UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2013

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

(Exact name of registrant as specified in charter)

Delaware	06-1209561
(State of Incorporation of Registrant)	(I.R.S. Employer Identification No.)

45101 Warp Drive

Dulles, Virginia 20166

(Address of principal executive offices)

(703) 406-5000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 22, 2013, 60,163,630 shares of the registrant's Common Stock were outstanding.

ORBITAL SCIENCES CORPORATION

TABLE OF CONTENTS

			Page

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	1

		Condensed Consolidated Statements of Comprehensive Income for the Quarters and Six Months Ended June 30, 2013 and 2012	2

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	3

		Notes to Condensed Consolidated Financial Statements	4

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

	Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	30

	Item 1A.	Risk Factors	30

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

	Item 3.	Defaults Upon Senior Securities	30

	Item 4.	Mine Safety Disclosures	30

	Item 5.	Other Information	30

	Item 6.	Exhibits	30

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PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ORBITAL SCIENCES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share data)

	June 30,			December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	210,691		$	232,324
Receivables		560,944			499,222
Inventories		69,224			61,251
Deferred income taxes, net		33,061			38,216
Other current assets		10,817			17,810
Total current assets		884,737			848,823
Investments		9,800			9,200
Property, plant and equipment, net		250,713			251,360
Goodwill		71,260			75,261
Other non-current assets		25,382			26,810
Total assets	$	1,241,892		$	1,211,454

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	270,201		$	257,113
Deferred revenues and customer advances		29,469			62,098
Current portion of long-term obligations		8,236			7,500
Total current liabilities		307,906			326,711
Long-term obligations		138,750			143,236
Deferred income tax, net		19,674			10,879
Other non-current liabilities		16,382			17,082
Total liabilities		482,712			497,908
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $.01; 10,000,000 shares authorized, none outstanding		—			—
Common Stock, par value $.01; 200,000,000 shares authorized, 60,163,610 and
59,616,736 shares outstanding, respectively		602			596
Additional paid-in capital		584,040			575,300
Accumulated other comprehensive loss		(1,774	)		(2,781	)
Retained earnings		176,312			140,431
Total stockholders' equity		759,180			713,546
Total liabilities and stockholders' equity	$	1,241,892		$	1,211,454

See accompanying notes to condensed consolidated financial statements.

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ORBITAL SCIENCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands, except per share data)

	Quarters Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenues	$	333,081		$	371,268		$	667,894		$	709,298
Cost of revenues		259,021			290,086			505,407			549,050
Research and development expenses		23,191			21,930			55,324			49,808
Selling, general and administrative expenses		24,563			33,160			49,750			60,501
Income from operations		26,306			26,092			57,413			49,939
Interest income and other		476			446			1,042			633
Interest expense		(1,184	)		(2,970	)		(2,294	)		(6,047	)
Income before income taxes		25,598			23,568			56,161			44,525
Income tax provision		(9,319	)		(8,954	)		(20,280	)		(16,919	)
Net income	$	16,279		$	14,614		$	35,881		$	27,606

Basic income per share	$	0.27		$	0.25		$	0.60		$	0.47
Diluted income per share	$	0.27		$	0.25		$	0.59		$	0.46


Net income (from above)	$	16,279		$	14,614		$	35,881		$	27,606
Other comprehensive income
Defined benefit plans, net of tax of ($206), ($123),		(329	)		(200	)		(67	)		312
($42) and $193, respectively
Unrealized gain on investments		300			500			600			800
Net gain (loss) on foreign exchange derivative instruments,
net of tax of ($176), $0, $298 and $0, respectively		(282	)		—			474			—
Total other comprehensive income		(311	)		300			1,007			1,112
Comprehensive income	$	15,968		$	14,914		$	36,888		$	28,718

See accompanying notes to condensed consolidated financial statements.

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ORBITAL SCIENCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

	Six Months Ended June 30,
	2013			2012
Operating Activities:
Net income	$	35,881		$	27,606
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization expense		20,258			18,356
Deferred income taxes		13,693			15,408
Stock-based compensation and other		3,173			6,016
Changes in assets and liabilities		(80,453	)		(49,428	)
Net cash (used in) provided by operating activities		(7,448	)		17,958

Investing Activities:
Capital expenditures		(19,833	)		(31,740	)
Purchase price adjustment		4,000			—
Net cash used in investing activities		(15,833	)		(31,740	)

Financing Activities:
Principal payments on long-term obligations		(3,750	)		—
Net proceeds from issuances of common stock		3,786			846
Tax benefit of stock-based compensation		1,612			68
Net cash provided by financing activities		1,648			914

Net decrease in cash and cash equivalents		(21,633	)		(12,868	)
Cash and cash equivalents, beginning of period		232,324			259,219
Cash and cash equivalents, end of period	$	210,691		$	246,351

See accompanying notes to condensed consolidated financial statements.

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ORBITAL SCIENCES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013 and 2012

(Unaudited)

(1) Basis of Presentation

Orbital Sciences Corporation (together with its subsidiaries, "Orbital" or the "company"), a Delaware corporation, develops and manufactures small- and medium-class rockets and space systems for commercial, military and civil government customers.

In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the U.S. 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, 2012.

The preparation of consolidated financial statements in conformity with U.S. GAAP 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.

Operating results for the quarter and six months ended June 30, 2013 are not necessarily indicative of the results expected for the full year.

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(2) Segment Information

Orbital's products and services are grouped into three reportable business segments: launch vehicles, satellites and space systems and advanced space programs. Reportable segments are generally organized based upon product lines. Corporate office transactions that have not been attributed to a particular segment, as well as consolidating eliminations and adjustments, are reported in corporate and other. The primary products and services from which the company's reportable segments derive revenues are:

•

Launch Vehicles - Rockets that are used as small- and medium-class space launch vehicles that place satellites into Earth orbit and escape trajectories, interceptor and target vehicles for missile defense systems and suborbital launch vehicles that place payloads into a variety of high-altitude trajectories.

•

Satellites and Space Systems - Small- and medium-class satellites that are used to enable global and regional communications and broadcasting, conduct space-related scientific research, collect imagery and other remotely-sensed data about the Earth, carry out interplanetary and other deep-space exploration missions and demonstrate new space technologies.

•

Advanced Space Programs - Human-rated space systems for Earth-orbit and deep-space exploration, and small- and medium-class satellites primarily used for national security space programs and to demonstrate new space technologies.

Intersegment sales are generally negotiated and accounted for under terms and conditions that are similar to other commercial and government contracts. Substantially all of the company's assets and operations are located within the United States.

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The following table presents operating information and identifiable assets by reportable segment (in thousands):

	Quarters Ended June 30,							Six Months Ended June 30,
	2013			2012				2013			2012
Launch Vehicles:
Revenues	$	134,027		$	126,340			$	268,319		$	252,462
Operating income		10,521			8,072				22,554			16,988
Identifiable assets		208,593			206,194		⁽²⁾		208,593			206,194		⁽²⁾
Capital expenditures		2,976			12,268				4,673			19,519
Depreciation and amortization		4,618			3,898				8,877			7,631
Satellites and Space Systems:
Revenues	$	93,828		$	130,114			$	194,611		$	241,397
Operating income		10,637			10,572				21,475			17,949
Identifiable assets		269,546			278,008		⁽²⁾		269,546			278,008		⁽²⁾
Capital expenditures		5,337			4,603				10,373			6,889
Depreciation and amortization		2,074			2,165				4,232			4,129
Advanced Space Programs:
Revenues	$	116,620		$	132,947			$	229,879		$	247,910
Operating income		5,148			9,539				13,384			17,093
Identifiable assets		455,511			390,059		⁽²⁾		455,511			390,059		⁽²⁾
Capital expenditures		1,311			1,442				2,762			3,416
Depreciation and amortization		2,179			1,690				4,035			3,453
Corporate and Other:
Revenues⁽¹⁾	$	(11,394	)	$	(18,133	)		$	(24,915	)	$	(32,471	)
Operating loss		—			(2,091	)	⁽³⁾		—			(2,091	)	⁽³⁾
Identifiable assets		308,242			337,193		⁽²⁾		308,242			337,193		⁽²⁾
Capital expenditures		1,812			1,633				2,025			1,916
Depreciation and amortization		1,563			1,584				3,114			3,143
Consolidated:
Revenues	$	333,081		$	371,268			$	667,894		$	709,298
Operating income		26,306			26,092				57,413			49,939
Identifiable assets		1,241,892			1,211,454		⁽²⁾		1,241,892			1,211,454		⁽²⁾
Capital expenditures		11,436			19,946				19,833			31,740
Depreciation and amortization		10,434			9,337				20,258			18,356

⁽¹⁾	Corporate and other revenues are comprised solely of the elimination of intersegment revenues summarized as follows (in millions):

	Quarters Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Launch Vehicles	$	10.3	$	16.4	$	22.0	$	29.0
Satellites and Space Systems		0.9		1.4		2.3		3.1
Advanced Space Programs		0.2		0.3		0.6		0.4
Total intersegment revenues	$	11.4	$	18.1	$	24.9	$	32.5

⁽²⁾	As of December 31, 2012.

⁽³⁾	The corporate and other operating loss in 2012 is comprised solely of professional fees and other costs related to a potential acquisition that was not consummated.

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(3) Earnings Per Share

The computation of basic and diluted earnings per share is as follows (in thousands, except per share amounts):

			Quarters Ended June 30,						Six Months Ended June 30,
Numerator			2013			2012			2013			2012
		Net income	$	16,279		$	14,614		$	35,881		$	27,606
		Percentage allocated to shareholders ⁽¹⁾		99.8	%		99.4	%		99.7	%		99.4	%
		Numerator for basic and diluted earnings per share	$	16,246		$	14,526		$	35,773		$	27,440

Denominator
		Denominator for basic earnings per share -
		weighted-average shares outstanding		60,058			58,991			59,918			58,966
		Dilutive effect of stock options and restricted stock units		319			290			310			313
		Denominator for diluted earnings per share		60,377			59,281			60,228			59,279

Per share income
		Basic	$	0.27		$	0.25		$	0.60		$	0.47
		Diluted		0.27			0.25			0.59			0.46
_________________________

	⁽¹⁾	Basic weighted-average shares outstanding		60,058			58,991			59,918			58,966
		Basic weighted-average shares outstanding and
		unvested restricted share units expected to vest		60,205			59,327			60,069			59,307
		Percentage allocated to shareholders		99.8	%		99.4	%		99.7	%		99.4	%

The calculation of earnings per share shown above excludes the income attributable to the company's unvested restricted stock units that include rights to receive non-forfeitable dividends from the numerator and excludes the impact of those units from the denominator. Diluted weighted-average shares for all periods also exclude the effect of the company's convertible notes that were anti-dilutive.

(4) Cash Equivalents

At June 30, 2013 and December 31, 2012, the company had invested approximately $196 million and $215 million, respectively, in cash equivalents in the form of money market funds with three financial institutions. The company considers these money market funds to be Level 1 financial instruments.

(5) Receivables

The components of receivables were as follows (in thousands):

	June 30,		December 31,
	2013		2012
Billed	$	48,294	$	59,496
Unbilled		512,650		439,726
Total	$	560,944	$	499,222

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Under the terms of the company's Commercial Resupply Services ("CRS") contract with the National Aeronautics and Space Administration ("NASA"), approximately 25% of the contract value is billable to the customer and collectible only upon the completion of launch and delivery milestones for each of eight CRS contract missions. Unbilled receivables at June 30, 2013 and December 31, 2012 included $343 million and $277 million, respectively, pertaining to the CRS contract. Since the commencement of the CRS contract through June 30, 2013, a total of approximately $1.1 billion of revenues have been recognized on the contract, which has a total contract value of approximately $1.9 billion.

As of June 30, 2013 and December 31, 2012, unbilled receivables also included $8.3 million and $8.7 million, respectively, of incentive fees on certain completed satellite contracts that become due incrementally over periods of up to 15 years, subject to the achievement of performance criteria.

In addition, certain satellite contracts require the company to refund cash to the customer if performance criteria, which cover periods of up to 15 years, are not satisfied. As of June 30, 2013, the company could be required to refund up to $19.7 million to customers if certain completed satellites were to fail to satisfy performance criteria. Orbital generally procures insurance policies under which the company believes it would recover satellite incentive fees that are not earned and performance refund obligations.

(6) Inventories

As of June 30, 2013 and December 31, 2012, substantially all of the company's inventory consisted of component parts, raw materials and milestone payments for future delivery of component parts.

(7) Investments

As of June 30, 2013 and December 31, 2012, the company held investments consisting of three auction-rate debt securities (life insurance company capital reserve funds), an auction-rate equity security (financial guarantee company capital reserve fund) and two preferred stock investments. These investments are classified as available for sale securities and as non-current assets on the company's balance sheet. Contractual maturities for the debt securities are 12 years or greater and the remaining securities have no fixed maturity. The amortized cost and fair value of these investments were as follows (in thousands):

	June 30, 2013						December 31, 2012
	Cost or Amortized Cost		Net Unrealized Gain (Loss)		Fair Value		Cost or Amortized Cost		Net Unrealized Gain (Loss)			Fair Value
Debt	$	7,150	$	50	$	7,200	$	7,150	$	(250	)	$	6,900
Equity⁽¹⁾		2,000		600		2,600		2,000		300			2,300
Total	$	9,150	$	650	$	9,800	$	9,150	$	50		$	9,200

⁽¹⁾As of June 30, 2013 and December 31, 2012, cost and fair value of the two preferred stock investments were $0.

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The changes in fair value of the investments were recorded as follows (in thousands):

	Quarters Ended					Six Months Ended
	June 30,					June 30,
	2013		2012			2013		2012
Debt Securities
Fair value at beginning of period	$	6,900	$	6,100		$	6,900	$	6,100
Change in net unrealized gain (loss)		300		600			300		600
Fair value at end of period	$	7,200	$	6,700		$	7,200	$	6,700


Equity Securities
Fair value at beginning of period	$	2,600	$	2,700		$	2,300	$	2,400
Change in net unrealized gain (loss)		—		(100	)		300		200
Fair value at end of period	$	2,600	$	2,600		$	2,600	$	2,600


Total
Fair value at beginning of period	$	9,500	$	8,800		$	9,200	$	8,500
Change in net unrealized gain (loss)		300		500			600		800
Fair value at end of period	$	9,800	$	9,300		$	9,800	$	9,300

There was no sale, purchase, issuance, settlement or transfer activity related to these investments during the periods presented.

The fair values of these securities are based on a discounted cash flow analysis which consider the following Level 3 observable and unobservable inputs: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions and the relevant risk associated with each security; and (iii) the expected time horizon until each security will be sold. The discount rates used in the present value calculations are based on yields on U.S. Treasury securities with similar time horizons (1.4% to 2.5% as of June 30, 2013) plus interest rate risk premiums (4% to 12% as of June 30, 2013) that are intended to compensate for general market risk and the risk specific to each security. The risk premiums are based upon current credit default swap pricing market data for similar or related securities or credit spreads for corporate bonds with similar credit ratings and similar maturities. The time horizons used in the present value calculations have a range of 3 to 8 years as of June 30, 2013.

(8) Fair Value of Derivative Financial Instruments

As of June 30, 2013 and December 31, 2012, the fair value of the company's euro/U.S. dollar forward contracts used to hedge a euro-denominated customer contract was a liability of $0.2 million and $1.2 million, respectively. The company considers this fair value measure to be a Level 2 measure.

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(9) Debt Obligations

Term Loan and Credit Facility

The recorded value and fair value of the company's senior secured term loan (the "Term Loan") under its revolving secured credit facility (the "Credit Facility") was $146.3 million and $150.0 million as of June 30, 2013 and December 31, 2012, respectively. The company considers this fair value measure to be a Level 2 measure.

The Term Loan matures in December 2017, is secured on the same basis as the Credit Facility and bears interest, at the company's option, at the London Interbank Offered Rate ("LIBOR") plus 1.75% per annum or a base rate plus 0.75% per annum. The company is required to make quarterly principal payments of approximately $1.9 million. The remaining principal amount of $114.4 million will be due at maturity. The Term Loan is otherwise subject to terms and conditions substantially similar to those in the Credit Facility regarding guarantees, covenants and events of default.

The Credit Facility provides capacity for up to $300 million of revolving loans and permits the company to utilize up to $125 million of such capacity for the issuance of standby letters of credit. The Credit Facility matures in December 2017. The company's obligations under the Credit Facility are secured by substantially all of the company's assets except for real property. The company has the option to increase the amount of the Credit Facility by up to $150 million, subject to obtaining additional loan commitments and the satisfaction of other specified conditions. Loans under the Credit Facility bear interest at LIBOR plus an applicable margin ranging from 1.75% to 2.50%, with the applicable margin varying according to the company's total leverage ratio, or, at the election of the company, at a base rate plus 0.75% to 1.50%. Letters of credit issued under the Credit Facility accrue fees at a rate equal to the applicable margin for LIBOR loans. In addition, the company is required to pay a quarterly commitment fee for the unused portion of the Credit Facility, if any, at a rate ranging from 0.30% to 0.50%.

As of June 30, 2013, there were no revolving loan borrowings under the Credit Facility, although $15.5 million of letters of credit were issued under the Credit Facility. Furthermore, borrowing capacity under the Credit Facility is limited by certain financial covenants, discussed below. Accordingly, as of June 30, 2013, approximately $269 million of the Credit Facility was available for borrowings.

Debt Covenants

Orbital's Credit Facility contains covenants limiting its ability to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase company stock, enter into transactions with affiliates, make investments, merge or consolidate with others or dispose of assets. In addition, the Credit Facility contains financial covenants with respect to leverage and interest coverage. As of June 30, 2013, the company was in compliance with all of these covenants.

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(10) Stock-Based Compensation

The following tables summarize information related to the company's stock-based compensation:

	Restricted Stock Units						Stock Options
				Weighted Average							Weighted Average
	Number of			Measurement			Number of				Exercise
	Units			Date Fair Value			Options				Price
Outstanding at December 31, 2012		935,633			$	14.42		557,954				$	7.84
Granted ⁽¹⁾		31,506				14.36		—					—
Exercised		—				—		(455,379	)				6.91
Vested		(43,553	)			15.22		—					—
Forfeited		(12,644	)			14.50		—					—
Expired		—				—		(2,575	)				7.16
Outstanding at June 30, 2013		910,942			$	14.38		100,000		⁽²⁾		$	12.10

⁽¹⁾	The fair value of restricted stock unit grants is determined based on the closing market price of Orbital's common stock on the date of grant. Such value is recognized as expense over the service period, net of estimated forfeitures.

⁽²⁾	The weighted average remaining contractual term is 1.76 years.

	Quarters Ended June 30,
(in millions)	2013		2012
Stock-based compensation expense	$	1.7	$	1.3
Income tax benefit related to stock-based compensation expense		0.6		0.4
Intrinsic value of options exercised computed as the market
price on the exercise date less the price paid to exercise the options		1.7		—
Cash received from exercise of options		1.3		0.1
Tax benefit recorded as credits to additional paid-in capital related
to stock-based compensation transactions		0.7		—

	Six Months Ended June 30,
(in millions)	2013		2012
Stock-based compensation expense	$	3.5	$	2.7
Income tax benefit related to stock-based compensation expense		1.3		0.9
Intrinsic value of options exercised computed as the market
price on the exercise date less the price paid to exercise the options		4.1		0.1
Cash received from exercise of options		3.2		0.1
Tax benefit recorded as credits to additional paid-in capital related
to stock-based compensation transactions		1.6		—

	As of
(in millions)	June 30, 2013
Shares of common stock available for grant under stock-based incentive plans		2.9
Aggregate intrinsic value of restricted stock units that are expected to vest	$	15.8
Unrecognized compensation expense related to non-vested restricted stock units, expected to
be recognized over a weighted-average period of 1.61 years		7.5
Aggregate intrinsic value of stock options outstanding, all fully vested		0.5

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(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

^{__________________________________________}

⁽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.

(12) Income Taxes

The company's effective tax rates were 36.1% and 38.0% for the first half of 2013 and 2012, respectively. The tax rate in the first six months of 2013 included a favorable income tax adjustment of $0.5 million pertaining to federal research and development tax credits.

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(13) Commitments and Contingencies

U.S. Government Contracts

The accuracy and appropriateness of costs charged to U.S. Government contracts are subject to regulation, audit and possible disallowance by the Defense Contract Audit Agency or other government agencies. Accordingly, costs billed or billable to U.S. Government customers are subject to potential adjustment upon audit by such agencies.

Most of the company's U.S. Government contracts are funded incrementally on a year-to-year basis. Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could materially adversely affect the company's financial condition or results of operations. Furthermore, contracts with the U.S. Government may be terminated or suspended by the U.S. Government at any time, with or without cause. Such contract suspensions or terminations could result in unreimbursable expenses or charges or otherwise adversely affect the company's financial condition and/or results of operations.

Research and Development Expenses

The company believes that a majority of the company's research and development expenses are recoverable and billable under contracts with the U.S. Government, from which the majority of the company's revenues are derived. Charging practices relating to research and development and other costs that may be charged directly or indirectly to government contracts are subject to audit by U.S. Government agencies to determine if such costs are reasonable and allowable under government contracting regulations and accounting practices. The company believes that research and development costs incurred in connection with the company's Antares development program (see Note 11) are allowable, although the U.S. Government has not yet made a final determination with respect to certain of these costs. Since the inception of the Antares program through June 30, 2013, the company has incurred approximately $174 million of such costs. If such costs were determined to be unallowable, the company could be required to record revenue and profit reductions in future periods.

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Litigation

From time to time the company is party to certain litigation or other legal proceedings arising in the ordinary course of business. Because of the uncertainties inherent in litigation, the company cannot predict the outcome of such litigation or other legal proceedings; however, the company believes that none of these matters will have a material adverse effect on the company's results of operations or financial condition.

In 2010, the company recorded a non-current asset pertaining to a $10 million advance paid in connection with a business agreement. Orbital has filed a lawsuit for breach of contract seeking refund of the advance and related damages. While Orbital believes that its claim for refund is enforceable, the company could be required to record a charge in a future period to write off any amount that is not ultimately recovered.

(14) New Accounting Pronouncement

On January 1, 2013, authoritative accounting guidance became effective for the company pertaining to the disclosure of amounts that are reclassified out of other comprehensive income and into net income. During the first six months of 2013, such reclassifications in the company's financial statements were not material.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Item 2 and elsewhere in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, those related to our financial outlook, liquidity, goals, business strategy, projected plans and objectives of management for future operating results, and forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often include the words "anticipate," "forecast," "expect," "believe," "should," "will," "intend," "plan" and words of similar substance. Such forward-looking statements are subject to risks, trends and uncertainties that could cause the actual results or performance of the company to be materially different from the forward-looking statement. Uncertainty surrounding factors such as continued government support and funding for key space and defense programs, including impacts of sequestration under the Budget Control Act of 2011, new product development programs, the availability of key product components, product performance and market acceptance of products and technologies, achievement of contractual milestones, government contract procurement and termination risks, and income tax rates may materially impact Orbital's actual financial and operational results. Other risks, uncertainties and factors are discussed under the caption "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012. We are under no obligation to, and expressly disclaim any obligation or undertaking to update or alter any forward-looking statement, whether as a result of new information, subsequent events or otherwise, except as required by law.

We develop and manufacture small- and medium-class rockets and space systems for commercial, military and civil government customers. Our primary products and services include the following:

·	Advanced Space Programs - Human-rated space systems for Earth-orbit and deep-space exploration, and small- and medium-class satellites primarily used for national security space programs and to demonstrate new space technologies.

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The following discussion should be read along with our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission, and with the unaudited condensed consolidated financial statements included in this Form 10-Q.

Consolidated Results of Operations for the Quarters and Six Months Ended June 30, 2013 and 2012

Revenues - Our consolidated revenues were $333.1 million in the second quarter of 2013, a decrease of $38.2 million, or 10%, compared to the second quarter of 2012 due to lower revenues in our satellites and space systems and advanced space programs segments, partially offset by an increase in revenues in our launch vehicles segment. Launch vehicles segment revenues increased $7.7 million, or 6%, primarily due to increased activity on missile defense interceptors, partially offset by decreased activity on space launch vehicles. Satellites and space systems segment revenues decreased $36.3 million, or 28%, principally due to decreased activity on communications satellite contracts, partially offset by increased activity on science and remote sensing satellites. Advanced space programs segment revenues decreased $16.3 million, or 12%, primarily due to decreased activity on the International Space Station Commercial Resupply Services ("CRS") contract with the National Aeronautics and Space Administration ("NASA") and national security satellite contracts.

Eliminations of intersegment revenues were $11.4 million in the second quarter of 2013 compared to $18.1 million in the second quarter of 2012. Intersegment revenues included $8.6 million and $15.7 million in the second quarter of 2013 and 2012, respectively, pertaining to Antares launch vehicle production work that is reported in our launch vehicles segment which is part of the Commercial Orbital Transportation Services ("COTS") research and development program with NASA that is reported in our advanced space programs segment.

Our consolidated revenues were $667.9 million in the first half of 2013, a decrease of $41.4 million, or 6%, compared to the first half of 2012 due to lower revenues in our satellites and space systems and advanced space programs segments, partially offset by an increase in revenues in our launch vehicles segment. Launch vehicles segment revenues increased $15.9 million, or 6%, primarily due to increased activity on missile defense interceptors and target launch vehicles, partially offset by decreased activity on space launch vehicles. Satellites and space systems segment revenues decreased $46.8 million, or 19%, principally due to decreased activity on communications satellite contracts, partially offset by increased activity on science and remote sensing satellites. Advanced space programs segment revenues decreased $18.0 million, or 7%, primarily due to decreased activity on the CRS contract and on national security satellite contracts.

Eliminations of intersegment revenues were $24.9 million in the first half of 2013 compared to $32.5 million in the first half of 2012. Intersegment revenues included $19.0 million and $27.5 million in the first half of 2013 and 2012, respectively, pertaining to Antares launch vehicle production work that is reported in our launch vehicles segment which is part of the COTS program that is reported in our advanced space programs segment.

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The CRS contract accounted for 24% and 25% of our consolidated revenues in the second quarter of 2013 and 2012, respectively, and 23% and 24% of consolidated revenues in the first half of 2013 and 2012, respectively. The launch vehicle portion of the CRS contract is reported in our launch vehicles segment and the remainder of the CRS contract is reported in our advanced space programs segment. CRS contract revenues totaled $80.0 million in the second quarter of 2013, a decrease of $14.2 million, or 15%, compared to the second quarter of 2012, and totaled $155.1 million in the first half of 2013, a decrease of $13.4 million, or 8%, compared to the first half of 2012. Since the commencement of the CRS contract through June 30, 2013, a total of approximately $1.1 billion of revenues has been recognized on the contract, which has a total contract value of approximately $1.9 billion.

Cost of Revenues - Our cost of revenues was $259.0 million in the second quarter of 2013, a decrease of $31.1 million, or 11%, compared to the second quarter of 2012. Cost of revenues includes the costs of personnel, materials, subcontractors and overhead. The decrease in our cost of revenues was primarily attributable to the decrease in contract activity in the satellites and space systems and advanced space programs segments, partially offset by an increase in activity in the launch vehicles segment. Cost of revenues increased $10.5 million, or 10%, in the launch vehicles segment, decreased $37.6 million, or 35%, in the satellites and space systems segment and decreased $10.7 million, or 10%, in the advanced space programs segment. Eliminations of intersegment cost of revenues decreased $6.7 million due to the decrease in intersegment revenues discussed above.

Our cost of revenues was $505.4 million in the first half of 2013, a decrease of $43.6 million, or 8%, compared to the first half of 2012. The decrease in our cost of revenues was primarily attributable to the decrease in contract activity in the satellites and space systems and advanced space programs segments, partially offset by an increase in activity in the launch vehicles segment. Cost of revenues increased $20.1 million, or 10%, in the launch vehicles segment, decreased $55.5 million, or 28%, in the satellites and space systems segment and decreased $15.8 million, or 8%, in the advanced space programs segment. Eliminations of intersegment cost of revenues decreased $7.6 million due to the decrease in intersegment revenues discussed above.

Research and Development Expenses - Our research and development expenses totaled $23.2 million, or 7% of revenues, in the second quarter of 2013, a $1.3 million increase compared to $21.9 million, or 6% of revenues, in the second quarter of 2012. The increase in research and development expenses was primarily attributable to higher COTS program costs, partially offset by decreased costs on the Antares launch vehicle development program.

Our research and development expenses totaled $55.3 million, or 8% of revenues, in the first half of 2013, a $5.5 million increase compared to $49.8 million, or 7% of revenues, in the first half of 2012. The increase in research and development expenses in the first half of 2013 compared to the first half of 2012 was principally attributable to higher COTS program costs and product enhancements in the satellites and space systems segment, partially offset by decreased costs on the Antares launch vehicle development program.

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The COTS program 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 our COTS program research and development expenses, including associated general and administrative expenses. Under the COTS agreement, as amended, NASA has agreed to pay us $288 million in cash milestone payments, partially funding our program costs which are currently estimated to be approximately $532 million. We expect to complete this program in the second half of 2013. The following table summarizes the COTS program costs incurred and amounts funded by NASA that are recorded in research and development expenses (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

^{________________________________________}

⁽¹⁾ Includes associated general and administrative expenses.

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

Research and development expenses attributable to our Antares launch vehicle development program were $4.4 million and $8.1 million in the second quarter of 2013 and 2012, respectively, and were $12.3 million and $19.7 million in the first half of 2013 and 2012, respectively.

We believe that the majority of our research and development expenses are recoverable and billable under our contracts with the U.S. Government. Charging practices relating to research and development and other costs that may be charged directly or indirectly to government contracts are subject to audit by U.S. Government agencies to determine if such costs are reasonable and allowable under government contracting regulations and accounting practices. We believe that the research and development costs incurred in connection with our Antares development program are allowable, although the U.S. Government has not yet made a final determination with respect to certain of these costs. Since the inception of the Antares program through June 30, 2013, we have incurred approximately $174 million of such expenses that have been recorded as allowable costs. If such costs were determined to be unallowable, we could be required to record revenue and profit reductions in future periods.

Selling, General and Administrative Expenses - Selling, general and administrative expenses were $24.6 million and $33.2 million, or 7% and 9% of revenues, in the second quarter of 2013 and 2012, respectively. Selling, general and administrative expenses include the costs of our finance, legal, administrative and general management functions, as well as bid, proposal and marketing costs. Selling, general and administrative expenses decreased $8.6 million, or 26%, in the second quarter of 2013 compared to the second quarter of 2012 primarily due to lower bid, proposal and marketing costs in the advanced space programs segment. Selling, general and administrative expenses in the second quarter of 2012 also included $2.1 million of professional fees and other costs related to a potential acquisition that was not consummated.

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Selling, general and administrative expenses were $49.8 million and $60.5 million, or 7% and 9% of revenues, in the first half of 2013 and 2012, respectively. Selling, general and administrative expenses decreased $10.8 million, or 18%, in the first half of 2013 compared to the first half of 2012 primarily due to the same factors that impacted second quarter results discussed above.

Operating Income - Our consolidated operating income was $26.3 million in the second quarter of 2013, an increase of $0.2 million, or 1%, compared to the second quarter of 2012. Launch vehicles segment operating income increased $2.4 million, or 30%, primarily due to increased activity on missile defense interceptors and a profit margin improvement on the Pegasus program that was largely attributable to the successful completion of a Pegasus launch mission in June 2013. Satellites and space systems segment operating income increased marginally principally due to profit margin improvements on certain satellites that were substantially completed in the first half of 2013 offset by decreased activity on other satellite contracts completed during the past twelve months. Advanced space programs segment operating income decreased $4.4 million, or 46%, primarily due to favorable adjustments in the second quarter of 2012 on certain national security contracts and decreased activity on the CRS contract. The consolidated results in the second quarter of 2012 included $2.1 million of unallocated corporate-level professional fees and other costs related to a potential acquisition that was not consummated.

Our consolidated operating income was $57.4 million in the first half of 2013, an increase of $7.5 million, or 15%, compared to the first half of 2012. Launch vehicles segment operating income increased $5.6 million, or 33%, primarily due to increased activity on missile defense interceptors and target launch vehicles, a profit margin improvement on the Pegasus program that was largely attributable to the successful completion of a Pegasus launch mission in June 2013, and improved profit margins on target launch vehicle contracts. Satellites and space systems segment operating income increased $3.5 million, or 20%, principally due to profit margin improvements on certain completed or substantially completed satellites and the favorable resolution of a customer claim, partially offset by decreased activity on other completed satellite contracts. Advanced space programs segment operating income decreased $3.7 million, or 22%, primarily due to lower activity on national security satellite contracts, favorable adjustments in the first half of 2012 on certain national security contracts and decreased activity on the CRS contract, partially offset by a favorable contract closeout adjustment in the first half of 2013. The consolidated results in the first half of 2012 included $2.1 million of unallocated corporate-level professional fees and other costs related to a potential acquisition that was not consummated.

Total operating income from the CRS contract was $4.1 million and $5.0 million in the second quarter of 2013 and 2012, respectively, and $8.0 million and $8.4 million in the first half of 2013 and 2012, respectively. Since the commencement of the CRS contract through June 30, 2013, a total of $56.1 million of operating income has been recognized on the contract.

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Interest Income and Other - Interest income and other was $0.5 million and $0.4 million in the second quarter of 2013 and 2012, respectively, and $1.0 million and $0.6 million in the first half of 2013 and 2012, respectively.

Interest Expense - Interest expense was $1.2 million and $3.0 million in the second quarter of 2013 and 2012, respectively, and $2.3 million and $6.0 million in the first half of 2013 and 2012, respectively. The reduction in interest expense in 2013 was attributable to our debt refinancing transaction that was completed in December 2012.

Income Tax Provision - Our income tax provision was $9.3 million and $9.0 million in the second quarter of 2013 and 2012, respectively. We recorded income tax provisions of $20.3 million and $16.9 million in the first half of 2013 and 2012, respectively. Our effective tax rate for the first half of 2013 and 2012 was 36.1% and 38.0%, respectively. The tax rate in the first six months of 2013 included a favorable income tax adjustment of $0.5 million pertaining to federal research and development tax credits.

Net Income - Net income was $16.3 million and $14.6 million, or $0.27 and $0.25 diluted earnings per share, in the second quarter of 2013 and 2012, respectively, and $35.9 million and $27.6 million, or $0.59 and $0.46 diluted earnings per share, in the first half of 2013 and 2012, respectively.

Segment Results for the Quarters and Six Months Ended June 30, 2013 and 2012

Our products and services are grouped into three reportable segments: launch vehicles, satellites and space systems and advanced space programs. Corporate office transactions that have not been attributed to a particular segment, as well as consolidating eliminations and adjustments, are reported in corporate and other.

The following tables of financial information and related discussion of the results of operations of our business segments are consistent with the presentation of segment information in Note 2 to the accompanying financial statements in this Form 10-Q.

Launch Vehicles

Launch vehicles segment operating results were as follows (in thousands, except percentages):

	Second Quarter									First Six Months
	2013			2012			% Change			2013			2012			% Change
Revenues	$	134,027		$	126,340			6	%	$	268,319		$	252,462			6	%
Operating income		10,521			8,072			30	%		22,554			16,988			33	%
Operating margin		7.9	%		6.4	%					8.4	%		6.7	%

Segment Revenues - Launch vehicles segment revenues increased $7.7 million, or 6%, in the second quarter of 2013 compared to the second quarter of 2012 primarily due to increased activity on missile defense interceptors, partially offset by decreased activity on space launch

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vehicles. Missile defense interceptor revenues increased $15.9 million, or 92%, due to increased activity on our Ground-based Midcourse Defense ("GMD") program. Under our GMD program, we supply interceptor boosters for the U.S. Missile Defense Agency's GMD system. GMD program revenues accounted for 25% and 14% of total launch vehicles segment revenues in the second quarter of 2013 and 2012, respectively. Space launch vehicle revenues decreased $9.3 million, or 15%, principally due to decreased production activity on Antares launch vehicles for the COTS program and Minotaur space launch vehicles, partially offset by increased production activity on Antares launch vehicles for the CRS program. Antares launch vehicle revenues were $41.4 million and $44.4 million in the second quarter of 2013 and 2012, respectively, which included $32.8 million and $28.7 million, respectively, related to the CRS contract and $8.6 million and $15.7 million, respectively, related to the COTS program. Antares launch vehicle revenues accounted for 31% and 35% of total launch vehicles segment revenues in the second quarter of 2013 and 2012, respectively. Target launch vehicle revenues increased marginally.

Launch vehicles segment revenues increased $15.9 million, or 6%, in the first half of 2013 compared to the first half of 2012 primarily due to increased activity on missile defense interceptors and target launch vehicles, partially offset by decreased activity on space launch vehicles. Missile defense interceptor revenues increased $20.6 million, or 59%, due to increased activity on our GMD program. GMD program revenues accounted for 21% and 14% of total launch vehicles segment revenues in the first half of 2013 and 2012, respectively. Target launch vehicle revenues increased $5.4 million, or 6%, largely due to increased activity on our Intermediate-Range Ballistic Missile ("IRBM") target vehicle contract. Space launch vehicle revenues decreased $11.6 million, or 10%, principally due to decreased production activity on Antares launch vehicles for the COTS program. Antares launch vehicle revenues were $83.2 million and $91.1 million in the first half of 2013 and 2012, respectively, which included $64.2 million and $63.6 million, respectively, related to the CRS contract and $19.0 million and $27.5 million, respectively, related to the COTS program. Antares launch vehicle revenues accounted for 31% and 36% of total launch vehicles segment revenues in the first half of 2013 and 2012, respectively.

Segment Operating Income - Operating income in the launch vehicles segment increased $2.4 million, or 30%, in the second quarter of 2013 compared to the second quarter of 2012 due to higher operating income from space launch vehicles and missile defense interceptors, partially offset by lower operating income from target launch vehicles. Operating income from space launch vehicles increased $1.9 million, or 150%, primarily due to a profit margin improvement on the Pegasus program that was largely attributable to the successful completion of a Pegasus launch mission in June 2013. Operating income from missile defense interceptors increased $1.2 million, or 54%, primarily due to increased activity on our GMD contract. Operating income from target launch vehicles decreased $0.6 million, or 13%.

Operating income in the launch vehicles segment increased $5.6 million, or 33%, in the first half of 2013 compared to the first half of 2012 due to higher operating income from all three launch vehicle product lines. Operating income from space launch vehicles increased $2.8 million, or 91%, primarily due to a profit margin improvement on the Pegasus program that was largely attributable to the successful completion of a Pegasus launch mission in June 2013.

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Operating income from missile defense interceptors increased $1.4 million, or 34%, due to increased activity on our GMD contract. Operating income from target launch vehicles increased $1.3 million, or 14%, principally due to increased activity and an improved profit margin on our IRBM contract.

Launch vehicles segment operating margins (as a percentage of revenues) were 7.9% in the second quarter of 2013, compared to 6.4% in the second quarter of 2012, and 8.4% in the first half of 2013, compared to 6.7% in the first half of 2012 . The improvement in operating margins in the second quarter and first half of 2013 was largely due to the profit margin improvement on the Pegasus program discussed above.

Satellites and Space Systems

Satellites and space systems segment operating results were as follows (in thousands, except percentages):

	Second Quarter									First Six Months
	2013			2012			% Change			2013			2012			% Change
Revenues	$	93,828		$	130,114			(28	%)	$	194,611		$	241,397			(19	%)
Operating income		10,637			10,572			-			21,475			17,949			20	%
Operating margin		11.3	%		8.1	%					11.0	%		7.4	%

Segment Revenues - Satellites and space systems segment revenues decreased $36.3 million, or 28%, in the second quarter of 2013 compared to the second quarter of 2012 primarily due to decreased activity on communications satellite contracts, partially offset by increased activity on science and remote sensing satellite contracts. Communications satellite revenues decreased $54.1 million, or 64%, principally due to the completion of several satellites during the past 12 months. Communications satellite revenues accounted for 32% and 65% of total segment revenues in the second quarter of 2013 and 2012, respectively. Science and remote sensing satellite revenues increased $17.7 million, or 102%, primarily due to increased activity to complete a recently deployed satellite and increased activity on a satellite contract that was awarded in 2011. Space technical services revenues increased $1.2 million, or 4%.

Satellites and space systems segment revenues decreased $46.8 million, or 19%, in the first half of 2013 compared to the first half of 2012 primarily due to decreased activity on communications satellite contracts, partially offset by increased activity on science and remote sensing satellite contracts. Communications satellite revenues decreased $70.2 million, or 48%, principally due to the completion of several satellites during the past 12 months. Communications satellite revenues accounted for 39% and 61% of total segment revenues in the first half of 2013 and 2012, respectively. Science and remote sensing satellite revenues increased $23.0 million, or 59%, primarily due to increased activity to complete a recently deployed satellite and increased activity on a satellite contract that was awarded in 2011. Space technical services revenues increased $1.8 million, or 3%.

Segment Operating Income - Operating income in the satellites and space systems segment increased marginally in the second quarter of 2013 compared to the second quarter of 2012,

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despite the reduction in segment revenues, primarily due to higher operating income from science and remote sensing satellite contracts, partially offset by lower operating income from communications satellite contracts. Science and remote sensing satellite operating income increased $4.7 million in the second quarter of 2013 largely due to a profit margin improvement in the second quarter of 2013 resulting from the recent successful deployment of a satellite. Communications satellite operating income decreased $3.9 million, or 39%, primarily due to decreased activity on satellite contracts since the second quarter of 2012, partially offset by profit margin improvements in the second quarter of 2013 on certain satellites that were substantially completed in the first half of 2013. Communications satellite operating income accounted for 58% and 95% of total segment operating income in the second quarter of 2013 and 2012, respectively. Space technical services operating income was unchanged compared to the second quarter of 2012.

Operating income in the satellites and space systems segment increased $3.5 million, or 20%, in the first half of 2013 compared to the first half of 2012, despite the reduction in segment revenues, primarily due to higher operating income from science and remote sensing satellite contracts. Science and remote sensing satellite operating income increased $4.6 million in the first half of 2013 largely due to a profit margin improvement in the first half of 2013 resulting from the recent successful deployment of a satellite. Communications satellite operating income decreased marginally, despite the larger decline in revenues, primarily due to profit margin improvements on certain satellites that were completed or substantially completed in the first half of 2013 and the favorable resolution of a customer claim, partially offset by decreased activity on other completed satellite contracts. Communications satellite operating income accounted for 61% and 74% of total segment operating income in the first half of 2013 and 2012, respectively. Space technical services operating income was unchanged compared to the first half of 2012.

Satellites and space systems segment operating margins (as a percentage of revenues) increased to 11.3% in the second quarter of 2013 from 8.1% in the second quarter of 2012, and to 11.0% in the first half of 2013 compared to 7.4% in the first half of 2012 primarily due to the profit margin improvements discussed above.

Advanced Space Programs

Advanced space programs segment operating results were as follows (in thousands, except percentages):

	Second Quarter									First Six Months
	2013			2012			% Change			2013			2012			% Change
Revenues	$	116,620		$	132,947			(12	%)	$	229,879		$	247,910			(7	%)
Operating income		5,148			9,539			(46	%)		13,384			17,093			(22	%)
Operating margin		4.4	%		7.2	%					5.8	%		6.9	%

Segment Revenues - Advanced space programs segment revenues decreased $16.3 million, or 12%, in the second quarter of 2013 compared to the second quarter of 2012 primarily due to decreased activity on the CRS contract and national security satellite contracts. Revenues from the CRS contract decreased $18.4 million, or 28%. The CRS contract accounted for 40% and

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49% of total segment revenues in the second quarter of 2013 and 2012, respectively. Revenues from national security satellite contracts decreased $4.3 million, or 6%.

Advanced space programs segment revenues decreased $18.0 million, or 7%, in the first half of 2013 compared to the first half of 2012 primarily due to decreased activity on the CRS contract and national security satellite contracts. Revenues from the CRS contract decreased $14.0 million, or 13%. The CRS contract accounted for 40% and 42% of total segment revenues in the first half of 2013 and 2012, respectively. Revenues from national security satellite contracts decreased $12.2 million, or 9%.

Segment Operating Income - Operating income in the advanced space programs segment decreased $4.4 million, or 46%, in the second quarter of 2013 compared to the second quarter of 2012 primarily due to favorable adjustments in the second quarter of 2012 on certain national security satellite contracts and decreased activity on the CRS contract.

Operating income in the advanced space programs segment decreased $3.7 million, or 22%, in the first half of 2013 compared to the first half of 2012 primarily due to lower activity on national security satellite contracts, favorable adjustments in the first half of 2012 on certain national security contracts and decreased activity on the CRS contract, partially offset by a favorable contract closeout adjustment in the first half of 2013.

Advanced space programs segment operating margins (as a percentage of revenues) decreased to 4.4% in the second quarter of 2013 from 7.2% in the second quarter of 2012. The lower profit margin was principally due to the favorable adjustments in the second quarter of 2012 on certain national security satellite contracts. Segment operating margin decreased to 5.8% in the first half of 2013 from 6.9% in the first half of 2012 due to the same factors that impacted quarterly results, partially offset by the favorable contract closeout adjustment in the first half of 2013.

Corporate and Other

Corporate and other revenues were comprised solely of the elimination of intersegment revenues of $11.4 million and $18.1 million in the second quarter of 2013 and 2012, respectively, and $24.9 million and $32.5 million in the first half of 2013 and 2012, respectively. The intersegment revenue eliminations were primarily comprised of $8.6 million and $15.7 million in the second quarter of 2013 and 2012, respectively, and $19.0 million and $27.5 million in the first half of 2013 and 2012, respectively, of Antares revenues recorded in the launch vehicles segment in connection with the COTS program that is being reported as a research and development program in our advanced space programs segment.

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Backlog

Our firm backlog was approximately $2.1 billion and $2.2 billion at June 30, 2013 and December 31, 2012, respectively. While there can be no assurance, we expect to convert approximately $580 million of the June 30, 2013 firm backlog into revenue during the remainder of 2013. 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 approximately $5.4 billion at June 30, 2013 and $5.0 billion at December 31, 2012. Total backlog includes firm backlog in addition to unexercised options, indefinite-quantity contracts and undefinitized orders and contract award selections.

Liquidity and Capital Resources

Cash Flow from Operating Activities

Cash used in operating activities in the first half of 2013 was $7.4 million, compared to cash provided by operating activities of $18.0 million in the first half of 2012. The decrease in operating cash flow resulted primarily from the net effect of changes in working capital and certain other assets and liabilities. During the first half of 2013, changes in working capital and other assets and liabilities used $80.5 million of cash, compared to $49.4 million of cash used in the first half of 2012. Changes in working capital in the first half of 2013 included an increase in receivables of $61.7 million principally due to increased unbilled receivables pertaining to the CRS contract. Under the terms of the CRS contract, approximately 25% of the contract value is billable to the customer and collectible only upon the completion of launch and delivery milestones for each of eight CRS contract missions. The first CRS mission is scheduled to be completed in late 2013. Changes in working capital in the first half of 2013 also included a decrease in deferred revenues and customer advances of $32.6 million primarily attributable to the recognition of performance on certain satellite contracts that offset advance cash proceeds received previously, partially offset by an increase in accounts payable and accrued expenses of $13.8 million.

Cash Flow from Investing Activities

Cash used in investing activities was $15.8 million and $31.7 million in the first half of 2013 and 2012, respectively. We spent $19.8 million on capital expenditures in the first half of 2013 compared to $31.7 million in the first half of 2012. The reduction in capital expenditures in the first half of 2013 was largely due to decreased spending for equipment to support our Antares program. We also received proceeds of $4.0 million in the first half of 2013 pertaining to a purchase price adjustment.

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Cash Flow from Financing Activities

Cash provided by financing activities was $1.6 million and $0.9 million in the first half of 2013 and 2012, respectively. During the first half of 2013 and 2012, we received $3.8 million and $0.8 million, respectively, from the issuance of common stock in connection with stock option exercises and employee stock option plan purchases. We also made $3.8 million of principal payments on our long-term obligations in the first half of 2013.

Term Loan and Credit Facility - As of June 30, 2013, we had $146.3 million outstanding in connection with a senior secured term loan (the "Term Loan") under our revolving secured credit facility (the "Credit Facility"), discussed below.

The Term Loan matures in December 2017, is secured on the same basis as the Credit Facility and bears interest, at our option, at the London Interbank Offered Rate ("LIBOR") plus 1.75% per annum or a base rate plus 0.75% per annum. We are required to make quarterly principal payments of approximately $1.9 million. The remaining principal amount of $114.4 million will be due at maturity. The Term Loan is otherwise subject to terms and conditions substantially similar to those in the Credit Facility regarding guarantees, covenants and events of default.

The Credit Facility provides capacity for up to $300 million of revolving loans and permits us to utilize up to $125 million of such capacity for the issuance of standby letters of credit. The Credit Facility matures in December 2017. Our obligations under the Credit Facility are secured by substantially all of our assets except for real property. We have the option to increase the amount of the Credit Facility by up to $150 million, subject to obtaining additional loan commitments and the satisfaction of other specified conditions. Loans under the Credit Facility bear interest at LIBOR plus an applicable margin ranging from 1.75% to 2.50%, with the applicable margin varying according to our total leverage ratio, or, at our election, at a base rate plus 0.75% to 1.50%. Letters of credit issued under the Credit Facility accrue fees at a rate equal to the applicable margin for LIBOR loans. In addition, we are required to pay a quarterly commitment fee for the unused portion of the Credit Facility, if any, at a rate ranging from 0.30% to 0.50%.

Debt Covenants - Our Credit Facility contains covenants limiting our ability to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase company stock, enter into transactions with affiliates, make investments, merge or consolidate with others or dispose of assets. In addition, the Credit Facility contains financial covenants with respect to leverage and interest coverage. As of June 30, 2013, we were in compliance with all of these covenants.

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Available Cash and Future Funding

At June 30, 2013, we had $210.7 million of unrestricted cash and cash equivalents. Management believes that available cash, cash expected to be generated from operations and the borrowing capacity under our Credit Facility will be sufficient to fund our operating and capital expenditure requirements, including research and development expenditures, over the next 12 months and for the foreseeable future. Significant unforeseen events such as termination of major orders or late delivery or failure of launch vehicle or satellite products could adversely affect our liquidity and results of operations. If market opportunities exist, we may choose to undertake financing actions to further enhance our liquidity, which could include obtaining new bank debt or raising funds through capital market transactions; however, our ability to borrow additional funds is limited by the terms of our Credit Facility.

As discussed in Note 7 to the accompanying financial statements, we currently hold investments in auction-rate securities and preferred stock. Given the sufficiency of our available cash and other funding sources as discussed above, we believe that we will not need, nor do we intend, to liquidate these investments in the foreseeable future. Accordingly, we do not believe that any fluctuations in the fair values of these securities will have a significant impact on our liquidity.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We believe that our market risk exposure is primarily related to the market value of certain investments that we hold as of June 30, 2013, changes in certain foreign currency exchange rates and interest rate risk. We manage these market risks through our normal financing and operating activities and, when appropriate, through the use of derivative financial instruments. We do not enter into derivatives for trading or other speculative purposes, nor do we use leveraged financial instruments.

Investments

As discussed in Note 7 to the accompanying financial statements, we currently hold investments in certain auction-rate and preferred stock securities. We may be required to record impairment charges if there are reductions in the fair value of these investments in future periods.

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Foreign Currency Exchange Rate Risk

We believe that the potential change in foreign currency exchange rates is not a substantial risk to us because the large majority of our business transactions are denominated in U.S. dollars. At June 30, 2013, we had $17.6 million of receivables denominated in euros and $0.4 million of receivables denominated in Japanese yen, and we had euro/U.S. dollar forward contracts with a fair value that was a liability of $0.2 million, as discussed in Note 8 to the accompanying financial statements.

Interest Rate Risk

We are impacted by changes in interest rates in the normal course of our business operations as a result of our ongoing investing and financing activities, which include our bank term loan as well as our cash and cash equivalents. We assess our interest rate risks on a regular basis.

As of June 30, 2013, the recorded value and fair value of our bank term loan was $146.3 million. The term loan has a variable interest rate of LIBOR plus 1.75%, or 1.95% at June 30, 2013. Generally, the fair market value of our variable interest rate debt will increase or decrease based on general market conditions for bank loans, Orbital's credit rating and the remaining term of the loan.

As of June 30, 2013, a hypothetical 100 basis point change in interest rates in connection with our cash and cash equivalents would result in an annual change of approximately $2 million in interest income.

Deferred Compensation Plan

We have an unfunded deferred compensation plan for senior managers and executive officers with a total liability balance of $12.6 million at June 30, 2013. This liability is subject to fluctuation based on the market value of the investment options selected by participants.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure 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 as of the end of the period covered by this report.

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Changes in Internal Controls Over Financial Reporting

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we are party to certain litigation or other legal proceedings arising in the ordinary course of business. Because of the uncertainties inherent in litigation, we cannot predict the outcome of such litigation or other legal proceedings; however, we believe that none of these matters will have a material adverse effect on our results of operations or financial condition.

In 2010, we recorded a non-current asset pertaining to a $10 million advance paid in connection with a business agreement. We have filed a lawsuit for breach of contract seeking refund of the advance and related damages. While we believe that our claim for refund is enforceable, we could be required to record a charge in a future period to write off any amount that is not ultimately recovered.

ITEM 1A. RISK FACTORS

There are no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)	None.
(b)	None.
(c)	None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

(a)	Exhibits - A complete listing of exhibits required is given in the Exhibit Index.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ORBITAL SCIENCES CORPORATION


DATED: July 25, 2013	By:	/s/ David W. Thompson
		David W. Thompson
		Chairman of the Board, President and Chief Executive Officer


DATED: July 25, 2013	By:	/s/ Garrett E. Pierce
		Garrett E. Pierce
		Vice Chairman and Chief Financial Officer

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EXHIBIT INDEX

The following exhibits are filed with this report unless otherwise indicated:

Exhibit No. Description

3.1	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 3.1 to the company's Current Report on Form 8-K filed on October 31, 2011).

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).

4.1	Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the company's Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990).

4.2	Indenture dated as of December 13, 2006, by and between Orbital Sciences Corporation and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the company's Current Report on Form 8-K filed on December 13, 2006).

4.3	Form of 2.4375% Convertible Senior Subordinated Note due 2027 (incorporated by reference to Exhibit 4.2 to the company's Current Report on Form 8-K filed on December 13, 2006).

31.1	Certification of Chairman, President 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, President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (transmitted herewith).

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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).

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase

101.LIAB*

XBRL Taxonomy Extension Labels Linkbase

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase

101.DEF*

XBRL Taxonomy Extension Definition Linkbase

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.