Non-U.S. GAAP Financial Measures
EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are not recognized terms under U.S. GAAP and may not be defined similarly by other companies. EBITDA and Adjusted EBITDA should not be considered alternatives to net income as indications of financial performance or as alternatives to cash flow from operations as measures of liquidity. There are limitations to using non-U.S. GAAP financial measures, including the difficulty associated with comparing companies in different industries that use similar performance measures whose calculations may differ from ours.
EBITDA and Adjusted EBITDA are key measures used in our internal operating reports by management and our Board of Directors to evaluate the performance of our operations and are also used by analysts, investment banks and lenders for the same purpose. EBITDA, excluding certain restructuring and other re-engineering costs, is a measure being used as a key element of the company-wide bonus incentive plan.
We believe that the presentation of EBITDA and Adjusted EBITDA enables a more consistent measurement of period to period performance of our operations, and EBITDA facilitates comparison of our operating performance to companies in our industry. We believe that EBITDA and Adjusted EBITDA measures are particularly important in a capital intensive industry such as ours, in which our current period depreciation is not a good indication of our current or future period capital expenditures. The cost to construct and launch a satellite and to build the related ground infrastructure may vary greatly from one satellite to another, depending on the satellite’s size, type and capabilities. Current depreciation expense is not indicative of the revenue generating potential of the satellites.
EBITDA excludes interest income, interest expense and income taxes because these items are associated with our capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses reflect the impact of prior capital expenditure decisions which are not indicative of future capital expenditure requirements.
Adjusted EBITDA further adjusts EBITDA to exclude the loss on abandonment of asset because this is not related to our primary operations. Additionally, it excludes restructuring, other re-engineering and integration costs, as these are non-core items. Restructuring charges incurred in 2014 are costs incurred to realize efficiencies from the acquisition of GeoEye, such as reducing excess workforce, consolidating facilities and systems, and relocating ground terminals. Restructuring charges incurred in 2015 relate to our re-engineering and restructuring plan announced in February 2015, pursuant to which the Company expects to reduce global headcount and rationalize our real estate footprint. Other re-engineering charges are associated with the restructuring plan announced in February 2015 and represent costs incurred to realize efficiencies from reducing internal and contractor headcount, such as re-engineering processes and enhancing system workflows, as well as costs related to the decision to proactively decommission IKONOS. Integration costs consist primarily of professional fees incurred to assist us with system and process improvements associated with integrating operations as part of the GeoEye acquisition.
We use EBITDA and Adjusted EBITDA in conjunction with traditional U.S. GAAP operating performance measures as part of our overall assessment of our performance and we do not place undue reliance on these non-GAAP measures as our only measures of operating performance. EBITDA and Adjusted EBITDA should not be considered as substitutes for other measures of financial performance reported in accordance with U.S. GAAP.
Free Cash Flow. Free cash flow is defined as net cash flows provided by operating activities less net cash flows used in investing activities (excluding acquisition of businesses, net of cash acquired). Free cash flow is not a recognized term under U.S. GAAP and may not be defined similarly by other companies. Free cash flow should not be considered an alternative to “operating income (loss),” “net income (loss),” “net cash flows provided by (used in) operating activities” or any other measure determined in accordance with U.S. GAAP. Since free cash flow includes investments in operating assets, we believe this non-GAAP liquidity measure is useful in addition to the most comparable U.S. GAAP measure — “net cash flows provided by (used in) operating activities” because it provides information about the amount of cash generated before acquisitions of businesses that is then available to repay debt obligations, make investments, fund acquisitions, and for certain other activities. There are limitations to using non-U.S. GAAP financial measures, including the difficulty associated with comparing companies in different industries that use similar performance measures whose calculations may differ from ours.
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DigitalGlobe, Inc. Consolidated Statements of Operations |
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| For the three months ended | For the six months ended | |||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||
| (in millions, except per share data) | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| Revenue | $ | 178.0 | $ | 157.8 | $ | 347.4 | $ | 314.3 | ||||||||||||
| Costs and expenses: | ||||||||||||||||||||
| Cost of revenue, excluding depreciation and amortization | 37.2 | 41.1 | 76.5 | 80.6 | ||||||||||||||||
| Selling, general and administrative | 52.9 | 58.4 | 109.9 | 111.4 | ||||||||||||||||
| Depreciation and amortization | 68.1 | 57.6 | 135.4 | 115.2 | ||||||||||||||||
| Restructuring charges | 0.4 | — | 2.6 | 1.1 | ||||||||||||||||
| Loss on abandonment of asset | — | — | — | 1.2 | ||||||||||||||||
| Income from operations | 19.4 | 0.7 | 23.0 | 4.8 | ||||||||||||||||
| Other (expense) income, net | (0.6 | ) | — | (0.6 | ) | 0.1 | ||||||||||||||
| Interest expense, net | (5.4 | ) | — | (18.1 | ) | — | ||||||||||||||
| Income before income taxes | 13.4 | 0.7 | 4.3 | 4.9 | ||||||||||||||||
| Income tax (expense) benefit | (5.4 | ) | 4.3 | (1.2 | ) | 0.5 | ||||||||||||||
| Net income | 8.0 | 5.0 | 3.1 | 5.4 | ||||||||||||||||
| Preferred stock dividends | (1.0 | ) | (1.0 | ) | (2.0 | ) | (2.0 | ) | ||||||||||||
| Net income less preferred stock dividends | 7.0 | 4.0 | 1.1 | 3.4 | ||||||||||||||||
| Income allocated to participating securities | (0.3 | ) | (0.1 | ) | — | (0.1 | ) | |||||||||||||
| Net income available to common stockholders | $ | 6.7 | $ | 3.9 | $ | 1.1 | $ | 3.3 | ||||||||||||
| Earnings per share: | ||||||||||||||||||||
| Basic earnings per share | $ | 0.09 | $ | 0.05 | $ | 0.02 | $ | 0.04 | ||||||||||||
| Diluted earnings per share | $ | 0.09 | $ | 0.05 | $ | 0.02 | $ | 0.04 | ||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||
| Basic | 72.1 | 75.1 | 72.3 | 75.1 | ||||||||||||||||
| Diluted | 72.8 | 76.0 | 73.1 | 76.2 | ||||||||||||||||
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DigitalGlobe, Inc. Reconciliation of Net Income to EBITDA and Adjusted EBITDA |
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| For the three months ended | For the six months ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| (in millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||||||
| Net income | $ | 8.0 | $ | 5.0 | $ | 3.1 | $ | 5.4 | ||||||||||
| Depreciation and amortization | 68.1 | 57.6 | 135.4 | 115.2 | ||||||||||||||
| Interest expense, net | 5.4 | — | 18.1 | — | ||||||||||||||
| Income tax expense (benefit) | 5.4 | (4.3 | ) | 1.2 | (0.5 | ) | ||||||||||||
| EBITDA | 86.9 | 58.3 | 157.8 | 120.1 | ||||||||||||||
| Restructuring charges (1) | 0.4 | — | 2.6 | 1.1 | ||||||||||||||
| Other re-engineering charges | 0.4 | — | 0.4 | — | ||||||||||||||
| Integration costs | — | 5.6 | — | 9.4 | ||||||||||||||
| Loss on abandonment of asset | — | — | — | 1.2 | ||||||||||||||
| Adjusted EBITDA | $ | 87.7 | $ | 63.9 | $ | 160.8 | $ | 131.8 | ||||||||||
