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, 2012 |
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.) |
45101 Warp Drive
Dulles, Virginia 20166
(Address of principal executive offices)
(703) 406-5000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of October 23, 2012, 59,495,111 shares of the registrant’s Common Stock were outstanding.
ORBITAL SCIENCES CORPORATION
Page | |||
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS |
ORBITAL SCIENCES CORPORATION |
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
September 30, | December 31, | |||||||
2012 | 2011 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 227,523 | $ | 259,219 | ||||
Receivables | 495,007 | 333,467 | ||||||
Inventories | 56,554 | 64,335 | ||||||
Deferred income taxes, net | 37,061 | 51,413 | ||||||
Other current assets | 28,026 | 46,965 | ||||||
Total current assets | 844,171 | 755,399 | ||||||
Investments | 9,400 | 8,500 | ||||||
Property, plant and equipment, net | 248,084 | 259,972 | ||||||
Goodwill | 75,261 | 75,261 | ||||||
Other non-current assets | 27,135 | 31,668 | ||||||
Total assets | $ | 1,204,051 | $ | 1,130,800 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 268,874 | $ | 234,379 | ||||
Deferred revenues and customer advances | 77,331 | 104,970 | ||||||
Total current liabilities | 346,205 | 339,349 | ||||||
Long-term obligations | 135,701 | 131,182 | ||||||
Other non-current liabilities | 24,685 | 16,990 | ||||||
Total liabilities | 506,591 | 487,521 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred Stock, par value $.01; 10,000,000 shares authorized, none outstanding | — | — | ||||||
Common Stock, par value $.01; 200,000,000 shares authorized, 59,486,517 and | ||||||||
58,914,802 shares outstanding, respectively | 595 | 589 | ||||||
Additional paid-in capital | 572,469 | 566,624 | ||||||
Accumulated other comprehensive loss | (2,088 | ) | (3,359 | ) | ||||
Retained earnings | 126,484 | 79,425 | ||||||
Total stockholders’ equity | 697,460 | 643,279 | ||||||
Total liabilities and stockholders’ equity | $ | 1,204,051 | $ | 1,130,800 |
See accompanying notes to condensed consolidated financial statements.
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
AND STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands, except per share data)
Quarters Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues | $ | 372,882 | $ | 342,170 | $ | 1,082,180 | $ | 1,010,472 | ||||||||
Cost of revenues | 284,288 | 267,494 | 833,338 | 821,292 | ||||||||||||
Research and development expenses | 32,913 | 26,681 | 82,721 | 67,248 | ||||||||||||
Selling, general and administrative expenses | 24,368 | 23,327 | 84,869 | 64,340 | ||||||||||||
Income from operations | 31,313 | 24,668 | 81,252 | 57,592 | ||||||||||||
Interest income and other | 61 | 369 | 694 | 12,561 | ||||||||||||
Interest expense | (2,517 | ) | (2,880 | ) | (8,564 | ) | (8,217 | ) | ||||||||
Income before income taxes | 28,857 | 22,157 | 73,382 | 61,936 | ||||||||||||
Income tax provision | (9,405 | ) | (5,684 | ) | (26,323 | ) | (11,912 | ) | ||||||||
Net income | $ | 19,452 | $ | 16,473 | $ | 47,059 | $ | 50,024 | ||||||||
Basic income per share | $ | 0.33 | $ | 0.28 | $ | 0.79 | $ | 0.85 | ||||||||
Diluted income per share | $ | 0.33 | $ | 0.28 | $ | 0.79 | $ | 0.84 | ||||||||
Net income (from above) | $ | 19,452 | $ | 16,473 | $ | 47,059 | $ | 50,024 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized gain on investments | 100 | — | 900 | 1,100 | ||||||||||||
Defined benefit plans, net of tax | 190 | (958 | ) | 502 | (1,085 | ) | ||||||||||
Foreign currency translation adjustment, net of tax | (131 | ) | — | (131 | ) | — | ||||||||||
Total other comprehensive income (loss) | 159 | (958 | ) | 1,271 | 15 | |||||||||||
Comprehensive income | $ | 19,611 | $ | 15,515 | $ | 48,330 | $ | 50,039 |
See accompanying notes to condensed consolidated financial statements.
ORBITAL SCIENCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended September 30, | ||||||||
2012 | 2011 | |||||||
Operating Activities: | ||||||||
Net income | $ | 47,059 | $ | 50,024 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization expense | 27,995 | 24,464 | ||||||
Deferred income taxes | 24,109 | 9,754 | ||||||
Stock-based compensation and other | 7,924 | 8,338 | ||||||
Changes in assets and liabilities | (126,414 | ) | 2,047 | |||||
Net cash (used in) provided by operating activities | (19,327 | ) | 94,627 | |||||
Investing Activities: | ||||||||
Capital expenditures | (40,801 | ) | (43,118 | ) | ||||
Proceeds from disposition of property | 25,589 | — | ||||||
Net cash used in investing activities | (15,212 | ) | (43,118 | ) | ||||
Financing Activities: | ||||||||
Net proceeds from issuances of common stock | 2,590 | 1,971 | ||||||
Debt issuance costs | — | (3,084 | ) | |||||
Tax benefit of stock-based compensation | 253 | 1,161 | ||||||
Net cash provided by financing activities | 2,843 | 48 | ||||||
Net (decrease) increase in cash and cash equivalents | (31,696 | ) | 51,557 | |||||
Cash and cash equivalents, beginning of period | 259,219 | 252,415 | ||||||
Cash and cash equivalents, end of period | $ | 227,523 | $ | 303,972 |
See accompanying notes to condensed consolidated financial statements.
ORBITAL SCIENCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012 and 2011
(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, 2011.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, including estimates of future contract costs and earnings. Such estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and earnings during the current reporting period. Management periodically assesses and evaluates the adequacy and/or deficiency of estimated liabilities recorded for various reserves, liabilities, contract risks and uncertainties. Actual results could differ from these estimates.
All financial amounts are stated in U.S. dollars unless otherwise indicated.
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 these financial statements were issued, and noted no items requiring adjustment or disclosure in these financial statements. Operating results for the quarter ended September 30, 2012 are not necessarily indicative of the results expected for the full year.
(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.
The following table presents operating information and identifiable assets by reportable segment (in thousands):
Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||||||||
Launch Vehicles: | |||||||||||||||||||||
Revenues | $ | 140,673 | $ | 116,538 | $ | 393,135 | $ | 353,178 | |||||||||||||
Operating income | 9,252 | 5,242 | 26,240 | 7,063 | |||||||||||||||||
Identifiable assets | 215,158 | 210,642 | (2) | 215,158 | 210,642 | (2) | |||||||||||||||
Capital expenditures | 2,990 | 2,516 | 22,509 | 23,212 | |||||||||||||||||
Depreciation and amortization | 4,137 | 3,497 | 11,768 | 10,769 | |||||||||||||||||
Satellites and Space Systems: | |||||||||||||||||||||
Revenues | $ | 129,490 | $ | 141,130 | $ | 370,887 | $ | 431,963 | |||||||||||||
Operating income | 12,178 | 11,460 | 30,127 | 30,244 | |||||||||||||||||
Identifiable assets | 263,460 | 282,344 | (2) | 263,460 | 282,344 | (2) | |||||||||||||||
Capital expenditures | 4,092 | 3,531 | 10,981 | 7,376 | |||||||||||||||||
Depreciation and amortization | 2,231 | 1,651 | 6,360 | 5,102 | |||||||||||||||||
Advanced Space Programs: | |||||||||||||||||||||
Revenues | $ | 120,193 | $ | 112,214 | $ | 368,103 | $ | 308,112 | |||||||||||||
Operating income | 9,883 | 7,966 | 26,976 | 20,285 | |||||||||||||||||
Identifiable assets | 390,892 | 254,769 | (2) | 390,892 | 254,769 | (2) | |||||||||||||||
Capital expenditures | 1,142 | 3,098 | 4,558 | 10,294 | |||||||||||||||||
Depreciation and amortization | 1,677 | 1,276 | 5,130 | 3,576 | |||||||||||||||||
Corporate and Other: | |||||||||||||||||||||
Revenues | $ | (17,474 | ) | (1) | $ | (27,712 | ) | (1) | $ | (49,945 | ) | (1) | $ | (82,781 | ) | (1) | |||||
Operating loss | — | — | (2,091 | ) | (3) | — | |||||||||||||||
Identifiable assets | 334,541 | 383,045 | (2) | 334,541 | 383,045 | (2) | |||||||||||||||
Capital expenditures | 837 | 1,199 | 2,753 | 2,236 | |||||||||||||||||
Depreciation and amortization | 1,594 | 1,564 | 4,737 | 5,017 | |||||||||||||||||
Consolidated: | |||||||||||||||||||||
Revenues | $ | 372,882 | $ | 342,170 | $ | 1,082,180 | $ | 1,010,472 | |||||||||||||
Operating income | 31,313 | 24,668 | 81,252 | 57,592 | |||||||||||||||||
Identifiable assets | 1,204,051 | 1,130,800 | (2) | 1,204,051 | 1,130,800 | (2) | |||||||||||||||
Capital expenditures | 9,061 | 10,344 | 40,801 | 43,118 | |||||||||||||||||
Depreciation and amortization | 9,639 | 7,988 | 27,995 | 24,464 |
(1) | Corporate and other revenues are comprised solely of the elimination of intersegment revenues summarized as follows (in millions): |
Quarters Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Launch Vehicles | $ | 15.9 | $ | 26.1 | $ | 44.9 | $ | 77.8 | ||||||||
Satellites and Space Systems | 1.4 | 1.5 | 4.4 | 3.9 | ||||||||||||
Advanced Space Programs | 0.2 | 0.1 | 0.6 | 1.1 | ||||||||||||
Total intersegment revenues | $ | 17.5 | $ | 27.7 | $ | 49.9 | $ | 82.8 |
(2) As of December 31, 2011.
(3) The corporate and other operating loss in 2012 is comprised solely of professional fees and other costs related to a potential acquisition that was not consummated. |
(3) Earnings Per Share |
The computation of basic and diluted earnings per share is as follows (in thousands, except per share amounts):
Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
Numerator | 2012 | 2011 | 2012 | 2011 | |||||||||||||||
Net income | $ | 19,452 | $ | 16,473 | $ | 47,059 | $ | 50,024 | |||||||||||
Percentage allocated to shareholders (1) | 99.6% | 99.2% | 99.5% | 99.0% | |||||||||||||||
Numerator for basic and diluted earnings per share | $ | 19,374 | $ | 16,341 | $ | 46,824 | $ | 49,524 | |||||||||||
Denominator | |||||||||||||||||||
Denominator for basic earnings per share - | |||||||||||||||||||
weighted-average shares outstanding | 59,211 | 58,598 | 59,049 | 58,441 | |||||||||||||||
Dilutive effect of stock options and restricted stock units | 294 | 389 | 307 | 544 | |||||||||||||||
Denominator for diluted earnings per share | 59,505 | 58,987 | 59,356 | 58,985 | |||||||||||||||
Per share income | |||||||||||||||||||
Basic | $ | 0.33 | $ | 0.28 | $ | 0.79 | $ | 0.85 | |||||||||||
Diluted | 0.33 | 0.28 | 0.79 | 0.84 | |||||||||||||||
_________________________ | |||||||||||||||||||
(1) | Basic weighted-average shares outstanding | 59,211 | 58,598 | 59,049 | 58,441 | ||||||||||||||
Basic weighted-average shares outstanding and | |||||||||||||||||||
unvested restricted share units expected to vest | 59,423 | 59,062 | 59,346 | 59,047 | |||||||||||||||
Percentage allocated to shareholders | 99.6% | 99.2% | 99.5% | 99.0% |
The calculation of earnings per share shown above excludes the income attributable to the company’s unvested restricted stock units that include rights to receive non-forfeitable dividends from the numerator and excludes the impact of those units from the denominator. Diluted weighted-average shares for all periods also exclude the effect of the company’s convertible notes that were anti-dilutive.
(4) Receivables
The components of receivables were as follows (in thousands):
September 30, | December 31, | |||||||
2012 | 2011 | |||||||
Billed | $ | 78,936 | $ | 77,505 | ||||
Unbilled | 416,071 | 255,962 | ||||||
Total | $ | 495,007 | $ | 333,467 |
As of September 30, 2012 and December 31, 2011, unbilled receivables included $9.4 million and $10.2 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, 2012, the company could be required to refund up to approximately $13.6 million to customers if certain completed satellites were to fail to satisfy performance criteria. Orbital generally procures insurance policies under which the company believes it would recover satellite incentive fees that are not earned and performance refund obligations.
Under the terms of the company’s Commercial Resupply Services (“CRS”) contract with the National Aeronautics and Space Administration (“NASA”), approximately 25% of the contract value is billable to the customer and collectible only upon the completion of launch and delivery milestones for each of eight CRS contract missions. Unbilled receivables at September 30, 2012 and December 31, 2011 included $255.3 million and $130.4 million, respectively, pertaining to the CRS contract. Since the inception of the CRS contract through September 30, 2012, a total of $888 million of revenues have been recognized on the contract, which has a total contract value of approximately $1.9 billion.
(5) Inventories
At September 30, 2012 and December 31, 2011, substantially all of the company’s inventory consisted of component parts, raw materials and milestone payments for future delivery of component parts.
(6) Property, Plant and Equipment
The company received proceeds of $25.6 million in the third quarter of 2012 in connection with the transfer of property and equipment at the Wallops Island Flight Facility to the Commonwealth of Virginia.
(7) Investments
As of September 30, 2012 and December 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 are recorded at fair value as non-current assets on the company’s balance sheet. Contractual maturities for the debt securities are 13 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, 2012 | December 31, 2011 | |||||||||||||||||||||||
Cost or Amortized Cost | Net Unrealized Gain (Loss) | Fair Value | Cost or Amortized Cost | Net Unrealized Gain (Loss) | Fair Value | |||||||||||||||||||
Debt | $ | 7,150 | $ | (450 | ) | $ | 6,700 | $ | 7,150 | $ | (1,050 | ) | $ | 6,100 | ||||||||||
Equity (1) | 2,000 | 700 | 2,700 | 2,000 | 400 | 2,400 | ||||||||||||||||||
Total | $ | 9,150 | $ | 250 | $ | 9,400 | $ | 9,150 | $ | (650 | ) | $ | 8,500 | |||||||||||
(1) As of September 30, 2012 and December 31, 2011, cost and fair value of the two preferred stock investments were $0.
The changes in fair value of the investments were recorded as follows (in thousands):
Quarters Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Debt Securities | ||||||||||||||||
Fair value at beginning of period | $ | 6,700 | $ | 6,900 | $ | 6,100 | $ | 6,700 | ||||||||
Temporary impairment credits, net | — | 300 | 600 | 500 | ||||||||||||
Fair value at end of period | $ | 6,700 | $ | 7,200 | $ | 6,700 | $ | 7,200 | ||||||||
Equity Securities | ||||||||||||||||
Fair value at beginning of period | $ | 2,600 | $ | 2,800 | $ | 2,400 | $ | 1,900 | ||||||||
Temporary impairment credits (charges), net | 100 | (300 | ) | 300 | 600 | |||||||||||
Fair value at end of period | $ | 2,700 | $ | 2,500 | $ | 2,700 | $ | 2,500 | ||||||||
Total | ||||||||||||||||
Fair value at beginning of period | $ | 9,300 | $ | 9,700 | $ | 8,500 | $ | 8,600 | ||||||||
Temporary impairment credits, net | 100 | — | 900 | 1,100 | ||||||||||||
Fair value at end of period | $ | 9,400 | $ | 9,700 | $ | 9,400 | $ | 9,700 |
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 September 30, 2012, 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, as defined in U.S. GAAP.
For the quarters and nine months ended September 30, 2012 and 2011, the company did not record any other-than-temporary impairment charges. The company records other-than-
temporary impairment charges with respect to equity securities if the company’s assessment determines 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.
(8) Forward Exchange Contracts
Orbital occasionally uses forward exchange contracts to manage certain foreign currency exposures. Forward exchange contracts are viewed as risk management tools by the company and are not used for trading or speculative purposes. Each forward exchange contract used for hedging purposes is designated as a hedge of the identified risk exposure at the inception of the contract. Changes in the fair value of each forward exchange contract are expected to be highly correlated with changes in the fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract. Forward exchange contracts are recorded on the balance sheet at fair value. The ineffective portion of all hedges, if any, is recognized currently in earnings.
In 2012, Orbital entered into a series of forward exchange contracts to sell euros and purchase U.S. dollars in order to hedge the company’s exposure to fluctuating foreign exchange rates in connection with a customer contract denominated in euros. As of September 30, 2012, the company had 10 forward exchange contracts with a total contract value of 56.0 million euros, or $72.7 million, that have various expiration dates through January 2015. As of September 30, 2012, the fair market value of these forward exchange contracts was not significant.
(9) Debt Obligations
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.
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 theconvertible 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, for cash equal to 100% of the principal amount of the convertible notes, plus any unpaid interest, if any, accrued to the redemption date. In addition, holders of the convertible notes may require the company to repurchase the convertible notes, in whole or in part, for cash equal to 100% of the principal amount of the convertible notes, plus any unpaid interest, if any, accrued to the redemption date, if a “fundamental change” occurs prior to maturity of the convertible notes.
The fair value of the company’s convertible notes at September 30, 2012 and December 31, 2011 was estimated at $144.5 million and $145.2 million, respectively. The fair value was determined based on market prices quoted by a broker-dealer and is a Level 2 valuation, as defined in U.S GAAP.
Credit Facility
The company has a five-year $300 million revolving secured credit facility (the “Credit Facility”). The Credit Facility has a scheduled maturity date of June 7, 2016. The company’s obligations under the Credit Facility are secured by substantially all of the company’s assets except for real property.
The Credit Facility provides capacity for up to $300 million of revolving loans and permits the company to utilize up to $125 million of such capacity for the issuance of standby letters of credit. The company has the option to increase the amount of the Credit Facility by up to $150 million to the extent that any one or more lenders, whether or not currently party to the Credit Facility, commits to be a lender for such additional amount. Loans under the Credit Facility bear interest at LIBOR plus an applicable margin ranging from 1.75% to 2.50%, with the applicable margin varying according to the company’s total leverage ratio, or, at the election of the company, at a prime base rate plus 0.75% to 1.50%. Letters of credit issued under the Credit Facility accrue fees at a rate equal to the applicable margin for LIBOR loans. In addition, the company is required to pay a quarterly commitment fee for the unused portion of the Credit Facility, if any, at a rate ranging from 0.30% to 0.50%.
As of September 30, 2012, there were no borrowings under the Credit Facility, although $15.4 million of letters of credit were issued under the Credit Facility. Accordingly, as of September 30, 2012, $284.6 million of the Credit Facility was available for borrowings.
Debt Covenants
Orbital’s Credit Facility contains covenants limiting its ability to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase company stock, enter into transactions with affiliates, make investments, merge or consolidate with others or dispose of assets. In addition, the Credit Facility contains financial covenants with respect to leverage and interest coverage. As of September 30, 2012, the company was in compliance with all of these covenants.
(10) Stock-Based Compensation
The following tables summarize information related to the company’s stock-based compensation:
Restricted Stock Units | Stock Options | ||||||||||||||||
Weighted Average | Weighted Average | ||||||||||||||||
Number of | Measurement | Number of | Exercise | ||||||||||||||
Units | Date Fair Value | Options | Price | ||||||||||||||
Outstanding at December 31, 2011 | 782,112 | $ | 16.07 | 902,287 | $ | 7.25 | |||||||||||
Granted (1) | 485,796 | 12.86 | — | — | |||||||||||||
Exercised | — | — | (237,480 | ) | 6.41 | ||||||||||||
Vested | (343,524 | ) | 15.77 | — | — | ||||||||||||
Forfeited | (12,580 | ) | 15.24 | — | — | ||||||||||||
Expired | — | — | (599 | ) | 5.79 | ||||||||||||
Outstanding at September 30, 2012 | 911,804 | $ | 14.48 | 664,208 | (2) | $ | 7.55 |
(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 0.89 years. |
Quarters Ended September 30, | ||||||||
(in millions) | 2012 | 2011 | ||||||
Stock-based compensation expense | $ | 2.0 | $ | 1.8 | ||||
Income tax benefit related to stock-based compensation expense | 0.7 | 0.6 | ||||||
Intrinsic value of options exercised computed as the market | ||||||||
price on the exercise date less the price paid to exercise the options | 1.7 | 0.7 | ||||||
Cash received from exercise of options | 1.4 | 0.3 | ||||||
Tax benefit recorded as credits to additional paid-in capital related | ||||||||
to stock-based compensation transactions | — | 0.3 | ||||||
Nine Months Ended September 30, | ||||||||
(in millions) | 2012 | 2011 | ||||||
Stock-based compensation expense | $ | 4.7 | $ | 4.7 | ||||
Income tax benefit related to stock-based compensation expense | 1.6 | 1.5 | ||||||
Intrinsic value of options exercised computed as the market | ||||||||
price on the exercise date less the price paid to exercise the options | 1.8 | 2.5 | ||||||
Cash received from exercise of options | 1.5 | 0.9 | ||||||
Tax benefit recorded as credits to additional paid-in capital related | ||||||||
to stock-based compensation transactions | — | 1.0 |
As of | ||||
(in millions) | September 30, 2012 | |||
Shares of common stock available for grant under stock-based incentive plans | 3.0 | |||
Aggregate intrinsic value of restricted stock units that are expected to vest | $ | 13.3 | ||
Unrecognized compensation expense related to non-vested restricted stock units, expected to | ||||
be recognized over a weighted-average period of 2.10 years | 11.7 | |||
Aggregate intrinsic value of stock options outstanding, all fully vested | 4.7 |
During the second quarter of 2012, the company registered 2.5 million additional shares of common stock for issuance under the Orbital Sciences Corporation Amended and Restated 2005 Stock Incentive Plan.
(11) Research and Development
In 2008, the company entered into an agreement with NASA to design, build and demonstrate a new space transportation system under a program called Commercial Orbital Transportation Services (“COTS”), for delivering cargo and supplies to the International Space Station. Under the agreement, as amended, NASA has agreed to pay the company $288 million in cash milestone payments, partially funding Orbital’s project costs which are currently estimated to be approximately $495 million. The company expects to substantially complete this project in early 2013.
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. As of September 30, 2012 and December 31, 2011, deferred revenue and customer advances on the accompanying balance sheet included $0 and $6.2 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):
Third Quarter | First Nine Months | Inception | ||||||||||||||||||
2012 | 2011 | 2012 | 2011 | To Date | ||||||||||||||||
Research and development costs incurred (1) | $ | 21.2 | $ | 36.8 | $ | 53.5 | $ | 115.1 | $ | 471.4 | ||||||||||
Less amounts funded by NASA | (6.0 | ) | (23.0 | ) | (21.5 | ) | (82.3 | ) | (281.8 | ) | ||||||||||
Net research and development expenses | $ | 15.2 | $ | 13.8 | $ | 32.0 | $ | 32.8 | $ | 189.6 |
__________________________________________
(1) Includes associated general and administrative expenses.
The company is engaged in a major product development program of a medium-capacity rocket named Antares. Approximately $9.9 million and $9.0 million of the company’s research and development expenses in the third quarter of 2012 and 2011, respectively, and $29.6 million and $24.2 million in the first nine months of 2012 and 2011, respectively, were attributable to the Antares program. Since the inception of the Antares program through September 30, 2012, the company has incurred $221.9 million of such costs.
(12) Income Taxes
The company’s effective tax rates were 35.9% and 19.2% for the nine months ended September 30, 2012 and 2011, respectively. The tax rate in 2011 included a favorable income tax adjustment of $7.7 million pertaining to the company’s election to claim extraterritorial income exclusions related to export activities in prior years. In addition, the tax rate in 2011 reflected the effect of federal research and development tax credits that are not expected to be available to the company in 2012.
(13) Commitments and Contingencies
U.S. Government Contracts
The accuracy and appropriateness of costs charged to U.S. Government contracts are subject to regulation, audit and possible disallowance by the Defense Contract Audit Agency or other government agencies. Accordingly, costs billed or billable to U.S. Government customers are subject to potential adjustment upon audit by such agencies.
Most of the company’s U.S. Government contracts are funded incrementally on a year-to-year basis. Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could materially adversely affect the company’s financial condition or results of operations. Furthermore, contracts with the U.S. Government may be terminated or suspended by the U.S. Government at any time, with or without cause. Such contract suspensions or terminations could result in unreimbursable expenses or charges or otherwise adversely affect the company’s financial condition and/or results of operations.
Research and Development Expenses
The company believes that a majority of the company’s research and development expenses are recoverable and billable under contracts with the U.S. Government, from which the majority of the company’s revenues are derived. Charging practices relating to research and development and other costs that may be charged directly or indirectly to government contracts are subject to audit by U.S. Government agencies to determine if such costs are reasonable and allowable under government contracting regulations and accounting practices. The company believes that research and development costs incurred in connection with the company’s Antares development program (see Note 11) are allowable, although the U.S. Government has not yet made a final determination. The company incurred $29.6 million and $24.2 million of such expenses that have been recorded as allowable costs for the nine months ended September 30, 2012 and 2011, respectively. Since the inception of the Antares program through September 30, 2012, the company has incurred $183.0 million of such expenses that have been recorded as allowable costs. If such costs were determined to be unallowable, the company could be required to record revenue and profit reductions in future periods.
Litigation
From time to time the company is party to certain litigation or other legal proceedings arising in the ordinary course of business. Because of the uncertainties inherent in litigation, the company cannot predict the outcome of such litigation or other legal proceedings; however, the company believes that none of these matters will have a material adverse effect on the company’s results of operations or financial condition.
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. The company does not believe that the resolution of this matter will have a material adverse effect on the company’s results of operations or financial condition.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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,” “will,” “intend,” “plan” and words of similar substance. Such forward-looking statements are subject to risks, trends and uncertainties that could cause the actual results or performance of the company to be materially different from the forward-looking statement. Uncertainty surrounding factors such as continued government support and funding for key space and defense programs, including impacts of potential sequestration under the Budget Control Act of 2011, new product development programs, product performance and market acceptance of products and technologies, achievement of contractual milestones, government contract procurement and termination risks and income tax rates may materially impact Orbital’s actual financial and operational results. Other risks, uncertainties and factors are discussed under the caption “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2011. 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 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission, and with the unaudited condensed consolidated financial statements included in this Form 10-Q.
Consolidated Results of Operations for the Quarters and Nine Months Ended September 30, 2012 and 2011
Revenues - Our consolidated revenues were $372.9 million in the third quarter of 2012, an increase of $30.7 million, or 9%, compared to the third quarter of 2011 due to higher revenues in our launch vehicles segment and advanced space programs segment, partially offset by a reduction in satellites and space systems segment revenues. Launch vehicles segment revenues increased $24.1 million, or 21%, due to increased activity on space launch vehicles and target launch vehicles, partially offset by decreased activity on missile defense interceptors. Advanced space programs segment revenues increased $8.0 million, or 7%, due to increased activity on the International Space Station Commercial Resupply Services (“CRS”) contract with the National Aeronautics and Space Administration (“NASA”), partially offset by decreased activity on national security satellite contracts. Satellites and space systems segment revenues decreased $11.6 million, or 8%, due to decreased activity on communications satellite contracts partially offset by increased activity on science and remote sensing satellite contracts.
The growth in revenues also reflects a net decrease of $10.2 million in intersegment revenue eliminations in the third quarter of 2012 compared to the third quarter of 2011, principally due to a lower level of activity on Antares launch vehicles for the Commercial Orbital Transportation Services (“COTS”) research and development program with NASA. Intersegment revenues included $15.4 million and $26.1 million in the third quarter of 2012 and 2011, respectively, pertaining to Antares production work reported in our launch vehicles segment as part of the COTS program that is reported in our advanced space programs segment.
Our consolidated revenues were $1,082.2 million in the first nine months of 2012, an increase of $71.7 million, or 7%, compared to the first nine months of 2011 due to higher revenues in our advanced space programs segment and our launch vehicles segment, partially offset by a reduction in revenues in the satellites and space systems segment. Advanced space programs segment revenues increased $60.0 million, or 19%, due to increased activity on the CRS contract and national security satellite contracts. Launch vehicles segment revenues increased $40.0 million, or 11%, primarily due to increased activity on target launch vehicles, partially offset by decreased activity on missile defense interceptors. Satellites and space systems segment revenues decreased $61.1 million, or 14%, principally due to decreased activity on communications satellite contracts partially offset by increased activity on space technical services contracts.
Eliminations of intersegment revenues decreased to $49.9 million in the first nine months of 2012 compared to $82.8 million in the first nine months of 2011. Intersegment revenues included $42.9 million and $77.8 million in the first nine months of 2012 and 2011, respectively, pertaining to Antares production work reported in our launch vehicles segment as part of the COTS program that is reported in our advanced space programs segment.
The CRS contract accounted for 25% and 14% of consolidated revenues in the third quarter of 2012 and 2011, respectively, and 24% and 18% of consolidated revenues in the first nine months of 2012 and 2011, respectively. The launch vehicle portion of the CRS contract is reported in our launch vehicles segment and the remainder of the CRS contract is reported in our advanced space programs segment. CRS contract revenues totaled $91.4 million in the third quarter of 2012, an increase of $44.7 million, or 96%, compared to the third quarter of 2011, due to a higher level of production activity in the third quarter of 2012. CRS contract revenues totaled $259.9 million in the first nine months of 2012, an increase of $80.8 million, or 45%, compared to the first nine months of 2011, due to increased production activity. Under the terms of the CRS contract, approximately 25% of the contract value is billable to the customer and collectible only upon the completion of launch and delivery milestones for each of eight CRS contract missions. Since the inception of the CRS contract through September 30, 2012, a total of $888 million of revenues have been recognized on the contract, which has a total contract value of approximately $1.9 billion.
Cost of Revenues - Our cost of revenues was $284.3 million in the third quarter of 2012, an increase of $16.8 million, or 6%, compared to the third quarter of 2011. Cost of revenues includes the costs of personnel, materials, subcontractors and overhead. The increase in our cost of revenues was primarily attributable to the increase in contract activity in the launch vehicles segment and advanced space programs segment, partially offset by decreased contract activity in the satellites and space systems segment. Cost of revenues increased $18.1 million in the launch vehicles segment and $4.3 million in the advanced space programs segment and decreased $15.8 million in the satellites and space systems segment. Eliminations of intersegment cost of revenues decreased $10.2 million consistent with the decrease in intersegment revenues discussed above.
Our cost of revenues was $833.3 million in the first nine months of 2012, an increase of $12.0 million, or 1%, compared to the first nine months of 2011. Cost of revenues increased $35.8 million in the advanced space programs segment and $10.4 million in the launch vehicles segment. These increases were offset by a $67.0 million decrease in cost of revenues in the satellites and space systems segment. Eliminations of intersegment cost of revenues decreased $32.8 million consistent with the decrease in intersegment revenues discussed above.
Research and Development Expenses - Our research and development expenses totaled $32.9 million, or 9% of revenues, in the third quarter of 2012, a $6.2 million increase compared to $26.7 million, or 8% of revenues, in the third quarter of 2011. The increase in research and development expenses was attributable to an increase in COTS research and development expenses as well as expenditures for product enhancements in the satellites and space systems segment.
Our research and development expenses totaled $82.7 million, or 8% of revenues, in the first nine months of 2012, a $15.4 million increase compared to $67.3 million, or 7% of revenues, in the first nine months of 2011. The increase in research and development expenses was attributable to an increase in COTS research and development expenses, increased expenditures
18
for product enhancements in the satellites and space systems segments and increased expenditures for our Antares launch vehicle development program.
The majority of our research and development expenses in 2012 and 2011 were attributable to the COTS program and our Antares launch vehicle development program. 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 project research and development expenses, including associated general and administrative expenses. Under the COTS agreement, as amended, as of September 30, 2012, NASA has agreed to pay us $288 million in cash milestone payments, partially funding our program costs which are currently estimated to be approximately $495 million. We expect to substantially complete this program in early 2013. The following table summarizes the COTS program costs incurred and amounts funded by NASA recorded in research and development expenses (in millions):
Third Quarter | First Nine Months | Inception | ||||||||||||||||||
2012 | 2011 | 2012 | 2011 | To Date | ||||||||||||||||
Research and development costs incurred (1) | $ | 21.2 | $ | 36.8 | $ | 53.5 | $ | 115.1 | $ | 471.4 | ||||||||||
Less amounts funded by NASA | (6.0 | ) | (23.0 | ) | (21.5 | ) | (82.3 | ) | (281.8 | ) | ||||||||||
Net research and development expenses | $ | 15.2 | $ | 13.8 | $ | 32.0 | $ | 32.8 | $ | 189.6 |
__________________________________________
(1) Includes associated general and administrative expenses.
Research and development expenses attributable to our Antares launch vehicle development program were $9.9 million and $9.0 million in the third quarter of 2012 and 2011, respectively, and were $29.6 million and $24.2 million in the first nine months of 2012 and 2011, respectively. Since the inception of the Antares program through September 30, 2012, we have incurred $221.9 million of such costs.
We believe that the majority of our research and development expenses are recoverable and billable under our contracts with the U.S. Government. Charging practices relating to research and development and other costs that may be charged directly or indirectly to government contracts are subject to audit by U.S. Government agencies to determine if such costs are reasonable and allowable under government contracting regulations and accounting practices. We believe that the research and development costs incurred in connection with our Antares development program are allowable, although the U.S. Government has not yet made a final determination. Since the inception of the Antares program through September 30, 2012, we have incurred $183.0 million of such expenses that have been recorded as allowable costs. If such costs were determined to be unallowable, we could be required to record revenue and profit reductions in future periods.
Selling, General and Administrative Expenses - Selling, general and administrative expenses were $24.4 million and $23.3 million, or 7% of revenues, in the third quarter of 2012 and 2011, 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 $1.1 million, or 4%, in the third quarter of
2012 compared to the third quarter of 2011 due to an increase in corporate-level expenses. As a percentage of revenues, selling, general and administrative expenses were unchanged in the third quarter of 2012 compared to the third quarter of 2011.
Selling, general and administrative expenses were $84.9 million and $64.3 million, or 8% and 6% of revenues, in the first nine months of 2012 and 2011, respectively. Selling, general and administrative expenses increased $20.6 million, or 32%, in the first nine months of 2012 primarily due to bid, proposal and marketing costs pertaining to new business prospects in the advanced space programs segment and launch vehicles segment. In addition, selling, general and administrative expenses in the first nine months of 2012 included $2.1 million of professional fees and other costs related to a potential acquisition that was not consummated.
Operating Income - Operating income was $31.3 million in the third quarter of 2012, an increase of $6.6 million, or 27%, compared to the third quarter of 2011 due to higher operating income in all three business segments. Launch vehicles segment operating income increased $4.0 million primarily due to a profit improvement in the space launch vehicles product line. Advanced space programs segment operating income increased $1.9 million primarily due to a favorable contract closeout adjustment and increased activity on the CRS contract, partially offset by lower income from national security satellite contracts. Satellites and space systems segment operating income increased $0.7 million principally due to higher operating income from communications satellite contracts partially offset by lower operating income from science and remote sensing satellite contracts.
Operating income was $81.3 million in the first nine months of 2012, an increase of $23.7 million, or 41%, compared to the first nine months of 2011 primarily due to operating income increases in the launch vehicles segment and the advanced space programs segment. Launch vehicles segment operating income increased $19.2 million primarily due to a 2011 adjustment in connection with a March 2011 Taurus XL launch failure that reduced operating income by $11.3 million and increased operating income from target launch vehicles. Advanced space programs segment operating income increased $6.7 million primarily due to a favorable contract closeout adjustment in addition to increased activity on the CRS contract and national security satellite contracts. Satellites and space systems segment operating income decreased marginally. Operating income in the first nine months of 2012 also included $2.1 million of professional fees and other costs recorded in corporate and other, related to a potential acquisition that was not consummated.
Total operating income from the CRS contract was $4.1 million and $2.3 million in the third quarter of 2012 and 2011, respectively. Total operating income from the CRS contract was $12.5 million and $9.0 million in the first nine months of 2012 and 2011, respectively. Since the inception of the CRS program through September 30, 2012, a total of $44 million of operating income has been recognized on the contract.
Interest Income and Other - Interest income and other was less than $0.1 million in the third quarter of 2012, compared to $0.4 million in the third quarter of 2011. Interest income and other was $0.7 million in the first nine months of 2012, compared to $12.6 million in the first nine
20
months of 2011. Interest income and other in the first nine months of 2011 included the recognition of an $11.3 million insurance recovery pertaining to the March 2011 Taurus XL launch failure discussed above.
Interest Expense - Interest expense was $2.5 million and $2.9 million in the third quarter of 2012 and 2011, respectively, and was $8.6 million and $8.2 million in the first nine months of 2012 and 2011, respectively, primarily attributable to interest on our long-term convertible debt.
Income Tax Provision - We recorded an income tax provision of $9.4 million in the third quarter of 2012, compared to $5.7 million in the third quarter of 2011. We recorded income tax provisions of $26.3 million and $11.9 million in the first nine months of 2012 and 2011, respectively. Our effective income tax rates for the first nine months of 2012 and 2011 were 35.9% and 19.2%, respectively. Our income tax provision for the first nine months of 2011 includes a non-recurring favorable income tax adjustment of $7.7 million in 2011 pertaining to our election to claim extraterritorial income exclusions related to export activities in prior years. In addition, our income tax provisions in 2011 included the effect of federal research and development tax credits that are not expected to be available to us in 2012.
Net Income - Our net income was $19.5 million and $16.5 million, or $0.33 and $0.28 diluted earnings per share, in the third quarter of 2012 and 2011, respectively, and $47.1 million and $50.0 million, or $0.79 and $0.84 diluted earnings per share, in the first nine months of 2012 and 2011, respectively.
Segment Results for the Quarters Ended September 30, 2012 and 2011
Our products and services are grouped into three reportable segments: launch vehicles, satellites and space systems and advanced space programs. Corporate office transactions that have not been attributed to a particular segment, as well as consolidating eliminations and adjustments, are reported in corporate and other.
The following tables of financial information and related discussion of the results of operations of our business segments are consistent with the presentation of segment information in Note 2 to the accompanying financial statements in this Form 10-Q.
Launch Vehicles
Launch vehicles segment operating results were as follows:
Third Quarter | First Nine Months | |||||||||||||||||||||||
($ in thousands) | 2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Revenues | $ | 140,673 | $ | 116,538 | 21% | $ | 393,135 | $ | 353,178 | 11% | ||||||||||||||
Operating income | 9,252 | 5,242 | 76% | 26,240 | 7,063 | 272% | ||||||||||||||||||
Operating margin | 6.6% | 4.5% | 6.7% | 2.0% |
Segment Revenues - Launch vehicles segment revenues increased $24.1 million, or 21%, in the third quarter of 2012 compared to the third quarter of 2011 due to increased activity on space
launch vehicles and target launch vehicles, partially offset by decreased activity on missile defense interceptors. Space launch vehicle revenues increased $15.0 million, or 28%, principally due to an increase in production activity on Antares launch vehicles for the CRS contract and the COTS program. Antares launch vehicle revenues were $53.4 million and $40.1 million in the third quarter of 2012 and 2011, respectively, which included $38.0 million and $14.0 million, respectively, related to the CRS contract and $15.4 million and $26.1 million, respectively, related to the COTS program. Antares launch vehicle revenues accounted for 38% and 34% of total launch vehicles segment revenues in the third quarter of 2012 and 2011, respectively. Target launch vehicle revenues increased $13.9 million, or 35%, largely due to activity on new contracts that were awarded in 2011. Missile defense interceptor revenues decreased $5.3 million, or 23%, due to decreased activity on our Ground-based Midcourse Defense (“GMD”) contract.
Launch vehicles segment revenues increased $40.0 million, or 11%, in the first nine months of 2012 compared to the first nine months of 2011 primarily due to increased activity on target launch vehicles, partially offset by decreased activity on missile defense interceptors. Target launch vehicle revenues increased $52.1 million, or 53%, largely due to activity on new contracts that were awarded in 2011. Missile defense interceptor revenues decreased $13.9 million, or 21%, due to decreased activity on the GMD contract. Space launch vehicle revenues in the first nine months of 2012 decreased marginally compared to the first nine months of 2011. Antares launch vehicle revenues were $144.6 million and $142.1 million in the first nine months of 2012 and 2011, respectively, which included $101.7 million and $64.3 million, respectively, related to the CRS contract and $42.9 million and $77.8 million, respectively, related to the COTS program. Antares launch vehicle revenues accounted for 37% and 40% of total launch vehicles segment revenues in the first nine months of 2012 and 2011, respectively.
Segment Operating Income - Operating income in the launch vehicles segment increased $4.0 million, or 76%, in the third quarter of 2012 compared to the third quarter of 2011 due to higher space launch vehicles and target launch vehicles operating income, partially offset by lower operating income from missile defense interceptor contracts. Operating income from space launch vehicles increased $3.7 million primarily due to profit improvements on certain space launch vehicle contracts and increased activity on Antares launch vehicles for the CRS contract. This segment does not recognize any profit pertaining to the Antares rockets that are being built for the COTS program that is reported in our advanced space programs segment. Operating income from target launch vehicle contracts increased $0.9 million, or 22%, largely due to activity on new contracts that were awarded in 2011. Operating income from missile defense interceptors decreased $0.6 million, or 25%, in the third quarter of 2012 due to decreased activity on the GMD contract.
Operating income in the launch vehicles segment increased $19.2 million, or 272%, in the first nine months of 2012 compared to the first nine months of 2011 due to higher operating income from space launch vehicles and target launch vehicles, partially offset by lower operating income from missile defense interceptor contracts. Operating income from space launch vehicles increased $16.2 million primarily due to an adjustment in the first nine months of 2011 in connection with a March 2011 Taurus XL launch failure that reduced operating income by $11.3
million, and due to profit improvements on certain space launch vehicle contracts. As noted above, this segment does not recognize any profit pertaining to the Antares rockets that are being built for the COTS program that is reported in our advanced space programs segment. Operating income from target launch vehicles increased $5.2 million, or 57%, in the first nine months of 2012, primarily due to activity on new contracts awarded in 2011. Operating income from missile defense interceptors decreased $2.3 million, or 28%, due to decreased activity on the GMD contract and the effect of a favorable profit adjustment recorded in 2011 resulting from the settlement of a terminated contract.
Launch vehicles segment operating margins (as a percentage of revenues) increased to 6.6% in the third quarter of 2012 compared to 4.5% in the third quarter of 2011. The improvement in operating margin was principally attributable to the effect of profit improvements on certain space launch vehicle contracts. Segment operating margin increased to 6.7% in the first nine months of 2012 compared to 2.0% in the first nine months of 2011 primarily due to the effect of the March 2011 Taurus XL launch failure described above.
Satellites and Space Systems
Satellites and space systems segment operating results were as follows:
Third Quarter | First Nine Months | |||||||||||||||||||||||
($ in thousands) | 2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Revenues | $ | 129,490 | $ | 141,130 | (8% | ) | $ | 370,887 | $ | 431,963 | (14% | ) | ||||||||||||
Operating income | 12,178 | 11,460 | 6% | 30,127 | 30,244 | — | ||||||||||||||||||
Operating margin | 9.4% | 8.1% | 8.1% | 7.0% |
Segment Revenues - Satellites and space systems segment revenues decreased $11.6 million, or 8%, in the third quarter of 2012 compared to the third quarter of 2011 primarily due to decreased activity on communications satellite contracts, partially offset by increased activity on science and remote sensing satellite contracts. Communications satellite revenues decreased $20.9 million, or 22%, largely attributable to a reduction in activity on contracts that are nearing completion. Communications satellite revenues accounted for 58% and 68% of total segment revenues in the third quarter of 2012 and 2011, respectively. Science and remote sensing satellite revenues increased $8.5 million, or 45%, due to activity on a contract that was awarded in 2011. Space technical services revenues increased $0.9 million, or 4%, due to increased contract activity.
Satellites and space systems segment revenues decreased $61.1 million, or 14%, in the first nine months of 2012 compared to the first nine months of 2011 principally due to decreased activity on communications satellite contracts, partially offset by increased activity on space technical services contracts. Communications satellite revenues decreased $69.7 million, or 24%, largely attributable to a reduction in activity on contracts that are nearing completion. Communications satellite revenues accounted for 60% and 68% of total segment revenues in the first nine months of 2012 and 2011, respectively. Science and remote sensing satellite revenues decreased $1.1 million, or 2%, due to decreased contract activity. Space technical services revenues increased $9.2 million, or 13%, primarily due to increased contract activity.
Segment Operating Income - Operating income in the satellites and space systems segment increased $0.7 million, or 6%, in the third quarter of 2012 compared to the third quarter of 2011 despite the reduction in segment revenues. This increase was primarily due to higher operating income from communications satellite contracts partially offset by lower operating income from science and remote sensing satellite contracts. Communications satellite operating income increased $1.3 million, or 16%, primarily due to profit improvements on certain communications satellite contracts that were substantially completed in the third quarter of 2012. Certain of these contracts entailed certain technical, schedule and cost risks that were ultimately resolved successfully during the final stages of these contracts resulting in favorable changes in estimates in the third quarter of 2012. Communications satellite operating income accounted for 79% and 73% of total segment operating income in the third quarter of 2012 and 2011, respectively. Science and remote sensing satellite operating income decreased $0.4 million.
Operating income in the satellites and space systems segment decreased marginally in the first nine months of 2012 compared to the first nine months of 2011. This decrease was due to lower operating income from science and remote sensing satellite contracts, offset by higher operating income from communications satellite contracts and space technical services contracts. Science and remote sensing satellite operating income decreased $3.5 million, or 48%, primarily due to decreased contract activity. Communications satellite operating income increased $3.1 million, or 16%, despite lower communications satellite revenues, principally due to profit improvements on certain communications satellite contracts that were substantially completed. Communications satellite operating income accounted for 76% and 66% of total segment operating income in the first nine months of 2012 and 2011, respectively.
Satellites and space systems segment operating margins (as a percentage of revenues) increased to 9.4% in the third quarter of 2012 from 8.1% in the third quarter of 2011 and increased to 8.1% in the first nine months of 2012 compared to 7.0% in the first nine months of 2011 largely due to the effect of the contract profit improvements on certain communications satellite contracts discussed above.
Advanced Space Programs
Advanced space programs segment operating results were as follows:
Third Quarter | First Nine Months | |||||||||||||||||||||||
($ in thousands) | 2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||||
Revenues | $ | 120,193 | $ | 112,214 | 7% | $ | 368,103 | $ | 308,112 | 19% | ||||||||||||||
Operating income | 9,883 | 7,966 | 24% | 26,976 | 20,285 | 33% | ||||||||||||||||||
Operating margin | 8.2% | 7.1% | 7.3% | 6.6% |
Segment Revenues - Advanced space programs segment revenues increased $8.0 million, or 7%, in the third quarter of 2012 compared to the third quarter of 2011 primarily due to increased revenues on the CRS contract, partially offset by lower revenues on national security satellite contracts. Revenues from the CRS contract increased $20.7 million, or 63%, attributable to increased contract activity. The CRS contract accounted for 44% and 29% of total segment revenues in the third quarter of 2012 and 2011, respectively. Revenues from national security satellite contracts decreased $16.2 million, or 21%, due to decreased contract activity.
Advanced space programs segment revenues increased $60.0 million, or 19%, in the first nine months of 2012 compared to the first nine months of 2011 primarily due to increased revenues on the CRS contract and national security satellite contracts. Revenues from the CRS contract increased $43.5 million, or 38%, attributable to increased contract activity. The CRS contract accounted for 43% and 37%, respectively, of total segment revenues in the first nine months of 2012 and 2011. National security satellite revenues increased $13.3 million, or 7%, attributable to increased contract activity.
Segment Operating Income - Operating income in the advanced space programs segment increased $1.9 million, or 24%, in the third quarter of 2012 compared to the third quarter of 2011 primarily due to a favorable contract closeout adjustment in addition to increased activity on the CRS contract. These increases were partially offset by lower income from national security satellite contracts.
Operating income in the advanced space programs segment increased $6.7 million, or 33%, in the first nine months of 2012 compared to the first nine months of 2011 primarily due to a favorable contract closeout adjustment in addition to increased activity on the CRS contract and on national security satellite contracts.
Advanced space programs segment operating margins (as a percentage of revenues) increased to 8.2% in the third quarter of 2012 from 7.1% in the third quarter of 2011 and increased to 7.3% in the first nine months of 2012 from 6.6% in the first nine months of 2011 principally due to the favorable contract closeout adjustment discussed above.
Corporate and Other
Corporate and other revenues were comprised solely of the elimination of intersegment revenues of $17.5 million and $27.7 million in the third quarter of 2012 and 2011, respectively, and $49.9 million and $82.8 million in the first nine months of 2012 and 2011, respectively.
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Intersegment revenues were comprised primarily of Antares launch vehicle revenues recorded in the launch vehicles segment in connection with the COTS program that is reported as a research and development program in our advanced space programs segment. Antares revenues for the COTS program were $15.4 million and $26.1 million in the third quarter of 2012 and 2011, respectively, and $42.9 million and $77.8 million in the first nine months of 2012 and 2011, respectively.
There was no corporate and other operating income or loss in the third quarter of 2012. The operating loss in “Corporate and Other” in the first nine months of 2012 was comprised solely of $2.1 million of professional fees and other costs related to a potential acquisition that was not consummated. There was no corporate and other operating income or loss in the first nine months of 2011.
Backlog
Our firm backlog was approximately $2.1 billion and $2.4 billion at September 30, 2012 and December 31, 2011, respectively. While there can be no assurance, we expect to convert approximately $325 million of the September 30, 2012 firm backlog into revenue during the remainder of 2012. 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 $5.0 billion at September 30, 2012 and $5.3 billion at December 31, 2011. Total backlog includes firm backlog in addition to unexercised options, indefinite-quantity contracts and undefinitized orders and contract award selections.
Liquidity and Capital Resources
Cash Flow from Operating Activities
Cash used in operating activities in the first nine months of 2012 was $19.3 million, compared to cash provided by operating activities of $94.6 million in the first nine months of 2011. The decrease in operating cash flow resulted primarily from the net effect of changes in working capital and certain other assets and liabilities. During the first nine months of 2012, changes in working capital and certain other assets and liabilities used $126.4 million of cash, compared to $2.0 million of cash provided in the first nine months of 2011. Changes in working capital in the first nine months of 2012 included an increase in receivables of $161.5 million due to an increase in unbilled receivables pertaining to the CRS contract. Under the terms of the CRS contract, approximately 25% of the contract value is billable to the customer and collectible only upon the completion of launch and delivery milestones for each of eight CRS contract missions. The first CRS mission is scheduled to be completed in 2013. The increase in receivables was offset by a $34.5 million increase in accounts payable and accrued expenses primarily due to the timing of disbursements to vendors and subcontractors.
Cash Flow from Investing Activities
Cash used in investing activities was $15.2 million and $43.1 million in the first nine months of 2012 and 2011, respectively. We spent $40.8 million on capital expenditures in the first nine months of 2012 compared to $43.1 million in the first nine months of 2011, largely to support our Antares and COTS programs and our CRS contract. We received proceeds of $25.6 million in the third quarter of 2012 in connection with the transfer of property and equipment at the Wallops Island Facility to the Commonwealth of Virginia.
Cash Flow from Financing Activities
Cash provided by financing activities was $2.8 million in the first nine months of 2012, compared to $0.1 million in the first nine months of 2011. During the first nine months of 2012 and 2011, we received $2.6 million and $2.0 million, respectively, from the issuance of common stock in connection with stock option exercises and employee stock option plan purchases. In 2011, we paid $3.1 million of financing fees associated with the establishment of a new credit facility.
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 - In June 2011, we entered into a five-year $300 million revolving secured credit facility (the “Credit Facility”). The Credit Facility includes the option to increase the amount of the Credit Facility by up to $150 million to the extent that any one or more lenders, whether or not currently party to the Credit Facility, commits to be a lender for such additional amount. Loans under the Credit Facility bear interest at LIBOR plus an applicable margin ranging from 1.75% to 2.50%, with the applicable margin varying according to our total leverage ratio, or, at our election, at a prime base rate plus 0.75% to 1.50%. The Credit Facility expires in 2016 and is secured by substantially all of the company’s assets except for real property. Up to $125 million of the Credit Facility may be reserved for letters of credit. As of September 30, 2012, there were no borrowings under the Credit Facility, although $15.4 million of letters of
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credit were issued under the Credit Facility. Accordingly, as of September 30, 2012, $284.6 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, 2012, we were in compliance with all of these covenants.
Available Cash and Future Funding
At September 30, 2012, we had $227.5 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 related to the Antares and COTS research and development programs during the remainder of 2012 and into 2013. 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 7 to the accompanying financial statements, we currently hold investments in auction-rate securities and preferred stock that experienced declines in fair value in prior years. Given the sufficiency of our available cash and other funding sources as discussed above, we believe that we will not need, nor do we intend, to liquidate these investments in the foreseeable future. Accordingly, we do not believe that any fluctuations in the fair values of these securities will have a significant impact on our liquidity.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that our market risk exposure is primarily related to the market value of certain investments that we hold as of September 30, 2012, changes in certain foreign currency exchange rates and interest rate risk. We manage these market risks through our normal financing and operating activities and, when appropriate, through the use of derivative financial instruments. We do not enter into derivatives for trading or other speculative purposes, nor do we use leveraged financial instruments.
Investments
As discussed in Note 7 to the accompanying financial statements, we currently hold investments in auction-rate and preferred stock securities that experienced declines in fair value in prior years resulting in our recording impairment charges. 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, 2012, we had $14.2 million of receivables denominated in euros and $1.0 million of receivables denominated in Japanese yen.
As discussed in Note 8 to the accompanying financial statements, in 2012 we entered into a series of forward exchange contracts to sell euros and purchase U.S. dollars in order to hedge the company’s exposure to fluctuating rates of exchange in connection with a customer contract denominated in euros. As of September 30, 2012, we had 10 forward exchange contracts with a total contract value of 56.0 million euros or $72.7 million, that have various expiration dates through January 2015. As of September 30, 2012, the fair market value of these forward exchange contracts was not significant.
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, 2012, 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, 2012 was $144.5 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, 2012, a hypothetical 100 basis point change in interest rates would result in an annual change of approximately $2.7 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 $11.7 million at September 30, 2012. 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 as of the end of the period covered by this report.
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.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we are party to certain litigation or other legal proceedings arising in the ordinary course of business. Because of the uncertainties inherent in litigation, we cannot predict the outcome of such litigation or other legal proceedings; however, we believe that none of these matters will have a material adverse effect on our results of operations or financial condition.
ITEM 1A. RISK FACTORS
The following risk factor is an update to, and should be read in conjunction with, the risk factors in Item 1A - Risk Factors in our Annual Report on Form 10-K for the Fiscal Year ended December 31, 2011:
We derive a significant portion of our revenues from U.S. Government contracts, which are dependent on continued political support and funding and are subject to termination by the U.S. Government at any time.
The majority of our total annual revenues and our firm backlog at December 31, 2011 was derived from U.S. Government contracts. Most of our U.S. Government contracts are funded incrementally on a year-to-year basis and are subject to uncertain future funding levels. Our direct and indirect contracts with the U.S. Government may be terminated or suspended by the U.S. Government or its prime contractors at any time, with or without cause. Termination or suspension of any of our significant U.S. Government contracts could result in the loss of future revenues and unreimbursable expenses or charges that could have a materially adverse effect on our financial condition and results of operations. Furthermore, key human space initiatives, missile defense programs, and other space programs must compete with other programs for consideration during the federal budgeting and appropriation process, and support and funding for any U.S. Government program may be influenced by general economic conditions, political considerations and other factors. A decline in U.S. Government support and funding for programs in which we participate could result in contract terminations, delays in contract awards, the failure to exercise contract options, the cancellation of planned procurements and fewer new business opportunities, any of which could have a material adverse effect on our financial condition and results of operations.
In particular, the Budget Control Act of 2011 commits the U.S. Government to significantly reduce the federal deficit over ten years through caps on discretionary spending. The Budget Control Act also established a Congressional Joint Select Committee on Deficit Reduction (the “Super Committee”) responsible for identifying an additional $1.2 to $1.5 trillion in deficit reductions by November 23, 2011. With the failure of the Super Committee to produce a deficit reduction proposal by this deadline, “sequestration” was triggered, which calls for substantial automatic spending cuts split between defense and non-defense programs over a ten-year period. While Congress is discussing various options to prevent or defer sequestration, we cannot predict
whether any such efforts will succeed. Any automatic across-the-board cuts through sequestration would take effect in early 2013 and, if realized, will affect Orbital’s U.S. Government customers, in particular, the Department of Defense and NASA. While the exact manner in which this impact would be felt by our individual government programs is unclear, it is possible that funding for programs in which we participate could be reduced, delayed or cancelled, and as a result our business, financial condition and results of operations could be materially adversely affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) | None. |
(b) | None. |
(c) | None. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
(a) | Exhibits - A complete listing of exhibits required is given in the Exhibit Index. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ORBITAL SCIENCES CORPORATION | ||
DATED: October 26, 2012 | By: | /s/ David W. Thompson |
David W. Thompson | ||
Chairman of the Board, President and Chief Executive Officer | ||
DATED: October 26, 2012 | By: | /s/ Garrett E. Pierce |
Garrett E. Pierce | ||
Vice Chairman and Chief Financial Officer |
EXHIBIT INDEX
The following exhibits are filed with this report unless otherwise indicated:
Exhibit No. Description
3.1 Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to the company’s Registration Statement on Form S-3 (File Number 333-08769) filed and effective on July 25, 1996).
3.2 | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the company’s Current Report on Form 8-K filed on October 31, 2011). |
3.3 | Certificate of Amendment to Restated Certificate of Incorporation, dated April 29, 1997 (incorporated by reference to Exhibit 3.3 to the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998). |
3.4 | Certificate of Amendment to Restated Certificate of Incorporation, dated April 30, 2003 (incorporated by reference to Exhibit 3.4 to the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003). |
4.1 | Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the company’s Registration Statement on Form S-1 (File Number 33-33453) filed on February 9, 1990 and effective on April 24, 1990). |
4.2 | Indenture dated as of December 13, 2006, by and between Orbital Sciences Corporation and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the company’s Current Report on Form 8-K filed on December 13, 2006). |
4.3 | Form of 2.4375% Convertible Senior Subordinated Note due 2027 (incorporated by reference to Exhibit 4.2 to the company’s Current Report on Form 8-K filed on December 13, 2006). |
31.1 | Certification of Chairman, President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (transmitted herewith). |
31.2 | Certification of Vice Chairman and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (transmitted herewith). |
32.1 | Written Statement of Chairman, President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (transmitted herewith). |
32.2 | Written Statement of Vice Chairman and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (transmitted herewith). |
101.INS* | XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase |
101.LIAB* | XBRL Taxonomy Extension Labels Linkbase |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase |
* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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