Research and Development

6 Months Ended

Jun. 30, 2013

(11) Research and Development

In 2008, the company entered into an agreement with NASA to design, build and demonstrate a new space transportation system under a program called Commercial Orbital Transportation Services ("COTS"), for delivering cargo and supplies to the International Space Station. Under the agreement, as amended, NASA has agreed to pay the company $288 million in cash milestone payments, partially funding Orbital's project costs which are currently estimated to be approximately $532 million. The company expects to complete this project in the second half of 2013.

The COTS agreement is accounted for as a best-efforts research and development cost-sharing arrangement. As such, the amounts funded by NASA are recognized proportionally as an offset to the company's COTS program research and development expenses, including associated general and administrative expenses. The following table summarizes the COTS program research and development expenses incurred and amounts funded by NASA (in millions):

	Second Quarter						First Six Months						Inception
	2013			2012			2013			2012			To Date
Research and development costs incurred ⁽¹⁾	$	13.6		$	11.1		$	31.5		$	32.3		$	512.0
Less amounts funded by NASA		(1.3	)		(4.5	)		(3.8	)		(15.5	)		(286.0	)	⁽²⁾
Net research and development expenses	$	12.3		$	6.6		$	27.7		$	16.8		$	226.0

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⁽¹⁾ Includes associated general and administrative expenses.

⁽²⁾ Through June 30, 2013, the company has received $281 million in cash from NASA and as of June 30, 2013, the company recorded an approximately $5 million receivable due from NASA.

The company is engaged in a major product development program of a medium-capacity rocket named Antares. Approximately $4.4 million and $8.1 million of the company's research and development expenses in the second quarter of 2013 and 2012, respectively, and $12.3 million and $19.7 million in the first half of 2013 and 2012, respectively, were attributable to the Antares program. Since the inception of the Antares program through June 30, 2013, the company has incurred $247.2 million of such costs.

- Definition

The entire disclosure for research, development, and computer software activities, including contracts and arrangements to be performed for others and with federal government. Includes costs incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or the entity's use, during the reporting period charged to research and development projects, including the costs of developing computer software up to the point in time of achieving technological feasibility and in-process research and development acquired in a business combination consummated during the period.

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