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EX-32.2 - EX-32.2 - DIGITALGLOBE, INC.dgi-20160930ex32210e9f7.htm
EX-32.1 - EX-32.1 - DIGITALGLOBE, INC.dgi-20160930ex3214adeb3.htm
EX-31.2 - EX-31.2 - DIGITALGLOBE, INC.dgi-20160930ex312ac2b52.htm
EX-31.1 - EX-31.1 - DIGITALGLOBE, INC.dgi-20160930ex3114dbe48.htm
EX-10.4 - EX-10.4 - DIGITALGLOBE, INC.dgi-20160930ex1040b2a3d.htm
EX-10.3 - EX-10.3 - DIGITALGLOBE, INC.dgi-20160930ex103a2e277.htm
EX-10.2 - EX-10.2 - DIGITALGLOBE, INC.dgi-20160930ex102951a7a.htm
EX-10.1 - EX-10.1 - DIGITALGLOBE, INC.dgi-20160930ex1011cea95.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: September 30, 2016

 

OR

 

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

 

For the transition period from                      to                     

 

Commission file number 001-34299

 

DIGITALGLOBE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

31-1420852

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

 

 

 

1300 West 120th Avenue

Westminster, Colorado

 

80234

(Address of principal executive office)

 

(Zip Code)

 

(303) 684-4000

(Registrant’s telephone number, including area code)

 

N/A

(Former address of principal executive office)

 

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  ☒  No  ☐

 

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  ☒  No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

 

 

Large accelerated filer  ☒

Accelerated filer  ☐

 

 

Non-accelerated filer  ☐

Smaller reporting company  ☐

 

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

 

As of October 18, 2016, there were 62,216,596 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

 

 

 

 


 

DigitalGlobe, Inc.

 

INDEX

 

 

 

 

 

Page

PART I. 

Financial Information

Item 1 

Financial Statements

Unaudited Condensed Consolidated Statements of Operations 

Unaudited Condensed Consolidated Balance Sheets 

Unaudited Condensed Consolidated Statements of Cash Flows 

Notes to Unaudited Condensed Consolidated Financial Statements 

Item 2 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15 

Item 3 

Quantitative and Qualitative Disclosures about Market Risk

25 

Item 4 

Controls and Procedures

25 

PART II. 

Other Information

26 

Item 1 

Legal Proceedings

26 

Item 1A 

Risk Factors

26 

Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

26 

Item 3 

Defaults Upon Senior Securities

26 

Item 4 

Mine Safety Disclosures

26 

Item 5 

Other Information

26 

Item 6 

Exhibit Index

26 

 

Picture 1

2


 

PART I — FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

DigitalGlobe, Inc.

 

Unaudited Condensed Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

(in millions, except per share data)

    

2016

    

2015

 

2016

    

2015

Revenue

 

$

181.8

 

$

173.3

 

$

532.7

 

$

520.7

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue, excluding depreciation and amortization

 

 

39.9

 

 

34.3

 

 

112.5

 

 

110.8

Selling, general and administrative

 

 

46.5

 

 

49.6

 

 

135.7

 

 

159.5

Depreciation and amortization

 

 

64.6

 

 

70.4

 

 

202.5

 

 

206.4

Restructuring charges

 

 

1.0

 

 

0.4

 

 

5.5

 

 

3.0

Income from operations

 

 

29.8

 

 

18.6

 

 

76.5

 

 

41.0

Interest expense, net

 

 

(4.0)

 

 

(5.6)

 

 

(13.8)

 

 

(23.7)

Other income, net

 

 

 —

 

 

1.6

 

 

 —

 

 

1.6

Income before income taxes

 

 

25.8

 

 

14.6

 

 

62.7

 

 

18.9

Income tax expense

 

 

(9.5)

 

 

(4.6)

 

 

(23.4)

 

 

(5.8)

Equity in earnings from joint ventures, net of tax

 

 

(1.3)

 

 

(0.4)

 

 

(3.5)

 

 

(0.4)

Net income

 

 

15.0

 

 

9.6

 

 

35.8

 

 

12.7

Preferred stock dividends

 

 

(1.0)

 

 

(1.0)

 

 

(3.0)

 

 

(3.0)

Net income less preferred stock dividends

 

 

14.0

 

 

8.6

 

 

32.8

 

 

9.7

Income allocated to participating securities

 

 

(0.7)

 

 

(0.4)

 

 

(1.5)

 

 

(0.4)

Net income available to common stockholders

 

$

13.3

 

$

8.2

 

$

31.3

 

$

9.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.21

 

$

0.12

 

$

0.49

 

$

0.13

Diluted earnings per share

 

$

0.21

 

$

0.12

 

$

0.49

 

$

0.13

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

62.6

 

 

70.5

 

 

63.5

 

 

71.7

Diluted

 

 

63.4

 

 

70.9

 

 

64.0

 

 

72.4

 

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

3


 

DigitalGlobe, Inc.

 

Unaudited Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

(in millions, except par value)

 

2016

 

2015

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

87.9

 

$

126.1

Restricted cash

 

 

2.4

 

 

3.6

Accounts receivable, net of allowance for doubtful accounts of $1.7 and $2.8, respectively

 

 

104.5

 

 

90.8

Deferred contract costs

 

 

12.1

 

 

13.5

Prepaid and other current assets

 

 

20.7

 

 

17.4

Total current assets

 

 

227.6

 

 

251.4

Property and equipment, net of accumulated depreciation of $1,334.3 and $1,179.4, respectively

 

 

2,027.3

 

 

2,080.2

Goodwill

 

 

484.1

 

 

484.1

Intangible assets, net of accumulated amortization of $35.8 and $29.6, respectively

 

 

26.7

 

 

32.9

Long-term restricted cash

 

 

5.0

 

 

4.3

Long-term deferred contract costs

 

 

49.7

 

 

47.1

Other assets

 

 

23.5

 

 

13.2

Total assets

 

$

2,843.9

 

$

2,913.2

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8.3

 

$

3.9

Current portion of long-term debt

 

 

5.5

 

 

5.5

Deferred revenue

 

 

86.0

 

 

80.3

Other accrued liabilities

 

 

53.4

 

 

64.4

Total current liabilities

 

 

153.2

 

 

154.1

Long-term debt, net of discount and debt issuance costs

 

 

1,104.4

 

 

1,104.4

Deferred revenue, non-current

 

 

233.2

 

 

284.0

Deferred income taxes, net, non-current

 

 

112.8

 

 

86.4

Other liabilities

 

 

35.1

 

 

36.2

Total liabilities

 

$

1,638.7

 

$

1,665.1

COMMITMENTS AND CONTINGENCIES (Note 15)

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

DigitalGlobe, Inc. stockholders’ equity:

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value; 0.08 shares authorized; 0.08 shares issued and outstanding at September 30, 2016 and December 31, 2015

 

 

 —

 

 

Common stock; $0.001 par value; 250.0 shares authorized; 76.9 shares issued and 62.4 shares outstanding at September 30, 2016 and 76.6 shares issued and 67.4 shares outstanding at December 31, 2015

 

 

0.2

 

 

0.2

Treasury stock, at cost; 14.5 shares at September 30, 2016 and 9.2 shares at December 31, 2015

 

 

(312.5)

 

 

(225.8)

Additional paid-in capital

 

 

1,511.8

 

 

1,502.8

Retained earnings (accumulated deficit)

 

 

5.7

 

 

(29.1)

Total stockholders’ equity

 

 

1,205.2

 

 

1,248.1

Total liabilities and stockholders’ equity

 

$

2,843.9

 

$

2,913.2

 

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

4


 

DigitalGlobe, Inc.

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

For the nine months ended

 

 

September 30,

(in millions)

    

2016

    

2015

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

35.8

 

$

12.7

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

202.5

 

 

206.4

Stock-based compensation expense, net of capitalized stock-based compensation expense

 

 

12.9

 

 

14.2

Amortization of aerial image library, deferred contract costs and lease incentive

 

 

12.3

 

 

12.3

Deferred income taxes

 

 

23.4

 

 

5.1

Excess tax benefit from share-based compensation

 

 

(0.2)

 

 

(1.3)

Amortization of debt issuance costs, accretion of debt discount, and other

 

 

10.2

 

 

3.8

Changes in working capital:

 

 

 

 

 

 

Accounts receivable, net

 

 

(13.7)

 

 

46.2

Deferred contract costs

 

 

(13.1)

 

 

(13.1)

Other current and non-current assets

 

 

(10.2)

 

 

2.5

Accounts payable

 

 

2.3

 

 

(1.8)

Accrued liabilities

 

 

(2.4)

 

 

5.8

Deferred revenue

 

 

(45.1)

 

 

(55.3)

Net cash flows provided by operating activities

 

 

214.7

 

 

237.5

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Construction in progress additions

 

 

(154.6)

 

 

(97.9)

Property and equipment additions

 

 

(0.2)

 

 

(2.5)

Proceeds from sale of property

 

 

3.0

 

 

 —

Decrease (increase) in restricted cash

 

 

0.5

 

 

(0.9)

Investment in joint venture

 

 

(10.0)

 

 

(5.0)

Net cash flows used in investing activities

 

 

(161.3)

 

 

(106.3)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Payment of debt and capital lease obligations

 

 

(4.7)

 

 

(4.6)

Repurchase of common stock

 

 

(86.4)

 

 

(100.5)

Proceeds from exercise of stock options

 

 

2.3

 

 

5.4

Preferred stock dividend payment

 

 

(3.0)

 

 

(3.0)

Excess tax benefit from share-based compensation

 

 

0.2

 

 

1.3

Net cash flows used in financing activities

 

 

(91.6)

 

 

(101.4)

Net (decrease) increase in cash and cash equivalents

 

 

(38.2)

 

 

29.8

Cash and cash equivalents, beginning of period

 

 

126.1

 

 

117.8

Cash and cash equivalents, end of period

 

$

87.9

 

$

147.6

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid for interest, net of capitalized amounts of $40.1 and $28.2, respectively

 

 

11.5

 

 

22.6

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

Changes to non-cash property, equipment and construction in progress accruals, including interest

 

 

9.4

 

 

1.3

Non-cash preferred stock dividend accrual

 

 

(1.0)

 

 

(1.0)

 

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

 

5


 

NOTE 1.General Information

 

DigitalGlobe, Inc., together with its consolidated subsidiaries (“DigitalGlobe,” “Company,” “we,” “us,” and “our”) is a leading global provider of high-resolution Earth-imagery products and services sourced from our own advanced satellite constellation and third party providers. Our imagery solutions support a wide variety of users in defense and intelligence, civil agencies, mapping and analysis, environmental monitoring, oil and gas exploration, infrastructure management, Internet portals, and navigation technology. Each day users depend on us to better understand our changing planet in order to save lives, resources and time. 

 

Our principal customers include U.S. and foreign governments, location-based services (“LBS”) providers, and those in energy and other industry verticals. The imagery that forms the foundation of our products, services and analysis is collected daily from our constellation of high-resolution imaging satellites and maintained in our imagery archives (“ImageLibrary”).

 

NOTE 2.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The Unaudited Condensed Consolidated Financial Statements include the accounts of DigitalGlobe, Inc. and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

 

The Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In our opinion, all adjustments of a normal recurring nature that are necessary for a fair statement of the accompanying Unaudited Condensed Consolidated Financial Statements have been included. The results of operations for the nine month period ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or for any future period.

 

These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s annual audited consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”). The December 31, 2015 Condensed Consolidated Balance Sheet was derived from the Company’s annual audited financial statements, but does not include all disclosures required in the annual financial statements prepared in accordance with U.S. GAAP. Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities at the reporting date, and amounts of revenue and expenses during the periods presented. Due to the inherent uncertainties in making estimates, actual results could differ materially from those estimates and such differences may be material to the Unaudited Condensed Consolidated Financial Statements.

6


 

Recent Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

 

 

 

 

Standard

 

 

Description and Impact on the Financial Statements

ASU 2015-17, Balance Sheet Classification of Deferred Taxes

 

 

This standard requires an entity to classify all deferred tax liabilities and assets as non-current on the balance sheet instead of separating deferred taxes into current and non-current amounts. The standard is effective for fiscal years beginning after December 15, 2016 and interim periods therein. The Company early adopted this standard in the first quarter of 2016 on a retrospective basis. Adoption of this standard did not have a material effect on our consolidated financial statements. As a result of adoption, the Company has retrospectively adjusted the previously issued December 31, 2015 Consolidated Balance Sheet to facilitate comparison among periods by reclassifying current deferred tax assets as a direct deduction to non-current deferred tax liabilities, decreasing current deferred tax assets and non-current deferred tax liabilities by $11.9 million.

ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs

 

 

This standard requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability, consistent with the presentation for debt discounts. The Company early adopted the standard as of December 31, 2015 and applied the guidance retrospectively. The Company has presented debt issuance costs of $22.7 million as a direct deduction from the associated liability for the period ended December 31, 2015.

 

Standards Not Yet Adopted

 

 

 

 

 

 

    

    

Standard

 

Description

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

 

This standard will replace nearly all existing revenue recognition guidance under U.S. GAAP and requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Companies will need to use more judgment and make more estimates than under existing guidance. This may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. The standard permits retrospective or modified retrospective (cumulative effect) adoption methods. In August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2015-14 to defer the effective date of the standard by one year. The new guidance will be effective for the Company beginning on January 1, 2018, with early adoption permitted as of the original effective date of January 1, 2017. Subsequently, the FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09: ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) clarifies the principal versus agent considerations; ASU 2016-10, Identifying Performance Obligations and Licensing clarifies the identification of performance obligations and accounting for the license of intellectual property; and ASU 2016-12, Narrow-Scope Improvements and Practical Expedients contains practical expedients related to contract modifications and addresses certain implementation issues. The Company is planning to adopt ASU 2014-09 and the related ASUs on January 1, 2018. The Company continues to evaluate the impact of these ASUs on our consolidated financial statements and related disclosures, as well as which transition method to apply.

ASU 2016-02, Leases (ASC Topic 842)

 

This standard requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. The new guidance also requires additional disclosure regarding leasing arrangements. This standard requires the use of a modified retrospective transition method and is effective for the Company beginning January 1, 2019.  Early adoption is permitted.  The Company is currently evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures.

ASU 2016-09, Improvements to Employee Share-Based Payment Accounting

 

This standard requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee's shares for tax withholding purposes without triggering liability accounting, and to make a policy election to account for forfeitures as they occur. The Company is planning to adopt ASU 2016-09 on January 1, 2017, and does not expect the standard to have a material impact on our consolidated financial statements and related disclosures.

 

 

7


 

NOTE 3.Property and Equipment

 

Property and equipment consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

    

Depreciable Life

    

 

 

    

 

 

(in millions)

 

(in years)

 

September 30, 2016

 

December 31, 2015

Satellites

 

9

13

 

$

1,797.7

 

$

1,797.7

Construction in progress

 

 

 

 

 

922.2

 

 

815.3

Computer equipment and software

 

3

12

 

 

483.0

 

 

470.5

Machinery and equipment, including ground terminals

 

 

5

 

 

 

103.3

 

 

110.6

Furniture, fixtures and other

 

3

7

 

 

54.9

 

 

58.9

Land and buildings

 

 

34

 

 

 

0.5

 

 

6.6

Total property and equipment

 

 

 

 

 

 

3,361.6

 

 

3,259.6

Accumulated depreciation

 

 

 

 

 

 

(1,334.3)

 

 

(1,179.4)

Property and equipment, net

 

 

 

 

 

$

2,027.3

 

$

2,080.2

 

Depreciation expense for property and equipment, inclusive of losses on disposals of assets, was $62.6 million and $67.9 million for the three months ended September 30, 2016 and 2015, respectively, and $196.3 million and $198.8 million for the nine months ended September 30, 2016 and 2015, respectively.

 

Satellite Constellation

 

As of September 30, 2016, the Company operated a constellation of four in-orbit and fully commissioned satellites: GeoEye-1, WorldView-1, WorldView-2 and WorldView-3. Our WorldView-4 satellite was classified as construction in progress. The net book value of each in-orbit satellite was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

December 31, 2015

 

 

Depreciable

 

Gross

 

 

 

 

Net

 

Gross

 

 

 

 

Net

 

    

Life

 

Carrying

 

Accumulated

 

Book

 

Carrying

 

Accumulated

 

Book

(in millions)

 

(in years)

 

Amount

 

Depreciation

 

Value

 

Amount

 

Depreciation

 

Value

GeoEye-1

 

9.0

 

$

211.8

 

$

(155.3)

 

$

56.5

 

$

211.8

 

$

(123.6)

 

$

88.2

WorldView-1

 

13.0

 

 

473.2

 

 

(363.4)

 

 

109.8

 

 

473.2

 

 

(343.4)

 

 

129.8

WorldView-2

 

13.0

 

 

463.2

 

 

(263.8)

 

 

199.4

 

 

463.2

 

 

(239.8)

 

 

223.4

WorldView-3

 

11.5

 

 

649.5

 

 

(113.0)

 

 

536.5

 

 

649.5

 

 

(70.6)

 

 

578.9

Satellites, net

 

 

 

$

1,797.7

 

$

(895.5)

 

$

902.2

 

$

1,797.7

 

$

(777.4)

 

$

1,020.3

 

 

NOTE 4.Goodwill and Intangible Assets

 

There have been no changes in our goodwill of $484.1 million from December 31, 2015 to September 30, 2016.

 

Intangible assets consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

December 31, 2015

 

    

 

    

Gross

    

 

 

    

Net

    

Gross

    

 

 

    

Net

 

 

Useful Life

 

Carrying

 

Accumulated

 

Carrying

 

Carrying

 

Accumulated

 

Carrying

(in millions)

 

(in years)

 

Amount

 

Amortization

 

Amount

 

Amount

 

Amortization

 

Amount

Technology

 

3

–  

5

 

$

27.2

 

$

(20.2)

 

$

7.0

 

$

27.2

 

$

(16.2)

 

$

11.0

Customer relationships

 

10

–  

12

 

 

27.0

 

 

(7.7)

 

 

19.3

 

 

27.0

 

 

(5.8)

 

 

21.2

Trademarks

 

 

3

 

 

 

5.6

 

 

(5.5)

 

 

0.1

 

 

5.6

 

 

(5.2)

 

 

0.4

FCC licenses and other

 

2

–  

20

 

 

2.7

 

 

(2.4)

 

 

0.3

 

 

2.7

 

 

(2.4)

 

 

0.3

Total

 

 

 

 

 

$

62.5

 

$

(35.8)

 

$

26.7

 

$

62.5

 

$

(29.6)

 

$

32.9

 

Intangible asset amortization expense was $2.0 million and $2.5 million for the three months ended September 30, 2016 and 2015, respectively, and $6.2 million and $7.6 million for the nine months ended September 30, 2016 and 2015, respectively.

8


 

 

The estimated annual amortization expense for acquired intangible assets for each of the next five years and thereafter is as follows:

 

 

 

 

 

(in millions)

 

Amount

Remainder of 2016

 

$

2.0

2017

 

 

7.7

2018

 

 

2.9

2019

 

 

2.5

2020

 

 

2.5

Thereafter

 

 

9.1

Total

 

$

26.7

 

 

NOTE 5.Debt

 

The Company’s debt obligations consist of a $550.0 million Senior Secured Term Loan due February 1, 2020 (“Term Loan”) and a $150.0 million Senior Secured Revolving Credit Facility due February 1, 2018 (“Revolving Credit Facility” and, together with the Term Loan, the “2013 Credit Facility”), in addition to $600.0 million in 5.25% senior notes due February 1, 2021 (“Senior Notes”). As of September 30, 2016, the Company had not drawn any amounts under the Revolving Credit Facility. The 2013 Credit Facility requires that the Company comply with a maximum leverage ratio and a minimum interest coverage ratio. As of September 30, 2016, we were in compliance with our debt covenants.

 

The following table provides a summary of the Company’s long-term debt:

 

 

 

 

 

 

 

 

(in millions)

    

September 30, 2016

    

December 31, 2015

Term Loan due February 1, 2020

 

$

530.8

 

$

534.9

Senior Notes due February 1, 2021

 

 

600.0

 

 

600.0

Total borrowings

 

 

1,130.8

 

 

1,134.9

Less: unamortized discounts and issuance costs

 

 

(20.9)

 

 

(25.0)

Total borrowings, net

 

 

1,109.9

 

 

1,109.9

Less: current maturities of long-term debt

 

 

(5.5)

 

 

(5.5)

Total long-term debt, net

 

$

1,104.4

 

$

1,104.4

 

The Company’s future debt payments, excluding interest payments, consisted of the following as of September 30, 2016:

 

 

 

 

 

(in millions)

 

Amount

Remainder of 2016

 

$

1.4

2017

 

 

5.5

2018

 

 

5.5

2019

 

 

5.5

2020

 

 

512.9

Thereafter

 

 

600.0

Total

 

$

1,130.8

 

9


 

Interest expense, net consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

(in millions)

    

2016

    

2015

    

2016

    

2015

Interest

 

$

14.5

 

$

13.1

 

$

43.4

 

$

39.2

Accretion of debt discount, debt issuance cost amortization and line of credit fees

 

 

2.0

 

 

1.8

 

 

6.0

 

 

5.4

Capitalized interest

 

 

(12.4)

 

 

(9.2)

 

 

(35.3)

 

 

(20.7)

Interest expense

 

$

4.1

 

$

5.7

 

$

14.1

 

$

23.9

Interest income

 

 

(0.1)

 

 

(0.1)

 

 

(0.3)

 

 

(0.2)

Interest expense, net

 

$

4.0

 

$

5.6

 

$

13.8

 

$

23.7

 

 

NOTE 6.Fair Values of Financial Instruments

 

The fair value of our long-term debt, estimated using inputs that incorporate certain active market quotations based upon trading activity among lenders as well as other indirect inputs, was $1,124.8 million and $1,028.2 million at September 30, 2016 and December 31, 2015, respectively, and is classified within Level 2 of the valuation hierarchy. Our cash equivalents primarily consist of U.S. Treasury and demand deposit money market accounts. The carrying values of our cash and cash equivalents, receivables, other current assets, accounts payable, and accrued liabilities approximate fair value.

 

NOTE 7.Deferred Revenue

 

A rollforward of deferred revenue from December 31, 2015 to September 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government

 

Diversified Commercial

 

 

 

 

 

 

 

 

 

Pre-FOC

    

 

 

 

 

 

 

 

 

 

Value

    

Payments

 

 

 

 

 

 

 

 

Enhanced

    

Added

 

Related To

 

 

 

 

 

 

(in millions)

    

View SLA

 

Services

 

NextView

 

DAP

    

Other

    

Total

December 31, 2015

 

$

172.9

 

$

68.9

 

$

73.7

 

$

41.5

 

$

7.3

 

$

364.3

Deferred revenue on cash collections

 

 

225.0

 

 

42.2

 

 

 —

 

 

58.5

 

 

46.5

 

 

372.2

Deferred revenue recognized

 

 

(252.9)

 

 

(45.4)

 

 

(11.4)

 

 

(62.6)

 

 

(45.0)

 

 

(417.3)

September 30, 2016

 

$

145.0

 

$

65.7

 

$

62.3

 

$

37.4

 

$

8.8

 

$

319.2

 

 

NOTE 8.Restructuring Charges

 

In February 2015, the Company initiated a restructuring plan intended to improve our operational efficiency. Under the restructuring plan, the Company reduced global headcount and rationalized its real estate footprint. The Company incurred $7.0 million in restructuring charges as a result of these efforts, which were completed in the first quarter of 2016. The components of the restructuring liability were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

Severance

 

Facilities

 

Other costs

    

Total

December 31, 2015

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Provision for restructuring charges

 

 

 —

 

 

0.2

 

 

 —

 

 

0.2

Cash payments

 

 

 —

 

 

(0.2)

 

 

 —

 

 

(0.2)

September 30, 2016

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

 

10


 

In October 2015, the Company initiated a separate restructuring plan, in which the Company expects to incur up to $8.5 million of the originally anticipated $10.0 million in an effort to further reduce global headcount and rationalize its real estate footprint. We expect to complete this plan and realize the benefits resulting from our efforts by the end of the fourth quarter of 2016. The components of the restructuring liability, which are included in other accrued liabilities in the Unaudited Condensed Consolidated Balance Sheet, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

    

Severance

    

Facilities

    

Other costs

    

Total

December 31, 2015

 

$

0.4

 

$

 —

 

$

 —

 

$

0.4

Provision for restructuring charges

 

 

2.1

 

 

3.2

 

 

 —

 

 

5.3

Cash payments

 

 

(2.4)

 

 

(3.2)

 

 

 —

 

 

(5.6)

September 30, 2016

 

$

0.1

 

$

 —

 

$

 —

 

$

0.1

 

 

 

NOTE 9.Other Accrued Liabilities

 

Other accrued liabilities consisted of the following:

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

(in millions)

 

2016

 

2015

Compensation and other employee benefits

 

$

24.2

 

$

13.9

Construction in progress accruals

 

 

3.8

 

 

8.3

Accrued interest

 

 

5.3

 

 

13.4

Other accrued expense

 

 

20.1

 

 

28.8

Total

 

$

53.4

 

$

64.4

 

 

NOTE 10.Income Taxes

 

The Company’s effective tax rate is estimated based upon the effective tax rate expected to be applicable for the full year. The effective tax rates for the three and nine months ended September 30, 2016 were 36.8% and 37.3%, respectively, differing from the statutory federal rate of 35.0% primarily as a result of the impact of certain discrete items. 

 

NOTE 11.Stock-Based Compensation

 

During the nine months ended September 30, 2016, the Company awarded 1.4 million unvested restricted stock units at an average grant date fair value of $15.72 per share. Of this amount, 0.4 million stock units represent performance shares that are subject to service, performance and market vesting conditions with an average grant date fair value of $16.90 per share. We did not grant any stock options during the nine months ended September 30, 2016.

 

Stock-based compensation expense, net of amounts capitalized to assets under construction, was $4.6 million and $4.7 million during the three months ended September 30, 2016 and 2015, respectively, and $12.9 million and $14.2 million during the nine months ended September 30, 2016 and 2015, respectively.

 

As of September 30, 2016, unrecognized compensation expense related to unvested restricted stock awards and units, including those subject to service, performance and market vesting conditions, was $30.5 million, net of estimated forfeitures, to be recognized over a weighted-average remaining vesting period of 2.5 years.

 

As of September 30, 2016, the number of options outstanding and exercisable were 1.4 million at a weighted-average exercise price of $20.69 per share.

 

 

11


 

NOTE 12.Stockholders’ Equity

 

Share Repurchase Program

 

The Company’s Board of Directors has authorized a program to repurchase up to $335.0 million of the Company’s outstanding common stock through December 31, 2016. During the three months ended September 30, 2016, the Company repurchased 364,226 shares at an average purchase price of $26.30 per share, for a total of $9.6 million. For the nine months ended September 30, 2016, the Company repurchased 5,363,305 shares at an average purchase price of $16.11 per share, for a total of $86.4 million. As of September 30, 2016, we have repurchased a total of 14,326,091 shares at an average purchase price of $21.36, for a total of $306.0 million under the program. The average purchase price and total dollar value purchased include broker transaction fees and commissions. 

 

Series A Convertible Preferred Stock

 

The Company declared dividends on the outstanding shares of Series A Convertible Preferred Stock of $1.0 million during each of the three months ended September 30, 2016 and 2015, and $3.0 million during each of the nine months ended September 30, 2016 and 2015.

 

Comprehensive Income

 

For the three and nine months ended September 30, 2016 and 2015, there were no material differences between net income and comprehensive income.

 

NOTE 13.Earnings Per Share

 

The following table sets forth the computations of basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Nine months ended

 

 

September 30,

 

September 30,

(in millions, except per share data)

    

2016

    

2015

    

2016

    

2015

Net income

 

$

15.0

 

$

9.6

 

$

35.8

 

$

12.7

Preferred stock dividends

 

 

(1.0)

 

 

(1.0)

 

 

(3.0)

 

 

(3.0)

Net income less preferred stock dividends

 

 

14.0

 

 

8.6

 

 

32.8

 

 

9.7

Income allocated to participating securities

 

 

(0.7)

 

 

(0.4)

 

 

(1.5)

 

 

(0.4)

Net income available to common stockholders

 

$

13.3

 

$

8.2

 

$

31.3

 

$

9.3

Basic weighted average number of common shares outstanding

 

 

62.6

 

 

70.5

 

 

63.5

 

 

71.7

Assuming exercise of stock options and restricted shares

 

 

0.8

 

 

0.4

 

 

0.5

 

 

0.7

Diluted weighted average number of common shares outstanding

 

 

63.4

 

 

70.9

 

 

64.0

 

 

72.4

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

$

0.12

 

$

0.49

 

$

0.13

Diluted

 

$

0.21

 

$

0.12

 

$

0.49

 

$

0.13

 

The potential common shares from the conversion of shares of Series A Convertible Preferred Stock that were excluded from the computation of diluted earnings per share, due to their anti-dilutive impact on weighted common share equivalents, were 3.1 million for each of the three month and nine month periods ended September 30, 2016 and 2015.

 

The number of stock options and non-vested restricted stock awards and units that were excluded from the computation of diluted earnings per share because they were assumed to be repurchased under the treasury stock method were 1.2 million and 3.0 million for the three month periods ended September 30, 2016 and 2015, respectively, and 1.9 million and 2.8 million for the nine month periods ended September 30, 2016 and 2015, respectively. 

 

12


 

NOTE 14.Related Party Transactions

 

In the ordinary course of business, the Company is involved in related party transactions with its equity method investees.

 

In June 2012, the Company made an investment in a joint venture in China. The Company sold $7.4 million and $9.3 million in products and services to the joint venture for the nine months ended September 30, 2016 and 2015, respectively. Amounts owed to the Company by the joint venture at September 30, 2016 and December 31, 2015 were $3.2 million and $3.0 million, respectively.

 

In May 2015, in exchange for a 50% equity interest in a joint venture, Vricon, Inc., we committed to provide imagery to the joint venture from our ImageLibrary on an ongoing basis for the purpose of producing photo-realistic three- dimensional products and digital elevation models. Upon formation, we contributed $5.0 million in the form of a note receivable to the joint venture, which is due May 2018. The Company provided $7.5 million in equity financing to the joint venture during the first quarter of 2016 and provided an additional $2.5 million during the third quarter of 2016.

 

NOTE 15.Commitments and Contingencies

 

The Company enters into agreements in the ordinary course of business with resellers and others. Most of these agreements require the Company to indemnify the other party against third-party claims alleging that one of the Company’s products infringes or misappropriates a patent, copyright, trademark, trade secret or other intellectual property right. Certain of these agreements require the Company to indemnify the other party against claims relating to property damage, personal injury or acts or omissions by the Company, its employees, agents or representatives.

 

In addition, the Company has made guarantees regarding the performance of its systems to its customers. The majority of these agreements do not limit the maximum potential future payments the Company could be obligated to make. The Company evaluates and estimates potential losses from such indemnification based on the likelihood that the future event will occur. To date, the Company has not incurred any material costs as a result of such obligations and has not accrued any material liabilities related to such indemnification and guarantees in the Company’s financial statements.

 

The Company is subject to legal proceedings, claims and litigation arising in the ordinary course of business. The Company defends itself vigorously against any such claims. Although the outcome of these matters is currently not determinable, management does not expect that the amounts of losses and other costs to resolve these matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows.

 

 

13


 

NOTE 16.Significant Customers and Geographic Information

 

The Company operates in a single segment, in which it provides imagery products and services to customers around the world. The Company uses common infrastructure and technology to collect, process and distribute its imagery products and services to all customers, and measures performance based on consolidated operating results and achievement of individual performance goals. 

 

The Company has two primary customer groups: U.S. Government and Diversified Commercial. U.S. Government revenue consists primarily of the EnhancedView Service Level Agreement (“EnhancedView SLA”) with the United States National Geospatial-Intelligence Agency (“NGA”), other revenue and value-added services, and amortization of pre-full operational capability (“FOC”) payments related to the NextView agreement with the NGA. Diversified Commercial consists of the following types of customers: Direct Access Program (“DAP”), international civil government, LBS, energy, other international defense and intelligence, and other industry verticals.  

 

The following table summarizes revenue for each customer group:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

(in millions)

    

2016

    

2015

    

2016

    

2015

U.S. Government

 

$

114.5

 

$

111.0

 

$

336.7

 

$

338.9

Diversified Commercial

 

 

67.3

 

 

62.3

 

 

196.0

 

 

181.8

Total

 

$

181.8

 

$

173.3

 

$

532.7

 

$

520.7

 

We classify revenue geographically according to the ship to address. U.S. and international sales were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

(in millions)

    

2016

    

2015

    

2016

    

2015

U.S.

 

$

131.3

 

$

123.2

 

$

379.4

 

$

376.9

International

 

 

50.5

 

 

50.1

 

 

153.3

 

 

143.8

Total

 

$

181.8

 

$

173.3

 

$

532.7

 

$

520.7

 

 

 

 

 

NOTE 17.Subsequent Events

 

We evaluate subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. We identified the following as a non-recognized subsequent event:

 

In October 2016, the Company entered into a definitive agreement to acquire The Radiant Group, Inc., a leading provider of geospatial solutions to the U.S. intelligence community, from Aston Capital for $140 million. The transaction, which is expected to be completed in the fourth quarter of 2016, is subject to the satisfaction of customary closing conditions, including the receipt of requisite regulatory approvals.

 

 

 

14


 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words, although not all forward-looking statements contain these words. Forward-looking statements are based upon our current expectations and assumptions of future events and are subject to risks and uncertainties that could cause our actual results or performance to differ materially from those indicated by such forward looking statements. Some of the risks or uncertainties that could cause actual results to differ include, but are not limited to: the loss or reduction in scope of any of our primary contracts, or decisions by customers not to exercise renewal options; the availability of government funding for our products and services both domestically and internationally; our ability to meet our obligations under the EnhancedView contract; our reliance on a limited number of vendors to provide certain key products or services to us; breach of our system security measures or loss of our secure facility clearance and accreditation; the loss or damage to any of our satellites; delays in the construction and launch of any of our satellites or our ability to achieve and maintain full operational capacity of all our satellites; loss or damage to the content contained in our ImageLibrary; interruption or failure of our ground systems and other infrastructure; decrease in demand for our imagery products and services; increased competition that may reduce our market share or cause us to lower our prices; changes in political or economic conditions, including fluctuations in the value of foreign currencies, interest rates, energy and commodity prices, trade laws and the effects of governmental initiatives to manage economic conditions; our ability to recruit, hire or retain key employees or a highly skilled and diverse workforce; failure to obtain or maintain required regulatory approvals and licenses; and changes in U.S. or foreign law or regulation that may limit our ability to distribute our imagery products and services. Additional risks and uncertainties related to the Radiant Group acquisition include the possibility that satisfaction of the closing conditions to the planned acquisition may be delayed or may not be satisfied or waived; potential loss of key employees and customers of the acquired business; difficulties managing and integrating operations; exposure to unanticipated costs or liabilities resulting from the acquisition; and any changes in general economic and/or industry-specific conditions. Additional information concerning these and other risk factors can be found in our filings with the U.S. Securities and Exchange Commission, including Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015. We undertake no obligation to revise or update any forward-looking statements, except as required by law. Readers are cautioned not to place undue reliance on any of these forward-looking statements.

 

References in this filing to “DigitalGlobe,” “Company,” “we,” “us,” and “our” refer to DigitalGlobe, Inc. and its consolidated subsidiaries.

 

15


 

Overview

 

DigitalGlobe is a leading global provider of high-resolution Earth-imagery products and services sourced from our own advanced satellite constellation and third-party providers. Our imagery solutions support a wide variety of users in defense and intelligence, civil agencies, mapping and analysis, environmental monitoring, oil and gas exploration, infrastructure management, Internet portals, and navigation technology. Each day users depend on us to better understand our changing planet in order to save lives, resources and time. 

 

Our principal customers include U.S. and foreign governments, LBS providers, and those in energy and other industry verticals. The imagery that forms the foundation of our products, services and analysis is collected daily from our constellation of high-resolution imaging satellites and maintained in our ImageLibrary. We believe that our ImageLibrary is the largest, most up-to-date and comprehensive archive of high-resolution earth imagery commercially available, containing more than 7.3 billion square kilometers of imagery, an area the equivalent of 49 times the landmass of the earth, accumulated since 1999. As of September 30, 2016, our collection capacity capability was approximately 1.37 billion square kilometers of imagery per year, or the equivalent of roughly 9 times the Earth’s land surface area, and offers intraday revisit around the globe.

 

2016 Highlights

 

Share Repurchase Program

 

In October 2015, the Company’s Board of Directors increased authorized share repurchases of the Company’s outstanding common stock to $335.0 million through December 31, 2016. As of September 30, 2016, we have repurchased a total of 14,326,091 shares at an average purchase price of $21.36, for a total of $306.0 million under the program, including broker transaction fees and commissions.

 

Re-engineering and Restructuring Plans

 

In February 2015, the Company initiated a re-engineering and restructuring plan intended to improve our operational efficiency. We completed this plan and realized the benefits resulting from our efforts in the first quarter of 2016. The Company incurred approximately $10.8 million of the originally anticipated $15.0 million as a result of these efforts, which included restructuring charges to reduce global headcount and rationalize our real estate footprint, and other re-engineering charges to realize efficiencies from reducing headcount, such as re-engineering processes and enhancing system workflows, as well as costs related to the decision to proactively decommission IKONOS. The decrease in spend resulted primarily from lower than anticipated lease termination fees associated with the consolidation of our real estate footprint. 

 

In October 2015, the Company initiated a separate re-engineering and restructuring plan, in which the Company expects to incur up to $15.0 million of the originally anticipated $18.0 million in an effort to further reduce global headcount, rationalize its real estate footprint, realize efficiencies from re-engineering processes and enhancing system workflows, and undertake other efficiency initiatives. We expect to complete this plan and realize the benefits resulting from our efforts by the end of the fourth quarter of 2016. Refer to Note 8 “Restructuring Charges” to the Unaudited Condensed Consolidated Financial Statements for further detail on the restructuring components of the plans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 2015 Plan

 

 

 

 

Expected

 

 

(in millions)

    

Incurred

    

Remaining

    

Total

Restructuring charges

 

$

7.5

 

$

1.0

 

$

8.5

Other re-engineering charges

 

 

5.2

 

 

1.3

 

 

6.5

Total

 

$

12.7

 

$

2.3

 

$

15.0

 

16


 

Recent Satellite Developments

 

The Company has one satellite classified as construction in progress, WorldView-4, which it intends to launch in early November 2016. The Company has received early contractual agreements and letters of intent for direct access capacity from international defense and intelligence customers. We anticipate that these pre-launch commitments will begin generating incremental revenue in 2017, when the satellite is expected to begin commercial operations.

 

In February 2016, the Company signed an agreement with two Saudi Arabian entities to develop a constellation of six or more sub-meter resolution satellites. The Saudi Arabian entities will be responsible for the construction, integration and launch of the satellites. The constellation will leverage the Company's ground infrastructure and global distribution capabilities. The satellites are expected to launch in early 2019.

 

Acquisitions

 

In October 2016, the Company entered into a definitive agreement to acquire The Radiant Group, Inc., a leading provider of geospatial solutions to the U.S. intelligence community, from Aston Capital for $140 million. Upon completing the transaction, DigitalGlobe will be positioned to better support key national security missions at scale with an expanded portfolio of advanced capabilities that extend across the geospatial intelligence value chain. The transaction, which is expected to be completed in the fourth quarter of 2016, is subject to the satisfaction of customary closing conditions, including the receipt of requisite regulatory approvals.

 

In October 2016, we also acquired a small data science firm, Timbrio, Inc., to accelerate growth in our Geospatial Big Data platform.

 

Results of Operations

 

We operate in a single segment in which we use common infrastructure and technology to collect, process and distribute imagery products and services to customers around the world. The following table summarizes our results of operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30,

 

 

September 30,

 

(in millions)

 

2016

 

2015

 

% Change

 

 

2016

 

2015

 

% Change

 

U.S. Government revenue

 

$

114.5

 

$

111.0

 

 

3.2

%  

 

$

336.7

 

$

338.9

 

 

(0.6)

%

Diversified Commercial revenue

 

 

67.3

 

 

62.3

 

 

8.0

 

 

 

196.0

 

 

181.8

 

 

7.8

 

Total revenue

 

 

181.8

 

 

173.3

 

 

4.9

 

 

 

532.7

 

 

520.7

 

 

2.3

 

Cost of revenue, excluding depreciation and amortization

 

 

39.9

 

 

34.3

 

 

16.3

 

 

 

112.5

 

 

110.8

 

 

1.5

 

Selling, general and administrative

 

 

46.5

 

 

49.6

 

 

(6.3)

 

 

 

135.7

 

 

159.5

 

 

(14.9)

 

Depreciation and amortization

 

 

64.6

 

 

70.4

 

 

(8.2)

 

 

 

202.5

 

 

206.4

 

 

(1.9)

 

Restructuring charges

 

 

1.0

 

 

0.4

 

 

150.0

 

 

 

5.5

 

 

3.0

 

 

83.3

 

Income from operations

 

 

29.8

 

 

18.6

 

 

60.2

 

 

 

76.5

 

 

41.0

 

 

86.6

 

Interest expense, net

 

 

(4.0)

 

 

(5.6)

 

 

(28.6)

 

 

 

(13.8)

 

 

(23.7)

 

 

(41.8)

 

Other income, net

 

 

 —

 

 

1.6

 

 

*

 

 

 

 —

 

 

1.6

 

 

*

 

Income before income taxes

 

 

25.8

 

 

14.6

 

 

76.7

 

 

 

62.7

 

 

18.9

 

 

231.7

 

Income tax expense

 

 

(9.5)

 

 

(4.6)

 

 

106.5

 

 

 

(23.4)

 

 

(5.8)

 

 

303.4

 

Equity in earnings from joint ventures, net of tax

 

 

(1.3)

 

 

(0.4)

 

 

225.0

 

 

 

(3.5)

 

 

(0.4)

 

 

*

 

Net income

 

$

15.0

 

$

9.6

 

 

56.3

%

 

$

35.8

 

$

12.7

 

 

181.9

%


*Not meaningful

 

17


 

The following table summarizes our results of operations as a percentage of total revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30,

 

September 30,

 

 

    

2016

    

2015

    

2016

    

2015

 

U.S. Government revenue

 

63.0

%  

64.1

%  

63.2

%

65.1

%

Diversified Commercial revenue

 

37.0

 

35.9

 

36.8

 

34.9

 

Total revenue

 

100.0

 

100.0

 

100.0

 

100.0

 

Cost of revenue, excluding depreciation and amortization

 

21.9

 

19.8

 

21.1

 

21.3

 

Selling, general and administrative

 

25.6

 

28.6

 

25.5

 

30.6

 

Depreciation and amortization

 

35.5

 

40.6

 

38.0

 

39.6

 

Restructuring charges

 

0.6

 

0.3

 

1.0

 

0.6

 

Income from operations

 

16.4

 

10.7

 

14.4

 

7.9

 

Interest expense, net

 

(2.2)

 

(3.2)

 

(2.6)

 

(4.5)

 

Other income, net

 

 —

 

0.9

 

 —

 

0.2

 

Income before income taxes

 

14.2

 

8.4

 

11.8

 

3.6

 

Income tax expense

 

(5.2)

 

(2.7)

 

(4.4)

 

(1.1)

 

Equity in earnings from joint ventures, net of tax

 

(0.7)

 

(0.2)

 

(0.7)

 

(0.1)

 

Net income

 

8.3

%  

5.5

%

6.7

%

2.4

%

 

 

Revenue

 

Our principal source of revenue is the licensing of Earth-imagery products and the provision of other services to end users, resellers and partners. The Company has two primary customer groups: U.S. Government and Diversified Commercial.

 

U.S. Government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30,

 

September 30,

 

(in millions)

    

2016

    

2015

 

% Change

    

2016

    

2015

 

% Change

 

U.S. Government Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EnhancedView SLA

 

$

84.3

 

$

84.3

 

 

 —

%  

$

252.9

 

$

252.9

 

 

 —

%  

Other revenue and value-added services

 

 

26.4

 

 

22.9

 

 

15.3

 

 

72.4

 

 

74.6

 

 

(2.9)

 

Amortization of pre-FOC payments related to NextView

 

 

3.8

 

 

3.8

 

 

 —

 

 

11.4

 

 

11.4

 

 

 —

 

Total

 

$

114.5

 

$

111.0

 

 

3.2

%  

$

336.7

 

$

338.9

 

 

(0.6)

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government revenue consists primarily of the EnhancedView SLA, other revenue and value-added services, and amortization of pre-FOC payments related to the NextView agreement with the NGA. The NGA purchases our imagery products and services on behalf of various U.S. Government entities, including the military and other agencies. Other U.S. defense and intelligence customers, including contractors, purchase value-added services with our imagery.

 

Our U.S. Government customers focus on image quality, including resolution, accuracy, spectral diversity, frequency of area revisit, coverage, and availability of certain amounts of our capacity, as they integrate our products and services into their operational planning. Revenue is generated largely from service level agreements, tasking orders and sales of imagery from our ImageLibrary, in addition to sales of geospatial analytic products and expert services that obtain insight from our imagery. We sell to the U.S. Government primarily through direct sales.

 

U.S. Government revenue increased $3.5 million, or 3.2%, for the three months ended September 30, 2016, compared to the three months ended September 30, 2015, due to an increase in other revenue and value-added services driven by increased demand for our analytic value-added products and services.

 

18


 

U.S. Government revenue decreased $2.2 million, or 0.6% for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, due to a decrease in other revenue and value-added services primarily driven by a decrease in non-cash amortization of Global EGD deferred revenue, partially offset by increased demand for our analytic value-added products and services.

 

Diversified Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30,

 

September 30,

 

(in millions)

    

2016

    

2015

    

% Change

    

2016

    

2015

 

% Change

 

Diversified Commercial Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DAP

 

$

30.3

 

$

28.9

 

 

4.8

%  

$

92.0

 

$

85.1

 

 

8.1

%  

Other diversified commercial

 

 

37.0

 

 

33.4

 

 

10.8

 

 

104.0

 

 

96.7

 

 

7.5

 

Total

 

$

67.3

 

$

62.3

 

 

8.0

%  

$

196.0

 

$

181.8

 

 

7.8

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. and International Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

16.8

 

$

12.2

 

 

37.7

%  

$

42.7

 

$

38.0

 

 

12.4

%  

International

 

 

50.5

 

 

50.1

 

 

0.8

 

 

153.3

 

 

143.8

 

 

6.6

 

Total

 

$

67.3

 

$

62.3

 

 

8.0

%  

$

196.0

 

$

181.8

 

 

7.8

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reseller and Direct Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

50.3

 

$

44.2

 

 

13.8

%  

$

146.7

 

$

133.1

 

 

10.2

%  

Resellers

 

 

17.0

 

 

18.1

 

 

(6.1)

 

 

49.3

 

 

48.7

 

 

1.2

 

Total

 

$

67.3

 

$

62.3

 

 

8.0

%  

$

196.0

 

$

181.8

 

 

7.8

%  

 

Diversified Commercial consists of the following types of customers: DAP, international civil government, LBS, energy, other international defense and intelligence, and other industry verticals. We sell products and services to these customers throughout the world both directly and through resellers. We have DAP agreements in 10 countries, earning revenue from sales of DAP facilities and from service fees to access our satellite constellation. Other diversified commercial customers use our content for mapping, monitoring, analysis and planning activities.

 

Diversified Commercial revenue increased $5.0 million, or 8.0%, and $14.2 million, or 7.8%, for the three and nine months ended September 30, 2016, respectively, compared to the three and nine months ended September 30, 2015, respectively. Other diversified commercial revenue increased primarily due to timing of image deliveries and strength in our other defense and intelligence imagery sales, partially offset by a decrease in sales to energy customers driven by weakness in oil and gas commodity prices. DAP revenue increased primarily due to the timing of access minute consumption and contract renewals, along with increased demand for capacity on our WorldView-3 satellite.

 

Expenses

 

Cost of Revenue

 

The following table summarizes our cost of revenue, excluding depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30,

 

 

September 30,

 

(in millions)

    

2016

    

2015

 

% Change

    

 

2016

    

2015

 

% Change

 

Labor and labor-related costs

 

$

20.3

 

$

14.3

 

42.0

%

 

$

59.0

 

$

47.6

 

23.9

%

Facilities, subcontracting and equipment costs

 

 

16.0

 

 

15.8

 

1.3

 

 

 

43.9

 

 

51.5

 

(14.8)

 

Consulting and professional fees

 

 

0.8

 

 

1.4

 

(42.9)

 

 

 

2.3

 

 

3.8

 

(39.5)

 

Other direct costs

 

 

2.8

 

 

2.8

 

 —

 

 

 

7.3

 

 

7.9

 

(7.6)

 

Total

 

$

39.9

 

$

34.3

 

16.3

%

 

$

112.5

 

$

110.8

 

1.5

%

 

19


 

There is not a significant direct relationship between our cost of revenue and changes in our revenue. Our cost of revenue consists primarily of the cost of personnel, as well as the costs of operating our satellites, retrieving information from the satellites and processing the data retrieved.

 

Cost of revenue increased $5.6 million, or 16.3%, and $1.7 million, or 1.5%, for the three and nine months ended September 30, 2016, respectively, compared to the three and nine months ended September 30, 2015, respectively. Labor and labor-related costs increased due to an increase in incentive compensation due to improved company performance, in addition to higher non-capital employee headcount in anticipation of the launch and operation of WorldView-4. During the prior year, year-to-date incentive compensation was reduced to reflect lower than expected full year revenue growth. For the nine months ended September 30, 2016, facilities, subcontracting and equipment costs decreased primarily as a result of procurement savings on various operating expenses and from our re-engineering and restructuring efforts.

 

Selling, General and Administrative

 

The following table summarizes our selling, general and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30,

 

 

September 30,

 

(in millions)

    

2016

    

2015

 

% Change

    

 

2016

    

2015

 

% Change

 

Labor and labor-related costs

 

$

27.7

 

$

26.2

 

5.7

%

 

$

80.2

 

$

91.0

 

(11.9)

%

Consulting and professional fees

 

 

7.7

 

 

8.9

 

(13.5)

 

 

 

19.6

 

 

26.1

 

(24.9)

 

Rent and facilities

 

 

3.0

 

 

4.2

 

(28.6)

 

 

 

10.1

 

 

12.2

 

(17.2)

 

Computer hardware and software

 

 

2.8

 

 

3.7

 

(24.3)

 

 

 

8.8

 

 

11.1

 

(20.7)

 

Satellite insurance

 

 

2.3

 

 

2.8

 

(17.9)

 

 

 

6.9

 

 

8.8

 

(21.6)

 

Other

 

 

3.0

 

 

3.8

 

(21.1)

 

 

 

10.1

 

 

10.3

 

(1.9)

 

Total

 

$

46.5

 

$

49.6

 

(6.3)

%

 

$

135.7

 

$

159.5

 

(14.9)

%

 

Selling, general, and administrative expenses decreased $3.1 million, or 6.3%, for the three months ended September 30, 2016, compared to the three months ended September 30, 2015, primarily as a result of our re-engineering and restructuring efforts. Labor and labor-related costs increased primarily due to an increase in incentive compensation due to improved company performance.  During the prior year, year-to-date incentive compensation was reduced to reflect lower than expected full year revenue growth.

 

Selling, general, and administrative expenses decreased $23.8 million, or 14.9%, for the nine months ended September 30, 2016, compared to the nine months ended September 30, 2015. Labor and labor-related costs decreased primarily due to lower headcount in connection with our restructuring efforts, partially offset by an increase in incentive compensation due to improved company performance. Consulting and professional fees decreased primarily from our re-engineering efforts.

 

Restructuring Charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30,

 

 

September 30,

 

(in millions)

 

2016

 

2015

 

% Change

 

 

2016

 

2015

    

% Change

 

Restructuring charges

 

$

1.0

 

$

0.4

 

150.0

%

 

$

5.5

 

$

3.0

 

83.3

%

 

In 2015, the Company initiated two restructuring plans intended to improve our operational efficiency by reducing our global headcount and rationalizing our real estate footprint. We completed the first plan in the first quarter of 2016. We expect to complete the second plan and realize the benefits from our efforts by the end of the fourth quarter of 2016. Restructuring charges incurred during the three and nine month periods ended September 30, 2015 and 2016 relate to these plans. Refer to Note 8 “Restructuring Charges” to the Unaudited Condensed Consolidated Financial Statements for further detail on the restructuring components of the plans.

 

20


 

Interest Expense, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

September 30,

 

 

September 30,

 

(in millions)

 

2016

 

2015

 

% Change

 

 

2016

 

2015

    

% Change

 

Interest expense, net

 

$

(4.0)

 

$

(5.6)

 

(28.6)

%

 

$

(13.8)

 

$

(23.7)

 

(41.8)

%

 

Our interest charges consist primarily of expense on borrowings used to finance satellite construction, which is capitalized as a cost of our satellite construction.

 

Interest expense, net of capitalized interest of $12.4 million, decreased $1.6 million for the three months ended September 30, 2016. Interest expense, net of capitalized interest of $35.3 million, decreased $9.9 million for the nine months ended September 30, 2016 primarily as a result of 71.5% of our interest being capitalized to capital projects during the nine months ended September 30, 2016 compared to 46.4% during the nine months ended September 30, 2015. We did not capitalize interest on the cost basis of WorldView-4 while the satellite was in storage from December 2014 until mid-March 2015.

 

Income Tax Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

September 30,

 

 

September 30,

(in millions)

 

2016

 

2015

 

% Change

 

 

2016

 

2015

    

% Change

Income tax expense

 

$

(9.5)

 

$

(4.6)

 

106.5

%

 

$

(23.4)

 

$

(5.8)

 

*

 

Income tax expense increased $4.9 million and $17.6 million for the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015, primarily due to higher current year pre-tax income and certain discrete items.

 

Backlog

 

The following table represents our backlog as of September 30, 2016:

 

 

 

 

 

 

 

 

 

Backlog 

(in millions)

    

Next 12 Months

    

Life of Contracts

Total Backlog

 

$

556.5

 

$

1,937.7

 

We define backlog as our estimate of future revenue from all contractual commitments, including those under the anticipated ten-year term of the EnhancedView SLA we entered into with the NGA in August 2010, amounts committed under DAP agreements, firm orders, minimum commitments under signed customer contracts, remaining subscriptions, firm fixed price reimbursement, and funded and unfunded task orders from our customers. Our backlog also includes amounts of obligated funding on indefinite delivery/indefinite quantity (“IDIQ”) contracts for products and services that we believe we are qualified to provide. The EnhancedView SLA is structured as a ten-year term, inclusive of nine annual renewal options that may be exercised by the NGA. Although the NGA may terminate the contract at any time and is not obligated to exercise any of the remaining renewal options, we include the full remaining term in backlog. While such funding contains an inherent level of uncertainty, we believe it is the NGA’s intention to exercise the remaining options, subject only to annual Congressional appropriation of funding and the federal budget process.

 

Although backlog reflects business that is considered to be firm, terminations, amendments or cancellations may occur, which could result in a reduction in our total backlog. In addition, failure to receive task orders under IDIQ contracts could also result in a reduction in our total backlog. Any such terminations, amendments or cancellations of contractual commitments, or failure to receive task orders under IDIQ contracts may also negatively impact the timing of our realization of backlog.

21


 

Balance Sheet Measures

 

Total assets decreased $69.3 million, or 2.4%, from December 31, 2015 to September 30, 2016, primarily driven by a $52.9 million decrease in property, plant and equipment, net, as a result of current year depreciation, partially offset by costs incurred related to the construction of WorldView-4. Cash and cash equivalents decreased $38.2 million primarily as a result of capital expenditures related to WorldView-4 and our share repurchase program.

 

Total liabilities decreased $26.4 million, or 1.6%, from December 31, 2015 to September 30, 2016, primarily due to a $45.1 million decrease in deferred revenue resulting from current year recognition of U.S. government revenue, partially offset by an increase in deferred income taxes, net of $26.4 million due to income tax expense recognized in the current year.

 

Liquidity and Capital Resources

 

As of September 30, 2016, we had $87.9 million in cash and cash equivalents and $150.0 million available for borrowing under our Revolving Credit Facility. At September 30, 2016, we were in compliance with our debt covenants. We believe that the combination of funds currently available to us and funds expected to be generated from operations will be adequate to finance our operations and development activities for at least the next twelve months. If the U.S. Government, our largest customer, were not to renew or extend the EnhancedView SLA at similar levels or similar terms, we believe we would be able to maintain operations at a reduced level with existing cash and cash equivalents and borrowing capacity for at least the next twelve months. Furthermore, we believe we are adequately reserved for receivables denominated in U.S. dollars from foreign customers experiencing fluctuations in the value of foreign currencies.

 

In summary, our cash flows were:

 

 

 

 

 

 

 

 

 

Nine months ended  September 30,

(in millions)

    

2016

    

2015

Net income

 

$

35.8

 

$

12.7

Non-cash items

 

 

261.1

 

 

240.5

Changes in working capital

 

 

(82.2)

 

 

(15.7)

Net cash provided by operating activities

 

 

214.7

 

 

237.5

Net cash used in investing activities

 

 

(161.3)

 

 

(106.3)

Net cash used in financing activities

 

$

(91.6)

 

$

(101.4)

 

Operating Activities

 

Our largest source of cash provided by operations is revenue generated by sales of satellite imagery products and services. We also generate cash through sales of geospatial analytic products and expert services to obtain insight from our imagery. The primary uses of cash from our operating activities include payments for labor and labor-related costs, costs associated with operating our ground terminals, construction of DAP facilities, interest on our long-term debt, and other general corporate expenditures. 

 

Cash provided by operating activities decreased $22.8 million, or 9.6%, from the nine months ended September 30, 2015 to the nine months ended September 30, 2016, primarily due to a net decrease in cash from changes in working capital, which was driven by accounts receivable and other current and non-current assets, partially offset by increased net income adjusted for non-cash items, including depreciation and amortization. 

 

Investing Activities

 

Cash used in investing activities primarily consists of purchases of property and equipment, including assets under construction, as well as investments in other businesses. 

 

22


 

During the nine months ended September 30, 2016, we incurred $154.8 million in capital expenditures, which includes capitalized interest of $40.1 million. Cash used in investing activities increased $55.0 million, or 51.7%, from the nine months ended September 30, 2015 to the nine months ended September 30, 2016, primarily due to capital expenditures, including launch insurance, related to WorldView-4.

 

Financing Activities

 

Cash used in financing activities consists primarily of stock buybacks as part of our share repurchase program, principal payments made on our long-term debt, preferred stock dividend payments, and proceeds from stock option exercises. 

 

Cash used in financing activities decreased $9.8 million, or 9.7% from the nine months ended September 30, 2015 to the nine months ended September 30, 2016, primarily as a result of decreased activity in our share repurchase program.

 

Non-U.S. GAAP Financial Measures

 

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

(in millions)

    

2016

    

2015

    

2016

    

2015

Net income

 

$

15.0

 

$

9.6

 

$

35.8

 

$

12.7

Depreciation and amortization

 

 

64.6

 

 

70.4

 

 

202.5

 

 

206.4

Interest expense, net

 

 

4.0

 

 

5.6

 

 

13.8

 

 

23.7

Income tax expense

 

 

9.5

 

 

4.6

 

 

23.4

 

 

5.8

EBITDA

 

 

93.1

 

 

90.2

 

 

275.5

 

 

248.6

Restructuring charges

 

 

1.0

 

 

0.4

 

 

5.5

 

 

3.0

Other re-engineering charges

 

 

2.2

 

 

2.5

 

 

3.8

 

 

2.9

Joint venture losses, net

 

 

1.3

 

 

0.4

 

 

3.5

 

 

0.4

Gain on disposition of subsidiary

 

 

 —

 

 

(1.6)

 

 

 —

 

 

(1.6)

Adjusted EBITDA

 

$

97.6

 

$

91.9

 

$

288.3

 

$

253.3

 

EBITDA and Adjusted EBITDA are not recognized terms under U.S. GAAP and may not be defined similarly by other companies. EBITDA and Adjusted EBITDA should not be considered alternatives to net income (loss) as indications of financial performance or as alternatives to cash flow from operations as measures of liquidity. There are limitations to using non-U.S. GAAP financial measures, including the difficulty associated with comparing companies in different industries that use similar performance measures whose calculations may differ from ours.

 

EBITDA and Adjusted EBITDA are key measures used in our internal operating reports by management and our Board of Directors to evaluate the performance of our operations and are also used by analysts, investment banks and lenders for the same purpose. Adjusted EBITDA is a measure being used as a key element of the company-wide bonus incentive plan. We believe that the presentation of EBITDA and Adjusted EBITDA enables a more consistent measurement of period to period performance of our operations, and EBITDA facilitates comparison of our operating performance to companies in our industry.

 

We believe that EBITDA and Adjusted EBITDA measures are particularly important in a capital intensive industry such as ours, in which our current period depreciation is not a good indication of our current or future period capital expenditures. The cost to construct and launch a satellite and to build the related ground infrastructure may vary greatly from one satellite to another, depending on the satellite’s size, type and capabilities. Current depreciation expense is also not indicative of the revenue generating potential of the satellites.

23


 

EBITDA excludes interest income, interest expense and income taxes because these items are associated with our capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses reflect the impact of prior capital expenditure decisions which are not indicative of future capital expenditure requirements. Adjusted EBITDA further adjusts EBITDA to exclude restructuring and other re-engineering costs related to specific restructuring and re-engineering actions the Company previously initiated because we do not believe these costs are indicative of the underlying operating performance of our business and its ongoing operations. The amount and timing of these restructuring and other re-engineering costs are dependent on the size, type and status of the specific actions undertaken as part of our restructuring or re-engineering plans. See “2016 Highlights—Re-engineering and Restructuring Plans” above for further information. Additionally, Adjusted EBITDA further adjusts EBITDA to exclude joint venture gains and losses and the gain on subsidiary disposition because these are non-core items that are not related to our primary operations.

 

We use EBITDA and Adjusted EBITDA in conjunction with traditional U.S. GAAP operating performance measures as part of our overall assessment of our performance and we do not place undue reliance on these non-GAAP measures as our only measures of operating performance. EBITDA and Adjusted EBITDA should not be considered as substitutes for other measures of financial performance reported in accordance with U.S. GAAP.

 

Reconciliation of Net Cash Flows Provided by Operating Activities to Free Cash Flow

 

 

 

 

 

 

 

 

 

For the nine months ended

 

 

September 30,

(in millions)

    

2016

    

2015

Net cash flows provided by operating activities

 

$

214.7

 

$

237.5

Net cash flows used in investing activities

 

 

(161.3)

 

 

(106.3)

Investment in joint venture

 

 

10.0

 

 

5.0

Free cash flow

 

$

63.4

 

$

136.2

 

Free cash flow is defined as net cash flows provided by operating activities less net cash flows used in investing activities (excluding acquisition of businesses, net of cash acquired and excluding other strategic investments). Free cash flow is not a recognized term under U.S. GAAP and may not be defined similarly by other companies. Free cash flow should not be considered an alternative to “operating income (loss),” “net income (loss),” “net cash flows provided by (used in) operating activities” or any other measure determined in accordance with U.S. GAAP. Since free cash flow includes investments in operating assets, we believe this non-GAAP liquidity measure is useful in addition to the most comparable U.S. GAAP measure — “net cash flows provided by (used in) operating activities” because it provides information about the amount of cash generated before acquisitions of businesses that is then available to repay debt obligations, make investments, fund acquisitions, and for certain other activities. There are limitations to using non-U.S. GAAP financial measures, including the difficulty associated with comparing companies in different industries that use similar performance measures whose calculations may differ from ours.

 

Off-Balance Sheet Arrangements, Contractual Obligations, Guaranty and Indemnification Obligations

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements as of September 30, 2016.

 

Contractual Obligations

 

As of September 30, 2016, there were no material changes outside the ordinary course of business to the contractual obligations table presented in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

24


 

Guaranty and Indemnification Obligations

 

We enter into agreements in the ordinary course of business with resellers and others. Most of these agreements require us to indemnify the other party against third-party claims alleging that one of our products infringes or misappropriates a patent, copyright, trademark, trade secret or other intellectual property right. Certain of these agreements require us to indemnify the other party against claims relating to property damage, personal injury or acts or omissions by us, our employees, agents or representatives. In addition, from time to time we have made guarantees regarding the performance of our systems to our customers. The majority of these agreements do not limit the maximum potential future payments the Company could be obligated to make.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in these Unaudited Condensed Consolidated Financial Statements. Due to the inherent uncertainties in making estimates, actual results could differ materially from those estimates.

 

Refer to the critical accounting policies under Item 7, “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, 2015, where we discuss our significant judgments and estimates. We have made no significant changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Recent Accounting Pronouncements

 

See Note 2 “Summary of Significant Accounting Policies” to the Unaudited Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements and our expectation of their impact on our Consolidated Financial Statements.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes to the Company’s exposure to market risk since December 31, 2015. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of the Annual Report on Form 10-K for the year ended December 31, 2015.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer (our principal executive officer and our principal financial officer, respectively), we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934) as of September 30, 2016. Based upon that evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2016.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

25


 

PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

 

From time to time, we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which, we believe, would have a material adverse effect on our business, operating results, financial condition or cash flows.

 

ITEM 1A.  RISK FACTORS

 

Investment in our securities involves risk. In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors described under the caption “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on February 25, 2016. There have been no material changes to our Risk Factors from those included in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

In the second half of 2014, the Company’s Board of Directors authorized a program to repurchase up to $205.0 million of the Company’s outstanding common stock through December 31, 2015. In October 2015, the Company’s Board of Directors approved an increase in authorized share repurchases of the Company’s outstanding common stock by an additional $130.0 million through December 31, 2016. The approval increased the total authorized amount under the program to $335.0 million. As of September 30, 2016, we have repurchased 14,326,091 shares at an average purchase price of $21.36, for a total of $306.0 million under the program, including broker transaction fees and commissions. The Company may repurchase shares through open market purchases, privately negotiated transactions, structured or derivative transactions such as puts, calls, options, forwards, collars, accelerated share repurchase transactions (with or without collars), other equity contracts or other methods of acquiring shares and pursuant to Rule 10b5-1, in each case on such terms and at such times as shall be permitted by applicable securities laws and determined by management. The stock repurchase program does not obligate the Company to acquire any stock, and it may be limited or terminated at any time without notice. Share repurchase activity during the quarter ended September 30, 2016 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Total Number

    

Approximate

 

 

 

 

 

 

 

of Shares

 

Dollar Value

 

 

Total

 

Average

 

Purchased as Part

 

of Shares That

 

 

Number

 

Price

 

of Publicly

 

May Yet be

 

 

of Shares

 

Paid Per

 

Announced

 

Purchased

 

 

Purchased

 

Share

 

Program

 

Under Program(1)

July 1, 2016 to July 31, 2016

 

 —

 

 

 —

 

 

 

 

 

August 1, 2016 to August 31, 2016

 

 —

 

 

 —

 

 

 

 

 

September 1, 2016 to September 30, 2016

 

364,226

 

 

26.30

 

 

 

 

 

Total

 

364,226

 

$

26.30

 

14,326,091

 

$

29,311,423

(1)

Excludes broker transaction fees and commissions

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.  OTHER INFORMATION

 

None.

 

ITEM 6.  EXHIBIT INDEX

 

The exhibits listed in the Exhibit Index (following the signatures page of this Form 10-Q) are filed with, or incorporated by reference in, this Form 10-Q.

26


 

SIGNATURE

 

DIGITALGLOBE, INC.

 

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.

 

 

 

 

Date: October 25, 2016

 

/s/Gary W. Ferrera

 

 

Gary W. Ferrera

 

 

Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

 

 

Date: October 25, 2016

 

/s/Jose Torres

 

 

Jose Torres

 

 

Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)

 

27


 

EXHIBIT INDEX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incorporated by Reference

 

 

Exhibit No

  

Exhibit Description

  

Form

 

SEC File No.

   

Exhibit

   

Filing Date

  

Filed or Furnished
Herewith

10.1#

 

Modification P00031 to Contract #HM021010CN002, by and between DigitalGlobe, Inc. and National Geospatial-Intelligence Agency.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

10.2#

 

Modification P00032 to Contract #HM021010CN002, by and between DigitalGlobe, Inc. and National Geospatial-Intelligence Agency.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

10.3#

 

Modification P00033 to Contract #HM021010CN002, by and between DigitalGlobe, Inc. and National Geospatial-Intelligence Agency.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

10.4#

 

Modification P00034 to Contract #HM021010CN002, by and between DigitalGlobe, Inc. and National Geospatial-Intelligence Agency.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification of the Company’s Chief Executive Officer, Jeffrey R. Tarr, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification of the Company’s Chief Financial Officer, Gary W. Ferrera, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

X

 

32.1†

 

Certification of the Company’s Chief Executive Officer, Jeffrey R. Tarr, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28


 

32.2†

 

Certification of the Company’s Chief Financial Officer, Gary W. Ferrera, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101

 

The following materials for the DigitalGlobe, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, Commission File No. 001-34299, formatted in eXtensible Business Reporting Language (XBRL):

(i.) Unaudited Condensed Consolidated Statements of Operations

(ii.) Unaudited Condensed Consolidated Balance Sheets

(iii.) Unaudited Condensed Consolidated Statements of Cash Flows

(iv.) Related notes, tagged or blocks of text

 

 

 

 

 

 

 

 

 

X

 


#Certain portions of this exhibit have been omitted by redacting a portion of the text. This exhibit has been filed separately with the U.S. Securities and Exchange Commission pursuant to a request for confidential treatment.

Furnished herewith. 

29