##### 



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-Q (Mark One) x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2004ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For 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
(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  x No  o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes  x No  o As of October 20, 2004, 51,569,774 shares of the registrants Common Stock
were outstanding.




---



##### 



PART 1 FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) September 30,
    
    December 31,2004
    
    2003(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    119,663
    
    
    $
    60,900Restricted cash and cash equivalents
    
    
    13,675
    
    
    
    19,258Receivables, net
    
    
    146,773
    
    
    
    149,508Inventories, net
    
    
    11,872
    
    
    
    12,642Other current assets
    
    
    5,921
    
    
    
    5,496Total current assets
    
    
    297,904
    
    
    
    247,804Property, plant and equipment, net
    
    
    79,988
    
    
    
    82,364Goodwill
    
    
    95,293
    
    
    
    95,293Other non-current assets
    
    
    11,875
    
    
    
    13,839Total assets
    
    $
    485,060
    
    
    $
    439,300LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term obligations
    
    $
    217
    
    
    $
    297Accounts payable and accrued expenses
    
    
    128,539
    
    
    
    116,026Deferred revenues
    
    
    16,536
    
    
    
    16,292Total current liabilities
    
    
    145,292
    
    
    
    132,615Long-term obligations, net of current portion
    
    
    127,667
    
    
    
    137,116Other non-current liabilities
    
    
    1,457
    
    
    
    2,692Commitments 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, 51,564,249 and
48,072,580 shares outstanding, respectively
    
    
    516
    
    
    
    480Additional paid-in capital
    
    
    600,908
    
    
    
    591,482Deferred compensation
    
    
    (138
    )
    
    
    (502
    )Accumulated deficit
    
    
    (390,642
    )
    
    
    (424,583
    )Total stockholders equity
    
    
    210,644
    
    
    
    166,877Total liabilities and stockholders equity
    
    $
    485,060
    
    
    $
    439,300
 See accompanying notes to condensed consolidated financial statements. 1




---



##### 



ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data) For the Quarters EndedSeptember 30,2004
    
    2003(unaudited)
    
    (unaudited)Revenues
    
    $
    171,695
    
    
    $
    128,629Costs of goods sold
    
    
    142,458
    
    
    
    101,736Gross profit
    
    
    29,237
    
    
    
    26,893Research and development expenses
    
    
    1,457
    
    
    
    2,332Selling, general and administrative expenses
    
    
    13,457
    
    
    
    14,250Settlement expense
    
    
    
    
    
    
    (913
    )Income from operations
    
    
    14,323
    
    
    
    11,224Interest expense
    
    
    (2,847
    )
    
    
    (3,544
    )Other income, net
    
    
    521
    
    
    
    931Debt extinguishment expense
    
    
    (577
    )
    
    
    (38,836
    )Income (loss) before provision for income taxes
    
    
    11,420
    
    
    
    (30,225
    )Provision for income taxes
    
    
    (25
    )
    
    
    Net income (loss)
    
    $
    11,395
    
    
    $
    (30,225
    )Basic net income (loss) per share
    
    $
    0.23
    
    
    $
    (0.64
    )Diluted net income (loss) per share
    
    $
    0.18
    
    
    $
    (0.64
    )
 See accompanying notes to condensed consolidated financial statements. 2




---



##### 



ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data) For the Nine Months EndedSeptember 30,2004
    
    2003(unaudited)
    
    (unaudited)Revenues
    
    $
    500,751
    
    
    $
    423,710Costs of goods sold
    
    
    416,946
    
    
    
    349,089Gross profit
    
    
    83,805
    
    
    
    74,621Research and development expenses
    
    
    4,654
    
    
    
    5,230Selling, general and administrative expenses
    
    
    38,653
    
    
    
    43,743Settlement expense
    
    
    (2,538
    )
    
    
    3,587Income from operations
    
    
    43,036
    
    
    
    22,061Interest expense
    
    
    (8,645
    )
    
    
    (15,768
    )Other income, net
    
    
    1,174
    
    
    
    1,127Debt extinguishment expense
    
    
    (1,138
    )
    
    
    (38,836
    )Income (loss) before provision for income taxes
    
    
    34,427
    
    
    
    (31,416
    )Provision for income taxes
    
    
    (486
    )
    
    
    Net income (loss)
    
    $
    33,941
    
    
    $
    (31,416
    )Basic net income (loss) per share
    
    $
    0.69
    
    
    $
    (0.68
    )Diluted net income (loss) per share
    
    $
    0.52
    
    
    $
    (0.68
    )
 See accompanying notes to condensed consolidated financial statements. 3




---



##### 



ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) For the Nine Months EndedSeptember 30,2004
    
    2003(unaudited)
    
    (unaudited)Cash Flows From Operating Activities:Net income (loss)
    
    $
    33,941
    
    
    $
    (31,416
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    10,966
    
    
    
    11,721Amortization of debt issuance costs and debt discount
    
    
    665
    
    
    
    3,837Stock-based compensation and contributions to defined contribution plan
    
    
    (374
    )
    
    
    6,811Debt extinguishment expense
    
    
    1,138
    
    
    
    38,836Changes in assets and liabilities and other
    
    
    14,852
    
    
    
    3,403Net cash provided by operating activities
    
    
    61,188
    
    
    
    33,192Cash Flows From Investing Activities:Capital expenditures
    
    
    (8,562
    )
    
    
    (5,351
    )Escrow proceeds related to former business disposition
    
    
    
    
    
    
    3,000Change in cash restricted for letters of credit, net
    
    
    5,581
    
    
    
    (9,016
    )Net cash used in investing activities
    
    
    (2,981
    )
    
    
    (11,367
    )Cash Flows From Financing Activities:Payments on long-term obligations
    
    
    (9,672
    )
    
    
    (144,355
    )Net proceeds from issuances of long-term obligations
    
    
    
    
    
    
    129,046Repurchase of common stock
    
    
    (7,000
    )
    
    
    Net proceeds from issuances of common stock
    
    
    17,228
    
    
    
    3,463Net cash provided by (used in) financing activities
    
    
    556
    
    
    
    (11,846
    )Net increase in cash and cash equivalents
    
    
    58,763
    
    
    
    9,979Cash and cash equivalents, beginning of period
    
    
    60,900
    
    
    
    43,440Cash and cash equivalents, end of period
    
    $
    119,663
    
    
    $
    53,419
 See accompanying notes to condensed consolidated financial statements. 4




---



##### 



ORBITAL SCIENCES CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2004 and 2003(Unaudited)  (1)
    
    Basis of Presentation Orbital Sciences Corporation (together with its subsidiaries, Orbital or
the company), a Delaware corporation, develops and manufactures small space
and rocket systems for commercial, military and civil government customers.
The companys primary products are satellites and launch vehicles, including
low-orbit, geosynchronous and planetary spacecraft for communications, remote
sensing, scientific and defense missions; ground- and air-launched rockets that
deliver satellites into orbit; and missile defense systems that are used as
interceptor and target vehicles. Orbital also offers space-related technical
services to government agencies and develops and builds satellite-based
transportation management systems for public transit agencies and private
vehicle fleet operators. 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, 2003, as amended. Operating results for the quarter and nine months ended September 30, 2004
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 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




---



##### 



(3)
    
    Stock-Based Compensation  Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for
Stock-Based Compensation   Transition and Disclosure, an amendment of FASB
Statement No. 123, requires companies to (i) recognize as expense the fair
value of stock-based awards, or (ii) continue to apply the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations (APB 25), and provide pro forma net
income and earnings per share disclosures for employee stock option grants as
if the fair-value-based method defined in SFAS No. 123 had been applied. The
company continues to apply the provisions of APB 25 and provide the pro forma
disclosures in accordance with the provisions of SFAS Nos. 123 and 148. Under
APB 25, the company has not recorded any stock-based employee compensation cost
associated with the companys stock option plan, as all options granted under
the plan had an exercise price equal to the market value of the underlying
common stock on the date of grant. The company uses 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 quarter and nine-month periods
ended September 30, 2004 and 2003 are summarized as follows: Quarters Ended September 30,2004
    
    2003Additional shares authorized for grant at September 30
    
    
    421,836
    
    
    
    1,455,181Volatility
    
    
    65
    %
    
    
    66
    %Risk-free interest rate
    
    
    2.88
    %
    
    
    2.44
    %Weighted-average fair value per share at grant date
    
    $
    4.94
    
    
    $
    4.83Expected dividend yield
    
    
    
    
    
    
    Expected life of options (years)
    
    
    2.5
    
    
    
    4.5
 Nine Months Ended September 30,2004
    
    2003Additional shares authorized for grant at September 30
    
    
    421,836
    
    
    
    1,455,181Volatility
    
    
    65
    %
    
    
    66
    %Risk-free interest rate
    
    
    3.06
    %
    
    
    1.69
    %Weighted-average fair value per share at grant date
    
    $
    3.96
    
    
    $
    3.35Expected dividend yield
    
    
    
    
    
    
    Expected life of options (years)
    
    
    2.5  4.5
    
    
    
    4.5
 6




---



##### 



The following table illustrates the effect on net income (loss) and
earnings (loss) 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 September 30,2004
    
    2003Net income (loss), as reported
    
    $
    11,395
    
    
    $
    (30,225
    )Stock-based employee compensation expense per fair-value-based method
    
    
    (1,378
    )
    
    
    (1,374
    )Pro forma net income (loss)
    
    $
    10,017
    
    
    $
    (31,599
    )Earnings (loss) per share:Basicas reported
    
    $
    0.23
    
    
    $
    (0.64
    )Basicpro forma
    
    $
    0.20
    
    
    $
    (0.67
    )Dilutedas reported
    
    $
    0.18
    
    
    $
    (0.64
    )Dilutedpro forma
    
    $
    0.15
    
    
    $
    (0.67
    )
 Nine Months Ended September 30,2004
    
    2003Net income (loss), as reported
    
    $
    33,941
    
    
    $
    (31,416
    )Stock-based employee compensation expense per fair-value-based method
    
    
    (5,416
    )
    
    
    (3,184
    )Pro forma net income (loss)
    
    $
    28,525
    
    
    $
    (34,600
    )Earnings (loss) per share:Basicas reported
    
    $
    0.69
    
    
    $
    (0.68
    )Basicpro forma
    
    $
    0.58
    
    
    $
    (0.74
    )Dilutedas reported
    
    $
    0.52
    
    
    $
    (0.68
    )Dilutedpro forma
    
    $
    0.44
    
    
    $
    (0.74
    )
 Pro forma net income (loss) reflects only options granted through
September 30, 2004 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 (formerly launch vehicles and advanced programs), (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 are generally negotiated and accounted for under terms
and conditions that are similar to other commercial and government contracts.
Intersegment sales of $2.1 million and $1.9 million were recorded in the
quarters ended September 30, 2004 and 2003, respectively. Intersegment sales
of $6.6 million and $5.1 million were recorded in the nine months ended
September 30, 2004 and 2003, respectively. The following table presents operating information for the quarters and
nine months ended September 30, 2004 and 2003 and identifiable assets at
September 30, 2004 and December 31, 2003 by reportable segment (in thousands). 7




---



##### 



Quarters Ended September 30,
    
    Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003Launch Vehicles:Revenues
    
    $
    80,153
    
    
    $
    78,368
    
    
    $
    243,150
    
    
    $
    244,073Operating income
    
    
    8,065
    
    
    
    7,482
    
    
    
    22,188
    
    
    
    25,261Identifiable assets
    
    
    119,146
    
    
    
    126,960
    (1)
    
    
    119,146
    
    
    
    126,960
    (1)Capital expenditures
    
    
    1,132
    
    
    
    418
    
    
    
    2,725
    
    
    
    2,546Depreciation and amortization
    
    
    1,300
    
    
    
    1,326
    
    
    
    3,930
    
    
    
    4,251Satellites and Related Space Systems:Revenues
    
    $
    86,551
    
    
    $
    40,471
    
    
    $
    241,755
    
    
    $
    157,860Operating income
    
    
    5,956
    
    
    
    2,768
    
    
    
    17,390
    
    
    
    8,619Identifiable assets
    
    
    166,692
    
    
    
    149,933
    (1)
    
    
    166,692
    
    
    
    149,933
    (1)Capital expenditures
    
    
    1,961
    
    
    
    673
    
    
    
    4,623
    
    
    
    1,417Depreciation and amortization
    
    
    1,327
    
    
    
    1,433
    
    
    
    3,895
    
    
    
    4,301Transportation Management Systems:Revenues
    
    $
    7,096
    
    
    $
    11,642
    
    
    $
    22,411
    
    
    $
    26,846Operating income (loss)
    
    
    302
    
    
    
    359
    
    
    
    920
    
    
    
    (7,934
    )Identifiable assets
    
    
    24,383
    
    
    
    37,596
    (1)
    
    
    24,383
    
    
    
    37,596
    (1)Capital expenditures
    
    
    12
    
    
    
    34
    
    
    
    160
    
    
    
    238Depreciation and amortization
    
    
    177
    
    
    
    207
    
    
    
    560
    
    
    
    600Corporate and Other:Revenues
    
    $
    (2,105
    )
    
    $
    (1,852
    )
    
    $
    (6,565
    )
    
    $
    (5,069
    )Operating income (loss)
    
    
    
    
    
    
    615
    
    
    
    2,538
    
    
    
    (3,885
    )Identifiable assets
    
    
    174,839
    
    
    
    124,811
    (1)
    
    
    174,839
    
    
    
    124,811
    (1)Capital expenditures
    
    
    305
    
    
    
    59
    
    
    
    1,054
    
    
    
    1,150Depreciation and amortization
    
    
    858
    
    
    
    821
    
    
    
    2,581
    
    
    
    2,569Consolidated:Revenues
    
    $
    171,695
    
    
    $
    128,629
    
    
    $
    500,751
    
    
    $
    423,710Operating income
    
    
    14,323
    
    
    
    11,224
    
    
    
    43,036
    
    
    
    22,061Identifiable assets
    
    
    485,060
    
    
    
    439,300
    (1)
    
    
    485,060
    
    
    
    439,300
    (1)Capital expenditures
    
    
    3,410
    
    
    
    1,184
    
    
    
    8,562
    
    
    
    5,351Depreciation and amortization
    
    
    3,662
    
    
    
    3,787
    
    
    
    10,966
    
    
    
    11,721
  (1)
    
    As of December 31, 2003  (5)
    
    Receivables Receivables consisted of the following (in thousands): September 30, 2004
    
    December 31, 2003Billed
    
    $
    40,322
    
    
    $
    55,812Unbilled
    
    
    106,620
    
    
    
    93,883Allowance for doubtful accounts
    
    
    (169
    )
    
    
    (187
    )Total
    
    $
    146,773
    
    
    $
    149,508
 8




---



##### 



(6)
    
    Inventories Inventories consisted of the following (in thousands): September 30, 2004
    
    December 31, 2003Inventories
    
    $
    14,740
    
    
    $
    15,475Allowance for inventory obsolescence
    
    
    (2,868
    )
    
    
    (2,833
    )Total
    
    $
    11,872
    
    
    $
    12,642
 Substantially all of the companys inventory consisted of component parts
and raw materials.  (7)
    
    Warranties The company assumes warranty obligations in connection with certain
contracts. The company records a liability for estimated warranty claims based
upon historical data and customer information. Activity in the warranty
liability consisted of the following (in thousands): Quarter Ended
    
    Quarter EndedSeptember 30, 2004
    
    September 30, 2003Balance at beginning of period
    
    $
    4,340
    
    
    $
    4,768Accruals during the period
    
    
    318
    
    
    
    372Reductions during the period
    
    
    (1,118
    )
    
    
    (227
    )Balance at end of period
    
    $
    3,540
    
    
    $
    4,913
 Nine Months Ended
    
    Nine Months EndedSeptember 30, 2004
    
    September 30, 2003Balance at beginning of period
    
    $
    5,020
    
    
    $
    4,554Accruals during the period
    
    
    656
    
    
    
    1,298Reductions during the period
    
    
    (2,136
    )
    
    
    (939
    )Balance at end of period
    
    $
    3,540
    
    
    $
    4,913
  (8)
    
    Interest Expense Interest expense consisted of the following (in thousands): Quarters Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Interest
    
    $
    2,649
    
    
    $
    3,334
    
    
    $
    7,980
    
    
    $
    11,931Amortization of debt issuance costs
    
    
    198
    
    
    
    210
    
    
    
    665
    
    
    
    1,622Amortization of debt discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,215Total
    
    $
    2,847
    
    
    $
    3,544
    
    
    $
    8,645
    
    
    $
    15,768
 9




---



##### 



(9)
    
    Earnings (Loss) Per Share The following table presents the shares used in computing basic and
diluted earnings per share (EPS) (in thousands): Quarter Ended
    
    Quarter EndedSeptember 30, 2004
    
    September 30, 2003Weighted average of outstanding shares for basic EPS
    
    
    50,358
    
    
    
    47,377Dilutive effect of outstanding stock options and warrants
    
    
    14,400
    
    
    
    Shares for diluted EPS
    
    
    64,758
    
    
    
    47,377Nine Months Ended
    
    Nine Months EndedSeptember 30, 2004
    
    September 30, 2003Weighted average of outstanding shares for basic EPS
    
    
    49,060
    
    
    
    46,512Dilutive effect of outstanding stock options and warrants
    
    
    16,203
    
    
    
    Shares for diluted EPS
    
    
    65,263
    
    
    
    46,512
 In periods of losses from operations, such as the quarter and nine months
ended September 30, 2003, diluted per-share losses are the same as basic
per-share losses because the effect of stock options and warrants would be
anti-dilutive.  (10)
    
    Comprehensive Income (Loss) Comprehensive income (loss) in the quarter and nine-month periods ended
September 30, 2004 and 2003 was equal to net income (loss). Accumulated other
comprehensive income (loss) as of September 30, 2004 and December 31, 2003 was
$0.  (11)
    
    Sale of ORBIMAGE Notes On December 31, 2003, Orbital received $2.5 million of senior subordinated
notes due 2008 from its former affiliate, Orbital Imaging Corporation
(ORBIMAGE), upon the consummation of ORBIMAGEs plan of reorganization. In
2003, Orbital recorded $4.8 million of charges, including $4.5 million in the
first nine months of 2003, in connection with a settlement agreement with
ORBIMAGE. In the first quarter of 2004, the company sold the notes to a
financial institution and recorded a $2.5 million gain on this transaction as a
credit to settlement expense. Orbital does not have any equity or debt
investment in ORBIMAGEs successor company.  (12)
    
    Debt The following table sets forth the companys long-term obligations,
excluding capital lease obligations (in thousands): September 30, 2004
    
    December 31, 20039% senior notes, interest due semi-annually, principal due in July 2011
    
    $
    126,425
    
    
    $
    135,000Interest rate swap fair value hedge adjustment on $50 million of 9%
Senior Notes
    
    
    1,115
    
    
    
    1,847127,540
    
    
    
    136,847Less current portion
    
    
    
    
    
    
    Long-term portion
    
    $
    127,540
    
    
    $
    136,847
 10




---



##### 



During the first nine months of 2004, the company repurchased and
cancelled $8.6 million of its 9% senior notes at a cost of $9.6 million under
a securities repurchase program. The company recorded $1.1 million in debt
extinguishment expense during the nine months ended September 30, 2004
associated with the repurchases. The fair value of the companys senior notes at September 30, 2004 and
December 31, 2003 was estimated at $141.0 million and $145.1 million,
respectively, based on market trading activity. The company has a $50.0 million four-year revolving credit facility (the
Revolver) with Bank of America serving as the lead arranger in a syndicated
line of credit. The Revolver bears interest at rates ranging from 2.25% to
3.0% over LIBOR (for LIBOR loans) or from 0.75% to 1.5% over a base rate
related to the prime rate (for base rate loans), varying according to the
companys ratio of total debt to earnings before interest, taxes, depreciation
and amortization. The Revolver is collateralized by substantially all of the
companys assets. The Revolver also permits the company to reserve up to $40.0
million of the facility for letters of credit, foreign exchange contracts or
other arrangements. The maximum borrowing capacity under the Revolver is
limited by a borrowing base formula that is tied to the companys billed
accounts receivable balance. As of September 30, 2004, there were no
borrowings under the Revolver, although $6.4 million of standby letters of
credit were issued under the Revolver. As of September 30, 2004, $43.6 million
of the Revolver was available for borrowing. The senior notes and the Revolver contain covenants limiting the companys
ability to, among other things, incur more debt, redeem or repurchase Orbital
stock, enter into transactions with affiliates, merge or consolidate with
others and dispose of assets or create liens on assets. The Revolver contains
an absolute prohibition and the senior notes contain restrictions on the
payment by the company of cash dividends. In addition, the Revolver contains
financial covenants with respect to leverage, secured leverage, minimum cash
balance, fixed charge coverage and consolidated net worth. As of September 30,
2004, 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 receives fixed-rate interest of 9% in exchange for variable
interest payments. The interest rate is reset quarterly and is equal to the
3-month LIBOR rate plus 4.28%. The total variable interest rate was 5.88% at
September 30, 2004. This arrangement has been designated an effective fair
value hedge of $50.0 million of the companys senior notes. As of September
30, 2004 and December 31, 2003, the fair value of the interest rate swap was
$1.1 million and $1.8 million, respectively, which was recorded in other
non-current assets with an equal fair value adjustment recorded on $50.0
million of the senior notes. 11




---



##### 



(13)
    
    Equity Transactions During the nine months ended September 30, 2004, 2.4 million common stock
warrants with a $4.82 exercise price that had originally been issued in 2001
were exercised. The warrants expired on August 31, 2004. The company received
$9.6 million and $11.5 million of proceeds from the warrant exercises for the
quarter and nine months ended September 30, 2004, respectively. A total of 2.1
million warrants expired unexercised. The company repurchased and retired 438,000 and 595,000 shares of the
companys common stock for $5.0 million and $7.0 million during the quarter and
the nine months ended September 30, 2004, respectively.  (14)
    
    Commitments and Contingencies Contracts Most of the company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. 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. Other In 2003, the company suspended work and revenue recognition on a
transportation management systems contract as a result of the customers
inability to provide equipment necessary to complete the contract. In the
third quarter of 2004, the contract was renegotiated and work resumed,
resulting in a $2.1 million favorable revenue adjustment and a favorable $1.4 million impact
on operating income. 12




---



##### 



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
Nine Months Ended September 30, 2004 and 2003, 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, 2003, as amended, may affect our
actual results and 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 space and rocket 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 Nine Months Ended
September 30, 2004 and 2003 Revenues
 Our consolidated revenues were $171.7 million in the third
quarter of 2004, a 33% increase compared to $128.6 million for the same quarter
of 2003. This increase was driven by substantial growth in our satellites and
related space systems segment and a small increase in our launch vehicles
segment (formerly the launch vehicles and advanced programs segment), offset
partially by a decrease in revenues in the transportation management systems
segment. The increase in satellites and related space systems segment revenues
is largely attributable to recently awarded science, technology and defense
satellite contracts. We reported $500.8 million in revenues during the first nine months of
2004, up 18% over revenues of $423.7 million during the same period in 2003.
This increase was primarily driven by the substantial revenue growth from
science, technology and defense satellite contracts. Gross
Profit - Our consolidated gross profit was $29.2 million and $26.9
million in the third quarters of 2004 and 2003, respectively. Gross profit in
the third quarter of 2004, as compared to the same period in 2003, reflected a
$6.4 million increase in our satellites and related space systems segment,
partially offset by a $2.9 million decrease in our launch vehicles segment and
a $1.2 million decrease in our transportation management systems segment. The
increase in gross profit in our satellites and related space systems segment
was due to a number of factors including profit derived from the revenue growth
in the science, technology and defense satellite product line and the absence
of a $1.3 million loss accrual in the third quarter of 2003 on the OrbView-3
satellite program. The decrease in gross profit in our launch vehicles segment
was 13




---



##### 



largely due to the completion in 2003 of certain advanced space flight systems
contracts. The decrease in gross profit in our transportation management
systems segment was mainly attributable to a decrease in contract revenues. Consolidated gross profit for the first nine months of 2004 increased to
$83.8 million from $74.6 million in the same period of 2003. Gross profit in
the first nine months of 2004, as compared to the same period in 2003,
reflected an $11.2 million increase in gross profit in our satellites and
related space systems segment and a $5.7 million increase in gross profit in
our transportation management systems segment, partially offset by a $7.7
million decrease in gross profit in our launch vehicles segment. The
year-to-date changes in gross profit during 2004 as compared to 2003 were
largely attributable to the same quarterly factors described above, together
with the absence in 2004 of cost increases recorded in 2003 on certain
transportation management systems contracts. Research
and Development Expenses - Research and development expenses were
$1.5 million and $2.3 million in the third quarters of 2004 and 2003,
respectively, and $4.7 million and $5.2 million for the nine months ended
September 30, 2004 and 2003, respectively. These expenses related primarily to
the development of improved launch vehicles and satellites. Selling,
General and Administrative Expenses  Selling, general and
administrative expenses were $13.5 million and $14.3 million in the third
quarters of 2004 and 2003, respectively, and $38.7 million and $43.7 million
for the nine months ended September 30, 2004 and 2003, respectively. Selling,
general and administrative expenses in the third quarter of 2004 were for the
most part comparable to those in the third quarter of 2003. Selling, general
and administrative expenses decreased in the first nine months of 2004 as
compared to the same period in 2003 largely due to a $2.0 million reduction in
bid and proposal costs and due to the absence in 2004 of $2.1 million of
litigation expenses in our transportation management systems segment. 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 our former affiliate, Orbital
Imaging Corporation (ORBIMAGE). During the third quarter of 2003, we recorded a $0.9 million reduction of
settlement expense in connection with the settlement of an action we had
brought against certain of our insurers seeking reimbursement for defense and
settlement costs we had incurred several years ago defending a breach of
contract lawsuit. In the first nine months of 2003, we recorded $4.5 million
in settlement expenses in connection with the February 2003 settlement
agreement with ORBIMAGE. Interest
Expense - Interest expense was $2.8 million and $3.5 million for
the third quarters of 2004 and 2003, respectively, and $8.6 million and $15.8
million for the nine months ended September 30, 2004 and 2003, respectively.
Interest expense decreased in the third quarter and first nine months of 2004
as compared to the same periods of 2003 primarily as a result of lower
interest on our outstanding debt and a reduction in the amortization of debt
costs resulting from our refinancing transactions in the third quarter of 2003. 14




---



##### 



Debt
Extinguishment Expense  During the quarter and nine months ended
September 30, 2004, we recorded $0.6 million and $1.1 million, respectively, in
debt extinguishment expense associated with repurchases of a portion of our 9%
senior notes, as further described in Liquidity and Capital Resources. These
debt extinguishment expenses consisted primarily of prepayment premiums. We
recorded $38.8 million in debt extinguishment expenses during the third quarter
of 2003 associated with debt refinancings in July 2003. Income
Taxes - We recorded $25,000 and $0.5 million of income tax expense
in the third quarter and first nine months of 2004, respectively, primarily
related to an anticipated current federal alternative minimum tax (AMT)
liability for 2004. We did not have any such liability in 2003. We do not
expect to pay U. S. Federal income taxes, other than AMT, in the foreseeable
future due to our net operating loss carryforwards. For the quarters and nine months ended September 30, 2004 and 2003, we
concluded that a full deferred tax valuation allowance is required for our net
deferred tax assets, based on our assessment that the realization of those
assets does not meet the more likely than not criterion under SFAS No. 109,
Accounting for Income Taxes. However, it is possible that the more likely
than not criterion could be met later in 2004 or in a future period, which
could result in the reversal of a significant portion or all of the valuation
allowance, which, at that time, would be recorded as a tax benefit in the
consolidated statement of operations. As of December 31, 2003, we had fully
reserved net deferred tax assets of approximately $245 million. A reduction in
the deferred tax valuation allowance would increase reported income in the
period such determination is made and, in subsequent periods, would decrease
income as we would record tax provisions based upon pretax income. Net
Income (Loss) - Our consolidated net income for the third quarter of
2004 was $11.4 million, compared to net loss of $30.2 million in the third
quarter of 2003. Our consolidated net income for the first nine months of 2004
was $33.9 million, compared to net loss of $31.4 million in the same period of
2003. Segment Results Our products and services are grouped into three reportable segments: (i)
launch vehicles (formerly launch vehicles and advanced programs), (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. 15




---



##### 



The following table summarizes revenues and income from operations for our
reportable business segments and corporate and other (in thousands): Quarters Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Revenues:Launch Vehicles
    
    $
    80,153
    
    
    $
    78,368
    
    
    $
    243,150
    
    
    $
    244,073Satellites and Related Space Systems
    
    
    86,551
    
    
    
    40,471
    
    
    
    241,755
    
    
    
    157,860Transportation Management Systems
    
    
    7,096
    
    
    
    11,642
    
    
    
    22,411
    
    
    
    26,846Corporate and Other
    
    
    (2,105
    )
    
    
    (1,852
    )
    
    
    (6,565
    )
    
    
    (5,069
    )Total
    
    $
    171,695
    
    
    $
    128,629
    
    
    $
    500,751
    
    
    $
    423,710Income (Loss) from Operations:Launch Vehicles
    
    $
    8,065
    
    
    $
    7,482
    
    
    $
    22,188
    
    
    $
    25,261Satellites and Related Space Systems
    
    
    5,956
    
    
    
    2,768
    
    
    
    17,390
    
    
    
    8,619Transportation Management Systems
    
    
    302
    
    
    
    359
    
    
    
    920
    
    
    
    (7,934
    )Corporate and Other
    
    
    
    
    
    
    615
    
    
    
    2,538
    
    
    
    (3,885
    )Total
    
    $
    14,323
    
    
    $
    11,224
    
    
    $
    43,036
    
    
    $
    22,061
 Third Quarter 2004 Compared With Third Quarter 2003 Launch
Vehicles  Launch vehicles segment revenues increased by 2%
primarily due to higher revenues from our Orbital Boost Vehicle (OBV) missile
defense interceptor program and our target vehicles product line, partially
offset by a decrease in revenues from certain advanced space flight systems
contracts and our space launch vehicle product line. In our OBV missile
defense interceptor program, we are developing and manufacturing interceptor
vehicles for the U.S. Missile Defense Agencys Ground-based Midcourse Defense
system under a contract with The Boeing Company. Revenue in this program grew
by $9.1 million due to a ramp-up in activity to meet the programs delivery
schedules. During the first three quarters of 2004, we successfully launched
our third OBV interceptor and delivered seven OBV interceptor vehicles,
including four during the third quarter. The OBV program accounted for 50% and
39% of total launch vehicles revenues in the third quarters of 2004 and 2003,
respectively. Operating income increased by 8% primarily due to higher operating income
from the target vehicle product line, offset partially by the absence of the
operating income from certain advanced space flight systems contracts that were
completed in 2003. Operating income from our OBV missile defense interceptor
program continued as the largest contributor to this segments operating
income, reporting $3.5 million operating profit in the third quarters of both
2004 and 2003, or 44% and 48%, respectively, of total operating income in this
segment. The segments operating margin (as a percentage of revenues) was
10.1% in the third quarter of 2004, compared to 9.5% in the third quarter of
2003. This increase in operating margin was the result of higher margins in
the space launch vehicle and target vehicle product lines. Satellites
and Related Space Systems  Satellites and related space
systems segment revenues increased by 114% primarily as a result of significant
growth in revenues in our science, technology and defense satellite product
line and our communications satellites product line. Revenues increased by
$33.9 million in our science, technology and defense satellite product
line largely due to increased revenues from our Dawn interplanetary mission
contract and from certain other recently awarded contracts. Revenues increased
by $10.4 million in our 16




---



##### 



communications satellites product line primarily due to
work on the Optus Networks satellite contract that was awarded in late 2003,
partially offset by lower revenues from the TELKOM satellite contract. Operating income increased by 115% primarily due to profits derived from
the revenue growth in the science, technology and defense satellite product
line and the absence of a $1.3 million loss accrual in 2003 on the OrbView-3
satellite program. This segments operating margin (as a percentage of
revenues) improved slightly to 6.9% for the quarter, compared to 6.8% in 2003. Transportation
Management Systems  Transportation management systems
segment revenues decreased by 39% largely due to a reduction in revenue on a
contract to install a transportation management system for Los Angeles County,
California, that was substantially completed during the third quarter of 2004,
offset partially by revenue of $2.1 million on a contract that was renegotiated
and resumed in the third quarter of 2004. In 2003, the company had suspended
work and revenue recognition on this contract as a result of the customers
inability to provide equipment necessary to complete the contract. Operating income decreased slightly due to lower operating income from the
Los Angeles County, California, contract and from other contracts, offset
partially by operating income of $1.4 million from the resumed contract. Corporate
and Other  Corporate and other revenues are comprised solely of
the elimination of intercompany revenues. Nine Months Ended September 30, 2004 Compared With Nine Months Ended September
30, 2003 Launch
Vehicles  Launch vehicles segment year-to-date revenues were
comparable in 2004 and 2003, primarily due to a $15.6 million revenue increase
in our OBV missile defense interceptor program, which was largely offset by a
decrease in revenues from our space launch vehicle product line and the impact
of certain advanced space flight systems contracts that were completed in 2003. Operating income decreased by 12%, primarily due to lower operating income
in the space launch vehicle product line and due to the completion in 2003 of
certain advanced space flight systems contracts. These decreases were offset
partially by higher operating income from our OBV missile defense interceptor
program and our target vehicle product line. The decrease in operating income from the space launch vehicle product line was largely due to
less activity in Pegasus programs and an unfavorable profit adjustment in the
first quarter of 2004 due to cost increases on a Taurus contract. Operating
income from our OBV missile defense interceptor program was $15.3 million and
$11.8 million in the first nine months of 2004 and 2003, or 69% and 47%,
respectively, of total operating income in this segment. The segments
operating margin (as a percentage of revenues) was 9.1% in the first nine
months of 2004, compared to 10.3% in the same period in 2003. This decrease in
operating margin was largely the result of the reduction in margin on the
previously mentioned Taurus contract. 17




---



##### 



Satellites
and Related Space Systems  Satellites and related space
systems segment year-to-date revenues increased by 53% as a result of
significant growth in revenues in our science, technology and defense satellite
product line, as well as revenue growth from technical services. Revenues
increased $83.0 million in our science, technology and defense satellite
product line primarily due to increased revenues from the Dawn interplanetary
mission contract and from certain other recently awarded contracts. Revenues
decreased $5.4 million in our communications satellites product line primarily
as a result of the completion of the BSAT-2c and PanAmSat Galaxy 12 satellites
in 2003, partially offset by increased revenues from the Optus Networks
satellite contract, which was awarded in late 2003, to build two new
communications satellites. Operating income increased by 102%, largely as a result of profits derived
from the revenue growth in the science, technology and defense satellite
product line and the absence of $4.1 million in losses accrued in 2003 on the OrbView-3
satellite program. In addition, operating income in 2003 included
the first quarter of 2003 receipt of a $2.0 million fee associated with the
cancellation of a commercial geosynchronous satellite contract. This segments
operating margin (as a percentage of revenues) was 7.2% in the first nine
months of 2004, compared to 5.5% in the same period of 2003. This margin
improvement was largely due to the absence in 2004 of the OrbView-3 loss
accrual mentioned above. Transportation
Management Systems  Transportation management systems
segment revenues decreased by 17% primarily due to a reduction in revenue on a
contract to install a transportation management system for Los Angeles County,
California, that was substantially completed in the third quarter of 2004,
offset partially by $2.1 million in revenue on the renegotiated and resumed
contract mentioned above. Operating results improved from a $7.9 million loss in 2003 to $0.9
million income in 2004. This improvement was primarily attributable to the
absence in 2004 of cost increases on certain contracts, inventory-related
charges and litigation expenses recorded during 2003. In addition, $1.4
million of operating income from the resumed contract mentioned above
contributed to the segments improved results. Corporate
and Other  Corporate and other revenues are comprised solely of
the elimination of intercompany revenues. Corporate and other operating results in 2004 are comprised solely of the
first quarter 2004 gain on the sale of notes received from ORBIMAGE discussed
above. In 2003, corporate and other operating results included charges
totaling $4.5 million under the settlement agreement with ORBIMAGE. 18




---



##### 



Backlog Our firm backlog was $785 million at September 30, 2004 and $995 million
at December 31, 2003. We expect $175 million of the September 30, 2004 firm
backlog to be recognized as revenue during the remainder of 2004. 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. Total backlog was $2.39 billion at September 30, 2004 and $2.68 billion at
December 31, 2003. Total backlog includes firm backlog in addition to
unexercised options, indefinite-quantity contracts and undefinitized orders and
contract award selections. Backlog at September 30, 2004 does not give effect
to new orders received or any terminations or cancellations since that date. Liquidity and Capital Resources Cash
Flows from Operating Activities - Cash flow from operations in the
first nine months of 2004 was $61.2 million, as compared to $33.2 million in
the same period of 2003. Cash flow from operations in the first nine months of
2004 was primarily attributable to cash provided by ongoing business operations
and a $14.9 million net reduction in assets and liabilities. The reduction in
assets and liabilities includes a $12.5 million increase in accounts payable
and accrued expenses. Cash flow from operations in the first nine months of
2003 included an $18.6 million reduction in receivables and a $21.7 million
reduction in deferred revenues, plus a $38.8 million add-back to net loss
associated with the previously discussed debt extinguishment expenses. Cash
Flows from Investing Activities - We used $8.6 million and $5.4
million in the first nine months of 2004 and 2003, respectively, for capital
expenditures. In the first nine months of 2004, cash which had been restricted
for letters of credit was reduced by $5.6 million. During the first nine
months of 2003, our investing activities included a $9.0 million increase in
cash restricted for letters of credit, partially offset by a $3.0 million cash
receipt from an escrow account related to the sale of a former business. Cash
Flows from Financing Activities - During the first nine months of
2004 and 2003, we received $17.2 million and $3.5 million, respectively, from
issuances of common stock primarily in connection with stock option exercises
and warrant exercises. During the nine months ended September 30, 2004, 2.4
million common stock warrants, with an exercise price of $4.82 per
share that had originally been issued in 2001, were exercised. We received
$11.5 million of proceeds from these warrant exercises. A total of 2.1 million
warrants expired unexercised on August 31, 2004. During the first nine months of 2004, we repurchased and retired 595,000
shares of our common stock for $7.0 million, and we repurchased and cancelled
$8.6 million of our 9% senior notes at a cost of $9.6 million. During the
first nine months of 2003, our financing activities used $144.4 million to pay
long-term debt obligations and provided $129.0 million net proceeds from
issuance of long-term debt, primarily associated with July 2003 refinancing
transactions. 19




---



##### 



The following table sets forth our long-term obligations, excluding
capital lease obligations (in thousands): September 30, 2004
    
    December 31, 20039% senior notes, interest due semi-annually, principal due in July 2011
    
    $
    126,425
    
    
    $
    135,000Interest rate swap fair value hedge adjustment on $50 million of 9%
senior notes
    
    
    1,115
    
    
    
    1,847127,540
    
    
    
    136,847Less current portion
    
    
    
    
    
    
    Long-term portion
    
    $
    127,540
    
    
    $
    136,847
 The fair value of our senior notes at September 30, 2004 and December 31,
2003 was estimated at $141.0 million and $145.1 million, respectively, based on
market trading activity. We have a $50.0 million four-year revolving credit facility (the
Revolver) with Bank of America serving as the lead arranger in a syndicated
line of credit. The Revolver bears interest at rates ranging from 2.25% to
3.0% over LIBOR (for LIBOR loans) or from 0.75% to 1.5% over a base rate
related to the prime rate (for base rate loans), varying according to our ratio
of total debt to earnings before interest, taxes, depreciation and
amortization. The Revolver is collateralized by substantially all of our
assets. The Revolver also permits us to reserve up to $40.0 million of the
facility for letters of credit, foreign exchange contracts or other
arrangements. The maximum borrowing capacity under the Revolver is limited by
a borrowing base formula that is tied to our billed accounts receivable
balance. As of September 30, 2004, there were no borrowings under the
Revolver, although $6.4 million of standby letters of credit were issued under
the Revolver. As of September 30, 2004, $43.6 million of the Revolver was
available for borrowing. The senior notes and the Revolver contain covenants limiting our ability
to, among other things, incur more debt, redeem or repurchase Orbital stock,
enter into transactions with affiliates, merge or consolidate with others and
dispose of assets or create liens on assets. The Revolver contains an absolute
prohibition and the senior notes contain restrictions on the payment of cash
dividends. In addition, the Revolver contains financial covenants with respect
to leverage, secured leverage, minimum cash balance, fixed charge coverage and
consolidated net
worth. As of September 30, 2004 and December 31, 2003, 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 receive
fixed-rate interest of 9% in exchange for variable interest payments. The
interest rate is reset quarterly and is equal to the 3-month LIBOR rate plus
4.28%. The total variable interest rate was 5.88% at September 30, 2004. This
arrangement has been designated an effective fair value hedge of $50.0 million
of our senior notes. As of September 30, 2004 and December 31, 2003, the fair
value of the interest rate swap was $1.1 million and $1.8 million,
respectively, which was recorded in other non-current assets with an equal fair
value adjustment recorded on $50.0 million of the senior notes. Available
Cash and Future Funding - At September 30, 2004, we had $119.7
million of unrestricted cash and cash equivalents. Management believes that
available cash, cash expected 20




---



##### 



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 2004, our Board of Directors authorized us to repurchase,
through April 2005, up to $50 million of our outstanding 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 open market, block purchase or negotiated transactions. The warrants
and notes may be purchased in negotiated transactions. As previously
mentioned, during the first nine months of 2004 we expended $16.5 million to
repurchase shares of outstanding common stock and a portion of the senior
notes. The timing, amount and type of possible future securities
repurchases will be determined based on our loan covenants, market conditions
and other factors. Off-Balance Sheet Arrangements We believe that we have no 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. 21




---



##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At September 30, 2004, we had $4.0 million of receivables denominated in
Japanese yen and $3.1 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. From time to time, we enter into forward exchange contracts to hedge
against foreign currency fluctuations on receivables denominated in foreign
currency. At September 30, 2004, we had no foreign currency forward exchange
contracts. The fair market value of our outstanding 9% senior notes due 2011 was
estimated at $141.0 million at September 30, 2004, based on market trading
activity. During 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
receive fixed-rate interest of 9% in exchange for variable interest payments.
The interest rate is reset quarterly and is equal to the 3-month LIBOR rate
plus 4.28%. The total variable interest rate was 5.88% at September 30, 2004.
This arrangement has been designated an effective fair value hedge of $50.0
million of our senior notes. As of September 30, 2004, the fair value of the
interest rate swap was $1.1 million, which was recorded in other non-current
assets with an equal fair value adjustment recorded on $50.0 million of senior
notes. We have an unfunded deferred compensation plan for executive officers and
senior managers with a total liability balance of $4.7 million at September
30, 2004. 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. 22




---



##### 



PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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. CHANGES IN SECURITIES Purchases of Equity Securities by Issuer and Affiliated Purchasers The following table sets forth information regarding our repurchase
of common stock during the quarter ended September 30, 2004. Maximum Number (orTotal Number of
    
    Approximate DollarShares Purchased as
    
    Value) of SharesPart of Publicly
    
    That May Yet BeTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    Per Share
    
    Programs 1
    
    Plans or Programs
1July 1  July 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    43,000,000Aug 1  Aug 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    43,000,000Sep 1  Sep 30, 2004
    
    
    437,949
    
    
    $
    11.46
    
    
    
    437,949
    
    
    $
    34,000,000TOTAL
    
    
    437,949
    
    
    $
    11.46
    
    
    
    437,949
    
    
    $
    34,000,000
 (1) On April 22, 2004, 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 is
our only securities repurchase plan. We repurchased all of the shares reported above in open market transactions. We have not
determined to terminate this plan prior to its expiration in April
2005, nor have we determined to cease making further purchases. 23




---



##### 



ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY- HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits - A complete listing of exhibits
required is given in the Exhibit Index.(b)
    
    Reports on Form 8-K. On July 20, 2004, we filed a Current Report on Form 8-K,
dated July 20, 2004, disclosing under Item 12 our
announcement of consolidated financial results for the second
quarter ended June 30, 2004. On August 27, 2004, we filed a Current Report on Form 8-K,
dated August 26, 2004, disclosing under Item 8 our issuance
of a press release regarding the expiration of our common
stock warrants issued in 2001. 24




---



##### 



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: October 25, 2004
    By:
    /s/ David W.
ThompsonDavid W. Thompson
Chairman and Chief Executive OfficerBy:
    /s/ Garrett E. PierceDATED: October 25, 2004
    
    Garrett E. Pierce
Vice Chairman and Chief Financial Officer
 25




---



##### 



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 Quarterly 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
our 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 Report 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 our 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
our 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
our Quarterly Report on Form 10-Q for the quarter ended March 31,
2003).4.7
    
    Rights Agreement dated as of October 22, 1998 between the company
and BankBoston N.A., as Rights Agent (incorporated by reference to
Exhibit 1
 26




---



##### 



Exhibit No.
    
    Descriptionto the companys Report on Form 8-A filed on November 2,
1998).4.8
    
    Form of Rights Certificate (incorporated by reference to Exhibit 3
to the companys Report on Form 8-A filed on November 2, 1998).4.9
    
    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 our Current
Report on Form 8-K filed on July 18, 2003).4.10
    
    Form of 9% Senior Note due 2011 (incorporated by reference to
Exhibit 4.2 to our Current Report on Form 8-K filed on July 18,
2003).10.1
    
    Form of Director Restricted Stock Agreement (transmitted herewith).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