Net income was $9.4 million, or $0.16 diluted earnings per share, in the third quarter of 2009, compared to net income of $11.4 million, or $0.19 diluted earnings per share in the third quarter of 2008. Orbital generated $24.4 million of free cash flow* in the third quarter of 2009 compared to free cash flow of $37.1 million in the third quarter of 2008.

Mr. David W. Thompson, Orbital's Chairman and Chief Executive Officer, said, "Orbital reported solid third quarter 2009 financial results with better than expected earnings and free cash flow. Strong revenue growth in our advanced space programs offset revenue declines in satellites and space systems, while all three of our reporting segments generated higher than planned operating margins and cash flow. The company also received $365 million in new contracts and option exercises in the third quarter, which helped to boost our financial outlook for 2010."

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* "Free cash flow" is a non-GAAP financial measure discussed in this release. For additional details, please refer to the sections of this press release entitled "Cash Flow" and "Disclosure of Non-GAAP Financial Measures."

Financial Highlights

Summary financial results were as follows:

                                        Third Quarter           First Nine Months    
 (in millions, except per share data)   2009        2008        2009        2008     
 Revenues                               $  277.1    $  278.6    $  843.0    $  863.4 
 Operating Income                          13.6        21.0        37.6        67.5  
 Income from Continuing Operations         9.4         11.4        27.3        33.6  
 Income from Discontinued Operations       -           -           -           15.9  
 Net Income                                9.4         11.4        27.3        49.5  
 Diluted Earnings per Share:                                                         
 Continuing Operations                  $  0.16     $  0.19     $  0.47     $  0.55  
 Discontinued Operations                   -           -           -           0.26  
 Net Income                                0.16        0.19        0.47        0.81  


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Revenues decreased $1.5 million, or 1%, in the third quarter of 2009 compared to the third quarter of 2008 primarily due to decreased contract activity on communications satellite and missile defense programs, substantially offset by activity on the Commercial Resupply Services (CRS) contract awarded by NASA at the end of last year.

Operating income decreased $7.4 million, or 35%, in the third quarter of 2009 compared to the third quarter of 2008 primarily due to a $4.0 million increase in unrecovered Taurus II launch vehicle research and development expenses and a $2.4 million decrease in satellites and space systems segment operating income. The company's research and development expenses are generally recoverable under contracts with the U.S. Government. However, in the third quarters of 2009 and 2008, the company's operating income was reduced by $7.0 million and $3.0 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. Non-cash investment impairment charges of $2.0 million and $1.0 million related to auction rate securities were recorded in the third quarters of 2009 and 2008, respectively.

The company's third quarter 2009 tax provision included favorable adjustments for research and development tax credits, resulting in a lower effective income tax rate in the third quarter of 2009 compared to the third quarter of 2008.

Net income in the third quarter of 2009 was $9.4 million, or $0.16 diluted earnings per share, compared to $11.4 million, or $0.19 diluted earnings per share in the third quarter of 2008. Diluted weighted-average shares outstanding were 57.4 million in the third quarter of 2009 compared to 60.1 million in the third quarter of 2008 due to share repurchases made by the company in late 2008 and the first half of 2009.

Segment Results

Launch Vehicles

                    Third Quarter                          First Nine Months                    
 ($ in millions)    2009          2008          % Change   2009          2008          % Change 
 Revenues           $  110.0      $  111.8      (2   %)    $  346.3      $  332.1      4    %   
 Operating Income      3.2           8.4        (62  %)       11.6          29.4       (61  %)  
 Operating Margin      2.9    %      7.5    %                 3.3    %      8.9    %            


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Launch vehicles segment revenues decreased $1.8 million in the third quarter of 2009 compared to the same period in 2008 primarily as a result of the termination of the Kinetic Energy Interceptor (KEI) program by the Missile Defense Agency in the second quarter of 2009, partially offset by an increase in launch vehicle activity on the CRS contract. Launch vehicles segment revenues increased $14.2 million in the first nine months of 2009 compared to the same period in 2008 primarily due to increased activity on missile defense and space launch vehicle contracts, partially offset by the impact of the termination of the KEI program.

Launch vehicles segment operating income decreased $5.2 million in the third quarter and $17.8 million in the first nine months of 2009 compared to the same periods in 2008 primarily due to an increase in unrecovered research and development expenditures in 2009, primarily related to the Taurus II program. In addition, lower operating income from space launch vehicle contracts primarily due to cost increases in 2009 contributed to the decrease in segment operating income. The first nine months of 2008 also included a $4.0 million favorable profit adjustment recorded in the second quarter of last year in connection with the closure of a U.S. Government investigation.

Launch vehicles segment adjusted operating income* was $10.2 million and $11.4 million in the third quarters of 2009 and 2008, respectively, and $31.7 million and $32.4 million in the first nine months of 2009 and 2008, respectively. Segment adjusted operating margin* was 9.3% and 10.2% in the third quarters of 2009 and 2008, respectively, and 9.2% and 9.9% in the first nine months of 2009 and 2008, respectively. The decline in segment adjusted operating margin was primarily due to lower operating margins on space launch vehicle contracts.

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* "Adjusted operating income" and "adjusted operating margin" are non-GAAP financial measures discussed in this release. For additional details, please refer to the section of this press release entitled "Disclosure of Non-GAAP Financial Measures."

Satellites and Space Systems

                    Third Quarter                         First Nine Months                    
 ($ in millions)    2009         2008          % Change   2009          2008          % Change 
 Revenues           $  75.7      $  100.0      (24  %)    $  280.0      $  314.5      (11  %)  
 Operating Income      5.7          8.1        (30  %)       21.2          23.5       (10  %)  
 Operating Margin      7.5   %      8.1    %                 7.6    %      7.5    %            


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Satellites and space systems segment revenues decreased $24.3 million in the third quarter and $34.5 million in the first nine months of 2009 compared to the same periods in 2008 primarily due to decreased activity on communications satellite contracts as a result of the substantial completion of certain satellites.

Satellites and space systems segment operating income decreased $2.4 million in the third quarter and $2.3 million in the first nine months of 2009 compared to the same periods in 2008 primarily due to the reduction in revenues mentioned above. In addition, the third quarter of 2009 includes the effect of the delay of a science satellite as well as the substantial completion of a technical services program. Segment operating margin declined in the third quarter of 2009 compared to the same period in 2008 primarily due to lower profit margins on science satellite and space technical services programs.

Advanced Space Programs

                    Third Quarter                        First Nine Months                    
 ($ in millions)    2009         2008         % Change   2009          2008          % Change 
 Revenues           $  94.4      $  68.6      38  %      $  224.8      $  220.9      2    %   
 Operating Income      4.7          4.5       4   %         4.8           15.1       (68  %)  
 Operating Margin      5.0   %      6.6   %                 2.1    %      6.8    %            


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Advanced space programs segment revenues increased $25.8 million in the third quarter and $3.9 million in the first nine months of 2009 compared to the same periods in 2008 primarily due to increased activity on the CRS contract, partially offset by a reduction in activity on the Orion human spaceflight program.

Advanced space programs segment operating income increased marginally in the third quarter of 2009 compared to the same period in 2008 primarily due to the increase in activity on the CRS contract, partially offset by a reduction in Orion program activity. During the first nine months of 2009, advanced space programs segment operating income decreased $10.3 million compared to the same period in 2008 primarily due to the reduction in Orion program activity and cost increases on certain national security satellite programs in the first half of 2009. Segment operating margins declined in 2009 primarily due to the cost increases on national security satellite programs.

Cash Flow

Cash flow for the third quarter and first nine months of 2009 was as follows:

                                             Third Quarter   First Nine Months 
 ($ in millions)                             2009            2009              
 Net Cash Provided by Operating Activities   $  34.9         $  79.2           
 Capital Expenditures                           (10.5  )        (28.8  )       
 Free Cash Flow                                 24.4            50.4           
 Repurchase of Common Stock                     -               (16.7  )       
 Other                                          (0.5   )        2.2            
 Net Increase in Cash                           23.9            35.9           
 Beginning Cash Balance                         340.3           328.3          
 Ending Cash Balance                         $  364.2        $  364.2          


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Free cash flow was $24.4 million for the third quarter and $50.4 million for the first nine months of 2009. Orbital did not repurchase any shares of its common stock during the third quarter of 2009, but did repurchase 1,169,600 shares for $16.7 million in the first half of 2009. The company's unrestricted cash balance was $364.2 million as of September 30, 2009.

New Business Highlights

During the third quarter of 2009, Orbital received approximately $235 million in new firm and option contract bookings. In addition, the company received approximately $130 million of option exercises under existing contracts.