UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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OR
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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
001-33015
GeoEye, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
(State of other jurisdiction
of
Incorporation or organization)
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20-2759725
(IRS Employer
Identification Number)
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21700 Atlantic Boulevard
Dulles, VA
(Address of principal
executive offices)
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20166
(Zip Code)
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Registrants telephone number, including area code:
(703) 480-7500
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, Par Value $0.01
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The NASDAQ Global Market
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Securities Registered Pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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, as amended, 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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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 the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the
last business day of the registrants most recently
completed second fiscal quarter. $437,576,864
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes þ No o
The number of shares outstanding of Common Stock, par value
$0.01, as of March 10, 2010 was 21,103,232 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of GeoEye, Inc.s 2010 Definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on
June 3, 2010, to be filed within 120 days after the
close of the Registrants fiscal year, are incorporated by
reference in Part III of this
Form 10-K.
TABLE OF
CONTENTS
In this annual report, GeoEye, the
Company, we, our, and
us refer to GeoEye, Inc. and its subsidiaries.
2
FORWARD
LOOKING STATEMENTS
All statements other than those of historical facts included in
this
Form 10-K,
including those related to our financial outlook, liquidity,
goals, business strategy, projected plans and objectives of
management for future operating results, are forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for certain
forward-looking statements as long as they are identified as
forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual
results to differ materially from the expectations expressed or
implied in the forward-looking statements.
These forward-looking statements are subject to numerous
assumptions, risks and uncertainties, based on our current
expectations and projections about future events including the
risks set forth below and under the captions
Business, Risk Factors, and
Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A). The
forward-looking statements made in this annual report on
Form 10-K
(Annual Report) reflect our intentions, plans, expectations,
assumptions and beliefs about future events. Our actual results,
performance or achievements could be materially different from
any future results, performance or achievements expressed or
implied by such forward-looking statements. Although we believe
the expectations reflected in these forward-looking statements
are based on reasonable assumptions, there is a risk that these
expectations will not be attained and that any deviations will
be material. We disclaim any obligation or undertaking to
disseminate any updates or revisions to any forward-looking
statement contained in this
Form 10-K
to reflect any changes in our expectations or any change in
events, conditions or circumstances on which any statement is
based.
Trademarks
We own or have rights to various copyrights, trademarks, and
trade names used in our business, including the following:
GEOEYE®;
IKONOS®;
MJ
HARDEN®;
ORBIMAGE®;
ORBVIEW®;
ROADTRACKER®;
GEOEYE
FOUNDATIONtm;
GEOPROFESSIONALtm;
GEOSTEREOtm;
GEOFUSEtm;
EYEQtm;
EYEONtm;
SEASTARsm;
SEASTAR FISHERIES INFORMATION
SERVICEsm;
MARINE INFORMATION
SERVICEsm;
MASTERCASTtm;
OCEAN MONITORING
SERVICEsm;
ORBBUOYtm;
ORBMAPtm;
TRUSTED IMAGERY
EXPERTStm;
and VESSEL
TRACKINGtm;
3
PART I
Overview
GeoEye is a leading commercial provider of highest accuracy,
highest resolution earth imagery, image processing services and
imagery information products to U.S. and foreign government
defense and intelligence organizations, domestic federal and
foreign civil agencies, and commercial customers. We own and
operate three Earth-imaging satellites, GeoEye-1, IKONOS and
Orbview-2 and three fixed-wing aircraft with advanced
high-resolution imagery collection capabilities. GeoEye-1 is the
worlds highest resolution and most accurate commercial
imaging satellite. In addition to our imagery collection
capacities, we are a global leader in the creation of enhanced
satellite imagery information products and services. We operate
four high-resolution image processing and production facilities
which can process, manage, analyze and share imagery from any
commercial or government satellite. Our satellite and aerial
imagery products and services provide our customers with the
timely, and accurate location intelligence, enabling them to
analyze, monitor and map to their needs and demands. We serve a
growing global market that requires high-resolution imagery and
precision mapping products for applications such as national
defense and intelligence, online mapping, environmental
monitoring and resource management, energy exploration, asset
monitoring, urban planning, infrastructure planning and
monitoring, and disaster preparedness and emergency response. We
own one of the largest commercial color digital satellite
imagery libraries in the world, which contains more than
405 million square kilometers of color imagery of the
Earth. We believe the combination of our highly accurate
satellite and aerial imaging assets, our high-resolution image
processing and production facilities, and our color digital
imagery library differentiates us from our competitors. This
enables us to deliver a comprehensive range of imaging products
and services to our diverse customer base.
Products
and Services
We offer a wide range of imagery products and services,
including: the collection of satellite and aerial imagery,
imagery processing, and production services and information
services. Our customers receive products tailored to their
needs, applications and business and government operations.
Satellite
Imagery
We offer a wide range of high resolution satellite imagery
products, which provide our customers with time-critical visual
imagery, data and information, which we divide into three
general categories:
Geo. Our Geo product, which is the foundation
of the imagery product line, is a map-oriented image suitable
for a broad range of customer uses. Geo images are suitable for
customer visualization and monitoring applications and are
delivered to our customers in a data and information format
capable of being processed into other advanced imagery products
using standard commercially available software.
GeoProfessional. Our GeoProfessional products
consist of imagery that has been aligned and geographically
corrected by our experienced staff of production personnel to
provide the most accurate and precise imagery currently
available from a commercial satellite provider. Our production
personnel also have the ability to combine various satellite and
aerial images into a single, highly detailed and comprehensive
image. Available in various levels of accuracy, these
GeoProfessional products are suitable for feature extraction,
change detection, base mapping and other similar geo-location
applications.
GeoStereo. Our GeoStereo product provides at
least two images of the same location at different angles to
provide our customers with a three-dimensional image of a given
location. GeoStereo provides the base images that are used for
three-dimensional feature recognition and extraction. These
GeoStereo products support a wide range of imagery applications
such as digital elevation model creation, building height
extraction, spatial layers, and three- dimensional feature
extraction.
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Aerial
Imagery
Our aerial imagery products are designed to support specific
customer requests for high-resolution and highly accurate
images. We offer two main types of aerial imagery collected by
our dedicated fleet of three imaging aircraft: (1) digital
aerial imaging; and (2) light detection and ranging (LiDAR)
imaging (an optical remote sensing technology using laser pulses
to determine distances to an object or surface). The use of
digital aerial imaging provides our commercial and government
customers with complete digital images, which can be easily
stored in a data management system. The LiDAR technology is a
valuable tool for measuring and recording elevation data for use
in topographic mapping and three dimensional terrain and surface
modeling, useful in the field of engineering.
Production
Services
Images generated by our production service operations are
purchased by both U.S. Government agencies and commercial
customers. Production services typically entails the processing
and production of specific data and imagery information products
that are built to stringent customer specifications. We have
developed advanced processing systems that enable us to process
raw data from a wide range of both government and commercial
sensors (imaging satellites) and then merge the source images
into very precise information and image products in order to
meet the needs of a broad range of customers. Our production
services range from the generation of precision imagery products
(for example, digital elevation maps) to the extraction of
site-specific features (for example, airports, highways, and
buildings) for our customers database development.
Our production services, which are designed to increase the
accuracy and precision of satellite and aerial imagery, include
the following production processes:
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Georectification. This is a computer
processing operation which corrects the pixel locations of a
digital image to remove image distortions caused by the
non-vertical pointing and movement of the sensor during the
imaging event.
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Image Mosaicing. This is the combination and
merging of separate digital images into a seamless locationally
accurate image.
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Tonal Correction. The scientific correction of
the color variations between various component images of an
image mosaic so that the image or picture reflects a coherent
color structure.
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Orthorectification. This is a computer
processing operation which corrects the pixel locations of a
digital image to remove image distortions caused by non-vertical
pointing and movement of the sensor during the imaging event and
distortions caused by earth elevation differences at the image
location.
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Our production services include LiDAR elevation data, maps,
topographic maps, digital orthophoto imagery, remote sensing
services, survey and inventory services and Geospatial
Information Service (GIS) consulting and implementation. We also
offer geospatial products and services to help develop and
manage geospatial data to support customer documentation needs,
inventory of resources and engineering and development
applications.
Information
Services
We also provide imagery information services, which combine our
imagery with real-time, third-party data to create a
sophisticated and customized information product for our
customers. For example, our SeaStar marine information service,
which is offered on a subscription basis, provides the
commercial fishing industry with sophisticated mapping
information, which includes such data as sea surface
temperatures and ocean currents as well as analysis of this
information, to assist fishermen in locating fish more
efficiently.
We are developing our information services business in an effort
to give our customers global on-demand access to imagery and
related information products over the Web. This new Web services
platform, which we call
EyeQtm,
will provide the core infrastructure for this new service
and our new geospatial information services business.
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The EyeQ
Web Services Platform
The EyeQ Web services platform will sell imagery and other
location intelligence based on multi-year subscriptions and seat
licenses, rather than selling imagery pixels by the square
kilometer. EyeQ will also offer a Web interface with tools that
function as our customers data center. EyeQ can serve up
imagery and other content throughout the customers data
network and also out to their customers and partners.
With EyeQ, our customers will get easy access to their imagery,
tailored to their needs, all through cloud computing. EyeQ will
be user friendly and available twenty-four hours a day and seven
days a week. EyeQ serves our goal of simplifying access to and
delivery of imagery and location information.
This real-time Web delivery will first be provided to the NGA
through a program known as Rapid Dissemination of Online
Geospatial Intelligence, also called RDOG. RDOG represents our
first step toward delivering information services over the Web.
Phase one of RDOG program involves a contract to produce and
deliver a digital image map of an entire country for the NGA.
After this product is built, we will have a separate contract to
host the information product in a Web-services environment, so
any of the NGA employees covered by the license agreement can
access it anytime, anywhere. We received this hosting contract
in late February 2010.
The NGA issued a contract in March 2010 for subscription-based
access to this Web mapping service. We are on track to move from
beta into formal operations by the end of March. After GeoEye
brings the Web services online for the U.S. Government in
early spring, we will begin rolling the EyeQ service out to our
commercial customers. These information services will be offered
to a wide range of government and commercial clients for
application in the oil and gas industry, mining, engineering,
construction and infrastructure industries, and also for use in
the public safety market.
RDOG is, in effect, a customized version of our overall
information services offering that we will be rolling out this
summer, under the brand name EyeQ.
Customers
Our products and services are sold and provided to many
U.S. Government agencies, including the national security
community, foreign governments and North American and
international commercial customers.
We sell our imagery by means of image collection orders, both
satellite and aerial, and from our satellite imagery library,
which currently comprises over 405 million square
kilometers of high-resolution imagery. Our imagery products and
services are sold through direct and indirect sales channels,
resellers, direct salespeople, strategic partners and via our
customer service and production services personnel. Our imagery
customers can buy imagery from us through various sales
arrangements, including purchasing imagery by the square
kilometer, or by buying monthly subscription-based access to one
of our satellites and associated ground processing technology
and support services. Certain international government customers
pay for direct access to our satellites, which gives them the
right to task the satellites and to receive direct downlinks
from the satellite. We have the ability to deliver imagery
products by means of electronic delivery using file transfer
protocol (FTP) or by the use of physical media such as CDs,
DVDs, hard drives or electronic distribution. The key factors in
determining the appropriate delivery method depends on the
customer needs and the file size of the imagery product ordered.
Domestic
Customers
U.S.
Government
Our products and services are provided to various
U.S. Government, defense, intelligence and law enforcement
agencies and civil agency customers. Under the NextView Program,
the National Geospatial-Intelligence Agency (NGA) acquires
imagery and imagery derived products on behalf of its clients in
the U.S. defense, intelligence and law enforcement
agencies. Other U.S. Government agencies that purchase
satellite imagery include the U.S. Department of Interior,
U.S. Geological Survey, U.S. Fish and Wildlife
Service, National Park Service, National Aeronautics and Space
Administration, U.S. Air Force, U.S. Army and the
U.S. Department of Agriculture. For the year ended
December 31, 2009, we recognized aggregate revenues of
$181.9 million from the U.S. Government, which
represented approximately 67% of our total revenues.
6
Commercial
and Other
Our North American commercial customers, which represented 6% of
our revenues for the year ended December 31, 2009,
purchased both satellite and aerial imagery from us. Our North
American commercial customers operate in a variety of different
market segments, including on-line mapping, GIS, precision
mapping, infrastructure, oil and gas, environmental monitoring,
agriculture, mining, utilities and transportation. We sell
imagery and products to our North American resellers and they in
turn add additional value to the products for sale to the end
user. One example of our North American commercial relationship
is our multi-year agreement with Google, Inc. to provide
satellite imagery for its online consumer and commercial
applications (Google Earth and Google Maps).
International
Customers
Our international customers, which represented 27% of our total
revenues for the year ended December 31, 2009, is primarily
comprised of foreign governments but also includes commercial
customers. Most foreign countries currently do not have
satellite collection programs as technically sophisticated as
those in the United States and must either rely on limited
aerial imagery collection for their imagery applications or
purchase imagery from reliable commercial satellite providers,
such as GeoEye. Our international customers primarily use
imagery for national defense, intelligence programs;
agricultural planning and monitoring; resource monitoring;
national border monitoring; environmental and infrastructure
monitoring; and construction planning.
Many of our international customers purchase satellite images
and data that are delivered directly to the customers own
satellite ground stations. These international customers
contract to purchase the right to send imagery collection orders
directly to our satellite and to receive direct downlinks of
imagery from our satellites within a particular coverage zone
(cone of communication) while the satellite is over their
territory. Customers purchasing imagery in this manner enter
into
take-or-pay
arrangements with us, and these contracts generally have a
duration of one to five years. Certain contracts entered into
with international customers (affiliates) prior to our
acquisition of Space Imaging LLC (Space Imaging) specified that
IKONOS images taken over the affiliates territory
were sold to the affiliate.
We have modified the old IKONOS business model in connection
with the launch of our newest satellite, GeoEye-1. We now retain
a significant amount of GeoEye-1 capacity over all territories,
including those in which we have international affiliates. In
addition, we grant our international affiliates licenses to use
and re-sell GeoEye-1 images collected by them in their
territories; however, in most cases, we retain the rights to
those images outside of such territories. This change has
provided us significantly greater flexibility to collect imagery
for the U.S. Government and other customers, to reduce our
cost of goods sold, to sell a significantly increased number of
images to our customer base and to more effectively utilize our
archive.
NextView
Program
The U.S. Governments NGA, announced in March 2003
that it intended to support, through the NextView program, the
continued development of the commercial satellite imagery
industry through contracts to support the engineering,
construction and launch of the next generation of imagery
satellites by two providers. Under the NextView program, GeoEye
constructed a new satellite, GeoEye-1. GeoEye-1 was launched in
September 2008 and started commercial operations and obtained
certification from NGA in February 2009, at which point the
satellite commenced full operations. Total final capitalized
costs (including financing and launch insurance costs) of the
GeoEye-1 satellite and related ground systems incurred was
$480.8 million.
Under the NextView contract, NGA agreed to support the project
with a cost share totaling approximately $237.0 million
spread over the course of the project development and subject to
various milestones. On March 19, 2009, NGA had paid the
Company its cost share obligation in full. GeoEye had deferred
recognition of the cost share amounts from NGA as revenue until
GeoEye-1s in-service date in February 2009. We recognize
this revenue on a straight-line basis over the nine-year
depreciable operational life of the satellite. The Company
built, launched and deployed GeoEye-1 for less than the maximum
cost specified in the NGA contract. As a result, we credited a
portion of NGAs cost share payments, approximately
$20.0 million, against imagery purchase obligations during
2009.
7
In December 2008, we finalized a Service Level Agreement
modification (SLA), to the NextView contract with NGA. On
September 1, 2009, the NGA extended the SLA through
March 31, 2010. On March 1, 2010, NGA modified the SLA
to provide the option to extend the term of the SLA beyond
March 31, 2010. The SLA has been extended through
June 30, 2010, followed by six additional one-month option
periods, with the last option period expiring on
December 31, 2010. Under the SLA, GeoEye began delivering
imagery to NGA in the first quarter of 2009 and we recognized
$124.9 million of imagery revenue under the SLA during the
year ended December 31, 2009.
During 2009, we received new U.S. Government awards
totaling more than $37.9 million to supply the NGA with a
significant amount of value-added, imagery-based
geospatial-intelligence products. These awards are in addition
to the SLA modification to the NextView contract and are
expected to be completed during 2010. We recognized
$10.4 million of imagery revenue during the year ended
December 31, 2009, under these awards.
Business
Operations
Our business operations are structured to ensure timely,
accurate and accessible delivery of our products and services to
our global customers. To that end, we have established an
integrated system that includes collection systems, production
facilities and a global distribution system.
Collection
System
We own and operate satellite and aerial collection systems,
including:
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three low Earth orbiting, imaging satellites, including
GeoEye-1, currently the most advanced imagery collection
satellite commercially available;
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one airplane with digital and LiDAR camera;
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two airplanes each with a digital mapping camera; and
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two central
U.S.-based
ground systems that control the satellites and that receive,
process and archive their imagery and include electronic
cataloging and distribution capabilities.
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The following table summarizes the primary characteristics of
our satellites:
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GeoEye-1
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IKONOS
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OrbView-2
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Principal Application
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National Security, Mapping, Oil and Gas, Infrastructure, Mining,
Land Use, Land Planning
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National Security, Mapping, Oil and Gas, Infrastructure, Mining,
Land Use, Land Planning
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Weather, Fishing, Agriculture, Scientific Research,
Environmental Monitoring
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Best Ground Resolution
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0.41 m Panchromatic, 1.65 m Multispectral
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0.82 m Panchromatic, 3.2 m Multispectral
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1 km to 4 km, Multispectral
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Scene Width
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15.2 km
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11 km
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2,800 km
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Image Area (or Swath)
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225 km sq.
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121 km sq.
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N.A.
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On-Board Storage
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1 Terabit
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80 Gigabit
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128 Megabit
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Revisit Time
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3 Days
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3 Days
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1 Day
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Orbital Altitude
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681 km
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681 km
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705 km
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GeoEye-1
GeoEye-1 has been designed to collect 0.41-meter (approximately
equivalent to 16 inches) resolution black and white imagery
(known by the industry term as panchromatic) and 1.65 meter
resolution color imagery (known in the industry as
multispectral) of the Earths surface, both individually
and simultaneously. It can collect up to 127 million square
kilometers per year in the color mode, the more popular mode, or
255 million square kilometers per year in the black and
white mode. Although imagery can be collected at this highest
resolution for the U.S. Government, due to current
U.S. licensing restrictions, products for non-government
customers must be re-sampled to no better than 0.5-meters before
being made available for sale to
non-U.S. Government
customers. For
8
more details on this restriction, see
Government Regulation United
States below. In addition to 0.5-meter ground resolution
imagery, GeoEye-1 offers geolocation accuracy, which is
currently better than five meters, which means that customers
can map natural and man-made features to within five meters of
their true location on the Earths surface without ground
control points. GeoEye-1 can downlink imagery to a customer
whose ground station has the appropriate receiving equipment and
has the ability to take simultaneous black and white and color
imagery, allowing us to deliver pan sharpened
multispectral imagery, which is in effect black and white
imagery to which color has been accurately added, yielding a
colorized product at higher resolution than would otherwise be
available. GeoEye-1 can capture stereo images on the same
orbital pass, allowing us to provide digital elevation data.
We maintain insurance policies for GeoEye-1 with both full
coverage and total-loss-only coverage in compliance with the
indenture governing our 9.625% Senior Secured Notes due
2015 (2015 Notes). As of December 31, 2009, we carried
$250.0 million in-orbit insurance for GeoEye-1, comprised
in part by $187.0 million of full coverage to be paid if
GeoEye-1s capabilities become impaired as measured against
a set of specifications; of such coverage, $20.0 million
expires on September 6, 2010, $117 million expires
December 1, 2010 and $50 million expires
September 6, 2011. We also carry $63.0 million of
insurance in the event of a total loss of the satellite, which
expires December 1, 2010.
On December 11, 2009, GeoEyes engineers detected an
irregularity in the equipment that GeoEye-1 satellite uses to
point the antenna that transmits imagery to receiving ground
stations on Earth. Due to the irregularity, the satellite was
taken out of service during December for testing and analysis.
We have developed alternative plans to support our impacted
customers and have been doing so since January 2010. One-time
charges of $6.1 million were incurred in the fourth quarter
as a result of the satellite irregularity and contract
modifications.
The irregularity limits the range of movement of the downlink
antenna, which affects GeoEye-1s ability to image and
downlink simultaneously to certain customers. GeoEye-1 is able
to downlink imagery to GeoEyes four ground stations, since
down-linking to these ground stations is a separate function
from the satellites imaging activities. The irregularity has no
impact on our on-going ability to deliver imagery to the NGA
under the SLA and to those of our regional affiliates for whom
we collect and deliver imagery.
This issue did affect a few of the Companys overseas
customers who own ground stations and have contracted to receive
direct downlinks, to the extent they wanted to simultaneously
collect and downlink. The future impact of this irregularity on
international revenues is expected to be minimal.
The GeoEye-1 satellite was launched in September 2008 and
started commercial operations on February 5, 2009. NGA
certified the imagery as meeting NGAs specifications on
February 20, 2009, at which point we commenced full
operations. GeoEye-1 is currently the worlds
highest-resolution color commercial remote-sensing satellite.
IKONOS
GeoEye acquired this satellite through the acquisition of Space
Imaging in 2006. IKONOS provides 0.82-meter resolution black and
white and 3.2-meter resolution color imagery with a geolocation
accuracy of approximately 7.8 meters. IKONOS can collect about
200,000 square kilometers of imagery per day. Like
GeoEye-1, IKONOS is designed to downlink imagery to a customer
and to accept imaging collection orders directly from customers.
In addition, like GeoEye-1, IKONOS has the ability to take
simultaneous black and white and color imagery, allowing us to
deliver pan sharpened multispectral imagery and can
capture stereo images on the same orbital pass. The Company
maintains $20.0 million of in-orbit insurance for IKONOS,
which expires December 1, 2010, and is paid if the
satellites capabilities become impaired as measured
against a set of specifications. The IKONOS satellite was
launched in September 1999.
OrbView-2
OrbView-2 collects 1.0-kilometer, low resolution color imagery
and is the first commercial satellite to image the Earths
entire surface on a daily basis in color. OrbView-2 downlinks
imagery to both our primary and backup ground stations and to
various regional receiving stations around the world. We provide
OrbView-2 value-added
9
products on a global basis to approximately 300 customers in the
commercial fishing industry under our SeaStar Fisheries
Information Service, where we couple our imagery with weather
forecasts and other data that allow these customers to better
predict high yielding fishing areas. High-resolution imagery is
not considered critical in this market. We also provide
OrbView-2 imagery to researchers and the U.S. Government
agencies for scientific and environmental applications. The
satellites coverage supports a wide array of projects
focusing on global change, global warming, and non-scientific
applications for commercial fishing, environmental monitoring
and naval operations. The OrbView-2 satellite was launched in
August 1997.
GeoEye-2
We believe that demand for satellite imagery from the
U.S. Government will increase beyond the available supply
in the 2013 timeframe. Given the long lead time associated with
providing additional capacity, we entered into a contract with
ITT Corporation in October 2007 to begin work on the camera for
GeoEye-2. This head start in building the camera means we could
accelerate GeoEye-2s deployment so that it could be
launched in late 2012 with imagery being commercially available
for sale in early 2013. As of December 31, 2009 we have
spent a total of $66.8 million on components of GeoEye-2.
We view these expenditures as prudent and believe they will
position us to move quickly should an opportunity arise to
expand our existing NGA relationship to include the development
of a new satellite. We expect to continue to make reasonable
investments in GeoEye-2s development, but we do not expect
to launch or commission the GeoEye-2 satellite on an accelerated
basis without an agreement with the NGA under its EnhancedView
Program. We are currently participating in the NGA
request-for-proposal
contract process for the EnhancedView Program. This program will
allow the U.S. government to continue to receive a supply
of unclassified, highly accurate satellite imagery from
commercial satellite imagery providers and will replace the
NextView program, which could expire in June 2010, unless the
NGA exercises their option to extend it through
December 31, 2010. Prior to launch and commissioning
GeoEye-2, we may require additional capital depending on the
terms of our agreement, if any, with NGA. If we were not to
build GeoEye-2 on an accelerated basis, we would most likely
proceed so that a new high-resolution satellite could be used as
a replacement satellite for GeoEye-1 in the 2016 to 2017
timeframe.
Production
Facilities
GeoEye operates four production facilities that provide advanced
image processing products, engineering analysis and related
services. We also operate or contract with other facilities that
provide satellite control and communications services.
The following table summarizes the primary characteristics of
production facilities and satellite control and communications
services:
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Satellite
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Satellite
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Image Order
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Image Receiving and
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Control
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Communications
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Tasking
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Processing Center
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Thornton, CO
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ü
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ü
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ü
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ü
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Dulles, VA
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ü
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ü
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ü
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ü
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St. Louis, MO
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ü
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Fairmont, WV
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ü
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Norman, OK
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ü
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ü
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Point Barrow, AK
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ü
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Fairbanks, AK
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ü
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ü
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Mission, KS
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ü
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Kiruna, Sweden
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ü
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Tromso, Norway
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ü
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Troll, Antarctica
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ü
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Our two operations centers in Dulles, VA and Thornton, CO:
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monitor and maintain our satellites proper orbit;
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command our satellites as required for imagery collection;
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maintain appropriate communication links with our satellites;
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have ground station collection capabilities; and
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ensure that electrical power and other operating variables stay
within acceptable limits.
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The Dulles, Virginia operations center sends satellite imaging
collection orders, referred to in the industry as tasking
orders, to the GeoEye-1 satellite. The Thornton, Colorado
operations center sends imaging collection orders to our IKONOS
satellite and provides backup collection order capabilities for
the GeoEye-1 satellite. Our international regional affiliates
can also send imaging collection orders to both GeoEye-1 and
IKONOS. The tasking process is complex and employs software
systems to evaluate whether a customers tasking request is
feasible. In order to be feasible, the satellite must be able to
view the desired area on a certain day at the time it passes
overhead. Additionally, adverse weather conditions, such as
clouds or sun angle, may make it inadvisable to attempt to image
a certain area on any given day. The order must be received in
time for processing and transmission to the satellite. The
tasking system considers the relative priority of different
requests by one customer or several customers and calculates the
satellites ability to collect more than one area of the
Earth on the same orbital pass.
Our St. Louis, Missouri image processing facility provides
advanced image processing products, engineering analysis and
related services to the U.S. Government and other
commercial customers. The St. Louis facility can produce
imagery products from various sources including images acquired
from U.S. Government satellites, our GeoEye-1 and IKONOS
satellite, the satellites operated by our competitors and many
of the current international satellites, in addition to aerial
imagery. Our St. Louis facility provides us with a unique
competitive advantage, as we believe that we are the only
operator of high-resolution imagery satellites that also
operates a source-agnostic production facility that can
assimilate imagery from any imagery source to generate the
sophisticated information products required by our customers.
Our MJ Harden facility in Mission, Kansas offers a range of
geospatial products and services to help develop and manage
geospatial data to support documentation, resources inventory
and engineering and development applications. The services are
based on 50 years of experience in photogrammetric mapping,
GIS implementation and geospatial information technology
development and include: digital aerial imagery, LiDAR elevation
data, planimetric maps, topographic maps, digital orthophoto
imagery, remote sensing services, survey and inventory services
and GIS consulting and implementation. MJ Harden provides
digital aerial imagery collection, photogrammetry services,
mobile and geographic information system technology and
implementation services, field data collection and other related
services that provide customers with asset-mapping and corridor
management solutions. Customers include utilities and oil and
gas pipeline companies; engineering companies; real estate
developers; and federal, state and local government agencies,
among others.
In addition to the operations centers listed above, we also
contract with ground station facilities in Kiruna, Sweden;
Tromso, Norway; and Troll, Antarctica that provide relay
services to capture and transmit satellite imagery to our
production facilities.
Global
Distribution Network
Our global distribution network consists of:
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international regional affiliate satellite receiving and
distribution centers with direct downlinking capabilities;
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worldwide network of imagery product resellers; and
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Web-based search, discovery and dissemination technology.
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The image processing centers receive imagery downlinked to
multiple ground antennas and are equipped with numerous work
stations that process and convert the digital imagery into
imagery products. The centers are designed to archive the
maximum number of high-resolution satellite images per day and
have the capability to generate a variety of geospatial products
for resale. Geospatial products refers to
information products created by combining imagery with data
related to geographic location, spatial relationships and other
data.
11
Contracted
Backlog
We have historically had and currently have a substantial
backlog, which provides some assurance regarding our future
revenue expectations. Backlog reduces the volatility of our net
cash provided by operating activities, more than would be
typical for a company outside our industry.
Our backlog was approximately $271.4 million at
December 31, 2009 and approximately $236.2 million at
December 31, 2008. See Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations and related notes in Item 8 of this Annual
Report. Backlog includes our SLA with the NGA, access fee
agreements with our international regional affiliates, regional
affiliate ground station operations and maintenance contracts,
commercial imagery contracts and value-added products and
services.
Our backlog as of December 31, 2009, included approximately
$81.4 million of contracts with the U.S. Government,
including approximately $39.5 million related specifically
to the SLA. In addition to this backlog, we have recently added
another $37.5 million with our most recent SLA extension.
Most of our government contracts are funded incrementally on a
year-to-year
basis; however, certain international government and commercial
customers have signed multi-year contracts. Changes in
government policies, priorities or funding levels through agency
or program budget reductions by the U.S. Congress or
executive agencies could materially adversely affect our
financial condition and results of operations. Furthermore,
contracts with the U.S. Government may be terminated or
suspended by the U.S. Government at any time, with or
without cause, which could result in a reduction in backlog.
In addition, there is $196.3 million of remaining
unamortized revenue related to payments made prior to FOC from
NGA, of which $24.2 million is expected to be recognized
during 2010. We have not included this in our backlog because no
specific services will be rendered to recognize the revenue. The
balance will be recognized on a straight-line basis over the
useful life of the satellite.
Company
History
GeoEye was initially organized as ORBIMAGE Holdings, Inc.,
Delaware corporation, on April 4, 2005. It was formed to
enable its predecessor registrant, and subsequently its
wholly-owned subsidiary, ORBIMAGE Inc., a Delaware corporation,
to implement a holding company organizational structure.
ORBIMAGE Inc. was established on December 31, 2003 in
conjunction with Orbital Imaging Corporations
reorganization and emergence from Chapter 11 bankruptcy.
Effective June 21, 2005, we reorganized into a holding
company structure, by means of a merger conducted pursuant to
Section 251(g) of the General Corporation Law of the State
of Delaware (the Merger). As a result of the Merger, each
stockholder of ORBIMAGE Inc. became a holder of the common stock
of ORBIMAGE Holdings Inc., evidencing the same proportional
interests, and ORBIMAGE Inc. became a direct, wholly owned
subsidiary of ORBIMAGE Holdings Inc. Accordingly, the Company
became the successor registrant of ORBIMAGE Inc. On
January 10, 2006, we adopted the brand name GeoEye. On
September 28, 2006, the stockholders of the Company voted
to formally change the legal name of the Company from ORBIMAGE
Holdings, Inc. to GeoEye, Inc.
On September 15, 2005, we entered into a definitive asset
purchase agreement (Purchase Agreement) to acquire the operating
assets of Space Imaging. On January 10, 2006, we completed
the acquisition of Space Imaging (SI) pursuant to the terms of
the Purchase Agreement. The final cash purchase price, including
acquisition costs, was approximately $51.5 million. The
acquisition was financed mainly through the incurrence of
$50.0 million of indebtedness. We were required to prepay
the debt with 100% of the excess cash flows of the acquired
operations calculated on a quarterly basis. We finished repaying
the debt on February 2, 2007.
On March 15, 2007, we acquired MJ Harden Associates, Inc.
(MJ Harden) through a stock purchase of all of the outstanding
stock of MJ Hardens sole owner, i5, Inc. MJ Harden is a
leading provider of digital aerial imagery and geospatial
information solutions.
12
In December 2009, we established a new foreign subsidiary in
Singapore to service our expanding Asia customer base, GeoEye
Asia Pte. Ltd. In January 2010, we changed the names of the
Companys subsidiaries as follows:
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Old Name
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New Name
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ORBIMAGE Inc.
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GeoEye Imagery Collection Systems Inc.
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ORBIMAGE SI Holdco Inc.
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GeoEye Solutions Holdco Inc.
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ORBIMAGE SI Opco Inc.
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GeoEye Solutions Inc.
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ORBIMAGE License Corporation
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GeoEye License Corporation
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Competition
We compete against various public and private companies, as well
as systems owned by the U.S. Government and foreign
state-sponsored entities that provide satellite and aerial
imagery products and services to the commercial market. Our
major competitor for high-resolution satellite imagery is
DigitalGlobe, Inc. (DigitalGlobe), a publicly listed commercial
vendor of space imagery. International competitors for
high-resolution satellite imagery and imagery products include:
the National Remote Sensing Agency, Department of Space
(Government of India), RADARSAT International (Canada), ImageSat
International N.V. (Israel), SPOT Image SA (France), Taiwan and
Korea. For risks associated with competition, see
Item 1A. Risk Factors.
Employees
At December 31, 2009, we had 534 employees. Generally,
our employees are retained on an at-will basis. We have entered
into employment agreements with certain of our key employees.
Certain of our employees have non-competition agreements that
prohibit them from competing with us for various periods
following termination of their employment.
Government
Regulation
The satellite remote imaging industry is a highly regulated
industry, both domestically and internationally. In the U.S.,
the operation of remote imaging satellites generally requires
licenses from the Department of Commerce (DoC) and from the
Federal Communications Commission (FCC). Furthermore, remote
sensing satellite and ground control station technologies are
subject to U.S. export control licensing and regulation
under the International Traffic in Arms Regulations (ITAR)
administered by the Department of State and the Export
Administration Regulations (EAR) administered by the DoC. In
addition, we are party to certain classified
U.S. Government contracts, the performance of which is
subject to U.S. facility and personnel clearance laws and
regulations. As is the case with any U.S. business, we are
subject to U.S. Government Foreign Corrupt Practices Act
restrictions regarding conducting business with foreign
government officials and U.S. Treasury Department
restrictions prohibiting conducting business with certain
embargoed countries or entities or persons on the Specifically
Designated Nationals list maintained by the U.S. Treasury
Department. Finally, in order to provide satellite access
services and imagery products internationally, our satellites
may require International Telecommunications Union (ITU)
notification and registration and licenses from the governments
of foreign countries where our services and products will be
distributed.
United
States
Department
of Commerce Regulation
The DoC, through the National Oceanic and Atmospheric
Administration (NOAA), is responsible for granting commercial
imaging satellite operating licenses and for coordinating
satellite imaging applications among several governmental
agencies to ensure that any license addresses all
U.S. national security and foreign policy concerns, and
complies with all international obligations of the United
States. We are required to obtain a DoC license to operate each
of our remote sensing satellite systems and provide imagery
services to our customers.
We currently have DoC licenses for all of our existing satellite
systems. We also hold a DoC license that we intend to use for
the GeoEye-2 satellite system that is being developed. We intend
to modify this DoC license, subject to DoC approval, to reflect
the final technical specifications for the GeoEye-2 satellite if
we are awarded an agreement to build
13
the GeoEye-2 satellite under the NGAs EnhancedView
program. The DoC license for GeoEye-2 is a constellation license
and authorizes us to operate an additional satellite subject to
DoC approval. The DoC licenses for our satellites are valid
through the operational lifetime of each satellite. We expect to
satisfy the terms of each of the DoC licenses for our satellites
and to maintain the regulatory licenses and approvals necessary
for their ongoing operations.
Our DoC licenses generally include the following key operating
conditions:
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We are required to maintain positive operational control of our
satellite systems from a location within the United States at
all times;
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We are restricted from disseminating to anyone other than the
U.S. Government panchromatic imagery with a resolution
better than 0.5-meters or multispectral imagery with a
resolution better than 2.0-meters;
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The U.S. Government reserves the right to exercise
shutter control the interruption of
service by limiting imagery collection
and/or
distribution as necessary to meet significant
U.S. Government national security or foreign policy
interests or international obligations. Although the
U.S. Government has never exercised shutter
control with respect to our satellite systems, the
exercise of this authority would require us to make imagery data
available exclusively to the U.S. Government by means of
approved re-keyable encryption on the downlink. We cannot
anticipate whether or under what circumstances the
U.S. Government would exercise its shutter
control authority, nor can we reasonably determine what
costs and terms would be negotiated between us and the
U.S. Government in such event;
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We are required to obtain DoC approval before implementing
significant or substantial agreements with foreign
nations, entities or consortiums (foreign persons) in order to
protect the national security and foreign policy interests and
international obligations of the U.S. Government. Transfers
of significant or substantial agreements also
require DoC approval. Examples of significant or
substantial agreements include customer agreements for
high-resolution imagery collection and distribution, operating
agreements and agreements relating to equity investments in the
Company of 20 or more of the total outstanding shares or that
entitle a foreign person to a position on our Board of
Directors. Foreign persons entering significant or
substantial agreements with us are required to comply with
our DoC license imagery collection and distribution restrictions
and are subject to the U.S. Governments exercise of
shutter control, which could adversely affect our
ability to collect imagery products for distribution to our
foreign customers; and
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We are restricted from disseminating imagery of the state of
Israel with a resolution better than 2.0-meters.
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FCC
regulation
The FCC is responsible for licensing commercial satellite and
ground systems and the radio frequencies used by commercial
satellite systems. In general, the FCC grants licenses to
commercial satellite systems that conform to the technical,
legal and financial requirements for these systems set forth in
FCC regulations.
Below is a table summarizing the FCC license grant and
expiration dates for the operation of our current satellites and
related ground systems:
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GeoEye-1
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IKONOS
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OrbView-2
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FCC Satellite License Grant Date
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2004
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1999
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2009
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Commercially Operational
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Yes
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Yes
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Yes
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FCC Satellite License Expiration Date
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2018
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2014
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October 1, 2010 renewable for 1 or more years subject to FCC
approval
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Grant Date of Associated FCC Ground Station
Licenses
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2004
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1999
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2008
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Expiration Date of Associated FCC Ground Station
License
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April 15, 2024, renewable for 15 years subject to FCC
approval
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December 8, 2010; October 3, 2022;
and October 17, 2022, renewable for 15 years subject to FCC
approval
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October 1, 2010, renewable for 1 or more years subject to FCC
approval
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We also hold an FCC license to operate the OrbView-3 satellite,
which remains in orbit but which ceased commercial operations in
2007. In the future, we will be required to obtain FCC licenses
and approvals in connection with any new high-resolution
satellites that we plan to operate.
We expect that GeoEye-2 will operate in the same radio frequency
bands as our GeoEye-1 and IKONOS satellites and their associated
ground systems or other frequency bands allocated for use by
remote sensing satellite service providers, subject to FCC
approval and that we will obtain the FCC licenses and approvals
necessary for GeoEye-2 operations.
Export
Controls and Security Clearance Regulation
We are subject to a complex set of export control and security
clearance regulations for the products and services we offer.
Among other things, we are a registrant under ITAR and we hold
export licenses and other approvals from the
U.S. Department of States Directorate of Defense
Trade Control (DDTC) for the export of hardware, software and
technical data relating to the potential defense-related
satellites, ground stations, image processing facilities and
support services provided to customers. Additional approvals may
be required from DDTC and from the DoCs Bureau of Industry
and Security in certain cases. For example, export licenses may
be required if certain foreign persons or entities are involved
in the development or acquisition of our products and services.
Also, the export of a GeoEye supplied ground station or image
processing facility to a foreign person would require a DDTC
export approval. The suspension or cancellation of our ITAR
registration or DDTC approval to export our products and
services would have a material adverse effect on our business
and results of operations.
In addition, we require certain facility and personnel security
clearances to perform our classified
U.S. Government-related business. Security clearances are
subject to regulations and requirements including the National
Industrial Security Program Operating Manual, which provides
baseline standards for the protection of classified information
released or disclosed to industry in connection with classified
U.S. Government contracts. The suspension or cancellation
of our facility clearances, or the inability to maintain
personnel security clearances for our personnel to perform
classified U.S. Government contracts, would have a material
adverse effect on our business and results of operations.
Furthermore, any change in the ownership of GeoEye involving a
transfer to foreign persons or entities may increase
U.S. Government scrutiny and lead to more onerous
requirements in connection with both export controls and
security clearances. A transfer to foreign ownership could also
trigger other requirements, including filings with and review by
the Committee on Foreign Investment in the United States
pursuant to the Exon-Florio Provision and approval by NOAA under
our DoC licenses. Depending on the country of origin and
identity of foreign owners, other restrictions and requirements
could arise.
Future
Developments
U.S. regulators may subject us in the future to new laws,
policies or regulations, or changes in the interpretation or
application of existing laws, policies and regulations that
modify the present U.S. regulatory environment.
U.S. regulators could decide to impose limitations on
U.S. companies that are currently applicable only to other
countries, or other regulatory limitations that affect satellite
remote imaging operations. Any limitations of this kind could
adversely affect our business or our results of operations.
International
All satellite systems providing services in the international
markets must comply with the following general international
regulations as well as the specific laws of the countries in
which satellite imagery is downlinked or satellite imagery
products are distributed.
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International Telecommunication Union (ITU) Regulations
ITU regulations define for each service the
technical operating parameters, including maximum transmitter
power, maximum interference to other services and users and the
minimum interference the user must operate under for that
service. The FCC, on our behalf, has completed the ITU
notification process for our IKONOS, OrbView-3 and OrbView-2
satellite
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systems. The ITU received GeoEye-1 satellite system notification
documents in June 2009 and we expect the ITU to publish its
findings recognizing completion of the GeoEye-1 ITU notification
within the next twelve months. After completion of the ITU
notification process, ongoing coordination with other satellite
systems could occur from time to time.
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Foreign Downlink License The regulations of
some foreign countries require satellite operators to secure
appropriate licenses and operational authority to use the
required spectrum in each country. Within foreign countries, our
foreign customers are responsible for securing appropriate
licenses and operational authority to use the required spectrum
for downlinking our high-resolution satellite imagery with
assistance from us as required.
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Foreign Imagery Acquisition or Distribution Regulations
The regulations or policies of foreign countries
may restrict the acquisition or distribution of satellite
imagery products and services. For example, in the Republic of
India, we obtained permission from the government to promote
satellite imagery product sales to customers in India, provided
the actual product deliveries are made through a
government-appointed reseller.
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While we believe we will be able to obtain all U.S., ITU and
foreign government licenses, authorizations and registrations
necessary to provide services internationally, we cannot assure
you that we will be successful in doing so. The failure to
obtain some or all necessary licenses, approvals or
registrations could have a material adverse effect on our
business or results of operations.
The risks described below, among others, could cause our
actual operating results to differ materially from those
indicated or suggested by forward-looking statements made in
this
Form 10-K
or presented elsewhere by management from time to time.
A
substantial portion of our revenues are generated from contracts
with U.S. government agencies. Termination of these contracts at
any given time could materially reduce our revenue and have a
material adverse effect on our business.
Revenues from U.S. Government contracts accounted for 67%
of our total revenues for the year ended December 31, 2009.
U.S. government agencies may terminate or suspend their
contracts at any time, with or without cause, or may change
their policies, priorities or funding levels by reducing agency
or program budgets due to budgetary constraints. Our primary
contract with the U.S. Government, through the NGA, is the
NextView imagery contract. On March 1, 2010, the
U.S. Government signed a modification to the SLA to provide
the option to extend this contract through June 30, 2010,
followed by six additional one-month option periods, with the
last option period expiring on December 31, 2010. Although
we anticipate the NGA will award a new contract to us on or
around June 30, 2010, there can be no assurances that
either such event will occur or that the U.S. Government
will continue to purchase imagery from us at its current level,
if at all. If the NGA terminates or suspends any of its
contracts with us, or changes its policies, priorities, or
funding levels, these actions would have a material adverse
effect on our business, financial condition and results of
operations. The SLA provides for monthly payments of up to
$12.5 million, subject to a maximum reduction of 10% based
on performance metrics. We recognized $124.9 million of
revenue under the SLA for the year ended December 31, 2009,
which accounted for approximately 46% of our revenue during the
year ended December 31, 2009.
Changes
in U.S. government policy regarding the use of commercial
imagery products and service providers, or material delay or
cancellation of the planned U.S. government EnhancedView program
may have a material adverse effect on our revenue and our
ability to fund operations and achieve our growth
objectives.
Current U.S. government policy encourages the use of
commercial imagery products and services to support
U.S. national security objectives. We are considered by the
U.S. government to be such a provider. U.S. government
policy is subject to change and any change in policy away from
supporting the use of commercial imagery products
16
and service providers to meet U.S. government imagery needs
could materially affect our revenue and our ability to fund
operations and achieve our growth objectives.
EnhancedView is a large U.S. government procurement that is
intended to serve as the follow-on program to the NextView
program, in which we currently participate. Our revenue under
the NextView program accounted for 46% of our total revenue in
2009. The EnhancedView procurement is in the proposal stage.
Satellites
have limited useful lives and are expensive to
replace.
Satellites have limited useful lives. We determine a
satellites useful life, or its expected operational life,
using a complex calculation involving the probabilities of
failure of the satellites components from design or
manufacturing defects, environmental stresses, estimated
remaining fuel or other causes.
The expected operational lives of our satellites are affected by
a number of factors, including the quality of construction, the
supply of fuel, the expected gradual environmental degradation
of solar panels, the durability of various satellite components
and the orbits in which the satellites are placed. Certain
advanced components, such as its cameras, are integral to a
satellites design functionality and expected operational
life. The failure of satellite components can cause damage to,
or loss of, the use of a satellite before the end of its
expected operational life. Electrostatic storms or collisions
with other objects could damage our satellites which could, in
turn, impair their design functionality. Such objects could
include debris from exploded satellites and spent rocket stages,
dead satellites and meteoroids. We cannot assure you that each
satellite will remain in operation for its expected operational
life. We expect the performance of any satellite to decline
gradually near the end of its expected operational life.
Our GeoEye-1 satellite was launched in September 2008 and has an
expected operational life of nine years. IKONOS, another of our
satellites, was fully depreciated in June 2008. We currently
expect to continue commercial operations with IKONOS through
2011 based on a study that was completed in August of 2008 and
updated in January 2010 by the IKONOS manufacturer, which
resulted in a revised life expectancy for IKONOS. However, there
can be no assurance that IKONOS will continue to operate
adequately to remain commercially viable. During the last year,
our OrbView-2 satellite has on several occasions experienced
operational anomalies related to various components. When these
have occurred, OrbView-2 has switched into safe-hold
mode in order to protect itself while our ground
operations personnel worked to restore its functionality, which
has historically taken two weeks to several months. When in
safe-hold mode, OrbView-2 is unable to provide imagery. The
satellite recently returned to normal operations and we continue
to monitor the situation. Management is currently doing a
cost-benefits analysis of continuing OrbView-2 operations, since
we can obtain the information it provides from other external
sources.
Replacing a satellite is expensive. We anticipate using funds
generated from operations to develop and launch future
high-resolution imagery satellites. If we do not generate
sufficient funds from operations or we cannot obtain financing
from outside sources, we will not be able to deploy new
satellites to replace GeoEye-1 at the end of its expected
operational life. We cannot assure you that we will be able to
generate sufficient funds from operations or to raise additional
capital on favorable terms or on a timely basis, if at all, to
develop or deploy follow-on high-resolution satellites.
We
cannot assure you that our satellites will operate as designed.
We may experience in-orbit satellite failures or degradations in
performance that could impair the commercial performance of our
satellites, which could lead to lost revenue, an increase in our
operating expenses, lower operating income or lost
backlog.
Our satellites employ advanced technologies and sensors that are
subject to severe environmental stresses in space that could
affect the satellites performance. Hardware component
problems in space could lead to degradation in performance or
loss of functionality of the satellite, with attendant costs and
revenue losses. In addition, human operators may execute
improper implementation commands that negatively impact a
satellites performance. Unanticipated catastrophic events,
such as meteor showers or collisions with space debris, could
reduce the performance of or completely destroy any of our
satellites. Even if a satellite is operated properly, minor
technical flaws in the satellites sensors could
significantly degrade their performance, which could materially
affect our ability to collect imagery and market our products
successfully.
17
Our business model depends on our ability to sell imagery from
our high-resolution satellites. We do not presently have plans
to construct and launch a replacement satellite for IKONOS or
OrbView-2 if either fails. During the last year OrbView-2 has on
several occasions experienced operational anomalies related to
various components. When these have occurred, OrbView-2 has
switched into safe-hold mode in order to protect
itself while our ground operations personnel work to restore its
functionality, which has historically taken two weeks to several
months. When in safe-hold mode, OrbView-2 is unable to provide
imagery. In September 2009, OrbView-2 switched into safe-hold
mode and has been unable to provide imagery on a regular basis.
The satellite recently returned to normal operations and we
continue to monitor the situation. While we have historically
had success in returning OrbView-2 to operational status from
this mode, we cannot assure you that Orb View-2 will continue to
operate normally or will return to operational status should it
re-enter the safe-hold mode.
We are developing the GeoEye-2 satellite program, which will
likely take approximately three to four years to complete.
Accordingly, GeoEye-2 cannot be considered a near-term
replacement if the GeoEye-1 satellite were to fail. In December
2009, we announced that our engineers detected an irregularity
in the equipment that GeoEye-1 uses to point the antenna that
transmits imagery to receiving stations on the ground. This
irregularity appears to limit the range of movement of
GeoEye-1s downlink antenna, which affects GeoEye-1s
ability to image and downlink simultaneously to a few of our
international customers that have contracted for that service.
GeoEye-1 is still able to downlink imagery to GeoEyes four
ground stations, since down-linking to these ground stations is
separate from imaging activities; however, as of the date of
this filing, the irregularity has not yet been remedied and we
cannot assure you that this irregularity will ever be fully
remediated. In May 2009, we announced that we had identified an
issue with a particular color imagery collection feature of
GeoEye-1. While we have subsequently modified our operations
mode to mitigate the risk associated with this imagery
collection issue and believe that this was an isolated
occurrence, we cannot assure you that our cameras will not
experience similar issues in the future, which could have a
material adverse affect on our collection capacity. Any other
failure of our satellites or any interference with such
satellites commercial operations could have a material
adverse effect on our results of operations and business.
New or
proposed satellites are subject to construction and launch
delays, the occurrence of which can materially and adversely
affect our operations.
We have in the past experienced delays in satellite construction
and launch which have adversely affected our operations. Such
delays can result from delays in the construction of satellites,
procurement of requisite components, launch vehicles, the
limited availability of appropriate launch windows, possible
delays in obtaining regulatory approvals and launch failures.
Failure to meet a satellites construction schedule,
resulting in a significant delay in the future delivery of a
satellite could also adversely affect our marketing strategy for
the satellite. Even after a satellite has been manufactured and
is ready for launch, an appropriate launch date may not be
available for several months. Further, any significant delay in
the commencement of service of any of our satellites would allow
customers who pre-purchased or agreed to utilize capacity on the
satellite to terminate their contracts and could affect our
plans to replace an in-orbit satellite prior to the end of its
service life.
We
operate in a highly competitive and specialized industry. The
size and resources of some of our competitors may allow them to
compete more effectively than we can, which could result in loss
of our market share.
Our products and services compete with satellite and
aircraft-based imagery and related products and services offered
by a range of commercial and government providers. Certain of
these competitors may have greater financial, personnel and
other resources than us.
Our major U.S. competitor for high-resolution satellite
imagery is DigitalGlobe. DigitalGlobe currently operates three
high-resolution satellites, Quickbird, launched in 2001,
WorldView-1, launched in September 2007, and WorldView-2
satellite, launched on October 8, 2009. We believe that
WorldView-1 has the ability to provide commercial customers with
0.5 meter resolution imagery. In addition, WorldView-2 has the
ability to collect color imagery, which could strengthen
DigitalGlobes position in the industry. Our satellites
have different capabilities from those of DigitalGlobe. In
particular, all of our satellites have the ability to produce
color imagery, while only two of DigitalGlobes satellites
can image in color and GeoEye-1s image resolution of 0.41
meters is believed to be
18
the highest resolution of any commercial satellite.
Historically, we have enjoyed a competitive advantage over
DigitalGlobe in the international markets because our
high-resolution satellites have had the capability to directly
download imagery to our customers ground stations.
However, the WorldView-1 and WorldView-2 satellites may now have
some of the same capabilities. Additionally, both the
WorldView-1 and WorldView-2 satellites have higher resolutions
and more advanced technologies than our IKONOS satellite.
It is possible that foreign governments could subsidize, fund
the development, construct, launch and operate imagery
satellites with higher resolution and accuracy in the future,
which could enable them to sell earth imagery from their
satellites in the commercial market and thereby compete on price
with our imagery products.
If competitors develop and launch satellites with more advanced
technologies than ours, or offer services at lower prices than
ours, our business and results of operations could be harmed. If
we cannot maintain our margins, our financial position could be
impacted and our stock price could decline.
U.S.
and foreign governmental agencies may build and operate their
own systems which could affect the current and potential market
share of our products and services.
The U.S. Government currently relies and is likely to
continue to rely on government-owned and operated systems for
classified satellite-based high-resolution imagery. The
U.S. Government could reduce its purchases from commercial
satellite imagery providers or decrease the number of companies
to which it contracts with no corresponding increase in the
total amount spent.
The U.S. government and foreign governments also may
develop, construct, launch and operate their own imagery
satellites, which could reduce their need to rely on commercial
suppliers. In addition, such governments could sell Earth
imagery from their satellites in the commercial market and
thereby compete with our imagery products and services. These
governments could also subsidize the development, launch and
operation of imagery satellites by our current or future
competitors. Any reduction in purchases of our products and
services by the U.S. Government could have a material
adverse effect on our business and the results of operations.
The
success of our products and services will depend on market
acceptance, and you should not rely on historic growth rates as
an indicator of future growth.
Our success depends on existing markets accepting our imagery
products and services and our ability to develop new markets.
Our business plan is based on the assumption that we will
generate significant future revenues from sales of
high-resolution imagery produced by GeoEye-1 and IKONOS to
current and new customers in our existing markets and to
customers in new markets. The commercial availability of
high-resolution satellite imagery is still a fairly new market.
Consequently, it is difficult to predict accurately the ultimate
size of the market and the market acceptance of our products and
services. Our strategy to target certain markets for our
satellite imagery relies on a number of assumptions, some or all
of which may be incorrect. The actual market for our products
and services could vary materially from the potential markets
that we have identified causing us to target less promising
markets and miss opportunities.
We cannot accurately predict whether our products and services
will achieve significant market acceptance or whether there will
be a market for our products and services on terms we find
acceptable. Market acceptance of our commercial high-resolution
Earth imagery products and services depends on a number of
factors, including the quality, scope, timeliness,
sophistication and price and services and the availability of
substitute products and services. Lack of significant market
acceptance of our offerings, or other products and services that
utilize our products and services, delays in acceptance, failure
of certain markets to develop or our need to make significant
investments to achieve acceptance by the market would negatively
affect our business, financial condition and results of
operations.
We may not continue to grow in line with historical rates, or at
all. If we are unable to achieve sustained growth, we may be
unable to execute our business strategy, expand our business or
fund our liquidity needs and our prospects, financial condition
and results of operations could be materially and adversely
affected.
19
Interruption
or failure of our infrastructure and image downloading systems
could impair our ability to effectively perform our daily
operations, protect and maintain the Earth imagery content
stored in our image archives and provide our products and
services, which could damage our reputation and harm our results
of operations.
The availability of our products and services depends on the
continuing operation of our infrastructure, information
technology and communications systems. Any system downtime or
damage to or failure of our systems could result in
interruptions in our service, which could reduce our revenue and
profits. Our systems are vulnerable to damage or interruption
from floods, fires, power loss, telecommunications failures,
computer viruses, computer denial of service attacks or other
attempts to harm our systems. Our data centers and ground
stations have the ability to be powered by backup generators.
However, if our primary source of power and the backup
generators fail, our daily operations and operating results
would be materially and adversely affected.
In addition, our ground stations and collection systems are
vulnerable to damage or interruption from human error,
intentional bad acts, earthquakes, hurricanes, floods, fires,
war, terrorist attacks, power losses, hardware failures, systems
failures, telecommunications failures and similar events. Our
satellite imagery is downloaded directly to our ground stations
and then stored in our image archives for sale to our customers.
As a result, our operations are dependent upon our ability to
maintain and protect our Earth imagery content and our image
archives and to provide our images to our customers, including
our foreign distribution network and value-added resellers. The
impairment of our ability to perform any of these functions
could result in lengthy interruptions in our services
and/or
damage our reputation, which could have a material adverse
effect on our financial condition, liquidity, and results of
operations.
We
rely on resellers and a foreign distribution network to market
and sell our products and services in certain markets and to
certain customers. If these distributors and resellers fail to
market our products and services successfully, our business,
financial condition and results of operations will be materially
adversely affected.
We rely principally on foreign regional distributors to market
and sell our imagery from the GeoEye-1 and IKONOS satellites
internationally. We are currently intensifying our efforts to
further develop our current and future operations in
international markets. These regional distributors may not have
the skill or experience to further develop regional commercial
markets for our products and services. If we fail to enter into
additional regional distribution agreements or if our foreign
regional distributors fail to market and sell our imagery
products and services abroad successfully, these failures could
negatively impact our business, financial condition and results
of operations.
We rely on resellers to develop, market and sell our products
and services to address certain target markets, including
certain industries and geographical markets. If our value-added
resellers fail to develop, market and sell our products and
services successfully, this failure could negatively affect our
business, financial condition and results of operations.
Insurance
coverage may be more difficult and costly to obtain or
maintain.
In October 2009, the Company issued $400.0 million of
Senior Secured Notes due October 1, 2015 (2015 Notes). The
terms of the 2015 Notes require us to obtain launch and in-orbit
insurance for any future satellites we construct and launch and
also requires us to maintain specified levels of in-orbit
operation insurance for GeoEye-1, to the extent that such
coverage can be obtained at a premium that is not
disproportionately high. With respect to GeoEye-1, we currently
carry $250.0 million of in-orbit insurance, consisting of
$63.0 million of in-orbit insurance in the event of the
total loss of the satellite expiring December 1, 2010, plus
$187.0 million of in-orbit coverage to be paid if the
satellites capabilities become impaired as measured
against a set of specifications, of which $20.0 million
expires on September 6, 2010, $117.0 million expires
on December 1, 2010 and $50.0 million expires on
September 6, 2011. We believe that under current market
conditions the premiums for additional coverage would be
disproportionately high. This insurance is not sufficient to
cover the cost of a replacement high-resolution imagery
satellite such as GeoEye-1 or to provide us with sufficient
funds to repurchase all of the 2015 Notes then outstanding in
the event that, as a result of such a loss, we are required to
make a mandatory offer to
20
repurchase the 2015 Notes. With respect to IKONOS, we currently
carry $20.0 million of in-orbit coverage to be paid if the
satellites capabilities become impaired as measured
against a set of specifications, expiring December 1, 2010.
We do not carry any insurance coverage for the OrbView-2
satellite. Accordingly, our current levels of insurance coverage
may not be sufficient to fund operations in the event loss
proceeds are required for the repurchase of our 2015 Notes.
Insurance market conditions or factors outside our control at a
time when we would seek required insurance, such as failure of a
satellite using similar components or a similar launch vehicle,
could cause premiums to be significantly higher than current
estimates. Higher premiums on insurance policies will increase
our costs. Should the future terms of launch and in-orbit
insurance policies become less favorable than those currently
available, this may result in limits on amounts of coverage that
we can obtain or may prevent us from obtaining insurance at all.
Any failure to obtain required insurance could cause a default
under the 2015 Notes.
A partial or complete failure of a revenue-producing satellite,
whether insured or not, could require additional, unplanned
capital expenditures, an acceleration of planned capital
expenditures, interruptions in service, a reduction in
contracted backlog and lost revenue and could have a material
adverse effect on our business, financial condition and results
of operations.
The
global financial crisis may impact our business, financial
condition and results of operations in ways that we currently
cannot predict.
The continuing credit crisis and related turmoil in the global
financial system may have an impact on our business, our
financial condition and results of operations. In particular,
the cost of capital has increased substantially while the
availability of funds from the capital markets has diminished
significantly. Accordingly, our ability to access the capital
markets may be restricted or be available only on terms we do
not consider favorable. Limited access to the capital markets
could adversely impact our ability to take advantage of business
opportunities or react to changing economic and business
conditions and could adversely impact our strategy.
The current economic situation could have an impact on our
customers, causing them to fail to meet obligations to us, which
could have a material adverse effect on our revenue, results
from operations and cash flows. State and local governments may
be more vulnerable to the economic downturn and, accordingly,
our MJ Harden operations have and could continue to face greater
exposure to this risk. For example, our revenue from production
and other services decreased $0.9 million for the year
ended December 31, 2009 compared to the same period in
2008, which we believe was partially due to a decrease in state
and local funding for imaging products from our digital aerial
imagery services as a result of the economic downturn. A
continued economic downturn coupled with the uncertainty and
volatility of the global financial crisis may have further
adverse impact on our business and our consolidated financial
condition, results of operations and cash flows that we
currently cannot predict or anticipate.
In addition, the current economic downturn has also led to
concerns about the stability of financial markets generally and
the financial strength of our counterparties. For example, if
one or more of our insurance carriers fails, we may not receive
the full amount of proceeds due to us in the event of loss or
damage to one of our satellites. In addition, if we attempt to
obtain future insurance in addition to, or replacement of, our
existing coverage, the credit market turmoil could negatively
impact our ability to obtain such insurance.
Our
business is capital intensive, and we may not be able to raise
adequate capital to finance our business strategies, including
any future satellite, or we may be able to do so only on terms
that significantly restrict our ability to operate our
business.
The implementation of our business strategies requires a
substantial outlay of capital. As we pursue our business
strategies and seek to respond to opportunities and trends in
our industry, our actual capital expenditures may differ from
our expected capital expenditures and there can be no assurance
that we will be able to satisfy our capital requirements in the
future. We currently expect that our operational liquidity
requirements in 2010 will be satisfied by cash on hand, cash
generated from our operations and the net proceeds from the 2015
Notes offering. However, we cannot provide assurances that our
businesses will generate sufficient cash flow from operations or
that future borrowings will be available in amounts sufficient
to enable us to execute our business strategies.
21
Lending institutions have suffered and may continue to suffer
losses due to their lending and other financial relationships,
especially because of the general weakening of the global
economy. As a result, changes in the financial markets may
impact our ability to obtain new financing or refinance our
existing debt on commercially reasonable terms and in adequate
amounts, if at all. If we determine we need to obtain additional
funds through external financing and are unable to do so, we may
be prevented from fully implementing our business strategies. In
particular, if we determine to construct and launch a next
generation satellite, we may require significant capital, and
the timing of the construction will depend on our ability to
raise the necessary capital on terms which we deem to be
acceptable. We expect to continue to make reasonable investments
in GeoEye-2s development, but we do not expect to launch
or commission the GeoEye-2 satellite on an accelerated basis
without an agreement with the NGA under its EnhancedView
Program. Therefore, we would most likely proceed so that a next
generation satellite could be used as a replacement satellite
for GeoEye-1 in the 2016 to 2017 timeframe, which may
nonetheless require additional capital. Regardless of our
desired delivery schedule, if any, we can provide no assurance
that we will be able to raise sufficient capital to allow for
the construction of a next generation satellite.
Failure
to obtain, or the revocation or suspension of, regulatory
approvals could result in service interruptions and materially
adversely affect our business, financial position and results of
operations.
U.S. Government Approvals. Operation of
our satellites requires licenses from the DoC. The failure to
obtain these licenses, or the revocation of one or more
licenses, could adversely affect our ability to conduct our
business. The DoC licenses provide that the U.S. Government
may interrupt service or otherwise limit our ability to
distribute satellite images to certain parties, including
certain of our customers, in order to address national security
or foreign policy concerns or because of the international
obligations of the U.S. Actual or threatened interruptions
or limitations on our service could adversely affect our ability
to market our products. In addition, the DoC has the right to
review and approve our agreements with foreign entities,
including contracts with international customers for
high-resolution imagery. We have received such approvals for the
agreements in place with our existing international customers.
However, such reviews could delay or prohibit us from executing
new international agreements or renewals or extensions of our
existing agreements, which could materially adversely affect our
financial condition and results of operations.
We have in the past and may in the future supply certain of our
international customers with access to ground stations that
enable these customers to downlink data directly from our
satellites. Exporting these ground stations and technical
information relating to these stations may require us to obtain
export licenses from the DoC or the U.S. Department of
State. If the DoC or the U.S. Department of State does not
issue these export licenses in connection with future exports,
or if these licenses are significantly delayed or contain
restrictions, or if the DoC or the U.S. Department of State
revokes, suspends or denies a request for renewal of existing
licenses, our business, financial condition and results of
operations could be materially adversely affected.
Our operation of satellites and ground stations also requires
licenses from the FCC. The FCC regulates the construction,
launch and operation of our satellites, the use of satellite
spectrum and the licensing of our ground stations terminals
located within the United States. We currently have all required
FCC licenses necessary to operate our business as it is
currently conducted. However, these licenses have expiration
dates which are expected to occur while the satellites and
ground systems are still in use. The FCC generally renews
licenses routinely, but there can be no assurance that our
licenses will be renewed at their expiration dates for full
terms or without adverse conditions. Failure to renew these
licenses or obtain FCC authorization to construct, launch and
operate any new satellites could have a material adverse affect
on our ability to generate revenue and conduct our business as
currently planned.
International Registration and Approvals. The
use of satellite spectrum is subject to the requirements of the
ITU. Additionally, satellite operators must abide by the
specific laws of the countries in which downlink services are
provided from the satellite to ground station terminals within
such countries. Our customers or distributors are responsible
for obtaining local regulatory approval from the governments in
the countries in which they receive imagery downlinked directly
from our satellites to ground stations within such countries. If
the necessary approvals are not obtained, we will not be able to
distribute real time imagery in those regions and this inability
to offer real time service in a foreign country could negatively
affect our business. In addition, regulatory provisions in
countries where we wish to operate may impose unduly burdensome
restrictions on our operations. Our business may also be
22
adversely affected if the national authorities where we plan to
operate adopt treaties, regulations or legislation unfavorable
to foreign companies or limiting the provision of our products
and services.
Material
weaknesses in our internal control over financial reporting. If
we fail to maintain effective internal control over financial
reporting at a reasonable assurance level, we may not be able to
accurately report our financial results or prevent fraud, which
could have a material adverse effect on our operations, investor
confidence in our business and the trading prices of our
securities.
Effective internal controls are necessary for us to provide
reliable financial reports and effectively prevent fraud.
Managements assessment of our internal control over
financial reporting as of December 31, 2009 identified one
material weakness in our internal control over financial
reporting. A material weakness is a deficiency, or combination
of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material
misstatement of annual or interim financial statements will not
be prevented or detected on a timely basis. With respect to the
material weakness, our management concluded that we did not
maintain effective controls over the accuracy and valuation of
the provision for income taxes. See Item 9A. Controls
and Procedures. Until the material weakness is fully
remediated, this material weakness could lead to errors in our
reported financial results and could have a material adverse
effect on our results of operations.
Notwithstanding our remediation efforts, the material weakness
described above will not be remediated until the new controls
operate for a sufficient period of time and are tested to enable
management to conclude that the controls are effective. Our
management will consider the design and operating effectiveness
of these controls and will make any additional changes
management determines appropriate.
Further, we cannot assure you that additional material
weaknesses in our internal control over financial reporting will
not be identified in the future. Any failure to maintain or
implement required new or improved controls, or any difficulties
we encounter in their implementation, could result in additional
material weaknesses and cause us to fail to timely meet our
periodic reporting obligations or result in material
misstatements in our financial statements. Any such failure
could also adversely affect the accuracy and reliability of
periodic management evaluations and annual auditor attestation
reports regarding the effectiveness of our internal control over
financial reporting required under Section 404 of the
Sarbanes-Oxley Act of 2002 and the rules promulgated under
Section 404. The existence of a material weakness could
result in errors in our financial statements that could result
in a restatement of financial statements, cause us to fail to
meet our reporting obligations and cause investors to lose
confidence in our reported financial information.
Our
international business exposes us to risks relating to increased
regulation and political or economic instability in foreign
markets.
For the year ended December 31, 2009, approximately 27% of
our total revenues were derived from international sales. We
intend to continue to pursue international contracts and we
expect to continue to derive substantial revenues from
international sales of our products and services. International
operations are subject to certain risks, such as:
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changes in domestic and foreign governmental regulations and
licensing requirements;
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deterioration of relations between the United States and a
particular foreign country;
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increases in tariffs and taxes and other trade barriers;
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changes in political and economic stability, including
fluctuations in the value of foreign currencies, which may make
payment in U.S. dollars, as provided for under our existing
contracts, more expensive for foreign customers; and
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difficulties in obtaining or enforcing judgments in foreign
jurisdictions.
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These risks are beyond our control and could have a material
adverse effect on our business.
23
Our
success depends upon a limited number of key
personnel.
Our success depends on attracting, retaining and motivating
highly skilled professionals. A number of our employees are
highly skilled engineers and other professionals. In addition,
our success depends to a significant extent upon the abilities
and efforts of the members of our senior management. Competition
for highly-skilled individuals is intense, and if we fail to
continue to attract, retain and motivate such professionals, our
ability to compete in our industry could be adversely affected.
Fluctuations
in our operating results could adversely affect the trading
price of our common stock.
Our operating results may fluctuate as a result of a variety of
factors, many of which are outside of our control, including,
without limitation:
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risks and uncertainties affecting our current and proposed
business and the imagery-derived products and processing service
satellite industry;
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increased competition in the industry; and
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general economic conditions.
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As a result of these possible fluctuations,
period-to-period
comparisons of our financial results may not be reliable
indicators of future performance.
The
price of our common stock has been volatile and an investment in
our common stock could suffer a decline in value.
The market price of our common stock has been, and is likely to
continue to be, volatile. In recent years, the stock market has
experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of
many companies in the technology sector. In particular, over the
last twelve months, the stock market has experienced extreme
price and volume fluctuations that have particularly affected
the market prices for small companies and which have often been
unrelated to their operating performance or prospects for future
operations. These broad fluctuations may adversely impact the
market price of our common stock. Future market movements may
materially and adversely affect the market price of our common
stock.
The Company has agreed to issue to Cerberus Capital Management
L. P., subject to certain conditions, up to $115 million of
convertible preferred stock of the Company which could adversely
impact the price of our common stock.
We do
not intend to pay dividends on shares of our common stock in the
foreseeable future.
We currently expect to retain our future earnings, if any, for
use in the operation and expansion of our business. We do not
anticipate paying any cash dividends on shares of our common
stock in the foreseeable future. We are prohibited from paying
dividends under instruments governing our 2015 Notes until the
principal amount of all the 2015 Notes has been repaid.
We
have substantial amount of indebtedness.
As of December 31, 2009, after giving effect to the
offering of the 2015 Notes, we have $400 million of
long-term debt in the aggregate, consisting of the 2015 Notes
and $0.5 million of the outstanding 2012 Notes which remain
outstanding. The $0.5 million of 2012 Notes were repaid in
full on January 22, 2010. We also hold a commitment from
Cerberus Capital Management L. P. to purchase up to
$100 million of senior unsecured notes if the Company so
elects, with the notes maturing in 2016.
Our substantial indebtedness has important consequences. For
example, it:
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limits our ability to borrow additional funds;
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limits our ability to pay dividends;
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limits our flexibility in planning for, or reacting to, changes
in our business and our industry;
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increases our vulnerability to general adverse economic and
industry conditions;
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limits our ability to make strategic acquisitions;
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requires us to dedicate a substantial portion of our cash flow
from operations to payments on indebtedness, reducing the
availability of cash flow to fund working capital, capital
expenditures and other general corporate activities; and
|
|
|
|
places us at a competitive disadvantage compared to competitors
that have less debt.
|
Interest costs related to our debt are substantial and, as a
result, the demands on our cash resources are significant. Our
ability to make payments on our debt and to fund operations and
planned capital expenditures will depend on our future results
of operations and ability to generate cash. Our future results
of operations are, to a certain extent, subject to general
economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control.
Servicing
our indebtedness will require significant amount of cash. Our
ability to generate sufficient cash depends on numerous factors
beyond our control, and we may be unable to generate sufficient
cash flow to service our debt obligations.
Our ability to make payments on and to refinance our
indebtedness will depend on our ability to generate cash in the
future. This, to a certain extent, is subject to general
economic, political, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
For the year ended December 31, 2009, our interest expense
was $36.2 million, compared to $38.8 million for the
year ended December 31, 2008. We cannot assure you that our
business will generate sufficient cash flow from operations to
enable us to pay our indebtedness or to fund our other liquidity
needs. If our cash flows are insufficient to allow us to make
scheduled payments on our indebtedness, we may need to reduce or
delay capital expenditures, sell assets, seek additional capital
or restructure or refinance all or a portion of our indebtedness
on or before maturity. We cannot assure you that we will be able
to refinance any of our indebtedness, or that we will be able to
refinance on commercially reasonable terms or that these
measures would satisfy our scheduled debt service obligations.
If we are unable to generate sufficient cash flow or refinance
our debt on favorable terms it could have a material adverse
effect on our financial condition, the value of our outstanding
debt (including the 2015 Notes) and our ability to make any
required cash payments under our indebtedness.
Government
audits of our contracts could result in a material charge to our
earnings and have a negative effect on our cash position
following an audit adjustment.
Our government contracts are subject to cost audits which may
occur several years after the period to which the audit relates.
If an audit identifies significant unallowable costs, we could
incur a material charge to our earnings or reduction in our cash
position.
Our
effective income tax rate may vary.
Various internal and external factors may have favorable or
unfavorable effects on our future effective income tax rate.
These factors include, but are not limited to, changes in tax
laws, regulations
and/or
rates; the results of any tax examinations; changing
interpretations of existing tax laws or regulations; changes in
estimates of prior years items; acquisitions; changes in
our corporate structure; and changes in overall levels of income
before taxes. All of these factors may result in periodic
revisions to our effective income tax rate.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
25
The properties used in our operations consist principally of
satellite ground stations and terminals, production facilities
and administrative and executive offices. The following table
sets forth certain information about the location of each
property used in our business:
|
|
|
|
|
|
|
|
|
Location
|
|
SQ. FT.
|
|
|
Lease/Own
|
|
Purpose
|
|
Dulles, VA
|
|
|
39,000
|
|
|
Lease
|
|
Satellite operations, production services and principal
executive offices
|
Thornton, CO
|
|
|
57,392
|
|
|
Own
|
|
Satellite operations and production services - backup for
GeoEye-1
|
St. Louis, MO
|
|
|
16,200
|
|
|
Lease
|
|
Production services
|
Mission, KS
|
|
|
17,493
|
|
|
Lease
|
|
MJ Harden aerial imagery and production services
|
Norman, OK
|
|
|
5,000
|
|
|
Own
|
|
Ground terminal station tied to support to Indian Remote Sensing
Satellites and associated production services
|
Fairmont, WV
|
|
|
600
|
|
|
Own
|
|
Ground terminal station tied to OrbView-2
|
Fairbanks, AK
|
|
|
5,042
|
|
|
Lease
|
|
Ground terminal station and IKONOS backup command and control
|
Point Barrow, AK
|
|
|
620
|
|
|
Lease
|
|
Ground terminal station
|
Sterling, VA
|
|
|
13,394
|
|
|
Lease
|
|
Administrative offices and services
|
|
|
Item 3.
|
Legal
Proceedings
|
In the normal course of business, we may be party to various
lawsuits, legal proceedings and claims arising out of our
business. We cannot predict the outcome of these lawsuits, legal
proceedings and claims with certainty. Nevertheless, we believe
that the outcome of any existing or known threatened
proceedings, even if determined adversely, should not have a
material adverse effect on our business, financial condition,
liquidity, or results of operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Repurchase of Equity Securities
|
Our sole class of common equity is its $0.01 par value
common stock, which is listed on the NASDAQ Global Market and is
listed under the symbol GEOY. Effective
September 14, 2006, our common stock began trading as GEOY.
From the period January 13, 2004 to September 13,
2006, our common stock traded
over-the-counter
and sales were reported on the NASDAQ bulletin board under the
symbol ORBM. Prior to January 13, 2004, there
was no established trading market for our common stock.
We had approximately 131 holders of record of our common stock
at December 31, 2009, one of which is Cede & Co.,
a nominee for Depository Trust Company (DTC). All of the
shares of common stock held by brokerage firms, banks and other
financial institutions as nominees for beneficial owners are
deposited into participant accounts at DTC, and are therefore
considered to be held of record by Cede & Co. as one
stockholder.
26
Information concerning the stock prices as reported on the
NASDAQ composite transaction tape is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
4th Quarter
|
|
$
|
33.00
|
|
|
$
|
24.00
|
|
|
$
|
23.89
|
|
|
$
|
14.75
|
|
3rd Quarter
|
|
|
26.90
|
|
|
|
21.94
|
|
|
|
29.25
|
|
|
|
16.25
|
|
2nd Quarter
|
|
|
28.90
|
|
|
|
19.10
|
|
|
|
28.09
|
|
|
|
16.05
|
|
1st Quarter
|
|
|
23.42
|
|
|
|
16.03
|
|
|
|
37.37
|
|
|
|
25.59
|
|
We have never paid any cash dividends on our common stock, nor
do we anticipate paying cash dividends on our common stock at
any time in the foreseeable future. We are prohibited, with
certain exceptions allowed under the debt indenture, from paying
dividends under instruments governing our 2015 Notes until the
principal amount of all such notes has been repaid. These
restrictions are more fully discussed in Item 7,
Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Cash
Flows below.
The transfer agent for our common stock is:
BNY Mellon Shareowner Services,
480 Washington Boulevard
Jersey City, New Jersey 07310
Telephone: (877) 295-8616
www.bnymellon.com/shareowner/isd
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table sets forth, as of December 31, 2009,
the number of securities outstanding under our equity
compensation plan, the weighted average exercise price of such
securities and the number of securities available for grant
under this plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of
|
|
|
|
|
|
Remaining Available
|
|
|
|
Securities to be
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Issued Upon
|
|
|
Weighted-Average
|
|
|
Under Equity
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
(Excluding Securities
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
Reflected in Column [a])
|
|
Plan Category
|
|
[a]
|
|
|
[b]
|
|
|
[c]
|
|
|
Equity compensation plans approved by security holders
|
|
|
2,725,677
|
|
|
$
|
12.75
|
|
|
|
945,353
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,725,677
|
|
|
$
|
12.75
|
|
|
|
945,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Stock
Performance Graph
The following graph compares the yearly percentage change in the
cumulative total shareholder return on our Common Stock during
the period December 31, 2004 to December 31, 2009,
with the cumulative total return on the NASDAQ Global Market
Index and with a selected peer group consisting of us and other
companies with comparable market capitalizations between
$500.0 million and $600.0 million. The old peer group
consists of the following publicly-traded technology and
government contracting companies: Cubic Corporation, Ion
Geophysical Corporation, Measurement Specialties, Inc., MTS
Systems Corporation, Nanometrics Incorporated, OYO Geospace
Corporation and Trimble Navigation Limited. The new peer group
consists of the following publicly-traded technology and
government contracting companies: Aerovironment, Inc., Applied
Signal Technology, Inc., Argon St Inc., Costar Group, Inc.,
Cubic Corporation, DigitalGlobe, Inc., Neustar, Inc., SWS Group,
Inc., Trimble Navigation Limited, Tyler Technologies, Inc.,
Viasat, Inc. This graph (i) assumes the investment of $100
on December 31, 2004 in our Common Stock (at the initial
public offering price of $20.25 per share), the NASDAQ Global
Market Index, and the peer group identified above and
(ii) assumes that dividends are reinvested.
COMPARISON
OF CUMULATIVE TOTAL RETURN
AMONG GEOEYE, INC.,
NASDAQ MARKET INDEX AND A PEER GROUP
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
Geoeye Inc., The NASDAQ Global Market Composite Index,
The NASDAQ Global Select Index,
An Old Peer Group And A New Peer Group
* $100 invested on 12/31/04 in stock or index, including
reinvestment of dividends. Fiscal year ending December 31.
28
ASSUMES $100
INVESTED ON DECEMBER 31, 2004
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Period
|
|
|
Year Ending December 31,
|
Company/Index
|
|
|
12/04
|
|
|
12/05
|
|
|
12/06
|
|
|
12/07
|
|
|
12/08
|
|
|
12/09
|
GeoEye, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
59.19
|
|
|
|
$
|
104.59
|
|
|
|
$
|
181.89
|
|
|
|
$
|
103.95
|
|
|
|
$
|
150.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Global Market Composite
|
|
|
|
100.00
|
|
|
|
|
74.84
|
|
|
|
|
78.43
|
|
|
|
|
51.76
|
|
|
|
|
25.01
|
|
|
|
|
37.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Global Select
|
|
|
|
100.00
|
|
|
|
|
103.03
|
|
|
|
|
116.44
|
|
|
|
|
130.64
|
|
|
|
|
78.14
|
|
|
|
|
112.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Peer Group
|
|
|
|
100.00
|
|
|
|
|
96.67
|
|
|
|
|
131.97
|
|
|
|
|
163.18
|
|
|
|
|
91.90
|
|
|
|
|
121.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Peer Group
|
|
|
|
100.00
|
|
|
|
|
96.49
|
|
|
|
|
115.82
|
|
|
|
|
120.24
|
|
|
|
|
95.58
|
|
|
|
|
111.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The information under Performance Graph is not
deemed filed with the Securities and Exchange Commission and is
not to be incorporated by reference in any of our filings under
the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after
the date of this
10-K and
irrespective of any general incorporation language in those
filings
|
|
Item 6.
|
Selected
Financial Data
|
GeoEye is a holding company, formerly ORBIMAGE Holding, Inc.,
that was formed in April 2005. Its wholly-owned subsidiary,
ORBIMAGE Inc. was established on December 31, 2003, in
conjunction with the predecessor company, Orbital Imaging
Corporations reorganization and emergence from
Chapter 11 bankruptcy. On January 20, 2006, we
acquired the assets of Space Imaging, mainly financed through
the incurrence of $50.0 million of indebtedness. The debt
was paid off in February 2007. On March 15, 2007, we
acquired MJ Harden Associates, Inc. through a stock purchase of
all of the outstanding stock of MJ Hardens sole owner, i5,
Inc.
The table below sets forth the selected historical consolidated
financial and operating data for each of the five years ended
December 31, 2009 which has been derived from the audited
consolidated financial statements of GeoEye, Inc. The following
consolidated financial information should be read in conjunction
with Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes in
Item 8. of this Annual Report.
SELECTED
CONSOLIDATED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands, except per share amounts)
|
|
Revenues
|
|
$
|
271,102
|
|
|
$
|
146,659
|
|
|
$
|
183,023
|
|
|
$
|
151,168
|
|
|
$
|
40,702
|
|
Income (loss) before provision (benefit) for income taxes
|
|
$
|
14,488
|
|
|
$
|
10,348
|
|
|
$
|
68,005
|
|
|
$
|
20,004
|
|
|
$
|
(26,432
|
)
|
Net income (loss)
|
|
|
32,061
|
|
|
|
26,615
|
|
|
|
28,470
|
|
|
|
2,974
|
|
|
|
(16,080
|
)
|
Earnings (loss) per common share basic
|
|
$
|
1.71
|
|
|
$
|
1.48
|
|
|
$
|
1.62
|
|
|
$
|
0.17
|
|
|
$
|
(0.99
|
)
|
Earnings (loss) per common share diluted
|
|
|
1.55
|
|
|
|
1.36
|
|
|
|
1.44
|
|
|
|
0.16
|
|
|
|
(0.99
|
)
|
Total assets
|
|
$
|
947,207
|
|
|
$
|
794,605
|
|
|
$
|
853,090
|
|
|
$
|
752,601
|
|
|
$
|
614,538
|
|
Long-term debt
|
|
|
380,594
|
|
|
|
247,502
|
|
|
|
246,789
|
|
|
|
246,075
|
|
|
|
245,361
|
|
Stockholders equity
|
|
|
279,955
|
|
|
|
230,404
|
|
|
|
193,209
|
|
|
|
153,327
|
|
|
|
147,539
|
|
29
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis should be read in
conjunction with GeoEyes consolidated financial statements
and related notes and the discussions under Application of
Critical Accounting Policies (also under Item 7),
which describes key estimates and assumptions we make in the
preparation of its consolidated financial statements and
Item 1A. Risk Factors, which describes key
risks associated with our operations and industry.
Overview
GeoEye is a leading commercial provider of highest accuracy and
highest resolution Earth imagery, image processing services and
imagery information products to U.S. and foreign government
defense and intelligence organizations, domestic federal and
foreign civil agencies, and commercial customers. We own and
operate three Earth-imaging satellites, GeoEye-1, IKONOS and
Orbview-2 and three fixed-wing aircraft with advanced
high-resolution imagery collection capabilities. GeoEye-1 is the
worlds highest resolution and most accurate commercial
imaging satellite. In addition to our imagery collection
capacities, we are a global leader in the creation of enhanced
satellite imagery information products and services. We operate
four high-resolution image processing and production facilities
which can process, manage, analyze and share imagery from any
commercial or government satellite. Our satellite and aerial
imagery products and services provide our customers with the
timely, and accurate location intelligence, enabling them to
analyze, monitor and map to their needs and demands. We serve a
growing global market that requires high-resolution imagery and
precision mapping products for applications such as national
defense and intelligence, online mapping, environmental
monitoring and resource management, energy exploration, asset
monitoring, urban planning, infrastructure planning and
monitoring, and disaster preparedness and emergency response. We
own one of the largest commercial color digital satellite
imagery libraries in the world, which contains more than
405 million square kilometers of color imagery of the
Earth. We believe the combination of our highly accurate
satellite and aerial imaging assets, our high-resolution image
processing and production facilities, and our color digital
imagery library differentiates us from our competitors. This
enables us to deliver a comprehensive range of imaging products
and services to our diverse customer base.
Impact of
Significant Transactions
GeoEye-1
Satellite, NextView Program and Service
Level Agreement
The U.S. Governments NGA, announced in March 2003
that it intended to support, through the NextView program, the
continued development of the commercial satellite imagery
industry. The NGA also announced that it intended to award two
imagery providers with contracts to support the engineering,
construction and launch of the next generation of imagery
satellites. On September 30, 2004, the NGA awarded us a
contract as the second provider under the NextView program and,
as a result, we contracted for the construction of a new
satellite, GeoEye-1. Under the NextView program, we began
delivering imagery to NGA from our IKONOS satellite in February
2007 and from our GeoEye-1 satellite in the first quarter of
2009.
GeoEye-1 was launched in September 2008 and started commercial
operations and obtained certification from the NGA in February
2009, at which point the satellite commenced full operations.
GeoEye-1 is currently the worlds highest-resolution and
highest-accuracy commercial imagery satellite and offers both
black and white and color imagery. The GeoEye-1 satellite was
constructed as part of our participation in the NextView
program. We achieved deployment of GeoEye-1 for less than the
maximum cost specified in our NextView contract with the NGA.
Total final capitalized costs (including financing and launch
insurance costs) of the GeoEye-1 satellite and related ground
systems were $480.8 million. Under the NextView contract,
the NGA agreed to support the project with a cost share totaling
approximately $237.0 million spread over the course of the
project development and subject to various milestones. On
March 19, 2009, the NGA paid us the final installment of
its cost share obligation. We recognize this as revenue on a
straight-line basis over the expected nine-year operational life
of the satellite. During the year ended December 31, 2009,
we recognized $21.1 million of deferred revenue under the
NextView contract.
30
On December 9, 2008, we entered into a SLA, with the NGA
under which the NGA agreed to purchase GeoEye-1 imagery from us
through November 30, 2009. The SLA provides for monthly
payments of $12.5 million, subject to a maximum reduction
of 10% based on performance metrics. Under the SLA, to the
extent that less than $12.5 million is paid by NGA in any
month, the shortfall is used to fund an extension of the
contract. On September 1, 2009, the NGA extended the SLA
through March 31, 2010. In addition, the NGA, on
March 1, 2010, modified the SLA giving it the option to
extend the term of the SLA beyond March 31, 2010. The SLA
has been extended through June 30, 2010, followed by six
additional one-month option periods. The last option period
expires on December 31, 2010. During the year ended
December 31, 2009, we recognized $124.9 million of
revenue under the SLA.
In addition to the SLA modification to the NextView contract, we
received new U.S. Government awards during the year ended
December 31, 2009, totaling more than $37.9 million to
supply geospatial products and services. Under these awards,
which are expected to be completed during 2010, we will provide
the NGA with a significant amount of value-added, imagery-based
geospatial-intelligence products. We began delivering imagery to
the NGA under the new awards in the first quarter of 2009 and
recognized $10.4 million of imagery revenue during the year
ended December 31, 2009.
In December 2009, our engineers detected an irregularity in the
equipment GeoEye-1 uses to point the antenna that transmits
imagery to receiving stations on the ground. The irregularity
limits the range of movement of GeoEye-1s downlink
antenna, which affects GeoEye-1s ability to image and
downlink simultaneously. GeoEye-1 is able to downlink imagery to
GeoEyes four ground stations, since down linking to these
ground stations is separate from imaging activities. As a
result, we expect no impact on our on-going ability to deliver
imagery to the NGA under the SLA and to those of our regional
affiliates for whom we collect and deliver imagery.
GeoEye-2
Satellite
We believe that demand for satellite imagery from the
U.S. Government will increase beyond the available supply
in the 2013 timeframe. Given the long lead time associated with
providing additional capacity, we entered into a contract with
ITT Corporation during the third quarter of 2007 pursuant to
which ITT has commenced work on the advanced camera for
GeoEye-2, which could be used to accelerate the deployment of
GeoEye-2 so that it could be launched in late 2012 and
commercially available in the 2013 timeframe. As of
December 31, 2009, we have spent a total of
$66.8 million on components of GeoEye-2. We view these
expenditures as prudent and believe they will position us to
move quickly should an opportunity arise to expand our existing
NGA relationship to a new satellite. On March 11, 2010, the
Company announced the selection of Lockheed Martin Space Systems
Company to build the GeoEye-2 Satellite. We expect to continue
to make reasonable investments in GeoEye-2s development,
but we do not expect to launch or commission the GeoEye-2
satellite on an accelerated basis without an agreement with the
NGA under its EnhancedView Program. We are currently
participating in the NGA
request-for-proposal
contract process for the EnhancedView Program. This program will
allow our government to continue to receive a supply of
unclassified, highly accurate satellite imagery from commercial
satellite imagery providers and will replace the NextView
program, which could expire in June 2010, unless the NGA
exercises their option to extend it through December 2010. Prior
to launch and commissioning GeoEye-2, we may require additional
capital depending on the terms of our agreement, if any, with
NGA. If we were not to build GeoEye-2 on an accelerated basis,
we would most likely proceed so that a new high-resolution
satellite could be used as a replacement satellite for GeoEye-1
in the 2016 to 2017 timeframe.
Business
and Industry Factors
Business
Strategy
With a broad range of imagery collection assets, world class
image processing and production facilities, and a strong global
distribution network, we are well positioned as a leading global
provider of imagery and imagery information products. Key
elements of our strategy to take advantage of our competitive
position and grow our business include:
|
|
|
|
|
Build on our existing, geographically diverse customer
base. We continue to build on our existing
relationships with our customers and our international resellers
so that we can offer value-added products
|
31
|
|
|
|
|
and services to meet their needs. We remain committed to growing
our geographically diverse customer base and driving growth
through continued development of our relationships with
international resellers and international ground stations.
|
|
|
|
|
|
Continue to deliver quality and timely
imagery. Our ability to provide high-quality,
accurate imagery to our customers in a timely manner is the
foundation of our business. We plan to continue to provide high
quality imagery and production services to our customers through
GeoEye-1 and to deploy capital into research and development to
augment and enhance our ability to service our customers.
|
|
|
|
Further expand our value-added products and service
offerings. We believe our industry leading image
resolution, our proprietary production process and expert
personnel establish us as a leader in the field of image
production and enhancement. We have also recently expanded the
production capacity of our facilities housing our classified and
multi-source production operations. To support the growth of our
aerial imagery operations, we purchased a third aircraft with an
additional digital mapping camera that we placed into service in
2009. We believe these and continued investments in our image
enhancement and production capabilities will enable us to serve
the next generation demand for customer specific satellite
imagery products and services.
|
|
|
|
Further commercialize our industry-leading high-resolution
imagery. We have developed new platforms and
distribution technologies to make our imagery and products more
accessible to our current and potential customers. We will seek
to further commercialize our products and services to an
increased variety of customers. For example, with the successful
launch in January 2009 of geoFUSE, our new web-based suite of
search and discovery tools, our customers are now able to browse
our image catalog archives, and quickly and easily locate and
preview imagery for their specific ends. We believe geoFUSE and
our investment in establishing similar content delivery
platforms will enable us to make our products and services
available to a larger number of customers.
|
Industry
Factors
The geospatial technologies industry is affected by many
factors. Factors that drive market demand for our products and
service include, but are not limited to, increased demand for
technologies in response to national defense and environmental
observation initiatives, commercial demand for satellite mapping
technologies, infrastructure project initiatives and advances in
communication technologies. Factors that could negatively impact
market demand for our products and services include, but are not
limited to, U.S. and foreign governments launching their
own imagery programs, the proliferation of competing
surveillance technologies such as unmanned aerial vehicles,
U.S. export constraints and decreasing defense budgets.
As with any industry there are trends, both positive and
negative, that can have an impact on the commercial data
providers. Positive trends include the following:
|
|
|
|
|
We expect that due to geopolitical uncertainty, global terrorist
activity, a changing climate and large natural disasters, there
will be continued demand from U.S. and international
government agencies for
up-to-date
and accurate digital mapping databases. Defense personnel may be
called upon to deploy to support actions in hostile environments
or respond to disasters, and combat mission planners will
require the latest geospatial information. Countries will
continue to need to monitor borders and the other areas of
interest.
|
The frequency of natural disasters such as tsunamis, hurricanes
and earthquakes has increased awareness of the utility of
imagery information products for humanitarian missions and the
need for geo-information in risk assessment, response and
recovery. Satellite data is a valuable tool in assessing
disaster response and recovery and planning logistical
operations.
Commercial satellite imagery was once again put to immediate use
following the January 2010 earthquake in Haiti. GeoEye was the
first to deliver commercial satellite imagery to the
U.S. Government, foreign governments and commercial
customers. Within twelve hours of the earthquake, imagery from
the GeoEye-1 satellite was posted to the Web. The entire world
saw the practical application of commercial satellite imagery
for understanding the extent and scope of the damage in and
around Port-au-Prince, Haiti. Relief and government agencies
used GeoEyes satellite imagery to make better decisions
about their relief and
32
recover efforts. Additionally, in late February 2010, GeoEye
provided imagery from both GeoEye-1 and IKONOS to the
U.S. Government after a magnitude 8.8 earthquake struck
Chile.
|
|
|
|
|
Commercial demand for geospatial technologies is growing.
According to an industry study, the commercial market for
imagery better than three-meter ground resolution from
high-resolution imaging satellites is expected to grow over the
next few years. We believe that growth will be fueled in part by
the broad awareness created by the on-line mapping search
engines such as Google
Earthtm
and Microsoft Virtual
Earthtm.
Consumers are beginning to utilize location based
technologies for everything from navigation to social
networking. The convergence of imagery with GPS and personal
navigation devices, combined with inexpensive access to
broad-band communications networks, appears to have generated a
development of new applications incorporating imagery and
imagery information products.
|
|
|
|
Our technology is well suited for infrastructure project
management. Both satellite and aerial imagery, along with other
location-based technologies, can help the U.S. achieve its
infrastructure goals more efficiently and cost effectively since
every infrastructure project has a reference to a physical
location on the surface of the globe. According to an industry
trade group, a significant portion of the new stimulus programs
proposed by the current U.S. administration will require
geospatial data or services, particularly in the areas of design
and planning for infrastructure projects, wildfire mapping,
environmental infrastructure projects, surveying and charting
and improvements to airports.
|
We believe the heightened focus on the global environment could
increase use of imagery for global observation to support
climate change initiatives or to verify or monitor carbon
reduction projects established through legislation or done
voluntarily.
|
|
|
|
|
Rapid advancements in IT infrastructure capabilities such as
cloud computing, mobile communications and broadband may have
dramatic effects on the industry. While digital information,
including satellite imagery and products, is easily distributed
to customers over the internet, there is increasing customer
interest in having others host imagery for them while adding
value to it in a service-oriented environment. As a result, we
anticipate growth in the increasing use of cloud computing where
data and applications reside in cyberspace rather than on
company servers or hard drives. The NGAs SLA is an example
of how agencies may utilize geospatial technology rather than
just buying imagery pixels by the square kilometer.
|
There are also some negative industry trends:
|
|
|
|
|
The U.S. Government may build and launch its own classified
satellite imaging program and produce imagery similar to that
currently provided by commercial data providers. While the
current and the last two Administrations in the
U.S. developed commercial remote sensing policies that are
favorable for the commercial satellite imagery industry, the
intelligence community may make efforts to fund satellite
systems that could compete with the commercial data providers.
The current economic demands on the U.S. Government
resources and the inherent time it takes to design and deploy
new imagery satellite systems may mitigate any near term impact
should the government decide to develop competing assets.
However, we continue to monitor for any evolution in the
U.S. Governments policy toward commercial imagery
providers.
|
|
|
|
More countries are increasingly interested in building and
launching their own imaging systems. According to a NOAA study
in October 2008, more than two dozen countries are or will be
operating imaging satellites within the next few years. While
none of these imaging systems can currently match the resolution
and accuracy of U.S. commercial systems, several countries
are planning to launch systems with capabilities similar to our
imaging assets. The development and launch of such systems does
involve significant risk and uncertainty, including
technological, launch and financing risk. We are mindful of this
trend as we consider how best to grow our business.
|
|
|
|
The U.S. Government is increasingly using other sensors
such as unmanned aerial vehicles for more persistent
surveillance. While these systems are mainly used for tactical
intelligence collection, they provide commanders with visibility
over an area of interest on a more sustained basis. We believe
that our imagery and products will remain an important element
in fulfilling the U.S. Governments broad imagery
needs in both tactical and non-mission critical situations.
|
33
|
|
|
|
|
While not new, the U.S. Government continues to place
onerous restrictions on the export of space components to all
countries. ITAR created a decade ago to ensure U.S. space
technology does not fall in the wrong hands, has, in effect,
hampered U.S. competitiveness overseas. Such strict
government licensing restricts exchange of technical data and
export of commercial remote sensing hardware, such as ground
stations, thereby encouraging development of foreign
manufacturing capability. Because of ITAR, U.S. sales of
earth observation satellite systems overseas is virtually
non-existent.
|
|
|
|
We are mindful of overall market trends and the pressure on
defense and intelligence budgets. While our satellite imagery
business is somewhat insulated from the general economic
downturn because we provide crucial information to defense and
intelligence agencies around the world, economic conditions at
the state and local level could affect MJ Harden, and it may be
harder to penetrate new markets, especially on the commercial
side.
|
Results
of Operations
Comparison
of the Results of Operations for the Years Ended
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2009
|
|
|
|
2009
|
|
|
2008
|
|
|
and 2008
|
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(In thousands, except
|
|
|
|
percentages)
|
|
|
Revenues
|
|
$
|
271,102
|
|
|
|
100.0
|
%
|
|
$
|
146,659
|
|
|
|
100.0
|
%
|
|
$
|
124,443
|
|
|
|
84.9
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of revenue (exclusive of depreciation and
amortization)
|
|
|
94,693
|
|
|
|
34.9
|
|
|
|
72,216
|
|
|
|
49.2
|
|
|
|
22,477
|
|
|
|
31.1
|
|
Depreciation and amortization
|
|
|
57,166
|
|
|
|
21.1
|
|
|
|
11,357
|
|
|
|
7.7
|
|
|
|
45,809
|
|
|
|
403.4
|
|
Selling, general and administrative
|
|
|
46,608
|
|
|
|
17.2
|
|
|
|
36,990
|
|
|
|
25.2
|
|
|
|
9,618
|
|
|
|
26.0
|
|
Inventory impairment and satellite impairment settlement
|
|
|
|
|
|
|
0.0
|
|
|
|
3,296
|
|
|
|
2.2
|
|
|
|
(3,296
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
198,467
|
|
|
|
73.2
|
|
|
|
123,859
|
|
|
|
84.5
|
|
|
|
74,608
|
|
|
|
60.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
72,635
|
|
|
|
26.8
|
|
|
|
22,800
|
|
|
|
15.5
|
|
|
|
49,835
|
|
|
|
218.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
31,020
|
|
|
|
11.4
|
|
|
|
11,452
|
|
|
|
7.8
|
|
|
|
19,568
|
|
|
|
170.9
|
|
Other non-operating expense
|
|
|
|
|
|
|
0.0
|
|
|
|
1,000
|
|
|
|
0.7
|
|
|
|
(1,000
|
)
|
|
|
(100.0
|
)
|
Loss from early extinguishment of debt
|
|
|
27,127
|
|
|
|
10.0
|
|
|
|
|
|
|
|
0.0
|
|
|
|
27,127
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
14,488
|
|
|
|
5.3
|
|
|
|
10,348
|
|
|
|
7.1
|
|
|
|
4,140
|
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(17,573
|
)
|
|
|
(6.5
|
)
|
|
|
(16,267
|
)
|
|
|
(11.1
|
)
|
|
|
(1,306
|
)
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
32,061
|
|
|
|
11.8
|
|
|
$
|
26,615
|
|
|
|
18.1
|
|
|
$
|
5,446
|
|
|
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages in this table and throughout our discussion and
analysis of financial condition and results of operations may
reflect rounding adjustments. The totals shown above may not
appear to sum due to rounding.
34
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2009
|
|
|
|
2009
|
|
|
2008
|
|
|
and 2008
|
|
Revenues
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
(In thousands, except percentages)
|
|
|
|
|
|
|
|
|
Imagery
|
|
$
|
206,417
|
|
|
|
76.1
|
%
|
|
$
|
102,102
|
|
|
|
69.6
|
%
|
|
$
|
104,315
|
|
|
|
102.2
|
%
|
NextView cost share
|
|
|
21,062
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
21,062
|
|
|
|
100.0
|
|
Production and other services
|
|
|
43,623
|
|
|
|
16.1
|
|
|
|
44,557
|
|
|
|
30.4
|
|
|
|
(934
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
271,102
|
|
|
|
100.0
|
|
|
$
|
146,659
|
|
|
|
100.0
|
|
|
$
|
124,443
|
|
|
|
84.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imagery revenues increased $104.3 million primarily due to
the substantial increase in levels of deliveries to NGA using
the GeoEye-1 satellite under the new SLA agreement which
commenced in February 2009. During the fourth quarter of 2009,
we recorded reductions of revenue of $6.1 million as a
result of the GeoEye-1 satellite irregularity and contract
modifications. NextView cost share revenues of
$21.1 million are related to the recognition of deferred
revenue from cost share amounts received from NGA and recognized
over the useful life of the satellite. Production and other
services revenues decreased by a net $0.9 million in 2009
compared to 2008 primarily due to a $4.0 million revenue
decrease in the combination of our digital aerial imagery
service and the SeaStar Fisheries Information Service, both of
which have been negatively affected by the economic downturn
resulting in lower sales volumes. This revenue decline was
partially offset by a $3.9 million increase in our
U.S. Government and commercial based value-added production
services.
Operating
Expenses
Direct
Costs of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2009
|
|
|
|
2009
|
|
|
2008
|
|
|
and 2008
|
|
Direct Costs of Revenue
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
(In thousands, except percentages)
|
|
|
|
|
|
|
|
|
Labor and overhead
|
|
$
|
48,924
|
|
|
|
18.0
|
%
|
|
$
|
27,443
|
|
|
|
18.7
|
%
|
|
$
|
21,481
|
|
|
|
78.3
|
%
|
Subcontractor
|
|
|
27,030
|
|
|
|
10.0
|
|
|
|
23,828
|
|
|
|
16.2
|
|
|
|
3,202
|
|
|
|
13.4
|
|
Satellite insurance
|
|
|
8,235
|
|
|
|
3.0
|
|
|
|
600
|
|
|
|
0.4
|
|
|
|
7,635
|
|
|
|
1,272.5
|
|
Other direct costs
|
|
|
10,504
|
|
|
|
3.9
|
|
|
|
20,345
|
|
|
|
13.9
|
%
|
|
|
(9,841
|
)
|
|
|
(48.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct costs of revenue
|
|
$
|
94,693
|
|
|
|
34.9
|
|
|
$
|
72,216
|
|
|
|
49.2
|
|
|
$
|
22,477
|
|
|
|
31.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of revenue include the costs of operating our
satellites and related ground systems, as well as on-going costs
related to our operations and maintenance contracts.
Subcontractor expenses include payments to third parties for
support in operating the IKONOS and GeoEye-1 satellites and
their related ground stations. Subcontractor costs increased
$3.2 million in 2009 compared to 2008 primarily due to an
increase in operational and maintenance costs to support the
GeoEye-1 satellite during 2009. Other direct costs include third
party costs and fees to support our satellite programs as well
as payments to international regional affiliates to purchase
IKONOS imagery collected by them in their exclusive regions and
which we resell to our customers. Other direct costs decreased
$9.8 million in 2009 compared to 2008 primarily due to the
impact of the sale of ground station upgrades of
$6.0 million in 2008 that did not occur in 2009 as well as
our decreased need to purchase IKONOS imagery from our regional
affiliates for resale to other customers by $5.6 million,
offset by a $1.7 million increase in 2009 related to the
recognition of the costs of the ground systems upgrades that are
being recognized over the combined delivery term of the service.
Labor and overhead costs increased $21.5 million compared
to the same period in 2008 primarily due to increased labor and
overhead related to the operation of the GeoEye-1 satellite,
which became operational in the first quarter of 2009. Satellite
insurance increased $7.6 million compared to the same
period in
35
2008 due to the commencement of amortization of in-orbit
insurance premiums for the GeoEye-1 satellite which began
operations in February 2009.
Depreciation
and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2009
|
|
|
|
2009
|
|
|
2008
|
|
|
and 2008
|
|
Depreciation and Amortization
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
(In thousands, except percentages)
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
54,516
|
|
|
|
20.1
|
%
|
|
$
|
8,624
|
|
|
|
5.9
|
%
|
|
$
|
45,892
|
|
|
|
532.1
|
%
|
Amortization
|
|
|
2,650
|
|
|
|
1.0
|
|
|
|
2,733
|
|
|
|
1.9
|
|
|
|
(83
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
57,166
|
|
|
|
21.1
|
|
|
$
|
11,357
|
|
|
|
7.7
|
|
|
$
|
45,809
|
|
|
|
403.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase of $45.9 million in depreciation in 2009 from
2008 was primarily due to the commencement of GeoEye-1 satellite
operations in February 2009, when we began depreciating the
GeoEye-1 satellite and the related ground systems. Amortization
expense is primarily associated with acquired contracts and
customer relationship intangibles.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2009
|
|
|
|
2009
|
|
|
2008
|
|
|
and 2008
|
|
Selling, General and Administrative Expenses
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
(In thousands, except percentages)
|
|
|
|
|
|
|
|
|
Payroll, commissions, and related costs
|
|
$
|
24,307
|
|
|
|
9.0
|
%
|
|
$
|
20,370
|
|
|
|
13.9
|
%
|
|
$
|
3,937
|
|
|
|
19.3
|
%
|
Professional fees
|
|
|
13,450
|
|
|
|
5.0
|
|
|
|
9,127
|
|
|
|
6.2
|
|
|
|
4,323
|
|
|
|
47.4
|
|
Research and development
|
|
|
1,399
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
1,399
|
|
|
|
100.0
|
|
Other
|
|
|
7,452
|
|
|
|
2.7
|
|
|
|
7,493
|
|
|
|
5.1
|
|
|
|
(41
|
)
|
|
|
(.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses
|
|
$
|
46,608
|
|
|
|
17.2
|
|
|
$
|
36,990
|
|
|
|
25.2
|
|
|
$
|
9,618
|
|
|
|
26.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses include the costs
of the finance, administrative and general management functions
as well as the costs of marketing, advertising, promotion and
other selling expenses. Payroll, commissions, and related costs
increased $3.9 million in 2009 compared to 2008 primarily
due to increases in headcount, commissions, and the annual
performance bonus and stock compensation expense as a result of
growth of our operations. The increase in professional fees of
$4.3 million compared to the same period in 2008 was
primarily attributable to fees for accounting and tax services
and related internal control remediation efforts as well as for
bid and proposal efforts related to new business development
mainly for the EnhancedView program. Research and development
expenses primarily include the cost of services and supplies in
the development of the new information services business.
Inventory
Impairment and Satellite Impairment Settlement
During 2008, we determined that $2.2 million of certain
inventory costs related to a terminated customer contract should
be written off.
We had a post-launch on-orbit milestone payment obligation with
Orbital Sciences in connection with the ongoing performance of
OrbView-3 that was written off in the first quarter of 2007 in
conjunction with the loss of OrbView-3. The obligation was
subsequently settled and $1.1 million was paid in April
2008.
36
Interest
Expense, net
The composition of interest expense, net is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2009
|
|
|
|
2009
|
|
|
2008
|
|
|
and 2008
|
|
Interest Expense, Net
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
Interest expense
|
|
$
|
36,183
|
|
|
|
13.3
|
%
|
|
$
|
38,844
|
|
|
|
26.5
|
%
|
|
$
|
(2,661
|
)
|
|
|
(6.9
|
)%
|
Capitalized interest
|
|
|
(4,771
|
)
|
|
|
(1.8
|
)
|
|
|
(22,657
|
)
|
|
|
(15.4
|
)
|
|
|
(17,886
|
)
|
|
|
(78.9
|
)
|
Interest income
|
|
|
(392
|
)
|
|
|
(0.1
|
)
|
|
|
(4,735
|
)
|
|
|
(3.2
|
)
|
|
|
(4,343
|
)
|
|
|
(91.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
$
|
31,020
|
|
|
|
11.4
|
|
|
$
|
11,452
|
|
|
|
7.8
|
|
|
$
|
19,568
|
|
|
|
170.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net includes interest expense on our 2012
Notes and 2015 Notes, amortized prepaid financing costs,
amortization of debt discount, market adjustments to fair value
of the related derivative instruments and excludes capitalized
interest expense associated with the construction of the
satellites and related ground systems as well as interest income.
Interest expense, net increased primarily due to the decrease in
capitalization of interest of $17.9 million as a result of
the commencement of the GeoEye-1 satellite operations in
February 2009 offset by the $2.4 million decrease related
to losses recorded on the derivative instruments in 2008 and not
incurred in 2009.
Due to the issuance of the 2015 Notes in the fourth quarter of
2009, we were able to lower our cost of capital by reducing our
interest rate from a floating rate of at least 12% to a fixed
coupon rate of 9.625%. Interest expense related to the 2012
Notes was $26.9 million and $36.4 million for the
years ended December 31, 2009 and 2008, respectively.
Interest expense related to the 2015 Notes was $9.3 million
for the year ended December 31, 2009.
In connection with the issuance of the 2012 Notes, we entered
into an interest rate swap arrangement in June 2005 pursuant to
which the effective interest rate under the 2012 Notes was fixed
at 13.75% through July 1, 2008. In February 2008, we
entered into a $250.0 million interest rate cap agreement
that intended to protect us from increases in interest rates by
limiting our interest rate exposure to the three-month LIBOR
with a cap of 4.0%. The cap option cost was $0.5 million
and was effective July 1, 2008 through January 1,
2010. As of December 31, 2009 the fair value of the
interest rate cap was zero.
Interest income decreased by $4.3 million in 2009 primarily
due to lower average cash balances and lower average interest
rates on cash balances during 2009 as compared with 2008.
Other
Non-Operating Expense
During the fourth quarter of 2008 we impaired a cost-method
investment in the amount of $1.0 million.
Loss
from Early Extinguishment of Debt
The loss from early extinguishment of debt for the year ended
December 31, 2009, was $27.1 million, due to the
issuance of the 2015 Notes with a face value of
$400.0 million in October 2009 and repayment of
$249.5 million of our 2012 Notes. The early extinguishment
of debt represents the expensing of the unamortized prepaid
financing costs, unamortized discount and tender premium related
to the 2012 Notes.
Provision
for Income Taxes
We recorded an income tax benefit of $17.6 million and
$16.3 million for 2009 and 2008, respectively. Tax
provisions were calculated using our estimated annual effective
tax rate of approximately 39% and 42% for 2009 and 2008,
respectively, prior to the application of discrete items.
The total liability for unrecognized tax benefits for 2009 and
2008 was $0.2 million and $1.4 million, respectively.
During 2009, we paid certain items that were reserved, removed
certain items for which we have received waivers from related
jurisdictions and removed those items settled as a result of
filing our 2008 income tax
37
returns and related method changes. We recorded additional
reserves related to income tax penalties and interest for state
taxes and research and development credits.
On October 15, 2009, the Internal Revenue Service approved
our ruling request regarding an ownership change to effectively
allow us to recover $57.6 million of previously limited net
operating loss generated prior to November 2004. We plan to
amend prior year income tax returns resulting in a tax
receivable of approximately $12.4 million and the remaining
$24.1 million carryforward balance has been recorded as an
$8.9 million deferred tax asset. The utilization of the
deferred tax asset related to the restored net operating loss
carryforward is limited to approximately $4.0 million per
year as part of a Section 382 ownership change.
Additionally, we plan to carryback our current year loss for tax
purposes and adjust the effect of prior year restatements,
resulting in an income tax receivable of approximately
$27.3 million and the remaining $31.1 million
carryforward balance has been recorded as an $11.8 million
deferred tax asset. The total federal and state net operating
loss carryforward, is approximately $55.0 million. The
federal net operating loss carryforward will expire between tax
years 2021 and 2029 and the state net operating loss
carryforward from various jurisdictions will expire between tax
years 2017 and 2029.
The statutes of limitations for income tax returns in the
U.S. federal jurisdiction and various state jurisdictions
for tax years 2005 through 2008 have not expired and thus these
years remain subject to examination by the IRS and state
jurisdictions. Significant state jurisdictions that remain
subject to examination include Colorado, Virginia and Missouri
for tax years 2005 through 2008. For tax years that we are no
longer subject to federal, state and local tax examinations by
tax authorities, the tax attribute carryforwards generated from
these years may still be adjusted upon examination by tax
authorities.
During 2008, we filed an application for change in method of tax
accounting for the NextView cost-share payments with the
Internal Revenue Service. As a result of the filing, we will
recognize a revenue adjustment of $48.5 million annually
until tax year 2011.
Comparisons
of the Results of Operations for the Years Ended
December 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2008
|
|
|
|
2008
|
|
|
2007
|
|
|
and 2007
|
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
Revenues
|
|
$
|
146,659
|
|
|
|
100.0
|
%
|
|
$
|
183,023
|
|
|
|
100.0
|
%
|
|
$
|
(36,364
|
)
|
|
|
(19.9
|
)%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of revenue (exclusive of depreciation and
amortization)
|
|
|
72,216
|
|
|
|
49.2
|
|
|
|
64,628
|
|
|
|
35.3
|
|
|
|
7,588
|
|
|
|
11.7
|
|
Depreciation and amortization
|
|
|
11,357
|
|
|
|
7.7
|
|
|
|
16,474
|
|
|
|
9.0
|
|
|
|
(5,117
|
)
|
|
|
(31.1
|
)
|
Selling, general and administrative
|
|
|
36,990
|
|
|
|
25.2
|
|
|
|
22,737
|
|
|
|
12.4
|
|
|
|
14,253
|
|
|
|
62.7
|
|
Inventory impairment and satellite impairment settlement
|
|
|
3,296
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
3,296
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
123,859
|
|
|
|
84.5
|
|
|
|
103,839
|
|
|
|
56.7
|
|
|
|
20,020
|
|
|
|
19.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
22,800
|
|
|
|
15.5
|
|
|
|
79,184
|
|
|
|
43.3
|
|
|
|
(56,384
|
)
|
|
|
(71.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
11,452
|
|
|
|
7.8
|
|
|
|
14,189
|
|
|
|
7.8
|
|
|
|
(2,737
|
)
|
|
|
(19.3
|
)
|
Other non-operating expense (income)
|
|
|
1,000
|
|
|
|
0.7
|
|
|
|
(3,010
|
)
|
|
|
(1.6
|
)
|
|
|
4,010
|
|
|
|
(133.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
10,348
|
|
|
|
7.1
|
|
|
|
68,005
|
|
|
|
37.2
|
|
|
|
(57,657
|
)
|
|
|
(84.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit) provision for income taxes
|
|
|
(16,267
|
)
|
|
|
(11.1
|
)
|
|
|
39,535
|
|
|
|
21.6
|
|
|
|
(55,802
|
)
|
|
|
(141.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
26,615
|
|
|
|
18.1
|
|
|
$
|
28,470
|
|
|
|
15.6
|
|
|
$
|
(1,855
|
)
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Percentages in this table and throughout our discussion and
analysis of financial condition and results of operations may
reflect rounding adjustments. The totals shown above may not
appear to sum due to rounding.
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2008
|
|
|
|
2008
|
|
|
2007
|
|
|
and 2007
|
|
Revenues
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
Imagery
|
|
$
|
102,102
|
|
|
|
69.6
|
%
|
|
$
|
146,707
|
|
|
|
80.2
|
%
|
|
$
|
(44,605
|
)
|
|
|
(30.4
|
)%
|
Production and other services
|
|
|
44,557
|
|
|
|
30.4
|
|
|
|
36,316
|
|
|
|
19.8
|
|
|
|
8,241
|
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
146,659
|
|
|
|
100.0
|
|
|
$
|
183,023
|
|
|
|
100.0
|
|
|
$
|
(36,364
|
)
|
|
|
(19.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imagery revenues include imagery purchases, as well as affiliate
access and support fees. Imagery revenues decreased
$44.6 million in 2008 from 2007 due primarily to a
reduction in NGA imagery orders with the delay of the launch of
the GeoEye-1 satellite until the end of 2008, offset by
$7.2 million related to the sale of a ground station in
late 2008. Production and other services revenues increased
$8.2 million in 2008 from 2007 primarily due to production
orders for NGA and commercial customers, increasing by
$5.5 million, and revenue from MJ Harden, acquired in March
2007, increasing by $4.1 million, offset by decreases in
international production and other revenue sources.
Operating
Expenses
Direct
Costs of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2008
|
|
|
|
2008
|
|
|
2007
|
|
|
and 2007
|
|
Direct Costs of Revenue
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
Labor and overhead
|
|
$
|
27,443
|
|
|
|
18.7
|
%
|
|
$
|
26,033
|
|
|
|
14.2
|
%
|
|
$
|
1,410
|
|
|
|
5.4
|
%
|
Subcontractor
|
|
|
23,828
|
|
|
|
16.2
|
|
|
|
19,761
|
|
|
|
10.8
|
|
|
|
4,067
|
|
|
|
20.6
|
|
Satellite insurance
|
|
|
600
|
|
|
|
0.4
|
|
|
|
808
|
|
|
|
0.4
|
|
|
|
(208
|
)
|
|
|
(25.7
|
)
|
Other direct costs
|
|
|
20,345
|
|
|
|
13.9
|
|
|
|
18,026
|
|
|
|
9.8
|
|
|
|
2,319
|
|
|
|
12.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct costs of revenue
|
|
$
|
72,216
|
|
|
|
49.2
|
|
|
$
|
64,628
|
|
|
|
35.3
|
|
|
$
|
7,588
|
|
|
|
11.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and overhead costs increased $1.4 million in 2008
from 2007 mainly due to additional staff to support the
ramp-up of
the GeoEye-1 satellite in 2008. Subcontractor costs increased
$4.1 million in 2008 compared to 2007 due to an increased
level of effort for the affiliate ground stations as well as
software development and integration for the GeoEye-1 satellite.
Other direct costs increased $2.3 million in 2008 from 2007
primarily due to an increase in direct costs related to the
sales of ground station upgrades in 2008.
Depreciation
and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2008
|
|
|
|
2008
|
|
|
2007
|
|
|
and 2007
|
|
Depreciation and Amortization
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
Depreciation
|
|
$
|
8,624
|
|
|
|
5.9
|
%
|
|
$
|
13,784
|
|
|
|
7.5
|
%
|
|
$
|
(5,160
|
)
|
|
|
(37.4
|
)%
|
Amortization
|
|
|
2,733
|
|
|
|
1.9
|
|
|
|
2,690
|
|
|
|
1.5
|
|
|
|
43
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
11,357
|
|
|
|
7.7
|
|
|
$
|
16,474
|
|
|
|
9.0
|
|
|
$
|
(5,117
|
)
|
|
|
(31.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
The decrease of $5.1 million in depreciation in 2008 from
2007 was primarily due to the reduction of depreciation expense
for IKONOS, which was fully depreciated in June 2008, and for
OrbView-3 which was declared inoperable in March 2007.
Amortization expense is primarily associated with acquired
contracts and customer relationship intangibles.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2008
|
|
|
|
2008
|
|
|
2007
|
|
|
and 2007
|
|
Selling, General and Administrative Expenses
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
Payroll, commisions and related costs
|
|
$
|
20,370
|
|
|
|
13.9
|
%
|
|
$
|
11,126
|
|
|
|
6.1
|
%
|
|
$
|
9,244
|
|
|
|
83.1
|
%
|
Professional fees
|
|
|
9,127
|
|
|
|
6.2
|
|
|
|
5,602
|
|
|
|
3.1
|
|
|
|
3,525
|
|
|
|
62.9
|
|
Other
|
|
|
7,493
|
|
|
|
5.1
|
|
|
|
6,009
|
|
|
|
3.3
|
|
|
|
1,484
|
|
|
|
24.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses
|
|
$
|
36,990
|
|
|
|
25.2
|
|
|
$
|
22,737
|
|
|
|
12.4
|
|
|
$
|
14,253
|
|
|
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The overall increase of $14.3 million in 2008 is primarily
attributable to staff increases in the telecommunications,
accounting and other support services functions, as well as
professional fees for accounting and tax related services.
Interest
Expense, net
The composition of interest expense, net is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
Change Between 2008
|
|
|
|
2008
|
|
|
2007
|
|
|
and 2007
|
|
Interest Expense, Net
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
Interest expense
|
|
$
|
38,844
|
|
|
|
26.5
|
%
|
|
$
|
42,478
|
|
|
|
23.2
|
%
|
|
$
|
(3,634
|
)
|
|
|
(8.6
|
)%
|
Capitalized interest
|
|
|
(22,657
|
)
|
|
|
(15.4
|
)
|
|
|
(20,103
|
)
|
|
|
(11.0
|
)
|
|
|
(2,554
|
)
|
|
|
(12.7
|
)
|
Interest income
|
|
|
(4,735
|
)
|
|
|
(3.2
|
)
|
|
|
(8,186
|
)
|
|
|
(4.5
|
)
|
|
|
3,451
|
|
|
|
42.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
$
|
11,452
|
|
|
|
7.8
|
|
|
$
|
14,189
|
|
|
|
7.8
|
|
|
$
|
(2,737
|
)
|
|
|
(19.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net includes interest expense on our 2012
Notes, amortized prepaid financing costs, amortization of debt
discount, market adjustments to fair value of the related
derivative instruments and excludes capitalized interest expense
associated with the construction of the GeoEye-1 satellite and
related ground systems as well as interest income.
Interest expense, net declined due to increased capitalization
of interest and declining interest rates applicable on the
$250.0 million of Senior Secured Floating Rate Notes due
July 1, 2012 (2012 Notes) issued on June 29, 2005.
Interest expense related to the 2012 Notes was
$36.4 million and $39.4 million for the years ended
December 31, 2008 and 2007, respectively. In 2007, interest
expense on our $50.0 million indebtedness (SI Credit
Agreement) incurred on January 10, 2006 to finance our
purchase of Space Imaging was $0.4 million. Our final
payment for this debt occurred in February 2007.
In connection with the issuance of the 2012 Notes, we entered
into an interest rate swap arrangement in June 2005 pursuant to
which the effective interest rate under the 2012 Notes was fixed
at 13.75% through July 1, 2008. The fair value of the
derivative instrument at December 31, 2007 was
approximately $1.9 million and was included in other assets
on the consolidated balance sheet. In February 2008, we entered
into a $250.0 million interest rate cap agreement that is
intended to protect us from increases in interest rates by
limiting our interest rate exposure to the three-month LIBOR
with a cap of 4.0%. The cap option cost was $0.5 million
and was effective July 1, 2008 through January 1,
2010. As of December 31, 2008 the fair value of the
interest rate cap was immaterial.
40
On the settlement of the interest rate swap on July 1,
2008, we recorded a realized loss of $0.5 million. We
recorded unrealized losses of $1.9 million and
$3.1 million on the derivative instruments for the years
ended December 31, 2008 and 2007, respectively. These
amounts are included in net interest expense.
Interest income decreased primarily due to lower average cash
balances and lower average interest rate returns on cash
balances during 2008 as compared to 2007.
Other
Non-Operating Expense (Income)
We recorded a loss of $36.1 million in the first quarter of
2007 due to the impairment of the OrbView-3 satellite. We
submitted an insurance claim on June 8, 2007 and received
the full proceeds during the third quarter of 2007 and
recognized the net $3.0 million as a non-operating gain.
Non-GAAP Financial
Measures
Adjusted
EBITDA
Adjusted EBITDA is a non-GAAP financial measure that represents
net income (loss) before depreciation and amortization expenses,
net interest income or expense, loss from early extinguishment
of debt, income tax expense (benefit), non-cash loss on
inventory and investment impairments and non-cash stock based
compensation expense. We present adjusted EBITDA to enhance
understanding of our operating performance. We use adjusted
EBITDA as one criterion for evaluating our performance relative
to that of our peers. We believe that adjusted EBITDA is an
operating performance measure, and not a liquidity measure, that
provides investors and analysts with a measure of operating
results unaffected by differences in capital structures, capital
investment cycles and ages of related assets among otherwise
comparable companies. However, adjusted EBITDA is not a
recognized term under financial performance under GAAP, and our
calculation of adjusted EBITDA may not be comparable to the
calculation of similarly titled measures of other companies.
The use of adjusted EBITDA as an analytical tool has limitations
and it should not considered in isolation, or as a substitute
for analysis of our results of operations as reported in
accordance with GAAP. Some of these limitations are:
|
|
|
|
|
it does not reflect our cash expenditures, or future
requirements, for all contractual commitments;
|
|
|
|
it does not reflect our significant interest expense, or the
cash requirements necessary to service our indebtedness;
|
|
|
|
it does not reflect cash requirements for the payment of income
taxes when due;
|
|
|
|
although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future and adjusted EBITDA does not reflect any
cash requirements for such replacements; and
|
|
|
|
it does not reflect the impact of earnings or charges resulting
from matters we consider not to be indicative of our ongoing
operations, but may nonetheless have a material impact on our
results of operations.
|
Because of these limitations, adjusted EBITDA should not be
considered as a measure of discretionary cash available to us to
invest in the growth of our business or as an alternative to net
income or cash flow from operations determined in accordance
with GAAP. Management compensates for these limitations by not
viewing adjusted EBITDA in isolation, and specifically by using
other GAAP measures, such as cash flow provided by (used in)
operating activities and capital expenditures, to measure our
liquidity. Our calculation of adjusted EBITDA may not be
comparable to the calculation of similarly titled measures
reported by other companies.
41
A reconciliation of net earnings to adjusted EBITDA is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
32,061
|
|
|
$
|
26,615
|
|
|
$
|
28,470
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
31,020
|
|
|
|
11,452
|
|
|
|
14,189
|
|
Loss from early extinguishment of debt
|
|
|
27,127
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
(17,573
|
)
|
|
|
(16,267
|
)
|
|
|
39,535
|
|
Depreciation and amortization
|
|
|
57,166
|
|
|
|
11,357
|
|
|
|
16,474
|
|
Non-cash loss on inventory and investment impairments
|
|
|
|
|
|
|
3,154
|
|
|
|
|
|
Non-cash stock based compensation expense
|
|
|
2,371
|
|
|
|
3,396
|
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
132,172
|
|
|
$
|
39,707
|
|
|
$
|
100,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except ratios)
|
|
|
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and short-term investments
|
|
$
|
208,872
|
|
|
$
|
110,546
|
|
|
$
|
234,324
|
|
Working capital
|
|
|
259,332
|
|
|
|
75,878
|
|
|
|
162,048
|
|
Current ratio
|
|
|
3.8:1
|
|
|
|
1.7:1
|
|
|
|
2.3:1
|
|
Year ended December 31, cash from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
100,207
|
|
|
$
|
(1,872
|
)
|
|
$
|
70,933
|
|
Investing activities
|
|
|
(123,034
|
)
|
|
|
(124,187
|
)
|
|
|
(32,441
|
)
|
Financing activities
|
|
|
124,966
|
|
|
|
6,031
|
|
|
|
(6,107
|
)
|
Capital expenditures (included in investing activities above)
|
|
|
(79,090
|
)
|
|
|
(127,937
|
)
|
|
|
(60,159
|
)
|
The Companys principal sources of liquidity are its
unrestricted cash, cash equivalents, and accounts receivable.
Our primary cash needs are for working capital, capital
expenditures and debt service.
We believe that we currently have sufficient resources to meet
our operating requirements through the next twelve months.
However, our ability to continue to be profitable and generate
positive cash flow through our operations beyond that period is
subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control and dependent on the continued expansion of commercial
and government services, adequate customer acceptance of our
products and services and numerous other factors.
As of December 31, 2009, we had $208.9 million of cash
and cash equivalents. During the fourth quarter, we issued
$400.0 million in new debt which allowed us to repurchase
and discharge approximately $250.0 million of our existing
debt and fix our interest at a lower rate as well as providing
us the financial flexibility to continue building GeoEye-2. We
are in a strong cash position and continue to make prudent
investments in GeoEye-2s development, but we wont
complete the launch or commissioning of GeoEye-2 on an
accelerated basis without an agreement with the NGA under its
EnhancedView Program. Our NextView contract with the NGA has
been extended through June 30, 2010, with options for NGA
to extend the contract for an additional six months through
December 31, 2010. We will continue to fund our capital
expenditures with cash flows from operating activities, proceeds
from the 2015 Notes and revenues from existing contracts. Our
total long-term debt consists of $400.0 million of 2015
Notes, net of unamortized discount of $19.4 million, at
December 31, 2009.
In connection with the 2015 Notes offering in the fourth quarter
of 2009, the Company deposited $47.8 million of the net
proceeds into a restricted account. These restricted proceeds
are held by a trustee for the benefit of the 2015 Note holders
and are only available to the Company or one of its restricted
subsidiaries to finance the procurement, construction
and / or launch of one or more satellites after the
October 9, 2009 issue date provided that at such time of
the withdrawal from the restricted account, the Company or one
of its subsidiaries will have been
42
selected by NGA for an award with respect to a new satellite. As
of December 31, 2009, the net proceeds of
$47.8 million is included as restricted cash in the
consolidated balance sheet.
Cash
Flow Items
Net Cash
Provided by Operating Activities
Net cash provided by (used in) operating activities was
$100.2 million, ($1.9) million and $70.9 million
in 2009, 2008 and 2007, respectively.
The increase of $102.1 million in 2009 compared to the same
period in 2008 was primarily due to $31.0 million in income
tax refunds for 2008 and $64.0 million in changes to the
current tax receivable and deferred tax accounts offset by the
timing of vendor payments.
The decrease of $72.8 million in 2008 compared to the same
period in 2007 was primarily due to a decrease in the
non-current income tax reserve attributable to income taxes paid
related to the NextView cost-share payments as a result of a tax
accounting method change in the third quarter of 2008. In
addition, the decrease is offset by the increase in the deferred
revenue balance in 2008 compared to 2007 which represents
milestone payments received from NGA for the NextView program
during 2008.
Net Cash
Used in Investing Activities
Net cash used in investing activities was $123.0 million,
$124.2 million and $32.4 million in 2009, 2008 and
2007, respectively.
In 2009, capital expenditures decreased by $48.8 million
compared to the same period in 2008 primarily attributable to
expenditures related to the construction of GeoEye-1 that were
incurred in 2008 prior to the full satellite operations in
February 2009. However, we also incurred $36.9 million of
capital expenditures for
GeoEye-2
during 2009. We are continuing to evaluate our options regarding
the timing for the potential construction of GeoEye-2 in
conjunction with our discussions with the U.S. Government
related to the EnhancedView program. In addition, there was a
net transfer to restricted cash of $47.8 million in the
fourth quarter of 2009 as a result of the net proceeds of the
2015 Notes that are restricted for construction of a new
high-resolution satellite. We have contracted with ITT
Corporation to work on the camera for GeoEye-2. On
March 11, 2010, the Company announced the selection of
Lockheed Martin Space Systems Company to build the GeoEye-2
satellite. We have spent $66.8 million in building our next
earth imaging satellite, GeoEye-2 through December 31, 2009.
Capital expenditures increased to $127.9 million for the
year ended December 31, 2008 as compared to
$60.2 million for the same period in 2007. These increased
cash outflows were primarily attributable to expenditures
related to the construction of GeoEye-1 and its related ground
system assets. However, $21.2 million of capital
expenditures in 2008 was attributable to costs incurred for the
construction of GeoEye-2.
During 2007, we received $40.0 million of proceeds from
insurance for the loss of the OrbView-3 satellite. In addition,
during 2007, we used $10.0 million of cash to purchase the
MJ Harden operations. This partially offset $60.2 million
in capital expenditure in 2007, primarily related to the
construction of the GeoEye-1 satellite.
Net Cash
Used in or Provided by Financing Activities
Net cash provided by (used in) financing activities was
$125.0 million, $6.0 million and ($6.1) million
in 2009, 2008 and 2007, respectively.
During 2009, we issued senior secured notes net of discount and
net of financing costs of $377.1 million, which was used to
pay for the repurchase of our 2012 Notes, plus accrued interest.
In addition, we received funds in the amount of
$15.4 million for the issuances of common stock primarily
due to the exercise of warrants.
In 2007, net cash used in financing activities was
$6.1 million. The funds were primarily used to repay the
remaining $15.4 million balance on the debt incurred to
purchase the Space Imaging operations in the first quarter of
2007. The funds were offset by cash provided in the amount of
$9.3 million for the issuance of common stock related to
stock options and warrants exercised.
43
Long-Term
Debt
In October 2009, we closed on a private placement offering of
$400.0 million of our 2015 Notes due October 1, 2015.
The net proceeds of the 2015 Notes offering were used to fund
the repurchase of $249.5 million in outstanding principal,
or approximately 99.8%, of the Companys outstanding
$250.0 million 2012 Notes due July 1, 2012. As of
December 31, 2009, our total long-term debt consisted of
$400.0 million of 2015 Notes, net of original issue
discount of $20.0 million. In addition, $0.5 million
of the 2012 Notes remained outstanding until January 22,
2010 at which time the Company exercised its rights to discharge
these final 2012 Notes. Under the indenture governing the 2015
Notes, we are prohibited from paying dividends until the
principal amount of all such notes has been repaid. At any time
on or after October 1, 2013, GeoEye, Inc. may on one or
more occasions redeem all or part of the 2015 Notes at 104.813%
of principal for the subsequent
12-month
period and at 100% of principal on October 1, 2014 and
thereafter.
The indenture governing our 2015 Notes contains a covenant that
restricts our ability to incur additional indebtedness unless,
among other things, we can comply with a fixed charge coverage
ratio. We may incur additional indebtedness only if, after
giving pro forma effect to that incurrence, our ratio of
adjusted cash EBITDA to total consolidated debt for the four
fiscal quarters ending as of the most recent date for which
internal financial statements are available meet certain levels
or we have availability to incur such indebtedness under certain
baskets in the indenture. Adjusted cash EBITDA is defined as
Adjusted EBITDA less amortization of deferred revenue related to
the NextView agreement with NGA. As of December 31, 2009,
we were in compliance with all covenants associated with our
borrowings. In March 2010, we entered into a binding commitment
letter to issue preferred stock and obtain debt financing
totaling up to $215.0 million with Cerberus Capital
Management, L.P. (Cerberus), provided that we receive an award
from NGA to build GeoEye-2 under the EnhancedView program. The
additional indebtedness under this commitment does not cause a
covenant violation under the indenture governing our 2015 Notes.
The 2015 Notes bear interest at the rate of 9.625% per annum.
Interest is payable semi-annually in arrears on April 1 and
October 1 of each year.
Funding
Sources and Uses
On March 4, 2010 the Company entered into a binding
commitment letter with Cerberus to purchase preferred stock and
provide debt financing, the proceeds of which will be used for
development and launch of GeoEye-2. The agreement to purchase
the preferred stock and the commitment to provide financing
expires on March 19, 2010 unless definitive documents have
been executed by both parties.
Cerberus will purchase up to $115.0 million in preferred
stock provided that the Company receives an award from the NGA
to build GeoEye-2 under the EnhancedView program. The preferred
stock will be entitled to receive a dividend at an annual rate
of 5%, payable in kind, in cash or securities, at the
Companys option. The preferred stock will have a
conversion price of $30 per share, or $29.25 after taking into
effect the original issue discount (OID).
Cerberus will also provide the Company with debt financing of
$100.0 million, also contingent upon the Company receiving
an award from NGA to build GeoEye-2 under the EnhancedView
program. The facility will mature on April 1, 2016 and will
bear an annual interest rate of three-month LIBOR plus 8%, with
a minimum interest rate of 10%. There is no requirement to draw
down on the facility and partial draws are permitted, with some
limitations.
This additional financing is necessary due to the fact that the
NGA request for proposal for EnhancedView requires that upon a
successful contract award the Company provide a letter of credit
for the full amount of any potential cost share award which
would be received from NGA through development of GeoEye-2 and
for a period of up to three years after Full Operational
Capability (FOC). The Company estimates that it could require
letters of credit up to $280.0 million, which must be fully
cash collateralized. The Company will use cash on hand, cash
flow from operations, proceeds from the NGA cost share, and the
additional financing provided by Cerberus to build GeoEye-2 and
post the required letters of credit.
44
If the Company is awarded the Enhanced View Imagery Acquisition
Contract without the letter of credit requirement, the Company
will no longer be obligated to issue 115,000 shares of
preferred stock to Cerberus, but Cerberus will have the option
to purchase a reduced number of 80,000 shares of preferred
stock, resulting in gross proceeds to the Company of
$78.0 million.
In addition, the Company paid a non-refundable commitment fee of
2% or $2.0 million of the face value of the debt. In the
event, the Company is not awarded a new satellite contract under
the EnhancedView program, the Company will be required to pay an
additional $2.3 million fee for the preferred stock
commitment.
We completed the construction of and launched the GeoEye-1
satellite in 2008. Contractual provisions allowed us to hold
back $27.7 million due to our contractors as of
December 31, 2008. These amounts were paid in 2009.
Contracted
Backlog
We have historically had and currently have a substantial
backlog, which provides some assurance regarding our future
revenue expectations. Backlog reduces the volatility of our net
cash provided by operating activities more than would be typical
for a company outside our industry.
Our backlog was approximately $271.4 million at
December 31, 2009 and approximately $236.2 million at
December 31, 2008. Backlog includes our SLA with the NGA,
access fee agreements with our international regional
affiliates, regional affiliate ground station operations and
maintenance contracts, commercial imagery contracts and
value-added products and services.
Our backlog as of December 31, 2009 included approximately
$81.4 million of contracts with the U.S. Government,
including approximately $39.5 million related specifically
to the SLA. In addition to this backlog, we have recently added
another $37.5 million with our most recent SLA extension.
Most of our government contracts are funded incrementally on a
year-to-year
basis; however, certain international government customers have
signed multi-year access fee and operating and maintenance
contracts. Changes in government policies, priorities or funding
levels through agency or program budget reductions by the
U.S. Congress or executive agencies could materially
adversely affect our financial condition and results of
operations. Furthermore, contracts with the U.S. government
may be terminated or suspended by the U.S. government at
any time, with or without cause, which could result in a
reduction in backlog.
In addition, there is $196.3 million of remaining
unamortized revenue related to payments made prior to FOC from
NGA, of which $24.2 million is expected to be recognized
during 2010. We have not included this in our backlog because no
specific services will be rendered to recognize the revenue. The
balance will be recognized on a straight-line basis over the
useful life of the satellite.
Capital
Expenditures
For 2009, our capital expenditures included $68.8 million
for satellites and ground systems and $10.3 million for
property, plant and equipment.
We currently expect our 2010 total capital expenditures,
excluding the GeoEye-2 satellite, to range from approximately
$12 million to $15 million. We intend to fund our
capital expenditure requirements through cash on hand, cash
provided from operating activities, proceeds from the 2015 Notes
and, if necessary, additional borrowings or funding from a
customer or customers. To the extent that we sign a contract for
the construction of the GeoEye-2 satellite, we would expect to
incur additional capital expenditures in excess of cash on hand
and cash provided from operating activities in 2010 and beyond.
The timing of the GeoEye-2 program may vary depending on our
perception of the market potential, especially the potential
interest from the U.S. Government. In light of the
significant capital required to build GeoEye-2 and the current
state of the financial markets, timing may also vary subject to
our ability to negotiate a cost share with the
U.S. Government on terms which we deem to be acceptable.
45
Off-Balance
Sheet Arrangements
We lease various real properties under operating leases that
generally require us to pay taxes, insurance, maintenance and
minimum lease payments. Some of our leases have options to renew.
We do not have any other significant off-balance sheet
arrangements that have, or are reasonably likely to have, a
current or future effect on our financial condition, results of
operations, liquidity, capital expenditures or capital resources.
Contractual
Obligations and Commercial Commitments
The following table sets forth estimates of future payments of
our consolidated contractual obligations, as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 and
|
|
|
|
|
Contractual Obligations
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Long-term debt obligations
|
|
$
|
497
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
400,000
|
|
|
$
|
400,497
|
|
Operating lease obligations
|
|
|
2,082
|
|
|
|
2,039
|
|
|
|
1,051
|
|
|
|
322
|
|
|
|
132
|
|
|
|
|
|
|
|
5,626
|
|
Interest expense on long-term debt(1)
|
|
|
38,500
|
|
|
|
38,500
|
|
|
|
38,500
|
|
|
|
38,500
|
|
|
|
38,500
|
|
|
|
32,083
|
|
|
|
224,583
|
|
Purchased obligations(2)
|
|
|
455
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
41,534
|
|
|
$
|
40,995
|
|
|
$
|
39,551
|
|
|
$
|
38,822
|
|
|
$
|
38,632
|
|
|
$
|
432,083
|
|
|
$
|
631,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents contractual interest payment obligations on the
$400.0 million outstanding principal balance of our 2015
Notes, which bear interest at a rate per annum of 9.625% |
|
(2) |
|
Purchase obligations include all commitments to purchase goods
or services of either a fixed or minimum quantity that are
enforceable and legally binding on us that meet any of the
following criteria: (1) they are non-cancelable,
(2) we would incur a penalty if the agreement was
cancelled, or (3) we must make specified minimum payments
even if we do not take delivery of the contracted products or
services. If the obligation is non-cancelable, the entire value
of the contract is included in the table. If the obligation is
cancelable, but we would incur a penalty if cancelled, the
dollar amount of the pentaly is included as a purchase
obligation. If we can unilaterally terminate the agreement
simply by providing a certain number of days notice or by paying
a termination fee, we have included the amount of the
termination fee. As of December 31, 2009, purchase
obligations include ground system and communication services.
Contracts that can be unilaterally terminated without a penalty
have not been included. |
In addition to the above, the Company has entered into
commitments subsequent to December 31, 2009, totaling up to
approximately $59.2 million, primarily purchase
obligations, all of which expire in 2010.
Operating
Leases
We have commitments for operating leases primarily relating to
equipment and office and operating facilities. These leases
contain escalation provisions for increases as a result of
increases in real estate taxes and operating expenses.
Critical
Accounting Policies and Estimates
The preceding discussion and analysis of financial condition and
results of operations are based on our consolidated financial
statements, which have been prepared in conformity with
accounting principles generally accepted in the United States of
America (GAAP). The preparation of these consolidated financial
statements requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures. On an on-going
basis, we evaluate estimates and assumptions, including but not
limited to those related to the impairment of long-lived assets
and goodwill, revenue recognition, satellites and related ground
systems, stock-based compensation and income taxes. We base our
estimates on historical
46
experience and various other assumptions that we believe to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenue
Recognition
Our principal sources of revenue are from imaging services, the
sale of satellite imagery directly to end users or value-added
resellers and the provision of direct access to our satellites
and associated ground processing technology upgrades and
operations and maintenance services. We also derive significant
revenue from value-added production services where we combine
our images with data and imagery from our own and other sources
to create sophisticated information products. We enter into
fixed price, unit-price and time and materials contracts with
our customers. When recognizing revenue, we consider the
following:
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|
|
|
We consider the nature of our contracts, and the types of
products and services provided, when we determine the proper
accounting for a particular contract.
|
|
|
|
Significant contract interpretation is sometimes required to
determine the appropriate accounting for certain sales
transactions that involve multiple element arrangements.
|
|
|
|
We record revenues from the sale of satellite imagery directly
to end users or value-added resellers based on the delivery of
the imagery.
|
|
|
|
We recognize revenues for the provision of direct access to our
satellites on a straight-line basis over the delivery term of
the contract. However, certain multi-year sales contracts are
based on minimum levels of access time with adjustments based on
usage.
|
|
|
|
We recognize revenues for the sale of ground processing
technology upgrades and support services based on the delivery
of these products and services. If the satellite access service
is combined with the sale of ground processing technology
upgrades and operations and maintenance services and the
requirements for separate revenue recognition are not met, we
recognize revenues on a straight line basis over the combined
delivery term of the services.
|
Revenue is recognized on contracts to provide value-added
production services using the
percentage-of-completion
method whereby revenue is recognized on each production contract
based either on the contract price of units of production
delivered during a period or upon costs to date plus an estimate
of gross profit to date. Anticipated contract losses are
recognized as they become known.
|
|
|
|
|
Under the
units-of-delivery
method, revenue on a contract is recorded as the units are
delivered and accepted during the period at an amount equal to
the contractual selling price of those units. Contract costs are
recognized as incurred, with costs to date of unfinished
production for which revenue has not been recognized being
capitalized.
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|
|
Under the cost plus gross profit earned method, progress toward
completion is measured against all measurable deliverables based
on either resources applied or cost incurred compared to total
resources or cost projected for the project. We recognize costs
as incurred. Profit is determined based on our estimated profit
on the contract multiplied by our progress toward completion.
Revenue represents the sum of our costs and profit on the
contract for the period.
|
Contract estimates involve various assumptions and projections
relative to the outcome of future events over a period of
several years, including future labor productivity and
availability, the nature and complexity of the work to be
performed, the cost and availability of materials, the impact of
delayed performance, the availability and timing of funding from
the customer and the timing of product deliveries. These
estimates are based on the companys best judgment. A
significant change in one or more of these estimates could
affect the profitability of one or more of the
47
companys contracts. We review our contract estimates on a
continual basis to assess revisions in contract values and
estimated costs at completion.
At times we may receive payments from some customers in advance
of providing services. Amounts received from customers pursuant
to satellite access prepayment options are recorded in the
consolidated financial statements as deferred revenue. These
deferred amounts are recognized as revenue on a straight-line
basis over the agreement terms. In addition, cost-share amounts
received from the U.S. Government are recorded as deferred
revenue when received and recognized on a straight-line basis
over the useful life of the satellite.
In addition, our revenue recognition policy requires an
assessment as to whether the collection is reasonably assured,
which requires us, among other things, to evaluate the
creditworthiness of our customers. Changes in judgments in these
assumptions and estimates could materially impact the timing
and/or
amount of revenue recognition.
Satellites
and Related Ground Systems
Satellites and related ground systems are recorded at cost. The
cost of our satellite includes capitalized interest cost
incurred during the construction and development period. In
addition, capitalized costs of our satellite and related ground
systems include internal direct labor costs incurred in the
construction and development, as well as depreciation costs
related to assets which support the construction and development
of our satellite and related ground systems. During the
construction phase, the costs of our satellites are capitalized,
assuming the eventual successful launch and in-orbit operation
of the satellite. The portion of any insurance premiums
associated with the insurance coverage of the launch and
on-orbit commissioning period prior to a satellite reaching
start of commercial operations, are capitalized in the original
cost of the satellite and are amortized over the estimated life
of the asset. Ground systems are placed into service when they
are ready for their intended use. If a satellite were to fail
during launch or while in-orbit, the resulting loss would be
charged to expense in the period in which such loss were to
occur. The amount of any such loss would be reduced to the
extent of insurance proceeds received as a result of the launch
or in-orbit failure.
Asset
Impairment Assessments
Goodwill
We evaluate the carrying value of goodwill on an annual basis in
the fourth quarter and when events and changes in circumstances
indicate that the carrying amount may not be recoverable. In
assessing the recoverability of goodwill, we calculate the fair
market value at the Company level, which is the sole reporting
unit. If the carrying value of the Company exceeds the fair
market value, impairment is measured by comparing the derived
fair value of goodwill to its carrying value, and any impairment
determined is recorded in the current period. An impairment test
was performed on recorded goodwill and it was determined that no
impairment existed as of December 31, 2009.
Long-Lived
Assets
In assessing the recoverability of our satellites, fixed assets
and other long-lived assets, we evaluate the recoverability
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Changes in estimates of
future cash flows could result in a write-down of the asset in a
future period. Estimated future cash flows could be impacted by,
among other things, changes in estimates of the useful lives of
the assets (for example, degradation in the quality of images
downloaded from the satellite), changes in estimates of our
ability to operate the assets at expected levels (for example,
due to intermittent loss of satellite transmissions) and by the
loss of one or several significant customer contracts.
Satellites and other property and equipment are depreciated and
amortized on a straight-line basis over their estimated useful
lives. We estimate the useful lives of our satellites for
depreciation purposes based upon an analysis of each
satellites performance, including its orbital design life
and its estimated service life. The orbital design life
48
of a satellite is the length of time that the manufacturer has
contractually committed that the satellites hardware will
remain operational under normal operating conditions. In
contrast, a satellites service life is the length of time
the satellite is expected to remain operational as determined by
remaining fuel levels and consumption rates. Our in-orbit
satellites generally have operational lives of nine years and
service lives as high as ten years. The useful depreciable lives
of our satellites are generally the operational lives.
Although the service lives of our satellites have historically
extended beyond their depreciable lives, this trend may not
continue. We periodically review the remaining estimated useful
lives of our satellites to determine if any revisions to our
estimates are necessary based on the health of the individual
satellites. Changes in our estimate of the useful lives of our
satellites could have a material effect on our financial
position or results of operations.
We charge to operations the carrying value of any satellite lost
as a result of a launch or in-orbit failure upon the occurrence
of the loss. In the event of a partial failure, we record an
impairment charge to operations upon the occurrence of the loss
if the undiscounted future cash flows are less than the carrying
value of the satellite. We measure the impairment charge as the
excess of the carrying value of the satellite over its estimated
fair value as determined by the present value of estimated
expected future cash flows using a discount rate commensurate
with the risks involved. We reduce the charge to operations
resulting from either a complete or a partial failure by the
amount of any insurance proceeds that were either due and
payable to or received by us, and by the amount of any deferred
satellite performance incentives that are no longer applicable
following the failure.
Income
Taxes
Income tax provision is based on income before taxes and is
computed using the asset and liability method. Deferred tax
assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and
liabilities using tax rates projected to be in effect for the
year in which the difference is expected to reverse. Significant
judgment is required in the calculation of our tax provision and
the resultant tax liabilities and in the recoverability of our
deferred tax assets that arise from temporary differences
between the tax and financial statement recognition of revenue
and expense and net operating loss and credit carryforwards. As
part of our financial process, we must assess the likelihood
that our deferred tax assets can be recovered. This assessment
requires significant judgment. We evaluate the recoverability of
our deferred tax assets based in part on the existence of
deferred tax liabilities that can be used to realize the
deferred tax assets. In addition, we have made significant
estimates involving current and deferred income taxes, tax
attributes relating to the interpretation of various tax laws,
historical bases of tax attributes associated with certain
tangible and intangible assets and limitations surrounding the
realizability of our deferred tax assets. We do not recognize
current and future tax benefits until it is deemed more likely
than not that certain tax positions will be sustained. Under
SFAS 109, a valuation allowance is required when it is more
likely than not that all, or a portion, of the deferred tax
asset will not be realized. The recognition of a valuation
allowance would result in a reduction to net income and, if
significant, could have a material impact on our effective tax
rate, results of operations and financial position in any given
period.
During the ordinary course of business, there are many
transactions and calculations for which the ultimate tax
determination is uncertain. We evaluate our tax positions to
determine if it is more likely than not that a tax position is
sustainable, based solely on its technical merits and presuming
the taxing authorities full knowledge of the position and
having access to all relevant facts and information. When a tax
position does not meet the more likely than not standard, a
liability is recorded for the entire amount of the unrecognized
tax benefit. Additionally, for those tax positions that are
determined more likely than not to be sustainable, we measure
the tax position at the largest amount of benefit more likely
than not (determined by cumulative probability) to be realized
upon settlement with the taxing authority.
Stock-Based
Compensation
Employee stock-based compensation is estimated at the date of
grant based on the employee stock awards fair value using
the Black-Scholes option-pricing model and is recognized as
expense ratably over the requisite service period in a manner
similar to other forms of compensation paid to employees. The
Black-Scholes option-pricing model requires the use of certain
subjective assumptions. The most significant of these
assumptions are our
49
estimates of the expected volatility of the market price of our
stock and the expected term of the award. There is limited
historical information available to support our estimate of
certain assumptions required to value our stock options. When
establishing an estimate of the expected term of an award, we
use the simplified calculation due to the lack of historical
exercise data. As required under the accounting rules, we review
our valuation assumptions at each grant date, and, as a result,
our valuation assumptions used to value employee stock-based
awards granted in future periods may change. See also
Note 14 in the notes to the consolidated financial
statements for more information.
Recent
and Pending Accounting Pronouncements
In April 2009, the FASB issued guidance on financial
instruments, which amends prior authoritative guidance to
require disclosures about fair value of financial instruments in
interim financial statements as well as in annual financial
statements and also amends prior guidance to require those
disclosures in all interim financial statements. The adoption of
the updated guidance did not have an effect on the
Companys consolidated results of operations, financial
condition or cash flows.
In June 2009, the FASB issued the FASB Accounting Standards
Codification (ASC) and identified the ASC as the
authoritative source of generally accepted accounting principles
in the United States. Rules and interpretive releases of the SEC
under federal securities laws are also sources of authoritative
GAAP for SEC registrants. The changes to the GAAP hierarchy did
not result in any accounting changes.
In August 2009, the FASB revised its guidance related to fair
value measurements and disclosures for the fair value
measurement of liabilities. The revised guidance provides
clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain
techniques. The revised guidance also clarifies that when
estimating the fair value of a liability, a reporting entity is
not required to include a separate input or adjustment to other
inputs relating to the existence of a restriction that prevents
the transfer of a liability. The revised guidance also clarifies
that both a quoted price in an active market for the identical
liability at the measurement date and the quoted price for the
identical liability when traded as an asset in an active market
when no adjustments to the quote price of the asset are required
are Level 1 fair value measurements. The adoption of the
updated guidance did not have an effect on the Companys
consolidated results of operations, financial condition or cash
flow.
In October 2009, the FASB issued revised guidance on revenue
from multiple deliverable arrangements including principles and
application guidance on whether multiple deliverables exist, how
the arrangement should be separated and the allocation of the
consideration. Additionally, this revised guidance requires an
entity to allocate revenue in multiple-element arrangements
using estimated selling prices of deliverables if
vendor-specific or other third party evidence of value is not
available. The new guidance is to be applied on a prospective
basis for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15,
2010, with earlier adoption permitted. We are currently
evaluating the impact of this accounting guidance and do not
expect any impact on our consolidated financial statements.
In January 2010, the FASB issued new guidance that require new
disclosures for fair value measurements and provide
clarification for existing disclosures requirements. More
specifically, it requires reporting entities to 1) disclose
separately the amount of significant transfers into and out of
Level 1 and Level 2 fair-value measurements and to
describe the reasons for the transfers and 2) provide
information on purchases, sales, issuances and settlements on a
gross basis rather than net in the reconciliation of
Level 3 fair-value measurements. This update is effective
for interim and annual reporting periods beginning after
December 15, 2009 except for the Level 3 fair-value
measurements disclosures that are effective for fiscal years
beginning after December 15, 2010. We do not expect the
adoption of this update to materially expand our consolidated
financial statement footnote disclosures.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosure of Market Risk
|
We are primarily exposed to the market risk associated with
unfavorable movements in interest rates. We are subject to
interest rate risk primarily associated with our borrowings.
Interest rate risk is the risk that changes in interest rates
could adversely affect earnings and cash flows. All of our debt
as of December 31, 2009 is fixed-rate
50
debt. While changes in interest rates impact the fair value of
this debt, there is no impact to earnings and cash flows because
we intend to hold these obligations to maturity unless market
and other conditions are favorable.
Effective July 1, 2008, we had entered into an interest
rate cap agreement associated with the 2012 Notes that was
intended to protect us from increases in interest rates by
limiting our interest rate exposure to the three-month LIBOR
with a cap of 4.0%. The 2012 Notes were subject to interest rate
fluctuation because the interest rate reset semi-annually for
the term of the 2012 Notes. The interest rate cap agreement was
outstanding until January 2010 when we paid off the remaining
balance of the 2012 Notes. As of December 31, 2009, the
fair value of the interest rate cap was zero.
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.
51
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
GEOEYE,
INC.
INDEX TO
FINANCIAL STATEMENTS
52
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
GeoEye, Inc.
We have audited the accompanying consolidated balance sheets of
GeoEye, Inc. and subsidiaries as of December 31, 2009 and
2008, and the related consolidated statements of operations,
stockholders equity, and cash flows for the years ended
December 31, 2009 and 2008. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of GeoEye, Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for the years ended
December 31, 2009 and 2008, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
GeoEye, Inc.s internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 12, 2010
expressed an adverse opinion on the effectiveness of the
Companys internal control over financial reporting.
McLean, Virginia
March 12, 2010
53
Report of
Independent Registered Public Accounting Firm
Board of Directors and Stockholders
GeoEye, Inc.
Dulles, VA
We have audited the accompanying consolidated balance sheet of
GeoEye, Inc. as of December 31, 2007 (not included herein)
and the related consolidated statements of operations and
stockholders equity, and cash flows for the year ended
December 31, 2007. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of GeoEye, Inc. at December 31, 2007, and the
results of its operations and its cash flows for the year ended
December 31, 2007, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 9 to the Consolidated Financial
Statements, effective January 1, 2007, the Company adopted
FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an Interpretation of
FASB Statement No. 109.
Bethesda, Maryland
April 2, 2008, except for the effects of the restatement
discussed under the September 2008 Restatement section of
Note 2 which is as of September 5, 2008 and except for
the effects of the restatement discussed under the March 2009
Restatement section of Note 2 which is as of April 1,
2009.
54
GEOEYE,
INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
208,872
|
|
|
$
|
106,733
|
|
Short-term investments
|
|
|
|
|
|
|
3,813
|
|
Accounts receivable trade and unbilled receivables
(net of allowances: 2009 $923; 2008 $738)
|
|
|
32,578
|
|
|
|
26,851
|
|
Income tax receivable
|
|
|
40,237
|
|
|
|
20,142
|
|
Restricted cash
|
|
|
52,268
|
|
|
|
|
|
Prepaid expenses
|
|
|
5,898
|
|
|
|
28,069
|
|
Other current assets
|
|
|
10,938
|
|
|
|
6,256
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
350,791
|
|
|
|
191,864
|
|
Property, plant and equipment, net
|
|
|
25,381
|
|
|
|
22,748
|
|
Satellites and related ground systems, net
|
|
|
505,035
|
|
|
|
488,145
|
|
Goodwill
|
|
|
34,264
|
|
|
|
34,264
|
|
Intangible assets, net
|
|
|
11,685
|
|
|
|
14,335
|
|
Non-current restricted cash
|
|
|
13,653
|
|
|
|
|
|
Other non-current assets
|
|
|
6,398
|
|
|
|
12,978
|
|
Deferred tax assets
|
|
|
|
|
|
|
30,271
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
947,207
|
|
|
$
|
794,605
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
14,196
|
|
|
$
|
19,653
|
|
Accrued payroll
|
|
|
10,077
|
|
|
|
6,555
|
|
Accrued expenses subcontractors
|
|
|
1,023
|
|
|
|
27,738
|
|
Accrued interest payable
|
|
|
8,701
|
|
|
|
15,817
|
|
Current portion of deferred revenue
|
|
|
52,221
|
|
|
|
40,629
|
|
Current deferred tax liabilities
|
|
|
4,744
|
|
|
|
5,594
|
|
Current portion of long term debt
|
|
|
497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
91,459
|
|
|
|
115,986
|
|
Long-term debt
|
|
|
380,594
|
|
|
|
247,502
|
|
Long-term deferred revenue, net of current portion
|
|
|
192,313
|
|
|
|
199,317
|
|
Non-current income tax reserve
|
|
|
248
|
|
|
|
1,396
|
|
Deferred tax liabilities
|
|
|
2,078
|
|
|
|
|
|
Other non-current liabilities
|
|
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
667,252
|
|
|
|
564,201
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
Common stock, par value $.01; 50,000 shares authorized;
19,912 and 18,422 shares issued and outstanding at
December 31, 2009 and 2008, respectively
|
|
|
199
|
|
|
|
184
|
|
Additional paid-in capital
|
|
|
227,988
|
|
|
|
210,513
|
|
Retained earnings
|
|
|
51,768
|
|
|
|
19,707
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
279,955
|
|
|
|
230,404
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
947,207
|
|
|
$
|
794,605
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
55
GEOEYE,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
271,102
|
|
|
$
|
146,659
|
|
|
$
|
183,023
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of revenue (exclusive of depreciation and
amortization)
|
|
|
94,693
|
|
|
|
72,216
|
|
|
|
64,628
|
|
Depreciation and amortization
|
|
|
57,166
|
|
|
|
11,357
|
|
|
|
16,474
|
|
Selling, general and administrative
|
|
|
46,608
|
|
|
|
36,990
|
|
|
|
22,737
|
|
Inventory impairment and satellite impairment settlement
|
|
|
|
|
|
|
3,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
198,467
|
|
|
|
123,859
|
|
|
|
103,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
72,635
|
|
|
|
22,800
|
|
|
|
79,184
|
|
Interest expense, net
|
|
|
31,020
|
|
|
|
11,452
|
|
|
|
14,189
|
|
Other non-operating expense (income)
|
|
|
|
|
|
|
1,000
|
|
|
|
(3,010
|
)
|
Loss from early extinguishment of debt
|
|
|
27,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
14,488
|
|
|
|
10,348
|
|
|
|
68,005
|
|
(Benefit) provision for income taxes
|
|
|
(17,573
|
)
|
|
|
(16,267
|
)
|
|
|
39,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
32,061
|
|
|
$
|
26,615
|
|
|
$
|
28,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share basic
|
|
$
|
1.71
|
|
|
$
|
1.48
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share diluted
|
|
$
|
1.55
|
|
|
$
|
1.36
|
|
|
$
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic earnings per share
|
|
|
18,753
|
|
|
|
17,983
|
|
|
|
17,585
|
|
Shares used to compute diluted earnings per share
|
|
|
20,685
|
|
|
|
19,558
|
|
|
|
19,801
|
|
See Accompanying Notes to the Consolidated Financial Statements.
56
GEOEYE
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained Earnings
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amounts
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance as of December 31, 2006
|
|
|
17,475
|
|
|
$
|
175
|
|
|
$
|
188,531
|
|
|
$
|
(35,378
|
)
|
|
$
|
153,328
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,470
|
|
|
|
28,470
|
|
Warrants exercised
|
|
|
276
|
|
|
|
3
|
|
|
|
7,713
|
|
|
|
|
|
|
|
7,716
|
|
Issuance of stock
|
|
|
117
|
|
|
|
1
|
|
|
|
1,619
|
|
|
|
|
|
|
|
1,620
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
2,075
|
|
|
|
|
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
17,868
|
|
|
|
179
|
|
|
|
199,938
|
|
|
|
(6,908
|
)
|
|
|
193,209
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,615
|
|
|
|
26,615
|
|
Warrants exercised
|
|
|
513
|
|
|
|
5
|
|
|
|
7,044
|
|
|
|
|
|
|
|
7,049
|
|
Issuance of stock
|
|
|
41
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
135
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,396
|
|
|
|
|
|
|
|
3,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
18,422
|
|
|
|
184
|
|
|
|
210,513
|
|
|
|
19,707
|
|
|
|
230,404
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,061
|
|
|
|
32,061
|
|
Warrants exercised
|
|
|
1,407
|
|
|
|
14
|
|
|
|
14,632
|
|
|
|
|
|
|
|
14,646
|
|
Issuance of stock
|
|
|
94
|
|
|
|
1
|
|
|
|
749
|
|
|
|
|
|
|
|
750
|
|
Surrender of common stock to cover employees tax liability
|
|
|
(14
|
)
|
|
|
|
|
|
|
(277
|
)
|
|
|
|
|
|
|
(277
|
)
|
Stock-based compensation
|
|
|
3
|
|
|
|
|
|
|
|
2,371
|
|
|
|
|
|
|
|
2,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
19,912
|
|
|
$
|
199
|
|
|
$
|
227,988
|
|
|
$
|
51,768
|
|
|
$
|
279,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
57
GEOEYE
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
32,061
|
|
|
$
|
26,615
|
|
|
$
|
28,470
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
57,166
|
|
|
|
11,357
|
|
|
|
16,474
|
|
Non-cash amortization of NGA cost share
|
|
|
(21,062
|
)
|
|
|
|
|
|
|
|
|
Amortization of debt discount and issuance costs
|
|
|
3,356
|
|
|
|
3,531
|
|
|
|
3,862
|
|
Loss from early extinguishment of debt
|
|
|
27,077
|
|
|
|
|
|
|
|
|
|
Asset impairment
|
|
|
|
|
|
|
3,154
|
|
|
|
|
|
Other gains and losses
|
|
|
194
|
|
|
|
29
|
|
|
|
(2,955
|
)
|
Change in fair value of derivative instruments
|
|
|
11
|
|
|
|
2,408
|
|
|
|
3,078
|
|
Deferred income taxes
|
|
|
5,637
|
|
|
|
(23,004
|
)
|
|
|
(10,271
|
)
|
Stock-based compensation
|
|
|
2,371
|
|
|
|
3,396
|
|
|
|
2,075
|
|
Changes in assets and liabilities, net of effect of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other current assets
|
|
|
(12,474
|
)
|
|
|
(8,302
|
)
|
|
|
(25,382
|
)
|
Net transfer to restricted cash
|
|
|
(17,605
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
1,974
|
|
|
|
(2,549
|
)
|
|
|
4,037
|
|
Accounts payable and current liabilities
|
|
|
(8,768
|
)
|
|
|
6,613
|
|
|
|
(2,534
|
)
|
Income taxes receivable/payable and reserves
|
|
|
4,619
|
|
|
|
(61,431
|
)
|
|
|
46,787
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
(2,363
|
)
|
Deferred revenue
|
|
|
25,650
|
|
|
|
36,311
|
|
|
|
9,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
100,207
|
|
|
|
(1,872
|
)
|
|
|
70,933
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(79,090
|
)
|
|
|
(127,937
|
)
|
|
|
(60,159
|
)
|
Net transfer to restricted cash for satellite construction
|
|
|
(47,757
|
)
|
|
|
|
|
|
|
|
|
Satellite insurance proceeds
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
Payments for business acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(10,027
|
)
|
Redemption (purchase) of short term investments
|
|
|
3,813
|
|
|
|
3,750
|
|
|
|
(2,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(123,034
|
)
|
|
|
(124,187
|
)
|
|
|
(32,441
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt, net of costs
|
|
|
377,094
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(266,965
|
)
|
|
|
|
|
|
|
(15,443
|
)
|
Net transfer to restricted cash for debt extinguishment
|
|
|
(559
|
)
|
|
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
15,396
|
|
|
|
6,031
|
|
|
|
9,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
124,966
|
|
|
|
6,031
|
|
|
|
(6,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
102,139
|
|
|
|
(120,028
|
)
|
|
|
32,385
|
|
Cash and cash equivalents, beginning of period
|
|
|
106,733
|
|
|
|
226,761
|
|
|
|
194,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
208,872
|
|
|
$
|
106,733
|
|
|
$
|
226,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of capitalized interest
|
|
$
|
35,161
|
|
|
$
|
11,718
|
|
|
$
|
14,486
|
|
Income taxes paid
|
|
|
3,215
|
|
|
|
67,340
|
|
|
|
3,133
|
|
Non-cash surrender of common stock to cover tax liability
|
|
|
(277
|
)
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
58
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2009
GeoEye is a leading commercial provider of highest accuracy,
highest resolution earth imagery, image processing services and
imagery information products to U.S. and foreign government
defense and intelligence organizations, domestic federal and
foreign civil agencies, and commercial customers. We own and
operate three Earth-imaging satellites, GeoEye-1, IKONOS and
Orbview-2 and three fixed-wing aircraft with advanced
high-resolution imagery collection capabilities. GeoEye-1 is the
worlds highest resolution and most accurate commercial
imaging satellite. In addition to our imagery collection
capacities, we are a global leader in the creation of enhanced
satellite imagery information products and services. We operate
four high-resolution image processing and production facilities
which can process, manage, analyze and share imagery from any
commercial or government satellite. Our satellite and aerial
imagery products and services provide our customers with the
timely, and accurate location intelligence, enabling them to
analyze, monitor and map to their needs and demands. We serve a
growing global market that requires high-resolution imagery and
precision mapping products for applications such as national
defense and intelligence, online mapping, environmental
monitoring and resource management, energy exploration, asset
monitoring, urban planning, infrastructure planning and
monitoring, and disaster preparedness and emergency response. We
believe the combination of our highly accurate satellite and
aerial imaging assets, our high-resolution image processing and
production facilities, and our color digital imagery library
differentiates us from our competitors. This enables us to
deliver a comprehensive range of imaging products and services
to our diverse customer base.
|
|
(2)
|
Significant
Accounting Policies
|
Basis
of Presentation
The consolidated financial statements include the accounts of
GeoEye and all of our wholly-owned subsidiaries. All
intercompany transactions and balances have been eliminated in
consolidation.
Certain amounts in the prior period have been reclassified to
conform to the current period presentation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States,
or GAAP, requires management to make judgments, estimates, and
assumptions that affect the amount reported in the
Companys consolidated financial statements and
accompanying notes. Actual results could differ materially from
those estimates.
Revenue
Recognition
Our principal sources of revenue are from imaging services, the
sale of satellite imagery directly to end users or value-added
resellers, the provision of direct access to our satellites, and
associated ground processing technology upgrades and operations
and maintenance services. We also derive significant revenue
from value-added production services where we combine our images
with data and imagery from our own and other sources to create
sophisticated information products.
We record revenues from the sale of satellite imagery directly
to end users or value-added resellers based on the delivery of
the imagery.
Sales of direct access to our satellites ordinarily require us
to provide access over the term of multi-year sales contracts
under subscription-based arrangements. Accordingly, we recognize
revenues on such imagery contracts on a straight-line basis over
the delivery term of the contract. However, certain multi-year
sales contracts are based on minimum levels of access time with
adjustments based on usage. In addition to the sale of direct
satellite access, we may separately sell ground processing
technology upgrades and operations and maintenance services to a
59
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
customer. To determine revenue recognition for multiple element
arrangements, we consider whether individual customer
arrangement elements have value to the customer on a standalone
basis, whether there is objective and reliable evidence of fair
value of undelivered item(s) and, if the arrangement includes a
general right of return relative to the delivered item(s), and
delivery performance of the undelivered item(s) is considered
probable and substantially in the Companys control. If the
satellite access service is combined with the sale of ground
processing technology upgrades and operations and maintenance
services and the requirements for separate revenue recognition
are not met, we recognize revenues on a straight line basis over
the combined delivery term of the services.
Deferred revenue represents receipts in advance of the delivery
of imagery or services. Revenue for other services is recognized
as services are performed. In addition, cost-share amounts
received from the U.S. Government are recorded as deferred
revenue when received and recognized on a straight-line basis
over the useful life of the satellite.
Revenue is recognized on contracts to provide value-added
production services using the
percentage-of-completion
method. Revenue is recognized under different acceptable
alternatives of the
percentage-of-completion
method depending on the terms of the underlying contract, which
include input measures based on costs and efforts expended or
output measures based on units of delivery or completion of
contractual milestones. Costs associated with products not yet
delivered at year end are recorded as work in progress. Costs of
$1.8 million were recorded in work in progress at
December 31, 2009. Revenues recognized in advance of
becoming billable are recorded as unbilled receivables. Such
amounts generally do not become billable until after the
products have been completed and delivered. Total unbilled
accounts receivable were $1.6 million and $1.1 million
at December 31, 2009 and 2008, respectively. To the extent
that estimated costs of completion are adjusted, revenue and
profit recognized from a particular contract will be effected in
the period of the adjustment. Anticipated contract losses are
recognized as they become known. Losses recognized during 2009
were immaterial.
Accounts receivable are stated at amounts due from customers and
primarily include international customers and
U.S. Government customers. Allowances for doubtful accounts
receivable balances are recorded when circumstances indicate
that collection is doubtful for particular accounts receivable
or for all probable losses of accounts receivable not
specifically identified. Management estimates such allowances
based on historical evidence such as amounts that are subject to
risk. Accounts receivable are written off if reasonable
collection efforts are not successful. The changes in our
allowance for doubtful accounts are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
End of
|
|
Allowances for Doubtful Accounts
|
|
Period
|
|
|
Operations
|
|
|
Write-Offs
|
|
|
Acquisitions
|
|
|
Period
|
|
|
Year ended December 31, 2007
|
|
$
|
610
|
|
|
|
233
|
|
|
|
(105
|
)
|
|
|
|
|
|
$
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
$
|
738
|
|
|
|
183
|
|
|
|
(183
|
)
|
|
|
|
|
|
$
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
$
|
738
|
|
|
|
194
|
|
|
|
(9
|
)
|
|
|
|
|
|
$
|
923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based
Compensation
The Company accounts for stock-based compensation to employees
and directors based on the estimated fair value of the award at
the grant date, and the associated expense, net of estimated
forfeitures, is recognized ratably over the requisite service
period, which is generally the maximum vesting period of the
award. Further information regarding stock-based compensation
can be found in Note 14, Stock Incentive Plans.
Business
Combinations
We account for business combinations by recognizing the tangible
and separately identifiable intangible assets that were acquired
and liabilities that were assumed at their fair value at the
date of acquisition with the excess of the purchase price over
the fair value of assets acquired and liabilities assumed
recorded as goodwill.
60
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Cash Equivalents
We consider all highly liquid investments with maturities of
three months or less at the date of acquisition to be cash
equivalents. These investments generally consist of money market
investments.
Restricted
Cash
The Company is party to irrevocable standby letters of credit,
in connection with contracts between GeoEye and various
customers in the ordinary course of business to serve as
performance obligation guarantees. As of December 31, 2009,
the Company had $17.6 million classified as restricted cash
as a result of these irrevocable standby letters of credit.
Approximately $3.9 million is available within one year and
is classified as current and the remaining $13.7 million is
available quarterly through 2014.
In connection with the issuance of the 2015 Notes during the
fourth quarter of 2009, the Company deposited $47.8 million
of the net proceeds into a restricted cash account. These
restricted proceeds are only available to finance a portion of
the costs of constructing a new high-resolution satellite. For
purposes of the statement of cash flows, this transfer to
restricted cash has been presented in investing activities as it
was required for the procurement and construction of our next
satellite. In addition, as of December 31, 2009,
$0.5 million of cash was escrowed and classified as
restricted cash until January 22, 2010 at which time the
remaining outstanding 2012 Notes were paid in full. As of
December 31, 2009, the Company had $48.3 million
classified as restricted cash as a result of the debt offering.
Concentrations
of Credit Risk
The Companys cash and cash equivalents are placed in or
with various financial institutions. We have not experienced
losses on such accounts and do not believe we have any
significant risk in this area.
Much of the Companys revenues are generated through
contracts with the U.S. Government. U.S. Government
agencies may terminate or suspend their contracts at any time,
with or without cause, or may change their policies, priorities
or funding levels by reducing agency or program budgets or by
imposing budgetary constraints. If a U.S. Government agency
terminates or suspends any of its contracts with the Company, or
changes its policies, priorities, or funding levels, these
actions could have a material adverse effect on the business,
financial condition and results of operations. Imagery contracts
with international customers generally are not cancelable
pursuant to the terms of such contracts.
Satellites,
Related Ground Systems and Property, Plant and
Equipment
Satellites and related ground systems, property and equipment
are recorded at cost. The cost of our satellites includes
capitalized interest cost incurred during the construction and
development period. In addition, capitalized costs of our
satellite and related ground systems include internal direct
labor costs incurred in the construction and development, as
well as depreciation costs related to assets which support the
construction and development of our satellite and related ground
systems. We also capitalize certain internal and external
software development costs incurred to develop software for
internal use. Costs of major enhancements to internal use
software are capitalized while routine maintenance of existing
software is charged to expense as incurred.
While under construction, the costs of our satellites are
capitalized during the construction phase, assuming the eventual
successful launch and in-orbit operation of the satellite. The
portion of any insurance premiums associated with the insurance
coverage of the launch and in-orbit commissioning period prior
to a satellite reaching start of commercial operations, are
capitalized in the original cost of the satellite and are
amortized over the estimated life of the asset. Ground systems
are placed into service when they are ready for their intended
use. If a satellite were to fail during launch or while
in-orbit, the resulting loss would be charged to expense in the
period in which the loss
61
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
occurs. The amount of any such loss would be reduced to the
extent of insurance proceeds received as a result of the launch
or in-orbit failure.
Depreciation and amortization are provided using the
straight-line method as follows:
|
|
|
Asset
|
|
Estimated Useful Life
|
|
Buildings
|
|
15 to 40 years
|
Furniture, computers and equipment
|
|
3 to 7 years
|
Leasehold improvements
|
|
Shorter of estimated useful life or lease term, generally 3 to
7 years
|
Vehicles
|
|
5 years
|
Airplanes
|
|
15 years
|
Ground systems
|
|
8 years
|
Satellites
|
|
9 years
|
Satellite
Insurance
We currently maintain in-orbit insurance policies covering our
GeoEye-1 and IKONOS satellites in the amount of
$250 million and $20 million, respectively, as of
December 31, 2009. We capitalize the portion of the
premiums associated with the insurance coverage of the launch
and in-orbit commissioning period of our commercial satellites.
Accordingly, prior to the start of GeoEye-1s commercial
operations, we capitalized a portion of insurance premiums in
the cost of the satellite that will be amortized over the
estimated life of GeoEye-1, which is nine years. Following
launch and in-orbit commissioning, insurance premium amounts
related to in-orbit operations are charged to expense ratably
over the related policy periods.
Goodwill
and Intangible Assets
We record as goodwill the excess of purchase price over the fair
value of the identifiable net assets acquired. The determination
of fair value of the identifiable net assets acquired was
determined based upon a third party valuation and evaluation of
other information. Goodwill is not amortized but is tested on an
annual basis for impairment in the fourth quarter and whenever
events and changes in circumstances suggest that the carrying
amount may not be fully recoverable.
Intangible assets arising from business combinations are
initially recorded at fair value. We amortize intangible assets
with definitive lives on a straight-line basis over their
estimated useful lives, which are generally three to ten years.
We review for impairment when events or changes in circumstances
indicate that the carrying amount of such assets may not be
recoverable.
Impairment
of Long-Lived Assets
We review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an
asset may not be fully recoverable or that the useful lives of
these assets are no longer appropriate. Impairment losses are
recognized when the sum of expected undiscounted net future cash
flows is less than the carrying value of the assets. The amount
of the impairment is measured as the difference between the
assets estimated fair value and its carrying value. Fair
market value is determined primarily using the projected future
cash flows.
Derivative
Instruments and Hedging Activities
We use derivative financial instruments to manage our exposure
to fluctuations in interest rates on our long-term debt. We do
not hold or issue derivative financial instruments for trading
or speculative purposes. We account for interest rate swaps by
recognizing all derivative financial instruments on the
consolidated balance sheet at fair value
62
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and for those derivative financial instruments not designated as
cash flow hedges, we mark these contracts to market value each
period and record the gain or loss in the consolidated statement
of operations in interest expense, net.
Advertising
Costs
We recognize advertising costs as incurred which have
historically not been significant. Advertising costs were
$0.6 million, $0.6 million and $0.3 million for
the years ended December 31, 2009, 2008, and 2007
respectively. These costs are included in selling, general and
administrative expenses in our consolidated statement of
operations.
Research
and Development Costs
We record as research and development expense all internal and
external services and supplies costs incurred in the development
of the new information services business. The Company incurred
$1.4 million in research and development costs for the year
ended December 31, 2009. Research and development costs
were not significant for the years ended December 31, 2008
and 2007. Any research and development expenses incurred are
included in selling, general and administrative expenses in our
consolidated statement of operations.
Income
Taxes
The provision for income taxes is computed using the asset and
liability method under which deferred tax assets and liabilities
are determined based on the differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to be
applied to taxable income in the years in which those temporary
differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The
deferred tax assets are reviewed periodically for recoverability
and valuation allowances are provided as necessary.
Effective January 1, 2007, we adopted the new accounting
guidance issued by the FASB on accounting for uncertain tax
positions and have elected to record any applicable interest and
penalty expenses related to uncertain tax positions as part of
the provision for income taxes. The guidance provides a
comprehensive model for how a company should recognize, measure,
present and disclose in its financial statements uncertain tax
positions that the company has taken or expects to take on a tax
return.
Recent
and Pending Accounting Pronouncements
In April 2009, the FASB issued guidance on financial
instruments, which amends prior authoritative guidance to
require disclosures about fair value of financial instruments in
interim financial statements as well as in annual financial
statements and also amends prior guidance to require those
disclosures in all interim financial statements. The adoption of
the updated guidance did not have an effect on the
Companys consolidated results of operations, financial
condition or cash flows.
In June 2009, the FASB issued the FASB Accounting Standards
Codification (ASC) and identified the ASC as the
authoritative source of generally accepted accounting principles
in the United States. Rules and interpretive releases of the SEC
under federal securities laws are also sources of authoritative
GAAP for SEC registrants. The changes to the GAAP hierarchy did
not result in any accounting changes.
In August 2009, the FASB revised its guidance related to fair
value measurements and disclosures for the fair value
measurement of liabilities. The revised guidance provides
clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain
techniques. The revised guidance also clarifies that when
estimating the fair value of a liability, a reporting entity is
not required to include a separate input or adjustment to other
inputs relating to the existence of a restriction that prevents
the transfer of a liability. The revised guidance also clarifies
that both a quoted price in an active market for the identical
liability at the measurement date and the quoted price for the
63
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
identical liability when traded as an asset in an active market
when no adjustments to the quote price of the asset are required
are Level 1 fair value measurements. The adoption of the
updated guidance did not have an effect on the Companys
consolidated results of operations, financial condition or cash
flow.
In October 2009, the FASB issued revised guidance on revenue
from multiple deliverable arrangements including principles and
application guidance on whether multiple deliverables exist, how
the arrangement should be separated and the allocation of the
consideration. Additionally, this revised guidance requires an
entity to allocate revenue in multiple-element arrangements
using estimated selling prices of deliverables if
vendor-specific or other third party evidence of value is not
available. The new guidance is to be applied on a prospective
basis for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15,
2010, with earlier adoption permitted. We are currently
evaluating the impact of this accounting guidance and do not
expect any impact on our consolidated financial statements.
In January 2010, the FASB issued new guidance that require new
disclosures for fair value measurements and provide
clarification for existing disclosures requirements. More
specifically, it requires reporting entities to 1) disclose
separately the amount of significant transfers into and out of
Level 1 and Level 2 fair-value measurements and to
describe the reasons for the transfers and 2) provide
information on purchases, sales, issuances and settlements on a
gross basis rather than net in the reconciliation of
Level 3 fair-value measurements. This update is effective
for interim and annual reporting periods beginning after
December 15, 2009 except for the Level 3 fair-value
measurements disclosures that are effective for fiscal years
beginning after December 15, 2010. We do not expect the
adoption of this update to materially expand our consolidated
financial statement footnote disclosures.
The U.S. Government, through the National
Geospatial-Intelligence Agency, or NGA, announced in March 2003
that it intended to support, through the NextView program, the
continued development of the commercial satellite imagery
industry through contracts to support the engineering,
construction and launch of the next generation of imagery
satellites by two providers. Under the NextView program, GeoEye
constructed a new satellite, GeoEye-1. GeoEye-1 was launched in
September 2008 and started commercial operations and obtained
certification from NGA in February 2009, at which point the
satellite commenced full operations. Total final capitalized
costs (including financing and launch insurance costs) of the
GeoEye-1 satellite and related ground systems incurred was
$480.8 million.
Under the NextView contract, NGA agreed to support the project
with a cost share totaling approximately $237.0 million
spread out over the course of the project development and
subject to various milestones. By March 19, 2009, NGA had
paid the Company its cost share obligation in full. GeoEye had
deferred recognition of the cost share amounts from NGA as
revenue until GeoEye-1s in-service date in February 2009.
The Company recognizes this revenue on a straight-line basis
over the nine-year depreciable operational life of the
satellite. The Company achieved deployment of GeoEye-1 for less
than the maximum cost specified in the contract with NGA. As a
result, GeoEye has credited a portion of NGAs cost share
payments, approximately $20.0 million, against future
imagery purchase obligations during 2009, all of which was
applied against NGAs purchase with no outstanding balance
as of December 31, 2009.
In December 2008, the Company finalized a Service
Level Agreement modification, or SLA, to the NextView
contract with NGA. On September 1, 2009, the NGA extended
the SLA through March 31, 2010. On March 1, 2010, NGA
modified the SLA to provide the option to extend the term of the
SLA beyond March 31, 2010. The SLA has been extended
through June 30, 2010, followed by six additional one-month
option periods, with the last option period expiring on
December 31, 2010. Under the SLA, GeoEye began delivering
imagery to NGA in the first quarter of 2009 and recognized
$124.9 million of imagery revenue during the year ended
December 31, 2009.
64
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2009 and 2008, GeoEye received new U.S. Government
awards totaling more than $37.9 million and
$34.5 million, respectively, to supply the NGA with a
significant amount of imagery-based geospatial-intelligence
products. These awards are in addition to the Service
Level Agreement modification to the NextView contract and
are expected to be completed during 2010. Under these awards,
the Company recognized $10.4 million and $9.6 million
of imagery revenue during the years ended December 31, 2009
and 2008, respectively.
|
|
(4)
|
Comprehensive
Income (Loss)
|
For the years ended December 31, 2009, 2008 and 2007, there
were no material differences between net income as reported and
comprehensive income.
Basic earnings per share (EPS) are computed based on the
weighted-average number of shares of our common stock
outstanding. Diluted EPS is computed on the weighted-average
number of shares of our common stock outstanding and other
dilutive securities.
The following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator for basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
32,061
|
|
|
$
|
26,615
|
|
|
$
|
28,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used to compute basic EPS
|
|
|
18,753
|
|
|
|
17,983
|
|
|
|
17,585
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
1,710
|
|
|
|
1,344
|
|
|
|
2,005
|
|
Stock options
|
|
|
149
|
|
|
|
191
|
|
|
|
192
|
|
Restricted stock
|
|
|
12
|
|
|
|
|
|
|
|
|
|
Deferred stock units
|
|
|
55
|
|
|
|
38
|
|
|
|
19
|
|
Employee stock purchase plan shares
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding and dilutive securities used
to compute diluted EPS
|
|
|
20,685
|
|
|
|
19,558
|
|
|
|
19,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding stock options to purchase 165,278, 110,392 and 6,000
of our common stock for 2009, 2008 and 2007, respectively, were
excluded from the computation of dilutive EPS because the effect
would have been anti-dilutive. See Note 14, Stock
Incentive Plans, for information on option exercise prices
and expiration dates and restricted stock units.
65
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(6)
|
Property,
Plant and Equipment
|
Property, plant and equipment consisted of the following at
December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land and buildings
|
|
$
|
7,239
|
|
|
$
|
6,462
|
|
Furniture, computers and equipment
|
|
|
33,123
|
|
|
|
25,458
|
|
Leasehold improvements
|
|
|
3,342
|
|
|
|
1,754
|
|
Vehicles and airplanes
|
|
|
2,096
|
|
|
|
1,815
|
|
Accumulated depreciation
|
|
|
(20,419
|
)
|
|
|
(12,741
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
25,381
|
|
|
$
|
22,748
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $7.7 million, $5.9 million
and $3.4 million for the years ended December 31,
2009, 2008 and 2007, respectively.
|
|
(7)
|
Satellites
and Related Ground Systems
|
Satellites and related ground systems consisted of the following
at December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Satellites
|
|
$
|
416,658
|
|
|
$
|
12,220
|
|
Ground systems
|
|
|
83,728
|
|
|
|
7,359
|
|
Accumulated depreciation
|
|
|
(64,827
|
)
|
|
|
(17,988
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
435,559
|
|
|
|
1,591
|
|
Satellites and ground systems in process
|
|
|
69,476
|
|
|
|
486,554
|
|
|
|
|
|
|
|
|
|
|
Satellites and related ground systems, net
|
|
$
|
505,035
|
|
|
$
|
488,145
|
|
|
|
|
|
|
|
|
|
|
Included in satellites and ground systems in process are total
capitalized costs related to the Companys development
efforts to build our next earth imaging satellite, GeoEye-2 as
of December 31, 2009. As of December 31, 2008, the
satellites and ground systems in process costs primarily related
to construction costs of our GeoEye-1 satellite which was placed
in service during February 2009.
The Company maintains insurance policies for GeoEye-1 with both
full coverage and total-loss-only coverage in compliance with
our indenture. As of December 31, 2009, we carried
$250.0 million in-orbit insurance on GeoEye-1, comprised in
part by $187.0 million of full coverage to be paid if
GeoEye-1s capabilities become impaired as measured against
a set of specifications, of such coverage, $20.0 million
expires on September 6, 2010, $117.0 million expires
December 1, 2010 and $50.0 million expires
September 6, 2011. We also carry $63.0 million of
insurance in the event of a total loss of the satellite which
expires December 1, 2010.
Our IKONOS satellite was fully depreciated in June 2008. The
IKONOS satellite is insured for $20.0 million of in-orbit
coverage which expires on December 1, 2010. We currently
expect to continue commercial operations with IKONOS through at
least 2011 based on a study that was completed in August 2008
and updated in January 2010 by the IKONOS manufacturer, which
resulted in a revised life expectancy for IKONOS.
On March 4, 2007, our OrbView-3 satellite began to
experience technical problems which affected its image quality.
We determined the problem was due to a specific unit within the
camera electronics. We subsequently announced that the satellite
had been declared permanently out of service and recorded a loss
of $36.1 million in the first quarter of 2007. This loss
consisted of a $35.8 million impairment charge for the
remaining book value of the satellite as well as a
$3.9 million charge for the related ground system hardware
and software. These amounts were
66
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
offset by the write-off of the remaining on-orbit incentive
obligation payable to Orbital Sciences Corporation, the
manufacturer of the satellite, of $3.7 million.
The OrbView-3 satellite was insured for $40.0 million. We
submitted a $40.0 million insurance claim on June 8,
2007 and received the proceeds during the third quarter of 2007.
Upon receipt of the proceeds, we wrote off approximately
$1.0 million of remaining prepaid insurance premiums
resulting in a net gain of $39.1 million which was recorded
in the third quarter of 2007.
Total satellite and related ground systems depreciation expense
was $46.8 million, $2.7 million and $10.4 million
for the years ended December 31, 2009, 2008 and 2007,
respectively.
|
|
(8)
|
Goodwill
and Intangible Assets
|
The carrying amount of goodwill was $34.3 million for the
years ended December 31, 2009 and 2008, respectively. We
performed our annual impairment test and concluded that goodwill
was not impaired as of the test date.
Intangible assets consisted of the following at
December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Weighted
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Average
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Life
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
Contracts/customer relationships
|
|
9.2 years
|
|
$
|
18,971
|
|
|
$
|
(8,149
|
)
|
|
$
|
10,822
|
|
|
$
|
18,971
|
|
|
$
|
(6,057
|
)
|
|
$
|
12,914
|
|
Trade names
|
|
5.4 years
|
|
|
2,093
|
|
|
|
(1,406
|
)
|
|
|
687
|
|
|
|
2,093
|
|
|
|
(1,028
|
)
|
|
|
1,065
|
|
Patents and other
|
|
5.2 years
|
|
|
3,396
|
|
|
|
(3,220
|
)
|
|
|
176
|
|
|
|
3,396
|
|
|
|
(3,040
|
)
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
$
|
24,460
|
|
|
$
|
(12,775
|
)
|
|
$
|
11,685
|
|
|
$
|
24,460
|
|
|
$
|
(10,125
|
)
|
|
$
|
14,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense related to intangible assets was
$2.7 million for each of the years ended December 31,
2009, 2008 and 2007. Estimated future amortization expense
related to intangible assets at December 31, 2009 is as
follows (in thousands):
|
|
|
|
|
For the Year Ending December 31,
|
|
|
|
|
2010
|
|
|
2,642
|
|
2011
|
|
|
2,241
|
|
2012
|
|
|
2,229
|
|
2013
|
|
|
2,121
|
|
2014
|
|
|
2,093
|
|
Thereafter
|
|
|
359
|
|
|
|
|
|
|
Total expected future annual amortization
|
|
$
|
11,685
|
|
|
|
|
|
|
67
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We file a consolidated U.S. federal income tax return with
our wholly-owned subsidiaries. The components of our income tax
provision (benefit) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current (benefit) provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(19,893
|
)
|
|
$
|
6,174
|
|
|
$
|
43,980
|
|
State
|
|
|
(3,317
|
)
|
|
|
563
|
|
|
|
5,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current (benefit) provision
|
|
|
(23,210
|
)
|
|
|
6,737
|
|
|
|
49,806
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,296
|
|
|
|
(21,193
|
)
|
|
|
(8,809
|
)
|
State
|
|
|
2,341
|
|
|
|
(1,811
|
)
|
|
|
(1,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision (benefit)
|
|
|
5,637
|
|
|
|
(23,004
|
)
|
|
|
(10,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit) provision for income taxes
|
|
$
|
(17,573
|
)
|
|
$
|
(16,267
|
)
|
|
$
|
39,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The differences between the tax provision calculated at the
statutory U.S. income tax rate and the actual tax provision
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal tax at statutory rate
|
|
$
|
5,071
|
|
|
$
|
3,622
|
|
|
$
|
23,802
|
|
State income taxes, net
|
|
|
295
|
|
|
|
212
|
|
|
|
1,567
|
|
Change in valuation allowance
|
|
|
121
|
|
|
|
568
|
|
|
|
|
|
Change in state effective rate
|
|
|
(138
|
)
|
|
|
2,967
|
|
|
|
|
|
Credits
|
|
|
(515
|
)
|
|
|
|
|
|
|
|
|
Restored net operating losses
|
|
|
(21,419
|
)
|
|
|
|
|
|
|
|
|
Uncertain tax position adjustment
|
|
|
(1,089
|
)
|
|
|
(24,133
|
)
|
|
|
14,022
|
|
IRS interest, net of tax benefit
|
|
|
|
|
|
|
504
|
|
|
|
|
|
Permanent items and other
|
|
|
101
|
|
|
|
(7
|
)
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit) provision for income taxes
|
|
$
|
(17,573
|
)
|
|
$
|
(16,267
|
)
|
|
$
|
39,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net deferred tax (liabilities) assets were as
follows at December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
74,745
|
|
|
$
|
84,251
|
|
Accruals and reserves
|
|
|
3,622
|
|
|
|
2,280
|
|
Goodwill and intangibles
|
|
|
511
|
|
|
|
80
|
|
Net operating loss carryforwards
|
|
|
21,036
|
|
|
|
|
|
Credit carryforwards
|
|
|
278
|
|
|
|
|
|
Other
|
|
|
3,375
|
|
|
|
2,302
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
103,567
|
|
|
|
88,913
|
|
Less: valuation allowance
|
|
|
(689
|
)
|
|
|
(568
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
102,878
|
|
|
|
88,345
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
IRC 481(a) adjustment NextView contract
|
|
|
(36,906
|
)
|
|
|
(54,011
|
)
|
Property, plant and equipment
|
|
|
(72,794
|
)
|
|
|
(9,657
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(109,700
|
)
|
|
|
(63,668
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liabilities) assets
|
|
$
|
(6,822
|
)
|
|
$
|
24,677
|
|
|
|
|
|
|
|
|
|
|
On October 15, 2009, the Internal Revenue Service approved
our ruling request regarding an ownership change to effectively
allow us to recover $57.6 million of previously limited net
operating loss generated prior to November 2004. We plan to
amend prior year income tax returns resulting in a tax
receivable of approximately $12.4 million and the remaining
$24.1 million carryforward balance has been recorded as an
$8.9 million deferred tax asset. The utilization of the
deferred tax asset related to the restored net operating loss
carryforward is limited to approximately $4.0 million per
year as part of a Section 382 ownership change.
Additionally, we plan to carryback our current year loss for tax
purposes and adjust the effect of prior year restatements,
resulting in an income tax receivable of approximately
$27.3 million and the remaining $31.1 million
carryforward balance has been recorded as an $11.8 million
deferred tax asset. The total federal and state net operating
loss carryforward, is approximately $55.0 million. The
federal net operating loss carryforward will expire between tax
years 2021 and 2029 and the state net operating loss
carryforward from various jurisdictions will expire between tax
years 2017 and 2029.
The statutes of limitations for income tax returns in the
U.S. federal jurisdiction and various state jurisdictions
for tax years 2005 through 2008 have not expired and thus these
years remain subject to examination by the IRS and state
jurisdictions. Significant state jurisdictions that remain
subject to examination include Colorado, Virginia and Missouri
for tax years 2005 through 2008. For tax years that we are no
longer subject to federal, state and local tax examinations by
tax authorities, the tax attribute carryforwards generated from
these years may still be adjusted upon examination by tax
authorities.
During 2008, we filed an application for change in method of tax
accounting for the NextView cost-share payments with the
Internal Revenue Service. As a result of the filing, we will
recognize a revenue adjustment of $48.5 million annually
until tax year 2011.
Deferred tax assets are reduced by a valuation allowance when,
in the opinion of our management, it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. In evaluating our ability to realize deferred tax
assets, we consider all available positive and negative
evidence. Accordingly, we consider past operating results,
forecasts of earnings and taxable income, the reversal of
temporary differences and any prudent
69
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and feasible tax planning strategies. Management believes the
results of future operations will generate sufficient taxable
income to realize the deferred tax asset. The increase in the
valuation allowance during the year ended December 31,
2009, related mainly to the impact of state tax rates on
deferred items.
We recognize accrued interest and penalties related to
unrecognized tax benefits as a component of income tax expense
as well as any potential tax liability arising from these
positions. In 2009, we reversed penalties and interest totaling
$1.1 million recorded as an income tax benefit. Penalties
and interest amounts recorded as income tax expense, totaled
$0.1 million in 2009, $5.5 million in 2008 and
$14.0 million in 2007. The total liability for unrecognized
tax benefits for 2009 and 2008 was $0.2 million and
$1.4 million, respectively.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
1,396
|
|
|
$
|
93,081
|
|
Additions for tax positions in prior years
|
|
|
123
|
|
|
|
5,467
|
|
Settlements
|
|
|
(1,271
|
)
|
|
|
(97,152
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
248
|
|
|
$
|
1,396
|
|
|
|
|
|
|
|
|
|
|
On October 9, 2009, the Company issued $400.0 million
aggregate principal, net of original issue discount of
$20.0 million, of 9.625% Senior Secured Notes due
October 1, 2015, or 2015 Notes. Interest is payable on the
2015 Notes semi-annually in arrears on April 1 and October 1 of
each year. At any time on or after October 1, 2013, the
Company may on one or more occasions redeem all or part of the
2015 Notes at 104.813% of principal for the subsequent
12-month
period and at 100% of principal on October 1, 2014 and
thereafter.
The net proceeds of the 2015 Notes offering were used to fund
the repurchase of $249.5 million in outstanding aggregate
principal, or approximately 99.8%, of the Companys
outstanding $250.0 million 2012 Notes as part of a tender
offer to purchase the 2012 Notes which expired on
October 8, 2009. Under the terms of the tender offer for
the 2015 Notes, $249.5 million of the Notes were tendered
and the holders received $1,070 per $1,000 in principal amount
for the 2012 Notes. Approximately $0.5 million of the 2012
Notes were not tendered and remained outstanding until
January 22, 2010 at which time the Company exercised its
rights to discharge these final 2012 Notes and the holders
received $1,040 per $1,000 in principal amount of their 2012
Notes. With the issuance of the 2015 Notes during the fourth
quarter of 2009, the Company recorded an early extinguishment of
debt expense representing the remaining unamortized prepaid
financing costs, unamortized discount, and tender premium
related to the 2012 Notes totaling approximately
$27.1 million.
The Company will use a portion of the net proceeds for general
corporate purposes, which may include funding a portion of the
costs of constructing a new high-resolution satellite. In
addition, the Company deposited $47.8 million of the net
proceeds of the 2015 Notes into a restricted account. These
restricted proceeds are held by a trustee for the benefit of the
2015 Note holders and are only available to the Company or one
of its subsidiaries to finance the procurement, construction
and / or launch of one or more satellites after the
October 9, 2009 issue date provided that at such time of
the withdrawal from the restricted account, the Company or one
of its subsidiaries will have been selected by NGA for an award
with respect to a new satellite. As of December 31, 2009,
the net proceeds of $47.8 million is included as restricted
cash in the consolidated balance sheet.
The 2015 Notes are unconditionally guaranteed, jointly and
severally, on a senior secured basis, by all existing and future
domestic restricted subsidiaries of the Company. The 2015 Notes
and the guarantees are secured by a lien on substantially all of
the assets of the Company and the guarantors.
The full principal obligation amount of $400.0 million will
be paid upon the maturity of the 2015 Notes in October 2015.
70
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The indenture governing our 2015 Notes contains a number of
restrictions and covenants that, among other things limit our
ability to incur additional indebtedness only if, after giving
pro forma effect to that incurrence, our ratio of adjusted cash
EBITDA to total consolidated debt for the four fiscal quarters
ending as of the most recent date for which internal financial
statements are available meet certain levels or we have
availability to incur such indebtedness under certain baskets in
the indenture. Adjusted EBITDA is defined as net income (loss)
before depreciation and amortization expenses, net interest
income or expense, loss from early extinguishment of debt,
income tax expense (benefit), non-cash loss on inventory and
investment impairments and non-cash stock based compensation
expense. Adjusted cash EBITDA is defined as Adjusted EBITDA less
amortization of deferred cost-share amounts related to the
NextView agreement with NGA. Under the instruments governing the
2015 Notes, except for certain provisions allowed under the
indenture, we are prohibited from paying dividends until the
principal amount of all such 2015 Notes have been repaid.
In connection with the issuance of the 2015 Notes, we entered
into a registration rights agreement with the initial purchasers
of the notes in which we agreed to file a registration statement
with the SEC to permit the holders to exchange or resell the
notes. We agreed to use reasonable best efforts to file such
registration statement on or prior to July 6, 2010, and
consummate any exchange offer within 60 days after the
effective date of the registration statement, but not later than
October 29, 2010, and have the registration statement
remain effective for 180 days after the last date of the
exchange of the notes. In the event that the registration
statement is not filed or declared effective or the exchange
offer is not consummated within these deadlines, the agreement
provides that additional interest would accrue on the 2015 Notes
at a rate of 0.25% per annum for the first
90-day
period and an additional 0.25% per annum with respect to each
subsequent
90-day
period, up to a maximum increase of 1% per annum. We do not
believe that it is probable that we will not comply with the
registration rights agreement. Therefore, no liability has been
recorded for the additional interest that may be required in the
event of non-compliance.
On June 29, 2005, we issued $250.0 million of Senior
Secured Floating Rate Notes due July 1, 2012 (2012 Notes).
The purpose of the offering was to (1) contribute the
proceeds to the capital of our wholly-owned subsidiary, ORBIMAGE
Inc., established to hold the construction costs for the
GeoEye-1 satellite, (2) to mandatorily redeem all of the
outstanding Senior Subordinated Notes of ORBIMAGE Inc. that were
to mature in 2008 and (3) for general working capital
purposes. The 2012 Notes were issued at a discount of 2.0% of
total principal. Consequently, we received $245.0 million
of cash proceeds at closing. The 2012 Notes bear interest at a
rate per annum, reset semi-annually, equal to the greater of
six-month LIBOR or 3.0% plus a margin of 9.5%. Total interest
expense related to the Notes for the years ended
December 31, 2009, 2008 and 2007 was $26.9 million,
$36.4 million and $39.4 million, respectively. As of
December 31, 2009 and 2008, the carrying value of the 2012
Notes was $0.5 million and $247.5 million,
respectively.
In connection with the issuance of the 2012 notes, the Company
entered into an interest rate swap arrangement in June 2005
pursuant to which the effective interest rate under the Notes
was fixed at 13.75% through July 1, 2008. We recorded a
realized loss of $0.5 million, and unrealized losses of
$1.4 million for the year ended December 31, 2008 and
$3.1 million for the year ended December 31, 2007. All
unrealized and realized gains and losses are included in
interest expense, net in our consolidated statement of
operations. The interest rate swap agreement expired on
July 1, 2008.
In February 2008, we entered into a $250.0 million interest
rate cap agreement that intended to protect us from rises in
interest rates by limiting our interest rate exposure to the
three-month LIBOR with a cap of 4.0%. The cap agreement cost was
$0.5 million and is effective July 1, 2008 and was
outstanding until January 4, 2010 when we paid off the
remaining balance of the 2012 Notes. For the year ended
December 31, 2008, we recorded an unrealized loss of
$0.5 million which is included in interest expense in our
consolidated statement of operations. As of December 31,
2009 the fair value of the interest rate cap was zero.
On January 10, 2006, we completed the acquisition of Space
Imaging pursuant to the terms of the Purchase Agreement. The
acquisition was financed mainly through the incurrence of
$50.0 million of indebtedness (SI Credit Agreement). We
repaid the remaining principal of $15.4 million on
February 2, 2007. The interest rate per annum
71
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
applicable to the loans was 11.0% in 2007. Interest expense
recognized in 2007 also included remaining unamortized prepaid
financing costs of $1.0 million and $0.3 million of
amortization of the debt discount that was outstanding at
December 31, 2006.
As additional consideration to the lenders under the SI Credit
Agreement for making the loans thereunder, we issued to the
lenders warrants to purchase 500,000 shares of our common
stock at an exercise price of $15.00 per share. During 2009,
115,385 warrants were exercised on January 8, 2009. The
warrants were valued at approximately $1.6 million at the
date of issuance. The assumptions used to determine the value of
the warrants at issuance were volatility of 62.53%, dividend
yield of 0%, risk-free interest rate of 4.36% and expected term
of 3 years. These warrants were recorded as additional paid
in capital at issuance and were amortized over the term of the
debt.
The composition of interest expense, net is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Interest expense, net
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
|
Interest expense
|
|
$
|
36,183
|
|
|
$
|
38,844
|
|
|
$
|
42,478
|
|
Capitalized interest
|
|
|
(4,771
|
)
|
|
|
(22,657
|
)
|
|
|
(20,103
|
)
|
Interest income
|
|
|
(392
|
)
|
|
|
(4,735
|
)
|
|
|
(8,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
$
|
31,020
|
|
|
$
|
11,452
|
|
|
$
|
14,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11)
|
Commitments
and Contingencies
|
Contractual
Obligations
The following table summarizes our contractual cash obligations
at December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 and
|
|
|
|
|
Contractual Obligations
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations
|
|
$
|
497
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
400,000
|
|
|
$
|
400,497
|
|
Operating lease obligations
|
|
|
2,082
|
|
|
|
2,039
|
|
|
|
1,051
|
|
|
|
322
|
|
|
|
132
|
|
|
|
|
|
|
|
5,626
|
|
Interest expense on long-term debt(1)
|
|
|
38,500
|
|
|
|
38,500
|
|
|
|
38,500
|
|
|
|
38,500
|
|
|
|
38,500
|
|
|
|
32,083
|
|
|
|
224,583
|
|
Purchased obligations(2)
|
|
|
455
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
41,534
|
|
|
$
|
40,995
|
|
|
$
|
39,551
|
|
|
$
|
38,822
|
|
|
$
|
38,632
|
|
|
$
|
432,083
|
|
|
$
|
631,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents contractual interest payment obligations on the
$400.0 million outstanding principal balance of our Notes,
which bear interest at a rate per annum of 9.625% |
|
(2) |
|
Purchase obligations include all commitments to purchase goods
or services of either a fixed or minimum quantity that are
enforceable and legally binding on us that meet any of the
following criteria: (1) they are non-cancelable,
(2) we would incur a penalty if the agreement was
cancelled, or (3) we must make specified minimum payments
even if we do not take delivery of the contracted products or
services. If the obligation is non-cancelable, the entire value
of the contract is included in the table. If the obligation is
cancelable, but we would incur a penalty if cancelled, the
dollar amount of the pentaly is included as a purchase
obligation. If we can unilaterally terminate the agreement
simply by providing a certain number of days notice or by paying
a termination fee, we have included the amount of the
termination fee. As of December 31, 2009, purchase
obligations include ground system and communication services.
Contracts that can be unilaterally terminated without a penalty
have not been included. |
In addition to the above, the Company has entered into
commitments subsequent to December 31, 2009, totaling up to
approximately $59.2 million, primarily purchase
obligations, all of which expire in 2010.
72
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Operating
Leases
We have commitments for operating leases primarily relating to
equipment and office and operating facilities. These leases
contain escalation provisions for increases as a result of
increases in real estate taxes and operating expenses. Total
rental expense under these operating leases was
$2.2 million, $1.9 million and $1.4 million for
the years ended December 31, 2009, 2008 and 2007,
respectively.
Contingencies
GeoEye from time to time, may be party to various lawsuits,
legal proceedings and claims arising in the normal course of
business. The Company cannot predict the outcome of these
lawsuits, legal proceedings and claims with certainty.
Nevertheless, the Company believes that the outcome of any
existing or known threatened proceedings, even if determined
adversely, should not have a material adverse impact on the
Companys financial results, liquidity or operations.
|
|
(12)
|
Employee
Benefit Plan
|
The GeoEye Retirement Savings (Plan), a combination employee
savings plan and discretionary profit-sharing plan, covers most
GeoEye employees. The plan qualifies under section 401(k)
of the Internal Revenue Code (IRC). Under the plan,
participating employees may elect to voluntarily contribute on a
pre-tax basis between 1% and 100% of their salary up to the
annual maximum established by the IRC. Participating employees
may also elect to contribute on an after-tax basis between 1%
and 10% of their salary up to the annual maximum established by
the IRC. Participants are always 100% vested in their accounts.
Our matching contributions to the Plan are based on certain Plan
provisions and at the discretion of the Board of Directors.
Other than our matching obligations, profit sharing
contributions are discretionary. The matching annual
contribution expense was $1.1 million, $1.0 million
and $0.8 million for the years ended December 31,
2009, 2008 and 2007, respectively.
As of December 31, 2009 there were outstanding warrants to
purchase up to 1,834,296 shares of new common stock at an
exercise price of $10 per share. Of the outstanding warrants as
of December 31, 2009, 1,174,579 warrants were exercised
through March 11, 2010. The remaining 659,717 warrants
expire on March 25, 2010.
|
|
(14)
|
Stock
Incentive Plans
|
Employee
Stock Plans
We adopted an Employee Stock Purchase Plan (ESPP) on
July 1, 2008. The ESPP allows eligible employees to
purchase common stock at not less than 85% of the closing fair
market value of a share of the common stock on the purchase
date. The ESPP is considered to be compensatory as defined under
current FASB accounting guidance. The offering period under the
ESPP ran through December 31, 2009. Thereafter, unless
modified by the ESPP administrator, each subsequent offering
period will last six months and begin on January 1 and
July 1. The purchase price is established on each new
purchase date. Purchases are limited to 10% of each
employees eligible compensation and subject to certain IRS
restrictions. In general, all of our regular full-time employees
are eligible to participate in the ESPP. Of the
100,000 shares of common stock reserved for issuance under
the ESPP, 11,817 shares have been issued as of
December 31, 2009.
Stock
Incentive Plans
In September 2006, the stockholders approved the 2006 Omnibus
Stock and Performance Incentive Plan (2006 Plan), which provides
for the granting of a maximum of 1.7 million shares of the
companys common stock in the form of options, shares of
the companys common stock, rights to receive shares of the
companys common stock, cash or a combination of the
foregoing, including restricted stock, unrestricted stock, stock
units and restricted stock
73
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
units. The 2006 Plan also provides for cash or stock bonus
awards based on objective goals pre-established by the
Compensation Committee of the Board of Directors. No more than
1.0 million shares of common stock shall be available for
incentive stock awards. No more than 1.5 million shares of
common stock shall be available for stock awards. No employee
may be granted, in any one-year period, options or stock
appreciation rights that are exercisable for more than
200,000 shares of common stock awards covering more than
200,000 shares of common stock, or cash awards having a
value greater than $2.0 million. Non-employee directors may
not be granted, in any one-year period, options that are
exercisable for more than 20,000 shares of common stock or
stock awards covering or relating to more than
20,000 shares of common stock.
We accounted for our stock incentive plan using the modified
prospective method as of January 1, 2006. We recognize
stock-based compensation expense based on the estimated grant
date fair value over the requisite service period of the award.
During 2009, we recognized $2.4 million of stock-based
compensation expense and during 2008 and 2007, we recognized
$3.4 million and $2.1 million, respectively.
Stock-based compensation expense is included in direct costs of
revenue and selling, general and administrative expenses on the
consolidated statement of operations.
Stock
Options
Option awards are generally granted with an exercise price equal
to the market price of the companys stock at the date of
grant.
Valuation
Assumptions
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model. The
estimated forfeiture rate is based on the Companys
historical experience of actual forfeitures. Information
pertaining to stock options granted during the years ended
December 31, 2009, 2008 and 2007 and related assumptions
are noted in the following table:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Volatility
|
|
75.93% - 83.59%
|
|
50.89% - 66.83%
|
|
50.48% - 52.39%
|
Dividend yield
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
Risk-free interest rate
|
|
1.90% - 3.39%
|
|
1.83% - 3.84%
|
|
4.60% - 4.66%
|
Expected average life
|
|
5.22 - 6.25 years
|
|
6.25 - 6.33 years
|
|
5.25 - 6.25 years
|
Exercise price per option
|
|
$19.52 - $32.69
|
|
$15.46 - $25.98
|
|
$18.00 - $20.24
|
Weighted average fair value of options granted during the year
|
|
$15.84
|
|
$11.17
|
|
$9.72
|
Expected Dividend Yield. We have not issued
dividends in the past nor do we expect to issue dividends in the
future, as such, the dividend yield used was zero.
Expected Volatility. Expected volatilities are
based on historical closing prices of our common stock over a
period that we believe is representative of the expected future
volatility over the expected term. The options generally have
graded vesting over four years (25% of the options in each grant
vest annually) and the contractual term is either eight or ten
years.
Risk-free Interest Rate. The yield on actively
traded non-inflation indexed U.S. Treasury notes was used
to extrapolate an average risk-free interest rate based on the
expected term of the underlying grants.
Expected Term. The expected term of options
granted was determined under the simplified calculation provided
in Staff Accounting Bulletin (SAB) No. 107, as amended by
SAB No. 110. The Company uses the simplified
calculation due to the lack of historical exercise data to make
an estimate of the expected term. The
74
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
options had graded vesting over four years (25% of the options
in each grant vest annually) and the contractual term was eight
or ten years.
The following table summarizes stock option activity for the
year ended December 31, 2009 (in thousands, except
exercise price and contractual term data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average-
|
|
|
|
|
Weighted-
|
|
|
|
Remaining
|
|
|
Number
|
|
Average
|
|
Aggregate
|
|
Contractual
|
|
|
of
|
|
Exercise
|
|
Intrinsic
|
|
Term
|
|
|
Shares
|
|
Price
|
|
Value
|
|
(in Years)
|
|
Outstanding at January 1, 2009
|
|
|
635
|
|
|
$
|
15.21
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
201
|
|
|
|
21.71
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(87
|
)
|
|
|
11.99
|
|
|
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
|
(40
|
)
|
|
|
10.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2009
|
|
|
709
|
|
|
$
|
17.70
|
|
|
$
|
7,283
|
|
|
|
6.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
351
|
|
|
$
|
13.14
|
|
|
$
|
5,170
|
|
|
|
5.68
|
|
Vested and expected to vest at December 31, 2009
|
|
|
693
|
|
|
$
|
17.57
|
|
|
$
|
7,200
|
|
|
|
6.69
|
|
The intrinsic value of options exercised during 2009, 2008 and
2007 was $1.1 million, $0.2 million and
$1.4 million, respectively. As of December 31, 2009,
there was $3.5 million of total unrecognized compensation
costs related to nonvested share-based compensation arrangements
granted under the Plan. That cost, net of forfeitures, is
expected to be recognized over a weighted-average period of
2.69 years. The total fair value of shares vested during
the years ended December 31, 2009, 2008 and 2007, was
$1.0 million, $2.8 million, and $5.3 million,
respectively.
Restricted
Stock
In 2009, we granted a total of 19,601 shares of restricted
stock. This included (i) 4,101 shares of restricted
stock at grant prices of $19.52 and $18.39 to executive officers
in lieu of cash as part of their 2009 annual merit increases
(ii) 11,000 shares issued to new executive hires at
grant prices of $22.61, $25.32 and $25.12 and
(iii) 4,500 shares issued to an existing executive at
grant prices of $22.67 and $25.12.
A summary of the status of our nonvested shares as of
December 31, 2009, and changes during the year are
presented below (in thousands, except fair value price
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
No. of
|
|
Grant-Date
|
Nonvested Restricted Stock
|
|
Shares
|
|
Fair Value
|
|
Nonvested at January 1, 2009
|
|
|
80
|
|
|
$
|
19.81
|
|
Granted
|
|
|
20
|
|
|
|
22.85
|
|
Vested
|
|
|
(76
|
)
|
|
|
19.68
|
|
|
|
|
|
|
|
|
|
|
Nonvested restricted stock at December 31, 2009
|
|
|
24
|
|
|
$
|
22.72
|
|
|
|
|
|
|
|
|
|
|
There was $0.4 million of total unrecognized compensation
cost related to nonvested share-based compensation arrangements
granted under the Plan as of December 31, 2009. That cost
is expected to be recognized over a weighted-average period of
2.29 years. The total fair value of shares vested during
the years ended December 31, 2009, 2008 and 2007 was
$1.5 million, $0.2 million, and $1.0 million,
respectively.
75
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock Units
On May 5, 2009, we granted 36,529 restricted stock units
under the 2006 Plan to executive officers as part of a Long Term
Incentive Plan (LTIP). On June 15, 2009, we granted an
additional 3,956 restricted stock units to an executive officer
hire. Restricted stock units have both performance and service
requirements with vesting periods of three years. All units
granted vest, if at all, between 2010 and 2012 depending on
performance measured at the end of the agreement term, at which
time the vested units are converted into shares of common stock.
As of December 31, 2009, no units have vested. A summary of
the status of our nonvested shares as of December 31, 2009,
and changes during the year is presented below (in thousands,
except fair value price data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
No. of
|
|
Grant-Date
|
Nonvested Restricted Stock Units
|
|
Shares
|
|
Fair Value
|
|
Nonvested at January 1, 2009
|
|
|
85
|
|
|
$
|
17.76
|
|
Granted
|
|
|
41
|
|
|
|
26.14
|
|
Forfeited
|
|
|
(38
|
)
|
|
|
18.19
|
|
|
|
|
|
|
|
|
|
|
Nonvested restricted stock units at December 31, 2009
|
|
|
88
|
|
|
$
|
21.44
|
|
|
|
|
|
|
|
|
|
|
The fair value of each restricted stock unit award is calculated
using the share price at the date of grant. We recognize
compensation cost ratably over the requisite service period
based on the achievement of the performance condition and the
estimated expected payout each reporting period. As of
December 31, 2009, there was $1.0 million of total
unrecognized compensation cost related to the nonvested
restricted stock units. That cost is expected to be recognized
over a weighted-average period of 1.90 years.
Deferred
Stock Units
Under the current non-employee director compensation plan, each
January 1, non-employee directors receive annual grants of
deferred stock units valued at $50,000. Deferred stock units
will vest in two installments: at six months after grant and at
twelve months after grant. Deferred stock units will be settled
in shares of the companys common stock six months after
the non-employee directors separation from Board service.
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
No. of
|
|
Grant-Date
|
Deferred Stock Units
|
|
Shares
|
|
Fair Value
|
|
Balance at January 1, 2009
|
|
|
47
|
|
|
$
|
21.42
|
|
Granted
|
|
|
24
|
|
|
|
18.72
|
|
|
|
|
|
|
|
|
|
|
Deferred stock units at December 31, 2009
|
|
|
71
|
|
|
$
|
20.50
|
|
|
|
|
|
|
|
|
|
|
|
|
(15)
|
Fair
Value Measurements
|
On January 1, 2008, the Company adopted the fair value
measurement guidance which defines fair value as the price that
would be received in the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. The guidance requires disclosure of the
extent to which fair value is used to measure financial assets
and liabilities, the inputs utilized in calculating valuation
measurements, and the effect of the measurement of significant
unobservable inputs on earnings, or changes in net assets, as of
the measurement date. There is an established hierarchy for
inputs used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs
by requiring that the most observable inputs be used when
available. There are three levels of inputs that may be used to
measure fair value:
Level 1: quoted prices (unadjusted) in active markets
for identical assets or liabilities
76
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Level 2: observable prices that are based on inputs
not quoted on active markets, but corroborated by market data
Level 3: unobservable inputs are used when little or
no market data is available
GeoEyes financial instruments include cash and cash
equivalents, short-term investments, restricted cash, accounts
receivable, accounts payable, accrued liabilities and debt. The
carrying amounts of cash and cash equivalents, restricted cash,
accounts receivable, accounts payable and accrued liabilities
approximate their respective fair values due to their short-term
nature. The Company records debt at cost, net of debt discount
and issuance costs.
At December 31, 2009, other than financial instruments of
cash and cash equivalents, restricted cash, derivative
instrument in the form of an interest rate cap, accounts
receivable, accounts payable, accrued liabilities and debt, the
Company did not hold any financial assets that were required to
be measured for disclosure purposes at fair value on a recurring
basis. The Company had not identified any Level 3 financial
instruments at December 31, 2009 and 2008.
The following table provides information about the financial
assets measured at fair value on a recurring basis as of
December 31, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting Date
|
|
|
|
|
|
|
Using Significant
|
|
|
|
|
|
|
Other Observable
|
Year
|
|
Description
|
|
Amount
|
|
Inputs (Level 2)
|
December 31, 2009
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
December 31, 2008
|
|
Short-term investments
|
|
$
|
3,813
|
|
|
$
|
3,813
|
|
Short-term investments, which consist of certificates of
deposit, are measured at fair value and are classified within
Level 2 of the valuation hierarchy. These Level 2 fair
values are routinely corroborated on a quarterly basis with
observable market-based inputs.
The following table provides information about the financial
liabilities measured at fair value at December 31, 2009 and
December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
Senior Secured Floating Notes (due 2012)
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
247.5
|
|
|
$
|
207.5
|
|
Senior Secured Notes (due 2015)
|
|
|
380.6
|
|
|
|
411.5
|
|
|
|
|
|
|
|
|
|
The Company issued $400.0 million of 2015 Notes, due
October 1, 2015 and used a portion of the proceeds to
repurchase $249.5 million of the 2012 Notes with
$0.5 million remaining outstanding until January 2010. The
fair value of the 2012 Notes was determined based on market
trades of the 2012 Notes and are classified within Level 2.
We classify the 2015 Notes within Level 2 as the valuation
inputs are determined based on quoted prices and market
observable data.
|
|
(16)
|
Significant
Customer and Geographic Information
|
The Company operates in a single industry segment, in which it
provides imagery, imagery information products and image
processing services to customers around the world.
GeoEye recognized revenue related to contracts with the
U.S. Government, the Companys largest customer, of
$181.9 million, $56.5 million and $100.0 million
for the years ended December 31, 2009, 2008 and 2007,
representing 67%, 39% and 54% of total revenues, respectively.
We had no other customers for whom revenues exceeded 10% of
total revenues in 2009, 2008 and 2007.
77
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has two product lines which are: (a) Imagery
and (b) Production and Other Services.
Total revenues by product lines were as follows: (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Imagery
|
|
$
|
206,417
|
|
|
$
|
102,102
|
|
|
$
|
146,707
|
|
NextView cost share
|
|
|
21,062
|
|
|
|
|
|
|
|
|
|
Production and other services
|
|
|
43,623
|
|
|
|
44,557
|
|
|
|
36,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
271,102
|
|
|
$
|
146,659
|
|
|
$
|
183,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total domestic and international revenues were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Domestic
|
|
$
|
196,722
|
|
|
$
|
75,880
|
|
|
$
|
116,010
|
|
International
|
|
|
74,380
|
|
|
|
70,779
|
|
|
|
67,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
271,102
|
|
|
$
|
146,659
|
|
|
$
|
183,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our property, plant and equipment and related ground systems are
held domestically.
|
|
(17)
|
Financial
Information of Guarantor Subsidiary
|
The Senior Secured Notes (2015 Notes) issued by the Company are
unconditionally guaranteed jointly and severally, on a senior
secured basis, by all existing and future domestic restricted
subsidiaries of the Company. The Company does not have any
independent assets or operations other than its ownership in all
of the capital stock of its Guarantor Subsidiaries. Since
inception, all of the Companys operations have been
conducted through its wholly-owned subsidiaries.
Under the terms of the 2012 Notes, the requirements to report
consolidating information under
Rule 3-10
under the Securities and Exchange Commissions
regulation S-X
exists for the remaining $0.5 million principal balance
still outstanding as of December 31, 2009. However, the
Company believes including the consolidating financial
information is no longer relevant given the fact that the debt
was fully paid on January 22, 2010, prior to the issuance
of our 2009 consolidated financial statements.
|
|
(18)
|
Summary
of Quarterly Information (Unaudited)
|
Quarterly financial information for the years ended
December 31, 2009 and 2008 is summarized below (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarters
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
(Unaudited)
|
Revenues
|
|
$
|
45,211
|
|
|
$
|
72,701
|
|
|
$
|
79,941
|
|
|
$
|
73,249
|
|
Income from operations
|
|
|
1,705
|
|
|
|
23,859
|
|
|
|
27,717
|
|
|
|
19,354
|
|
Net (loss) earnings
|
|
|
(1,737
|
)
|
|
|
9,552
|
|
|
|
12,527
|
|
|
|
11,719
|
|
Earnings per share basic
|
|
|
(0.09
|
)
|
|
|
0.52
|
|
|
|
0.67
|
|
|
|
0.60
|
|
Earnings per share diluted
|
|
|
(0.09
|
)
|
|
|
0.46
|
|
|
|
0.61
|
|
|
|
0.55
|
|
|
|
|
(1) |
|
In the fourth quarter of 2009, in connection with the issuance
of the 2015 Notes, we recorded a pre-tax loss from early
extinguishment of debt of $27.1 million. |
|
(2) |
|
In the fourth quarter of 2009, as a result of a favorable IRS
ruling, we recorded $21.4 million of tax benefits related
to the recovery of net operating losses previously limited due
to an ownership change. |
78
GEOEYE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(3) |
|
In the fourth quarter of 2009, we recorded pre-tax reductions of
revenue of $6.1 million as a result of the GeoEye-1
satellite irregularity and contract modifications. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarters
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
(Unaudited)
|
Revenues
|
|
$
|
35,912
|
|
|
$
|
34,219
|
|
|
$
|
35,840
|
|
|
$
|
40,688
|
|
Income from operations
|
|
|
5,624
|
|
|
|
5,108
|
|
|
|
8,418
|
|
|
|
3,650
|
|
Net (loss) earnings
|
|
|
(817
|
)
|
|
|
(557
|
)
|
|
|
31,628
|
|
|
|
(3,639
|
)
|
Earnings per share basic
|
|
|
(0.05
|
)
|
|
|
(0.03
|
)
|
|
|
1.76
|
|
|
|
(0.20
|
)
|
Earnings per share diluted
|
|
|
(0.05
|
)
|
|
|
(0.03
|
)
|
|
|
1.57
|
|
|
|
(0.20
|
)
|
On March 1, 2010, the Company signed a modification to its
SLA with the NGA. The modification restructures the option for
NGA to extend the term of the SLA beyond March 31, 2010.
The original option, if exercised by NGA, provided for a single
nine-month extension from April 1, 2010 to
December 31, 2010. The SLA has been extended through
June 30, 2010, followed by six additional one-month option
periods, with the last option term expiring on December 31,
2010.
On March 4, 2010 the Company entered into a binding
commitment letter with Cerberus Capital Management, L.P.
(Cerberus) to purchase preferred stock and provide debt
financing, the proceeds of which will be used for development
and launch of GeoEye-2. The agreement to purchase the preferred
stock and the commitment to provide financing expires on
March 19, 2010 unless definitive documents have been
executed by both parties.
Cerberus will purchase up to $115.0 million in preferred
stock provided that the Company receives an award from the NGA
to build GeoEye-2 under the EnhancedView program. The preferred
stock will be entitled to receive a dividend at an annual rate
of 5%, payable in kind, in cash or securities, at the
Companys option. The preferred stock will have a
conversion price of $30 per share, or $29.25 taking into effect
the original issue discount (OID).
Cerberus will also provide the Company with debt financing of
$100.0 million, also contingent upon the Company receiving
an award from NGA to build GeoEye-2 under the EnhancedView
program. The facility will mature on April 1, 2016 and will
bear an annual interest rate of three-month LIBOR plus 8%, with
a minimum interest rate of 10%. There is no requirement to draw
down on the facility and partial draws are permitted, with some
limitations.
This additional financing is necessary due to the fact that the
NGA request for proposal for EnhancedView requires that upon a
successful contract award the Company provide a letter of credit
for the full amount of any potential cost share award which
would be received from NGA through development of GeoEye-2 and
for a period of up to three years after FOC. The Company
estimates that it could require letters of credit up to
$280.0 million, which must be fully cash collateralized.
The Company will use cash on hand, cash flow from operations,
proceeds from the NGA cost share, and the additional financing
provided by Cerberus to build GeoEye-2 and post the required
letters of credit.
If the Company is awarded the Enhanced View Imagery Acquisition
Contract without the letter of credit requirement, the Company
will no longer be obligated to issue 115,000 shares of
preferred stock to Cerberus, but Cerberus will have the option
to purchase a reduced number of 80,000 shares of preferred
stock resulting in gross proceeds to the Company of
$78.0 million.
In addition, the Company paid a non-refundable commitment fee of
2% or $2.0 million of the face value of the debt. In the
event, the Company is not awarded a new satellite contract under
the EnhancedView program, the Company will be required to pay an
additional $2.3 million fee for the preferred stock
commitment.
79
On March 11, 2010, the Company announced the selection of
Lockheed Martin Space Systems Company to build the GeoEye-2
satellite.
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
On September 11, 2008, with the approval of our Audit
Committee of the Board of Directors, BDO Seidman, LLP (BDO) was
dismissed as our companys independent registered public
accounting firm. On September 19, 2008, the Audit Committee
of the Board of Directors engaged KPMG LLP (KPMG) as our
companys independent registered public accounting firm
commencing with audit services for the fiscal quarter ended
September 30, 2008.
During fiscal years ended December 31, 2007 and through
September 17, 2008, the audit reports of BDO on the
consolidated financial statements of our company did not contain
an adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or
accounting principles, except that the consolidated financial
statements of our company, as of and for the fiscal years ended
December 31, 2007, 2006 and 2005, required restatement in
order to correct errors involving income taxes and purchased
imagery cost liability as more fully described in our Annual
Report on
Form 10-K
for the year ended December 31, 2007, as amended and
restated by the Companys Annual Report on
Form 10-K/A,
filed on September 5, 2008. During fiscal years ended
December 31, 2007 and through September 17, 2008,
there were no disagreements with BDO on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which would have caused BDO to make
reference to the subject matter of such disagreements in
connection with its reports on our companys financial
statements for such periods.
During fiscal years ended December 31, 2007 and through
September 17, 2008, there were no reportable events (as
defined in
Regulation S-K
Item 304 (a)(1)(v)), except that, for the fiscal year ended
December 31, 2007, BDO concluded that we (i) did not
maintain, in all material respects, effective internal control
over financial reporting, as is more fully described in our
Annual Report on
Form 10-K
for the year ended December 31, 2007, as amended and
restated by the Companys Annual Report on
Form 10-K/A;
filed on September 5, 2008; (ii) failed to correctly
apply Generally Accepted Accounting Principles (GAAP) relating
to the accounting for the utilization of pre-emergence
bankruptcy net operating loss (NOL) carry forwards; and
(iii) had not finalized the assessment of the impact to the
financial statements of Internal Revenue Code Section 382
limitations related to the availability of NOL carryforwards.
Subsequent to April 2, 2008, we identified a material
misstatement in our companys annual and quarterly
consolidated financial statements for 2005, 2006 and 2007,
requiring restatement of those financial statements. In July
2008, we completed a detailed study analyzing our tax accounting
methods in which we discovered that it had not correctly
included in taxable income cost-share payments received from the
U.S. Government under the NextView program. As a result, we
identified a control failure from the lack of tax expertise and
must include previously unrecorded expenses for interest and
penalties on unpaid taxes which will lower net income for those
periods and create a deferred tax asset and corresponding
liability on the balance sheet. In addition, we determined that
we failed to maintain effective controls to review and reconcile
the expenses and related liability accounts associated with
purchased imagery sales. As a result and in connection with an
internal review, we identified a decrease in direct expenses in
2007 due to an overstatement of third party purchased imagery
costs associated with imagery sales in 2007.
Accordingly, our companys management determined that these
control deficiencies constitute material weaknesses. As a result
of the assessment performed and the material weaknesses noted,
management concluded that our companys internal control
over financial reporting was not effective as of
December 31, 2007 and 2008.
BDO has provided us with a letter stating that they agree that
there were no disagreements during fiscal years ended
December 31, 2007 and 2006, and through September 17,
2008, and we filed a copy of such letter as Exhibit 16 to
our Current Report on
Form 8-K,
filed on September 17, 2008, which was within the time
periods prescribed by the SEC.
During the fiscal years ended December 31, 2007 and the
subsequent interim period through September 19, 2008, the
Company did not consult KPMG regarding any of the matters or
events set forth in Item 304(a)(2)(i) or (ii) of
Regulation S-K.
80
|
|
Item 9A.
|
Controls
and Procedures
|
|
|
a)
|
Evaluation
of Disclosure Controls and Procedures
|
As of December 31, 2009, we carried out an evaluation,
under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to
Rule 13a-15(b),
as adopted by the Securities and Exchange Commission (SEC) under
the Securities Exchange Act of 1934, as amended (Exchange Act).
Disclosure controls and procedures are the controls and other
procedures that are designed to ensure that information required
to be disclosed in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports that we file
or submit under the Exchange Act is accumulated and communicated
to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
Based on their evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of December 31,
2009, the end of the period covered by this Report, our
disclosure controls and procedures were not effective because of
the material weakness in internal control over financial
reporting identified as described below.
Notwithstanding the material weakness as described below,
management believes that the consolidated financial statements
included in this Report fairly present, in all material
respects, our financial position, results of operations and cash
flows for all periods presented.
|
|
b)
|
Managements
Annual Report on Internal Control Over Financial
Reporting
|
Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f)
under the Exchange Act.
Internal control over financial reporting refers to a process
designed by, or under the supervision of, our Chief Executive
Officer and Chief Financial Officer and effected by our Board of
Directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of our assets;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in
accordance with authorizations of our management and members of
our Board of Directors; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
our assets that could have a material effect on our consolidated
financial statements.
|
Internal control over financial reporting has inherent
limitations. Internal control over financial reporting is a
process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from
human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management
override. Because of such limitations, there is a risk that
material misstatements will not be prevented or detected on a
timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate,
this risk.
Management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of our internal control over financial reporting as of
December 31, 2009 using the framework set forth in the
report of the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control
Integrated Framework.
81
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the Companys annual or interim financial
statements will not be prevented or detected on a timely basis.
As a result of managements evaluation of our internal
control over financial reporting, management identified the
following material weakness in our internal control over
financial reporting:
The Company did not maintain effective controls over the
accuracy and valuation of the provision for income
taxes. We did not maintain effective controls
over reviewing and monitoring the accuracy of the income tax
provision calculation. This material weakness resulted in
material errors in income tax benefit and the related deferred
tax asset and current income tax payable that were corrected
prior to the issuance of the Companys consolidated
financial statements.
As a result of the material weakness described above, management
has concluded that GeoEye, Inc.s internal control over
financial reporting was ineffective as of December 31,
2009, based on the criteria identified above. Our independent
registered public accounting firm, KPMG LLP, has issued an
attestation report with an adverse opinion on the effectiveness
of our internal control over financial reporting as of
December 31, 2009.
|
|
c)
|
Remediation
Steps Undertaken By Management
|
To remediate the material weakness described above and enhance
our internal control over financial reporting, we are currently
enhancing our control environment and control activities
intended to address the material weakness in our internal
control over financial reporting and to remedy the
ineffectiveness of our disclosure controls and procedures.
During 2009, we initiated remediation initiatives which are
continuing and are intended to address our material weakness in
internal control over financial reporting.
|
|
|
|
|
We have hired a Tax Director to prepare and facilitate all tax
related information as required to calculate the tax provision
including monitoring the tax depreciation for all fixed assets,
capitalized costs and associated valuation, and satellite and
research and development expenses for proper tax treatment.
|
|
|
|
We continue to work with an experienced third-party accounting
firm in the preparation and analysis of our interim and annual
income tax accounting to ensure compliance with generally
accepted accounting principles and to ensure corporate
compliance with tax regulations.
|
|
|
d)
|
Changes
in Internal Control over Financial Reporting In Our Last Fiscal
Quarter
|
There were no changes in the Companys internal control
over financial reporting that occurred during our fourth quarter
that have materially affected or are reasonably likely to
materially affect, our internal control over financial
reporting, other than continued implementation and refinement of
the controls necessary to remediate the material weakness in
internal control over financial reporting.
Notwithstanding such efforts, the remaining material weakness
related to the accuracy and valuation of the provision for
income taxes described above will not be remediated until the
new controls operate for a sufficient period of time and are
tested to enable management to conclude that the controls are
effective. Management will consider the design and operating
effectiveness of these controls and will make any additional
changes management determines appropriate.
82
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
GeoEye, Inc.
We have audited GeoEye, Inc.s internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). GeoEye,
Inc.s management is responsible for maintaining effective
internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial
reporting, included in the accompanying Managements Annual
Report on Internal Control Over Financial Reporting
(Item 9A(b)). Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis.
A material weakness related to ineffective controls over the
accuracy and valuation of the provision for income taxes has
been identified and included in managements assessment. We
also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of GeoEye, Inc. and subsidiaries as
of December 31, 2009 and 2008 and the related consolidated
statements of operations, stockholders equity, and cash
flows for the years ended December 31, 2009 and 2008. This
material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the
2009 consolidated financial statements, and this report does not
affect our report dated March 12, 2010, which expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, because of the effect of the aforementioned
material weakness on the achievement of the objectives of the
control criteria, GeoEye, Inc. has not maintained effective
internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
McLean, Virginia
March 12, 2010
83
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information concerning directors required by Item 401
of
Regulation S-K
will be included under the caption Election of Directors
in our definitive Proxy Statement to be filed pursuant to
Regulation 14A (2010 Proxy Statement), and that information
is incorporated by reference in this
Form 10-K.
The information concerning executive officers required by
Item 401 of
Regulation S-K
will be included under the caption Executive Officers who are
not Directors in our definitive Proxy Statement to be filed
pursuant to Regulation 14A (2010 Proxy Statement), and that
information is incorporated by reference in this
Form 10-K.
The information required by Item 405 of
Regulation S-K
concerning compliance with Section 16(a) of the Exchange
Act will be included under the caption Section 16(a)
Beneficial Ownership Reporting Compliance in our 2010 Proxy
Statement, and that information is incorporated by reference in
this
Form 10-K.
The information concerning an Audit Committee and Audit
Committee Financial Experts required by Item 407(d)(4) and
(5) of
Regulation S-K
will be included under the caption Standing Committees, Board
Organization and Director Nominations in our 2010 Proxy
Statement, and that information is incorporated by reference in
this
Form 10-K.
There have been no material changes to the procedures by which
stockholders may recommend nominees to the Board of Directors
since our last annual report.
We have a written code of ethics in place. Our Code of Ethics
and Business Conduct applies to all of our employees, including
our principal executive officer, principal financial officer,
principal accounting officer and controller and to members of
our Board of Directors. A copy of our Code of Ethics and
Business Conduct is available on our investor relations website:
www.geoeye.com/corporate/invrelations. The foregoing
information will also be available in print upon request. We are
required to disclose any change to, or waiver from, our code of
ethics for our senior financial officers. We intend to use our
website as a method of disseminating this disclosure as
permitted by applicable SEC rules.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item 11 will be included
in the text and tables under the captions Executive
Compensation Compensation Discussion and Analysis
and 2009 Director Compensation in the 2010 Proxy
Statement, and that information is incorporated by reference in
this
Form 10-K.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item 12 will be included
under the heading Security Ownership of Certain Beneficial
Owners and Management and Equity Compensation Plan
Information in the 2010 Proxy Statement, and that
information is incorporated by reference in this
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
There are no matters required to be disclosed by Item 404
of
Regulation S-K
concerning certain relationships and related transactions. The
information required by Item 407(a) of
Regulation S-K
concerning director independence will be included under the
caption Board of Directors in our 2010 Proxy Statement,
and that information is incorporated by reference in this
Form 10-K.
84
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item will be included under the
caption Ratification of Appointment of Independent
Auditors Fees Paid to Independent Auditors in
the 2010 Proxy Statement, and that information is incorporated
by reference in this
Form 10-K.
An index to exhibits has been filed as part of this Report
beginning on page 88 and is incorporated herein by
reference.
85
SIGNATURES
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.
GeoEye, Inc.
|
|
|
|
By:
|
/s/ MATTHEW
M. OCONNELL
|
Matthew M. OConnell
Chief Executive Officer
March 12, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant and in capacities indicated on
March 12, 2010.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ James
A. Abrahamson
James
A. Abrahamson
|
|
Chairman of the Board
|
|
|
|
/s/ Matthew
M. OConnell
Matthew
M. OConnell
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
/s/ Joseph
F. Greeves
Joseph
F. Greeves
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ Joseph
M. Ahearn
Joseph
M. Ahearn
|
|
Director
|
|
|
|
/s/ Martin
C. Faga
Martin
C. Faga
|
|
Director
|
|
|
|
/s/ Michael
F. Horn, Sr.
Michael
F. Horn, Sr.
|
|
Director
|
|
|
|
/s/ Lawrence
A. Hough
Lawrence
A. Hough
|
|
Director
|
|
|
|
/s/ Roberta
E. Lenczowski
Roberta
E. Lenczowski
|
|
Director
|
|
|
|
/s/ James
M. Simon, Jr.
James
M. Simon, Jr.
|
|
Director
|
|
|
|
/s/ William
W. Sprague
William
W. Sprague
|
|
Director
|
86
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
3
|
.1
|
|
Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to Post-Effective Amendment
No. 3 to
Form S-1
Registration Statement filed on June 21, 2005); Certificate
of Amendment to Certificate of Incorporation of GeoEye, Inc.
(incorporated by reference to Exhibit 3.1 to Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2006 filed on
March 15, 2007 (File
No. 000-50933))
|
|
3
|
.2
|
|
Fourth Amended and Restated Bylaws of Company (incorporated by
reference to Exhibit 3.2 to the current report on
Form 8-K
filed on November 6, 2007)
|
|
4
|
.1
|
|
Registration Rights Agreement dated as of December 31, 2003
(incorporated by reference to Exhibit 4.3 to Form 10
filed on September 13, 2004 (File
No. 022-28714))
|
|
4
|
.2
|
|
Form of Stock Subscription Warrant Warrants issued
December 31, 2003 (incorporated by reference to
Exhibit 4.4 to Form 10 filed on September 13,
2004 (File
No. 022-28714))
|
|
4
|
.3
|
|
Registration Rights Agreement dated as of November 16, 2004
(incorporated by reference to Exhibit 4.5 to Form 10/A
filed on December 1, 2004 (File
No. 0-50933))
|
|
4
|
.4
|
|
Form of Stock Subscription Warrant Warrants issued
November 16, 2004 and to be issued to private investors
pursuant to backstop commitment, if necessary (incorporated by
reference to Exhibit 4.6 to Form 10/A filed on
December 1, 2004 (File
No. 0-50933))
|
|
4
|
.5
|
|
Specimen Stock Certificate (incorporated by reference to
Exhibit 4.4 to the Registration Statement on
Form 8-K
filed on May 9, 2007)
|
|
4
|
.6
|
|
Warrant Agreement with The Bank of New York, dated as of
March 14, 2005 (incorporated by reference to
Exhibit 4.10 to Post-Effective Amendment No. 2 to
Form S-1,
filed on March 18, 2005 (File
No. 333-122493))
|
|
4
|
.7
|
|
Specimen Warrant Certificate with respect to Warrant Agreement
dated as of March 14, 2005 (incorporated by reference to
Exhibit 4.8 to Post-Effective Amendment No. 2 to
Form S-1,
filed on March 18, 2005 (File
No. 333-122493))
|
|
4
|
.8
|
|
Indenture, dated as of June 29, 2005, between ORBIMAGE
Holdings Inc. and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 4.1 to the current report on
Form 8-K,
filed on July 1, 2005 (File
No. 000-50933))
|
|
4
|
.9
|
|
Form of Senior Secured Floating Rate Note due 2012 (incorporated
by reference to Exhibit A to Exhibit 4.1 to the
current report on
Form 8-K,
filed on July 1, 2005 (File
No. 000-50933))
|
|
4
|
.10
|
|
Security Agreement, dated as of June 29, 2005, between
ORBIMAGE Holdings Inc. and the Bank of New York, as Collateral
Agent (incorporated by reference to Exhibit 4.3 to the
current report on
Form 8-K,
filed on July 1, 2005 (File
No. 000-50933))
|
|
4
|
.11
|
|
Registration Rights Agreement, dated as of June 29, 2005,
among ORBIMAGE Holdings Inc., Deutsche Bank Securities Inc. and
Credit Suisse First Boston LLC (incorporated by reference to
Exhibit 4.4 to the current report on
Form 8-K,
filed on July 1, 2005 (File
No. 000-50933))
|
|
4
|
.12
|
|
Warrant Agreement, dated as of January 10, 2006, between
ORBIMAGE Holdings Inc. and The Bank of New York, as Warrant
Agent (incorporated by reference to Exhibit 4.03 to the
current report on
Form 8-K,
filed on January 12, 2006 (File
No. 000-50933))
|
|
4
|
.13
|
|
Specimen Warrant Certificate with respect to Warrant Agreement
dated as of January 10, 2006 (incorporated by reference to
Exhibit 4.02 to the current report on
Form 8-K,
filed on January 12, 2006 (File
No. 000-50933))
|
|
4
|
.14*
|
|
Indenture, dated as of October 9, 2009, between the
Subsidiary Guarantors and The Bank of New York Mellon, as Trustee
|
|
4
|
.15*
|
|
Form of 9.625% Senior Secured Note due 2015
|
|
4
|
.16*
|
|
Security Agreement, dated as of October 9, 2009, between
the Subsidiary Guarantors and The Bank of New York Mellon, as
Collateral Agent
|
|
4
|
.17*
|
|
Registration Rights Agreement, dated as of October 9, 2009,
among GeoEye, Inc., the Guarantors, and J.P. Morgan
Securities Inc., Banc of America Securities LLC,
Jefferies & Company, Inc., Deutsche Bank Securities
Inc., Canaccord Adams Inc., Dougherty & Company LLC
and SMH Capital Inc.
|
87
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.1
|
|
2006 Omnibus Stock and Performance Incentive Plan Of ORBIMAGE
Holdings Inc. (incorporated by reference to Exhibit 10.1 to
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 filed on
March 15, 2007 (File
No. 000-50933))
|
|
10
|
.2
|
|
Employment-at-Will
and Retention Agreement for Matthew OConnell (incorporated
by reference to Exhibit 10.6 to Form 10 filed on
September 13, 2004 (File
No. 022-28714))
|
|
10
|
.3
|
|
Employment-at-Will
Agreement for William Schuster (incorporated by reference to
Exhibit 10.15 to the Companys
Form S-1,
filed February 2, 2004 (File
No. 333-122493))
|
|
10
|
.4
|
|
Employment Agreement for Henry Dubois (incorporated by reference
to Exhibit 10.4 to Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 filed on
March 15, 2007 (File
No. 000-50933))
|
|
10
|
.5
|
|
Form of Indemnity Agreements for Directors and Executive
Officers (incorporated by reference to Exhibit 10.10 to
Form 10 filed on September 13, 2004 (File
No. 022-28714))
|
|
10
|
.6
|
|
Contract
No. HM1573-04-C-0003
with U.S. National Geospatial-Intelligence Agency (incorporated
by reference to Exhibit 10.12 to Form 10/A filed on
January 28, 2005 (File
No. 0-50933))
|
|
10
|
.7
|
|
Contract
No. HM1573-04-3-0001
with U.S. National Geospatial-Intelligence Agency (incorporated
by reference to Exhibit 10.12 to Form 10/A filed on
January 28, 2005 (File
No. 0-50933))
|
|
10
|
.8
|
|
Contract
No. HM1573-04-3-0014
with U.S. National Geospatial-Intelligence Agency (incorporated
by reference to Exhibit 10.14 to Form 10/A filed on
January 28, 2005 (File
No. 0-50933))
|
|
10
|
.9
|
|
Modification P00015 to Contract HM1573-04-C-0014 of existing
NextView contract with NGA on December 9, 2008
(incorporated by reference to Exhibit 10.9 to Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 filed on
April 1, 2009 (File No. 001-33015))
|
|
10
|
.10
|
|
2009 Annual Performance Award Policy to 2006 Omnibus Stock and
Performance Incentive Plan Of ORBIMAGE Holdings Inc.
(incorporated by reference to Exhibit 10.10 to Annual
Report on Form 10-K for the fiscal year ended
December 31, 2008 filed on April 1, 2009 (File
No. 001-33015))
|
|
10
|
.11*#
|
|
Modification P00023 to Contract HM1573-04-C-0014 of existing
NextView contract with NGA on December 9, 2008
|
|
10
|
.12*#
|
|
Modification P00027 to Contract HM1573-04-C-0014 of existing
NextView contract with NGA on December 9, 2008
|
|
10
|
.13*#
|
|
Modification P00028 to Contract HM1573-04-C-0014 of existing
NextView contract with NGA on December 9, 2008
|
|
10
|
.14
|
|
Employment Agreement for Joseph F. Greeves (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009 filed on
August 10, 2009 (File
No. 001-33015)
|
|
21
|
.1*
|
|
Subsidiaries of the Registrant
|
|
23
|
.1*
|
|
Consent of KPMG LLP, Independent Registered Public Accounting
Firm
|
|
23
|
.2*
|
|
Consent of BDO Seidman, LLP, Independent Registered Public
Accounting Firm
|
|
31
|
.1*
|
|
Rule 13a-14(a)
Certification of Matthew M. OConnell
|
|
31
|
.2*
|
|
Rule 13a-14(a)
Certification of Joseph F. Greeves
|
|
32
|
.1*
|
|
Certification Pursuant to 18 U.S.C. Section 1350 of
Matthew M. OConnell
|
|
32
|
.2*
|
|
Certification Pursuant to 18 U.S.C. Section 1350 of
Joseph F. Greeves
|
|
|
|
* |
|
Filed herewith. |
|
# |
|
Confidential treatment requested. |
88