Income from continuing operations was $8.7 million, or $0.15 diluted earnings per share, in the second quarter of 2009, compared to income from continuing operations of $10.1 million, or $0.17 diluted earnings per share in the second quarter of 2008. Orbital generated $15.8 million of free cash flow* in the second quarter of 2009 compared to free cash flow of $13.3 million in the second quarter of 2008.

Mr. David W. Thompson, Orbital's Chairman and Chief Executive Officer, said, "The company's second quarter financial results were mixed, with lower revenues, good operating margins before R&D expenses, and solid free cash flow. We continued to make steady progress on the Taurus II launch vehicle and Cygnus spacecraft development programs which, when completed, should add significantly to our business in future periods. Finally, we reduced our revenue and profit estimates for the year due to delayed satellite orders, the termination of a missile defense contract and reduced margins in advanced space programs."

Financial Highlights

Summary financial results were as follows:

                                                                                                                              Second Quarter         First Six Months       (in millions, except per share data)   2009        2008       2009        2008       Revenues                               $  270.1    $  301.2   $  565.9    $  584.8   Operating Income                          12.8        26.5       24.0        46.5    Income from Continuing Operations         8.7         10.1       17.9        22.2    Income from Discontinued Operations       -           15.0       -           15.9    Net Income                                8.7         25.1       17.9        38.1    Diluted Earnings per Share:                                                          Continuing Operations                  $  0.15     $  0.17    $  0.31     $  0.36    Discontinued Operations                   -           0.24       -           0.26    Net Income                                0.15        0.41       0.31        0.62     -------------------------------------------------------------------------------  

Revenues decreased $31.1 million, or 10%, in the second quarter of 2009 compared to the second quarter of 2008 primarily due to decreased contract activity on the Orion human spacecraft program and communications satellite programs.

Operating income decreased $13.7 million, or 52%, in the second quarter of 2009 compared to the second quarter of 2008 primarily due to a $5.2 million increase in unrecovered Taurus II launch vehicle research and development expenses and a $4.7 million decrease in advanced space programs operating income, both occurring in the second quarter of 2009, and a $4.0 million favorable profit adjustment recorded in the second quarter of 2008 in connection with the closure of a U.S. Government investigation. The company's research and development expenses are generally recoverable under contracts with the U.S. Government. However, in the second quarters of 2009 and 2008, the company's operating income was reduced by $6.9 million and $1.7 million, respectively, of unrecovered research and development expenses that exceeded a self-imposed ceiling on such costs.

Certain non-operating transactions also impacted the company's financial results in 2009 and 2008. In the second quarter of 2009, the company recorded a $0.6 million non-cash investment impairment charge related to auction rate securities and a $1.1 million gain from the sale of an investment. In the second quarter of 2008, the company recorded a $10.6 million non-cash investment impairment charge related to auction rate securities.

As previously disclosed, Orbital adopted a new accounting standard in the first quarter of 2009 that changed the accounting for the company's convertible debt for current and prior periods. As a result, the company recorded non-cash interest expense of $1.2 million and $1.1 million in the second quarter of 2009 and 2008, respectively, or a $0.01 decrease in diluted earnings per share in both quarters.

The effective income tax rate decreased to approximately 30% in the first six months of 2009 compared to approximately 37% in the first six months of 2008, primarily due to an increase in research and development tax credits in 2009.

Net income in the second quarter of 2009 was $8.7 million, or $0.15 diluted earnings per share. Net income in the second quarter of 2008 was $25.1 million, or $0.41 diluted earnings per share, including $15.0 million of income from discontinued operations attributable to a non-core business unit that was sold in the second quarter of 2008. Diluted weighted-average shares outstanding decreased to 57.2 million in the second quarter of 2009 compared to 60.1 million in the second quarter of 2008 due to share repurchases made by the company.

Segment Results

Launch Vehicles

                                                                                                          Second Quarter                   First Six Months                 ($ in millions)    2009       2008       % Change   2009       2008       % Change   Revenues           $  117.1   $  115.0   2%         $  236.3   $  220.3   7%         Operating Income      4.1        13.4    (69%)         8.4        21.0    (60%)      Operating Margin      3.5%       11.7%                 3.6%       9.5%                -------------------------------------------------------------------------------  

Launch vehicles segment revenues increased $2.1 million in the second quarter and $16.0 million in the first half of 2009 compared to the same periods in 2008 primarily due to increased activity on missile defense contracts.

Launch vehicles segment operating income decreased $9.3 million in the second quarter and $12.6 million in the first half of 2009 compared to the same periods in 2008 primarily due to an increase in unrecovered research and development expenditures, largely related to the Taurus II program, in 2009 and a $4.0 million favorable profit adjustment recorded in the second quarter of 2008 in connection with the closure of a U.S. Government investigation.

Launch vehicles segment adjusted operating income** was $11.0 million and $11.1 million in the second quarters of 2009 and 2008, respectively, and $21.5 million and $20.9 million in the first half of 2009 and 2008, respectively. Segment adjusted operating margin** was 9.4% and 10.0% in the second quarters of 2009 and 2008, respectively, and 9.1% and 9.7% in the first half of 2009 and 2008, respectively.

Satellites and Space Systems

                                                                                                         Second Quarter                  First Six Months                 ($ in millions)    2009      2008       % Change   2009       2008       % Change   Revenues           $  94.1   $  108.1   (13%)      $  204.3   $  214.5   (5%)       Operating Income      7.7       7.6     1%            15.5       15.5    -          Operating Margin      8.2%      7.0%                  7.6%       7.2%                -------------------------------------------------------------------------------  

Satellites and space systems segment revenues decreased $14.0 million in the second quarter and $10.2 million in the first half of 2009 compared to the same periods in 2008 primarily due to decreased activity on communications satellite contracts in both periods as a result of the substantial completion of certain satellites.

Satellites and space systems segment operating income was approximately the same in the 2009 periods compared to the 2008 periods. Segment operating margin increased in the second quarter and first half of 2009 compared to the same periods in 2008 primarily due to improved profit margins on communications satellite programs.

Advanced Space Programs

                                                                                                        Second Quarter                 First Six Months                 ($ in millions)    2009      2008      % Change   2009       2008       % Change   Revenues           $  62.1   $  79.7   (22%)      $  130.4   $  152.3   (14%)      Operating Income      1.0       5.7    (82%)         0.1        10.6    (99%)      Operating Margin      1.6%      7.2%                 0.1%       7.0%                -------------------------------------------------------------------------------  

Advanced space programs segment revenues decreased $17.6 million in the second quarter and $21.9 million in the first half of 2009 compared to the same periods in 2008 primarily due to the previously anticipated reduction in activity on the Orion human spacecraft program partially offset by an increase in national security satellite program activity related to recently awarded contracts.

Advanced space programs segment operating income decreased $4.7 million in the second quarter and $10.5 million in the first half of 2009 compared to the same periods in 2008 primarily due to the reduction in Orion program activity and cost increases on certain national security satellite programs. Segment operating margins declined in 2009 primarily due to the cost increases on national security satellite programs.