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MAXR Maxar

Filed: 6 Aug 19, 5:08pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2019

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: 001-38228

Maxar Technologies Inc.

Delaware

83-2809420

(State or jurisdiction of incorporation)

(IRS Employer Identification Number)

1300 W. 120th Avenue, Westminster, Colorado

80234

(Address of principal executive offices)

(Zip Code)

303-684-2207

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, at $0.0001 par value

MAXR

New York Stock Exchange

Toronto Stock Exchange

Series A Junior Participating Preferred Stock, at $0.01 par value

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 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 every Interactive Data File required to be submitted 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 such files).  Yes  No 

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

Large Accelerated Filer

Accelerated Filer 

Non-accelerated Filer 

Smaller Reporting Company  Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Securities registered pursuant to Section 12(b) of the Act:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 31, 2019, there were 59,596,880 shares of the registrant’s common stock, at $0.0001 par value, outstanding, and zero shares of the registrant’s Series A Junior Participating Preferred Stock, at par value $0.01 per share, outstanding.

PART I. FINANCIAL INFORMATION

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Operations

(In millions, except per share amounts)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

Revenues:

Product

$

190

$

257

$

384

$

485

Service

300

322

610

651

Total revenues

$

490

$

579

$

994

$

1,136

Costs and expenses:

Product costs, excluding depreciation and amortization

$

165

$

254

$

362

$

441

Service costs, excluding depreciation and amortization

121

77

231

196

Selling, general and administrative

80

133

183

236

Depreciation and amortization

 

99

 

113

 

197

 

224

Impairment losses

12

12

Satellite insurance recovery

(183)

(183)

Operating income

 

196

 

2

 

192

 

39

Interest expense, net

 

49

 

50

 

98

 

103

Other (income) expense, net

(3)

4

3

5

Income (loss) before taxes

 

150

 

(52)

 

91

 

(69)

Income tax expense (benefit)

 

2

 

(9)

 

1

 

(41)

Equity in loss (income) from joint ventures, net of tax

2

(3)

3

(3)

Net income (loss)

$

146

$

(40)

$

87

$

(25)

Income (loss) per common share:

 

  

 

  

 

  

 

  

Basic

$

2.45

$

(0.70)

$

1.46

$

(0.44)

Diluted

$

2.45

$

(0.70)

$

1.46

$

(0.44)

See accompanying notes to the unaudited condensed consolidated financial statements.

3

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

2018

    

2019

2018

Net income (loss)

$

146

$

(40)

$

87

$

(25)

Other comprehensive income (loss), net of tax:

 

  

  

 

  

  

Foreign currency translation adjustment 1

 

15

5

 

11

Unrealized (loss) gain on derivatives

 

(12)

3

 

(16)

Change in pension and other postretirement benefit plans

2

Other comprehensive income, net of tax

 

3

8

 

(3)

Comprehensive income (loss), net of tax

$

149

$

(32)

$

84

$

(25)

1

Included within the Foreign currency translation adjustment is a net gain on hedge of net investment in foreign operations of $5 million for the six months ended June 30, 2019, and a net loss on hedge of net investment in foreign operations of $4 million and $12 million for the three and six months ended June 30, 2018, respectively.

See accompanying notes to the unaudited condensed consolidated financial statements.

4

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Balance Sheets

(In millions)

    

June 30, 

    

December 31, 

2019

2018

Assets

  

  

Current assets:

 

Cash and cash equivalents

 

$

63

$

35

Trade and other receivables, net

 

 

490

 

464

Inventory

 

 

24

 

31

Advances to suppliers

10

42

Income taxes receivable

 

 

24

 

14

Prepaid and other current assets

54

51

Total current assets

 

 

665

 

637

Non-current assets:

 

 

  

 

  

Orbital receivables

 

 

405

407

Deferred tax assets

 

 

112

103

Property, plant and equipment, net

 

 

785

747

Intangible assets, net

 

 

1,120

1,232

Non-current operating lease assets

124

Goodwill

 

 

1,763

1,751

Other assets

109

124

Total assets

 

$

5,083

$

5,001

Liabilities and stockholders’ equity

 

 

  

 

  

Current liabilities:

 

 

  

 

  

Accounts payable

 

$

172

$

209

Accrued liabilities

58

116

Accrued compensation and benefits

 

 

82

 

100

Contract liabilities

 

 

267

 

361

Current portion of long-term debt

 

 

17

 

17

Current operating lease liabilities

33

Other current liabilities

56

46

Total current liabilities

 

685

 

849

Non-current liabilities:

 

 

  

 

  

Pension and other postretirement benefits

 

 

192

196

Contract liabilities

29

60

Operating lease liabilities

133

Long-term debt

 

 

3,127

3,030

Other non-current liabilities

186

222

Total liabilities

 

 

4,352

 

4,357

Stockholders’ equity:

 

 

  

 

  

Common stock ($0.0001 par value, 240 million common shares authorized and 59.6 million outstanding at June 30, 2019; nil par value, unlimited authorized common shares and 59.4 million outstanding at December 31, 2018)

 

 

1,713

Additional paid-in capital

 

 

1,776

59

Accumulated deficit

 

 

(1,125)

(1,211)

Accumulated other comprehensive income

 

 

79

82

Total Maxar stockholders' equity

730

643

Noncontrolling interest

1

1

Total stockholders' equity

 

 

731

 

644

Total liabilities and stockholders' equity

 

$

5,083

$

5,001

See accompanying notes to the unaudited condensed consolidated financial statements.

5

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Cash Flows

(In millions)

Six Months Ended

June 30, 

    

2019

    

2018

Cash flows provided by (used in):

Operating activities:

 

  

 

  

Net income (loss)

$

87

$

(25)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

Depreciation of property, plant and equipment

 

60

 

78

Amortization of intangible assets

 

137

 

146

Stock-based compensation expense

 

4

 

9

Amortization of debt issuance costs and other noncash interest expense

 

4

 

5

Impairment losses

15

Foreign exchange losses

 

3

 

8

Deferred income tax expense (benefit)

 

6

 

(26)

Other

(3)

6

Changes in operating assets and liabilities:

 

Trade and other receivables

(12)

(64)

Accrued compensation and benefits

(22)

(15)

Trade and other payables

(35)

(31)

Accrued liabilities

(60)

24

Contract liabilities

(126)

(113)

Advances to suppliers

32

20

Deferred tax assets

(9)

(14)

Deferred tax liabilities

(5)

27

Other liabilities

(7)

(17)

Other

(10)

(19)

Cash provided by (used in) operating activities

 

59

 

(1)

Investing activities:

 

  

 

  

Purchase of property, plant and equipment

 

(99)

 

(83)

Purchase or development of software

 

(28)

 

(37)

Cash collected on note receivable

5

Disposal of subsidiary and short-term investments

 

3

 

5

Cash used in investing activities

 

(124)

 

(110)

Financing activities:

 

  

 

  

Net proceeds from revolving credit facility

 

112

 

141

Repayments of long-term debt

(13)

(13)

Settlement of securitization liability

 

(8)

 

(6)

Payment of dividends

(1)

(32)

Change in overdraft balance

1

Cash provided by financing activities

90

91

Increase (decrease) in cash, cash equivalents, and restricted cash

25

(20)

Effect of foreign exchange on cash, cash equivalents, and restricted cash

1

Cash, cash equivalents, and restricted cash, beginning of year

43

42

Cash, cash equivalents, and restricted cash, end of period

$

69

$

22

Reconciliation of cash flow information:

Cash and cash equivalents

$

63

$

12

Restricted cash included in prepaid and other current assets

5

9

Restricted cash included in other assets

1

1

Total cash, cash equivalents, and restricted cash

$

69

$

22

See accompanying notes to the unaudited condensed consolidated financial statements

6

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Change in Stockholders’ Equity

(In millions)

Three and six months ended June 30, 2019:

Common Stock

Additional

Retained earnings

Accumulated other

Noncontrolling

Total stockholders’

Shares

Amount

paid-in capital

(Accumulated deficit)

comprehensive income (loss)

interest

equity

Balance as of December 31, 2018

59.4

$

1,713

$

59

$

(1,211)

$

82

$

1

$

644

Reclassification of APIC due to U.S. Domestication

(1,713)

1,713

Common stock issued under employee stock purchase plan

0.1

1

1

Common stock issued upon vesting or exercise of stock-based compensation awards

0.1

Equity classified stock-based compensation expense

1

1

Dividends ($0.01 per common share)

(1)

(1)

Comprehensive loss

(59)

(6)

(65)

Balance as of March 31, 2019

59.6

1,774

(1,271)

76

1

580

Common stock issued under employee stock purchase plan

Common stock issued upon vesting or exercise of stock-based compensation awards

Equity classified stock-based compensation expense

2

2

Dividends ($0.01 per common share)

Comprehensive income

146

3

149

Balance as of June 30, 2019

59.6

$

$

1,776

$

(1,125)

$

79

$

1

$

731

Three and six months ended June 30, 2018:

Common Stock

Additional

Retained earnings

Accumulated other

Noncontrolling

Total stockholders’

Shares

Amount

paid-in capital

(Accumulated deficit)

comprehensive income (loss)

interest

equity

Balance as of December 31, 2017

56.2

$

1,550

$

51

$

118

$

113

$

1

$

1,833

Common stock issued under employee stock purchase plan

0.1

1

1

Common stock issued upon vesting or exercise of stock-based compensation awards

0.1

7

(7)

Reclassification of liability classified stock-based compensation awards to equity classified

1

1

Equity classified stock-based compensation expense

8

8

Dividends ($0.29 per common share)

(16)

(16)

Comprehensive income (loss)

15

(8)

7

Balance as of March 31, 2018

56.4

1,558

53

117

105

1

1,834

Common shares issued as part of dissenting shareholder settlement

2.2

111

111

Common stock issued under employee stock purchase plan

0.1

1

1

Common stock issued upon vesting or exercise of stock-based compensation awards

Reclassification of liability classified stock-based compensation awards to equity classified

(1)

(1)

Equity classified stock-based compensation expense

9

9

Dividends ($0.29 per common share)

(16)

(16)

Comprehensive income (loss)

(40)

8

(32)

Balance as of June 30, 2018

58.7

$

1,670

$

61

$

61

$

113

$

1

$

1,906

See accompanying notes to the unaudited condensed consolidated financial statements.

7

Table of Contents

MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, unless otherwise noted)

1.  GENERAL BUSINESS DESCRIPTION

Maxar Technologies Inc. (the “Company” or “Maxar”) is a global leader of advanced space technology solutions and is at the nexus of the new space economy, developing and sustaining the infrastructure and delivering the information, services, and systems that unlock the promise of space for commercial and government markets. As a trusted partner, the Company provides vertically integrated capabilities and expertise including satellites, Earth imagery, robotics, geospatial data and analytics to help customers anticipate and address their most complex mission-critical challenges with confidence. Maxar’s common stock trades on the New York Stock Exchange and Toronto Stock Exchange under the ticker MAXR.

Maxar’s businesses are organized and managed in three reportable segments: Space Systems, Imagery and Services.

On January 1, 2019, the Company completed a reorganization of its corporate structure pursuant to which the Company directly acquired all of the issued and outstanding shares of Maxar Technologies Ltd. (“Maxar Canada”), and the Company replaced Maxar Canada as the publicly-held parent company of the Maxar group (“U.S. Domestication”). Since its inception, Maxar Canada reported to securities regulators in both Canada and the U.S., financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Upon completion of the U.S. Domestication, and including the report herein, the Company has prepared its financial statements in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The Unaudited Condensed Consolidated Financial Statements include the accounts of Maxar Technologies Inc., and all of its consolidated subsidiaries. The Company’s Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). All intercompany balances and transactions are eliminated in consolidation.

The Company’s Unaudited Condensed Consolidated Financial Statements are presented in U.S. dollars and have been prepared on a historical cost basis, except for certain financial assets and liabilities including derivative financial instruments which are stated at fair value.

The 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 SEC. Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. In management’s 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. 

Use of estimates, assumptions and judgments

The preparation of the Unaudited Condensed Consolidated Financial Statements in accordance with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the reporting date, as well as the reported amounts of revenues and expenses during the reporting period. Estimates have been prepared using the most current and best available information; however, actual results could differ materially from those estimates.

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Table of Contents

MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

Recently Adopted Accounting Pronouncements

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) which together with subsequent amendments is included in ASC 842 – Leases. This new standard requires that all leases with an initial term greater than one year be recorded on the balance sheet as a right-of-use asset and lease liability. Additional qualitative and quantitative disclosures are also required. The Company adopted the lease standard on January 1, 2019, using the modified retrospective transition approach on the effective date. The Company has elected the package of practical expedients, which allows the Company not to reassess whether any expired or existing contracts as of the adoption date are or contain a lease, lease classification for any expired or existing leases as of the adoption date and initial direct costs for any existing leases as of the adoption date. The Company has not elected the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets.

Upon adoption, the Company recognized operating lease right-of-use assets and lease liabilities of $133 million and $176 million, respectively in its Unaudited Condensed Consolidated Balance Sheets. There were no material impacts to the Unaudited Condensed Consolidated Statements of Operations or Unaudited Condensed Consolidated Statements of Cash Flows.

Taxes

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). The guidance in ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act") from accumulated other comprehensive income into retained earnings. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted the update on January 1, 2019. There was no material impact on the Unaudited Condensed Consolidated Financial Statements.

Recent Accounting Guidance Not Yet Adopted

Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which together with subsequent amendments is included in ASC 326 – Financial Instruments – Credit Losses. ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. These updates are effective for annual and interim financial statement periods beginning after December 15, 2019, with early adoption permitted for financial statement periods beginning after December 15, 2018. The Company will adopt this standard effective January 1, 2020. The Company is currently evaluating the impact the adoption of this guidance may have on the Company’s financial statements.

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Table of Contents

MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

3.  TRADE AND OTHER RECEIVABLES, NET

Trade and other receivables, net consisted of the following:

June 30, 

December 31, 

2019

    

2018

Billed

$

205

$

242

Unbilled

 

238

 

172

Total trade receivables

443

414

Orbital receivables, current portion

34

34

Other

14

17

Allowance for doubtful accounts

(1)

(1)

Total trade and other receivables, net

$

490

$

464

Orbital receivables relate to performance incentives due under certain satellite construction contracts that are paid over the in-orbit life of the satellite. As of June 30, 2019 and December 31, 2018, long-term orbital receivables were $405 million and $407 million, respectively, and are included in Non-current assets on the Unaudited Condensed Consolidated Balance Sheets.

During 2018, the Company sold orbital receivables for net proceeds of $18 million. These orbital receivables were purchased in tranches that span multiple years and include longer-term maturities. The orbital receivables that were securitized remain recognized on the consolidated balance sheets as the Company did not meet the accounting criteria for surrendering control of the receivables. The net proceeds received have been recognized as a securitization liability and are subsequently measured at amortized cost using the effective interest rate method. The securitized orbital receivables and the securitization liabilities are being drawn down as payments are received from the customers and passed on to the purchaser of the tranche. The Company continues to recognize orbital interest revenue on the orbital receivables that are subject to the securitization transactions and recognizes interest expense to accrete the securitization. The amount of securitization liabilities was $102 million and $109 million at June 30, 2019 and December 31, 2018, respectively, of which $16 million and $15 million, respectively, was included in Other current liabilities on the Consolidated Balance Sheets.

4.  INVENTORY

Inventory consisted of the following:

    

June 30, 

December 31, 

2019

    

2018

Raw materials

$

15

$

21

Work in process

9

10

Total inventory

$

24

$

31

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

5.  PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following:

    

June 30, 

December 31, 

2019

    

2018

Satellites

$

397

$

397

Equipment

230

229

Leasehold improvements

98

97

Computer hardware

94

92

Land and land improvements

88

88

Buildings

 

46

46

Furniture and fixtures

19

19

Construction in process

236

142

Property, plant and equipment, at cost

1,208

1,110

Accumulated depreciation

 

(423)

(363)

Property, plant and equipment, net

$

785

$

747

Depreciation expense for property, plant and equipment was $30 million and $60 million, and $41 million and $78 million for the three and six months ended June 30, 2019 and June 30, 2018, respectively.

During the quarter ended June 30, 2019, the Company received insurance recoveries of $183 million related to the loss of the WorldView-4 satellite. The insurance proceeds are included in operating cash flows as they are considered business interruption insurance and represent our satellite’s loss of capacity to produce imagery for sale to our customers.

6.  INTANGIBLE ASSETS

Intangible assets are as follows:

    

June 30, 2019

December 31, 2018

Gross carrying value

Accumulated amortization

Net carrying value

Gross carrying value

Accumulated amortization

Net carrying value

Customer relationships

$

619

$

(81)

$

538

$

619

$

(58)

$

561

Backlog

 

332

 

(169)

 

163

 

332

 

(120)

 

212

Technologies

328

(117)

211

330

(86)

244

Software

225

(90)

135

198

(71)

127

Image library

80

(40)

40

80

(32)

48

Trade names and other

41

(12)

29

41

(9)

32

Non-compete agreements

21

(17)

4

21

(13)

8

Total intangible assets

$

1,646

$

(526)

$

1,120

$

1,621

$

(389)

$

1,232

Amortization expense related to intangible assets was $69 million and $137 million, and $72 million and $146 million for the three and six months ended June 30, 2019 and June 30, 2018, respectively.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

7.  LEASES

The Company has both operating and finance leases. The majority of the Company’s leases are operating leases related to buildings. The majority of the Company’s finance leases are related to furniture and equipment.

The Company’s leases have remaining lease terms of approximately one year to 16 years, some of which include options to extend the lease anywhere from one to ten years, and are included in the lease term when it is reasonably certain the Company will exercise the option. The Company has elected as an accounting policy not to recognize any leases with an initial term of 12 months or less on the balance sheet and will recognize the lease payments on a straight-line basis in the statement of operations.

The rate implicit in the lease is typically not readily determinable; in such instances the Company uses an incremental borrowing rate to determine the present value of the lease payments. The Company uses a borrowing rate with a similar term to the lease term and considers any options if they are reasonably certain to be exercised. For adoption, the Company elected to consider the remaining lease term and payments as of the adoption date.

The Company elected the practical expedient not to separate lease and non-lease components. The Company also elected to include in minimum lease payments any executory costs that are part of the fixed lease payment.

Finance lease cost, variable lease cost, and short-term lease cost are not material. The components of operating lease expense are as follows:

Three months ended June 30, 

Six months ended June 30, 

    

Classification

2019

2019

Operating lease expense

Selling, general, and administrative expense, Product costs, and Service costs

$

9

$

17

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Table of Contents

MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

Supplemental lease balance sheet information consists of the following:

June 30, 

Classification

2019

Assets:

Operating

Non-current operating lease assets

$

124

Finance

Property, plant, and equipment, net

8

Total lease assets

$

132

Liabilities:

Current

Operating

Current operating lease liabilities

$

33

Finance

Current portion long-term debt

3

Non-current

Operating

Operating lease liabilities

133

Finance

Long-term debt

3

Total lease liabilities

$

172

Supplemental lease cash flow information is as follows:

Three months ended June 30, 

Six months ended June 30, 

2019

2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$

9

$

18

Other supplemental lease information consists of the following:

June 30, 

2019

Weighted average remaining lease term

Operating leases

9 years

Finance leases

3 years

Weighted average discount rate

Operating leases

7.1%

Finance leases

4.7%

Maturities of lease liabilities are as follows:

2019 1

    

2020

2021

2022

2023

Thereafter

Less: imputed interest

Total minimum lease payments

Operating leases

$

17

$

32

$

29

$

24

$

22

$

100

$

(58)

$

166

Finance leases

2

3

1

1

(1)

6

1Excludes the six months ended June 30, 2019.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

8.  RESTRUCTURING LIABILITY

On February 27, 2019, the Company announced a restructuring plan to implement cost-saving measures, including a reduction in the Company’s workforce. The reduction in the Company’s workforce was substantially completed in the first quarter of 2019, with cash payments occurring throughout 2019. Restructuring expense is included in Product costs, excluding depreciation and amortization, Service costs, excluding depreciation and amortization, and Selling, general and administrative expense in the Company’s Unaudited Condensed Consolidated Statements of Operations.

Changes to restructuring liabilities during the period consisted of the following:

Restructuring Liability

Balance as of December 31, 2018

$

6

Obligations incurred

22

Payments

(14)

Release of reserves

(2)

Balance as of June 30, 2019

$

12

9.  LONG-TERM DEBT AND INTEREST EXPENSE

June 30, 

December 31, 

    

2019

    

2018

Syndicated Credit facility:

 

  

 

  

Revolving credit facility

$

686

$

595

Operating credit facility in Canadian dollars (June 30, 2019 - C$20 million; December 31, 2018 - C$0 million)

 

15

 

Term Loan A

 

500

 

500

Term Loan B

 

1,970

 

1,980

Debt issuance costs

 

(37)

 

(41)

Obligations under finance leases and other

 

10

 

13

Total long-term debt

 

3,144

 

3,047

Current portion

 

(17)

 

(17)

Non-current portion

$

3,127

$

3,030

The Syndicated Credit Facility, with an aggregate capacity of up to $3.75 billion, is composed of: (i) a four-year senior secured first lien revolving credit facility and a four-year senior secured first lien operating credit facility (collectively, the “Revolving Credit Facility”), (ii) a senior secured first lien term A facility (“Term Loan A”) and (iii) a seven-year senior secured first lien term B facility (“Term Loan B”).

The Revolving Credit Facility includes an aggregate $200 million sub limit under which letters of credit can be issued. As of June 30, 2019 and December 31, 2018, the Company had $16 million and $18 million, respectively, of issued and undrawn letters of credit outstanding under the Revolving Credit Facility.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

Interest expense on long-term debt and other obligations are as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

2019

    

2018

2019

    

2018

Interest on long-term debt

$

48

$

43

$

93

$

83

Interest expense on advance payments from customers

4

6

9

14

Interest on orbital securitization liability

2

2

4

4

Imputed interest and other

(1)

1

Capitalized interest

(5)

(1)

(8)

(2)

Interest expense on dissenting stockholder liability

1

3

Total interest expense

$

49

$

50

$

98

$

103

10.  FINANCIAL INSTRUMENTS AND FAIR VALUE DISCLOSURES

Fair value is determined based on the assumptions that market participants would use in pricing the asset or liability. The Company utilizes the following fair value hierarchy in determining fair value:

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

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs)

The following tables set forth the Company’s assets and liabilities measured at fair value on a recurring basis categorized by level within the fair value hierarchy. Financial assets and liabilities are classified within the hierarchy based on the lowest level input that is significant to the fair value measurement. These fair values are included as components of Other current liabilities, Other non-current liabilities, Prepaid and other current assets, and Other assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.

Recurring Fair Value Measurements of as of June 30, 2019

Level 1

Level 2

Level 3

Total

Assets

 

  

 

  

 

  

 

  

Short-term investments

$

3

$

$

$

3

Long-term investments

2

12

14

Derivative financial instruments

Foreign exchange forward contracts & embedded derivatives

4

4

$

3

$

6

$

12

$

21

Liabilities

Derivative financial instruments

Foreign exchange forward contracts & embedded derivatives

$

$

2

$

$

2

Interest rate swaps

20

20

$

$

22

$

$

22

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

Recurring Fair Value Measurements of as of December 31, 2018

Level 1

Level 2

Level 3

Total

Assets

 

  

 

  

 

  

 

  

Short-term investments

$

3

$

$

$

3

Long-term investments

1

24

25

Derivative financial instruments

Foreign exchange forward contracts & embedded derivatives

5

5

$

3

$

6

$

24

$

33

Liabilities

Derivative financial instruments

Foreign exchange forward contracts & embedded derivatives

$

$

8

$

$

8

Interest rate swaps

4

4

$

$

12

$

$

12

During the three months ended June 30, 2019, the Company noted an observable price change related to its investment in a privately held company and, as a result, recorded an impairment loss of $12 million. There were no impairment losses recognized in the three and six months ended June 30, 2018.

The Company determines fair value of its derivative financial instruments based on internal valuation models, such as discounted cash flow analysis, using management estimates and observable market-based inputs, as applicable. Management estimates include assumptions concerning the amount and timing of estimated future cash flows and application of appropriate discount rates. Observable market-based inputs are sourced from third parties and include interest rates and yield curves, currency spot and forward rates, and credit spreads, as applicable.

Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are all short-term in nature; therefore, the carrying value of these items approximates their fair value. The following tables provide additional fair value information related to the Company’s financial instruments:

As of June 30, 2019

Carrying value

Fair value

Fair value hierarchy

Long-term debt, excluding finance leases and other

$

3,134

$

2,938

Level 2

Orbital receivables

439

439

Level 2

As of December 31, 2018

Carrying value

Fair value

Fair value hierarchy

Long-term debt, excluding finance leases and other

$

3,034

$

2,925

Level 2

Orbital receivables

441

441

Level 2

There were no transfers into or out of each of the levels of the fair value hierarchy during the six months ended June 30, 2019 or year ended December 31, 2018.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

11. STOCKHOLDERS’ EQUITY

As a result of the Company’s U.S. Domestication on January 1, 2019, a reclassification between Common Stock and Additional paid-in capital was necessary to reflect the Company’s new par value of $0.0001. The reclassification between Common Stock and Additional paid-in capital of $1.7 billion was recorded within the Unaudited Condensed Consolidated Statements of Change in Stockholders’ Equity in the first quarter of 2019.

Tax Benefit Preservation Plan

On May 12, 2019, the Company implemented a Tax Benefit Preservation Plan (“Tax Plan”), with the intent to preserve the value of certain deferred tax benefits (the “Tax Benefits”). The Tax Plan is intended to act as a deterrent to any person or entity acquiring shares of the Company equal to or exceeding 4.9%. For each common stock outstanding as of May 28, 2019, a dividend of one preferred stock purchase right is granted. The Tax Plan gives current shareholders the right to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock (“Series A Preferred”) at a set price of $30.92 which, upon exercise, provides for one additional share of common stock at a 50% discount on the exercise date with no cash settlement options. The Tax Plan reduces the likelihood that changes in the Company’s investor base have the unintended effect of limiting the use of the Company’s Tax Benefits. There is no impact to the financial statements as a result of the Tax Plan.

As of June 30, 2019, the Company had 2,400,000 shares authorized and no shares outstanding of the Series A Preferred stock. As of December 31, 2018, the Company had no Series A Preferred stock authorized or outstanding.

Changes in the components of Accumulated other comprehensive income (loss) are as follows:

Foreign

Total

Currency

Unrecognized

Accumulated Other

Translation

(Loss) Gain on

Pension

Comprehensive

Adjustments1

Derivatives2

Adjustments

Income (Loss)

Balance as of December 31, 2018

$

111

$

(4)

$

(25)

$

82

Other comprehensive (loss) income

(4)

(4)

3

(5)

Tax expense

(1)

(1)

Balance as of March 31 2019

107

(8)

(23)

76

Other comprehensive income (loss)

15

(12)

3

Tax expense

Balance as of June 30, 2019

$

122

$

(20)

$

(23)

$

79

1

As a result of the Company’s U.S. Domestication on January 1, 2019, and the associated change from a Canadian parent company to a U.S. parent company, the Company’s net investment hedge was no longer necessary from the domestication date onwards. As of December 31, 2018, there was a $51 million net loss on hedge investments in foreign operations.

2

As of January 1, 2019, the Company has discontinued hedge accounting related to the Company’s foreign exchange contracts. The Company still applies hedge accounting to the interest rate swaps related to long-term debt. As of June 30, 2019, the balance consisted of unrecognized loss on the Company’s interest rate swaps.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

12. REVENUE

On June 30, 2019, the Company had $2.2 billion of remaining performance obligations, which represents the transaction price of firm orders less inception to date revenues recognized. Remaining performance obligations exclude unexercised contract options and indefinite delivery/indefinite quantity contracts. The Company expects to recognize revenues relating to existing performance obligations of approximately $1.0 billion, $0.5 billion, and $0.7 billion in the six months ended December 31, 2019, year ended 2020 and thereafter, respectively.

Contract liabilities by segment are as follows:

Space

    

As of June 30, 2019

    

Systems

    

Imagery1

    

Services

Total

Contract liabilities

$

101

$

189

$

6

$

296

Space

    

As of December 31, 2018

    

Systems

    

Imagery1

    

Services

Total

Contract liabilities

$

172

$

247

$

2

$

421

1

The contract liability balance associated with the Company’s EnhancedView Contract was $132 million and $184 million as of June 30, 2019 and December 31, 2018, respectively. During the six months ended June 30, 2019, imputed interest on advanced payments increased the contract liability balance by $8 million, which was more than offset by $60 million in revenue recognition. The contract liability balance associated with the Company’s EnhancedView Contract is expected to be recognized as revenue through August 31, 2020. There were no deferred contract costs on the Unaudited Condensed Consolidated Balance Sheets associated with this contract as of June 30, 2019 or December 31, 2018.

The decrease in total contract liabilities was primarily due to revenues recognized.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

The Company’s primary sources of revenues are as follows:

Three months ended June 30, 2019

    

Space Systems

    

Imagery

    

Services

    

Eliminations

    

Total

Product revenues

$

190

$

$

$

$

190

Service revenues

 

26

 

200

 

74

 

 

300

Intersegment

41

 

1

 

 

(42)

 

$

257

$

201

$

74

$

(42)

$

490

Three months ended June 30, 2018

    

Space Systems

    

Imagery

    

Services

    

Eliminations

    

Total

Product revenues

$

257

$

$

$

$

257

Service revenues

 

47

 

211

 

64

 

 

322

Intersegment

26

1

2

(29)

$

330

$

212

$

66

$

(29)

$

579

Six months ended June 30, 2019

    

Space Systems

    

Imagery

    

Services

    

Eliminations

    

Total

Product revenues

$

384

$

$

$

$

384

Service revenues

 

71

 

399

 

140

 

 

610

Intersegment

76

 

2

 

2

 

(80)

 

$

531

$

401

$

142

$

(80)

$

994

Six months ended June 30, 2018

    

Space Systems

    

Imagery

    

Services

    

Eliminations

    

Total

Product revenues

$

485

$

$

$

$

485

Service revenues

 

98

 

421

 

132

 

 

651

Intersegment

40

2

4

(46)

$

623

$

423

$

136

$

(46)

$

1,136

Certain of the Company’s contracts with customers in the Space Systems segment include a significant financing component since payments are received from the customer more than one year after delivery of the promised goods or services. The Company recognized orbital interest revenue of $8 million and $15 million for the three and six months ended June 30, 2019, respectively, as compared to $9 million and $16 million for the three and six months ended June 30, 2018, respectively, related to these contracts, which is included in product revenues.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

The revenues based on geographic location of customers are as follows:

Three Months Ended June 30, 

    

2019

    

2018

United States

$

349

$

339

Asia

 

52

 

96

Canada

 

28

 

53

Europe

 

34

 

36

South America

26

45

Other

 

1

 

10

Total revenues

$

490

$

579

Six Months Ended June 30, 

    

2019

    

2018

United States

$

687

$

708

Asia

 

120

 

172

Canada

 

53

 

101

Europe

 

60

 

69

South America

65

67

Other

 

9

 

19

Total revenues

$

994

$

1,136

Revenues from significant customers are as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2019

    

2018

    

2019

2018

U.S. Federal Government and agencies

$

263

$

219

$

494

$

451

Canadian Federal Government and agencies

25

31

45

59

  

13.  SEGMENT INFORMATION

The Company’s business is organized into three reportable segments based on the nature of the products and services offered: (i) Space Systems; (ii) Imagery; and (iii) Services. The Space Systems reportable segment supplies space-based and ground-based infrastructure and information solutions including communication and imaging satellites, satellite payloads and antenna subsystems, space-based and airborne surveillance solutions, robotic systems and associated ground infrastructure and support services. The Imagery segment is a supplier of high resolution Earth imagery and radar data sourced from the Company’s owned satellite constellations and third-party providers. The Services segment combines imagery, analytic expertise and innovative technology to deliver integrated intelligence solutions to customers.

Transactions between segments are generally negotiated and accounted for under terms and conditions similar to other government and commercial contracts. The reconciling item “corporate and other expenses” includes items such as corporate office costs, regulatory costs, executive and director compensation, foreign exchange gains and losses, and fees for audit, legal and consulting services.

The Company’s Chief Operating Decision Maker (“CODM”) measures the performance of each segment based on revenue and Adjusted EBITDA. Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization (“EBITDA”) adjusted for certain items affecting comparability as specified in the calculation. Other unallocated expenses include retention costs and foreign exchange gains and losses which are not included in segment Adjusted EBITDA. The following table summarizes the operating performance of the Company’s segments:

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

Three Months Ended June 30, 

Six Months Ended June 30, 

2019

    

2018

2019

    

2018

Revenues:

  

 

  

 

  

 

  

Space Systems

$

257

$

330

$

531

$

623

Imagery

 

201

 

212

 

401

 

423

Services

74

66

142

136

Intersegment eliminations

(42)

(29)

(80)

(46)

Total revenues

$

490

$

579

$

994

$

1,136

Adjusted EBITDA:

Space Systems

$

28

$

13

$

38

$

41

Imagery

123

133

244

267

Services

6

6

13

10

Intersegment eliminations

(10)

(7)

(13)

(9)

Depreciation and amortization

(99)

(113)

(197)

(224)

Corporate and other expenses

(18)

(12)

(36)

(25)

Restructuring

(2)

(13)

(22)

(13)

Acquisition and integration related expense

(2)

(6)

(6)

(10)

Impairment losses

(12)

(15)

Satellite insurance recovery

183

183

CEO severance

(3)

Interest expense, net

(49)

(50)

(98)

(103)

Equity loss (income) from joint ventures, net of tax

2

(3)

3

(3)

Income (loss) before taxes

$

150

$

(52)

$

91

$

(69)

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)


The Company’s capital expenditures are as follows:

Space

Corporate and

Three Months Ended June 30, 2019

Systems

    

Imagery

    

Services

    

eliminations

Total

Capital expenditures:

Property, plant and equipment

$

3

$

51

$

$

(14)

$

40

Intangible assets

 

-

 

14

 

 

-

 

14

$

3

$

65

$

$

(14)

$

54

Space

Corporate and

Three Months Ended June 30, 2018

Systems

    

Imagery

    

Services

    

eliminations

Total

Capital expenditures:

Property, plant and equipment

$

4

$

41

$

1

$

(6)

$

40

Intangible assets

 

4

 

15

 

2

 

(1)

 

20

$

8

$

56

$

3

$

(7)

$

60

Space

Corporate and

Six Months Ended June 30, 2019

Systems

    

Imagery

    

Services

    

eliminations

Total

Capital expenditures:

Property, plant and equipment

$

9

$

101

$

$

(11)

$

99

Intangible assets

 

1

 

27

 

 

-

 

28

$

10

$

128

$

$

(11)

$

127

Space

Corporate and

Six Months Ended June 30, 2018

Systems

    

Imagery

    

Services

    

eliminations

Total

Capital expenditures:

Property, plant and equipment

$

9

$

79

$

1

$

(6)

$

83

Intangible assets

 

4

 

32

 

2

 

(1)

 

37

$

13

$

111

$

3

$

(7)

$

120

Substantially all of the Company’s long-lived tangible assets were in the United States as of June 30, 2019 and December 31, 2018.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

14.  EMPLOYEE BENEFIT PLANS

The following table summarizes the components of net periodic benefit cost for the Company’s pension plans:

Three Months Ended June 30, 

Six Months Ended June 30, 

Pension

Pension

2019

2018

2019

2018

Service cost

$

1

$

1

$

2

$

3

Interest cost

 

6

 

 

12

 

Expected return on plan assets

(9)

(15)

Amortization of net loss

1

1

Expenses paid

1

1

Net periodic benefit cost

$

$

1

$

1

$

3

Contributions

The funding policy for the Company’s pension plans is to contribute at least the minimum required by applicable laws and regulations or to directly make benefit payments where appropriate. The Company expects to contribute approximately $14 million to its pension plans for the year ending December 31, 2019. As of June 30, 2019, all legal funding requirements had been met.

15.  INCOME TAXES

On January 1, 2019, the Company completed the U.S. Domestication. The Company has estimated there are no material corporate tax liabilities as a result of the U.S. Domestication; however, the Company's effective tax rate is expected to increase in the future primarily due to related changes in corporate structure and the application of U.S. tax law to the Company. In prior years, the Company's income taxes were described as Canadian and non-Canadian. Following the U.S. Domestication, the Company will describe its income tax in the context of U.S. and non-U.S.

Following the U.S. Domestication, the Company is subject to taxation on a material amount of Global Intangible Low-Tax Income (“GILTI”) earned by foreign subsidiaries. The Company has elected to treat the tax effect of GILTI as a current period expense when incurred. The Company expects the net impact of the GILTI for the 2019 fiscal year to be immaterial due to a corresponding change in the valuation allowance.

In computing income tax expense for the quarter ended June 30, 2019, the Company applied the estimated annual effective tax rate to non-U.S. pre-tax income. No income tax expense was recognized on U.S. income as the Company does not expect to recognize the benefit of U.S. losses recorded in the year. This resulted in an effective income tax rate of 15.4% for the six months ended June 30, 2019. For the six months ended June 30, 2018, income tax expense was computed as (18.5%). The effective tax rate increased primarily due to changes in corporate structure, the application of U.S. tax law and a change in the mix of income between jurisdictions.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

16. EARNINGS PER SHARE

The following table includes the calculation of basic and diluted net income (loss) per common share:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2019

    

2018

    

2019

    

2018

Net income (loss)

$

146

$

(40)

$

87

$

(25)

Weighted average number of common shares outstanding-basic

59.6

57.2

59.6

56.8

Weighted dilutive effect of equity awards

 

 

 

 

Weighted average number of common shares outstanding-diluted

59.6

57.2

59.6

56.8

Income (loss) per common share:

 

 

Basic

$

2.45

$

(0.70)

$

1.46

$

(0.44)

Dilutive

$

2.45

$

(0.70)

$

1.46

$

(0.44)

17.   CONTINGENCIES

Contingencies in the Normal Course of Business

As discussed in Note 3, satellite construction contracts may include performance incentives whereby payment for a portion of the purchase price of the satellite is contingent upon in-orbit performance of the satellite. The Company’s ultimate receipt of orbital performance incentives is subject to the continued performance of its satellites generally over the contractually stipulated life of the satellites. A complete or partial loss of a satellite’s functionality can result in loss of orbital receivable payments or repayment of amounts received by the Company under a warranty payback arrangement. The Company generally receives the present value of the orbital receivables if there is a launch failure or a failure caused by a customer error, but will forfeit some or all of the orbital receivables if the loss is caused by satellite failure or as a result of Company error. The Company recognizes orbital performance incentives in the financial statements based on the amounts that are expected to be received and believes that it will not incur a material loss relating to the incentives recognized.

The Company may incur liquidated damages on programs as a result of delays due to slippage, or for programs which fail to meet all milestone requirements as outlined within the contractual arrangements with customers. Losses on programs related to liquidated damages result in a reduction of revenue.

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 its 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.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

From time to time, the Company has made guarantees regarding the performance of its systems to its customers. Some 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. The Company has not incurred any material costs as a result of such obligations and has not accrued any liabilities related to such indemnification and guarantees in the Unaudited Condensed Consolidated Financial Statements.

The Company has entered into industrial cooperation agreements, sometimes referred to as offset agreements, as a condition to entering into contracts for its products and services from certain customers in foreign countries. These agreements are designed to return economic value to the foreign country and may be satisfied through activities that do not require a direct cash payment, including transferring technology, providing manufacturing, training and other consulting support to in-country projects. These agreements may provide for penalties in the event the Company fails to perform in accordance with offset requirements. The Company has historically not been required to pay any such penalties.

Legal Proceedings

In 2010, the Company entered into an agreement with a Ukrainian customer to provide a communication satellite system. In 2014, following the annexation of Crimea by the Russian Federation, the Company declared force majeure with respect to the program. The Ukrainian customer accepted that an event of force majeure had occurred. Following various unsuccessful efforts to arrive at a new contractual framework to take account of the changed circumstances (including the force majeure and various financial issues), the contract with the Ukrainian customer was terminated by Maxar. Maxar completed work on the spacecraft, which is in storage. In July 2018, the Ukrainian customer issued a statement of claim in the arbitration it had commenced against Maxar, challenging the Company’s right to terminate for force majeure, purporting to terminate the contract for default by Maxar (a position since withdrawn), and seeking recovery from Maxar in the amount of approximately $227 million. Discovery has concluded, and the matter is scheduled to be heard by the arbitration panel in December 2019. The Company believes it has sound defenses to the petitioner’s claims, and will vigorously defend the claims asserted. The Company has accrued an amount that it believes is within the range of probable outcomes for resolving this matter; the amount is not material to the consolidated financial statements. However, the outcome of any arbitration is difficult to predict, and in the event that the arbitration results in a finding against the Company in excess of the amount reserved, the Company could incur additional amounts and its results of operations and financial condition could be adversely affected.

In January 2019, a Maxar stockholder filed a putative class action lawsuit captioned Durant v. Maxar Technologies Inc., No. 1:19-cv-00124-WJM-SKC in the District Court of Colorado, naming Maxar and members of management as defendants alleging, among other things, that the Company’s public disclosures from March 29, 2018 through January 7, 2019 were deficient in violation of the federal securities laws and seeking monetary damages. In March 2019, another stockholder filed a virtually identical putative class action in the District of Colorado captioned Schwartz v. Maxar Technologies Inc., No. 1:19-cv-00758-NRN, alleging violation of the same securities laws as alleged in the Durant case based upon nearly identical underlying facts. Once the court consolidates these two actions and appoints a lead plaintiff, that plaintiff will have sixty days to file a consolidated amended complaint and the Company will have sixty days to file a response. Also in January 2019, a Maxar stockholder resident in Canada issued a putative class action lawsuit captioned Charles O’Brien vs. Maxar Technologies Inc., No. CV-19-00613564-00CP in the Ontario Superior Court of Justice against Maxar and members of management claiming misrepresentations in Maxar’s public disclosures and seeking monetary damages. The Company believes that these cases are without merit and intends to vigorously defend against them.

The Company is a party to various other legal proceedings and claims that arise in the ordinary course of business as either a plaintiff or defendant. As a matter of course, the Company is prepared both to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities. The Company has established accrued

25

Table of Contents

MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Tabular amounts in millions of United States dollars, except per share amounts)

liabilities for these matters where losses are deemed probable and reasonably estimable. The outcome of any of these other proceedings, either individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, results of operations or liquidity.

18.  SUPPLEMENTAL CASH FLOW

Selected cash payments and non-cash activities are as follows:

Six Months Ended

June 30, 

2019

    

2018

Supplemental cash flow information:

Cash paid for interest

$

(128)

$

(98)

Income tax payments

(4)

(3)

Supplemental non-cash investing and financing activities:

Accrued capital expenditures

19

3

Impairment loss on equity investment

12

26

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

This management’s discussion and analysis (“MD&A”) contains “forward-looking statements” as defined in Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “may,” “estimate,” “outlook” and similar expressions, including the negative thereof. The absence of these words, however, does not mean that the statements are not forward-looking. These forward-looking statements are based on our current expectations, beliefs and assumptions concerning future developments and business conditions and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate.

All of our forward-looking statements involve risks and uncertainties (some of which are significant or beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Known material factors that could cause actual results to differ materially from those contemplated in the forward-looking statements include those set forth in Part II, Item 1A, “Risk Factors” and elsewhere in this MD&A. We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except to the extent required by law.

*****

Unless stated otherwise or the context otherwise requires, references to the terms “Company,” “Maxar,” “we,” “us,” and “our” refer collectively to Maxar Technologies Inc. and its consolidated subsidiaries. Financial information and results of operations presented in this Quarterly Report on Form 10-Q relate to Maxar Technologies Ltd., our predecessor, and relate to Maxar Technologies Inc. for all periods beginning on or after January 1, 2019.

OVERVIEW

We are a global leader of advanced space technology solutions and are at the nexus of the new space economy, developing and sustaining the infrastructure and delivering the information, services and systems that unlock the promise of space for commercial and government markets. As a trusted partner, we provide vertically integrated capabilities and expertise including satellites, Earth imagery, robotics, geospatial data and analytics to help customers anticipate and address their most complex mission-critical challenges with confidence. Maxar’s common stock trades on the NYSE and TSX under the ticker “MAXR.”

Our businesses are organized and managed in three reportable segments: Space Systems, Imagery and Services, as described below under “Segment Results.”

Unless otherwise indicated, our significant accounting policies and estimates, contractual obligations, commitments, contingencies, and business risks and uncertainties, as described in our MD&A and consolidated financial statements for the year ended December 31, 2018, are substantially unchanged.

RECENT DEVELOPMENTS

WorldView-4 Insurance Recovery

On May 3, 2019, we announced that our insurance carriers accepted our $183 million claim for loss arising from the WorldView-4 satellite on-orbit failure, and agreed to pay us the full amount. As of June 30, 2019, we have collected the full insurance proceeds.

27

Tax Benefit Preservation Plan

On May 12, 2019, our Board of Directors approved a Tax Benefit Preservation Plan (“Tax Plan”), with the intent to preserve the value of certain deferred tax benefits (the “Tax Benefits”) including those generated by net operating losses. The Tax Plan is intended to act as a deterrent to any person or entity acquiring shares of the Company equal to or exceeding 4.9%. For each common stock outstanding as of May 28, 2019, a dividend of one preferred stock purchase right (“The Rights”) is granted. The Tax Plan gives current shareholders the right to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock (“Series A preferred Stock”) at a set price of $30.92 which, upon exercise, provides for one additional share of common stock at a 50% discount on the exercise date with no cash settlement options. The Tax Plan reduces the likelihood that changes in our investor base have the unintended effect of limiting the use of our Tax Benefits. There is no impact to the financial statements as a result of the Tax Plan.

Security Control Agreement and Facility Clearance and the U.S. Domestication

On January 26, 2017, we, together with our U.S.-based subsidiary, Maxar Holdings, and the U.S. Department of Defense entered into a Security Control Agreement (“SCA”) and began operating under the agreement. The SCA allows our subsidiaries to hold facility clearances necessary to pursue and execute classified U.S. government space and defense contracts. In February 2017, we received facility security clearance for the offices of Maxar Holdings, and the proxy board at Radiant Geospatial Solutions LLC was dissolved. On February 2, 2018, the Defense Security Service granted facility clearance for our satellite manufacturing facility in Palo Alto, California.

On January 1, 2019, we completed our previously announced U.S. Domestication. The U.S. Domestication marked a major milestone in our long-term U.S. access plan, enhanced our ability to provide and support classified applications for U.S. government agencies and fulfilled a commitment made in acquiring DigitalGlobe. We will continue to operate in compliance with the SCA until such time as the U.S. Department of Defense determines that the SCA is no longer necessary as a result of the U.S. Domestication.

Segment Results

Our Chief Operating Decision Maker (“CODM”) measures performance of our reportable segments based on revenue and Adjusted EBITDA. Our three reportable segments are Space Systems, Imagery and Services. In January 2019, with the appointment of Daniel L. Jablonsky as our President and Chief Executive Officer, our CODM changed. Our CODM may decide to evaluate our business differently in the future, which could result in changes to our reportable segments.

Space Systems

In the Space Systems segment, we are a leading supplier of space-based and ground-based infrastructure and information solutions. The Space Systems segment includes the financial results of our Space Solutions (previously referred to as Space Systems/Loral LLC or SSL) and MacDonald, Dettwiler and Associates (“MDA”) businesses. Our products include communication and imaging satellites, satellite payloads and antenna subsystems, space-based and airborne surveillance solutions, robotic systems and associated ground infrastructure and support services. Our offerings serve multiple markets, primarily for communications and surveillance and intelligence applications. In the communications market, our solutions provide cost-efficient global delivery of a broad range of services, including television and radio distribution, broadband internet, and mobile communications. In the surveillance and intelligence market, we offer end-to-end solutions to monitor changes and activities around the globe to support the operational needs of government agencies, both military and civilian, and commercial customers. We also supply spacecraft and subsystems to the U.S. government, Canadian government and other customers for scientific research and development missions, as well as robotic systems for the space and terrestrial markets. Our principal customers in the Space Systems segment are government agencies worldwide as well as satellite operators and satellite manufacturers.

Imagery

In the Imagery segment, we are a leading supplier of high-resolution Earth imagery and radar data sourced from our own advanced satellite constellation and third-party providers. Our imagery solutions provide customers with accurate and mission-critical information about our changing planet, and support a wide variety of uses, including mission planning,

28

mapping and analysis, environmental monitoring, disaster management, crop management, oil and gas exploration and infrastructure management. Our principal customers in the Imagery segment are U.S., Canadian and other international government agencies (primarily defense and intelligence agencies), as well as a wide variety of commercial customers in multiple markets.

Services

In the Services segment, we provide geospatial services that combine imagery, analytic expertise and innovative technology to deliver integrated intelligence solutions to customers. We provide analytic solutions that accurately document change and enable geospatial modeling and analysis that predict where events will occur to help customers protect lives and make resource allocation decisions. Our primary customer in the Services segment is the U.S. government, but we also support intelligence requirements for other U.S. allied governments, global development organizations and commercial customers.

RESULTS OF OPERATIONS

The following table provides selected financial information for the three and six months ended June 30, 2019 and 2018, respectively.

Three Months Ended June 30, 

%

Six months ended June 30, 

%

    

2019

    

2018

    

Change

    

2019

    

2018

    

Change

    

($ millions)

  

 

  

  

 

  

Revenues:

Product

$

190

$

257

(26)

%

$

384

$

485

(21)

%

Service

300

322

(7)

610

651

(6)

Total revenues

$

490

$

579

(15)

%

$

994

$

1,136

(13)

%

Costs and expenses:

Product costs, excluding depreciation and amortization

$

165

$

254

(35)

%

$

362

$

441

(18)

%

Service costs, excluding depreciation and amortization

121

77

57

231

196

18

Selling, general and administrative

80

133

(40)

183

236

(22)

Depreciation and amortization

99

113

(12)

197

224

(12)

Impairment losses

12

*

12

*

Satellite insurance recovery

(183)

*

(183)

*

Operating income

196

2

*

%

192

39

*

%

Interest expense, net

49

50

(2)

98

103

(5)

Other (income) expense, net

(3)

4

*

3

5

(40)

Income (loss) before taxes

150

(52)

*

%

91

(69)

*

%

Income tax expense (benefit)

2

(9)

*

1

(41)

*

Equity in loss (income) from joint ventures, net of tax

2

(3)

*

3

(3)

*

Net income (loss)

$

146

$

(40)

*

%

$

87

$

(25)

*

%

*Not meaningful.

Product and service revenues

Three Months Ended June 30, 

%

Six months ended June 30, 

%

    

    

2019

    

2018

    

Change

    

2019

    

2018

    

Change

    

($ millions)

Product revenues

 

$

190

$

257

 

(26)

%

$

384

$

485

(21)

%

Service revenues

300

322

(7)

610

651

(6)

Total revenues

 

$

490

$

579

 

(15)

%

$

994

$

1,136

(13)

%

29

Total revenues decreased to $490 million from $579 million, or by $89 million, for the three months ended June 30, 2019, compared to the same period of 2018. The decrease in revenues was primarily driven by a $73 million decrease in the Space Systems segment and an $11 million decrease in the Imagery segment. These decreases were partially offset by an $8 million increase in revenues in the Services segment.

Total revenues decreased to $994 million from $1,136 million, or by $142 million, for the six months ended June 30, 2019, compared to the same period of 2018. The decrease in revenues was primarily driven by a $92 million decrease in the Space Systems segment and a $22 million decrease in the Imagery segment. These decreases were partially offset by a $6 million increase in revenues in the Services segment. Further discussion of the drivers behind changes in revenues is included within the “Results by Segment” section below.

See Note 12, “Revenue” to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Information” for product and service revenue by segment.

Product and service costs

Three Months Ended June 30, 

%

Six months ended June 30, 

%

    

    

2019

    

2018

    

Change

    

2019

    

2018

    

Change

    

($ millions)

Product costs, excluding depreciation and amortization

 

$

165

 

$

254

 

(35)

%

$

362

 

$

441

(18)

%

Service costs, excluding depreciation and amortization

121

77

57

231

196

18

Total costs

 

$

286

 

$

331

 

(14)

%

$

593

 

$

637

(7)

%

Total costs of product and services decreased to $286 million from $331 million and to $593 million from $637 million, or by $45 million and $44 million respectively, for the three and six months ended June 30, 2019, compared to the same period of 2018. The decreases in costs were primarily driven by a lower volume of projects at Space Solutions and less costs in our Space Systems segment related to the RADARSAT Constellation Mission (“RCM”) program in Canada which launched in June 2019. These decreases were partially offset by increases in the Services segment driven by increased revenue and increases in our Imagery segment driven by a change in product mix.

Further discussion is included within the “Results by Segment” section below.

Selling, general and administrative

Three Months Ended June 30, 

%

Six months ended June 30, 

%

    

    

2019

    

2018

    

Change

    

2019

    

2018

    

Change

    

($ millions)

Selling, general and administrative

 

$

80

 

$

133

 

(40)

%

$

183

 

$

236

(22)

%

Selling, general and administrative costs decreased to $80 million from $133 million, or by $53 million, for the three months ended June 30, 2019, compared to the same period of 2018. The decrease is primarily related to a decrease in research and development costs of $19 million, a decrease in restructuring costs of $12 million, and a decrease in stock-based compensation of $7 million, and decreases in labor related expenses.

Selling, general and administrative costs decreased to $183 million from $236 million, or by $53 million, for the six months ended June 30, 2019, as compared to the same period of 2018. The decrease was primarily driven by lower research and development costs of $36 million, lower stock-based compensation expense of $5 million and lower labor related expenses. These decreases were partially offset by a year to date increase in restructuring and severance expenses of $4 million which were related to lower headcount and restructuring actions taken in the quarter ended March 31, 2019, and severance paid to the previous CEO of $3 million.

30

Depreciation and amortization

The following table shows depreciation and amortization expense for the fiscal quarters indicated.

Three Months Ended June 30, 

%

Six months ended June 30, 

%

    

    

2019

    

2018

    

Change

    

2019

    

2018

    

Change

    

($ millions)

Property, plant and equipment

 

$

30

 

$

41

 

(27)

%

$

60

 

$

78

(23)

%

Intangible assets

 

69

 

72

 

(4)

137

 

146

(6)

Depreciation and amortization expense

 

$

99

 

$

113

 

(12)

%

$

197

 

$

224

(12)

%

Depreciation and amortization expense decreased to $99 million from $113 million, or by $14 million, for the three months ended June 30, 2019, compared to the same period of 2018 and decreased to $197 million from $224 million, or by $27 million, for the six months ended June 30, 2019, compared to the same period of 2018. The decrease is primarily driven by a decrease in depreciation and amortization expense following asset impairments in the second half of 2018.

Impairment losses

Our Space Systems segment has an investment in a privately held company carried at adjusted cost basis. During the three months ended June 30, 2019, we noted an observable price change related to this investment and, as a result, recorded an impairment loss of $12 million. There were no impairment losses recognized in the three and six months ended June 30, 2018.

See Note 10, “Financial instruments and fair value disclosures” to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Information” for further disclosure on the impairment losses.

Satellite insurance recovery

During the quarter ended June 30, 2019, we received insurance recoveries of $183 million related to the loss of our WorldView-4 satellite.

Interest expense, net

Three Months Ended June 30, 

%

Six months ended June 30, 

%

    

2019

    

2018

    

Change

    

2019

    

2018

    

Change

    

($ millions)

Interest expense:

Interest on long-term debt

 

$

48

 

$

43

 

12

%

$

93

 

$

83

12

%

Interest expense on advance payments from customers1

4

6

(33)

9

14

(36)

Interest on orbital securitization liability

2

2

*

4

4

Imputed interest and other

(1)

*

1

*

Capitalized interest

(5)

(1)

*

(8)

(2)

*

Interest expense on dissenting stockholder liability

1

*

3

*

Interest expense, net

 

$

49

 

$

50

 

(2)

%

$

98

 

$

103

(5)

%

*Not meaningful.

1

Under the EnhancedView Contract, we had received advanced payments from the U.S. government during the construction phase of the WorldView-1 satellite, which was more than one year before capacity was made available to them. The effect of imputing interest on these advanced payments is to increase contract liabilities with an offsetting charge to interest expense. As capacity is provided to the customer, revenue is recognized and the contract liabilities balance decreases.

31

Interest expense, net decreased to $49 million from $50 million, or by $1 million, for the three months ended June 30, 2019, compared to the same period in 2018. The $5 million increase in interest on long-term debt was partially offset by a $4 million increase in capitalized interest primarily related to the WorldView Legion project.

Interest expense, net decreased to $98 million from $103 million, or by $5 million, for the six months ended June 30, 2019, compared to the same period in 2018. The decrease is primarily due to a $6 million increase in capitalized interest primarily related to the WorldView Legion project and a $5 million decrease in interest expense on advance payments from customers. These changes were partially offset by a $10 million increase in interest expense on long-term debt due to the increase in our long-term debt balance of approximately $49 million since June 30, 2018.

Other (income) expense, net

Three Months Ended June 30, 

%

Six months ended June 30, 

%

    

    

2019

    

2018

    

Change

    

2019

    

2018

    

Change

    

($ millions)

Other (income) expense, net

 

$

(3)

 

$

4

 

*

%

$

3

 

$

5

(40)

%

*Not meaningful.

Other (income) expense, net changed to $3 million of income from a $4 million expense for the three months ended June 30, 2019 compared to the same period of 2018. This change was primarily due to $3 million in foreign exchange gains for the three months ended June 30, 2019 as compared to $3 million in foreign exchange losses in the comparative period.

Other expense, net decreased to $3 million from $5 million, or by $2 million, for the six months ended June 30, 2019, compared to the same period of 2018, primarily driven by a $3 million expense in 2018 related to the dissenting stockholders liability which did not recur in 2019. This decrease was partially offset by a $1 million increase in foreign exchange losses.

Income tax expense (benefit)

Three Months Ended June 30, 

%

Six months ended June 30, 

%

    

    

2019

    

2018

    

Change

    

2019

    

2018

    

Change

    

($ millions)

Income tax expense (benefit)

 

$

2

 

$

(9)

 

*

%

$

1

 

$

(41)

*

%

*Not meaningful.

Income tax expense (benefit) changed from a benefit of $9 million for the three months ended June 30, 2018 to an expense of $2 million for the three months ended June 30, 2019, primarily due to transactions undertaken in the course of the U.S. Domestication and a change in the mix of income between jurisdictions.

Income tax expense (benefit) increased by $42 million for the six months ended June 30, 2019, compared to the same period of 2018, primarily due to transactions undertaken in the course of the U.S. Domestication, a change in the mix of income between jurisdictions and the recognition of previously unrecognized tax benefits primarily in the first quarter of 2018.

In computing income tax expense for the six months ended June 30, 2019, we applied the estimated annual effective tax rate to non-U.S. pre-tax income. No income tax expense was recognized on U.S. income as we do not expect to recognize the benefit of U.S. losses recorded in the year. This resulted in an effective income tax rate of 15.4% for the six months ended June 30, 2019. In the six months ended June 30, 2018, income tax expense was computed as (18.5%). The effective tax rate increased primarily due to changes in corporate structure, the application of U.S. tax law and a change in the mix of income between jurisdictions.

32

RESULTS BY SEGMENT

We analyze financial performance by segments, which group related activities within our business. We report our financial performance based on three reportable segments: Space Systems, Imagery and Services. Intersegment transactions have been eliminated from the segmented financial information discussed below.

Three Months Ended June 30, 

Six months ended June 30, 

    

2019

    

2018

    

2019

    

2018

($ millions)

Revenues:

 

  

 

  

 

  

 

  

Space Systems

$

257

$

330

$

531

$

623

Imagery

 

201

 

212

 

401

 

423

Services

74

66

142

136

Intersegment eliminations

(42)

(29)

(80)

(46)

Total revenue

$

490

$

579

$

994

$

1,136

Adjusted EBITDA:

Space Systems

$

28

$

13

$

38

$

41

Imagery

123

133

244

267

Services

6

6

13

10

Intersegment eliminations

(10)

(7)

(13)

(9)

Corporate and other expenses

(18)

(12)

(36)

(25)

Total Adjusted EBITDA

$

129

$

133

$

246

$

284

Total Adjusted EBITDA is a non-GAAP measure. See “Non-GAAP Financial Measures” below for further discussion of Adjusted EBITDA disclosures.

Space Systems

The following table provides selected financial information for the Space Systems segment.

Three Months Ended June 30, 

Six months ended June 30, 

    

    

2019

    

2018

    

2019

    

2018

($ millions)

  

 

  

  

 

  

Total revenues

$

257

 

$

330

$

531

 

$

623

Adjusted EBITDA

$

28

 

$

13

$

38

 

$

41

Adjusted EBITDA margin percentage

10.9

%  

3.9

%  

7.2

%  

6.6

%  

Revenues from the Space Systems segment decreased to $257 million from $330 million, or by $73 million, for the three months ended June 30, 2019, compared to the same period of 2018. Revenues from Space Solutions decreased primarily as a result of the impact of reduced volume in our geostationary satellite manufacturing business (“GeoComm”) business and an increase in estimated costs to complete. An increase in estimated costs to complete directly impacts revenues, as revenues are recognized over time under the cost-to-cost method. Revenues from MDA also decreased which was primarily related to lower revenues on the RCM program in Canada which launched in June 2019.

For the six months ended June 30, 2019, Space Systems segment revenues decreased to $531 million from $623 million, or by $92 million, compared to the same period of 2018. Revenues from Space Solutions decreased primarily as a result of the impact of reduced volume in our GeoComm business and an increase in estimated costs to complete. Revenues from MDA decreased primarily related to lower revenues on the RCM program in Canada which was launched in June 2019.

33

Adjusted EBITDA increased to $28 million from $13 million, or by $15 million, for the three months ended June 30, 2019, compared to the same period of 2018. The increase in the Space Systems segment is primarily related to reduced research and development spend of $18 million, headcount reductions from restructuring initiatives resulting in $5 million of cost reductions, a recovery of a previously reserved amount of $7 million, and no liquidating damages incurred to date during 2019 compared to $5 million of liquidated damages at Space Solutions that occurred in 2018. These increases were partially offset by decreases from the effects of lower revenues within the Space Systems segment.

Adjusted EBITDA decreased to $38 million from $41 million, or by $3 million, in the six months ended June 30, 2019, compared to the same period of 2018. The primary drivers of the change in Adjusted EBITDA within the Space Systems segment were a decrease in research and development expenses of $34 million, headcount reductions from restructuring initiatives resulting in $14 million of cost reductions, a recovery of a previously reserved amount of $7 million, and no liquidated damages incurred to date during 2019 compared to $5 million of liquidated damages at Space Solutions that occurred in 2018. These changes were primarily offset by decreases from the effects of lower revenues within the Space Systems segment.

Imagery

The following table provides selected financial information for the Imagery segment.

Three Months Ended June 30, 

Six months ended June 30, 

    

    

2019

    

2018

    

2019

    

2018

($ millions)

  

 

  

  

 

  

Total revenues

$

201

$

212

$

401

$

423

Adjusted EBITDA

$

123

$

133

$

244

$

267

Adjusted EBITDA margin percentage

61.2

%  

62.7

%  

60.8

%  

63.1

%  

Imagery segment revenues decreased to $201 million from $212 million, or by $11 million, for the three months ended June 30, 2019, compared to the same period of 2018. The decrease was primarily driven by a $14 million decrease due to the loss of WorldView-4 revenue and a $4 million decrease due to a delay in the signing of a contract with an existing international customer. These decreases were partially offset by $8 million in revenue growth from the U.S. government.

For the six months ended June 30, 2019, Imagery segment revenues decreased to $401 million from $423 million, or by $22 million, compared to the same period of 2018. The decrease was primarily driven by a $29 million decrease due to the loss of WorldView-4 revenue and a $9 million decrease due to a delay in the signing of a contract with an existing international customer. These decreases were partially offset by $15 million in revenue growth from the U.S. government.

Adjusted EBITDA decreased to $123 million from $133 million and to $244 million from $267 million, or by $10 million and $23 million, respectively for the three and six months ended June 30, 2019, as compared to the same periods of 2018. The decreases were primarily driven by the impact of the loss of revenue generated from the WorldView-4 satellite and the impact due to the delayed contract signing of an existing international customer, both of which had higher margins.

34

Services

The following table provides selected financial information for the Services segment.

Three Months Ended June 30,

Six months ended June 30, 

    

2019

    

2018

    

2019

    

2018

($ millions)

Total revenues

$

74

$

66

$

142

$

136

Adjusted EBITDA

$

6

$

6

$

13

$

10

Adjusted EBITDA margin percentage

8.1

%  

9.1

%  

9.2

%  

7.4

%  

Services segment revenues increased to $74 million from $66 million and to $142 million from $136 million, or by $8 million and $6 million, respectively for the three and six months ended June 30, 2019, compared to the same periods of 2018. The increases were primarily driven by growth from new contract awards and expansion of programs with the U.S. government.

Adjusted EBITDA was $6 million for both the three months ended June 30, 2019 and 2018. The impact of the increase in revenues on Adjusted EBITDA which was partially offset by a change in an expense related to a lease.

For the six months ended June 30, 2019, Adjusted EBITDA increased to $13 million from $10 million, or by $3 million, compared to the same period of 2018 primarily as a result of effects of higher revenues and lower selling, general and administrative spend, which was partially offset by a change in an expense related to a lease.

Corporate and other expenses

Corporate and other expenses include items such as corporate office costs, regulatory costs, executive and director compensation, foreign exchange gains and losses, retention costs, and fees for legal and consulting services.

Corporate and other expenses for the three months ended June 30, 2019, were $18 million compared to $12 million for the same period of 2018. The increase of $6 million or 50% is primarily attributable to a $6 million increase in retention costs, a $2 million increase in selling, general and administrative expenses which were partially offset by $6 million in higher foreign exchange gains.

For the six months ended June 30, 2019, corporate and other expenses were $36 million as compared with $25 million for the comparative period. The increase of $11 million or 44% is primarily due to an increase in retention costs of $7 million, an increase in selling, general and administrative costs of $3 million and higher foreign exchange losses.

BACKLOG

Our backlog is as follows:

June 30, 

December 31, 

2019

2018

($ millions)

Total backlog

$

2,233

$

2,411

Unfunded contract options1

1,235

1,213

Total

$

3,468

$

3,624

1Unfunded contract options as of December 31, 2018 has been restated.

Order backlog, representing the estimated dollar value of firm contracts for which work has not yet been performed (also known as the remaining performance obligations on a contract), was $2.2 billion as of June 30, 2019 (December 31, 2018 - $2.4 billion). Backlog decreased primarily due to declines in backlog in our Imagery segment partially offset by

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an increase in our Space Systems segment and Services segment backlog as a result of new awards during the quarter. Imagery segment backlog declined primarily due to the recognition of EnhancedView revenue during the year and the loss of our WorldView-4 satellite.

Order backlog generally does not include unexercised contract options and potential orders under indefinite delivery/indefinite quantity contracts. 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.

Unfunded contract options represent estimated amounts of revenue to be earned in the future from negotiated contracts with unexercised contract options and indefinite delivery/indefinite quantity contracts. Unfunded contract options as of June 30, 2019, were primarily composed of the option years in the EnhancedView Contract (September 1, 2020 through August 31, 2023). We believe it is the U.S. government’s intention to exercise all option years, subject only to annual congressional appropriation of funding and the federal budget process. As each option year is exercised, it will be added to backlog.

LIQUIDITY & CAPITAL RESOURCES

Our sources of liquidity include cash provided by operations, collection or securitization of orbital receivables, access to existing credit facilities and, when available and efficient, to the capital markets. We generally maintain limited cash on hand and use available cash to pay down borrowings on our Syndicated Credit Facility. Our primary short-term cash requirements are to fund working capital, including requirements on long-term construction contracts (including our geostationary satellite contracts), fixed overhead costs, and to fund increased capital expenditures, including the construction of our WorldView Legion constellation. Working capital requirements can vary significantly from period to period, particularly as a result of the timing of receipts and disbursements related to long-term construction contracts. Our medium-term to long-term cash requirements are to service and repay debt and to invest, including in facilities, equipment, technologies, and research and development for growth initiatives. These capital investments include investments to replace the capability or capacity of satellites which have or will go out of service in the future. Cash is also used to pay dividends and finance other long-term strategic business initiatives. Our first maturity of long-term debt is in the fourth quarter of 2020.

Our ability to fund these needs will depend, in part, on our ability to generate cash in the future, which depends on our future financial results. Our future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our control. Our future access to, and the availability of credit on acceptable terms and conditions is impacted by many factors, including capital market liquidity and overall economic conditions.

We believe that our cash from operating activities, together with available borrowings under our Revolving Credit Facility, will be adequate for the next twelve months to meet our anticipated uses of cash flow, including working capital, capital expenditure, debt service costs, dividend, and other commitments. While we intend to reduce debt over time using cash provided by operations, we likely will also seek to meet long-term debt obligations by obtaining capital from a variety of additional sources or by refinancing existing obligations. These sources include public or private capital markets, bank financings and potential proceeds from dispositions or other third-party sources. The proceeds received from any disposition could be partially offset by a cash tax liability as we may experience a limitation in our ability to use our net operating loss carryforwards to offset any gain on such transaction pursuant to Section 382 of the Internal Revenue Code.

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Summary of cash flows

Six months ended June 30, 

    

2019

    

2018

($ millions)

Cash provided by (used in) operating activities

 

$

59

 

$

(1)

Cash used in investing activities

 

(124)

 

(110)

Cash provided by financing activities

 

90

 

91

Effect of foreign exchange on cash, cash equivalents and restricted cash

1

Cash, cash equivalents, and restricted cash, beginning of year

 

43

 

42

Cash, cash equivalents, and restricted cash, end of period

 

$

69

 

$

22

Operating activities

Cash provided by operating activities increased to $59 million compared to cash used of $1 million in the six months ended June 30, 2019 compared to the corresponding period in 2018. The increase was primarily due to insurance proceeds of $183 million related to the loss of the WorldView-4 satellite which were received in the three months ended June 30, 2019. The insurance proceeds are included in operating cash flows as they are considered business interruption insurance and represent our satellite’s loss of capacity to produce imagery for sale to our customers.

Cash flows from operating activities can vary significantly from period to period as a result of our working capital requirements, given our portfolio of large construction programs and the timing of milestone receipts and payments with customers and suppliers in the ordinary course of business. Investment in working capital is also necessary to build our business and manage lead times in construction activities. We expect working capital account balances to continue to vary from period to period. We fund our working capital requirements with the Revolving Credit Facility (as defined below).

Investing activities

Cash used in investing activities increased to $124 million from $110 million, or by $14 million, for the six months ended June 30, 2019, compared to the comparative period in 2018. The major investing activities included expenditures on property, plant and equipment of $99 million and $83 million, for the six months ended June 30, 2019 and 2018, respectively, and investments in software of $28 million and $37 million, for the six months ended June 30, 2019 and 2018, respectively. Property, plant and equipment expenditures for the six months ended June 30, 2019, were primarily related to the build of our Legion satellite constellation.

Financing activities

During the six months ended June 30, 2019, cash provided by financing activities was $90 million, mainly including net proceeds from the Syndicated Credit Facility (as described below) of $112 million which were partially offset by repayments of long-term debt. During the six months ended June 30, 2018, cash provided by financing activities was $91 million mainly including proceeds from the Syndicated Credit Facility of $141 million, partially offset by dividend payments of $32 million and repayments of long-term debt.

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Credit facilities

The following table summarizes our long-term debt:

June 30, 

December 31, 

    

2019

    

2018

($ millions)

Syndicated Credit Facility:

 

Revolving Credit Facility

$

701

$

595

Term Loan A

500

500

Term Loan B

1,970

1,980

Debt issuance costs

 

(37)

 

(41)

Obligations under finance leases and other

 

10

 

13

Long-term debt

 

$

3,144

 

$

3,047

The Syndicated Credit Facility is composed of: (i) a four-year senior secured first lien revolving credit facility in an aggregate capacity of up to $1.15 billion and a four-year senior secured first lien operating credit facility in an aggregate capacity of up to $100 million (collectively, the “Revolving Credit Facility”), (ii) a senior secured first lien term A facility (“Term Loan A”) in an aggregate principal amount of $500 million consisting of a $250 million tranche with a three-year maturity and a $250 million tranche with a four-year maturity, and (iii) a seven-year senior secured first lien term B facility (“Term Loan B”) in an aggregate principal amount of $2.0 billion.

Loans under the Revolving Credit Facility are available in U.S. dollars and, at our option, in Canadian dollars. Term Loan A and Term Loan B are repayable in U.S. dollars. Borrowings under the Revolving Credit Facility and Term Loan A bear interest at a rate equal to U.S. Dollar LIBOR (for U.S. dollar borrowings) and the Canadian Dollar Offered Rate (“CDOR”) or Canadian Bankers’ Acceptance Rate (for Canadian dollar borrowings), plus a margin of 120 – 350 basis points per annum, based on our total leverage ratio. Term Loan B bears interest at U.S. Dollar LIBOR plus 275 basis points per annum. In April, 2018, we entered into interest rate swaps at a notional value of $1.0 billion maturing in April 2021 or April 2022. As of June 30, 2019, we had hedged approximately 32% of our floating rate exposure on our outstanding debt at an average base rate of 2.56% (excluding the margin specified in the Syndicated Credit Facility).

The Revolving Credit Facility and Term Loan A are payable at maturity. Term Loan B will amortize in equal quarterly installments in aggregate annual amounts equal to 1% of the original principal amount of the loan, with the final balance payable at maturity. The Revolving Credit Facility, Term Loan A, and Term Loan B may be repaid by us, in whole or in part, together with accrued interest, without premium or penalty.

The Syndicated Credit Facility is guaranteed by us and certain of our designated subsidiaries. The security for the Syndicated Credit Facility, subject to customary exceptions, includes substantially all our tangible and intangible assets and our subsidiary guarantors. We are required to make mandatory prepayments of the outstanding principal and accrued interest upon the occurrence of certain events and to the extent of a specified percentage of annual excess cash flow that is not reinvested or used for other specified purposes. The Syndicated Credit Facility is subject to customary affirmative and negative covenants, default provisions, representations and warranties and other terms and conditions. As of June 30, 2019, we were in compliance with our debt covenants.

The Revolving Credit Facility includes an aggregate $200 million sub limit under which letters of credit can be issued. As of June 30, 2019 and December 31, 2018, we had $16 million and $18 million, respectively, of issued and undrawn letters of credit outstanding under the Revolving Credit Facility.

Securitization liability

We have in place a revolving securitization facility agreement with an international financial institution. Under the terms of the Syndicated Credit Facility, we may offer to sell eligible orbital receivables from time to time with terms of seven years or less discounted to face value using prevailing market rates. There were no drawdowns executed in the three or six months ended June 30, 2019 or June 30, 2018.

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The orbital receivables that were securitized remain on our balance sheet because the accounting criteria for surrendering control of the orbital receivables were not met. The net proceeds received have been recognized as a securitization liability that has been subsequently measured at amortized cost using the effective interest rate method. The securitized orbital receivables and the securitization liability are being drawn down as payments are received from customers and passed on to the international financial institution. We continue to recognize orbital interest revenue on the orbital receivables that are subject to the securitization transactions and recognize interest expense to accrete the securitization liability.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

As of June 30, 2019, 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, 2018.

We are party to various legal proceedings and claims that arise in the ordinary course of business as either a plaintiff or defendant. We analyze all legal proceedings and the allegations therein. The outcome of any of these proceedings, either individually or in the aggregate, is not expected to have a material adverse effect on our financial position, results of operations or liquidity. Refer to Part II, Item 1, “Legal Proceedings” of this Quarterly Report on Form 10-Q for further discussion of legal proceedings.

OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2019, we had foreign exchange forward purchase contracts of $60 million, foreign exchange sales contracts of $177 million and financial guarantee contracts to export credit agencies in the form of indemnities or letters of credit. Such arrangements are not expected to have a material effect on our liquidity or capital resources, financial position or results of operations.

We use derivative financial instruments to manage existing foreign currency exposures. We consider the management of financial risks to be an important part of our overall corporate risk management policy. Foreign exchange forward contracts are used to hedge our exposure to currency risk on sales, purchases, cash, net investments and loans denominated in a currency other than the functional currency of our domestic and foreign operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There were no material changes to our critical accounting policies, estimates or judgements, that occurred in the period covered by this report from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2018.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2, “Summary of Significant Accounting Policies” to the Unaudited Condensed Consolidated Financial Statements in Part I, Item I, “Financial Information” in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

NON-GAAP FINANCIAL MEASURES

In addition to results reported in accordance with U.S. GAAP, we use certain non-GAAP financial measures as supplemental indicators of our financial and operating performance. These non-GAAP financial measures include EBITDA and Adjusted EBITDA.

We define EBITDA as earnings before interest, taxes, depreciation and amortization, and Adjusted EBITDA as EBITDA adjusted for certain items affecting comparability as specified in the calculation. Management believes that exclusion of these items assists in providing a more complete understanding of our underlying results and trends, and management uses these measures along with the corresponding U.S. GAAP financial measures to manage our business, evaluate our performance compared to prior periods and the marketplace, and to establish operational goals. Adjusted EBITDA is a measure being used as a key element of our incentive compensation plan. The Syndicated Credit Facility also uses

39

Adjusted EBITDA in the determination of our debt leverage covenant ratio. The definition of Adjusted EBITDA in the Syndicated Credit Facility includes a more comprehensive set of adjustments.

We believe that these non-GAAP measures, when read in conjunction with our U.S. GAAP results, provide useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented, the ability to identify trends in our underlying business, and the comparison of our operating results against analyst financial models and operating results of other public companies.

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 alternate to cash flows from operations as measures of liquidity. EBITDA and Adjusted EBITDA have limitations as an analytical tool and should not be considered in isolation or as a substitute for our results reported under U.S. GAAP.

The table below reconciles our net income (loss) to EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2019 and 2018:

Three Months Ended June 30, 

Six months ended June 30, 

    

2019

    

2018

    

2019

    

2018

($ millions)

Net income (loss)

$

146

$

(40)

$

87

$

(25)

Income tax expense (benefit)

2

(9)

1

(41)

Interest expense, net

49

50

98

103

Depreciation and amortization

99

113

197

224

EBITDA

$

296

$

114

$

383

$

261

Acquisition and integration related expense

2

6

6

10

Restructuring

2

13

22

13

Impairment losses

12

15

Satellite insurance recovery

(183)

(183)

CEO severance

3

Adjusted EBITDA

129

133

$

246

$

284

Adjusted EBITDA:

Space Systems

28

13

38

41

Imagery

123

133

244

267

Services

6

6

13

10

Intersegment eliminations

(10)

(7)

(13)

(9)

Corporate and other expenses

 

(18)

 

(12)

 

(36)

(25)

Adjusted EBITDA

$

129

$

133

$

246

$

284

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risks from those discussed in our 2018 Annual Report on Form 10-K and as updated in this Quarterly Report on Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation and under the supervision of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our CEO and CFO have concluded that, as of June 30, 2019, due to the material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 that have not yet been fully remediated as further discussed below, our disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

As disclosed in Part II, Item 9A, “Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2018, we identified material weaknesses in internal control over financial reporting related to “Insufficient Complement of Personnel” and “Insufficient Identification and Assessment of Changes.” As a consequence of the underlying root causes related to personnel and risk assessment, the Company did not have effective control activities related to the design, operation, and documentation of process-level controls over: (i) the cost-to-cost method used to determine the percentage-of-completion method affecting revenue and cost of sales (ii) the measurement and disclosures of current and deferred income taxes and related valuation allowance and (iii) commitment and contingency disclosures. No material errors were identified in the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 as a result of the material weaknesses.

Management believes that our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles. Our CEO and CFO have certified that, based on such officer’s knowledge, the financial statements, and other financial information included in this Quarterly Report on Form 10-Q, fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented in this Quarterly Report on Form 10-Q. In addition, we continue to implement the remediation program for these material weaknesses which is described below.

Remediation Actions

Management continues to implement the comprehensive remediation measures as disclosed in Part II. Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2018 to ensure that control deficiencies contributing to the material weaknesses are remediated such that these controls will be designed and operate effectively. During the quarter, Management on-boarded additional resources and provided more comprehensive training to ensure process owners and control operators have robust understanding of the documentation requirements in advance of the control operations. Additionally, management is in the process of automating and reducing the complexity of the underlying processes and disaggregating the review of the key inputs utilized in developing the underlying estimates for revenue and cost of sales under the percentage-of-completion method, improving our evidentiary documentation over the review of key inputs, criteria for investigation, level of precision, and management’s expectations and judgments, and ensuring sufficient time is allowed for an effective documentation of the review to occur.

41

While management believes that progress has been made in enhancing internal controls as of June 30, 2019, and in the period since, the material weaknesses described in Part II, Item 9A, “Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2018 have not been fully remediated due to insufficient time to assess the design, fully implement remediation and assess operating effectiveness of the related controls. Management will continue to evaluate and work to improve our disclosure controls and procedures and internal control over financial reporting throughout 2019 and will make any further changes management deems appropriate.

Changes in Internal Control over Financial Reporting

The remediation efforts related to the material weaknesses described in Part II, Item 9A, “Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2018 and above represent changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2019, that have materially affected our internal control over financial reporting. Furthermore, in conjunction with the adoption of ASC Topic 842, effective January 1, 2019, we implemented new processes and internal controls, which represent a material change to a component of our internal control over financial reporting. There were no other changes that occurred during the quarter ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on the Effectiveness of Internal Controls

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

In 2010, we entered into an agreement with a Ukrainian customer to provide a communication satellite system. In 2014, following the annexation of Crimea by the Russian Federation, we declared force majeure with respect to the program. The Ukrainian customer accepted that an event of force majeure had occurred. Following various unsuccessful efforts to arrive at a new contractual framework to take account of the changed circumstances (including the force majeure and various financial issues), the contract with the Ukrainian customer was terminated by us. We completed work on the spacecraft, which is in storage. In July 2018, the Ukrainian customer issued a statement of claim in the arbitration it had commenced against us, challenging our right to terminate for force majeure, purporting to terminate the contract for default by us (a position since withdrawn), and seeking recovery from us in the amount of approximately $227 million. Discovery has concluded, and the matter is scheduled to be heard by the arbitration panel in December 2019. We believe we have sound defenses to the petitioner’s claims, and will vigorously defend the claims asserted against us. We have accrued an amount that we believe is within the range of probable outcomes for resolving this matter; the amount is not material to our consolidated financial statements. However, the outcome of any arbitration is difficult to predict, and in the event that the arbitration results in a finding against us in excess of the amount reserved, we could incur additional amounts and our results of operations and financial condition could be adversely affected.

In January 2019, a Maxar stockholder filed a putative class action lawsuit captioned Durant v. Maxar Technologies Inc., No. 1:19-cv-00124-WJM-SKC in the District Court of Colorado, naming Maxar and members of management as defendants alleging, among other things, that our public disclosures from March 29, 2018 through January 7, 2019 were deficient in violation of the federal securities laws and seeking monetary damages. In March 2019, another stockholder filed a virtually identical putative class action in the District of Colorado captioned Schwartz v. Maxar Technologies Inc., No. 1:19-cv-00758-NRN, alleging violation of the same securities laws as alleged in the Durant case based upon nearly identical underlying facts. Once the court consolidates these two actions and appoints a lead plaintiff, that plaintiff will have sixty days to file a consolidated amended complaint and we will have sixty days to file a response. Also in

42

January 2019, a Maxar stockholder resident in Canada issued a putative class action lawsuit captioned Charles O’Brien vs. Maxar Technologies Inc., No. CV-19-00613564-00CP in the Ontario Superior Court of Justice against Maxar and members of management claiming misrepresentations in Maxar’s public disclosures and seeking monetary damages. We believe that these cases are without merit and we intend to vigorously defend against them.

We are a party to various other legal proceedings and claims that arise in the ordinary course of business as either a plaintiff or defendant. As a matter of course, we are prepared both to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities. We have established accrued liabilities for these matters where losses are deemed probable and reasonably estimable. The outcome of any of these other proceedings, either individually or in the aggregate, is not expected to have a material adverse effect on our financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS

We operate in a changing global environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect our business, financial condition and results of operations. The occurrence of any of the following risks could materially and adversely affect our business, financial condition, prospects, results of operations and cash flows. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition, results of operations and cash flows.

Risks Related to Our Business

The decline of our GeoComm business may adversely impact our financial results.

There has been a step down in total number and dollar value of geostationary communication satellite awards compared to historical averages prior to 2015. Revenues have decreased year-over-year as programs awarded prior to 2015 have been completed and have been replaced by a lower level of award value since 2015. Many satellite operators in the communications industry have continued to defer new satellite construction awards to evaluate geostationary and other competing satellite system architectures and other market factors. As a result, the outlook on our geostationary satellite manufacturing business (“GeoComm”) declined substantially during the year ended December 31, 2018 and negatively impacted our Space Systems segment.

We have explored strategic alternatives regarding the future of our GeoComm business, including partnering with an existing satellite manufacturer to gain scale benefits; selling the GeoComm business; or exiting the GeoComm business following completion of existing contracts in backlog and the sale of its facilities. We continue to operate the GeoComm business and are completing projects in our backlog while pursuing new awards.

If we are unable to win new awards or execute existing contracts as expected, our business, results of operations and financial position could be further adversely affected.

We may be required to recognize impairment charges.

Long-lived assets, including goodwill and intangible assets, are tested annually for impairment in the fourth quarter or whenever there is an indication that an asset may be impaired. In the past, we have recognized impairment losses related to goodwill, intangible assets, property, plant and equipment, inventory and orbital receivables.

Disruptions to our business, unexpected significant declines in our operating results, adverse technological events or changes in the regulatory markets in which we operate, and significant declines in our stock price may result in further impairment charges to our tangible and intangible assets. Any future impairment charges could substantially affect our reported results.

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The future revenue and operating results of the Space Systems segment are dependent on our ability to generate a sustainable order rate for the satellite manufacturing operations and develop new technologies to meet the needs of our customers or potential new customers.

The Space Systems segment’s financial performance is dependent on its ability to generate a sustainable order rate for its satellite manufacturing operations. This can be challenging and may fluctuate on an annual basis as the number of satellite construction contracts awarded varies. The cyclical nature of the commercial satellite market could negatively impact our ability to accurately forecast customer demand. The markets that we serve may not grow in the future and we may not be able to maintain adequate gross margins or profits in these markets. Our growth is dependent on the growth in the sales of services provided by our customers, our customers’ ability to anticipate market trends, and our ability to anticipate changes in the businesses of our customers and to successfully identify and enter new markets. If we fail to anticipate such changes in demand, our business, results of operations and financial position could be adversely affected.

The satellite manufacturing industry is characterized by development of technologies to meet changing customer demand for complex and reliable services. Our systems embody complex technology and may not always be compatible with current and evolving technical standards and systems developed by others. Failure or delays to meet or comply with the requisite and evolving industry or user standards could have a material adverse effect on our business, results of operations and financial condition.

Our business with various governmental entities is concentrated in a small number of primary contracts. The loss or reduction in scope of any one of our primary contracts would materially reduce our revenue.

Our business with various governmental entities is concentrated in a small number of primary contracts. We recognize significant revenue from U.S. government agencies and a significant amount of our U.S. government revenue is generated from a single contract, the EnhancedView Contract. The EnhancedView Contract is a service level agreement to provide image-tasking capacity on our satellites, and other imagery-derived products and services to the U.S. government. Our ability to service other customers could be negatively impacted if we are unable to maintain our current collection capacity. In addition, any inability on our part to meet the performance requirements of the EnhancedView Contract could result in a performance penalty or breach of that contract. A breach of our contract with government customers or reduction in service to our other customers could have a material adverse effect on our business, financial condition and results of operations. The U.S. government may also terminate or suspend our contracts, including the EnhancedView Contract, at any time with or without cause. Additionally, any changes in the size, scope or term of the EnhancedView Contract could impact our satellite replenishment strategy and our ability to repay or refinance our long-term debt. Although our contracts generally involve fixed annual minimum commitments, such commitments, along with all other contracts with the U.S. government, are subject to annual Congressional appropriations and the federal budget process, and as a result, the U.S. government may not continue to fund these contracts at current or anticipated levels. Similarly, our contracts in Canada and other jurisdictions are also subject to government procurement policies and procedures.

Our business with various governmental entities is subject to the policies, priorities, regulations, mandates, and funding levels of such governmental entities and may be negatively or positively impacted by any change thereto.

Changes in government policies, priorities, regulations, use of commercial data providers to meet U.S. government imagery needs, government agency mandates, funding levels through agency budget reductions, the imposition of budgetary constraints or a decline in government support or deferment of funding for programs in which we or our customers participate could result in contract terminations, delays in contract awards, reduction in contract scope, performance penalties or breaches of our contracts, the failure to exercise contract options, the cancellation of planned procurements and fewer new business opportunities, all of which could negatively impact our business, financial condition, results of operations and cash flows.

We are subject to the procurement policies and procedures set forth in the Federal Acquisition Regulation (“FAR”). FAR governs all aspects of government contracting, including contractor qualifications and acquisition procedures. The FAR provisions in U.S. government contracts must be complied with in order for the contract to be awarded and provides for audits and reviews of contract procurement, performance and administration. Failure to comply with the provisions of FAR could result in contract termination.

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In addition, contracts with any government, including the U.S. or Canadian government, may be terminated or suspended by the government at any time and could result in significant liability obligations for us. We seek to have in place as standard provisions, termination for convenience language which reimburses us for reasonable costs incurred, subcontractor and employee termination and wind-down costs plus a reasonable amount of profit thereon. However, reparations for termination may fall short of the financial benefit associated with full completion and operation of a contract. In addition, we may not be able to procure new contracts to offset the revenue or backlog lost as a result of any termination of government contracts. The loss of one or more large contracts could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Disruptions in U.S. government operations and funding could have a material adverse effect on our revenues, earnings and cash flows and otherwise adversely affect our financial condition.

Any disruptions in federal government operations could have a material adverse effect on our revenues, earnings and cash flows. A prolonged failure to maintain significant U.S. government operations, particularly those pertaining to our business, could have a material adverse effect on our revenues, earnings and cash flows. Continued uncertainty related to recent and future U.S. federal government shutdowns, the U.S. budget and/or failure of the U.S. government to enact annual appropriations could have a material adverse effect on our revenues, earnings and cash flows. Additionally, disruptions in federal government operations may negatively impact regulatory approvals and guidance that are important to our operations.

Changes in U.S. government policy regarding use of commercial data providers, or material delay or cancellation of certain U.S. government programs, may have a material adverse effect on our revenue and our ability to achieve our growth objectives.

Current U.S. government policy encourages the U.S. government’s use of commercial data providers to support U.S. national security objectives. Under the EnhancedView Contract, our contractual counterparty acquires imagery and imagery-derived products on behalf of our customers within the U.S. government. We are considered by the U.S. government to be a commercial data provider. U.S. government policy is subject to change and any change in policy away from supporting the use of commercial data providers to meet U.S. government imagery needs, or any material delay or cancellation of planned U.S. government programs, including the EnhancedView Contract, could materially adversely affect our revenue and our ability to achieve our growth objectives.

Uncertain global macro-economic and political conditions could materially adversely affect our results of operations and financial condition.

Our results of operations are materially affected by economic and political conditions in the United States, Canada and internationally, including inflation, deflation, interest rates, availability of capital, energy and commodity prices, trade laws, and the effects of governmental initiatives to manage economic conditions. Current or potential customers may delay or decrease spending on our products and services as their business and/or budgets are impacted by economic conditions. The inability of current and potential customers to pay us for our products and services may adversely affect our earnings and cash flows.

We are dependent on resellers of our products and services for a significant portion of our revenue. If these resellers fail to market or sell our products and services successfully, our business could be harmed.

The Imagery segment has historically generated a small portion of its revenue from foreign and domestic resellers. In the Imagery segment, we rely on foreign resellers and partners to market and sell the majority of our products and services in the international market. Our foreign resellers and partners may not have the skill or experience to develop regional commercial markets for our products and services, or may have competing interests that negatively affect their sales of our products and services. If we fail to enter into reseller agreements on a timely basis or if our resellers and partners fail to market and sell our products and services successfully, these failures could negatively impact our business, financial condition and results of operations.

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We often rely on a single vendor or a limited number of vendors to provide certain key products or services and the inability of these key vendors to meet our needs could have a material adverse effect on our business.

Historically, we have contracted with a single vendor or a limited number of vendors to provide certain key products or services, such as construction of satellites and launch vehicles, and management of certain remote ground terminals and direct access facilities. In addition, our manufacturing operations depend on specific technologies and companies for which there may be a limited number of vendors. If these vendors are unable to meet our needs because they fail to perform adequately, are unable to match new technological requirements or problems, or are unable to dedicate engineering and other resources necessary to provide the services contracted for, our business, financial position and results of operations may be adversely affected. While alternative sources for these products, services and technologies may exist, we may not be able to develop these alternative sources quickly and cost-effectively, which could materially impair our ability to operate our business. Furthermore, these vendors may request changes in pricing, payment terms or other contractual obligations, which could cause us to make substantial additional investments.

Our revenue, results of operations and reputation may be negatively impacted if our products contain defects or fail to operate in the expected manner.

We sell complex and technologically advanced systems, including satellites, products, hardware and software. Sophisticated software, including software developed by us, may contain defects that can unexpectedly interfere with the software’s intended operation. Defects may also occur in components and products that we manufacture or purchase from third parties. Most of the satellites and systems we have developed must function under demanding and unpredictable operating conditions and in harsh and potentially destructive environments. In addition, we may agree to the in-orbit delivery of a satellite, adding further risks to our ability to perform under a contract. Failure to achieve successful in-orbit delivery could result in significant penalties and other obligations on us. We employ sophisticated design and testing processes and practices, which include a range of stringent factory and on-site acceptance tests with criteria and requirements that are jointly developed with customers. Our systems may not be successfully implemented, pass required acceptance criteria, or operate or give the desired output, or we may not be able to detect and fix all defects in the satellites, products, hardware and software we sell or resolve any delays or availability issues in the launch services we procure. Failure to do so could result in lost revenue and damage to our reputation, and may adversely affect our ability to win new contract awards.

New satellites are subject to construction and launch delays, launch failures, damage or destruction during launch, the occurrence of which can materially and adversely affect our operations.

Delays in the construction of future satellites and the procurement of requisite components and launch vehicles, limited availability of appropriate launch windows, possible delays in obtaining regulatory approvals, satellite damage or destruction during launch, launch failures, or incorrect orbital placement could have a material adverse effect on our business, financial condition and results of operations. The loss of, or damage to, a satellite due to a launch failure could result in significant delays in anticipated revenue to be generated by that satellite. Any significant delay in the commencement of service of a satellite would delay or potentially permanently reduce the revenue anticipated to be generated by that satellite. In addition, if the loss of a satellite were to occur, we may not be able to accommodate affected customers with our other satellites or data from another source until a replacement satellite is available, and we may not have on hand, or be able to obtain in a timely manner, the necessary funds to cover the cost of any necessary satellite replacement. Any launch delay, launch failure, underperformance, delay or perceived delay could have a material adverse effect on our results of operations, business prospects and financial condition.

If our satellites fail to operate as intended, it could have a material adverse effect on our business, financial condition and results of operations.

The manufacturing, testing, launching and operation of satellites involves complex processes and technology. Our satellites employ advanced technologies and sensors that are exposed to severe environmental stresses in space that have and could affect the performance of our satellite. Hardware component problems in space could lead to deterioration in performance or loss of functionality of a satellite. In addition, human operators may execute improper implementation commands that may negatively impact a satellite’s performance. Exposure of our satellites to an unanticipated catastrophic event, such as a meteor shower or a collision with space debris, could reduce the performance of, or

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completely destroy, the affected satellite. In December 2018, our WorldView-4 satellite experienced a failure in its control moment gyros, preventing the satellite from collecting imagery. See Part II, Item 7, “Management's Discussion and Analysis—Recent Developments—WorldView-4 Satellite” in our Annual Report on Form 10-K for the year ended December 31, 2018 for additional information.

We cannot provide assurances that our satellites will continue to operate successfully in space throughout their expected operational lives. Even if a satellite is operated properly, technical flaws in that satellite’s sensors or other technical deficiencies or anomalies could significantly hinder its performance, which could materially affect our ability to collect imagery and market our products and services successfully. While some anomalies are covered by insurance policies, others are not or may not be covered, or may be subject to large deductibles.

If we suffer a partial or total loss of a deployed satellite, we would need a significant amount of time and would incur substantial expense to replace that satellite. We may experience other problems with our satellites that may reduce their performance. During any period of time in which a satellite is not fully operational, we may lose most or all of the revenue that otherwise would have been derived from that satellite. Our inability to repair or replace a defective satellite or correct any other technical problem in a timely manner could result in a significant loss of revenue. If a satellite experiences a significant anomaly such that it becomes impaired or is no longer functional, it would significantly impact our business, prospects and profitability. Additionally, our review of satellite lives could extend or shorten the depreciable lives of our satellites, which would have an impact on the depreciation we recognize.

Loss of, or damage to, a satellite and the failure to obtain data or alternate sources of data for our products may have an adverse impact on our results of operations and financial condition.

In the Imagery segment, we rely on data collected from a number of sources including data obtained from satellites. We may become unable or limited in our ability to collect such data. For example, satellites can temporarily go out of service and be recovered, or cease to function for reasons beyond our control, including the quality of design and construction, the supply of fuel, the expected gradual environmental degradation of solar panels, the durability of various satellite components and the orbits and space environments in which the satellites are placed and operated. Electrostatic storms or collisions with other objects could also damage the satellites. Additionally, in certain instances, governments may discontinue for periods of time the access to or operation of a satellite for any particular area on the Earth and for various reasons may not permit transmission of certain data, whether from a satellite owned by the government or not.

We cannot offer assurances that each of our satellites will remain in operation. Our satellites have certain redundant systems which can fail partially or in their entirety and accordingly satellites may operate for extended periods without all redundant systems in operation, but with single points of failure. The failure of satellite components could cause damage to or loss of the use of a satellite before the end of its expected operational life. Certain of our satellites are nearing the end of their expected operational lives and we expect the performance of each satellite to decline gradually near the end of its expected operational life. We can offer no assurance that our satellites will maintain their prescribed orbits or remain operational and we may not have replacement satellites that are immediately available.

Interruption or failure of our infrastructure could hurt our ability to effectively perform our daily operations and provide and produce our products and services, which could damage our reputation and harm our operating results.

We are vulnerable to natural disasters and significant disruptions including tsunamis, floods, earthquakes, fires, water shortages, other extreme weather conditions, medical epidemics, acts of terrorism, power shortages and blackouts, and telecommunications failures. In the event of such a natural disaster or other disruption, we could experience: disruptions to our operations or the operations of suppliers, subcontractors, distributors or customers; destruction of facilities; and/ or loss of life.

The availability of many of our products and services depends on the continuing operation of our satellite operations infrastructure, satellite manufacturing operations, information technology and communications systems. Any downtime, damage to or failure of our systems could result in interruptions in our service, which could reduce our revenue and profits. Our systems are vulnerable to damage or interruption from floods, fires, power loss, telecommunications failures, computer viruses, computer denial of service attacks or other attempts to harm our systems. We do not currently maintain a back-up production facility from which we can continue to collect, process and deliver imagery in the event

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of the loss of our primary facility. In the event we are unable to collect, process and deliver imagery from our facility, our daily operations and operating results would be materially and adversely affected. In addition, our ground terminal centers are vulnerable to damage or interruption from human error, intentional bad acts, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. Our satellite manufacturing operations are located in California in proximity to the San Andreas fault line, one of the longest and most heavily populated earthquake-prone rifts in the world. We do not maintain back-up manufacturing facilities or operations.

The occurrence of any of the foregoing could result in lengthy interruptions in our services and/or damage our reputation, which could have a material adverse effect on our financial condition and results of operations.

Any significant disruption in or unauthorized access to our computer systems or those of third parties that we utilize in our operations, including those relating to cybersecurity or arising from cyber-attacks, could result in a loss or degradation of service, unauthorized disclosure of data, or theft of intellectual property, any of which could materially adversely impact our business.

Our customers and products depend upon the reliable performance and security of our computer systems and those of the third parties that we utilize in our operations. These systems may be subject to damage or interruption from earthquakes, adverse weather conditions, other natural disasters, terrorist attacks, power loss and telecommunications failures. Interruptions in these systems, or with the internet in general, could degrade or disrupt our ability to deliver our products and services to our customers.

In addition, we face the risk of a security breach or other significant disruption of our IT networks and related systems from a number of sources, including individual and state-sponsored actors, whether through cyber-attack or cyber intrusion via the internet, malware, computer viruses, email attachments to persons with access to our systems, denial of service attacks, physical or electronic break-ins and similar disruptions.

We also face the added risk of a security breach or other serious disruption of the systems that we develop and install for customers or that we develop and provide in our products. As a provider of communication satellites and complex systems, we face a heightened risk of security breach or disruption from threats to gain unauthorized access to our systems and our customers’ proprietary or classified information stored on our IT networks and related systems and to certain of the equipment used in our customers’ IT networks or related systems.

While we have implemented certain systems and processes to help thwart hackers and protect our data and systems, the techniques used to gain unauthorized access to data and software are constantly evolving, and we may be unable to anticipate or prevent all unauthorized access. Because of our highly desired intellectual property and our support of the U.S. government and other governments, we (and/or third parties we use) may be a particularly attractive target for such attacks by hostile foreign governments. From time to time, we have experienced computer viruses and other forms of third-party attacks on our systems that, to date, have not had a material adverse effect on our business. We cannot offer assurances, however, that future attacks will not materially adversely affect our business.

A security breach or other significant disruption involving these types of information, IT networks and related systems could:

disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers;  
result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, our or our customers’ proprietary, confidential, sensitive or otherwise valuable information, including trade secrets, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
compromise other sensitive government functions; and
damage our reputation with our customers (particularly agencies of various governments) and the public generally.

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A security breach that involves classified or other sensitive government information or certain controlled technical information, could subject us to civil or criminal penalties and could result in loss of our secure facility clearance and other accreditations, loss of our government contracts, loss of access to classified information, loss of export privileges or debarment as a government contractor. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of web-based products and services we offer as well as increase the number of countries within which we do business.

Any attempt by hackers to obtain our data or intellectual property, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could harm our business, be expensive to remedy and damage our reputation.

Our business involves significant risks and uncertainties that may not be covered by insurance.

A significant portion of our business relates to designing, developing and manufacturing advanced space technology products and systems. New technologies may be untested or unproven. Failure of some of these products and services could result in extensive property damage. Accordingly, we may incur liabilities that are unique to our products and services.

We endeavor to obtain insurance coverage from established insurance carriers to cover these risks and liabilities. However, the amount of insurance coverage that we maintain may not be adequate to cover all claims or liabilities. Existing coverage may be canceled while we remain exposed to the risk and it is not possible to obtain insurance to protect against all operational risks, natural hazards and liabilities.

We have historically insured satellites in our constellation to the extent that insurance was available on acceptable premiums and other terms. The insurance proceeds received in connection with a partial or total loss of the functional capacity of any of our satellites would not be sufficient to cover the replacement cost, if we choose to do so, of an equivalent high-resolution satellite. In addition, this insurance will not protect us against all losses to our satellites due to specified exclusions, deductibles and material change limitations and it may be difficult to insure against certain risks, including a partial deterioration in satellite performance and satellite re-entry.

The price and availability of insurance fluctuate significantly. Although we have historically been able to obtain insurance coverage for in-orbit satellites, we cannot guarantee that we will be able to do so in the future. We intend to maintain insurance for our operating satellites, but any determination we make as to whether to obtain insurance coverage will depend on a variety of factors, including the availability of insurance in the market, the cost of available insurance and the redundancy of our operating satellites. Insurance market conditions or factors outside our control at the time we are in the market for the required insurance, such as failure of a satellite using similar components, could cause premiums to be significantly higher than current estimates and could reduce amounts of available coverage. Higher premiums on insurance policies will increase our costs and consequently reduce our operating income by the amount of such increased premiums. If the terms of in-orbit insurance policies become less favorable than those currently available, there may be limits on the amount of coverage that we can obtain or we may not be able to obtain insurance at all. Even if obtained, our in-orbit operations insurance will not cover any loss in revenue incurred as a result of a partial or total satellite loss.

In addition, even though we carry business interruption insurance policies, any business interruption losses could exceed the coverage available or be excluded from our insurance policies. Any disruption of our ability to operate our business could result in a material decrease in our revenues or significant additional costs to replace, repair or insure our assets, which could have a material adverse impact on our financial condition and results of operations.

Disruptions in the supply of key raw materials or components and difficulties in the supplier qualification process, as well as increases in prices of raw materials, could adversely impact us.

Many raw materials, major components and product equipment items, particularly in our Space Systems segment, are procured or subcontracted on a single or sole-source basis. Although we maintain a qualification and performance surveillance process and we believe that sources of supply for raw materials and components are generally adequate, it is difficult to predict what effects shortages or price increases may have in the future. Our ability to manage inventory and

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meet delivery requirements may be constrained by our suppliers’ inability to scale production and adjust delivery of long-lead time products during times of volatile demand. Our inability to fill our supply needs would jeopardize our ability to fulfill obligations under commercial and government contracts, which could, in turn, result in reduced sales and profits, contract penalties or terminations, and damage to customer relationships and could have a material adverse effect on our operating results, financial condition, or cash flows.

Key raw materials used in our operations include metals such as aluminum and titanium, which are usually procured by our suppliers who manufacture parts in accordance with our drawings. We also purchase materials such as chemicals; composites; electronic, electro-mechanical and mechanical components; subassemblies; and subsystems that are integrated with the manufactured parts for final assembly into finished products and systems. We are impacted by increases in the prices of raw materials used in production on fixed-price business.

We monitor sources of supply to attempt to assure that adequate raw materials and other supplies needed in manufacturing processes are available.

Although we have not experienced significant difficulty in our ability to procure raw materials, components, sub-assemblies and other supplies required in our manufacturing processes, prolonged disruptions in the supply of any of our key raw materials or components, difficulty completing qualification of new sources of supply, implementing use of replacement materials, components or new sources of supply, or a continuing increase in the prices of raw materials, energy or components could have a material adverse effect on our operating results, financial condition, or cash flows.

We may not be successful in developing new technology and the technology we are successful in developing may not meet the needs of our customers or potential new customers.

The markets in which we operate are characterized by changing technology and evolving industry standards. Despite years of experience in meeting customer systems requirements with the latest in technological solutions, we may not be successful in identifying, developing and marketing products or systems that respond to rapid technological change, evolving technical standards and systems developed by others. Our competitors may develop technology that better meets the needs of our customers. If we do not continue to develop, manufacture and market innovative technologies or applications that meet customers’ requirements, sales may suffer and our business may not continue to grow in line with historical rates or at all. If we are unable to achieve sustained growth, we may be unable to execute our business strategy, expand our business or fund other liquidity needs and our business prospects, financial condition and results of operations could be materially and adversely affected.

Our technology may violate the proprietary rights of third parties and our intellectual property may be misappropriated or infringed upon by third parties, each of which could have a negative impact on our operations.

If any of our technology violates proprietary rights, including copyrights and patents, third parties may assert infringement claims against us. Certain software modules and other intellectual property used by us or in our satellites, systems and products make use of or incorporate licensed software components and other licensed technology. These components are developed by third parties over whom we have no control. Any claims brought against us may result in limitations on our ability to use the intellectual property subject to these claims. We may be required to redesign our satellites, systems or products or to obtain licenses from third parties to continue offering our satellites, systems or products without substantially re-engineering such products or systems.

Our intellectual property rights may be invalidated, circumvented, challenged, infringed or required to be licensed to others. An infringement or misappropriation could harm any competitive advantage we currently derive or may derive from our proprietary rights.

To protect our proprietary rights, we rely on a combination of patent protections, copyrights, trade secrets, trademark laws, confidentiality agreements with employees and third parties, and protective contractual provisions such as those contained in license agreements with consultants, subcontractors, vendors and customers. Although we apply rigorous standards, documents and processes to protect our intellectual property, there is no absolute assurance that the steps taken to protect our technology will prevent misappropriation or infringement. Litigation may be necessary to enforce or protect our intellectual property rights, our trade secrets or determine the validity and scope of the proprietary rights of

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others. Such litigation may be time-consuming and expensive to prosecute or defend and could result in the diversion of our time and resources. In addition, competitors may design around our technology or develop competing technologies.

We face competition that may cause us to have to either reduce our prices for imagery and related products and services or to lose market share.

Our products and services compete with satellite and aerial imagery and related products and services offered by a range of private and government providers. Our current or future competitors may have superior technologies or greater financial, personnel and other resources than we have. The value of our imagery may also be diluted by Earth imagery that is available free of charge.

The U.S. government and foreign governments may develop, construct, launch and operate their own imagery satellites, which could reduce their need to rely on us and other commercial suppliers. In addition, such governments could sell or provide free of charge Earth imagery from their satellites and thereby compete with our imagery products and services. Also, governments may at times make our imagery freely available for humanitarian purposes, which could impair our revenue growth with non-governmental organizations. These governments could also subsidize the development, launch and operation of imagery satellites by our current or future competitors.

Our competitors or potential competitors could, in the future, offer satellite-based imagery or other products and services with more attractive features than our products and services. The emergence of new remote imaging technologies or the continued growth of low-cost imaging satellites, could negatively affect our marketing efforts. More importantly, if competitors develop and launch satellites or other imagery-content sources with more advanced capabilities and technologies than ours, or offer products and services at lower prices than ours, our business and results of operations could be harmed. Due to competitive pricing pressures, such as new product introductions by us or our competitors or other factors, the selling price of our products and services may further decrease. If we are unable to offset decreases in our average selling prices by increasing our sales volumes or by adjusting our product mix, our revenue and operating margins may decline and our financial position may be harmed.

We operate in highly competitive industries and in various jurisdictions across the world which may cause us to have to reduce our prices.

We operate in highly competitive industries and many of our competitors are larger and have substantially greater resources than we have. In addition, some of our foreign competitors currently benefit from, and others may benefit in the future from, protective measures by their home countries where governments are providing financial support, including significant investments in the development of new technologies. Government support of this nature greatly reduces the commercial risks associated with satellite development activities for these competitors. This market environment may result in increased pressures on our pricing and other competitive factors.

The market may not accept our imagery products and services. Our historic growth rates should not be relied upon as an indicator of future growth.

We cannot accurately predict whether our products and services will achieve significant market acceptance or whether there will be a market for our products and services on terms we find acceptable. Market acceptance of our commercial high-resolution Earth imagery and related products and services depends on a number of factors, including the quality, scope, timeliness, sophistication, price and the availability of substitute products and services. Lack of significant market acceptance of our offerings, or other products and services that utilize our imagery, delays in acceptance, failure of certain markets to develop or our need to make significant investments to achieve acceptance by the market would negatively affect our business, financial condition and results of operations. We may not continue to grow in line with historical rates or at all. If we are unable to achieve sustained growth, we may be unable to execute our business strategy, expand our business or fund other liquidity needs and our business prospects, financial condition and results of operations could be materially and adversely affected.

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We are dependent on our ability to attract, train and retain employees. Our inability to do so, or the loss of key personnel, would cause serious harm to our business.

Our success is largely dependent on the abilities and experience of our executive officers and other key personnel to oversee all aspects of our operations and to deliver on our corporate strategies, including managing acquisitions and execution of our U.S. Access Plan. Competition for highly skilled management, technical, research and development and other personnel is intense in our industry. In order to maintain our ability to compete, we must continuously retain the services of a core group of specialists in a wide variety of disciplines. To the extent that the demand for qualified personnel exceeds supply, we could experience higher labor, recruiting or training costs in order to attract and retain such employees, or could experience difficulties in performing under contracts if our need for such employees is unmet. We may not be able to retain our current executive officers or key personnel or attract and retain additional executive officers or key personnel as needed to deliver on our corporate strategy. Furthermore, the recent volatility in our stock price may undermine the use of our equity as a retention tool and may make it more difficult to retain key personnel.

Some of our and our suppliers’ workforces are represented by labor unions, which may lead to work stoppages.

Some of the employees of our MDA business in Canada are represented by labor unions. We may experience work stoppages organized by labor unions, which could adversely affect our business. We cannot predict how stable our relationships with labor unions will be or whether we will be able to meet the labor unions’ requirements without impacting our financial condition. The labor unions may also limit our flexibility in dealing with our workforce. Labor union actions at suppliers can also affect us. Work stoppages and instability in our relationships with labor unions could delay the production and/or development of our products, which could strain relationships with customers and cause a loss of revenues which would adversely affect our operations.

Pension and other postretirement benefit obligations may materially impact our earnings, stockholders’ equity and cash flows from operations, and could have significant adverse impacts in future periods.

We maintain defined benefit pension and other postretirement benefits plans for some of our employees. Potential pension contributions include discretionary contributions to improve the plans’ funded status. The extent of future contributions depends heavily on market factors such as the discount rate and the actual return on plan assets. We estimate future contributions to these plans using assumptions with respect to these and other items. Changes to those assumptions could have a significant effect on future contributions, annual pension and other postretirement costs, the value of plan assets and our benefit obligations.

Significant changes in actual return on pension assets, discount rates, and other factors could adversely affect our results of operations and require cash pension contributions in future periods. Changes in discount rates and actual asset returns different than our expected asset returns can result in significant non-cash actuarial gains or losses which we record in the fourth quarter of each fiscal year and, if applicable, in any quarter in which an interim re-measurement is triggered. With regard to cash pension contributions, funding requirements for our pension plans are largely dependent upon interest rates, actual investment returns on pension assets and the impact of legislative or regulatory changes related to pension funding obligations.

We also provide other postretirement benefits to certain of our employees, consisting principally of health care, dental and life insurance for eligible retirees and qualifying dependents. Our estimates of future costs associated with these benefits are also subject to assumptions, including estimates of the level of medical cost increases and discount rates.

For a discussion regarding how our financial statements can be affected by pension and other postretirement plan accounting policies, see Part II, Item 7, “Management's Discussion and Analysis—Critical Accounting Policies and Estimates—Pension and Other Postretirement Benefits” in our Annual Report on Form 10-K for the year ended December 31, 2018.

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We are a party to legal proceedings, investigations and other claims or disputes, which are costly to defend and, if determined adversely to us, could require us to pay fines or damages, undertake remedial measures or prevent us from taking certain actions, any of which could adversely affect our business.

In the course of our business, we are, and in the future may be, a party to legal proceedings, investigations and other claims or disputes, which may relate to subjects including commercial transactions, intellectual property, securities, employee relations, or compliance with applicable laws and regulations. For instance, we are currently defending against a claim that we improperly terminated a contract with a Ukrainian customer in response to the force majeure event caused by the annexation of Crimea. And, we are a defendant in certain putative securities class actions brought as a result of volatility in the price of our common stock. These legal proceedings could result in substantial costs and diversion of management’s attention and resources and could harm our stock price, business, prospects, results of operations and financial condition. See Part II, Item 1, “Legal Proceedings” in this Quarterly Report on Form 10-Q for additional information.

These and other legal proceedings and investigations are inherently uncertain and we cannot predict their duration, scope, outcome or consequences. There can be no assurance that these or any such matters that have been or may in the future be brought against us will be resolved favorably.

In connection with any government investigations, in the event the government takes action against us or the parties resolve or settle the matter, we may be required to pay substantial fines or civil and criminal penalties and/or be subject to equitable remedies, including disgorgement or injunctive relief. Other legal or regulatory proceedings, including lawsuits filed by private litigants, may also follow as a consequence. These matters are likely to be expensive and time-consuming to defend, settle and/or resolve, and may require us to implement certain remedial measures that could prove costly or disruptive to our business and operations. They may also cause damage to our business reputation. The unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations, financial condition or cash flows.

We may not realize all of the anticipated benefits from the U.S. Domestication.

We believe that we will continue to capitalize on projected benefits resulting from completion of the U.S. Domestication. Over the past several years, we have invested a significant amount of capital to develop infrastructure, technologies, products and markets to better access the U.S. government in both the civilian and military/classified space. Failure to realize all of the anticipated benefits from the U.S. Domestication could have a material adverse effect on our U.S. government business and prospects moving forward, including future EnhancedView awards and fully realizing our U.S. Access Plan. Similarly, there can be no guarantee that our historical ability to secure business in Canada will be unaffected by the U.S. Domestication.

Fluctuations in foreign exchange rates could have a negative impact on our business.

Our revenues, expenses, assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars for the purposes of compiling our consolidated financial statements. We use hedging strategies to manage and minimize the impact of exchange rate fluctuations on our cash flow and economic profits. There are complexities inherent in determining whether and when foreign exchange exposures will materialize, in particular given the possibility of unpredictable revenue variations arising from schedule delays and contract postponements. Furthermore, we could be exposed to the risk of non-performance of our hedging counterparties. We may also have difficulty in fully implementing our hedging strategy depending on the willingness of hedging counterparties to extend credit. Accordingly, no assurances may be given that our exchange rate hedging strategy will protect us from significant changes or fluctuations in revenues and expenses denominated in non-Canadian or U.S. dollars.

Our restructuring activities and cost saving initiatives may not achieve the results we anticipate.

We have undertaken cost reduction initiatives and organizational restructurings to improve operating efficiencies, optimize our asset base and generate cost savings. For example, we have recently undertaken restructuring plans intended to reduce headcount and implement other efficiency initiatives. We cannot be certain that we will be able to complete these initiatives as planned or without business interruption, that these initiatives will not generate additional

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costs, such as severance or other charges, or that the estimated operating efficiencies or cost savings from such activities will be fully realized or maintained over time.

Future acquisitions or divestitures could result in adverse impacts on our operations.

 

In order to grow our business, we may seek to acquire additional assets or companies. There can be no assurance that we will be able to identify, acquire, obtain the required regulatory approvals, or profitably manage additional businesses or successfully integrate any acquired businesses, products or technologies without substantial expenses, delays or other operational, regulatory, or financial problems. In addition, any acquired businesses, products or technologies may not achieve anticipated revenues and income growth. Further, acquisitions may involve a number of additional risks, including diversion of management’s attention, failure to retain key personn