##### 



UNITED STATES
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
  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
(State of Incorporation of Registrant)
    
    06-1209561
(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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o As of July 20, 2005, 53,793,919 shares of the registrants Common Stock were outstanding.




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PART 1 FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
 ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) June 30,
    
    
    December 31,2005
    
    
    2004(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    131,833
    
    
    $
    125,504Restricted cash
    
    
    5,306
    
    
    
    8,315Receivables, net
    
    
    140,359
    
    
    
    149,480Inventories, net
    
    
    14,577
    
    
    
    13,565Deferred income taxes, net
    
    
    26,572
    
    
    
    26,710Other current assets
    
    
    3,255
    
    
    
    3,880Total current assets
    
    
    321,902
    
    
    
    327,454Property, plant and equipment, net
    
    
    83,431
    
    
    
    83,154Goodwill
    
    
    55,551
    
    
    
    55,551Deferred income taxes,net
    
    
    177,459
    
    
    
    185,940Other non-current assets
    
    
    9,559
    
    
    
    11,671Total Assets
    
    $
    647,902
    
    
    $
    663,770LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term obligations
    
    $
    85
    
    
    $
    161Accounts payable and accrued expenses
    
    
    116,932
    
    
    
    121,454Deferred revenues
    
    
    13,700
    
    
    
    19,478Total current liabilities
    
    
    130,717
    
    
    
    141,093Long-term obligations, net of current portion
    
    
    127,985
    
    
    
    128,375Other non-current liabilities
    
    
    132
    
    
    
    178Commitments 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, 53,773,762 and
52,823,032 shares outstanding, respectively
    
    
    538
    
    
    
    528Additional paid-in capital
    
    
    599,377
    
    
    
    618,232Deferred compensation
    
    
    
    
    
    
    (53
    )Accumulated deficit
    
    
    (210,847
    )
    
    
    (224,583
    )Total stockholders equity
    
    
    389,068
    
    
    
    394,124Total Liabilities and Stockholders Equity
    
    $
    647,902
    
    
    $
    663,770
 See accompanying notes to condensed consolidated financial statements. 1




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##### 



ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except share data) For the Quarters EndedJune 30,2005
    
    
    2004(unaudited)
    
    
    (unaudited)Revenues
    
    $
    177,403
    
    
    $
    177,684Costs of goods sold
    
    
    144,918
    
    
    
    148,034Gross profit
    
    
    32,485
    
    
    
    29,650Research and development expenses
    
    
    1,234
    
    
    
    1,455Selling, general and administrative expenses
    
    
    16,545
    
    
    
    13,687Income from operations
    
    
    14,706
    
    
    
    14,508Interest expense
    
    
    (2,847
    )
    
    
    (2,889
    )Other income, net
    
    
    718
    
    
    
    227Debt extinguishment expense
    
    
    
    
    
    
    (561
    )Income before provision for income taxes
    
    
    12,577
    
    
    
    11,285Provision for income taxes
    
    
    (4,993
    )
    
    
    (233
    )Net income
    
    $
    7,584
    
    
    $
    11,052Basic net income per share
    
    $
    0.14
    
    
    $
    0.23Diluted net income per share
    
    $
    0.12
    
    
    $
    0.17
 See accompanying notes to condensed consolidated financial statements. 2




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##### 



ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except share data) For the Six Months EndedJune 30,2005
    
    
    2004(unaudited)
    
    
    (unaudited)Revenues
    
    $
    344,552
    
    
    $
    329,056Costs of goods sold
    
    
    284,256
    
    
    
    274,488Gross profit
    
    
    60,296
    
    
    
    54,568Research and development expenses
    
    
    2,266
    
    
    
    3,197Selling, general and administrative expenses
    
    
    31,107
    
    
    
    25,196Settlement expense
    
    
    
    
    
    
    (2,538
    )Income from operations
    
    
    26,923
    
    
    
    28,713Interest expense
    
    
    (5,627
    )
    
    
    (5,798
    )Other income, net
    
    
    1,475
    
    
    
    653Debt extinguishment expense
    
    
    
    
    
    
    (561
    )Income before provision for income taxes
    
    
    22,771
    
    
    
    23,007Provision for income taxes
    
    
    (9,035
    )
    
    
    (461
    )Net income
    
    $
    13,736
    
    
    $
    22,546Basic net income per share
    
    $
    0.25
    
    
    $
    0.47Diluted net income per share
    
    $
    0.22
    
    
    $
    0.34
 See accompanying notes to condensed consolidated financial statements. 3




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##### 



ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) For the Six Months EndedJune 30,2005
    
    
    2004(unaudited)
    
    
    (unaudited)Cash Flows From Operating Activities:Net income
    
    $
    13,736
    
    
    $
    22,546Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    7,144
    
    
    
    7,304Deferred income taxes
    
    
    8,726
    
    
    
    Amortization of debt issuance costs and debt discount
    
    
    306
    
    
    
    467Stock-based compensation and other
    
    
    (193
    )
    
    
    (520
    )Debt extinguishment expense
    
    
    
    
    
    
    561Changes in assets and liabilities and other
    
    
    464
    
    
    
    21,796Net cash provided by operating activities
    
    
    30,183
    
    
    
    52,154Cash Flows From Investing Activities:Capital expenditures
    
    
    (8,088
    )
    
    
    (5,152
    )Change in cash restricted for letters of credit, net
    
    
    3,041
    
    
    
    (1,872
    )Net cash used in investing activities
    
    
    (5,047
    )
    
    
    (7,024
    )Cash Flows From Financing Activities:Payments on long-term obligations
    
    
    (94
    )
    
    
    (5,139
    )Repurchase of common stock
    
    
    (19,999
    )
    
    
    (2,000
    )Net proceeds from issuances of common stock
    
    
    1,286
    
    
    
    6,951Net cash used in financing activities
    
    
    (18,807
    )
    
    
    (188
    )Net increase in cash and cash equivalents
    
    
    6,329
    
    
    
    44,942Cash and cash equivalents, beginning of period
    
    
    125,504
    
    
    
    60,900Cash and cash equivalents, end of period
    
    $
    131,833
    
    
    $
    105,842
 See accompanying notes to condensed consolidated financial statements. 4




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##### 



ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005 and 2004
(Unaudited) (1) Basis of Presentation Orbital Sciences Corporation (together with its subsidiaries, Orbital or the company), a
Delaware corporation, develops and manufactures small rockets and space 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. 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
for the year ended December 31, 2004. Operating results for the quarter ended June 30, 2005 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 condensed
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. All financial amounts are stated in U.S. dollars unless otherwise indicated. 5




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##### 



(3) Stock-Based Compensation In December 2004, Statement of Financial Accounting Standards (SFAS) No. 123(R),
Share-Based Payment, was issued. SFAS No. 123(R) amends SFAS No. 123, Accounting for
Stock-Based Compensation, to require companies to recognize as expense the fair value of all
employee stock-based awards, including stock option grants. The company expects to adopt SFAS No.
123(R) on January 1, 2006, using the modified prospective application method, as defined under SFAS
No. 123(R). The company is currently assessing the expected impact on its consolidated 2006
financial statements and the anticipated changes to its compensation strategies, if any. Through June 30, 2005, the company applied the provisions of SFAS No. 123, as amended by SFAS
No. 148, Accounting for Stock-Based Compensation 3⁄4 Transition and Disclosure, an amendment
of FASB Statement No. 123. Under those provisions, the company has provided pro forma net income
and earnings per share disclosures for its employee stock option grants as if the fair-value-based
method defined in SFAS No. 123 had been applied (see below). The company has not recorded any
compensation cost associated with stock options issued to date since all such options had an
exercise price equal to the market value of the companys common stock on the date of grant. The company used 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 quarters and six
months ended June 30, 2005 and 2004 are summarized as follows: Quarters Ended June 30,2005
    
    
    2004Additional shares authorized for grant at June 30
    
    
    2,991,189
    
    
    
    430,073Volatility
    
    
    60
    %
    
    
    65
    %Risk-free interest rate
    
    
    3.78
    %
    
    
    3.10
    %Weighted-average fair value per share at grant date
    
    $
    4.27
    
    
    $
    4.92Expected dividend yield
    
    
    
    
    
    
    Expected life of options (years)
    
    
    3.5
    
    
    
    2.5
 Six Months Ended June 30,2005
    
    
    2004Additional shares authorized for grant at June 30
    
    
    2,991,189
    
    
    
    430,073Volatility
    
    
    60
    %
    
    
    65
    %Risk-free interest rate
    
    
    3.55
    %
    
    
    3.06
    %Weighted-average fair value per share at grant date
    
    $
    4.75
    
    
    $
    4.96Expected dividend yield
    
    
    
    
    
    
    Expected life of options (years)
    
    
    3.5
    
    
    
    2.5 - 4.5
 6




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##### 



The following table illustrates the effect on net income and earnings 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 30,2005
    
    
    2004Net income, as reported
    
    $
    7,584
    
    
    $
    11,052Stock-based employee compensation expense per fair-value-based method
    
    
    (591
    )
    
    
    (2,850
    )Pro forma net income
    
    $
    6,993
    
    
    $
    8,202Earnings per share:Basicas reported
    
    $
    0.14
    
    
    $
    0.23Basicpro forma
    
    $
    0.13
    
    
    $
    0.17Dilutedas reported
    
    $
    0.12
    
    
    $
    0.17Dilutedpro forma
    
    $
    0.11
    
    
    $
    0.12
 Six Months Ended June 30,2005
    
    
    2004Net income, as reported
    
    $
    13,736
    
    
    $
    22,546Stock-based employee compensation expense per fair-value-based method
    
    
    (1,313
    )
    
    
    (4,040
    )Pro forma net income
    
    $
    12,423
    
    
    $
    18,506Earnings per share:Basicas reported
    
    $
    0.25
    
    
    $
    0.47Basicpro forma
    
    $
    0.23
    
    
    $
    0.38Dilutedas reported
    
    $
    0.22
    
    
    $
    0.34Dilutedpro forma
    
    $
    0.20
    
    
    $
    0.28
 Pro forma net income reflects only options granted through June 30, 2005 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, (ii) satellites and related space systems and (iii) transportation management
systems. Reportable segments are generally organized based upon product lines. Corporate and
other is comprised of the elimination of intercompany revenues and certain corporate items that
have not been attributed to a particular segment. Intersegment sales of $1.5 million and
$2.6 million were recorded in the quarters ended June 30, 2005 and 2004, respectively.
Intersegment sales of $3.8 million and $4.5 million were recorded in the six months ended June 30,
2005 and 2004, respectively. 7




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##### 



The following table presents operating information for the quarters and six months ended June
30, 2005 and 2004 and identifiable assets at June 30, 2005 and December 31, 2004 by reportable
segment (in thousands): Quarters Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Launch Vehicles:Revenues
    
    $
    87,860
    
    
    $
    86,508
    
    
    $
    167,837
    
    
    $
    162,997Operating income
    
    
    8,721
    
    
    
    7,220
    
    
    
    17,709
    
    
    
    14,123Identifiable assets
    
    
    116,998
    
    
    
    123,882
    (1)
    
    
    116,998
    
    
    
    123,882
    (1)Capital expenditures
    
    
    1,349
    
    
    
    600
    
    
    
    3,566
    
    
    
    1,593Depreciation and amortization
    
    
    1,338
    
    
    
    1,295
    
    
    
    2,728
    
    
    
    2,630Satellites and Related Space Systems:Revenues
    
    $
    84,870
    
    
    $
    85,823
    
    
    $
    167,280
    
    
    $
    155,204Operating income
    
    
    5,506
    
    
    
    6,980
    
    
    
    8,340
    
    
    
    11,434Identifiable assets
    
    
    132,229
    
    
    
    130,047
    (1)
    
    
    132,229
    
    
    
    130,047
    (1)Capital expenditures
    
    
    1,578
    
    
    
    1,401
    
    
    
    3,509
    
    
    
    2,662Depreciation and amortization
    
    
    1,200
    
    
    
    1,302
    
    
    
    2,407
    
    
    
    2,568Transportation Management Systems:Revenues
    
    $
    6,188
    
    
    $
    7,984
    
    
    $
    13,255
    
    
    $
    15,315Operating income
    
    
    479
    
    
    
    308
    
    
    
    874
    
    
    
    618Identifiable assets
    
    
    21,649
    
    
    
    23,124
    (1)
    
    
    21,649
    
    
    
    23,124
    (1)Capital expenditures
    
    
    53
    
    
    
    69
    
    
    
    187
    
    
    
    148Depreciation and amortization
    
    
    155
    
    
    
    185
    
    
    
    323
    
    
    
    383Corporate and Other:Revenues
    
    $
    (1,515
    )
    
    $
    (2,631
    )
    
    $
    (3,820
    )
    
    $
    (4,460
    )Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,538Identifiable assets
    
    
    377,026
    
    
    
    386,717
    (1)
    
    
    377,026
    
    
    
    386,717
    (1)Capital expenditures
    
    
    641
    
    
    
    454
    
    
    
    826
    
    
    
    749Depreciation and amortization
    
    
    815
    
    
    
    870
    
    
    
    1,686
    
    
    
    1,723Consolidated:Revenues
    
    $
    177,403
    
    
    $
    177,684
    
    
    $
    344,552
    
    
    $
    329,056Operating income
    
    
    14,706
    
    
    
    14,508
    
    
    
    26,923
    
    
    
    28,713Identifiable assets
    
    
    647,902
    
    
    
    663,770
    (1)
    
    
    647,902
    
    
    
    663,770
    (1)Capital expenditures
    
    
    3,621
    
    
    
    2,524
    
    
    
    8,088
    
    
    
    5,152Depreciation and amortization
    
    
    3,508
    
    
    
    3,652
    
    
    
    7,144
    
    
    
    7,304
 
 (1)

    As of December 31, 2004 (5) Receivables Receivables consisted of the following (in thousands): June 30, 2005
    
    
    December 31, 2004Billed
    
    $
    42,189
    
    
    $
    54,800Unbilled
    
    
    98,369
    
    
    
    94,857Allowance for doubtful accounts
    
    
    (199
    )
    
    
    (177
    )Total
    
    $
    140,359
    
    
    $
    149,480
 8




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##### 



(6) Inventories Inventories consisted of the following (in thousands): June 30, 2005
    
    
    December 31, 2004Inventories
    
    $
    17,666
    
    
    $
    16,554Allowance for inventory obsolescence
    
    
    (3,089
    )
    
    
    (2,989
    )Total
    
    $
    14,577
    
    
    $
    13,565
 Substantially all of the companys inventory consisted of component parts and raw
materials. (7) Warranties The company has warranty obligations in connection with certain transportation management
systems contracts. The company records a liability for estimated warranty claims based upon
historical data and customer information. Activity for the warranty liability consisted of the
following (in thousands): Quarters Ended June 30,2005
    
    
    2004Balance at beginning of period
    
    $
    2,799
    
    
    $
    4,665Accruals during the period
    
    
    927
    
    
    
    259Reductions during the period
    
    
    (766
    )
    
    
    (584
    )Balance at end of period
    
    $
    2,960
    
    
    $
    4,340
 Six Months Ended June 30,2005
    
    
    2004Balance at beginning of period
    
    $
    3,145
    
    
    $
    5,020Accruals during the period
    
    
    1,270
    
    
    
    338Reductions during the period
    
    
    (1,455
    )
    
    
    (1,018
    )Balance at end of period
    
    $
    2,960
    
    
    $
    4,340
 (8) Earnings Per Share The following table presents the shares used in computing basic and diluted earnings per share
(EPS) (in thousands): Quarters Ended June 30,2005
    
    
    2004Weighted average of outstanding shares for basic EPS
    
    
    55,066
    
    
    
    48,764Dilutive effect of outstanding stock options and warrants
    
    
    7,798
    
    
    
    17,008Shares for diluted EPS
    
    
    62,864
    
    
    
    65,772
 Six Months Ended June 30,2005
    
    
    2004Weighted average of outstanding shares for basic EPS
    
    
    55,111
    
    
    
    48,405Dilutive effect of outstanding stock options and warrants
    
    
    8,046
    
    
    
    17,154Shares for diluted EPS
    
    
    63,157
    
    
    
    65,559
 9




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##### 



(9) Comprehensive Income Comprehensive income in the quarterly and six-month periods ended June 30, 2005 and 2004 was
equal to net income. Accumulated other comprehensive income as of June 30, 2005 and December 31,
2004 was $0. (10) Debt The following table sets forth the companys long-term obligations, excluding capital lease
obligations (in thousands): June 30, 2005
    
    
    December 31, 20049% senior notes, interest due semi-annually, principal due in July 2011
    
    $
    126,425
    
    
    $
    126,425Carrying value adjustment on 9% senior notes
    
    
    1,490
    
    
    
    1,844127,915
    
    
    
    128,269Less current portion
    
    
    
    
    
    
    Long-term portion
    
    $
    127,915
    
    
    $
    128,269
 The fair value of the companys senior notes at June 30, 2005 and December 31, 2004 was
estimated at $138.1 million and $142.5 million, respectively, based on market trading activity. The company has a $50.0 million revolving credit facility (the Revolver) with Bank of
America serving as the lead arranger. The company has the option to increase the amount of the
Revolver up to $25 million to the extent that any one or more lenders commit to be a lender for
such amount. Loans under the Revolver bear interest at LIBOR plus a margin ranging from 1.5% to
2.25% or at a prime rate plus a margin ranging from zero to 0.75%, with the applicable margin in
each case varying according to the companys ratio of total debt to earnings before interest,
taxes, depreciation and amortization. The Revolver is collateralized by the companys intellectual
property and accounts receivable. Up to $40.0 million of the Revolver may be reserved for letters
of credit. As of June 30, 2005, there were no borrowings under the Revolver, although $12.5
million of letters of credit were issued under the Revolver. Accordingly, as of June 30, 2005,
$37.5 million of the Revolver was available for borrowing. Orbitals 9% senior notes due 2011 and the Revolver contain covenants limiting the companys
ability to, among other things, incur additional debt, pay cash dividends, make investments, redeem
or repurchase Orbital stock, enter into transactions with affiliates, merge or consolidate with
others and dispose of assets or create liens on assets. In addition, the Revolver contains
financial covenants with respect to leverage, secured leverage, fixed charge coverage, consolidated
net worth and the ratio of accounts receivable to senior secured indebtedness. As of June 30,
2005, the company was in compliance with all of these covenants. In 2003, the company entered into an eight-year interest rate swap agreement with a financial
institution on a notional amount of $50.0 million, whereby the company would receive fixed-rate
interest of 9% in exchange for variable interest payments. This arrangement was designated an
effective fair value hedge of $50.0 million of the companys 9% senior notes due 2011. In June
2005, the company terminated the swap agreement and received $1.5 million in cash. The 10




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remaining debt fair value adjustment of $1.5 million will be amortized as a reduction of interest
expense over the remaining term of the senior notes. (11) Commitments and Contingencies U.S. Government Contracts Most of the companys U.S. government contracts are funded incrementally on a year-to-year
basis. Changes in government policies, priorities or funding levels through agency or program
budget reductions by the U.S. Congress or executive agencies could materially adversely affect the
companys financial condition or results of operations. Furthermore, contracts with the U.S.
government may be terminated or suspended by the U.S. government at any time, with or without
cause. Such contract suspensions or terminations could result in unreimbursable expenses or
charges or otherwise adversely affect the companys financial condition and/or results of
operations. In the second quarter of 2005, the federal government commenced an investigation which the
company believes is focused on contracting matters related to certain U.S. government launch
vehicle programs. The company cannot predict whether the government ultimately will conclude that
there have been violations of any federal contracting laws, policies or procedures, or any other
applicable laws. Should any such violations be alleged or found, the company could face the
possibility of criminal, civil and/or administrative penalties depending on the nature of such
violations. Litigation The company is party to certain litigation or other legal proceedings arising in the
ordinary course of business. In the opinion of management, the outcome of such legal
matters will not have a material adverse effect on the companys results of operations or
financial condition. 11




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS With the exception of historical information, the matters discussed below under the headings
Consolidated Results of Operations for the Quarters and Six Months Ended June 30, 2005 and 2004,
Segment Results, Backlog, Liquidity and Capital Resources, Off-Balance Sheet Arrangements
and elsewhere in this report on Form 10-Q include forward-looking statements that involve risks and
uncertainties, many of which are beyond our control. A number of important factors, including
those identified in our Annual Report on Form 10-K for the year ended December 31, 2004, may cause
actual results to differ materially from those anticipated or expected in any forward-looking
statement. We assume no obligation to update any forward-looking statements. We develop and manufacture small rockets and space systems for commercial, military and civil
government customers. Our 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. We also offer
space-related technical services to government agencies and develop and build satellite-based
transportation management systems for public transit agencies and private vehicle fleet operators. Consolidated Results of Operations for the Quarters and Six Months Ended June 30, 2005 and 2004 Revenues- Our consolidated revenues were $177.4 million in the second quarter of
2005, down slightly compared to $177.7 million for the same quarter of 2004. This decrease was
driven by lower revenues in the satellites and related space systems and the transportation
management systems segments, offset partially by a 2% increase in launch vehicles segment revenues.
Satellites and related space systems segment revenues decreased marginally due to lower revenues
from the satellite product lines, partially offset by higher technical services revenues and by
$2.7 million of revenues recorded in 2005 pertaining to the receipt of satellite acceptance and
on-orbit incentive payments from our customer and former affiliate Orbimage, Inc. Launch vehicles
segment revenues increased slightly in the second quarter of 2005 compared to the second quarter of
2004 due to revenue growth in the interceptor launch vehicles and target launch vehicles product
lines, offset partially by a revenue decrease in the space launch vehicles product line.
Transportation management systems segment revenues decreased $1.8 million in the 2005 quarter
largely due to certain contracts nearing or reaching completion in 2005. We reported $344.6 million in revenues during the first six months of 2005, up 5% over
revenues of $329.1 million during the same period in 2004, primarily due to an 8% revenue increase
in our satellites and related space systems segment and a 3% increase in the launch vehicles
segment. The satellites and related space systems segment growth was driven by significantly
higher revenues from science, technology and defense satellite contracts, offset partially by lower
revenues in our communications satellites product line. The launch
vehicles 12




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##### 



segment growth was
driven by higher revenues in the interceptor launch vehicles and target
launch vehicles product lines, partially offset by lower space launch vehicles product line
revenues. Transportation management systems segment revenues decreased for the first six months of
2005 primarily due to the same factors driving the second quarter results. Gross Profit  Our consolidated gross profit was $32.5 million and $29.7 million in
the second quarters of 2005 and 2004, respectively. The gross profit improvement is due to a $3.2
million, or 23%, increase in gross profit in our launch vehicles segment and a $0.2 million, or
17%, increase in gross profit in our transportation management systems segment, partially offset by
a $0.6 million, or 4%, decrease in gross profit in our satellites and related space systems
segment. The increase in gross profit in our launch vehicles segment was largely due to a higher
profit margin from the interceptor launch vehicles product line and an unfavorable profit
adjustment on a Taurus rocket contract recorded in the second quarter of 2004 that did not recur in
2005, partially offset by cost growth on certain contracts in 2005. The decrease in gross profit
in our satellites and related space systems segment was largely due to lower gross profit in the
communications satellite product line, partially offset by a favorable $2.7 million profit
adjustment pertaining to the receipt of the above-mentioned satellite incentives. Consolidated gross profit for the first six months of 2005 increased to $60.3 million from
$54.6 million in the same period of 2004. The gross profit improvement is due to a $5.6 million,
or 21%, increase in gross profit in our launch vehicles segment and a $0.5 million, or 18%,
increase in gross profit in our transportation management systems segment, partially offset by a
$0.4 million, or 1%, decrease in gross profit in our satellites and related space systems segment.
The year-to-date changes in gross profit during 2005 as compared to 2004 were largely attributable
to the same quarterly factors described above. Research and Development Expenses  Research and development expenses were $1.2
million and $1.5 million in the second quarters of 2005 and 2004, respectively, and $2.3 million
and $3.2 million for the six months ended June 30, 2005 and 2004, respectively. These expenses
related to the development of improved launch vehicles and satellites. Selling, General and Administrative Expenses  Selling, general and administrative
expenses were $16.5 million and $13.7 million in the second quarters of 2005 and 2004,
respectively, and $31.1 million and $25.2 million for the six months ended June 30, 2005 and 2004,
respectively. Selling, general and administrative expenses increased in the second quarter and the
first six months of 2005 as compared to the same periods of 2004 largely due to increased personnel
related costs, higher legal and professional services fees and an increase in bid and proposal
costs. Selling, general and administrative expenses include the costs of marketing, advertising,
promotional and other selling expenses, as well as the costs of our finance, legal, administrative
and general management functions. Settlement Expense  In the first quarter of 2004, we recorded a $2.5 million gain as
a credit to settlement expense on the sale of senior subordinated notes which we had received from
a former affiliate. 13




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##### 



Interest Expense  Interest expense was $2.8 million and $2.9 million for the second
quarters of 2005 and 2004, respectively, and $5.6 million and $5.8 million for the six months ended
June 30, 2005 and 2004, respectively. Income Taxes  In the fourth quarter of 2004, we reversed nearly all of our deferred
tax valuation allowance due to our assessment that substantially all of our deferred tax assets are
more likely than not realizable. This resulted in our recording significantly higher income tax
expense beginning in 2005, nearly all of which is offset by net operating loss carryforwards and
other deferred tax assets, resulting in minimal cash tax payments. We recorded $5.0 million and
$9.0 million of income tax expense, at an effective income tax rate of 39.7%, in the second quarter
and first six months of 2005, respectively. Our cash income tax payments, which primarily relate
to alternative minimum tax (AMT), are currently less than 2% of pretax income. In the second
quarter and first six months of 2004, we recorded $0.2 million and $0.5 million of income tax
expense, respectively, primarily related to AMT. Net Income  Our consolidated net income was $7.6 million and $11.1 million in the
second quarters of 2005 and 2004, respectively, and $13.7 million and $22.5 million in the six
months ended June 30, 2005 and 2004, respectively. Segment Results Our products and services are grouped into three reportable segments: (i) launch vehicles,
(ii) satellites and related space systems and (iii) transportation management systems. All of our
other activities, as well as consolidating eliminations and adjustments, are reported in corporate
and other. The following table summarizes revenues and income from operations for our reportable business
segments and corporate and other (in thousands): Quarters Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Launch Vehicles
    
    $
    87,860
    
    
    $
    86,508
    
    
    $
    167,837
    
    
    $
    162,997Satellites and Related Space Systems
    
    
    84,870
    
    
    
    85,823
    
    
    
    167,280
    
    
    
    155,204Transportation Management Systems
    
    
    6,188
    
    
    
    7,984
    
    
    
    13,255
    
    
    
    15,315Corporate and Other
    
    
    (1,515
    )
    
    
    (2,631
    )
    
    
    (3,820
    )
    
    
    (4,460
    )Total
    
    $
    177,403
    
    
    $
    177,684
    
    
    $
    344,552
    
    
    $
    329,056Income from Operations:Launch Vehicles
    
    $
    8,721
    
    
    $
    7,220
    
    
    $
    17,709
    
    
    $
    14,123Satellites and Related Space Systems
    
    
    5,506
    
    
    
    6,980
    
    
    
    8,340
    
    
    
    11,434Transportation Management Systems
    
    
    479
    
    
    
    308
    
    
    
    874
    
    
    
    618Corporate and Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,538Total
    
    $
    14,706
    
    
    $
    14,508
    
    
    $
    26,923
    
    
    $
    28,713
 14




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Second Quarter 2005 Compared With Second Quarter 2004 Launch Vehicles  Launch vehicles segment revenues increased 2% primarily due to
higher revenues from our interceptor launch vehicles and our target launch vehicles product lines,
partially offset by a decrease in revenues from our space launch vehicles product line. In our
interceptor launch vehicles product line, we are developing and manufacturing interceptor boosters
designed to defend against ballistic missile attacks, including the midcourse-phase Orbital Boost
Vehicle (OBV) and the boost-phase Kinetic Energy Interceptors (KEI) programs directed by the U.S.
Missile Defense Agency. Revenues from this product line grew $2.3 million quarter-over-quarter,
due to a ramp-up in KEI program activity offset partially by lower OBV revenue. The interceptor
launch vehicles product line accounted for 59% and 57% of total launch vehicles segment revenues in
the second quarters of 2005 and 2004, respectively. Revenues in our target launch vehicles product
line increased $4.7 million in the second quarter of 2005 as compared to 2004 due primarily to a
higher level of activity on target vehicles in 2005. Revenues decreased $5.7 million in our space
launch vehicles product line due primarily to lower levels of activity on Taurus and Minotaur
programs. Operating income in the launch vehicles segment increased 21% primarily due to improved
operating results in the interceptor launch vehicles product line and an unfavorable profit
adjustment on a Taurus space launch vehicle contract recorded in the second quarter of 2004 that
did not recur in 2005, partially offset by cost growth on certain contracts in 2005. Operating
income from our missile defense interceptor launch vehicles product line continued to be the
largest contributor to this segments operating income, reporting $7.4 million of operating profit
in the second quarter of 2005 and $5.6 million in the second quarter of 2004, or 84% and 78%,
respectively, of total operating income in this segment. Although space launch vehicles revenues
were lower, operating profit improved in this product line due to the above-mentioned Taurus
adjustment that had depressed 2004 results. Although target launch vehicles revenues were higher,
operating results declined in this product line primarily due to cost growth impacting several
contracts. Segment operating margin (operating income as a percentage of revenues) was 9.9% in the
second quarter of 2005, compared to 8.3% in the second quarter of 2004. This increase in operating
margin was primarily the result of improved interceptor launch vehicles margins and the 2004 Taurus
contract profit adjustment discussed above. Satellites and Related Space Systems  Satellites and related space systems segment
revenues decreased marginally as a result of lower revenues in our communications satellites
product line, offset partially by a net increase in revenues in our other product lines. Revenues decreased
$3.0 million in our communications satellites product line primarily due to lower activity on
certain contracts, offset partially by activity on a new satellite contract begun in the second
quarter of 2005. Revenues increased $2.0 million in our other product lines primarily due to
higher technical services revenues and a favorable $2.7 million revenue adjustment, offset
partially by lower activity on certain science satellites in 2005. In the second quarter of 2005
we recorded $2.7 million of revenues pertaining to the receipt of satellite acceptance and on-orbit
incentive payments from Orbimage, Inc., our customer and former affiliate. 15




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##### 



Operating income in the satellites and related space systems segment decreased due to lower
operating results in the communications satellites product line, partially offset by higher income
in our other product lines. The decline in communications satellites operating results was
primarily due to cost growth on a contract to correct an anomaly that was detected while the
satellite was being prepared for launch. The increase in our other product lines was primarily due
to $2.7 million of acceptance and incentive fees discussed above and higher technical services
income offset partially by lower income on certain defense-related contracts. Segment operating
margin was 6.5% in the second quarter of 2005, compared to 8.1% in the second quarter of 2004.
This decrease in operating margin was largely due to the communications satellite cost growth noted
above. Transportation Management Systems  Transportation management systems segment revenues
decreased largely due to certain contracts completed recently and other contracts that are nearly
complete. Operating income remained relatively consistent quarter-over-quarter. Corporate and Other  Corporate and other revenues are comprised solely of the
elimination of intercompany revenues. Six Months Ended June 30, 2005 Compared With Six Months Ended June 30, 2004 Launch Vehicles  Launch vehicles segment revenues increased 3% primarily due to
higher revenues from our interceptor launch vehicles and our target launch vehicles product lines,
partially offset by a decrease in revenues from our space launch vehicles product line. Revenues
from the interceptor launch vehicles product line grew $5.6 million, due to a ramp-up in KEI
program activity offset partially by lower OBV revenue. The interceptor launch vehicles product
line accounted for 58% and 56% of total launch vehicles segment revenues in the six months ended
June 30, 2005 and 2004, respectively. Revenues in our target launch vehicles product line
increased $8.2 million in the six months ended June 30, 2005 as compared to 2004 due primarily to a
higher level of activity on target vehicles in 2005. Revenues decreased $9.1 million in our space
launch vehicles product line due primarily to lower levels of activity on Taurus and Minotaur
programs. Operating income in the launch vehicles segment increased 25% primarily attributable to
improved operating results in the interceptor launch vehicles product line and an unfavorable
profit adjustment on a Taurus space launch vehicle contract recorded in the first half of 2004 that
did not recur in 2005, partially offset by cost growth on certain contracts in 2005. Operating
income from our missile defense interceptor launch vehicles product line continued to be the
largest contributor to this segments operating income, reporting $13.3 million operating profit
year-to-date in 2005 and $11.7 million in the same period of 2004. Although space launch vehicles
revenues were lower, operating profit improved in this product line due to the above-mentioned
Taurus adjustment that had depressed 2004 results. Although target launch vehicles revenues were
higher, operating results declined in this product line primarily due to cost growth impacting
several contracts. Segment operating margin was 10.6% in the six months ended June 30, 2005,
compared to 8.7% in the same period of 2004. This increase in operating margin was 16




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primarily the result of improved interceptor launch vehicles margins and the 2004 Taurus contract
profit adjustment discussed above. Satellites and Related Space Systems  Satellites and related space systems segment
revenues increased 8% primarily as a result of significantly higher revenues from science,
technology and defense satellite contracts, offset partially by lower revenues in our
communications satellites product line. Revenues increased $18.9 million in our science,
technology and defense satellites product line primarily due to increased revenues from
defense-related contracts awarded in 2004 and late 2003 and in part due to the $2.7 million revenue
adjustment related to customer incentive receipts discussed above. Revenues decreased $11.2
million in our communications satellites product line primarily due to lower activity on certain
contracts, offset partially by revenue on a new contract begun in the second quarter of 2005
discussed previously. Our technical services revenues increased $4.4 million. Operating income in the satellites and related space systems segment decreased due to lower
operating results in the communications satellites product line, partially offset by higher income
in our other product lines. The decline in communications satellites operating results was
primarily due to reduced contract activity in 2005 and to cost growth on a contract to correct an anomaly that was detected while the
satellite was being prepared for launch. The increase in our other product lines was primarily due
to the favorable $2.7 million revenue and operating profit adjustment discussed above and higher
technical services income offset partially by lower income on certain defense related contracts.
Segment operating margin was 5.0% in the first six months of 2005, compared to 7.4% in the same
period of 2004. This decrease in operating margin was largely due to the communications satellite
cost growth noted above. Transportation Management Systems  Transportation management systems segment revenues
decreased largely due to certain contracts completed recently and other contracts that are nearly
complete. Operating income remained relatively level, consistent with second quarter results. Corporate and Other  Corporate and other revenues are comprised solely of the
elimination of intercompany revenues. Corporate and other operating income in the first half of 2004 is comprised solely of the gain
on the sale of notes received from a former affiliate discussed above. Backlog Our firm backlog was $1.04 billion at June 30, 2005 and $1.17 billion at December 31, 2004.
We expect $320 million of the June 30, 2005 firm backlog to be recognized as revenue during the
remainder of 2005. Firm backlog consists of aggregate contract values for firm product orders,
excluding the portion previously included in revenues, and including government contract orders not
yet funded and our estimate of potential award fees. 17




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Total backlog was $2.66 billion at June 30, 2005 and $2.31 billion at December 31, 2004.
Total backlog includes firm backlog in addition to unexercised options, indefinite-quantity
contracts and undefinitized orders and contract award selections. Liquidity and Capital Resources Cash Flows from Operating Activities  Cash flow from operations in the first six
months of 2005 was $30.2 million, as compared to $52.2 million in the same period of 2004. Cash
flow from operations in the first six months of 2005 was primarily attributable to cash provided by
ongoing business operations. Cash flow from operations in the first six months of 2004 was
primarily attributable to cash generated by business operations and a $21.8 million net reduction
in assets and liabilities, including $9.2 million in customer cash payments received in advance of
contract performance and a $15.6 million increase in accounts payable and accrued expenses. Cash Flows from Investing Activities  We used $8.1 million and $5.2 million in the
first six months of 2005 and 2004, respectively, for capital expenditures. In the first six months
of 2005, we reduced cash restricted for letters of credit by $3.0 million. Cash Flows from Financing Activities  During the second quarter of 2005, we
repurchased and retired 1.94 million shares of our common stock at a cost of $20.0 million. During
the second quarter of 2004, we repurchased and retired 0.16 million shares of our common stock at a
cost of $2.0 million, and we repurchased and cancelled $4.6 million of our 9% senior notes. We
paid a $0.4 million premium in connection with our repurchase of the 9% senior notes. During the first six months of 2005, we received $1.3 million from issuances of common stock
in connection with stock option exercises. During the first six months of 2004, we received $7.0
million from issuances of common stock primarily in connection with stock option and warrant
exercises. The following table sets forth our long-term obligations, excluding capital lease obligations
(in thousands): June 30, 2005
    
    
    December 31, 20049% senior notes, interest due semi-annually, principal due in July 2011
    
    $
    126,425
    
    
    $
    126,425Carrying value adjustment to 9% senior notes
    
    
    1,490
    
    
    
    1,844127,915
    
    
    
    128,269Less current portion
    
    
    
    
    
    
    Long-term portion
    
    $
    127,915
    
    
    $
    128,269
 The fair value of our senior notes at June 30, 2005 and December 31, 2004 was estimated
at $138.1 million and $142.5 million, respectively, based on market trading activity. We have a $50.0 million revolving credit facility (the Revolver) with Bank of America
serving as the lead arranger. We have the option to increase the amount of the Revolver up to $25
million to the extent that any one or more lenders commit to be a lender for such amount. Loans
under the Revolver bear interest at LIBOR plus a margin ranging from 1.5% to 2.25% or 18




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at a prime rate plus a margin ranging from zero to 0.75%, with the applicable margin in each case
varying according to our ratio of total debt to earnings before interest, taxes, depreciation and
amortization. The Revolver is collateralized by our intellectual property and accounts receivable.
Up to $40.0 million of the Revolver may be reserved for letters of credit. As of June 30, 2005,
there were no borrowings under the Revolver, although $12.5 million of letters of credit were
issued under the Revolver. Accordingly, as of June 30, 2005, $37.5 million of the Revolver was
available for borrowing. Our 9% senior notes due 2011 and the Revolver contain covenants limiting our ability to, among
other things, incur additional debt, pay cash dividends, make investments, redeem or repurchase
Orbital stock, enter into transactions with affiliates, merge or consolidate with others and
dispose of assets or create liens on assets. In addition, the Revolver contains financial
covenants with respect to leverage, secured leverage, fixed charge coverage, consolidated net worth
and the ratio of accounts receivable to senior secured indebtedness. As of June 30, 2005, we were
in compliance with all of these covenants. In 2003, we entered into an eight-year interest rate swap agreement with a financial
institution on a notional amount of $50.0 million, whereby we would receive fixed-rate interest of
9% in exchange for variable interest payments. This arrangement was designated an effective fair
value hedge of $50.0 million of our 9% senior notes due 2011. In June 2005, we terminated the swap
agreement and received $1.5 million in cash in connection with the termination. The remaining debt
fair value adjustment of $1.5 million will be amortized as a reduction of interest expense over the
remaining term of the senior notes. Available Cash and Future Funding  At June 30, 2005, we had $131.8 million of
unrestricted cash and cash equivalents. Management believes that available cash, cash expected to
be generated from operations and borrowing capacity under the Revolver will be sufficient to fund
our operating and capital expenditure requirements in the foreseeable future. In April 2005, our Board of Directors authorized the purchase of up to $50 million of our
outstanding securities over a 12-month period. We may repurchase our 9% senior notes due 2011,
common stock or common stock warrants that expire in 2006, or a combination thereof. Shares of
common stock may be purchased from time to time in the open market, by block purchase or in
negotiated transactions. The warrants and notes may be purchased in negotiated transactions. The
timing, amount and type of securities to be repurchased will be determined based on our loan
covenants, market conditions and other factors. The following outstanding securities are subject
to the repurchase program: $126 million of 9% senior notes due 2011; 53.8 million shares of common
stock; and approximately 82,000 warrants to purchase approximately 10.0 million shares of common
stock with an exercise price of $3.86 per share that expire in August 2006. As described above, we
repurchased and retired 1.94 million shares of our common stock at a cost of $20.0 million during
the second quarter of 2005 under this securities purchase program. 19




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##### 



Off-Balance Sheet Arrangements We believe that we do not have any material off-balance sheet arrangements, as defined by
applicable securities regulations, that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources. 20




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At June 30, 2005, we had $4.0 million of receivables denominated in Japanese yen and $6.2
million denominated in Singapore dollars. We are subject to market risk to the extent that future
fluctuations in foreign currency exchange rates impact these receivables. The fair market value of our outstanding 9% senior notes due 2011 was estimated at $138.1
million at June 30, 2005, based on market trading activity. We have an unfunded deferred compensation plan for executive officers and senior managers with
a total liability balance of $5.2 million at June 30, 2005. This liability is subject to
fluctuation based upon the market value of certain investment securities selected by participants
to measure the market fluctuations and to measure our liability to each participant. ITEM 4. CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as amended) as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that these disclosure controls and procedures were effective. There has been no change
in our internal control over financial reporting during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. 21




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##### 



PART II OTHER INFORMATION ITEM 1.
    
    LEGAL PROCEEDINGSOn May 26, 2005, the United States Attorneys Office for the District of Arizona
commenced an investigation which we believe is focused on contracting matters
related to certain U.S. government launch vehicle programs. We are cooperating
fully with U.S. government authorities in connection with this investigation, and
management strongly supports and is committed to the U.S. governments procurement
integrity processes. We cannot predict whether the government ultimately will
conclude that there have been violations of any federal contracting laws, policies
or procedures, or any other applicable laws. Should any such violations be alleged
or found, we could face the possibility of criminal, civil and/or administrative
penalties depending on the nature of such violations.We are party to certain litigation or proceedings arising in the ordinary course of
business. In the opinion of management, the probability is remote that the outcome
of any such litigation or proceedings will have a material adverse effect on our
results of operations or financial condition.ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS(a) None.(b) None.
 22




---



##### 



(c) Issuer Purchases of Equity SecuritiesThe following table sets forth information regarding our repurchase of common stock
during the quarter ended June 30, 2005.
 Total Number of
    
    
    Maximum NumberShares
    
    
    (or ApproximatePurchased as
    
    
    Dollar Value) ofTotal
    
    
    
    
    
    Part of Publicly
    
    
    Shares That MayNumber
of
    
    

Average
Price
    
    
    Announced
    
    
    Yet Be PurchasedShare
    
    

    paid per
    
    
    Plans or
    
    
    Under the Plans orPeriod
    
    

Purchased
    
    


share
    
    
    Programs1
    
    
    Programs1April 1, 2005 to
April 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    50,000,000May 1, 2005 to
May 31, 2005
    
    
    885,100
    
    
    $
    10.29
    
    
    
    885,100
    
    
    $
    40,890,580June 1, 2005 to
June 30, 2005
    
    
    1,056,300
    
    
    $
    10.31
    
    
    
    1,056,300
    
    
    $
    30,000,639TOTAL
    
    
    1,941,400
    
    
    $
    10.30
    
    
    
    1,941,400
    
    
    $
    30,000,639
 
 (1)
    
    On April 21, 2005, we announced the companys plan, subject to certain
conditions, to repurchase up to $50 million of outstanding debt and equity
securities, including our common stock, up through April 2006. This plan replaced
our 2004 securities repurchase plan which has expired. ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIESNot applicable.ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS(a)
    
    The annual meeting of stockholders of the company was held on
April 28, 2005.(b)
    
    Election of four directors, each serving for a three-year term
ending in 2008:
 Daniel J. FinkVotes:
    
    For:
    
    
    47,938,917Withheld:
    
    
    1,219,374
 23




---



##### 



Robert J. HermannVotes:
    
    For:
    
    
    47,975,631Withheld:
    
    
    1,182,660Janice I. ObuchowskiVotes:
    
    For:
    
    
    47,988,135Withheld
    
    :
    1,170,156Frank L. SalizzoniVotes:
    
    For:
    
    
    47,980,765Withheld:
    
    
    1,177,526
 Directors whose terms expire in 2006:Robert M. HaniseeJames G. RocheHarrison H. SchmittJames R. ThompsonScott L. WebsterDirectors whose terms expire in 2007:Edward F. CrawleyLennard A. FiskRonald T. KadishGarrett E. PierceDavid W. Thompson(c)
    
    The following is a brief description of the other matters voted
on at the meeting and the number of votes cast for, against or abstaining from,
the matter:Adoption of the Orbital Sciences Corporation 2005 Stock Incentive Plan.
 Votes:
    
    For:
    
    
    29,913,905Against:
    
    
    3,014,019Abstain:
    
    
    108,932
 Ratification of PricewaterhouseCoopers LLP as independent auditors of the
company for the fiscal year ending December 31, 2005.
 Votes:
    
    For:
    
    
    48,692,972Against:
    
    
    422,211Abstain:
    
    
    43,107
 24




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ITEM 5.
    
    OTHER INFORMATIONNot applicable.ITEM 6.
    
    EXHIBITS(a)
    
    Exhibits  A complete listing of exhibits required is
given in the Exhibit Index.
 25




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ORBITAL SCIENCES CORPORATIONDATED: July 25, 2005
    By:
    /s/ David W. ThompsonDavid W. ThompsonChairman and Chief Executive OfficerDATED: July 25, 2005
    By:
    /s/ Garrett E. PierceGarrett E. PierceVice Chairman and Chief Financial Officer 26




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EXHIBIT INDEX The following exhibits are filed with this report unless otherwise indicated. 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 (transmitted herewith).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
    
    Warrant Agreement, dated as of August 22, 2002, by and between
Orbital Sciences Corporation and U.S. Bank, N.A., as Warrant
Agent (incorporated by reference to Exhibit 4.2 to the
companys Current Report on Form 8-K filed on August 27,
2002).4.3
    
    Form of Common Stock Purchase Warrant for Warrants Expiring
August 15, 2006 (restricted) (incorporated by reference to
Exhibit 4.4 to the companys Current Report on Form 8-K filed
on August 27, 2002).4.4
    
    Form of Common Stock Purchase Warrant for Warrants Expiring
August 15, 2006 (registered) (incorporated by reference to
Exhibit 4.4 to the companys Quarterly Report on Form 10-Q for
the quarter ended March 31, 2003).4.5
    
    Rights Agreement dated as of October 22, 1998 between Orbital
Sciences
 27




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Exhibit No.
    
    DescriptionCorporation 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).4.7
    
    Indenture, dated as of July 10, 2003, by and between Orbital
Sciences Corporation and U.S. Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.1 to the
companys Current Report on Form 8-K filed on July 18, 2003).4.8
    
    Form of 9% Senior Note due 2011 (incorporated by reference to
Exhibit 4.2 to the companys Current Report on Form 8-K filed
on July 18, 2003).10.1
    
    Orbital Sciences Corporation 1997 Stock Option and Incentive
Plan, amended as of April 28, 2005 (transmitted herewith).10.2
    
    Orbital Sciences Corporation 2005 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to the companys
Current Report on Form 8-K filed on May 2, 2005).10.3
    
    Form of Stock Unit Agreement under the 2005 Stock Incentive
Plan (incorporated by reference to Exhibit 10.2 to the
companys Current Report on Form 8-K filed on May 2, 2005).10.4
    
    Form of Stock Unit Agreement under the 1997 Stock Option and
Incentive Plan (incorporated by reference to Exhibit 10.3 to
the companys Current Report on Form 8-K filed on May 2,
2005).10.5
    
    First Amendment to Executive Relocation Agreement between
Orbital Sciences Corporation and Ronald J. Grabe, Executive
Vice President and General Manager, Launch Systems Group dated
April 28, 2005 (incorporated by reference to Exhibit 10.4 to
the companys Current Report on Form 8-K filed on May 2,
2005).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).
 28




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Exhibit No.
    
    Description32.2
    
    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).
 29