Orbital Sciences’ Net Income Drops 29 Percent

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Update 1 – Orbital Sciences Q1 net drops 29 pct
Reuters

Orbital Sciences Corp (ORB.N), a maker of small rockets and satellites, posted a 29 percent drop in quarterly profit, hurt mainly by higher research and development expenses, and lowered its 2009 profit view for the second time in almost three months.


For the first quarter, net income fell to $9.2 million, or 16 cents a share, compared with $13.0 million, or 21 cents a share, a year earlier.

On an adjusted basis, the company earned 17 cents a share. Revenue rose 4 percent to $295.7 million. R&D expenses jumped more than twofold to $19.0 million.

Analysts on average were expecting earnings of 17 cents a share, before special items, on revenue of $286.1 million, according to Reuters Estimates.

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ORBITAL SCIENCES CORPORATION PRESS RELEASE

Orbital Sciences Corporation (NYSE: ORB) today reported its financial results for the first quarter of 2009. First quarter 2009 revenues were $295.7 million, a 4% increase compared to $283.5 million in the first quarter of 2008. First quarter 2009 operating income was $11.2 million, compared to $20.0 million in the first quarter of 2008.

Adjusted net income* was $9.9 million, or $0.17 adjusted diluted earnings per share*, in the first quarter of 2009, compared to income from continuing operations of $12.1 million, or $0.20 diluted earnings per share in the first quarter of 2008. Orbital generated $10.2 million of free cash flow* in the first quarter of 2009 compared to free cash flow of $17.8 million in the first quarter of 2008.

Mr. David W. Thompson, Orbital’s Chairman and Chief Executive Officer, said, “Orbital’s first quarter of 2009 reflected mixed results. On the positive side, we achieved good strategic and operational progress with substantial new orders and option exercises and significant accomplishments in our Taurus II rocket and Cygnus cargo transportation spacecraft development programs. We also saw solid revenue growth in our launch vehicles and satellites and space systems segments. These encouraging results were offset by the operational failure of one of our space launch vehicles and by cost increases on certain programs in our advanced space programs segment.”

Revenues increased $12.2 million, or 4%, in the first quarter of 2009 compared to the first quarter of 2008, primarily due to increased contract activity on missile defense and communications satellite programs.

Operating income decreased $8.8 million, or 44%, in the first quarter of 2009 compared to the first quarter of 2008, primarily due to a $3.8 million increase in unrecovered Taurus II launch vehicle research and development expenses, and a $3.5 million loss recorded on two advanced space programs contracts due to cost increases. The company’s research and development expenses are generally recoverable under contracts with the U.S. Government. However, in the first quarters of 2009 and 2008, the company’s operating income was reduced by $6.1 million and $2.3 million, respectively, of unrecovered research and development expenses that exceeded a self-imposed ceiling on such costs.

Several non-operating factors also impacted the company’s first quarter 2009 financial results, including a $0.7 million non-cash investment impairment charge related to auction rate securities and a $5.3 million insurance recovery recorded in “other income” in connection with the launch failure of Orbital’s Taurus XL rocket in February 2009. In addition, in the first quarter of 2009 Orbital adopted Financial Accounting Standards Board Staff Position No. APB 14-1 that changed the accounting guidance for the company’s convertible debt. The company’s 2008 financial statements have been adjusted as required by the new accounting guidance. As a result, the company recorded additional non-cash interest expense of $1.2 million and $1.1 million in the first quarter of 2009 and 2008, respectively, resulting in a $0.01 decrease in diluted earnings per share in both quarters.

Orbital’s effective income tax rate decreased to 33.7% in the first quarter of 2009 compared to 40.4% in the first quarter of 2008. The lower tax rate was primarily due to an increase in tax credits in 2009 related to research and development programs.

Net income for the first quarter of 2009 was $9.2 million, or $0.16 diluted earnings per share, down from $13.0 million, or $0.21 diluted earnings per share, for the first quarter of 2008. Net income in 2008 included $0.9 million of income from discontinued operations attributable to a business unit that was sold in the second quarter of 2008. Diluted weighted-average shares outstanding decreased to 57.9 million in the first quarter of 2009 compared to 59.8 million in the first quarter of 2008 due to share repurchases made by the company.

Segment Results

Launch Vehicles

Launch vehicles segment revenues increased $13.9 million in 2009 primarily due to increased activity on missile defense contracts. Launch vehicles segment operating income declined $3.3 million in 2009 mainly due to a $3.8 million increase in unrecovered Taurus II launch vehicle research and development expenses and a $0.8 million contract loss recorded in connection with the February 2009 Taurus XL launch failure that offset higher profits generated by the increase in missile defense contract activity. Segment operating margin was lower in 2009 due to the increase in unrecovered research and development expenditures and costs related to the launch failure. Segment operating income, excluding the unrecovered research and development expenses, was $10.4 million* and $9.9 million* in the first quarter of 2009 and 2008, respectively. Segment operating margin, excluding the unrecovered research and development expenditures, was 8.7% and 9.4% in the first quarter of 2009 and 2008, respectively.

Satellites and Space Systems

Satellites and space systems segment revenues increased $3.8 million in 2009 principally due to increased activity on communications satellite contracts. Satellites and space systems segment operating income and operating margin decreased marginally in 2009 as favorable profit adjustments on certain science and technology satellite contracts were more than offset by the impact of cost increases on certain communications satellite contracts.

Advanced Space Programs

Advanced space programs segment revenues decreased $4.3 million in 2009 due to the anticipated reduction in contract activity on the Orion human spacecraft program for NASA, partly offset by increased activity on national security satellite contracts. The advanced space programs segment reported an operating loss in the first quarter of 2009 primarily as a result of a $3.5 million loss recorded on two contracts due to cost increases and $0.8 million of legal fees incurred in connection with a protest of the NASA Commercial Resupply Services (CRS) contract awarded to the company in late 2008. In April 2009, the protest was denied by the U.S. Government Accountability Office (GAO) and the award to Orbital was upheld. Segment operating margin decreased significantly in 2009 as a result of the cost increases.

New Business Highlights

During the first quarter of 2009, Orbital received approximately $215 million in new firm and option contract bookings. In addition, the company received approximately $265 million of option exercises under existing contracts. Options exercised included the first mission under NASA’s CRS space station cargo delivery contract recently awarded to the company. As of March 31, 2009, the company’s firm contract backlog was approximately $2.1 billion and its total backlog (including options, indefinite-quantity contracts and undefinitized orders) was approximately $5.8 billion.

Operational Highlights

In the first quarter of 2009, Orbital successfully deployed the NSS-9 commercial communications satellite for SES New Skies. The satellite has completed its in-orbit testing and is now providing commercial services for SES New Skies. Orbital delivered eight additional systems for future missions, including the Optus D3 communications satellite, a Minotaur I space launch vehicle for the TacSat-3 mission currently scheduled for early May, an Orbital Boost Vehicle interceptor for the Ground-based Midcourse Defense system, one missile defense-related target and four Coyote supersonic naval target missiles. In February, Orbital’s Taurus XL rocket, carrying the company-built Orbiting Carbon Observatory satellite for NASA, failed to achieve orbit after the protective fairing encapsulating the spacecraft did not separate from the rocket as planned, resulting in the loss of the Earth science satellite.

For the remainder of 2009, Orbital expects to carry out between 15 and 18 other major space missions and rocket launches and to complete and deliver an additional 12 to 15 systems for future deployments.

2009 Financial Guidance

The current and previous earnings per share guidance reflects the adoption of the new accounting standard discussed above. As a result of the new accounting standard, the company will record $4.8 million of additional non-cash interest expense in 2009, reducing diluted earnings per share by $0.05. As previously reported, the 2009 guidance includes an approximately $0.25 impact on diluted earnings per share due to unrecovered Taurus II launch vehicle research and development expenses.

Orbital has lowered its 2009 operating income margin and earnings per share guidance primarily as a result of several events that occurred in the first quarter of 2009 as discussed above. These included cost increases on two advanced space programs segment contracts, legal fees incurred in connection with the CRS contract protest and cost increases in the launch vehicles segment as a result of the Taurus XL launch failure. In addition, the company recorded a $0.7 million, or $0.01 per share, non-cash investment impairment charge in the first quarter.