Attached files
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EX-31.2 - EXHIBIT 31.2 - DIGITALGLOBE, INC. | c14975exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - DIGITALGLOBE, INC. | c14975exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - DIGITALGLOBE, INC. | c14975exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - DIGITALGLOBE, INC. | c14975exv31w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - DIGITALGLOBE, INC. | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-34299
DIGITALGLOBE, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
31-1420852 (I.R.S. Employer Identification No.) |
|
1601 Dry Creek Drive, Suite 260 Longmont, Colorado (Address of principal executive office) |
80503 (Zip Code) |
(303) 684-4000
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Common Stock, par value $0.001 per share | New York Stock Exchange | |
(Title of each class) | (Name of each exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act: Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act:
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
As of
April 29, 2011 there were 46,195,469 shares of the registrants Common Stock, par
value $0.001 per share, outstanding.
DigitalGlobe, Inc.
INDEX
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29 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
Page 1 of 29
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. | Financial Statements |
DigitalGlobe, Inc.
Unaudited Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, | ||||||||
(in millions, except share and per share data) | 2010 | 2011 | ||||||
Revenue |
$ | 77.1 | $ | 77.1 | ||||
Costs and expenses: |
||||||||
Cost of revenue, excluding depreciation and amortization |
10.1 | 11.8 | ||||||
Selling, general and administrative |
24.8 | 30.1 | ||||||
Depreciation and amortization |
29.1 | 29.2 | ||||||
Income from operations |
13.1 | 6.0 | ||||||
Other income (expense), net |
| 0.1 | ||||||
Interest income (expense), net |
(9.9 | ) | (7.7 | ) | ||||
Income (loss) before income taxes |
3.2 | (1.6 | ) | |||||
Income tax (expense) benefit |
(1.7 | ) | 0.9 | |||||
Net income (loss) |
$ | 1.5 | $ | (0.7 | ) | |||
Earnings (loss) per share: |
||||||||
Basic earnings (loss) per share |
$ | 0.03 | $ | (0.02 | ) | |||
Diluted earnings (loss) per share |
$ | 0.03 | $ | (0.02 | ) | |||
Weighted average common shares outstanding: |
||||||||
Basic |
43.7 | 46.1 | ||||||
Diluted |
46.1 | 46.1 | ||||||
See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
Page 2 of 29
Table of Contents
DigitalGlobe, Inc.
Unaudited Condensed Consolidated Balance Sheets
December 31, | March 31, | |||||||
(in millions, except share and per share data) | 2010 | 2011 | ||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 179.3 | $ | 163.7 | ||||
Restricted cash |
6.7 | 4.7 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $1.0 and $2.6, respectively |
45.3 | 36.8 | ||||||
Prepaid and current assets |
19.4 | 16.3 | ||||||
Deferred taxes |
62.7 | 56.0 | ||||||
Total current assets |
313.4 | 277.5 | ||||||
Property and equipment, net of accumulated depreciation of $478.2 and $507.4, respectively |
879.1 | 920.2 | ||||||
Goodwill |
8.7 | 8.7 | ||||||
Intangibles, net of accumulated amortization of $7.7 and $7.7, respectively |
0.3 | 0.3 | ||||||
Aerial image library, net of accumulated amortization of $21.1 and $21.7, respectively |
1.9 | 2.2 | ||||||
Long-term restricted cash |
13.6 | 12.5 | ||||||
Long-term deferred contract costs |
42.1 | 43.2 | ||||||
Other assets, net |
7.2 | 6.9 | ||||||
Total assets |
$ | 1,266.3 | $ | 1,271.5 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 15.0 | $ | 9.2 | ||||
Accrued interest |
6.2 | 15.5 | ||||||
Other accrued liabilities |
26.3 | 20.3 | ||||||
Current portion of deferred revenue |
38.9 | 40.3 | ||||||
Total current liabilities |
86.4 | 85.3 | ||||||
Long-term accrued liability |
6.0 | 1.8 | ||||||
Deferred revenue |
246.2 | 262.5 | ||||||
Deferred lease incentive |
4.6 | 4.3 | ||||||
Long-term debt, net of discount |
346.1 | 346.7 | ||||||
Long-term deferred tax liability, net |
76.7 | 69.1 | ||||||
Total liabilities |
$ | 766.0 | $ | 769.7 | ||||
COMMITMENTS AND CONTINGENCIES (Note 12) |
||||||||
STOCKHOLDERS EQUITY |
||||||||
Preferred stock, $0.001 par value; 24,000,000 shares authorized; no shares issued and
outstanding at December 31, 2010 and March 31, 2011 |
| | ||||||
Common stock; $0.001 par value; 250,000,000 shares authorized; 46,073,691 shares issued and
outstanding at December 31, 2010 and 46,243,757 shares issued and outstanding at March 31,
2011 |
0.2 | 0.2 | ||||||
Treasury stock, at cost; 44,039 shares at December 31, 2010 and 50,395 shares at March 31, 2011 |
(0.7 | ) | (0.9 | ) | ||||
Additional paid-in capital |
512.7 | 515.1 | ||||||
Accumulated deficit |
(11.9 | ) | (12.6 | ) | ||||
Total stockholders equity |
500.3 | 501.8 | ||||||
Total liabilities and stockholders equity |
$ | 1,266.3 | $ | 1,271.5 | ||||
See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
Page 3 of 29
Table of Contents
DigitalGlobe, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, | ||||||||
(in millions) | 2010 | 2011 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income (loss) |
$ | 1.5 | $ | (0.7 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation and amortization expense |
29.1 | 29.2 | ||||||
EnhancedView deferred revenue |
| 24.8 | ||||||
Recognition of pre-FOC payments |
(6.4 | ) | (6.4 | ) | ||||
Amortization of aerial image library, deferred contract costs and lease incentive |
1.2 | 1.7 | ||||||
Non-cash stock compensation expense |
1.4 | 1.7 | ||||||
Amortization of debt issuance costs and debt discount |
1.1 | 1.0 | ||||||
Deferred income taxes |
1.6 | (1.0 | ) | |||||
Changes in working capital, net of investing activities: |
||||||||
Accounts receivable, net |
7.3 | 8.5 | ||||||
Aerial image library |
(0.1 | ) | | |||||
Prepaids and other assets |
2.3 | 1.9 | ||||||
Accounts payable |
(1.6 | ) | (0.6 | ) | ||||
Accrued liabilities |
8.0 | 3.4 | ||||||
Deferred contract costs |
(5.3 | ) | (2.4 | ) | ||||
Deferred revenue |
4.0 | (0.6 | ) | |||||
Net cash flows provided by operating activities |
44.1 | 60.5 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Construction in progress additions |
(3.3 | ) | (78.3 | ) | ||||
Other property, equipment and intangible additions |
(1.0 | ) | (1.3 | ) | ||||
Decrease in restricted cash |
0.6 | 3.1 | ||||||
Net cash flows used in investing activities |
(3.7 | ) | (76.5 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from initial public offering, net of issuance costs |
(0.3 | ) | | |||||
Proceeds from exercise of stock options |
5.2 | 0.6 | ||||||
Cash paid
for treasury stock |
| (0.2 | ) | |||||
Net cash flows provided by financing activities |
4.9 | 0.4 | ||||||
Net increase (decrease) in cash and cash equivalents |
45.3 | (15.6 | ) | |||||
Cash and cash equivalents, beginning of period |
97.0 | 179.3 | ||||||
Cash and cash equivalents, end of period |
142.3 | 163.7 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: |
||||||||
Cash paid for income taxes |
0.1 | 0.8 | ||||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
Changes to non-cash construction in progress and property, equipment and intangibles accruals, including interest |
14.3 | 9.3 |
See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
Page 4 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in millions except for share and per share data, unless otherwise noted)
NOTE 1. General Information
DigitalGlobe, Inc. (DigitalGlobe, the Company or we) is a leading global provider of
commercial high-resolution earth imagery products and services that support a wide variety of uses,
including defense, intelligence and homeland security applications, mapping and analysis,
environmental monitoring, oil and gas exploration, and infrastructure management. We own and
operate three imagery satellites QuickBird, WorldView-1 and WorldView-2 which collect black
and white imagery, color imagery and imagery using non-visible light, such as infrared. We also
offer a range of on-line and off-line distribution options designed to enable customers to easily
access and integrate our imagery into their business operations and applications.
NOTE 2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
Our accompanying unaudited condensed consolidated financial statements for the three month periods
ended March 31, 2010 and 2011, included herein have been prepared in accordance with accounting
principles generally accepted in the United States (GAAP) for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange
Commission (SEC). Accordingly, they do not include all of the information and notes required by
GAAP for complete financial statements. All amounts included in the condensed consolidated
financial statements for the three month periods ended March 31, 2010 and 2011, are unaudited. In
the opinion of management, all adjustments consisting only of normal recurring adjustments, that
are necessary for a fair presentation of the accompanying condensed consolidated financial
statements, have been included. Operating results for the three months ended March 31, 2011 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2011 or
for any future period. The year-end condensed balance sheet was derived from audited financial
statements, but does not include all disclosures required in the annual financial statements by
GAAP.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
Our principal source of revenue is the licensing of earth imagery products and services for end
users and resellers. Revenue is recognized when the following criteria have been met: persuasive
evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is
fixed or determinable and the collection of funds is reasonably assured. Our revenue is generated
from: (i) sales of or royalties arising from licenses of imagery; and (ii) subscription services
and other service arrangements.
Sales of Licenses. Revenue from sales of imagery licenses is recognized when the images are
physically delivered to the customer or, in the case of electronic delivery, when the customer is
able to directly download the image off of our system. In certain customer arrangements, we have
acceptance provisions. For these arrangements, revenue is recognized upon acceptance by these
customers. Revenue is recognized net of contractually agreed discounts.
Royalties. Revenue from royalties is based on agreements or licenses with third parties that allow
the third party to incorporate our product into their value added product for commercial
distribution. Revenue from these royalty arrangements is recorded in the period earned or on a
systematic basis over the term of the license agreement. For those royalties that are due to third
parties based on our revenue sharing arrangements, we report royalty revenue on a net basis.
Subscriptions. The Company sells online subscriptions to our products. These arrangements allow
customers access to our products via the internet for a set period of time and a fixed fee.
Customers pay for the subscription at the beginning of the subscription period. The subscription
revenue is recorded as deferred revenue and recognized ratably over the subscription period. In
addition, we have other arrangements in which the customer pays for their subscription to one of
the Companys web-based products by paying for a predetermined amount of access (for example, each
time users click on an image of their home). In the case of prepayment each time a product is
accessed, a portion of the customers prepayment is earned. These prepayments are recorded as
deferred revenue when
received and the revenue is recognized based on the number of times the product is accessed.
Revenue is recognized net of contractually agreed discounts.
Page 5 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
Service Level Agreements (SLA). We recognize service level agreement revenue net of any allowances
resulting from failure to meet certain stated monthly performance metrics. Net revenue is either
recognized ratably over time for a defined and fixed level of service, or based on proportional
performance when the level of service changes based on certain criteria stated in the agreement.
Multiple Deliverable Arrangements. The Company enters into revenue arrangements that may consist of
multiple deliverables of its product and service offerings based on the needs of its customers.
These arrangements may include products delivered at the onset of the agreement, as well as
products or services that are delivered over multiple reporting periods.
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements and ASU
2009-14, Certain Revenue Arrangements That Include Software Elements. The Company concurrently
adopted ASU 2009-13 and ASU 2009-14 prospectively on January 1, 2011. ASU 2009-13 changes the
requirements for establishing separate units of accounting in a multiple deliverable arrangement
and requires the allocation of arrangement consideration to each deliverable based on the relative
selling price. The selling price for each deliverable is based on vendor-specific objective
evidence (VSOE) if available, third-party evidence (TPE) if VSOE is not available, or best estimate
selling price (BESP) if neither VSOE nor TPE is available. ASU 2009-14 excludes software that is
contained on a tangible product from the scope of software revenue guidance if the software is
essential to the tangible products functionality.
The Company has generally been unable to establish VSOE for any of our products due to the Company
infrequently selling each deliverable separately or only having a limited sales history, such as in
the case of new or emerging products. The Company has been unable to establish TPE for any of our
offerings due to the unique nature of our products and services and the limited number of
competitors in the market. As the Company is unable to establish price on the basis of VSOE or TPE,
we use BESP to determine the allocation of arrangement consideration. The objective of BESP is to
determine the price at which the Company would transact a sale if the product or service were sold
on a standalone basis. The Company determines BESP for a product or service by considering multiple
factors, including but not limited to market conditions, competitive landscape, internal costs,
gross margin objectives, product technology lifecycles, pricing practices, and the Companys
go-to-market strategy.
The adoption of ASU 2009-13 and ASU 2009-14 was not material to our financial results for the three
months ended March 31, 2011. We are not able to reasonably estimate the effect of adopting these
standards on future periods as the impact will vary based on the nature and volume of new or
materially modified multiple element arrangements transacted in any given period.
While multiple deliverable arrangements occur throughout our business, the EnhancedView contract
(EnhancedView) with National Geospatial-Intelligence Agency (NGA) and the Direct Access Program
(DAP) make up the majority of our multiple deliverable arrangement activity. EnhancedView and four
of our DAP agreements were entered into prior to the January 1, 2011 adoption of ASU 2009-13 and
ASU 2009-14 and none have been subsequently materially modified. As the Company adopted the new
guidance on a prospective basis, the agreements will continue to be accounted for under the
pre-adoption guidance unless they are materially modified. The following is a description of the
accounting for these arrangements.
EnhancedView. The EnhancedView contract contains multiple deliverables, including an SLA,
infrastructure enhancements, and other services. We determined that these deliverables do not
qualify as separate units of accounting due to a lack of standalone value for the delivered
elements and a lack of objective reliable evidence of fair value for any of the undelivered
elements in the arrangement. We recognize revenue on a single unit of accounting using a
proportional performance method based on the estimated capacity of our constellation made available
to NGA compared to the total estimated capacity to be provided over the life of the contract.
Direct Access Program. Sales under the direct access program include construction of the direct
access facility and an arrangement to allow the customer access to the satellite to task and
download imagery. In these arrangements the facility is delivered upon completion and customer
acceptance, and the maintenance and access services occur over several subsequent reporting
periods. These arrangements have been treated as a single unit of accounting due to a lack of
standalone value for the delivered elements and a lack of objective reliable evidence of fair value
for any of the undelivered items. Accordingly, all funds received are initially recorded as
deferred revenue and all direct costs of these arrangements are recorded as deferred contract
costs. As the direct access facilities are brought into service, the deferred revenue and deferred
contracts costs are amortized ratably over the estimated customer relationship period, which is
consistent with the estimated remaining useful life of the satellite being used.
Page 6 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 3. NextView / EnhancedView Programs
We recognize revenue for the $2.8 billion in services to be provided under the EnhancedView SLA
using a proportional performance method based upon the percentage of capacity of our constellation
made available to NGA compared to the total capacity to be provided over the life of the contract.
The contract requires the Company to increase capacity of the constellation through the
installation of additional remote ground terminals, which communicate directly with our satellites,
as well as the addition of an entirely new satellite, WorldView-3. As capacity is added to our
constellation, we recognize revenue in direct proportion to the amount of incremental capacity that
is made available to NGA. For the three months ended March 31, 2011, we recognized approximately
$37.6 million of revenue and we recorded $24.8 million of deferred revenue related to the
EnhancedView SLA contract. Given the significant amount of constellation capacity expected to be
generated by WorldView-3 and the increasing percentage of capacity that will be made available to
NGA once WorldView-3 becomes operational, we anticipate a material increase in revenue once
WorldView-3 reaches FOC.
Under the EnhancedView SLA, and assuming all option years under the agreement are exercised and
funded, we will receive a monthly non-refundable cash payment of approximately $20.8 million from
NGA during the first four years of the EnhancedView contract, with an increase to $25.0 million per
month in years five through ten. Each month is subject to a holdback, up to 10%, depending upon the
Companys performance against pre-defined criteria. If NGA certifies that we have performed all
requirements in the agreement each month, no holdback will be applied to that month. If funds are
held back, the Company retains the cash; however, those funds can be applied to future products and
services or will fund a pro-rated extension beyond the current contract period. Accordingly, all
amounts held back will cause the Company to defer recognition of a corresponding revenue amount
until such additional products or services have been provided. For the three months ended March 31,
2011, we had a holdback of $0.2 million, of which $0.1 million was utilized by NGA during the first
quarter.
NOTE 4. Information on Segments and Major Customers
We conduct our business through two segments: (i) defense and intelligence and (ii) commercial. Our
imagery products and services consist of imagery that we process to varying levels according to the
customers specifications. Customers can purchase satellite or aerial images that are archived in
our ImageLibrary. Customers can also order imagery content by placing custom orders, which require
tasking of our satellites, for a specific area of interest, or as a bundle of imagery and data for
a region or type of location, such as cities, ports and harbors or airports.
We have organized our business around the defense and intelligence and commercial segments because
we believe that customers in these two groups are identifiably similar in terms of their areas of
focus, imaging needs and purchasing habits. We deliver our products and services using the
distribution method that best suits our customers needs.
The vast majority of the dollar value of our fixed assets are the satellites and the ground based
production and support facilities that are common to all segments. There are no significant
identifiable assets specifically dedicated to either segment.
Only those costs directly associated with the two segments are shown in cost of revenue and
selling, general and administrative expenses in those segments. All expenses which are common to
both segments and/or represent corporate operating costs are included in the unallocated cost
section. Substantially all of the Companys assets are located in the United States.
Three months ended March 31, | ||||||||
(in millions) | 2010 | 2011 | ||||||
Defense and Intelligence |
||||||||
Revenue |
$ | 62.6 | $ | 61.7 | ||||
Cost of revenue excluding depreciation and amortization |
3.0 | 2.7 | ||||||
Selling, general and administrative |
2.8 | 2.5 | ||||||
Segment results of operations |
56.8 | 56.5 | ||||||
Commercial |
||||||||
Revenue |
14.5 | 15.4 | ||||||
Cost of revenue excluding depreciation and amortization |
1.6 | 1.3 | ||||||
Selling, general and administrative |
2.8 | 5.0 | ||||||
Segment results of operations |
10.1 | 9.1 | ||||||
Unallocated Common Costs |
||||||||
Cost of revenue excluding depreciation and amortization |
5.4 | 7.8 | ||||||
Selling, general and administrative |
19.3 | 22.6 | ||||||
Depreciation and amortization |
29.1 | 29.2 | ||||||
Unallocated costs |
53.8 | 59.6 | ||||||
Income (loss) from operations |
13.1 | 6.0 | ||||||
Other income (loss), net |
| 0.1 | ||||||
Interest income (expense), net |
(9.9 | ) | (7.7 | ) | ||||
Income (loss) before income taxes |
$ | 3.2 | (1.6 | ) | ||||
Page 7 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 5. Property and Equipment
Property and equipment consisted of the following as of:
(in millions) | December 31, 2010 | March 31, 2011 | ||||||
Construction in progress |
$ | 79.0 | 141.7 | |||||
Computer equipment |
126.4 | 134.0 | ||||||
Machinery and equipment |
25.9 | 25.9 | ||||||
Furniture and fixtures |
15.2 | 15.2 | ||||||
WorldView-2 satellite |
463.2 | 463.2 | ||||||
WorldView-1 satellite |
473.2 | 473.2 | ||||||
QuickBird satellite |
174.4 | 174.4 | ||||||
Total property and equipment |
$ | 1,357.3 | $ | 1,427.6 | ||||
Accumulated depreciation |
(478.2 | ) | (507.4 | ) | ||||
Property and equipment, net |
$ | 879.1 | $ | 920.2 | ||||
Construction in progress includes our WorldView-3 satellite, ground station construction,
certain internally developed software costs and capitalized interest. Depreciation expense for
property and equipment was $28.7 million and $29.2 million for the three months ended March 31,
2010 and 2011, respectively.
The capitalized costs of our satellites and related ground systems include internal and external
direct labor costs, internally developed software and direct material costs which support the
construction and development of our satellites, and related ground systems. The cost of our
satellites also includes capitalized interest incurred during the construction, development and
initial in-orbit testing period. The portion of the launch insurance premium allocable to the
period from launch through in-orbit calibration and commissioning has been capitalized as part of
the cost of the satellites and is amortized over the useful life of the satellites.
Following each satellite launch, and at least annually thereafter, we review the expected
operational life of our satellites. We determine a satellites expected operational life by
considering certain factors including: (i) the probabilities of failure of the satellites
components from design or manufacturing defects, (ii) environmental stresses or other causes, (iii)
the quality of construction, (iv) the supply of fuel, (v) the expected gradual environmental
degradation of solar panels and other components, (vi) projected levels of solar radiation, (vii)
the durability of various satellite components, and (viii) the orbits in which the satellites are
placed.
We have generally aligned the annual assessment of the useful life of the operating satellites with
the timing of our insurance renewals in the second half of the calendar year, and we perform the
annual assessment of the useful life of the QuickBird, WorldView-1 and WorldView-2 satellites in
the second half of the calendar year or when events or circumstances dictate that a reevaluation of
the useful
life should be done at an earlier date. An adjustment will be made to the estimated depreciable
life of the satellite if deemed necessary by the assessment performed. Changes to the estimated
useful life of our satellites and related impact on the depreciation expense will be accounted for
on a prospective basis as of the date of the change.
NOTE 6. Other Accrued Liabilities and Other Long-Term Liabilities
December 31, | March 31, | |||||||
(in millions) | 2010 | 2011 | ||||||
Compensation and other employee benefits |
$ | 11.0 | 7.3 | |||||
Accrued taxes |
2.1 | 1.3 | ||||||
Accrued expense |
7.0 | 6.1 | ||||||
Other |
6.2 | 5.6 | ||||||
Total other accrued liabilities |
$ | 26.3 | 20.3 | |||||
Compensation and other employee benefits include accrued bonus expense and vacation accrual.
Accrued expense primarily represents the current portion of payments to third parties for work
performed on our direct access facilities. Accrued expense also includes amounts due for milestone
payments due on the procurement and construction of our WorldView-3 satellite. Other accruals
consist of third party commission expense, accounting fees and the current portion of deferred
lease incentives. Other long-term liabilities consist of future payments related to the
construction of one of our DAFs.
During the first quarter of 2011, we entered into an agreement to accelerate the on-orbit incentive
payments and have paid the agreed upon amount in full as of March 31, 2011. The early payment
resulted in a one-time gain of $0.1 million, which is reflected
in other income (expense) in the Statement of
Operations.
Page 8 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 7. Debt
Letters of Credit
At December 31, 2010 and March 31, 2011, we had $1.2 million of restricted cash under the lease
agreement for our headquarters in Longmont, Colorado. At December 31, 2010 and March 31, 2011, we
had $19.1 million and $16.0 million, respectively, in letters of credit and performance guarantees
used in the ordinary course of business to support advanced payments from customers under certain
of our DAP contracts. These letters of credit are secured by restricted cash that has been recorded
in our financial statements. The letters of credit, and related restricted cash amounts will be
released when the respective contract obligations have been fulfilled by the Company.
Senior Secured Notes
We issued $355.0 million principal amount of our senior secured notes in April 2009, net of the
issuance discount of $13.2 million and paid fees and expenses of $10.2 million, which are recorded
in deferred financing costs. As of December 31, 2010 and March 31, 2011, the senior secured notes
had an outstanding balance of $346.1 million and $346.7 million, respectively, and mature on May 1,
2014. The Company has the right to call the senior secured notes at a predetermined price beginning
on May 1, 2012. The senior secured notes are guaranteed by our subsidiaries and secured by nearly
all of our assets, including the shares of capital stock of our subsidiaries, the QuickBird,
WorldView-1 and WorldView-2 satellites. Assets collateralizing the senior secured notes had a net
book value of $1,246.0 million and $1,254.3 million as of December 31, 2010 and March 31, 2011,
respectively. DigitalGlobe, Inc. (the parent company) is the issuer and certain of our subsidiaries
are guarantors under the senior secured notes. Each of the subsidiary guarantors is 100% owned by
the parent company and the guarantees are full and unconditional and joint and several. The
financial condition, results of operations and cash flows of the guarantor subsidiaries are
discussed in more detail in Note 14. The senior secured notes bear interest at the rate of 10.5%
per annum. Interest is payable semi-annually on May 1 and November 1 each year. The Company is
using the effective interest rate methodology to amortize the deferred financing costs and to
accrete the discount on the notes over the term of the notes.
In May 2010, the Company offered to exchange up to $355.0 million aggregate principal amount of the
senior secured notes for notes that have been registered under the Securities Act of 1933, as
amended. The terms of the registered notes are the same as the terms of the original notes, except
that the notes are now registered under the Securities Act and the transfer restrictions,
registration rights and additional interest provisions are not applicable to the registered notes.
The Company has accepted the exchange of $355.0 million aggregate principal amount of the senior
secured notes that were properly tendered.
Interest expense, accretion of debt discount and amortization of the deferred financing fees were
$9.3 million, $0.6 million and $0.5 million, respectively, for the three months ended March 31,
2010 of which $0.1 million was capitalized to assets under construction.
Interest expense, accretion of debt discount and amortization of the deferred financing fees for
the three months ended March 31, 2011 were $9.3 million, $0.6 million and $0.5 million,
respectively, of which $3.1 million was capitalized to assets under construction.
Our future debt payments include the maturity of the senior secured notes in May 2014, at which
time we will owe the full obligation amount of $355.0 million.
NOTE 8. Fair Values of Financial Instruments
The following table provides information about the assets and liabilities measured at fair value on
a recurring basis as of December 31, 2010 and March 31, 2011 and indicates the valuation technique
utilized by the Company to determine the fair value.
Fair Value Measurements at December 31, 2010: | ||||||||||||||||
Significant | ||||||||||||||||
Total Carrying | Quoted prices | other | Significant | |||||||||||||
Value at | in active | observable | unobservable | |||||||||||||
December 31, | markets | inputs | inputs | |||||||||||||
(in millions) | 2010 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Cash equivalents |
$ | 98.7 | $ | 98.7 | $ | | $ | |
Page 9 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
Fair Value Measurements at March 31, 2011: | ||||||||||||||||
Significant | ||||||||||||||||
Total Carrying | Quoted prices | other | Significant | |||||||||||||
Value at | in active | observable | unobservable | |||||||||||||
March 31, | markets | inputs | inputs | |||||||||||||
(in millions) | 2011 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Cash equivalents |
$ | 74.0 | $ | 74.0 | | |
Our cash equivalents consist of investments acquired with maturity dates of less than 90 days
and are quoted from market rates and are classified within Level 1 of the valuation hierarchy. At
December 31, 2010 and March 31, 2011, our cash equivalents consisted of funds held in U.S. Treasury
money markets. The Company has not identified any Level 2 or Level 3 financial instruments at
December 31, 2010 and March 31, 2011.
The Companys senior secured notes are traded on an active market. The fair value of the senior
secured notes is based in part on quoted market rates and evaluated by the Company.
December 31, 2010 | March 31, 2011 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
(in millions) | Amount | Fair Value | Amount | Fair Value | ||||||||||||
Senior Secured Notes |
$ | 346.1 | $ | 403.8 | $ | 346.7 | $ | 401.6 |
NOTE 9. Shareholders Equity and Other Comprehensive Income (Loss)
On May 14, 2009, the Company completed an IPO consisting of 14.7 million shares of common stock at
$19.00 per share. The total shares sold in the offering included 13.3 million shares sold by
selling stockholders and 1.4 million shares sold by the Company. On September 15, 2010, the Company
priced a secondary offering of shares of common stock at $30.25 per share. The Company did not
receive proceeds from the sale of the shares of its common stock in the secondary offering,
therefore we expensed $0.4 million of the costs associated with the offering. At March 31, 2011,
the Companys Board of Directors had the authority to issue 250.0 million shares of common stock.
At March 31, 2011, 46.2 million shares of common stock were issued and outstanding.
Treasury Stock
There were no repurchases during 2010 or the first three months of 2011. During the first quarter
of 2011, certain participants elected to use shares to pay for minimum taxes due, in accordance
with the 2007 Employee Stock Option Plan, at the time their restricted stock vested. During the
first quarter of 2011, 6,356 shares were used to pay taxes, therefore included in treasury shares.
Stock-Based Compensation Programs
The Company has equity incentive plans that provide for the grant to employees of stock-based
compensation. To date, issued equity awards have consisted of stock options, restricted stock and
unrestricted shares. The date of grant of the awards is used as the
measurement date. The awards are valued as of the measurement date and are amortized on a
straight-line basis over the requisite vesting period.
Page 10 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
A summary of stock option activity for the three months ended March 31, 2011 is presented below:
Options Outstanding | ||||||||||||||||
Weighted | ||||||||||||||||
Average | Aggregate | |||||||||||||||
Weighted- | Remaining | Intrinsic | ||||||||||||||
Number of | Average | Contractual Term | Value | |||||||||||||
Shares | Exercise Price | (in years) | (in millions)(1) | |||||||||||||
Outstanding December 31, 2010 |
2,991,850 | $ | 22.96 | 7.65 | $ | 26.2 | ||||||||||
Granted |
366,607 | 30.06 | ||||||||||||||
Exercised |
23,586 | 25.19 | ||||||||||||||
Forfeited/Expired |
19,908 | 26.72 | ||||||||||||||
Outstanding March 31, 2011 |
3,314,963 | $ | 23.71 | 7.63 | $ | 15.7 | ||||||||||
Exercisable December 31, 2010 |
1,786,744 | $ | 21.72 | 6.92 | $ | 17.9 | ||||||||||
Exercisable March 31, 2011 |
1,924,521 | $ | 21.83 | 6.73 | $ | 11.9 |
(1) | Represents the total pretax intrinsic value for stock options with an
exercise price less than the Companys calculated common stock price as of December 31, 2010
and March 31, 2011, respectively that option holders would have realized had they exercised
their options as of that date. |
During the first quarter of 2011, the Company awarded 132,545 shares of restricted stock to
certain employees which will vest over four years. During the first quarter of 2011, the Company
awarded 4,837 unrestricted shares to members of our independent board of directors pursuant to
applicable compensation plans which vest immediately on the date of grant.
Weighted | ||||||||
Average Grant | ||||||||
Non-vested Restricted Stock | No. of Shares | Date Fair Value | ||||||
Non-vested at December 31, 2010 |
217,860 | $ | 30.45 | |||||
Granted |
137,382 | 29.85 | ||||||
Forfeited |
1,202 | 32.37 | ||||||
Vested |
23,996 | 24.64 | ||||||
Non-vested at March 31, 2011 |
330,044 | $ | 30.61 | |||||
NOTE 10. Earnings (Loss) Per Share
Basic earnings (loss) per share (EPS) excludes dilution and is computed by dividing net income
(loss) available to common stockholders by the weighted average number of common shares outstanding
for the period excluding issued, but unvested restricted shares. Diluted EPS is computed by
dividing net income (loss) by the weighted average number of common shares outstanding and dilutive
potential common shares for the period. The Company includes as potential common shares the
weighted average dilutive effects of outstanding stock options and restricted shares using the
treasury stock method.
The following table sets forth the number of weighted average shares used to compute basic and
diluted EPS:
Three Months Ended | ||||||||
March 31, | ||||||||
(in millions, except per share data) | 2010 | 2011 | ||||||
Basic earnings (loss) per share: |
||||||||
Net income (loss) |
$ | 1.5 | $ | (0.7 | ) | |||
Basic weighted average number of common shares outstanding |
43.7 | 46.1 | ||||||
Assuming exercise of stock options and restricted shares |
2.4 | | ||||||
Diluted weighted average number of common shares outstanding, as adjusted |
46.1 | 46.1 | ||||||
Earnings (loss) per share: |
||||||||
Basic |
$ | 0.03 | $ | (0.02 | ) | |||
Diluted |
$ | 0.03 | $ | (0.02 | ) | |||
The
number of options and restricted shares that were excluded from EPS,
calculated as the effects thereof were antidilutive were 0.7 million and 3.6 million for the three
months ended March 31, 2010 and 2011, respectively.
Page 11 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 11. Related Party Transactions
Morgan Stanley / Morgan Stanley & Co. Incorporated
On September 21, 2010, the Company consummated a secondary offering of 6.9 million shares of common
stock at $30.25 per share. Morgan Stanley served as a joint book-runner, and was a seller of the
majority of the shares included in the offering, and received compensation in the amount of $5.7
million.
At December 31, 2010 and March 31, 2011, Morgan Stanley and its affiliates held 7.5 million, or 16.1%, of the
Companys common stock. Pursuant to the Investor Agreement between the Company and Morgan Stanley,
five of our current board of directors were originally Morgan Stanleys designees. The Directors
are Mr. Zervigon, Mr. Albert, Mr. Jenson, Mr. Whitehurst and Mr. Cyprus. Mr. Albert, Mr. Jenson,
Mr. Whitehurst and Mr. Cyprus are independent directors, as defined under the applicable rules of
the New York Stock Exchange. As a result of the reduction in Morgan Stanleys ownership percentage
subsequent to the sale of shares in September 2010 secondary offering, Morgan Stanley currently has
the right to propose three directors for nominations to the Board of Directors, all of whom must be
independent.
NOTE 12. Commitments and Contingencies
The Company is obligated under certain non-cancelable operating leases for office space and
equipment. We currently lease 199,476 square feet of office and operations space in two locations
in Longmont, Colorado. This space includes our principal executive offices. The rent varies in
amounts per year through its expiration date in August 2015. Lease expense for the Longmont
location has been recorded straight line over the term of the lease. The Company received
approximately $9.1 million of certain rent incentives that we have deferred and are amortizing over
the life of the lease. We have $3.6 million and $3.1 million of net leasehold improvements at
December 31, 2010 and March 31, 2011, respectively, which we are amortizing ratably over the
remaining lease term.
Rent expense net of sublease income approximated $0.7 million and $0.6 million, for the three
months ended March 31, 2010 and 2011, respectively.
We enter into agreements in the ordinary course of business with resellers and others. Most of
these agreements require us to indemnify the other party against third-party claims alleging that
one of our products infringes or misappropriates a patent, copyright, trademark, trade secret or
other intellectual property right. Certain of these agreements require us to indemnify the other
party against claims relating to property damage, personal injury or acts or omissions by us, our
employees, agents or representatives. In addition, from time to time we have made guarantees
regarding the performance of our systems to our customers.
The majority of these agreements do not limit the maximum potential future payments the Company
could be obligated to make. The Company evaluates and estimates potential losses from such
indemnification based on the likelihood that the future event will occur. To date, the Company has
not incurred any material costs as a result of such obligations and has not accrued any material
liabilities related to such indemnification and guarantees in the Companys financial statements.
NOTE 13. Subsequent Events
On April 4, 2011, Ms. Jill D. Smith, Chief Executive Officer of the Company, terminated her
employment, concurrent with the commencement of employment of Jeffrey R. Tarr as President and CEO.
The provisions in Ms. Smiths Amended and Restated Employment agreement resulted in a modification
in the option and stock awards that she previously received. This modification included continued
vesting of her awards through the end of her non-compete agreement with an extension of the
exercise period of 90 days beyond the end date of her non-compete agreement with the Company. This
modification will result in a $5.1 million non-cash charge to stock compensation expense during the
second quarter.
During the first quarter of 2011, the Company received approval from the National Oceanic and
Atmospheric Administration (NOAA) to raise the operating orbit of the QuickBird satellite. The
orbital adjustment commenced on March 21, 2011, and was completed on April 7, 2011. The QuickBird
satellite is now operating at an orbital altitude of 482 kilometers, an increase from its prior
orbit altitude of 450 kilometers. We anticipate that the new orbit altitude will result in an extension of the anticipated
useful life of the QuickBird satellite.
Page 12 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 14. Guarantor Subsidiaries
The Companys payment obligations for the senior secured notes (Note 7) are guaranteed by certain
of our subsidiaries. Each of the subsidiary guarantors is 100% owned by the parent company and the
guarantees are full and unconditional and joint and several. For
the three months ended March 31, 2011, the income in the subsidiary guarantors was greater than 3% of our total pretax income, thus we have provided the financial information below for the parent and subsidiary guarantors.
Financial information for our non-guarantor subsidiary has not been presented as the financial
condition, results of operations and cash flows of our non-guarantor subsidiary are minor.
For this guarantor financial information, investments in subsidiaries are accounted for by the
parent company using the equity method of accounting. Net income (loss) of the guarantor
subsidiaries is, therefore, reflected in the parent companys investments in subsidiaries. Net
income (loss) of the guarantor subsidiaries is reflected in parent company as equity income (loss)
in consolidated subsidiaries. The elimination entries eliminate investments in subsidiaries and the
equity income (loss) in subsidiaries as well as intercompany balances and transactions for
consolidated reporting purposes.
Supplemental Unaudited Condensed Consolidating Statement of Operations
For the three months ended March 31, 2011
For the three months ended March 31, 2011
100% Owned | ||||||||||||||||
Guarantor | ||||||||||||||||
(in millions) | Parent Company | Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||
Revenue |
$ | 77.1 | $ | 3.9 | $ | (3.9 | ) | $ | 77.1 | |||||||
Costs and expenses: |
||||||||||||||||
Cost of revenue, excluding depreciation
and amortization |
11.8 | | | 11.8 | ||||||||||||
Selling, general and administrative |
30.2 | 3.8 | (3.9 | ) | 30.1 | |||||||||||
Depreciation and amortization |
29.2 | | | 29.2 | ||||||||||||
Income from operations |
5.9 | 0.1 | | 6.0 | ||||||||||||
Other income (expense), net |
0.1 | | | 0.1 | ||||||||||||
Interest income (expense), net |
(7.7 | ) | | | (7.7 | ) | ||||||||||
Income (loss) before income taxes |
(1.7 | ) | 0.1 | | (1.6 | ) | ||||||||||
Income tax (expense) benefit |
0.9 | (0.0 | ) | | 0.9 | |||||||||||
Net Income (loss) before equity in
income (loss) of consolidated
subsidiaries |
(0.8 | ) | 0.1 | | (0.7 | ) | ||||||||||
Equity in income of consolidated subsidiaries |
0.1 | | (0.1 | ) | | |||||||||||
Net income (loss) |
$ | (0.7 | ) | $ | 0.1 | $ | (0.1 | ) | $ | (0.7 | ) | |||||
Supplemental Unaudited Condensed Consolidating Statement of Operations
For the three months ended March 31, 2010
For the three months ended March 31, 2010
100% Owned | ||||||||||||||||
Guarantor | ||||||||||||||||
(in millions) | Parent Company | Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||
Revenue |
$ | 77.1 | $ | 2.0 | $ | (2.0 | ) | $ | 77.1 | |||||||
Costs and expenses: |
||||||||||||||||
Cost of revenue, excluding depreciation
and amortization |
10.1 | | | 10.1 | ||||||||||||
Selling, general and administrative |
24.9 | 1.9 | (2.0 | ) | 24.8 | |||||||||||
Depreciation and amortization |
29.1 | | | 29.1 | ||||||||||||
Income from operations |
13.0 | 0.1 | | 13.1 | ||||||||||||
Interest income (expense), net |
(9.9 | ) | | | (9.9 | ) | ||||||||||
Income (loss) before income taxes |
3.1 | 0.1 | | 3.2 | ||||||||||||
Income tax (expense) benefit |
(1.7 | ) | (0.0 | ) | | (1.7 | ) | |||||||||
Net Income (loss) before equity in
income (loss) of consolidated
subsidiaries |
1.4 | 0.1 | | 1.5 | ||||||||||||
Equity in income of consolidated subsidiaries |
0.1 | | (0.1 | ) | | |||||||||||
Net income (loss) |
$ | 1.5 | $ | 0.1 | $ | (0.1 | ) | $ | 1.5 | |||||||
Page 13 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
Supplemental Unaudited Condensed Consolidating Balance Sheet
As of March 31, 2011
As of March 31, 2011
100% owned | ||||||||||||||||
Guarantor | Eliminating | |||||||||||||||
(in millions, except share and per share data) | Parent | Subsidiaries | Entries | Consolidated | ||||||||||||
ASSETS |
||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||
Cash and cash equivalents |
$ | 163.6 | $ | 0.1 | $ | | $ | 163.7 | ||||||||
Restricted cash |
4.7 | | | 4.7 | ||||||||||||
Accounts receivable, net |
36.8 | 1.5 | (1.5 | ) | 36.8 | |||||||||||
Prepaid and current assets |
16.3 | | | 16.3 | ||||||||||||
Deferred taxes |
56.0 | | | 56.0 | ||||||||||||
Total current assets |
277.4 | 1.6 | (1.5 | ) | 277.5 | |||||||||||
Property and equipment, net |
920.1 | 0.1 | | 920.2 | ||||||||||||
Goodwill |
8.7 | | | 8.7 | ||||||||||||
Intangibles,
net |
0.3 | | | 0.3 | ||||||||||||
Aerial image library, net |
2.2 | | | 2.2 | ||||||||||||
Long-term restricted cash |
12.5 | | | 12.5 | ||||||||||||
Long-term deferred contract costs |
43.2 | | | 43.2 | ||||||||||||
Other assets, net |
6.8 | 0.1 | | 6.9 | ||||||||||||
Investments in subsidiaries |
0.8 | (0.8 | ) | | ||||||||||||
Total assets |
$ | 1,272.0 | $ | 1.8 | $ | (2.3 | ) | $ | 1,271.5 | |||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||
Accounts payable |
$ | 10.7 | $ | | $ | (1.5 | ) | $ | 9.2 | |||||||
Accrued interest |
15.5 | | | 15.5 | ||||||||||||
Other accrued liabilities |
19.3 | 1.0 | | 20.3 | ||||||||||||
Current portion of deferred revenue |
40.3 | | | 40.3 | ||||||||||||
Total current liabilities |
85.8 | 1.0 | (1.5 | ) | 85.3 | |||||||||||
Long-term accrued liability |
1.8 | | | 1.8 | ||||||||||||
Deferred revenue |
262.5 | | | 262.5 | ||||||||||||
Deferred lease incentive |
4.3 | | | 4.3 | ||||||||||||
Long-term debt, net of discount |
346.7 | | | 346.7 | ||||||||||||
Long-term deferred tax liability, net |
69.1 | | | 69.1 | ||||||||||||
Total liabilities |
$ | 770.2 | $ | 1.0 | $ | (1.5 | ) | $ | 769.7 | |||||||
COMMITMENTS AND CONTINGENCIES |
||||||||||||||||
STOCKHOLDERS EQUITY |
||||||||||||||||
Total stockholders equity |
501.8 | 0.8 | (0.8 | ) | 501.8 | |||||||||||
Total liabilities and stockholders equity |
$ | 1,272.0 | $ | 1.8 | $ | (2.3 | ) | $ | 1,271.5 | |||||||
Page 14 of 29
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DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
Supplemental Unaudited Condensed Consolidating Balance Sheet
As of December 31, 2010
As of December 31, 2010
100% owned | ||||||||||||||||
Guarantor | Eliminating | |||||||||||||||
(in millions, except share and per share data) | Parent | Subsidiaries | Entries | Consolidated | ||||||||||||
ASSETS |
||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||
Cash and cash equivalents |
$ | 179.2 | $ | 0.1 | $ | | $ | 179.3 | ||||||||
Restricted cash |
6.7 | | | 6.7 | ||||||||||||
Accounts receivable, net |
45.3 | 1.4 | (1.4 | ) | 45.3 | |||||||||||
Prepaid and current assets |
19.3 | 0.1 | | 19.4 | ||||||||||||
Deferred taxes |
62.7 | | | 62.7 | ||||||||||||
Total current assets |
313.2 | 1.6 | (1.4 | ) | 313.4 | |||||||||||
Property and equipment, net |
879.0 | 0.1 | | 879.1 | ||||||||||||
Goodwill |
8.7 | | | 8.7 | ||||||||||||
Intangibles, net |
0.3 | | | 0.3 | ||||||||||||
Aerial image library, net |
1.9 | | | 1.9 | ||||||||||||
Long-term restricted cash |
13.6 | | | 13.6 | ||||||||||||
Long-term deferred contract costs |
42.1 | | | 42.1 | ||||||||||||
Other assets, net |
7.1 | 0.1 | | 7.2 | ||||||||||||
Investments in subsidiaries |
0.7 | (0.7 | ) | | ||||||||||||
Total assets |
$ | 1,266.6 | $ | 1.8 | $ | (2.1 | ) | $ | 1,266.3 | |||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||
Accounts payable |
$ | 16.2 | $ | 0.2 | $ | (1.4 | ) | $ | 15.0 | |||||||
Accrued interest |
6.2 | | | 6.2 | ||||||||||||
Other accrued liabilities |
25.4 | 0.9 | | 26.3 | ||||||||||||
Current portion of deferred revenue |
38.9 | | | 38.9 | ||||||||||||
Total current liabilities |
86.7 | 1.1 | (1.4 | ) | 86.4 | |||||||||||
Long-term accrued liability |
6.0 | | | 6.0 | ||||||||||||
Deferred revenue |
246.2 | | | 246.2 | ||||||||||||
Deferred lease incentive |
4.6 | | | 4.6 | ||||||||||||
Long-term debt, net of discount |
346.1 | | | 346.1 | ||||||||||||
Long-term deferred tax liability, net |
76.7 | | | 76.7 | ||||||||||||
Total liabilities |
$ | 766.3 | $ | 1.1 | $ | (1.4 | ) | $ | 766.0 | |||||||
COMMITMENTS AND CONTINGENCIES |
||||||||||||||||
STOCKHOLDERS EQUITY |
||||||||||||||||
Total stockholders equity |
500.3 | 0.7 | (0.7 | ) | 500.3 | |||||||||||
Total liabilities and stockholders equity |
$ | 1,266.6 | $ | 1.8 | $ | (2.1 | ) | $ | 1,266.3 | |||||||
Page 15 of 29
Table of Contents
DigitalGlobe, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
Supplemental Unaudited Condensed Statement of Cash Flows
As of March 31, 2011
As of March 31, 2011
100% Owned | ||||||||||||
Guarantor | ||||||||||||
(in millions) | Parent | Subsidiaries | Consolidated | |||||||||
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES |
$ | 60.6 | $ | (0.1 | ) | $ | 60.5 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Construction in progress additions |
(78.3 | ) | | (78.3 | ) | |||||||
Other property, equipment and intangible additions |
(1.3 | ) | | (1.3 | ) | |||||||
Decrease in restricted cash |
3.1 | | 3.1 | |||||||||
Net cash flows used in investing activities |
(76.5 | ) | | (76.5 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Proceeds from initial public offering, net of issuance costs |
| | | |||||||||
Proceeds from exercise of stock options |
0.6 | | 0.6 | |||||||||
Cash paid for treasury stock |
(0.2 | ) | | (0.2 | ) | |||||||
Net cash flows provided by financing activities |
0.4 | | 0.4 | |||||||||
Net increase (decrease) in cash and cash equivalents |
(15.5 | ) | | (15.6 | ) | |||||||
Cash and cash equivalents, beginning of period |
179.1 | 0.2 | 179.3 | |||||||||
Cash and cash equivalents, end of period |
163.6 | 0.1 | 163.7 | |||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: |
||||||||||||
Cash paid for income taxes |
0.7 | | 0.7 | |||||||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
||||||||||||
Changes to non-cash construction in progress accruals, including interest |
$ | 9.3 | $ | | $ | 9.3 |
Supplemental Unaudited Condensed Statement of Cash Flows
As of March 31, 2010
As of March 31, 2010
100% owned | ||||||||||||||||
Guarantor | ||||||||||||||||
(in millions) | Parent | Subsidiaries | Parent | |||||||||||||
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES |
$ | 44.1 | $ | | $ | 44.1 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||||||
Construction in progress additions |
(3.3 | ) | | (3.3 | ) | |||||||||||
Other property, equipment and intangible additions |
(1.0 | ) | | (1.0 | ) | |||||||||||
Decrease in restricted cash |
0.6 | | 0.6 | |||||||||||||
Net cash flows used in investing activities |
(3.7 | ) | | (3.7 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||||||
Proceeds from initial public offering, net of issuance costs |
(0.3 | ) | | (0.3 | ) | |||||||||||
Proceeds from exercise of stock options |
5.2 | | 5.2 | |||||||||||||
Net cash flows provided by financing activities |
4.9 | | 4.9 | |||||||||||||
Net increase (decrease) in cash and cash equivalents |
45.3 | | 45.3 | |||||||||||||
Cash and cash equivalents, beginning of period |
97.0 | | 97.0 | |||||||||||||
Cash and cash equivalents, end of period |
142.3 | | 142.3 | |||||||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: |
||||||||||||||||
Cash paid for income taxes |
0.1 | | 0.1 | |||||||||||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
||||||||||||||||
Changes to non-cash construction in progress accruals, including interest |
$ | 14.3 | | $ | 14.3 |
Page 16 of 29
Table of Contents
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein and other of our reports, filings, and public announcements may
contain or incorporate forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended. Forward-looking statements relate to future events or
our future financial performance. We generally identify forward-looking statements by terminology
such as may, will, should, expects, plans, anticipates, could, intends, target,
projects, contemplates, believes, estimates, predicts, potential or continue or the
negative of these terms or other similar words, although not all forward-looking statements contain
these words.
Any forward-looking statements are based upon our historical performance and on our current plans,
estimates and expectations. The inclusion of this forward-looking information should not be
regarded as a representation by us that the future plans, estimates or expectations will be
achieved. Such forward-looking statements are subject to various risks and uncertainties and
assumptions. A number of important factors could cause our actual results or performance to differ
materially from those indicated by such forward looking statements, including: the loss, reduction
or change in terms of any of our primary contracts; the loss or impairment of our satellites;
delays in the construction and launch of WorldView-3; delays in implementation of planned ground
system and infrastructure enhancements; loss or damage to the content contained in our
ImageLibrary; interruption or failure of our ground system and other infrastructure, decrease in
demand for our imagery products and services; increased competition that may reduce our market
share or cause us to lower our prices; our failure to obtain or maintain required regulatory
approvals and licenses; changes in U.S. foreign law or regulation that may limit our ability to
distribute our imagery products and services; the costs associated with being a public company; and
other important factors, all as described more fully in our filings with the Securities and
Exchange Commission, including our Annual Report on Form 10-K.
We undertake no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the occurrence of
unanticipated events. Readers are cautioned not to place undue reliance on any of these forward
looking statements.
Overview
We are a leading global provider of commercial high-resolution earth imagery products and services.
Our products and services support a wide variety of uses, including defense, intelligence and
homeland security applications, mapping and analysis, environmental monitoring, oil and gas
exploration, and infrastructure management. Our principal customers include U.S. and foreign
defense and intelligence agencies and a wide variety of commercial customers, such as internet
portals, companies in the energy, telecommunications, utility and agricultural industries, and U.S.
and foreign civil government agencies. The imagery that forms the foundation of our products and
services is collected daily via our three high-resolution imagery satellites and managed in our
content archive, which we refer to as our ImageLibrary. We believe our ImageLibrary is the largest,
most up-to-date and comprehensive archive of high resolution earth imagery commercially available;
containing more than 1.3 billion square kilometers of imagery, with new imagery added every day.
With the addition of our WorldView-2 satellite, which achieved full operational capacity (FOC) on
January 4, 2010, our collection capacity has expanded to approximately 630 million square
kilometers per year.
Products and Services
We offer earth imagery products and services that are comprised of imagery from our three-satellite
constellation, and aerial imagery that we acquire from third party suppliers. We process our
imagery to varying levels according to the customers specifications and deliver our products using
the distribution method that best suits our customers needs. Customers can purchase satellite or
aerial images that are archived in our ImageLibrary. Customers can also order imagery content by
placing custom orders, which require tasking of our satellites for a specific area of interest, or
as a bundle of imagery and data for a region or type of location, such as cities, ports and harbors
or airports. For example CitySphere, an ImageLibrary product, features color imagery for 300 of the
worlds largest cities that is refreshed on a routine basis.
Customers specify how they want the imagery content that they are purchasing from us to be
produced. We deliver our satellite imagery content at three processing levels: (i) basic imagery
with the least amount of processing; (ii) standard imagery with radiometric and geometric
correction; and (iii) ortho-rectified imagery with radiometric, geometric, and topographic
correction. Radiometric correction enables images to appear uniformly illuminated with the right
level of brightness. Geometric correction allows a user to identify the latitudinal, longitudinal
and altitudinal location of any point in an image. Topographic correction accounts for
terrain and projects images onto the earth as they would be seen by the human eye. All of our
aerial imagery is delivered as ortho-rectified imagery.
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Table of Contents
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
We also use enhanced processing to produce mosaic and stereo imagery products. The mosaic process
takes multiple imagery scenes, collected at different times and dates, and merges them into a
single seamless imagery product. We use specialized collection and enhanced processing to produce
stereo imagery products. Stereo imagery products consist of two images collected from two different
viewpoints along the satellite orbit track that are produced as basic products, but can be viewed
in stereo (3D) using specialized software. Stereo imagery products are used for the creation of
digital elevation maps, for the more accurate creation of 3D maps and for flight simulations.
We offer a range of on- and off-line distribution options designed to enable customers to easily
access and integrate our imagery into their business operations and applications, including desktop
software applications, web services that provide for direct on-line access to our ImageLibrary,
File Transfer Protocol (FTP), and physical media such as CD, DVD, and hard drive. We offer an
additional distribution option through our Direct Access Program (DAP) that allows certain
customers, approved by the U.S. government, to task and download data directly from our WorldView-1
and WorldView-2 satellites within their regional area of interest. DAP is designed to meet the
enhanced information and operational security needs of a select and limited number of defense and
intelligence customers and certain commercial customers. To date, we have signed five customer
contracts for our DAP.
We sell our products and services through a combination of direct and indirect channels, a global
network of resellers, strategic partners, direct enterprise sales and web services.
Significant Customer
In September 2003, we entered into the NextView agreement with the National Geospatial-Intelligence
Agency (NGA) under which we agreed to provide a minimum of $531.0 million of imagery products and
services from our WorldView-1 satellite. Of this amount, $266.0 million was received between
September 2003 and November 2007, the date WorldView-1 became operational. The $266.0 million was
used to offset the construction costs of WorldView-1, and was recorded as deferred revenue when
received. When WorldView-1 reached FOC in November 2007, we began recognizing the deferred revenue
on a straight line basis over the estimated useful life of WorldView-1. The remaining $265.0
million commitment was to be received upon the delivery of imagery once WorldView-1 achieved FOC.
In January 2008, we amended the NextView agreement from image-based ordering to a service level
agreement (NextView SLA) and increased the amount we received under the NextView agreement from
$265.0 million to $311.0 million. On June 25, 2009, the NextView SLA agreement was further amended
to extend the term from July 31, 2009 through March 31, 2010 in consideration for payment of an
additional $100.0 million, payable at $12.5 million per month during the extended term. On February
9, 2010 the NextView agreement was amended to provide NGA with an option to extend the agreement
for three months on the same terms from April 1, 2010 to June 30, 2010 and six additional options
each for a one month period with the last option term expiring on December 31, 2010. On March 11,
2010, NGA exercised the option to extend through June 30, 2010. On June 8, 2010, NGA exercised its
first monthly option to extend through July 31, 2010, and on July 13, 2010 exercised its second
monthly option to extend through August 31, 2010. The NextView SLA expired August 31, 2010.
On August 6, 2010, we entered into the EnhancedView contract with NGA. The SLA portion of the
EnhancedView contract, (EnhancedView SLA) has an effective date of September 1, 2010, commencing
upon the expiration of the NextView SLA. The EnhancedView contract has a ten year term, inclusive
of nine one-year options exercisable by NGA, and is subject to Congressional appropriations and the
federal budget process, and the right of NGA to terminate or suspend the contract at any time.
The EnhancedView SLA portion of the award is sized at $2.8 billion over the term of the contract
assuming NGA exercises all of its options and we perform as specified; $250.0 million annually, or
$20.8 million per month, for the first four contract years, commencing September 1, 2010, with an
increase to $300.0 million annually, or $25.0 million per month, for the remaining six years of the
contract term. The award also provides for up to $750.0 million for value added products,
infrastructure enhancements and other services, including the option for NGA to require us to lower
the altitude of WorldView-2 to an altitude of 496 km at any time after September 1, 2013.
DigitalGlobe will be required to meet certain service level requirements related to the operational
performance of the satellites comprising the WorldView constellation and related ground systems. To
support requirements under this agreement, we are constructing our next satellite, WorldView-3, as
well as certain other infrastructure improvements.
We recognize revenue for the $2.8 billion in services to be provided under the EnhancedView SLA
using a proportional performance method based upon the estimated capacity of our constellation made
available to NGA compared to the total capacity to be provided over the life of the contract. The
contract requires the Company to increase capacity of the constellation through the installation of
additional remote ground terminals, which communicate directly with our satellites, as well as the
addition of an entirely new satellite, WorldView-3. Our WorldView-3 satellite is expected to be
ready for launch in the second half of 2014. As capacity is added to our constellation, we
recognize revenue in direct proportion to the amount of incremental capacity that is made available
to NGA. We
recognized approximately $12.5 million of revenue monthly through March 31, 2011, under the
EnhancedView contract. Given the significant amount of constellation capacity expected to be
generated by our WorldView-3 satellite and the increasing percentage of capacity that NGA will
acquire from us once the WorldView-3 satellite becomes operational, we anticipate a material
increase in revenue once the WorldView-3 satellite reaches FOC.
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DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
Under the EnhancedView SLA, and assuming all option years under the agreement are exercised and
funded, we will receive a consistent, monthly non-refundable cash payment of approximately $20.8
million from NGA during the first four years of the EnhancedView contract, with an increase to
$25.0 million per month in years five through ten. Each month is subject to a holdback, up to 10%
of the monthly payment scheduled, depending upon the Companys performance against pre-defined
criteria. If NGA certifies that we have performed all requirements in the agreement each month, no
holdback will be applied to that month. If funds are held back, the Company retains the cash;
however, those funds can be applied to future products and services or will fund a pro-rated
extension beyond the current contract period. Accordingly, all amounts held back will cause the
Company to defer recognition of a corresponding revenue amount until such additional products or
services have been provided. For the three months ended March 31, 2011, we had a holdback of $0.2
million, of which $0.1 million was utilized by NGA during the first quarter 2011.
Revenue
Our principal source of revenue is the licensing of our earth imagery products and services to end
users and resellers.
We conduct our business through two segments: (i) defense and intelligence and (ii) commercial. We
have organized our business into these two segments because we believe that customers in these two
groups are functionally similar in terms of their areas of focus and purchasing habits. Our imagery
products and services are comprised of imagery that we process to varying levels according to the
customers specifications. We deliver our products and services using the distribution method that
best suits our customers needs. Customers can purchase satellite or aerial images that are
archived in our ImageLibrary. Customers can also order imagery content by placing custom orders,
which require tasking of our satellites, for a specific area of interest, or as a bundle of imagery
and data for a region or type of location, such as cities, ports and harbors or airports.
Three Months Ended March 31, | ||||||||
(in millions) | 2010 | 2011 | ||||||
Revenue |
||||||||
Defense and Intelligence |
$ | 62.6 | $ | 61.7 | ||||
Commercial |
14.5 | 15.4 | ||||||
Total Revenue |
$ | 77.1 | $ | 77.1 | ||||
Revenue as a percent of total |
||||||||
Defense and Intelligence |
81.2 | % | 80.0 | % | ||||
Commercial |
18.8 | % | 20.0 | % | ||||
Total Revenue |
100.0 | % | 100.0 | % | ||||
Total U.S. and foreign sales were as follows:
Three Months Ended March 31, | ||||||||
(in millions) | 2010 | 2011 | ||||||
Revenue |
||||||||
U.S. |
$ | 56.5 | $ | 53.5 | ||||
Foreign |
20.6 | 23.6 | ||||||
Total Revenue |
$ | 77.1 | $ | 77.1 | ||||
Defense and Intelligence Revenue
Our defense and intelligence segment consists of customers who are principally defense and
intelligence agencies of U.S. or foreign governments. The U.S. government, through NGA, purchases
our imagery products and services on behalf of various entities within the U.S. government,
including the military commands and other government agencies. We also sell to other U.S. defense
and intelligence customers including defense and intelligence contractors who provide an additional
outlet for our imagery by providing value-added services to our imagery to deliver a final end
product to a customer.
Our other defense and intelligence customers focus on image quality, including resolution,
frequency of area revisit and coverage, as well as ensuring availability of a certain amount of our
capacity as they integrate our products and services into their operational planning. Our other
customers in this segment typically operate under contracts with purchase commitments, through
which we
receive monthly or quarterly payments in exchange for delivering specific orders to the customer.
Our revenue from our defense and intelligence customers has historically been largely from tasking
orders, with a smaller portion from sales of imagery from our ImageLibrary. We believe this trend
will continue. We sell to our defense and intelligence customers both directly and through
resellers.
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Table of Contents
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
By the second half of 2010, we had commissioned four of our DAP customers ground terminals and
began generating revenue from providing satellite access time to these customers. We do not
recognize revenue from a DAP customer until we commission into operation the ground terminal and
can provide contractually specified access to our operational satellites. We earn revenue based on
facility and maintenance amortization and access minute fees. We currently expect to commission our
fifth DAP customers ground terminal during the first quarter of 2012.
The costs associated with the DAPs are deferred until the commencement of operations, and are being
amortized to cost of revenue associated with the DAP. We amortize the cost of each facility ratably
over the customer relationship period, which is consistent with the estimated remaining useful life
of the satellite being used.
Three Months Ended March 31, | ||||||||
(in millions) | 2010 | 2011 | ||||||
Defense and Intelligence revenue |
||||||||
U.S. and Canada revenue |
||||||||
NGA SLA |
$ | 37.7 | $ | 37.6 | ||||
Other revenue and value added services |
8.5 | 6.2 | ||||||
Amortization of pre-FOC payments related to NextView |
6.4 | 6.4 | ||||||
Total U.S. and Canada revenue |
$ | 52.6 | $ | 50.2 | ||||
International revenue, excluding Canada |
$ | 5.0 | $ | 2.1 | ||||
DAP revenue |
5.0 | 9.4 | ||||||
Total international revenue, excluding Canada |
$ | 10.0 | 11.5 | |||||
Total defense and intelligence revenue |
$ | 62.6 | $ | 61.7 | ||||
Revenue as a Percent of Total |
||||||||
U.S. and Canada |
84.0 | % | 81.4 | % | ||||
International, excluding Canada |
16.0 | % | 18.6 | % | ||||
100.0 | % | 100.0 | % | |||||
Reseller and Direct Sales |
||||||||
Direct Sales |
96.2 | % | 98.0 | % | ||||
Resellers |
3.8 | % | 2.0 | % | ||||
100.0 | % | 100.0 | % |
Revenue percentages from all customers whose revenue exceeded 10% of the total company revenue
were as follows:
Three Months Ended March 31, | ||||||||
Customer | 2010 | 2011 | ||||||
NGA |
66.2 | % | 64.4 | % | ||||
Hitachi Solutions, Ltd. |
8.0 | % | 10.6 | % |
Commercial Revenue
Our commercial business consists of both traditional customers, primarily civil governments and
agencies, as well as energy, telecommunications, utility and agricultural companies that use our
content for mapping, monitoring, analysis and planning activities. Our Commercial business also
includes customers that add our content to enhance and expand the information products and services
that they develop and sell to the commercial market. We call this second type of customer an
integrated information customer. The Company has defined Americas to include North America, South
America and Central America and International to include all commercial revenue outside of the
Americas.
Most of our traditional commercial customers purchase our imagery products and services on an
as-needed basis, either from the ImageLibrary or by placing tasking orders. By contrast, some of
our integrated information customers prefer contracts to maintain access to our imagery archive, or
purchase subscriptions to access our ImageLibrary. Our commercial customers are located throughout
the world. We sell to these customers both directly and through resellers.
For the three months ended March 31, 2010 and 2011, we generated approximately 24.2% and 17.5% of
our commercial revenue from paid tasking, respectively, 75.8% and 82.5% from our ImageLibrary,
respectively.
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DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
For the three months ended March 31, 2010 and 2011, our top five commercial customers accounted for
44.4% and 46.0% of our commercial revenue. We believe that we will have additional growth
opportunities internationally especially in countries with rapidly developing economies, such as
Brazil, China, India and Russia, and, as a result, we expect that long-term sales growth in our
commercial segment will be higher outside of the United States.
Three months ended March 31, | ||||||||
(in millions) | 2010 | 2011 | ||||||
Commercial Revenue |
||||||||
Americas |
$ | 5.4 | $ | 5.8 | ||||
International |
9.1 | 9.6 | ||||||
Total commercial revenue |
$ | 14.5 | $ | 15.4 | ||||
Revenue as a Percent of Total |
||||||||
Americas revenue |
37.2 | % | 37.7 | % | ||||
International revenue |
62.8 | % | 62.3 | % | ||||
Reseller and Direct Sales |
||||||||
Direct sales |
34.0 | % | 39.0 | % | ||||
Resellers |
66.0 | % | 61.0 | % |
Expenses
Most of our revenue is generated by the sale of products and services comprised of imagery from our
QuickBird, WorldView-1 and WorldView-2 satellites. Our cost of revenue consists primarily of the
cost of personnel, as well as the cost of operations directly associated with operating our
satellites, retrieving information from the satellites, and processing the data retrieved. Costs of
acquiring aerial imagery from third-parties are capitalized and amortized on an accelerated basis
as a cost of revenue.
Our selling, general and administrative expenses consist primarily of labor, benefits, travel,
rent, insurance, utilities and related overhead costs, third-party consultant payments, sales
commissions and marketing expenses. Our total selling, general and administrative expenses have
been increasing in recent years, and we expect the increase in costs to continue as we expand our
sales and administrative resources to enable our revenue growth and increase capacity for product
sales and distribution.
The increase in selling, general and administrative expenses may be offset in future years by the
capitalization of labor costs incurred in the development of new assets, especially during the
construction of a new satellite. With the initiation of our WorldView-3 satellite and other capital
investments related to the EnhancedView program, we anticipate we will be capitalizing increasing
amounts of direct labor costs that are associated with the development of these programs.
Depreciation and amortization consist primarily of depreciation of our satellites and other
operating assets.
Our interest charges consist primarily of interest payments on borrowings used to finance satellite
construction and may be capitalized as a cost of our satellite construction. As we increase capital
expenditures, primarily related to the construction of our WorldView-3 satellite and related ground
stations, we expect the interest that is capitalized to increase until the successful commission of
our satellite.
Based on our capitalization policies, we expect our future interest expense to decrease due to
capitalization of these costs to the construction of our WorldView-3 satellite and other
infrastructure. The costs of our satellites include capitalized interest costs incurred during the
construction and development period of the satellite. In addition, capitalized costs of our
satellites and related ground systems include internal direct labor costs incurred in their
construction.
Page 21 of 29
Table of Contents
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
For the Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010
The following tables summarize our historical results of operations for the three months ended
March 31, 2011 compared to the three months ended March 31, 2010, and our expenses as a percentage
of revenue for the periods indicated:
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
(in millions) | 2010 | 2011 | $ | Percent | ||||||||||||
Historical results of operations: |
||||||||||||||||
Defense and Intelligence revenue |
$ | 62.6 | $ | 61.7 | $ | (0.9 | ) | (1.4 | )% | |||||||
Commercial revenue |
14.5 | 15.4 | 0.9 | 6.2 | ||||||||||||
Total revenue |
77.1 | 77.1 | | | ||||||||||||
Cost of revenue excluding depreciation and amortization |
10.1 | 11.8 | 1.7 | 16.8 | ||||||||||||
Selling, general and administrative |
24.8 | 30.1 | 5.3 | 21.4 | ||||||||||||
Depreciation and amortization |
29.1 | 29.2 | 0.1 | 0.3 | ||||||||||||
Income from operations |
13.1 | 6.0 | (7.1 | ) | (54.2 | ) | ||||||||||
Other income (expense), net |
| 0.1 | 0.1 | 100.0 | ||||||||||||
Interest income (expense), net |
(9.9 | ) | (7.7 | ) | 2.2 | 22.2 | ||||||||||
Income (loss) before income taxes |
3.2 | (1.6 | ) | (4.8 | ) | (150.0 | ) | |||||||||
Income tax (expense) benefit |
(1.7 | ) | 0.9 | 2.6 | 152.9 | |||||||||||
Net income (loss) |
$ | 1.5 | $ | (0.7 | ) | $ | (2.2 | ) | (146.7 | )% | ||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Expenses as a percentage of revenue: |
||||||||
Total revenue |
100.0 | % | 100.0 | % | ||||
Cost of revenue, excluding depreciation and amortization |
13.1 | 15.3 | ||||||
Selling, general and administrative |
32.2 | 39.0 | ||||||
Depreciation and amortization |
37.7 | 37.8 | ||||||
Income from operations |
17.0 | 7.9 | ||||||
Other income (expense), net |
| 0.1 | ||||||
Interest income (expense), net |
12.8 | (10.0 | ) | |||||
Income (loss) before income taxes |
4.2 | (2.0 | ) | |||||
Income tax (expense) benefit |
2.2 | 1.2 | ||||||
Net income (loss) |
2.0 | % | (0.8 | )% | ||||
Total revenue was the same for the first quarter of 2011 as compared to the first quarter of
2010, at $77.1 million. The $0.9 million decrease in Defense and Intelligence revenue during the
first quarter of 2011, to $61.7 million, was due to a $2.6 million decrease in NGA projects and a
$2.8 million decrease in government related international sales, offset by a $4.5 million
increase in our direct access programs. The $0.9 million increase in Commercial revenue to $15.4
million, for the first quarter of 2011, was driven by a $0.4 million increase in consumer revenue
in the Americas, and a $0.4 million increase in international sales, specifically in Asia.
The $1.7 million increase in cost of revenue during the first quarter of 2011, to $11.8 million, is
primarily attributable to a $1.5 million increase in labor related costs due to headcount growth. First
quarter of 2011 cost of revenue as a percentage of revenue was 15.3%, a 2.2% increase from 13.1%
for the first quarter of 2010. Labor capitalization is expected to increase over the remainder of
2011 and throughout the construction of our WorldView-3 satellite.
The increase of $5.3 million, in selling, general and administrative costs during the first quarter
of 2011, to $30.1 million, was attributable to (i) $4.0 million increase in labor related costs
driven by increased headcount, (ii) $1.8 million increase in bad debt expense, and (iii) $0.3 million increase in third-party commissions.
These increases were offset by a $1.3 million decrease in costs to insure our satellite
constellation, primarily driven by a reduced insurance premium for WorldView-2 as the satellite is
in year two of on-orbit insurance. First quarter of 2011 selling, general and administrative
expenses as a percentage of revenue was 39.0%, a 6.8% increase from 32.2% in the first quarter of
2010.
Depreciation and amortization during the first quarter of 2011 increased by $0.1 million, or 0.3%
as compared to the first quarter of 2010.
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DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
Other income (expense), net, increased $0.1 million from first quarter of 2010. This increase was
due to the accelerated on-orbit incentive payment that we paid in full, during the first quarter of
2011.
Interest expense was $7.7 million, a decrease of 22.2%, from $9.9 million during the first quarter
of 2010. Approximately 29.2% of our interest was capitalized on capital projects during the first
quarter of 2011. During the third quarter of 2010, the Company started the construction of the
WorldView-3 satellite. As a result of this construction, we expect our capital expenditures to increase during the remainder of
2011, and we therefore anticipate that more of our interest will be capitalized.
In order to calculate our income tax expense, we performed an analysis of our projected 2011
operating results to determine an effective overall tax rate to be applied for each quarter of
2011. This annualized rate does not include the effects of certain discrete items which must be
included in the quarter that they occur. In the first quarter of 2011, we expect to have an
annualized effective tax rate of approximately 53.7% exclusive of any discrete items. This
estimated effective tax rate is based upon current forecasted income and expenses for the entire
2011 calendar year and will be adjusted each quarter to reflect updated forecasts and actual
results.
Assets
The Companys total assets increased $5.2 million during the first quarter in 2011, as compared to
December 31, 2010, primarily as a result of an increase in property and equipment, offset by a
decrease in cash and accounts receivable. The Companys property and equipment balance increased
$41.1 million, to $920.2 million primarily due to an increase in construction in progress due to
the construction of the WorldView-3 satellite and other infrastructure projects, offset by
depreciation. The Companys cash balance decreased $15.6 million, to $163.7 million, due to
increased capital expenditures related to the WorldView-3 satellite and other infrastructure
projects. Accounts receivable decreased $8.5 million, to $36.8 million, due to timing of receipt of
payments from customers.
Other Balance Sheet Measures
Other accrued liabilities decreased $6.0 million during the three months ended
March 31, 2011 from December 31, 2010, primarily due to a
$3.7 million change
in employee related compensation accruals and a $3.1 million decrease in the current
liability portion of on-orbit incentive payments related to the operation of the
WorldView-2 satellite.
Long-term accrued liabilities decreased $4.2 million during the first quarter of 2011 as compared
to 2010 primarily as a result of the settlement of on-orbit incentive payments. As of March 31,
2011, the company has no more obligations with regards to these incentive payments.
Deferred revenue increased $16.3 million during the first quarter of 2011 from 2010, primarily due
to deferral of $24.8 million of the EnhancedView SLA monthly payment, offset by a $6.4 million
decrease from recognizing pre-FOC payments and a $2.1 million decrease due to recognizing deferred revenue from the DAP.
Liquidity and Capital Resources
We believe that the combination of funds currently available to us and funds expected to be
generated from operations will be adequate to finance our operations and development activities for
the next twelve months. Our NextView agreement with NGA was replaced by the EnhancedView agreement
which was signed during August 2010. We cannot assure you that the U.S. government will continue to
purchase earth imagery from us at similar levels or similar terms. All of our contracts with the
U.S. government agencies are subject to risks of termination or reduction in scope due to changes
in U.S. government policies and priorities, or reduced Congressional funding level commitments.
Pursuant to the contract terms, U.S. government agencies can terminate, modify or suspend our
contracts at any time with or without cause. The U.S. government accounted for approximately 64.4%
of our consolidated revenue for the three months ended March 31, 2011. If the U.S. government were
not to renew or extend our contract at similar levels or similar terms, we believe we would be able
to maintain operations with existing cash and cash equivalents for the next twelve months.
Page 23 of 29
Table of Contents
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
In summary, our cash flows were:
Three months ended | ||||||||
March 31, | ||||||||
(in millions) | 2010 | 2011 | ||||||
Net cash provided by operating activities |
$ | 44.1 | $ | 60.5 | ||||
Net cash used in investing activities |
(3.7 | ) | (76.5 | ) | ||||
Net cash provided by financing activities |
$ | 4.9 | $ | 0.4 |
During the first quarter of 2011, our operating cash flow increased by $16.4 million to $60.5
million, compared to the first quarter of 2010. This increase was primarily as a result of an
increase in deferred revenue due to the EnhancedView SLA contract. There were also
decreases in accrued liabilities and long-term liabilities due primarily to the settlement of our on-orbit
incentive payments in the first quarter of 2011.
Cash flows used in investing activities increased from $3.7 million in the first quarter of 2010 to
$76.5 million in the first quarter of 2011, primarily due to an increase in capital expenditures
related to construction of WorldView-3 and related infrastructure. We anticipate capital
expenditures to increase throughout the remainder of 2011 and thereafter, until the completion of
WorldView-3.
Cash provided by financing activities decreased from $4.9 million in the first quarter of 2010 to
$0.4 million in the first quarter of 2011. During the first quarter of 2010 there was $5.2 million
of stock option exercises related to a large number of options that had expiration dates during the
first quarter. Also, during the first quarter of 2011, participants elected to use shares to pay
their minimum taxes due when their restricted stock vested.
Senior Secured Notes
On April 28, 2009, we issued $355.0 million principal amount of our senior secured notes. Gross
proceeds of $341.8 million were used to repay our senior credit facility and senior subordinated
notes in full and pay fees and expenses associated with the transaction. The remaining proceeds
will be used for general corporate purposes. The senior secured notes mature on May 1, 2014. The
senior secured notes are guaranteed by certain of our subsidiaries and secured by nearly all of our
assets, including the shares of capital stock of certain of our subsidiaries, and the QuickBird,
WorldView-1 and WorldView-2 satellites in operation. The senior secured notes bear interest at the
rate of 10.5% per annum. Interest is payable semi-annually on May 1 and November 1 of each year.
We may redeem some or all of the senior secured notes after May 1, 2012, at a redemption price
equal to 105.25% of their principal amount through May 1, 2013 and 100% thereafter plus, in each
case, accrued and unpaid interest. In addition, at any time on or prior to May 1, 2012, we may
redeem up to 35% of the aggregate principal amount of the senior secured notes with the net cash
proceeds of certain equity offerings at 110.5% of the principal amount plus accrued and unpaid
interest. In the event of certain change of control events, we must give holders of the senior
secured notes an opportunity to sell us their notes at a purchase price of 101% of the accreted
value of such notes, plus accrued and unpaid interest.
The indenture governing the senior secured notes contains a number of significant restrictions and
covenants that, among other things, limit our ability to incur additional indebtedness, make
investments, pay dividends or make distributions to our stockholders, grant liens on our assets,
sell assets, enter into a new or different line of business, enter into transactions with our
affiliates, merge or consolidate with other entities or transfer all or substantially all of our
assets, and enter into sale and leaseback transactions.
Off-Balance Sheet Arrangements, Guaranty and Indemnification Obligations
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of March 31, 2011.
Guaranty and Indemnification Obligations
We enter into agreements in the ordinary course of business with resellers and others. Most of
these agreements require us to indemnify the other party against third-party claims alleging that
one of our products infringes or misappropriates a patent, copyright, trademark, trade secret or
other intellectual property right. Certain of these agreements require us to indemnify the other
party against claims relating to property damage, personal injury or acts or omissions by us, our
employees, agents or representatives. In addition, from time to time we have made guarantees
regarding the performance of our systems to our customers.
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DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
The majority of these agreements do not limit the maximum potential future payments the Company
could be obligated to make. The Company evaluates and estimates potential losses from such
indemnification based on the likelihood that the future event will occur. To date, the Company has
not incurred any material costs as a result of such obligations and has not accrued any material
liabilities related to such indemnification and guarantees in the Companys financial statements.
Non-GAAP Disclosures
Reconciliation of Net Income (loss) to Adjusted EBITDA
Three months ended | ||||||||
March 31, | ||||||||
(in millions) | 2010 | 2011 | ||||||
Net income (loss) |
$ | 1.5 | $ | (0.7 | ) | |||
Depreciation and amortization |
29.1 | 29.2 | ||||||
Interest (income) expense, net |
9.9 | 7.7 | ||||||
Income tax expense (benefit) |
1.7 | (0.9 | ) | |||||
Non-cash stock compensation expense |
1.4 | 1.7 | ||||||
EnhancedView deferred revenue |
| 16.5 | ||||||
EnhancedView outstanding invoices not yet paid by NGA |
| 8.3 | ||||||
Amortization of pre-FOC payment related to NextView |
(6.4 | ) | (6.4 | ) | ||||
Adjusted EBITDA |
$ | 37.2 | $ | 55.4 | ||||
Non-GAAP Financial Measures
Adjusted EBITDA is not a recognized term under generally accepted accounting principles, or GAAP,
in the United States and may not be defined similarly by other companies. Adjusted EBITDA should
not be considered an alternative to net income, as an indication of financial performance, or as an
alternative to cash flow from operations as a measure of liquidity. There are limitations to using
non-GAAP financial measures, including the difficulty associated with comparing companies in
different industries that use similar performance measures whose calculations may differ from ours.
Adjusted EBITDA is a key measure used in internal operating reports by management and the board of
directors to evaluate the performance of our operations and is also used by analysts, investment
banks and lenders for the same purpose. Adjusted EBITDA is also a key driver of the company-wide
bonus incentive plan. Adjusted EBITDA is a measure of our current period operating performance,
excluding charges for capital, depreciation related to prior period capital expenditures and items
which are generally non-core in nature, and including EnhancedView deferred revenue and
EnhancedView outstanding invoices not yet paid by NGA and excluding the amortization of pre-FOC
payments related to our NextView contract. EnhancedView outstanding invoices not yet paid by NGA
represent an irrevocable right to be paid in cash by NGA.
We believe that the elimination of material non-cash, non-operating items enables a more consistent
measurement of period to period performance of our operations. In addition, we believe that
elimination of these items in combination with the addition of the nonrefundable EnhancedView
deferred revenue and EnhancedView outstanding invoices not yet paid by NGA as well as the
elimination of amortization of pre-FOC payments related to NextView, facilitate comparison of our
operating performance to companies in our industry. We believe this Adjusted EBITDA measure is
particularly important in a capital intensive industry such as ours, in which our current period
depreciation is not a good indication of our current or future period capital expenditures. The
cost to construct and launch a satellite and build the related ground infrastructure may vary
greatly from one satellite to another, depending on the satellites size, type and capabilities.
For example, our QuickBird satellite cost significantly less than our WorldView-1 and WorldView-2
satellites. Current depreciation expense is not indicative of the revenue generating potential of
the satellite.
Adjusted EBITDA excludes interest income, interest expense, income taxes and loss on early
extinguishment of debt because these items are associated with our capitalization and tax
structures. Adjusted EBITDA also excludes depreciation and amortization expense because these
non-cash expenses reflect the impact of prior capital expenditure decisions which are not
indicative of future capital expenditure requirements. Adjusted EBITDA excludes non-cash stock
compensation expense, because these items are non-cash expenses and loss on derivative instrument
and disposal of assets because these are not related to our primary operations.
We use Adjusted EBITDA in conjunction with traditional GAAP operating performance measures as part
of our overall assessment of our performance and we do not place undue reliance on this measure as
our only measure of operating performance. Adjusted EBITDA should not be considered a substitute
for other measures of financial performance reported in accordance with GAAP.
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Table of Contents
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies
Our critical accounting policies are described under the caption Critical Accounting Policies in
our Annual Report on Form 10-K, filed with the SEC on February 28, 2011. Due to the adoption of ASU
2009-13, Multiple Deliverable revenue arrangements and ASU 2009-14, Certain Revenue
Arrangements That Include Software Elements, we have updated our critical account policies to
reflect this adoption.
Revenue Recognition
Our principal source of revenue is the licensing of earth imagery products and services for end
users and resellers. Revenue is recognized when the following criteria have been met: persuasive
evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is
fixed or determinable and the collection of funds is reasonably assured. Our revenue is generated
from: (i) sales of or royalties arising from licenses of imagery; and (ii) subscription services
and other service arrangements.
Sales of Licenses. Revenue from sales of imagery licenses is recognized when the images are
physically delivered to the customer or, in the case of electronic delivery, when the customer is
able to directly download the image off of our system. In certain customer arrangements, we have
acceptance provisions. For these arrangements, revenue is recognized upon acceptance by these
customers. Revenue is recognized net of contractually agreed discounts.
Royalties. Revenue from royalties is based on agreements or licenses with third parties that allow
the third party to incorporate our product into their value added product for commercial
distribution. Revenue from these royalty arrangements is recorded in the period earned or on a
systematic basis over the term of the license agreement. For those royalties that are due to third
parties based on our revenue sharing arrangements, we report royalty revenue on a net basis.
Subscriptions. The Company sells online subscriptions to our products. These arrangements allow
customers access to our products via the internet for a set period of time and a fixed fee.
Customers pay for the subscription at the beginning of the subscription period. The subscription
revenue is recorded as deferred revenue and recognized ratably over the subscription period. In
addition, we have other arrangements in which the customer pays for their subscription to one of
the Companys web-based products by paying for a predetermined amount of access (for example, each
time users click on an image of their home). In the case of prepayment each time a product is
accessed, a portion of the customers prepayment is earned. These prepayments are recorded as
deferred revenue when received and the revenue is recognized based on the number of times the
product is accessed. Revenue is recognized net of contractually agreed discounts.
Service Level Agreements (SLA). We recognize service level agreement revenue net of any allowances
resulting from failure to meet certain stated monthly performance metrics. Net revenue is either
recognized ratably over time for a defined and fixed level of service, or based on proportional
performance when the level of service changes based on certain criteria stated in the agreement.
Multiple Deliverable Arrangements. The Company enters into revenue arrangements that may consist of
multiple deliverables of its product and service offerings based on the needs of its customers.
These arrangements may include products delivered at the onset of the agreement, as well as
products or services that are delivered over multiple reporting periods.
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements and ASU
2009-14, Certain Revenue Arrangements That Include Software Elements. The Company concurrently
adopted ASU 2009-13 and ASU 2009-14 prospectively on January 1, 2011. ASU 2009-13 changes the
requirements for establishing separate units of accounting in a multiple deliverable arrangement
and requires the allocation of arrangement consideration to each deliverable based on the relative
selling price. The selling price for each deliverable is based on vendor-specific objective
evidence (VSOE) if available, third-party evidence (TPE) if VSOE is not available, or best estimate
selling price (BESP) if neither VSOE nor TPE is available. ASU 2009-14 excludes software that is
contained on a tangible product from the scope of software revenue guidance if the software is
essential to the tangible products functionality.
The Company has generally been unable to establish VSOE for any of our products due to the Company
infrequently selling each deliverable separately, or only having a limited sales history, such as
in the case of new or emerging products. The Company has been unable to establish TPE for any of
our offerings due to the unique nature of our products and services and the limited number of
competitors in the market. As the Company is unable to establish price on the basis of VSOE or TPE,
we use BESP to determine the allocation of arrangement consideration. The objective of BESP is to
determine the price at which the Company would transact a sale if the product or service were sold
on a standalone basis. The Company determines BESP for a product or service by considering multiple
factors, including but not limited to market conditions, competitive landscape, internal costs,
gross margin objectives, product technology lifecycles, pricing practices, and the Companys
go-to-market strategy.
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DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
The adoption of ASU 2009-13 and ASU 2009-14 was not material to our financial results for the three
months ended March 31, 2011. We are not able to reasonably estimate the effect of adopting these
standards on future periods as the impact will vary based on the nature and volume of new or
materially modified multiple element arrangements transacted in any given period.
While multiple deliverable arrangements occur throughout our business, the EnhancedView contract
with National Geospatial-Intelligence Agency (NGA) (EnhancedView) and the Direct Access Program
(DAP) make up the majority of our multiple deliverable arrangement activity. EnhancedView and four
of our DAP agreements were entered into prior to the January 1, 2011 adoption of ASU 2009-13 and
ASU 2009-14 and none have been subsequently materially modified. As the Company adopted the new
guidance on a prospective basis, the agreements will continue to be accounted for under the
pre-adoption guidance unless they are materially modified. The following is a description of the
accounting for these arrangements.
EnhancedView. The EnhancedView contract contains multiple deliverables, including an SLA,
infrastructure enhancements, and other services. We determined that these deliverables do not
qualify as separate units of accounting due to a lack of standalone value for the delivered
elements and a lack of objective reliable evidence of fair value for any of the undelivered
elements in the arrangement. We recognize revenue on a single unit of accounting using a
proportional performance method based on the estimated capacity of our constellation made available
to NGA compared to the total estimated capacity to be provided over the life of the contract.
Direct Access Program. Sales under the direct access program include construction of the direct
access facility and an arrangement to allow the customer access to the satellite to task and
download imagery. In these arrangements the facility is delivered upon completion and customer
acceptance, and the maintenance and access services occur over several subsequent reporting
periods. These arrangements have been treated as a single unit of accounting due to a lack of
standalone value for the delivered elements and a lack of objective reliable evidence of fair value
for any of the undelivered items. Accordingly, all funds received are initially recorded as
deferred revenue and all direct costs of these arrangements are recorded as deferred contract
costs. As the direct access facilities are brought into service, the deferred revenue and deferred
contracts costs are amortized ratably over the estimated customer relationship period, which is
consistent with the estimated remaining useful life of the satellite being used.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We do not currently have any material interest rate risk exposure. Our debt bears interest at a
fixed rate.
We are exposed to various market risks that arise from transactions entered into in the normal
course of business. Certain contractual relationships with customers and vendors mitigate risks
from currency exchange rate changes that arise from normal purchasing and normal sales activities.
We do not currently have any material foreign currency exposure. Our revenue contracts are
primarily denominated in U.S. dollars and the majority of our purchase contracts are denominated in
U.S. dollars.
ITEM 4. | Controls and Procedures |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive
officer and chief financial officer (our principal executive officer and our principal financial
officer, respectively), we have evaluated our disclosure controls and procedures (as defined in
Securities Exchange Act Rule 13a -15(e)) as of March 31, 2011. Based upon that evaluation, the
chief executive officer and chief financial officer have concluded that our disclosure controls and
procedures were effective.
Changes in Internal Control over Financial Reporting
There has been no change in the Companys internal control over financial reporting during the
first quarter ended March 31, 2011, that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
From time to time, we are a party to various litigation matters incidental to the conduct of our
business. We are not presently party to any legal proceedings the resolution of which, we believe,
would have a material adverse effect on our business, operating results, financial condition or
cash flows.
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DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
ITEM 1A. | RISK FACTORS |
Investment in our securities involves risk. In addition to the information set forth in this Form
10-Q, you should carefully consider the risk factors described under the caption Risk Factors in
our Annual Report on Form 10-K, filed with the SEC on February 28, 2011. There have been no
material changes to our Risk Factors since the filing of our Annual Report.
ITEM 2. | CHANGES IN SECURITIES AND USE OF PROCEEDS |
2.1 UNREGISTERED SALES OF EQUITY SECURITIES
None.
2.2 USE OF PROCEEDS FROM PUBLIC OFFERING OF COMMON STOCK
On May 13, 2009, our registration statement (File No. 333-150235) was declared effective for our
IPO, pursuant to which we sold 1,366,256 shares of common stock.
As a result of the offering, we received net proceeds of approximately $19.0 million, after
deducting underwriting fees of $1.8 million and additional offering-related expenses of
approximately $3.3 million, for total expenses to us of approximately $5.1 million. No offering
expenses were paid directly or indirectly to any of our directors or officers (or their
associates). A portion of the underwriting fee was paid to Morgan Stanley & Co., Incorporated, affiliate owns 10% or more of our equity securities. There has been no material change in
the planned use of proceeds from our IPO from that described in the Prospectus filed with the SEC
pursuant to Rule 424(b). Proceeds of $19.0 million are currently being held in an investment
account that is classified as short term and is included in cash and cash equivalents.
ITEM 3. | Defaults upon Senior Securities |
None.
ITEM 5. | Other Information |
None.
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Table of Contents
DigitalGlobe, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
ITEM 6. | EXHIBIT INDEX |
Exhibit Index
Exhibit | |||
Number | Description | ||
10.25 | * | 2011 Executive Success Sharing Plan (incorporated herein by reference
to Exhibit 10.25 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2010, filed on February 28,
2011, Commission File No. 001-34299). |
|
10.34 | * | Employment Agreement, effective February 23, 2011, by and
between DigitalGlobe, Inc. and Jeffrey R. Tarr (incorporated
herein by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on February 28, 2011, Commission File
No. 001-34299 ). |
|
31.1 | | Certification of Chief Executive Officer of DigitalGlobe,
Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
31.2 | | Certification of Chief Financial Officer of DigitalGlobe,
Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
32.1 | | Certification of Chief Executive Officer of DigitalGlobe,
Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
32.2 | | Certification of Chief Financial Officer of DigitalGlobe,
Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
101 | + | The following materials for the DigitalGlobe, Inc. Quarterly Report
on Form 10-Q for the quarter ended March 31, 2011, filed on May 3, 2011 formatted in eXtensible Business Reporting Language
(XBRL): |
|
(i.) Unaudited Condensed Consolidated Statements of Operations |
|||
(ii.) Unaudited Condensed Consolidated Balance Sheets |
|||
(iii.) Unaudited Condensed Consolidated Statements of Cash Flows |
|||
(iv.) Related notes, tagged or blocks of text. |
| Filed or furnished herewith. |
|
* | Constitutes a management contract or compensatory plan or arrangement. |
|
+ | XBRL (eXtensible Business Reporting Language) Information is
furnished and not filed or a part of a registration statement
or prospectus for purposes of sections 11 or 12 of the
Securities Act of 1933, as amended, is deemed not filed for
purposes of section 18 of the Securities Exchange Act of 1934,
as amended, and otherwise is not subject to liability under
these sections
|
Page 29 of 29
Table of Contents
SIGNATURE
DIGITALGLOBE, INC.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: May 3, 2011 | /s/Yancey L. Spruill | |||
Yancey L. Spruill | ||||
Executive Vice President, Chief Financial Officer & Treasurer | ||||
(Principal Financial Officer and Duly Authorized Officer) |
Table of Contents
EXHIBIT INDEX
Exhibit | |||
Number | Description | ||
10.25 | * | 2011 Executive Success Sharing Plan (incorporated herein by reference
to Exhibit 10.25 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2010, filed on February 28,
2011, Commission File No. 001-34299). |
|
10.34 | * | Employment Agreement, effective February 23, 2011, by and
between DigitalGlobe, Inc. and Jeffrey R. Tarr (incorporated
herein by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on February 28, 2011, Commission File
No. 001-34299 ). |
|
31.1 | | Certification of Chief Executive Officer of DigitalGlobe,
Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
31.2 | | Certification of Chief Financial Officer of DigitalGlobe,
Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
32.1 | | Certification of Chief Executive Officer of DigitalGlobe,
Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
32.2 | | Certification of Chief Financial Officer of DigitalGlobe,
Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
101 | + | The following materials for the DigitalGlobe, Inc. Quarterly Report
on Form 10-Q for the quarter ended March 31, 2011, filed on May 3, 2011 formatted in eXtensible Business Reporting Language
(XBRL): |
|
(i.) Unaudited Condensed Consolidated Statements of Operations |
|||
(ii.) Unaudited Condensed Consolidated Balance Sheets |
|||
(iii.) Unaudited Condensed Consolidated Statements of Cash Flows |
|||
(iv.) Related notes, tagged or blocks of text. |
| Filed or furnished herewith. |
|
* | Constitutes a management contract or compensatory plan or arrangement. |
|
+ | XBRL (eXtensible Business Reporting Language) Information is
furnished and not filed or a part of a registration statement
or prospectus for purposes of sections 11 or 12 of the
Securities Act of 1933, as amended, is deemed not filed for
purposes of section 18 of the Securities Exchange Act of 1934,
as amended, and otherwise is not subject to liability under
these sections |