Orbital Sciences (ORB) 10-Q 2010 Q3 Quarterly report

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 September 30, 2010

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 October 26, 2010, 57,999,113 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 September 30, 2010 and December 31, 2009	1
		Condensed Consolidated Income Statements for the Quarters and Nine Months Ended September 30, 2010 and 2009	2
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009	3
		Notes to Condensed Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	32
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	33
	Item 1A.	Risk Factors	33
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
	Item 3.	Defaults Upon Senior Securities	33
	Item 4.	Removed and Reserved	33
	Item 5.	Other Information	33
	Item 6.	Exhibits	33

PART I

FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

ORBITAL SCIENCES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share data)

	September 30,			December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	277,166		$	372,986
Receivables, net		292,612			199,482
Inventories, net		48,981			38,662
Deferred income taxes, net		41,075			37,902
Other current assets		23,204			14,258
Total current assets		683,038			663,290
Investments		8,600			13,100
Property, plant and equipment, net		216,653			133,275
Goodwill		68,987			55,551
Deferred income taxes, net		31,369			50,326
Other non-current assets		20,647			13,939
Total assets	$	1,029,294		$	929,481
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	257,694		$	171,805
Deferred revenues and customer advances		95,956			127,056
Total current liabilities		353,650			298,861
Long-term obligations		124,196			120,274
Other non-current liabilities		6,981			7,886
Total liabilities		484,827			427,021
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, 57,996,943 and
56,879,528 shares outstanding, respectively		580			569
Additional paid-in capital		555,108			539,235
Accumulated other comprehensive loss		(2,025	)		(1,906	)
Accumulated deficit		(9,196	)		(35,438	)
Total stockholders’ equity		544,467			502,460
Total liabilities and stockholders’ equity	$	1,029,294		$	929,481

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 September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenues	$	314,519		$	277,092		$	948,435		$	842,962
Cost of revenues		237,844			214,574			737,043			669,737
Research and development expenses		35,367			31,440			95,798			81,145
Selling, general and administrative expenses		21,952			17,496			66,645			54,513
Income from operations		19,356			13,582			48,949			37,567
Investment gains and losses, net		—			(2,000	)		—			(2,162	)
Interest income and other		486			577			1,232			6,852
Interest expense		(2,418	)		(2,327	)		(7,120	)		(6,741	)
Income before income taxes		17,424			9,832			43,061			35,516
Income tax provision		(6,795	)		(450	)		(16,819	)		(8,193	)
Net income	$	10,629		$	9,382		$	26,242		$	27,323
Basic income per share	$	0.18		$	0.16		$	0.45		$	0.47
Diluted income per share	$	0.18		$	0.16		$	0.45		$	0.47

See accompanying notes to condensed consolidated financial statements.

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ORBITAL SCIENCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	Nine Months Ended September 30,
	2010			2009
Operating Activities:
Net income	$	26,242		$	27,323
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense		17,727			14,071
Deferred income taxes		15,703			7,462
Investment gains and losses, net		—			2,162
Stock-based compensation and other		7,240			8,129
Changes in assets and liabilities, net of effect of acquisition		(66,142	)		18,779
Net cash provided by operating activities		770			77,926
Investing Activities:
Capital expenditures		(58,682	)		(28,827	)
Payment for business acquisition		(55,000	)		—
Proceeds from sale of investment		4,250			1,138
Other		—			100
Net cash used in investing activities		(109,432	)		(27,589	)
Financing Activities:
Repurchase of common stock		—			(16,681	)
Net proceeds from issuances of common stock		10,775			2,030
Tax benefit of stock-based compensation and other		2,067			191
Net cash provided by (used in) financing activities		12,842			(14,460	)
Net (decrease) increase in cash and cash equivalents		(95,820	)		35,877
Cash and cash equivalents, beginning of period		372,986			328,307
Cash and cash equivalents, end of period	$	277,166		$	364,184

See accompanying notes to condensed consolidated financial statements.

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ORBITAL SCIENCES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010 and 2009

(Unaudited)

(1)  Basis of Presentation

Orbital Sciences Corporation (“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 footnote disclosure 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 consolida ted financial statements contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2009.

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.

Certain reclassifications have been made to the 2009 financial statements to conform to the 2010 financial statement presentation.  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 of the financial statements. Operating results for the quarter ended September 30, 2010 are not necessarily indicative of the results expected for the full year.

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(2) Business Combination

On April 2, 2010, the company acquired certain assets and liabilities of the spacecraft development and manufacturing business of General Dynamics Advanced Information Systems, a subsidiary of General Dynamics Corporation (the “Seller”), for $55 million in cash, subject to a working capital adjustment.  The acquisition is expected to further strengthen the company’s competitive position in defense and intelligence, civil government and commercial satellite markets.

The company’s consolidated financial statements reflect the operations of the acquired net assets beginning April 2, 2010, the date of acquisition.  The company recorded $1.6 million of acquisition-related expenses in the nine months ended September 30, 2010.  The revenues and operating income of the acquired business were not material to the company’s results of operations for the quarter and nine months ended September 30, 2010.

The acquisition was accounted for under the acquisition method in accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations.”  The preliminary allocation of the purchase price for the tangible and identifiable intangible assets acquired and liabilities assumed was based on their estimated fair values at the date of acquisition using established valuation techniques.  The estimated purchase price allocation is preliminary and is subject to revision.  A valuation of certain of the assets and liabilities acquired is being conducted, and the final allocation will be made when completed.  The company may recognize material changes to the acquired assets or liabilities a s a result of a working capital adjustment or if new information is obtained about facts and circumstances that existed as of the acquisition date.  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.

The table below reflects the purchase price allocation as of September 30, 2010 (in thousands):

Property plant and equipment	$	42,194
Intangible assets		7,100
Goodwill		13,436
Net working capital		(7,730	)
Total purchase price	$	55,000

The purchased intangible assets consist of acquired technology and are being amortized over a 10-year period.  The company recorded $13.4 million of goodwill, all of which is deductible for tax purposes.  The primary items that generated the goodwill include the value of the synergies between the company and the acquired business and the acquired assembled workforce, neither of which qualifies as an amortizable intangible asset.

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Changes in the company’s goodwill balances by reportable business segment are as follows (in thousands):

	Launch Vehicles		Satellites and Space Systems		Advanced Space Programs		Total
Balance at December 31, 2009	$	10,310	$	45,241	$	—	$	55,551
Goodwill acquired		—		5,118		8,318		13,436
Balance at September 30, 2010	$	10,310	$	50,359	$	8,318	$	68,987

(3)  Industry Segment Information

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

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

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

Intersegment revenues 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 September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Launch Vehicles:
Revenues(1)	$	105,828		$	109,978		$	301,872		$	346,290
Operating income		4,988			3,227			12,988			11,595
Identifiable assets		201,389			151,249	(2)		201,389			151,249	(2)
Capital expenditures		15,472			2,014			37,897			4,741
Depreciation and amortization		1,865			1,076			5,479			4,157
Satellites and Space Systems:
Revenues(1)	$	121,844		$	75,650		$	361,788		$	279,928
Operating income		7,441			5,709			22,660			21,243
Identifiable assets		233,857			178,233	(2)		233,857			178,233	(2)
Capital expenditures		4,210			3,735			7,537			12,199
Depreciation and amortization		2,644			2,219			7,424			6,564
Advanced Space Programs:
Revenues(1)	$	103,204		$	94,448		$	331,673		$	224,847
Operating income		7,835			4,646			15,829			4,729
Identifiable assets		175,313			91,981	(2)		175,313			91,981	(2)
Capital expenditures		4,867			3,915			11,049			9,664
Depreciation and amortization		114			3			233			9
Corporate and Other:
Revenues(1)	$	(16,357	)	$	(2,984	)	$	(46,898	)	$	(8,103	)
Operating loss		(908	)(3)		—			(2,528	)(3)		—
Identifiable assets		418,735			508,018	(2)		418,735			508,018	(2)
Capital expenditures		542			806			2,199			2,223
Depreciation and amortization		1,711			1,141			4,591			3,341
Consolidated:
Revenues	$	314,519		$	277,092		$	948,435		$	842,962
Operating income		19,356			13,582			48,949			37,567
Identifiable assets		1,029,294			929,481	(2)		1,029,294			929,481	(2)
Capital expenditures		25,091			10,470			58,682			28,827
Depreciation and amortization		6,334			4,439			17,727			14,071

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

	Quarters Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Launch Vehicles	$	14.4	$	1.9	$	41.4	$	5.2
Satellites and Space Systems		1.7		1.0		4.5		2.7
Advanced Space Programs		0.3		0.1		1.0		0.2
Total intersegment revenues	$	16.4	$	3.0	$	46.9	$	8.1

(2)  As of December 31, 2009.

(3) The Corporate and Other operating loss is comprised of unallocated corporate-level costs and includes $1.6 million of transaction expenses incurred in the second quarter of 2010 in connection with a business acquisition.

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(4)  Earnings Per Share

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

		Quarters Ended						Nine Months Ended
		September 30,						September 30,
Numerator		2010			2009			2010			2009
	Net income	$	10,629		$	9,382		$	26,242		$	27,323
	Percentage allocated to shareholders (1)		98.9	%		98.9	%		99.1	%		98.6	%
	Numerator for basic and diluted earnings per share	$	10,512		$	9,279		$	26,005		$	26,940
Denominator
	Denominator for basic earnings per share -
	weighted-average shares outstanding		57,899			56,674			57,550			56,769
	Dilutive effect of stock options		583			693			676			728
	Denominator for diluted earnings per share		58,482			57,367			58,226			57,497
Per share income
	Basic	$	0.18		$	0.16		$	0.45		$	0.47
	Diluted		0.18			0.16			0.45			0.47
(1)	Basic weighted-average shares outstanding		57,899			56,674			57,550			56,769
	Basic weighted-average shares outstanding and
	unvested restricted share units expected to vest		58,514			57,290			58,071			57,555
	Percentage allocated to shareholders		98.9	%		98.9	%		99.1	%		98.6	%

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

There were no anti-dilutive stock options in the third quarter of 2010.  For the quarter ended September 30, 2009, diluted weighted-average shares outstanding excluded the effect of 0.1 million of stock options that were anti-dilutive.  Diluted weighted-average shares outstanding excluded the effect of less than 0.1 million of stock options that were anti-dilutive for the first nine months of 2010 and 0.1 million of stock options that were anti-dilutive for the first nine months of 2009.  The effect of the company’s convertible notes was anti-dilutive for all periods presented.

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(5)  Receivables

Receivables consisted of the following (in thousands):

	September 30,		December 31,
	2010		2009
Billed	$	34,642	$	53,157
Unbilled		257,970		146,325
Total	$	292,612	$	199,482

As of September 30, 2010 and December 31, 2009, unbilled receivables included $16.0 million and $16.9 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 September 30, 2010, the company could be required to refund up to approximately $19 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.

(6)  Inventories

Total inventories were $49.0 million at September 30, 2010 and $38.7 million at December 31, 2009.  Substantially all of the company’s inventory consisted of component parts, raw materials and milestone payments for future delivery of component parts.

(7)  Investments

As of September 30, 2010, 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 15 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):

	September 30, 2010							December 31, 2009
	Cost or Amortized Cost		Net Unrealized Gain (Loss)			Fair Value		Cost or Amortized Cost		Net Unrealized Gain (Loss)			Fair Value
Debt	$	7,150	$	(650	)	$	6,500	$	11,400	$	(500	)	$	10,900
Equity (1)		2,000		100			2,100		2,000		200			2,200
Total	$	9,150	$	(550	)	$	8,600	$	13,400	$	(300	)	$	13,100

(1)  As of September 30, 2010 and December 31, 2009, 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 September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Debt Securities
Fair value at beginning of period	$	10,500		$	13,100		$	10,900		$	12,900
Temporary impairment credits (charges), net		250			(900	)		(150	)		(700	)
Other-than-temporary impairment charges		(850	)		(1,500	)		(850	)		(1,500	)
Sale of security		(3,400	)		—			(3,400	)		—
Net change in fair value		(4,000	)		(2,400	)		(4,400	)		(2,200	)
Fair value at end of period	$	6,500		$	10,700		$	6,500		$	10,700
Equity Securities
Fair value at beginning of period	$	2,100		$	1,600		$	2,200		$	3,800
Temporary impairment credits (charges), net		—			900			(100	)		—
Other-than-temporary impairment charges		—			(500	)		—			(1,800	)
Net change in fair value		—			400			(100	)		(1,800	)
Fair value at end of period	$	2,100		$	2,000		$	2,100		$	2,000
Total
Fair value at beginning of period	$	12,600		$	14,700		$	13,100		$	16,700
Temporary impairment credits (charges), net		250			—			(250	)		(700	)
Other-than-temporary impairment charges		(850	)		(2,000	)		(850	)		(3,300	)
Sale of security		(3,400	)		—			(3,400	)		—
Net change in fair value		(4,000	)		(2,000	)		(4,500	)		(4,000	)
Fair value at end of period	$	8,600		$	12,700		$	8,600		$	12,700

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 September 30, 2010, 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 pric ing 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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In the third quarter of 2010, the company sold one of its debt auction rate securities for $4.3 million resulting in a $0.9 million gain.  There was no other sale, purchase, issuance, settlement or transfer activity related to these investments during the periods presented.

For the quarter and nine months ended September 30, 2010, the company recorded other-than-temporary impairment charges of $0.9 million which offset the $0.9 million gain mentioned above.  For the quarter and nine months ended September 30, 2009, the company recorded other-than-temporary impairment charges of $2.0 million and $3.3 million, respectively.  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.

On January 1, 2010, the company adopted new accounting guidance that is included in ASC Topic 820, “Fair Value Measurements and Disclosures.”  This guidance clarifies certain existing disclosure requirements.  This standard did not have a material impact on the company’s disclosures.

(8)  Debt

Convertible Notes

In December 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 September 30, 2010 and December 31, 2009, the net carrying amount of the convertible notes was $124.2 million and $120.3 million, respectively, and the related unamortized debt discount was $19.6 million and $23.5 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.

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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 September 30, 2010 and December 31, 2009 was estimated at $142.4 million and $136.5 million, respectively.  The fair value was determined based on market prices quoted by a broker-dealer.

Credit Facility

In August 2007, the company entered into 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 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 expires in 2012 and 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 September 30, 2010, there were no borr owings under the Credit Facility, although $18.3 million of letters of credit were issued under the Credit Facility.  Accordingly, as of September 30, 2010, $81.7 million of the Credit Facility was available for borrowings.

Debt Covenants

The company’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.

(9)  Comprehensive Income

Comprehensive income consisted of the following (in thousands):

	Quarters Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010			2009
Net income	$	10,629	$	9,382	$	26,242		$	27,323
Temporary impariment credits (charges), net		250		—		(250	)		(700	)
Defined benefit plans, net of tax		412		766		131			1,191
Total comprehensive income	$	11,291	$	10,148	$	26,123		$	27,814

Accumulated other comprehensive loss as of September 30, 2010 and December 31, 2009 was $2.0 million and $1.9 million, respectively.

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(10)  Stock-Based Compensation

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

	Restricted Stock Units					Stock Options
	Number of Units			Weighted Average Measurement Date Fair Value		Number of Options			Weighted Average Exercise Price
Outstanding at December 31, 2009		473,615		$	22.88		2,301,305		$	8.29
Granted (1)		519,120			14.46		—			—
Exercised		—			—		(835,255	)		11.63
Vested		(295,203	)		23.23		—			—
Forfeited		(6,960	)		20.59		(2,599	)		6.29
Expired		—			—		(33,500	)		16.24
Outstanding at September 30, 2010		690,572		$	16.41		1,429,951	(2)	$	6.16

(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 2.20 years.

	Quarters Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2010			2009			2010		2009
Stock-based compensation expense	$	1.8		$	2.4		$	5.4	$	7.5
Income tax benefit related to stock-based compensation expense		0.7			0.7			2.1		2.2
Intrinsic value of stock options exercised computed as the market price
on the exercise date less the price paid to exercise the stock options		0.1			0.1			5.5		0.4
Cash received from exercise of stock options		—			0.5			9.7		0.9
Tax effect of stock-based compensation transactions recorded as
credits (charges) to additional paid-in capital		(0.8	)		(1.2	)		1.1		(1.1	)

	As of
(in millions)	September 30, 2010
Shares of common stock available for grant under stock-based incentive plans		1.3
Aggregate intrinsic value of restricted stock units that are expected to vest	$	10.6
Unrecognized compensation expense related to non-vested restricted stock units, expected to
be recognized over a weighted-average period of 2.28 years		9.0
Aggregate intrinsic value of stock options outstanding, all fully vested		13.1

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(11)  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, NASA has agreed to pay the company $170 million in cash milestone payments, partially funding the company’s project costs which are currently estimated to be approximately $305 million.

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 project research and development expenses, including associated general and administrative expenses.  The following table summarizes the COTS project research and development expenses incurred and amounts funded by NASA (in millions).

	Third Quarter				First Nine Months				Inception
	2010		2009		2010		2009		To Date
Research and development costs incurred (1)	$	39.9	$	28.7	$	107.0	$	66.2	$	229.6
Less - amounts funded by NASA		19.0		16.0		52.1		42.3		135.2
Net research and development expenses	$	20.9	$	12.7	$	54.9	$	23.9	$	94.4

(1) Includes associated general and administrative expenses.

As of September 30, 2010 and December 31, 2009, deferred revenues and customer advances on the accompanying balance sheet included $12.2 million and $46.8 million, respectively, of cash received from NASA that had not yet been recorded as an offset to research and development expenses.

(12)  Income Taxes

The company’s effective tax rates were 39.0% and 4.6% for the third quarter of 2010 and 2009, respectively, and 39.1% and 23.1% for the first nine months of 2010 and 2009, respectively.  The company’s effective tax rates for 2010 differ from the statutory Federal income tax rate primarily due to state income taxes.  The company’s effective tax rates for 2009 differ from the statutory Federal income tax rate primarily due to the recognition of Federal research and development tax credits.

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(13)  Commitments and Contingencies

U.S. Government Contracts

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

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

The company is engaged in a major product development program of a medium-capacity rocket, Taurus II, that could substantially increase the payload capacity of the company’s space launch vehicle products.  Approximately $12.3 million and $17.3 million of the research and development expenses in the third quarter of 2010 and 2009, respectively, and $35.4 million and $52.1 million in the first nine months of 2010 and 2009, respectively, were attributable to the Taurus II program.  Since the inception of the program through September 30, 2010, the company has recorded $145 million of costs on the Taurus II research and development program.  The company believes that it will continue to incur significant research and developme nt expenses during the remainder of 2010 and to a lesser extent in 2011 on the Taurus II development effort.

The majority of the company’s revenues are attributable to contracts with the U.S. Government and the company believes that a majority of the company’s research and development expenses are recoverable and billable under such contracts.  Charging practices relating to research and development and other costs that may be charged directly or indirectly to U.S. 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 is currently engaged in discussions with the Defense Contract Audit Agency regarding the allowability of research and development costs incurred in connection with the company’s Taurus II development program.  The company believes that such costs are allowable, although the U.S. Government has not yet made a determination.  If such costs were determined to be unallowable, the company could be required to record revenue and profit reductions in future periods.

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Terminated Contracts

During the second quarters of 2010 and 2009, the Orion Launch Abort System contract and the Kinetic Energy Interceptor contract, respectively, were terminated for convenience by the customers.  The company has recognized its best estimate of the revenues and profit that will ultimately be realized in the final termination settlements.  However, because of the inherent judgments associated with termination costs and profit assessments, it is possible that the company could recognize a material adjustment to earnings upon resolution of these matters.

Satellite Anomaly

In April 2010, the Galaxy 15 satellite that was manufactured by Orbital and placed into orbit in 2005 for Intelsat, Ltd. experienced an anomaly.  A technical investigation into the anomaly is ongoing.  If it is ultimately determined that the satellite cannot perform the remaining period of its mission, then the remaining incentive fees payable to the company under the Galaxy 15 contract may become uncollectible and a customer refund obligation could be triggered.  Such an outcome could result in a reduction in operating income of up to approximately $7 million in the quarter that such determination is made.  The company believes that it would be entitled to recover substantially all of this amount under an insurance policy and management believes that such proceeds would be rec orded in “other income.”  Management believes that the incentive fees payable to the company will be realized and that no refund obligation will be triggered.

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.

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

With the exception of historical information, the matters discussed within this Item 2 and elsewhere in this Form 10-Q include forward-looking statements that involve risks and uncertainties, many of which are beyond our control.  Readers should be aware that a number of important factors, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2009, may affect actual results and may cause actual results to differ materially from those anticipated or expected in any forward-looking statement.  Historical results of operations may not be indicative of future operating results.  We assume no obligation to update any forward-looking statements.

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

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

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

As discussed in Note 2 to the accompanying financial statements, during the second quarter of 2010 we acquired certain assets and liabilities of the spacecraft development and 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 that will be determined at a later date.  We 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.

The following discussion should be read along with our 2009 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 and Nine Months Ended September 30, 2010 and 2009

Revenues - Our consolidated revenues were $314.5 million in the third quarter of 2010, an increase of $37.4 million, or 14%, compared to the third quarter of 2009.  Revenues from the International Space Station Commercial Resupply Services contract (“CRS”) increased $27.3 million, or 71%.  Communications satellite revenues increased $25.7 million, or 51%, and national security satellite program revenues increased $13.3 million, or 40%.  The recently acquired spacecraft business contributed $23.9 million of revenue in the quarter.  Interceptor product line revenues decreased $20.5 million, or 43%, reflecting the lower level of activity on the Ground-based Midcourse Defense (“GMD”) missile defense prog ram and the termination of the Kinetic Energy Interceptor (“KEI”) contract by the Missile Defense Agency (“MDA”) last year.  Revenues from target launch vehicle programs declined $11.0 million, or 35%, due to decreased production work.  Revenues from the Orion Launch Abort System (“LAS”) contract, which was terminated in the second quarter of 2010, decreased $23.8 million, or 85%.  The elimination of intercompany revenues reduced consolidated revenues in the third quarter of 2010 by $16.4 million compared to $3.0 million in the third quarter of 2009.  Intercompany revenues in the third quarters of 2010 and 2009 included $14.4 million and $1.9 million, respectively, pertaining to Taurus II production work in the launch vehicles segment for the Commercial Orbital Transportation Services (“COTS”) program in the advanced space programs segment.

Our consolidated revenues were $948.4 million in the first nine months of 2010, an increase of $105.5 million, or 13%, compared to the first nine months of 2009.  Revenues from the CRS contract increased $148.8 million, or 335%.  Communications satellite revenues increased $43.8 million, or 22%, and national security satellite program revenues increased $43.7 million, or 47%.  The recently acquired spacecraft business contributed $48.1 million of revenue in the first nine months of 2010.  Interceptor product line revenues decreased $97.6 million, or 56%, reflecting the lower level of activity on the GMD missile defense program and last year’s termination of the KEI contract.  Revenues from target launch vehicle programs declined $20.1 million, or 23%, due to decreased production work.  Revenues from the Orion LAS contract decreased $53.5 million, or 57%.  The elimination of intercompany revenues reduced consolidated revenues in the first nine months of 2010 by $46.9 million compared to $8.1 million in the first nine months of 2009.  Intercompany revenues in the first nine months of 2010 and 2009 included $41.4 million and $5.2 million, respectively, pertaining to Taurus II production work in the launch vehicles segment for the COTS program in the advanced space programs segment.

Cost of Revenues - Our cost of revenues was $237.8 million in the third quarter of 2010, an increase of $23.3 million, or 11%, compared to the third quarter of 2009.  Cost of revenues includes the costs of personnel, materials, subcontractors and overhead.  Cost of revenues in the satellite and space systems segment increased $43.2 million, or 71%, in the third quarter of 2010 compared to the third quarter of 2009, while cost of revenues in the launch vehicles and advanced space programs segments decreased $3.5 million and $3.0 million, or 4%, in the third quarter of 2010 and 2009, respectively, generally consistent with the revenue trends in each segment.  The elimination of intercompany cost of revenues reduced consolidated cost of revenues in the third quarter of 2010 by $16.4 million compared to $3.0 million in the third

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quarter of 2009.  Intercompany cost of revenues in the third quarters of 2010 and 2009 included $14.4 million and $1.9 million, respectively, pertaining to Taurus II production work in the launch vehicles segment for the COTS program in the advanced space programs segment.

Our cost of revenues was $737.0 million in the first nine months of 2010, an increase of $67.3 million, or 10%, compared to the first nine months of 2009.  Cost of revenues in the first nine months of 2010 compared to the first nine months of 2009 increased $77.6 million, or 33%, in the satellite and space systems segment and increased $67.2 million, or 38%, in the advanced space programs segment, while cost of revenues decreased $38.6 million, or 14%, in the launch vehicles segment, consistent with the revenue trends in each segment.  The elimination of intercompany cost of revenues reduced consolidated cost of revenues in the first nine months of 2010 by $46.9 million compared to $8.1 million in the first nine months of 2009.  Intercompany cost of revenues in the first nine months of 2 010 and 2009 included $41.4 million and $5.2 million, respectively, pertaining to Taurus II production work in the launch vehicles segment for the COTS program in the advanced space programs segment.

Research and Development Expenses - Our research and development expenses totaled $35.4 million and $31.4 million, or 11% of revenues, in the third quarter of 2010 and 2009, respectively.  The $4.0 million increase in research and development expenses in the third quarter of 2010 was primarily due to an $8.2 million increase in the COTS program partially offset by a $5.0 million decrease in our Taurus II launch vehicle development program.  During the third quarter of 2010 and 2009, approximately $20.9 million and $12.7 million, respectively, of our research and development expenses were attributable to the COTS program, and approximately $12.3 million and $17.3 million, respectively, were related to the Taurus II program.

Our research and development expenses totaled $95.8 million and $81.1 million, or 10% of revenues, in the first nine months of 2010 and 2009, respectively.  The $14.7 million increase in research and development expenses in the first nine months of 2010 was primarily due to a $31.0 million increase in the COTS program partially offset by a $16.7 million decrease in our Taurus II launch vehicle development program.  In the first nine months of 2010 and 2009, approximately $54.9 million and $23.9 million, respectively, of our research and development expenses were attributable to the COTS program, and approximately $35.4 million and $52.1 million, respectively, were attributable to the Taurus II program.

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Under the COTS agreement, NASA has agreed to pay us $170 million in cash milestone payments, partially funding our COTS project costs which are currently estimated to be approximately $305 million.  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 our COTS project research and development expenses, including associated general and administrative expenses.  The following table summarizes the COTS project research and development expenses incurred and amounts funded by NASA (in millions):

	Third Quarter				First Nine Months				Inception
	2010		2009		2010		2009		To Date
Research and development costs incurred (1)	$	39.9	$	28.7	$	107.0	$	66.2	$	229.6
Less - amounts funded by NASA		19.0		16.0		52.1		42.3		135.2
Net research and development expenses	$	20.9	$	12.7	$	54.9	$	23.9	$	94.4

(1)  Includes associated general and administrative expenses.

As of September 30, 2010 and December 31, 2009, deferred revenues and customer advances on the accompanying balance sheet included $12.2 million and $46.8 million, respectively, of cash received from NASA that had not yet been recorded as an offset to research and development expenses.  We believe that we will continue to incur significant research and development expenses on the Taurus II and COTS development programs during the remainder of 2010 and to a lesser extent in 2011.

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 are currently engaged in discussions with the Defense Contract Audit Agency regarding the allowability of research and development costs incurred in connection with our Taurus II development program.  We believe that such costs are allowable, although the U.S. Government has not yet made a determination.  If such costs were d etermined to be unallowable, we could be required to record revenue and profit reductions in future periods.  During the third quarters of 2010 and 2009, we incurred $10.8 million and $10.3 million, respectively, of expenses that have been recorded as allowable costs.  Since the inception of the program through September 30, 2010, the company has incurred $105.0 million recorded as allowable costs on the Taurus II research and development program.

For competitive reasons, we have established self-imposed ceilings on the amount of research and development costs that we would recover under our U.S. Government contracts, although we believe that such costs would otherwise be allowable and recoverable.  In the third quarter of 2010 and 2009, we incurred $1.6 million and $7.0 million, respectively, of research and development costs in excess of our self-imposed ceiling.  In the first nine months of 2010 and 2009, we incurred $6.5 million and $20.1 million, respectively, of research and development costs in excess of our self-imposed ceiling.

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During the third quarter of 2010, we recorded a favorable general and administrative expense rate adjustment in our advanced space programs segment which reduced unrecovered research and development expenses and improved operating income by $5.4 million.  This rate adjustment reflects the reversal of unrecovered research and development expenses that were incurred in the first half of 2010.  We did not incur any unrecovered research and development expenses in our advanced space program segment in 2009 and we do not expect to incur any such unrecovered expenses in this segment in 2010.

Selling, General and Administrative Expenses - Selling, general and administrative expenses were $22.0 million, or 7% of revenues, and $17.5 million, or 6% of revenues, in the third quarter of 2010 and 2009, respectively.  Selling, general and administrative expenses include the costs of our finance, legal, administrative and general management functions, as well as bid, proposal and marketing costs.  Selling, general and administrative expenses increased $4.5 million, or 26%, in the third quarter of 2010 compared to the third quarter of 2009 primarily due to an increase in bid, proposal and marketing costs in connection with advanced space program business prospects.

Selling, general and administrative expenses were $66.6 million, or 7% of revenues, and $54.5 million, or 6% of revenues, in the first nine months of 2010 and 2009, respectively.  Selling, general and administrative expenses increased $12.1 million, or 22%, in the first nine months of 2010 primarily due to the same factors that drove our quarterly results and $1.6 million of acquisition costs incurred for the 2010 spacecraft business acquisition discussed above.

Operating Income - Operating income was $19.4 million in the third quarter of 2010, an increase of $5.8 million, or 43%, compared to the third quarter of 2009.  This increase was primarily due to the profit generated by the increase in consolidated revenues, the $5.4 million reduction in unrecovered research and development expenses in the launch vehicles segment and the $5.4 million favorable general and administrative expense rate adjustment in the advanced space programs segment as discussed above.  Operating income generated by contracts acquired in the 2010 spacecraft business acquisition was $2.5 million in the third quarter of 2010.  These profit increases were partially offset by a $4.1 million reduction due to decreased ac tivity on missile defense interceptor programs and a $4.7 million reduction due to the effect of the termination of the Orion LAS contract.

Operating income was $48.9 million in the first nine months of 2010, an increase of $11.4 million, or 30%, compared to the first nine months of 2009.  This increase was primarily due to the $13.6 million decrease in unrecovered research and development expenses discussed above, increased activity on the CRS contract and national security satellite programs and $4.9 million of profit generated by contracts acquired in the 2010 spacecraft business acquisition.  These factors were partially offset by the effects of the decreased activity on missile defense interceptor programs, the termination of the Orion LAS contract and costs related to Galaxy 15 satellite anomaly resolution activities explained in more detail below.

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In April 2010, the Galaxy 15 satellite that was manufactured by us and placed into orbit in 2005 for Intelsat, Ltd. experienced an anomaly.  A technical investigation into the anomaly is ongoing.  If it is ultimately determined that the satellite cannot perform the remaining period of its mission, then the remaining incentive fees payable to us under the Galaxy 15 contract may become uncollectible and a customer refund obligation could be triggered.  Such an outcome could result in a reduction in operating income of up to approximately $7 million in the quarter that such determination is made.  We believe that we would be entitled to recover substantially all of this amount under our insurance policy and such proceeds would be recorded in “other income.”   Management currently believes that the incentive fees payable to us will be realized and that no refund obligation will be triggered.  We recognized $1.0 million and $3.5 million of expenses associated with engineering and troubleshooting activities related to the anomaly during the quarter and nine months ended September 30, 2010, respectively.

Investment Gains and Losses, net - Investment gains and losses, net were $0 in the third quarter of 2010, compared to a net loss of $2.0 million in the third quarter of 2009.  We recorded a $0.9 million gain on the sale of an auction-rate debt security and an other-than-temporary investment impairment loss of $0.9 million in the third quarter of 2010.  We recorded an other-than-temporary investment impairment loss of $2.0 million in the third quarter of 2009.

Investment gains and losses, net were $0 in the first nine months of 2010, compared to a net loss of $2.2 million in the first nine months of 2009.  We recorded a $0.9 million gain on the sale of an auction-rate debt security and an other-than-temporary investment impairment loss of $0.9 million in the first nine months of 2010.  We recognized an other-than-temporary investment impairment loss of $3.3 million and a $1.1 million gain on the sale of an investment in the first nine months of 2009.

Interest Income and Other - Interest income and other decreased to $0.5 million in the third quarter of 2010, compared to $0.6 million in the third quarter of 2009.  Interest income and other decreased to $1.2 million in the first nine months of 2010, compared to $6.9 million in the first nine months of 2009.  This decrease is attributable to a $5.3 million insurance recovery recorded in the first half of 2009 in connection with a launch failure.

Interest Expense - Interest expense was $2.4 million and $2.3 million in the third quarter of 2010 and 2009, respectively, and was $7.1 million and $6.7 million in the first nine months of 2010 and 2009, respectively, attributable to interest on our $143.8 million of long-term debt.

Income Tax Provision - We recorded an income tax provision of $6.8 million and $0.5 million in the third quarter of 2010 and 2009, respectively, and $16.8 million and $8.2 million in the first nine months of 2010 and 2009, respectively.

Our annual effective income tax rate was 39.1% and 23.1% for the first nine months of 2010 and 2009, respectively.  The increase in the effective tax rate is primarily due to the expiration of the Federal research and development tax credit at the end of 2009 and a favorable adjustment recorded in the third quarter of 2009.

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Net Income - Our net income was $10.6 million, or $0.18 diluted earnings per share, and $9.4 million, or $0.16 diluted earnings per share, in the third quarter of 2010 and 2009, respectively. Net income was $26.2 million, or $0.45 diluted earnings per share, and $27.3 million, or $0.47 diluted earnings per share, in the first nine months of 2010 and 2009, respectively.

Segment Results for the Quarters and Nine Months Ended September 30, 2010 and 2009

Our products and services are grouped into three reportable segments: (i) launch vehicles; (ii) satellites and space systems; and (iii) 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 3 to the financial statements in this Form 10-Q.

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Launch Vehicles

Launch vehicles segment operating results were as follows:

	Third Quarter									First Nine Months
($ in thousands)	2010			2009			% Change			2010			2009			% Change
Revenues	$	105,828		$	109,978			(4%	)	$	301,872		$	346,290			(13%	)
Operating income		4,988			3,227			55%			12,988			11,595			12%
Operating margin		4.7	%		2.9	%					4.3	%		3.3	%

Segment Revenues - Launch vehicles segment revenues decreased $4.2 million, or 4%, in the third quarter of 2010 compared to the third quarter of 2009 primarily due to decreased activity on missile defense interceptor launch vehicle programs and on certain target launch vehicle programs, partially offset by increased production work in 2010 on Taurus II launch vehicles for the CRS contract.  Interceptor launch vehicle revenues decreased $20.5 million due to decreased activity on our GMD program in the third quarter of 2010 and the termination of the KEI contract in the second quarter of 2009.  Interceptor launch vehicle contracts accounted for 26% and 44% of total launch vehicles segment revenues in the third quarter of 2010 and 2009, respect ively.  Revenues from target launch vehicle programs declined $11.0 million due to decreased production work.  The revenue reductions mentioned above were partially offset by a $28.3 million revenue increase for Taurus II launch vehicles due to an increase in production work on the CRS and COTS programs.  Taurus II launch vehicle revenues accounted for 33% of total launch vehicle segment revenues in the third quarter of 2010.

Launch vehicles segment revenues decreased $44.4 million, or 13%, in the first nine months of 2010 compared to the first nine months of 2009 primarily due to the same factors that impacted our third quarter results.  Interceptor launch vehicle revenues decreased $97.6 million due to decreased activity on our GMD program in the first nine months of 2010 and lower KEI contract revenues as a result of termination of the program in the second quarter of 2009.  Interceptor launch vehicle contracts accounted for 26% and 51% of total launch vehicles segment revenues in the first nine months of 2010 and 2009, respectively.  Revenues from target launch vehicles declined $20.1 million due to decreased production work.  The revenue reductions mentioned above were partially offset by $83.8 million of revenue growth due to an increase in production work on Taurus II launch vehicles for the CRS and COTS programs.  Taurus II launch vehicle revenues accounted for 32% of total launch vehicle segment revenues in the first nine months of 2010.

Segment Operating Income - Launch vehicles segment operating income increased $1.8 million, or 55%, in the third quarter of 2010 compared to the third quarter of 2009, despite a decrease in revenues, primarily due to a $5.4 million decrease in unrecovered Taurus II research and development expenditures partially offset by a $4.1 million reduction in interceptor launch vehicle operating income.  The reduction in interceptor launch vehicle operating income was primarily due to a decline in contract activity and $1.5 million of favorable GMD and KEI contract adjustments in the third quarter of 2009.  Operating income from interceptor launch vehicle contracts was $3.3 million and $7.4 million in the third quarter of 2010 and 2009, respectively.& #160; The third quarters of 2010 and 2009 include $1.6 million and $7.0 million, respectively, of research and development expenses that exceeded our self-imposed ceiling on such costs.

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Launch vehicles segment operating income increased $1.4 million, or 12%, in the first nine months of 2010 compared to the first nine months of 2009 due to a $13.6 million reduction in unrecovered research and development expenditures in the first nine months of 2010 and the effects of increased production work on Taurus II launch vehicles for the CRS contract and favorable profit adjustments on certain target launch vehicle contracts.  These increases were substantially offset by a $16.5 million decrease in operating income attributable to a reduction in GMD and KEI contract activity.  Operating income from interceptor launch vehicle contracts w as $7.6 million and $24.1 million in the first nine months of 2010 and 2009, respectively.  The first nine months of 2010 and 2009 include $6.5 million and $20.1 million, respectively, of research and development expenses that exceeded our self-imposed ceiling on such costs.

Segment operating margins were higher in the third quarter and first nine months of 2010 primarily due to the effect of the decrease in unrecovered Taurus II research and development expenses.

Satellites and Space Systems

Satellites and space systems segment operating results were as follows:

	Third Quarter								First Nine Months
($ in thousands)	2010			2009			% Change		2010			2009			% Change
Revenues	$	121,844		$	75,650			61%	$	361,788		$	279,928			29%
Operating income		7,441			5,709			30%		22,660			21,243			7%
Operating margin		6.1	%		7.5	%				6.3	%		7.6	%

Segment Revenues - Satellites and space systems segment revenues increased $46.2 million, or 61%, in the third quarter of 2010 compared to the third quarter of 2009 largely due to a $25.7 million increase in communications satellite revenues principally attributable to activity on new communications satellite contracts awarded in the fourth quarter of 2009.  Communications satellite revenues accounted for 63% and 67% of total segment revenues in the third quarter of 2010 and 2009, respectively.  In addition, the third quarter of 2010 includes $16.5 million of revenues on contracts acquired in our spacecraft business acquisition.

Satellites and space systems segment revenues increased $81.9 million, or 29%, in the first nine months of 2010 compared to the first nine months of 2009 largely due to a $43.8 million increase in communications satellite revenues principally attributable to activity on new communications satellite contracts awarded in the fourth quarter of 2009.  Communications satellite revenues accounted for 68% and 72% of total segment revenues in the first nine months of 2010 and 2009, respectively.  In addition, the first nine months of 2010 includes $33.3 million of revenues on contracts acquired in our spacecraft business acquisition.

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Segment Operating Income - Satellites and space systems segment operating income increased $1.7 million, or 30%, in the third quarter of 2010 compared to the third quarter of 2009 primarily due to $1.9 million of operating income from the contracts acquired in our spacecraft business acquisition, a $1.1 million increase in other science and technology contracts and higher activity on certain communications satellite contracts.  However, communications satellite operating income dropped from $4.5 million in the third quarter of 2009 to $3.5 million in the third quarter of 2010 principally due to $1.0 million of costs incurred in connection with engineering and troubleshooting activities related to the Galaxy 15 satellite anomaly discussed above. & #160;In addition, last year’s third quarter communications satellite results included favorable adjustments on certain contracts that were near completion.  Communications satellite contracts accounted for 47% and 78% of total segment operating income in the third quarter of 2010 and 2009, respectively.

Satellites and space systems segment operating income increased $1.4 million, or 7%, in the first nine months of 2010 compared to the first nine months of 2009 primarily due to higher communications satellite operating income and activity on the contracts acquired in our spacecraft business acquisition, partially offset by $3.5 million of costs incurred in connection with the Galaxy 15 satellite anomaly.  Communications satellite contracts accounted for 54% and 74% of total segment operating income in the first nine months of 2010 and 2009, respectively.

Segment operating margin decreased in the third quarter and first nine months of 2010 largely due to the effect of the Galaxy 15 anomaly resolution costs discussed above, partially offset by improved profit performance on certain other communications satellite programs.

Advanced Space Programs

Advanced space programs segment operating results were as follows:

	Third Quarter								First Nine Months
($ in thousands)	2010			2009			% Change		2010			2009			% Change
Revenues	$	103,204		$	94,448			9%	$	331,673		$	224,847			48%
Operating income		7,835			4,646			69%		15,829			4,729			235%
Operating margin		7.6	%		4.9	%				4.8	%		2.1	%

Segment Revenues - Advanced space programs segment revenues increased $8.8 million, or 9%, in the third quarter of 2010 compared to the third quarter of 2009 primarily due to a $13.3 million increase on national security satellite programs, $7.4 million of revenues from contracts we acquired in our spacecraft business acquisition and a $11.5 million increase in activity on the CRS contract, partially offset by a $23.8 million reduction in revenues due to decreased activity on the Orion LAS contract, which was terminated for convenience in the second quarter of 2010.  In the third quarters of 2010 and 2009, the CRS contract accounted for 43% and 35%, respectively, of total segment revenues.

Advanced space programs segment revenues increased $106.8 million, or 48%, in the first nine months of 2010 compared to the first nine months of 2009 primarily due to a $101.1 million increase in activity on the CRS contract, a $43.7 million increase on national security satellite programs and $14.8 million of revenues from contracts we acquired in our spacecraft business acquisition, partially offset by a $53.5 million reduction in revenues due to the effect of the termination of the Orion LAS contract.  In the first nine months of 2010 and 2009, the CRS contract accounted for 42% and 17%, respectively, of total segment revenues.

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Segment Operating Income - Advanced space programs segment operating income increased $3.2 million, or 69%, in the third quarter of 2010 compared to the third quarter of 2009.  During the third quarter of 2010, we recorded a favorable general and administrative expense rate adjustment for our advanced space programs segment which reduced research and development expenses by $5.4 million.  This rate adjustment reflects the reversal of unrecovered research and development expenses that were incurred in the first half of 2010.  We did not incur any unrecovered research and development expenses in our advanced space program segment in 2009 and we do not expect to incur any such unrecovered expenses in this segment in 2010.  I n addition, segment operating income increased in 2010 due to increased activity on the CRS contract, a $0.8 million increase from national security satellite programs and $0.6 million of income from contracts we acquired in our spacecraft business acquisition.  These increases were partially offset by decreased activity on the Orion LAS contract.

Advanced space programs segment operating income increased $11.1 million in the first nine months of 2010 compared to the first nine months of 2009 primarily due to increased activity on national security satellite programs and the CRS contract, in addition to contracts acquired in our spacecraft business acquisition.  These increases were partially offset by decreased activity on the Orion LAS contract.

This segment’s operating margin increased in the third quarter of 2010 largely due to the favorable general and administrative expense rate adjustment offset by the effect of an unfavorable profit adjustment on the Orion LAS contract.  Operating margin increased in the first nine months of 2010 due to margin improvement on national security satellite programs and the absence of certain cost increases that occurred in 2009.  These margin improvements were partially offset by the effect of the unfavorable profit adjustment on the Orion LAS contract.

Corporate and Other

Corporate and other revenues were comprised solely of the elimination of intercompany revenues of $16.4 million and $3.0 million in the third quarter of 2010 and 2009, respectively, and $46.9 million and $8.1 million in the first nine months of 2010 and 2009, respectively.  The increase in intercompany revenue eliminations is due to Taurus II production work in the launch vehicles segment for the COTS program.  Our launch vehicles business unit is building a Taurus II launch vehicle for the COTS program, which is reported as a research and development cost in our advanced space programs segment.  Taurus II revenues for the COTS program that were reported as intersegment revenues in our launch vehicles segment totaled $14.4 million in the third quarter of 2010 and $41.4 million in the first nine months of 2010.  The operating loss in “Corporate and Other” in the third quarter and first nine months of 2010 is comprised of unallocated corporate-level costs, and includes $1.6 million of transaction expenses incurred during the second quarter of 2010 in connection with the spacecraft business acquisition.  There was no corporate and other operating income or loss in the third quarter and first nine months of 2009.

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Backlog

Our firm backlog was approximately $1.9 billion at September 30, 2010 and December 31, 2009.  We expect to convert approximately $325 million of the September 30, 2010 firm backlog into revenue during the remainder of 2010.  Firm backlog consists of aggregate contract values for firm product orders, excluding the portion previously included in revenues, and including U.S. Government contract orders not yet funded and our estimate of potential award fees.  In the second quarter of 2010, the Orion LAS contract was terminated for convenience, resulting in a $150 million reduction in firm backlog.

Total backlog was approximately $4.4 billion at September 30, 2010 and $4.9 billion at December 31, 2009.  The termination of the Orion LAS contract resulted in a $380 million reduction in total backlog.  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 provided by operating activities in the first nine months of 2010 was $0.8 million, as compared to $77.9 million in the first nine months of 2009.  The decrease in operating cash flow was primarily due to an $84.9 million decrease in the net effect of changes in working capital and certain other assets and liabilities.  During the first nine months of 2010, net changes in working capital and certain other assets and liabilities used $66.1 million of cash, compared to $18.8 million of net cash provided in the first nine months of 2009.  The changes in working capital in the first nine months of 2010 included an $83.1 million increase in receivables and a $31.1 million decrease in deferred revenues and customer advances, partially offset by an increase in accounts payable and accrued expenses of $80.2 million.  The increase in receivables was primarily due to an increase in CRS program receivables that are not collectible until certain performance milestones are achieved.  We believe that a substantial portion of these receivables will be collected in the fourth quarter of 2010; however, there can be no assurance that the necessary conditions will occur this year.  The decrease in deferred revenues and customer advances was largely due to a $34.6 million decrease in cash received from NASA in connection with the COTS program that had not yet been recorded as an offset to research and development expenses.  The increase in accounts payable and accrued expenses was primarily due to an increase in accruals for subcontract costs.

Cash Flow from Investing Activities

Cash used in investing activities in the first nine months of 2010 was $109.4 million, as compared to $27.6 million in the first nine months of 2009.  In the second quarter of 2010 we spent $55 million in connection with a business acquisition (see Note 2 to the accompanying financial statements).   In addition, in the first nine months of 2010 we spent $58.7 million for capital expenditures, as compared to $28.8 million in the first nine months of 2009.  The increase

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in capital expenditures is primarily due to the capital requirements of the CRS, COTS and Taurus II programs.  In the third quarter of 2010, we sold a debt auction-rate security for $4.3 million.

Cash Flow from Financing Activities

During the first nine months of 2010 and 2009, we received $10.8 million and $2.0 million, respectively, from the issuance of common stock in connection with stock option exercises and employee stock plan purchases.  During the first nine months of 2009, we repurchased and retired 1.2 million shares of our common stock at a cost of $16.7 million.  There were no repurchases in the first nine months of 2010.

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 September 30, 2010, there were no borrowing s under the Credit Facility, although $18.3 million of letters of credit were issued under the Credit Facility.  Accordingly, as of September 30, 2010, $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 September 30, 2010, we were in compliance with all of these covenants.

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Available Cash and Future Funding

At September 30, 2010, we had $277.2 million of unrestricted cash and cash equivalents.  We believe that we will continue to incur significant research and development costs as well as capital expenditures during the remainder of 2010 and to a lesser extent in 2011 on the Taurus II and COTS research and development programs.  Management currently believes that available cash, cash expected to be generated from operations and 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.  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 Credit Facility.  0;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.

As indicated in Note 13 to the accompanying financial statements, it is possible we may be required to refund cash to one of our customers if it is determined that a satellite anomaly currently under investigation results in a contractual performance refund obligation.  However, we believe that such an obligation, if any, would be offset by insurance proceeds.  Accordingly, management does not believe that such obligation, if any, would have a significant impact on our liquidity.

As discussed in Note 7 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.  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 except when economically advantageous to do so.  Accordingly, we do not believe that any fluctuations in the fair values of these securities will have a significant impact on our liquidity.

In April 2010, our Board of Directors authorized a plan for the purchase of up to $50 million of our outstanding common stock over a 12-month period.  No purchases have been made under this program as of the date of the filing of this Form 10-Q.  Accordingly, up to $50 million may be used for future purchases of outstanding common stock.

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.

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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 September 30, 2010, 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.

Investments

As discussed in Note 7 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 September 30, 2010, we had $1.6 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 September 30, 2010, 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 September 30, 2010, 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 September 30, 2010 was $142.4 million.  The fair value was determined based on market prices quoted by a broker-dealer.

We believe that exposure to market risk related to interest rate fluctuations for cash and cash equivalents are not significant.  As of September 30, 2010, a hypothetical 100 basis point change in interest rates would result in an annual change of approximately $3.4 million in interest income earned.

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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 $9.0 million at September 30, 2010.  This liability is subject to fluctuation based upon the market value of the investment options selected by participants.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls Over Financial Reporting

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

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PART II

OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

From time to time we are party to certain litigation or other legal proceedings arising in the ordinary course of business.  Because of the uncertainties inherent in litigation, we cannot predict 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, 2009.

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.

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SIGNATURES

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

	ORBITAL SCIENCES CORPORATION
DATED:  October 29, 2010	By:	/s/ David W. Thompson
		David W. Thompson
		Chairman and Chief Executive Officer
DATED:  October 29, 2010	By:	/s/ Garrett E. Pierce
		Garrett E. Pierce
		Vice Chairman and Chief Financial Officer

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EXHIBIT INDEX

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

Exhibit No.	Description
3.1	Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to the company’s Registration Statement on Form S-3 (File Number 333-08769) filed and effective on July 25, 1996).
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 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).