##### 



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 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
 (703) 406-5000
 þ o
  þ o o
 o þ




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##### 



PART I
 FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
 ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
 March 31,
    
    
    December 31,2007
    
    
    2006(As Adjusted)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    207,113
    
    
    $
    199,751Restricted cash
    
    
    6,984
    
    
    
    5,984Receivables, net
    
    
    177,149
    
    
    
    165,235Inventories, net
    
    
    26,363
    
    
    
    30,053Deferred income taxes, net
    
    
    42,926
    
    
    
    42,880Other current assets
    
    
    3,279
    
    
    
    5,810Total current assets
    
    
    463,814
    
    
    
    449,713Property, plant and equipment,net
    
    
    92,916
    
    
    
    93,662Goodwill
    
    
    55,551
    
    
    
    55,551Deferred income taxes,net
    
    
    128,801
    
    
    
    135,701Other non-current assets
    
    
    9,367
    
    
    
    9,349Total assets
    
    $
    750,449
    
    
    $
    743,976LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term obligations
    
    $
    515
    
    
    $
    551Accounts payable and accrued expenses
    
    
    137,836
    
    
    
    122,421Deferred revenues
    
    
    54,939
    
    
    
    81,704Total current liabilities
    
    
    193,290
    
    
    
    204,676Long-term obligations, net of current portion
    
    
    143,750
    
    
    
    143,750Total liabilities
    
    
    337,040
    
    
    
    348,426Commitments and contingenciesStockholders equity:Preferred Stock, par value $.01; 10,000,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common Stock, par value $.01; 200,000,000 shares authorized, 59,305,532 and
58,914,991 shares outstanding, respectively
    
    
    593
    
    
    
    589Additional paid-in capital
    
    
    573,290
    
    
    
    566,887Accumulated deficit
    
    
    (160,474
    )
    
    
    (171,926
    )Total stockholders equity
    
    
    413,409
    
    
    
    395,550Total liabilities and stockholders equity
    
    $
    750,449
    
    
    $
    743,976
 See accompanying notes to condensed consolidated financial statements
 1




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##### 



ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited, in thousands, except share data)
 Quarters Ended March 31,2007
    
    
    2006(As Adjusted)Revenues
    
    $
    228,222
    
    
    $
    192,196Costs of goods sold
    
    
    188,256
    
    
    
    154,268Gross profit
    
    
    39,966
    
    
    
    37,928Research and development expenses
    
    
    2,850
    
    
    
    2,171Selling, general and administrative expenses
    
    
    19,595
    
    
    
    19,800Income from operations
    
    
    17,521
    
    
    
    15,957Interest expense
    
    
    (1,148
    )
    
    
    (3,059
    )Interest income and other
    
    
    3,038
    
    
    
    2,357Income before income taxes
    
    
    19,411
    
    
    
    15,255Provision for income taxes
    
    
    (7,959
    )
    
    
    (6,407
    )Net income
    
    $
    11,452
    
    
    $
    8,848Basic net income per share
    
    $
    0.19
    
    
    $
    0.16Diluted net income per share
    
    $
    0.19
    
    
    $
    0.14
 See accompanying notes to condensed consolidated financial statements
 2




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##### 



ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Quarters Ended March 31,2007
    
    
    2006(As Adjusted)Cash Flows From Operating Activities:Net income
    
    $
    11,452
    
    
    $
    8,848Adjustments to reconcile net income to net cash provided by operating activities:Depreciation expense
    
    
    4,108
    
    
    
    3,597Deferred taxes
    
    
    6,854
    
    
    
    4,543Amortization of debt issuance costs
    
    
    158
    
    
    
    153Stock-based compensation and other
    
    
    1,865
    
    
    
    732Changes in assets and liabilities
    
    
    (16,875
    )
    
    
    10,398Net cash provided by operating activities
    
    
    7,562
    
    
    
    28,271Cash Flows From Investing Activities:Capital expenditures
    
    
    (3,707
    )
    
    
    (5,651
    )Change in cash restricted for letters of credit, net
    
    
    (1,000
    )
    
    
    Net cash used in investing activities
    
    
    (4,707
    )
    
    
    (5,651
    )Cash Flows From Financing Activities:Principal payments on long-term obligations
    
    
    (36
    )
    
    
    (18
    )Repurchase of common stock
    
    
    
    
    
    
    (7,954
    )Net proceeds from issuances of common stock
    
    
    3,748
    
    
    
    5,523Tax benefit of share-based compensation
    
    
    795
    
    
    
    1,539Net cash provided by (used in) financing activities
    
    
    4,507
    
    
    
    (910
    )Net increase in cash and cash equivalents
    
    
    7,362
    
    
    
    21,710Cash and cash equivalents, beginning of period
    
    
    199,751
    
    
    
    158,849Cash and cash equivalents, end of period
    
    $
    207,113
    
    
    $
    180,559
 See accompanying notes to condensed consolidated financial statements.
 3




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##### 



ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007 and 2006
(Unaudited)
 (1) Basis of Presentation
    (2) Preparation of Condensed Consolidated Financial Statements
   4




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##### 



(3) Prior Period Adjustment For Adoption of New Accounting Standard
 Accounting for Planned Major
Maintenance Activities (in thousands)
 Quarter EndedMarch 31, 2006RevenuesAs previously reported
    
    $
    192,137As adjusted
    
    $
    192,196Cost of goods soldAs previously reported
    
    $
    154,309As adjusted
    
    $
    154,268Income before income taxesAs previously reported
    
    $
    15,155As adjusted
    
    $
    15,255Provision for income taxesAs previously reported
    
    $
    6,365As adjusted
    
    $
    6,407Net incomeAs previously reported
    
    $
    8,790As adjusted
    
    $
    8,848Basic net income per shareAs previously reported
    
    $
    0.16As adjusted
    
    $
    0.16Diluted net income per shareAs previously reported
    
    $
    0.14As adjusted
    
    $
    0.14As ofDecember 31, 2006Receivables, netAs previously reported
    
    $
    165,755As adjusted
    
    $
    165,235Property, plant and equipment, netAs previously reported
    
    $
    92,878As adjusted
    
    $
    93,662Deferred income taxes, netAs previously reported
    
    $
    136,484As adjusted
    
    $
    135,701Accounts payable and accrued expensesAs previously reported
    
    $
    124,170As adjusted
    
    $
    122,421Accumulated deficitAs previously reported
    
    $
    (173,157
    )As adjusted
    
    $
    (171,926
    )
 5




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##### 



(4) Industry Segment Information
   
    
    Launch Vehicles.Rockets that are used as interceptor and target vehicles for missile
defense systems, small-class space launch vehicles that place satellites into low-Earth
orbit, and suborbital launch vehicles that place payloads into a variety of high-altitude
trajectories.
    
    Satellites and Space Systems.Small- and medium-class spacecraft that are used to
conduct space-related scientific research, to carry out interplanetary and other deep-space
exploration missions, to demonstrate new space technologies, to collect imagery and other
remotely-sensed data about the Earth and to enable national security applications, and
human-rated space systems for Earth orbit, lunar and other missions.
    
    Transportation Management Systems.Software-based transportation management systems for
public transit agencies and private vehicle fleet operators.
  6




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##### 



(in thousands)
 Quarters Ended March 31,2007
    
    2006Launch Vehicles:Revenues
    
    $
    88,251
    
    
    $
    78,771
    (1)Operating income
    
    
    7,863
    
    
    
    9,115
    (1)Identifiable assets
    
    
    129,810
    
    
    
    116,779
    (1)(2)Capital expenditures
    
    
    681
    
    
    
    1,283Depreciation
    
    
    1,346
    
    
    
    1,305
    (1)Satellites and Space Systems:Revenues(3)
    
    $
    130,557
    
    
    $
    107,484Operating income
    
    
    8,978
    
    
    
    6,486Identifiable assets
    
    
    177,613
    
    
    
    185,566
    (2)Capital expenditures
    
    
    1,572
    
    
    
    3,579Depreciation
    
    
    1,856
    
    
    
    1,375Transportation Management Systems:Revenues
    
    $
    10,275
    
    
    $
    7,948Operating income
    
    
    680
    
    
    
    356Identifiable assets
    
    
    19,032
    
    
    
    18,107
    (2)Capital expenditures
    
    
    28
    
    
    
    86Depreciation
    
    
    154
    
    
    
    144Corporate and Other:Revenues(3)
    
    $
    (861
    )
    
    $
    (2,007
    )Operating income
    
    
    
    
    
    
    Identifiable assets
    
    
    423,994
    
    
    
    423,524
    (1)(2)Capital expenditures
    
    
    1,426
    
    
    
    703Depreciation
    
    
    752
    
    
    
    773Consolidated:Revenues
    
    $
    228,222
    
    
    $
    192,196
    (1)Operating income
    
    
    17,521
    
    
    
    15,957
    (1)Identifiable assets
    
    
    750,449
    
    
    
    743,976
    (1)(2)Capital expenditures
    
    
    3,707
    
    
    
    5,651Depreciation
    
    
    4,108
    
    
    
    3,597
    (1)
 
 (1)
    
    As adjusted.(2)
    
    As of December 31, 2006.(3)
    
    Corporate and other revenues are comprised solely of the elimination of
intersegment sales. Satellites and space systems revenues include $0.6 million and $1.4
million of intersegment sales in the quarters ended March 31, 2007 and 2006, respectively. (5) Receivables
 (in thousands)
 March 31, 2007
    
    
    December 31, 2006Billed
    
    $
    47,423
    
    
    $
    45,519Unbilled
    
    
    129,841
    
    
    
    119,831
    (1)Allowance for doubtful accounts
    
    
    (115
    )
    
    
    (115
    )Total
    
    $
    177,149
    
    
    $
    165,235
    (1)
 
 (1)
    
    As adjusted. 7




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##### 



(6) Inventories
 (in thousands)
 March 31, 2007
    
    
    December 31, 2006Inventories
    
    $
    27,229
    
    
    $
    30,871Allowance for inventory obsolescence
    
    
    (866
    )
    
    
    (818
    )Total
    
    $
    26,363
    
    
    $
    30,053
  (7) Earnings Per Share
 (in thousands)
 Quarter Ended
    
    Quarter EndedMarch 31, 2007
    

March 31, 2006Weighted average of outstanding shares for basic EPS
    
    
    59,092
    
    
    
    55,083Dilutive effect of outstanding stock options, units and warrants
    
    
    1,853
    
    
    
    7,239Shares for diluted EPS
    
    
    60,945
    
    
    
    62,322
  8




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##### 



(8) Comprehensive Income
  (9) Debt
  Convertible Notes
     9




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##### 



Senior Credit Facility
  Debt Covenants
  (10) Income Taxes
 Accounting for
Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109
    10




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##### 



(11) Stock-Based Compensation
 (dollars in millions, except per-option and per-unit average values)
 Restricted Stock Units
    
    Stock OptionsWeighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Weighted
    
    AverageMeasurement
    
    
    
    
    
    Average
    
    RemainingNumber of
    
    Date
    
    Number of
    
    Exercise
    
    ContractualUnits
    
    Fair Value
    
    Options
    
    Price
    
    Term (Years)Outstanding at December 31, 2006
    
    
    1,141,723
    
    
    $
    15.34
    
    
    
    4,579,513
    
    
    $
    10.81Granted(1)
    
    
    24,530
    
    
    
    17.94
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    (366,144
    )
    
    
    9.15Vested
    
    
    (2,667
    )
    
    
    14.79
    
    
    
    
    
    
    
    Forfeited
    
    
    (8,171
    )
    
    
    15.19
    
    
    
    (1,612
    )
    
    
    6.99Expired
    
    
    
    
    
    
    
    
    
    
    (9,000
    )
    
    
    16.63Outstanding at March 31, 2007
    
    
    1,155,415
    
    
    $
    15.40
    
    
    
    4,202,757
    
    
    $
    11.63
    
    
    
    4.61
 
 (1)
    
    The fair value of restricted stock unit grants is determined based on the quoted
market price of Orbitals common stock on the date of grant. Such value is recognized as
expense over the service period, net of estimated forfeitures. Quarter Ended
    
    Quarter EndedMarch 31, 2007
    
    March 31, 2006Total stock-based compensation expense recognized
    
    $
    1.9
    
    
    $
    2.6Income tax benefit related to stock-based compensation expense
recognized
    
    
    0.6
    
    
    
    0.8Total intrinsic value of options exercised, computed as the market
price on the exercise date less the price paid to exercise the
options
    
    
    3.4
    
    
    
    4.7Cash received from exercise of options
    
    
    3.3
    
    
    
    5.1Tax benefit recorded as credits to additional paid-in capital
related to
stock-based compensation transactions
    
    
    0.8
    
    
    
    1.5
 As ofMarch 31, 2007Shares of common stock available for grant under the companys stock-based incentive plans
    
    
    1,644,420Aggregate intrinsic value of restricted stock units that are expected to vest
    
    $
    21.7Unrecognized compensation cost related to non-vested restricted stock units, expected to be
recognized over a weighted-average period of 1.64 years
    
    
    10.3Aggregate intrinsic value of stock options outstanding, all fully vested
    
    
    29.9
 (12) Commitments and Contingencies
 U.S. Government Contracts
  11




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Litigation
   qui tam
  12




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##### 



(13) Recent Accounting Pronouncements
 Fair Value Measurements
 13




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Consolidated Results of Operations for the Quarters Ended March 31, 2007 and 2006
 Prior Period Adjustment For Adoption of New Accounting Standard
 Revenues
 14




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##### 



Gross Profit
   Research and Development Expenses
 Selling, General and Administrative Expenses
 Interest Expense
 Interest Income and Other
 15




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##### 



Income Taxes
 Accounting for Uncertainty in
Income Taxes  An Interpretation of FASB Statement No. 109
 Net Income
 Segment Results for the Quarters Ended March 31, 2007 and 2006
  (in thousands)
 Quarters EndedMarch 31,2007
    
    
    2006Revenues:Launch Vehicles
    
    $
    88,251
    
    
    $
    78,771
    (1)Satellites and Space Systems
    
    
    130,557
    
    
    
    107,484Transportation Management Systems
    
    
    10,275
    
    
    
    7,948Corporate and Other
    
    
    (861
    )
    
    
    (2,007
    )Total
    
    $
    228,222
    
    
    $
    192,196
    (1)Income from Operations:Launch Vehicles
    
    $
    7,863
    
    
    $
    9,115
    (1)Satellites and Space Systems
    
    
    8,978
    
    
    
    6,486Transportation Management Systems
    
    
    680
    
    
    
    356Corporate and Other
    
    
    
    
    
    
    Total
    
    $
    17,521
    
    
    $
    15,957
    (1)
 
 (1)
    
    As adjusted.




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Launch Vehicles
  17




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##### 



Satellites and Space Systems
  Transportation Management Systems
 Corporate and Other
 Backlog
   18




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##### 



Liquidity and Capital Resources
 Cash Flow from Operating Activities
  Cash Flow from Investing Activities
  Cash Flow from Financing Activities
   Convertible Notes
   19




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##### 



Senior Credit Facility
 Debt Covenants
 Available Cash and Future Funding
   20




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##### 



Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Fair Value Measurements
 21




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Exchange Rate Risk
   Interest Rate Risk
    22




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##### 



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  23




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##### 



PART II
 OTHER INFORMATION
 ITEM 1.
    
    LEGAL PROCEEDINGS
   qui tam
  24




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##### 



ITEM 1A.
    
    RISK FACTORS
  ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  ITEM 5.
    
    OTHER INFORMATION
  ITEM 6.
    
    EXHIBITS
 Exhibits
 25




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##### 



SIGNATURES
  ORBITAL SCIENCES CORPORATIONDATED: April 26, 2007
    
    
    
    By:
    
    /s/ David W. Thompson
David W. ThompsonChairman and Chief Executive Officer
 
 26




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##### 



EXHIBIT INDEX
  Exhibit No.
    
    Description3.1
    
    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
    
    Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to the companys Quarterly Report on Form 10-Q for
the quarter ended June 30, 2005).3.3
    
    Certificate of Amendment to Restated Certificate of
Incorporation, dated April 29, 1997 (incorporated by reference
to Exhibit 3.3 to the companys Annual Report on Form 10-K for
the fiscal year ended December 31, 1998).3.4
    
    Certificate of Amendment to Restated Certificate of
Incorporation, dated April 30, 2003 (incorporated by reference
to Exhibit 3.4 to the companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2003).3.5
    
    Certificate of Designation, Preferences and Rights of Series B
Junior Participating Preferred Stock, dated November 2, 1998
(incorporated by reference to Exhibit 2 to the companys
Registration Statement on Form 8-A filed on November 2, 1998).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 December 13, 2006, by and between
Orbital Sciences Corporation and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.1 to the
companys Current Report on Form 8-K filed on December 13,
2006).4.3
    
    Form of 2.4375% Convertible Senior Subordinated Note due 2027
(incorporated by reference to Exhibit 4.2 to the companys
Current Report on Form 8-K filed on December 13, 2006).4.4
    
    Registration Rights Agreement dated as of December 13, 2006,
by and among Orbital Sciences Corporation, Wachovia Capital
Markets, LLC and Banc of America Securities LLC (incorporated
by reference to Exhibit 4.3 to the companys Current Report on
Form 8-K filed on December 13, 2006).4.5
    
    Rights Agreement dated as of October 22, 1998, by and between
Orbital Sciences Corporation and BankBoston N.A., as Rights
Agent (incorporated by reference to Exhibit 1 to the companys
Report on Form 8-A filed on November 2, 1998).4.6
    
    Form of Rights Certificate (incorporated by reference to
Exhibit 3 to the companys Report on Form 8-A filed on
November 2, 1998).31.1
    
    Certification of Chairman and Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350) (transmitted herewith).31.2
    
    Certification of Vice Chairman and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. Section 1350) (transmitted herewith).32.1
    
    Written Statement of Chairman and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. Section 1350) (transmitted herewith).32.2
    
    Written Statement of Vice Chairman and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. Section 1350) (transmitted herewith).
 27