Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ORB > SEC Filings for ORB > Form 10-Q on 27-Oct-2011All Recent SEC Filings

Show all filings for ORBITAL SCIENCES CORP /DE/

Form 10-Q for ORBITAL SCIENCES CORP /DE/


27-Oct-2011

Quarterly Report


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

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

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

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

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

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

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


Table of Contents

Consolidated Results of Operations for the Quarters and Nine Months Ended September 30, 2011 and 2010

Revenues - Our consolidated revenues were $342.2 million in the third quarter of 2011, an increase of $27.7 million, or 9%, compared to the third quarter of 2010 primarily due to higher revenues in all business segments. Satellites and space systems segment revenues increased $19.3 million, or 16%, due to increased activity on communications satellite contracts and space technical services contracts, partially offset by decreased activity on science and remote sensing satellite contracts. Launch vehicles segment revenues increased $10.7 million, or 10%, due to increased production work on target launch vehicles and Taurus II launch vehicles, partially offset by decreased activity on other space launch vehicles and missile defense interceptors. Advanced space programs segment revenues increased $9.0 million, or 9%, due to increased activity on the national security satellite contracts, partially offset by lower activity on the International Space Station Commercial Resupply Services ("CRS") contract and the Orion Launch Abort System ("LAS") contract, which was terminated in the second quarter of 2010.

Eliminations of intersegment revenues increased to $27.7 million in the third quarter of 2011 as compared to $16.4 million in the third quarter of 2010. Intersegment revenues included $26.1 million and $14.4 million in the third quarter of 2011 and 2010, respectively, pertaining to Taurus II production work performed in our launch vehicles segment as part of the Commercial Orbital Transportation Services ("COTS") program that is being conducted by our advanced space programs segment.

Our consolidated revenues were $1,010.5 million in the first nine months of 2011, an increase of $62.0 million, or 7%, compared to the first nine months of 2010 primarily due to higher revenues in the satellites and space systems and launch vehicles segments, partially offset by lower revenues in the advanced space programs segment. Satellites and space systems segment revenues increased $70.2 million, or 19%, due to increased activity on communications satellite contracts, space technical services contracts and science and remote sensing satellite contracts. Launch vehicles segment revenues increased $51.3 million, or 17%, due to increased production work on Taurus II launch vehicles for the CRS and COTS programs and increased activity on target launch vehicles, partly offset by decreased activity on missile defense interceptors and on certain space launch vehicle contracts, and the effect of the Taurus XL launch failure discussed below. Advanced space programs segment revenues decreased $23.6 million, or 7%, due to decreased activity on the CRS contract and the Orion LAS contract, which was terminated in the second quarter of 2010, partly offset by increased activity on national security satellite programs.

Eliminations of intersegment revenues increased to $82.8 million in the first nine months of 2011 as compared to $46.9 million in the first nine months of 2010. Intersegment revenues included $77.8 million and $41.4 million in the first nine months of 2011 and 2010, respectively, pertaining to Taurus II production work performed in our launch vehicles segment as part of the COTS program that is being conducted by our advanced space programs segment.


Table of Contents

The CRS contract accounted for 14% and 21% of consolidated revenues in the third quarter of 2011 and 2010, respectively, and 18% and 20% of consolidated revenues in the first nine months of 2011 and 2010, 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 $46.7 million in the third quarter of 2011, a decrease of $19.0 million, or 29%, due to a higher level of subcontractor activity in the third quarter of 2010. CRS contract revenues totaled $179.1 million in the first nine months of 2011, a decrease of $14.1 million, or 7%, due to higher subcontractor activity in the first nine months of 2010.

Cost of Revenues - Our cost of revenues was $267.5 million in the third quarter of 2011, an increase of $29.7 million, or 13%, compared to the third quarter of 2010. Cost of revenues includes the costs of personnel, materials, subcontractors and overhead. The increase in our cost of revenues was primarily attributable to the increases in contract activity that drove the growth in revenues described above. Cost of revenues increased $14.8 million in the satellites and space systems segment, $14.5 million in the launch vehicles segment and $11.8 million in the advanced space programs segment. Eliminations of intersegment cost of revenues increased $11.4 million attributable to the increase in intersegment revenues discussed above.

Our cost of revenues was $821.3 million in the first nine months of 2011, an increase of $84.2 million, or 11%, compared to the first nine months of 2010. The increase in our year-to-date cost of revenues was primarily attributable to the increases in contract activity that drove the growth in revenues described above. Cost of revenues in the launch vehicles segment increased $69.1 million and cost of revenues in the satellites and space systems segment increased $58.4 million. These increases were partially offset by a decrease of $7.4 million in the advanced space programs segment. Eliminations of intersegment cost of revenues increased $35.9 million attributable to the increase in intersegment revenues discussed above.

Research and Development Expenses - Our research and development expenses totaled $26.7 million, or 8% of revenues, in the third quarter of 2011, a $8.7 million decrease compared to $35.4 million, or 11% of revenues, in the third quarter of 2010. Our research and development expenses totaled $67.3 million, or 7% of revenues, in the first nine months of 2011, a $28.6 million decrease compared to $95.8 million, or 10% of revenues, in the first nine months of 2010. The majority of our research and development expenses in 2011 and 2010 were attributable to the COTS program and our Taurus II launch vehicle development program.

In connection with the COTS agreement with NASA, we are designing, building and demonstrating a new space transportation system. Under the COTS agreement, as amended, NASA has agreed to pay us $288 million in cash milestone payments, partially funding our program costs which are currently estimated to be approximately $458 million. During the first quarter of 2011, NASA agreed to increase its funding by $98 million under the COTS agreement for a Taurus II test flight in addition to the demonstration flight that was already planned under the program. This additional test flight is intended to provide greater information on the Taurus II rocket's performance. We expect to complete the COTS program in the second quarter of 2012.


Table of Contents

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. As of September 30, 2011, deferred revenue and customer advances on our balance sheet included $26.9 million of cash received from NASA that had not yet been recorded as an offset to research and development expenses. The following table summarizes the COTS program costs incurred and amounts funded by NASA recorded in research and development expenses (in millions):

                                       Third Quarter              First Nine Months          Inception
                                     2011          2010           2011          2010          To Date
Research and development costs
incurred (1)                      $     36.8     $    39.9     $    115.1     $   107.0     $     374.3
Less - amounts funded by NASA           23.0          19.0           82.3          52.1           234.6
Net research and development
expenses                          $     13.8     $    20.9     $     32.8     $    54.9     $     139.7

(1) Includes associated general and administrative expenses.

Research and development expenses attributable to our Taurus II launch vehicle development program were $9.0 million and $12.3 million in the third quarter of 2011 and 2010, respectively, and were $24.2 million and $35.4 million in the first nine months of 2011 and 2010, respectively.

We believe that the majority of our research and development expenses are recoverable and billable under our contracts with the U.S. Government. Charging practices relating to research and development and other costs that may be charged directly or indirectly to government contracts are subject to audit by U.S. Government agencies to determine if such costs are reasonable and allowable under government contracting regulations and accounting practices. We believe that the research and development costs incurred in connection with our Taurus II development program are allowable, although the U.S. Government has not yet made a final determination. Since the inception of the Taurus II program through September 30, 2011, we have incurred $143.4 million of such expenses that have been recorded as allowable costs. If such costs were determined to be unallowable, we could be required to record revenue and profit reductions in future periods.

In the third quarter and first nine months of 2010, we recognized $1.6 million and $6.5 million, respectively, of research and development expenses in excess of a self-imposed ceiling on the amount of such expenses that we would recover under our U.S. Government contracts, although we believe that such expenses otherwise would have been allowable and recoverable under U.S. Government contracting regulations and accounting practices. There were no unrecoverable research and development expenses incurred in 2011.

Selling, General and Administrative Expenses - Selling, general and administrative expenses were $23.3 million and $22.0 million, or 7% of revenues, in the third quarter of 2011 and 2010, 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 $1.3 million, or 6%, in the third quarter of 2011 compared to the third quarter of 2010 primarily due to certain legal and other general and


Table of Contents

administrative expenses, partially offset by lower bid, proposal and marketing costs in the satellites and space systems and the advanced space programs segments.

Selling, general and administrative expenses were $64.3 million and $66.7 million, or 6% and 7% of revenues, in the first nine months of 2011 and 2010, respectively. Selling, general and administrative expenses decreased $2.3 million, or 3%, in the first nine months of 2011 primarily due to a decrease in bid, proposal and marketing costs in all of our business segments and the absence of $1.6 million of transaction expenses incurred in 2010 in connection with a business acquisition.

Operating Income - Operating income was $24.7 million in the third quarter of 2011, an increase of $5.3 million, or 27%, compared to the third quarter of 2010 due to operating income increases in all of our business segments. Satellites and space systems segment operating income increased $4.0 million due to increased contract activity and improved profit margins on communications satellite contracts. Operating income from communications satellite contracts reflected the absence of $1.0 million of costs incurred in the third quarter of 2010 pertaining to the successful resolution of a satellite anomaly that occurred in April 2010. Launch vehicles segment operating income increased $0.3 million primarily due to the absence of $1.6 million of unrecovered research and development expenses that were recognized in the third quarter of 2010, in addition to increased activity on target launch vehicle contracts, partially offset by decreased activity on certain space launch vehicles and missile defense interceptors. Advanced space programs segment operating income increased $0.1 million primarily due to increased activity on national security satellite contracts and the absence of an unfavorable profit reduction of $2.8 million in the third quarter of 2010 attributable to the termination of the Orion LAS contract offset by a $5.4 million profit improvement in the third quarter of 2010 related to a research and development expense rate adjustment. Operating income in the third quarter of 2010 also included $0.9 million of unallocated corporate-level costs.

Operating income was $57.6 million in the first nine months of 2011, an increase of $8.6 million, or 18%, compared to the first nine months of 2010 due to operating income increases in our satellites and space systems and advanced space programs segments, partially offset by a decrease in operating income in our launch vehicles segment. Satellites and space systems segment operating income increased $7.6 million primarily due to increased activity and improved profit margins on communications satellite contracts. Communications satellite operating income reflected the absence of $3.5 million of costs incurred in the first nine months of 2010 pertaining to the successful resolution of the satellite anomaly discussed above. Advanced space programs segment operating income increased $4.5 million primarily due to increased activity on national security satellite contracts and the absence of an unfavorable profit reduction of $2.8 million in the third quarter of 2010 attributable to the termination of the Orion LAS contract. Launch vehicles segment operating income decreased $5.9 million primarily due to an approximately $12.1 million operating income reduction resulting from a Taurus XL launch failure during the first quarter of 2011 discussed below. The effect of the launch failure was partially offset by the absence in 2011 of $6.5 million of unrecovered research and development expenses that were recognized in 2010. Operating income in 2010 also included $2.5 million of


Table of Contents

transaction expenses attributable to a business acquisition as well as other unallocated corporate-level costs.

On March 4, 2011, our Taurus XL rocket, which was carrying the Glory scientific satellite that we had built for NASA, experienced a launch failure. As a result, in the first quarter of 2011, we recorded an $11.3 million adjustment to reduce revenue and operating profit on the Taurus contract pertaining to a mission success incentive that was not earned. The unearned mission success incentive was recovered under an insurance policy. We recorded an $11.3 million insurance recovery accrual reported as "other income" in the first quarter of 2011.

Total operating income from the CRS contract was $2.3 million in the third quarter of 2011, a decrease of $0.9 million due to a higher level of subcontract activity in the third quarter of 2010. Total operating income from the CRS contract was $9.0 million in the first nine months of 2011, a decrease of $0.4 million compared to the first nine months of 2010.

Interest Income and Other - Interest income and other was $0.4 million in the third quarter of 2011, compared to $0.5 million in the third quarter of 2010. Interest income and other was $12.6 million in the first nine months of 2011, compared to $1.2 million in the first nine months of 2010. Interest income and other in the first nine months of 2011 included the $11.3 million insurance recovery pertaining to the Taurus XL launch failure discussed above.

Interest Expense - Interest expense was $2.9 million and $2.4 million in the third quarter of 2011 and 2010, respectively, and was $8.2 million and $7.1 million in the first nine months of 2011 and 2010, respectively, primarily attributable to interest on our long-term debt.

Income Tax Provision - We recorded an income tax provision of $5.7 million and $6.8 million in the third quarter of 2011 and 2010, respectively. We recorded income tax provisions of $11.9 million and $16.8 million in the first nine months of 2011 and 2010, respectively. Our effective income tax rate was 19.2% and 39.1% for the first nine months of 2011 and 2010, respectively. The reduction in income taxes was largely due to a favorable income tax adjustment of $7.7 million recorded in the second quarter of 2011 pertaining to our election to claim extraterritorial income exclusions related to export activities in certain prior years. In addition, income taxes in 2011 reflected federal research and development tax credits as a result of legislation that was re-enacted in the fourth quarter of 2010.

Net Income - Our net income was $16.5 million, or $0.28 diluted earnings per share, and $10.6 million, or $0.18 diluted earnings per share, in the third quarter of 2011 and 2010, respectively, and was $50.0 million, or $0.84 diluted earnings per share, and $26.2 million, or $0.45 diluted earnings per share, in the first nine months of 2011 and 2010, respectively.

Segment Results for the Quarters and Nine Months Ended September 30, 2011 and 2010

Our products and services are grouped into three reportable segments: launch vehicles, satellites and space systems and advanced space programs. Corporate office transactions that


Table of Contents

have not been attributed to a particular segment, as well as consolidating eliminations and adjustments, are reported in corporate and other.

The following tables of financial information and related discussion of the results of operations of our business segments are consistent with the presentation of segment information in Note 3 to the 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)     2011          2010        % Change        2011          2010         % Change
Revenues           $ 116,538     $ 105,828           10%     $ 353,178     $ 301,872            17%
Operating income       5,242         4,988            5%         7,063        12,988           (46% )
Operating margin        4.5%          4.7%                        2.0%          4.3%

Segment Revenues - Launch vehicles segment revenues increased $10.7 million, or 10%, in the third quarter of 2011 compared to the third quarter of 2010 primarily due to increased production work on target launch vehicles and Taurus II launch vehicles, partially offset by decreased activity on other space launch vehicles and missile defense interceptors. Target launch vehicle revenues grew $19.3 million, or 93%, primarily due to recently awarded contracts. Taurus II launch vehicle revenues increased $4.7 million while other space launch vehicle revenues declined $9.3 million, primarily due to decreased activity on Minotaur space launch vehicles. Taurus II launch vehicle revenues were $40.1 million and $35.4 million in the third quarter of 2011 and 2010, respectively, which included $26.1 million and $14.4 million, respectively, related to the COTS program and $14.0 million and $21.0 million, respectively, related to the CRS contract. Missile defense interceptor revenues decreased $4.0 million, or 15%, due to decreased activity on our Ground-based Midcourse Defense contract in the third quarter of 2011.

Launch vehicles segment revenues increased $51.3 million, or 17%, in the first nine months of 2011 compared to the first nine months of 2010 principally due to increased production work on target launch vehicles and Taurus II launch vehicles, partially offset by decreased activity on other space launch vehicles and missile defense interceptors. Taurus II launch vehicle revenues increased $46.3 million while other space launch vehicle revenues decreased $13.3 million due to decreased activity on Minotaur space launch vehicles and the effect of the March 2011 Taurus XL launch failure discussed above. Taurus II launch vehicle revenues were $142.1 million and $95.8 million in the first nine months of 2011 and 2010, respectively, which included $77.8 million and $41.4 million, respectively, related to the COTS program and $64.3 million and $54.4 million, respectively, related to the CRS contract. Target launch vehicle revenues increased $32.4 million, or 49%, primarily due to certain new contracts awarded in the first quarter of 2011. Missile defense interceptor revenues decreased $11.2 million, or 14%, due to decreased activity on our Ground-based Midcourse Defense contract.


Table of Contents

Segment Operating Income - Operating income in the launch vehicles segment increased $0.3 million, or 5%, in the third quarter of 2011 compared to the third quarter of 2010 primarily due to increased activity on target vehicles and the absence of $1.6 million of unrecovered research and development expenses that were recognized in the third quarter of 2010. These factors were partially offset by decreased activity on missile defense interceptors and certain space launch vehicles and profit margin reductions on certain space launch vehicles. Operating income from target vehicles increased $1.2 million, or 37%, in the third quarter of 2010, primarily due to increased activity on recently awarded contracts. Operating income from missile defense interceptors decreased $0.7 million, or 22%, in the third quarter of 2010, primarily due to decreased activity. Operating income from space launch vehicles decreased $1.8 million primarily due to decreased activity on Minotaur space launch vehicles and certain Pegasus launch vehicles. Operating income from Taurus II launch vehicles for the CRS contract was $0.7 million and $0.9 million in the third quarter of 2011 and 2010, respectively. This segment does not recognize any profit pertaining to the intersegment Taurus II launch vehicle revenues associated with the COTS program, which is conducted by and reported as a research and development program in our advanced space programs segment.

Operating income in the launch vehicles segment decreased $5.9 million, or 46%, in the first nine months of 2011 compared to the first nine months of 2010 primarily due to a $12.1 million reduction in operating income resulting from the March 2011 Taurus XL launch failure discussed above, partially offset by a favorable adjustment in connection with the Kinetic Energy Interceptor contract that had been terminated for convenience in 2009 and the absence of unrecovered research and development expenses of $6.5 million that were recognized in 2010. Operating income from missile defense interceptor contracts increased $1.3 million, or 17%, in the first nine months of 2011, primarily due to the favorable profit adjustments noted above. Operating income from Taurus II launch vehicle production work for the CRS contract was $3.3 million and $2.6 million in the first nine months of 2011 and 2010, respectively.

Segment operating margin (as a percentage of revenues) decreased to 4.5% in the third quarter of 2011 compared to 4.7% in the third quarter of 2010 primarily due to profit margin reductions on certain space launch vehicle contracts and higher intersegment Taurus II launch vehicle revenues (which do not generate profit) associated with the COTS program, partially offset by the absence of unrecovered research and development expenditures that were recognized in 2010. Segment operating margin decreased in the first nine months of 2011 primarily due to the same factors that drove operating income results in the first nine months as discussed above.


Table of Contents

Satellites and Space Systems

Satellites and space systems segment operating results were as follows:

. . .
  Add ORB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ORB - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.