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MAXR Maxar

Filed: 5 Nov 20, 4:34pm

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 September 30, 2020

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)

303-684-7660

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock par value of $0.0001 per share

MAXR

New York Stock Exchange

Toronto Stock Exchange

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 October 30, 2020, there were 61,074,718 shares of the registrant’s common stock, at $0.0001 par value, outstanding, and 0 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

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

    

Revenues:

Product

$

161

$

129

$

425

$

439

Service

275

284

831

817

Total revenues

436

413

1,256

1,256

Costs and expenses:

Product costs, excluding depreciation and amortization

145

140

434

452

Service costs, excluding depreciation and amortization

95

89

275

284

Selling, general and administrative

90

81

237

232

Depreciation and amortization

 

95

 

93

 

274

 

284

Impairment loss

14

Satellite insurance recovery

(183)

Reduction of gain on sale leaseback

4

4

Operating income

 

7

 

10

 

18

 

187

Interest expense, net

 

36

 

50

 

133

 

148

Other (income) expense, net

(91)

(1)

(98)

2

Income (loss) before taxes

 

62

 

(39)

 

(17)

 

37

Income tax (benefit) expense

 

(22)

 

1

 

(22)

 

3

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

1

(1)

4

Income (loss) from continuing operations

84

(41)

6

30

Discontinued operations:

Income from operations of discontinued operations, net of tax

16

32

36

Gain on disposal of discontinued operations, net of tax

1

305

Income from discontinued operations, net of tax

1

16

337

36

Net income (loss)

$

85

$

(25)

$

343

$

66

Basic net income (loss) per common share:

 

Income (loss) from continuing operations

$

1.38

$

(0.69)

$

0.10

$

0.50

Income from discontinued operations, net of tax

0.02

0.27

5.56

0.60

Basic net income (loss) per common share

$

1.40

$

(0.42)

$

5.66

$

1.10

Diluted net income (loss) per common share:

 

Income (loss) from continuing operations

$

1.32

$

(0.69)

$

0.10

$

0.50

Income from discontinued operations, net of tax

0.02

0.27

5.39

0.60

Diluted net income (loss) per common share

$

1.34

$

(0.42)

$

5.49

$

1.10

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

3

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income

(In millions)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

2019

    

2020

2019

Net income (loss)

$

85

$

(25)

$

343

$

66

Other comprehensive income (loss), net of tax:

 

  

  

 

  

  

Foreign currency translation adjustments

 

(8)

 

(49)

2

Reclassification of currency translation adjustment to gain on disposal of discontinued operations

(64)

Unrealized loss on derivatives

 

7

 

(8)

(15)

Gain on pension and other postretirement benefit plans

2

1

4

Other comprehensive income (loss), net of tax

 

7

(6)

 

(120)

(9)

Comprehensive income (loss), net of tax

$

92

$

(31)

$

223

$

57

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

4

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Balance Sheets

(In millions)

    

September 30, 

    

December 31, 

2020

2019

Assets

Current assets:

Cash and cash equivalents

 

$

60

$

59

Trade and other receivables, net

 

 

361

 

357

Inventory

 

 

27

 

20

Advances to suppliers

49

42

Prepaid and other current assets

46

32

Current assets held for sale

751

Total current assets

 

 

543

 

1,261

Non-current assets:

 

 

 

  

Orbital receivables, net

 

 

358

382

Property, plant and equipment, net

 

 

844

758

Intangible assets, net

 

 

926

991

Non-current operating lease assets

170

176

Goodwill

 

 

1,632

1,455

Other non-current assets

92

134

Total assets

 

$

4,565

$

5,157

Liabilities and stockholders’ equity

 

 

Current liabilities:

 

 

Accounts payable

 

$

124

$

153

Accrued liabilities

78

130

Accrued compensation and benefits

 

 

87

 

93

Contract liabilities

 

 

275

 

271

Current portion of long-term debt

 

 

9

 

30

Current operating lease liabilities

41

40

Other current liabilities

59

49

Current liabilities held for sale

230

Total current liabilities

 

673

 

996

Non-current liabilities:

 

 

Pension and other postretirement benefits

 

 

191

197

Contract liabilities

2

4

Operating lease liabilities

166

173

Long-term debt

 

 

2,413

2,915

Other non-current liabilities

122

110

Total liabilities

 

 

3,567

 

4,395

Commitments and contingencies

Stockholders’ equity:

 

 

Common stock ($0.0001 par value, 240 million common shares authorized; 61.0 million and 59.9 million outstanding at September 30, 2020 and December 31, 2019, respectively)

 

 

Additional paid-in capital

 

 

1,800

1,784

Accumulated deficit

 

 

(741)

(1,082)

Accumulated other comprehensive (loss) income

 

 

(61)

59

Total Maxar stockholders' equity

998

761

Noncontrolling interest

1

Total stockholders' equity

 

 

998

 

762

Total liabilities and stockholders' equity

 

$

4,565

$

5,157

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

5

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Cash Flows

(In millions)

Nine Months Ended

September 30, 

    

2020

    

2019

Cash flows (used in) provided by:

Operating activities:

 

Net income

$

343

$

66

Income from operations of discontinued operations, net of tax

(32)

(36)

Gain on disposal of discontinued operations, net of tax

(305)

Income from continuing operations

6

30

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

Impairment losses including inventory

14

3

Depreciation and amortization

 

274

 

284

Loss from extinguishment of debt

7

Gain from remeasurement of equity interest in acquiree

(85)

Amortization of debt issuance costs and other non-cash interest expense

12

6

Deferred income tax benefit

(17)

Stock-based compensation expense

 

24

 

9

Other

3

11

Changes in operating assets and liabilities:

Trade and other receivables

(3)

(26)

Advances to suppliers

(7)

35

Accounts payables and accrued liabilities

(41)

(80)

Contract liabilities

1

(141)

Other

(7)

3

Cash provided by operating activities - continuing operations

 

181

134

Cash (used in) provided by operating activities - discontinued operations

(49)

12

Cash provided by operating activities

132

146

Investing activities:

Purchase of property, plant and equipment and development or purchase of software

 

(224)

 

(203)

Acquisition, net of cash acquired

(118)

Return of capital from discontinued operations

20

Cash used in investing activities - continuing operations

 

(322)

 

(203)

Cash provided by (used in) investing activities - discontinued operations

723

(4)

Cash provided by (used in) investing activities

401

(207)

Financing activities:

Net proceeds of revolving credit facility

 

 

107

Net proceeds from issuance of 2027 Notes

147

Repurchase of 2023 Notes, including premium

(169)

Repayments of long-term debt

(523)

(21)

Settlement of securitization liability

(7)

(7)

Payment of dividends

(2)

(2)

Other

4

Cash (used in) provided by financing activities - continuing operations

(550)

77

Cash used in financing activities - discontinued operations

(24)

(2)

Cash (used in) provided by financing activities

(574)

75

(Decrease) increase in cash, cash equivalents, and restricted cash

(41)

14

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

(5)

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

110

43

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

$

64

$

57

Reconciliation of cash flow information:

Cash and cash equivalents

$

60

$

52

Restricted cash included in prepaid and other current assets

4

1

Restricted cash included in other non-current assets

4

Total cash, cash equivalents, and restricted cash

$

64

$

57

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 nine months ended September 30, 2020:

Common Stock

Additional

Accumulated other

Noncontrolling

Total stockholders’

Shares

Amount

paid-in capital

Accumulated deficit

comprehensive income (loss)

interest

equity

Balance as of December 31, 2019

59.9

$

$

1,784

$

(1,082)

$

59

$

1

$

762

Common stock issued under employee stock purchase plan

0.2

2

2

Equity classified stock-based compensation expense

4

4

Dividends ($0.01 per common share)

Comprehensive loss

(48)

(63)

(111)

Balance as of March 31, 2020

60.1

$

$

1,790

$

(1,130)

$

(4)

$

1

$

657

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

(2)

(2)

Equity-settled stock-based compensation recovery from disposal of discontinued operations

(1)

(1)

Common stock issued under employee stock purchase plan

0.2

1

1

Equity classified stock-based compensation expense

0.4

6

6

Dividends ($0.01 per common share)

(1)

(1)

Comprehensive income

306

(64)

242

Balance as of June 30, 2020

60.7

$

$

1,794

$

(825)

$

(68)

$

1

$

902

Common stock issued under employee stock purchase plan

0.2

2

2

Equity classified stock-based compensation expense

0.1

4

4

Dividends ($0.01 per common share)

(1)

(1)

Comprehensive income

85

7

92

Other

(1)

(1)

Balance as of September 30, 2020

61.0

$

$

1,800

$

(741)

$

(61)

$

$

998

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements

7

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Change in Stockholders’ Equity

(In millions)

Three and nine months ended September 30, 2019:

Common Stock

Additional

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

$

(1,188)

$

82

$

1

$

667

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

(57)

(6)

(63)

Balance as of March 31, 2019

59.6

$

$

1,774

$

(1,246)

$

76

$

1

$

605

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

148

3

151

Balance as of June 30, 2019

59.6

$

$

1,776

$

(1,098)

$

79

$

1

$

758

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

4

4

Dividends ($0.01 per common share)

(1)

(1)

Comprehensive income (loss)

(25)

(6)

(31)

Balance as of September 30, 2019

59.6

$

$

1,780

$

(1,124)

$

73

$

1

$

730

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

8

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 partner and innovator in Earth Intelligence and Space Infrastructure. Maxar helps government and commercial customers monitor, understand and navigate the changing planet; deliver global broadband communications; and explore and advance the use of space. The Company’s approach combines decades of deep mission understanding and a proven commercial and defense foundation to deploy solutions and deliver insights with speed, scale and cost effectiveness. Maxar’s stock trades on the New York Stock Exchange and Toronto Stock Exchange under the symbol “MAXR.”

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The Unaudited Condensed Consolidated Financial Statements include the accounts of Maxar Technologies Inc., and 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. References to “C$” refer to Canadian currency.

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. Unless otherwise indicated, amounts provided in the Notes to the Unaudited Condensed Consolidated Financial Statements pertain to continuing operations (See Note 4 for information on discontinued operations). 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.

Recently Adopted Accounting Pronouncements

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. ASC 326, as amended, significantly changes the impairment model for most financial assets and certain other instruments. ASC 326, as amended, requires 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

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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)

financial statement periods beginning after December 15, 2018. The Company adopted this standard and related amendments effective January 1, 2020, using the modified retrospective approach. The adoption of this standard resulted in additional disclosures related to the Company's orbital receivables. Refer to Note 5 for details. There were no impacts to the Unaudited Condensed Consolidated Financial Statements as a result of adoption.

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU 2019-12 also simplifies aspects of accounting for franchise taxes and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual and interim financial statement periods beginning after December 15, 2020, with early adoption permitted. The Company early adopted this standard and related amendments effective January 1, 2020, in order to utilize the simplifying provision that removes the exception to the incremental approach for intraperiod tax allocation when a loss is incurred from continuing operations and income or a gain results from another item such as discontinued operations or other comprehensive income. The impact on the Unaudited Condensed Consolidated Financial Statements is to simplify the quarterly presentation related to the ordinary loss and the gain recorded in discontinued operations. There were no additional material impacts to the Unaudited Condensed Consolidated Financial Statements as a result of adoption.

Recent Accounting Guidance Not Yet Adopted

Reference Rate Reform

In March 2020, FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The ASU is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. This guidance was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company expects that it will elect to apply some of the expedients and exceptions in ASU 2020-04. However, the Company is still evaluating the guidance and the impact that adoption of ASU 2020-04 will have on the Company's financial statements.

3.

BUSINESS COMBINATION

On July 1, 2020, the Company closed the acquisition of Vricon, Inc. (“Vricon”) and purchased the remaining 50% ownership interest in Vricon (“Vricon Acquisition”) for $142 million, excluding Vricon cash on hand of $23 million, for $119 million, net of cash at closing, of which $1 million will be paid in the fourth quarter of 2020. Vricon is a global leader in satellite-derived 3D data for defense and intelligence markets, with software and products that enhance 3D mapping, Earth intelligence data, military simulation and training and precision-guided munitions. Vricon was formed as a joint venture between Maxar and Saab AB in 2015 to combine patented Saab AB Intellectual Property with our commercial satellite imagery to build highly accurate, immersive 3D products at scale. Prior to the closing of the acquisition, Vricon was the Company’s most significant joint venture.

To fund the Vricon Acquisition, the Company issued $150 million in aggregate principal amount of new senior secured notes due 2027. See Note 9 for additional details on the issuance of the new senior secured notes.

As part of the acquisition agreement, Vricon’s stock-based awards vested at the time of acquisition were settled in cash for $25 million. The unvested awards were forfeited.

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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 Vricon Acquisition was achieved in stages, which required the Company to remeasure its previously held equity interest in Vricon at its acquisition date fair value. As no material control premium was determined to exist, the call option purchase price of $117 million paid in the Vricon Acquisition was used to estimate the fair value of the previously held equity interest. The Company performed a business enterprise valuation to corroborate the resulting total implied purchase consideration. This remeasurement resulted in a gain of approximately $85 million which is recorded in Other (income) expense within the Company’s Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020.

The operating results of Vricon are included in the Company’s Unaudited Condensed Consolidated Statements of Operations beginning July 1, 2020. Vricon results are consolidated within the Earth Intelligence Segment.

The following table presents unaudited pro forma financial information as if Vricon had been included in the Company’s financial results as of January 1, 2019, through the date of acquisition:

Nine Months Ended

September 30,

2020

2019

Revenues

$

1,267

$

1,274

Net income

$

342

$

68

Purchase Price Allocation

The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed at the acquisition date. The fair value the intangible assets acquired has been determined using valuation techniques that require significant judgement, including the amount and timing of future net cash flows and discount rates.

    

July 1,
2020

Call option purchase price

$

117

Fair value of existing equity interest

117

Cash settlement of equity awards and liabilities assumed

26

Purchase consideration

$

260

Assets

Cash and cash equivalents

$

23

Trade and other receivables, net

9

Property, plant and equipment, net

3

Intangible assets, net

73

Other assets

2

Total assets

$

110

Liabilities

Accounts payable

$

1

Accrued liabilities

3

Deferred income tax liability

17

Other current liabilities

6

Total liabilities

27

Fair value of net identifiable assets acquired

83

Goodwill

$

177

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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 following table summarizes the intangible assets acquired from the Vricon Acquisition by class and useful life:

Carrying value

Remaining useful life

Finite-lived intangible assets:

Backlog

$

21

2 years

Trademarks

1

1 year

Existing technology

49

9 years

Existing software

2

2 - 3 years

Total intangible assets

$

73

The goodwill of $177 million is attributable primarily to the synergies expected to be achieved from integrating Vricon with the Company’s existing capabilities. Due to the nature of the transaction, the Company will not receive a step-up in tax basis on the fixed assets, intangible assets or goodwill recorded in the purchase price allocation.

4.

DISCONTINUED OPERATIONS

On April 8, 2020, the Company completed the sale of the MDA Business to Neptune Acquisition Inc., a corporation existing under the laws of the Province of British Columbia and an affiliate of Northern Private Capital Ltd. (“MDA Purchaser”), for an aggregate purchase price of $729 million (C$1.0 billion) (“MDA Transaction”). The Company recognized an after-tax gain on disposal of discontinued operations of $305 million, net of $24 million in taxes, on the MDA Transaction for the nine months ended September 30, 2020. The tax on the MDA Transaction is primarily due to the estimated U.S. federal Base Erosion and Anti-Abuse Tax and California state corporate income tax, the latter being attributable to recent legislation suspending the use of net operating loss (“NOL”) carryforwards. The gain on the MDA Transaction includes a reclassification of the related foreign currency translation adjustment balance of $64 million from Accumulated other comprehensive (loss) income. See Note 9 for details on the use of proceeds from the MDA Transaction.

The operating results and cash flows related to the MDA Business are reflected as discontinued operations in the Unaudited Condensed Consolidated Statements of Operations and the Unaudited Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2020 and September 30, 2019, respectively. For the nine months ended September 30, 2020, the Company has reported the operating results and cash flows related to the MDA Business through April 7, 2020.

In addition, the Company and the MDA Purchaser entered into a Transition Services Agreement pursuant to which the MDA Purchaser will receive certain services (“Services”). The Services are provided based on an agreed upon fee arrangement through April 8, 2021, with an option to extend to October 2021 for certain services.

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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)

Income from discontinued operations, net of tax for MDA in the Unaudited Condensed Consolidated Statements of Operations consists of the following:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020 1

    

2019

Revenues:

Product

$

$

45

$

44

$

155

Service

39

42

122

Total revenues

84

86

277

Costs and expenses:

Product costs, excluding depreciation and amortization

35

38

115

Service costs, excluding depreciation and amortization

19

24

64

Selling, general and administrative

11

13

42

Depreciation and amortization

 

2

 

4

 

8

Impairment loss

 

 

12

12

Operating income (loss)

 

17

 

(5)

 

36

Interest expense, net

 

 

1

 

Other expense (income), net 2

 

(1)

 

(34)

(1)

Income before taxes

 

 

18

 

28

 

37

Income tax expense (benefit)

2

(4)

1

Income from operations of discontinued operations, net of tax

16

32

36

Gain on disposal of discontinued operations, net of tax 3

1

305

Income from discontinued operations, net of tax

$

1

$

16

$

337

$

36

1

For the nine months ended September 30, 2020, MDA results are presented through April 7, 2020.

2

Other (income) expense, net includes the $39 million recovery of the previously recorded liability in relation to the Company’s dispute with the Ukrainian Customer for the nine months ended September 30, 2020.

3

For the three months ended September 30, 2020, the $1 million Gain on disposal of discontinued operations, net of tax, is driven by a reduction of the income tax on the gain on disposal of the MDA Business.

Prior to the sale, MDA held an investment in a privately held company in which it did not have significant influence and for which the fair value could not be reliably measured through external indicators. The investment was evaluated quarterly for impairment. During the nine months ended September 30, 2020, the Company recorded an impairment loss of $12 million, all of which was recorded during the three months ended March 31, 2020, as the privately held company filed for bankruptcy and as a result, the investment was fully impaired. During the nine months ended September 30, 2019, the Company recorded an impairment loss of $12 million due to an observable price change related to its investment.

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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 carrying amounts of the major classes of assets and liabilities, which are classified as held for sale in the Unaudited Condensed Consolidated Balance Sheet as of December 31, 2019, are as follows:

    

December 31, 

2019

Assets

Cash and cash equivalents

 

$

45

Trade and other receivables, net

 

 

168

Deferred tax assets

 

 

117

Property, plant and equipment

29

Intangible assets

27

Goodwill

310

Other assets 1

55

Current assets held for sale

$

751

 

 

Liabilities

 

 

Accounts payable

 

$

88

Accrued liabilities

18

Accrued compensation and benefits

 

 

21

Contract liabilities

 

 

29

Pension and other postretirement benefit liabilities

21

Other liabilities 2

53

Current liabilities held for sale

$

230

1

Other assets include income tax receivables, operating lease assets, prepaid and other current assets.

2

Other liabilities include operating and finance lease liabilities, current income taxes payable and other current liabilities.

5.

TRADE AND OTHER RECEIVABLES, NET

September 30, 

December 31, 

2020

    

2019

Billed

$

187

$

211

Unbilled

 

129

 

100

Total trade receivables

316

311

Orbital receivables, current portion

44

43

Other

2

4

Allowance for doubtful accounts

(1)

(1)

Trade and other receivables, net

$

361

$

357

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 September 30, 2020 and December 31, 2019, non-current orbital receivables, net of allowances were $358 million and $382 million, respectively, and are included in Non-current assets on the Unaudited Condensed Consolidated Balance Sheets.

Orbital receivables are recognized as an asset on the balance sheet in conjunction with revenue recognition under the cost-to-cost method of accounting during the satellite construction period and are stated at their carrying value less allowances for expected credit losses. The Company utilizes customer credit ratings, expected credit loss and other credit quality indicators to evaluate the collectability of orbital receivables on a quarterly basis. Assessments for impairments of the orbital receivables are completed utilizing a discounted cash flow analysis based on discount rates which reflect the credit risk of customers and are included as an addition to the orbital receivable allowance. Income is recognized on orbital receivable balances based upon contractual rates.

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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)

As of September 30, 2020, the Company had orbital receivables from 14 customers for which the largest customer’s value represents $40 million, or 10% of the stated balance sheet value. During the three and nine months ended September 30, 2020, the Company recognized 0 impairment and an impairment of $14 million, respectively, primarily due to an increase in credit risk associated with the Company’s largest orbital customer as of March 31, 2020.

The changes in allowance for expected credit losses related to non-current orbital receivables for the nine months ended September 30, 2020, consist of the following:

Orbital Receivables Allowance

Allowance as of January 1, 2020

$

(35)

Additions

 

(14)

Allowance as of September 30, 2020

$

(49)

The Company has sold certain orbital receivables that are accounted for as securitized borrowings in the Unaudited Condensed Consolidated Balance Sheets as the Company does not meet the accounting criteria for surrendering control of the receivables. The net proceeds received on the orbital receivables have been recognized as securitization liabilities 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. 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 liability. The total amounts of securitization liabilities at September 30, 2020 and December 31, 2019 were $62 million and $65 million, respectively. Current securitization liabilities of $14 million and $17 million, are included in Other current liabilities on the Unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019, respectively. Non-current securitization liabilities of $48 million are included in Other non-current liabilities on the Unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019, respectively.

6.

INVENTORY

September 30, 

December 31, 

    

2020

    

2019

Raw materials

$

16

$

13

Work in process

11

7

Inventory

$

27

$

20

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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.

PROPERTY, PLANT AND EQUIPMENT, NET

September 30, 

December 31, 

    

2020

    

2019

Satellites

$

397

$

397

Equipment

204

196

Leasehold improvements

82

75

Computer hardware

75

67

Furniture and fixtures

16

15

Construction in process1

520

388

Property, plant and equipment, at cost

1,294

1,138

Accumulated depreciation

 

(450)

(380)

Property, plant and equipment, net

$

844

$

758

1Construction in process is primarily related to the construction of the Company’s WorldView-Legion satellite constellation.

Depreciation expense for property, plant and equipment was $24 million for the three months ended September 30, 2020 and September 30, 2019, and $71 million and $80 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.

During the second quarter of 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 the satellite’s loss of capacity to produce imagery for sale to the Company’s customers.

8.

INTANGIBLE ASSETS AND GOODWILL

    

September 30, 

December 31, 

2020

2019

Gross carrying value

Accumulated amortization

Net carrying value

Gross carrying value

Accumulated amortization

Net carrying value

Customer relationships

$

615

$

(135)

$

480

$

615

$

(102)

$

513

Backlog

 

351

 

(292)

 

59

 

330

 

(217)

 

113

Technologies

369

(194)

175

320

(144)

176

Software

278

(115)

163

213

(83)

130

Image library

80

(56)

24

80

(48)

32

Trade names and other

38

(13)

25

37

(10)

27

Intangible assets

$

1,731

$

(805)

$

926

$

1,595

$

(604)

$

991

Amortization expense related to intangible assets was $71 million and $69 million, and $203 million and $204 million for the three and nine months ended September 30, 2020 and September 30, 2019, 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)

Changes in the carrying amount of goodwill for each reporting segment are as follows:

Earth Intelligence

Space Infrastructure

Total

Balance as of December 31, 2019

$

1,455

$

$

1,455

Acquisition of Vricon

177

177

Balance as of September 30, 2020

$

1,632

$

$

1,632

Accumulated goodwill impairment losses in the Earth Intelligence segment were $142 million as of September 30, 2020 and December 31, 2019. Accumulated goodwill impairment losses in the Space Infrastructure segment were $17 million as of September 30, 2020 and December 31, 2019.

9.

LONG-TERM DEBT AND INTEREST EXPENSE, NET

September 30, 

December 31, 

    

2020

    

2019

Syndicated Credit facility:

 

Term Loan B

$

1,444

$

1,960

2023 Notes

850

1,000

2027 Notes

150

Deferred financing

33

33

Debt discount and issuance costs

 

(60)

 

(54)

Obligations under finance leases and other

 

5

 

6

Total long-term debt

 

2,422

 

2,945

Current portion of long-term debt

 

(9)

 

(30)

Non-current portion of long-term debt

$

2,413

$

2,915

The Company’s senior secured syndicated credit facility (“Syndicated Credit Facility”) is composed of: (i) a senior secured first lien revolving credit facility in an aggregate capacity of up to $500 million maturing in December 2023 (“Revolving Credit Facility”) and (ii) a senior secured first lien term B facility in an original aggregate principal amount of $2.0 billion maturing in October 2024 (“Term Loan B”).

The Revolving Credit Facility includes an aggregate $200 million sub limit under which letters of credit can be issued. As of September 30, 2020 and December 31, 2019, the Company had $32 million and $18 million of issued and undrawn letters of credit outstanding under the Revolving Credit Facility. Of the Company’s $500 million borrowing capacity on its Revolving Credit Facility, the Company has no outstanding borrowings as of September 30, 2020.

During the three months ended June 30, 2020, the Company repaid $511 million of borrowings under Term Loan B using proceeds from the MDA Transaction. The Company expensed $7 million of unamortized debt issuance costs attributed to the partial pay down, which is included in Interest expense, net in the Unaudited Condensed Consolidated Statements of Operations.

On June 25, 2020, the Company repurchased $150 million aggregate principal amount of its 9.75% Senior Secured Notes due 2023 (“2023 Notes”) using proceeds from the MDA Transaction. The 2023 Notes were repurchased (“2023 Notes Repurchase”) at approximately 112.45% of the principal amount thereof, subject to customary closing conditions.

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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)

On June 25, 2020, the Company issued $150 million in principal amount of 7.54% Senior Secured Notes due 2027 (“2027 Notes”) in a private placement pursuant to Regulation S under the Securities Act of 1933, as amended. The 2027 Notes were issued at a price of 98.25% and bear interest at the rate of 7.54% per annum, payable semi-annually in cash in arrears, for which interest payments will commence in December 2020. The 2027 Notes are guaranteed on a senior secured basis by each of the Company’s existing and future subsidiaries that guarantee the Syndicated Credit Facility and the 2023 Notes.

The Company accounted for the 2027 Notes and 2023 Notes Repurchase as debt modifications. As a result, the 12.45% premium paid on the repurchase of the $150 million of 2023 Notes is accounted for as an incremental discount that is amortized over the life of the 2027 Notes. Separately, the previously incurred unamortized debt discount and debt issuance costs are amortized over the remaining life of the outstanding 2023 Notes.

The 2027 Notes are guaranteed (“2027 Guarantees”) on a senior secured basis by each of the Company’ existing and future subsidiaries that guarantees the 2023 Notes and the Syndicated Credit Facility (“Guarantors”). The 2027 Notes are secured, equally and ratably with the 2023 Notes, the Syndicated Credit Facility and any future first lien debt, by liens on the same assets that secure the Revolving Credit Facility and the Term Loan B.

The 2027 Notes and the 2027 Guarantees are the Company’s general senior secured obligations and rank equally in right of payment with all of the Company’s and the Guarantors’ existing and future unsubordinated debt (including the 2023 Notes and the Syndicated Credit Facility). The 2027 Notes and the 2027 Guarantees are effectively senior to all of the Company’s and the Guarantors’ existing and future unsecured debt as well as to all of any permitted junior lien debt that may be incurred in the future, in each case to the extent of the value of the assets securing the 2027 Notes and the 2027 Guarantees. The 2027 Notes and the 2027 Guarantees are effectively subordinated to any obligations that are secured by liens on assets that do not constitute a part of the collateral securing the 2027 Notes or the 2027 Guarantees, are structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries that do not guarantee the 2027 Notes, and are senior in right of payment to all of the Company’s and the Guarantors’ existing and future subordinated indebtedness.

The indenture governing the 2027 Notes limits, among other things, the Company’s and the Company’s restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce the Company’s satellite insurance; and consolidate or merge with, or sell substantially all of the Company’s assets to, another person.

The 2027 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on June 25, 2024, at a redemption price of 105.655%, during the 12 months beginning on June 25, 2025, at a redemption price of 103.770%, and at any time on or after June 25, 2026, at a redemption price of 101.885%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date. The Company may also redeem the 2027 Notes, in whole or in part, at the Company’s option at any time prior to June 25, 2024, at a price equal to 100% of the principal amount of such 2027 Notes plus a “make-whole” premium, together with accrued but unpaid interest, if any, to, but excluding, the date of redemption. In addition, the Company may redeem up to 40% of the aggregate principal amount of the 2027 Notes at any time before June 25, 2024, with the net cash proceeds from certain equity offerings at a specified redemption price, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

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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)

In the event a change of control occurs (as defined in the indenture governing the 2027 Notes), each holder will have the right to require us to repurchase all or any part of such holder’s 2027 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2027 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

Interest expense, net on long-term debt and other obligations is as follows:

Three Months Ended September 30, 

Nine Months Ended September 30, 

2020

    

2019

2020

    

2019

Interest on long-term debt

$

44

$

51

$

153

$

144

Interest expense on advance payments from customers

3

3

12

Interest on orbital securitization liability

1

1

4

5

Imputed interest and other

2

2

Capitalized interest

(11)

(5)

(29)

(13)

Interest expense, net

$

36

$

50

$

133

$

148

10.

FINANCIAL INSTRUMENTS AND FAIR VALUE DISCLOSURES

Factors used in determining the fair value of financial assets and liabilities are summarized into three categories in accordance with ASC 820 - Fair Value Measurements:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted 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 based on unobservable inputs

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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 following tables present assets and liabilities that are measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Recurring Fair Value Measurements of as of September 30, 2020

Level 1

Level 2

Level 3

Total

Assets

 

 

 

 

Orbital receivables, net 1

$

$

402

$

$

402

Liabilities

Interest rate swaps

$

$

25

$

$

25

Long-term debt 2

2,269

2,269

$

$

2,294

$

$

2,294

Recurring Fair Value Measurements of as of December 31, 2019

Level 1

Level 2

Level 3

Total

Assets

 

  

 

  

 

  

 

  

Short-term investments

$

1

$

$

$

1

Orbital receivables, net 1

425

425

$

1

$

425

$

$

426

Liabilities

Interest rate swaps

$

$

18

$

$

18

Long-term debt 2

3,004

3,004

$

$

3,022

$

$

3,022

1

The carrying value of Orbital receivables, net was $402 million and $425 million at September 30, 2020 and December 31, 2019, respectively.

2

Long-term debt excludes finance leases, deferred financing and other and is carried at amortized cost. The outstanding carrying value was $2,384 million and $2,906 million at September 30, 2020 and December 31, 2019, respectively.

In April 2021 and 2022, the Company will have interest rate swap maturities of $500 million, respectively.

The Company determines the fair value of its orbital receivables using a discounted cash flow model, based on stated interest rates and observable market yield curves associated with the instruments.

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.

The Company determines fair value of its long-term debt using market interest rates for debt with terms and maturities similar to the Company's existing debt arrangements.

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.

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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 (“Tax Benefits”). The Tax Plan expired on October 5, 2020, the three-year anniversary of the acquisition of DigitalGlobe. The Tax Plan was 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 1 preferred stock purchase right is granted. The Tax Plan gave 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, provided for 1 additional share of common stock at a 50% discount on the exercise date with no cash settlement options. The Tax Plan reduced the likelihood that changes in the Company’s investor base would 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 September 30, 2020 and December 31, 2019, the Company had 2,400,000 shares authorized and 0 shares outstanding of the Series A Preferred stock.

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

Foreign Currency Translation Adjustments

Unrecognized (Loss) Gain on Interest Rate Swaps

Loss on Pension and Other Postretirement Plans

Total Accumulated Other Comprehensive Income (Loss)

Balance as of December 31, 2019

$

126

$

(12)

$

(55)

$

59

Other comprehensive (loss) income

(49)

(15)

1

(63)

Balance as of March 31, 2020

$

77

$

(27)

$

(54)

$

(4)

Other comprehensive income

1

1

Tax expense

(1)

(1)

Reclassification of currency translation adjustment to gain on disposal of discontinued operations 1

(78)

(5)

19

(64)

Balance as of June 30, 2020

$

(1)

$

(32)

$

(35)

$

(68)

Other comprehensive (loss) income

7

7

Tax benefit (expense)

Balance as of September 30, 2020

$

(1)

$

(25)

$

(35)

$

(61)

1Relates to the reclassification of foreign currency translation from Accumulated other comprehensive (loss) income to the Gain on disposal of discontinued operations due to the completion of the MDA Transaction. See Note 4 for details.

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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 September 30, 2020, 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 generally exclude unexercised contract options and indefinite delivery/indefinite quantity contracts. The Company expects to recognize revenues relating to existing performance obligations of approximately $0.5 billion, $1.2 billion and $0.5 billion for the remaining three months ended December 31, 2020, the year ending December 31, 2021 and thereafter, respectively.

Contract liabilities by segment are as follows:

As of September 30, 2020

    

Earth Intelligence 1

    

Space Infrastructure

    

Total

Contract liabilities

$

38

$

239

$

277

As of December 31, 2019

    

Earth Intelligence 1

    

Space Infrastructure

    

Total

Contract liabilities

$

130

$

145

$

275

1

There was no remaining contract liability balance associated with the Company’s EnhancedView Contract as of September 30, 2020 as the remaining revenue was fully recognized as of August 31, 2020. The contract liability associated with the Company’s EnhancedView Contract was $78 million as of December 31, 2019. During the nine months ended September 30, 2020, imputed interest on advanced payments increased the contract liability balance by $3 million, and $81 million in revenue was recognized, decreasing the contract liability balance.

The increase in contract liabilities is primarily due to cash received on a commercial contract in the Space Infrastructure segment in advance of services performed. The increase is partially offset by revenues recognized based upon the satisfaction of performance obligations.

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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 September 30, 2020

    

Earth Intelligence

    

Space Infrastructure

    

Eliminations

    

Total

Product revenues

$

$

161

$

$

161

Service revenues

 

274

 

1

 

 

275

Intersegment

 

19

 

(19)

 

$

274

$

181

$

(19)

$

436

Three Months Ended September 30, 2019

    

Earth Intelligence

    

Space Infrastructure

    

Eliminations

    

Total

Product revenues

$

$

129

$

$

129

Service revenues

 

282

 

2

 

 

284

Intersegment

31

(31)

$

282

$

162

$

(31)

$

413

Nine Months Ended September 30, 2020

    

Earth Intelligence

    

Space Infrastructure

    

Eliminations

    

Total

Product revenues

$

$

425

$

$

425

Service revenues

 

823

 

8

 

 

831

Intersegment

 

64

 

(64)

 

$

823

$

497

$

(64)

$

1,256

Nine Months Ended September 30, 2019

    

Earth Intelligence

    

Space Infrastructure

    

Eliminations

    

Total

Product revenues

$

$

439

$

$

439

Service revenues

 

799

 

18

 

 

817

Intersegment

96

(96)

$

799

$

553

$

(96)

$

1,256

Certain of the Company’s contracts with customers in the Space Infrastructure 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 $22 million for the three and nine months ended September 30, 2020, respectively, as compared to $8 million and $23 million for the three and nine months ended September 30, 2019, respectively, related to these contracts, which is included in product revenues.

Revenue in the Space Infrastructure segment is primarily generated from long-term construction contracts. Due to the long-term nature of these contracts, the Company generally recognizes revenue over time using the cost-to-cost method of accounting to measure progress. Under the cost-to-cost method of accounting, revenue is recognized based on the proportion of total costs incurred to estimated total costs-at-completion ("EAC"). An EAC includes all direct costs and indirect costs directly attributable to a program or allocable based on program cost pooling arrangements. Estimates regarding the Company’s cost associated with the design, manufacture and delivery of products and services are used in determining the EAC. Changes to an EAC are recorded as a cumulative adjustment to revenue.

The Company incurred COVID-19 related EAC growth of $3 million and $27 million for the three and nine months ended September 30, 2020, respectively. The changes in the EACs are due to increases in estimated program costs associated with the COVID-19 operating posture and the estimated impact of certain items such as supplier delays and increased labor hours. These costs are considered incremental and separable from normal operations. The Company’s current estimates at completion on the Company’s satellite manufacturing contracts assume, among other things, that The Company remains in a COVID-19 operating posture in the factories through the spring of 2021.

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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)

During the three and nine months ended September 30, 2020, the Company recorded an additional $6 million and $42 million estimated loss on a commercial satellite program which includes significant development efforts further delayed by COVID-19. The COVID-19 impact on this program was $2 million and $16 million for the three and nine months ended September 30, 2020, respectively, and is included in our total COVID-19 impact discussed above.

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

Three Months Ended September 30, 

2020

    

2019

United States

$

358

$

301

Asia

25

37

Europe

25

24

Middle East

12

22

Australia

9

4

South America

4

18

Other

3

7

Total revenues

$

436

$

413

Nine Months Ended September 30, 

2020

    

2019

United States

$

1,016

$

929

Asia

 

75

 

128

Europe

 

67

 

48

Middle East

38

41

Australia

26

13

South America

19

82

Other

 

15

 

15

Total revenues

$

1,256

$

1,256

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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)

Revenues from significant customers are as follows:

Three Months Ended September 30, 2020

    

Earth Intelligence

    

Space Infrastructure

Eliminations

    

Total

U.S. federal government and agencies

$

198

$

69

$

$

267

Commercial and other

76

112

(19)

 

169

Total revenues

$

274

$

181

$

(19)

$

436

Three Months Ended September 30, 2019

Earth Intelligence

Space Infrastructure

Eliminations

Total

U.S. federal government and agencies

$

186

$

42

$

$

228

Commercial and other

96

120

(31)

 

185

Total revenues

$

282

$

162

$

(31)

$

413

Nine Months Ended September 30, 2020

    

Earth Intelligence

    

Space Infrastructure

Eliminations

    

Total

U.S. federal government and agencies

$

600

$

208

$

$

808

Commercial and other

223

289

(64)

 

448

Total revenues

$

823

$

497

$

(64)

$

1,256

Nine Months Ended September 30, 2019

Earth Intelligence

Space Infrastructure

Eliminations

Total

U.S. federal government and agencies

$

587

$

98

$

$

685

Commercial and other

212

455

(96)

 

571

Total revenues

$

799

$

553

$

(96)

$

1,256

13.

SEGMENT INFORMATION

The Company’s business is organized into 2 reportable segments: Earth Intelligence and Space Infrastructure. With the Company’s closing of the MDA Transaction on April 8, 2020, MDA is no longer considered a reportable segment and has been classified within Income from discontinued operations, net of tax in the Unaudited Condensed Consolidated Statements of Operations. All prior-period amounts have been adjusted to reflect the reportable segment change.

The Earth Intelligence reportable segment is a supplier of high-resolution space-based optical and radar imagery products and analytics. The Space Infrastructure reportable segment is a provider of Space Infrastructure that designs, builds, integrates and tests solutions for space-based communication satellites, on-orbit servicing, robotic assembly and space exploration.

The Company’s 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. Certain items affecting comparability include restructuring, impairments, satellite insurance recovery, gain on sale of assets, CEO severance and transaction and integration related expense. Transaction and integration related expense includes costs associated with de-leveraging activities, acquisitions and dispositions and the integration of acquisitions. Corporate and other expenses include 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.

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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)

Intersegment sales are generally recorded at cost plus a specified margin, which may differ from what the segment may be able to obtain on sales to external customers.

The following table summarizes the operating performance of the Company’s segments:

Three Months Ended September 30, 

Nine Months Ended September 30, 

2020

    

2019

2020

    

2019

Revenues:

  

 

  

 

  

 

  

Earth Intelligence

$

274

$

282

$

823

$

799

Space Infrastructure

 

181

 

162

 

497

 

553

Intersegment eliminations

(19)

(31)

(64)

(96)

Total revenues

$

436

$

413

$

1,256

$

1,256

Adjusted EBITDA:

   

   

   

Earth Intelligence

$

128

$

145

$

407

$

394

Space Infrastructure

12

(3)

(16)

2

Intersegment eliminations

(7)

(12)

(21)

(20)

Corporate and other expenses

(21)

(21)

(43)

(60)

Restructuring

1

(14)

Transaction and integration related expense

(2)

(7)

(6)

(14)

Impairment loss, including inventory

(14)

(3)

Satellite insurance recovery

183

Reduction of gain on sale leaseback

(4)

(4)

CEO severance

(3)

Gain on remeasurement of Vricon equity interest 1

85

85

Depreciation and amortization

(95)

(93)

(274)

(284)

Interest expense, net

(36)

(50)

(133)

(148)

Interest income 2

2

3

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

1

(1)

4

(Loss) income from continuing operations before taxes

$

62

$

(39)

$

(17)

$

37

1

As a result of the Vricon Acquisition, the Company was required to remeasure its previously held equity interest in Vricon at its acquisition date fair value which resulted in a gain of $85 million. The gain is included in Other (income) expense, net on the Unaudited Condensed Consolidated Statements of Operations.

2

Included in Other (income) expense, net on the Unaudited Condensed Consolidated Statements of Operations.

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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:

Three Months Ended September 30, 2020

Earth Intelligence

    

Space Infrastructure

    

Corporate and Eliminations

Total

Capital expenditures:

Property, plant and equipment

$

53

$

6

$

11

$

70

Intangible assets

 

23

 

 

3

 

26

$

76

$

6

$

14

$

96

Three Months Ended September 30, 2019

Earth Intelligence

    

Space Infrastructure

    

Corporate and Eliminations

Total

Capital expenditures:

Property, plant and equipment

$

51

$

5

$

8

$

64

Intangible assets

 

15

 

1

 

(1)

 

15

$

66

$

6

$

7

$

79

Nine Months Ended September 30, 2020

Earth Intelligence

    

Space Infrastructure

    

Corporate and Eliminations

Total

Capital expenditures:

Property, plant and equipment

$

115

$

14

$

29

$

158

Intangible assets

 

59

 

 

7

 

66

$

174

$

14

$

36

$

224

Nine Months Ended September 30, 2019

Earth Intelligence

    

Space Infrastructure

    

Corporate and Eliminations

Total

Capital expenditures:

Property, plant and equipment

$

152

$

13

$

(4)

$

161

Intangible assets

 

41

 

2

 

(1)

 

42

$

193

$

15

$

(5)

$

203

Substantially all of the Company’s long-lived tangible assets were in the United States as of September 30, 2020 and December 31, 2019.

14.

EMPLOYEE BENEFIT PLANS

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

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2020

2019

2020

2019

Interest cost

$

4

$

6

$

13

$

16

Expected return on plan assets

(7)

(7)

(20)

(19)

Amortization of net gain

1

Expenses incurred

1

1

2

2

Net periodic benefit cost

$

(2)

$

$

(4)

$

(1)

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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)

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 Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. Under the CARES Act, all single-employer funding obligations due during calendar year 2020 can be delayed until January 1, 2021, with accrued interest added to the delayed payments. The Company contributed $3 million to its pension plan as of September 30, 2020 and has the ability to defer the remaining $15 million in payments for 2020 until January 1, 2021.

15.

INCOME TAXES

For the three months ended September 30, 2020 and September 30, 2019, the effective tax rate on pre-tax continuing operations was (35.5)% and (2.6)%, respectively. For the nine months ended September 30, 2020 and September 30, 2019, the effective tax rate on pre-tax continuing operations was 129.4% and 8.1%, respectively. The effective tax rates for the three and nine months ended September 30, 2020 and September 30, 2019 differ from the statutory U.S. federal income tax rate of 21.0% primarily due to the estimated Base Erosion and Anti-Abuse Tax, state income taxes, estimated permanent differences and changes in valuation allowance. The Company does not anticipate a significant change to the Company’s gross unrecognized tax benefits within the next 12 months.

The Company assesses the deferred tax assets for recoverability on a quarterly basis. Based upon all available positive and negative evidence, the Company has established a valuation allowance to reduce the net deferred tax asset to the amount that is more-likely-than-not realizable.

The Company computes an estimated annual effective tax rate (“AETR”) each quarter based on the current and forecasted continuing operating results. The income tax expense or benefit associated with the interim period is computed using the most recent estimated AETR applied to the year-to-date ordinary income or loss, plus the tax effect of any significant or infrequently occurring items recorded during the interim period. Due to the early adoption of ASU 2019-12, Maxar is able to determine the tax effect of the loss from continuing operations without incorporating the gain on disposal of discontinued operations. The computation of the estimated AETR at each interim period requires certain estimates and significant judgments including, but not limited to, the expected operating income (loss) for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent differences and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, and additional information becomes known or as the tax environment changes.

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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 per common share:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Income (loss) from continuing operations

$

84

$

(41)

$

6

$

30

Income from discontinued operations, net of tax

1

16

337

36

Net income (loss)

$

85

$

(25)

$

343

$

66

Weighted average number of common shares outstanding-basic

61.0

59.6

60.6

59.6

Weighted dilutive effect of equity awards

 

2.4

 

 

1.9

 

0.4

Weighted average number of common shares outstanding-diluted

63.4

59.6

62.5

60.0

Basic net income (loss) per common share:

Income (loss) from continuing operations

$

1.38

$

(0.69)

$

0.10

$

0.50

Income from discontinued operations, net of tax

0.02

0.27

5.56

0.60

Basic net income (loss) per common share

$

1.40

$

(0.42)

$

5.66

$

1.10

Diluted net income (loss) per common share:

Income (loss) from continuing operations

$

1.32

$

(0.69)

$

0.10

$

0.50

Income from discontinued operations, net of tax

0.02

0.27

5.39

0.60

Diluted net income (loss) per common share

$

1.34

$

(0.42)

$

5.49

$

1.10

Approximately 1 million and 0 million awards for the three months ended September 30, 2020 and September 30, 2019, respectively, were excluded from the diluted weighted average number of ordinary common shares outstanding calculation because their effect would have been anti-dilutive. Approximately 1 million awards were excluded for the nine months ended September 30, 2020 and September 30, 2019.

17.

COMMITMENTS AND CONTINGENCIES

Contingencies in the Normal Course of Business

As discussed in Note 5, 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. With respect to the Company’s securitized liability for the orbital receivables, upon the occurrence of an event of default under the securitization facility agreement or upon the occurrence of limited events, the Company may be required to repurchase on demand any effected receivables at their then net present value.

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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 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. Changes in estimates related to contracts accounted for using the cost-to-cost method of accounting are recognized in the period in which such changes are made for the inception-to-date effect of the changes. Unrecoverable costs on contracts that are expected to be incurred in future periods are recorded in program cost in the current period.

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.

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 and 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.

Risks and uncertainties related to COVID-19

The near and long-term impacts of the current pandemic on the cost and schedule of the numerous programs in the Company’s existing backlog and the timing of new awards remain uncertain. The Company is observing stress in its supplier base inside and outside the U.S. and will continue to monitor and assess the actual and potential COVID-19 impacts on employees, customers, suppliers and the productivity of the work being done, all of which to some extent will affect revenues, estimated costs to complete projects, earnings and cash flow. The Company’s current estimates at completion on the Company’s satellite manufacturing contracts assume, among other things, that the Company remains in a COVID-19 operating posture in the Company’s factories through the spring of 2021.

COVID-19 represents a force majeure event and as such, the Company has notified certain customers that the Company will be exercising the Maxar’s contractual legal rights given the uncertain nature of the current pandemic and its near and long-term impacts on the cost and schedule of the numerous programs in the existing backlog.

The CARES Act was enacted on March 27, 2020 in the United States. Under the CARES Act, all single-employer funding obligations due during calendar year 2020 can be delayed until January 1, 2021, with accrued interest added to the delayed payments. See Note 14 for additional details on the CARES Act.

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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)

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 and subsequently terminated the agreement. 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, and seeking recovery from Maxar in the amount of approximately $227 million. On March 31, 2020, following a hearing on the merits, the arbitral tribunal issued a final decision in favor of the Company, dismissing the customer’s claims in their entirety and awarding the Company its costs and attorney’s fees. 

 

On January 14, 2019, a Maxar stockholder filed a putative class action lawsuit captioned Oregon Laborers Employers Pension Trust Fund, et al. v. Maxar Technologies Inc., No. 1:19-cv-00124-WJM-SKC in the United States District Court for the District of Colorado (the “Colorado Action”), naming Maxar and members of management as defendants alleging, among other things, that the Company’s public disclosures were deficient in violation of the federal securities laws and seeking monetary damages. On October 7, 2019, the lead plaintiff filed a consolidated amended complaint alleging violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 against the Company and members of management in connection with the Company’s public disclosures between March 26, 2018 and January 6, 2019. The consolidated complaint alleges that the Company’s statements regarding the AMOS-8 contract, accounting for its GEO communications assets, and WorldView-4 were allegedly false and/or misleading during the class period. On December 6, 2019, defendants moved to dismiss the Colorado Action.  On September 11, 2020, the court granted in part, and denied in part, defendants’ motion to dismiss. Also, in January 2019, a Maxar stockholder resident in Canada issued a putative class action lawsuit captioned Charles O’Brien v. 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. On November 15, 2019, Mr. O’Brien and another Maxar stockholder resident in Canada issued a new putative class action lawsuit captioned Charles O’Brien v. Maxar Technologies Inc., No. CV-19-00631107-00CP, naming Maxar and certain members of management and the board of directors as defendants as well as Maxar’s auditor, KPMG LLP. On February 7, 2020, the January 2019 lawsuit was discontinued. The Statement of Claim alleges that the Company’s statements regarding the AMOS-8 contract, accounting for its GEO communications assets, and WorldView-4 were false and/or misleading during the class period and claims damages of $700 million. On April 24, 2020, the plaintiffs served their motion record for leave under the Securities Act (Ontario) and to certify the action as a class proceeding, which motion is currently pending. The Company believes that these cases are without merit and intends to vigorously defend against them. 

 

On October 21, 2019, a Maxar stockholder filed a putative class action lawsuit captioned McCurdy v. Maxar Technologies Inc., et al., No. T19-074 in the Superior Court of the State of California, County of Santa Clara, naming Maxar, and certain members of management and the board of directors as defendants. The lawsuit alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 in connection with the Company’s June 2, 2017 Registration Statement and prospectus filed in anticipation of its October 5, 2017 merger with DigitalGlobe. On April 30, 2020, the plaintiff filed an amended complaint alleging the same causes of action against the same set of defendants as set forth in his original complaint. The lawsuit is based upon many of the same underlying factual allegations as the Colorado Action. Specifically, the lawsuit alleges the Company’s statements regarding its accounting methods and risk factors, including those related to the GEO communications business, were false and/or misleading when made. On June 29, 2020, defendants moved to stay this case, which motion was denied on September 29, 2020. The Company believes that this lawsuit is without merit and intends to vigorously defend against it. 

 

On November 14, 2019, a complaint was filed in a derivative action against Maxar and certain current and former members of management and the board of directors in United States District Court for the District of Delaware, captioned as Dorling, Derivatively on Behalf of Nominal Defendant Maxar Technologies Inc. v. Lance, et al., No. 19-cv-

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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)

02134-UNA. On September 18, 2020, another purported derivative action was filed in the same court against Maxar and certain current and former members of management and the board of directors, captioned as Golub, Derivatively on Behalf of Maxar Technologies Inc. v. Lance, et al., No. 20-cv-01251-UNA. Both complaints concern the same factual allegations as asserted in the Colorado Action. The court has consolidated and stayed both derivative cases.  

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 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:

Nine Months Ended

September 30,

2020

2019

Supplemental cash flow information:

Cash paid for interest

$

127

$

174

Supplemental non-cash investing and financing activities:

Accrued capital expenditures

13

19

19.

SUBSEQUENT EVENTS

Tax Plan Expiration

The Company’s Tax Plan expired on October 5, 2020. There is no impact to the financial statements as a result of the expiration of the Tax Plan. See Note 11 for details.

32

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.

OVERVIEW

We are a partner and innovator in Earth Intelligence and Space Infrastructure. We help government and commercial customers monitor, understand and navigate our changing planet; deliver global broadband communications; and explore and advance the use of space. Our approach combines decades of deep mission understanding and a proven commercial and defense foundation to deploy solutions and deliver insights with speed, scale and cost effectiveness. Our businesses are organized and managed in two reportable segments: Earth Intelligence and Space Infrastructure, 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, 2019, are substantially unchanged.

RECENT DEVELOPMENTS

Acquisition of Vricon

On July 1, 2020, we closed the acquisition of Vricon, Inc. (“Vricon”) and purchased the remaining 50% ownership interest in Vricon (“Vricon Acquisition”) for $142 million, excluding Vricon cash on hand of $23 million, for $119 million, net of cash at closing, of which $1 million will be paid in the fourth quarter of 2020.

Vricon is a global leader in satellite-derived 3D data for defense and intelligence markets, with software and products that enhance 3D mapping, Earth intelligence data, military simulation and training and precision-guided munitions.

33

Sale of senior secured notes and repurchase of debt

On June 25, 2020, we issued $150 million aggregate principal amount of 7.54% senior secured notes due 2027 (“2027 Notes”). The 2027 Notes were offered and sold in the United States pursuant to Rule 144A and outside the United States pursuant to Regulation S under the Securities Act of 1933, as amended. The 2027 Notes have an interest rate of 7.54% per annum and were issued at a price equal to 98.25% of their face value. Proceeds from the 2027 Notes are expected to be used for general corporate purposes, including to finance the Vricon Acquisition.

Separately, on June 25, 2020, we repurchased, in a privately negotiated transaction, $150 million aggregate principal amount of our 9.75% Senior Secured Notes due 2023 (“2023 Notes”). The 2023 Notes were repurchased (“2023 Notes Repurchase”) at approximately 112.45% of the principal amount on June 25, 2020.

We accounted for the 2027 Notes and 2023 Notes Repurchase as debt modifications.

During the three months ended June 30, 2020, we also repaid $511 million of borrowings under Term Loan B using proceeds from the MDA Transaction.

Completion of the sale of MDA

On April 8, 2020, we completed the previously announced sale by Maxar and Maxar Technologies Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of Maxar (“Maxar Holdings” and, together with Maxar, the “Sellers”), of the MDA Business (“MDA Business”) pursuant to the Stock Purchase Agreement dated as of December 29, 2019 (as amended from time to time, the “MDA Agreement”) between the Sellers and Neptune Acquisition Inc., a corporation existing under the laws of the Province of British Columbia and an affiliate of Northern Private Capital Ltd. for an aggregate purchase price of $729 million (C$1.0 billion) (“MDA Transaction”) subject to customary purchase price adjustments set forth therein, including for working capital, cash and debt and as otherwise set forth in the MDA Agreement.

Ukrainian customer lawsuit resolution

On March 31, 2020, an arbitral tribunal issued a final decision in favor of the Company related to claims asserted against us by a Ukrainian customer, dismissing the customer’s claims in their entirety. As previously disclosed in our SEC filings, we entered into an agreement with the Ukrainian customer in 2010 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 and subsequently terminated the contract. 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 and seeking to recover approximately $227 million. Following a hearing on the merits in December 2019, the arbitral tribunal dismissed the customer’s claims, and awarded us costs and attorney’s fees. See Note 17, “Commitments and contingencies” to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Information” for further details.

COVID-19 operational posture and current impact

We have activated our standing pandemic crisis response plan to protect the health and safety of our team members, families, customers and communities while continuing to meet our commitments to customers. Our mitigation strategies cover employee preparation, travel, security, supply chain, virtual work, facility preparation and communications.

All our locations are currently operational through a combination of work from home and limited personnel working on-site for essential operations, though in some cases capacity utilization and productivity are below normalized levels. As aerospace manufacturing, communications and defense are federal critical infrastructure sectors, we are allowed to keep some of our workforce on-site to maintain critical operations. And in doing so, we continue to diligently follow safety protocols including social distancing, alternating shifts, temperature checks, deep cleaning and isolation strategies for essential personnel working at our sites.

34

The near and long-term impacts of the current pandemic on the cost and schedule of the numerous programs in our existing backlog and the timing of new awards remains uncertain. We are observing stress in our supplier base in and outside the U.S. and we will continue to monitor and assess the actual and potential COVID-19 impacts on employees, customers, suppliers and the productivity of the work being done, all of which, to some extent, will affect revenues, estimated costs to complete projects, earnings and cash flow. Our current estimates at completion on our satellite manufacturing contracts assume, among other things, that we remain in a COVID-19 operating posture in our factories through the spring of 2021.

Our results of operations for the three and nine months ended September 30, 2020, include the current estimated impact of COVID-19. We had COVID-19 related estimated total costs at completion (“EAC”) growth of $3 million and $27 million within the Space Infrastructure segment for the three and nine months ended September 30, 2020, which negatively impacted earnings for the same period. The changes in the EACs are due to increases in estimated program costs associated with the COVID-19 operating posture and the estimated impact of certain items such as supplier delays and increased labor hours along with actuals realized during the nine months ended September 30, 2020. These costs are considered incremental and separable from normal operations.

Segment Results

Our Chief Operating Decision Maker (“CODM”) measures performance of our reportable segments based on revenue and Adjusted EBITDA. Our operating and reportable segments are: Earth Intelligence and Space Infrastructure. With our announcement of the MDA Transaction on December 30, 2019, and the subsequent closing of the MDA Transaction on April 8, 2020, the MDA segment has been classified within Income from discontinued operations, net of tax in the Unaudited Condensed Consolidated Statements of Operations and is no longer considered a reportable segment. All prior-period amounts have been adjusted to reflect the reportable segment change.

Earth Intelligence

In the Earth Intelligence segment, we are a global leader in high resolution space-based optical and radar imagery products and analytics. We launched the world’s first high resolution commercial imaging satellite in 1999 and currently operate a four-satellite imaging constellation, providing us with a 110-petabyte historical ImageLibrary of the highest-resolution, commercially available imagery. Our imagery solutions provide customers with timely, accurate and mission-critical information about our changing planet and support a wide variety of government and commercial applications, including mission planning, mapping and analysis, environmental monitoring, disaster management, crop management, oil and gas exploration and infrastructure management. Our principal customers in the Earth Intelligence segment are U.S. and other international government agencies (primarily defense and intelligence agencies), as well as a wide variety of commercial customers in multiple markets. We are a market leader in the commercial satellite Earth observation industry.

We also provide geospatial services that combine imagery, analytic expertise and innovative technology to deliver intelligence solutions to customers. Our cleared developers, analysts, and data scientists provide analytic solutions that accurately document change and enable geospatial modeling and analysis that help predict where events will occur. Our primary customer of geospatial services is the U.S. government, but we also support intelligence requirements for other U.S. allied governments, global development organizations and commercial customers.

As a result of the Vricon Acquisition, the results of Vricon are now consolidated within the Earth Intelligence segment.

Space Infrastructure

In the Space Infrastructure segment, we are a leading provider of space infrastructure. We design, build, integrate and test solutions for space-based communications satellites, on-orbit servicing, robotic assembly and space exploration. We address a broad spectrum of needs for our customers, including mission systems engineering, product design, spacecraft manufacturing, assembly integration and testing. We provide advanced, reliable, and affordable spacecraft that enable our commercial customers to deliver valuable global services, and we are successfully partnering with the U.S.

35

government in new space opportunities. Our principal customers in the Space Infrastructure segment are commercial satellite operators and government agencies worldwide.

MDA

As discussed above, in connection with the MDA Transaction, the financial results of MDA were classified as discontinued operations for all periods presented in this Quarterly Report on Form 10-Q and it is no longer considered a reportable segment. The MDA Business developed and delivered advanced surveillance and intelligence solutions, defense and maritime systems, radar geospatial imagery, space robotics, satellite antennas and communication subsystems. Subsequent to the MDA Transaction, MDA continues to be a supplier of certain components and subsystems to us.

RESULTS OF OPERATIONS

Three Months Ended

Nine Months Ended

September 30, 

$

%

September 30, 

$

%

    

2020

    

2019

    

Change

Change

2020

    

2019

    

Change

Change

($ millions)

Revenues:

Product

$

161

$

129

$

32

25

%

$

425

$

439

$

(14)

(3)

%

Service

275

284

(9)

(3)

831

817

14

2

Total revenues

436

413

23

6

1,256

1,256

*

Costs and expenses:

Product costs, excluding depreciation and amortization

145

140

5

4

434

452

(18)

(4)

Service costs, excluding depreciation and amortization

95

89

6

7

275

284

(9)

(3)

Selling, general and administrative

90

81

9

11

237

232

5

2

Depreciation and amortization

95

93

2

2

274

284

(10)

(4)

Impairment loss

*

14

14

*

Satellite insurance recovery

*

(183)

183

(100)

Reduction of gain on sale leaseback

4

4

*

4

4

*

Operating income

7

10

(3)

(30)

18

187

(169)

(90)

Interest expense, net

36

50

(14)

(28)

133

148

(15)

(10)

Other (income) expense, net

(91)

(1)

(90)

*

(98)

2

(100)

*

Income (loss) before taxes

62

(39)

101

*

(17)

37

(54)

(146)

Income tax (benefit) expense

(22)

1

(23)

*

(22)

3

(25)

*

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

 

1

(1)

(100)

(1)

4

(5)

(125)

Income (loss) from continuing operations

84

(41)

125

*

6

30

(24)

(80)

Discontinued operations:

Income from operations of discontinued operations, net of tax

16

(16)

(100)

32

36

(4)

(11)

Gain on disposal of discontinued operations, net of tax

1

1

*

305

305

*

Income from discontinued operations, net of tax

1

16

(15)

(94)

337

36

301

*

Net income (loss)

$

85

$

(25)

$

110

*

%

$

343

$

66

$

277

*

%

*

Not meaningful.

36

Product and service revenues

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

2020

    

2019

    

Change

    

Change

    

2020

    

2019

    

Change

    

Change

($ millions)

Product revenues

 

$

161

$

129

$

32

 

25

%

$

425

$

439

$

(14)

(3)

%

Service revenues

275

284

(9)

(3)

831

817

14

2

Total revenues

 

$

436

$

413

$

23

 

6

%

$

1,256

$

1,256

$

*

%

Total revenues increased to $436 million from $413 million, or by $23 million, for the three months ended September 30, 2020, compared to the same period of 2019. The increase was primarily driven by an increase in the Space Infrastructure segment which was partially offset by a decrease in the Earth Intelligence segment.

Total revenues were $1,256 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. There was an increase in revenues in the Earth Intelligence which were primarily offset by a decrease in revenues from the Space Infrastructure 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 September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

2020

    

2019

    

Change

    

Change

    

2020

    

2019

    

Change

    

Change

($ millions)

Product costs, excluding depreciation and amortization

 

$

145

 

$

140

$

5

 

4

%

$

434

 

$

452

$

(18)

 

(4)

%

Service costs, excluding depreciation and amortization

95

89

6

7

275

284

(9)

(3)

Total costs

 

$

240

 

$

229

$

11

 

5

%

$

709

 

$

736

$

(27)

 

(4)

%

Total costs of product and services increased to $240 million from $229 million, or by $11 million, for the three months ended September 30, 2020, compared to the same period of 2019. The increase in costs was primarily driven by an increase in costs within our Earth Intelligence and Space Infrastructure segments.

Total costs of product and services decreased to $709 million from $736 million, or by $27 million, for the nine months ended September 30, 2020, compared to the same period of 2019. The decrease in costs was primarily driven by decreases within our Space Infrastructure segment.

Selling, general and administrative

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

2020

    

2019

    

Change

    

Change

    

2020

    

2019

    

Change

    

Change

($ millions)

Selling, general and administrative

 

$

90

 

$

81

$

9

11

%

$

237

 

$

232

$

5

2

%

Selling, general and administrative costs increased to $90 million from $81 million, or by $9 million, for the three months ended September 30, 2020, compared to the same period of 2019. The increase was primarily driven by an $8 million increase in labor related expenses due to an increase in employee compensation and a $4 million increase in

37

stock-based compensation expense driven by a higher share price. These increases were partially offset by a decrease in transaction and integration related expenses of $5 million.

Selling, general and administrative costs increased to $237 million from $232 million, or by $5 million, for the nine months ended September 30, 2020, compared to the same period of 2019. The increase is primarily due to increases in labor related expenses of $16 million driven by an increase in employee compensation and stock-based compensation expense of $14 million driven by a higher share price. These increases were partially offset by a $12 million decrease in restructuring expenses, a $7 million decrease in transaction and integration related expenses, a $3 million decrease in severance costs related to the previous CEO and a $3 million decrease in other costs.

Depreciation and amortization

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

2020

    

2019

    

Change

    

Change

    

2020

    

2019

    

Change

    

Change

    

($ millions)

Property, plant and equipment

 

$

24

 

$

24

$

 

*

%

$

71

 

$

80

$

(9)

(11)

%

Intangible assets

 

71

 

69

2

 

3

203

 

204

(1)

(0)

Depreciation and amortization expense

 

$

95

 

$

93

$

2

 

2

%

$

274

 

$

284

$

(10)

(4)

%

*

Not meaningful.

Depreciation and amortization expense increased to $95 million from $93 million, or by $2 million, for the three months ended September 30, 2020, compared to the same period of 2019. The increase is primarily due to the inclusion of depreciation and amortization from property, plant, and equipment and intangible assets acquired as part of the Vricon Acquisition on July 1, 2020, compared to no such expense in the same period of 2019.

Depreciation and amortization expense decreased to $274 million from $284 million, or by $10 million, for the nine months ended September 30, 2020, compared to the same period of 2019. The decrease was primarily driven by a decrease in depreciation expense related to asset retirements made in the second half of 2019 and in the first quarter of 2020, the extension of the useful life of a satellite in the fourth quarter of 2019 and the sale of our owned properties in Palo Alto in December 2019. These decreases were partially offset due to the inclusion of depreciation and amortization expense from property, plant and equipment and intangible assets acquired as part of the Vricon Acquisition on July 1, 2020, compared to no such expense in the same period of 2019.

Impairment loss

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

2020

    

2019

    

Change

    

Change

    

2020

    

2019

Change

Change

    

($ millions)

    

Impairment loss

 

$

 

$

$

 

*

%

$

14

 

$

$

14

*

%

*

Not meaningful.

There were no impairment losses recorded for the three months ended September 30, 2020 and 2019. For the nine months ended September 30, 2020, the impairment loss of $14 million related to our orbital receivables. This impairment loss was primarily due to a decrease in credit ratings associated with our largest orbital customer. We did not recognize any orbital impairments during the nine months ended September 30, 2019.

Satellite insurance recovery

During the nine months ended September 30, 2019, we received insurance recoveries of $183 million related to the loss of WorldView-4 satellite. There were no insurance recoveries during the three or nine months ended September 30, 2020.

38

Reduction of gain on sale leaseback

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

    

2020

    

2019

    

    

Change

    

Change

    

2020

    

2019

    

    

Change

    

Change

    

($ millions)

Reduction of gain on sale leaseback

 

$

4

 

$

$

4

 

*

%

$

4

 

$

$

4

 

*

%

*

Not meaningful.

During the three and nine months ended September 30, 2020, we recognized a $4 million reduction in the gain on our sale and subsequent leaseback of our owned properties in Palo Alto, California due to the extension of our lease term on one of the properties. The sale and subsequent leaseback occurred on December 10, 2019 and resulted in a gain on the sale of properties of $136 million. There were no reductions of the gain on sale leaseback during the three or nine months ended September 30, 2019.

Interest expense, net

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

2020

    

2019

    

    

Change

    

Change

    

2020

    

2019

    

Change

    

Change

    

($ millions)

Interest expense:

Interest on long-term debt

 

$

44

 

$

51

$

(7)

 

(14)

%

$

153

 

$

144

$

9

6

%

Interest expense on advance payments from customers 1

3

(3)

(100)

3

12

(9)

(75)

Interest on orbital securitization liability

1

1

*

4

5

(1)

(20)

Imputed interest and other

2

2

*

2

2

*

Capitalized interest

(11)

(5)

(6)

120

(29)

(13)

(16)

123

Interest expense, net

 

$

36

 

$

50

$

(14)

 

(28)

%

$

133

 

$

148

$

(15)

(10)

%

*Not meaningful.

1

Under the EnhancedView Contract, we 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 was to increase contract liabilities with an offsetting charge to interest expense. As capacity was provided to the customer, revenue was recognized and the contract liabilities balance decreased. There was no contract liability balance associated with our EnhancedView Contract as of September 30, 2020 and the remaining revenue was fully recognized as of August 31, 2020.

Interest expense, net decreased to $36 million from $50 million, or by $14 million, for the three months ended September 30, 2020, compared to the same period 2019. The decrease was primarily due to a decrease in interest on long-term debt of $7 million driven by less variable interest rate borrowings on our Revolving Credit Facility and an increase in capitalized interest of $6 million related to the building of our WorldView-Legion constellation.

Interest expense, net decreased to $133 million from $148 million, or by $15 million, for the nine months ended September 30, 2020, compared to the same period 2019. The decrease was primarily due to an increase in capitalized interest of $16 million related to the building of our WorldView-Legion constellation and a $9 million decrease in interest on advance payments from customers. These changes were partially offset by an increase in interest on long-term debt of $9 million primarily due to higher interest rates.

39

Other (income) expense, net

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

    

2020

    

2019

    

    

Change

    

Change

    

2020

    

2019

    

Change

    

Change

    

($ millions)

Other (income) expense, net

 

$

(91)

 

$

(1)

$

(90)

 

*

%

$

(98)

 

$

2

$

(100)

*

%

*

Not meaningful.

Other income, net increased to $91 million from $1 million, or by $90 million, for the three months ended September 30, 2020, compared to the same period in 2019. The increase was primarily driven by a gain of $85 million recorded as a result of the remeasurement of our previously held equity interest in Vricon due to the Vricon Acquisition.

Other (income) expense, net changed to income of $98 million from an expense of $2 million, or by $100 million, for the nine months ended September 30, 2020, compared to the same period of 2019. This change was primarily driven by a gain of $85 million recorded as a result of the remeasurement of the previously held equity interest in Vricon due to the Vricon Acquisition. In addition this change was driven by a $4 million foreign exchange gain for the nine months ended September 30, 2020, compared to a $5 million foreign exchange loss for the nine months ended September 30, 2019.

Income tax (benefit) expense

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

    

2020

    

2019

    

    

Change

    

Change

    

2020

    

2019

    

Change

    

Change

    

($ millions)

Income tax (benefit) expense

 

$

(22)

 

$

1

$

(23)

 

*

%

$

(22)

 

$

3

$

(25)

*

%

*

Not meaningful.

Income tax (benefit) expense changed to a benefit of $22 million from an expense of $1 million, or by $23 million, for the three months ended September 30, 2020, compared to the same period in 2019, primarily due to the release of a $17 million valuation allowance related to the deferred tax liability recorded in connection with the Vricon Acquisition and the reversal of the federal Base Erosion and Anti-Abuse Tax (“BEAT”) expense estimated at December 31, 2019.

Income tax (benefit) expense changed to a benefit of $22 million from an expense of $3 million, or by $25 million, for the nine months ended September 30, 2020, compared to the same period in 2019. This change was primarily due to the release of a $17 million valuation allowance related to the deferred tax liability recorded in connection with the Vricon Acquisition and the reversal of the federal Base Erosion and Anti-Abuse Tax (“BEAT”) expense estimated at December 31, 2019.

During all comparative periods, we have a valuation allowance recorded for the deferred tax assets that are more likely to not be recognized. In computing income tax expense for the three and nine months ended September 30, 2020 and September 30, 2019, we applied the estimated Average Effective Tax Rate (“AETR”) to the pre-tax income (loss) and adjusted the valuation allowance accordingly.

40

Discontinued operations

Three Months Ended

Nine Months Ended

September 30, 

$

%

September 30, 

$

%

    

    

2020

    

2019

    

    

Change

    

Change

    

2020

2019

    

Change

    

Change

    

($ millions)

    

Discontinued operations:

 

 

 

 

Income from operations of discontinued operations, net of tax

$

$

16

$

(16)

(100)

%

$

32

$

36

$

(4)

(11)

%

Gain on disposal of discontinued operations, net of tax

1

1

*

305

305

*

Income from discontinued operations, net of tax

$

1

$

16

$

(15)

(94)

%

$

337

$

36

$

301

*

%

*

Not meaningful.

There was $1 million in income from discontinued operations, net of tax for the three months ended September 30, 2020 driven by a reduction of the tax on the gain on disposal of the MDA Business. The MDA Business was disposed of in the second quarter of 2020. Income from discontinued operations, net of tax for the three months ended September 30, 2019 was $16 million.

Income from discontinued operations, net of tax increased to $337 million from $36 million, or by $301 million, for the nine months ended September 30, 2020, compared to the same period of 2019. The increase is primarily driven by the after-tax gain on disposal of the MDA Business of $305 million.

RESULTS BY SEGMENT

We analyze financial performance by segments, which group related activities within our business. We report our financial performance based on two reportable segments: Earth Intelligence and Space Infrastructure. Intrasegment transactions have been eliminated from the segmented financial information discussed below.

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

2020

    

2019

    

Change

   

Change

    

2020

    

2019

    

Change

   

Change

($ millions)

Revenues:

 

  

 

  

 

  

 

  

 

Earth Intelligence

$

274

$

282

$

(8)

(3)

%

$

823

$

799

$

24

3

%

Space Infrastructure

 

181

 

162

 

19

12

 

497

 

553

 

(56)

(10)

Intersegment eliminations

(19)

(31)

12

(39)

(64)

(96)

32

(33)

Total revenues

$

436

$

413

$

23

6

%

$

1,256

$

1,256

$

*

%

Adjusted EBITDA:

���

Earth Intelligence

$

128

$

145

$

(17)

(12)

%

$

407

$

394

$

13

3

%

Space Infrastructure

12

(3)

15

*

(16)

2

(18)

*

Intersegment eliminations

(7)

(12)

5

(42)

(21)

(20)

(1)

5

Corporate and other expenses

(21)

(21)

*

(43)

(60)

17

(28)

Total Adjusted EBITDA

$

112

$

109

$

3

3

%

$

327

$

316

$

11

3

%

*

Not meaningful.

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

41

Earth Intelligence

The following table provides selected financial information for the Earth Intelligence segment.

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

    

2020

    

2019

    

    

Change

    

Change

    

2020

    

2019

    

Change

    

Change

    

($ millions)

  

 

  

  

 

  

    

Total revenues

$

274

 

$

282

$

(8)

 

(3)

%

$

823

 

$

799

$

24

3

%

Adjusted EBITDA

$

128

 

$

145

$

(17)

(12)

$

407

 

$

394

$

13

3

%

Adjusted EBITDA margin percentage

46.7

%  

51.4

%  

(9)

%

49.5

%  

49.3

%  

0

%

*

Not meaningful.

For the three months ended September 30, 2020, Earth Intelligence segment revenues decreased to $274 million from $282 million, or by $8 million, compared to the same period of 2019. The decrease was primarily driven by a $10 million decrease in the recognition of revenue related to the EnhancedView Contract. The amortization of the deferred revenue was complete effective August 2020 and there will be no further deferred revenue recognized on the EnhancedView Contract. The decrease was also driven by the recognition of $9 million of revenue from an international customer due to a delayed contract signing for the three months ended September 30, 2019 that did not reoccur for the same period of 2020. These decreases were partially offset by $9 million in revenue growth from new contract awards and expansion of existing programs with the U.S. government.

For the nine months ended September 30, 2020, Earth Intelligence segment revenues increased to $823 million from $799 million, or by $24 million, compared to the same period of 2019. The increase was primarily driven by a $22 million increase in revenue from new contracts and expansion of existing programs with the U.S. government and by a $12 million increase in revenue from international defense and intelligence customers. Revenue from international defense and intelligence customers increased primarily due to the usage of new direct access facilities which became operational and contracts that signed in the second half of 2019. These increases were partially offset by a $10 million decrease in the recognition of revenue related to the EnhancedView Contract.

Adjusted EBITDA decreased to $128 million from $145 million, or by $17 million, for the three months ended September 30, 2020, as compared to the same period of 2019. The decrease was primarily driven by a decrease in revenues as noted above and an increase in cost of services and selling, general, and administrative expenses.

Adjusted EBITDA increased to $407 million from $394 million, or by $13 million, for the nine months ended September 30, 2020, as compared to the same period of 2019. The increase was driven by revenue increases of $24 million as noted above. This was partially offset by an increase in cost of services and selling, general, and administrative primarily driven by a $6 million increase in stock compensation expense.

42

Space Infrastructure

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

Three Months Ended September 30, 

$

%

Nine Months Ended September 30, 

$

%

    

    

2020

    

2019

    

    

Change

    

Change

    

    

2020

    

2019

    

Change

Change

($ millions)

  

 

  

  

 

  

    

Total revenues

$

181

$

162

$

19

 

12

%

$

497

$

553

$

(56)

(10)

%

Adjusted EBITDA

$

12

$

(3)

$

15

*

$

(16)

$

2

$

(18)

*

Adjusted EBITDA margin percentage

6.6

%  

(1.9)

%  

*

%

(3.2)

%  

0.4

%  

%  

*

%

*

Not meaningful.

Changes in revenues from year to year are influenced by the size, timing and number of satellite contracts awarded in the current and preceding years and the length of the construction period for satellite contracts awarded. Revenues on satellite contracts are recognized using the cost-to-cost method of accounting to determine the percentage of completion over the construction period, which typically ranges between 20 to 36 months, and up to 48 months in certain situations. Adjusted EBITDA margins can vary from quarter to quarter due to the mix of our revenues and changes in our EACs as our risks are retired and as our EACs are increased or decreased based on contract performance.

Revenues from the Space Infrastructure segment increased to $181 million from $162 million, or by $19 million, for the three months ended September 30, 2020, compared to the same period of 2019. Revenues increased primarily as a result of the impact of an increase in volume related to U.S. government contracts of $27 million during the three months ended September 30, 2020, compared to the same period in 2019. The increase was partially offset by reduced volumes on commercial programs of $6 million and COVID-19 EAC growth of $3 million which negatively impacted revenue for the three months ended September 30, 2020. The increases in the EACs are due to increases in estimated program costs associated with the COVID-19 operating posture and the estimated impact of certain items such as supplier delays and increased labor hours. These costs are considered incremental and separable from normal operations.

Revenues from the Space Infrastructure segment decreased to $497 million from $553 million, or by $56 million, for the nine months ended September 30, 2020, compared to the same period of 2019. Revenues decreased primarily as a result of the impact of reduced volumes on commercial programs of $162 million which were partially offset by an increase in volume related to U.S. government contracts of $108 million during the nine months ended September 30, 2020, compared to the same period in 2019. Revenues were negatively impacted by $27 million of COVID-19 related EAC growth during the period. The increases in the EACs are due to increases in estimated program costs associated with the COVID-19 operating posture and the estimated impact of certain items such as supplier delays and increased labor hours. These costs are considered incremental and separable from normal operations. Additionally, revenues were negatively impacted by $8 million due to increases in estimated costs and an associated change in the EAC profit margin of a commercial satellite program due to the identification of a design anomaly in the final stage of a testing process.

Adjusted EBITDA increased to $12 million from a loss of $3 million, or by $15 million, for the three months ended September 30, 2020, compared to the same period of 2019. The increase was primarily driven by a decrease in significant losses of $16 million on a commercial satellite program which includes significant development efforts in 2020 as compared to the same period in 2019. The increase was also impacted by increased margins on certain programs partially offset by a $3 million negative impact related to our COVID-19 operating posture and higher selling, general and administrative expenses.

Adjusted EBITDA decreased to a loss of $16 million from $2 million, or by $18 million, for the nine months ended September 30, 2020, compared to the same period of 2019. The decrease in the Space Infrastructure segment is primarily related to a $27 million negative impact related to our COVID-19 operating posture, a $13 million increase in costs due to a change in the compensation structure from retention payments to bonuses which were not included in segment Adjusted EBITDA in 2019, and an $8 million negative impact on the above-mentioned commercial satellite program with a design anomaly. The decreases were also impacted by $14 million of losses incurred on developmental builds,

43

inclusive of a portion of the negative COVID-19 impact noted above, a recovery of a previously reserved amount of $7 million in 2019 which did not reoccur in 2020, and an increase of $3 million in selling, general and administrative expenses. These decreases were partially offset by higher margins and favorable EACs outside of the COVID-19 impacts discussed above on commercial programs of $31 million and increases in volume related to U.S. government programs of $6 million.

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 were $21 million for the three months ended September 30, 2020 and September 30, 2019, respectively. There was a $12 million increase in selling, general and administrative expenses for the three months ended September 30, 2020, compared to the same period in 2019 driven by an increase in employee compensation and stock-based compensation expense. The increase was partially offset by an $11 million decrease in retention costs related to a 2019 program within the Space Infrastructure segment.

Corporate and other expenses for the nine months ended September 30, 2020 decreased to $43 million from $60 million, or by $17 million, compared to the same period in 2019. The decrease was primarily driven by a $18 million decrease in retention costs related to a 2019 program within the Space Infrastructure segment. The decrease was also driven by a $4 million foreign exchange gain for the nine months ended September 30, 2020, compared to a $5 million foreign exchange loss for the nine months ended September 30, 2019. The decrease was partially offset by a $10 million increase in selling, general and administrative expenses driven by an increase in employee compensation and stock-based compensation expense.

Intersegment eliminations

Intersegment eliminations are related to projects between our segments, including WorldView Legion. Intersegment eliminations have decreased to $7 million from $12 million, or by $5 million, for the three months ended September 30, 2020, compared to the same period in 2019, primarily related to a decrease in intersegment satellite construction activity.

Intersegment eliminations are related to projects between our segments, including WorldView Legion. Intersegment eliminations have increased to $21 million from $20 million, or by $1 million, for the nine months ended September 30, 2020, compared to the same period in 2019, primarily related to an increase in intersegment satellite construction activity.

BACKLOG

Our backlog by segment from continuing operations is as follows:

September 30, 

December 31, 

2020

2019

($ millions)

Earth Intelligence

$

993

$

926

Space Infrastructure

1,237

705

Total backlog

2,230

1,631

Unfunded contract options

935

1,382

Total

$

3,165

$

3,013

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 September 30, 2020 compared to $1.6 billion as of December 31, 2019. Order backlog generally does not include unexercised contract options and potential orders under indefinite delivery/indefinite quantity contracts.

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Backlog in the Space Infrastructure segment is primarily comprised of multi-year awards, such as satellite builds. Fluctuations in backlog are driven primarily by the timing of large program wins. Backlog in the Earth Intelligence segment consists of both multi-year and annual contracts, which renew at various times throughout the year. As a result, the timing of when contracts are awarded and when option years are exercised may cause backlog to fluctuate significantly from period to period.

The increase in backlog was primarily driven by a $532 million increase in the Space Infrastructure segment due to new contracts and expansion of existing programs with the U.S. government. There was also an increase in the Earth Intelligence segment driven by the exercise of the $300 million EnhancedView Contract option, partially offset by revenue recognized during the period.

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 September 30, 2020 were primarily comprised of the option years in the EnhancedView Contract (September 1, 2021 through August 31, 2023). This contract may be replaced by other contracting vehicles prior to the exercise of existing contract options.

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. Over the near-term to medium-term, it is also possible that our customers may fully or partially fund the construction of additional Legion satellites. 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 2023.

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.

Pursuant to our Restated Credit Agreement, dated as of October 5, 2017 (as amended, supplemented or otherwise modified, the “Credit Agreement”), governing our Syndicated Credit Facility, and the indenture governing the 2023 Notes, net cash proceeds received by us, including those from the MDA Transaction, as defined in the Credit Agreement and the indenture governing the 2023 Notes, are to be used to repay outstanding debt. Pursuant to such definitions, the net cash proceeds of the sale of the MDA Business were $706 million.

During the three months ended June 30, 2020, we repaid $511 million of borrowings under Term Loan B using proceeds from the MDA Transaction.

On June 25, 2020, we repurchased $150 million aggregate principal amount of our 2023 Notes at a price of approximately 112.45% of the principal amount using the proceeds from the sale of the MDA Transaction (“2023 Notes Repurchase”).

45

On June 25, 2020, we issued $150 million in principal amount of our 2027 Notes in a private placement to institutional buyers. The 2027 Notes were issued at a price of 98.25% and bear interest at the rate of 7.54% per annum, payable semi-annually in cash in arrears, for which interest payments will commence in December 2020.

On June 25, 2020, we exercised our call option to purchase the remaining ownership interest in Vricon, for approximately $140 million, or approximately $117 million net of estimated cash at closing.

On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief and Economic Security (“CARES Act”). Under the CARES Act, all single-employer funding obligations due during calendar year 2020 can be delayed until January 1, 2021 with accrued interest added to the delayed payments. We contributed $3 million to our pension plan during the three months ended March 31, 2020, and we have the ability to defer the remaining $15 million in payments until January 1, 2021. Under the CARES Act, we have also elected to defer the employer portion of social security payments for the remainder of 2020 which is estimated at $18 million. These payments will be due in 2021 and 2022.

We believe that our cash from operating activities generated from continuing operations during the year, 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 may also seek to meet long-term debt obligations, if necessary, by obtaining capital from a variety of additional sources or by refinancing existing obligations. These sources include public or private capital markets, bank financings, proceeds from dispositions or other third-party sources.

Summary of cash flows

Nine Months Ended September 30, 

    

2020

    

2019

($ millions)

Cash provided by operating activities - continuing operations

 

$

181

 

$

134

Cash (used in) provided by operating activities - discontinued operations

(49)

12

Cash provided by operating activities

132

146

Cash used in investing activities - continuing operations

 

(322)

 

(203)

Cash provided by (used in) investing activities - discontinued operations

723

(4)

Cash provided by (used in) investing activities

401

(207)

Cash (used in) provided by financing activities - continuing operations

 

(550)

 

77

Cash used in financing activities - discontinued operations

(24)

(2)

Cash (used in) provided by financing activities

(574)

75

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

(5)

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

 

110

 

43

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

 

$

64

 

$

57

Operating activities

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).

Cash provided by operating activities from continuing operations increased to $181 million from $134 million, or by $47 million, for the nine months ended September 30, 2020, compared to the same period in 2019. This change was primarily driven by favorable changes in working capital for the nine months ended September 30, 2020, compared to the same period in 2019, offset by the insurance proceeds of $183 million related to the loss of the WorldView-4 satellite received in the nine months end September 30, 2019.

46

Cash used in operating activities related to discontinued operations for the nine months ended September 30, 2020 was $49 million compared to cash provided by operating activities of $12 million, or a change of $61 million. The decrease in cash provided by operating activities was primarily driven by payments related to the close of the MDA Transaction, which was primarily related to legal and bank fees. The increase in cash outflows was also driven by $18 million in estimated tax payments related to the sale of MDA.

Investing activities

Cash used in investing activities from continuing operations increased to $322 million from $203 million, or by $119 million, for the nine months ended September 30, 2020, compared to the same period in 2019. The primary investing activities included expenditures on property, plant and equipment of $158 million and $161 million for the nine months ended September 30, 2020 and 2019, respectively, and investments in software of $66 million and $42 million for the nine months ended September 30, 2020 and 2019, respectively. Property, plant and equipment expenditures for the nine months ended September 30, 2020 and 2019 primarily related to the build of our Legion satellite constellation. During the nine months ended September 30, 2020, we also used cash of $118 million, net of cash received, to acquire the remaining interest in Vricon. Cash used in investing activities for the nine months ended September 30, 2020 was offset by a return of capital from discontinued operations of $20 million.

Cash provided by investing activities from discontinued operations for the nine months ended September 30, 2020 was $723 million compared to cash used in investing activities of $4 million for the corresponding period in 2019, or a change of $727 million. This change was primarily related to the gross proceeds from the sale of the MDA Business of $726 million.

Financing activities

Cash used in financing activities from continuing operations for the nine months ended September 30, 2020 was $550 million compared to cash provided by financing activities of $77 million for the same period in 2019, or a change of $627 million. During the nine months ended September 30, 2020, cash used in financing activities from continuing operations included net proceeds from the issuance of the 2027 Notes of $147 million, offset by debt repayments of $516 million, a repurchase of the 2023 Notes of $169 million, payment of finance leases of $7 million, settlement of the securitization liability of $7 million and payments of dividends of $2 million. During the nine months ended September 30, 2019, cash provided by financing activities from continuing operations included net proceeds from bank borrowings of $107 million and was partially offset by debt repayments of $21 million, settlement of the securitization liability of $7 million and payments of dividends of $2 million.

Cash used in financing activities from discontinued operations increased to $24 million from $2 million, or by $22 million, for the nine months ended September 30, 2020, compared to the same period in 2019. The change was primarily due to a return of capital from discontinued operations to continuing operations of $20 million and repayments of long-term debt of $4 million for the nine months ended September 30, 2020, and $2 million in debt repayments for the nine months ended September 30, 2019.

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Long-term debt

The following table summarizes our long-term debt: 

The following table summarizes our long-term debt:

September 30, 

December 31, 

    

2020

    

2019

($ millions)

Syndicated Credit Facility:

 

Term Loan B

$

1,444

$

1,960

2023 Notes

 

850

 

1,000

2027 Notes

150

Deferred financing

33

33

Debt discount and issuance costs

 

(60)

 

(54)

Obligations under finance leases and other

 

5

 

6

Total long-term debt

 

$

2,422

 

$

2,945

As of September 30, 2020 and December 31, 2019, we were in compliance with our debt covenants.

Syndicated Credit Facility

Our senior secured syndicated credit facility (“Syndicated Credit Facility”) is composed of: (i) a senior secured first lien revolving credit facility in an aggregate capacity of up to $500 million maturing in December 2023 (“Revolving Credit Facility”) and (ii) a senior secured first lien term B facility in an original aggregate principal amount of $2.0 billion maturing in October 2024 (“Term Loan B”).

The Revolving Credit Facility includes an aggregate $200 million sub limit under which letters of credit can be issued. As of September 30, 2020 and December 31, 2019, we had $32 million and $18 million of issued and undrawn letters of credit outstanding under the Revolving Credit Facility. Of the Company’s $500 million borrowing capacity on its Revolving Credit Facility, the Company has $0 outstanding borrowings as of September 30, 2020.

During the three months ended June 30, 2020, we repaid $511 million of borrowings under Term Loan B using proceeds from the MDA Transaction. We expensed $7 million of unamortized debt issuance costs attributed to the partial pay down, which is included in Interest expense, net in the Unaudited Condensed Consolidated Statements of Operations.

On June 25, 2020, we repurchased $150 million aggregate principal amount of our 2023 Notes using proceeds from the MDA Transaction. The 2023 Notes were repurchased at a price of approximately 112.45% of the principal amount thereof, subject to customary closing conditions.

On June 25, 2020, we issued $150 million in principal amount of our 2027 Notes in a private placement to institutional buyers. The 2027 Notes were issued at a price of 98.25% and are recorded as long-term debt in our consolidated financial statements. The 2027 Notes bear interest at the rate of 7.54% per year, payable semi-annually in cash in arrears, for which interest payments will commence in December 2020.

The Company accounted for the 2027 Notes and 2023 Notes Repurchase as debt modifications. As a result, the 12.45% premium paid on the repurchase of the $150 million of 2023 Notes is accounted for as an incremental discount that is amortized over the remaining life of the outstanding 2023 Notes.

The 2027 Notes are guaranteed (“2027 Guarantees”) on a senior secured basis by each of our existing and future subsidiaries that guarantees the 2023 Notes and the Syndicated Credit Facility (“Guarantors”). The 2027 Notes are secured, equally and ratably with the 2023 Notes, the Syndicated Credit Facility and any future first lien debt, by liens on the same assets that secure the Revolving Credit Facility and Term Loan B.

The 2027 Notes and the 2027 Guarantees are our general senior secured obligations and rank equally in right of payment with all of our and the Guarantors’ existing and future unsubordinated debt (including the 2023 Notes and the

48

Syndicated Credit Facility). The 2027 Notes and the 2027 Guarantees are effectively senior to all of our and the Guarantors’ existing and future unsecured debt as well as to all of any permitted junior lien debt that may be incurred in the future, in each case to the extent of the value of the assets securing the 2027 Notes and the 2027 Guarantees. The 2027 Notes and the 2027 Guarantees are effectively subordinated to any obligations that are secured by liens on assets that do not constitute a part of the collateral securing the 2027 Notes or the 2027 Guarantees, are structurally subordinated to all existing and future liabilities (including trade payables) of our subsidiaries that do not guarantee the 2027 Notes, and are senior in right of payment to all of our and the Guarantors’ existing and future subordinated indebtedness.

The indenture governing the 2027 Notes limits, among other things, our and our restricted subsidiaries’ ability to: incur, assume or guarantee additional debt; issue redeemable stock and preferred stock; pay dividends, make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase subordinated debt; make loans and investments; grant or incur liens; restrict dividends, loans or asset transfers from restricted subsidiaries; sell or otherwise dispose of assets; enter into transactions with affiliates; reduce our satellite insurance; and consolidate or merge with, or sell substantially all of our assets to, another person.

The 2027 Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on June 25, 2024, at a redemption price of 105.655%, during the 12 months beginning on June 25, 2025, at a redemption price of 103.770%, and at any time on or after June 25, 2026, at a redemption price of 101.885%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date. We may also redeem the 2027 Notes, in whole or in part, at our option at any time prior to June 25, 2024, at a price equal to 100% of the principal amount of such 2027 Notes plus a “make-whole” premium, together with accrued but unpaid interest, if any, to, but excluding, the date of redemption. In addition, we may redeem up to 40% of the aggregate principal amount of the 2027 Notes at any time before June 25, 2024, with the net cash proceeds from certain equity offerings at a specified redemption price, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

In the event a change of control occurs (as defined in the indenture governing the 2027 Notes), each holder will have the right to require us to repurchase all or any part of such holder’s 2027 Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2027 Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

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 sales of eligible receivables executed in the nine months ended September 30, 2020 or September 30, 2019.

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 September 30, 2020, other than our repayment of borrowings under Term Loan B, 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, 2019.

49

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 September 30, 2020, we had no outstanding foreign exchange sales contracts. As of September 30, 2020, we had certain letters of credit guaranteed by the Syndicated Credit Facility, while indemnified by us. Such arrangements are not expected to have a material effect on our liquidity or capital resources, financial position or results of operations.

We may use, from time to time, 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 judgments, 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, 2019.

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 acc