SECURITIES AND EXCHANGE COMMISSION
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2003
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-14279
ORBITAL SCIENCES CORPORATION
| Delaware | 06-1209561 | |
| (State of Incorporation of Registrant) | (I.R.S. Employer Identification No.) |
21839 Atlantic Boulevard
Dulles, Virginia 20166
(Address of principal executive offices)
(703) 406-5000
(Registrant’s telephone number, including area code)
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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
As of July 22, 2003, 47,310,541 shares of the registrant’s Common Stock were outstanding.
PART 1
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| June 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
| (unaudited) | ||||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 71,778 | $ | 43,440 | ||||||||
Restricted cash and cash equivalents |
10,293 | 10,301 | ||||||||||
Receivables, net |
102,286 | 135,176 | ||||||||||
Inventories, net |
15,974 | 17,136 | ||||||||||
Other current assets |
9,521 | 8,764 | ||||||||||
Total current assets |
209,852 | 214,817 | ||||||||||
Property, plant and equipment, net |
84,990 | 88,751 | ||||||||||
Goodwill |
95,293 | 95,293 | ||||||||||
Other non-current assets |
16,836 | 17,449 | ||||||||||
Total assets |
$ | 406,971 | $ | 416,310 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Current portion of long-term obligations |
$ | 1,846 | $ | 1,854 | ||||||||
Accounts payable and accrued expenses |
90,069 | 92,519 | ||||||||||
Deferred revenues |
16,012 | 28,094 | ||||||||||
Total current liabilities |
107,927 | 122,467 | ||||||||||
Long-term obligations, net of current portion |
116,081 | 114,833 | ||||||||||
Other non-current liabilities |
3,014 | 3,856 | ||||||||||
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; 200,000,000 shares authorized, 47,092,030 and
45,610,621 shares outstanding, respectively |
471 | 456 | ||||||||||
Additional paid-in capital |
586,082 | 579,285 | ||||||||||
Deferred compensation |
(1,180 | ) | (353 | ) | ||||||||
Accumulated deficit |
(446,010 | ) | (444,820 | ) | ||||||||
Total stockholders’ equity |
139,363 | 134,568 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 406,971 | $ | 416,310 | ||||||||
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, | |||||||||
| 2003 | 2002 | ||||||||
Revenues |
$ | 158,400 | $ | 135,435 | |||||
Costs of goods sold |
136,906 | 113,724 | |||||||
Gross profit |
21,494 | 21,711 | |||||||
Research and development expenses |
1,316 | 901 | |||||||
Selling, general and administrative expenses |
15,227 | 13,568 | |||||||
Settlement expense |
3,500 | — | |||||||
Income from operations |
1,451 | 7,242 | |||||||
Interest expense |
(6,156 | ) | (2,755 | ) | |||||
Other income, net |
79 | 874 | |||||||
Income (loss) before provision for income taxes |
(4,626 | ) | 5,361 | ||||||
Provision for income taxes |
— | — | |||||||
Net income (loss) |
$ | (4,626 | ) | $ | 5,361 | ||||
Basic and diluted earnings (loss) per share: |
|||||||||
Net income (loss) |
$ | (0.10 | ) | $ | 0.12 | ||||
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, | |||||||||
| 2003 | 2002 | ||||||||
Revenues |
$ | 295,081 | $ | 256,147 | |||||
Costs of goods sold |
247,353 | 215,442 | |||||||
Gross profit |
47,728 | 40,705 | |||||||
Research and development expenses |
2,898 | 1,656 | |||||||
Selling, general and administrative expenses |
29,492 | 26,606 | |||||||
Settlement expense |
4,500 | — | |||||||
Income from operations |
10,838 | 12,443 | |||||||
Interest expense |
(12,223 | ) | (5,780 | ) | |||||
Other income, net |
195 | 1,090 | |||||||
Income (loss) before provision for income taxes |
(1,190 | ) | 7,753 | ||||||
Provision for income taxes |
— | — | |||||||
Income (loss) from operations before cumulative effect of change in
accounting |
(1,190 | ) | 7,753 | ||||||
Cumulative effect of change in accounting |
— | (13,795 | ) | ||||||
Net loss |
$ | (1,190 | ) | $ | (6,042 | ) | |||
Basic earnings (loss) per share: |
|||||||||
Income (loss) from operations before cumulative effect of change in
accounting |
$ | (0.03 | ) | $ | 0.18 | ||||
Cumulative effect of change in accounting |
— | (0.32 | ) | ||||||
Net loss |
$ | (0.03 | ) | $ | (0.14 | ) | |||
Diluted earnings (loss) per share: |
|||||||||
Income (loss) from operations before cumulative effect of change in
accounting |
$ | (0.03 | ) | $ | 0.17 | ||||
Cumulative effect of change in accounting |
— | (0.31 | ) | ||||||
Net loss |
$ | (0.03 | ) | $ | 0.14 | ) | |||
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, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash Flows From Operating Activities: |
||||||||||||
Income (loss) from operations before cumulative effect of change in
accounting |
$ | (1,190 | ) | $ | 7,753 | |||||||
Adjustments to reconcile net income (loss) from operations to net cash
provided by (used in) operating activities: |
||||||||||||
Depreciation and amortization |
7,934 | 7,485 | ||||||||||
Amortization of debt issuance costs and debt discount |
3,627 | 977 | ||||||||||
Stock-based compensation and contributions to defined contribution plan |
3,661 | 2,711 | ||||||||||
Changes in assets and liabilities and other |
17,678 | (41,491 | ) | |||||||||
Net cash provided by (used in) operating activities |
31,710 | (22,565 | ) | |||||||||
Cash Flows From Investing Activities: |
||||||||||||
Capital expenditures |
(4,167 | ) | (8,732 | ) | ||||||||
Net cash used in investing activities |
(4,167 | ) | (8,732 | ) | ||||||||
Cash Flows From Financing Activities: |
||||||||||||
Principal payments on long-term obligations |
(965 | ) | (2,822 | ) | ||||||||
Net proceeds from issuances of long-term obligations |
— | 22,364 | ||||||||||
Net proceeds from issuances of common stock |
1,760 | 5,820 | ||||||||||
Net cash provided by financing activities |
795 | 25,362 | ||||||||||
Net increase (decrease) in cash and cash equivalents |
28,338 | (5,935 | ) | |||||||||
Cash and cash equivalents, beginning of period |
43,440 | 63,215 | ||||||||||
Cash and cash equivalents, end of period |
$ | 71,778 | $ | 57,280 | ||||||||
See accompanying notes to condensed consolidated financial statements.
4
ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003 and 2002
(Unaudited)
(1) Basis of Presentation and Liquidity
Orbital Sciences Corporation (together with its subsidiaries, “Orbital” or the “company”), a Delaware corporation, develops and manufactures small space systems for commercial, civil government and military customers. The company’s primary products are satellites and launch vehicles, including low-orbit, geosynchronous and planetary spacecraft for communications, remote sensing, scientific and military missions; ground- and air-launched rockets that deliver satellites into orbit; and suborbital rockets that are used as interceptor boost and target vehicles. Orbital also offers space-related technical services to government agencies and develops and builds satellite-based transportation management systems for public transit agencies and private vehicle fleet operators.
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/A for the year ended December 31, 2002.
Operating results for the quarter and six months ended June 30, 2003 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 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.
5
Certain reclassifications have been made to the 2002 financial statements and footnote disclosures to conform to the 2003 financial statement presentation. All financial amounts are stated in U.S. dollars unless otherwise indicated.
(3) Stock-Based Compensation
In December 2002, Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123,” was issued. SFAS No. 148 amended Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 related to disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure provisions of SFAS No. 148 are applicable to interim or annual periods that end after December 15, 2002, and as such have been incorporated below.
SFAS No. 123, as amended by SFAS No. 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations (“APB 25”), and provide pro forma net income and earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The company continues to apply the provisions of APB 25 and provide the pro forma disclosures in accordance with the provisions of SFAS Nos. 123 and 148 to its Stock Option and Incentive Plan. Under APB 25, the company has not recorded any stock-based employee compensation cost associated with the company’s stock option plan, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant.
The company uses the Black-Scholes option-pricing model to determine the pro forma impact under SFAS Nos. 123 and 148 on the company’s net income and earnings per share. The model utilizes certain information, such as the interest rate on a risk-free security maturing generally at the same time as the option being valued, and requires certain assumptions, such as the expected amount of time an option will be outstanding until it is exercised or it expires, to calculate the fair value of stock options granted. This information and the assumptions used for the quarterly and six-month periods ended June 30, 2003 and 2002 are summarized as follows:
| Quarters Ended June 30, | ||||||||
| 2003 | 2002 | |||||||
Additional shares authorized for grant at June 30 |
1,402,532 | 2,435,735 | ||||||
Volatility |
67 | % | 66 | % | ||||
Risk-free interest rate |
1.61 | % | 4.01 | % | ||||
Weighted-average fair value per share at grant date |
$ | 3.41 | $ | 2.90 | ||||
Expected dividend yield |
— | — | ||||||
Average expected life of options (years) |
4.5 | 4.5 | ||||||
6
| Six Months Ended June 30, | ||||||||
| 2003 | 2002 | |||||||
Additional shares authorized for grant at June 30 |
1,402,532 | 2,435,735 | ||||||
Volatility |
67 | % | 66 | % | ||||
Risk-free interest rate |
1.68 | % | 3.95 | % | ||||
Weighted-average fair value per share at grant date |
$ | 3.33 | $ | 2.86 | ||||
Expected dividend yield |
— | — | ||||||
Average expected life of options (years) |
4.5 | 4.5 | ||||||
The following table illustrates the effect on net income (loss) and earnings (loss) per share if the company had applied the fair value recognition provisions of SFAS No. 123 to its stock option plan (in thousands, except per share amounts):
| Quarters Ended June 30, | |||||||||
| 2003 | 2002 | ||||||||
Net income (loss), as reported |
$ | (4,626 | ) | $ | 5,361 | ||||
Deduct: Net stock-based employee
compensation expense determined under
fair-value-based method |
(1,264 | ) | (1,372 | ) | |||||
Pro forma net income (loss) |
$ | (5,890 | ) | $ | 3,989 | ||||
Earnings (loss) per share: |
|||||||||
Basic—as reported |
$ | (0.10 | ) | $ | 0.12 | ||||
Basic—pro forma |
$ | (0.13 | ) | $ | 0.09 | ||||
Diluted—as reported |
$ | (0.10 | ) | $ | 0.12 | ||||
Diluted—pro forma |
$ | (0.13 | ) | $ | 0.09 | ||||
| Six Months Ended June 30, | |||||||||
| 2003 | 2002 | ||||||||
Net loss, as reported |
$ | (1,190 | ) | $ | (6,042 | ) | |||
Deduct: Net stock-based employee
compensation expense determined under
fair-value-based method |
(1,809 | ) | (2,486 | ) | |||||
Pro forma loss |
$ | (2,999 | ) | $ | (8,528 | ) | |||
Earnings (loss) per share: |
|||||||||
Basic—as reported |
$ | (0.03 | ) | $ | (0.14 | ) | |||
Basic—pro forma |
$ | (0.07 | ) | $ | (0.20 | ) | |||
Diluted—as reported |
$ | (0.03 | ) | $ | (0.14 | ) | |||
Diluted—pro forma |
$ | (0.07 | ) | $ | (0.19 | ) | |||
Pro forma net income (loss) reflects only options granted through June 30, 2003 and, therefore, may not be representative of the effects for future periods.
(4) Industry Segment Information
Orbital’s space-related 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. Reportable segments are generally organized based upon product lines. Corporate and other includes the elimination of intercompany revenues and certain corporate office general and administrative expenses that have not been attributed to a particular segment.
7
Intersegment sales are generally negotiated and accounted for under terms and conditions that are similar to other commercial and government contracts. Intersegment sales of $1.6 million and $0.9 million were recorded in the quarters ended June 30, 2003 and 2002, respectively. Intersegment sales of $3.2 million and $1.7 million were recorded in the six months ended June 30, 2003 and 2002, respectively.
The following table presents operating information for the quarters and six months ended June 30, 2003 and 2002 and identifiable assets at June 30, 2003 and December 31, 2002 by reportable segment (in thousands).
| Quarters Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Launch Vehicles and Advanced Programs: |
|||||||||||||||||
Revenues |
$ | 85,166 | $ | 63,769 | $ | 165,705 | $ | 108,470 | |||||||||
Operating income |
8,552 | 5,722 | 17,780 | 9,882 | |||||||||||||
Identifiable assets |
99,674 | 131,863 | (1) | 99,674 | 131,863 | (1) | |||||||||||
Capital expenditures |
1,163 | 1,105 | 2,128 | 2,242 | |||||||||||||
Depreciation and amortization |
1,537 | 1,442 | 2,926 | 2,862 | |||||||||||||
Satellites and Related Space Systems: |
|||||||||||||||||
Revenues |
$ | 68,878 | $ | 56,519 | $ | 117,389 | $ | 117,347 | |||||||||
Operating income |
3,182 | 192 | 5,851 | 292 | |||||||||||||
Identifiable assets |
138,707 | 137,644 | (1) | 138,707 | 137,644 | (1) | |||||||||||
Capital expenditures |
387 | 2,526 | 790 | 5,073 | |||||||||||||
Depreciation and amortization |
1,432 | 1,227 | 2,868 | 2,416 | |||||||||||||
Electronic Systems: |
|||||||||||||||||
Revenues |
$ | 5,999 | $ | 16,035 | $ | 15,204 | $ | 32,042 | |||||||||
Operating income (loss) |
(6,783 | ) | 1,629 | (8,293 | ) | 2,869 | |||||||||||
Identifiable assets |
35,193 | 43,312 | (1) | < | |||||||||||||