rate. During 1997, Orbital won a major suborbital contract with the
U.S. Air Force to combine surplus government ballistic missile equipment with
Pegasus and Taurus launch vehicle technology to conduct up to 24 space launches
and suborbital missions over the next several years. Additionally, in 1998, the
Company was one of three
-2-
5
companies awarded a suborbital launch contract by the U.S. Army with the
potential for up to 300 suborbital missions over the next 10 years, to be
allocated by the U.S. Army among the three companies.
SATELLITES AND RELATED SPACE SYSTEMS. The Company designs and
produces small and medium-class satellites to be used in low-Earth orbit ("LEO")
and small geosynchronous orbit ("GEO") satellites. The Company's satellites are
used by various commercial and governmental customers on a wide range of
commercial, scientific and military missions. Since 1982, Orbital (including two
predecessor companies) has built and delivered more than 50 satellites. In
addition, the Company is in the process of designing small and medium-class
satellites to be used in medium-Earth orbit ("MEO"). In many cases, Orbital's
small satellites have been designed to be integrated with and launched by the
Pegasus or Taurus launch vehicles, in order to reduce the cost of the overall
system.
Fifteen Orbital satellites were deployed during 1997 and in 1998
through the date hereof, including ORBIMAGE's OrbView-2 multispectral imaging
satellite and ten ORBCOMM communications satellites. Orbital is in the process
of constructing 24 additional communications satellites for ORBCOMM and two
additional remote imaging satellites for ORBIMAGE. Orbital's medium satellites,
such as NASA's TOPEX/Poseidon and the National Oceanic and Atmospherics
Administration's Landsat 4 and Landsat 5 satellites, have been in space for a
number of years and are used to gather various scientific data, such as ocean
topography and Earth imaging information. As a result of the CTA acquisition,
Orbital's first GEO satellite was successfully deployed in November 1997. This
GEO satellite, owned and operated by MediaCitra Indostar, will provide
direct-to-home television in Indonesia.
Customers for Orbital's satellites have included ORBCOMM, ORBIMAGE,
Johns Hopkins University, NASA, the U.S. Air Force and Teledesic. An Orbital
satellite was also recently selected by the Canadian Space Agency for a remote
imaging satellite project. In 1997, Orbital was selected as the satellite
manufacturer to build 17 communications satellites for the Mobile Communications
Holdings, Inc. ("MCHI") "Ellipso" global voice satellite communications system.
The Company and MCHI are currently in the early stage of negotiations for a
definitive procurement agreement. In connection with such procurement agreement,
the Company and MCHI are also discussing a possible investment by Orbital in
MCHI and/or vendor financing alternatives, which could potentially be
significant in amount.
Orbital also designs and manufactures satellite command and data
handling, attitude control and structural subsystems for a variety of government
and commercial customers, and provides a broad range of spacecraft design and
engineering services as well as specialized analytical engineering services for
NASA, the Jet Propulsion Laboratory, the Department of Defense ("DoD"), the
Department of Energy and other customers.
ELECTRONICS AND SENSOR SYSTEMS. Orbital develops, manufactures and
markets defense electronics products, including advanced avionics and data
management systems for aircraft flight operations and ground support
applications. These systems collect, process and store mission-critical data
for, among other things, mission planning and flight operations, and manage
on-board equipment for strategic and tactical aircraft and similar military
platforms. The primary customers for data management systems are the U.S. Navy,
the U.S. Air Force and various DoD prime contractors and foreign governments.
The Company is the leading supplier of certain avionics systems and products,
including mission data equipment for the U.S. Navy and data transfer equipment
and digital terrain systems for the U.S. Air Force and foreign military
customers. In addition, the Company provides stores management systems,
including weapons arming and firing functions for use on tactical aircraft and
helicopters. The avionics systems and products are deployed on a number of
platforms, including the F-4, F-14, F-15, F-16, F-18 and F-22 aircraft and the
LAMPS helicopter.
Orbital also produces satellite-borne scientific sensors and
instruments, such as atmospheric ozone monitoring instruments and environmental
sensors. For example, the Company's instruments have successfully operated in
space, measuring ozone concentrations around the world. Orbital has also
developed and produced an atmospheric monitoring system for use on the proposed
International Space Station, and sensors performing similar functions for U.S.
Navy nuclear submarines. Orbital is developing sensors for the DoD for use in
the detection of the presence of chemical or biological weapons. In addition,
Orbital's commercial base of sensor products includes the manufacturing
-3-
6
and marketing of sensors that analyze fuel properties in the chemical,
biotechnology, pharmaceutical and steel industries.
GROUND SYSTEMS AND SOFTWARE. Orbital is the leading supplier of
turn-key commercial satellite imaging ground stations and is a major provider of
advanced image processing software used in such stations. During 1997, Orbital
introduced the Fast TRACS mobile satellite ground station, which is a fully
transportable satellite ground station that can be rapidly deployed and easily
activated. In recent years, the Company's ground systems have also expanded to
include software-intensive products designed for air and sea transportation
systems, along with a variety of military applications, including naval
mine-hunting operations, artillery command and control, radar deception and
logistics support.
The Company develops, provides and upgrades commercial satellite
remote imaging ground stations and related information-processing software. Of
approximately 30 major non-military imaging satellite ground stations around the
world, Orbital has been the prime contractor or a major supplier in the
construction of 25 ground stations in 20 countries. These ground stations are
designed to receive and process data from the major civil and commercial Earth
observation satellites currently in operation. Orbital also develops and markets
software that generates and processes imagery from satellites and airborne
sensors. Customers for the Company's ground stations and Earth information
systems include the European and Canadian space agencies as well as ORBIMAGE,
EarthWatch Incorporated ("EarthWatch") and various other commercial and
government customers in the United States, Japan, Korea, Saudi Arabia, Brazil,
China, Malaysia, Taiwan and the Philippines.
The Company also produces automated aeronautical information and air
traffic control systems. Faster and less expensive to operate than traditional
manual systems, automated aeronautical information systems provide pilots and
other users with aeronautical and meteorological information on a timely basis.
Customers for the Company's aeronautical information systems products include
military and civil aviation authorities in various countries such as Australia,
Belgium, Canada, Norway, Malaysia and Switzerland.
SATELLITE ACCESS PRODUCTS
The Company's Satellite Access Products include the satellite-based
navigation, positioning and communications products of its Magellan subsidiary,
as well as certain of its transportation management systems.
SATELLITE NAVIGATION, POSITIONING AND COMMUNICATIONS PRODUCTS.
Traditionally, Magellan's product line primarily consisted of inexpensive
satellite-based navigation and positioning products for commercial and consumer
markets, including recreational marine and aviation customers and outdoor
recreational customers such as campers, hunters and hikers. In December 1997,
Orbital completed the merger of Ashtech with its Magellan subsidiary. With the
addition of the Ashtech product lines, Magellan now also develops and
manufactures GPS products that are used for professional and other
high-precision industrial applications, such as guiding aircraft under
low-visibility conditions, monitoring movements of the Earth's surface for
researchers, precision surveying for construction projects and urban planning,
and natural resource management. 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, which improves performance and accuracy.
In connection with the Ashtech merger, Orbital entered into a
stockholders' agreement with certain substantial holders of Ashtech securities
(the "Ashtech Holders"). The Ashtech Holders were granted certain rights with
respect to Magellan, including, among others, the right to (i) designate two
members of Magellan's seven-member board of directors and (ii) demand
registration of their Magellan common stock after the earlier of 180 days after
an initial public offering of the common stock of Magellan or December 31, 1999.
In July 1997, Magellan entered the emerging market for GPS-based
automotive navigation products with the purchase of the PathMaster product line
from Rockwell. PathMaster uses GPS information to provide electronic map
guidance to individual motorists. The PathMaster system is currently in use in
approximately 8,000 Hertz rental cars
-4-
7
and the product design is being enhanced with more functionality and features to
address broader private passenger vehicle and rental car markets.
Magellan also provides satellite telephones used with the INMARSAT
satellite system and has developed technology and products for the ORBCOMM
satellite data network, including a hand-held messaging communicator combining
data communication and GPS features for ORBCOMM customers.
TRANSPORTATION MANAGEMENT SYSTEMS. In addition, Orbital produces
satellite-related vehicle location and fleet management systems that have been
used primarily for metropolitan mass transit operators. The ORBTRAC
transportation management systems combine GPS vehicle tracking technology with
local-area wireless terrestrial communications to help manage public bus and
light rail systems, provide for voice and data communications and transmit
precise GPS-based location information in emergency situations. Customers for
Orbital's transportation management systems include the metropolitan mass
transit authorities in Chicago, Oakland, New York City and Baltimore, as well as
a number of other state and municipal transit systems and vehicle fleets.
SATELLITE SERVICES
In Orbital's Satellite Services sector, the Company's ORBCOMM and
ORBIMAGE affiliates are developing satellite-based services to address markets
for global two-way mobile data communications and digital imagery of the Earth's
land surface, oceans, atmosphere and weather conditions.
ORBCOMM COMMUNICATIONS SERVICES. The ORBCOMM System is designed to
provide continuous low-cost monitoring, tracking and messaging communications
coverage over most of the Earth's surface. 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 assets. The Company expects that the ability to send
and receive data and messages without the geographic limitations of existing
terrestrial communications systems will stimulate the growth of new markets for
satellite-based monitoring, tracking and messaging communications and will be
used to supplement terrestrial-based communications systems by providing
relatively low-cost wide-area geographic coverage in areas these systems are
unable to reach.
The ORBCOMM System is planned to consist of a constellation of up to
36 small LEO satellites, with a satellite control center that operates and
positions the satellites, fixed and mobile communicators used by subscribers to
transmit messages to and receive message from the satellites, and the regional
ground gateway systems that transmit and control the flow of data and message
communications and other information for the system. A gateway generally
consists of an Earth-tracking station that sends signals to and receives signals
from the satellites and a message switching system that processes the message
traffic.
Since early 1996, ORBCOMM has been providing limited commercial
service in the United States, primarily in monitoring and tracking applications,
through its first two satellites that were launched in 1995. A plane of eight
satellites was launched on a Pegasus launch vehicle in December 1997, and two
additional satellites were launched on Orbital's Taurus rocket in February 1998.
These satellites are expected to be placed into commercial service in the second
quarter of 1998. To date in the in-orbit check-out process, certain of these
satellites are generating lower than expected solar power levels, although the
Company and ORBCOMM anticipate that such power levels will be sufficient to meet
planned service requirements, and certain of these satellites have experienced
anomalies in certain radio transmitters. The Company and ORBCOMM believe they
have determined the causes of the lower power level and radio transmitter
anomalies, which they believe will be corrected in future ORBCOMM satellites,
and are developing procedures to minimize the effects of and/or bypass these
anomalies on the existing in-orbit ORBCOMM
-5-
8
satellites. There can be no assurance that the Company and ORBCOMM will be
successful in their efforts or, if unsuccessful, that ORBCOMM's commercial
operations would not be adversely affected.
The next 16 ORBCOMM satellites are expected to be launched by
mid-1998, at which time ORBCOMM will begin offering global service to its
customers. ORBCOMM is scheduled to expand its real-time global service with the
launch of eight additional satellites in mid-1999. Under the ORBCOMM System
Procurement Agreement between Orbital and ORBCOMM (the "ORBCOMM Procurement
Agreement"), Orbital is completing construction of, and will launch, the
remaining 24 satellites, all on a fixed-price basis. Consistent with industry
practices for similar contracts, the ORBCOMM Procurement Agreement contains
certain performance incentives with respect to the satellites and their
launches.
There are currently four operational U.S. gateway Earth stations
located in New York, Washington, Arizona and Georgia. Gateways are also planned
to be owned and operated by ORBCOMM licensees in strategic locations around the
world. For example, a gateway Earth station located in Italy has successfully
completed acceptance testing and is now in pre-commercial service, and gateway
Earth stations are under construction in South Korea and Japan. ORBCOMM has
agreements with several manufacturers, including Magellan, for the development
and manufacture of hand-held communicators and various types of industrial
communicators that monitor fixed and mobile assets. Subscriber communication
manufacturers also include Panasonic and Scientific Atlanta.
Orbital developed the "ORBCOMM" concept in 1990, and formed the
ORBCOMM partnership in 1993 with Teleglobe Mobile for the design, development,
construction, integration, testing and operation of the ORBCOMM System. OCC and
Teleglobe Mobile each hold a 50% interest in ORBCOMM and have invested
approximately $75,000,000 and $85,000,000, respectively, through December 31,
1997. OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA and ORBCOMM International, each with the exclusive right to market the
ORBCOMM System in the U.S. and internationally, respectively.
Pursuant to the terms of the partnership agreements, (i) OCC and
Teleglobe Mobile share equal responsibility for the operational and financial
affairs of ORBCOMM, (ii) OCC indirectly holds a 51% interest in ORBCOMM USA,
with the result that OCC controls the operational and financial affairs of
ORBCOMM USA, and (iii) Teleglobe Mobile indirectly holds a 51% interest in
ORBCOMM International, with the result that Teleglobe Mobile controls the
operational and financial affairs of ORBCOMM International. Since OCC is unable
to control, but is able to exercise significant influence over, ORBCOMM's and
ORBCOMM International's operating and financial policies, the Company accounts
for its investments in ORBCOMM and ORBCOMM International using the equity method
of accounting. Since OCC is able to control the operational and financial
affairs of ORBCOMM USA, the Company consolidates ORBCOMM USA's results of
operations.
In accordance with the equity method of accounting, Orbital
recognizes 100% of the revenues earned and costs incurred on sales of products
and services to ORBCOMM. The Company also recognizes as equity in earnings
(losses) of affiliates its proportionate share of ORBCOMM's profits and losses.
ORBCOMM is currently capitalizing substantially all system construction costs,
including amounts paid to Orbital. To the extent ORBCOMM capitalizes its
purchases from Orbital, the Company eliminates as equity in earnings (losses) of
affiliates approximately 50% (the Company's current equity ownership in ORBCOMM)
of its profits and losses from sales to ORBCOMM.
The Company believes that ORBCOMM, which has a highly leveraged
capital structure, will require additional funding in 1998, and ORBCOMM is
currently in the process of exploring financing alternatives to complete the
construction of the ORBCOMM System and to fund its initial operations. Such
alternatives include, but are not limited to, additional capital contributions
from its existing partners, vendor financing, equity or debt transactions and
other strategic alternatives. There can be no assurance that any financing will
be completed or be available on terms commercially acceptable to ORBCOMM.
Orbital is committed to provide up to an additional $15,000,000 to ORBCOMM, of
which $7,500,000 has been funded so far in 1998. In addition, Orbital has
provided approximately $24,000,000 in vendor financing to ORBCOMM (one-half of
which has been advanced to Orbital by an affiliate of Teleglobe Inc.) and
expects this amount to increase.
-6-
9
Orbital anticipates that start-up of the ORBCOMM System will produce
substantial operating losses for several more years. The ORBCOMM System is
subject to various technological risks and limitations inherent in any
satellite-based communications system. Even if the ORBCOMM System is fully
constructed and operational, there can be no assurance that an adequate market
will develop for ORBCOMM services, that ORBCOMM will achieve profitable
operations or that Orbital will recover its past or anticipated investment in
ORBCOMM.
ORBIMAGE IMAGERY SERVICES. ORBIMAGE operates, and is further
developing, a fleet of satellites that collect, process and distribute digital
imagery of the Earth's surface (land and oceans), the atmosphere and weather
conditions. Small Earth-viewing satellites and related sensors and instruments
placed in low-Earth orbits are planned to offer cost-efficient image collection
and processing, together with daily global coverage and high-resolution imaging
quality.
In April 1995, ORBIMAGE launched its first satellite, OrbView-1,
which provides dedicated weather-related imagery and meteorological products to
NASA and other U.S. government-related users. ORBIMAGE's second satellite,
OrbView-2, was launched in August 1997 on a Pegasus vehicle and is used by
ORBIMAGE to deliver high-quality multi-spectral (color and infra-red) ocean
imagery and land surface imagery to government and commercial customers.
ORBIMAGE is in the process of completing the design of two high-resolution
imaging satellites, OrbView-3 and OrbView-4, which are being developed to
provide high-spatial resolution and, in the case of OrbView-4, hyper-spectral
(enhanced color and infra-red) imagery. OrbView-3 and OrbView-4 are scheduled to
be launched in 1999 and 2000, respectively. The Company believes that OrbView-3
and OrbView-4 will be among the first commercial satellites with high-resolution
imagery capability and that OrbView-4 will be the world's first satellite with
commercially available hyper-spectral capability.
Under the ORBIMAGE System Procurement Agreement between Orbital and
ORBIMAGE (the "ORBIMAGE Procurement Agreement"), Orbital is designing,
manufacturing and providing the launch service for the OrbView-3 and OrbView-4
satellites, and is constructing the related ground segment, generally on a
fixed-price basis. Consistent with industry practices for similar contracts, the
ORBIMAGE Procurement Agreement contains certain performance incentives with
respect to the satellites and their launches. Orbital also provides ORBIMAGE
with general, administrative and technical support pursuant to an Administrative
Services Agreement. These services are provided on a cost-reimbursable basis or,
in some cases, a cost plus fee basis.
In February 1998, ORBIMAGE completed a private financing of
$150,000,000 of units consisting of 11 5/8% Senior Notes due 2005 and warrants
to purchase an aggregate of approximately 3% of ORBIMAGE's outstanding common
stock. Concurrently, the existing preferred stockholders in ORBIMAGE exercised
an option to purchase additional preferred stock of ORBIMAGE, resulting in net
proceeds to ORBIMAGE of approximately $21,000,000.
Currently, Orbital owns approximately 60% of ORBIMAGE, with the
remainder owned by a group of 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, Orbital does not control the operational and financial affairs of
ORBIMAGE. As a consequence, Orbital accounts for its investment in ORBIMAGE
using the equity method, recognizing revenues earned and costs incurred on sales
of products and services and its proportionate share (approximately 75% at
December 31, 1997 and approximately 60% following the February 1998 transactions
described in the preceding paragraph) of ORBIMAGE profits and losses, in the
manner described above under "-- ORBCOMM Communications Services." In addition,
the preferred stockholders have certain demand registration rights with respect
to their shares after June 30, 2002. As of December 31, 1997, Orbital had
invested approximately $89 million in ORBIMAGE. Orbital anticipates that
ORBIMAGE will incur operating losses at least in the near term. There can be no
assurance that an adequate market will develop for ORBIMAGE's products and
services, that it will achieve profitable operations or that Orbital will
recover its investment in ORBIMAGE.
* * * *
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
-7-
10
Notes to the Company's Consolidated Financial Statements set forth in the
Company's Annual Report, 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, reliability,
scheduling, customization and price.
The primary domestic competition for the Pegasus and Taurus launch
vehicles comes from the Athena launch vehicles developed by Lockheed Martin
Corporation ("Lockheed"). In addition, Pegasus may face competition from launch
systems derived from U.S. government surplus ballistic missiles. The Israeli
Shavit vehicle and other potential foreign launch vehicles could also pose
competitive challenges to Pegasus, although U.S. government policy currently
prohibits the launch of foreign vehicles from U.S. territory. Competition for
Taurus could come from surplus Titan II launch vehicles, although a very limited
inventory remains, and from the Russian Cosmos SL-8 launch vehicle. Competition
to Pegasus and Taurus vehicles also exists in the form of partial or secondary
("piggyback") payload capacity on larger boosters such as the Ariane, Atlas and
Delta launch vehicles. Orbital's primary competitors in the suborbital launch
vehicle product line are Coleman Research Corporation, Lockheed and Space Vector
Corporation.
The Company's satellites and satellite subsystems products compete
with products and services produced or provided by government entities and
numerous private entities, including TRW Inc., Ball Aerospace and Technology
Corporation, Lockheed, GM Hughes Electronics Corporation ("Hughes"), Spar
Aerospace Limited and Spectrum Astro, Inc. The Company's airborne and
ground-based electronics systems, including defense-oriented data management
systems, defense-oriented avionics products and imagery processing systems,
aviation systems and space sensors and instruments face competition from several
established manufacturers, including Smiths Industries, Lockheed Sanders and
Honeywell Inc. The Company's main competitors in the area of satellite ground
stations include Datron Systems Inc., Matra Marconi Space N.V. and Raytheon
Corp. The Company's Satellite Access Products primarily face competition from
Trimble Navigation Ltd., Garmin International, Lowrance Electronics, Philips
Automotive Electronics, Alpine Electronics and several other producers. The main
competitors with Orbital's transportation management systems are Rockwell,
Harris Corporation and TMS (Raytheon).
ORBCOMM, which provides satellite-based data communications
services, may face competition from numerous existing and proposed
satellite-based and terrestrial systems providing data communications services.
ORBIMAGE may face competition from U.S. and foreign governmental entities, and
private entities including Space Imaging EOSAT, EarthWatch and SPOT Image, that
provide or are seeking to provide satellite-based or aerial imagery products.
Many of the Company's competitors are larger and have substantially
greater resources than the Company. Furthermore, the possibility exists 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 those of the Company. Any such
foreign competitor could benefit from subsidies from, or other protective
measures by, its home country.
RESEARCH AND DEVELOPMENT
The Company expects to continue to 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, strategic partner investments in these products and services.
Orbital's research and development expenses, excluding direct customer-funded
development, were approximately $26.4 million, $22.2 million and $28.5 million,
respectively, for the fiscal years ended December 31, 1997, 1996 and 1995.
-8-
11
PATENTS AND TRADEMARKS
Orbital relies, in part, on patents, trade secrets and design and
production know-how to develop and maintain its competitive position and
technological advantage. The Company holds U.S. and foreign patents relating to
the Pegasus vehicle, U.S. patents relating to certain components of the ORBCOMM
satellites, U.S. patents relating to certain of its GPS products, as well as
patents for other systems and products produced by the Company. The Company also
has various pending patent applications relating to Pegasus, the ORBCOMM System
and its GPS products along with other products. Certain of the trademarks and
service marks used in connection with the Company's 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.
COMPONENTS, RAW MATERIALS AND CARRIER AIRCRAFT
Orbital purchases a significant percentage of its product
components, including rocket propulsion motors, structural assemblies,
electronic equipment and computer chips, from third parties. Orbital also
occasionally obtains from the U.S. government parts and equipment that are used
in the production of the Company's products or in the provision of the Company's
services. Orbital has not experienced material difficulty in obtaining product
components or necessary parts and equipment and believes that alternative
sources of supply would be available, although increased costs and possible
delays could be incurred in securing alternative sources of supply. The
Company's ability to launch its Pegasus vehicle, the X-34 vehicle and certain
new suborbital vehicles depends on the availability of an aircraft with the
capability of carrying and launching such launch vehicles. In June 1997, Orbital
purchased the modified Lockheed L-1011 used for its Pegasus vehicle. Prior to
that date, Orbital had leased the L-1011 since 1991 from a commercial lending
institution. In the event that the L-1011 were to be unavailable, Orbital 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 1997, 1996 and 1995, approximately 38%, 45% and 40%,
respectively, of the Company's 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 Orbital's 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 Orbital's financial condition or results of
operations. Agencies within the U.S. government and commercial customers to
which sales by the Company accounted for ten percent or more of the Company's
consolidated 1997 revenues were NASA, DoD and ORBIMAGE.
The accuracy and appropriateness of Orbital's direct and indirect
costs and expenses under its 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 Orbital's cost estimates or allocations with respect to any such
contract. Additionally, a substantial portion of payments to the Company under
U.S. government contracts are provisional payments that are subject to potential
adjustment upon audit by such agencies. Orbital believes that any adjustments
likely to result from inquiries or audits of its contracts will not have a
material adverse impact on its financial condition or results of operations.
Since Orbital's inception, it has 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. Risk of loss due to increased
cost, therefore, is borne by the Company, although some of this risk may be
passed on to subcontractors. Under fixed-price government contracts, Orbital may
receive progress payments, generally in an amount equal to between 80% and 95%
of monthly costs and profits, or it may receive milestone payments upon the
occurrence of certain program achievements, with final payments occurring at
project completion.
-9-
12
Fixed-price incentive fee contracts provide for sharing by the customer and the
Company 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
the Company, although some of this risk may be passed on to subcontractors.
Under a cost-plus-fee contract, Orbital recovers its actual allowable costs
incurred and receives 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 Company's performance in terms of the
criteria stated in the contract.
All Orbital's U.S. government contracts and, in general, its
subcontracts with the U.S. government's prime contractors provide that such
contracts may be terminated at will by the U.S. government or the prime
contractor (at the request of the U.S. government), respectively. Furthermore,
any of these contracts may become subject to a government-issued stop work order
under which the Company would be required to suspend production. In the event of
a termination at will, Orbital would normally be entitled to recovery of the
purchase price for delivered items, reimbursement for allowable costs for work
in process and an allowance for reasonable profit thereon or adjustment for loss
if completion of performance would have resulted in a loss. The Company from
time to time experiences contract suspensions and terminations.
REGULATION
The ability of Orbital to pursue its 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 (the "DoT")
and operation by Orbital of its L-1011 aircraft requires licenses from certain
agencies of the DoT, including the Federal Aviation Administration.
Construction, launch and operation of commercial communications satellites,
including the satellite-based two-way data communications network to be provided
by ORBCOMM, require licenses from the U.S. Federal Communications Commission
(the "FCC") and frequently require the approval of international and individual
country regulatory authorities. ORBCOMM has its necessary FCC regulatory
authority to operate its system but still must obtain certain foreign regulatory
approvals. In addition, commercial remote imagery satellite systems such as
ORBIMAGE require licenses from the U.S. Department of Commerce (the "DoC") and
the FCC for the construction, launch and operation of remote imaging satellites.
ORBIMAGE has its DoC remote sensing licenses and has filed an application with
the FCC for a license to construct, launch and operate the OrbView-3 and
OrbView-4 satellites. Exports of Orbital's products, services and technical
information frequently require licenses from the U.S. Department of State or the
DoC. There can be no assurance that the Company will continue to be successful
in its efforts to obtain necessary licenses or regulatory approvals. The
inability of the Company, ORBCOMM or ORBIMAGE to secure any necessary licenses
or approvals could have a material adverse effect on the financial condition or
results of operations of the Company.
BACKLOG
Orbital's contract backlog is attributable to its Space and Ground
Infrastructure Systems business. The Company's firm backlog at December 31, 1997
and 1996 was approximately $1,040,000,000 and $710,000,000, respectively. As of
December 31, 1997, approximately 50% of the Company's backlog was with the U.S.
government and its agencies or from subcontracts with the U.S. government's
prime contractors. 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 in the amounts of approximately $435,000,000 and
$265,000,000 as of December 31, 1997 and 1996, respectively. Approximately
$550,000,000 of backlog is currently scheduled to be performed beyond 1998. Firm
backlog excludes unexercised contract options and undefinitized contracts having
an aggregate potential contract value at December 31, 1997 of approximately
$1,900,000,000.
-10-
13
EMPLOYEES
As of December 31, 1997, Orbital had nearly 4,000 full-time
permanent employees. The Company does not have any collective bargaining
agreements with its employees and believes its employee relations are good.
ITEM 2. PROPERTIES
Orbital owns or leases over 1.5 million square feet of office,
engineering and manufacturing space in various locations throughout the world.
In 1993, Orbital entered into a 12-year lease agreement for approximately
100,000 square feet of office and engineering space in Dulles, Virginia, which
serves as its corporate headquarters. The Company owns an approximately 59,200
square-foot satellite development facility on land adjacent to the Dulles office
facility for engineering and manufacturing space. Orbital also leases
approximately 73,000 square feet of office, engineering and manufacturing space
in McLean, Virginia; 350,000 square feet of office, engineering and
manufacturing space in Germantown, Maryland; 310,000 square feet of office,
engineering and manufacturing space in Chandler, Arizona; 181,000 square feet of
office and engineering space in Richmond, British Columbia; 135,000 square feet
of office, engineering and manufacturing space in Pomona, California; 75,000
square feet of office, engineering and manufacturing space in San Dimas,
California; and 74,000 square feet of office, engineering and manufacturing in
Sunnyvale, California. The Company leases or owns other smaller facilities,
offices or manufacturing space around the United States, including Huntsville,
Alabama; Edwards Air Force Base, California; Vandenberg Air Force Base,
California; Beltsville, Greenbelt and Lanham, Maryland; Rochester Hills,
Michigan; and Plano, Texas. The Company also leases or owns smaller facilities,
offices or manufacturing space in locations around the world including Canada,
England, Russia and Indonesia. Although completion of the Company's existing and
pending contracts may in the future require additional manufacturing capacity,
Orbital believes that its existing facilities are adequate for its near-term
requirements.
ITEM 3. LEGAL PROCEEDINGS
On October 10, 1996, Thomas van der Heyden, a former employee of
CTA, filed a lawsuit in the Circuit Court for Montgomery County, Maryland
against CTA and certain of its subsidiaries alleging that such companies
breached a profit sharing agreement with respect to the satellite contract for
PT MediaCitra Indostar, and initially seeking $30 million in compensatory
damages and $150 million in punitive damages. The dispute is now in arbitration.
As a result of the CTA acquisition, Orbital acquired the stock of the
subsidiaries that are parties to the proceedings. Under the terms of the CTA
acquisition, CTA has agreed to indemnify Orbital against damages arising from
the arbitration proceeding. The case was heard by a board of arbitrators in
February 1998 and a decision is pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote of the Company's security
holders during the fourth quarter of 1997.
-11-
14
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, 1998. All Executive Officers
are appointed annually and serve at the discretion of the Board of Directors.
Name Age Position
- ---- --- --------
David W. Thompson...................... 43 Chairman of the Board, President and Chief Executive Officer
James R. Thompson...................... 61 Director, Executive Vice President and General Manager/Launch
Systems Group
Robert R. Lovell....................... 60 Executive Vice President and General Manager/Space Systems Group
Robert D. Strain....................... 41 Executive Vice President and General Manager/Electronics and Sensor
Systems Group
Daniel E. Friedmann.................... 41 Executive Vice President and General Manager/Systems Integration and
Software Group
Charles M. Boesenberg.................. 49 Executive Vice President and General Manager/Satellite Access Products
Group; President and Chief Executive Officer of Magellan
Michael D. Griffin..................... 48 Executive Vice President and Chief Technical Officer
Jeffrey V. Pirone...................... 37 Executive Vice President and Chief Financial Officer
Leslie C. Seeman....................... 45 Senior Vice President, General Counsel and Secretary
Antonio L. Elias....................... 48 Senior Vice President and General Manager/Advanced Programs Group
David W. Thompson is co-founder of Orbital and has been Chairman of
the Board, President and Chief Executive Officer of the Company since 1982.
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 at the Charles Stark Draper Laboratory on the Space
Shuttle's autopilot design. Mr. Thompson serves as Chairman of the Board and
Chief Executive Officer of ORBIMAGE, as Chairman of Magellan, and as a Director
of ORBCOMM, each an Orbital affiliate.
James R. Thompson (who is not related to David W. Thompson) has been
Executive Vice President and General Manager/Launch Systems Group since 1993 and
a Director of the Company since 1992. 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. He 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 SPACEHAB Incorporated and
Nichols Research Corp.
Robert R. Lovell has been Executive Vice President and General
Manager/Space Systems Group since 1997. From 1994 to 1997, he was Senior Vice
President for Special Projects at Orbital. Mr. Lovell previously served as
Executive Vice President and General Manager/Space Systems Group from 1993 to
1994. From 1990 to 1993, he was President/Space Systems Division of Orbital and,
from 1987 to 1989, he served as Vice President/Space Applications. From 1980 to
1987, Mr. Lovell was employed by NASA as Director of the Communications Division
in the Office of Space Science and Applications. Before that, he had an 18-year
career with NASA at the Lewis Research Center.
Robert D. Strain has been Executive Vice President and General
Manager/Electronics and Sensor 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,
including Vice President of Finance, Treasurer and Controller. Before joining
Fairchild, Mr. Strain held several senior financial positions with NWL Control
Systems.
Daniel E. Friedmann has been Executive Vice President and General
Manager/Systems Integration and Software Group since 1996. He also continues to
serve as President and Chief Executive Officer of Orbital's Canadian subsidiary,
MDA, a position he has held since 1995. From 1992 to 1995, he served as
Executive Vice President and
-12-
15
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.
Charles M. Boesenberg has been President and Chief Executive Officer
of Magellan and Executive Vice President and General Manager, Satellite Access
Products since January 1998, upon the merger of Ashtech with Magellan. From 1994
until 1997, Mr. Boesenberg was President, Chief Executive Officer and a director
of Ashtech. From 1992 to 1994, Mr. Boesenberg was Chairman of the Board,
President and Chief Executive Officer of Central Point Software, Inc. From 1991
to 1992, Mr. Boesenberg was President of MIPS Computer Systems, Inc. ("MIPS"), a
semiconductor and computer systems company, now a subsidiary of Silicon
Graphics, Inc. He joined MIPS in 1989 as Executive Vice President of Marketing.
From 1987 to 1989, Mr. Boesenberg was Senior Vice President, U.S. Sales and
Marketing of Apple Computer, Inc.
Michael D. Griffin has been Executive Vice President and Chief
Technical Officer since 1997. From 1996 to 1997, Dr. Griffin served as Executive
Vice President and General Manager/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.
Jeffrey V. Pirone has been Executive Vice President and Chief
Financial Officer since January 1998, and was Senior Vice President and Chief
Financial Officer since 1996. From 1993 until 1996, Mr. Pirone served as Vice
President and Controller of Orbital. Mr. Pirone joined Orbital as Controller in
1991, and prior to that was a Senior Manager at KPMG Peat Marwick LLP.
Leslie C. Seeman has been Senior Vice President of the Company since
1993 and General Counsel and Secretary of the Company since 1989. From 1989 to
1993, Ms. Seeman was Vice President of the Company, and from 1987 to 1989, she
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.
Antonio L. Elias has been Senior Vice President and General
Manager/Advanced Programs Group since 1997. From 1996 until 1997, Dr. Elias
served as Senior Vice President and Chief Technical Officer of Orbital. From
1993 through 1995 he was Senior Vice President for Advanced Projects and was
Senior Vice President/Space Systems Division from 1990 to 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
On March 24, 1998, there were 1,351 Orbital stockholders of record.
Additional information required by this Item is included under the captions
"Market Information" and "Corporate Information - Dividends" of the Annual
Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is included under the caption
"Selected Consolidated Financial Data" of the Annual Report and is incorporated
herein by reference.
-13-
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Annual Report and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in pages 31
through 65 of the Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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
1998 Annual Meeting, "-- Directors Whose Terms Expire in 1999" and "--
Directors Whose Terms Expire in 2000" and "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Proxy Statement filed pursuant to Regulation 14A on
March 24, 1998 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 March 24, 1998 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 March 24, 1998 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 March 24, 1998 and is incorporated herein by reference.
-14-
17
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 KPMG Peat
Marwick LLP, appearing in the portions of the Annual
Report, filed as Exhibit 13, are filed as a part of this
report:
A. Independent Auditors' Report (Annual
Report page 41)
B. Consolidated Statements of Earnings
(Annual Report page 42)
C. Consolidated Balance Sheets (Annual
Report page 43)
D. Consolidated Statements of Stockholders'
Equity (Annual Report page 44)
E. Consolidated Statements of Cash Flows
(Annual Report page 45)
F. Notes to Consolidated Financial
Statements (Annual Report pages 46
through 65)
2. FINANCIAL STATEMENTS OF 50% OWNED SUBSIDIARY AND
FINANCIAL STATEMENT SCHEDULES.
A. The financial statements of ORBCOMM
Global, L.P. are transmitted with this
report.
B. The following additional financial
data for the Company are transmitted
with this report and should be read
in conjunction with the Company's
Consolidated Financial Statements in
the Annual Report. Schedules other
than those listed below have been
omitted because they are
inapplicable or are not required.
Independent Auditors' Report on
Consolidated Financial Statement
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
(i) On October 1, 1997, the Company filed a Current Report on
Form 8-K reporting, pursuant to Item 9, the sale of
equity securities pursuant to Regulation S under the
Securities Act of 1933, as amended.
(ii) On December 8, 1997, the Company filed a Current Report
on Form 8-K reporting, pursuant to Item 5, the merger of
Magellan and Ashtech.
(c) See Item 14(a)(3) of this report.
(d) See Item 14(a)(2) of this report.
-15-
18
SIGNATURE
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.
ORBITAL SCIENCES CORPORATION
DATED: March 26, 1998 By /s/ David W. Thompson
---------------------------------------
David W. Thompson, Chairman of the Board,
President 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: March 26, 1998
Signature: Title:
/s/ David W. Thompson Chairman of the Board, Chief Executive
- --------------------------------- Officer and Director (Principal Executive
David W. Thompson Officer)
/s/ Jeffrey V. Pirone Executive Vice President and Chief Financial
- --------------------------------- Officer (Principal Financial Officer)
Jeffrey V. Pirone
/s/ Michael P. Keegan Vice President and Controller
- ---------------------------------
Michael P. Keegan
/s/ Fred C. Alcorn Director
- ---------------------------------
Fred C. Alcorn
/s/ Kelly H. Burke Director
- ---------------------------------
Kelly H. Burke
/s/ Bruce W. Ferguson Director
- ---------------------------------
Bruce W. Ferguson
/s/ Daniel J. Fink Director
- ---------------------------------
Daniel J. Fink
/s/ Lennard A. Fisk Director
- ---------------------------------
Lennard A. Fisk
-16-
19
/s/ Jack L. Kerrebrock Director
- ---------------------------------
Jack L. Kerrebrock
/s/ Douglas S. Luke Director
- ---------------------------------
Douglas S. Luke
/s/ John L. McLucas Director
- ---------------------------------
John L. McLucas
/s/ Janice I. Obuchowski Director
- ---------------------------------
Janice I. Obuchowski
/s/ Frank L. Salizzoni Director
- ---------------------------------
Frank L. Salizzoni
Director
- ---------------------------------
Harrison H. Schmitt
/s/ James R. Thompson Director
- ---------------------------------
James R. Thompson
/s/ Scott L. Webster Director
- ---------------------------------
Scott L. Webster
-17-
20
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 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).
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).
10.1 Second Amended and Restated Credit Agreement, dated as of August 5, 1997 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 Report on
Form 10-Q for the quarter ended September 30, 1997).
10.1.1 Amendment No. 1 to the Credit Agreement, dated as of December 19, 1997 (transmitted
herewith).
10.1.2 Amendment No. 2 to the Credit Agreement, dated as of December 31, 1997 (transmitted
herewith).
10.2 Note Agreement, dated as of June 14, 1995 between the Corporation and The
Northwestern Mutual Life Insurance Company (the "NWML Note Agreement")
(incorporated by reference to Exhibit 4.7.1 to the Company's Report on Form 10-Q for
the quarter ended June 30, 1995).
10.2.1 1st Amendment to the NWML Note Agreement, dated as of June 30, 1995, between the
Corporation and The Northwestern Mutual Life Insurance Company (incorporated
by reference to the Company's 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).
-18-
21
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 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 (transmitted
herewith).
10.3 Promissory Notes dated as of August 31, 1994 made by Fairchild Space and Defense
Corporation and Corporate Guaranty dated August 31, 1994 made by the Company
(incorporated by reference to Exhibit 10.7 to the Company's Report on Form 10-Q for
the quarter ended September 30, 1994).
10.4 Amended and Restated Security Agreement dated as of August 5, 1997 among the
Company, Morgan Guaranty Trust Company, as Collateral Agent, and NationsBank, N.A.,
as Designated Lockbox Bank (incorporated by Reference to Exhibit 10.4 to the
Company's Report on Form 10-Q for the quarter ended September 30, 1997).
10.4.1 Security Agreement dated as of August 5, 1997 among the Company, Morgan Guaranty
Trust Company, as Collateral Agent, and NationsBank, N.A., as Designated Lockbox
Bank (incorporated by Reference to Exhibit 10.4.1 to the Company's Report on Form
10-Q for the quarter ended September 30, 1997).
10.5 Master Security Agreement dated as of August 31, 1994 between Fairchild Space and
Defense Corporation and General Electric Capital Corporation (incorporated by
reference to Exhibit 10.7 to the Company's Report on Form 10-Q for the Quarter
ended September 30, 1994).
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 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 Report on Form 10-Q for the quarter ended June 30, 1995).*
10.8 Orbital Communications Corporation Restated 1992 Stock Option Plan, restated as
of September 12, 1995 (incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.8.1 Amendment to Orbital Communications Corporation Restated 1992 Stock Option Plan,
dated February 5, 1997 (incorporated by reference to Exhibit 10.8.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996).*
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 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 Form of Executive Employment Agreement entered into between the Company and
Executive Officers and certain other Officers of the Company (incorporated by
reference to Exhibit 10.17 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).*
-19-
22
10.12.1 Performance Share Agreement dated October 23, 1996 between the Company and Mr. D.
W. Thompson (incorporated by reference to Exhibit 10.12.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996).*
10.12.2 Amendment No. 1 to Performance Share Agreement dated January 30, 1998 between the
Company and Mr. D. W. Thompson (transmitted herewith).*
10.13 Form of Indemnification Agreement entered into between the Company and Directors,
Executive Officers and certain other Officers of the Company (incorporated by
reference to Exhibit 10.18 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).*
10.13.1 Amendment dated October 22, 1992 to form of Indemnification Agreement entered
into between the Company and Directors, Executive Officers and certain other
Officers of the Company (incorporated by reference to Exhibit 19 to the Company's
Report on Form 10-Q for the Quarter Ended September 30, 1992).*
10.14 Promissory Note of the Company payable to the order of Deutsche Bank AG dated
July 8, 1996 (transmitted herewith).
10.15 Restated Master Agreement, dated as of September 12, 1995, by and among the
Company, OCC, Teleglobe Inc. and Teleglobe Mobile Partners (incorporated by
reference to Exhibit 10 to ORBCOMM Global L.P.'s Registration Statement on Form
S-4 (File Number 333-11149) filed on August 30, 1996).
10.15.1 Amendment No. 1 to Restated Master Agreement, restated as of September 12, 1995,
by and among the Company, OCC, Teleglobe Inc. and Teleglobe Mobile Partners filed
on August 30, 1996 (incorporated by reference to Exhibit 10.15.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).
10.16 Restated Agreement of Limited Partnership of ORBCOMM Global, L.P., dated as of
September 12, 1995, between OCC and Teleglobe Mobile Partners (incorporated by
reference to Exhibit 3.2 to ORBCOMM Global L.P.'s Registration Statement on Form
S-4 (File Number 333-11149) filed on August 30, 1996).
10.16.1 Amendment No. 1 to Restated Agreement of Limited Partnership of ORBCOMM Global,
L.P., dated December 2, 1996 (incorporated by reference to Exhibit 10.16.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).
10.17 Restated Agreement of Limited Partnership of ORBCOMM USA, L.P., dated as of
September 12, 1995 between Orbital Communications Corporation and ORBCOMM Global
(incorporated by reference to Exhibit 3.4 to ORBCOMM Global L.P.'s Registration
Statement on Form S-4 (File Number 333-11149) filed on August 30, 1996).
10.18 Orbital Sciences Corporation 1997 Stock Option and Incentive Plan (incorporated
by reference to Exhibit 10.19 to the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1997).
10.19 Promissory Note dated June 27, 1997 from the Company payable to the order of
General Electric Capital Corporation ("GECC") (transmitted herewith).
10.20 Aircraft Security Agreement dated as of June 27, 1997 from the Company to GECC
(transmitted herewith).
11 Statement re: Computation of Earnings Per Share (transmitted herewith).
13.1 Portions of the 1997 Annual Report to Stockholders (transmitted herewith).
13.2 ORBCOMM Global, L.P. financial statements (transmitted herewith).
21 Subsidiaries of the Company (transmitted herewith).
-20-
23
23.1 Consent of KPMG Peat Marwick LLP (transmitted herewith).
27 Financial Data Schedule for year ended December 31, 1997 (such schedule is
furnished for the information of the Securities and Exchange Commission and is
not to be deemed "filed" as part of the Form 10-K, or otherwise subject to the
liabilities of Section 18 of the Securities Exchange Act of 1934) (transmitted
herewith).
- ----------------------
* Management Contract or Compensatory Plan or Arrangement.
-21-
24
Independent Auditors' Report
The Board of Directors and Stockholders
Orbital Sciences Corporation:
Under date of February 4, 1998, we reported on the consolidated balance sheets
of Orbital Sciences Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, as contained in the 1997 annual report to stockholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year 1997. In connection
with our audits of the aforementioned consolidated financial statements, we
also audited the related consolidated financial statement schedule as listed in
Item 14(a)2 in the Company's Form 10-K as of December 31, 1997 and 1996, and
for each of the years in the three-year period ended December 31, 1997. 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 audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Washington, D.C.
February 4, 1998
25
ORBITAL SCIENCES CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------------------------------
CHARGED/
BALANCE AT CHARGED TO COSTS CREDITED TO
DESCRIPTION START OF PERIOD AND EXPENSES OTHER ACCOUNTS (1)
- ------------------------------------------------- -------------------------- ------------------- --------------------
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts $ 778 $ 189 $ -
Allowance for obsolete inventory 3,936 580 -
Allowance for unrecoverable investments 3,100 - -
Deferred income tax valuation reserve 41,291 21,445 (2,695)
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ 773 $ 603 $ -
Allowance for obsolete inventory 3,778 667 685
Allowance for unrecoverable investments 1,100 - -
Deferred income tax valuation reserve 60,041 - -
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts $ 1,368 $ 709 $ 6,550
Allowance for obsolete inventory 5,098 1,527 4,902
Allowance for unrecoverable investments 1,100 729 3,057
Deferred income tax valuation reserve 52,233 - -
COLUMN A COLUMN D COLUMN E
- -------------------------------------------------------------------------------------------------
BALANCE AT
DESCRIPTION DEDUCTIONS (2) END OF PERIOD
- ------------------------------------------------- ------------------- -------------------
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts $ (194) $ 773
Allowance for obsolete inventory (738) 3,778
Allowance for unrecoverable investments (2,000) 1,100
Deferred income tax valuation reserve - 60,041
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ (8) $ 1,368
Allowance for obsolete inventory (32) 5,098
Allowance for unrecoverable investments - 1,100
Deferred income tax valuation reserve (7,808) 52,233
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts $ (550) $ 8,077
Allowance for obsolete inventory (627) 10,900
Allowance for unrecoverable investments - 4,886
Deferred income tax valuation reserve (14,535) 37,698
(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.
(2) - Reduction of related allowance account.