Several class-action lawsuits have be filed by various law firms representing shareholders of Orbital
Sciences Corp., claiming the company overstated both revenues and earnings.
Orbital Sciences is the parent
company of Orbcomm Global L.P., a low-earth-orbit satellite operator providing data and messaging
services.
Class-action lawsuits were filed on behalf of investors in the U.S. District Court for the Eastern District of
Virginia throughout February and March by law firms including Berman, DeValerio & Pease L.L.P.; Shapiro, Haber &
Urmy L.L.P.; Schubert & Reed L.L.P.; Berger & Montague P.C.; Abbey Gardy & Squitieri L.L.P.; and Schiffrin &
Barroway L.L.P.
Investors on record from April 21, 1998, through Feb. 16 are eligible to join the class. The
lawsuits target the company as a whole, as well as Chairman and Chief Executive Officer David Thompson and Chief
Financial Officer Jeffrey Pirone.
The charges followed the company’s Feb. 16 restatement of financial results for the
first three quarters of 1998. During its fourth-quarter earnings release, Orbital said it was initiating a more conservative
accounting procedure to correct overstated profit rates on several long-term contracts, as well as improperly capitalized
research and development costs and prematurely recognized revenues from licensing fees on international franchise
agreements, according to the fourth-quarter earnings press release.
The lawsuit also charges Orbital insiders sold
about 102,000 shares of company stock during the class period, profiting about $3.7 million as a result.
Orbcomm is
one of the Orbital subsidiaries that will make the accounting process changes.
The companywide adjustments
resulted in about $20 million in losses-which, when offset by profits gained from the company’s infrastructure business-
showed a reduced net income of about $1.7 million for the first quarter, $1.4 million for the second quarter and $6.1
million in the third quarter. Total diluted earnings per share for the entire nine-month period fell anywhere from 62
cents to 37 cents per share.
Of the $20 million in accounting adjustments, $9.8 million were a result of changes
made at Orbcomm.
“Orbcomm Global L.P. changed the manner in which it recognizes revenues and profits
from non-refundable, up-front license fees on international franchise agreements,” Orbital said. “These fees
will now be recognized over the term of the agreements instead of upon payment. Orbcomm also incurred additional
start-up costs related to capital raising and other activities that were expensed in 1998 as incurred.”
The
satellite services sector, which consists of both Orbcomm and another affiliate, generated a total net loss of $42.5
million for 1998 on revenues of $24 million.
“These adjustments are all non-cash in nature and don’t affect
our ability to carry out our business plan for the future,” said Barron Beneski, communications director at Orbital.
“We believe there is no merit to these lawsuits and we plan a vigorous defense.”
Analysts had
forecasted that Orbital would report positive earnings per share by the end of the year before the adjustments were
announced.
The various class-action claims are expected to be consolidated into one by the end of May.
