10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

 (Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2011

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______ to ______

Commission file number 1-14279

____________________________________

ORBITAL SCIENCES CORPORATION

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

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

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

(Do not check if a smaller reporting company)

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

As of April 27, 2011, 58,426,272 shares of the registrant’s Common Stock were outstanding.

ORBITAL SCIENCES CORPORATION

TABLE OF CONTENTS

			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010	1
		Condensed Consolidated Income Statements for the Quarters Ended March 31, 2011 and 2010	2
		Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2011 and 2010	3
		Notes to Condensed Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	27
	Item 1A.	Risk Factors	27
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
	Item 3.	Defaults Upon Senior Securities	27
	Item 4.	Removed and Reserved	27
	Item 5.	Other Information	27
	Item 6.	Exhibits	27

PART I

FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

ORBITAL SCIENCES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share data)

	March 31,			December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	264,646		$	252,415
Receivables, net		393,689			326,543
Inventories		50,360			56,217
Deferred income taxes, net		29,393			24,348
Other current assets		19,352			18,111
Total current assets		757,440			677,634
Investments		9,200			8,600
Property, plant and equipment, net		242,244			232,706
Goodwill		74,747			74,747
Deferred income taxes, net		37,288			47,806
Other non-current assets		22,996			21,043
Total assets	$	1,143,915		$	1,062,536
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	302,030		$	248,835
Deferred revenues and customer advances		124,874			112,182
Total current liabilities		426,904			361,017
Long-term obligations		126,921			125,535
Other non-current liabilities		5,738			7,367
Total liabilities		559,563			493,919
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, 58,389,038 and
58,239,875 shares outstanding, respectively		584			582
Additional paid-in capital		560,784			558,015
Accumulated other comprehensive loss		(1,382	)		(2,011	)
Retained earnings		24,366			12,031
Total stockholders’ equity		584,352			568,617
Total liabilities and stockholders’ equity	$	1,143,915		$	1,062,536

See accompanying notes to condensed consolidated financial statements.

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ORBITAL SCIENCES CORPORATION

CONDENSED CONSOLIDATED INCOME STATEMENTS

(Unaudited, in thousands, except per share data)

	Quarters Ended March 31,
	2011			2010
Revenues	$	317,703		$	296,190
Cost of revenues		271,040			227,902
Research and development expenses		17,135			30,163
Selling, general and administrative expenses		19,412			20,760
Income from operations		10,116			17,365
Interest income and other		11,489			338
Interest expense		(2,533	)		(2,361	)
Income before income taxes		19,072			15,342
Income tax provision		(6,737	)		(6,074	)
Net income	$	12,335		$	9,268
Basic income per share	$	0.21		$	0.16
Diluted income per share	$	0.21		$	0.16

See accompanying notes to condensed consolidated financial statements.

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ORBITAL SCIENCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	Quarters Ended March 31,
	2011			2010
Operating Activities:
Net income	$	12,335		$	9,268
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		7,847			5,243
Deferred income taxes		5,461			4,053
Stock-based compensation and other		3,882			3,020
Changes in assets and liabilities		(1,376	)		(16,834	)
Net cash provided by operating activities		28,149			4,750
Investing Activities:
Capital expenditures		(17,317	)		(15,097	)
Net cash used in investing activities		(17,317	)		(15,097	)
Financing Activities:
Net proceeds from issuances of common stock		841			7,899
Tax benefit of stock-based compensation		558			1,527
Net cash provided by financing activities		1,399			9,426
Net increase (decrease) in cash and cash equivalents		12,231			(921	)
Cash and cash equivalents, beginning of period		252,415			372,986
Cash and cash equivalents, end of period	$	264,646		$	372,065

See accompanying notes to condensed consolidated financial statements.

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ORBITAL SCIENCES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011 and 2010

(Unaudited)

(1)   Basis of Presentation

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

In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, consisting of normal recurring accruals, necessary for a fair presentation on a going concern basis.  Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the U.S. Securities and Exchange Commission.  The company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited consolidated financial statements contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, including estimates of future contract costs and earnings.  Such estimates and assumptions affect the reported amounts of assets and liabilities at the date of the 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.

The company has evaluated subsequent events in accordance with U.S. GAAP.  Management has evaluated the events and transactions that have occurred through the date the financial statements were issued, and noted no items requiring adjustment or disclosure in the financial statements, other than the matter disclosed in Note 12.   Operating results for the quarter ended March 31, 2011 are not necessarily indicative of the results expected for the full year.

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(2) Industry Segment Information

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

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

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

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

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

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

	Quarters Ended March 31,
	2011			2010
Launch Vehicles:
Revenues(1)	$	105,273		$	100,342
Operating income		(5,049	)		4,531
Identifiable assets		209,702			212,360	(2)
Capital expenditures		10,512			10,216
Depreciation and amortization		3,320			1,806
Satellites and Space Systems:
Revenues(1)	$	152,659		$	100,521
Operating income		10,310			7,707
Identifiable assets		293,755			268,804	(2)
Capital expenditures		1,829			1,530
Depreciation and amortization		2,711			2,265
Advanced Space Programs:
Revenues(1)	$	92,710		$	107,543
Operating income		4,855			5,127
Identifiable assets		242,292			188,184	(2)
Capital expenditures		4,716			2,510
Depreciation and amortization		117			3
Corporate and Other:
Revenues(1)	$	(32,939	)	$	(12,216	)
Operating income		—			—
Identifiable assets		398,166			393,188	(2)
Capital expenditures		260			841
Depreciation and amortization		1,699			1,169
Consolidated:
Revenues	$	317,703		$	296,190
Operating income		10,116			17,365
Identifiable assets		1,143,915			1,062,536	(2)
Capital expenditures		17,317			15,097
Depreciation and amortization		7,847			5,243

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

	Quarters Ended March 31,
	2011		2010
Launch Vehicles	$	31.4	$	10.5
Satellites and Space Systems		1.1		1.3
Advanced Space Programs		0.4		0.4
Total intersegment revenues	$	32.9	$	12.2

(2)  As of December 31, 2010.

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(3)  Earnings Per Share

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

			Quarters Ended March 31,
Numerator			2011			2010
		Net income	$	12,335		$	9,268
		Percentage allocated to shareholders (1)		98.8	%		99.2	%
		Numerator for basic and diluted earnings per share	$	12,187		$	9,193
Denominator
		Denominator for basic earnings per share -
		weighted-average shares outstanding		58,299			57,060
		Dilutive effect of stock options		490			796
		Denominator for diluted earnings per share		58,789			57,856
Per share income
		Basic	$	0.21		$	0.16
		Diluted		0.21			0.16
_________________________
	(1)	Basic weighted-average shares outstanding		58,299			57,060
		Basic weighted-average shares outstanding and
		unvested restricted stock units expected to vest		58,982			57,536
		Percentage allocated to shareholders		98.8	%		99.2	%

The calculation of EPS shown above excludes the income attributable to the company’s unvested restricted stock units (“RSUs”) from the numerator and excludes the impact of those units from the denominator.

In the first quarter of 2011, diluted weighted-average shares outstanding included the effect of all stock options.  In the first quarter of 2010, diluted weighted-average shares outstanding excluded the effect of less than 0.1 million of stock options that were anti-dilutive.  Diluted weighted-average shares outstanding also excluded the effect of the RSUs and the company’s $143.8 million of 2.4375% convertible senior subordinated notes that were anti-dilutive.

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(4)  Receivables

Receivables consisted of the following (in thousands):

	March 31,		December 31,
	2011		2010
Billed	$	61,835	$	56,035
Unbilled		331,854		270,508
Total	$	393,689	$	326,543

As of March 31, 2011 and December 31, 2010, unbilled receivables included $14.7 million and $14.9 million, respectively, of incentive fees on certain completed satellite contracts that become due incrementally over periods of up to 15 years, subject to the achievement of performance criteria.  In addition, certain satellite contracts require the company to refund cash to the customer if performance criteria, which cover periods of up to 15 years, are not satisfied.  As of March 31, 2011, the company could be required to refund up to approximately $20.6 million to customers if certain completed satellites were to fail to satisfy performance criteria.  Orbital generally procures insurance policies that the company believes would indemnify the company for satellite incentive fees that are not earned and for performance refund obligations.

(5)  Inventories

Total inventories were $50.4 million at March 31, 2011 and $56.2 million at December 31, 2010.  Substantially all of the company’s inventory consisted of component parts, raw materials and milestone payments for future delivery of component parts.  The company had no significant allowances for obsolete inventory as of March 31, 2011 and December 31, 2010.

(6)  Investments

As of March 31, 2011, the company held investments consisting of three auction-rate debt securities (life insurance company capital reserve funds), an auction-rate equity security (financial guarantee company capital reserve fund) and two preferred stock investments.  These investments are classified as available for sale securities and as non-current assets on the company’s balance sheet.  Contractual maturities for the debt securities are 14 years or greater and the remaining securities have no fixed maturity.  The amortized cost and fair value of these investments were as follows (in thousands):

	March 31, 2011							December 31, 2010
	Cost or Amortized Cost		Net Unrealized Gain (Loss)			Fair Value		Cost or Amortized Cost		Net Unrealized Gain (Loss)			Fair Value
Debt	$	7,150	$	(350	)	$	6,800	$	7,150	$	(450	)	$	6,700
Equity(1)		2,000		400			2,400		2,000		(100	)		1,900
Total	$	9,150	$	50		$	9,200	$	9,150	$	(550	)	$	8,600

(1)  As of March 31, 2011 and December 31, 2010, cost and fair value of the two preferred stock investments was $0.

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

	Quarters Ended March 31,
	2011		2010
Debt Securities
Fair value at beginning of period	$	6,700	$	10,900
Temporary impairment credits (charges), net		100		(400	)
Net change in fair value		100		(400	)
Fair value at end of period	$	6,800	$	10,500
Equity Securities
Fair value at beginning of period	$	1,900	$	2,200
Temporary impairment credits (charges), net		500		(100	)
Net change in fair value		500		(100	)
Fair value at end of period	$	2,400	$	2,100
Total
Fair value at beginning of period	$	8,600	$	13,100
Temporary impairment credits (charges), net		600		(500	)
Net change in fair value		600		(500	)
Fair value at end of period	$	9,200	$	12,600

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

Auction-rate securities are intended to be structured to provide liquidity through an auction process that resets the applicable interest rate at predetermined calendar intervals.  This mechanism allows existing investors either to roll over or liquidate their holdings by selling such securities at par.  Since the third quarter of 2007 and through March 31, 2011, the auctions, which occur approximately every 28 days for the auction-rate securities held by the company, have not had sufficient buyers to cover investors’ sell orders, resulting in unsuccessful auctions.  These unsuccessful auctions result in a resetting of the interest rate paid on the securities until the next auction date, at which time the process is repeated.

The company has estimated the fair value of these securities based on an income approach using a discounted cash flow analysis which considered the following key inputs: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions and the relevant risk associated with each security; and (iii) the time horizon until each security will be sold.  The discount rates used in the present value calculations are based on yields on U.S. Treasury securities with similar time horizons plus interest rate risk premiums that are intended to compensate for general market risk and the risk specific to each security.  The risk premiums are based upon current credit default swap pricing market data for similar or related securities or credit spreads for corporate bonds with similar credit ratings and similar maturities.  The discounted cash flow analysis is a Level 3 valuation.

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The company records other-than-temporary impairment charges with respect to equity securities based on the company’s assessment that it is likely that the fair value of the investment will not fully recover in the foreseeable future given the duration, severity and continuing declining trend of the fair value of the security, as well as the uncertain financial condition and near-term prospects of the issuer.  The company determines other-than-temporary impairment charges for its debt securities based on credit losses.

At this time it is uncertain if or when the liquidity issues relating to these investments will improve, and there can be no assurance that the market for auction-rate securities will stabilize.  The fair value of the auction-rate securities could change significantly in the future and the company may be required to record additional temporary or other-than-temporary impairment charges if there are further reductions in fair value in future periods.

(7) Debt

Convertible Notes

On December 13, 2006, the company issued $143.8 million of 2.4375% convertible senior subordinated notes due 2027 with interest payable semi-annually each January 15 and July 15.  As of March 31, 2011 and December 31, 2010, the net carrying amount of the convertible notes was $126.9 million and $125.5 million, respectively, and the related unamortized debt discount was $16.8 million and $18.3 million, respectively.

Under certain circumstances, the convertible notes are convertible into cash, or a combination of cash and common stock at the company’s election, based on an initial conversion rate of 40.8513 shares of the company’s common stock per $1,000 in principal amount of the convertible notes (equivalent to an initial conversion price of approximately $24.48 per share).  At any time on or after January 21, 2014, the convertible notes are subject to redemption at the option of the company, in whole or in part, for cash equal to 100% of the principal amount of the convertible notes, plus unpaid interest, if any, accrued to the redemption date.  Holders of the convertible notes may require the company to repurchase the convertible notes, in whole or in part, on January 15, 2014, January 15, 2017 or January 15, 2022, or, if a “fundamental change” (as such term is defined in the indenture governing the convertible notes) occurs, for cash equal to 100% of the principal amount of the convertible notes, plus any unpaid interest, if any, accrued to the redemption date.

The fair value of the company’s convertible notes at March 31, 2011 and December 31, 2010 was estimated at $156.0 million and $150.2 million, respectively.  The fair value was determined based on market prices quoted by a broker-dealer.

10

Credit Facility

In August 2007, the company entered into a five-year $100 million revolving secured credit facility (the “Credit Facility”), with the option to increase the amount of the Credit Facility up to $175 million to the extent that any one or more lenders commit to be a lender for such additional amount.  At the election of the company, loans under the Credit Facility bear interest at either (i) LIBOR plus a margin ranging from 0.75% to 1.25%, with the applicable margin varying according to the company’s total leverage ratio, or (ii) at a prime rate.  The Credit Facility is secured by substantially all of the company’s assets.  Up to $75 million of the Credit Facility may be reserved for letters of credit.  As of March 31, 2011, there were no borrowings under the Credit Facility, although $18.3 million of letters of credit were issued under the Credit Facility.  Accordingly, as of March 31, 2011, $81.7 million of the Credit Facility was available for borrowings.

Debt Covenants

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

(8) Comprehensive Income

Comprehensive income consisted of the following (in thousands):

	Quarters Ended March 31,
	2011		2010
Net income	$	12,335	$	9,268
Unrealized gain (loss) on investments		600		(500	)
Defined benefit plans, net of tax		29		166
Total comprehensive income	$	12,964	$	8,934

Accumulated other comprehensive loss as of March 31, 2011 and December 31, 2010 was $1.4 million and $2.0 million, respectively.

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(9) Stock-Based Compensation

The following tables summarize information related to stock-based compensation transactions:

	Restricted Stock Units						Stock Options
				Weighted Average						Weighted Average
	Number of			Measurement			Number of			Exercise
	Units			Date Fair Value			Options			Price
Outstanding at December 31, 2010		684,674			$	16.38		1,226,582			$	6.46
Granted (1)		25,960				17.43		—				—
Exercised		—				—		(100,555	)			4.75
Vested		(25,636	)			16.10		—				—
Forfeited		(2,915	)			16.73		—				—
Expired		—				—		(448	)			5.79
Outstanding at March 31, 2011		682,083			$	16.43		1,125,579	(2)		$	6.61

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

(2)   The weighted average remaining contractual term is 2.03 years.

	Quarters Ended March 31,
(in millions)	2011		2010
Stock-based compensation expense	$	1.4	$	1.8
Income tax benefit related to stock-based compensation expense		0.5		0.7
Intrinsic value of options exercised computed as the market
price on the exercise date less the price paid to exercise the options		1.3		4.3
Cash received from exercise of options		0.5		7.4
Tax benefit recorded as credits to additional paid-in capital related
to stock-based compensation transactions		0.5		1.5

	As of
(in millions)	March 31, 2011
Shares of common stock available for grant under stock-based incentive plans		1.2
Aggregate intrinsic value of restricted stock units that are expected to vest	$	12.9
Unrecognized compensation expense related to non-vested restricted stock units, expected to
be recognized over a weighted-average period of 1.88 years		7.5
Aggregate intrinsic value of stock options outstanding, all fully vested		13.9

(10) Research and Development

In the first quarter of 2008, the company entered into an agreement with the National Aeronautics and Space Administration (“NASA”) to design, build and demonstrate a new space transportation system under a program called Commercial Orbital Transportation Services (“COTS”), for delivering cargo and supplies to the International Space Station.  Under the agreement, as amended, as of March 31, 2011, NASA has agreed to pay the company $288 million in cash milestone payments, partially funding Orbital’s project costs which are currently estimated to be approximately $430 million.  The company expects to complete this project in the fourth quarter of 2011.

The COTS agreement is being accounted for as a best-efforts research and development cost-sharing arrangement.  As such, the amounts funded by NASA are recognized proportionally as an offset to the company’s COTS program research and development expenses, including associated general and administrative expenses.  As of March 31, 2011 and December 31, 2010, deferred revenue and customer advances on the accompanying balance sheet included $11.3 million and

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$25.2 million, respectively, of cash received from NASA that had not yet been recorded as an offset to research and development expenses.   The following table summarizes the COTS project research and development expenses incurred and amounts funded by NASA (in millions):

					Inception
	First Quarter				to March 31,
	2011		2010		2011
Research and development costs incurred (1)	$	42.0	$	28.2	$	301.1
Less - amounts funded by NASA		34.1		14.9		186.4
Net research and development expenses	$	7.9	$	13.3	$	114.7

(1) Includes associated general and administrative expenses

The company is engaged in a major product development program of a medium-capacity rocket named Taurus II.  Approximately $7.1 million and $15.2 million of the company’s research and development expenses in the first quarters of 2011 and 2010, respectively, were attributable to the Taurus II program.

 (11) Income Taxes

The company’s effective tax rates were 35.3% and 39.6% for the three months ended March 31, 2011 and 2010, respectively.  The higher tax rate in 2010 was primarily due to the expiration of the federal research and development tax credit at the beginning of 2010 that was subsequently reinstated in December 2010.

(12) 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.

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Research and Development Expenses

The company believes that a majority of the company’s research and development expenses are recoverable and billable under contracts with the U.S. Government, from which the majority of the company’s revenues are derived.  Charging practices relating to research and development and other costs that may be charged directly or indirectly to government contracts are subject to audit by U.S. Government agencies to determine if such costs are reasonable and allowable under government contracting regulations and accounting practices.  The company believes that research and development costs incurred in connection with the company’s Taurus II development program (see Note 10) are allowable, although the U.S. Government has not yet made a final determination.  If such costs were determined to be unallowable, the company could be required to record revenue and profit reductions in future periods.

Terminated Contracts

In 2010, the Orion Launch Abort System contract was terminated for convenience by the customer.  The company has recognized its best estimates of the revenues and profit that will ultimately be realized in the final termination settlement.  However, because of the inherent judgments associated with termination costs and profit assessments, it is possible that the company could recognize material adjustments to earnings upon resolution of this matter.

In April 2011, the company negotiated a settlement with the customer, subject to U.S. Government ratification, with respect to the Kinetic Energy Interceptor contract that had been terminated in 2009.  The resolution of this matter does not have a material impact on the company’s financial statements.

Litigation

From time to time the company is party to certain litigation or other legal proceedings arising in the ordinary course of business.  Because of the uncertainties inherent in litigation, the company cannot predict whether the outcome of such litigation or other legal proceedings will have a material adverse effect on the company’s results of operations or financial condition.

Other

On April 2, 2010, the company acquired certain assets and liabilities of the spacecraft development manufacturing business of General Dynamics Advanced Information Systems a subsidiary of General Dynamics Corporation (the “Seller”), for $55 million in cash, subject to a potential working capital adjustment.  The company and the Seller are each disputing the other party’s claim for a purchase price adjustment based on the calculation of working capital as of the closing date.

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

Certain statements contained in this Item 2 and elsewhere in this Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements include, but are not limited to, those related to our financial outlook, liquidity, goals, business strategy, projected plans and objectives of management for future operating results, and forecasts of future events.  These statements can be identified by the fact that they do not relate strictly to historical or current facts.  Forward-looking statements often include the words “anticipate,” “forecast,” “expect,” “believe,” “should,” “intend,” “plan” and words of similar substance.  Such forward-looking statements are subject to risks, trends and uncertainties that could cause the actual results or performance of the company to be materially different from the forward-looking statement.  Uncertainty surrounding factors such as continued government support and funding for key space and defense programs, achievement of important performance milestones on significant contracts, new product development programs, product performance and market acceptance of products and technologies, government contract procurement and termination risks, insurance recovery and income tax rates may materially impact Orbital’s actual financial and operational results.  Other risks, uncertainties and factors are discussed under the caption “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.  We are under no obligation to, and expressly disclaim any obligation or undertaking to update or alter any forward-looking statement, whether as a result of new information, subsequent events or otherwise, except as required by law.

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

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

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

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

The following discussion should be read along with our 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission, and with the unaudited condensed consolidated financial statements included in this Form 10-Q.

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Consolidated Results of Operations for the Quarters Ended March 31, 2011 and 2010

Revenues - Our consolidated revenues were $317.7 million in the first quarter of 2011, an increase of $21.5 million, or 7%, compared to the first quarter of 2010, due to higher revenues in our satellites and space systems and launch vehicles segments, partially offset by lower revenues in our advanced space programs segment.  Satellites and space systems segment revenues increased $52.1 million, or 52%, in 2011 primarily due to increased activity on communications satellite contracts, science and remote sensing satellite contracts, including contracts acquired in our April 2010 spacecraft business acquisition (“2010 acquisition”), and space technical services contracts.  Launch vehicles segment revenues increased $4.9 million, or 5%, in 2011 primarily due to increased production work on Taurus II launch vehicles, partially offset by an adjustment to reduce revenue resulting from the Taurus XL rocket launch failure in March 2011 discussed below and decreased activity on missile defense interceptors, Minotaur space launch vehicles and target launch vehicles.  Advanced space programs segment revenues decreased $14.8 million, or 14%, in 2011 primarily due to a decrease in activity on the Orion Launch Abort System (“LAS”) contract that was terminated for convenience by the customer in the second quarter of 2010 and decreased activity on national security satellite contracts, partially offset by increased activity on the Commercial Resupply Services (“CRS”) contract for the National Aeronautics and Space Administration (“NASA”).

On March 4, 2011, our Taurus XL rocket, which was carrying the Glory scientific satellite that we had built for NASA experienced a launch failure.  As a result of the launch failure, we will not receive an $11.3 million mission success incentive that we had expected to earn and we will incur unanticipated costs to investigate the cause of the incident.  As a result, in the first quarter of 2011, we recorded an $11.3 million adjustment to reduce revenue and operating profit on the Taurus contract and we incurred approximately $0.7 million of costs associated with the investigation of the incident.  We believe that we will recover the mission success incentive under an existing insurance policy; accordingly, we recorded an $11.3 million insurance recovery accrual reported as “other income” in the first quarter of 2011.

Eliminations of intersegment revenues increased to $32.9 million in the first quarter of 2011 as compared to $12.2 million in the first quarter of 2010.  Intersegment revenues included $31.4 million and $10.5 million in 2011 and 2010, respectively, pertaining to Taurus II launch vehicle production work in our launch vehicles segment for the Commercial Orbital Transportation Services (“COTS”) program that is being conducted by our advanced space programs segment.

The CRS contract accounted for 21% of consolidated revenues in the first quarter of 2011.  The launch vehicle portion of the CRS contract is reported in our launch vehicles segment and the remainder of the CRS contract is reported in our advanced space programs segment.  CRS contract revenues totaled $67.7 million in the first quarter of 2011, an increase of $11.8 million, or 21%, compared to the first quarter of 2010, attributable to increased activity.

Our 2010 acquisition generated $20.2 million of revenues in the first quarter of 2011, including $13.8 million reported in our satellites and space systems segment and $6.4 million reported in our advanced space programs segment.

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Cost of Revenues - Our cost of revenues was $271.0 million in the first quarter of 2011, an increase of $43.1 million, or 19%, compared to the first quarter of 2010.  Cost of revenues includes the cost of personnel, materials, subcontractors and overhead.  The increase in our cost of revenues was primarily attributable to the increases in contract activity that drove the growth in revenues described above.  Cost of revenues in the satellites and space systems segment increased $47.4 million, or 57%, in the first quarter of 2011 compared to the first quarter of 2010.  Cost of revenues in the launch vehicles segment increased $22.4 million, or 31%, in the first quarter of 2011 compared to the first quarter of 2010.  Cost of revenues in the advanced space programs segment decreased $5.9 million, or 7%, in the first quarter of 2011 compared to the first quarter of 2010.  Eliminations of intersegment cost of revenues increased $20.7 million in the first quarter of 2011 attributable to the increase in intersegment revenues discussed above.

Research and Development Expenses - Our research and development expenses totaled $17.1 million, or 5% of revenues, in the first quarter of 2011, a $13.1 million decrease compared to $30.2 million, or 10% of revenues, in the first quarter of 2010.  The majority of our research and development expenses in the first quarter of 2011 and 2010 were attributable to the COTS program and our Taurus II launch vehicle development program.

In connection with the COTS agreement with NASA, we are designing, building and demonstrating a new space transportation system.  Under the COTS agreement, as amended, as of March 31, 2011, NASA has agreed to pay us $288 million in cash milestone payments, partially funding our program costs which are currently estimated to be approximately $430 million.  During the first quarter of 2011, NASA agreed to increase its funding by $98 million under the COTS agreement and we agreed to carry out a Taurus II test flight under the program in addition to the demonstration flight that was already planned.  We expect to complete the COTS program in the fourth quarter of 2011.

The COTS program is being accounted for as a best-efforts research and development cost-sharing arrangement.  As such, the amounts funded by NASA are recognized proportionally as an offset to our COTS program research and development expenses, including associated general and administrative expenses.  As of March 31, 2011, deferred revenue and customer advances on our balance sheet included $11.3 million of cash received from NASA that had not yet been recorded as an offset to research and development expenses.  The following table summarizes the COTS program costs incurred and amounts funded by NASA recorded in research and development expenses (in millions):

					Inception
	First Quarter				to March 31,
	2011		2010		2011
Research and development costs incurred (1)	$	42.0	$	28.2	$	301.1
Less - amounts funded by NASA		34.1		14.9		186.4
Net research and development expenses	$	7.9	$	13.3	$	114.7

(1) Includes associated general and administrative expenses

Research and development expenses attributable to our Taurus II launch vehicle development program were $7.1 million and $15.2 million in the first quarter of 2011 and 2010, respectively.

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We believe that the majority of our research and development expenses are recoverable and billable under our contracts with the U.S. Government.  Charging practices relating to research and development and other costs that may be charged directly or indirectly to government contracts are subject to audit by U.S. Government agencies to determine if such costs are reasonable and allowable under government contracting regulations and accounting practices.  We believe that the research and development costs incurred in connection with our Taurus II development program are allowable, although the U.S. Government has not yet made a final determination.  Since the inception of the Taurus II program through March 31, 2011, we have incurred $126.3 million of such expenses that have been recorded as allowable costs.  If such costs were determined to be unallowable, we could be required to record revenue and profit reductions in future periods.

In the first quarter of 2010, we recognized $5.3 million of research and development expenses in excess of a self-imposed ceiling on the amount of such expenses that we would recover under our U.S. Government contracts, although we believe that such expenses would otherwise be allowable and recoverable under U.S. Government contracting regulations and accounting practices.  There were no unrecoverable research and development expenses in the first quarter of 2011.

Selling, General and Administrative Expenses - Selling, general and administrative expenses were $19.4 million and $20.8 million, or 6% and 7% of revenues, in the first quarter of 2011 and 2010, respectively.  Selling, general and administrative expenses include the cost of our finance, legal, administrative and general management functions, as well as bid, proposal and marketing costs.  Selling, general and administrative expenses decreased $1.4 million, or 6%, in the first quarter of 2011 compared to the first quarter of 2010 primarily due to a decrease in bid, proposal and marketing costs pertaining to new business prospects.

Operating Income - Our consolidated operating income was $10.1 million in the first quarter of 2011, a decrease of $7.2 million, or 42%, compared to the first quarter of 2010 due to operating income decreases in our launch vehicles and advanced space programs segments, partially offset by higher operating income in our satellites and space systems segment.  Launch vehicles segment operating income decreased $9.6 million primarily due to an approximately $12.0 million operating income reduction resulting from the Taurus XL launch failure discussed above.  The effect of the launch failure was partially offset by the absence in 2011 of unrecovered Taurus II research and development expenses that were recognized in the first quarter of 2010 in the launch vehicles segment.  Advanced space programs segment operating income decreased $0.3 million, or 5%, primarily due to the same factors that contributed to the reduction in segment revenues, partially offset by the absence in 2011 of unrecovered research and development expenses that were recognized in the first quarter of 2010.  Satellites and space systems segment operating income increased $2.6 million, or 34%, primarily due to increased activity on communications satellite contracts and science and remote sensing satellite contracts, including contracts of the 2010 acquisition.

Total operating income from the CRS contract was $3.5 million in the first quarter of 2011, an increase of $0.7 million, or 25%, attributable to increased activity.  The 2010 acquisition generated $2.2 million of operating income in the first quarter of 2011.

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Interest Income and Other - Interest income and other was $11.5 million in the first quarter of 2011, compared to $0.3 million in the first quarter of 2010.  Interest income and other in the first quarter of 2011 included the recognition of an $11.3 million insurance recovery pertaining to the Taurus XL launch failure discussed above.

Interest Expense - Interest expense was $2.5 million and $2.4 million in the first quarter of 2011 and 2010, respectively, attributable primarily to our long-term convertible debt.

Income Tax Provision - Our income tax provision was $6.7 million in the first quarter of 2011, compared to $6.1 million in the first quarter of 2010.  The effective tax rate for the first quarter of 2011 and 2010 was 35.3% and 39.6%, respectively.  Our income tax provision in the first quarter of 2011 reflects the effect of federal research and development tax credit legislation that was re-enacted in the fourth quarter of 2010.

Net Income - Net income was $12.3 million and $9.3 million, or $0.21 and $0.16 diluted earnings per share, in the first quarter of 2011 and 2010, respectively.

Segment Results for the Quarters Ended March 31, 2011 and 2010

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

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

Launch Vehicles

Launch vehicles segment operating results were as follows:

	First Quarter
(in thousands, except percentages)	2011			2010			% Change
Revenues	$	105,273		$	100,342			5%
Operating income		(5,049	)		4,531		NM
Operating margin		(4.8	%)		4.5	%

Segment Revenues - Launch vehicles segment revenues increased $4.9 million, or 5%, in the first quarter of 2011 compared to the first quarter of 2010 primarily due to increased production work on space launch vehicle contracts, partially offset by decreased activity on missile defense interceptor and target launch vehicle contracts.  Space launch vehicle revenues grew $13.8 million, or 30%, primarily due to a $23.3 million increase in Taurus II launch vehicle revenues attributable to increased activity.  Taurus II launch vehicle revenues were $49.5 million and $26.2 million in the first quarter of 2011 and 2010, respectively, which included $31.4 million and $10.5 million, respectively, related to the COTS program and $18.1 million and $15.7 million, respectively, related to the CRS contract.  Taurus II launch vehicle revenues accounted for 47% and 26% of total launch vehicles segment revenues in the first quarter of 2011 and 2010, respectively.  The increase in Taurus II launch vehicle revenues was partially offset by a $5.9

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million reduction in Taurus XL launch vehicle revenues, primarily attributable to an $11.3 million adjustment to reduce revenue resulting from the loss of the mission success incentive due to the Taurus XL launch failure discussed above and by lower Minotaur space launch vehicle revenues.  Interceptor launch vehicle revenues decreased $3.6 million, or 13%, primarily due to decreased activity on our Ground-based Midcourse Defense contract in the first quarter of 2011.  Target launch vehicles revenues decreased $2.6 million, or 11%, primarily due to a decline in activity on certain contracts.

Segment Operating Income - Operating income in the launch vehicles segment decreased $9.6 million in the first quarter of 2011 compared to the first quarter of 2010 primarily due an approximately $12.0 million operating income reduction resulting from the Taurus XL launch failure discussed above.  The effect of the launch failure was partially offset by the absence in 2011 of $3.2 million of unrecovered Taurus II research and development expenses that were recognized in the first quarter of 2010.  There were no unrecoverable research and development expenses in the first quarter of 2011.  Operating income from interceptor launch vehicle contracts was $2.7 million and $2.2 million in the first quarter of 2011 and 2010, respectively.  Operating income from Taurus II launch vehicle production work for the CRS contract was $1.0 million and $0.8 million in the first quarter of 2011 and 2010, respectively.  This segment does not recognize any profit pertaining to its Taurus II production work for the COTS program that is conducted by our advanced space programs segment.

Launch vehicles segment operating margin (as a percentage of revenues) was (4.8%) and 4.5% in the first quarter of 2011 and 2010, respectively.  This decrease was primarily due to the effect of the Taurus XL launch failure discussed above.

Satellites and Space Systems

Satellites and space systems segment operating results were as follows:

	First Quarter
(in thousands, except percentages)	2011			2010			% Change
Revenues	$	152,659		$	100,521			52%
Operating income		10,310			7,707			34%
Operating margin		6.8	%		7.7	%

Segment Revenues - Satellites and space systems segment revenues increased $52.1 million, or 52%, in the first quarter of 2011 compared to the first quarter of 2010 primarily due to increased activity on communications satellite contracts, science and remote sensing satellite contracts, including contracts acquired in our 2010 acquisition, and space technical services contracts.  Communications satellite revenues increased $25.2 million, or 33%, principally attributable to activity on recently awarded contracts.  Communications satellite revenues accounted for 66% and 76% of total segment revenues in the first quarter of 2011 and 2010, respectively.  Science and remote sensing satellite revenues increased $19.4 million, or 234%, primarily due to production work on recently awarded contracts and included $13.8 million generated by our 2010 acquisition.  Revenues from space technical services contracts increased $7.7 million primarily due to production work on recently awarded contracts.

Segment Operating Income - Operating income in the satellites and space systems segment increased $2.6 million, or 34%, in the first quarter of 2011 compared to the first quarter of 2010

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primarily due to a $2.2 million increase in science and remote sensing satellite operating income, including $1.8 million of operating income generated by contracts acquired in our 2010 acquisition.  Communications satellite operating income increased $0.6 million, or 11%, primarily due to activity on recently awarded contracts, partially offset by approximately $0.7 million of costs incurred in 2011 to conclude the investigation and resolution of the Galaxy 15 satellite anomaly that occurred in April 2010 and by profit adjustments on certain other communication satellite contracts.  Communications satellite operating income accounted for 60% and 72% of total segment operating income in the first quarter of 2011 and 2010, respectively.

Satellites and space systems segment operating margin (as a percentage of revenues) were 6.8% and 7.7% in the first quarter of 2011 and 2010, respectively.  This decrease was primarily due to costs incurred in 2011 associated with the Galaxy 15 satellite anomaly resolution mentioned above and profit adjustments on certain other communication satellite contracts.

Advanced Space Programs

Advanced space programs segment operating results were as follows:

	First Quarter
(in thousands, except percentages)	2011			2010			% Change
Revenues	$	92,710		$	107,543			(14%	)
Operating income		4,855			5,127			(5%	)
Operating margin		5.2	%		4.8	%

Segment Revenues - Advanced space programs segment revenues decreased $14.8 million, or 14%, in the first quarter of 2011 compared to the first quarter of 2010 primarily due to an $18.4 million decrease in revenues on the Orion LAS contract that was terminated for convenience by the customer in the second quarter of 2010.  National security satellite contract revenues decreased $5.5 million primarily due to a decrease in activity on existing national security satellite contracts partially offset by $6.4 million of revenues attributable to contracts acquired in our 2010 acquisition.  CRS contract revenues increased $9.3 million in the first quarter of 2011 compared to the first quarter of 2010.  The CRS contract accounted for 53% and 37% of total segment revenues in the first quarter of 2011 and 2010, respectively.

Segment Operating Income - Operating income in the advanced space programs segment decreased $0.3 million, or 5%, primarily due to the same factors that contributed to the reduction in segment revenues, partially offset by the absence in 2011 of $2.1 million of unrecovered research and development expenses that were recognized in the first quarter of 2010.  There were no unrecoverable research and development expenses in the first quarter of 2011.

This segment’s operating margin (as a percentage of revenues) was 5.2% and 4.8% in the first quarter of 2011 and 2010, respectively.  The increase in operating margin in the first quarter of 2011 was primarily due to improved margins on national security satellite contracts and the absence in 2011 of unrecovered research and development expenses that were recognized in the first quarter of 2010.

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Corporate and Other

Corporate and other revenues were comprised solely of the elimination of intersegment revenues of $32.9 million and $12.2 million in the first quarter of 2011 and 2010, respectively.  The increase in intersegment revenue eliminations is due to Taurus II production work performed in the launch vehicles segment for the COTS research and development program that is being conducted in the advanced space programs segment.  Taurus II revenues for the COTS program which were reported as intersegment revenues in our launch vehicles segment totaled $31.4 million and $10.5 million in the first quarter of 2011 and 2010, respectively.

Backlog

Our firm backlog was approximately $2.3 billion and $2.0 billion at March 31, 2011 and December 31, 2010, respectively.  While there can be no assurance, we expect to convert approximately $1.0 billion of the March 31, 2011 firm backlog into revenue during the remainder of 2011.  Firm backlog consists of aggregate contract values for firm product orders, excluding the portion previously included in revenues, and including government contract orders not yet funded and our estimate of potential award fees.

Total backlog was approximately $5.6 billion at March 31, 2011 and $4.6 billion at December 31, 2010.  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 quarter of 2011 was $28.1 million, as compared to $4.8 million in the first quarter of 2010.  The increase in operating cash flows resulted primarily from an increase in the net effect of changes in working capital and certain other assets and liabilities, in addition to the effect of increased net income in the first quarter of 2011.  During the first quarter of 2011, changes in working capital and certain other assets and liabilities used $1.4 million of cash, compared to a $16.8 million use of cash in the first quarter of 2010.  In the first quarter of 2011, receivables increased by $67.1 million, primarily due to an increase in unbilled receivables pertaining to the CRS contract.  Under the terms of the CRS contract, a substantial percentage of the customer cash receipts are billable and collectible only upon the successful launch of each vehicle, the first of which is scheduled to occur in 2012.  This use of cash was offset by a $52.3 million source of cash from an increase in accounts payable and accrued expenses primarily due to favorable timing of certain cash disbursements, and a $12.7 million increase in deferred revenues and customer advances due to cash proceeds received in advance of contract performance, primarily on the COTS program and certain communications satellite contracts.

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Cash Flow from Investing Activities

Cash used in investing activities was $17.3 million and $15.1 million in the first quarter of 2011 and 2010, respectively, and was entirely attributable to capital expenditures.  The increase in capital expenditures is primarily due to the acquisition of equipment to support our Taurus II, COTS and CRS programs.

Cash Flow from Financing Activities

Cash provided by financing activities in the first quarter of 2011 was $1.4 million, as compared to $9.4 million in the first quarter of 2010.  During the first quarter of 2011 and 2010, we received $0.8 million and $7.9 million, respectively, from the issuance of common stock in connection with stock option exercises and employee stock plan purchases.

Convertible Notes - In December 2006, we issued $143.8 million of 2.4375% convertible senior subordinated notes due 2027 with interest payable semi-annually each January 15 and July 15.  The convertible notes are convertible into cash, or a combination of cash and common stock at our election, based on an initial conversion rate of 40.8513 shares of our common stock per $1,000 in principal amount of the convertible notes (equivalent to an initial conversion price of approximately $24.48 per share) under certain circumstances.

At any time on or after January 21, 2014, the convertible notes are subject to redemption at our option, in whole or in part, for cash equal to 100% of the principal amount of the convertible notes, plus unpaid interest, if any, accrued to the redemption date.

Holders of the convertible notes may require us to repurchase the convertible notes, in whole or in part, on January 15, 2014, January 15, 2017 or January 15, 2022, or, if a “fundamental change” (as such term is defined in the indenture governing the convertible notes) occurs, for cash equal to 100% of the principal amount of the convertible notes, plus any unpaid interest, if any, accrued to the redemption date.

Credit Facility - We have a $100 million revolving secured credit facility (the “Credit Facility”), with the option to increase the amount of the Credit Facility up to $175 million to the extent that any one or more lenders commit to be a lender for such additional amount.  At our election, loans under the Credit Facility bear interest at either (i) LIBOR plus a margin ranging from 0.75% to 1.25%, with the applicable margin varying according to our total leverage ratio, or (ii) at a prime rate.  The Credit Facility expires in 2012 and is secured by substantially all of our assets.  Up to $75 million of the Credit Facility may be reserved for letters of credit.  As of March 31, 2011, there were no borrowings under the Credit Facility, although $18.3 million of letters of credit were issued under the Credit Facility.  Accordingly, as of March 31, 2011, $81.7 million of the Credit Facility was available for borrowings.

Debt Covenants - Our Credit Facility contains covenants limiting our ability to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase company stock, enter into transactions with affiliates, make investments, merge or consolidate with others or dispose of assets.  In addition, the Credit Facility contains financial covenants with respect to leverage and interest coverage.  As of March 31, 2011, we were in compliance with all of these covenants.

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Available Cash and Future Funding

At March 31, 2011, we had $264.6 million of unrestricted cash and cash equivalents.  Management believes that available cash, cash expected to be generated from operations and the borrowing capacity under our Credit Facility will be sufficient to fund our operating and capital expenditure requirements, including research and development expenditures, over the next 12 months and for the foreseeable future.  However, there can be no assurance that this will be the case.  We believe that we will continue to incur significant costs during the remainder of 2011 related to the Taurus II and COTS research and development programs.  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.  If market opportunities exist, we may choose to undertake financing actions to further enhance our liquidity, which could include obtaining new bank debt or raising funds through capital market transactions; however, our ability to borrow additional funds is limited by the terms of our Credit Facility.

As discussed in Note 6 to the accompanying financial statements, we currently hold investments in auction-rate securities and preferred stock that have experienced a decline in fair value.  Given the sufficiency of our available cash and other funding sources as discussed above, we believe that we will not need, nor do we intend, to liquidate these investments in the foreseeable future.  Accordingly, we do not believe that any fluctuations in the fair values of these securities will have a significant impact on our liquidity.

We did not repurchase any shares of our common stock during the quarters ended March 31, 2011 and 2010.

Off-Balance Sheet Arrangements

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

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We believe that our market risk exposure is primarily related to the market value of certain investments that we hold as of March 31, 2011, changes in foreign currency exchange rates and interest rate risk.  We manage these market risks through our normal financing and operating activities and, when appropriate, through the use of derivative financial instruments.  We do not enter into derivatives for trading or other speculative purposes, nor do we use leveraged financial instruments.

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Investments

As discussed in Note 6 to the accompanying financial statements, we currently hold investments in auction-rate securities and preferred stock that have experienced a significant decline in fair value resulting in our recording certain other-than-temporary impairment charges.  As a result of ongoing liquidity issues impacting these securities, we may be required to record additional impairment charges if there are further reductions in the fair value of these investments in future periods.

Foreign Currency Exchange Rate Risk

We believe that the potential change in foreign currency exchange rates is not a substantial risk to us because the large majority of our business transactions are denominated in U.S. dollars.  At March 31, 2011, we had $1.7 million of receivables denominated in Japanese yen.

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 March 31, 2011, we had no foreign currency forward exchange contracts.

Interest Rate Risk

We are exposed to changes in interest rates in the normal course of our business operations as a result of our ongoing investing and financing activities, which include debt as well as cash and cash equivalents.  As of March 31, 2011, we had $143.8 million of convertible senior subordinated notes with a fixed interest rate of 2.4375%.  Generally, the fair market value of our fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise.  In addition, the fair value of our convertible notes is affected by our stock price.  The total estimated fair value of our convertible debt at March 31, 2011 was $156 million.  The fair value was determined based on market prices quoted by a broker-dealer.

We believe that our exposure to market risk related to interest rate fluctuations for cash and cash equivalents is not significant.  As of March 31, 2011, a hypothetical 100 basis point change in interest rates would result in an annual change of approximately $2.9 million in interest income earned.

We assess our interest rate risks on a regular basis and do not currently use financial instruments to mitigate these risks.

Deferred Compensation Plan

We have an unfunded deferred compensation plan for senior managers and executive officers with a total liability balance of $9.8 million at March 31, 2011.  This liability is subject to fluctuation based upon the market value of the investment options selected by participants.

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ITEM 4.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended) as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting

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.

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PART II

OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

From time to time we are party to certain litigation or other legal proceedings arising in the ordinary course of business.  Because of the uncertainties inherent in litigation, we cannot predict whether the outcome of such litigation or other legal 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, 2010.

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

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

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.     REMOVED AND RESERVED

ITEM 5.     OTHER INFORMATION

Not applicable.

ITEM 6.     EXHIBITS

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

27

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:  April ­­­­­­­­28, 2011	By:	/s/ David W. Thompson
		David W. Thompson
		Chairman and Chief Executive Officer
DATED:  April 28, 2011	By:	/s/ Garrett E. Pierce
		Garrett E. Pierce
		Vice Chairman and Chief Financial Officer

28

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).
4.1	Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the company’s Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990).
4.2	Indenture dated as of December 13, 2006, by and between Orbital Sciences Corporation and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the company’s Current Report on Form 8-K filed on December 13, 2006).
4.3	Form of 2.4375% Convertible Senior Subordinated Note due 2027 (incorporated by reference to Exhibit 4.2 to the company’s Current Report on Form 8-K filed on December 13, 2006).
31.1	Certification of Chairman 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).

29

EX-31.1

Exhibit 31.1

Certification

I, David W. Thompson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Orbital Sciences Corporation;
2.	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;
3.	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;
4.	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 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

5.	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: April 28, 2011			/s/ David W. Thompson
			David W. Thompson
			Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, Garrett E. Pierce, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Orbital Sciences Corporation;
2.	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;
3.	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;
4.	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 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

5.	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: April 28, 2011			/s/ Garrett E. Pierce
			Garrett E. Pierce
			Vice Chairman and Chief Financial Officer

EX-32.1

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 March 31, 2011 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)	the information contained in the Quarterly 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
		April 28, 2011

     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

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 March 31, 2011 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)	the information contained in the Quarterly 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
		April 28, 2011

     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.