e10vq

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FrZg3krdqgdH45Xc7Fg+vPkGUIOaooE63AUyHzqYIIp82EV3N4KwCMj+fRLqEZxa 1fT53SLGYbfZZ6hdPyDiXg== 0000950133-06-003381.txt : 20060726 0000950133-06-003381.hdr.sgml : 20060726 20060726151258 ACCESSION NUMBER: 0000950133-06-003381 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060726 DATE AS OF CHANGE: 20060726 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORBITAL SCIENCES CORP /DE/ CENTRAL INDEX KEY: 0000820736 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 061209561 STATE OF INCORPORATION: DE FISCAL YEAR END: 1204 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14279 FILM NUMBER: 06981435 BUSINESS ADDRESS: STREET 1: 21839 ATLANTIC BLVD CITY: DULLES STATE: VA ZIP: 20166 BUSINESS PHONE: 703406 5524 MAIL ADDRESS: STREET 1: 21700 ATLANTIC BLVD STREET 2: 21700 ATLANTIC BLVD CITY: DULLES STATE: VA ZIP: 20166 FORMER COMPANY: FORMER CONFORMED NAME: ORBITAL SCIENCES CORP II DATE OF NAME CHANGE: 19900212 10-Q 1 w23214e10vq.htm 10-Q e10vq

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, 2006


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.)

21839 Atlantic Boulevard
Dulles, Virginia 20166
(Address of principal executive offices)

(703) 406-5000
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o

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 24, 2006, 59,694,032 shares of the registrant’s Common Stock were outstanding.

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)


	June 30,			December 31,
	2006			2005
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	206,751		$	158,849
Restricted cash		5,984			6,294
Receivables, net		147,587			131,251
Inventories, net		23,185			19,006
Deferred income taxes, net		35,735			30,614
Other current assets		3,360			6,473

Total current assets		422,602			352,487

Property, plant and equipment, net		87,420			85,640
Goodwill		55,551			55,551
Deferred income taxes, net		150,676			166,248
Other non-current assets		8,738			8,864

Total assets	$	724,987		$	668,790


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term obligations	$	76		$	76
Accounts payable and accrued expenses		123,456			116,153
Deferred revenues		62,939			30,281

Total current liabilities		186,471			146,510

Long-term obligations, net of current portion		126,425			126,459
Other non-current liabilities		41			87

Total liabilities		312,937			273,056

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, 59,543,486 and 55,032,244 shares outstanding, respectively		595			550
Additional paid-in capital		589,286			591,604
Accumulated deficit		(177,831	)		(196,420	)

Total stockholders’ equity		412,050			395,734

Total liabilities and stockholders’ equity	$	724,987		$	668,790

See accompanying notes to condensed consolidated financial statements.

ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except share data)


	Quarters Ended June 30,
	2006			2005
	(unaudited)			(unaudited)
Revenues	$	196,974		$	177,403
Cost of goods sold		158,813			144,918

Gross profit		38,161			32,485

Research and development expenses		2,531			1,234
Selling, general and administrative expenses		19,056			16,545

Income from operations		16,574			14,706

Interest expense		(3,131	)		(2,847	)
Interest income and other		3,269			718

Income before income taxes		16,712			12,577
Provision for income taxes		(6,913	)		(4,993	)

Net income	$	9,799		$	7,584


Basic net income per share	$	0.17		$	0.14


Diluted net income per share	$	0.16		$	0.12

See accompanying notes to condensed consolidated financial statements.

ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except share data)


	Six Months Ended June 30,
	2006			2005
	(unaudited)			(unaudited)
Revenues	$	389,111		$	344,552
Cost of goods sold		313,121			284,256

Gross profit		75,990			60,296

Research and development expenses		4,702			2,266
Selling, general and administrative expenses		38,857			31,107

Income from operations		32,431			26,923

Interest expense		(6,190	)		(5,627	)
Interest income and other		5,626			1,475

Income before income taxes		31,867			22,771
Provision for income taxes		(13,278	)		(9,035	)

Net income	$	18,589		$	13,736


Basic net income per share	$	0.33		$	0.25


Diluted net income per share	$	0.30		$	0.22

See accompanying notes to condensed consolidated financial statements.

ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	Six Months Ended June 30,
	2006			2005
	(unaudited)			(unaudited)
Cash Flows From Operating Activities:
Net income	$	18,589		$	13,736
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		7,134			7,144
Deferred taxes		10,451			8,726
Amortization of debt issuance costs		306			306
Stock-based compensation and other		4,264			(193	)
Changes in assets and liabilities		23,203			464

Net cash provided by operating activities		63,947			30,183


Cash Flows From Investing Activities:
Capital expenditures		(9,735	)		(8,088	)
Change in cash restricted for letters of credit, net		313			3,041

Net cash used in investing activities		(9,422	)		(5,047	)


Cash Flows From Financing Activities:
Payments on long-term obligations		(34	)		(94	)
Repurchase of common stock		(16,208	)		(19,999	)
Net proceeds from issuances of common stock		7,587			1,286
Tax benefit of share-based compensation		2,032			—

Net cash used in financing activities		(6,623	)		(18,807	)


Net increase in cash and cash equivalents		47,902			6,329

Cash and cash equivalents, beginning of period		158,849			125,504

Cash and cash equivalents, end of period	$	206,751		$	131,833

See accompanying notes to condensed consolidated financial statements.

ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006 and 2005
(Unaudited)

(1) Basis of Presentation

Orbital Sciences Corporation (together with its subsidiaries, “Orbital” or the “company”), a Delaware corporation, develops and manufactures small rockets and space systems for commercial, military and civil government customers. The company’s primary products are satellites and launch vehicles, including low-orbit, geosynchronous-orbit 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 fair statement 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 of America 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, 2005.

Operating results for the quarter ended June 30, 2006 are not necessarily indicative of the results expected for the full year.

(2) Preparation of Condensed Consolidated Financial Statements

The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions, including estimates of future contract costs and earnings. Such estimates and assumptions affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and earnings during the current reporting period. Management periodically assesses and evaluates the adequacy and/or deficiency of liabilities recorded for various reserves, contract risks and other uncertainties. Actual results could differ from these estimates and assumptions.

All financial amounts are stated in U.S. dollars unless otherwise indicated.

(3) Industry Segment Information

Orbital’s products and services are grouped into three reportable segments: (i) launch vehicles; (ii) satellites and space systems; and (iii) transportation management systems. 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 interceptor and target vehicles for missile defense systems, small-class space launch vehicles that place satellites into low-Earth orbit, and suborbital launch vehicles that place payloads into a variety of high-altitude trajectories.

	•		Satellites and Space Systems. Satellites and interplanetary spacecraft for communications, remote sensing, scientific and military missions, satellite subsystems and space-related technical services.

	•		Transportation Management Systems. Software-based systems that combine satellite navigation and wireless communications to enable municipal transit and other fleet operators to manage and dispatch vehicles.

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

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


	Quarters Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Launch Vehicles:
Revenues	$	80,356		$	87,860		$	159,068		$	167,837
Operating income		8,591			8,721			17,606			17,709
Identifiable assets		106,267			114,882	⁽¹⁾		106,267			114,882	⁽¹⁾
Capital expenditures		990			1,349			2,273			3,566
Depreciation		1,233			1,338			2,475			2,728
Satellites and Space Systems:
Revenues⁽²⁾	$	108,013		$	84,870		$	215,497		$	167,280
Operating income		7,428			5,506			13,914			8,340
Identifiable assets		164,447			135,903	⁽¹⁾		164,447			135,903	⁽¹⁾
Capital expenditures		2,901			1,578			6,480			3,509
Depreciation		1,486			1,200			2,853			2,407
Transportation Management Systems:
Revenues	$	9,356		$	6,188		$	17,304		$	13,255
Operating income		555			479			911			874
Identifiable assets		20,437			19,251	⁽¹⁾		20,437			19,251	⁽¹⁾
Capital expenditures		193			53			279			187
Depreciation		144			155			296			323
Corporate and Other:
Revenues⁽²⁾	$	(751	)	$	(1,515	)	$	(2,758	)	$	(3,820	)
Operating income		—			—			—			—
Identifiable assets		433,836			398,754	⁽¹⁾		433,836			398,754	⁽¹⁾
Capital expenditures		—			641			703			826
Depreciation		737			815			1,510			1,686
Consolidated:
Revenues	$	196,974		$	177,403		$	389,111		$	344,552
Operating income		16,574			14,706			32,431			26,923
Identifiable assets		724,987			668,790	⁽¹⁾		724,987			668,790	⁽¹⁾
Capital expenditures		4,084			3,621			9,735			8,088
Depreciation		3,600			3,508			7,134			7,144


⁽¹⁾		As of December 31, 2005.

⁽²⁾		Corporate and other revenues are comprised solely of the elimination of intersegment sales. Satellites and space systems revenues include $0.4 million and $1.4 million of the intersegment sales in the quarters ended June 30, 2006 and 2005, respectively, and include $1.8 million and $3.6 million of the intersegment sales in the six months ended June 30, 2006 and 2005, respectively.

(4) Receivables

Receivables consisted of the following (in thousands):


	June 30, 2006			December 31, 2005
Billed	$	51,983		$	31,546
Unbilled		95,719			99,820
Allowance for doubtful accounts		(115	)		(115	)

Total	$	147,587		$	131,251

As of June 30, 2006 and December 31, 2005, unbilled receivables included $17.3 million and $16.8 million, respectively, of incentive fees on certain satellite contracts that become due incrementally over periods of up to 15 years, subject to the achievement of performance criteria.

Additionally, some satellite contracts require the company to refund cash if performance criteria, which cover periods of up to 15 years, are not satisfied. As of June 30, 2006 and December 31, 2005, up to $32.2 million and $27.9 million, respectively, of revenues recognized under such contracts could be reversed if satellite performance criteria were not met. The company generally procures insurance policies that would reimburse the company for satellite incentive fees that are not earned and for performance refund obligations.

(5) Inventories

Inventories consisted of the following (in thousands):


	June 30, 2006			December 31, 2005
Inventories	$	23,766		$	19,626
Allowance for inventory obsolescence		(581	)		(620	)

Total	$	23,185		$	19,006

Substantially all of the company’s inventory consisted of component parts and raw materials.

(6) Warranties

The company has warranty obligations in connection with certain transportation management systems contracts. The company records a liability for estimated warranty claims based upon historical data and customer information. Warranty liability activity consisted of the following (in thousands):


	Quarter Ended			Quarter Ended
	June 30, 2006			June 30, 2005
Balance at beginning of period	$	1,789		$	2,799
Accruals during the period		522			927
Reductions during the period		(376	)		(766	)

Balance at end of period	$	1,935		$	2,960


	Six Months Ended			Six Months Ended
	June 30, 2006			June 30, 2005
Balance at beginning of period	$	2,028		$	3,145
Accruals during the period		673			1,270
Reductions during the period		(766	)		(1,455	)

Balance at end of period	$	1,935		$	2,960

(7) Earnings Per Share

The following table presents the shares used in computing basic and diluted earnings per share (“EPS”) (in thousands):


	Quarter Ended		Quarter Ended June
	June 30, 2006		30, 2005
Weighted average of outstanding shares for basic EPS		56,285		55,066
Dilutive effect of outstanding stock options, units and warrants		6,109		7,798

Shares for diluted EPS		62,394		62,864


	Six Months Ended		Six Months Ended
	June 30, 2006		June 30, 2005
Weighted average of outstanding shares for basic EPS		55,687		55,111
Dilutive effect of outstanding stock options, units and warrants		6,685		8,046

Shares for diluted EPS		62,372		63,157

(8) Comprehensive Income

Comprehensive income in the quarters and six months ended June 30, 2006 and 2005 was equal to net income. Accumulated other comprehensive income as of June 30, 2006 and December 31, 2005 was $0.

(9) Debt

As of June 30, 2006 and December 31, 2005, the company had outstanding an aggregate of $126.4 million 9% senior notes due July 2011 with interest due semi-annually. The fair value of the company’s 9% senior notes at June 30, 2006 and December 31, 2005 was estimated at $131.9 million and $135.3 million, respectively, based on market trading activity.

The company has a $50.0 million revolving credit facility (the “Revolver”) with the option to increase the amount of the Revolver up to $25.0 million to the extent that any one or more lenders commit to lending such amount. Loans under the Revolver bear interest at either LIBOR plus a margin ranging from 1.5% to 2.25% or at a prime rate plus a margin ranging from zero to 0.75%, with the applicable margin in each case varying according to the company’s ratio of total debt to earnings before interest, taxes, depreciation and amortization. The Revolver is collateralized by the company’s intellectual property and accounts receivable. Up to $40.0 million of the Revolver may be reserved for letters of credit. As of June 30, 2006, there were no borrowings under the Revolver, although $22.4 million of letters of credit were issued under the Revolver. Accordingly, as of June 30, 2006, $27.6 million of the Revolver was available for borrowing.

Orbital’s 9% senior notes due 2011 and the Revolver contain covenants limiting the company’s ability to, among other things, incur additional debt, pay cash dividends, make investments, redeem or repurchase Orbital stock, enter into transactions with affiliates, merge or consolidate with others and dispose of assets or create liens on assets. In addition, the Revolver contains financial covenants with respect to leverage, secured leverage, fixed charge coverage,

consolidated net worth and the ratio of accounts receivable to senior secured indebtedness. As of June 30, 2006, the company was in compliance with all of these covenants.

(10) Share-Based Compensation

Effective January 1, 2006, the company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”), which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS No. 123(R), share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). Prior to January 1, 2006, the company accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The company also followed the disclosure requirements of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”).

The company elected to adopt the modified prospective transition method as provided by SFAS No. 123(R). Accordingly, financial statement amounts for the prior periods have not been restated to reflect the fair value method of expensing share-based compensation. At January 1, 2006, the company had no material cumulative effect associated with adopting SFAS No. 123(R).

For the quarter ended June 30, 2006, the company recorded a total of $1.5 million of share-based compensation expense and $0.5 million of related income tax benefit. For the six months ended June 30, 2006, the company recorded a total of $4.3 million of share-based compensation expense and $1.4 million of related income tax benefit.

Share-Based Compensation Plans

The company’s share-based incentive plans permit the company to grant restricted stock units, restricted stock, incentive or non-qualified stock options, and certain other instruments to employees, directors, consultants and advisers of the company. Restricted stock units and stock options generally vest over three years and are not subject to any performance criteria. The exercise price of options granted under the plans must be at least equal to the fair market value of the company’s common stock on the date of grant. Options expire no more than ten years following the grant date. Shares issued under the plans upon option exercise or stock unit conversion are generally issued from authorized but previously unissued shares. As of June 30, 2006, approximately 2.2 million shares of common stock were available for grant under the plans.

The company also has an Employee Stock Purchase Plan (“ESPP”) whereby employees may purchase shares of stock at the lesser of 85% of the fair market value of shares at the beginning or the end of quarterly offering periods. As of June 30, 2006, approximately 1.2 million shares of common stock were available for purchase under the ESPP. During the quarter and six months ended June 30, 2006, compensation expense associated with the ESPP was $0.1 million and $0.3 million, respectively.

Share-Based Transactions

The following tables summarize restricted stock unit and stock option transactions during the six months ended June 30, 2006:


						Options
	Restricted Stock Units										Weighted
				Weighted					Weighted		Average
				Average					Average		Remaining
	Number of			Grant Date		Number of			Exercise		Contractual
	Units			Fair Value		Shares			Price		Term (Years)
Outstanding at December 31, 2005		745,000		$	11.28		6,532,139		$	10.06		5.28
Granted		8,000			14.79		55,000			12.98
Exercised		—			—		(913,710	)		7.78
Vested		(244,680	)		11.28		—			—
Forfeited		(12,336	)		11.28		(11,545	)		7.02
Expired		—			—		(165,682	)		13.20

Outstanding at June 30, 2006		495,984		$	11.34		5,496,202		$	10.38		4.89

The fair value of the restricted stock units granted was based on the closing market price of the company’s common stock on the grant date of the award.

The following table summarizes information about stock options outstanding at June 30, 2006:


		Options Outstanding						Options Exercisable
				Weighted Average		Weighted				Weighted
Range of		Number		Remaining Contractual		Average		Number		Average
Exercise Prices		Outstanding		Life (Years)		Exercise Price		Exercisable		Exercise Price
$	1.30-$5.79		1,957,991		5.90	$	4.81		1,957,991	$	4.81
	6.15-12.18		1,876,317		5.51		9.71		1,847,818		9.70
	12.25-43.31		1,661,894		3.01		17.70		1,606,894		17.86

$	1.30-$43.31		5,496,202		4.89	$	10.38		5,412,703	$	10.35

The fair value of options granted during the six months ended June 30, 2006 (no options were granted during the second quarter of 2006) was estimated on the grant date using the Black-Scholes option pricing model. 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 and the volatility associated with the price of the underlying shares of common stock, to calculate the fair value of stock options granted. The company believes that this valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the company’s stock options granted during the six months ended June 30, 2006. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

The fair value of options granted during the six months ended June 30, 2006 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:


	Six Months Ended
	June 30, 2006
Volatility		51	%
Risk-free interest rate		4.35	%
Weighted-average fair value per share at grant date	$	6.11
Expected dividend yield		—
Expected life of options (years)		4.5

The total grant date fair value of stock options that were granted during the six months ended June 30, 2006 was $0.3 million.

During the quarter and six months ended June 30, 2006, the total intrinsic value of options exercised (i.e., the difference between the market price on the exercise date and the price paid by the employee to exercise the options) was $1.8 million and $6.5 million, respectively, and the total amount of cash received from the exercise of these options was $1.9 million and $7.1 million, respectively.

As of June 30, 2006, the aggregate intrinsic value of stock options that are fully vested or are expected to vest was $31.7 million. In addition, as of June 30, 2006, unrecognized compensation cost related to unvested stock options was $0.2 million, substantially all of which will be fully amortized by December 31, 2006.

During the quarter ended June 30, 2006, 244,680 restricted stock units with a weighted-average grant date fair value of $2.8 million became vested. Previously, no restricted stock units had vested. As of June 30, 2006, the aggregate intrinsic value of restricted stock units that are expected to vest in the future was $8.0 million. In addition, as of June 30, 2006, unrecognized compensation cost related to unvested restricted stock units was $4.0 million, which is expected to be recognized over a weighted-average period of 1.58 years.

During the quarter and six months ended June 30, 2006, the company recorded $0.5 million and $2.0 million, respectively, as credits to additional paid-in capital for windfall tax benefits realized from exercised stock options and similar awards.

Prior to adoption of SFAS No. 123(R), the company did not recognize compensation expense for employee stock option grants when the exercise price of the company’s employee stock options equaled the market price of the underlying stock on the date of grant. For the quarter and six months ended June 30, 2005, the company used the Black-Scholes option-pricing model to determine the pro forma impact under SFAS No. 123 on the company’s net income and earnings per share. This information and the assumptions used for the quarter and six months ended June 30, 2005 are summarized as follows:


	Quarter Ended			Six Months Ended
	June 30, 2005			June 30, 2005
Volatility		60	%		60	%
Risk-free interest rate		3.78	%		3.55	%
Weighted-average fair value per share at grant date	$	4.27		$	4.75
Expected dividend yield		—			—
Expected life of options (years)		3.5			3.5

The following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition provisions of SFAS No. 123 to its stock option plan for the quarter and six months ended June 30, 2005 (in thousands, except per share amounts):


	Quarter Ended			Six Months Ended
	June 30, 2005			June 30, 2005
Net income, as reported	$	7,584		$	13,736
Stock-based compensation expense per fair-value-based method		(591	)		(1,313	)

Pro forma net income	$	6,993		$	12,423


Earnings per share:
Basic—as reported	$	0.14		$	0.25
Basic—pro forma	$	0.13		$	0.23

Diluted—as reported	$	0.12		$	0.22
Diluted—pro forma	$	0.11		$	0.20

(11) 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.

In the second quarter of 2005, the U.S. government commenced an investigation which the company believes is focused on contracting matters related to certain U.S. government launch vehicle programs. The company cannot predict whether the government ultimately will conclude that there have been violations by the company of any federal contracting laws, policies or procedures, or any other applicable laws. Should any such violations be alleged or found, the company could face the possibility of criminal, civil and/or administrative penalties depending on the nature of such violations.

Litigation

The company is party to certain litigation or other legal proceedings arising in the ordinary course of business. In the opinion of management, the outcome of such legal matters will not have a material adverse effect on the company’s results of operations or financial condition.

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

With the exception of historical information, the matters discussed below under the headings “Consolidated Results of Operations for the Quarters and Six Months Ended June 30, 2006 and 2005,” “Segment Results,” “Backlog,” “Liquidity and Capital Resources,” “Off-Balance Sheet Arrangements,” “Legal Proceedings” 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, 2005, may cause actual results to differ materially from those anticipated or expected in any forward-looking statement. We assume no obligation to update any forward-looking statements.

We develop and manufacture small rockets and space systems for commercial, military and civil government customers. Our primary products are satellites and launch vehicles, including low-orbit, geosynchronous-orbit and planetary spacecraft for communications, remote sensing, scientific and defense missions; ground- and air-launched rockets that deliver satellites into orbit; and missile defense systems that are used as interceptor and target vehicles. We also offer space-related technical services to government agencies and develop and build satellite-based transportation management systems for public transit agencies and private vehicle fleet operators.

Consolidated Results of Operations for the Quarters and Six Months Ended June 30, 2006 and 2005

Revenues — Our second quarter 2006 revenues were $197.0 million, up 11% over second quarter 2005 revenues of $177.4 million. This increase was primarily due to a 27% increase in satellites and space systems segment revenues that was driven by growth in the communications satellites product line related to progress on several new satellite contracts awarded in 2005. The growth in communications satellites revenues was partially offset by a revenue decrease in the science, technology and defense satellites product line due to a significant reduction in contract activity on a satellite that was completed and launched in the first half of 2006. Launch vehicles segment revenues decreased due to lower revenues from the interceptor launch vehicle and the target vehicle product lines, partially offset by higher space launch vehicle product line revenues. Transportation management systems segment revenues increased over 50% largely driven by work on several new contracts started in 2005 and early 2006.

For the first half of 2006, we reported $389.1 million in revenues, up 13% over the same period last year, primarily due to a 29% increase in satellites and space systems segment revenues that was driven by growth in the communications satellites product line. Launch vehicles segment revenues decreased 5% primarily due to lower revenues from the interceptor launch vehicle and the target vehicle product lines, partially offset by higher revenues from the space launch vehicle product line. Transportation management systems segment revenues increased 31% largely driven by the work on several new contracts started in 2005 and early 2006.

Gross Profit - Our consolidated gross profit increased 17% to $38.2 million in the second quarter of 2006 from $32.5 million in the second quarter of 2005. Gross profit in the second quarter of 2006, as compared to the second quarter of 2005, increased $5.0 million, or 37%, in our satellites and space systems segment, $0.4 million, or 2%, in our launch vehicles segment and $0.3 million, or 18%, in our transportation management systems segment. The increase in gross profit in our satellites and space systems segment was principally due to higher revenues, driven by an increased level of contract activity in 2006, and improved contract profitability in the communications satellites product line.

Consolidated gross profit for the first six months of 2006 increased to $76.0 million from $60.3 million in the same period of 2005. Gross profit increased $12.8 million, or 53%, in our satellites and space systems segment, $2.3 million, or 7%, in our launch vehicles segment and $0.6 million, or 18%, in our transportation management systems segment. Consistent with the results for the second quarter, the increase in gross profit in our satellites and space systems segment was principally due to higher revenues, driven by an increased level of contract activity in 2006, and significantly improved contract profitability in the communications satellites product line.

Research and Development Expenses - Research and development expenses are comprised of our self-funded product research and development activities and exclude customer-funded development activities. Research and development expenses were $2.5 million, or 1% of revenues, and $1.2 million, or 1% of revenues, in the second quarter of 2006 and 2005, respectively. Research and development expenses were $4.7 million, or 1% of revenues, and $2.3 million, or 1% of revenues, for the six months ended June 30, 2006 and 2005, respectively. These expenses related primarily to the development of enhanced launch vehicles and satellites.

Selling, General and Administrative Expenses - Selling, general and administrative expenses were $19.1 million, or 10% of revenues, and $16.5 million, or 9% of revenues, in the second quarter of 2006 and 2005, respectively. Selling, general and administrative expenses were $38.9 million, or 10% of revenues, and $31.1 million, or 9% of revenues, in the first six months of 2006 and 2005, respectively. Selling, general and administrative expenses include the costs of our finance, legal, administrative and general management functions, as well as the costs of marketing, advertising, promotional and other selling expenses. Selling, general and administrative expenses increased in the second quarter and the first six months of 2006 as compared to the same periods in 2005 primarily due to an increase in bid, proposal and marketing costs and share-based compensation expenses that were recorded in 2006, as discussed below.

On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment,” which establishes accounting for equity instruments exchanged for employee services. During the second quarter and first six months of 2006, we recorded $0.4 million and $1.1 million, respectively, in share-based compensation expense primarily related to stock options. In addition, the second quarter and first six months of 2006 included $1.1 million and $3.1 million, respectively, of amortization expense related to restricted stock units granted in the fourth quarter of 2005. The majority of these costs are reported in selling, general and administrative expenses and the remainder are reported in cost of goods sold.

Interest Expense - Interest expense was $3.1 million and $2.8 million for the second quarter of 2006 and 2005, respectively, and $6.2 million and $5.6 million for the six months ended June 30, 2006 and 2005, respectively.

Interest Income and Other - Interest income and other was $3.3 million and $0.7 million for the second quarter of 2006 and 2005 and $5.6 million and $1.5 million for the first six months of 2006 and 2005, respectively. These increases were primarily due to larger interest income as a result of higher interest rates and higher short-term invested cash balances.

Income Taxes - We recorded income tax expense of $6.9 million and $5.0 million in the second quarter of 2006 and 2005 and $13.3 million and $9.0 million in the first six months of 2006 and 2005, respectively, reflecting an annualized effective income tax rate of 41.7% and 39.7%, respectively. The increase in the effective tax rate is primarily due to an increase in non-deductible expenses in 2006.

Net Income - Our net income for the second quarter of 2006 was $9.8 million, compared to net income of $7.6 million in the second quarter of 2005. Net income for the first six months of 2006 was $18.6 million, compared to $13.7 million in the same period in 2005.

Segment Results

Our products and services are grouped into three reportable segments: (i) launch vehicles, (ii) satellites and space systems and (iii) transportation management systems. 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 table summarizes revenues and income from operations for our reportable business segments and corporate and other (in thousands):


	Quarters Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Revenues:
Launch Vehicles	$	80,356		$	87,860		$	159,068		$	167,837
Satellites and Related Space Systems		108,013			84,870			215,497			167,280
Transportation Management Systems		9,356			6,188			17,304			13,255
Corporate and Other		(751	)		(1,515	)		(2,758	)		(3,820	)

Total	$	196,974		$	177,403		$	389,111		$	344,552

Income from Operations:
Launch Vehicles	$	8,591		$	8,721		$	17,606		$	17,709
Satellites and Related Space Systems		7,428			5,506			13,914			8,340
Transportation Management Systems		555			479			911			874
Corporate and Other		—			—			—			—

Total	$	16,574		$	14,706		$	32,431		$	26,923

Second Quarter 2006 Compared with Second Quarter 2005

Launch Vehicles - Launch vehicles segment revenues decreased 9% due to lower revenues from our interceptor launch vehicle and target launch vehicle product lines, partially offset by higher revenues from our space launch vehicle product line. In our interceptor launch vehicles product line, we are developing and manufacturing interceptor boosters designed to defend against ballistic missile attacks, including the midcourse-phase Orbital Boost Vehicle (“OBV”) and the boost-phase Kinetic Energy Interceptors (“KEI”) programs directed by the U.S. Missile Defense Agency. Interceptor launch vehicles accounted for $46.7 million and $51.5 million in revenues, or 58% and 59% of total segment revenues in the second quarter of 2006 and 2005, respectively. The $4.8 million decrease in revenues from interceptor launch vehicles was primarily due to lower program activity in 2006 and a favorable contract award fee adjustment in 2005. Target launch vehicle revenues decreased $6.0 million, largely due to lower activity on target programs. Space launch vehicle revenues increased $3.2 million, largely due to higher activity on Taurus and Minotaur programs.

Operating income in the launch vehicles segment remained relatively constant quarter-over-quarter. Operating income from our interceptor launch vehicles continued to be the largest contributor to this segment’s operating income, with $5.2 million of operating profit in the second quarter of 2006 and $7.4 million in the second quarter of 2005, or 61% and 84%, respectively, of total operating income in this segment. The interceptor launch vehicle operating income decrease was primarily due to the decline in program activity in 2006 and the favorable profit adjustment in 2005 referred to above. Operating income from space launch vehicles increased consistent with the product line’s revenue increase, and operating income from our target launch vehicle product line increased despite lower product line revenues primarily due to cost growth that impacted several contracts in 2005. The launch vehicles segment’s operating margin (as a percentage of revenues) improved to 10.7% in the second quarter of 2006, compared to 9.9% in the second quarter of 2005. This margin increase was due to improved space launch vehicle and target launch vehicle margins.

Satellites and Space Systems - Satellites and space systems segment revenues increased 27% due to a $36.9 million increase in revenues in our communications satellites product line primarily related to program activity on several new satellite contracts awarded in 2005. The growth in communications satellites revenues was partially offset by a revenue decrease in the science, technology and defense satellites product line largely due to a significant reduction in contract activity on a satellite that was launched in the second quarter of 2006.

Operating income in the satellites and space systems segment increased 35% primarily due to significant growth in our communications satellites product line, partially offset by a decrease in our science, technology and defense satellites product line. The growth in our communications satellites product line was primarily attributable to program activity on several new satellite contracts started in 2005 and due to the absence in 2006 of cost growth on a satellite that was successfully launched in November 2005. The decrease in our science, technology and defense satellites product line was due to the absence in 2006 of a $1.5 million satellite acceptance payment received from a customer that was recorded in 2005 and the reduction in program activity discussed above. This segment’s operating margin (as a percentage of revenues) improved to 6.9% in the second quarter of 2006, compared to 6.5% in the second quarter of

2005, primarily due to the improved operating margin in the communications satellites product line.

Transportation Management Systems - Transportation management systems segment revenues increased over 50% largely driven by work on several new contracts started in 2005 and early 2006. Operating income increased marginally quarter-over-quarter. This segment’s operating margin (as a percentage of revenues) was 5.9% in the second quarter of 2006, compared to 7.7% in the second quarter of 2005.

Corporate and Other - Corporate and other revenues were comprised solely of the elimination of intercompany revenues.

Six Months Ended June 30, 2006 Compared with Six Months Ended June 30, 2005

Launch Vehicles - Launch vehicles segment revenues decreased 5%, primarily due to lower revenues from our interceptor launch vehicle and our target launch vehicle product lines, partially offset by an increase in revenues from our space launch vehicles product line. Revenues from the interceptor launch vehicles product line decreased $4.3 million, largely due to lower program activity in 2006 and a favorable contract award fee adjustment in 2005. Interceptor launch vehicles accounted for 58% of total launch vehicles segment revenues in the six months ended June 30, 2006 and 2005. Target launch vehicle revenues decreased $7.9 million in the six months ended June 30, 2006 as compared to 2005, primarily due to lower activity on target vehicles in 2006. Space launch vehicle revenues increased $2.8 million primarily due to higher levels of activity on Taurus and Minotaur programs.

Operating income in the launch vehicles segment remained relatively constant for the year-to-date period. Operating income from interceptor launch vehicles continued to be the largest contributor to this segment’s operating income, with $11.0 million and $13.3 million of operating profit in the first six months of 2006 and 2005, respectively. The interceptor launch vehicle operating income decrease was primarily due to the decline in program activity in 2006 and the favorable profit adjustment in 2005 discussed above. Operating income from space launch vehicles and target launch vehicles increased $3.0 million in the aggregate in the year-to-date period. Operating income from space launch vehicles increased consistent with the product line’s revenue increase, and operating income from our target launch vehicle product line increased despite lower product line revenues, primarily due to cost growth that impacted several contracts in 2005. The launch vehicles segment’s operating margin (as a percentage of revenues) improved to 11.1% in the first six months of 2006, compared to 10.6% in the same period of 2005. This margin increase was due to improved space launch vehicle and target launch vehicle margins.

Satellites and Space Systems - Satellites and space systems segment revenues increased 29%, primarily as a result of an $81.8 million communications satellite revenue increase related to progress on several new satellite contracts awarded in 2005. The growth in communications satellite revenues was partially offset by a decrease in science, technology and defense satellite revenues largely due to a significant reduction in contract activity on a satellite that was launched in the second quarter of 2006.

Operating income in the satellites and space systems segment increased 67% primarily due to the significant growth in our communications satellites product line, together with the other factors that affected the second quarter results, as discussed above. This segment’s operating margin (as a percentage of revenues) improved to 6.5% in the first six months of 2006, compared to 5.0% in the same period of 2005. This margin increase was due to improved communications satellite margins.

Transportation Management Systems - Transportation management systems segment revenues increased 31%, largely due to work on several new contracts started in 2005 and early 2006. Operating income increased marginally period-over-period. This segment’s operating margin (as a percentage of revenues) was 5.3% in the first half of 2006, compared to 6.6% in the same period of 2005.

Corporate and Other - Corporate and other revenues are comprised solely of the elimination of intercompany revenues.

Backlog

Our firm backlog was approximately $1.51 billion at June 30, 2006 and $1.26 billion at December 31, 2005. We expect approximately $370 million of the June 30, 2006 firm backlog to be recognized as revenue during the remainder of 2006. 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 $3.05 billion at June 30, 2006 and $2.90 billion at December 31, 2005. 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 flow from operating activities in the first six months of 2006 was $63.9 million as compared to $30.2 million in the same period of 2005. The increase in 2006 as compared to 2005 was primarily due to cash flows resulting from changes in assets and liabilities. The first six months of 2006 includes a $23.2 million favorable adjustment resulting from net changes in assets and liabilities, primarily due to a $32.7 million increase in deferred revenues, partially offset by a $16.3 million increase in receivables. The increase in deferred revenues was primarily due to cash received in advance of contract performance on certain communications satellite programs. The increase in receivables was consistent with revenue growth in the first six months of 2006.

Cash Flow from Investing Activities – In the first six months of 2006, we spent $9.7 million for capital expenditures, as compared to $8.1 million in the first six months of 2005. The increase in capital expenditures is primarily related to additional integration and test equipment

and ongoing expansion of facilities to support the growth requirements of our satellites and space systems segment.

Cash Flow from Financing Activities – In the first six months of 2006, we repurchased and retired 1.1 million shares of our common stock at a cost of $16.2 million. In the first six months of 2005, we repurchased and retired 1.9 million shares of our common stock at a cost of $20.0 million.

During the first six months of 2006 and 2005, we received $7.6 million and $1.3 million, respectively, from the issuance of common stock primarily in connection with stock option exercises and our employee stock purchase plan.

As of June 30, 2006 and December 31, 2005, we had outstanding an aggregate of $126.4 million 9% senior notes due July 2011 with interest due semi-annually. The fair value of our 9% senior notes at June 30, 2006 was estimated at $131.9 million, based on market trading activity.

We have a $50.0 million revolving credit facility (the “Revolver”) with the option to increase the amount of the Revolver up to $25.0 million to the extent that any one or more lenders commit to lending such amount. Loans under the Revolver bear interest at either LIBOR plus a margin ranging from 1.5% to 2.25% or at a prime rate plus a margin ranging from zero to 0.75%, with the applicable margin in each case varying according to our ratio of total debt to earnings before interest, taxes, depreciation and amortization. The Revolver is collateralized by our intellectual property and accounts receivable. Up to $40.0 million of the Revolver may be reserved for letters of credit. As of June 30, 2006, there were no borrowings under the Revolver, although $22.4 million of letters of credit were issued under the Revolver. Accordingly, as of June 30, 2006, $27.6 million of the Revolver was available for borrowing.

Our 9% senior notes due 2011 and our $50.0 million Revolver contain covenants limiting our ability to, among other things, incur additional debt, pay cash dividends, make investments, redeem or repurchase Orbital stock, enter into transactions with affiliates, merge or consolidate with others and dispose of assets or create liens on assets. In addition, the Revolver contains financial covenants with respect to leverage, secured leverage, fixed charge coverage, consolidated net worth and the ratio of accounts receivable to senior secured indebtedness. As of June 30, 2006, we were in compliance with all of these covenants.

Available Cash and Future Funding - At June 30, 2006, we had $206.8 million of unrestricted cash and cash equivalents. Management believes that available cash, cash expected to be generated from operations and borrowing capacity under the Revolver will be sufficient to fund our operating and capital expenditure requirements in the foreseeable future. However, there can be no assurance that this will be the case. Our ability to borrow additional funds is limited by the terms of our outstanding debt. Additionally, 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.

In April 2006, our Board of Directors authorized the purchase of up to $50 million of our outstanding securities over a 12-month period. As of June 30, 2006, $45.4 million of additional possible purchases could be transacted under this purchase program.

Off-Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At June 30, 2006, we had $3.9 million of receivables denominated in Japanese yen and $4.7 million denominated in Singapore dollars.

From time to time, we enter into forward exchange contracts to hedge against foreign currency fluctuations on receivables or expected payments denominated in foreign currency. At June 30, 2006, we had no material foreign currency forward exchange contracts.

The fair market value of our outstanding 9% senior notes due 2011 was estimated at approximately $131.9 million at June 30, 2006, based on market trading activity.

We have an unfunded deferred compensation plan for senior managers and executive officers with a total liability balance of $5.8 million at June 30, 2006. 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.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On May 26, 2005, the United States Attorney’s Office for the District of Arizona commenced an investigation which we believe is focused on contracting matters related to certain U.S. government launch vehicle programs. We are cooperating fully with U.S. government authorities in connection with this investigation, and management strongly supports and is committed to the U.S. government’s procurement integrity processes. We cannot predict whether the government ultimately will conclude that there have been violations by us of any federal contracting laws, policies or procedures, or any other applicable laws. Should any such violations be alleged or found, we could face the possibility of criminal, civil and/or administrative penalties depending on the nature of such violations.

We are party to certain litigation or proceedings arising in the ordinary course of business. In the opinion of management, the probability is remote that the outcome of any such litigation or proceedings will have a material adverse effect on our results of operations or financial condition.

ITEM 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, 2005.

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

(a) None.

(b) None.

The following table sets forth information regarding our repurchase of common stock during the quarter ended June 30, 2006.


					*Total Number of*		*Maximum Number*
					*Shares*		*(or Approximate*
					*Purchased as*		*Dollar Value) of*
	*Total*				*Part of Publicly*		*Shares That May*
	*Number of*		*Average Price*		*Announced*		*Yet Be Purchased*
	*Shares*		*Paid Per*		*Plans or*		*Under the Plans or*
*Period*	*Purchased*		*Share*		*Programs* ¹		*Programs* ¹
April 1, 2006 to April 30, 2006		351,000	$	15.51		351,000	$	48,168,751

May 1, 2006 to May 31, 2006		177,300	$	15.85		177,300	$	45,358,202

June 1, 2006 to June 30, 2006		—		—		—	$	45,358,202


TOTAL		528,300	$	15.62		528,300	$	45,358,202


(1)		The company purchased an aggregate of 234,000 shares of its common stock pursuant to the securities repurchase plan (“2005 Plan”) that was publicly announced on April 21, 2005 and expired on April 20, 2006. On April 28, 2006, we announced the company’s new plan (“2006 Plan”), subject to certain conditions, to repurchase up to $50 million of outstanding debt and equity securities, including our common stock, up through April 27, 2007. All other purchases during the quarter ended June 30, 2006 were made pursuant to the 2006 Plan. The purchases made pursuant to both our 2005 Plan and 2006 Plan were made in open market transactions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

	(a)		The annual meeting of stockholders of the company was held on April 27, 2006.

	(b)		Election of five directors, each serving for a three-year term ending in 2009:


Robert M. Hanisee
Votes:	For:	46,352,653
	Withheld:	284,408

James G. Roche
Votes:	For:	46,353,175
	Withheld:	283,885

Harrison H. Schmitt
Votes:	For:	45,923,872
	Withheld:	713,188

James R. Thompson
Votes:	For:	46,068,534
	Withheld:	568,527

Scott L. Webster
Votes:	For:	46,068,928
	Withheld:	568,132


		Directors whose terms expire in 2007:

		Edward F. Crawley
		Lennard A. Fisk
		Ronald T. Kadish
		Garrett E. Pierce
		David W. Thompson

		Directors whose terms expire in 2008:

		Daniel J. Fink
		Robert J. Hermann
		Janice I. Obuchowski
		Frank L. Salizzoni

(c)		The following is a brief description of the other matter voted on at the meeting and the number of votes cast for, against or abstaining from the matter:

		Ratification of PricewaterhouseCoopers LLP as independent auditors of the company for the fiscal year ending December 31, 2006.


Votes:	For:	46,465,215
	Against:	107,328
	Abstain:	64,518

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

(a)

Exhibits — A complete listing of exhibits required is given in the Exhibit Index.

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 26, 2006	By:	/s/ David W. Thompson

		David W. Thompson
		Chairman and Chief Executive Officer

DATED: July 26, 2006	By:	/s/ Garrett E. Pierce

		Garrett E. Pierce
		Vice Chairman and Chief Financial Officer

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 3.2 to the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005).

3.3		Certificate of Amendment to Restated Certificate of Incorporation, dated April 29, 1997 (incorporated by reference to Exhibit 3.3 to the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998).

3.4		Certificate of Amendment to Restated Certificate of Incorporation, dated April 30, 2003 (incorporated by reference to Exhibit 3.4 to the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).

3.5		Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock, dated November 2, 1998 (incorporated by reference to Exhibit 2 to the company’s Registration Statement on Form 8-A filed on November 2, 1998).

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

4.2		Warrant Agreement, dated as of August 22, 2002, by and between Orbital Sciences Corporation and U.S. Bank, N.A., as Warrant Agent (incorporated by reference to Exhibit 4.2 to the company’s Current Report on Form 8-K filed on August 27, 2002).

4.3		Form of Common Stock Purchase Warrant for Warrants Expiring August 15, 2006 (restricted) (incorporated by reference to Exhibit 4.4 to the company’s Current Report on Form 8-K filed on August 27, 2002).

4.4		Form of Common Stock Purchase Warrant for Warrants Expiring August 15, 2006 (registered) (incorporated by reference to Exhibit 4.4 to the company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).

4.5		Rights Agreement dated as of October 22, 1998 between Orbital Sciences


Exhibit No.		Description
		Corporation and BankBoston N.A., as Rights Agent (incorporated by reference to Exhibit 1 to the company’s Report on Form 8-A filed on November 2, 1998).

4.6		Form of Rights Certificate (incorporated by reference to Exhibit 3 to the company’s Report on Form 8-A filed on November 2, 1998).

4.7		Indenture, dated as of July 10, 2003, by and between Orbital Sciences Corporation and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the company’s Current Report on Form 8-K filed on July 18, 2003).

4.8		Form of 9% Senior Note due 2011 (incorporated by reference to Exhibit 4.2 to the company’s Current Report on Form 8-K filed on July 18, 2003).

10.1		Orbital Sciences Corporation 1997 Stock Option and Incentive Plan, amended as of April 27, 2006 (transmitted herewith).

10.2		First Amendment to Amended and Restated Credit Agreement, dated June 1, 2006, by and among Orbital Sciences Corporation, Bank of America, N.A., as administrative agent, Wachovia Bank, as documentation agent, and the other parties thereto (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).

EX-10.1 2 w23214exv10w1.htm EX-10.1 exv10w1

Exhibit 10.1

ORBITAL SCIENCES CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
(as amended through April 27, 2006)

PURPOSE OF PLAN

The purpose of this 1997 Stock Option and Incentive Plan (the “Plan”) is to advance the interests of Orbital Sciences Corporation and its stockholders by enabling Orbital and Participating Companies (as defined below) to attract and retain highly talented employees, directors, consultants and advisers who are in a position to make significant contributions to the success of Orbital, to reward them for their contributions to the success of Orbital, and to encourage them, through stock ownership, to increase their proprietary interest in Orbital and their personal interest in its continued success and progress.

The Plan provides for the award of Orbital stock options and Orbital common stock. Options granted pursuant to the Plan may be incentive or nonstatutory stock options. Options granted pursuant to the Plan shall be presumed to be nonstatutory options unless expressly designated as incentive options at the time of grant.

DEFINITIONS

For the purposes of this Plan and related documents, the following definitions apply:

“Award Agreement” means the stock option agreement, restricted stock agreement, stock unit agreement or other written agreement between Orbital and a Grantee that evidences and sets out the terms and conditions of a Grant.

“Board” means the Board of Directors of the Company.

“Committee” means a committee of, and designated from time to time by resolution of the Board, which shall consist of no fewer than two members of the Board, none of whom shall be an officer or other salaried employee of the Company or any affiliate, and each of whom shall qualify in all respects as a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act or any successor rule or regulation. Commencing on the Effective Date, and until such time as the Board shall determine otherwise, the Committee shall be the Human Resources and Nominating Committee of the Board.

“Company” or “Orbital” means Orbital Sciences Corporation, a Delaware corporation, or any successor thereof.

“Effective Date” means January 24, 1997.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fair Market Value” means the closing sale price of Stock on the national securities exchange on which the Stock is then principally traded or, if that measure of price is not available, on a composite index of such exchanges or, if that measure of price is not available, in a national market system for securities on the date of the option grant (or such other date as is specified herein). In the event that there are no sales of Stock on any such exchange or market on date of the option grant (or such other date as is specified herein), the fair market value of Stock on the date of the grant (or such other date as is specified herein) shall be deemed to be the closing sales price on the next preceding day on which Stock was sold on any such exchange or market. In the event that the Stock is not listed on any such market or exchange on the applicable date, a reasonable valuation of the fair market value of the Stock on such date shall be made by the Board.

“Grant” means an award of an option, Restricted Stock or Stock Units under the Plan.

“Grantee” means a person who receives or holds an option, Restricted Stock or Stock Units under the Plan.

“I.R.C.” means the Internal Revenue Code of 1986, as it may be amended from time to time.

“Incentive Option” means any option granted under the Plan intended to satisfy the requirements under I.R.C. Section 422(b) as an incentive stock option.

“Nonstatutory Option” means any option granted under the Plan that does not qualify as an Incentive Option.

“Old Option Plans” shall mean Orbital’s 1990 Stock Option Plan and Orbital’s 1990 Stock Option Plan for Non-Employee Directors.

“Option Termination Date” is defined in Section 11(c) below.

“Outside Director” means a member of the Board who is not an officer or employee of the Company.

“Parent” means a parent corporation as defined in I.R.C. Section 424(e).

“Participating Company” means the Company, any Parent of the Company, and any subsidiary (as defined in Rule 405 under the Securities Act of 1933, as amended) of the Company or its Parent.

“Plan” means this 1997 Stock Option and Incentive Plan.

“Restricted Stock” means shares of Stock awarded to a Grantee pursuant to Section 13 hereof.

“Stock” means shares of the Company’s authorized Common Stock, $.01 par value per share.

“Stock Unit” means a bookkeeping entry representing the equivalent of shares of Stock, awarded to a Grantee pursuant to Section 13 hereof.

“Subsidiary” means a subsidiary corporation as defined in I.R.C. Section 424(f).

“Terminating Transaction” means any of the following events: (a) the dissolution or liquidation of the Company; (b) a reorganization, merger or consolidation of the Company with one or more other persons in which the Company is not the surviving corporation or becomes a subsidiary of another corporation other than a corporation that was a Participating Company immediately prior to such event; (c) a sale of substantially all the Company’s assets to a person or entity other than a corporation that was a Participating Company immediately prior to such event; or (d) a person (or persons acting as a group or otherwise in concert) owning equity securities of the Company that represent a majority or more of the aggregate voting power of all outstanding equity securities of the Company. As used herein or elsewhere in this Plan, the word “person” shall mean an individual, corporation, partnership, association or other person or entity, or any group of two or more of the foregoing that have agreed to act together.

“Total Disability” means a “total and permanent disability” as defined in I.R.C. Section 22(e)(3).

ADMINISTRATION OF PLAN

(a) Administration by Board. The Plan shall be administered by the Board. The Board shall have authority, not inconsistent with the express provisions of the Plan, to:

(i) award Grants consisting of options, Restricted Stock and/or Stock Units to such eligible persons as the Board may select;

(ii) determine the timing of Grants and the number of shares of Stock subject to each Grant;

(iii) determine the terms and conditions of each Grant, including whether an option is an Incentive Option or a Nonstatutory Option (consistent with the requirements of the I.R.C.) and the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting or forfeiture of a Grant;

(iv) adopt such rules and regulations as the Board may deem necessary or appropriate to carry out the purposes of the Plan; and

(v) interpret the provisions of the Plan and of any Grants made hereunder and decide any questions and settle all controversies and disputes that may arise in connection with the Plan.

All decisions, determinations, interpretations or other actions by the Board with respect to the Plan shall be final, conclusive and binding on all persons, including the Company, Participating Companies and Grantees and their respective legal representatives, their successors in interest and permitted assigns and upon all other persons claiming by, through, under or against any of them.

(b) Administration and Delegation by Committee. The Board, in its sole discretion, may delegate some or all of its powers with respect to the Plan to a Committee (in which case references to the Board in this Plan shall be deemed to refer to the Committee, where appropriate) except for interpreting or making changes to Section 9 or Section 11(b) and except with respect to any grants to directors of the Company under Sections 8 and 13. The Committee, in its sole discretion, may delegate to the Chairman, the President and the Chief Executive Officer, or any of them, while any such officer is a member of the Board, authority to award Grants under the Plan. Such authority shall be on such terms and conditions, and subject to such limitations, as the Committee shall specify in its delegation of authority. Except to the extent otherwise specified by the Committee in such delegation, the delegated authority to grant awards of options, Restricted Stock and Stock Units shall include the power to:

(i) award Grants consisting of options, Restricted Stock and/or Stock Units, to such eligible persons as the authorized officer may select;

(ii) determine the timing of Grants and the number of shares of Stock subject to each award; and

Except to the extent otherwise specified by the Committee in such delegation, the authority so delegated shall be in addition to, and not in lieu of, the authority of the Committee to make awards under the Plan.

SHARES SUBJECT TO THE PLAN

(a) Availailability. Subject to adjustment as provided in Section 4(c) below, the maximum aggregate number of shares of Stock available for issuance under the Plan shall be 10,600,000.

(b) Reavailability of Options; Stock to be Delivered. If any Stock covered by a Grant is not purchased or is forfeited, or if a Grant otherwise terminates without delivery of any

Stock subject thereto, then the number of shares of Stock so terminated or forfeited shall again be available for making Grants under the Plan. In the event that Stock that was previously issued by the Company is reacquired by the Company as part of the consideration received (in accordance with Section 12(b) below) upon the subsequent exercise of an option, such reacquired Shares shall again be available for the granting of options hereunder. Stock delivered under the Plan shall be authorized but unissued shares or, at the Board ‘s discretion, previously issued Stock acquired by the Company and held in its treasury. No fractional shares of Stock shall be delivered under the Plan.

(c) Changes in Stock. In the event of a stock dividend, stock split or combination of shares, exchange of shares, distribution payable in capital stock, recapitalization or other change in Orbital’s capital stock, the number and kind of shares of Stock subject to Grants then outstanding or subsequently awarded under the Plan, the exercise price of any outstanding option, the maximum number of shares of Stock that may be delivered under the Plan, and other relevant provisions shall be appropriately adjusted by the Board, so that the proportionate interest of the Grantee immediately following such event shall, to the extent practicable, be the same as immediately before such event.

EFFECTIVE DATE.

The Plan shall be effective as of the Effective Date, subject to approval of the Plan within one year of the Effective Date by Orbital’s shareholders. Upon approval of the Plan by the stockholders of Orbital as set forth above, all Grants made under the Plan on or after the Effective Date shall be fully effective as if Orbital’s stockholders had approved the Plan on the Effective Date. If the stockholders fail to approve the Plan within one year of the Effective Date, any Grants made hereunder shall be null and void and of no effect.

AWARD AGREEMENT

Each Grant pursuant to the Plan shall be evidenced by an Award Agreement, to be executed by Orbital and by the Grantee, in such form or forms as the Board shall from time to time approve. Each Award Agreement evidencing a Grant of options shall specify whether such options are intended to be Nonstatutory Options or Incentive Options.

OPTION EXERCISE PRICE

The option exercise price for shares of Stock to be issued under the Plan shall be the Fair Market Value of the Stock on the Grant date (or 110% of the Fair Market Value in the case of an Incentive Option granted to a ten-percent shareholder).

8. DISCRETIONARY OPTION GRANTS. Grants may be made under the Plan to any employee or director of any Participating Company as the Board shall determine and designate from time to time. Grants of options may be made under the Plan to any consultant or adviser to any Participating Company whose participation in the Plan is determined by the Board to be in the best interests of the Company and is so designated by the Board. Notwithstanding the foregoing, grants to persons who are not employees of the Company or any Parent or Subsidiary of the Company shall not be Incentive Options.

OUTSIDE DIRECTOR OPTION GRANTS

(a) [Reserved.]

(b) Grants in Lieu of Annual Fee. Each Outside Director shall be entitled to receive a Nonstatutory Option to purchase a specified number of shares of Stock in lieu of his or her annual Board retainer fee. Such specified number (i) shall be calculated by the Chief Financial Officer of the Company, using a Black-Scholes (or other generally accepted) valuation method based on the Fair Market Value of the Stock on January 15 of the applicable year (or the next business day, if January 15 falls on a weekend), assuming a ten-year option term and (ii) shall be adjusted upward by 10% to take into account the one-year vesting term. The exercise price of such option shall be equal to the Fair Market Value of Shares on January 15 (or the next business day, if January 15 falls on a weekend), which shall also be the Grant date. Any Outside Director desiring to receive an option in lieu of cash shall notify the Company of this election, which shall be irrevocable, by submitting a written notice to the Corporate Secretary in accordance to procedures as determined by the Board.

10.

LIMITATIONS ON GRANTS

(a) Limitation on Shares of Stock Subject to Grants. The maximum number of shares of Stock subject to Options that can be awarded under the Plan to any person eligible for a Grant under Section 8 hereof is 1,200,000 shares of Stock during the first ten (10) calendar years of the Plan, and 100,000 per year thereafter. The “per individual” limitations described in this paragraph shall be construed and applied consistent with the rules and regulations under I.R.C. Section 162(m).

(b) Limitations on Incentive Options. Incentive Options may only be granted to employees of the Company or any Parent or Subsidiary of the Company.

11.

VESTING AND TERMINATION OF OPTIONS

(a) Vesting of Discretionary Options. Subject to the other provisions of this Section 11, Options granted pursuant to Section 8 shall vest and become exercisable at such time and in such installments as the Board shall provide in each individual Award Agreement. Notwithstanding the foregoing, the Board may, in its sole discretion, accelerate the time at which all or any part of an option may be exercised.

(b) Vesting of Outside Director Options. Subject to the other provisions of this Section 11, options granted under Section 9 shall become exercisable as to 100% of the Stock covered thereby on the first anniversary of the Grant date.

(c) Termination of Options. All options shall expire and terminate on such date as the Board shall determine (“Option Termination Date”), which in no event shall be later than ten (10) years from the date such option was granted. In the case of an Incentive Option granted to a ten-percent stockholder, the option shall not be exercisable after the expiration of five (5) years from the date such option was granted. Upon termination of an option or portion thereof, the Grantee shall have no further right to purchase Stock pursuant to such option.

(d) Termination of Employment or Service.

(i) Termination of Employment or Directorship. Upon the termination of the employment or directorship of a Grantee with a Participating Company for any reason other than for “cause” (pursuant to Section 14 below) or by reason of death or Total Disability, all options that are not exercisable shall terminate on the employment/directorship termination date. Options that are exercisable on the employment/directorship termination date shall continue to be exercisable for (A) six (6) months following the employment/directorship termination date (in the case of Nonstatutory Options), (B) three (3) months following the employment termination date (in the case of Incentive Options), or (C) the Option Termination Date, whichever occurs first. A Grantee who is an employee or director of a Participating Company shall be deemed to have incurred a termination for purposes of this Section 11 (d)(i) if such Participating Company ceases to be a Participating Company, unless such Grantee is an employee, director, consultant or adviser of any other Participating Company.

(ii) Service Termination. In the case of an optionee who is not an employee or director of any Participating Company, provisions relating to the exercisability of options following termination of service shall be specified in the award. If not so specified, all options held by such optionee that are not then exercisable shall terminate upon termination of service for any reason. Unless such termination was for “cause” (pursuant to Section 14 below), options that are exercisable on the date the optionee’s service as a consultant or adviser terminates shall continue to be exercisable for a period of six (6) months following the service termination date (as defined in a consulting or similar agreement or as determined by the Board) or the Option Termination Date, whichever occurs first.

(e) Rights in the Event of Death. In the event that the employment and/or directorship of an optionee with a Participating Company is terminated by reason of death, all

options that are not exercisable shall terminate on the date of death. Options that were exercisable on the date prior to the optionee’s death may be exercised by the optionee’s executor or administrator or by the person or persons to whom the option is transferred by will or the applicable laws of descent and distribution, at any time within the one-year period (or such longer period as the Board may determine prior to the expiration of such one-year period) beginning with the date of the optionee’s death, but in no event beyond the Option Termination Date.

(f) Rights in the Event of Total Disability. In the event that the employment and/or directorship of an optionee with a Participating Company is terminated by reason of Total Disability, all options that are not exercisable shall terminate on the employment/directorship termination date. Options that were exercisable on the employment/directorship termination date may be exercised at any time within the one-year period (or such longer period as the Board may determine prior to the expiration of such one-year period) beginning with the commencement of the optionee’s Total Disability (as determined by the Board) but in no event beyond the Option Termination Date.

(g) Leave of Absence. An approved leave of absence shall not constitute a termination of employment under the Plan. An approved leave of absence shall mean an absence approved pursuant to the policy of a Participating Company for military leave, sick leave, or other bona fide leave, not to exceed ninety (90) days or, if longer, as long as the employee’s right to re-employment is guaranteed by contract, statute or the policy of a Participating Company. Notwithstanding the foregoing, in no event shall an approved leave of absence extend an option beyond the Option Termination Date.

12.

EXERCISE OF OPTIONS; NON-TRANSFERABILITY

(a) Exercise of Options. Vested options may be exercised, in whole or in part, by giving written notice of exercise to the Company, which notice shall specify the number of shares of Stock to be purchased and shall be accompanied by payment in full of the purchase price in accordance with Section 12(b) below and the full amount of any federal and state withholding and other employment taxes applicable to such person as a result of such exercise. No shares of Stock shall be issued until full payment of the purchase price and applicable withholding tax has been made. Until the issuance of stock certificates, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to optioned shares notwithstanding the exercise of the option.

(b) Payment. Full payment of the purchase price for the Stock as to which an option is being exercised shall be made (i) in United States dollars in cash or by check in a form satisfactory to the Company, (ii) at the Grantee’s election, and subject to discretion of the Board, through delivery of Shares having a Fair Market Value on the day immediately preceding the day notice of exercise is received by the Company equal to the cash exercise price of the option, (iii) in accordance with a so-called cashless exercise plan established with a securities brokerage firm, or (iv) by any combination of the permissible forms of payment.

(c) Non-Transferability of Options. Except as the Board may otherwise determine, no option may be transferred other than by will or by the laws of descent and distribution, and during an optionee’s lifetime an option may be exercised only by the Grantee.

13.

RESTRICTED STOCK AND STOCK UNITS

(a) Grant of Restricted Stock or Stock Units. The Board may from time to time grant Restricted Stock or Stock Units to certain employees and directors of a Participating Company, subject to such restrictions, conditions and other terms, if any, as the Board may determine.

(b) Restrictions. At the time a Grant of Restricted Stock or Stock Units is made, the Board may establish a period of time (the “Restricted Period”) during which a Grantee’s right to all or a portion of such Restricted Stock or Stock Units shall vest over time, subject to certain terms and conditions. Each Grant of Restricted Stock or Stock Units may be subject to a different Restricted Period. The Board may, in its sole discretion, at the time a Grant of Restricted Stock or Stock Units is made, prescribe forfeiture or vesting conditions in addition to or other than the expiration of the Restricted Period. The Board also may, in its sole discretion, shorten or terminate the Restricted Period or waive any other restrictions applicable to all or a portion of the Restricted Stock or Stock Units. Restricted Stock and Stock Units may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the Restricted Period or prior to the satisfaction of any other restrictions prescribed by the Board with respect to such Restricted Stock or Stock Units.

(c) Restricted Stock Certificates. Orbital shall issue, in the name of each Grantee to whom Restricted Stock has been granted, stock certificates representing the total number of shares of Restricted Stock granted to the Grantee. The Secretary of Orbital shall hold such certificates for the Grantee’s benefit until such time as the restrictions lapse or the Restricted Stock is forfeited to Orbital.

(d) Rights of Holders of Restricted Stock. Unless the Board otherwise provides in an Award Agreement, holders of Restricted Stock shall have the right to vote such Stock and the right to receive any dividends declared or paid with respect to such Stock. The Board may provide that any dividends paid on Restricted Stock must be reinvested in Stock, which may or may not be subject to the same vesting conditions and restrictions applicable to such Restricted Stock. All distributions, if any, received by a Grantee with respect to Restricted Stock as a result of any stock split, stock dividend, combination of shares, or other similar transaction shall be subject to the restrictions applicable to the original Grant.

(e) Rights of Holders of Stock Units. Unless the Board otherwise provides in an Award Agreement, holders of Stock Units shall have no rights as stockholders of the Company. The Board may provide in an Award Agreement evidencing a grant of Stock Units that the holder of such Stock Units shall be entitled to receive, upon the Company’s payment of a cash dividend on its outstanding Stock, a cash payment for each Stock Unit held equal to the per-share dividend paid on the Stock. Such Award Agreement may also provide that such cash payment will be deemed reinvested in additional Stock Units at a price per unit equal to the Fair Market Value of a share of

Stock on the date that such dividend is paid. A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Award Agreement.

(f) Termination of Employment. Upon termination of the employment/directorship of a Grantee with Orbital, other than by reason of death or Total Disability, any Restricted Stock or Stock Units held by such Grantee that has not vested, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited, unless the Board, in its discretion, determines otherwise. Upon forfeiture of Restricted Stock or Stock Units, the Grantee shall have no further rights with respect to such Grant, including but not limited to any right to vote Restricted Stock or any right to receive dividends with respect to shares of Restricted Stock or Stock Units.

(g) Rights in the Event of Total Disability or Death. The rights of a Grantee with respect to Restricted Stock or Stock Units in the event such Grantee terminates employment/directorship with Orbital by reason of Total Disability or death shall be determined by the Board at the time of Grant.

(h) Delivery of Stock and Payment Therefor. Upon the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Board, the restrictions applicable to shares of Restricted Stock or Stock Units settled in Stock shall lapse, and, unless otherwise provided in the Award Agreement, a stock certificate for such shares shall be delivered, free of all such restrictions, to the Grantee or the Grantee’s beneficiary or estate, as the case may be.

14.

FORFEITURE CONDITIONS.

The Board may provide in an Award Agreement for conditions of forfeiture for “cause” of any Grantee’s rights with respect to a Grant. “Cause” shall include engaging in an activity that is detrimental to the Company including, without limitation, criminal activity, failure to carry out the duties assigned to the Grantee as a result of incompetence or willful neglect, conduct casting such discredit on the Company as in the opinion of the Board justifies termination or forfeiture of the Grant, or such other reasons, including the existence of a conflict of interest, as the Board may determine. “Cause” is not limited to events that have occurred prior to the Grantee’s termination of service, nor is it necessary that the Board’s finding of “cause” occur prior to such termination. If the Board determines, subsequent to a Grantee’s termination of service but prior to the exercise of any rights under a Grant, that either prior or subsequent to the Grantee’s termination the Grantee engaged in conduct that would constitute “cause,” then the rights with respect to a Grant shall be forfeited.

15.

COMPLIANCE WITH SECURITIES LAWS.

(a) The delivery of Stock upon the exercise of an option or lapse of a Restricted Period shall be subject to compliance with (i) applicable federal and state laws and regulations,

(ii) all applicable listing requirements of any national securities exchange or national market system on which the Stock is then listed or quoted, and (iii) Company counsel’s approval of all other legal matters in connection with the issuance and delivery of such Stock. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the option or receipt of Restricted Stock or Stock Units, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer.

(b) It is the intent of the Company that Grants pursuant to the Plan and the exercise of options granted hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Board does not comply with the requirements of Rule 16b-3 in respect of an employee or director subject to Section 16(b) of the Exchange Act, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Plan in any respect necessary to satisfy the requirements of, or take advantage of any features of the revised exemption or its replacement.

16.

MERGERS, etc.

(a) Effect on Options and Plan. Except as otherwise provided herein, all options outstanding under the Plan shall accelerate and become immediately exercisable for a period of fifteen days (or such longer or shorter period as the Board may prescribe) immediately prior to the scheduled consummation of a Terminating Transaction, which exercise shall be (i) conditioned upon the consummation of the Terminating Transaction and (ii) effective only immediately before the consummation of such Terminating Transaction. Upon consummation of any such event, the Plan and all outstanding but unexercised options shall terminate. Notwithstanding the foregoing, to the extent provision is made in writing in connection with such Terminating Transaction, for the continuation of the Plan and the assumption of options, Restricted Stock or Stock Units under the Plan theretofore granted, or for the substitution for such options, Restricted Stock or Stock Units of new common stock options, new common stock units and new restricted stock covering the stock of a successor company, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares or units and exercise prices, then the Plan and options theretofore granted shall continue in the manner and under the terms so provided, and the acceleration and termination provisions set forth in the first two sentences of this Section 16(a) shall be of no effect. The Company shall send written notice of a Terminating Transaction to all individuals who hold options not later than the time at which the Company gives notice thereof to its stockholders.

b. Effect on Restricted Stock and Stock Units. All outstanding shares of Restricted Stock and all Stock Units, and the delivery of the shares of Stock subject to the Stock Units, shall be deemed to have vested, and all restrictions and conditions applicable to such shares of Restricted Stock and Stock Units shall be deemed to have lapsed immediately prior to the occurrence of a Terminating Transaction.

17.

TAXES

The Board shall make such provisions and take such steps as it deems necessary or appropriate for the withholding of any federal, state, local and other tax required by law to be withheld with respect to the grant or exercise of options, or the vesting of or other lapse of restrictions applicable to Restricted Stock or Stock Units, or with respect to the disposition of Stock acquired pursuant to the Plan, including, but without limitation, the deduction of the amount of any such withholding tax from any compensation or other amounts payable to a Grantee, or requiring a Grantee (or the optionee’s beneficiary or legal representative), as a condition of a Grant or exercise of an option or receipt of Restricted Stock or Stock Units, to pay to the appropriate Participating Company any amount required to be withheld, or to execute such other documents as the Board deems necessary or desirable in connection with the satisfaction of any applicable withholding obligation.

18.

EMPLOYMENT RIGHTS

Neither the adoption of the Plan nor the making of any Grants shall confer upon any Grantee any right to continue as an employee or director of, or consultant or adviser to, any Participating Company or affect in any way the right of any Participating Company to terminate them at any time. Except as specifically provided by the Board in any particular case, the loss of existing or potential profit in Grants under this Plan shall not constitute an element of damages in the event of termination of the relationship of a Grantee even if the termination is in violation of an obligation of the Company to the Grantee by contract or otherwise.

19.

AMENDMENT OR TERMINATION OF PLAN

(a) Neither adoption of the Plan nor the making of any Grants shall affect the Company’s right to make awards to any person that is not subject to the Plan, to issue to such persons Stock as a bonus or otherwise, or to adopt other plans or arrangements under which Stock may be issued.

(b) The Board may at any time discontinue granting awards under the Plan. With the consent of the Grantee, the Board may at any time cancel an existing Grant in whole or in part and make any other Grant for such number of shares as the Board specifies. The Board may at any time, prospectively or retroactively, amend the Plan or any outstanding Grant for the purpose of satisfying the requirements of I.R.C. Section 422 or of any changes in applicable laws or regulations or for any other purpose that may at the time be permitted by law, or may at any time terminate the Plan as to further grants of awards, but no such amendment shall materially adversely affect the rights of any Grantee (without the Grantee’s consent) under any outstanding Grant.

(c) In the Board’s discretion, the Board may, with an optionee’s consent, substitute Nonstatutory Options for outstanding Incentive Options, and any such substitution shall not constitute a new option grant for the purposes of the Plan, and shall not require a revaluation of the option exercise price for the substituted option. Any such substitution may be implemented by an amendment to the applicable option agreement or in such other manner as the Board in its discretion may determine.

20.

GENERAL PROVISIONS

(a) Titles and Headings. Titles and headings of sections of the Plan are for convenience of reference only and shall not affect the construction of any provision of the Plan.

(b) Governing Law. The Plan shall be governed by, interpreted under and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of Delaware, applicable to agreements made and to be performed wholly within the State of Delaware.

(c) Severability. If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.

* * *

The Plan was duly adopted by the Board of Directors of the Company as of January 24, 1997.


		/s/ Leslie C. Seeman Leslie C. Seeman
		Senior Vice President, General Counsel and Secretary
		of the Company

The Plan was duly approved by the stockholders of the Company on April 24, 1997.


		/s/ Leslie C. Seeman Leslie C. Seeman
		Senior Vice President, General Counsel and Secretary
		of the Company

EX-10.2 3 w23214exv10w2.htm EX-10.2 exv10w2

Exhibit 10.2

FIRST AMENDMENT

THIS FIRST AMENDMENT (this “Amendment”) dated as of June 1, 2006 to the Credit Agreement referenced below is by and among Orbital Sciences Corporation, a Delaware corporation (the “Borrower”), the Lenders identified on the signature pages hereto and Bank of America, N.A., as administrative agent (the “Administrative Agent”).

W I T N E S S E T H

WHEREAS, $50 million in credit facilities have been established in favor of the Borrower pursuant to the Amended and Restated Credit Agreement (as amended, modified and supplemented from time to time, the “Credit Agreement”) dated as of December 29, 2004 among the Borrower, the Guarantors identified therein, the Lenders identified therein and the Administrative Agent; and

WHEREAS, the Borrower has requested certain modifications to the Credit Agreement and the Required Lenders have agreed to the requested modifications on the terms and conditions set forth herein.

NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Defined Terms. Capitalized terms used herein but not otherwise defined herein shall have the meanings provided to such terms in the Credit Agreement.

2. Amendments.

2.1 In Section 8.01 of the Credit Agreement, the “and” at the end of clause (t) is deleted, the “.” at the end of clause (u) is amended to read
“; and” and a new clause (v) is added thereto to read as follows:

(v) deposits of cash Investments permitted under Section 8.02(j), Section 8.02(p) or Section 8.02(q) into an escrow account that provides for such cash Investments to be disbursed from such escrow account to the recipient of such cash Investments upon the satisfaction of certain conditions.

2.2 In Section 8.02 of the Credit Agreement, clause (q) is amended to read as follows:

(q) Investments not contemplated in the foregoing clauses in an amount not to exceed $25,000,000 in the aggregate at any time outstanding.

3. Conditions Precedent. This Amendment shall be effective as of the date hereof upon receipt by the Administrative Agent of counterparts of this Amendment duly executed by the Borrower and the Required Lenders.

4. Representations and Warranties. The Borrower represents and warrants that the representations and warranties contained in the Loan Documents are true and correct in all material respects on and as of the date hereof (except for those which expressly relate to an earlier date)

5. Reaffirmation of Security Interests. The Borrower (i) affirms that each of the Liens granted in or pursuant to the Loan Documents are valid and subsisting and (ii) agrees that this Amendment shall in no manner impair or otherwise adversely effect any of the Liens granted in or pursuant to the Loan Documents.

6. No Other Changes. Except as expressly modified hereby, all of the terms and provisions of the Loan Documents shall remain in full force and effect.

7. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and it shall not be necessary in making proof of this Amendment to produce or account for more than one such counterpart.

8. Governing Law. This Amendment shall be deemed to be a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of New York.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this First Amendment to be duly executed and delivered as of the date first above written.


BORROWER:	ORBITAL SCIENCES CORPORATION, a Delaware corporation

	By: Name:	/s/ Michael R. Williams Michael R. Williams
	Title:	Senior Vice President and Treasurer

ADMINISTRATIVE
AGENT:	BANK OF AMERICA, N.A., as Administrative Agent

	By: Name:	/s/ Kristine Thennes Kristine Thennes
	Title:	Vice President

LENDERS:	BANK OF AMERICA, N.A., as a Lender, L/C Issuer and Swing Line Lender

	By: Name:	/s/ Michael J. Landini Michael J. Landini
	Title:	Senior Vice President

	WACHOVIA BANK, NATIONAL ASSOCIATION

	By: Name:	/s/ Robert G. McGill Jr. Robert G. McGill Jr.
	Title:	Director

	FIRST HORIZON BANK, A DIVISION OF FIRST TENNESSEE BANK NA

	By: Name:	/s/ Gill H. Waller Gill H. Waller
	Title:	SVP

EX-31.1 4 w23214exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

Certification

I, David W. Thompson, Chairman and Chief Executive Officer, certify that:

I have reviewed this quarterly report on Form 10-Q of Orbital Sciences Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

	(a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 26, 2006


		/s/ David W. Thompson

		David W. Thompson
		Chairman and Chief Executive Officer

EX-31.2 5 w23214exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

Certification

I, Garrett E. Pierce, Vice Chairman and Chief Financial Officer, certify that:

I have reviewed this quarterly report on Form 10-Q of Orbital Sciences Corporation;

	(a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 26, 2006


		/s/ Garrett E. Pierce

		Garrett E. Pierce
		Vice Chairman and Chief Financial Officer

EX-32.1 6 w23214exv32w1.htm EX-32.1 exv32w1

Exhibit 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)

The undersigned, the Chairman and Chief Executive Officer of Orbital Sciences Corporation (the “Company”), hereby certifies that, to his knowledge, on the date hereof:

	(a)		the Quarterly Report on Form 10-Q of the Company for the Quarter Ended June 30, 2006 filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(b)		information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		/s/ David W. Thompson

		David W. Thompson
		Chairman and Chief Executive Officer
		July 26, 2006

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 7 w23214exv32w2.htm EX-32.2 exv32w2

Exhibit 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)

The undersigned, the Vice Chairman and Chief Financial Officer of Orbital Sciences Corporation (the “Company”), hereby certifies that, to his knowledge, on the date hereof:

	(a)		the Quarterly Report on Form 10-Q of the Company for the Quarter Ended June 30, 2006 filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(b)		information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		/s/ Garrett E. Pierce

		Garrett E. Pierce
		Vice Chairman and Chief Financial Officer
		July 26, 2006

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