UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended: June 30, 2010
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number
001-34299
DIGITALGLOBE, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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31-1420852
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer
Identification No.)
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1601 Dry Creek Drive, Suite 260, Longmont, Colorado
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80503
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
(303) 684-4000
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
o
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 definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
o
No
þ
As of July 30, 2010 there were 45,733,043 shares of the registrants Common Stock, par value
$0.001 per share, outstanding.
DIGITALGLOBE, INC.
INDEX
Page 1 of 32
PART I FINANCIAL INFORMATION
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ITEM 1.
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Financial Statements
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DigitalGlobe, Inc.
Unaudited Condensed Consolidated Income Statements
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For the Three Months Ended
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For the Six Months Ended
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June 30,
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June 30,
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(in millions, except share and per share data)
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2009
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2010
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2009
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2010
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Revenue
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$
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70.0
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$
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81.0
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$
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137.2
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$
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158.1
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Costs and expenses:
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Cost of revenue, excluding depreciation and
amortization, presented below
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8.0
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10.1
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14.4
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20.2
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Selling, general and administrative
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21.5
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28.2
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44.1
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53.0
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Depreciation and amortization
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18.9
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31.0
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37.6
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60.1
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Income from operations
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21.6
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11.7
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41.1
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24.8
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Loss from early extinguishment of debt
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(7.7
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)
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(7.7
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)
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Loss on derivative instruments
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(1.8
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)
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Interest income (expense), net
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0.1
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(10.7
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)
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0.1
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(20.6
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Income before income taxes
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14.0
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1.0
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31.7
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4.2
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Income tax expense
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(5.6
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)
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(0.5
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(12.7
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(2.2
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Net income
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$
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8.4
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$
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0.5
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$
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19.0
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$
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2.0
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Earnings per share:
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Basic earnings per share
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$
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0.19
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$
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0.01
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$
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0.43
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$
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0.05
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Diluted earnings per share
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$
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0.19
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$
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0.01
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$
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0.43
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$
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0.04
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Weighted average common shares outstanding:
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Basic
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44,163,507
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43,987,552
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44,199,522
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43,876,444
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Diluted
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44,695,213
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46,111,912
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44,714,326
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46,143,028
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See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
Page 2 of 32
DigitalGlobe, Inc.
Unaudited Condensed Consolidated Balance Sheets
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(in millions, except share and per share data)
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December 31, 2009
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June 30, 2010
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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97.0
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$
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142.8
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Restricted cash
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7.3
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7.7
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Accounts receivable, net of allowance for doubtful
accounts of $1.2 and $1.4, respectively
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49.7
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55.0
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Prepaid and current assets
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12.0
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12.4
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Income tax receivable
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3.9
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3.9
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Deferred taxes
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1.7
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1.9
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Total current assets
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171.6
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223.7
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Property and equipment, net of accumulated
depreciation of $361.1 and $420.6, respectively
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891.0
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856.8
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Goodwill
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8.7
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8.7
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Intangibles, net of accumulated amortization of
$7.2 and $6.9, respectively
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1.8
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1.0
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Aerial image library
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5.4
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3.1
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Long-term restricted cash
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16.7
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15.4
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Long-term deferred contract costs
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36.2
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47.0
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Other assets, net
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9.1
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8.3
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Total assets
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$
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1,140.5
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$
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1,164.0
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES:
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Accounts payable
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$
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4.3
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$
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5.3
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Accrued interest
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6.2
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6.2
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Other accrued liabilities
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17.9
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21.5
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Current portion of deferred revenue
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32.8
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37.0
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Total current liabilities
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61.2
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70.0
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Long-term accrued liability
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7.0
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Deferred revenue
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239.6
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232.5
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Deferred lease incentive
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5.4
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5.0
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Long-term debt
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343.5
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344.8
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Long-term deferred tax liability
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11.3
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12.8
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Total liabilities
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$
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661.0
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$
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672.1
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COMMITMENTS AND CONTINGENCIES (Note 11)
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STOCKHOLDERS EQUITY:
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Preferred stock, $0.001 par value; 24,000,000
shares authorized; no shares issued and
outstanding at December 31, 2009 and June 30, 2010
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$
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$
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Common stock; $0.001 par value; 250,000,000 shares
authorized; 45,122,593 shares issued and
outstanding at December 31, 2009 and 45,776,482
shares issued and outstanding at June 30, 2010
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0.2
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0.2
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Treasury stock, at cost; 44,039 shares at December
31, 2009 and at June 30, 2010
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(0.7
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(0.7
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Additional paid-in capital
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496.0
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506.4
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Accumulated deficit
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(16.0
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(14.0
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Total stockholders equity
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479.5
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491.9
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Total liabilities and stockholders equity
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$
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1,140.5
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$
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1,164.0
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See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
Page 3 of 32
DigitalGlobe, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
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For the Six Months Ended June 30,
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($ in millions)
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2009
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2010
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income
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$
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19.0
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$
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2.0
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Adjustments to reconcile net income to net cash provided by operating
activities:
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Depreciation and amortization expense
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37.6
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60.1
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Non-cash recognition of pre-FOC payments
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(13.3
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)
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(12.8
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Non-cash amortization
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2.5
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2.2
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Non-cash stock compensation expense
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4.2
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2.9
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Amortization of debt issuance costs
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2.3
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Non-cash portion of loss on extinguishment of debt
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5.3
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Deferred income taxes
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11.6
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1.4
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Changes in:
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Accounts receivable, net
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(5.5
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(5.3
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Accounts receivable from related party
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(0.2
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Aerial image library
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(2.5
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)
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0.1
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Other assets
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(2.2
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(0.6
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Accounts payable
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1.1
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Accounts payable and accrued liabilities to related parties
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3.3
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Accrued liabilities
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(2.6
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)
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5.8
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Deferred contract costs from related party
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(7.7
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)
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Deferred contract costs
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(11.2
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Deferred revenue
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7.2
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9.9
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Deferred revenue related party
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2.1
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Net cash flows provided by operating activities
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59.9
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56.8
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Construction in progress additions
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(61.2
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(16.1
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Other property, equipment and intangible additions
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(4.6
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(3.3
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Settlements from derivative instrument
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(2.8
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)
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Change in restricted cash
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(1.7
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)
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0.9
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Net cash flows used in investing activities
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(70.3
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)
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(18.5
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)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Proceeds from issuance of debt, net of issuance costs
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330.9
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Proceeds from initial public offering, net of issuance costs
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21.7
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Repayment of notes
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(270.0
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)
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Costs associated with initial public offering
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(0.3
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)
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Payments for repurchase of common stock
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(0.4
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)
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Proceeds from exercise of stock options
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0.1
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7.8
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Net cash flows provided by financing activities
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82.3
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7.5
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Net increase in cash and cash equivalents
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71.9
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45.8
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Cash and cash equivalents, beginning of period
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60.8
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97.0
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Cash and cash equivalents, end of period
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$
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132.7
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$
|
142.8
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SUPPLEMENTAL CASH FLOW INFORMATION:
|
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|
|
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Cash paid for income taxes
|
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$
|
2.3
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|
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$
|
0.1
|
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Cash paid
for interest payments, net of amounts capitalized
|
|
$
|
|
|
|
$
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11.6
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NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
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|
|
|
|
|
|
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Changes to non-cash property and equipment accruals, including interest
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|
$
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(0.7
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)
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|
$
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(5.8
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)
|
Non-cash items capitalized in construction in progress
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(4.1
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)
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|
See accompanying notes to the Unaudited Condensed Consolidated Financial Statements
Page 4 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1. General Information and Financial Condition
DigitalGlobe, Inc. (DigitalGlobe, the Company or we) was originally incorporated as EarthWatch,
Incorporated on September 30, 1994 under the laws of the State of Colorado and, on August 21, 1995,
was reincorporated under the laws of the State of Delaware. We commenced development stage
operations on March 31, 1995 with the contribution of the net assets of WorldView Imaging
Corporation and certain assets of Ball Corporation. On August 22, 2002, we changed our name to
DigitalGlobe, Inc.
We are a provider of commercial high-resolution earth imagery products and services. We have
customers in both the (i) defense and intelligence and (ii) commercial sectors.
We successfully launched and deployed the QuickBird satellite on October 18, 2001, and completed
initial on-orbit calibration and commissioning in February 2002, at which time we began selling
imagery collected by the satellite. Since that time, we have been operating the QuickBird satellite
and associated ground processing systems.
On January 4, 2007, the Company acquired GlobeXplorer, LLC and AirPhotoUSA, LLC. In January 2008,
the Company discontinued the use of the GlobeXplorer and AirPhoto USA names. All operations are now
reported under the DigitalGlobe name.
On September 18, 2007, the Company successfully launched the WorldView-1 satellite. On November 16,
2007, the National Geospatial-Intelligence Agency (NGA) of the United States government, our
largest customer, certified that the WorldView-1 satellite had satisfied the performance metrics
under the terms of the NextView agreement (described below) and declared the WorldView-1 satellite
to have achieved full operational capability (FOC).
On October 8, 2009, the
Company successfully launched and commissioned the WorldView-2 satellite, WorldView-2
achieved FOC on January 4, 2010.
On May 14, 2009, the Company completed an initial public offering (IPO) consisting of 14,700,000
shares of common stock at $19.00 per share. The total shares sold in the offering included
13,333,744 shares sold by selling stockholders and 1,366,256 shares sold by the Company. Cash
proceeds to the Company amounted to $24.1 million (net of $1.8 million of underwriters discount).
These proceeds were offset in equity by $5.1 million of offering costs of which $2.4 million were
paid in 2009.
In September 2003, we entered into the NextView agreement with NGA, under which we agreed to
provide a minimum of $531.0 million of imagery products and services from our WorldView-1
satellite. Of this amount, $266.0 million was received between September 2003 and November 2007,
the date WorldView-1 became operational, and was used to offset the construction costs of the
satellite. The remaining $265.0 million commitment was to be received upon the delivery of imagery
once WorldView-1 achieved FOC. On June 25, 2009, the NextView agreement was amended to extend the
term from July 31, 2009 through March 31, 2010 in consideration for payment of an additional $100.0
million, payable at $12.5 million per month during the extended term. On February 9, 2010 the
NextView agreement was amended to provide NGA with an option to extend the agreement for three
months on the same terms from April 1 to June 30, 2010 and six additional options each for a one
month period with the last option term expiring on December 31, 2010. On March 11, 2010, NGA
exercised the option to extend through June 30, 2010. On June 8, 2010, NGA exercised its first
monthly option to extend through July 31, 2010, and on July 13, 2010 exercised its second monthly
option to extend through August 31, 2010.
Although we expect NGA to exercise the additional options to extend the NextView
Agreement or alternatively we expect we will enter into a new agreement with NGA, we cannot assure you that
the U.S. government will continue to purchase earth imagery from us at similar levels or on similar terms & conditions in the
future. Further, all of our contracts with the U.S. government agencies are subject to risks of
termination or reduction in scope due to changes in U.S. government policies, priorities or
Congressional funding level commitments to various agencies. The U.S. government accounted for
approximately 64.3% of our consolidated revenue for the six months ended June 30, 2010. We believe
that existing cash and cash equivalents as of June 30, 2010 plus anticipated cash flow will be
sufficient to fund anticipated operations and capital expenditures for the next twelve months. If
NGA were not to renew or extend our contract at similar levels, we believe we would
be able to maintain operations with existing cash and cash equivalents for the next twelve months.
Furthermore, if necessary we could reduce operating expenses and/or defer capital expenditures.
Page 5 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of DigitalGlobe, Inc. and its wholly
owned subsidiaries. All significant intercompany transactions have been eliminated in
consolidation.
Basis of Presentation
Our accompanying unaudited consolidated financial statements for the three and six months periods
ended June 30, 2009 and 2010 included herein have been prepared in accordance with accounting
principles generally accepted in the United States (GAAP) for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange
Commission (SEC). All amounts included in the consolidated financial statements for the three and
six months periods ended June 30, 2009 and 2010 are unaudited. Accordingly, they do not include
all of the information and notes required by GAAP for complete financial statements. In the opinion
of management, all adjustments, including only normal recurring adjustments, that are considered
necessary for a fair presentation of the accompanying consolidated financial statements, have been
included. Operating results for the three and six months ended June 30, 2010 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2010 or for any
future period. The year-end condensed balance sheet was derived from audited financial statements,
but does not include all disclosures required in annual financial statements by GAAP in the U.S.
Use of Estimates
Our consolidated financial statements are based on the selection and application of GAAP that
require us to make estimates and assumptions about future events that affect the amounts reported
in our financial statements and the accompanying notes. Future events and their effects cannot be
determined with certainty. Therefore, the determination of estimates requires the exercise of
judgment. Actual results could differ from those estimates, and any such differences may be
material to our financial statements. If different assumptions or conditions were to occur, the
results could be materially different from our reported results.
Restricted Cash
At December 31, 2009 and June 30, 2010, we had $1.2 million of restricted cash under the lease
agreement for our headquarters in Longmont, Colorado. We have $22.8 million and $21.9 million
restricted cash to collateralize certain letters of credit required under certain of our Direct
Access Program (DAP) contracts at December 31, 2009 and June 30, 2010, respectively.
Of which $7.3 million and $7.7 million is classified as current assets at December 31, 2009 and
June 30, 2010, respectively, and $16.7 million and $15.4 million is classified as long-term
at December 31, 2009 and June 30, 2010, respectively.
Page 6 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Fair Values of Financial Instruments
The following table provides information about the assets and liabilities measured at fair value on
a recurring basis as of December 31, 2009 and June 30, 2010 and indicates the valuation technique
utilized by the Company to determine the fair value.
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
Significant
|
|
|
|
Total Carrying
|
|
|
Quoted prices in
|
|
|
observable
|
|
|
unobservable
|
|
|
|
Value at
|
|
|
active markets
|
|
|
inputs
|
|
|
inputs
|
|
(in millions)
|
|
December 31, 2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash equivalents
|
|
$
|
83.7
|
|
|
$
|
83.7
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
Significant
|
|
|
|
Total Carrying
|
|
|
Quoted prices in
|
|
|
observable
|
|
|
unobservable
|
|
|
|
Value at
|
|
|
active markets
|
|
|
inputs
|
|
|
inputs
|
|
|
|
June 30, 2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash equivalents
|
|
$
|
98.7
|
|
|
$
|
98.7
|
|
|
$
|
|
|
|
$
|
|
|
Valuation Techniques
.
Our cash equivalents consist of investments with maturity dates of less than 90 days and are quoted
from market rates and are classified within Level 1 of the valuation hierarchy. At December 31,
2009 and June 30, 2010, our cash equivalents consisted of funds held in treasury money markets. The
Company has not identified any Level 2 or Level 3 financial instruments at December 31, 2009 and
June 30, 2010.
The Companys senior secured notes are traded on an active market. The fair value of the senior secured notes
is based in part on data obtained from a third party pricing service that tracks the trading of the
notes and evaluated by the Company.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
($ in millions)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
Senior Secured Notes
|
|
$
|
343.5
|
|
|
$
|
366.3
|
|
|
$
|
344.8
|
|
|
$
|
369.4
|
|
Concentration of Credit Risk and Significant Customers
The Companys cash and cash equivalents are maintained in or with various financial institutions.
We have not experienced any losses in such accounts and believe we are not exposed to any
significant credit risk in this area.
Page 7 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Satellite Insurance
We currently maintain $40.0 million, $220.0 million and $230.0 million of one-year in-orbit
operations insurance coverage for QuickBird, WorldView-1 and WorldView-2 satellites, respectively,
$50.0 million of three-year in-orbit insurance coverage for WorldView-1 satellite with one year
remaining and $68.0 million of three-year in-orbit insurance for our WorldView-2 satellite, with
approximately two and one half years remaining. We intend to continue this coverage to the extent
it remains available at acceptable premiums. Satellite insurance premiums, corresponding to the
launch and in-orbit commissioning period prior to the satellite reaching FOC, are capitalized in
the original cost of the satellite and are amortized over the estimated useful life of the asset.
The remainder of the insurance premiums that are not capitalized as part of the satellite are
recorded as prepaid insurance and amortized to expense ratably over the related policy periods and
are included in selling, general and administrative costs.
New Accounting Pronouncements
In October 2009, the FASB issued new accounting guidance that enables vendors to account for
products or services sold to customers (deliverables) separately rather than as a combined unit, as
was generally required by past guidance. The revised guidance provides for two significant changes
to the existing multiple element revenue arrangements guidance. The first change relates to the
determination of when the individual deliverables included in a multiple element arrangement may be
treated as separate units of accounting. The second change modifies the manner in which the
transaction consideration is allocated across the separately identified deliverables. The first
change will likely result in the requirement to separate more deliverables within an arrangement,
ultimately leading to less revenue deferral. Together, these changes are likely to result in
earlier recognition of revenue and related costs for multiple-element arrangements than under
previous guidance. This guidance also significantly expands the disclosures required for
multiple-element revenue arrangements. The guidance is required to be adopted in fiscal years
beginning on or after June 15, 2010; however, early adoption is permitted. We anticipate adoption
of this pronouncement effective January 1, 2011. We are currently evaluating the effects
on the presentation, classification, and recognition of revenue arrangements that may be affected
by this guidance.
In October 2009, the FASB issued new accounting guidance that changes the accounting model for
revenue arrangements that include both tangible products and software elements so that tangible
products containing software components and non software components that function together to
deliver the tangible products essential functionality are no longer within the scope of the
software revenue guidance. In addition, the guidance requires that hardware components of a
tangible product containing software components always be excluded from the software revenue
guidance. The guidance is required to be adopted in fiscal years beginning on or after June 15,
2010; however, early adoption is permitted. We anticipate adoption of this pronouncement effective
January 1, 2011. We are currently evaluating the effects on the presentation,
classification, and recognition of revenue arrangements that may be affected by this guidance.
NOTE 3. Information on Segments and Major Customers
We conduct our business through two segments: (i) defense and intelligence and (ii) commercial. Our
imagery products and services consist of imagery that we process to varying levels according
to the customers specifications.
Customers can purchase satellite or aerial images that are archived in our ImageLibrary.
Customers can also order imagery content by placing custom orders, which require tasking
of our satellites, for a specific area of interest, or as a bundle of imagery and date for
a region or type of location, such as cities, ports and harbors or airports.
We have organized our business around (i) the defense and intelligence and (ii) commercial segments
because we believe that customers in these two groups are identifiably similar in terms of their
areas of focus, imaging needs and purchasing habits. We deliver our products and services using the
distribution method that best suits our customers needs. There are no sales between the Companys
segments.
Page 8 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The vast majority of the dollar value of our fixed assets are the satellites and the ground based
production and support facilities that are common to all segments. There are no significant
identifiable assets specifically dedicated to either segment.
Only those costs directly associated with the two segments are shown in cost of revenue and
selling, general and administrative expenses in those segments. All expenses which are common to
both segments and/or represent corporate operating costs are included in the unallocated cost
section. Substantially all the Companys assets are located in the United States.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
($ in millions)
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
Defense and Intelligence
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
58.3
|
|
|
$
|
63.2
|
|
|
$
|
115.6
|
|
|
$
|
125.7
|
|
Cost of revenue excluding depreciation and amortization
|
|
|
1.8
|
|
|
|
2.5
|
|
|
|
2.6
|
|
|
|
5.6
|
|
Selling, general and administrative
|
|
|
2.5
|
|
|
|
2.9
|
|
|
|
6.3
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment results of operations
|
|
|
54.0
|
|
|
|
57.8
|
|
|
|
106.7
|
|
|
|
114.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
11.7
|
|
|
|
17.8
|
|
|
|
21.6
|
|
|
|
32.4
|
|
Cost of revenue excluding depreciation and amortization
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
3.5
|
|
|
|
3.4
|
|
Selling, general and administrative
|
|
|
2.3
|
|
|
|
3.5
|
|
|
|
4.6
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment results of operations
|
|
|
7.6
|
|
|
|
12.5
|
|
|
|
13.5
|
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated Common Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue excluding depreciation and amortization
|
|
|
4.4
|
|
|
|
5.8
|
|
|
|
8.3
|
|
|
|
11.2
|
|
Selling, general and administrative
|
|
|
16.7
|
|
|
|
21.8
|
|
|
|
33.2
|
|
|
|
41.1
|
|
Depreciation and amortization
|
|
|
18.9
|
|
|
|
31.0
|
|
|
|
37.6
|
|
|
|
60.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs
|
|
|
40.0
|
|
|
|
58.6
|
|
|
|
79.1
|
|
|
|
112.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
21.6
|
|
|
|
11.7
|
|
|
|
41.1
|
|
|
|
24.8
|
|
Loss on derivative instruments
|
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
Interest income (expense), net
|
|
|
0.1
|
|
|
|
(10.7
|
)
|
|
|
0.1
|
|
|
|
(20.6
|
)
|
Loss from early extinguishment of debt
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
14.0
|
|
|
$
|
1.0
|
|
|
$
|
31.7
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. and foreign sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
(in millions)
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
58.3
|
|
|
$
|
57.0
|
|
|
$
|
114.4
|
|
|
$
|
113.5
|
|
Foreign
|
|
|
11.7
|
|
|
|
24.0
|
|
|
|
22.8
|
|
|
|
44.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
70.0
|
|
|
$
|
81.0
|
|
|
$
|
137.2
|
|
|
$
|
158.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount for the six months ended June 30, 2010 in the table above, includes a reclassification
of $4.2 million of revenue earned in the quarter ended March 31, 2010 from United States revenue to
foreign revenue, which was incorrectly presented in the previous period to correctly classify revenue
for the six month period ended June 30, 2010.
Revenue for the three months ended March 31, 2010 was previously reported as $60.7 million and
$16.4 million for the United States and foreign, respectively, whereas it should have been reported
as $56.5 and $20.6, respectively.
Page 9 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Revenue percentages from all customers whose revenue exceeded 10% of the total company revenue were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
NGA
|
|
|
75.9
|
%
|
|
|
62.4
|
%
|
|
|
76.6
|
%
|
|
|
64.3
|
%
|
Percentages of accounts receivable (net of allowance for doubtful accounts) for all customers
whose receivable exceeded 10% of the net accounts receivable as of:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31, 2009
|
|
|
June 30, 2010
|
|
NGA
|
|
|
61.8
|
%
|
|
|
51.8
|
%
|
NOTE 4. Property and Equipment
Property and equipment consisted of the following as of:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2009
|
|
|
June 30, 2010
|
|
Construction in progress
|
|
$
|
454.6
|
|
|
$
|
11.1
|
|
Computer equipment
|
|
|
111.7
|
|
|
|
117.7
|
|
Machinery and equipment
|
|
|
25.6
|
|
|
|
25.6
|
|
Furniture and fixtures
|
|
|
12.6
|
|
|
|
12.6
|
|
WorldView-2 satellite
|
|
|
|
|
|
|
462.8
|
|
WorldView-1 satellite
|
|
|
473.2
|
|
|
|
473.2
|
|
QuickBird satellite
|
|
|
174.4
|
|
|
|
174.4
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
$
|
1,252.1
|
|
|
$
|
1,277.4
|
|
Accumulated depreciation and
amortization
|
|
|
(361.1
|
)
|
|
|
(420.6
|
)
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
891.0
|
|
|
$
|
856.8
|
|
|
|
|
|
|
|
|
Construction in progress includes ground station construction, certain internally developed
software costs and a portion of capitalized interest. Depreciation and amortization expense for
property and equipment was $18.4 million and $30.6 million for the three months ended June 30, 2009
and 2010, respectively, and $36.6 million and $59.3 million for the six months ended June 30, 2009
and 2010, respectively.
The capitalized costs of our satellites and related ground systems include internal and external
direct labor costs, internally developed software, material and depreciation costs related to
assets which support the construction and development. The cost of our satellites also includes
capitalized interest incurred during the construction, development and initial in-orbit testing
period. The portion of the launch insurance premium allocable to the period from launch through
in-orbit calibration and commissioning has been capitalized as part of the cost of the satellites
and is amortized over the useful life of the satellites.
During the second quarter the Company accelerated the depreciation
of selected software assets resulting in the assets becoming fully depreciated, which increased depreciation expense by $1.9 million
for the quarter or $0.04 per diluted share.
Following each satellite launch, and at least annually thereafter, we review the expected
operational life of our satellites. We determine a satellites expected operational life
considering certain factors including: (i) the probabilities of failure of the satellites
components from design or manufacturing defects, (ii) environmental stresses or other causes, (iii)
the quality of construction, (iv) the supply of fuel, (v) the expected gradual environmental
degradation of solar panels and other components, (vi) projected levels of solar radiation, (vii)
the durability of various satellite components, and (viii) the orbits in which the satellites are
placed.
Page 10 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
We have aligned the assessment of the useful life of the operating satellites with the timing of
our insurance renewals. We will perform an annual assessment of the useful life of the QuickBird,
WorldView-1 and WorldView-2 satellites in the second half of the calendar year or when events or
circumstances dictate that a
reevaluation of the useful life should be done at an earlier date. An adjustment will be made to
the estimated depreciable life of the satellite if deemed necessary by the assessment performed.
Changes to the estimated useful life
of our satellites and any related impact on the depreciation expense will be accounted for on a
prospective basis on the date of the change.
NOTE 5. Goodwill and Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(in millions)
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
4.3
|
|
|
$
|
3.5
|
|
|
$
|
0.8
|
|
|
$
|
4.3
|
|
|
$
|
3.8
|
|
|
$
|
0.5
|
|
Core technology
|
|
|
3.1
|
|
|
|
2.3
|
|
|
|
0.8
|
|
|
|
3.1
|
|
|
|
2.7
|
|
|
|
0.4
|
|
Trademark/tradename
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreement
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
9.0
|
|
|
$
|
7.2
|
|
|
$
|
1.8
|
|
|
$
|
7.9
|
|
|
$
|
6.9
|
|
|
$
|
1.0
|
|
The identifiable intangible assets are being amortized on a straight-line basis over their
useful lives, ranging from three to five years, except for customer relationships, which are being
amortized using a declining balance method over their estimated life of five years.
Amortization expense for intangibles was $0.4 million and $0.3 million for the three months ended
June 30, 2009 and 2010, respectively, and $0.9 million and $0.8 million for the six months ended
June 30, 2009 and 2010, respectively. These intangible assets will become fully amortized by 2011.
The estimated remaining aggregate amortization expense for the intangible assets is:
|
|
|
|
|
(in millions)
|
|
Estimated Amortization Expense
|
|
Remaining 2010
|
|
$
|
0.8
|
|
2011
|
|
$
|
0.2
|
|
A summary of the goodwill activity for the year ended December 31, 2009 and the six months
ended June 30, 2010 is presented below:
|
|
|
|
|
(in millions)
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
8.7
|
|
Balance, December 31, 2009
|
|
$
|
8.7
|
|
Balance, June 30, 2010
|
|
$
|
8.7
|
|
Goodwill is not being amortized for financial statement purposes, but is deductible for income
tax purposes. The Company has not recorded an impairment of goodwill for any of the periods
presented.
NOTE 6. Other Accrued Liabilities and Other Long Term Liabilities
The following table is a listing of items included in other accrued liabilities:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2009
|
|
|
June 30, 2010
|
|
Compensation and other employee benefits
|
|
$
|
8.2
|
|
|
$
|
6.6
|
|
Accrued taxes
|
|
|
0.5
|
|
|
|
0.3
|
|
Accrued expense
|
|
|
3.1
|
|
|
|
4.7
|
|
Other
|
|
|
6.1
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
Total other accrued liabilities
|
|
$
|
17.9
|
|
|
$
|
21.5
|
|
|
|
|
|
|
|
|
Page 11 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Other expenses include amounts due to vendors related to completion of direct access
facilities and on-orbit performance payments related to WorldView-2. The long-term accrued
liability relates to our long-term portion of the on-orbit performance payments related to
WorldView-2.
NOTE 7. Debt
Letters of Credit
As of December 31, 2009, and June 30, 2010, we had $22.8 million and $21.9 million, respectively in
letters of credit and performance guarantees used in the ordinary course of business to support
advanced payments from customers under certain of our DAP contracts. These letters of credits are
secured by restricted cash that has been recorded in our financial statements as both short and
long term restricted cash. The letters of credit, and related restricted cash amounts will be
released when the respective contract obligation have been fulfilled by us.
Senior Secured Notes
We issued $355.0 million principal amount of our senior secured notes in April
2009, net of the issuance discount of $13.2 million and paid fees and expenses of $10.2 million
recorded in deferred financing costs. As of December 31, 2009 and June 30, 2010, the senior secured
notes had an outstanding balance of $343.5 million and $344.8 million, respectively, and mature on
May 1, 2014. The senior secured notes are guaranteed by our subsidiaries and secured by nearly all
of our assets, including the shares of capital stock of our subsidiaries, the QuickBird,
WorldView-1 and WorldView-2 satellites. Assets collateralizing the senior secured notes had a net
book value of $1,116.5 million and $1,140.9 million as of December 31, 2009 and June 30, 2010,
respectively. DigitalGlobe, Inc. (the parent company) and its subsidiaries are guarantors under the
Senior Secured Notes. Each of the subsidiary guarantors is 100% owned by the parent company and the
guarantees are full and unconditional and joint and several. The financial condition, results of
operations and cash flows of the guarantor subsidiaries is insignificant. The senior secured notes
bear interest at the rate of 10.5% per annum. Interest is payable semi-annually on May 1 and
November 1 each year. The Company is using the effective interest rate methodology to amortize the
deferred financing costs and to accrete the discount on the notes over the term of the notes.
In May 2010, the Company
offered to exchange up to $355.0 million aggregate principal amount of the senior secured notes,
for notes that have been registered under the Securities Act of 1933, as amended. The terms of the
registered notes are the same as the terms of the original notes, except that they are now
registered under the Securities Act and the transfer restrictions, registration rights and
additional interest provisions are not applicable to the registered notes. The Company accepted the
exchange of $354.9 million aggregate principal amount of the senior secured notes that were properly tendered. The remaining $0.1 million aggregate principal amount of the senior secured
notes was not tendered and therefore remains restricted.
Total interest incurred, accretion of debt discount and amortization of the deferred financing fees
were $6.5 million, $0.5 million and $0.3 million, respectively, for both the three and six month
periods ended June 30, 2009. All amounts were capitalized in 2009 against our WorldView-2
satellite. Total interest incurred, accretion of debt discount and amortization of the deferred
financing fees for the three months ended June 30, 2010 were $9.3 million, $0.7 million and $0.5
million, respectively, of which $0.3 million was capitalized to assets under construction. Total
interest incurred, accretion of debt discount and amortization of deferred finance fees for the six
months ended June 30, 2010 were $18.6 million, $1.3 million and $1.0 million, respectively, of
which $0.8 million was capitalized to assets under construction.
Our future debt payments include the maturity of the senior secured notes in May 2014, at which
time we will owe the full obligation amount of $355.0 million.
Page 12 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 8. Shareholders Equity and Other Comprehensive Earnings (Loss)
On May 14, 2009, the Company completed an IPO consisting of 14,700,000 shares of common stock at
$19.00 per share. The total shares sold in the offering included 13,333,744 shares sold by selling
stockholders and 1,366,256 shares sold by the Company. At June 30, 2010, the Companys Board of
Directors had the authority to
issue 250,000,000 shares of common stock. At June 30, 2010, 45,776,482 shares of common stock were
issued and outstanding.
Treasury Stock
During 2009, the Company repurchased 22,484 shares of common stock at their deemed fair value on the repurchase
date. There have been no repurchases through June 30, 2010.
Stock-Based Compensation Programs
On February 15, 2000, the board of directors approved the 1999 Equity Incentive Plan (the 1999
Plan) pursuant to which qualified and nonqualified stock options to purchase shares of the
Companys common stock may be granted to employees, officers, directors, and consultants. Options
granted pursuant to the 1999 Plan are subject to certain terms and conditions as contained in the
1999 Plan itself, generally have a ten-year term and generally vest ratably over a four-year
period. As of December 31, 2009 there were 242,023 options available to be issued under the 1999
Plan. The 1999 Plan expired on February 15, 2010.
On February 15, 2007, the board of directors approved the 2007 Employee Stock Option Plan (the 2007
Plan), pursuant to which the following awards may be granted to employees, officers, directors, and
consultants: qualified and nonqualified stock options to purchase shares of the Companys common
stock, stock appreciation rights and shares of the companys common stock. Options granted pursuant
to the 2007 Plan are subject to certain terms and conditions as contained in the 2007 Plan,
generally have a ten-year term and generally vest over a four-year period. The Company amended this
plan in 2008 to extend the exercise period of terminated employees from thirty days to three
months. The number of shares available for grant at December 31, 2009 and June 30, 2010, was
2,503,572 and 2,165,596, respectively.
To date, issued equity awards have consisted of stock options, restricted stock and unrestricted
shares. Since the completion of the IPO on May 14, 2009, the Company has utilized the daily closing
stock price, as of the grant date, as an element in determining the value of our equity awards. The
date of grant of the awards is used for the measurement date. The awards are valued as of the
measurement date and are amortized on a straight-line basis over the requisite vesting period.
A summary of stock option activity for the six months ended June 30, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual Term
|
|
|
Intrinsic Value
|
|
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in millions)
|
|
Balance December 31, 2009
|
|
|
3,197,414
|
|
|
$
|
20.29
|
|
|
|
7.38
|
|
|
$
|
14.8
|
|
Granted
|
|
|
427,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
562,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
141,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2010
|
|
|
2,920,224
|
|
|
$
|
22.26
|
|
|
|
7.92
|
|
|
$
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable June 30, 2010
|
|
|
1,650,690
|
|
|
$
|
21.52
|
|
|
|
7.22
|
|
|
$
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 13 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Weighted-average grant-date fair values for option awards granted was $10.44 and $12.60 for
the year ended December 31, 2009 and the six months ended June 30, 2010, respectively. The total
grant date fair value of options vested for the year ended December 31, 2009 and the six months
ended June 30, 2010 was $7.2 million and $1.2 million, respectively.
The Company recognized stock-based compensation during the three months ended June 30, 2009 and
2010 of $2.3 million and $1.5 million, respectively, of which $0.4 million was capitalized to
assets under construction for the three months ended June 30, 2009. The Company recognized
stock-based compensation during the six months ended June 30, 2009 and 2010 of $4.7 million and
$2.9 million, respectively, of which $0.5 million was capitalized to assets under construction for
the six months ended June 30, 2009.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
|
|
|
|
|
June 30, 2010
|
Expected dividend yield
|
|
0.0%
|
Expected stock price volatility
|
|
56.5%56.7%
|
Risk-free interest rate
|
|
2.2%2.3%
|
Expected life of options (years)
|
|
5
|
Forfeiture rate
|
|
2.0%
|
Expected volatility is based on a variety of comparable companies within our industry,
currently looking back five years (if available). The expected life and forfeiture rate are based
on the Companys historical experience. The risk-free rate is based on the five-year Treasury note
rate.
The total pre-tax intrinsic value or the difference between the exercise price and the market price
on the date of exercise of stock options exercised during the six month period ended June 30, 2010
was $6.4 million.
As of June 30, 2010, there was a total of $12.5 million of unrecognized expense remaining to be
recognized over a weighted average period of 2.8 years.
On November 3, 2008, the Company granted a total of 30,000 shares of restricted stock under the
2007 Plan to executives as part of the Long Term Incentive Plan (LTIP) with a fair value of $22.10
per share. All units granted vest one-third each year beginning on March 31, 2009. Upon vesting,
units are automatically converted into shares of common stock.
During the first quarter of 2010, the Company awarded 46,017 restricted shares of restricted stock to certain
executives and 4,494 unrestricted shares to members of our independent board of directors pursuant
to applicable compensation plans. The awards to executives will vest over four years and the awards
to board of directors members vested immediately on the date of grant.
A summary of restricted stock and unrestricted share activity as of June 30, 2010 and changes
during the six months ended June 30, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Grant Date
|
|
Non-vested Restricted Stock and Unrestricted Shares
|
|
Number of Shares
|
|
|
Fair Value
|
|
Non-vested at December 31, 2009
|
|
|
20,000
|
|
|
$
|
22.10
|
|
Granted
|
|
|
50,511
|
|
|
|
24.56
|
|
Forfeited
|
|
|
4,094
|
|
|
|
|
|
Vested
|
|
|
19,768
|
|
|
|
24.09
|
|
Non-vested at June 30, 2010
|
|
|
46,649
|
|
|
$
|
23.73
|
|
Page 14 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
As of June 30, 2010, there was $1.0 million, of total unrecognized compensation cost related
to the non-vested share-based compensation arrangements. That cost is expected to be recognized
over a weighted average period of 3.2 years.
NOTE 9. Earnings Per Share
Basic earnings per share (EPS) excludes dilution and is computed by dividing net income available to common stockholders
by the weighted average number of common shares outstanding for the period. Diluted EPS is computed
by dividing net income by the weighted average number of common shares outstanding and dilutive
potential common shares for the period. The Company includes as potential common shares the
weighted average dilutive effects of outstanding stock options and restricted stock units using the
treasury stock method.
The following table sets forth the number of weighted average shares used to compute basic and
diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(in millions, except per share data)
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8.4
|
|
|
$
|
0.5
|
|
|
$
|
19.0
|
|
|
$
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding
|
|
|
44.2
|
|
|
|
44.0
|
|
|
|
44.2
|
|
|
|
43.9
|
|
Assuming exercise of stock options and restricted stock units
|
|
|
0.5
|
|
|
|
2.1
|
|
|
|
0.5
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of common shares outstanding, as adjusted
|
|
|
44.7
|
|
|
|
46.1
|
|
|
|
44.7
|
|
|
|
46.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
|
$
|
0.01
|
|
|
$
|
0.43
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.19
|
|
|
$
|
0.01
|
|
|
$
|
0.43
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of options that were excluded from EPS, because the effects were antidilutive, were
2.3 million and 0.7 million for the three months ended June 30, 2009 and 2010, respectively, and
2.3 million and 0.7 million for the six months ended June 30, 2009 and 2010,
respectively.
NOTE 10. Related Party Transactions
As a result of the Companys IPO in May 2009, the Company has reevaluated related parties due to
the change in ownership and has concluded that Morgan Stanley & Co. Incorporated (Morgan Stanley)
remains its only related party. On a prospective basis, subsequent to date of the IPO, the Company
will only update related party information for Morgan Stanley. As a result of the IPO, Ball
Corporation, Hitachi Ltd./Hitachi Software Engineering Co., Ltd., ITT Industries, Inc./Eastman
Kodak, MacDonald Dettwiler and Associates and Telespazio S.p.A./Eurimage S.p.A. are no longer
related parties going forward from the date of the IPO. Subsequent to the IPO, Beach Point Capital
Management L.P. sold a majority of its shares and therefore is no longer considered a related
party. Historical information pertaining to these companies will continue to be disclosed if
balances and activity for these entities are included in the financial statements presented.
Morgan Stanley
There were no amounts owed to Morgan Stanley in accounts payable and/or accrued liabilities to
related party at December 31, 2009 and June 30, 2010.
The Company terminated its hedging arrangements with Morgan Stanley in April 2009 and paid the fair value of one swap
in conjunction therewith. The
Company did not have any swaps at December 31, 2009 or June 30, 2010.
Page 15 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
In April 2009, we paid our senior
subordinated notes in full. As a result of the debt repayment, all deferred financing fees
paid to Morgan Stanley
associated with this debt were expensed to the income statement in loss from early extinguishment
of debt. As a result of the early extinguishment of debt, the Company paid a penalty of $0.9
million and $7.1 million in new deferred financing fees.
In April 2009 and May 2009, Morgan Stanley was the book-running manager for our senior secured
notes and initial public offerings, respectively.
At December 31, 2009 and June 30, 2010 Morgan Stanley and its affiliates held 14,366,395 and
14,363,476 shares, respectively, of the Companys common stock. Pursuant to the Investor Agreement
between us and Morgan Stanley, currently, five Morgan Stanley designees have been duly elected to
and are serving on our Board of Directors. The Directors are Mr. Zervigon, Mr. Albert, Mr. Jenson,
Mr. Whitehurst and Mr. Cyprus. Mr. Albert, Mr. Jenson, Mr. Whitehurst and Mr. Cyprus are
independent directors, as defined under the applicable rules of the New York Stock Exchange.
Beach Point Capital Management L.P. (assignee of Post Advisory Group LLC)
In January 2009, Beach Point Capital Management L.P. (Beach Point Capital) assumed certain rights
and obligations from Post Advisory Group LLC. In connection with that assignment, Beach Point
Capital became investment manager of certain funds that hold common stock of the Company.
In April 2009, we paid our senior subordinated notes in full. As a result of the debt repayment, all deferred financing fees paid to Beach Point
Capital associated with this debt were expensed to the income statement in loss from early
extinguishment of debt. As a result of the early extinguishment of debt, the Company paid a penalty
of $0.9 million.
Ball Corporation
Under various contracts with Ball Aerospace and Technologies Corporation, we incurred expenses of
$2.8 million and $13.1 million during the second quarter of 2009 until May 14, 2009, and for
January 1, 2009 through May 14, 2009, respectively, which were capitalized as part of the costs of
building our WorldView-2 satellite.
Hitachi, Ltd./Hitachi Software Engineering Co., Ltd.
Hitachi, Ltd. (Hitachi), a stockholder of the Company, currently is an international distributor of
the Companys products and was the exclusive distributor in most of Asia. Its rights and
obligations have been assigned to Hitachi Software Engineering Co., Ltd. (Hitachi Software), an
affiliate of Hitachi. Its exclusivity in most of Asia was amended in January 2004 to allow
DigitalGlobe access to markets outside of Japan.
On January 28, 2005, we entered into a data distribution agreement with Hitachi Software which
appoints Hitachi as a reseller of our products and services and authorized Hitachi to sell access
time to our WorldView-2 satellite. Under the data distribution agreement we received a payment of
$10.0 million in 2005. We entered into a direct access facility purchase agreement with Hitachi
Software on March 23, 2007. Under this agreement, we have constructed and sold to Hitachi Software
a direct access facility, which allows a customer of Hitachi Software to directly access and task
our WorldView-2 satellite. Under our direct access facility purchase agreement we received $16.7
million during the first three months of 2009. Engineering work associated with the agreement has
been subcontracted to MacDonald Dettwiler and Associates Ltd. (MDA).
Hitachi earned sales commissions on direct sales by the Company to customers in its region of $0.1
million and $0.5 million during the second quarter of 2009 until May 14, 2009 and for January 1,
2009 through May 14, 2009, respectively. This amount is accounted for as a reduction of revenue in
the consolidated statements of operations.
Page 16 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Hitachi Software purchased approximately $0.3 million and $2.7 million of the Companys products
during the second quarter of 2009 until May 14, 2009 and for January 1, 2009 through May 14, 2009,
respectively.
ITT Industries, Inc./Eastman Kodak
We entered into agreements with ITT Industries, Inc. (ITT Industries), a stockholder of the
Company, for system engineering and development for certain goods and services.
In February 2004, we entered into a contract with Eastman Kodak Company (Kodak) for the development
and provision of various imaging components of the WorldView-1 and 2 satellites and associated
efforts in conjunction with the NextView Agreement. On August 13, 2004, Kodak sold its Remote
Sensing Systems operation, which includes the operations relating to the contract described, to ITT
Industries.
Under the various contracts with ITT Industries, including the Kodak agreement, we incurred
expenditures of $0.2 million and $0.8 million during the second quarter of 2009 until May 14,
2009 and for January 1, 2009 through May 14, 2009, respectively, which were capitalized as part of
the costs of building the satellites for the three months ended June 30, 2009, as part of the costs
of building our satellites.
MacDonald Dettwiler and Associates
Since September 1996, we have had a series of agreements with MDA, for purchase of various goods,
software licenses and engineering and related services.
Under various agreements we have incurred expenditures of $2.2 million and $3.1 million during the
second quarter of 2009 until May 14, 2009 and for January 1, 2009 through May 14, 2009,
respectively. Remaining expenditures have been capitalized in the cost of the satellites.
Telespazio S.p.A./Eurimage S.p.A.
Telespazio S.p.A. (Telespazio), is a reseller of our products and services in Europe. Telespazio
earned sales commissions on direct sales by the Company to customers in its region of $0.1 million
and $0.5 million during the second quarter of 2009 until May 14, 2009 and for
January 1, 2009 through May 14, 2009, respectively.
Telespazio and its reseller and subsidiary, Eurimage S.p.A. (Eurimage), purchased approximately
$0.5 million and $1.6 million during the second quarter of 2009 until May 14, 2009 and for January
1, 2009 through May 14, 2009, respectively.
NOTE 11. Commitments and Contingencies
The Company is obligated under certain non-cancelable operating leases for office space and
equipment. We currently lease 199,476 square feet of office and operations space in two locations
in Longmont, Colorado. This space includes our principal executive offices. The rent varies in
amounts per year through its expiration date in August 2015. Lease expense for the Longmont
location has been recorded straight line over the term of the lease. The Company received
approximately $8.5 million of certain rent incentives that we have deferred and are amortizing over
the life of the lease. We have $2.6 million and $1.9 million of net leasehold improvements at
December 31, 2009 and June 30, 2010, respectively, which we are amortizing ratably over the
remaining lease term.
Page 17 of 32
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Rent expense net of sublease income approximated $0.9 million and $0.7 million for the three months
ended June 30, 2009 and 2010, respectively, and $1.5 million and $1.4 million for the six months
ended June 30, 2009 and 2010, respectively.
We enter into agreements in the ordinary course of business with resellers and others. Most of
these agreements require us to indemnify the other party against third-party claims alleging that
one of our products infringes or misappropriates a patent, copyright, trademark, trade secret or
other intellectual property right. Certain of these agreements require us to indemnify the other
party against claims relating to property damage, personal injury or acts or omissions by us, our
employees, agents or representatives. In addition, from time to time we have made guarantees
regarding the performance of our systems to our customers.
In addition, the majority of these indemnities, commitments and guarantees do not provide for any
limitation of the maximum potential future payments the Company could be obligated to make. The
Company evaluates and estimates losses from such indemnification based on the likelihood that the
future event will confirm the loss ranging from probable to remote. To date, the Company has not
incurred any material costs as a result of such obligations and has not accrued any material
liabilities related to such indemnification and guarantees in the Companys financial statements.
NOTE 12. Subsequent Events
On July 13, 2010, NGA exercised its second monthly option to extend the NextView agreement on the
same terms through August 31, 2010.
Page 18 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements relate
to future events or our future financial performance. We generally identify forward-looking
statements by terminology such as may, will, should, expects, plans, anticipates,
could, intends, target, projects, contemplates, believes, estimates, predicts,
potential or continue or the negative of these terms or other similar words, although not all
forward-looking statements contain these words.
Any forward-looking statements are based upon our historical performance and on our current plans,
estimates and expectations. The inclusion of this forward-looking information should not be
regarded as a representation by us that the future plans, estimates or expectations will be
achieved. Such forward-looking statements are subject to various risks and uncertainties and
assumptions. A number of important factors could cause our actual results or performance to differ
materially from those indicated by such forward looking statements, including: the loss,
reduction or change in terms of any of our primary contracts; the loss or impairment of our satellites; loss or damage
to the content contained in our ImageLibrary; interruption or failure of our ground system and
other infrastructure, decrease in demand for our imagery products and services; increased
competition that may reduce our market share or cause us to lower our prices; our failure to obtain
or maintain required regulatory approvals and licenses; changes in U.S. foreign law or regulation
that may limit our ability to distribute our imagery products and services; the costs associated
with being a public company; and other important factors, all as described more fully in our
filings with the SEC.
We undertake no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the occurrence of
unanticipated events. Readers are cautioned not to place undue reliance on any of these forward
looking statements.
Overview
We are a leading global provider of commercial high-resolution earth imagery products and services.
Our products and services support a wide variety of uses, including defense, intelligence and
homeland security applications, mapping and analysis, environmental monitoring, oil and gas
exploration, and infrastructure management. Our principal customers include U.S. and foreign
defense and intelligence agencies and a wide variety of commercial customers, such as internet
portals, companies in the energy, telecommunications, utility and agricultural industries, and U.S.
and foreign civil government agencies. The imagery that forms the foundation of our products and
services is collected daily via our three high-resolution imagery satellites and managed in our
content archive, which we refer to as our ImageLibrary. We believe our ImageLibrary is the largest,
most up-to-date and comprehensive archive of high-resolution earth imagery commercially available;
containing more than 1 billion square kilometers of imagery, with new imagery added every day. With
the addition of our WorldView-2 satellite, commissioned on January 4, 2010, our
collection capacity is more than 500 million square kilometers per year.
On January 4, 2010, our WorldView-2 satellite achieved FOC. We began taking orders from the
WorldView-2 satellite during the fourth quarter of 2009 and are currently selling imagery from the
WorldView-2 satellite.
Products and Services
We offer earth imagery products and services that are comprised of imagery from our three-satellite
constellation, and aerial imagery that we acquire from third party suppliers. We process our
imagery to varying levels according to the customers specifications and deliver our products using
the distribution method that best suits our customers needs. Customers can purchase satellite or
aerial images that are archived in our ImageLibrary. Customers can also order imagery content by placing custom orders, which require tasking of our
satellites, for a specific area of interest, or as a bundle of imagery and data for a region or
type of location, such as cities, ports and harbors or airports. For example, CitySphere, an
ImageLibrary product, features color imagery for 300 of the worlds largest cities that is
refreshed on a routine basis.
Page 19 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Customers specify how they want the imagery content they are purchasing from us to be produced. We
deliver our satellite imagery content at three processing levels: (i) basic imagery with the least
amount of processing; (ii) standard imagery with radiometric and geometric correction; and (iii)
ortho-rectified imagery with radiometric, geometric, and topographic correction. All of our aerial
imagery is delivered as ortho-rectified imagery.
We also use enhanced processing to produce mosaic and stereo imagery products. The mosaic process
takes multiple imagery scenes, collected at different times and dates, and merges them into a
single seamless imagery product. We use specialized collection and enhanced processing to produce
stereo imagery products. Stereo imagery products consist of two images collected from two different
viewpoints along the satellite orbit track that are produced as basic products, but can be viewed
in stereo (3D) using specialized software. Stereo imagery products are used for the creation of
digital elevation maps, for the more accurate creation of 3D maps and flight simulations.
We offer a range of on- and off-line distribution options designed to enable customers to easily
access and integrate our imagery into their business operations and applications, including desktop
software applications, web services that provide for direct on-line access to our ImageLibrary,
File Transfer Protocol (FTP), and physical media such as CD, DVD and hard drive. We offer an
additional distribution option through our DAP that allows certain customers, approved by the U.S.
government, to task and download data directly from our WorldView-1 and WorldView-2 satellites
within their regional area of interest. DAP is designed to meet the enhanced information and
operational security needs of a select and limited number of defense and intelligence customers and
certain commercial customers. To date we have signed four customer contracts for our DAP.
We sell our products and services through a combination of direct and indirect channels, a global
network of resellers, strategic partners, direct enterprise sales and web services.
Our QuickBird satellite was launched on October 18, 2001 and we successfully commissioned QuickBird
into FOC in February 2002. In January 2003, we entered into the
ClearView agreement with NGA, under which we agreed to provide a minimum of $72.0 million of
QuickBird imagery products and services to the U.S. Government over a three-year period, with two
one-year extensions at NGAs option. In January 2006, NGA exercised the first option to extend the
ClearView agreement for one year with an additional $36.0 million minimum purchase commitment.
In September 2003, we entered into the NextView agreement with NGA, under which we agreed to
provide a minimum of $531.0 million of imagery products and services from our WorldView-1
satellite. Of this amount, $266.0 million was paid between September 2003 and November 2007, the
date WorldView-1 was declared FOC, and was used to offset the construction costs of the satellite.
The remaining $265.0 million commitment was to be paid upon the delivery of imagery once
WorldView-1 achieved FOC. While NGA has committed to spend these funds to purchase our products and
services, actual spending of the funds is ultimately dependent on annual government appropriations
of available funds. We recognize revenue under the NextView contract at the time services under the
contract are provided. The pre-FOC payments were accounted for as deferred revenue until
WorldView-1 became operational in November 2007. The deferred revenue is being recognized ratably
over the current estimated life of the WorldView-1 satellite as a proxy for the estimated customer
relationship life, or 10.5 years.
Page 20 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
In February 2007, the ClearView agreement was merged with the NextView agreement to include
delivery of imagery from the QuickBird satellite, which, together with sales of images from
WorldView-1 after its commissioning in November 2007, generated $73.2 million of revenue in 2007,
$157.9 million of revenue in
2008 and $159.2 million of revenue in 2009. In January 2008, we amended the NextView agreement from
image-based ordering to a service level agreement, or SLA, and increased the amount we are to
receive under the NextView agreement from $265.0 million to $311.0 million. Under the SLA, we are
obligated to make substantially all of the image tasking capacity of our WorldView-1 satellite
available to NGA, as well as to meet certain service requirements related to the operational
performance of our WorldView-1 satellite and related ground systems. In the event that we do not
meet the service level requirements, NGA is granted an allowance of up to $0.8 million of the total
$12.5 million monthly fee, which NGA can use to extend the SLA period or apply to any new agreement
between the parties. Any revenue deferred related to this allowance will be recognized when earned
in future periods. In 2009, we deferred $0.4 million of SLA revenue as a result of underperformance
against the SLA performance requirements. However, our performance against these requirements has
not had a significant adverse impact on our revenue from, or relationship with, NGA. Our commitment
to provide a substantial portion of the WorldView-1 satellite imaging capacity to NGA under the
NextView agreement limits our ability to provide tasking services from WorldView-1 to other
customers, but does not materially limit our ability to sell collected imagery to other customers
from our ImageLibrary. Our revenue from NGA under the NextView agreement is derived from sales of
WorldView-1 imagery products under the SLA, as well as from non-SLA orders for imagery products and
services. Historically, NGA has purchased more than the contracted amounts stipulated in the
ClearView and NextView agreements.
We receive a majority of our revenue under the NextView agreement. NextView had an original
expiration of July 31, 2009, and was initially extended to March 31, 2010, with a nine month option
to extend the contract through December 31, 2010. In February 2010, the option was modified to be
one option to extend the contract from April 1, 2010 through June 30, 2010 and six monthly
extensions from July 1, 2010 through December 31, 2010. On March 11, 2010, NGA exercised the option
to extend the NextView contract from April 1, 2010 through June 30, 2010. On June 8, 2010, NGA
exercised its first monthly option to extend through July 31, 2010 and on July 13, 2010 exercised
their second monthly option to extend through August 31, 2010. If NGA does not exercise its option
to extend the SLA beyond August 2010, our revenue, net income, and liquidity would be materially
and negatively impacted.
Although we expect NGA to extend the SLA or alternatively that we expect enter into a new
agreement with NGA, we cannot assure you that the U.S. Government will continue to purchase earth
imagery from us at similar levels or on similar terms or conditions in the future. Further, all of our contracts with the U.S. government agencies are subject to risks of termination
or reduction in scope due to changes in U.S. government policies, priorities or Congressional
funding level commitments to various agencies. Pursuant to the contract terms, U.S. government
agencies can terminate or suspend our contracts at any time with or without cause. The U.S.
government accounted for approximately 64.3% of our consolidated revenue for the six months ended
June 30, 2010. We believe that existing cash and cash equivalents as of June 30, 2010 plus
anticipated cash flow will be sufficient to fund anticipated operations and capital expenditures for the next twelve months.
If NGA were not to renew or extend our contract at similar
levels, we believe we would be able to maintain operations with existing cash and cash equivalents
for the next twelve months. Further, if necessary we could reduce operating expenses and/or
defer capital expenditures.
We conduct our business through two segments: (i) defense and intelligence and (ii) commercial. We
have organized our business into these two segments because we believe that customers in these two
groups are functionally similar in terms of their areas of focus and purchasing habits. Our imagery
products and services are comprised of imagery that we process to varying levels according to the
customers specifications. We deliver our products and services using the distribution method that
best suits our customers needs. Customers can purchase satellite or aerial images that
are archived in our ImageLibrary. Customers can also order imagery content by placing custom orders, which
require tasking of our satellites, for a specific area of interest, or as a bundle of imagery
and date for a region or type of location, such as cities, ports and harbors or airports.
Page 21 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Revenue
Our principal source of revenue is the licensing of our earth imagery products and services to end
users and resellers.
Revenue from defense and intelligence customers accounted for 83.3% and 78.0% of our total revenue
for the three months ended June 30, 2009 and 2010, respectively and 84.3% and 79.5% for the six
months ended June 30, 2009 and 2010, respectively. Revenue from commercial customers accounted for
16.7% and 22.0% of our total revenue in the three months ended June 30, 2009 and 2010, respectively
and 15.7% and 20.5% for the six months ended June 30, 2009 and 2010, respectively. Growth in
defense and intelligence revenue was primarily due to increases related to our DAP customers. We
generated approximately 85.1% and 72.8% of our revenue from U.S. and Canadian customers for defense and
intelligence and commercial America customers and 14.9% and 27.2% of our revenue from international customers, in the three months ended
June 30, 2009 and 2010,
respectively, and 85.1% and 74.1% of our revenue from U.S. and Canadian defense and intelligence customers and
commercial America customers and 14.9% and 25.9% of our revenue from international customers, in the six months ended June 30, 2009 and 2010, respectively. We
generated approximately 73.1% of our revenue from paid tasking and 26.9% from our ImageLibrary for
the six months ended June 30, 2010 (treating all of the revenue from the SLA under the NextView
agreement as paid tasking and excluding amortized revenue).
By the end of the second quarter of 2010, we commissioned all of our four DAP customers ground
terminals and began generating revenue from providing satellite access time to these customers. We
do not recognize revenue from a DAP customer until we commission into operation the ground terminal
and can provide contractually specified access to our operational satellites. The success of DAP
will depend on our ability to secure contracts with potential customers and on our ability to
obtain U.S. Government approval for contracts with these customers. As described in our Annual
Report on Form 10-K in Risk Factors Failure to obtain or maintain regulatory approvals could
result in service interruptions. Our failure to obtain approval from the U.S. Government for future
DAP customers could limit our sales and negatively affect our defense and intelligence revenue.
Defense and Intelligence Revenue
Our defense and intelligence segment consists of customers who are principally defense and
intelligence agencies of U.S. or foreign governments. The U.S. government, through NGA, purchases
our imagery products and services under the NextView agreement on behalf of various entities within
the U.S. government, including the military commands, the CIA, Department of State and other
government agencies. We also sell to other U.S. defense and intelligence customers including
defense and intelligence contractors who provide an additional outlet for our imagery by providing
value-added services to our imagery to deliver a final end product to a customer.
Our defense and intelligence customers focus on image quality, including resolution, frequency of
area revisit and coverage, as well as ensuring availability of a certain amount of our capacity as
they integrate our products and services into their operational planning. Our customers in this
segment typically operate under contracts with purchase commitments, through which we receive
monthly or quarterly payments in exchange for delivering specific orders to the customer. Our
revenue from our defense and intelligence customers has historically been largely from tasking
orders, with a smaller portion from sales of imagery from our ImageLibrary. We believe this trend
will continue. For the twelve months ended June 30, 2010, we generated approximately 85.2% of our
defense and intelligence revenue from paid tasking and 14.8% from our ImageLibrary (treating all of
the revenue from the SLA under the NextView agreement and the DAP as paid tasking
and excluding amortized revenue).
Page 22 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
For the three and six months ended June 30, 2010, we sold to our defense and intelligence customers
both directly and through resellers, with 88.6% and 89.2%, respectively, of our defense and
intelligence revenue coming from direct sales and 11.4% and 10.8% from resellers, respectively.
For the three and six months ended June 30, 2010, $51.2 million, or 81.0%, and $103.7 million, or
82.5%, respectively, of our defense and intelligence revenue was generated within the United States
and Canada, and $12.0 million, or 19.0%, and $22.0 million, or 17.5%, respectively, was generated
from international defense and intelligence customers. For the three and six months ended June 30,
2010, our top five defense and intelligence customers accounted for 96.0% and 95.1%, respectively,
of our defense and intelligence revenue. NGA was our only customer that accounted for more than 10%
of our revenue in the three and six months ended June 30, 2010. NGA accounted for approximately
75.9% and 62.4%, of our revenue for the three months ended June 30, 2009 and 2010, respectively,
and 76.6% and 64.3% for the six months ended June 30, 2009 and 2010, respectively.
Commercial Revenue
Our commercial business consists of both traditional customers, primarily civil governments, and
energy, telecommunications, utility and agricultural companies that use our content for mapping,
monitoring, analysis and planning activities, and customers that add our content to enhance and
expand the information products and services that they develop and sell to the commercial market.
We call this second type of customer an integrated information customer.
Most of our traditional commercial customers purchase our imagery products and services on an
as-needed basis, either from the ImageLibrary or by placing tasking orders. By contrast, some of
our integrated information customers prefer contracts to maintain access to our imagery archive, or
purchase subscriptions to access our ImageLibrary. The majority of revenue from the commercial
segment has historically been generated from sales of imagery from our ImageLibrary, with a smaller
proportion from tasking orders. We believe this trend will continue in 2010. For the six months
ended June 30, 2010, we generated approximately 32.0% of our commercial revenue from paid tasking
and 68.0% from our ImageLibrary.
Our commercial customers are located throughout the world. We sell to these customers both directly
and through resellers, with 56.2% and 60.6%, respectively of our commercial revenue coming from
resellers and 43.8% and 39.4%, respectively, coming from direct sales for the three and six months
ended June 30, 2010, respectively.
For
the three and six months ended June 30, 2010, $7.8 million, or 43.8%, and $13.4 million, or
41.4%, respectively, of our commercial revenue was generated in the Americas and $10.0 million or
56.2% and $19.0 million, or 58.6%, respectively, was generated outside of the Americas. For the
three and six months ended June 30, 2010, our top five commercial customers accounted for 50.8% and
45.1%, respectively, of our commercial revenue. None of these customers accounted for more than 10%
of our revenue in three and six months ended June 30, 2010. We believe that we will have additional
growth opportunities internationally, especially in countries with rapidly developing economies, such as Brazil, China, India
and Russia, and, as a result, we expect that long-term sales growth in our commercial segment will
be higher outside of the United States.
Expenses
Most of our revenue is generated by the sale of products and services comprised of imagery from
QuickBird, WorldView-1 and WorldView-2. Given that most of the operating costs of a satellite are
related to the pre-operation capital expenditures required to build and launch a satellite, there
is no significant direct relationship between our cost of revenue and changes in our revenue. Our
cost of revenue consists primarily of the cost of personnel, as well as the cost of operations
directly associated with operating our satellites, retrieving information from the satellites, and
processing the data retrieved. Costs of acquiring aerial imagery are amortized on an accelerated
basis as a cost of revenue.
Page 23 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Our selling, general and administrative expenses consist primarily of labor, benefits, travel,
rent, insurance, utilities and related overhead costs, third-party consultant payments, sales
commissions and marketing expenses. Our selling, general and administrative expenses have been
increasing in total in recent years, and we expect the increase in costs to continue, as we expand
our sales and administrative resources to enable our revenue growth, increase capacity for
product sales and distribution, and incur costs related to being a public company. As a result, we
expect that our selling, general and administrative expenses as a percent of revenue will increase
in the near term.
Depreciation and amortization consist primarily of depreciation of our satellites and other
operating assets. On January 4, 2010, when WorldView-2 reached FOC, we began depreciating this
asset. Our future earnings are impacted by $10.5 million each quarter as we depreciate
the WorldView-2 satellite.
Our interest charges consist primarily of interest payments on borrowings used to finance satellite
construction and are capitalized as a cost of our satellite construction. During 2009, all interest
incurred was capitalized to our satellite that was under construction. With the successful
completion of WorldView-2, interest will be capitalized to the remaining assets under construction.
However, the capitalization amount will be significantly smaller in 2010 with the completion of our
satellite construction, and this will impact our earnings by increasing our interest expense now
that WorldView-2 is operational.
Backlog
Total backlog was $436.4 million as of June 30, 2010. Backlog consists of all contractual
commitments, firm orders, remaining pre-paid subscriptions, amounts committed under DAP agreements,
task orders from our government customers and unamortized revenue related to the NextView contract. Backlog includes $25.0 million under the
NextView agreement, substantially all of which is expected to be recognized prior to August 31,
2010 when the NextView agreement is scheduled to expire. This represents payments under the SLA for
capacity on WorldView-1 that is already committed to NGA. Backlog also includes $210.4
million of firm orders, minimum commitments under signed customer contracts, remaining amounts
under pre-paid subscriptions, amounts committed under DAP agreements and funded and unfunded task
orders from our government customers. Of this amount, we expect that $40.9 million will be
recognized in 2010. If the current agreement is extended or we enter into a new agreement with NGA,
our backlog will be increased by the amount of payments under the agreement for capacity committed
to NGA, which amounts will be recognized over the life of the new agreement. Backlog does not
include the amounts that might be recognized if NGA exercises its option to extend the SLA to
December 31, 2010.
Additionally, there is $201.0 million in backlog which is remaining unamortized revenue related to payments made to
us from NGA as part of the NextView contract, of which $12.8 million is expected to be recognized
during 2010. The balance will be recognized over the estimated remaining customer relationship
period, which is currently estimated to be 10.5 years from the launch of WorldView-1, which is
based on the remaining operational life of the WorldView-1 satellite. Due to the fact that these
payments were received prior to FOC, revenue to be recognized in 2010 is reflected as non-cash in
the financial statements. We have not included it in the backlog because there are no specific
services that are required to be rendered to recognize it as income. We are recognizing it ratably
over the estimated customer relationship period which positively affects our reported revenue, but
the recognition of this revenue has no effect on our ability to generate additional revenue from
the usage of our satellite and therefore should not be considered a reduction in our capacity to
generate additional sales.
Page 24 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
For the Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009
The following tables summarize our historical results of operations for the three months ended
June 30, 2010 compared to the three months ended June 30, 2009, and our expenses as a percentage of
revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
(in millions)
|
|
2009
|
|
|
2010
|
|
|
$
|
|
|
Percent
|
|
Historical results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defense and Intelligence revenue
|
|
$
|
58.3
|
|
|
$
|
63.2
|
|
|
$
|
4.9
|
|
|
|
8.4
|
%
|
Commercial revenue
|
|
|
11.7
|
|
|
|
17.8
|
|
|
|
6.1
|
|
|
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
70.0
|
|
|
|
81.0
|
|
|
|
11.0
|
|
|
|
15.7
|
|
Cost of revenue excluding
depreciation and amortization
|
|
|
8.0
|
|
|
|
10.1
|
|
|
|
2.1
|
|
|
|
26.3
|
|
Selling, general and administrative
|
|
|
21.5
|
|
|
|
28.2
|
|
|
|
6.7
|
|
|
|
31.2
|
|
Depreciation and amortization
|
|
|
18.9
|
|
|
|
31.0
|
|
|
|
12.1
|
|
|
|
64.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
21.6
|
|
|
|
11.7
|
|
|
|
(9.9
|
)
|
|
|
(45.8
|
)
|
Loss from early extinguishment of debt
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
7.7
|
|
|
|
(100.0
|
)
|
Interest income (expense), net
|
|
|
0.1
|
|
|
|
(10.7
|
)
|
|
|
(10.8
|
)
|
|
|
(108.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
14.0
|
|
|
|
1.0
|
|
|
|
(13.0
|
)
|
|
|
(92.9
|
)
|
Income tax expense
|
|
|
(5.6
|
)
|
|
|
(0.5
|
)
|
|
|
5.1
|
|
|
|
(91.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8.4
|
|
|
$
|
0.5
|
|
|
$
|
(7.9
|
)
|
|
|
(94.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2009
|
|
|
2010
|
|
Expenses as a percentage of revenue:
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of revenue, excluding depreciation and
amortization
|
|
|
11.4
|
|
|
|
12.5
|
|
Selling, general and administrative
|
|
|
30.7
|
|
|
|
34.8
|
|
Depreciation and amortization
|
|
|
27.0
|
|
|
|
38.3
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
30.9
|
|
|
|
14.4
|
|
Loss from early extinguishment of debt
|
|
|
(11.0
|
)
|
|
|
|
|
Interest income (expense), net
|
|
|
0.1
|
|
|
|
(13.2
|
)
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
20.0
|
|
|
|
1.2
|
|
Income tax expense
|
|
|
(8.0
|
)%
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
Net income
|
|
|
12.0
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
Total revenue increased $11.0 million, or 15.7%, in the second quarter of 2010 as compared to the
second quarter of 2009. The $4.9 million, or 8.4%, increase in defense and intelligence revenue was
due primarily to DAP customers, who received access time to WorldView-1 and/or
WorldView-2 in the second quarter 2010 and were not operational in the second quarter of 2009. The
$6.1 million, or 52.1%, increase in commercial revenue was driven by growth from consumer customers
in Europe, Americas and international civil government customers in Asia and the Americas.
During the second quarter of 2010, we saw growth in our cost of revenue and selling, general and
administrative as a percentage of revenue.
The $2.1 million increase in cost of revenue is primarily attributable to (i) $1.6 million of
direct access costs related to amortization of the deferred contract costs related to the DAP facilities and
the costs associated with the first year of maintenance, (ii) $0.8 million for repair and
maintenance on our DAP facilities and (iii) increased labor related costs of $0.4 million primarily
driven by the expensing of employee labor cost that previously had been capitalized as a part of
WorldView-2 development, but have now been reallocated to other operating
functions within the company as well as headcount growth. These increases were offset by decreases
in third party consulting costs of $0.4 million and a decrease in amortization of the purchased
aerial imagery library of $0.3 million.
Page 25 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Second quarter 2010 cost of revenue as a percentage of revenue was 12.5%, a 1.1% increase from
11.4% in the second quarter of 2009. The increase was driven by increased costs associated with the
first year maintenance for our direct access facilities and increased labor expenses driven by
the expensing of employee labor cost that previously had been capitalized as a part of WorldView-2
development, but have now been reassigned to other operating functions within the Company as
well as headcount growth. Both increases are part of our expense base and are expected to be
recurring through 2010.
The increase of $6.7 million in selling, general and administrative costs was attributable to (i)
$2.1 million increase in labor-related costs primarily driven by increased headcount within the
Company, (ii) $1.9 million increase from costs related to insuring WorldView-2, (iii) $1.9 million
increase in consulting costs, (iv) $0.6 million increase in third-party commission, and (v) $0.4
million increase in bonus expense. These increases were offset by a decrease in stock compensation
of $0.5 million.
Second quarter 2010 selling, general and administrative costs as a percentage of revenue were
34.8%, a 4.1% increase from the 30.7% in second quarter of 2009. This increase was driven by
increase in labor-related costs, the costs of insuring WorldView-2 and consulting costs. This trend
may or may not continue through 2010, and will depend upon the timing of additional expense
increases relative to revenue generated during the rest of 2010.
Depreciation and amortization increased by $12.1 million, or 64.0% as compared to the second
quarter of 2009, due to the commissioning of WorldView-2 on January 4, 2010. The WorldView-2
satellite is being depreciated over 11 years and the incremental depreciation is approximately
$10.5 million per quarter. During the second quarter the Company
accelerated the depreciation of selected software assets resulting in the
assets becoming fully depreciated, which increased depreciation expense by
$1.9 million for the quarter or $0.04 per diluted share.
Other non-operating expense includes the $7.7 million loss related to the early extinguishment of
debt that occurred during the second quarter of 2009.
Interest expense was $10.7 million, an increase of 108.0%, due to the commissioning of the
WorldView-2 on January 4, 2010, which results in the expensing of substantially all of the interest
on our debt. Approximately one percent of our interest was capitalized on capital projects during
the second quarter of 2010. Although we expect our capital expenditures to increase during the
course of 2010 and therefore, more of our interest to be capitalized, we still anticipate that
the substantial majority of the interest on our debt will be expensed during 2010, and unless and until we
begin another satellite construction project. Interest income of $0.1 million is approximately the same
as interest income for the second quarter of 2009.
In order to calculate our income tax expense, we performed an analysis of our projected 2010
operating results to determine an effective overall tax rate to be applied for each quarter of
2010. This annualized rate does not include the effects of certain discrete items which must be
included in the quarter that they occur. In the second quarter of 2010, we expect to have an
annualized effective tax rate of approximately 41% exclusive of any discrete items. This estimated
effective tax rate is based upon current forecasted income and expenses for the entire 2010
calendar year and will be adjusted each quarter to reflect updated forecasts and actual results. In
the second quarter of 2010, we recognized an additional tax expense of approximately $0.1 million
for discrete items related to certain stock option transactions. We expect that our effective tax
rate will decline as our pre-tax income increases with anticipated sequential revenue growth
during the course of 2010.
Page 26 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
For the Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
The following tables summarize our historical results of operations for the six months ended
June 30, 2010 compared to the six months ended June 30, 2009, and our expenses as a percentage of
revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
(in millions)
|
|
2009
|
|
|
2010
|
|
|
$
|
|
|
Percent
|
|
Historical results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defense and Intelligence revenue
|
|
$
|
115.6
|
|
|
$
|
125.7
|
|
|
$
|
10.1
|
|
|
|
8.7
|
%
|
Commercial revenue
|
|
|
21.6
|
|
|
|
32.4
|
|
|
|
10.8
|
|
|
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
137.2
|
|
|
|
158.1
|
|
|
|
20.9
|
|
|
|
15.2
|
|
Cost of revenue excluding
depreciation and amortization
|
|
|
14.4
|
|
|
|
20.2
|
|
|
|
5.8
|
|
|
|
40.3
|
|
Selling, general and administrative
|
|
|
44.1
|
|
|
|
53.0
|
|
|
|
8.9
|
|
|
|
20.2
|
|
Depreciation and amortization
|
|
|
37.6
|
|
|
|
60.1
|
|
|
|
22.5
|
|
|
|
59.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
41.1
|
|
|
|
24.8
|
|
|
|
(16.3
|
)
|
|
|
(39.7
|
)
|
Loss from early extinguishment of debt
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
7.7
|
|
|
|
(100.0
|
)
|
Loss on derivative instruments
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
1.8
|
|
|
|
(100.0
|
)
|
Interest income (expense), net
|
|
|
0.1
|
|
|
|
(20.6
|
)
|
|
|
(20.7
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
31.7
|
|
|
|
4.2
|
|
|
|
(27.5
|
)
|
|
|
(86.8
|
)
|
Income tax expense
|
|
|
(12.7
|
)
|
|
|
(2.2
|
)
|
|
|
10.5
|
|
|
|
(82.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
19.0
|
|
|
$
|
2.0
|
|
|
$
|
(17.0
|
)
|
|
|
(89.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2010
|
|
Expenses as a percentage of revenue:
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of revenue, excluding depreciation and
amortization
|
|
|
10.5
|
|
|
|
12.8
|
|
Selling, general and administrative
|
|
|
32.1
|
|
|
|
33.5
|
|
Depreciation and amortization
|
|
|
27.4
|
|
|
|
38.0
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
30.0
|
|
|
|
15.7
|
|
Loss from early extinguishment of debt
|
|
|
(5.6
|
)
|
|
|
|
|
Loss on derivative instruments
|
|
|
(1.3
|
)
|
|
|
|
|
Interest income (expense), net
|
|
|
|
|
|
|
13.0
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
23.1
|
|
|
|
2.7
|
|
Income tax expense
|
|
|
(9.3
|
)
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
Net income
|
|
|
13.8
|
%
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
Total revenue increased $20.9 million, or 15.2%, in the second quarter of 2010 as compared to the
second quarter of 2009. The $10.1 million, or 8.7%, increase in defense and intelligence revenue
was due primarily to our DAP customers, who received access time to WorldView-1
and/or WorldView-2 for the first time in 2010. The $10.8 million, or 50.0%,
increase in commercial revenue was driven by growth from consumer customers in Europe, Americas and
international civil government customers in Asia and the Americas.
During the second quarter of 2010, we saw growth in our cost of revenue and selling, general and
administrative costs as a percentage of revenue.
Page 27 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Increases in cost of revenue were due to a special project and our DAP. The $5.8
million increase is primarily attributable to (i) $3.6 million increase of direct access costs from
amortization of the deferred contract costs related to the facilities and the costs associated with
the first year of maintenance, (ii) $1.0 million increase in thirdparty costs related to completing a project in March 2010, (iii)
increased labor related costs of $0.9 million primarily driven by the expensing of employee labor
costs that previously had been capitalized as a part of WorldView-2 development, but who have now
been assigned to other operating functions within the Company as well as headcount growth, and (iv) $0.9
million increase in repair and maintenance on our DAP facilities. These increases were offset by a $0.6
million decrease in third party costs and a decrease of $0.3 million in amortization of aerial
imagery library.
Second quarter 2010 cost of revenue as a percentage of revenue was 12.8%, a 2.3% increase from
10.5% in the second quarter of 2009. This increase was driven by increased labor expenses resulting
from the commissioning of WorldView-2, and costs associated with amortization of costs related to
the first year of maintenance for DAP. Both increases are part of our expense base
and are expected to be recurring through 2010 and beyond.
The increase of $8.9 million in selling, general and administrative costs was attributable to (i)
increased labor related costs and bonus expense of $4.7 million primarily driven by increased
headcount within the Company as compared to the first two quarters of 2009, (ii) $3.8 million
increase from costs related to insuring WorldView-2,
(iii) increase of $2.3 million from consulting
costs, (iv) $0.3 million increase driven by a write off of an
asset, and (v) an increase of $0.4
million related to costs from accounting services and advertising expenses. These increases were
offset by a decrease in stock compensation of $1.6 million and a $0.5 million decrease in third
party commission expense.
For the first six months of 2010, selling, general and administrative costs as a percentage of revenue were
33.5%, a 1.4% increase from the first six months of 2009. This increase was driven by increase in
labor-related costs, primarily due to increased headcount and the costs of insuring WorldView-2.
This trend may or may not continue through 2010, and will depend upon the timing of additional
expense increases relative to revenue generated during the rest of 2010.
Depreciation and amortization increased by $22.5 million, or 59.8%, as compared to the second
quarter of 2009, primarily due to the commissioning of WorldView-2 on January 4, 2010. The
WorldView-2 satellite is being depreciated over 11 years and the incremental depreciation is
approximately $10.5 million per quarter. During the second quarter the Company
accelerated the depreciation of selected software assets resulting in the
assets becoming fully depreciated, which increased depreciation expense by
$1.9 million for the quarter or $0.04 per diluted share.
Other non-operating expense includes the $1.8 million loss related to a swap arrangement becoming
ineffective in the first quarter of 2009 and $7.7 million loss related to early extinguishment of
debt during the second quarter of 2009.
Interest expense was $20.6 million, due to the commissioning of the WorldView-2 on January 4, 2010,
which results in the expensing of substantially all of the interest on our debt. Approximately one
percent of our interest was capitalized on capital projects during the six months of 2010. Although
we expect our capital expenditures to increase during the course of 2010 and therefore, more of our
interest will be capitalized, we still anticipate that the substantial majority of the interest on
our debt will be expensed during 2010 and unless and until we begin another satellite construction project.
In order to calculate our income tax expense, we performed an analysis of our projected 2010
operating results to determine an effective overall tax rate to be applied for each quarter of
2010. This annualized rate does not include the effects of certain discrete items which must be
included in the quarter that they occur. In the second quarter of 2010, we expect to have an
annualized effective tax rate of approximately 41% exclusive of any discrete items. This estimated
effective tax rate is based upon current forecasted income and expenses for the entire 2010
calendar year and will be adjusted each quarter to reflect updated forecasts and actual results. In
the first six months of 2010, we recognized additional tax expense of approximately $0.4 million
for discrete items related to certain stock option transactions.
We expect that our effective tax rate will decline our pre-tax income increases with anticipated
sequential revenue growth during the course of 2010.
Page 28 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
We believe that the combination of funds currently available to us and funds expected to be
generated from operations will be adequate to finance our operations and development activities for
the next twelve months. Our NextView agreement with NGA was extended through August
31, 2010 and is scheduled to expire on August 31, 2010. NGA has four additional
options to extend the agreement for an additional month with the last option term expiring on
December 31, 2010. Although we expect the U.S. Government to extend the contract or enter into a new agreement with us, we cannot assure
you that the U.S. Government will continue to purchase earth imagery from us at similar levels or on similar terms.
Regardless of whether or not this contract is extended or renewed, all of our contracts with the
U.S. Government agencies are subject to risks of termination or reduction in scope due to changes
in U.S. Government policies, priorities or Congressional funding level commitments to various
agencies. Pursuant to the contract terms, U.S. Government agencies can terminate or suspend our
contracts at any time with or without cause. The U.S. Government accounted for approximately 62.4%
and 64.3% of our consolidated revenue for the three and six months ended June 30, 2010,
respectively. We believe that existing cash and cash equivalents as of June 30, 2010 plus
anticipated cash flow will be sufficient to fund anticipated operations and capital expenditures.
If the U.S. Government were not to renew or extend our contract at similar levels or on similar terms, we believe we
would be able to maintain operations with existing cash and cash equivalents for the next twelve
months; furthermore if necessary we could reduce operating expenses and/or defer capital
expenditures.
In summary, our cash flows were:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
($ in millions)
|
|
2009
|
|
|
2010
|
|
Net cash provided by operating activities
|
|
$
|
59.9
|
|
|
$
|
56.8
|
|
Net cash used in investing activities
|
|
|
(70.3
|
)
|
|
|
(18.5
|
)
|
Net cash provided by financing activities
|
|
$
|
82.3
|
|
|
$
|
7.5
|
|
In the
first six months of 2010, our operating cash flow decreased by $3.1 million due to a
decrease in net income of $17.0 million, a decrease in deferred taxes of $10.2 million due to lower
net income, offset by an increase of $22.5 million in depreciation and amortization expense.
Operating cash flows also decreased due to a decrease in accounts payable of $4.4 million, an increase
in accrued liabilities of $8.4 million due to the on-orbit performance payments related to
WorldView-2 and a $3.5 million increase in deferred contract costs due to the completion of our
four DAP contracts.
Cash flows used in investing activities decreased from $70.3 million in the six month period ended
June 30, 2009 to $18.5 million in the six month period ended June 30, 2010, due to the decrease in
capital expenditures primarily related to construction in progress. The decrease in construction in
progress is due to the completion and capitalization of the WorldView-2 satellite during 2010.
Cash provided by financing activities decreased from $82.3 million provided during the six month
period ended June 30, 2009 to $7.5 million in the six month period ended June 30, 2010. During
2009, we paid in full our senior credit facility and senior subordinated notes and received
proceeds from the issuance of our senior secured notes. We also received $21.7 million in proceeds
of the IPO that occurred during the second quarter of 2009. During 2010, there
were $7.8 million of stock option exercises.
Page 29 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Off-Balance Sheet Arrangements, Contractual Obligations, Guaranty and Indemnification Obligations
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of June 30, 2010.
Guaranty and Indemnification Obligations
We enter into agreements in the ordinary course of business with resellers and others. Most of
these agreements require us to indemnify the other party against third-party claims alleging that
one of our products infringes or misappropriates a patent, copyright, trademark, trade secret or
other intellectual property right. Certain of these agreements require us to indemnify the other
party against claims relating to property damage, personal injury or acts or omissions by us, our
employees, agents or representatives. In addition, from time to time we have made guarantees
regarding the performance of our systems to our customers.
Reconciliation of net income to Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
($ in millions)
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
Net income
|
|
$
|
8.4
|
|
|
$
|
0.5
|
|
|
$
|
19.0
|
|
|
$
|
2.0
|
|
Depreciation and amortization
|
|
|
18.9
|
|
|
|
31.0
|
|
|
|
37.6
|
|
|
|
60.1
|
|
Interest (income) expense, net
|
|
|
(0.1
|
)
|
|
|
10.7
|
|
|
|
(0.1
|
)
|
|
|
20.6
|
|
Loss from early extinguishment of debt
|
|
|
7.7
|
|
|
|
|
|
|
|
7.7
|
|
|
|
|
|
Loss on derivative instrument
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
Income tax expense
|
|
|
5.6
|
|
|
|
0.5
|
|
|
|
12.7
|
|
|
|
2.2
|
|
Non-cash stock compensation expense
|
|
|
1.9
|
|
|
|
1.5
|
|
|
|
4.2
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
42.4
|
|
|
$
|
44.2
|
|
|
$
|
82.9
|
|
|
$
|
87.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA is not a recognized term under generally accepted accounting principles (GAAP) in
the United States and may not be defined similarly by other companies. Adjusted EBITDA should not
be considered an alternative to net income, as an indication of financial performance, or as an
alternative to cash flow from operations as a measure of liquidity. There are limitations to using
non-GAAP financial measures, including the difficulty associated with comparing companies that use
similar performance measures whose calculations may differ from ours.
Adjusted EBITDA is a key measure used in internal operating reports by management and the board of
directors to evaluate the performance of our operations and is also used by analysts, investment
banks and lenders for the same purpose. Adjusted EBITDA is a measure of our current period
operating performance, excluding charges for capital, depreciation related to prior period capital
expenditures and items which are generally non-cash or non-core in nature.
We believe that the elimination of certain non-cash or non-core items enables a more consistent
measurement of period-to-period performance of our operations, as well as a comparison of our
operating performance to companies in our industry. We believe this measure is particularly
important in a capital intensive industry such as ours, in which our current period depreciation is
not a good indication of our current or future period capital expenditures. The cost to construct
and launch a satellite and build the related ground infrastructure may vary greatly from one
satellite to another, depending on the satellites size, type and capabilities. For example, our
QuickBird satellite, which we are currently depreciating, cost significantly less than our
WorldView-1 or WoldView-2 satellites. Current depreciation expense is not indicative of the revenue
generating potential of the satellite.
Adjusted EBITDA excludes interest income, expense, income taxes and loss on early extinguishment of
debt because these items are associated with our capitalization and tax structures. Adjusted EBITDA
also excludes depreciation and amortization expense because these non-cash expenses reflect the
impact of prior capital expenditure decisions which are not indicative of future capital
expenditure requirements. Adjusted EBITDA excludes stock compensation expense, because these items
are non-cash expenses and loss on derivative instrument because these are not related to our
primary operations.
Page 30 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
We use Adjusted EBITDA in conjunction with traditional GAAP operating performance measures as part
of our overall assessment of our performance and we do not place undue reliance on this measure as
our only measure of operating performance. Adjusted EBITDA should not be considered a substitute
for net income, cash-flow from operations or any other measures or financial performance reported
in accordance with GAAP.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We do not currently have any material interest rate risk exposure. Our debt bears interest at a
fixed rate.
We are exposed to various market risks that arise from transactions entered into in the normal
course of business. Certain contractual relationships with customers and vendors mitigate risks
from currency exchange rate changes that arise from normal purchasing and normal sales activities.
We do not currently have any material foreign currency exposure. Our revenue contracts are
primarily denominated in U.S. dollars and the majority of our purchase contracts are denominated in
U.S. dollars.
ITEM 4. Controls And Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive
officer and chief financial officer (our principal executive officer and our principal financial
and accounting officer, respectively), we have evaluated our disclosure controls and procedures (as
defined in Securities Exchange Act Rule 13a -15(e)) as of June 30, 2010. Based upon that
evaluation, the chief executive officer and chief financial officer have concluded that our
disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There has been no change in the Companys internal control over financial reporting during the
second quarter ended June 30, 2010, that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are a party to various litigation matters incidental to the conduct of our
business. We are not presently party to any legal proceedings the resolution of which, we believe,
would have a material adverse effect on our business, operating results, financial condition or
cash flows.
ITEM 1A. RISK FACTORS
Investment in our securities involves risk. In addition to the information set forth in this Form
10-Q, you should carefully consider the risk factors described under the caption Risk Factors in
our Annual Report on Form 10-K, filed with the SEC on February 24, 2010. There have been no
material changes to our Risk Factors since the filing of our Annual Report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
2.1 UNREGISTERED SALES OF EQUITY SECURITIES
None.
Page 31 of 32
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
2.2 USE OF PROCEEDS FROM PUBLIC OFFERING OF COMMON STOCK
On May 13, 2009, our registration statement (File No. 333-150235) was declared effective for our
IPO, pursuant to which we sold 1,366,256 shares of common stock.
As a result of the offering, we received net proceeds of approximately $19.0 million, after
deducting underwriting fees of $1.8 million and additional offering-related expenses of
approximately $3.3 million, for total expenses to us of approximately $5.1 million. No offering
expenses were paid directly or indirectly to any of our directors or officers (or their
associates). A portion of the underwriting fee was paid to Morgan Stanley an affiliate of which owns 10% or more of our common stock. There has been no material change in
the planned use of proceeds from our IPO from that described in the prospectus filed with the SEC
pursuant to Rule 424(b). Proceeds of $19.0 million are currently being held in an investment
account that is classified as short term and is included in cash and cash equivalents.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 5. Other Information
None.
ITEM 6 EXHIBIT INDEX
Exhibit Index
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Exhibit
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Number
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Description
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31.1
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Certificate of the Chief Executive Officer and President of
DigitalGlobe, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certificate of the Chief Financial Officer of DigitalGlobe,
Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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32.1
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Certificate of the Chief Executive Officer and the Chief
Financial Officer of DigitalGlobe, Inc. pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|
Page 32 of 32
SIGNATURE
DIGITALGLOBE, INC.
Pursuant to the requirements of Section 13 or 15(d) 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.
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Date: August 3, 2010
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/s/ Yancey L. Spruill
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Yancey L. Spruill
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Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
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|
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Exhibit
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|
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No.
|
|
Description
|
|
31.1
|
|
|
Certificate of the Chief Executive Officer and President of
DigitalGlobe, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
31.2
|
|
|
Certificate of the Chief Financial Officer of DigitalGlobe,
Inc. pursuant to Section 302 of the Sarbanes Oxley Act of
2002.
|
|
|
|
|
|
|
32.1
|
|
|
Certificate of the Chief Executive Officer and the Chief
Financial Officer of DigitalGlobe, Inc. pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|
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