GeoEye, Inc. - FORM 10-Q - August 2, 2011

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EX-31.2 - EXHIBIT 31.2 - GeoEye, Inc.	ex31_2.htm
EX-32.2 - EXHIBIT 32.2 - GeoEye, Inc.	ex32_2.htm
EX-32.1 - EXHIBIT 32.1 - GeoEye, Inc.	ex32_1.htm
EX-10.1 - EXHIBIT 10.1 - GeoEye, Inc.	ex10-1.htm
EX-31.1 - EXHIBIT 31.1 - GeoEye, Inc.	ex31_1.htm
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

R	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

£	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: 001-33015

GeoEye, Inc.

(Exact name of registrant as specified in its charter)

Delaware		20-2759725
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2325 Dulles Corner Boulevard		20171
Herndon, VA (Address of principal executive offices)		(Zip Code)

(703) 480-7500

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 x 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 x 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of GeoEye’s common stock, par value $0.01, or the Common Stock as of July 29, 2011 was 22,185,586 shares.

TABLE OF CONTENTS

PART I —	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010	3
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2011 and 2010	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II —	OTHER INFORMATION	32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 6.	Exhibits	32
Signatures		32

In this Quarterly Report on Form 10-Q, or Quarterly Report, “GeoEye,” the “Company,” “we,” “our,” and “us” refer to GeoEye, Inc. and its subsidiaries.

We own or have rights to various copyrights, trademarks, and trade names used in our business, including the following: GEOEYE®; IKONOS®; MJ HARDEN®; ORBIMAGE®; ORBVIEW®; ROADTRACKER®; GEOEYE FOUNDATIONtm; GEOPROFESSIONALtm; GEOSTEREOtm; GEOFUSEtm; EYEQtm; EYEONtm; SEASTARtm; SEASTAR FISHERIES INFORMATION SERVICEsm; MARINE INFORMATION SERVICEsm; MASTERCASTtm; OCEAN MONITORING SERVICEsm; ORBBUOYtm; ORBMAPtm; TRUSTED IMAGERY EXPERTStm; VESSEL TRACKINGtm; ELEVATING INSIGHTtm; GEOEYE ANALYTICStm; EARTHWHEREtm; SIGNATURE ANALYSTtm; and 3D AIRPORTStm

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GEOEYE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2011		December 31, 2010
	(Unaudited)
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	236,631	$	283,233
Short-term investments		14,446		50,124
Accounts receivable - trade and unbilled receivables (net of allowances: 2011 - $576; 2010 - $957)		35,434		42,868
Income tax receivable		20,357		34,385
Restricted cash		4,207		3,952
Prepaid expenses and other current assets		15,077		16,183
Total current assets		326,152		430,745
Property, plant and equipment, net		49,858		35,924
Satellites and related ground systems, net		817,761		697,126
Goodwill		71,228		71,568
Intangible assets, net of accumulated amortization: 2011 - $17,215; 2010 - $15,417		13,145		14,943
Non-current restricted cash		8,849		10,822
Other non-current assets		8,871		7,957
Total assets	$	1,295,864	$	1,269,085
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	64,231	$	70,936
Current portion of deferred revenue		51,714		50,533
Current deferred tax liabilities		6,656		6,656
Total current liabilities		122,601		128,125
Long-term debt		509,551		508,160
Long-term deferred revenue, net of current portion		146,843		161,673
Non-current income tax reserve		626		626
Deferred tax liabilities		36,918		21,336
Other non-current liabilities		6,651		5,922
Total liabilities		823,190		825,842
Commitments and contingencies		-		-
Stockholders’ equity:
Series A convertible preferred stock		1		1
Series B junior participating preferred stock		-		-
Common stock		222		221
Additional paid-in capital		373,481		367,723
Retained earnings		98,970		75,298
Total stockholders’ equity		472,674		443,243
Total liabilities and stockholders’ equity	$	1,295,864	$	1,269,085

See Notes to Unaudited Condensed Consolidated Financial Statements.

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GEOEYE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010
	(In thousands, except per share amounts)
Revenues	$	87,206		$	80,961		$	173,832		$	161,350

Operating expenses:
Direct costs of revenue (exclusive of depreciation and amortization)		31,426			26,702			62,738			51,183
Depreciation and amortization		17,492			16,200			34,218			32,222
Selling, general and administrative		14,696			13,783			29,090			27,165
Total operating expenses		63,614			56,685			126,046			110,570
Income from operations		23,592			24,276			47,786			50,780
Interest expense, net		(2,604	)		(7,752	)		(7,127	)		(15,995	)
Other non-operating income (expense)		-			2,055			-			(8,419	)
Loss from early extinguishment of debt		-			-			-			(37	)
Income before provision for income taxes		20,988			18,579			40,659			26,329
Provision for income taxes		(7,579	)		(6,430	)		(15,003	)		(13,406	)
Net income		13,409			12,149			25,656			12,923
Preferred stock dividends		(998	)		-			(1,984	)		-
		12,411			12,149			23,672			12,923
Income allocated to participating securities		(1,344	)		-			(2,569	)		-
Net income available to common stockholders	$	11,067		$	12,149		$	21,103		$	12,923

Earnings per share
Basic	$	0.50		$	0.56		$	0.96		$	0.60
Diluted	$	0.49		$	0.55		$	0.93		$	0.59
Shares used to compute basic earnings per share		22,130			21,760			22,087			21,416
Shares used to compute diluted earnings per share		22,756			22,063			22,760			21,950

See Notes to Unaudited Condensed Consolidated Financial Statements.

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GEOEYE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Six Months Ended June 30,
	2011			2010
	(In thousands)
Cash flows from operating activities:
Net income	$	25,656		$	12,923
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		34,218			32,222
Non-cash recognition of deferred revenue		(16,452	)		(15,788	)
Non-cash amortization of deferred costs		1,821			2,113
Amortization of debt discount and issuance costs		1,873			1,736
Amortization of premium/discount on investments		98			-
Loss from early extinguishment of debt		-			37
Bad debt expense and other		741			690
Change in fair value of financial instrument		-			8,419
Deferred income taxes		14,991			13,398
Stock-based compensation		5,737			2,841
Changes in assets and liabilities:
Accounts receivable and other current assets		5,985			(8,285	)
Net transfer from restricted cash		1,718			1,991
Other assets		28			(435	)
Accounts payable and accrued expenses		(7,368	)		(4,443	)
Income taxes receivable/payable and reserves		14,619			(351	)
Deferred revenue and other long term liabilities		1,607			(737	)
Net cash provided by operating activities		85,272			46,331
Cash flows from investing activities:
Capital expenditures		(166,540	)		(84,589	)
Redemptions of short-term investments		35,580			-
Adjustment for SPADAC acquisition		340			-
Net cash used in investing activities		(130,620	)		(84,589	)
Cash flows from financing activities:
Preferred stock dividend payments		(1,994	)		-
Prepaid financing costs		(118	)		(4,562	)
Proceeds from exercise of stock options and warrants, and other		858			18,760
Net cash (used in) provided by financing activities		(1,254	)		14,198
Net decrease in cash and cash equivalents		(46,602	)		(24,060	)
Cash and cash equivalents, beginning of period		283,233			208,872
Cash and cash equivalents, end of period	$	236,631		$	184,812
Supplemental disclosures of cash flow information:
Interest paid, net of capitalized interest	$	5,232		$	18,786
Income taxes paid		27			3,474
Non-cash surrender of common stock to cover employees' minimum tax liability		(1,267	)		(42	)
Non-cash issuance of common stock for services provided		-			250
Non-cash preferred stock dividend accrual		998			-
Non-cash consideration on customer transaction		1,920			-

See Notes to Unaudited Condensed Consolidated Financial Statements.

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GEOEYE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) General Information

Business

GeoEye is a leading provider of geospatial information and insight for decision makers and analysts who need a clear understanding of our changing world to protect lives, manage risk and optimize resources. Each day, organizations in defense and intelligence, public safety, critical infrastructure, energy and online media rely on GeoEye’s imagery, tools and expertise to support important missions around the globe. Widely recognized as a pioneer in high-resolution satellite imagery, GeoEye has evolved into a complete provider of geospatial intelligence solutions.

In addition to our imagery collection capacities, we are a global leader in the creation of enhanced satellite imagery information products and services. We operate four state-of-the-art high-resolution image processing and production facilities. Our St. Louis, Missouri facility processes imagery from numerous commercial and government sensors, in addition to our own enhanced satellite imagery information products and services, to produce a variety of value-added products. We believe we are the only major commercial imagery satellite operator who can produce imagery from multiple satellite sources in addition to our own enhanced satellite imagery information products and services.

GeoEye’s information services allow its customers to collect, process and analyze vast amounts of geospatial data to quickly see precise changes on the ground and anticipate where events may occur in the future. Our Web-based information services platform, EyeQ, can provide imagery services and other layers of geospatial information on demand. EyeQ combines imagery products with on-demand tools for managing geospatial information and project-based collaboration. GeoEye Analytics has industry-leading expertise in analyzing multiple layers of intelligence, including human geography, to discover patterns in order to gain insights that protect lives, optimize deployment of resources and mitigate risk.

We believe the combination of our highly accurate satellite and aerial imaging assets, our high-resolution image processing and production facilities—especially our multi-source production capability—our color digital imagery library and our information services differentiate us from our competitors. This combination enables us to elevate insight by delivering a comprehensive range of imagery, imaging products and information services to our diverse customer base.

We serve both domestic and international customers with imagery, products and information services. Our principal customers are U.S. government agencies. For the three and six months ended June 30, 2011, U.S. government agencies represented approximately 65 percent and 67 percent of our total revenues, respectively.

Basis of Presentation

The condensed consolidated financial statements of GeoEye have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission, or SEC. The financial information included herein, other than the condensed consolidated balance sheet as of December 31, 2010, has been prepared without audit. The condensed consolidated balance sheet as of December 31, 2010, has been derived from, but does not include, all the disclosures contained in the audited consolidated financial statements for the year ended December 31, 2010. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments and accruals that are necessary for a fair presentation of the results of all interim periods presented herein and are of a normal recurring nature.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in GeoEye’s Annual Report on Form 10-K for the year ended December 31, 2010. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

Additionally, certain amounts in the prior period have been reclassified to conform to the current period presentation.

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Principles of Consolidation

The condensed consolidated financial statements include the accounts of GeoEye and all of its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires management to make judgments, estimates and assumptions that affect the amount reported in the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Restricted Cash

The Company is party to irrevocable standby letters of credit, in connection with contracts between GeoEye and third parties, in the ordinary course of business to serve as performance obligation guarantees. As of June 30, 2011, the Company had $13.1 million classified as restricted cash as a result of the irrevocable standby letters of credit. Approximately $4.2 million is available within one year and is classified as current, and the remaining $8.9 million is available through 2022.

Investments

We record our investments in debt securities at amortized cost or fair value, and classify these securities as short-term investments on the consolidated balance sheet when the original maturities at purchase are greater than ninety days but less than one year.

The Company’s short-term investments consist of debt securities that include commercial paper, corporate bonds, agency notes, variable rate demand notes and certificates of deposit. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are recorded at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as available-for-sale.

We evaluate our investments for other-than-temporary impairment on a quarterly basis. Other-than-temporary impairment occurs when the fair value of an investment is below our carrying value, and we determine that difference is not recoverable in the near future. Factors we consider to make such determination include the duration and severity of the impairment, the reason for the decline in value and the potential recovery period, and our intent to sell, or whether it is more likely than not that we will be required to sell the investment before recovery of the amortized cost basis.

As of June 30, 2011, and December 31, 2010, we categorized our investments as either available-for-sale or held-to-maturity, and all of these outstanding short-term investments mature within one year. Although the variable-rate demand notes have long-term contractual maturity dates of 20 to 30 years, the interest rates reset weekly. Despite the long-term nature of the underlying securities, they are classified as short-term due to our ability to quickly liquidate or put back these securities.

Preferred Stock

In September 2010, the Company issued Series A Convertible Preferred Stock, or the Preferred Stock, par value of $.01 per share. Cumulative dividends on the Preferred Stock are payable at a rate of 5 percent per annum of the $1,000 liquidation preference per share. At the Company’s option, dividends may be declared and paid in cash out of funds legally available therefore, when, as and if declared by the Board of Directors of the Company. If not paid in cash, an amount equal to the cash dividends due is added to the liquidation preference. Dividends payable in cash are recorded in current liabilities. All dividends payable, whether in cash or as an addition to the liquidation preference, are recorded as a reduction to our retained earnings.

Earnings per Share

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Net income available to common shareholders is equal to net income less preferred stock dividends and income allocated to participating securities. The Company’s preferred shares are participating securities and require the two-class method of computing earnings per share. Diluted earnings per share is calculated by dividing net income available to common shareholders as adjusted for the effect of dilutive common equivalent shares by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the common shares issuable upon the conversion of the convertible preferred shares and those issuable related to stock options, deferred stock units, employee stock purchase plan shares and nonvested stock (using the treasury stock method). For purposes of computing diluted earnings per share, the if-converted method will be used to the extent that the result is more dilutive than the application of the two-class method.

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Revenue Recognition

Our principal sources of revenue are from imaging services, the sale of satellite imagery directly to end users or value-added resellers, the provision of direct access to our satellites, and associated ground processing technology upgrades and operations and maintenance services. We also derive significant revenue from value-added production services where we combine our images with data and imagery from our own and other sources to create sophisticated information products. Additionally, in 2010, new sources of revenue include the dissemination and hosting of imagery and the provision of consultation, integration, data analysis and other professional services related to geospatial information systems.

We record revenues from the sale of satellite imagery directly to end users or value-added resellers based on the delivery of the imagery. This revenue is recognized when the products are delivered to the customer and generally these arrangements are contracted for separately on a stand-alone basis.

Sales of direct access to our satellites ordinarily require us to provide access over the term of multi-year sales contracts under subscription-based arrangements. Accordingly, we recognize revenues on such imagery contracts on a straight-line basis over the delivery term of the contract. However, certain multi-year sales contracts are based on minimum levels of access time with adjustments based on usage. In addition to the sale of direct satellite access, we may separately sell ground processing technology upgrades and operations and maintenance services to a customer in a bundled arrangement. Previously, to determine revenue recognition for multiple element arrangements, we considered whether individual customer arrangement elements had value to the customer on a standalone basis, whether there was objective and reliable evidence of fair value of undelivered item(s) and whether the arrangement included a general right of return relative to the delivered item(s), and delivery performance of the undelivered item(s) was considered probable and substantially in the Company’s control. If the satellite access service is combined with the sale of ground processing technology upgrades and operations and maintenance services, and the requirements for separate revenue recognition are not met, we recognize revenues on a straight-line basis over the combined delivery term of the services. In other arrangements when the separation criteria are met, total arrangement consideration is allocated to each separate unit of accounting using relative fair value. Revenues are recognized over the appropriate service period: access and operations and maintenance are recognized over the contract term; ground processing technology upgrades are recognized when delivery and acceptance is complete. We consider a deliverable to have standalone value if the product or service provides value to the customer independent from other elements in the arrangement or if the product or service is sold separately by us or if it could be resold by the customer. Our revenue arrangements generally do not include a general right of return relative to the delivered products.

Beginning on January 1, 2011, we adopted, on a prospective basis, the guidance on revenue from multiple deliverable arrangements from the Financial Accounting Standards Board, or FASB. With the adoption of this guidance, the inability to determine the fair value of undelivered item(s) will no longer preclude our ability to separate deliverables in multiple element arrangements. Instead, management’s estimated selling price will be used to allocate the contract value among the deliverables, assuming all other separation criteria are met. We determine estimated selling price by considering several external and internal factors including, but not limited to: pricing practices, margin objectives, estimated costs to deliver the offering(s), competition and customer type. As these factors evolve, we may modify our estimated selling prices in the future for purposes of allocating arrangement consideration to agreements with multiple elements. Estimated selling prices are analyzed on an annual basis or more frequently if we experience significant changes in our estimated selling prices and the factors that affect or determine the estimated selling prices. The introduction of this accounting guidance has not materially impacted our consolidated financial statements.

Revenue is recognized on contracts to provide value-added production services using the percentage-of-completion method. Revenue is recognized under different acceptable alternatives of the percentage-of-completion method depending on the terms of the underlying contract, which include input measures based on costs and efforts expended or output measures based on units of delivery or completion of contractual milestones. Generally these arrangements are sold on a standalone basis and are not bundled with other product offerings. To the extent that estimated costs of completion are adjusted, revenue and profit recognized from a particular contract will be affected in the period of the adjustment. Anticipated contract losses are recognized as they become known.

We record revenues generated from the information services base offerings, including dissemination and hosting of imagery, on a straight-line basis over the subscription period.

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Revenues for consultation and professional services are recognized into revenues as the services are performed. Revenues from time and materials contracts are recognized based on man-hours utilized, plus other reimbursable contract costs incurred during the period. Revenues from firm-fixed price contracts are recognized on a percentage of completion basis, utilizing the relationship of contract costs incurred and management’s estimate of total contract costs.

Deferred revenue represents receipts in advance of the delivery of imagery or services. Revenue for other services is recognized as services are performed. In addition, cost-share amounts received from the U.S. government are recorded as deferred revenue when received and recognized on a straight-line basis over the useful life of the satellite.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board, or the FASB, issued new guidance for fair value measurements intended to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards, or IFRS. The guidance modifies the existing standard to include disclosure of all transfers between Level 1 and Level 2 asset and liability fair value categories. In addition, it provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. The guidance requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. The guidance is effective for interim and annual reporting periods beginning after December 15, 2011, with early adoption prohibited. We are currently evaluating the impact of this accounting guidance and do not expect any significant impact on our consolidated financial statements.

(2) NextView Program

The U.S. government’s National Geospatial-Intelligence Agency, or NGA, announced in March 2003 that it intended to support, through the NextView program, the continued development of the commercial satellite imagery industry. The NGA also announced that it intended to award two imagery providers with contracts to support the engineering, construction and launch of the next generation of imagery satellites. On September 30, 2004, the NGA awarded us a contract as the second provider under the NextView program and, as a result, we contracted for the construction of a new satellite, GeoEye-1. Under the NextView program, we began delivering imagery to the NGA from our IKONOS satellite in February 2007 and from our GeoEye-1 satellite in the first quarter of 2009. GeoEye-1 was launched in September 2008 and started commercial operations and obtained certification from the NGA in February 2009, at which point GeoEye-1commenced full operations. Total capitalized costs (including financing and launch insurance costs) of the GeoEye-1 satellite and related ground systems incurred were $478.3 million.

Under the NextView contract, the NGA agreed to support the GeoEye-1project with a cost-share totaling approximately $237.0 million spread over the course of the project development and subject to various milestones. On March 19, 2009, the NGA had paid the Company its cost-share obligation in full. GeoEye had deferred recognition of the cost-share amounts from the NGA as revenue until GeoEye-1’s in-service date in February 2009. We recognize this revenue on a straight-line basis over the expected nine-year depreciable operational life of the satellite. During each of the three months ended June 30, 2011 and 2010, we recognized $6.0 million of deferred revenue under the NextView contract, and during each of the six months ended June 30, 2011 and 2010, we recognized $12.1 million of deferred revenue under the NextView contract.

The NextView Service Level Agreement, or SLA, provided for monthly payments of $12.5 million, subject to a maximum reduction of 10 percent based on performance metrics. Under the NextView SLA, to the extent that less than $12.5 million was paid by the NGA in any month, the shortfall was used to fund an extension of the contract. The EnhancedView SLA replaced the NextView SLA portion of the NextView program as of September 1, 2010. We recognized $37.5 million and $74.6 million of imagery revenue under the SLA during the three and six months ended June 30, 2010, respectively.

(3) EnhancedView Program

On August 6, 2010, the NGA awarded us a contract under its EnhancedView program that is worth up to $3.8 billion over ten years, assuming the NGA exercises all of its options and we perform as specified. The award provides for a new satellite imagery delivery SLA; the engineering, construction and launch of GeoEye-2; the design and procurement of associated ground station equipment; and the design and procurement of additional infrastructure to support government operations, value-added products and other services, including Web-based delivery of information. This competitively awarded contract supports the EnhancedView program by providing products and services that will help meet the increasing geospatial intelligence needs of the intelligence community and the Department of Defense. During the second quarter of 2011, the Company successfully completed the Space System Critical Design Review milestone related to the GeoEye-2 satellite development under the EnhancedView contract.

The award provides for a new satellite imagery delivery SLA with the NGA valued at up to $2.8 billion. The EnhancedView SLA initially provides for continued monthly payments by the NGA of up to $12.5 million ($150.0 million per year), subject to a maximum reduction of 10 percent based on performance metrics. Under the EnhancedView SLA, when GeoEye-2 becomes operational, which we currently expect will occur in 2013, payments under the award will increase by an additional $15.3 million per month ($183.6 million per year). The term of the EnhancedView SLA is one year, with nine one-year renewal options exercisable by the NGA. Imagery deliveries under the EnhancedView SLA began on September 1, 2010, and the imagery is collected by the Company’s existing satellite constellation, with GeoEye-2 to collect additional imagery when it becomes operational.

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As part of the EnhancedView contract, the NGA has agreed to contribute 42.1 percent of the cost, up to a maximum of $337.0 million of the overall construction and launch costs of the GeoEye-2 satellite and associated ground station equipment. The contribution will be made in two cost-share payments: the first payment of approximately $111.0 million when the GeoEye-2 satellite is ready for integration and testing; and the second payment, and balance of the cost-share, when the GeoEye-2 satellite becomes operational and meets NGA certification requirements. At the time the final cost-share payment is made, it is expected that any credits due to the government will be determined and will be factored into the final payment amount.

The award also provides for up to an estimated $702.0 million for value-added products and services and our EyeQ Web Mapping Services to be delivered over the life of the EnhancedView SLA. This award component includes funding for the design and procurement of additional infrastructure to support government operations, which will be initially recorded as deferred revenue and recognized as revenue over the contractual term of the EnhancedView contract.

This program replaced the NextView program, except that GeoEye will continue to fulfill existing NextView value-added product and services orders until such orders are complete. New value-added product and services orders are expected to be placed under the EnhancedView contract. The NextView SLA portion of the NextView program was replaced by the EnhancedView SLA as of September 1, 2010. We recognized $36.6 million and $73.0 million of imagery and other revenue under the EnhancedView SLA during the three and six months ended June 30, 2011, respectively.

(4) Investments

Short-term investments consisted of the following at June 30, 2011, and December 31, 2010 (in thousands):

			Gross unrecognized
June 30, 2011	Amortized cost		Gains		Losses			Estimated fair value
Available-for-sale securities:
Variable-rate demand notes		9,420		-		-			9,420

Held-to-maturity securities: Corporate bonds		5,026		-		(2	)		5,024

Total short-term investments		14,446		-		(2	)		14,444

			Gross unrecognized
December 31, 2010	Amortized cost		Gains		Losses		Estimated fair value
Available-for-sale securities:
Variable-rate demand notes		10,000		-		-		10,000

Held-to-maturity securities:
Commercial paper		19,969		4		-		19,973
Corporate bonds		5,155		5		-		5,160
Agency notes		5,000		-		-		5,000
Certificates of deposit		10,000		-		-		10,000

Total short-term investments		50,124		9		-		50,133

As of June 30, 2011, there were no other-than-temporary impairments of the Company’s investments.

(5) Property, Plant and Equipment

Property, plant and equipment consisted of the following at June 30, 2011, and December 31, 2010 (in thousands):

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	June 30, 2011			December 31, 2010
Land and buildings	$	7,576		$	7,297
Furniture, computers, equipment and software		52,506			42,724
Leasehold improvements		17,214			3,460
Vehicles and airplanes		2,210			2,228
Accumulated depreciation		(33,868	)		(29,467	)
Subtotal		45,638			26,242
Property, plant and equipment in process		4,220			9,682
Property, plant and equipment, net	$	49,858		$	35,924

We record property, plant and equipment at cost. We also capitalize certain internal and external software development costs incurred to develop software for internal use. Costs of major enhancements to internal use software are capitalized while routine maintenance of existing software is charged to expense as incurred. Property, plant and equipment in process includes computer hardware and software costs and costs incurred in connection with the move to our new corporate headquarters. Depreciation expense related to property, plant and equipment was $3.1 million and $2.2 million for the three months ended June 30, 2011 and 2010, respectively, and $5.6 million and $4.4 million for the six months ended June 30, 2011 and 2010, respectively.

(6) Satellites and Related Ground Systems

Satellites and related ground systems consisted of the following at June 30, 2011, and December 31, 2010 (in thousands):

	June 30, 2011			December 31, 2010
Satellites	$	414,158		$	414,158
Ground systems		89,985			89,268
Accumulated depreciation		(145,026	)		(118,198	)
Subtotal		359,117			385,228
Satellites and ground systems in process		458,644			311,898
Satelllites and related ground systems, net	$	817,761		$	697,126

The capitalized costs of the Company’s satellites and related ground systems include internal direct labor and project management costs, internally developed software and material costs related to assets that support the satellites’ construction and development. The cost of the Company’s satellites and related ground systems also includes capitalized interest incurred during the construction, development and initial in-orbit testing period.

As of June 30, 2011, and December 31, 2010, we have incurred total capitalized costs of $455.3 million and $309.9 million, respectively, related to the Company’s development efforts for EnhancedView, primarily consisting of costs for the development of and construction of GeoEye-2.

We maintain in-orbit insurance policies covering our GeoEye-1 and IKONOS satellites. We capitalize the portion of the premiums associated with the insurance coverage of the launch and in-orbit commissioning period of our commercial satellites. Accordingly, prior to the start of GeoEye-1’s commercial operations, we capitalized a portion of insurance premiums in the cost of the satellite that will be amortized over the estimated life of GeoEye-1, which is nine years. Following launch and in-orbit commissioning, insurance premium amounts related to in-orbit operations are charged to expense ratably over the related policy periods.

The Company maintains insurance policies for GeoEye-1 with both full coverage and total-loss-only coverage in compliance with our indenture. As of June 30, 2011, we carried $255.8 million of in-orbit insurance for GeoEye-1, comprised in part by $135.5 million of full coverage to be paid if GeoEye-1’s capabilities become impaired as measured against a set of specifications. Of such coverage, $50.0 million expires on September 6, 2011, and $85.5 million expires on December 1, 2011. We also carry $120.3 million of insurance in the event of a total loss of the satellite, which expires December 1, 2011.

Our IKONOS satellite was fully depreciated in June 2008. The IKONOS satellite is insured for $9.0 million of in-orbit coverage which expires on December 1, 2011.

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Total satellite and related ground systems depreciation expense was $13.5 million and $13.3 million for the three months ended June 30, 2011 and 2010, respectively, and $26.8 million and $26.5 million for the six months ended June 30, 2011 and 2010 respectively.

(7) Income Taxes

The Company’s effective tax rate was 36.9% for the six months ended June 30, 2011 and 38.6% before discrete items for the six months ended June 30, 2010, respectively. Income tax expense was $7.6 million and $15.0 million for the three and six months ended June 30, 2011, respectively. Income tax expense was $6.4 million and $13.4 million including discrete items for the three and six months ended June 30, 2010, respectively. The Company’s effective tax rate differs from the federal tax rate primarily due to a benefit from research tax credits in 2011 partially offset by a related reserve, a benefit from a foreign tax rate differential, state and local income taxes, and certain expenses that are not deductible for tax purposes.

In May 2011, the Company finalized its method of tax accounting for the NextView cost-share payments with the Internal Revenue Service, or IRS. Under the new tax accounting method, the NextView cost-share payments will be treated for tax purposes the same as for book purposes whereby amounts received from the U.S. government are recorded as deferred revenue when received and recognized as revenue on a straight-line basis over the useful life of the satellite. Prior to this IRS ruling, the Company recognized the NextView cost-share payments for tax purposes when the Company was entitled to receive these payments from the U.S. government. The change in tax accounting method will result in a reclassification of deferred tax items and will have no material impact on cash flow or earnings.

(8) Long-Term Debt

On October 8, 2010, the Company issued $125.0 million aggregate principal of 8.625 percent Senior Secured Notes due 2016, or the 2016 Notes, in a publicly registered offering. Interest payments on the 2016 Notes are due semi-annually in arrears on April 1 and October 1 of each year. At any time on or after October 1, 2013, the Company may on one or more occasions redeem all or part of the 2016 Notes at 104.313 percent of principal for the subsequent 12-month period, at 102.156 percent of principal on October 1, 2014, for the subsequent 12-month period and at 100 percent of principal on October 1, 2015, and thereafter.

The 2016 Notes are unconditionally guaranteed, jointly and severally, on a secured second-priority basis, by all existing and future domestic restricted subsidiaries of the Company. The 2016 Notes and the guarantees are secured by a lien on substantially all of the assets of the Company and the guarantors. Except for a minor investment in a foreign subsidiary, the Company does not have any independent assets or operations other than its ownership in all of the capital stock of its subsidiaries. Since inception, all of the Company’s operations have been conducted through its wholly owned subsidiaries.

On October 9, 2009, the Company issued $400.0 million aggregate principal, net of original issue discount of $20.0 million, of 9.625 percent Senior Secured Notes due 2015, or the 2015 Notes. Interest is payable on the 2015 Notes semi-annually in arrears on April 1 and October 1 of each year. At any time on or after October 1, 2013, the Company may on one or more occasions redeem all or part of the 2015 Notes at 104.813 percent of principal for the subsequent 12-month period and at 100 percent of principal on October 1, 2014, and thereafter. Proceeds from the sale of the 2015 Notes were used in part to redeem all of our Senior Secured Floating Rate Notes due 2012, or the 2012 Notes.

The 2015 Notes are unconditionally guaranteed, jointly and severally, on a senior secured basis, by all existing and future domestic restricted subsidiaries of the Company. The 2015 Notes and the guarantees are secured by a lien on substantially all of the assets of the Company and the guarantors.

Interest Expense, Net

The composition of interest expense, net, was as follows (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010
Interest expense	$	13,273		$	10,937		$	26,522		$	21,259
Capitalized interest		(10,614	)		(3,144	)		(19,206	)		(5,174	)
Interest income		(55	)		(41	)		(189	)		(90	)
Total interest expense, net	$	2,604		$	7,752		$	7,127		$	15,995

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Interest expense, net, for the three and six months ended June 30, 2011, primarily includes interest expense on our 2016 Notes and 2015 Notes. Interest expense, net, for the three and six months ended June 30, 2010, primarily includes interest expense on our 2015 Notes. Interest expense, net, also includes amortized prepaid financing costs and amortization of debt discount.

(9) Convertible Preferred Stock

In March 2010, the Company entered into a Stock Purchase Agreement and a Note Purchase Agreement with Cerberus Satellite LLC, or Cerberus for the sale of its Series A Convertible Preferred Stock, or Preferred Stock. In September 2010, pursuant to the terms of the Stock Purchase Agreement and as a result of the EnhancedView award by the NGA being made without the letter-of-credit requirement, Cerberus purchased 80,000 shares of Preferred Stock having a liquidation preference of $1,000 per share. This resulted in net proceeds to the Company of $78.0 million, after discounts and before issuance costs. The Preferred Stock is convertible on issuance, at the option of the holders, at a conversion rate of $29.76 per common share, which is equivalent to a conversion rate of 2.7 million shares of common stock of the Company.

The March 2010 Stock Purchase Agreement represented a financial instrument, not in the form of a share, which contained a conditional obligation on the part of the Company to redeem its equity shares by transferring assets in the future and was therefore, presented as a liability and was initially and subsequently measured at fair value until Cerberus purchased the Preferred Stock on September 22, 2010. During the three and six months ended June 30, 2010, the change in the value of the financial instrument resulted in $2.1 million of other non-operating income and $8.4 million of other non-operating expense, respectively.

The Preferred Stock represents an ownership interest assuming conversion of such Preferred Stock to the Company’s common stock, of approximately 11 percent as of June 30, 2011. Dividends on the Preferred Stock are payable quarterly in arrears at a rate of 5 percent per annum of the liquidation preference of $1,000 per share, subject to declaration by the Board of Directors. The Company declared dividends on the Preferred Stock of $1.0 million and $2.0 million during the three and six months ended June 30, 2011, respectively. The dividend payable of $1.0 million was included in accounts payable and accrued expenses as of June 30, 2011.

(10) Fair Value Measurements

The Company applies authoritative accounting guidance for fair value measurements of financial and nonfinancial assets and liabilities. The guidance defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance requires disclosure of the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date. There is an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Three levels of inputs may be used to measure fair value:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: observable prices that are based on inputs not quoted on active markets, but corroborated by market data

Level 3: unobservable inputs are used when little or no market data is available

GeoEye’s financial instruments include cash and cash equivalents, available-for-sale short-term investments, restricted cash, accounts receivable, accounts payable, accrued expenses and debt. The carrying amounts of cash and cash equivalents, available-for-sale short-term investments, restricted cash, accounts receivable, accounts payable and accrued expenses approximate their respective fair values due to the short-term nature of these instruments.

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The following table provides information about the financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011, and December 31, 2010 (in thousands):

	June 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Available-for-sale securites		9,420		9,420		10,000		10,000
Senior Secured Notes (due 2016)		125,000		132,500		125,000		131,250
Senior Secured Notes (due 2015)		384,551		447,000		383,160		452,000

We classified the above instruments as Level 2 instruments due to the usage of quoted market prices and observable market data.

(11) Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following as of June 30, 2011, and December 31, 2010 (in thousands):

	June 30, 2011		December 31, 2010
Accounts payable and accrued expenses	$	11,885	$	17,246
Accrued payroll		11,521		14,660
Accrued expenses - subcontractors		27,507		25,912
Accrued interest payable		12,320		12,111
Dividends payable		998		1,007
Total accounts payable and accrued expenses	$	64,231	$	70,936

(12) Stockholders’ Equity

Earnings per Share

Basic earnings per share, or EPS, is computed based on the weighted-average number of shares of the Company’s Common Stock outstanding. Diluted EPS is computed based on the weighted-average number of shares of the Company’s Common Stock outstanding and other dilutive securities. Securities that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are required to be included in the computation of basic EPS and diluted EPS pursuant to the two-class method. The Company’s preferred shares are participating securities.

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The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations (in thousands):

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2011			2010		2011			2010
Numerator for basic and diluted earnings per share:
Net income	$	13,409		$	12,149	$	25,656		$	12,923
Preferred stock dividends		(998	)		-		(1,984	)		-
		12,411			12,149		23,672			12,923
Income allocated to participating securities		(1,344	)		-		(2,569	)		-
Net income available to common stockholders	$	11,067		$	12,149	$	21,103		$	12,923

Denominator:
Weighted average shares outstanding used to compute basic earnings per share		22,130			21,760		22,087			21,416
Dilutive effect of:
Warrants		-			-		-			218
Stock options, deferred stock units, restricted stock units, employee stock purchase plan shares and nonvested stock		626			303		673			316
Weighted average shares outstanding and dilutive securities used to compute diluted earnings per share		22,756			22,063		22,760			21,950

For each of the three and six months ended June 30, 2011, 2.7 million potential common shares from the conversion of preferred stock and 0.4 and 0.2 million stock options and nonvested stock awards, respectively were excluded from the calculation of diluted EPS, as their inclusion would have been anti-dilutive.

For each of the three and six month periods ended June 30, 2010, less than 0.1 million stock options and nonvested stock awards were excluded from the calculation of diluted EPS, as their inclusion would have been anti-dilutive.

Changes in Stockholders’ Equity

Changes in stockholders’ equity for the six months ended June 30, 2011, consisted of the following (in thousands):

Balance at January 1, 2011	$	443,243
Net income for the six months ended June 30, 2011		25,656
Issuance of common stock		877
Surrender of common stock to cover employees' minimum tax liability		(1,267	)
Stock-based compensation		6,229
Other adjustments		(80	)
Preferred stock dividends		(1,984	)
Balance at June 30, 2011	$	472,674

During 2011, we granted a total of 134,156 shares of nonvested stock, which vest over three- to four-year periods and 137,519 stock options, which vest over a four-year period. In addition, we granted 51,945 restricted stock units to executive officers as part of a Long Term Incentive Plan, or LTIP. These restricted stock units have both performance and service requirements that vest over a two-year period and are subject to a three-year restriction on the sale or transfer of the shares.

Stockholder Rights Plan

On June 8, 2011, the Board of Directors adopted a Stockholder Rights Agreement, or Rights Agreement between the Company and Mellon Investor Services LLC, as rights agent. The rights are designed to assure that all stockholders receive fair and equal treatment in the event of any proposed takeover of the Company and to guard against partial tender offers, open market accumulations and other abusive or coercive tactics to gain control of the Company without paying all stockholders a control premium.

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In connection with the adoption of the Rights Agreement, the Board of Directors of the Company declared a dividend of one preferred stock purchase right, or Right, for each outstanding share of Common Stock to stockholders of record as of the close of business on June 22, 2011. Subject to certain exceptions, the Rights will be exercisable if a person or group of affiliated or associated persons acquires 20% or more of the Company’s Common Stock or announces a tender offer for 20% or more of the Common Stock. In the case of a tender offer, the Board of Directors may determine a later date for the exercise of the Rights unless the person or group that announced the tender offer acquires 20% or more of the Company’s Common Stock. Under certain circumstances, each Right will entitle stockholders to buy one one-thousandth of a share of newly-created Series B Junior Participating Preferred Stock of the Company at an exercise price of $175. The Company’s Board of Directors will be entitled to redeem the Rights at $0.001 per right at any time before a person or group has acquired 20% or more of the outstanding Common Stock. The Rights currently are not exercisable and are attached to and trade with the outstanding shares of Common Stock. The Rights will expire on June 7, 2012, subject to the Company’s right to extend such date, unless earlier redeemed or exchanged by the Company or terminated. The Rights will at no time have any voting rights.

Subject to limited exceptions, if a person or group acquired 20% or more of the outstanding Common Stock of the Company or announces a tender offer for 20% or more of the Common Stock (we refer to such a person or group as an “acquiring person”), each Right will entitle the Right holder to purchase, at the Right’s then-current exercise price, a number of shares of Common Stock having a market value at that time of twice the Right’s exercise price. Rights held by the acquiring person will become void and will not be exercisable. If the Company is acquired in a merger or other business combination transaction that has not been approved by the Board of Directors after the Rights become exercisable, each Right will entitle its holder to purchase, at the Right’s then-current exercise price, a number of shares of the acquiring company’s common stock having a market value at that time of twice the Right’s exercise price.

The Company has 0.05 million authorized shares of Series B Junior Participating Preferred Stock. There is no Series B Junior Participating Preferred Stock issued or outstanding as of June 30, 2011 and December 31, 2010.

Comprehensive Income

For the three and six months ended June 30, 2011 and 2010, there were no material differences between net income as reported and comprehensive income.

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(13) Significant Customer and Geographic Information

The Company operates in a single industry segment, in which it provides imagery, imagery information products and image-processing services to customers around the world.

GeoEye recognized revenue related to contracts with the U.S. government, the Company’s largest customer, of $56.9 million and $55.5 million for the three months ended June 30, 2011 and 2010, representing 65 percent and 69 percent of total revenues, respectively. For the six months ended June 30, 2011 and 2010, the Company recognized revenue of $117.1 million and $109.7 million under its contract with the U.S. government, representing 67 percent and 68 percent of total revenues, respectively. We had no other customers for whom revenues exceeded 10 percent of total revenues during the three or six months ended June 30, 2011 or 2010.

The Company has two product and service lines: (a) Imagery, including the NextView cost-share, and (b) Production and Other Services.

Total revenues by these lines were as follows (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2011		2010		2011		2010
Imagery	$	61,582	$	61,093	$	120,557	$	120,730
NextView cost-share		6,038		6,038		12,076		12,076
Production and other services		19,586		13,830		41,199		28,544
Total revenues	$	87,206	$	80,961	$	173,832	$	161,350

Total domestic and international revenues were as follows (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2011		2010		2011		2010
Domestic	$	68,348	$	62,107	$	135,414	$	121,886
International		18,858		18,854		38,418		39,464
Total revenues	$	87,206	$	80,961	$	173,832	$	161,350

Our property, plant and equipment and ground systems are held domestically.

(14) Commitments and Contingencies

Contractual Obligations

The following table summarizes our contractual cash obligations at June 30, 2011 (in thousands):

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	Payments due by year
	Less than 1 Year		1 to 2 years		2 to 3 years		3 to 4 years		4 to 5 years		Thereafter		Total
	(in thousands)
Long-term debt obligations	$	-	$	-	$	-	$	-	$	400,000	$	125,000	$	525,000
Interest expense on long-term debt (1)		49,281		49,281		49,281		49,281		30,031		5,391		232,546
Operating lease obligations		2,491		3,975		3,559		2,409		2,451		16,530		31,415
Purchase obligations (2)		123,893		114,684		840		840		140		-		240,397
Total contractual obligations	$	175,665	$	167,940	$	53,680	$	52,530	$	432,622	$	146,921	$	1,029,358

(1)

Represents contractual interest payment obligations on the $400.0 million outstanding principal balance of our 2015 Notes, which bear interest at a rate per annum of 9.625% and contractual interest payment obligations on the $125.0 million outstanding principal balance of our 2016 Notes, which bear interest at a rate per annum of 8.625%.

(2)	Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that are enforceable and legally binding. As of June 30, 2011, purchase obligations include EnhancedView-related commitments, ground systems and communication services.

Operating Leases

We have commitments for operating leases primarily relating to office and operating facilities and equipment. We lease various real properties under operating leases that generally require us to pay taxes, insurance, maintenance and minimum lease payments. These leases contain escalation provisions for increases as a result of increases in real estate taxes and operating expenses. We recognize rent expense under such leases on a straight-line basis over the term of the lease. Substantially all of these leases have lease terms ranging from three to twelve years. Some of our leases have options to renew.

Total rental expense under operating leases was $0.9 million and $0.5 million for the three months ended June 30, 2011 and 2010, respectively, and $2.4 million and $1.1 million for the six months ended June 30, 2011 and 2010, respectively.

Contingencies

GeoEye, from time to time, may be party to various lawsuits, legal proceedings and claims arising in the normal course of business. The Company cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, the Company believes that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse impact on the Company’s financial results, liquidity or operations.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements as long as they are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements. Without limitation, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “will” and similar expressions are intended to identify forward-looking statements. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including statements relating to growth, expected levels of expenditures and statements about future operating results, are forward-looking statements. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements and those presented elsewhere by our management from time to time are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements. These risks and uncertainties include, but are not limited to, those described in “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 15, 2011, or 2010 Annual Report. The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:

risks associated with operating our in-orbit satellites;

satellite launch failures, satellite launch and construction delays and in-orbit failures or reduced performance;

potential changes in the number of companies offering commercial satellite launch services and the number of commercial satellite launch opportunities available in any given time period that could impact our ability to timely schedule future launches and the prices we have to pay for such launches;

our ability to obtain new satellite insurance policies with financially viable insurance carriers on commercially reasonable terms or at all, as well as the ability of our insurance carriers to fulfill their obligations;

termination, suspension or other changes of funding or purchase levels under contracts with U.S. government agencies;

market acceptance of our products and services;

our ability to maintain and protect our Earth imagery content and our image archives against damage;

possible future losses on satellites that are not adequately covered by insurance;

domestic and international government regulation;

changes in our revenue backlog or expected revenue backlog for future services;

pricing pressure and overcapacity in the markets in which we compete;

inadequate access to capital markets or other financing;

the competitive environment in which we operate;

customer defaults on their obligations owed to us;

our international operations and other uncertainties associated with doing business internationally;

litigation;

other factors disclosed in our subsequent filings under the Securities Exchange Act of 1934, as amended, which is referred to as the Exchange Act, and the other factors beyond our control. These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this Quarterly Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information included in this Quarterly Report should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2010 Annual Report. In preparing the discussion and analysis contained in this Item 2, we assume that readers have read or have access to the discussion and analysis contained in the 2010 Annual Report and in our other Exchange Act filings. In addition, the following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes, and “Part I — Item 1A — Risk Factors,” which describes key risks associated with our operations and industry, and “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2010 Annual Report.

Overview

We own and operate two Earth-imaging satellites, GeoEye-1 and IKONOS, and three airplanes with advanced high-resolution imagery collection capabilities. GeoEye-1 is the world’s highest resolution and most accurate commercial Earth-imaging satellite. We own one of the world’s largest libraries of commercial color digital satellite imagery; it contains more than 535 million square kilometers of color imagery of the Earth.

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In addition to our imagery collection capacities, we are a global leader in the creation of enhanced satellite imagery information products and services. We believe we are the only major commercial imagery satellite operator that can produce imagery from multiple satellite sources in addition to our own enhanced satellite imagery information products and services.

Our principal sources of revenue are from imaging services, the sale of satellite imagery directly to end users or value-added resellers, the provision of direct access to our satellites, and associated ground processing technology upgrades and operations and maintenance services. We also derive significant revenue from value-added production services where we combine our images with data and imagery from our own and other sources to create sophisticated information. Additionally, in 2010, new sources of revenue include the dissemination and hosting of imagery and the provision of consultation, integration, data analysis and other professional services related to geospatial information systems.

Our Web site is www.geoeye.com. We make available free of charge on or through our Web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or the SEC. This reference to our Web site is for the convenience of shareholders as required by the SEC and shall not be deemed to incorporate any information on the Web site into this Form 10-Q or our other filings with the SEC.

Our Web site is also a key source of important information about us. We routinely post to the About Us/Investor Relations section of our Web site important information about our business, our operating results and our financial condition and prospects, including, for example, information about important acquisitions and dispositions, our earnings releases and certain supplemental financial information related or complementary thereto. We also have a Corporate Governance page in the Investor Relations section of our Web site that includes, among other things, copies of our Code of Business Conduct & Ethics and the charters for each standing committee of our Board of Directors, which currently are: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, the Strategy Committee and the Risk Committee. Copies of our Bylaws and these charters and policies are also available in print to stockholders upon request to Corporate Secretary, GeoEye, Inc., 2325 Dulles Corner Boulevard, Herndon, Virginia 20171.

Products and Services

Satellite Imagery

We offer a wide range of high-resolution satellite imagery that provides our customers with time-critical visual imagery, data and information, which we divide into three general categories:

Geo. Our Geo product, which is the foundation of the imagery product line, is a map-oriented image suitable for a broad range of customer uses. Geo images are suitable for customer visualization and monitoring applications and are delivered to our customers in a data and information format capable of being processed into other advanced imagery products using standard commercially available software.

GeoProfessional. Our GeoProfessional products consist of imagery that has been aligned and geographically corrected by our experienced staff of production personnel to provide the most accurate and precise imagery currently available from a commercial satellite provider. Our production personnel can also combine various satellite and aerial images into a single, highly detailed and comprehensive image. Available in various levels of accuracy, these GeoProfessional products are suitable for feature extraction, change detection, base mapping and other similar geo-location applications.

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GeoStereo. Our GeoStereo product uses at least two images of the same location at different angles to provide our customers with a three-dimensional image of a given location. GeoStereo provides the base images that are used for three-dimensional feature recognition and extraction. These GeoStereo products support a wide range of imagery applications such as digital elevation model creation, building height extraction, spatial layers and three-dimensional feature extraction.

Aerial Imagery

Our aerial imagery is designed to support specific customer requests for high-resolution and highly accurate images. We offer two main types of aerial imagery collected by our dedicated fleet of three imaging aircraft: (1) digital aerial imaging; and (2) light detection and ranging, or LiDAR, imaging (an optical remote sensing technology using laser pulses to determine distances to an object or surface). The use of digital aerial imaging provides our commercial and government customers with complete digital images, which can be easily stored in a data management system. The LiDAR technology is a valuable tool for measuring and recording elevation data for use in topographic mapping and three-dimensional terrain and surface modeling, useful in the field of engineering.

Production Services

Images and image products generated by our production service operations are purchased by U.S. government agencies and domestic and international commercial customers, including international governments and state and local governments. Production services typically involve the processing and production of specific data and imagery information products that are built to stringent customer specifications. We have developed advanced processing systems that enable us to process raw data from a wide range of both government and commercial sensors (imaging satellites) and then merge the source images into very precise information and imagery products to meet the needs of a broad range of customers. Our production services range from the generation of precision imagery products (for example, digital elevation maps) to the extraction of site-specific features (for example, airports, highways and buildings) for our customers’ database development.

Our production services, which are designed to increase the accuracy and precision of satellite and aerial imagery, include the following production processes:

•

Georectification. This is a computer-processing operation that corrects the pixel locations of a digital image to remove image distortions caused by the non-vertical pointing and movement of the sensor during the imaging event.

•

Tonal Correction. This is the scientific correction of the color variations between various component images of an image mosaic so that the image or picture reflects a coherent color structure.

•

Image Mosaicking. This is the process of merging or stitching multiple images together. Since images are taken at different look angles, elevations, weather, times and season, etc., they do not match each other tonally or in exact location to the ground. Prior to mosaicking, images are tonally corrected as much as possible. They are also block adjusted — the images are shifted in relation to each other and to ground truth to improve accuracy. The result is a group of images that match each other in location and color, so they can be stitched together to create a mosaic that is as seamless as possible.

•

Orthorectification. This is the process of accurately registering imagery to ground coordinates and geometrically correcting it for Earth elevation differences at the image location. For example, orthorectification is used to make buildings and objects in an image appear to be standing straight instead of leaning. After processing, the image can be used for a variety of mapping applications, including land use and land-cover classification, terrain analysis, natural resource mapping, backdrops for maps, temporal-change analysis, multi-image fusion and others.

Our production services include LiDAR elevation data, maps, topographic maps, digital orthophoto imagery, remote sensing services, survey and inventory services and Geospatial Information System, or GIS, consulting and implementation. We also offer geospatial products and services to help develop and manage geospatial data to support customer documentation needs, inventory of resources and engineering and development applications.

Information Services

We provide imagery information services, which combine our imagery with third-party data to create sophisticated and customized information for our customers. In 2010, we launched our information services business to provide our customers global on-demand access to imagery and related information over the Internet. This new Web-based services platform, which we call EyeQ, provides the core infrastructure for this new service and our new geospatial information services business. EyeQ commenced operations in April 2010 supporting the U.S. government’s National Geospatial-Intelligence Agency, or NGA, customers. In September 2010, EyeQ became available to our commercial customers.

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EyeQ delivers imagery and other location-based information through annual subscriptions and user licenses. EyeQ offers a Web interface with tools that function as our customers’ data center. EyeQ serves up imagery and other standards-based content throughout the customers’ data network and out to their customers and partners.

With EyeQ, our customers have access to secure, timely and accurate location information delivered into their business environment. EyeQ is user friendly and is available twenty-four hours a day and seven days a week. EyeQ serves our goal of simplifying access to and delivery of imagery and location information.

On December 15, 2010, GeoEye, Inc. completed the acquisition of 100 percent of the stock of SPADAC, Inc., or SPADAC, a geospatial predictive analytics company, for a net purchase price of $44.3 million in cash and stock, which includes an adjustment for changes to the tangible net worth of SPADAC, as defined in the merger agreement. With the completion of the acquisition, SPADAC became a wholly owned subsidiary named GeoEye Analytics.

GeoEye Analytics provides geospatial predictive analytic solutions to over 40 customers in key markets of defense, intelligence and homeland security. Our highly trained geospatial and multi-source analysts utilize proprietary software and algorithms to combine location-based information, geographic data, human geography, historic events and a wide range of other information sources to generate unique location-based analysis that enable customers to gain the insight they need to support mission critical operations around the world. Our teams and technology are used daily in mission areas such as counter terrorism, law enforcement, oil and gas exploration, fraud detection and risk management. Predictive geospatial analysis enables our customers to analyze where events are likely to occur and in that way to provide the insight they need so they can best manage risk, optimize deployment of resources and ensure efficient utilization of key assets.

Results of Operations

Comparison of the Results of Operations for the Three and Six Months EndedJune 30, 2011 and 2010

	For the Three Months Ended June 30,												Change Between						For the Six Months Ended June 30,												Change Between
	2011						2010						2011 and 2010						2011						2010						2011 and 2010
	Amount			% of Revenue			Amount			% of Revenue			Amount			%			Amount			% of Revenue			Amount			% of Revenue			Amount			%
	(in thousands, except percentages)																		(in thousands, except percentages)
Revenues	$	87,206			100.0	%	$	80,961			100.0	%	$	6,245			7.7	%	$	173,832			100.0	%	$	161,350			100.0	%	$	12,482			7.7	%

Operating expenses:
Direct costs of revenue (exclusive of depreciation and amortization)		31,426			36.0			26,702			33.0			4,724			17.7			62,738			36.1			51,183			31.7			11,555			22.6
Depreciation and amortization		17,492			20.1			16,200			20.0			1,292			8.0			34,218			19.7			32,222			20.0			1,996			6.2
Selling, general and administrative		14,696			16.9			13,783			17.0			913			6.6			29,090			16.7			27,165			16.8			1,925			7.1
Total operating expenses		63,614			72.9			56,685			70.0			6,929			12.2			126,046			72.5			110,570			68.5			15,476			14.0
Income from operations		23,592			27.1			24,276			30.0			(684	)		(2.8	)		47,786			27.5			50,780			31.5			(2,994	)		(5.9	)
Interest expense, net		(2,604	)		(3.0	)		(7,752	)		(9.6	)		5,148			66.4			(7,127	)		(4.1	)		(15,995	)		(9.9	)		8,868			55.4
Other non-operating income (expense)		-			-			2,055			2.5			(2,055	)		(100.0	)		-			-			(8,419	)		(5.2	)		8,419			100.0
Loss from early extinguishment of debt		-			-			-			-			-			100.0			-			-			(37	)		(0.0	)		37			100.0
Income before provision for income taxes		20,988			24.1			18,579			22.9			2,409			13.0			40,659			23.4			26,329			16.3			14,330			54.4
Provision for income taxes		(7,579	)		(8.7	)		(6,430	)		(7.9	)		(1,149	)		(17.9	)		(15,003	)		(8.6	)		(13,406	)		(8.3	)		(1,597	)		(11.9	)
Net income		13,409			15.4			12,149			15.0			1,260			10.4			25,656			14.8			12,923			8.0			12,733			98.5
Preferred stock dividends		(998	)		(1.1	)		-			-			(998	)		(100.0	)		(1,984	)		(1.1	)		-			-			(1,984	)		(100.0	)
		12,411			14.2			12,149			15.0			262			2.2			23,672			13.6			12,923			8.0			10,749			83.2
Income allocated to participating securities		(1,344	)		(1.5	)		-			-			(1,344	)		(100.0	)		(2,569	)		(1.5	)		-			-			(2,569	)		(100.0	)
Net income available to common stockholders	$	11,067			12.7		$	12,149			15.0		$	(1,082	)		(8.9	)	$	21,103			12.1		$	12,923			8.0		$	8,180			63.3

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Revenues

	For the Three Months Ended June 30,										Change Between					For the Six Months Ended June 30,										Change Between
	2011					2010					2011 and 2010					2011					2010					2011 and 2010
	Amount		% of Revenue			Amount		% of Revenue			Amount		%			Amount		% of Revenue			Amount		% of Revenue			Amount			%
	(in thousands, except percentages)															(in thousands, except percentages)
Imagery	$	61,582		70.6	%	$	61,093		75.5	%	$	489		0.8	%	$	120,557		69.4	%	$	120,730		74.8	%	$	(173	)		(0.1	) %
NextView cost-share		6,038		6.9			6,038		7.5			-		-			12,076		6.9			12,076		7.5			-			-
Production and other services		19,586		22.5			13,830		17.1			5,756		41.6			41,199		23.7			28,544		17.7			12,655			44.3
Total revenues	$	87,206		100.0		$	80,961		100.0		$	6,245		7.7		$	173,832		100.0		$	161,350		100.0		$	12,482			7.7

Imagery revenues primarily include imagery sales, affiliate access fees and operations and maintenance fees. NextView cost-share revenues is based on the recognition of deferred revenue related to the cost-share amounts from the NGA. Production and other services revenues primarily include revenue from production orders for the NGA and commercial customers, our digital aerial imagery services, GeoEye Analytics, and EyeQ, our Web-based dissemination services.

Imagery revenues increased for the three months ended June 30, 2011 compared to the same period in 2010, primarily due to the increase in deliveries to domestic commercial customers. This increase was offset by a lower level of achievement under the NGA EnhancedView Service Level Agreement, or SLA metrics for the three months ended June 30, 2011 compared to the same period in 2010 and the one-time revenue recognition related to the delivery of ground terminal equipment in the second quarter of 2010.

Production and other services revenues increased for the three and six months ended June 30, 2011, compared to the same periods in 2010 due to the inclusion of revenues from the sale of GeoEye Analytics products and services in 2011 and EyeQ Web-based dissemination services revenues, which commenced in April 2010, partially offset by a decline in our value-added production services.

Total domestic and international revenues were as follows:

	For the Three Months Ended June 30,										Change Between					For the Six Months Ended June 30,										Change Between
	2011					2010					2011 and 2010					2011					2010					2011 and 2010
	Amount		% of Revenue			Amount		% of Revenue			Amount		%			Amount		% of Revenue			Amount		% of Revenue			Amount			%
	(in thousands, except percentages)															(in thousands, except percentages)
Domestic	$	68,348		78.4	%	$	62,107		76.7	%	$	6,241		10.0	%	$	135,414		77.9	%	$	121,886		75.5	%	$	13,528			11.1	%
International		18,858		21.6			18,854		23.3			4		0.0			38,418		22.1			39,464		24.5			(1,046	)		(2.7	)
Total revenues	$	87,206		100.0		$	80,961		100.0		$	6,245		7.7		$	173,832		100.0		$	161,350		100.0		$	12,482			7.7

Domestic revenues include those from the SLAs, recognition of deferred revenue related to the NextView cost-share payments from the NGA, commercial imagery sales, sales of value-added products and services, and EyeQ, our Web-based dissemination services. International revenues are derived from access fee agreements and ground station operation and maintenance contracts with our international regional affiliate customers, commercial imagery sales and sales of ground stations.

Domestic revenues increased during the three and six months ended June 30, 2011, compared to the same periods in 2010, primarily due to the inclusion of revenues from the sale of GeoEye Analytics products and services in 2011 and an increase in deliveries to domestic commercial customers in 2011 offset by a decline in our value-added production services and the one-time revenue recognition related to the delivery of ground terminal equipment sold in the second quarter of 2010. Additionally, there was a decrease in domestic revenues due to a lower level of achievement under the NGA EnhancedView SLA metrics for the three and six months ended June 30, 2011 compared to the same periods in 2010.

International revenues decreased primarily due to the decreased level of deliveries to regional affiliate customers during the six months ended June 30, 2011 compared to the same period in 2010.

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Operating Expenses

Direct Costs of Revenue

	For the Three Months Ended June 30,										Change Between						For the Six Months Ended June 30,										Change Between
	2011					2010					2011 and 2010						2011					2010					2011 and 2010
	Amount		% of Revenue			Amount		% of Revenue			Amount			%			Amount		% of Revenue			Amount		% of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Labor and overhead	$	19,557		22.4	%	$	13,723		17.0	%	$	5,834			42.5	%	$	40,173		23.1	%	$	25,375		15.7	%	$	14,798			58.3	%
Subcontractor		7,057		8.1			7,447		9.2			(390	)		(5.2	)		13,132		7.6			15,658		9.7			(2,526	)		(16.1	)
Satellite insurance		1,544		1.8			1,549		1.9			(5	)		(0.3	)		3,123		1.8			3,099		1.9			24			0.8
Other direct costs		3,268		3.7			3,983		4.9			(715	)		(18.0	)		6,310		3.6			7,051		4.4			(741	)		(10.5	)
Total direct costs of revenue	$	31,426		36.0		$	26,702		33.0		$	4,724			17.7		$	62,738		36.1		$	51,183		31.7		$	11,555			22.6

Direct costs of revenue include the costs of operating our satellites and related ground systems, labor and ongoing costs related to our operations, maintenance and production contracts and provision of services by GeoEye Analytics. Subcontractor expenses primarily include payments to third parties for support to operate the IKONOS and GeoEye-1 satellites and their related ground systems. Other direct costs include third-party costs and fees to support our satellite program and the costs associated with monitoring our ground station equipment.

Labor and overhead costs increased during the three and six months ended June 30, 2011, compared to the same periods in 2010, primarily due to the inclusion of GeoEye Analytics and an increase in headcount.

Subcontractor expenses decreased during the six months ended June 30, 2011, compared to the same period in 2010, primarily due to a lower level of engineering and consulting costs incurred in 2011.

Other direct costs of revenue decreased during the three and six months ended June 30, 2011, compared to the same periods in 2010, primarily due to costs related to the delivery of ground terminal equipment sold in the second quarter of 2010.

Depreciation and Amortization

	For the Three Months Ended June 30,										Change Between					For the Six Months Ended June 30,										Change Between
	2011					2010					2011 and 2010					2011					2010					2011 and 2010
	Amount		% of Revenue			Amount		% of Revenue			Amount		%			Amount		% of Revenue			Amount		% of Revenue			Amount		%
	(in thousands, except percentages)															(in thousands, except percentages)
Depreciation	$	16,625		19.1	%	$	15,540		19.2	%	$	1,085		7.0	%	$	32,420		18.7	%	$	30,901		19.2	%	$	1,519		4.9	%
Amortization		867		1.0			660		0.8			207		31.4			1,798		1.0			1,321		0.8			477		36.1
Total depreciation and amortization	$	17,492		20.1		$	16,200		20.0		$	1,292		8.0		$	34,218		19.7		$	32,222		20.0		$	1,996		6.2

Depreciation increased during the three and six months ended June 30, 2011, compared to the same periods in 2010, primarily due the increase in capital expenditures related to computer hardware and software for the EyeQ platform as well as the GeoEye-1 ground station backup at our Thornton facility. Additionally, there was an increase in depreciation related to costs incurred in connection with the move to our new corporate headquarters during the second quarter of 2011.

Amortization expense is primarily associated with acquired contracts and customer relationship intangibles from our acquisition in prior years of MJ Harden, Space Imaging LLC and GeoEye Analytics.

Amortization increased during the three and six months ended June 30, 2011, compared to the same periods in 2010, primarily due to the intangible amortization recognized in connection with the acquisition of GeoEye Analytics in December 2010.

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Selling, General and Administrative Expenses

	For the Three Months Ended June 30,										Change Between						For the Six Months Ended June 30,										Change Between
	2011					2010					2011 and 2010						2011					2010					2011 and 2010
	Amount		% of Revenue			Amount		% of Revenue			Amount			%			Amount		% of Revenue			Amount		% of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Payroll, commissions, and related costs	$	5,980		6.9	%	$	6,727		8.3	%	$	(747	)		(11.1	)%	$	11,879		6.8	%	$	12,677		7.9	%	$	(798	)		(6.3	)%
Stock-based compensation		1,900		2.2			1,410		1.7			490			34.8			3,740		2.2			2,235		1.4			1,505			67.3
Professional fees		2,791		3.2			2,339		2.9			452			19.3			5,236		3.0			5,204		3.2			32			0.6
Research and development		664		0.8			373		0.5			291			78.0			1,227		0.7			783		0.5			444			56.7
Other		3,361		3.9			2,934		3.6			427			14.6			7,008		4.0			6,266		3.9			742			11.8
Total selling, general and administrative expenses	$	14,696		16.9		$	13,783		17.0		$	913			6.6		$	29,090		16.7		$	27,165		16.8		$	1,925			7.1

Selling, general and administrative expenses include the costs of the finance, administrative and general management functions and the costs of marketing, advertising, promotion and other selling expenses, including commissions. Other selling, general and administrative expenses include facilities, computer and telecommunication services, travel and related costs for our sales, marketing and back office support activities.

Total selling, general and administrative expenses increased for the six months ended June 30, 2011, compared to the same period in 2010, primarily as a result of increases in facilities costs from our new corporate headquarters and stock-based compensation offset by a decrease in payroll, commissions and related costs due to one-time charges in 2010.

Interest Expense, Net

The composition of interest expense, net, was as follows:

	For the Three Months Ended June 30,												Change Between						For the Six Months Ended June 30,												Change Between
	2011						2010						2011 and 2010						2011						2010						2011 and 2010
	Amount			% of Revenue			Amount			% of Revenue			Amount			%			Amount			% of Revenue			Amount			% of Revenue			Amount			%
	(in thousands, except percentages)																		(in thousands, except percentages)
Interest expense	$	13,273			15.2	%	$	10,937			13.5	%	$	2,336			21.4	%	$	26,522			15.3	%	$	21,259			13.2	%	$	5,263			24.8	%
Capitalized interest		(10,614	)		(12.2	)		(3,144	)		(3.9	)		(7,470	)		(237.6	)		(19,206	)		(11.0	)		(5,174	)		(3.2	)		(14,032	)		(271.2	)
Interest income		(55	)		(0.1	)		(41	)		(0.1	)		(14	)		(34.1	)		(189	)		(0.1	)		(90	)		(0.1	)		(99	)		(110.0	)
Total interest expense, net	$	2,604			3.0		$	7,752			9.6		$	(5,148	)		(66.4	)	$	7,127			4.1		$	15,995			9.9		$	(8,868	)		(55.4	)

Interest expense, net, includes interest expense on our 2015 and 2016 Notes, amortization of prepaid financing costs and amortization of debt discount.

Interest expense increased during the three and six months ended June 30, 2011, compared to the same periods in 2010, primarily due to the increase in our average outstanding long-term debt as a result of the issuance of the 2016 Notes. The increase in capitalized interest during the three and six months ended June 30, 2011, compared to the same periods in 2010 was due to increased capitalized interest associated with the increased construction costs of the GeoEye-2 satellite during 2011, on which interest is capitalized.

Other Non-Operating Expense

We recorded other non-operating income of $2.1 million in the second quarter of 2010 and an other non-operating loss of $8.4 million during the six months ended June 30, 2010, related to the fair value measurement of the Preferred Stock Commitment associated with the Cerberus Preferred Stock Purchase Agreement. The Preferred Stock Commitment fair value was marked to market and reflected as an adjustment to earnings and added to additional paid-in capital when Cerberus purchased the Preferred Stock on September 22, 2010.

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Provision for Income Taxes

The Company’s effective tax rate was 36.9% for the six months ended June 30, 2011 and 38.6% before discrete items for the six months ended June 30, 2010, respectively. Income tax expense was $7.6 million and $15.0 million for the three and six months ended June 30, 2011, respectively. Income tax expense was $6.4 million and $13.4 million including discrete items for the three and six months ended June 30, 2010, respectively. The increase in income tax expense for the three and six months ended June 30, 2011, compared to the same periods in 2010, is primarily a result of higher pretax income in the current periods.

Our effective tax rate differs from the federal tax rate primarily due to a benefit from research tax credits in 2011 partially offset by a related reserve, a benefit from a foreign tax rate differential, state and local income taxes, and certain expenses that are not deductible for tax purposes.

In May 2011, the Company finalized its method of tax accounting for the NextView cost-share payments with the IRS. Under the new tax accounting method, the NextView cost-share payments will be treated for tax purposes the same as for book purposes whereby amounts received from the U.S. government are recorded as deferred revenue when received and recognized as revenue on a straight-line basis over the useful life of the satellite. Prior to this IRS ruling, the Company recognized the NextView cost-share payments for tax purposes when the Company was entitled to receive these payments from the U.S. government. The change in tax accounting method will result in a reclassification of deferred tax items and will have no material impact on cash flow or earnings.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that represents net income before depreciation and amortization expenses, interest expense, net, provision for income taxes, non-cash stock-based compensation expense and other items. We present adjusted EBITDA to enhance understanding of our operating performance. We use adjusted EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that adjusted EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. However, adjusted EBITDA is not a recognized term under financial performance under GAAP, and our calculation of adjusted EBITDA may not be comparable to the calculation of similarly titled measures of other companies.

The use of adjusted EBITDA as an analytical tool has limitations, and it should not be considered in isolation, or as a substitute for analysis of our results of operations as reported in accordance with GAAP. Some of these limitations are:

•

It does not reflect our cash expenditures, or future requirements, for all contractual commitments;

•

It does not reflect our significant interest expense, or the cash requirements necessary to service our indebtedness;

•

It does not reflect cash requirements for the payment of income taxes when due;

•

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and

•

It does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations, but may nonetheless have a material impact on our results of operations.

Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as an alternative to net income or cash flow from operations determined in accordance with GAAP. Management compensates for these limitations by not viewing adjusted EBITDA in isolation, and specifically by using other GAAP measures, such as cash flow provided by operating activities and capital expenditures, to measure our liquidity. Our calculation of adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies.

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A reconciliation of net income to adjusted EBITDA is as follows:

	For the Three Months Ended June 30,					Change Between			For the Six Months Ended June 30,				Change Between
	2011		2010			2011 and 2010			2011		2010		2011 and 2010
	(in thousands)								(in thousands)
Net income	$	13,409	$	12,149		$	1,260		$	25,656	$	12,923	$	12,733
Adjustments:
Interest expense, net		2,604		7,752			(5,148	)		7,127		15,995		(8,868	)
Loss from early extinguishment of debt		-		-			-			-		37		(37	)
Provision for income taxes		7,579		6,430			1,149			15,003		13,406		1,597
Depreciation and amortization		17,492		16,200			1,292			34,218		32,222		1,996
Non-cash stock-based compensation expense		2,892		1,848			1,044			5,737		2,841		2,896
Non-cash change in fair value of financial instrument		-		(2,055	)		2,055			-		8,419		(8,419	)
Adjusted EBITDA	$	43,976	$	42,324		$	1,652		$	87,741	$	85,843	$	1,898

Liquidity and Capital Resources

The Company’s principal sources of liquidity are its cash from operating activities, unrestricted cash, cash equivalents, short-term investments and accounts receivable. Our primary cash needs are for working capital, capital expenditures and debt service.

We believe that we currently have sufficient resources to meet our operating requirements through the next twelve months and to fund the GeoEye-2 program. However, our ability to continue to be profitable, generate positive cash flow from our operations beyond that period and fund the GeoEye-2 program is dependent on the continued performance of commercial and government services and adequate customer acceptance of our products and services.

Cash Flow Items

As of June 30, 2011, we had $236.6 million of cash and cash equivalents and $14.4 million of short-term investments.

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $85.3 million and $46.3 million for the six months ended June 30, 2011 and 2010, respectively. The increase of $39.0 million in the six months ended June 30, 2011, compared to the same period in 2010 was primarily related to an increase in net income as well as cash collections from income tax refunds and accounts receivable balances year over year.

Net Cash Used in Investing Activities

Net cash used in investing activities was $130.6 million and $84.6 million for the six months ended June 30, 2011 and 2010, respectively and was primarily related to capital expenditures partially offset by the redemption of short-term investments. The increase in capital expenditures of $82.0 million compared to the same period in 2010 was primarily due to expenditures related to the construction of GeoEye-2 that were incurred in 2011. As of June 30, 2011, we have incurred total capitalized costs of $455.3 million for the EnhancedView program, primarily consisting of costs for the construction of GeoEye-2.

Net Cash (Used in) Provided by Financing Activities

Net cash (used in) provided by financing activities was $(1.3) million and $14.2 million for the six months ended June 30, 2011 and 2010, respectively. The decrease of $15.5 million in the six months ended June 30, 2011, compared to the same period in 2010 was primarily related to the issuance of common stock due to the exercise of warrants that occurred in 2010, which did not recur in 2011.

Long-Term Debt

In October 2010, we closed on a publicly registered debt offering of $125.0 million of our 2016 Notes due October 1, 2016. The 2016 Notes bear interest at 8.625 percent per annum. Interest payments on the 2016 Notes will be made semi-annually in arrears on April 1 and October 1 of each year. At any time on or after October 1, 2013, the Company may, on one or more occasions, redeem all or part of the 2016 Notes at 104.313 percent of principal for the subsequent 12-month period, at 102.156 percent of principal on October 1, 2014, for the subsequent 12-month period and at 100 percent of principal on October 1, 2015, and thereafter. The net proceeds of the 2016 Notes offering are being used for general corporate purposes, which may include working capital, future production and services expansion, capital expenditures and other strategic opportunities. The 2016 Notes are unconditionally guaranteed, jointly and severally, on a secured second-priority basis.

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In October 2009, we closed on a private placement offering of $400.0 million of our 2015 Notes due October 1, 2015. The net proceeds of the 2015 Notes offering were used to fund the repurchase of the Company’s outstanding $250.0 million 2012 Notes due July 1, 2012. The 2015 Notes bear interest at the rate of 9.625 percent per annum. Interest is payable semi-annually in arrears on April 1 and October 1 of each year. At any time on or after October 1, 2013, GeoEye, Inc. may on one or more occasions redeem all or part of the 2015 Notes at 104.813 percent of principal for the subsequent 12-month period and at 100 percent of principal on October 1, 2014, and thereafter. The 2015 Notes are unconditionally guaranteed, jointly and severally, on a senior secured basis.

As of June 30, 2011, our total long-term debt consisted of $125.0 million of 2016 Notes and $400.0 million of 2015 Notes, net of original issue discount of $15.4 million. Under the indentures governing the 2016 and 2015 Notes, we are prohibited from paying dividends on our common stock until the principal amount of all such notes has been repaid.

The indentures governing our 2016 Notes and 2015 Notes contain covenants that restrict our ability to incur additional indebtedness unless, among other things, we can comply with fixed charge coverage ratios. We may incur additional indebtedness only if, after giving pro forma effect to that incurrence, our ratio of adjusted cash EBITDA to total consolidated debt for the four fiscal quarters ending as of the most recent date for which internal financial statements are available meet certain levels, or we have availability to incur such indebtedness under certain baskets in the indentures. Adjusted cash EBITDA is defined as Adjusted EBITDA less amortization of deferred revenue related to the NextView agreement with the NGA in the indenture governing the 2015 Notes, and as Adjusted EBITDA less amortization of deferred revenue related to the NextView, EnhancedView or any successor agreement with the NGA in the indenture governing the 2016 Notes. As of June 30, 2011, we were in compliance with all covenants associated with each of our borrowings.

Equity Sources and Uses

Contracted Backlog

We have historically had and currently have a substantial contracted backlog. Backlog reduces the volatility of our net cash provided by operating activities more than would be typical for a company outside our industry.

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	Backlog to be recognized:
(in millions)	Less than 1 year		Thereafter		Total Contracted Backlog
EnhancedView SLA	$	150.0	$	2,613.1	$	2,763.1
EnhancedView cost-share amortization		-		384.0		384.0
NextView cost-share amortization		24.2		135.9		160.1
International		54.9		38.5		93.4
North American commercial		28.0		41.4		69.4
U.S. government		20.0		-		20.0
Total Backlog	$	277.1	$	3,212.9	$	3,490.0

Total backlog includes all contractual commitments. These include the remaining portion of the ten-year term of the EnhancedView SLA with the NGA, infrastructure design and procurement services under the EnhancedView contract with the NGA, access fee agreements, regional affiliate ground station operations and maintenance contracts with our international regional affiliate customers, commercial imagery contracts and value-added products and services, and remaining unamortized revenue from the NGA NextView cost-share payments made prior to the GeoEye-1 satellite becoming fully operational. Additionally, there is $552.0 million of unfunded value-added products and services awarded under this part of the EnhancedView program on a specific delivery order basis and subject to annual contract ceiling amounts. In addition, as part of the EnhancedView agreement, the NGA has agreed to contribute to the overall construction and launch costs of the GeoEye-2 satellite and associated ground station equipment, as well as the design and procurement of additional infrastructure to support government operations. This award component will be initially recorded as deferred revenue and recognized as revenue over either the expected operational life of the satellite or the contractual term of the EnhancedView contract

The EnhancedView SLA contract is structured as a one-year contract, with nine one-year renewal options exercisable by the NGA. Most of our government contracts, including the EnhancedView program, are funded incrementally on a year-to-year basis; however, certain foreign government and commercial customers have signed multi-year contracts. Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could materially and adversely affect our financial condition, liquidity and results of operations. Furthermore, contracts with the U.S. government may be terminated or suspended by the U.S. government at any time, with or without cause, which could result in a reduction in our backlog.

Capital Expenditures

For the three and six months of 2011, our capital expenditures included $69.3 million and $143.9 million for satellites and ground systems and $6.6 million and $22.6 million for property, plant and equipment, respectively.

We currently expect that total capital expenditures for 2011 will be approximately $300.0 million, of which $260.0 million will be related to our continued construction of GeoEye-2 under the EnhancedView program. The remaining $40.0 million in capital expenditures relates to other ongoing capital expenditures. Our new lease agreement provided for a $4.9 million tenant improvement reimbursement allowance. Reimbursements under this provision were recorded as a deferred lease incentive and will reduce rent expense over the remaining lease term. We intend to fund our capital expenditure requirements through cash on hand and cash provided by operating activities.

Off-Balance Sheet Arrangements

We lease various real properties under operating leases that generally require us to pay taxes, insurance, maintenance and minimum lease payments. Some of our leases have options to renew.

We do not have any other significant off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Commitments and Contingencies

Operating Leases

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Contingencies

Critical Accounting Policies

The foregoing discussion of our financial condition and results of operations is based on the consolidated financial statements included in this Form 10-Q, which has been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses and the related disclosures of contingencies. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

During the six months ended June 30, 2011, there were no significant changes to the critical accounting policies we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2010. Refer to Note 1 – “General Information” in the Notes to Unaudited Condensed Consolidated Financial Statements for a summary of the new revenue recognition guidance we recently adopted.

Recent Accounting Pronouncements

In May 2011, the FASB issued new guidance for fair value measurements intended to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The guidance modifies the existing standard to include disclosure of all transfers between Level 1 and Level 2 asset and liability fair value categories. In addition, it provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. The guidance requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. The guidance is effective for interim and annual reporting periods beginning after December 15, 2011, with early adoption prohibited. We are currently evaluating the impact of this accounting guidance and do not expect any significant impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

We are not currently exposed to the market risk associated with unfavorable movements in interest rates. All of our debt and held-to-maturity short-term investments as of June 30, 2011, are fixed-rate. At June 30, 2011, the estimated fair value of our long-term debt instruments was approximately $579.5 million, compared with a carrying value of $509.6 million, excluding the $15.4 million unamortized discount. While changes in interest rates impact the fair value of our debt and held-to-maturity short-term investments, there is no impact to earnings and cash flows, because we intend to hold these investments and carry the debt to maturity unless market and other conditions are favorable. Our available-for-sale investments generally renew every seven days and, therefore, are classified as short-term investments due to our ability to quickly liquidate or put back these securities. These financial instruments may be subject to interest rate risk through lost income, should interest rates increase during their limited term to maturity or resetting of interest rates and thus may limit our ability to invest in higher income investments.

We do not currently have any material foreign currency exposure. Our subsidiary in Asia commenced operations during January 2010, our revenue contracts are denominated in U.S. dollars and the majority of our purchase contracts are denominated in U.S. dollars.

Item 4. Controls and Procedures.

a) Evaluation of Disclosure Controls and Procedures

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Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a - 15(e) and 15d - 15(e)) as of June 30, 2011. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective.

b) Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the most recent fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

In the normal course of business, we may be party to various lawsuits, legal proceedings and claims arising out of our business. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse effect on our business, financial condition or results of operations.

Item 1A. Risk Factors.

We do not believe that there have been any material changes to the risk factors previously disclosed in our 2010 Annual Report.

Item 6. Exhibits.

(a)

Exhibits:

Exhibit 10.1*		Amendment to GeoEye, Inc. 2010 Omnibus Incentive Plan

Exhibit 31.1		Rule 13a-14(a) Certification of Matthew M. O’Connell

Exhibit 31.2		Rule 13a-14(a) Certification of Joseph F. Greeves

Exhibit 32.1		Certification Pursuant to 18 U.S.C. Section 1350 of Matthew M. O’Connell

Exhibit 32.2		Certification Pursuant to 18 U.S.C. Section 1350 of Joseph F. Greeves

Exhibit 101		The following financial information from GeoEye, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text

____________

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GeoEye, Inc.

	/s/ Matthew M. O’Connell
	Matthew M. O’Connell
	Chief Executive Officer

	/s/ Joseph F. Greeves
	Joseph F. Greeves
	Executive Vice President and Chief Financial Officer

	/s/ Jeanine J. Montgomery
	Jeanine J. Montgomery
	Vice President, Accounting and Corporate Controller


Date: August 2, 2011

GeoEye, Inc. - FORM 10-Q - August 2, 2011

Attached files

GeoEye, Inc. Reports