##### 



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, 2006
 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
(State of Incorporation of Registrant)
    
    06-1209561
(I.R.S. Employer Identification No.)
 21839 Atlantic Boulevard
Dulles, Virginia 20166
 (703) 406-5000
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ




---



##### 



PART I
 FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
 ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    180,559
    
    
    $
    158,849Restricted cash
    
    
    6,294
    
    
    
    6,294Receivables, net
    
    
    146,677
    
    
    
    131,251Inventories, net
    
    
    21,465
    
    
    
    19,006Deferred income taxes, net
    
    
    32,053
    
    
    
    30,614Other current assets
    
    
    4,048
    
    
    
    6,473Total current assets
    
    
    391,096
    
    
    
    352,487Property, plant and equipment,net
    
    
    86,648
    
    
    
    85,640Goodwill
    
    
    55,551
    
    
    
    55,551Deferred income taxes,net
    
    
    160,308
    
    
    
    166,248Other non-current assets
    
    
    8,668
    
    
    
    8,864Total assets
    
    $
    702,271
    
    
    $
    668,790LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term obligations
    
    $
    76
    
    
    $
    76Accounts payable and accrued expenses
    
    
    118,282
    
    
    
    116,153Deferred revenues
    
    
    53,243
    
    
    
    30,281Total current liabilities
    
    
    171,601
    
    
    
    146,510Long-term obligations, net of current portion
    
    
    126,441
    
    
    
    126,459Other non-current liabilities
    
    
    65
    
    
    
    87Total liabilities
    
    
    298,107
    
    
    
    273,056Commitments 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, 55,194,946 and
55,032,244 shares outstanding, respectively
    
    
    552
    
    
    
    550Additional paid-in capital
    
    
    591,242
    
    
    
    591,604Accumulated deficit
    
    
    (187,630
    )
    
    
    (196,420
    )Total stockholders equity
    
    
    404,164
    
    
    
    395,734Total liabilities and stockholders equity
    
    $
    702,271
    
    
    $
    668,790
 See accompanying notes to condensed consolidated financial statements
 1




---



##### 



ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except share data)
 Quarters Ended March 31,2006
    
    
    2005(unaudited)
    
    
    (unaudited)Revenues
    
    $
    192,137
    
    
    $
    167,149Costs of goods sold
    
    
    154,309
    
    
    
    139,338Gross profit
    
    
    37,828
    
    
    
    27,811Research and development expenses
    
    
    2,171
    
    
    
    1,032Selling, general and administrative expenses
    
    
    19,800
    
    
    
    14,562Income from operations
    
    
    15,857
    
    
    
    12,217Interest expense
    
    
    (3,059
    )
    
    
    (2,780
    )Interest income and other
    
    
    2,357
    
    
    
    757Income before income taxes
    
    
    15,155
    
    
    
    10,194Provision for income taxes
    
    
    (6,365
    )
    
    
    (4,042
    )Net income
    
    $
    8,790
    
    
    $
    6,152Basic net income per share
    
    $
    0.16
    
    
    $
    0.11Diluted net income per share
    
    $
    0.14
    
    
    $
    0.10
 See accompanying notes to condensed consolidated financial statements
 2




---



##### 



ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Quarters Ended March 31,2006
    
    
    2005(unaudited)
    
    
    (unaudited)Cash Flows From Operating Activities:Net income
    
    $
    8,790
    
    
    $
    6,152Adjustments to reconcile net income to net cash provided by operating activities:Depreciation expense
    
    
    3,534
    
    
    
    3,636Deferred taxes
    
    
    4,501
    
    
    
    3,896Amortization of debt issuance costs
    
    
    153
    
    
    
    153Other
    
    
    732
    
    
    
    (204
    )Changes in assets and liabilities
    
    
    10,561
    
    
    
    (4,090
    )Net cash provided by operating activities
    
    
    28,271
    
    
    
    9,543Cash Flows From Investing Activities:Capital expenditures
    
    
    (5,651
    )
    
    
    (4,467
    )Change in cash restricted for letters of credit, net
    
    
    
    
    
    
    30Net cash used in investing activities
    
    
    (5,651
    )
    
    
    (4,437
    )Cash Flows From Financing Activities:Payments on long-term obligations
    
    
    (18
    )
    
    
    (77
    )Repurchase of common stock
    
    
    (7,954
    )
    
    
    Net proceeds from issuances of common stock
    
    
    5,523
    
    
    
    427Tax benefit of share-based compensation
    
    
    1,539
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (910
    )
    
    
    350Net increase in cash and cash equivalents
    
    
    21,710
    
    
    
    5,456Cash and cash equivalents, beginning of period
    
    
    158,849
    
    
    
    125,504Cash and cash equivalents, end of period
    
    $
    180,559
    
    
    $
    130,960
 See accompanying notes to condensed consolidated financial statements.
 3




---



##### 



ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 and 2005
(Unaudited)
 (1) Basis of Presentation
    (2) Preparation of Condensed Consolidated Financial Statements
   4




---



##### 



(3) 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 Related Space Systems.Satellites and interplanetary spacecraft for
communications, remote sensing, scientific and military missions, satellite subsystems and
space-related technical services.
    
    Transportation Management Systems.Software-based systems that combine satellite
navigation and wireless communications to enable municipal transit and other fleet
operators to manage and dispatch vehicles.
  5




---



##### 



(in thousands)
 Quarters Ended March 31,2006
    
    2005Launch Vehicles:Revenues
    
    $
    78,712
    
    
    $
    79,977Operating income
    
    
    9,015
    
    
    
    8,988Identifiable assets
    
    
    114,141
    
    
    
    114,882
    (1)Capital expenditures
    
    
    1,283
    
    
    
    2,217Depreciation
    
    
    1,242
    
    
    
    1,390Satellites and Related Space Systems:Revenues(2)
    
    $
    107,484
    
    
    $
    82,410Operating income
    
    
    6,486
    
    
    
    2,833Identifiable assets
    
    
    154,752
    
    
    
    135,903
    (1)Capital expenditures
    
    
    3,579
    
    
    
    1,931Depreciation
    
    
    1,375
    
    
    
    1,207Transportation Management Systems:Revenues
    
    $
    7,948
    
    
    $
    7,067Operating income
    
    
    356
    
    
    
    396Identifiable assets
    
    
    18,496
    
    
    
    19,251
    (1)Capital expenditures
    
    
    86
    
    
    
    134Depreciation
    
    
    144
    
    
    
    168Corporate and Other:Revenues(2)
    
    $
    (2,007
    )
    
    $
    (2,305
    )Operating income
    
    
    
    
    
    
    Identifiable assets
    
    
    414,882
    
    
    
    398,754
    (1)Capital expenditures
    
    
    703
    
    
    
    185Depreciation
    
    
    773
    
    
    
    871Consolidated:Revenues
    
    $
    192,137
    
    
    $
    167,149Operating income
    
    
    15,857
    
    
    
    12,217Identifiable assets
    
    
    702,271
    
    
    
    668,790
    (1)Capital expenditures
    
    
    5,651
    
    
    
    4,467Depreciation
    
    
    3,534
    
    
    
    3,636
 
 (1)
    
    As of December 31, 2005.(2)
    
    Corporate and other revenues are comprised solely of the elimination of
intersegment sales. Satellites and related space systems revenues include $1.4 million and
$2.2 million of the intersegment sales in the quarters ended March 31, 2006 and 2005,
respectively. (4) Receivables
 (in thousands)
 March 31, 2006
    
    
    December 31, 2005Billed
    
    $
    30,020
    
    
    $
    31,546Unbilled
    
    
    116,772
    
    
    
    99,820Allowance for doubtful accounts
    
    
    (115
    )
    
    
    (115
    )Total
    
    $
    146,677
    
    
    $
    131,251
  6




---



##### 



(5) Inventories
 (in thousands)
 March 31, 2006
    
    
    December 31, 2005Inventories
    
    $
    22,085
    
    
    $
    19,626Allowance for inventory obsolescence
    
    
    (620
    )
    
    
    (620
    )Total
    
    $
    21,465
    
    
    $
    19,006
  (6) Warranties
 (in thousands)
 Quarter Ended
    
    
    Quarter EndedMarch 31, 2006
    
    
    March 31, 2005Balance at beginning of period
    
    $
    2,028
    
    
    $
    3,145Accruals during the period
    
    
    151
    
    
    
    343Reductions during the period
    
    
    (390
    )
    
    
    (689
    )Balance at end of period
    
    $
    1,789
    
    
    $
    2,799
 (7) Earnings Per Share
 (in thousands)
 Quarter Ended
    
    
    Quarter EndedMarch 31, 2006
    
    
    March 31, 2005Weighted average of outstanding shares for basic EPS
    
    
    55,083
    
    
    
    55,157Dilutive effect of outstanding stock options, units and warrants
    
    
    7,239
    
    
    
    8,304Shares for diluted EPS
    
    
    62,322
    
    
    
    63,461
 7




---



##### 



(8) Comprehensive Income
  (9) Debt
    (10) Share-Based Compensation
 Share-Based Payment, Accounting for Stock Issued to Employees,
 8




---



##### 



Accounting for Stock-Based Compensation
  Share-Based Compensation Plans
   Share-Based Transactions
  Restricted Stock Units
    
    
    OptionsWeightedWeighted
    
    
    
    
    
    
    Weighted
    
    
    AverageAverage
    
    
    
    
    
    
    Average
    
    
    RemainingNumber of
    
    
    Grant Date
    
    
    Number of
    
    
    Exercise
    
    
    ContractualUnits
    
    
    Fair Value
    
    
    Shares
    
    
    Price
    
    
    Term (Years)Outstanding at December 31, 2005
    
    
    745,000
    
    
    $
    11.28
    
    
    
    6,532,139
    
    
    $
    10.06
    
    
    
    5.28Granted
    
    
    8,000
    
    
    
    14.79
    
    
    
    55,000
    
    
    
    12.98Exercised
    
    
    
    
    
    
    
    
    
    
    (670,433
    )
    
    
    7.70Forfeited
    
    
    (5,000
    )
    
    
    11.28
    
    
    
    (8,538
    )
    
    
    7.05Expired
    
    
    
    
    
    
    
    
    
    
    (159,682
    )
    
    
    13.02Outstanding at March 31, 2006
    
    
    748,000
    
    
    $
    11.32
    
    
    
    5,748,486
    
    
    $
    10.28
    
    
    
    5.16
  9




---



##### 



Options Outstanding
    
    
    Options ExercisableWeighted Average
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of
    
    Number
    
    
    Remaining Contractual
    
    
    Average
    
    
    Number
    
    
    AverageExercise Prices
    
    Outstanding
    
    
    Life (Years)
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price$1.30-$5.79
    
    
    2,052,734
    
    
    
    6.15
    
    
    $
    4.79
    
    
    
    1,787,349
    
    
    $
    4.646.15-12.05
    
    
    1,963,358
    
    
    
    5.70
    
    
    
    9.66
    
    
    
    1,560,248
    
    
    
    10.2412.18-43.31
    
    
    1,732,394
    
    
    
    3.39
    
    
    
    17.47
    
    
    
    1,677,394
    
    
    
    17.62$1.30-$43.31
    
    
    5,748,486
    
    
    
    5.16
    
    
    $
    10.28
    
    
    
    5,024,991
    
    
    $
    10.71
   Volatility
    
    
    51
    %Risk-free interest rate
    
    
    4.35
    %Weighted-average fair value per share at grant date
    
    $
    6.11Expected dividend yield
    
    
    Expected life of options (years)
    
    
    4.5
    10




---



##### 



Volatility
    
    
    57
    %Risk-free interest rate
    
    
    3.39
    %Weighted-average fair value per share at grant date
    
    $
    5.07Expected dividend yield
    
    
    Expected life of options (years)
    
    
    3.5
 (in thousands, except per share amounts)
 Net income, as reported
    
    $
    6,152Stock-based employee compensation expense per fair-value-based method
    
    
    (722
    )Pro forma net income
    
    $
    5,430Earnings per share:Basicas reported
    
    $
    0.11Basicpro forma
    
    $
    0.10Dilutedas reported
    
    $
    0.10Dilutedpro forma
    
    $
    0.09
 (11) Commitments and Contingencies
 U.S. Government Contracts
   11




---



##### 



Litigation
  12




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Consolidated Results of Operations for the Quarters Ended March 31, 2006 and 2005
 Revenues
 Gross
Profit
 13




---



##### 



Research
and Development Expenses
 Selling, General and Administrative Expenses
 Share-Based Payment,
 Interest Expense
 Interest Income and Other
 Income Taxes
 Net Income
 14




---



##### 



Segment Results for the Quarters Ended March 31, 2006 and 2005
  (in thousands)
 Quarters EndedMarch 31,2006
    
    
    2005Revenues:Launch Vehicles
    
    $
    78,712
    
    
    $
    79,977Satellites and Related Space Systems
    
    
    107,484
    
    
    
    82,410Transportation Management Systems
    
    
    7,948
    
    
    
    7,067Corporate and Other
    
    
    (2,007
    )
    
    
    (2,305
    )Total
    
    $
    192,137
    
    
    $
    167,149Income from Operations:Launch Vehicles
    
    $
    9,015
    
    
    $
    8,988Satellites and Related Space Systems
    
    
    6,486
    
    
    
    2,833Transportation Management Systems
    
    
    356
    
    
    
    396Corporate and Other
    
    
    
    
    
    
    Total
    
    $
    15,857
    
    
    $
    12,217
 Launch Vehicles
  Satellites and Related Space Systems
 15




---



##### 



Transportation Management Systems
 Corporate and Other
 Backlog
   Liquidity and Capital Resources
 Cash Flow from Operating Activities
 16




---



##### 



Cash Flow from Investing Activities
 Cash Flow from Financing Activities
     Available Cash and Future Funding
 17




---



##### 



Off-Balance Sheet Arrangements
  18




---



##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     ITEM 4. CONTROLS AND PROCEDURES
  19




---



##### 



PART II
 OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
   ITEM 1A. RISK FACTORS
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   20




---



##### 



Total Number of
    
    
    Maximum NumberShares
    
    
    (or ApproximatePurchased as
    
    
    Dollar Value) ofTotal
    
    
    
    
    
    
    Part of Publicly
    
    
    Shares That MayNumber of
    
    
    Average Price
    
    
    Announced
    
    
    Yet Be PurchasedShares
    
    
    Paid Per
    
    
    Plans or
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    Share
    
    
    Programs1
    
    
    Programs1January 1, 2006 to
January 31, 2006
    
    
    132,700
    
    
    $
    12.95
    
    
    
    132,700
    
    
    $
    13,713,615February 1, 2006 to
February 28, 2006
    
    
    32,300
    
    
    $
    12.96
    
    
    
    32,300
    
    
    $
    13,294,916March 1, 2006 to
March 31, 2006
    
    
    387,500
    
    
    $
    15.02
    
    
    
    387,500
    
    
    $
    7,472,881TOTAL
    
    
    552,500
    
    
    $
    14.41
    
    
    
    552,500
    
    
    $
    7,472,881
 
 (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. This plan expires on April 20, 2006. ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  ITEM 5. OTHER INFORMATION
  ITEM 6. EXHIBITS
 (a)
    
    Exhibits  A complete listing of exhibits required is
given in the Exhibit Index.
 21




---



##### 



SIGNATURES
  ORBITAL SCIENCES CORPORATIONDATED: April 26, 2006
    
    By:
    
    /s/ David W. ThompsonDavid W. ThompsonChairman and Chief Executive OfficerDATED: April 26, 2006
    
    By:
    
    /s/ Garrett E. PierceGarrett E. PierceVice Chairman and Chief Financial Officer
 22




---



##### 



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
    
    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).
 23




---



##### 



Exhibit No.
    
    Description4.5
    
    Rights Agreement dated as of October 22, 1998 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).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).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).
 24