Orbital Sciences Corporation today announced its
financial results for the fourth quarter and full year 2004, reporting
strong increases in revenue, operating income, net income and cash
flow.
Orbital’s fourth quarter 2004 revenues were $175.2 million, up 11%
over fourth quarter 2003 revenues of $157.8 million. Operating income
was $12.3 million, as compared to $13.5 million in the same quarter
last year.
Net income was $166.1 million, or $2.58 per diluted share, in the
fourth quarter of 2004, versus $51.7 million, or $0.82 per diluted
share, in the same quarter last year. Adjusted net income(1) was $10.6
million, or $0.16 adjusted diluted earnings per share(1), in the
fourth quarter of 2004, compared to $11.1 million, or $0.18 adjusted
diluted earnings per share, for the fourth quarter of 2003. Adjusted
net income for the fourth quarter of 2004 excludes a $156.5 million
non-cash tax benefit resulting from the release of a valuation
allowance for deferred tax assets. Adjusted net income for the fourth
quarter of 2003 excludes a one-time non-cash $40.6 million gain.
For the full year, Orbital’s 2004 revenues increased 16% to $675.9
million, compared to 2003 revenues of $581.5 million. Operating income
was $55.3 million in 2004, up 56% over last year’s operating income of
$35.6 million.
Net income was $200.0 million for the full year, or $3.08 per
diluted share, compared to $20.2 million, or $0.35 per diluted share,
in 2003. Adjusted net income, which excludes the $156.5 million
release of the tax valuation allowance and $2.1 million of debt
extinguishment expenses, was $45.6 million for 2004, or $0.70 adjusted
diluted earnings per share. These results are significantly higher
than the 2003 adjusted net income of $18.4 million, or $0.32 adjusted
diluted earnings per share.
Orbital reported $52.7 million of full-year free cash flow(1) for
2004, a substantial increase over the $36.9 million of free cash flow
for 2003.
Commenting on 2004, David W. Thompson, Chairman and Chief
Executive Officer, said, “We are very pleased with our strong
financial results for 2004 which reflect positively on our outstanding
operational performance last year. The company is beginning 2005 on a
very solid footing and we are looking forward to a busy and productive
year.”
(1) "Free cash flow," "adjusted net income" and "adjusted diluted
earnings per share" are non-GAAP financial measures discussed in
this release. For additional details, please refer to the section
of this press release entitled "Disclosure of Non-GAAP Financial
Measures."
Financial Highlights
Summary financial results were as follows (in millions, except per
share data):
Fourth Quarter
2004 2003
------- -------
Revenues $175.2 $157.8
Operating Income 12.3 13.5
Net Income 166.1 51.7
Diluted Net Income per Share $2.58 $0.82
Full Year
2004 2003
------- -------
Revenues $675.9 $581.5
Operating Income 55.3 35.6
Net Income 200.0 20.2
Diluted Net Income per Share $3.08 $0.35
Supplemental Financial Information
The following information presents the company’s adjusted net
income, reconciled to reported net income, and adjusted diluted
earnings per share (see the section of this press release entitled
“Disclosure of Non-GAAP Financial Measures”) (in millions, except per
share data):
Fourth Quarter
2004 2003
------- ------
Reported Net Income $166.1 $51.7
Add Debt Extinguishment Expense 1.0 --
Subtract Gain on Reversal of Allocated Losses of
Affiliate -- (40.6)
Subtract Benefit from Reversal of Deferred Tax Asset
Valuation Allowance (156.5) --
------- ------
Adjusted Net Income $10.6 $11.1
------- ------
Adjusted Diluted Earnings Per Share $0.16 $0.18
Diluted Shares 64.3 62.9
Full Year
2004 2003
------- ------
Reported Net Income $200.0 $20.2
Add Debt Extinguishment Expense 2.1 38.8
Subtract Gain on Reversal of Allocated Losses of
Affiliate -- (40.6)
Subtract Benefit from Reversal of Deferred Tax Asset
Valuation Allowance (156.5) --
------- ------
Adjusted Net Income $45.6 $18.4
------- ------
Adjusted Diluted Earnings Per Share $0.70 $0.32
Diluted Shares 65.0 58.2
Revenues
Orbital’s fourth quarter 2004 revenues were $175.2 million, up 11%
over fourth quarter 2003 revenues of $157.8 million. This increase was
primarily driven by growth in revenues from science, technology and
defense satellite contracts within the company’s satellites and
related space systems segment.
Revenues by segment for the fourth quarter were as follows (in
millions):
Fourth Quarter
2004 2003
------- -------
Launch Vehicles $80.1 $89.3
Satellites and Related Space Systems 90.0 60.8
Transportation Management Systems 6.7 9.7
Eliminations (1.6) (2.0)
------- -------
Total Revenues $175.2 $157.8
For the full year, Orbital reported revenues of $675.9 million in
2004, up 16% from $581.5 million in 2003. As in the fourth quarter,
this increase was primarily attributable to very strong revenue growth
in the company’s satellites and related space systems segment.
Revenues by segment for the year were as follows (in millions):
Full Year
2004 2003
------- -------
Launch Vehicles $323.3 $333.3
Satellites and Related Space Systems 331.7 218.6
Transportation Management Systems 29.1 36.6
Eliminations (8.2) (7.0)
------- -------
Total Revenues $675.9 $581.5
Operating Income
Orbital reported operating income of $12.3 million in the fourth
quarter of 2004 compared to $13.5 million in the fourth quarter of
2003. Launch vehicles segment income increased marginally, but this
improvement was more than offset by lower satellites and related space
systems segment income. The launch vehicles segment results included a
$2.0 million early termination fee related to a cancelled space launch
vehicle contract. This termination fee was offset by a $2.0 million
loss in the quarter on a Pegasus contract due to cost growth resulting
from launch delays. The decrease in satellites and related space
systems segment income in the fourth quarter of 2004 was largely the
result of a loss in the company’s communications satellites product
line due to cost growth on one contract and an operating loss on a
contract awarded late in 2003.
Operating income by segment for the fourth quarter was as follows
(in millions):
Fourth Quarter
2004 2003
------ ------
Launch Vehicles $7.9 $7.5
Satellites and Related Space Systems 4.1 5.9
Transportation Management Systems 0.3 0.3
Corporate and Other -- (0.2)
------ ------
Total Operating Income $12.3 $13.5
For the full year, operating income was $55.3 million, a 56%
increase over operating income of $35.6 million in 2003. Launch
vehicles segment operating income for the year decreased largely in
line with the decrease in the revenues in the segment. Satellites and
related space systems segment operating income increased 47% largely
due to a $12.6 million profit growth in the science, technology and
defense satellite product line, driven by significantly higher
revenues in this product line, offset by lower profit in the company’s
communications satellites product line. The decrease in communications
satellite income was primarily attributable to the completion and
launch of the BSAT-2c satellite in 2003, the receipt in 2003 of a $2.0
million fee associated with the cancellation of a contract and an
operating loss in 2004 on a contract awarded in late 2003.
Transportation management systems segment results improved by $8.8
million in full year 2004, compared to a loss in that segment last
year resulting from contract cost increases and other expenses that
did not recur in 2004.
Two additional factors that are not attributable to the company’s
operating segments added to the year-over-year growth in operating
income. First, a $2.5 million non-recurring gain was recorded in the
first quarter of 2004 on the sale of notes that the company had
received from a former affiliate, and second, the company recorded
$4.8 million in litigation settlement charges in 2003.
Operating income by segment for the year was as follows (in
millions):
Full Year
2004 2003
------ ------
Launch Vehicles $30.1 $32.8
Satellites and Related Space Systems 21.5 14.6
Transportation Management Systems 1.2 (7.6)
Corporate and Other 2.5 (4.2)
------ ------
Total Operating Income $55.3 $35.6
Release of Tax Valuation Allowance
Until the fourth quarter of 2004, Orbital had recorded a valuation
allowance to fully reserve its net deferred tax assets. In the fourth
quarter, the company determined that it is more likely than not that
the company will be able to utilize a substantial portion of its net
operating loss carryforwards and other deferred tax assets prior to
their expiration. As a result, the company released $212.6 million of
its deferred tax asset valuation allowance and recorded a $156.5
million income tax benefit on the company’s income statement. The
remaining portion of the valuation release was recorded as a $39.7
million reduction in goodwill and a $16.4 million increase to
additional paid-in capital on the balance sheet. The portion of the
release recorded as a reduction in goodwill relates to valuation
allowances established in prior years in connection with business
acquisitions. The portion of the release recorded as an increase to
additional paid-in capital is primarily related to tax benefits
associated with stock option exercises in 2004 and prior years.
As of December 31, 2004, Orbital had approximately $560 million of
net deferred tax assets, including nearly $440 million of net
operating loss carryforwards, which will be available to offset future
taxable income.
Net Income
Net income for the fourth quarter of 2004 was $166.1 million, or
$2.58 per diluted share, as compared to $51.7 million, or $0.82 per
diluted share, in the fourth quarter of 2003. The fourth quarter of
2004 includes the $156.5 million, or $2.43 per diluted share valuation
allowance release discussed above, and debt extinguishment expenses
related to the replacement of a prior credit agreement with a new
credit agreement. Last year’s fourth quarter net income included a
$40.6 million gain on reversal of allocated losses of a former
affiliate. Adjusted net income, which excludes the valuation allowance
release and the debt extinguishment expenses, was $10.6 million for
the fourth quarter of 2004. Adjusted net income for the same quarter
last year was $11.1 million, excluding the $40.6 million gain.
Full year 2004 net income was $200.0 million, or $3.08 per diluted
share, versus $20.2 million, or $0.35 per diluted share, in 2003. Net
income in 2004 included the tax valuation allowance release discussed
above and $2.1 million of debt extinguishment expenses. Net income in
2003 included the $40.6 million gain on reversal of allocated losses
of a former affiliate referred to above, offset by $38.8 million in
debt extinguishment expenses related to debt refinancing transactions.
Adjusted net income in 2004 was $45.6 million, compared to adjusted
net income of $18.4 million in 2003. The significant improvement in
adjusted net income is due primarily to the $19.8 million increase in
operating income, in addition to a $7.3 million reduction in interest
expense resulting from the 2003 refinancing transactions.
Cash Flow and Balance Sheet
The company reported free cash flow of $52.7 million for the full
year 2004 resulting from solid operating results and sound working
capital management. In addition, $10.9 million in cash became
unrestricted in 2004 due to a decrease in cash restricted for letters
of credit. The company also received $18.1 million in 2004 from the
issuance of common stock, primarily in connection with exercises of
stock options and warrants. In addition, the company repurchased and
retired 595,000 common shares for $7.0 million and repurchased and
cancelled $8.6 million of its 9% senior notes at a cost of $9.6
million.
In December 2004, Orbital entered into a new five-year $50 million
credit agreement, replacing its prior credit agreement. The new credit
agreement gives Orbital greater flexibility and more favorable terms.
Orbital’s unrestricted cash balance was $125.5 million as of
December 31, 2004. The company’s cash flow was as follows (in
millions):
Fourth
Quarter Full Year
2004 2004
--------- ---------
Net Cash Provided by Operating Activities $5.8 $67.0
Capital Expenditures (5.8) (14.3)
--------- ---------
Free Cash Flow -- 52.7
Net Decrease in Cash Restricted for Letters of
Credit 5.3 10.9
Repayment of Debt and Other (0.4) (10.1)
Repurchase of Common Stock -- (7.0)
Proceeds from Issuance of Common Stock 0.9 18.1
--------- ---------
Net Increase in Cash 5.8 64.6
Beginning Cash Balance 119.7 60.9
--------- ---------
Ending Cash Balance $125.5 $125.5
Summary balance sheet data as of December 31, 2004 is as follows
(in millions):
Assets Liabilities and Equity
------------------------------- --------------------------------------
Cash and Equivalents $125.5 Short-Term Debt $0.2
Other Current Assets 201.9 Other Current Liabilities 140.9
Property and Equipment 83.2 Long-Term Debt 128.4
Goodwill 55.6 Other Non-Current Liabilities 0.2
Other Assets 197.6 Stockholders' Equity 394.1
------- -------
Total Assets $663.8 Total Liabilities and Equity $663.8
New Business Highlights
During the fourth quarter of 2004, Orbital received approximately
$120 million in new firm and option contract bookings. In addition,
the company received approximately $510 million of option exercises
under existing contracts. For the year as a whole, Orbital received
about $505 million in new firm and option contracts and $665 million
of option exercises under existing contracts. As of December 31, 2004,
the company’s firm contract backlog was approximately $1.17 billion
and its total backlog (including options, indefinite-quantity
contracts and undefinitized orders) was approximately $2.31 billion.
Operational Highlights
In the fourth quarter of 2004, Orbital conducted four major launch
systems missions. These included two ballistic target vehicles for the
Missile Defense Agency (MDA), one high-speed sea-skimming cruise
missile target (SSST) for the U.S. Navy and the third launch of the
Hyper-X launch vehicle that propelled NASA’s X-43A scramjet to a new
world speed record for an air-breathing engine. The company also
delivered two satellites for future space missions and three
additional Orbital Boost Vehicle (OBV) interceptors for the national
missile defense system.
“For the year as a whole, Orbital carried out 11 successful space
missions in 2004, while also delivering an additional 20 rockets and
satellites for future launches,” said Mr. Thompson. “These operations
increased our recent record to 38 consecutive successful missions over
the last three years, and boosted it to 124 successes out of 126
attempts during the past eight years,” he added.
In 2005, Orbital expects to carry out more than 30 space missions
and to complete and deliver an additional 12 to 14 satellites and
launch vehicles for future missions. The company plans to produce and
deliver 12 or 13 OBV interceptors in 2005, including another 10
operational vehicles for on-alert deployment and several vehicles for
flight tests. During the year, the company expects to launch about 15
target vehicles, including the first production vehicles of the SSST
program for the U.S. Navy and numerous medium- and long-range
ballistic targets for MDA flight test programs. Orbital is currently
scheduled to launch two Pegasus and three Minotaur space launch
vehicles this year as well. Orbital is also on track to complete,
deliver and deploy three geosynchronous communications satellites and
eight science and defense satellites for U.S. and international
government and commercial customers in 2005.
2005 Guidance Update
The company updated its financial guidance, indicating that it
expects that 2005 revenues will be in the $700 to $725 million range
and operating income margin will be in the 8.0% to 8.5% range.
Beginning in 2005, Orbital will record income tax expense on
current earnings at an effective tax rate of approximately 40%.
However, the company does not expect to pay significant cash income
taxes in the foreseeable future since it will utilize net operating
loss carryforwards and other deferred tax assets to offset taxable
income. The company expects to pay cash taxes at a nominal rate of
approximately 2% attributable to alternative minimum taxes.
Orbital expects to adopt SFAS No. 123® in the third quarter of
2005. The new accounting standard requires companies to record
compensation expense for its employee share-based awards such as stock
options. Including non-cash tax expense and SFAS No. 123®
compensation expense, the company expects that 2005 diluted earnings
per share will be in the $0.40 to $0.45 range, based on estimated
average diluted shares of 65 to 67 million. The company is expecting
free cash flow of $40 to $45 million for 2005.
Disclosure of Non-GAAP Financial Measures
The following are provided as definitions of non-GAAP (Generally
Accepted Accounting Principles) financial measures used by the company
within this press release. Orbital does not intend for the information
to be considered in isolation or as a substitute for the related GAAP
measures. Other companies may define these measures differently.
Free cash flow is defined as GAAP net cash provided by operating
activities (the most directly comparable GAAP financial measure) less
capital expenditures for property, plant and equipment. Management
believes that free cash flow provides investors with an important
perspective on the company’s liquidity, financial flexibility and
ability to fund operations and service debt.
Adjusted net income is defined as GAAP net income (the most
directly comparable GAAP financial measure) excluding: (i) debt
extinguishment expenses, (ii) gain on reversal of allocated losses of
affiliate, (iii) the income tax benefit related to the reversal of the
deferred tax asset valuation allowance, (iv) the portion of income tax
expense that will be offset by currently available net operating
losses and other deferred tax assets and (v) compensation expense
related to employee share-based awards. Adjusted diluted earnings per
share is equal to adjusted net income divided by diluted shares.
Management believes these measures provide investors with a more
complete understanding of the company’s operational performance during
these periods without regard to debt extinguishment expenses, gain on
reversal of allocated losses of affiliate and the income tax benefit
described above.
About Orbital
Orbital develops and manufactures small space and rocket systems
for commercial, military and civil government customers. The company’s
primary products are satellites and launch vehicles, including
low-orbit, geosynchronous and planetary spacecraft for communications,
remote sensing, scientific and defense missions; ground- and
air-launched rockets that deliver satellites into orbit; and missile
defense systems that are used as interceptor 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.
2005 Annual Stockholders Meeting
Orbital’s annual stockholders meeting will be held at 9:00 a.m. on
Thursday, April 28, 2005, at the company’s headquarters in Dulles,
Virginia.
A transcript of the earnings teleconference call will be available
on Orbital’s website at http://www.orbital.com/Investor
“Safe Harbor” Statement Under the Private Securities Litigation
Reform Act of 1995
Certain statements in this press release may be forward-looking in
nature or “forward-looking statements” as defined in the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to risks, trends and uncertainties that could
cause the actual results or performance of the company to be
materially different from the forward-looking statement. Uncertainty
surrounding factors such as continued government support and funding
for key space and defense programs, product performance and market
acceptance of products and technologies, as well as other risk factors
and business considerations described in the company’s SEC filings,
including the annual report on Form 10-K, as amended, could impact
Orbital’s actual financial and operational results. Orbital assumes no
obligation for updating the information contained in this press
release.
-- attachments below --
ORBITAL SCIENCES CORPORATION
Condensed Consolidated Income Statements
(in thousands, except per share data)
Fourth Quarter
2004 2003
--------- ---------
Revenues $175,185 $157,790
Costs of goods sold 149,843 128,184
--------- ---------
Gross profit 25,342 29,606
Research and development expenses 1,656 2,605
Selling, general and administrative expenses 11,400 13,220
Settlement expense -- 284
--------- ---------
Income from operations 12,286 13,497
Other income, net 1,117 220
Interest expense (2,742) (2,915)
Gain on reversal of allocated losses of affiliate -- 40,586
Debt extinguishment expense (961) --
--------- ---------
Income before income taxes 9,700 51,388
Income tax benefit 156,358 265
--------- ---------
Net income $166,058 $51,653
========= =========
Basic net income per share $3.22 $1.09
========= =========
Diluted net income per share $2.58 $0.82
========= =========
Shares used in computing basic net income per
share 51,526 47,563
Shares used in computing diluted net income per
share 64,322 62,906
ORBITAL SCIENCES CORPORATION
Condensed Consolidated Income Statements
(in thousands, except per share data)
Full Year
2004 2003
--------- ---------
Revenues $675,935 $581,500
Costs of goods sold 566,787 477,273
--------- ---------
Gross profit 109,148 104,227
Research and development expenses 6,311 7,835
Selling, general and administrative expenses 50,052 56,963
Settlement expense (2,538) 3,871
--------- ---------
Income from operations 55,323 35,558
Other income, net 2,290 1,347
Interest expense (11,386) (18,683)
Gain on reversal of allocated losses of affiliate -- 40,586
Debt extinguishment expense (2,099) (38,836)
--------- ---------
Income before income taxes 44,128 19,972
Income tax benefit 155,872 265
--------- ---------
Net income $200,000 $20,237
========= =========
Basic net income per share $4.03 $0.43
========= =========
Diluted net income per share $3.08 $0.35
========= =========
Shares used in computing basic net income per
share 49,658 46,718
Shares used in computing diluted net income per
share 65,022 58,221
ORBITAL SCIENCES CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
December 31,
2004 2003
--------- ---------
Assets
Cash $125,504 $60,900
Receivables, net 149,480 149,508
Inventory 13,565 12,642
Deferred income taxes, net 26,710 --
Other current assets 12,195 24,754
--------- ---------
Total current assets 327,454 247,804
Property, plant and equipment, net 83,154 82,364
Goodwill 55,551 95,293
Deferred income taxes, net 185,940 --
Other non-current assets 11,671 13,839
--------- ---------
Total Assets $663,770 $439,300
========= =========
Liabilities and Stockholders' Equity
Short-term borrowings $161 $297
Accounts payable and accrued expenses 121,454 116,026
Deferred revenues 19,478 16,292
--------- ---------
Total current liabilities 141,093 132,615
Long-term debt 128,375 137,116
Other non-current liabilities 178 2,692
Total stockholders' equity 394,124 166,877
--------- ---------
Total Liabilities and Stockholders' Equity $663,770 $439,300
========= =========
ORBITAL SCIENCES CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
Fourth Full
Quarter Year
2004 2004
--------- ---------
Net income $166,058 $200,000
Depreciation and amortization 4,043 15,009
Deferred income taxes, net (156,471) (156,471)
Amortization of debt costs 195 860
Debt extinguishment expense 961 2,099
Changes in assets and liabilities (9,033) 5,819
Other 57 (318)
--------- ---------
Net cash provided by operating activities 5,810 66,998
--------- ---------
Capital expenditures (5,778) (14,340)
Decrease in cash restricted for letters of credit,
net 5,360 10,941
--------- ---------
Net cash used in investing activities (418) (3,399)
--------- ---------
Repayment of debt and other (437) (10,109)
Repurchase of common stock -- (7,000)
Net proceeds from issuance of common stock 886 18,114
--------- ---------
Net cash provided by financing activities 449 1,005
--------- ---------
Net increase in cash 5,841 64,604
Cash, beginning of period 119,663 60,900
--------- ---------
Cash, end of period $125,504 $125,504
========= =========
