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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 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

Preferred Stock Purchase Right

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No 

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

Large Accelerated Filer

Accelerated Filer 

Non-accelerated Filer 

Smaller Reporting Company  Emerging Growth Company

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

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

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

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

As of July 31, 2020, there were 60,873,138 shares of the registrant’s common stock, at $0.0001 par value, outstanding, and zero shares of the registrant’s Series A Junior Participating Preferred Stock, at par value $0.01 per share, outstanding.

Maxar Technologies Inc.

Quarterly Report on Form 10-Q

For the period ended June 30, 2020

HIDDEN_ROW

Item Number

Table of Contents

PART I

1.

Financial Statements

3

Unaudited Condensed Consolidated Statements of Operations

3

Unaudited Condensed Consolidated Statements of Comprehensive Income

4

Unaudited Condensed Consolidated Balance Sheets

5

Unaudited Condensed Consolidated Statements of Cash Flows

6

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

7

Notes to Unaudited Condensed Consolidated Financial Statements

8

2.

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

28

3.

Quantitative and Qualitative Disclosures about Market Risk

46

4.

Controls and Procedures

46

PART II

1.

Legal Proceedings

46

1A.

Risk Factors

46

2.

Unregistered Sales of Equity Securities and Use of Proceeds

68

3.

Defaults Upon Senior Securities

68

4.

Mine Safety Disclosures

68

5.

Other Information

68

6.

Exhibits

68

Signatures

71

2

PART I. FINANCIAL INFORMATION

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Operations

(In millions, except per share amounts)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

Revenues:

Product

$

157

$

144

$

264

$

310

Service

282

268

556

533

Total revenues

439

412

820

843

Costs and expenses:

Product costs, excluding depreciation and amortization

144

141

289

312

Service costs, excluding depreciation and amortization

87

103

180

195

Selling, general and administrative

79

66

147

151

Depreciation and amortization

 

89

 

96

 

179

 

191

Impairment loss

14

Satellite insurance recovery

(183)

(183)

Operating income

 

40

 

189

 

11

 

177

Interest expense, net

 

48

 

49

 

97

 

98

Other (income) expense, net

(4)

(2)

(7)

3

(Loss) income before taxes

 

(4)

 

142

 

(79)

 

76

Income tax (benefit) expense

 

(2)

 

1

 

 

2

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

(2)

2

(1)

3

Income (loss) from continuing operations

139

(78)

71

Discontinued operations:

Income from operations of discontinued operations, net of tax

2

9

32

20

Gain on disposal of discontinued operations, net of tax

304

304

Income from discontinued operations, net of tax

306

9

336

20

Net income

$

306

$

148

$

258

$

91

Basic income per common share:

 

  

 

  

 

  

 

  

Income (loss) from continuing operations

$

$

2.33

$

(1.29)

$

1.19

Income from discontinued operations, net of tax

5.05

0.15

5.56

0.34

Basic income per common share

$

5.05

$

2.48

$

4.27

$

1.53

Diluted income per common share:

 

  

 

  

 

  

 

  

Income (loss) from continuing operations

$

$

2.32

$

(1.29)

$

1.19

Income from discontinued operations, net of tax

4.94

0.15

5.56

0.33

Diluted income per common share

$

4.94

$

2.47

$

4.27

$

1.52

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

3

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In millions)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

2019

    

2020

2019

Net income

$

306

$

148

$

258

$

91

Other comprehensive (loss) income, net of tax:

 

  

  

 

  

  

Foreign currency translation adjustments

 

15

 

(49)

11

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

(64)

(64)

Unrealized loss on derivatives

 

(12)

 

(15)

(15)

Gain on pension and other postretirement benefit plans

1

2

Other comprehensive (loss) income, net of tax

 

(64)

3

 

(127)

(2)

Comprehensive income, net of tax

$

242

$

151

$

131

$

89

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

4

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Balance Sheets

(In millions)

    

June 30, 

    

December 31, 

2020

2019

Assets

  

  

Current assets:

 

Cash and cash equivalents

 

$

177

$

59

Trade and other receivables, net

 

 

312

 

357

Inventory

 

 

21

 

20

Advances to suppliers

51

42

Prepaid and other current assets

41

32

Current assets held for sale

751

Total current assets

 

 

602

 

1,261

Non-current assets:

 

 

 

  

Orbital receivables, net

 

 

354

382

Property, plant and equipment, net

 

 

823

758

Intangible assets, net

 

 

901

991

Non-current operating lease assets

170

176

Goodwill

 

 

1,455

1,455

Other non-current assets

124

134

Total assets

 

$

4,429

$

5,157

Liabilities and stockholders’ equity

 

 

  

 

  

Current liabilities:

 

 

  

 

  

Accounts payable

 

$

155

$

153

Accrued liabilities

57

130

Accrued compensation and benefits

 

 

60

 

93

Contract liabilities

 

 

234

 

271

Current portion of long-term debt

 

 

9

 

30

Current operating lease liabilities

41

40

Other current liabilities

85

49

Current liabilities held for sale

230

Total current liabilities

 

641

 

996

Non-current liabilities:

 

 

  

 

  

Pension and other postretirement benefits

 

 

193

197

Contract liabilities

3

4

Operating lease liabilities

165

173

Long-term debt

 

 

2,407

2,915

Other non-current liabilities

118

110

Total liabilities

 

 

3,527

 

4,395

Commitments and contingencies

Stockholders’ equity:

 

 

  

 

  

Common stock ($0.0001 par value, 240 million common shares authorized; 60.7 million and 59.9 million outstanding at June 30, 2020 and December 31, 2019, respectively)

 

 

Additional paid-in capital

 

 

1,794

1,784

Accumulated deficit

 

 

(825)

(1,082)

Accumulated other comprehensive (loss) income

 

 

(68)

59

Total Maxar stockholders' equity

901

761

Noncontrolling interest

1

1

Total stockholders' equity

 

 

902

 

762

Total liabilities and stockholders' equity

 

$

4,429

$

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)

Six Months Ended

June 30, 

    

2020

    

2019

Cash flows (used in) provided by:

Operating activities:

 

  

 

  

Net income

$

258

$

91

Income from operations of discontinued operations, net of tax

32

20

Gain on disposal of discontinued operations, net of tax

304

(Loss) income from continuing operations

(78)

71

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

 

  

 

Impairment losses including inventory

14

3

Depreciation and amortization

 

179

 

191

Loss from extinguishment of debt

7

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

8

4

Stock-based compensation expense

 

13

 

4

Other

2

Changes in operating assets and liabilities:

Trade and other receivables

40

(20)

Advances to suppliers

(9)

32

Accounts payables and accrued liabilities

(76)

(92)

Contract liabilities

(38)

(124)

Other

4

7

Cash provided by operating activities - continuing operations

 

66

76

Cash used in operating activities - discontinued operations

(30)

(15)

Cash provided by operating activities

36

61

Investing activities:

 

  

 

  

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

 

(128)

 

(124)

Return of capital from discontinued operations

20

Cash used in investing activities - continuing operations

 

(108)

 

(124)

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

723

(3)

Cash provided by (used in) investing activities

615

(127)

Financing activities:

 

  

 

Net proceeds of revolving credit facility

 

 

97

Net proceeds from issuance of 2027 Notes

147

Repurchase of 2023 Notes, including premium

(169)

Repayments of long-term debt

(516)

(11)

Settlement of securitization liability

(7)

(8)

Payment of dividends

(1)

(1)

Other

(3)

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

(549)

77

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

(24)

14

Cash (used in) provided by financing activities

(573)

91

Increase in cash, cash equivalents, and restricted cash

78

25

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

(5)

1

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

110

43

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

$

183

$

69

Reconciliation of cash flow information:

Cash and cash equivalents

$

179

$

63

Restricted cash included in prepaid and other current assets

1

5

Restricted cash included in other non-current assets

3

1

Total cash, cash equivalents, and restricted cash

$

183

$

69

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements

6

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Change in Stockholders’ Equity

(In millions)

Three and six months ended June 30, 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

Three and six months ended June 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 ($0.29 per common share)

Comprehensive income

148

3

151

Balance as of June 30, 2019

59.6

$

$

1,776

$

(1,098)

$

79

$

1

$

758

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

7

Table of Contents

MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

1.

GENERAL BUSINESS DESCRIPTION

Maxar Technologies Inc. (the “Company” or “Maxar”) is a leading provider of solutions in Earth Intelligence and Space Infrastructure. Maxar helps government and commercial customers to 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 deliver services 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 3 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, will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. These updates are effective for annual and interim financial statement periods beginning after December 15, 2019, with early adoption permitted for

8

Table of Contents

MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

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 4 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

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU 2020-01”). ASU 2020-01 clarifies the accounting for certain equity securities upon application or discontinuation of the equity method of accounting and includes scope considerations for forward contracts and purchased options on certain securities. ASU 2020-01 is effective for annual and interim financial statement periods beginning after December 15, 2020, with early adoption permitted. The Company performed a preliminary assessment of this guidance and does not expect the adoption to have a material impact on the Company’s financial statements.

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.

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 $304 million, net of $25 million in taxes, on the

9

Table of Contents

MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

MDA Transaction for the quarter ended June 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 8 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 six months ended June 30, 2020 and June 30, 2019, respectively. For the three and six months ended June 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 will be provided based on an agreed upon fee arrangement through April 8, 2021, with an option to extend to October 2021 for certain services.

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

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020 1

    

2019

    

2020 1

    

2019

Revenues:

Product

$

5

$

57

$

44

$

110

Service

6

40

42

83

Total revenues

11

97

86

193

Costs and expenses:

Product costs, excluding depreciation and amortization

4

39

38

80

Service costs, excluding depreciation and amortization

3

21

24

45

Selling, general and administrative

13

13

31

Depreciation and amortization

 

3

 

4

 

6

Impairment loss

 

12

 

12

12

Operating income (loss)

 

4

9

 

(5)

 

19

Interest expense, net

 

 

1

 

Other expense (income), net 2

 

2

(1)

 

(34)

Income before taxes

 

2

 

10

 

28

 

19

Income tax expense (benefit)

1

(4)

(1)

Income from operations of discontinued operations, net of tax

2

9

32

20

Gain on disposal of discontinued operations, net of tax

304

304

Income from discontinued operations, net of tax

$

306

$

9

$

336

$

20

1

For the three and six months ended June 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 six months ended June 30, 2020.

MDA holds an investment in a privately held company in which it does not have significant influence and for which the fair value cannot be reliably measured through external indicators. The investment is evaluated quarterly for impairment. There was no impairment loss recorded during the three months ended June 30, 2020. During the six months ended June

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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)

20, 2020, the Company recorded an impairment loss of $12 million as the privately held company filed for bankruptcy and as a result, the investment was fully impaired. During the three and six months ended June 30, 2019, the Company recorded an impairment loss of $12 million due to an observable price change related to its investment.

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.

4.

TRADE AND OTHER RECEIVABLES, NET

June 30, 

December 31, 

2020

    

2019

Billed

$

185

$

211

Unbilled

 

80

 

100

Total trade receivables

265

311

Orbital receivables, current portion

44

43

Other

4

4

Allowance for doubtful accounts

(1)

(1)

Trade and other receivables, net

$

312

$

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 June 30, 2020 and December 31, 2019, non-current orbital receivables, net of allowances were $354 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

11

Table of Contents

MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

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.

As of June 30, 2020, the Company had orbital receivables from 14 customers for which the largest customer’s value represents $44 million, or 11% of the stated balance sheet value. During the six months ended June 30, 2020, the Company recognized an impairment of $14 million, 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 six months ended June 30, 2020, consist of the following:

Orbital Receivables Allowance

Allowance as of January 1, 2020

$

(35)

Additions

 

(14)

Allowance as of June 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 June 30, 2020 and December 31, 2019 were $61 million and $65 million, respectively. Current securitization liabilities of $13 million and $17 million, are included in Other current liabilities on the Unaudited Condensed Consolidated Balance Sheets at June 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 June 30, 2020 and December 31, 2019.

5.

INVENTORY

    

June 30, 

December 31, 

2020

    

2019

Raw materials

$

14

$

13

Work in process

7

7

Inventory

$

21

$

20

6.

PROPERTY, PLANT AND EQUIPMENT, NET

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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)

    

June 30, 

December 31, 

2020

    

2019

Satellites

$

397

$

397

Equipment

197

196

Leasehold improvements

81

75

Computer hardware

72

67

Furniture and fixtures

16

15

Construction in process 1

486

388

Property, plant and equipment, at cost

1,249

1,138

Accumulated depreciation

 

(426)

(380)

Property, plant and equipment, net

$

823

$

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 $23 million and $28 million, and $47 million and $56 million for the three and six months ended June 30, 2020 and June 30, 2019, respectively.

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

7.

INTANGIBLE ASSETS

    

June 30, 2020

December 31, 2019

Gross carrying value

Accumulated amortization

Net carrying value

Gross carrying value

Accumulated amortization

Net carrying value

Customer relationships

$

615

$

(124)

$

491

$

615

$

(102)

$

513

Backlog

 

330

 

(265)

 

65

 

330

 

(217)

 

113

Technologies

320

(177)

143

320

(144)

176

Software

254

(103)

151

213

(83)

130

Image library

80

(54)

26

80

(48)

32

Trade names and other

37

(12)

25

37

(10)

27

Intangible assets

$

1,636

$

(735)

$

901

$

1,595

$

(604)

$

991

Amortization expense related to intangible assets was $66 million and $68 million, and $132 million and $135 million for the three and six months ended June 30, 2020 and June 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)

8.

LONG-TERM DEBT AND INTEREST EXPENSE, NET

June 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

30

33

Debt discount and issuance costs

 

(63)

 

(54)

Obligations under finance leases and other

 

5

 

6

Total long-term debt

 

2,416

 

2,945

Current portion of long-term debt

 

(9)

 

(30)

Non-current portion of long-term debt

$

2,407

$

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 June 30, 2020 and December 31, 2019, the Company had $24 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 June 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.

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 evaluated the terms of the 2027 Notes and 2023 Notes Repurchase and concluded that both transactions are to be accounted for as a debt modification. 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 to be amortized over the life of the 2027 Notes. Separately, the previously incurred unamortized debt discount and debt issuance costs will be amortized over the remaining life of the outstanding 2023 Notes.

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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 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.

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).

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

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

Three Months Ended June 30, 

Six Months Ended June 30, 

2020

    

2019

2020

    

2019

Interest on long-term debt

$

55

$

48

$

109

$

93

Interest expense on advance payments from customers

1

4

3

9

Interest on orbital securitization liability

2

2

3

4

Capitalized interest

(10)

(5)

(18)

(8)

Interest expense, net

$

48

$

49

$

97

$

98

9.

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

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 June 30, 2020

Level 1

Level 2

Level 3

Total

Assets

 

 

 

 

Orbital receivables, net 1

$

$

398

$

$

398

Liabilities

Interest rate swaps

$

$

31

$

$

31

Long-term debt 2

2,218

2,218

$

$

2,249

$

$

2,249