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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 March 31, 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 May 5, 2020, there were 60,456,495 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 March 31, 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 Loss

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

27

3.

Quantitative and Qualitative Disclosures about Market Risk

41

4.

Controls and Procedures

41

PART II

1.

Legal Proceedings

41

1A.

Risk Factors

42

2.

Unregistered Sales of Equity Securities and Use of Proceeds

63

3.

Defaults Upon Senior Securities

63

4.

Mine Safety Disclosures

63

5.

Other Information

63

6.

Exhibits

64

Signatures

67

2

PART I. FINANCIAL INFORMATION

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Operations

(In millions, except per share amounts)

Three Months Ended

March 31, 

    

2020

    

2019

    

Revenues:

Product

$

107

$

166

Service

274

265

Total revenues

$

381

$

431

Costs and expenses:

Product costs, excluding depreciation and amortization

$

145

$

171

Service costs, excluding depreciation and amortization

93

92

Selling, general and administrative

68

85

Depreciation and amortization

 

90

 

95

Impairment loss

14

Operating loss

 

(29)

 

(12)

Interest expense, net

 

49

 

49

Other (income) expense, net

(3)

5

Loss before taxes

 

(75)

 

(66)

Income tax expense

 

2

 

1

Equity in loss from joint ventures, net of tax

1

1

Loss from continuing operations

(78)

(68)

Income from discontinued operations, net of tax

30

11

Net loss

$

(48)

$

(57)

Basic income (loss) per common share:

 

  

 

  

Loss from continuing operations

$

(1.30)

$

(1.14)

Income from discontinued operations, net of tax

0.50

0.18

Basic loss per common share

$

(0.80)

$

(0.96)

Diluted income (loss) per common share:

 

  

 

  

Loss from continuing operations

$

(1.30)

$

(1.14)

Income from discontinued operations, net of tax

0.50

0.18

Diluted loss per common share

$

(0.80)

$

(0.96)

See accompanying notes to the unaudited condensed consolidated financial statements.

3

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Statements of Comprehensive (Loss)

(In millions)

Three Months Ended

March 31, 

    

2020

2019

    

Net loss

$

(48)

$

(57)

Other comprehensive (loss) income, net of tax:

 

  

  

Foreign currency translation adjustment 1

 

(49)

(4)

Unrealized loss on derivatives

 

(15)

(4)

Gain on pension and other postretirement benefit plans

1

2

Other comprehensive loss, net of tax

 

(63)

(6)

Comprehensive loss, net of tax

$

(111)

$

(63)

1

Included within Foreign currency translation adjustments is a net gain on hedge of net investment in foreign operations of $5 million for the three months ended March 31, 2019.

See accompanying notes to the unaudited condensed consolidated financial statements.

4

MAXAR TECHNOLOGIES INC.

Unaudited Condensed Consolidated Balance Sheets

(In millions)

    

March 31, 

    

December 31, 

2020

2019

Assets

  

  

Current assets:

 

Cash and cash equivalents

 

$

12

$

59

Trade and other receivables, net

 

 

305

 

357

Inventory

 

 

25

 

20

Advances to suppliers

34

42

Prepaid and other current assets

40

32

Current assets held for sale

627

751

Total current assets

 

 

1,043

 

1,261

Non-current assets:

 

 

 

  

Orbital receivables, net

 

 

363

382

Property, plant and equipment, net

 

 

782

758

Intangible assets, net

 

 

943

991

Non-current operating lease assets

176

176

Goodwill

 

 

1,455

1,455

Other non-current assets

127

134

Total assets

 

$

4,889

$

5,157

Liabilities and stockholders’ equity

 

 

  

 

  

Current liabilities:

 

 

  

 

  

Accounts payable

 

$

128

$

153

Accrued liabilities

91

130

Accrued compensation and benefits

 

 

74

 

93

Contract liabilities

 

 

220

 

271

Current portion of long-term debt

 

 

29

 

30

Current operating lease liabilities

41

40

Other current liabilities

70

49

Current liabilities held for sale

175

230

Total current liabilities

 

828

 

996

Non-current liabilities:

 

 

  

 

  

Pension and other postretirement benefits

 

 

193

197

Contract liabilities

3

4

Operating lease liabilities

172

173

Long-term debt

 

 

2,926

2,915

Other non-current liabilities

110

110

Total liabilities

 

 

4,232

 

4,395

Commitments and contingencies

Stockholders’ equity:

 

 

  

 

  

Common stock ($0.0001 par value, 240 million common shares authorized and 60.1 million outstanding at March 31, 2020; $0.0001 par value, 240 million common shares authorized and 59.9 million outstanding at December 31, 2019)

 

 

Additional paid-in capital

 

 

1,790

1,784

Accumulated deficit

 

 

(1,130)

(1,082)

Accumulated other comprehensive (loss) income

 

 

(4)

59

Total Maxar stockholders' equity

656

761

Noncontrolling interest

1

1

Total stockholders' equity

 

 

657

 

762

Total liabilities and stockholders' equity

 

$

4,889

$

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)

Three Months Ended

March 31, 

    

2020

    

2019

    

Cash flows (used in) provided by:

Operating activities:

 

  

 

  

 

Net loss

$

(48)

$

(57)

Net income from discontinued operations

30

11

Net loss from continuing operations

(78)

(68)

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

 

  

 

Impairment losses including inventory

14

3

Depreciation and amortization

 

90

 

95

Amortization of debt issuance costs and other noncash interest expense

4

2

Stock-based compensation expense

 

3

 

1

Other

(1)

8

Changes in operating assets and liabilities:

Trade and other receivables

42

17

Accounts payables and accrued liabilities

(47)

(85)

Contract liabilities

(52)

(77)

Other

12

16

Cash used in operating activities - continuing operations

 

(13)

 

(88)

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

(2)

30

Cash used in operating activities

(15)

(58)

Investing activities:

 

  

 

  

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

 

(60)

 

(70)

Return of capital from discontinued operations

11

Cash used in investing activities - continuing operations

 

(49)

 

(70)

Cash used in investing activities - discontinued operations

(3)

(3)

Cash used in investing activities

(52)

(73)

Financing activities:

 

  

 

Net proceeds of revolving credit facility

 

15

 

139

Repayments of long-term debt

(5)

(4)

Settlement of securitization liability

(4)

(4)

Payment of dividends

(1)

(1)

Payment of finance leases

(2)

(2)

Other

1

Cash provided by financing activities - continuing operations

4

128

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

(15)

11

Cash (used in) provided by financing activities

(11)

139

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

(78)

8

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

1

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

109

43

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

$

31

$

52

Reconciliation of cash flow information:

Cash and cash equivalents

$

27

$

45

Restricted cash included in prepaid and other current assets

1

6

Restricted cash included in other non-current assets

3

1

Total cash, cash equivalents, and restricted cash

$

31

$

52

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 months ended March 31, 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

Three months ended March 31, 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

See accompanying notes to the unaudited condensed consolidated financial statements.

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

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

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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)

annual and interim financial statement periods beginning after December 15, 2019, with early adoption permitted for financial statement periods beginning after December 15, 2018. The Company 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 to be recorded in discontinued operations. There were no 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 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 is currently assessing the effect that this guidance may have 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. 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 (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is 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 December 30, 2019, the Company announced that Maxar Technologies Holdings Inc., a Delaware corporation and wholly-owned subsidiary of Maxar (“Maxar Holdings” and, together with the Company, 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. (“MDA Purchaser”) entered into a Stock Purchase Agreement, dated as of December 29, 2019

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

(“MDA Agreement”), that provides for, among other things, the MDA Purchaser to purchase the MDA Business, the Company’s Canadian subsidiary, from the Sellers for an aggregate purchase price of C$1.0 billion (“MDA Transaction”). On April 8, 2020, the Company completed the sale of MDA. The Company will recognize a gain on the sale of MDA in the second quarter of 2020. Refer to Note 20 for details on the MDA Transaction.

The Company intends to use the net cash proceeds from the MDA Transaction, as determined by the Company’s Original Syndicated Credit Facility, the 2023 Notes and the MDA Agreement, to pay down long-term debt. Refer to Note 20 for details on subsequent events. The net cash proceeds include the netting of certain fees and liabilities which include the indemnification of the MDA Purchaser for certain liabilities including a dispute with the Ukrainian customer. As of December 31, 2019, the Company had recorded a $60 million liability for the matters, for which the Company expected to withhold proceeds from the sale, reflected in Accrued liabilities within the Consolidated Balance Sheet. This dispute was settled in favor of the Company on March 31, 2020, which resulted in the Company being awarded costs and attorney fees in the amount of $2 million. The Company recognized a $39 million recovery of the previously recorded liability in relation to this dispute. As part of the dispute being settled there are certain other payments to third parties, including subcontractors, which will now be settled. As of March 31, 2020, $21 million remains accrued for on the Company’s Unaudited Condensed Consolidated Balance Sheet in relation to these payments. Refer to Note 18 for details. The Company does not expect any material current income tax consequences in connection with the MDA Transaction.

In addition to the MDA Transaction, upon closing, 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 through April 8, 2021, with an option to extend up to six months to October 2021 for certain services.

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

Three Months Ended

March 31, 

    

2020

    

2019

    

Revenues:

Product

$

39

$

53

Service

36

43

Total revenues

$

75

$

96

Costs and expenses:

Product costs, excluding depreciation and amortization

$

34

$

41

Service costs, excluding depreciation and amortization

21

24

Selling, general and administrative

13

18

Depreciation and amortization

 

4

 

3

Impairment loss

12

Operating (loss) income

 

(9)

 

10

Interest expense, net

 

1

 

Other (income) expense, net1

(36)

1

Income before taxes

 

26

 

9

Income tax benefit

 

(4)

 

(2)

Income from discontinued operations, net of tax

$

30

$

11

1

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.

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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)

MDA holds an investment in a privately held company in which it does not have significant influence and the fair value of which cannot be reliably measured through external indicators. The investment is evaluated quarterly for impairment. In the second quarter of 2019, the Company noted an observable price change related to its investment and, as a result, recorded an impairment loss of $12 million. In the first quarter of 2020, the privately held company filed for bankruptcy and as a result the remainder of the investment was written off, which resulted in an additional impairment loss of $12 million. There was no impairment during the three months ended March 31, 2019.

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

    

March 31, 

    

December 31, 

2020

2019

Assets

  

  

Cash and cash equivalents

 

$

15

$

45

Trade and other receivables, net

 

 

125

 

168

Deferred tax assets

 

 

108

 

117

Property, plant and equipment

27

29

Intangible assets

21

27

Goodwill

287

310

Other assets 1

44

55

Current assets held for sale

$

627

$

751

 

 

  

 

  

Liabilities

 

 

  

 

  

Accounts payable

 

$

48

$

88

Accrued liabilities

15

18

Accrued compensation and benefits

 

 

19

 

21

Contract liabilities

 

 

26

 

29

Pension and other postretirement benefit liabilities

20

21

Other liabilities 2

47

53

Current liabilities held for sale

$

175

$

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

March 31, 

December 31, 

2020

    

2019

Billed

$

184

$

211

Unbilled

 

77

 

100

Total trade receivables

261

311

Orbital receivables, current portion

42

43

Other

3

4

Allowance for doubtful accounts

(1)

(1)

Trade and other receivables, net

$

305

$

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 March 31, 2020 and December 31, 2019, non-current orbital receivables, net of allowances were $363 million and $382 million, respectively, and are included in Non-current assets on the Unaudited Condensed Consolidated Balance Sheets.

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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)

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.

As of March 31, 2020, the Company had orbital receivables from 14 customers for which the largest customer’s value represents $48 million, or 12% of the stated balance sheet value. During the three months ended March 31, 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. There were no orbital impairments during the three months ended March 31, 2019.

The changes in allowance for expected credit losses related to non-current orbital receivables for the three months ended March 31, 2020 consist of the following:

Orbital Receivables Allowance

Allowance as of January 1, 2020

$

(35)

Additions

 

(14)

Allowance as of March 31, 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 amount of securitization liabilities at March 31, 2020 and December 31, 2019 was $63 million and $65 million, respectively, Current securitization liabilities of $17 million and $17 million, are included in Other current liabilities on the Unaudited Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019, respectively. Non-current securitization liabilities of $46 million and $48 million are included in Other non-current liabilities on the Unaudited Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019, respectively.

5.  INVENTORY

    

March 31, 

December 31, 

2020

    

2019

Raw materials

$

19

$

13

Work in process

6

7

Inventory

$

25

$

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)

    

March 31, 

December 31, 

2020

    

2019

Satellites

$

397

$

397

Equipment

197

196

Leasehold improvements

80

75

Computer hardware

72

67

Furniture and fixtures

15

15

Construction in process

424

388

Property, plant and equipment, at cost

1,185

1,138

Accumulated depreciation

 

(403)

(380)

Property, plant and equipment, net

$

782

$

758

Depreciation expense for property, plant and equipment was $24 million and $28 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

7.  INTANGIBLE ASSETS

    

March 31, 2020

December 31, 2019

Gross carrying value

Accumulated amortization

Net carrying value

Gross carrying value

Accumulated amortization

Net carrying value

Customer relationships

$

615

$

(113)

$

502

$

615

$

(102)

$

513

Backlog

 

330

 

(241)

 

89

 

330

 

(217)

 

113

Technologies

320

(161)

159

320

(144)

176

Software

230

(92)

138

213

(83)

130

Image library

80

(51)

29

80

(48)

32

Trade names and other

37

(11)

26

37

(10)

27

Intangible assets

$

1,612

$

(669)

$

943

$

1,595

$

(604)

$

991

Amortization expense related to intangible assets was $66 million and $67 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

8.  INVESTMENTS

Short-term investments consist of mutual funds and financial instruments purchased with a term to maturity at inception between three months and one year. Short-term investments are measured at fair value through net income. Short-term investments are included within Prepaid and other current assets in the Unaudited Condensed Consolidated Balance Sheets.

The Company has investments in joint ventures where it does not have a controlling financial interest but has the ability to exercise significant influence. These investments are accounted for under the equity method and are included within Other non-current assets in the Unaudited Condensed Consolidated Balance Sheets. The Company’s share of the joint venture’s net income or loss is included within Equity in (income) loss from joint ventures, net of tax in the Unaudited Condensed Consolidated Statements of Operations.

The Company’s most significant joint venture is Vricon Inc. (“Vricon”), a joint venture with Saab AB, specializing in the production of 3D models using high resolution imagery. The Company has an ownership interest of approximately 50% in Vricon. Both Maxar and Saab AB act as resellers of Vricon’s products. In the year ended December 31, 2019,

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

Vricon recorded revenues from Maxar and Saab AB of $3 million and $15 million, respectively. Of these sales, Maxar had completed all of its sales to the end customer as of December 31, 2019. As of March 31, 2020, Saab AB has $14 million remaining of the 2019 sales which have not been sold to the end customer. Vricon revenues from Maxar and Saab AB for the three months ended March 31, 2020, were insignificant.

9.  LEASES

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

The Company’s leases have remaining lease terms of up to 15 years, some of which include options to extend the lease anywhere from one to ten years and are included in the lease term when it is reasonably certain the Company will exercise the option.

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

Three months ended March 31, 

    

Classification

2020

2019

Operating lease expense

Selling, general, and administrative expense, Product costs, and Service costs1

$

11

$

6

1

Excluding depreciation and amortization

Supplemental lease balance sheet information consists of the following:

March 31, 

December 31, 

Classification

2020

2019

Assets:

Operating

Non-current operating lease assets

$

176

$

176

Finance

Property, plant, and equipment, net

5

5

Total lease assets

$

181

$

181

Liabilities:

Current

Operating

Current operating lease liabilities

$

41

$

40

Finance

Current portion long-term debt

2

2

Non-current

Operating

Operating lease liabilities

172

173

Finance

Long-term debt

1

1

Total lease liabilities

$

216

$

216

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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)

Supplemental lease cash flow information is as follows:

Three months ended March 31, 

2020

2019

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

Operating cash flows from operating leases

$

10

$

7

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

12

Other supplemental lease information consists of the following:

March 31, 

    

December 31, 

2020

2019

Weighted average remaining lease term (in years)

Operating leases

8

9

Finance leases

3

3

Weighted average discount rate

Operating leases

6.4%

6.4%

Finance leases

3.5%

3.5%

Maturities of lease liabilities are as follows:

20201

    

2021

2022

2023

2024

Thereafter

Less: imputed interest

Total minimum lease payments

Operating leases

$

32

$

42

$

32

$

29

$

26

$

118

$

(66)

$

213

Finance leases

2

1

1

(1)

3

1  Excludes the three months ended March 31, 2020.

10.  LONG-TERM DEBT AND INTEREST EXPENSE, NET

March 31, 

December 31, 

    

2020

    

2019

Syndicated Credit facility:

 

  

 

  

Revolving credit facility

$

15

$

Term Loan B

1,955

1,960

2023 Notes

1,000

1,000

Deferred financing

32

33

Debt discount and issuance costs

 

(52)

 

(54)

Obligations under finance leases and other

 

5

 

6

Total long-term debt

 

2,955

 

2,945

Current portion of long-term debt

 

(29)

 

(30)

Non-current portion of long-term debt

$

2,926

$

2,915

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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 senior secured syndicated credit facility (the “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 (the “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 (the “Term Loan B”).

The Revolving Credit Facility includes an aggregate $200 million sub limit under which letters of credit can be issued. As of March 31, 2020 and December 31, 2019, the Company had $18 million of issued and undrawn letters of credit outstanding under the Revolving Credit Facility.

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

Three Months Ended March 31, 

2020

    

2019

Interest on long-term debt

$

54

$

45

Interest expense on advance payments from customers

2

5

Interest on orbital securitization liability

1

2

Capitalized interest

(8)

(3)

Interest expense, net

$

49

$

49

11.  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 March 31, 2020

Level 1

Level 2

Level 3

Total

 

Assets

 

  

 

  

 

  

 

  

Orbital receivables 1

$

$

405

$

$

405

Liabilities

Interest rate swaps

$

$

32

$

$

32

Long-term debt 2

2,234

2,234

$

$

2,266

$

$

2,266

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

Recurring Fair Value Measurements of as of December 31, 2019

Level 1

Level 2

Level 3

Total

 

Assets

 

  

 

  

 

  

 

  

Short-term investments

$

1

$

$

$

1

Orbital receivables1

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 $405 million and $425 million at March 31, 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 $2,918 million and $2,906 million at March 31, 2020 and December 31, 2019, 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.

12. STOCKHOLDERS’ EQUITY

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

Tax Benefit Preservation Plan

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

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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)

investor base have the unintended effect of limiting the use of the Company’s Tax Benefits. There is no impact to the financial statements as a result of the Tax Plan. The Tax Plan will expire on October 5, 2020.

As of March 31, 2020 and December 31, 2019, the Company had 2,400,000 shares authorized and no shares outstanding of the Series A Preferred stock.

Changes in the components of Accumulated other comprehensive income (loss) 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) income1

(49)

(15)

1

(63)

Balance as of March 31, 2020

$

77

$

(27)

$

(54)

$

(4)

1

There is insignificant tax expense related to Foreign currency translation and for Pensions and other postretirement plans for the three months ended March 31, 2020.

13. REVENUE

On March 31, 2020, the Company had $1.7 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 $1.1 billion, $0.4 billion, and $0.2 billion for the remaining nine months ended December 31, 2020, and the year ending December 31, 2021 and thereafter, respectively.

Contract liabilities by segment are as follows:

    

As of March 31, 2020

    

Earth Intelligence1

    

Space Infrastructure

    

Total

Contract liabilities

$

101

$

122

$

223

As of December 31, 2019

    

Earth Intelligence1

    

Space Infrastructure

    

Total

Contract liabilities

$

130

$

145

$

275

1

The contract liability balance associated with the Company’s EnhancedView Contract was $49 million and $78 million as of March 31, 2020 and December 31, 2019, respectively. During the three months ended March 31, 2020, imputed interest on advanced payments increased the contract liability balance by $1 million, and $30 million in revenue was recognized, decreasing the contract liability balance. The contract liability balance associated with the Company’s EnhancedView Contract is expected to be recognized as revenue through August 31, 2020.

The decrease in total contract liabilities was primarily due to revenues recognized based upon 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 March 31, 2020

    

Earth Intelligence

    

Space Infrastructure

    

Eliminations

    

Total

Product revenues

$

$

107

$

$

107

Service revenues

 

271

 

3

 

 

274

Intersegment

 

22

 

(22)

 

$

271

$

132

$

(22)

$

381

Three Months Ended March 31, 2019

    

Earth Intelligence

    

Space Infrastructure

    

Eliminations

    

Total

Product revenues

$

$

166

$

$

166

Service revenues

 

254

 

11

 

 

265

Intersegment

33

(33)

$

254

$

210

$

(33)

$

431

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 $7 million for both the three months ended March 31, 2020 and 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.

For the three months ended March 31, 2020, the Company incurred COVID-19 related EAC growth of $18 million within the Space Infrastructure segment. 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 COVID-19 EAC growth assumes, among other things, that the current shelter in place order in California is substantially relaxed effective July 2020.

During the three months ended March 31, 2020, the Company recorded an additional $19 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 $12 million which is included in our total COVID-19 impact discussed above.

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MAXAR TECHNOLOGIES INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

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