- Revenue, Earnings and Cash Flow Increase Compared to Year-Earlier Results - - Company Provides Preliminary Financial Guidance for 2003 -Orbital Sciences Corporation (NYSE: ORB) today announced financial results for the third quarter of 2002 and the first nine months of the year, reporting significant improvements in revenue, operating income, earnings from continuing operations and cash flow relative to the same periods in 2001.
The company reported revenue of $134.8 million in the third quarter of 2002, up $43.8 million or 48% over the comparable period in 2001. Orbital's third quarter 2002 operating income was $5.8 million as compared to an operating loss of $16.9 million in the third quarter of 2001, a $22.7 million quarter-over-quarter improvement. Orbital's income from continuing operations in the third quarter of 2002 was $0.8 million, or $0.02 per diluted share, as compared to a loss of $16.3 million, or $0.42 per diluted share, in the third quarter of 2001. The company's net income in the third quarter of 2002 was $1.6 million, or $0.04 earnings per diluted share, which included a gain of $0.9 million, or $0.02 per diluted share, in connection with the favorable adjustment of liabilities related to previously discontinued operations. Net income in the third quarter of 2001 was $5.6 million, or $0.15 per diluted share, and included a $21.9 million gain related to discontinued operations.
"In the third quarter, Orbital clearly demonstrated the strength of our two core business areas, satellites and launch vehicles," said Mr. David W. Thompson, Orbital's Chairman and Chief Executive Officer. "In our satellite and related space systems segment, we continued to see operating margins improve, both on a third quarter and sequential quarter comparison. We also produced strong top-line revenue growth and a double-digit operating margin in the launch vehicle segment, with our missile defense business continuing to be the primary driver of the company's revenue increases."
Mr. Thompson added, "These outstanding results in our core business areas were offset by disappointing results in our electronic systems segment. Looking ahead to the fourth quarter, we expect electronic systems to return to the normal levels of revenue and profitability that the business generated in the first and second quarters of this year."
For the first nine months of 2002, the company reported revenue of $391.0 million, an increase of 33% over the same period in 2001. Orbital generated nine-month operating income of $18.3 million and net income from continuing operations of $8.5 million, or $0.19 income per diluted share. These results compare to $294.4 million in revenue, an operating loss of $29.9 million and a net loss from continuing operations of $64.1 million, or $1.68 loss per diluted share, in the first nine months of 2001. Orbital reported a net loss of $4.4 million, or $0.10 per diluted share for the nine-month period in 2002. The net loss includes a $13.8 million goodwill impairment charge related to the electronic systems segment recorded as a cumulative effect of a change in accounting. The company announced in the second quarter that it would be recording an impairment charge prior to the end of 2002 in accordance with the adoption of a new accounting standard, SFAS No. 142. The 2002 results also include $0.9 million in net favorable adjustments related to previously discontinued operations.
Summary financial results are as follows ($ in millions, except for per share data):
Quarter Ended September 30, 2002 2001 Revenue $134.8 $91.0 Gross Profit 21.1 12.2 Operating Income (Loss) 5.8 (16.9) Income (Loss), Continuing Operations 0.8 (16.3) Net Income 1.6 5.6 Income (Loss) Per Diluted Share, Continuing Operations 0.02 (0.42) Net Income Per Diluted Share $0.04 $0.15 Nine Months Ended September 30, 2002 2001 Revenue $391.0 $294.4 Gross Profit 61.8 29.4 Operating Income (Loss) 18.3 (29.9) Income (Loss), Continuing Operations 8.5 (64.1) Net Income (Loss) (4.4) 50.6 Income (Loss) Per Diluted Share, Continuing Operations 0.19 (1.68) Net Income (Loss) Per Diluted Share $(0.10) $1.33Revenue
Orbital's third quarter and nine-month revenue of $134.8 million and $391.0 million, respectively, increased 48% and 33% over the same periods in 2001, driven by strong growth in the company's two core product segments, launch vehicles and satellites.
The significant increase in launch vehicle revenue in 2002 is largely due to Orbital's work on the missile defense booster vehicle program under a multi-year contract from The Boeing Company. The increase in the company's satellite manufacturing revenue is primarily attributable to its work on geosynchronous (GEO) communications satellites. These revenue increases were partly offset by a revenue decrease in the company's only remaining non-core business unit, its electronics systems division, which supplies vehicle management systems for local and regional public transit and highway maintenance agencies.
Revenue by business segment is as follows ($ in millions): Quarter Ended September 30, 2002 2001 Launch Vehicles and Advanced Programs $69.7 $26.5 Satellites and Related Space Systems 53.2 48.2 Electronic Systems 12.8 17.2 Eliminations and Other (0.9) (0.9) Total Revenues $134.8 $91.0 Nine Months Ended September 30, 2002 2001 Launch Vehicles and Advanced Programs $178.2 $92.7 Satellites and Related Space Systems 170.6 157.6 Electronic Systems 44.8 47.2 Eliminations and Other (2.6) (3.1) Total Revenues $391.0 $294.4Operating Income
Orbital generated operating income in the third quarter of 2002 of $5.8 million, a $22.7 million improvement over the same quarter last year. The company's launch vehicle and satellite manufacturing segments posted significant improvements in operating income, partially offset by losses in its electronic systems business. Operating income derived from the launch vehicle segment increased primarily as a result of the strong growth in the company's missile defense-related business. In the company's satellite manufacturing unit, the improved operating results were mainly attributable to better performance in its science and technology satellite product line. Losses in the company's electronic systems segment were related to a charge for inventory obsolescence and adjustments for cost growth on certain contracts. Corporate and other operating results in the third quarter of 2001 included non-recurring charges related to unoccupied office space and the ORBIMAGE satellite construction program.
Orbital reported $18.3 million of operating income in the first nine months of 2002, or a $48.2 million improvement over the same period in 2001. The increased operating results were driven by improvements in the company's launch vehicle and satellite manufacturing segments, partially offset by lower results from the electronic systems segment. For the first nine months of 2002, Orbital's launch vehicle and satellite manufacturing segments together produced $19.0 million in operating income.
Operating income (loss) by segment is as follows ($ in millions): Quarter Ended September 30, 2002 2001 Launch Vehicles and Advanced Programs $7.4 $0.6 Satellites and Related Space Systems 1.3 (3.7) Electronic Systems (2.9) 0.7 Corporate and Other 0 (14.5) Total Operating Income (Loss) $5.8 $(16.9) Nine Months Ended September 30, 2002 2001 Launch Vehicles and Advanced Programs $17.3 $7.6 Satellites and Related Space Systems 1.7 (18.6) Electronic Systems (0.1) 1.3 Corporate and Other (0.6) (20.2) Total Operating Income (Loss) $18.3 $(29.9)Income from Continuing Operations
Orbital's income from continuing operations for the third quarter of 2002 was $0.8 million, a $17.0 million improvement relative to the third quarter of 2001. This growth was due to significantly improved operating results, offset partially by higher interest expense and a reduction in other non-operating income.
For the first nine months of 2002, income from continuing operations increased to $8.5 million compared to a $64.1 million loss in the comparable 2001 period. This increase was primarily due to improved operating results and lower interest expense in 2002 in addition to the absence of allocated share of losses of an affiliate, which totaled $20.0 million in 2001.
Cash Flow and Liquidity Status
The following table provides summary information on the company's cash flow and debt position for the third quarter and first nine months of 2002 ($ in millions):
Quarter Nine Months Ended Ended Sept. 30, Sept. 30, 2002 2002 Cash Used in Operating Activities $(2.8) $(25.4) Capital Expenditures (3.1) (11.8) Free Cash Flow (5.9) (37.2) Net Proceeds from Issuance of Long-Term Debt and Warrants 123.4 145.8 Repayment of Debt (125.4) (128.3) Net Proceeds from Issuance of Common Stock and Other 1.1 7.0 Net Decrease in Cash $(6.8) $(12.7) Beginning Cash Balance $57.3 $ 63.2 Ending Cash Balance $50.5 $ 50.5 Beginning Total Debt $130.6 $108.4 Ending Total Debt $116.1 $116.1In August 2002, Orbital closed a private sale of $135.0 million 12% second-priority secured notes due in 2006 and 135,000 warrants to purchase 16.5 million shares of common stock. The company used the net proceeds to retire its $100 million convertible bonds that were due on October 1, as well as to repay a $25 million term loan. The warrants were recorded in the balance sheet based on their initial fair value of $24 million as an increase to equity and a discount to the notes, resulting in a net debt balance of $111 million. This discount will be amortized as non-cash interest expense over the four-year term of the notes.
As of September 30, 2002, Orbital's available cash balance was $50.5 million. The company had negative free cash flow (defined as cash flow from operations less capital expenditures) of $5.9 million and $37.2 million in the third quarter and first nine months of 2002, respectively. In the first half of 2002, Orbital repaid a $50.0 million vendor financing agreement that was outstanding as of the end of 2001.
Summary Balance Sheet for September 30, 2002 ($ in millions) Assets Liabilities and Equity Cash and Equivalents $50.5 Short-Term Debt $1.7 Receivables (Net) 132.9 Other Current Liabilities 133.6 Other Current Assets 35.3 Long-Term Debt 114.4 Property & Equipment (Net) 89.5 Other Non-Current Liabilities 44.8 Goodwill 95.3 Other Assets 18.0 Stockholders' Equity 127.0 Total Assets $421.5 Total Liabilities & Equity $421.5New Business Highlights
During the third quarter, Orbital received approximately $165 million in new contract awards, including $50 million in firm contracts and $115 million in options, bringing 2002 year-to-date new firm and option orders to over $1.3 billion. At the end of the third quarter of 2002, the company's firm backlog was approximately $715 million and its total backlog, which includes firm contracts as well as options, indefinite-quantity contracts and undefinitized orders, was approximately $2.6 billion.
Operational Highlights and Outlook
Over the past several months, Orbital successfully carried out two space missions. The N-STAR c GEO satellite was launched in July and was activated and delivered to NTT DoCoMo in August. In mid-October, Orbital successfully launched a target vehicle for a test of the Ground-based Midcourse Defense System conducted by the U.S. Missile Defense Agency. Since the beginning of the year, the company's operational record totals ten successful space missions, consisting of eight rocket launches and two satellite and other space systems deployments. For the remainder of 2002, Orbital is currently scheduled to conduct another four launch vehicle and satellite missions, bringing the yearly total to 14 space missions.
Financial Outlook Update
Looking ahead to the fourth quarter, Orbital updated its previous financial guidance for 2002, increasing its targeted revenue to the $535 to $545 million range for this year. The company reaffirmed its earlier targets for operating income margin to be in the 5% to 6% range. Orbital also improved its estimate free cash flow for the year, now expected to be in the range of negative $45 to $50 million. The company's earlier estimate was for negative free cash flow in the range of $60 to $65 million for the year.
For 2003, Orbital is currently targeting top-line revenues of approximately $560 to $580 million. The company is aiming to achieve EBITDA (earnings before interest, taxes, depreciation and amortization) margins of between 9% and 10% and operating margins of between 6% and 7% next year. The company also stated that it expects to generate positive free cash flow in 2003 in the range of $15 to $20 million.
Mr. Garrett E. Pierce, Orbital's Vice Chairman and Chief Financial Officer, said, "Our primary focus in 2003 will be on generating significant free cash flow and building on the positive earnings momentum that we established this year, through a rigorous combination of program execution, cost controls and working capital management."
Orbital is one of the world's leading developers and manufacturers of affordable space systems for commercial, civil government and military customers. The company's primary products include low-orbit, geosynchronous and planetary spacecraft for communications, scientific and remote sensing missions; ground- and air-launched rockets that deliver satellites into orbit; and missile defense boosters that are used as target and interceptor vehicles. Orbital also offers space-related technical services to government agencies and develops and builds satellite-based transportation management systems for public transit and public works agencies, as well as private vehicle fleet operators.
More information about Orbital can be found at http://www.orbital.comNote: "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995.
Some of the statements in this release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than those of historical facts included herein, including those related to the company's financial outlook, goals, business strategy, projected plans and objectives of management for future operations, new order trends and liquidity are forward-looking statements. Such "forward- looking statements" involve unknown risks and uncertainties that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements, expressed or implied by such forward-looking statements. Factors such as general economic and business conditions, availability of required capital for Orbital, continued government support and funding for key space and defense programs, the financial condition of major customers, product performance, market acceptance of products, services and technologies, consumer demand, and dependence upon long-term contracts and licensing agreements with commercial and government customers may impact the company's revenues, expenses and profit from period to period. These factors and others related to the company's business are described in further detail in the company's SEC filings, including its Form 10-K. Orbital assumes no obligation to update any such forward-looking information.
ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except share data) Quarter Ended September 30, 2002 2001 Revenue $134,833 $91,008 Cost of goods sold 113,777 78,816 Gross profit 21,056 12,192 Research and development expenses 1,365 2,060 Selling, general and administrative expenses 13,855 25,549 Amortization of goodwill - 1,503 Income (loss) from operations 5,836 (16,920) Other income, net 574 3,683 Interest expense (5,650) (3,041) Income (loss) before provision for income taxes 760 (16,278) Provision for income taxes - - Income (loss) from continuing operations 760 (16,278) Income from discontinued operations 875 21,895 Net income $ 1,635 $ 5,617 Diluted earnings (loss) per share: Income (loss) from continuing operations $ 0.02 $ (0.42) Income from discontinued operations 0.02 0.57 Net income $ 0.04 $ 0.15 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except share data) Nine Months Ended September 30, 2002 2001 Revenue $390,980 $294,386 Cost of goods sold 329,219 264,949 Gross profit 61,761 29,437 Research and development expenses 3,021 6,281 Selling, general and administrative expenses 40,461 48,561 Amortization of goodwill - 4,519 Income (loss) from operations 18,279 (29,924) Other income, net 1,664 4,663 Interest expense (11,430) (18,851) Allocated share of losses of affiliate - (19,995) Income (loss) before provision for income taxes 8,513 (64,107) Provision for income taxes - - Income (loss) from continuing operations before cumulative effect of change in accounting 8,513 (64,107) Income from discontinued operations 875 114,729 Cumulative effect of change in accounting (13,795) - Net income (loss) $ (4,407) $ 50,622 Diluted earnings (loss) per share: Income (loss) from continuing operations $ 0.19 $ (1.68) Income from discontinued operations 0.02 3.01 Cumulative effect of change in accounting (0.31) - Net income (loss) $ (0.10) $ 1.33 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) September 30, December 31, 2002 (Unaudited) 2001 ASSETS Cash $ 50,530 $ 63,215 Receivables, net 132,865 125,538 Inventory and other current assets 35,327 35,845 Total current assets 218,722 224,598 Property, plant and equipment, net 89,462 88,795 Goodwill 95,293 109,088 Other non-current assets 17,978 10,253 Total Assets $421,455 $432,734 LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 1,722 $103,710 Accounts payable and accrued expenses 97,677 160,386 Deferred revenues 35,880 23,886 Total current liabilities 135,279 287,982 Long-term debt 114,409 4,665 Other non-current liabilities 4,200 5,216 Allocated losses of affiliate 40,586 40,586 Total stockholders' equity 126,981 94,285 Total Liabilities and Stockholders' Equity $421,455 $432,734 ORBITAL SCIENCES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Quarter Nine Months Ended Ended September 30, September 30, 2002 2002 Net income $ 760 $ 8,513 Depreciation and amortization 3,661 11,146 Prepaid financing fees and debt discount amortization 2,037 2,752 Stock-based compensation expense 348 348 Change in assets and liabilities and other (9,609) (48,127) Net cash used in operating activities (2,803) (25,368) Capital expenditures (3,078) (11,810) Net proceeds from issuance of long-term debt 123,433 145,797 Repayment of debt and other (125,439) (128,261) Net proceeds from issuance of common stock 1,137 6,957 Net cash provided by financing activities (869) 24,493 Net decrease in cash (6,750) (12,685) Cash, beginning of period 57,280 63,215 Cash, end of period $50,530 $50,530CONTACT: Barron Beneski of Orbital Sciences Corporation, +1-703-406-5528, or Beneski.firstname.lastname@example.org
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