GeoEye (GEOYE) 10-Q 2012 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

or

o 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: 001-33015

GeoEye, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-2759725
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2325 Dulles Corner Boulevard	20171
Herndon, VA	(Zip Code)
(Address of principal executive offices)

 (Registrant’s telephone number, including area code)

(703) 480-7500

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 of 1934 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 x     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes x     No o

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

Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

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

The number of shares outstanding of GeoEye’s common stock, par value $0.01, or the Common Stock, as of August 2, 2012 was 22,510,640 shares.

TABLE OF CONTENTS

PART I —	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II —	OTHER INFORMATION	32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 6.	Exhibits	46
Signatures		48

In this Quarterly Report on Form 10-Q, or Quarterly Report, “GeoEye,” the “Company,” “we,” “our,” and “us” refer to GeoEye, Inc. and its subsidiaries.

We own or have rights to various copyrights, trademarks, and trade names used in our business, including the following: GEOEYE®; IKONOS®; ORBIMAGE®; ORBVIEW®; ROADTRACKER®; GEOEYE FOUNDATIONtm; GEOPROFESSIONALtm; GEOSTEREOtm; GEOFUSEtm; EYEQtm; EYEONtm; SEASTARtm; SEASTAR FISHERIES INFORMATION SERVICEsm; MARINE INFORMATION SERVICEsm; MASTERCASTtm; OCEAN MONITORING SERVICEsm; ORBBUOYtm; ORBMAPtm; TRUSTED IMAGERY EXPERTStm; VESSEL TRACKINGtm; ELEVATING INSIGHTtm; GEOEYE ANALYTICStm; EARTHWHEREtm; SIGNATURE ANALYSTtm; GEOEYE 3D AIRPORTtm; GEOEYE 3D HARBORtm; and GEOTRACKERtm

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GEOEYE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2012		December 31, 2011
	(Unaudited)
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	230,889	$	188,738
Short-term investments		8,600		9,220
Accounts receivable - trade and unbilled receivables (net of allowances: 2012 - $611; 2011 - $718)		45,248		39,917
Income tax receivable		2,685		19,645
Restricted cash		3,952		4,207
Current deferred tax assets		2,148		2,148
Prepaid expenses and other current assets		15,241		14,805
Total current assets		308,763		278,680
Property, plant and equipment, net		52,359		48,065
Satellites and related ground systems, net		1,028,425		913,454
Goodwill		67,945		68,130
Intangible assets (net of accumulated amortization: 2012 - $19,231; 2011 - $17,634)		8,929		10,526
Non-current restricted cash		4,902		6,875
Other non-current assets		8,377		8,855
Total assets	$	1,479,700	$	1,334,585
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	49,624	$	58,510
Current portion of deferred revenue		58,902		53,433
Total current liabilities		108,526		111,943
Long-term debt		512,571		511,019
Long-term deferred revenue, net of current portion		228,306		131,968
Deferred tax liabilities		83,289		64,694
Other non-current liabilities		8,047		7,674
Total liabilities		940,739		827,298
Commitments and contingencies		-		-
Stockholders’ equity:
Series A convertible preferred stock		1		1
Series B junior participating preferred stock		-		-
Common stock		225		222
Additional paid-in capital		382,973		379,154
Retained earnings		155,762		127,910
Total stockholders’ equity		538,961		507,287
Total liabilities and stockholders’ equity	$	1,479,700	$	1,334,585

See Notes to Unaudited Condensed Consolidated Financial Statements.

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GEOEYE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
	(In thousands, except per share amounts)						(In thousands, except per share amounts)
Revenues	$	88,394		$	87,206		$	177,677		$	173,832
Operating expenses:
Direct costs of revenue (exclusive of depreciation and amortization)		30,294			31,426			60,710			62,738
Depreciation and amortization		17,756			17,492			35,495			34,218
Selling, general and administrative		18,219			14,696			33,647			29,090
Total operating expenses		66,269			63,614			129,852			126,046
Income from operations		22,125			23,592			47,825			47,786
Interest income (expense), net		1,307			(2,604	)		1,360			(7,127	)
Income before provision for income taxes		23,432			20,988			49,185			40,659
Provision for income taxes		(9,341	)		(7,579	)		(19,338	)		(15,003	)
Net income		14,091			13,409			29,847			25,656
Preferred stock dividends		(998	)		(998	)		(1,995	)		(1,984	)
Net income less preferred stock dividends		13,093			12,411			27,852			23,672
Income allocated to participating securities		(1,402	)		(1,344	)		(2,993	)		(2,569	)
Net income available to common stockholders	$	11,691		$	11,067		$	24,859		$	21,103
Earnings per share:
Basic	$	0.52		$	0.50		$	1.11		$	0.96
Diluted	$	0.51		$	0.49		$	1.09		$	0.93
Shares used to compute basic earnings per share		22,420			22,130			22,328			22,087
Shares used to compute diluted earnings per share		22,758			22,756			22,774			22,760
Other comprehensive income (loss):
Foreign currency translation adjustments	$	35		$	(32	)	$	(47	)	$	(60	)
Income tax (provision)/benefit related to items of other comprehensive income		(14	)		12			18			22
Other comprehensive income (loss), net of tax		21			(20	)		(29	)		(38	)
Comprehensive income		14,112			13,389			29,818			25,618
Preferred stock dividends		(998	)		(998	)		(1,995	)		(1,984	)
Comprehensive income less preferred stock dividends		13,114			12,391			27,823			23,634
Comprehensive income allocated to participating securities		(1,404	)		(1,342	)		(2,990	)		(2,565	)
Comprehensive income available to common stockholders	$	11,710		$	11,049		$	24,833		$	21,069

See Notes to Unaudited Condensed Consolidated Financial Statements.

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GEOEYE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Six Months Ended June 30,
	2012			2011
	(In thousands)
Cash flows from operating activities:
Net income	$	29,847		$	25,656
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		35,495			34,218
Non-cash recognition of deferred revenue		(18,515	)		(16,452	)
Non-cash amortization of deferred costs		2,043			1,821
Amortization of debt discount and issuance costs		-			1,873
Impairment and other write-offs		186			-
Bad debt (recovery) expense and other		(247	)		839
Deferred income taxes		19,338			14,991
Stock-based compensation		5,176			5,737
Changes in deferred revenue		120,322			883
Changes in assets and other liabilities		6,811			15,706
Net cash provided by operating activities		200,456			85,272
Cash flows from investing activities:
Capital expenditures		(159,822	)		(166,540	)
Proceeds from sale of property, plant and equipment		3,125			-
Investment purchase		(500	)		-
Redemptions of short-term investments		620			35,580
Adjustment for SPADAC acquisition		-			340
Net cash used in investing activities		(156,577	)		(130,620	)
Cash flows from financing activities:
Prepaid financing costs		-			(118	)
Preferred stock dividend payments		(1,995	)		(1,994	)
Proceeds from exercise of stock options and other		267			858
Net cash used in financing activities		(1,728	)		(1,254	)
Net increase (decrease) in cash and cash equivalents		42,151			(46,602	)
Cash and cash equivalents, beginning of period		188,738			283,233
Cash and cash equivalents, end of period	$	230,889		$	236,631
Supplemental disclosures of cash flow information:
Interest paid, net of capitalized interest	$	-		$	5,232
Income taxes paid		501			27
Non-cash surrender of common stock to cover employees' minimum tax liability		(2,213	)		(1,267	)
Non-cash preferred stock dividend accrual		997			998
Conversion of note receivable to cost method investment		1,500			-
Non-cash consideration on customer transaction		-			1,920

See Notes to Unaudited Condensed Consolidated Financial Statements.

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GEOEYE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)  General Information

Business

GeoEye is a leading source of geospatial information and insight for decision makers and analysts who need a clear understanding of our changing world to protect lives, manage risk and optimize resources. Each day, organizations involved in defense and intelligence, public safety, critical infrastructure, energy and online media rely on GeoEye’s Earth imagery, geospatial expertise and enabling technology to support important missions around the globe. Widely recognized as a pioneer in high-resolution satellite imagery, GeoEye has evolved into a complete provider of geospatial intelligence solutions.

We own and operate two Earth-imaging satellites, GeoEye-1 and IKONOS, with advanced high-resolution imagery collection capabilities. GeoEye-1 is the world’s highest resolution and most accurate commercial Earth-imaging satellite.

In addition to our imagery collection capacities, we are a global leader in the creation of enhanced satellite imagery information products and services. We operate state-of-the-art high-resolution image processing and production facilities in St. Louis, Missouri and Thornton, Colorado. Our St. Louis, Missouri facility processes imagery from numerous commercial and government sensors, in addition to our own enhanced satellite imagery information products and services, to produce a variety of value-added products. We believe we are the only major commercial imagery satellite operator who can produce imagery from multiple Earth imagery sources in addition to our own enhanced satellite imagery information products and services.

GeoEye’s information services allow its customers to collect, process and analyze vast amounts of geospatial data to quickly see precise changes on the ground and anticipate where events may occur in the future. Our Web-based information services platform, EyeQ, can provide imagery services and other layers of geospatial information on demand. EyeQ combines imagery products with on-demand tools for managing geospatial information and project-based collaboration. GeoEye Analytics, which provides geospatial predictive analytic solutions, has expertise in analyzing multiple layers of intelligence, including human geography, to discover patterns in order to gain insights that protect lives, optimize deployment of resources and mitigate risk.

We believe the combination of our highly accurate satellite imaging assets, our high-resolution image processing and production facilities—especially our multi-source production capability—our color digital imagery library and our information services differentiate us from our competitors. This combination enables us to provide “elevated insight” by delivering a comprehensive range of Earth imagery, geospatial expertise and enabling technology to our diverse customer base.

We serve both domestic and international customers with imagery, products and information services. Our principal customers are U.S. government agencies. Most of our government contracts are funded incrementally on a year-to-year basis. Our largest government contract, the EnhancedView Service Level Agreement, or SLA (see Note 2), has up to eight additional one-year renewal options. Changes in U.S. government policies, priorities or funding levels could materially and adversely affect our financial condition, liquidity and results of operations. For the three and six months ended June 30, 2012, U.S. government agencies represented approximately 69 percent and 67 percent of our total revenues, respectively.

Basis of Presentation

The condensed consolidated financial statements of GeoEye have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission, or SEC. The financial information included herein, other than the condensed consolidated balance sheet as of December 31, 2011, has been prepared without audit. The condensed consolidated balance sheet as of December 31, 2011, has been derived from, but does not include, all the disclosures contained in the audited consolidated financial statements for the year ended December 31, 2011. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments and accruals that are necessary for a fair presentation of the results of all interim periods presented herein and are of a normal recurring nature.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in GeoEye’s Annual Report on Form 10-K for the year ended December 31, 2011. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

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Principles of Consolidation

The condensed consolidated financial statements include the accounts of GeoEye and all of its wholly-owned subsidiaries. All balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires management to make judgments, estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Restricted Cash

The Company is party to irrevocable standby letters of credit, in connection with contracts between GeoEye and third parties, in the ordinary course of business to serve as performance obligation guarantees. As of June 30, 2012, the Company had $8.9 million classified as restricted cash as a result of the irrevocable standby letters of credit. $4.0 million is available within one year and is classified as current, and the remaining $4.9 million is available through 2022.

Investments

We record our investments in debt securities at fair value, and classify these securities as short-term investments on the consolidated balance sheet when the original maturities at purchase are greater than ninety days but less than one year.

The Company’s short-term investments consist of variable rate demand notes.

As of June 30, 2012, and December 31, 2011, we categorized all of our investments as available-for-sale, and all of these outstanding short-term investments mature within one year. Although the variable-rate demand notes have long-term contractual maturity dates of 20 to 30 years, the interest rates reset weekly. Despite the long-term nature of the underlying securities, they are classified as short-term due to our ability to quickly liquidate or put back these securities.

Additionally, as of June 30, 2012, the Company holds a minor equity investment in a technology company servicing the solar energy industry, which is accounted for as a cost method investment.

Goodwill and Intangible Assets

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired. Goodwill is tested for impairment annually on October 1 or whenever an event occurs or circumstances change that could reduce the fair value of a reporting unit below its carrying amount. As a result of the acquisition of SPADAC Inc. in December 2010, we determined that a new reporting unit was created. As of June 30, 2012, and December 31, 2011, GeoEye’s reporting units are GeoEye, Inc. and GeoEye Analytics.

In assessing the recoverability of goodwill, we calculate the fair market value at the reporting unit level, based upon discounted cash flows that utilize estimates in annual revenues, gross margins and other relevant factors for determining the fair value. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, the Company compares the implied value of goodwill with its carrying amount. If the carrying amount of the goodwill exceeds the implied fair value of goodwill, an impairment loss would be recognized for the difference between the carrying amount and the implied fair value of goodwill.

We considered as a potential indication of goodwill impairment, the circumstances of our negotiations with the National Geospatial-Intelligence Agency, or the NGA, regarding the terms of the renewal of our Enhanced View SLA and the situation at June 30, 2012 when the market value of our common stock traded below its book value. Subsequent to this date on July 22, 2012, we entered into a Merger Agreement with DigitalGlobe (see Note 14) and the market value of our common stock has appreciated above its book value. Based upon the expected closing of the Merger, we have concluded that there is no indication of goodwill impairment.

Intangible assets arising from business combinations are initially recorded at fair value. We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, which are generally two to ten years. We review for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Impairment of Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Impairment losses are recognized in operating results when the sum of expected discounted net future cash flows is less than the carrying value of the assets. The amount of the impairment is measured as the difference between the asset’s estimated fair value and its carrying value. Fair value is determined primarily using projected future cash flows.

7

Preferred Stock

In September 2010, the Company issued Series A Convertible Preferred Stock, or the Series A Preferred Stock, par value of $.01 per share. Cumulative dividends on the Series A Preferred Stock are payable at a rate of 5 percent per annum of the $1,000 liquidation preference per share. At the Company’s option, dividends may be declared and paid in cash out of funds legally available therefore, when, as and if declared by the Board of Directors of the Company. If not paid in cash, an amount equal to the cash dividends due is added to the liquidation preference. Dividends payable in cash are recorded in current liabilities. All dividends payable, whether in cash or as an addition to the liquidation preference, are recorded as a reduction to our retained earnings.

Earnings per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Net income available to common stockholders is equal to net income less preferred stock dividends and income allocated to participating securities. The Company’s preferred shares are participating securities and require the two-class method of computing earnings per share. Diluted earnings per share is calculated by dividing net income available to common stockholders as adjusted for the effect of dilutive common equivalent shares by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the common shares issuable upon the conversion of the convertible preferred shares and those issuable related to stock options, deferred stock units, employee stock purchase plan shares and nonvested stock. For purposes of computing diluted earnings per share, the if-converted method will be used to the extent that the result is more dilutive than the application of the two-class method.

Revenue Recognition

Our principal sources of revenue are from imaging services, the sale of satellite imagery directly to end users or value-added resellers, the provision of direct access to our satellites, associated ground processing technology upgrades and operations and maintenance services. We also derive significant revenue from value-added production services where we combine our images with data and imagery from our own and other sources to create sophisticated information products. Additionally, new sources of revenue include the dissemination and hosting of imagery and the provision of consultation, integration, data analysis and other professional services related to geospatial information systems.

We record revenues from the sale of satellite imagery directly to end users or value-added resellers based on the delivery of the imagery. This revenue is recognized when the products are delivered to the customer, and, generally, these arrangements are contracted for separately on a stand-alone basis.

Sales of direct access to our satellites ordinarily require us to provide access over the term of multi-year sales contracts under subscription-based arrangements. Accordingly, we recognize revenues on such imagery contracts on a straight-line basis over the delivery term of the contract. However, certain multi-year sales contracts are based on minimum levels of access time with adjustments based on usage. In addition to the sale of direct satellite access, we may separately sell ground processing technology upgrades and operations and maintenance services to a customer in a bundled arrangement. If the satellite access service is combined with the sale of ground processing technology upgrades and operations and maintenance services, and the requirements for separate revenue recognition are not met, we recognize revenues on a straight-line basis over the combined delivery term of the services. In other arrangements when the separation criteria are met, total arrangement consideration is allocated to each separate unit of accounting using relative fair value. Revenues are recognized over the appropriate service period: access and operations and maintenance are recognized over the contract term; and ground processing technology upgrades are recognized when delivery and acceptance is complete. We consider a deliverable to have standalone value if the product or service provides value to the customer independent from other elements in the arrangement or if the product or service is sold separately by us or if it could be resold by the customer. Our revenue arrangements generally do not include a general right of return relative to the delivered products.

Revenue is recognized on contracts to provide value-added production services using the percentage-of-completion method. Revenue is recognized under different acceptable alternatives of the percentage-of-completion method depending on the terms of the underlying contract, which include input measures based on costs and efforts expended or output measures based on units of delivery or completion of contractual milestones. Total unbilled accounts receivable were $5.8 million and $6.6 million at June 30, 2012 and December 31, 2011, respectively. Generally, these arrangements are sold on a standalone basis and are not bundled with other product offerings. To the extent that estimated costs of completion are adjusted, revenue and profit recognized from a particular contract will be affected in the period of the adjustment. Anticipated contract losses are recognized as they become known.

We record revenues generated from the information services base offerings, including dissemination and hosting of imagery, on a straight-line basis over the subscription period.

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Revenues for consultation and professional services are recognized as the services are performed. Revenues from time and materials contracts are recognized based on man-hours utilized, plus other reimbursable contract costs incurred during the period. Revenues from firm-fixed price contracts are recognized on a percentage of completion basis, utilizing the relationship of contract costs incurred and management’s estimate of total contract costs. Revenues from cost-reimbursable contracts are recognized based on costs incurred, with applied estimated or contractually specified indirect cost rates and our contractually specified fee or profit margin.

Deferred revenue represents receipts in advance of the delivery of imagery or services. Revenue for other services is recognized as services are performed. In addition, cost-share amounts received from the U.S. government are recorded as deferred revenue when received and recognized on a straight-line basis over the useful life of the satellite.

Recent Accounting Pronouncements

In June 2011, the FASB issued guidance on the presentation of comprehensive income. Specifically, the new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2011. The Company adopted the guidance on a retrospective basis on January 1, 2012. The guidance does not have any impact on the Company’s financial position, results of operations or cash flows. However, it does result in a change to the Company’s presentation and disclosure of comprehensive income.

In May 2011, the FASB issued new guidance for fair value measurements intended to achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The guidance modifies the existing standard to include disclosure of all transfers between Level 1 and Level 2 asset and liability fair value categories. In addition, it provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. The guidance requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. The guidance is effective for interim and annual reporting periods beginning after December 15, 2011, with early adoption prohibited. We adopted the new guidance effective January 1, 2012, which did not have a material impact on the Company’s financial statement disclosures.

(2)  EnhancedView Program

On August 6, 2010, the NGA originally awarded us a contract under its EnhancedView program. This competitively awarded contract supports the EnhancedView program by providing products and services that will help meet the increasing geospatial intelligence needs of the intelligence community and the Department of Defense

The EnhancedView program award provides for a new satellite imagery delivery SLA with the NGA. The EnhancedView SLA initially provided for continued monthly payments by the NGA of up to $12.5 million ($150.0 million per year), subject to a maximum reduction of 10 percent in the base year and 15 percent in the option years based on performance metrics. Under the EnhancedView SLA, to the extent that less than $12.5 million is paid by the NGA for any month, the shortfall can be applied to future products and services or used to fund an extension of the contract. The EnhancedView SLA originally provided for payments to increase by an additional $15.3 million per month ($183.6 million per year), also subject to a maximum reduction of 15 percent based on performance metrics when GeoEye-2 becomes operational and meets NGA certification requirements, which we currently expect will occur in 2013. The initial term of the EnhancedView SLA was one year, with nine one-year renewal options exercisable by the NGA. Imagery deliveries under the EnhancedView SLA began on September 1, 2010, and the imagery is collected by the Company’s existing satellite constellation.

On June 22, 2012, we were notified by the NGA that, due to funding shortfalls, it will not exercise the full year Enhanced View SLA option for the Contract Year September 1, 2012, through August 31, 2013. Instead, the NGA proposed a three-month option that the NGA intends to exercise providing for service revenue to the Company from September 1, 2012, through November 30, 2012, of $37.5 million and $2.25 million for SLA and additional web hosting services, respectively, or a total of $39.75 million, and a further nine-month option for the remainder of the Contract Year through August 31, 2013, providing for service revenue to the Company, based upon the availability of funding of $119.25 million.  Assuming the Company agrees to this proposal and NGA exercises both options, total service revenue to the Company for the full Contract Year would be $159.0 million. There can be no assurances, however, that funding will be available to NGA to exercise both options as proposed.  Although we believe the U.S. government will continue to need to purchase imagery from us to meet defense intelligence needs, it is uncertain funding for the SLA will continue after August 31, 2012 at current levels or at any level.

9

    As part of the EnhancedView contract, the NGA initially agreed to contribute 42.1 percent of the cost, up to a maximum of $337.0 million, of the overall construction and launch costs of the GeoEye-2 satellite and associated ground station equipment. GeoEye-2 satellite is currently scheduled for launch in the first half of 2013.  The contract provides that the contribution should be made in two cost-share payments: the first payment of $111.2 million when the GeoEye-2 satellite is ready for integration and testing; and the second payment, and balance of the cost-share, when the GeoEye-2 satellite becomes operational and meets NGA certification requirements. To date, the NGA has obligated funding of $181.0 million on this contract to cover these cost-share payments.  In June 2012, the Company received the first cost-share payment of $111.2 million, as a result of the Company meeting the NGA’s integration and testing requirements. This $111.2 million cost share payment will be initially recorded as deferred revenue and recognized as revenue over the expected operational life of the GeoEye-2 satellite.

Additionally on June 22, 2012, we were notified by the NGA that it is electing not to obligate additional funding under the GeoEye-2 cost share agreement.  After deducting the $111.2 million payment which was received by us in June 2012 upon completion of the first payment milestone, there is approximately $70.0 million left in obligated funding on the contract. The NGA has expressed an interest in restructuring the agreement to modify the specific milestones upon which the remaining obligated funds will be paid to us.  The parties are currently negotiating the terms of any such modification to the contract. Assuming no additional funds will be obligated by the U.S. government toward the overall cost of construction and launch of GeoEye-2, NGA will have contributed approximately 23 percent of the total original estimated cost of the GeoEye-2 program, and we will have contributed the rest.  We intend to complete GeoEye-2 on schedule in 2013.

The EnhancedView program award also provides for up to an estimated $702.0 million for value-added products and services and our EyeQ Web Mapping Services to be delivered over the life of the EnhancedView SLA, if requested by NGA. A portion of this award includes funding for the design and procurement of additional infrastructure to support government operations, which will be initially recorded as deferred revenue and recognized as revenue over the contractual term of the EnhancedView contract.

The EnhancedView program replaced the NextView program, except that GeoEye will continue to fulfill existing NextView value-added product and services orders until such orders are complete. New value-added product and services orders are expected to be placed under the EnhancedView contract. The NextView SLA portion of the NextView program was replaced by the EnhancedView SLA as of September 1, 2010.  We recognized $37.8 million and $75.3 million of imagery and other revenue under the EnhancedView SLA during the three and six months ended June 30, 2012, respectively. We recognized $36.6 million and $73.0 million of imagery and other revenue under the EnhancedView SLA during the three and six months ended June 30, 2011, respectively. Additionally, during each of the three and six months ended June 30, 2012 and 2011, we recognized $6.0 million and $12.1 million, respectively, of deferred revenue related to the recognition of the cost-share amounts for the GeoEye-1 satellite from the NextView contract.

(3)  Investments

At June 30, 2012, and December, 31, 2011, GeoEye held short-term investments, all of which are classified as available-for-sale. These investments consist of variable-rate demand notes with costs of $8.6 million and $9.2 million as of June 30, 2012 and December 31, 2011, respectively, which equal their estimated fair values. There were no gross unrecognized gains or losses as of June 30, 2012, or December, 31, 2011.

Additionally, as of June 30, 2012, the Company owns less than a 20 percent interest in a technology company servicing the solar energy industry and does not exercise significant influence over the operating or financial decisions. This cost method investment of $1.5 million is included in other non-current assets on the condensed consolidated balance sheet.

(4)  Property, Plant and Equipment

Property, plant and equipment consisted of the following at June 30, 2012, and December 31, 2011 (in thousands):

	June 30, 2012			December 31, 2011
Land and buildings	$	6,817		$	7,419
Furniture, computers, equipment and software		55,273			55,294
Leasehold improvements		20,340			19,405
Accumulated depreciation		(38,931	)		(36,713	)
Subtotal		43,499			45,405
Property, plant and equipment in process		8,860			2,660
Property, plant and equipment, net	$	52,359		$	48,065

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We record property, plant and equipment at cost. We also capitalize certain internal and external software development costs incurred to develop software for internal use. Costs of major enhancements to internal use software are capitalized while routine maintenance of existing software is charged to expense as incurred. Property, plant and equipment in process include costs incurred in connection with our Thornton facilities expansion, as well as other additional computer hardware and software costs. During the six months ended June 30, 2012, we disposed of our facility in Norman, Oklahoma, as well as the assets related to our aerial imagery business.

Depreciation expense related to property, plant and equipment was $3.4 million and $3.1 million for the three months ended June 30, 2012 and 2011, respectively, and $6.8 million and $5.6 million for the six months ended June 30, 2012 and 2011, respectively.

(5)  Satellites and Related Ground Systems

Satellites and related ground systems consisted of the following at June 30, 2012, and December 31, 2011 (in thousands):

	June 30, 2012			December 31, 2011
Satellites	$	412,475		$	411,105
Ground systems		89,984			89,984
Accumulated depreciation		(196,318	)		(169,281	)
Subtotal		306,141			331,808
Satellites and ground systems in process		722,284			581,646
Satellites and related ground systems, net	$	1,028,425		$	913,454

The capitalized costs of the Company’s satellites and related ground systems include internal direct labor and project management costs, internally developed software and material costs related to assets that support the satellites’ construction and development. The cost of the Company’s satellites and related ground systems also includes capitalized interest incurred during the construction, development and initial in-orbit testing period.

As of June 30, 2012, and December 31, 2011, we have incurred total capitalized costs of $718.3 million and $578.7 million, respectively, related to the Company’s development efforts for EnhancedView, primarily consisting of costs for the development of and construction of GeoEye-2. Included in these costs is capitalized interest of $89.7 million and $63.0 million, as of June 30, 2012, and December 31, 2011, respectively.

We maintain in-orbit insurance policies covering our GeoEye-1 and IKONOS satellites. We capitalize the portion of the premiums associated with the insurance coverage of the launch and in-orbit commissioning period of our commercial satellites. Accordingly, prior to the start of GeoEye-1’s commercial operations, we capitalized a portion of insurance premiums in the cost of the satellite that are being amortized over the estimated life of GeoEye-1, which is nine years. Following launch and in-orbit commissioning, insurance premium amounts related to in-orbit operations are charged to expense ratably over the related policy periods.

The Company maintains insurance policies for GeoEye-1 with both full coverage and total-loss-only coverage in compliance with our indentures. As of June 30, 2012, we carried $260.3 million of in-orbit insurance for GeoEye-1, comprised in part by $195.8 million of full coverage to be paid if GeoEye-1’s capabilities become impaired as measured against a set of specifications, which expires on December 1, 2012. We also carry $64.5 million of insurance in the event of a total loss of the satellite, which expires December 1, 2012.

Our IKONOS satellite was fully depreciated in June 2008. The IKONOS satellite is insured for $4.3 million of in-orbit coverage, which expires on December 1, 2012.

Total satellite and related ground systems depreciation expense was $13.6 million and $13.5 million for the three months ended June 30, 2012 and 2011, respectively, and $27.1 million and $26.8 million for the six months ended June 30, 2012 and 2011, respectively.

(6)  Income Taxes

The Company’s effective tax rate was 39.3 percent and 36.9 percent for the six months ended June 30, 2012 and 2011, respectively. The effective tax rate has increased over the prior year primarily due to the expiration of the research and development credit on December 31, 2011. The Company’s effective tax rate differs from the federal tax rate primarily due to state and local income taxes.

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(7)  Long-Term Debt

On October 8, 2010, the Company issued $125.0 million aggregate principal of 8.625 percent Senior Secured Notes due 2016, or the 2016 Notes, in a publicly registered offering. Interest payments on the 2016 Notes are due semi-annually in arrears on April 1 and October 1 of each year. At any time on or after October 1, 2013, the Company may, on one or more occasions, redeem all or part of the 2016 Notes at 104.313 percent of principal for the subsequent 12-month period; at 102.156 percent of principal on October 1, 2014, for the subsequent 12-month period; and at 100 percent of principal on October 1, 2015, and thereafter.

The 2016 Notes are unconditionally guaranteed, jointly and severally, on a secured second-priority basis, by all existing and future domestic restricted subsidiaries of the Company. The 2016 Notes and the guarantees are secured by a lien on substantially all of the assets of the Company and the guarantors.

On October 9, 2009, the Company issued $400.0 million aggregate principal, net of original issue discount of $20.0 million, of 9.625 percent Senior Secured Notes due 2015, or the 2015 Notes. Interest is payable on the 2015 Notes semi-annually in arrears on April 1 and October 1 of each year. At any time on or after October 1, 2013, the Company may on one or more occasions redeem all or part of the 2015 Notes at 104.813 percent of principal for the subsequent 12-month period and at 100 percent of principal on October 1, 2014, and thereafter.

The 2015 Notes are unconditionally guaranteed, jointly and severally, on a senior secured basis, by all existing and future domestic restricted subsidiaries of the Company. The 2015 Notes and the guarantees are secured by a lien on substantially all of the assets of the Company and the guarantors.

Except for a minor investment in foreign subsidiaries, the Company does not have any independent assets or operations other than its ownership in all of the capital stock of its subsidiaries. Since inception, all of the Company’s operations have been conducted through its wholly owned subsidiaries.

Interest (Income) Expense, Net

The composition of interest (income) expense, net, was as follows (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Interest expense	$	13,374		$	13,273		$	26,721		$	26,522
Capitalized interest		(13,374	)		(10,614	)		(26,720	)		(19,206	)
Interest income		(1,307	)		(55	)		(1,361	)		(189	)
Total interest (income) expense, net	$	(1,307	)	$	2,604		$	(1,360	)	$	7,127

Interest expense for the three and six months ended June 30, 2012 and 2011, includes interest expense on our 2016 Notes and 2015 Notes, amortized prepaid financing costs and amortization of debt discount.  Interest is capitalized on our construction in progress including our GeoEye-2 satellite and related ground systems.  Interest income represents earnings on our cash balances and 2012 includes cash interest received primarily related to federal income tax refunded to us during the quarter.

(8)  Convertible Preferred Stock

In September 2010, Cerberus Satellite LLC purchased 80,000 shares of Series A Preferred Stock having a liquidation preference of $1,000 per share. This resulted in net proceeds to the Company of $78.0 million, after discounts and before issuance costs. The Series A Preferred Stock is convertible on issuance, at the option of the holders, at a conversion rate of $29.76 per common share, which is equivalent to a conversion rate of 2.7 million shares of common stock of the Company.

The Series A Preferred Stock represents an ownership interest assuming conversion of such Series A Preferred Stock to the Company’s common stock, of approximately 10 percent as of June 30, 2012. Dividends on the Series A Preferred Stock are payable quarterly in arrears at a rate of 5 percent per annum of the liquidation preference of $1,000 per share, subject to declaration by the Board of Directors. The Company declared dividends on the Series A Preferred Stock of $1.0 million during the three months ended June 30, 2012 and 2011, and $2.0 million during the six months ended June 30, 2012 and 2011. The dividend payable of $1.0 million was included in accounts payable and accrued expenses as of June 30, 2012 and December 31, 2011.

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In connection with the February 9, 2012 second amendment to the Stockholder Rights Agreement, the Company entered into a standstill letter agreement with Cerberus Capital Management, L.P. Under the standstill agreement, Cerberus and its affiliates have agreed, subject to certain exceptions, not to take certain actions with respect to the Company during the standstill period of February 9, 2012 through the earliest of certain specified events or June 30, 2013, including, among other things, not to effect or seek to effect any acquisition by the Cerberus parties of beneficial ownership of any securities, assets or businesses of the Company, or any of its subsidiaries if, upon acquisition, the aggregate beneficial ownership of Cerberus parties of beneficial ownership would exceed 29.99 percent of the number of common shares of the Company that are then outstanding, including the shares of the Company’s Series A Convertible Preferred Stock, on an as converted basis.

On June 5, 2012, the Company entered into an amendment to the standstill letter agreement with Cerberus Capital Management, L.P. dated as of February 9, 2012. Under the Amendment, Cerberus and its affiliates have agreed, that until the earlier of the expiration of the standstill period (June 30, 2013) and the adjournment of the 2013 annual meeting of stockholders of the Company, the Cerberus parties will cause all Series A Preferred Stock or common stock owned by the Cerberus parties to be present for quorum purposes and to vote in favor of any and all directors nominated by the Board of Directors of the Company for election, provided that such nominees include all directors that holders of Series A Preferred Stock are entitled to nominate.

(9)  Fair Value Measurements

GeoEye’s financial instruments include cash and cash equivalents, available-for-sale short-term investments, restricted cash, accounts receivable, accounts payable, accrued expenses and debt. The carrying amounts of cash and cash equivalents, available-for-sale short-term investments, restricted cash, accounts receivable, accounts payable and accrued expenses approximate their respective fair values due to the short-term nature of these instruments.

The following table provides information about the financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2012, and December 31, 2011 (in thousands):

	June 30, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Available-for-sale securites	$	8,600	$	8,600	$	9,220	$	9,220
Senior Secured Notes (due 2016)		125,000		122,500		125,000		127,970
Senior Secured Notes (due 2015)		387,571		419,000		386,019		446,560

We classified the above instruments as Level 2 instruments due to the usage of market prices not quoted on active markets and other observable market data.

(10)  Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following as of June 30, 2012, and December 31, 2011 (in thousands):

	June 30, 2012		December 31, 2011
Accounts payable and accrued expenses	$	17,694	$	18,054
Accrued payroll		14,998		16,410
Accrued expenses - subcontractors		3,593		10,718
Accrued interest payable		12,320		12,320
Dividends payable		1,019		1,008
Total accounts payable and accrued expenses	$	49,624	$	58,510

(11) Stockholders’ Equity

Earnings per Share

Basic earnings per share, or EPS, is computed based on the weighted-average number of shares of the Company’s Common Stock outstanding. Diluted EPS is computed based on the weighted-average number of shares of the Company’s Common Stock outstanding and other dilutive securities. Securities that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are required to be included in the computation of basic EPS and diluted EPS pursuant to the two-class method. The Company’s Series A preferred shares are participating securities.

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The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Numerator for basic and diluted earnings per share:
Net income	$	14,091		$	13,409		$	29,847		$	25,656
Preferred stock dividends		(998	)		(998	)		(1,995	)		(1,984	)
		13,093			12,411			27,852			23,672
Income allocated to participating securities		(1,402	)		(1,344	)		(2,993	)		(2,569	)
Net income available to common stockholders	$	11,691		$	11,067		$	24,859		$	21,103
Denominator:
Weighted average shares outstanding used to compute basic earnings per share		22,420			22,130			22,328			22,087
Dilutive effect of:
Stock options, deferred stock units, restricted stock units, employee stock purchase plan shares and nonvested stock		338			626			446			673
Weighted average shares outstanding and dilutive securities used to compute diluted earnings per share		22,758			22,756			22,774			22,760

For the three and six months ended June 30, 2012, 2.7 million potential common shares from the conversion of preferred stock and 1.1 and 0.9 million stock options and nonvested stock awards, respectively, were excluded from the calculation of diluted EPS, as their inclusion would have been anti-dilutive.

For each of the three and six months ended June 30, 2011, 2.7 million potential common shares from the conversion of preferred stock and 0.4 and 0.2 million stock options and nonvested stock awards, respectively, were excluded from the calculation of diluted EPS, as their inclusion would have been anti-dilutive.

Changes in Stockholders’ Equity

Changes in stockholders’ equity for the six months ended June 30, 2012, consisted of the following (in thousands):

Balance at January 1, 2012	$	507,287
Net income for the six months ended June 30, 2012		29,847
Issuance of common stock		267
Surrender of common stock to cover employees' minimum tax liability		(2,213	)
Stock-based compensation		5,815
Foreign currency translation adjustment		(47	)
Preferred stock dividends		(1,995	)
Balance at June 30, 2012	$	538,961

(12)  Significant Customer and Geographic Information

The Company operates in a single industry segment, in which it provides imagery, imagery information products and image-processing services to customers around the world.

GeoEye recognized revenue related to contracts with the U.S. government, directly or as a subcontractor, of $60.5 million and $57.6 million for the three months ended June 30, 2012 and 2011, representing 69 percent and 66 percent of total revenues, respectively. For the six months ended June 30, 2012 and 2011, the Company recognized $119.7 million and $118.7 million under its contracts with the U.S. government, respectively, representing 67 percent and 68 percent of total revenues for each respective period. We had no other customers for whom revenues exceeded 10 percent of total revenues during the three or six months ended June 30, 2012 or 2011.

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The Company has two product and service lines: (a) Imagery, including the NextView cost-share, and (b) Production and Other Services.

Total revenues by these lines were as follows (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Imagery	$	59,699	$	61,582	$	122,218	$	120,557
NextView cost-share		6,038		6,038		12,076		12,076
Production and other services		22,657		19,586		43,383		41,199
Total revenues	$	88,394	$	87,206	$	177,677	$	173,832

Total domestic and international revenues were as follows (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Domestic	$	67,859	$	68,348	$	133,691	$	135,414
International		20,535		18,858		43,986		38,418
Total revenues	$	88,394	$	87,206	$	177,677	$	173,832

Our property, plant and equipment and ground systems are held domestically.

(13)  Commitments and Contingencies

Contractual Obligations

The following table summarizes our contractual cash obligations as of June 30, 2012 (in thousands):

	Payments due by year
	Less than 1 Year		1 to 2 years		2 to 3 years		3 to 4 years		4 to 5 years		Thereafter		Total
Long-term debt obligations	$	-	$	-	$	-	$	400,000	$	125,000	$	-	$	525,000
Interest payments on long-term debt (1)		49,281		49,281		49,281		49,281		10,781		-		207,905
Operating lease obligations		13,989		17,938		18,266		18,677		10,811		14,017		93,698
Purchase obligations (2)		97,224		840		840		140		-		-		99,044
Total contractual obligations	$	160,494	$	68,059	$	68,387	$	468,098	$	146,592	$	14,017	$	925,647

(1) Represents contractual interest payment obligations on the $400.0 million outstanding principal balance of our 2015 Notes, which bear interest at a rate per annum of 9.625 percent and contractual interest payment obligations on the $125.0 million outstanding principal balance of our 2016 Notes, which bear interest at a rate per annum of 8.625 percent.

(2) Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that are enforceable and legally binding. As of June 30, 2012, purchase obligations include EnhancedView-related commitments, ground systems and communication services.

Operating Leases

We have commitments for operating leases primarily relating to office and operating facilities and equipment. We lease various real properties under operating leases that generally require us to pay taxes, insurance, maintenance and minimum lease payments. These leases contain escalation provisions for increases as a result of increases in real estate taxes and operating expenses. We recognize rent expense under such leases on a straight-line basis over the term of the lease. Substantially all of these leases have lease terms ranging from three to twelve years. Some of our leases have options to renew.

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Total rental expense under operating leases for the three months ended June 30, 2012 and 2011 was approximately $1.2 million and $0.9 million, respectively, and for each of the six months ended June 30, 2012 and 2011 was approximately $2.4 million.

Contingencies

GeoEye, from time to time, may be party to various lawsuits, legal proceedings and claims arising in the normal course of business. The Company cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, the Company believes that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse impact on the Company’s financial results, liquidity or operations.

(14)  Subsequent Event

On July 22, 2012, GeoEye entered into an Agreement and Plan of Merger, or the Merger Agreement, with DigitalGlobe, Inc., a Delaware corporation, or DigitalGlobe, 20/20 Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of DigitalGlobe, or Merger Sub, and WorldView, LLC, a Delaware limited liability company and a wholly owned subsidiary of DigitalGlobe, or Merger Sub 2, pursuant to which, at the effective time of the Merger, or the Effective Time, Merger Sub will be merged with and into the Company, or the Merger, and the separate corporate existence of Merger Sub will cease and the Company will continue as the surviving corporation in the Merger, or the Surviving Corporation, and immediately after the Effective Time, the Surviving Corporation will be merged with and into Merger Sub 2, or the Subsequent Merger and, together with the Merger, the Combination, and the separate corporate existence of the Surviving Corporation will cease and Merger Sub 2 will continue as the surviving company in the Subsequent Merger. The Combination is intended to qualify as a reorganization for federal income tax purposes.

Pursuant to the Merger Agreement and upon the terms and subject to the conditions described therein, at the Effective Time, (A) each issued and outstanding share of common stock, par value $0.01 per share, of GeoEye, or Company Common Stock will be converted into the right to receive either (i) with respect to which an election to receive a combination of stock and cash consideration has been effectively made, the combination, or Mixed Consideration of (x) $4.10 in cash and (y) 1.137 shares of common stock, par value $0.001 per share, of DigitalGlobe, or DigitalGlobe Common Stock, (ii) with respect to which an election to receive all cash consideration has been effectively made, $20.27 in cash without interest (subject to proration) or (iii) with respect to which an election to receive all stock consideration has been effectively made, 1.425 shares of DigitalGlobe Common Stock (subject to proration) and (B) each issued and outstanding share of Series A Convertible Preferred Stock of GeoEye, or Company Preferred Stock, will be converted into the right to receive (i) 1.000 shares of a newly-designated series of preferred stock of DigitalGlobe, or DigitalGlobe Preferred Stock, and (ii) $4.10 in cash for each share of Company Common Stock into which such share of Company Preferred Stock is convertible immediately prior to the Effective Time. If a holder of Company Common Stock does not make an election as set forth above, such stockholder will receive Mixed Consideration.

The Merger Agreement contemplates the repayment of all the Company’s outstanding debt (including the 8.625 percent Senior Secured Notes due 2016 and the 9.625 percent Senior Secured Notes due 2015).

The consummation of the Combination is subject to obtaining the affirmative vote of a majority of the outstanding shares of Company Common Stock approving the Combination and a majority of the outstanding shares of DigitalGlobe Common Stock represented at the DigitalGlobe stockholders meeting in person or by proxy approving the issuance of DigitalGlobe Common Stock and assumption of certain Company equity plans in the Combination. The consummation of the Combination is also subject to the satisfaction of certain regulatory conditions, including the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval of the Federal Communications Commission.

Two putative stockholder lawsuits styled as class actions have been filed against us and our Board of Directors challenging our proposed merger with DigitalGlobe (The lawsuit also names DigitalGlobe has a defendant). The lawsuits are as follows:

Plaintiff	Defendants	Court	Date Filed
Dan Behnke	GeoEye, Inc., James A Abrahamson, Matt O’Connell, Joseph M. Ahearn, Michael P.C. Carns, Martin C. Faga. Michael F. Horn, Sr., Lawrence A. Hough, Roberta E. Lenczowski, James M. Simon, Jr., Robert G. Warden, DigitalGlobe, Inc., 20/20 Acquisition Sub, Inc., and WorldView, LLC	United States District Court – Eastern District of Virginia	July 26, 2012
James Crow	James A Abrahamson, Joseph M. Ahearn, Michael P.C. Carns, Martin C. Faga. Michael F. Horn, Sr., Lawrence A. Hough, Roberta E. Lenczowski, Matt O’Connell, James M. Simon, Jr., Robert G. Warden, GeoEye, Inc., DigitalGlobe, Inc., 20/20 Acquisition Sub, Inc., and WorldView, LLC	United States District Court – Eastern District of Virginia	July 30, 2012

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The lawsuits generally allege that the members of our board of directors, aided and abetted by us, and DigitalGlobe, breached their fiduciary duties to our stockholders by entering into the Merger Agreement for merger consideration plaintiff claims is inadequate and pursuant to a process plaintiff claims to be flawed. The lawsuits seek, among other things, to enjoin the defendants from consummating the Merger on the agreed-upon terms or to rescind the Merger to the extent already implemented, as well as damages, expenses, and attorneys’ fees. We believe these suits are without merit and we intend to vigorously defend against such claims. There may be additional lawsuits of a similar nature.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements as long as they are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements. Without limitation, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “will” and similar expressions are intended to identify forward-looking statements. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including statements relating to growth, expected levels of expenditures and statements about future operating results, are forward-looking statements. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements and those presented elsewhere by our management from time to time are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements. These risks and uncertainties include, but are not limited to, those described in “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 13, 2012, or 2011 Annual Report, or in our quarterly reports on Form 10-Q for the periods ended March 31, 2012 and June 30, 2012. The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:

× changes or delays in Congressional appropriations or uncertainty as to the completion of the federal budget process;

× risks related to the merger agreement with DigitalGlobe, including failure to obtain necessary regulatory approvals, the receipt of a superior proposal or other intervening event beyond our control prior to stockholder approval;

× risks associated with operating our in-orbit satellites;

× satellite launch failures, satellite launch and construction delays and in-orbit failures or reduced performance;

× the number of commercial satellite launch opportunities available in any given time period that could impact our ability to timely schedule future launches and the prices we have to pay for such launches;

× possible future losses on satellites that are not adequately covered by insurance;

× our ability to obtain new satellite insurance policies with financially viable insurance carriers on commercially reasonable terms or at all, as well as the ability of our insurance carriers to fulfill their obligations;

× termination, suspension or other changes in purchase levels under our contracts with U.S. government agencies;

× general U.S. and international economic, business and political conditions;

× domestic and international government regulation;

× market acceptance of our products and services;

× our ability to maintain and protect our Earth imagery content and our image archives against damage;

× changes in our revenue backlog or expected revenue backlog for future services;

× pricing pressure and overcapacity in the markets in which we compete;

× the competitive environment in which we operate, as some of our competitors may have greater financial, personnel and operating resources;

× inadequate access to capital markets or other financing;

× customer defaults on their obligations owed to us;

× our international operations and other uncertainties associated with doing business internationally; and

other factors disclosed in our subsequent filings under the Securities Exchange Act of 1934, as amended, which is referred to as the Exchange Act, and other factors beyond our control. These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this Quarterly Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information included in this Quarterly Report should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2011 Annual Report. In preparing the discussion and analysis contained in this Item 2, we assume that readers have read or have access to the discussion and analysis contained in the 2011 Annual Report and in our other Exchange Act filings. In addition, the following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes, and “Part I — Item 1A — Risk Factors,” which describes key risks associated with our operations and industry, and “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2011 Annual Report.

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The management discussion and analysis, or MD&A, is intended to assist in understanding and assessing the trends and significant changes in our results and financial condition. We organized our MD&A into the following sections:

× Overview – a brief description of our business and highlights of the current period

× Results of Operations – an analysis of our results of operations in our condensed consolidated financial statements

× Liquidity and Capital Resources – an analysis of cash flows, sources and uses of cash, and commitments and contingencies

× Critical Accounting Policies – a discussion of key accounting policies requiring critical judgments and estimates

Overview

GeoEye is a leading source of geospatial information and insight for decision makers and analysts who need a clear understanding of our changing world to protect lives, manage risk and optimize resources. Each day, organizations in defense and intelligence, public safety, critical infrastructure, energy and online media rely on GeoEye’s Earth imagery, geospatial expertise and enabling technology to support important missions around the globe. Widely recognized as a pioneer in high-resolution satellite imagery, GeoEye has evolved into a complete provider of geospatial intelligence solutions.

In the three months ended June 30, 2012, total revenue increased to $88.4 million from $87.2 million in 2011, a growth rate of 1.4 percent. Over the same period, net income increased to $14.1 million from $13.4 million, a growth rate of 5.1 percent. In addition, Adjusted EBITDA, a non-GAAP measure (see reconciliation on page 26), increased to $44.7 million from $44.0 million, a growth rate of 1.6 percent. Adjusted EBITDA for the three months ended June 30, 2012, reflects adjustments for transaction and other costs of $2.4 million.

On July 22, 2012, we entered into a Merger Agreement with DigitalGlobe - see Note 14.   Our results for the three months ended June 30, 2012, include $1.7 million of transaction costs, primarily professional services, related to the Merger Agreement.

Additionally, in June 2012, we disposed of the MJ Harden assets supporting our aerial imagery services, which are no longer being provided. Revenues from our aerial imagery services comprised less than two percent of our total revenues for the three and six months ended June 30, 2012.  As a result of the disposition, $0.4 million of transaction costs and $0.3 million of severance were incurred during the three months ended June 30, 2012.

We own and operate two Earth-imaging satellites, GeoEye-1 and IKONOS, with advanced high-resolution imagery collection capabilities. GeoEye-1 is the world’s highest resolution and most accurate commercial Earth-imaging satellite. Our next satellite, GeoEye-2, will have even higher resolution and is on track to launch and is scheduled to go into operations in the fall of 2013. We own one of the world’s largest libraries of commercial panchromatic and color digital satellite imagery; it contains more than 650 million square kilometers of color Earth imagery.

In addition to our high-resolution Earth imagery collection capacities, we are a global leader in the creation of enhanced satellite imagery information products and services. We operate state-of-the-art high-resolution image processing and production facilities in St. Louis, Missouri and Thornton, Colorado. Our St. Louis, Missouri facility processes imagery from numerous commercial and government sensors, including our own enhanced satellite imagery, to produce an expanded variety of value-added products. We believe we are the only major commercial imagery satellite operator who can produce imagery from multiple Earth imagery sources in addition to our own enhanced satellite imagery information products and services.

GeoEye’s Earth imagery, geospatial expertise and enabling technology allow its customers to collect, process and analyze vast amounts of geospatial data to quickly see, understand and respond to changes on the ground and anticipate where events may occur in the future. Our Web-based information services platform, EyeQ, provides on-demand access to GeoEye imagery, making this valuable information accessible to new audiences.

Our GeoEye Analytics operations build on our heritage of providing multi-source value-added geospatial services by bringing advanced geospatial analytics expertise. Our analysts leverage proprietary tools and tradecraft to process and exploit multiple layers of geospatial data to better understand the characteristics of a location and anticipate where events may occur. Our teams support many important national security, law enforcement, and risk management missions.

We believe the combination of our Earth imagery, geospatial expertise, and enabling technology differentiates us from our competitors. This combination enables us to provide “elevated insight” in the geospatial industry by delivering solutions that help our customers protect lives, manage risk and optimize resources.

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Our Web site is www.geoeye.com. We make available free of charge on or through our Web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or the SEC. This reference to our Web site is for the convenience of shareholders as required by the SEC and shall not be deemed to incorporate any information on the Web site into this Form 10-K or our other filings with the SEC.

Our Web site is also a key source of important information about us. We routinely post to the About Us/Investor Relations section of our Web site important information about our business, our operating results and our financial condition and prospects, including our earnings releases and supplemental financial information. We also have a Corporate Governance page in the Investor Relations section of our Web site that includes, among other things, copies of our Code of Business Conduct & Ethics and the charters for each standing committee of our Board of Directors, which currently are: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, the Strategy Committee and the Risk Committee. Copies of our Bylaws and these charters and policies are also available in print to stockholders upon request to our Corporate Secretary at GeoEye, Inc., 2325 Dulles Corner Boulevard, Herndon, Virginia 20171.

Products and Services

Our principal sources of revenue are from the sale of Earth imagery directly to end users or value-added resellers, the provision of direct access to our satellites, associated ground processing technology upgrades and operations and maintenance services. We also derive significant revenue from value-added production and analytic services where we combine imagery GeoEye collects with other sources of data from our customers to create sophisticated value-added geospatial products. Additionally, we earn revenue from the dissemination and hosting of imagery.

Satellite Imagery

We offer a wide range of high-resolution satellite imagery that provides our customers archive data and new collection services in three key formats:

Geo.  Our Geo product, which is the foundation of the imagery product line, is a map-oriented image suitable for a broad range of customer uses. Geo images are suitable for customer visualization and monitoring applications and are delivered to our customers in a data and information format capable of being processed into other advanced imagery products using standard commercially available software.

GeoProfessional.  Our GeoProfessional products consist of imagery that has been aligned and geographically corrected by our experienced production personnel to provide the most accurate and precise imagery currently available from a commercial satellite provider. Our production personnel can also combine various satellite and aerial images into a single, highly detailed and comprehensive image. Available in various levels of accuracy, these GeoProfessional products are suitable for feature extraction, change detection, base mapping and other similar geo-location applications.

GeoStereo.  Our GeoStereo product uses at least two images of the same location at different angles to provide our customers with a three-dimensional image of a given location. GeoStereo provides the base images that are used for three-dimensional feature recognition and extraction. These GeoStereo products support a wide range of imagery applications such as digital elevation model creation, building height extraction, spatial layers and three-dimensional feature extraction.

Production Services

Value-added products and services generated by our production service operations are purchased by U.S. government agencies and domestic and international commercial customers, including international governments and state and local governments. Production services typically involve the processing and production of specific data and imagery information products that are built to stringent customer specifications. We have developed advanced processing systems that enable us to process raw data from a wide range of both government and commercial sensors (imaging satellites) and then merge the source images into very precise information and imagery products to meet the needs of a broad range of customers. Our production services range from the generation of precision imagery products (for example, digital elevation maps) to the extraction of site-specific features (for example, airports, highways and buildings) for our customers’ database development.

Our production services, which are designed to increase the accuracy and precision of satellite and aerial imagery, include the following production processes:

× Georectification. This is a computer-processing operation that corrects the pixel locations of a digital image to remove image distortions caused by the non-vertical pointing and movement of the sensor during the imaging event.

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× Tonal Correction. This is the scientific correction of the color variations between various component images of an image mosaic so that the image or picture reflects a coherent color structure.

× Image Mosaicking. This is the process of merging or stitching multiple images together. Since images are taken at different look angles, elevations, weather, times and seasons, etc., they do not match each other tonally or in exact location to the ground. Prior to mosaicking, images are tonally corrected as much as possible. They are also block adjusted — the images are shifted in relation to each other and to ground truth to improve accuracy. The result is a group of images that match each other in location and color, so they can be stitched together to create a mosaic that is as seamless as possible.

× Orthorectification. This is the process of accurately registering imagery to ground coordinates and geometrically correcting it for Earth elevation differences at the image location. For example, orthorectification is used to make buildings and objects in an image appear to be standing straight instead of leaning. After processing, the image can be used for a variety of mapping applications, including land use and land-cover classification, terrain analysis, natural resource mapping, backdrops for maps, temporal-change analysis, multi-image fusion and more.

Our production services include elevation data, maps, topographic maps, digital orthophoto imagery, remote sensing services, survey and inventory services and Geospatial Information System, or GIS, consulting and implementation. We also offer geospatial products and services to help develop and manage geospatial data to support customer documentation needs, inventory of resources and engineering and development applications.

Information Services

We provide imagery information services, which combine our imagery with third-party data to create sophisticated and customized information for our customers.

GeoEye Analytics provides geospatial predictive analytic solutions to over 40 customers in key markets of defense, intelligence and homeland security. Our highly trained geospatial and multi-source analysts utilize proprietary software and algorithms to combine location-based information, geographic data, human geography, historic events and a wide range of other information sources to generate unique location-based analysis that enables customers to gain the insight they need to support mission critical operations around the world. Our teams and technology are used daily in mission areas such as counter terrorism, law enforcement, oil and gas exploration, fraud detection and risk management. Predictive geospatial analysis enables our customers to analyze where events are likely to occur and provides the insight they need so they can best manage risk, optimize deployment of resources and ensure efficient utilization of key assets.

Our information services business provides our customers global on-demand access to imagery and related information over the Internet. This Web-based services platform, which we call EyeQ, provides the infrastructure for this service and our geospatial information services business. EyeQ delivers imagery and other location-based information through annual subscriptions and user licenses. EyeQ offers a Web interface with tools that function as our customers’ data center. EyeQ serves up imagery and other standards-based content throughout the customers’ data network and out to their customers and partners. With EyeQ, our customers have access to secure, timely and accurate location information delivered into their business environment. EyeQ is user friendly and available twenty-four hours a day and seven days a week. EyeQ serves our goal of simplifying access to and delivery of imagery and location information.

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Results of Operations

Comparison of the Results of Operations for the Three and Six Months Ended June 30, 2012 and 2011

	For the Three Months Ended June 30,												Change Between						For the Six Months Ended June 30,												Change Between
	2012						2011						2012 and 2011						2012						2011						2012 and 2011
	Amount			% of Revenue			Amount			% of Revenue			Amount			%			Amount			% of Revenue			Amount			% of Revenue			Amount			%
	(in thousands, except percentages)																		(in thousands, except percentages)
Revenues	$	88,394			100.0	%	$	87,206			100.0	%	$	1,188			1.4	%	$	177,677			100.0	%	$	173,832			100.0	%	$	3,845			2.2	%
Operating expenses:
Direct costs of revenue (exclusive of depreciation and amortization)		30,294			34.3			31,426			36.0			(1,132	)		(3.6	)		60,710			34.2			62,738			36.1			(2,028	)		(3.2	)
Depreciation and amortization		17,756			20.1			17,492			20.1			264			1.5			35,495			20.0			34,218			19.7			1,277			3.7
Selling, general and administrative		18,219			20.6			14,696			16.9			3,523			24.0			33,647			18.9			29,090			16.7			4,557			15.7
Total operating expenses		66,269			75.0			63,614			72.9			2,655			4.2			129,852			73.1			126,046			72.5			3,806			3.0
Income from operations		22,125			25.0			23,592			27.1			(1,467	)		(6.2	)		47,825			26.9			47,786			27.5			39			0.1
Interest income (expense), net		1,307			1.5			(2,604	)		(3.0	)		3,911			150.2			1,360			0.8			(7,127	)		(4.1	)		8,487			119.1
Income before provision for income taxes		23,432			26.5			20,988			24.1			2,444			11.6			49,185			27.7			40,659			23.4			8,526			21.0
Provision for income taxes		(9,341	)		(10.6	)		(7,579	)		(8.7	)		(1,762	)		(23.2	)		(19,338	)		(10.9	)		(15,003	)		(8.6	)		(4,335	)		(28.9	)
Net income		14,091			15.9			13,409			15.4			682			5.1			29,847			16.8			25,656			14.8			4,191			16.3
Preferred stock dividends		(998	)		(1.1	)		(998	)		(1.1	)		-			-			(1,995	)		(1.1	)		(1,984	)		(1.1	)		(11	)		(0.6	)
Net income less preferred stock dividends		13,093			14.8			12,411			14.2			682			5.5			27,852			15.7			23,672			13.6			4,180			17.7
Income allocated to participating securities		(1,402	)		(1.6	)		(1,344	)		(1.5	)		(58	)		(4.3	)		(2,993	)		(1.7	)		(2,569	)		(1.5	)		(424	)		(16.5	)
Net income available to common stockholders	$	11,691			13.2		$	11,067			12.7		$	624			5.6		$	24,859			14.0		$	21,103			12.1		$	3,756			17.8

Revenues

	For the Three Months Ended June 30,										Change Between						For the Six Months Ended June 30,										Change Between
	2012					2011					2012 and 2011						2012					2011					2012 and 2011
	Amount		% of Revenue			Amount		% of Revenue			Amount			%			Amount		% of Revenue			Amount		% of Revenue			Amount		%
	(in thousands, except percentages)																(in thousands, except percentages)
Imagery	$	59,699		67.5	%	$	61,582		70.6	%	$	(1,883	)		(3.1	)%	$	122,218		68.8	%	$	120,557		69.4	%	$	1,661		1.4	%
NextView cost-share		6,038		6.8			6,038		6.9			-			-			12,076		6.8			12,076		6.9			-		-
Production and other services		22,657		25.6			19,586		22.5			3,071			15.7			43,383		24.4			41,199		23.7			2,184		5.3
Total revenues	$	88,394		100.0		$	87,206		100.0		$	1,188			1.4		$	177,677		100.0		$	173,832		100.0		$	3,845		2.2

Imagery revenues primarily include imagery sales, affiliate access fees, equipment sales and operations and maintenance fees. NextView cost-share revenues are based on the recognition of deferred revenue related to the cost-share amounts from the NGA. Production and other services revenues primarily include revenue from production orders for the NGA and commercial customers, GeoEye Analytics and EyeQ, our Web-based dissemination services.

Imagery revenues decreased for the three months ended June 30, 2012, compared to the same period in 2011, primarily due to lower levels of deliveries to commercial customers, partially offset by greater international affiliate access fees. For the six months ended June 30, 2012, imagery revenues increased compared to the same period in 2011, primarily due to increased international affiliate access fees.

Production and other services revenues increased for the three months ended June 30, 2012, compared to the same period in 2011, due to the commencement of production services under new contracts as well as the timing of certain information services provided to the NGA. Production and other services revenues increased for the six months ended June 30, 2012, compared to the same period in 2011, due to the timing of certain information services provided to the NGA, partially offset by a decline in our value-added production services.

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Total domestic and international revenues were as follows:

	For the Three Months Ended June 30,										Change Between						For the Six Months Ended June 30,										Change Between
	2012					2011					2012 and 2011						2012					2011					2012 and 2011
	Amount		% of Revenue			Amount		% of Revenue			Amount			%			Amount		% of Revenue			Amount		% of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Domestic	$	67,859		76.8	%	$	68,348		78.4	%	$	(489	)		(0.7	)%	$	133,691		75.2	%	$	135,414		77.9	%	$	(1,723	)		(1.3	)%
International		20,535		23.2			18,858		21.6			1,677			8.9			43,986		24.8			38,418		22.1			5,568			14.5
Total revenues	$	88,394		100.0		$	87,206		100.0		$	1,188			1.4		$	177,677		100.0		$	173,832		100.0		$	3,845			2.2

Domestic revenues include those from the SLAs, recognition of deferred revenue related to the NextView cost-share payments from the NGA, commercial imagery sales, sales of value-added products and services and EyeQ, our Web-based dissemination services. International revenues are derived from access fee agreements and ground station operation and maintenance contracts with our international regional affiliate customers, commercial imagery sales and sales of ground stations.

Domestic revenues decreased during the three months ended June 30, 2012, compared to the same period in 2011, primarily due to lower imagery deliveries made to domestic commercial customers.  Domestic revenues decreased during the six months ended June 30, 2012, compared to the same period in 2011, due to lower imagery deliveries made to domestic commercial customers and a decline in our value-added production services.

International revenues increased during the three and six months ended June 30, 2012, compared to the same periods in 2011, primarily due to an increase in imagery deliveries made to international customers and the addition of new and renewal access fee agreements related to international affiliates.

Operating Expenses

Direct Costs of Revenue

	For the Three Months Ended June 30,										Change Between						For the Six Months Ended June 30,										Change Between
	2012					2011					2012 and 2011						2012					2011					2012 and 2011
	Amount		% of Revenue			Amount		% of Revenue			Amount			%			Amount		% of Revenue			Amount		% of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Labor and overhead	$	18,619		21.1	%	$	19,557		22.4	%	$	(938	)		(4.8	)%	$	37,367		21.0	%	$	40,173		23.1	%	$	(2,806	)		(7.0	)%
Subcontractor		5,548		6.3			7,057		8.1			(1,509	)		(21.4	)		11,244		6.3			13,132		7.6			(1,888	)		(14.4	)
Satellite insurance		1,418		1.6			1,544		1.8			(126	)		(8.2	)		2,839		1.6			3,123		1.8			(284	)		(9.1	)
Other direct costs		4,709		5.3			3,268		3.7			1,441			44.1			9,260		5.2			6,310		3.6			2,950			46.8
Total direct costs of revenue	$	30,294		34.3		$	31,426		36.0		$	(1,132	)		(3.6	)	$	60,710		34.2		$	62,738		36.1		$	(2,028	)		(3.2	)

Direct costs of revenue include the costs of operating our satellites and related ground systems, labor and ongoing costs related to our operations, maintenance and production contracts and provision of services by GeoEye Analytics. Subcontractor expenses primarily include payments to third parties for support to operate the IKONOS and GeoEye-1 satellites and their related ground systems. Other direct costs include third-party costs and fees to support our satellite program and the costs associated with monitoring our ground station equipment.

Labor and overhead costs decreased during the three and six months ended June 30, 2012, compared to the same periods in 2011, primarily due to a greater portion of engineering and IT labor and associated project management overhead incurred and capitalized related to the EnhancedView program than in the prior year.

Subcontractor expenses decreased during the three and six months ended June 30, 2012, compared to the same periods in 2011, primarily due to lower costs required to support GeoEye-1 in 2012.

Other direct costs of revenue increased during the three and six months ended June 30, 2012, compared to the same periods in 2011, primarily due to an increase in maintenance services and materials related to the delivery of customer systems and equipment in 2012.

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Depreciation and Amortization

	For the Three Months Ended June 30,										Change Between						For the Six Months Ended June 30,										Change Between
	2012					2011					2012 and 2011						2012					2011					2012 and 2011
	Amount		% of Revenue			Amount		% of Revenue			Amount			%			Amount		% of Revenue			Amount		% of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Depreciation	$	16,958		19.2	%	$	16,625		19.1	%	$	333			2.0	%	$	33,898		19.1	%	$	32,420		18.7	%	$	1,478			4.6	%
Amortization		798		0.9			867		1.0			(69	)		(8.0	)		1,597		0.9			1,798		1.0			(201	)		(11.2	)
Total depreciation and amortization	$	17,756		20.1		$	17,492		20.1		$	264			1.5		$	35,495		20.0		$	34,218		19.7		$	1,277			3.7

Depreciation increased during the three and six months ended June 30, 2012, compared to the same periods in 2011, primarily due to the deployment of several EyeQ system releases and related hardware, as well as depreciation on leasehold improvements and infrastructure related to our Herndon headquarters.

Selling, General and Administrative Expenses

	For the Three Months Ended June 30,										Change Between						For the Six Months Ended June 30,										Change Between
	2012					2011					2012 and 2011						2012					2011					2012 and 2011
	Amount		% of Revenue			Amount		% of Revenue			Amount			%			Amount		% of Revenue			Amount		% of Revenue			Amount			%
	(in thousands, except percentages)																(in thousands, except percentages)
Payroll, commissions, and related costs	$	7,463		8.4	%	$	5,980		6.9	%	$	1,483			24.8	%	$	14,368		8.1	%	$	11,879		6.8	%	$	2,489			21.0	%
Stock-based compensation		1,615		1.8			1,900		2.2			(285	)		(15.0	)		3,587		2.0			3,740		2.2			(153	)		(4.1	)
Professional fees		4,271		4.8			2,791		3.2			1,480			53.0			6,663		3.8			5,236		3.0			1,427			27.3
Research and development		839		0.9			664		0.8			175			26.4			1,588		0.9			1,227		0.7			361			29.4
Other		4,031		4.6			3,361		3.9			670			19.9			7,441		4.2			7,008		4.0			433			6.2
Total selling, general and administrative expenses	$	18,219		20.6		$	14,696		16.9		$	3,523			24.0		$	33,647		18.9		$	29,090		16.7		$	4,557			15.7

Selling, general and administrative expenses include the costs of the finance, administrative and general management functions and the costs of marketing, advertising, promotion and other selling expenses, including commissions. Other selling, general and administrative expenses include facilities, computer and telecommunication services, travel and related costs for our sales, marketing and back office support activities.

Total selling, general and administrative expenses increased for the three and six months ended June 30, 2012, compared to the same periods in 2011, primarily as a result of increased labor and related costs from additional headcount associated with increased marketing efforts as well as professional fees related to transaction costs related to the Merger Agreement with DigitalGlobe.

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Interest (Income) Expense, Net

The composition of interest (income) expense, net, was as follows:

	For the Three Months Ended June 30,												Change Between						For the Six Months Ended June 30,												Change Between
	2012						2011						2012 and 2011						2012						2011						2012 and 2011
	Amount			% of Revenue			Amount			% of Revenue			Amount			%			Amount			% of Revenue			Amount			% of Revenue			Amount			%
	(in thousands, except percentages)																		(in thousands, except percentages)
Interest expense	$	13,374			15.1	%	$	13,273			15.2	%	$	101			0.8	%	$	26,721			15.0	%	$	26,522			15.3	%	$	199			0.8	%
Capitalized interest		(13,374	)		(15.1	)		(10,614	)		(12.2	)		(2,760	)		(26.0	)		(26,720	)		(15.0	)		(19,206	)		(11.0	)		(7,514	)		(39.1	)
Interest income		(1,307	)		(1.5	)		(55	)		(0.1	)		(1,252	)		(2,276.4	)		(1,361	)		(0.8	)		(189	)		(0.1	)		(1,172	)		(620.1	)
Total interest (income) expense, net	$	(1,307	)		(1.5	)	$	2,604			3.0		$	(3,911	)		(150.2	)	$	(1,360	)		(0.8	)	$	7,127			4.1		$	(8,487	)		(119.1	)

Interest (income) expense, net, includes interest expense on our 2015 and 2016 Notes, amortization of prepaid financing costs and amortization of debt discount, offset by capitalized interest and interest income.

We had interest income during the three and six months ended June 30, 2012, compared to interest expense for the three and six months ended June 30, 2011, due to cash interest received primarily related to federal income tax refunded to us during the quarter, as well as increased capitalized interest associated with the additional construction costs incurred for the GeoEye-2 satellite during 2012.

Provision for Income Taxes

The Company’s effective tax rate was 39.3 percent and 36.9 percent for the six months ended June 30, 2012 and 2011, respectively. Income tax expense was $19.3 million and $15.0 million for the six months ended June 30, 2012 and 2011, respectively, and was $9.3 million and $7.6 million for the three months ended June 30, 2012 and 2011, respectively. The effective tax rate has increased over the prior year due to the expiration of the research and development credit on December 31, 2011. The Company’s effective tax rate differs from the federal tax rate primarily due to state and local income taxes.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that represents net income before interest (income) expense, net, provision for income taxes, depreciation and amortization expenses, non-cash stock-based compensation expense and other items. We present Adjusted EBITDA to enhance understanding of our operating performance. We use Adjusted EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that Adjusted EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. However, Adjusted EBITDA is not a recognized term of financial performance under GAAP, and our calculation of Adjusted EBITDA may not be comparable to the calculation of similarly titled measures of other companies.

The use of Adjusted EBITDA as an analytical tool has limitations, and it should not be considered in isolation, or as a substitute for analysis of our results of operations as reported in accordance with GAAP. Some of these limitations are:

× It does not reflect our cash expenditures, or future requirements, for all contractual commitments;

× It does not reflect our significant interest expense, or the cash requirements necessary to service our indebtedness;

× It does not reflect cash requirements for the payment of income taxes when due;

× Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and,

× It does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations, but may nonetheless have a material impact on our results of operations.

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as an alternative to net income or cash flow from operations determined in accordance with GAAP. Management compensates for these limitations by not viewing Adjusted EBITDA in isolation, and specifically by using other GAAP measures, such as cash flow provided by operating activities and capital expenditures, to measure our liquidity. Our calculation of Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies.

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A reconciliation of net income to Adjusted EBITDA is as follows:

	For the Three Months Ended , June 30					Change Between			For the Six Months EndedJune 30,					Change Between
	2012			2011		2012 and 2011			2012			2011		2012 and 2011
	(in thousands)								(in thousands)
Net income	$	14,091		$	13,409	$	682		$	29,847		$	25,656	$	4,191
Adjustments:
Interest (income) expense, net		(1,307	)		2,604		(3,911	)		(1,360	)		7,127		(8,487	)
Provision for income taxes		9,341			7,579		1,762			19,338			15,003		4,335
Depreciation and amortization		17,756			17,492		264			35,495			34,218		1,277
Transaction Costs		2,376			-		2,376			2,376			-		2,376
Non-cash stock-based compensation expense		2,435			2,892		(457	)		5,176			5,737		(561	)
Adjusted EBITDA	$	44,692		$	43,976	$	716		$	90,872		$	87,741	$	3,131

Liquidity and Capital Resources

The Company’s principal sources of liquidity are its cash from operating activities, unrestricted cash, cash equivalents and short-term investments. Our primary cash needs are for capital expenditures, working capital and debt service.

We believe that the combination of our current cash position along with expected cash flow from operations should provide  sufficient resources to meet our operating requirements through the next twelve months and to fund the construction and launch of GeoEye-2. However, our ability to continue to be profitable and generate positive cash flow from our operations beyond that period is dependent upon adequate U.S. Government and other customer demand for our products and services.

The EnhancedView agreement with the NGA was signed in August 2010.  The Company has been notified by the NGA that, due to funding shortfalls, it will not exercise the full year of the EnhancedView SLA option for the Contract Year September 1, 2012, through August 31, 2013. Instead, the NGA has proposed a three-month option which the NGA intends to exercise providing for service revenue to the Company from September 1, 2012, through November 30, 2012, of $39.75 million, and a further nine-month option for the remainder of the Contract Year through August 31, 2013, providing for service revenue to the Company, based upon the availability of funding of $119.25 million. We cannot assure you that the U.S. government will continue to purchase earth imagery or other services from us at similar levels or similar terms.

Additionally, the Company has been notified by the NGA that the U.S Government does not intend to obligate any incremental funding above what was already been funded towards our $337.0 million GeoEye-2 cost-share. To date, the NGA has obligated $181.0 million on this contract to cover the cost-share payments, of which $111.2 million was paid to us in June 2012 and the balance of approximately $70.0 million is expected to be paid to us upon meeting the appropriate NGA milestones. The NGA has expressed an interest in restructuring the agreement to modify the specific milestones in which the remaining obligated funds will be paid to us.  The parties are currently negotiating the terms of any such modification to the contract.

All of our contracts with the U.S. government agencies are subject to risks of termination or reduction in scope due to changes in U.S. government policies and priorities, or reduced Congressional funding level commitments. Pursuant to the contract terms, U.S. government agencies can terminate, modify or suspend our contracts at any time with or without cause.  NGA programs, including the EnhancedView program, the SLA, as well as other unrelated work, accounted for approximately 55% of our consolidated revenue for both the three and six months ended June 30, 2012. If the U.S. government were not to renew or extend our contract at similar levels or similar terms, we believe we would be able to maintain operations and continue to fund GeoEye-2 with existing cash and cash equivalents for the next twelve months. Further, notwithstanding the possibility that our EnhancedView SLA may not be renewed, we believe that the U.S. government will require earth imagery and possibly other services commencing with the U.S. government fiscal year starting October 1, 2012. The Pentagon recently indicated its needs for commercial imagery were expected to be twice as large in 2015 as in 2011. We will have opportunities to offer such imagery and services at reasonable terms. Additionally, to the extent capacity becomes available on our satellites due to lower U.S. government demand, we intend to make that capacity available to commercial and international customers at terms attractive to us.

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Cash Flow Items

As of June 30, 2012, we had $230.9 million of cash and cash equivalents and $8.6 million of short-term investments.

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $200.5 million and $85.3 million for the six months ended June 30, 2012 and 2011, respectively. The increase of $115.2 million in the six months ended June 30, 2012, compared to the same period in 2011, was primarily related to the $111.2 million cost-share payment received from the NGA for our achievement of certain milestones in the construction of GeoEye-2, as well as improved operating performance generating greater income during the current year.

Net Cash Used in Investing Activities

Net cash used in investing activities was $156.6 million and $130.6 million for the six months ended June 30, 2012 and 2011, respectively. The increase of $26.0 million for cash used in investing activities is primarily driven by the greater redemptions of short-term investments in the six months ended June 30, 2011 compared to June 30, 2012, of $35.0 million. Capital expenditures remained consistent with the same period in 2011, as we continue the construction of GeoEye-2. As of June 30, 2012, we have incurred total capitalized costs of $718.3 million for the EnhancedView program, primarily consisting of costs for the construction of GeoEye-2.

Net Cash Used in Financing Activities

Net cash used in financing activities was $1.7 million and $1.3 million for the six months ended June 30, 2012 and 2011, respectively. The increase of $0.4 million in the six months ended June 30, 2012, compared to the same period in 2011 was primarily related to a decrease in the proceeds from the exercise of stock options in 2012.

Long-Term Debt

In October 2010, we closed on a publicly registered debt offering of $125.0 million of our 2016 Notes due October 1, 2016. The 2016 Notes bear interest at 8.625 percent per annum. Interest payments on the 2016 Notes will be made semi-annually in arrears on April1 and October 1 of each year. At any time on or after October 1, 2013, the Company may, on one or more occasions, redeem all or part of the 2016 Notes at 104.313 percent of principal for the subsequent 12-month period, at 102.156 percent of principal on October 1, 2014, for the subsequent 12-month period and at 100 percent of principal on October 1, 2015, and thereafter. The net proceeds of the 2016 Notes offering are being used for general corporate purposes, which may include working capital, future production and services expansion, capital expenditures and other strategic opportunities. The 2016 Notes are unconditionally guaranteed, jointly and severally, on a secured second-priority basis.

In October 2009, we closed on a private placement offering of $400.0 million of our 2015 Notes due October 1, 2015. The net proceeds of the 2015 Notes offering were used to fund the repurchase of the Company’s outstanding $250.0 million 2012 Notes due July1, 2012. The 2015 Notes bear interest at the rate of 9.625 percent per annum. Interest is payable semi-annually in arrears on April 1 and October 1 of each year. At any time on or after October 1, 2013, GeoEye, Inc. may on one or more occasions redeem all or part of the 2015 Notes at 104.813 percent of principal for the subsequent 12-month period and at 100 percent of principal on October 1, 2014, and thereafter. The 2015 Notes are unconditionally guaranteed, jointly and severally, on a senior secured basis.

As of June 30, 2012, our total long-term debt consisted of $125.0 million of 2016 Notes and $400.0 million of 2015 Notes, net of outstanding issue discount of $12.4 million. Under the indentures governing the 2016 and 2015 Notes, we are prohibited from paying dividends on our common stock until the principal amount of all such notes has been repaid.

The indentures governing our 2016 Notes and 2015 Notes contain covenants that restrict our ability to incur additional indebtedness unless, among other things, we can comply with fixed charge coverage ratios. We may incur additional indebtedness only if, after giving pro forma effect to that incurrence, our ratio of Adjusted cash EBITDA to total consolidated debt for the four fiscal quarters ending as of the most recent date for which internal financial statements are available meet certain levels, or we have availability to incur such indebtedness under certain baskets in the indentures. Adjusted cash EBITDA is defined as Adjusted EBITDA less amortization of deferred revenue related to the NextView agreement with the NGA in the indenture governing the 2015 Notes, and as Adjusted EBITDA less amortization of deferred revenue related to the NextView, EnhancedView or any successor agreement with the NGA in the indenture governing the 2016 Notes. As of June 30, 2012, we were in compliance with all covenants associated with each of our borrowings.

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Equity Sources and Uses

In September 2010, Cerberus Satellite, LLC purchased 80,000 shares of Series A Preferred Stock having a liquidation preference of $1,000 per share. This resulted in net proceeds to the Company of $78.0 million, after discounts and before issuance costs. The Series A Preferred Stock is convertible on issuance, at the option of the holders, at a conversion rate of $29.76 per common share, which is equivalent to a conversion rate of 2.7 million shares of common stock of the Company.

The Series A Preferred Stock represents an ownership interest assuming conversion of such Series A Preferred Stock to the Company’s common stock, of approximately 10 percent as of June 30, 2012. Dividends on the Series A Preferred Stock are payable quarterly in arrears at a rate of 5 percent per annum of the liquidation preference of $1,000 per share, subject to declaration by the Board of Directors. The Company declared dividends on the Series A Preferred Stock of $1.0 million during the three months ended June 30, 2012 and 2011, and $2.0 million during the six months ended June 30, 2012 and 2011. The dividend payable of $1.0 million was included in accounts payable and accrued expenses as of June 30, 2012 and December 31, 2011.

Contracted Backlog

We have historically had and currently have a substantial contracted backlog. Backlog increases the visibility of our revenues and net cash provided by operating activities. The following table represents our estimated backlog as of June 30, 2012.

Backlog to be recognized as revenue:	Contract Backlog						Funded and Unfunded Backlog
	Less than 1 year		Thereafter		Total		Funded		Unfunded		Total
	(in millions)
EnhancedView SLA	$	150.0	$	2,360.2	$	2,510.2	$	24.3	$	2,485.9	$	2,510.2
EnhancedView cost-share amortization		-		181.0		181.0		181.0		-		181.0
NextView cost-share amortization		24.2		111.8		136.0		136.0		-		136.0
Other U.S. government		32.0		675.7		707.7		73.0		634.7		707.7
Total U.S. government		206.2		3,328.7		3,534.9		414.3		3,120.6		3,534.9
International		48.4		13.2		61.6		61.6		-		61.6
North American commercial		27.3		39.1		66.4		66.4		-		66.4
Total Backlog	$	281.9	$	3,381.0	$	3,662.9	$	542.3	$	3,120.6	$	3,662.9

Total contract backlog includes all contractual commitments, the amounts that could be awarded and funded under these contracts and the amount of future option periods under these contract awards that could be exercised and funded, in whole or in part. Of our contract backlog as of June 30, 2012, we could realize as revenue $281.9 million within one year and the balance of $3.38 billion in future periods, subject to funding and contract performance. Of our contract backlog as of June 30, 2012, $542.3 million is currently funded; the remaining balance of $3.1 billion represents the value of our current contracts, including their unexercised option years, which could be exercised or funded, in whole or in part, in future periods.

Total contract backlog includes the following items: the remaining portion of the ten-year term of the EnhancedView SLA with the NGA, infrastructure design and procurement services under the EnhancedView contract with the NGA, the value of unfunded value-added products and services awarded under the EnhancedView program on a specific delivery order, access fee agreements, regional affiliate ground station operations and maintenance contracts with our international regional affiliate customers, commercial imagery contracts, other value-added products and services, and remaining unamortized revenue from the NGA NextView cost-share payments made prior to the GeoEye-1 satellite becoming fully operational.

In addition, as part of the EnhancedView agreement, the NGA has agreed to contribute to the overall construction and launch costs of the GeoEye-2 satellite and associated ground station equipment. The GeoEye-2 cost share payments are included in the backlog table and will be paid to the Company upon completion of the performance milestones.  The cost share payments will be recorded as deferred revenue until full acceptance by the NGA, and upon acceptance, the revenues will be recognized over the expected operational life of the satellite. In June 2012, the Company was notified by the NGA that its funding of the cost share will be limited to $181.0 million, as reflected in the table above, the amount already obligated under the cost share agreement.  Also in June 2012, the NGA paid to us $111.2 million, the first milestone of the GeoEye-2 cost share payments. The remaining balance of approximately $70.0 million will be paid upon completion of remaining performance milestones.   The NGA has expressed an interest in restructuring the agreement to modify the specific milestones in which the remaining obligated funds will be paid to us.  The parties are currently negotiating the terms of any such modification to the contract.

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The EnhancedView SLA contract is structured as a one-year contract, with nine one-year renewal options exercisable by the NGA. On October 4, 2011, the Company entered into an amendment to the EnhancedView SLA with the NGA exercising the first renewal option year which extended the SLA performance period through August 31, 2012. As of June 30, 2012, the amount of the SLA currently funded was $24.3 million.

On June 22, 2012, we were notified by the NGA that, due to funding shortfalls, it will not exercise the full year Enhanced View SLA option for the Contract Year September 1, 2012 through August 31, 2013. Instead, the NGA has proposed a three-month option which the NGA intends to exercise providing for service revenue to the Company from September 1, 2012 through November 30, 2012 of $37.5 million and $2.25 million for SLA and web hosting services, respectively, or a total $39.75 million, and a further nine-month option for the remainder of the Contract Year through August 31, 2013 providing for service revenue to the Company, based upon the availability of funding of $119.25 million. Assuming the Company agrees to this proposal and the NGA exercises both options, total service revenue to the Company for the full Contract Year would be $159.0 million. There can be no assurances, however, that funding will be available to the NGA to exercise both options as proposed.  Though we believe the U.S. government will continue to need to purchase imagery from us to meet defense intelligence needs, it is uncertain funding for the SLA will continue after August 31, 2012 at current levels or at any level.

Backlog Risks

Most of our government contracts, including the EnhancedView program, are funded incrementally on a month-to-month or year-to-year basis; however, certain foreign government and commercial customers have signed multi-year contracts. Due to the federal budgetary problems arising from the economic recession, the U.S. government has continued to deliberate broad reductions in expenditures including possible reductions to expenditures on commercial satellite imagery. This has currently impacted the contract year September 1, 2012 through August 31, 2013 under the EnhancedView program, as noted above, and may have an impact on future contract years under this program. The U.S. government drives a substantial portion of commercial imaging demand and our revenues, including EnhancedView. Changes in U.S. government policies, priorities or funding levels could materially and adversely affect our financial condition, liquidity and results of operations. Furthermore, contracts with the U.S. government may be terminated or suspended by the U.S. government at any time, with or without cause, which would result in a reduction in our backlog. At this time, the U.S. government’s ongoing budget process is underway and the amounts of any funding reductions to EnhancedView beyond August 31, 2012 are still unknown. As a result, these backlog amounts may and will fluctuate and may not be a reliable indicator of future revenues.

Risks associated with our business and government contracts include, but are not limited to, those described in “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 13, 2012, or 2011 Annual Report, or in our quarterly reports on Form 10-Q for the periods ended March 31, 2012 and June 30, 2012.

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Capital Expenditures

For the three and six months ended June 30, 2012, our capital expenditures included $96.3 million and $146.5 million for satellites and ground systems and $7.4 million and $13.3 million for property, plant and equipment, respectively.

We currently expect that total capital expenditures for 2012 will be approximately $320.0 million, of which $282.0 million would be related to our continued construction of GeoEye-2 and related infrastructure under the EnhancedView program, including $52.0 million of capitalized interest. We expect to incur the remaining $38.0 million of capital expenditures for other operating equipment infrastructure. We intend to fund our capital expenditure requirements through cash on hand and cash provided by operating activities, which includes the $111.2 million EnhancedView cost-share payment that we received during the second quarter of 2012.

Off-Balance-Sheet Arrangements

We lease various real properties under operating leases that generally require us to pay taxes, insurance, maintenance and minimum lease payments. Some of our leases have options to renew.

We do not have any other significant off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Commitments and Contingencies

Operating Leases

We have commitments for operating leases primarily relating to office and operating facilities and equipment. We lease various real properties under operating leases that generally require us to pay taxes, insurance, maintenance and minimum lease payments. These leases contain escalation provisions for increases as a result of increases in real estate taxes and operating expenses. We recognize rent expense under such leases on a straight-line basis over the term of the lease. Substantially all of these leases have lease terms ranging from three to twelve years. Some of our leases have options to renew.

Total rental expense under operating leases for the three months ended June 30, 2012 and 2011 was $1.2 million and $0.9 million, respectively, and for each of the six months ended June 30, 2012 and 2011 was approximately $2.4 million.

Contingencies

GeoEye, from time to time, may be party to various lawsuits, legal proceedings and claims arising in the normal course of business. Nevertheless, the Company believes that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse impact on the Company’s financial results, liquidity or operations.

Critical Accounting Policies

The foregoing discussion of our financial condition and results of operations is based on the condensed consolidated financial statements included in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses and the related disclosures of contingencies. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

During the three months ended June 30, 2012, there were no significant changes to the critical accounting policies we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2011. Refer to Note 1 – “General Information” in the Notes to Unaudited Condensed Consolidated Financial Statements for a summary of the new guidance we recently adopted for the presentation of comprehensive income.

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Recent Accounting Pronouncements

See Note 1 of our Notes To Unaudited Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements and our expectation of their impact on our condensed consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

We are not currently exposed to the market risk associated with unfavorable movements in interest rates. All of our debt as of June 30, 2012, is fixed-rate. At June 30, 2012, the estimated fair value of our long-term debt instruments was approximately $541.5 million, compared with a carrying value of $512.6 million, net of a $12.4 million unamortized discount on our $400.0 million 2015 Notes. While changes in interest rates impact the fair value of our debt, the interest rates are fixed and changes in market rate will not impact our earnings and cash flows. Additionally, the Merger Agreement contemplates the repayment of all of our debt. Our available-for-sale investments generally renew every seven days and, therefore, are classified as short-term investments due to our ability to quickly liquidate or put back these securities. These financial instruments may be subject to interest rate risk through lost income, should interest rates increase during their limited term to maturity or resetting of interest rates and thus may limit our ability to invest in higher income investments.

We do not currently have any material foreign currency exposure related to our foreign subsidiaries in Asia and Netherlands.

Item 4. Controls and Procedures.

a)  Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e) and 15d - 15(e)) as of June 30, 2012. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective.

b)  Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the most recent fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

As discussed above, we have entered into the Merger Agreement with DigitalGlobe. Two putative stockholder lawsuits styled as class actions have been filed against us and our Board of Directors challenging our proposed merger with DigitalGlobe (The lawsuit also names DigitalGlobe has a defendant). The lawsuits are as follows:

Plaintiff	Defendants	Court	Date Filed
Dan Behnke	GeoEye, Inc., James A Abrahamson, Matt O’Connell, Joseph M. Ahearn, Michael P.C. Carns, Martin C. Faga. Michael F. Horn, Sr., Lawrence A. Hough, Roberta E. Lenczowski, James M. Simon, Jr., Robert G. Warden, DigitalGlobe, Inc., 20/20 Acquisition Sub, Inc., and WorldView, LLC	United States District Court – Eastern District of Virginia	July 26, 2012
James Crow	James A Abrahamson, Joseph M. Ahearn, Michael P.C. Carns, Martin C. Faga. Michael F. Horn, Sr., Lawrence A. Hough, Roberta E. Lenczowski, Matt O’Connell, James M. Simon, Jr., Robert G. Warden, GeoEye, Inc., DigitalGlobe, Inc., 20/20 Acquisition Sub, Inc., and WorldView, LLC	United States District Court – Eastern District of Virginia	July 30, 2012

The lawsuits generally allege that the members of our board of directors, aided and abetted by us, and DigitalGlobe, breached their fiduciary duties to our stockholders by entering into the Merger Agreement for merger consideration plaintiff claims is inadequate and pursuant to a process plaintiff claims to be flawed. The lawsuits seek, among other things, to enjoin the defendants from consummating the Merger on the agreed-upon terms or to rescind the Merger to the extent already implemented, as well as damages, expenses, and attorneys’ fees. We believe these suits are without merit and we intend to vigorously defend against such claims. There may be additional lawsuits of a similar nature.

In the normal course of business, we may be party to other various lawsuits, legal proceedings and claims arising out of our business. We believe that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse effect on our business, financial condition, liquidity or results of operations.

Item 1A. Risk Factors.

The risks described below, among others, could cause our actual operating results to differ materially from those indicated or suggested by our past performance and current financial condition as reported in this Form 10-Q, as well as by forward-looking statements made in our Annual Report on Form 10-K for the year ended December 31, 2011 or in our quarterly reports on Form 10-Q for the periods ended March 31, 2012 and June 30, 2012, or presented elsewhere by management from time to time.  We identify risks in four broad areas: contracts, operations, competition and markets, and capital structure and strategy.

Risks Related To Our Contracts

Our business is substantially dependent on U.S. government contracts.  On June 22, 2012 we were notified by the NGA that it will not be exercising the full year option for the contract year commencing September 1, 2012, under the EnhancedView SLA, our most significant contract. This failure to exercise the option will have an immediate and material adverse effect on our business, financial condition and results of operations.

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Revenues from U.S. government contracts accounted for 64 percent of our total revenues for the year ended December 31, 2011, and 69 percent and 67 percent of our total revenues for the three and six months ended June 30, 2012 respectively. Our contracts with U.S. government agencies are subject to risks of termination, with or without cause, or reduction in scope due to changes in U.S. government policies, priorities or funding level commitments to various government agencies. Our primary contract with the U.S. government, through the NGA, is the EnhancedView SLA, which was awarded and authorized on August 6, 2010. During the calendar year 2011 we recognized $147.0 million of revenue under the Enhanced View SLA, which accounted for approximately 41 percent of our revenue that year. During the three and six months of 2012, we recognized $37.8 million and $75.3 million of revenue, respectively, under the EnhancedView SLA, representing 43 percent and 42 percent of our revenue, respectively. NGA has advised us that due to funding shortfalls, it does not intend to renew our annual EnhancedView SLA commencing September 1, 2012.

The EnhancedView SLA was structured as a one-year agreement, with nine one-year renewal options, exercisable at the NGA’s option.  In October 2011, the NGA exercised its first renewal option under the contract. This contract amendment extended the EnhancedView SLA for an 11-month period beginning October 5, 2011 and ending August 31, 2012.

On June 22, 2012 we were notified by letter that, due to funding shortfalls, NGA will not exercise the full year EnhancedView SLA option for the contract year commencing September 1, 2012. NGA has proposed modifying the EnhancedView SLA by which it may exercise a three month option commencing September 1, 2012, and a further nine-month option for the remainder of the Contract Year through August 31, 2013, depending on availability of funding of the EnhancedView program. Failure of the NGA to renew any of these options would result in no revenue generated by us under the EnhancedView SLA, and would have an immediate and material adverse effect on our business, financial condition and results.

Although we anticipate some revenue under the EnhancedView program commencing September 1, 2012, we make no assurances as to the amount of revenue we may obtain or that the revenue we do recognize will be sufficient to cover our operating costs. Loss of revenue from the U.S. government will make us much more dependent on revenue from commercial and international customers, which is difficult to forecast and subject to substantial uncertainty.

We have been notified that NGA is reducing our cost share agreement for the development and launch of GeoEye-2.

As part of the EnhancedView award, we entered into a cost-share agreement with the NGA that contemplated approximately $337.0 million of funding for the development and launch of GeoEye-2; this amount represented approximately 42 percent of our expected GeoEye-2 development and launch expense. To date we have received $111.2 million toward such funding, and we anticipate receiving $70.0 million in additional cost-share funding from the NGA, though the timing of such additional funding is uncertain and may depend on modifications to our cost-share agreement as well as further development of GeoEye-2.

On June 22, 2012 we were notified by NGA by letter that due to funding shortfalls for the EnhancedView program, it will not make further cost-share payments to us for the development of GeoEye-2 beyond the approximately $70.0 million we anticipate to receive sometime in the future.  This means that NGA’s total cost-share contribution will not exceed $181.0 million, or approximately 23 percent of the total original estimated costs for GeoEye-2 development and launch expense, substantially less than we had forecasted.  Although we intend to complete GeoEye-2 on schedule, the loss of forecasted cost-share revenue for GeoEye-2 will adversely affect our ability to fund and finance future satellite development after GeoEye 2as additions to or replacements of our current satellites.

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A substantial portion of our revenues are generated from contracts with U.S. government agencies, particularly the NGA, that are subject to annual renewal and Congressional appropriations. A failure or delay by Congress to make appropriations to the NGA or other U.S. government agencies could materially reduce our revenue and have a material adverse effect on our business.

Although our NGA contracts generally involve fixed annual minimum commitments, such commitments are subject to annual Congressional appropriations and, as a result, the NGA may not continue to fund these contracts at current or anticipated levels. If the NGA terminates, significantly reduces in scope or suspends any of its contracts with us, or changes its policies, priorities or funding levels, these actions will have a material and adverse effect on our business, financial condition and results of operations.

Funding of U.S. government contracts are subject to congressional budget authorization and appropriation processes. We cannot predict the extent to which total funding and/or funding for our contracts will be included, increased or reduced as part of the 2012 budget and subsequent budgets ultimately approved by Congress or will be included in separate supplemental appropriations. The impact, severity and duration of the current U.S. economic situation, economic policies adopted or to be adopted by the U.S. government, and pressures on the federal budget could also adversely affect the total funding and/or funding for our contracts. In the event that appropriations for any of our contracts become unavailable, or are reduced or delayed, one or more of our contracts may be terminated or adjusted by the U.S. government, which could have a material adverse effect on our business, financial condition and results of operations.

When the U.S. government does not complete its budget process before the end of its fiscal year, government operations are typically funded pursuant to a continuing resolution that authorizes agencies of the U.S. government to continue to operate, but does not authorize new spending initiatives. When the U.S. government operates under a continuing resolution, government agencies may delay or cancel funding we expect to receive on work we are already performing. Additionally, when operating under a continuing resolution, U.S. government agencies may delay or cancel new initiatives and programs, which could materially adversely affect our business, financial condition and results from operations.

In addition, when the U.S. government approaches its existing statutory limit on the amount of permissible federal debt that may be incurred, this limit must be raised in order for the U.S. government to continue to pay its obligations on a timely basis. If the debt ceiling is not raised, it is unclear how the U.S. government would prioritize its payments and where our payments would fall in that priority list. A significant portion of our work is performed under U.S. government contracts that provide generally that we will continue to perform on the contract even if the U.S. government is unable to make timely payments. Failure to continue performance under the contract may place us at risk of termination for default. Such conditions are unprecedented in the history of U.S. government fiscal policy administration, and there is no assurance that should the U.S. government fail to pass legislation in time to avoid reaching the debt ceiling, such legislation would be forthcoming in the near term. Should conditions occur such that the U.S. government or others are unable to pay us timely for work performed, we would need to finance that work from our available cash resources, credit facilities and access to the capital markets, if available. It is unclear how long the U.S. government’s payment capacity might be constrained, and therefore, how long we may be required to finance; however, it is likely that there are practical limitations on how long we could finance our operations under these circumstances. An extended delay in the timely payments by the U.S. government would likely result in a material adverse effect on our business, financial condition and results of operations.

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Changes in U.S. government policy regarding the use of commercial imagery products and service providers, or material delay or cancellation of the U.S. government EnhancedView program may have a material adverse effect on our revenue and our ability to fund operations and achieve our growth objectives.

Current U.S. government policy encourages the use of commercial imagery products and services to support U.S. national security objectives. We are considered by the U.S. government to be a commercial imagery products and services provider. U.S. government policy is subject to change, and any change in policy away from supporting the use of commercial imagery products and service providers to meet U.S. government imagery needs could materially adversely affect our business, financial condition and results of operations.

Our substantial dependence on U.S. government contracts requires us to meet critical performance requirements in our operations. Any failure on our part to meet those requirements could result in termination of one or more of our contracts.

Our contracts with the U.S. government set forth detailed performance requirements and specifications for the imagery and services that we provided under those contracts.  Failure to meet those requirements and specifications may result in a delay in recognition of revenue from the U.S. government, and could result in the termination of one or more contract for material breach.  Though we believe we maintain quality systems and controls to meet all contractual requirements, any breach on our part that results in termination of or delay in revenue under a significant contract, including our EnhancedView SLA, could have a material adverse effect on our business, financial condition or results of operations.

Government audits of our contracts could result in a decrease in our earnings and/or have a negative effect on our cash position following an audit adjustment.

Our government contracts are subject to cost audits, which may occur several years after the period to which the audit relates. If an audit identifies significant unallowable costs, we could incur a material charge to our earnings or reduction in our cash position.

Risks Related to our Operations

Our information systems and security systems and networks may be subject to intrusion, resulting in possible interruption, delay or suspension of our ability to provide our products and services, which could result in loss of current and future business.

A breach or breaches of our information, security or network systems could materially adversely affect our business. Our business involves the transmission and storage of large quantities of electronic data, including the imagery comprising our global imagery library. In addition, our business is becoming increasingly Web-based, allowing our customers to access and take delivery of imagery from our digital imagery library over the Internet. From time to time, we have experienced computer viruses and other forms of third-party attacks on our systems that, to date, have not had a material adverse effect on our business.

Despite our dedicated team of security professionals as well as the implementation and continued upgrading of security measures, our network infrastructure may be vulnerable to computer viruses, unauthorized third-party access or other problems caused by third parties, which could lead to interruptions, delays or suspension of our operations, loss of imagery from our global imagery library and the loss or compromise of technical information or customer information. Inappropriate use of the Internet by third parties, including attempts to gain unauthorized access to information or systems—commonly known as “cracking” or “hacking”—could also potentially jeopardize the overall security of our systems and could deter certain customers from doing business with us. If a breach involves information subject to breach disclosure laws (such as certain personally identifiable information), we may be required to publicly disclose the breach, which may deter customers from dealing with us and/or expose us to material notification expenses. In addition, a security breach that involved classified or other sensitive government information, or certain controlled technical information, could subject us to civil or criminal penalties, and could result in loss of our government contracts, loss of access to classified information, loss of export privileges or debarment as a government contractor.

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Because the techniques used to obtain unauthorized access, or to otherwise infect or sabotage information, security and network systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these new techniques or to implement adequate preventive measures. We may also need to expend significant people and financial resources to protect against security breaches or remedy any breaches that might occur. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of Web-based products and services we offer and increase the number of countries within which we do business.

Interruption or failure of our infrastructure and image downloading systems could impair our ability to effectively perform our daily operations, protect and maintain the Earth imagery content stored in our image archives and provide our products and services, which could damage our reputation and harm our results of operations.

The availability of our products and services depends on the continuing operation of our infrastructure, information technology and communications systems, including our satellite and ground network systems. Any system downtime, damage to, or failure of our systems could result in interruptions in our service, which could reduce our revenue and profits. Our systems are vulnerable to damage or interruption from floods, fires, power loss, telecommunications failures, computer viruses, computer denial-of-service attacks or other attempts to harm our systems. Our data centers and ground stations can be powered by backup generators. However, if our primary source of power and the backup generators also fail, our daily operations and results of operations would be materially and adversely affected.

In addition, our ground stations and collection systems are vulnerable to damage or interruption from human error, intentional bad acts, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. Our satellite imagery is encrypted, downloaded directly to our ground stations and then stored in our image archives for sale to our customers. As a result, our operations are dependent upon our ability to maintain and protect our Earth imagery content and our image archives and to provide our images to our customers, including our foreign distribution network, value-added resellers and EyeQ customers. The impairment of our ability to perform any of these functions could result in lengthy interruptions in our services and/or damage our reputation, which could have a material adverse effect on our financial condition, liquidity and results of operations.

Satellites have limited useful lives and are expensive to replace.

Satellites have limited useful lives. We determine a satellite’s useful life, or its expected operational life, using a complex calculation involving the probabilities of failure of the satellite’s components from design or manufacturing defects, environmental stresses, estimated remaining fuel or other causes.

 A number of factors can affect the expected operational lives of our satellites, including the quality of construction, the supply of fuel, the expected gradual environmental degradation of solar panels, the durability of various satellite components and the orbits in which the satellites are placed. Certain advanced components, such as its cameras, are integral to a satellite’s design functionality and expected operational life. The failure of satellite components can cause damage to, or loss of, the use of a satellite before the end of its expected operational life. Electromagnetic storms or collisions with other objects could damage our satellites, which could in turn impair their design functionality and expected operational life. Such objects could include debris from exploded satellites and spent rocket stages, dead satellites and meteoroids. We cannot assure you that each satellite will remain in operation for its expected operational life. We expect the performance of any satellite to decline gradually near the end of its expected operational life.

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Our GeoEye-1 satellite was launched in September 2008 and has an expected operational life of nine years. IKONOS, another of our satellites, launched in September 1999, was fully depreciated in June 2008. An updated study on IKONOS was completed in 2011, and the results indicate that there are no impending sources of loss of mission through the end of 2012. However, there can be no assurance that IKONOS will continue to operate adequately to remain commercially viable.

Replacing a satellite is expensive. We are currently building GeoEye-2, which we expect to be operational in 2013. We expect to use $111.2 million, the first installment of the federal government cost-share funds, as well as other current cash balances and funds generated from operations, to develop and launch GeoEye-2. If our cost-share agreement with the NGA is terminated by the NGA, or if Congress fails to make appropriations to fund payments by the NGA under this cost-share agreement, we will have to seek additional financing from outside sources, which we may be unable to obtain on terms we find acceptable. If we do not generate sufficient funds from operations and we cannot obtain financing from outside sources on favorable terms, we will not be able to deploy a new satellite to replace GeoEye-1 at the end of its expected operational life. We cannot assure investors that we will be able to generate sufficient funds from operations or be able to raise additional capital on acceptable terms or on a timely basis, if at all, to develop or deploy follow-on high-resolution satellites.

We cannot assure you that our satellites will operate as designed. We may experience in-orbit satellite failures or degradations in performance that could impair the commercial performance of our satellites, which could lead to lost revenue, an increase in our operating expenses, lower operating income or lost backlog.

Our satellites employ advanced technologies and sensors that are subject to severe environmental stresses in space that could affect the satellite’s performance. Hardware component problems in space could lead to degradation in performance or loss of functionality of the satellite, with attendant costs and revenue losses. In addition, human operators may execute improper implementation commands that can negatively impact a satellite’s performance. Unanticipated catastrophic events, such as meteor showers or collisions with space debris, could reduce the performance of or destroy any of our satellites. Even if a satellite is operated properly, minor technical flaws in the satellite’s sensors could significantly degrade their performance, which could materially affect our ability to collect imagery and market our products successfully.

If we suffer a partial or total loss of a deployed satellite, we would need a significant amount of time and would incur substantial expense to repair or replace that satellite. We may experience other problems with our satellites that may reduce their performance. During any period in which a satellite is not fully operational, we may lose most or all of the revenue that otherwise would have been derived from that satellite. In addition, we may not have on hand, or be able to obtain in a timely manner, the necessary funds to cover the cost of any necessary satellite repair or replacement. Our inability to repair or replace a defective satellite, or correct any other technical problem in a timely manner, could result in a significant loss of revenue. Our business model depends on our ability to sell imagery from our high-resolution satellites. We do not presently have plans to construct and launch a replacement satellite for our high-resolution IKONOS satellite if it fails.

In 2009, we experienced an irregularity with GeoEye-1 that affected the transmission of imagery to certain ground stations and subsequently thereto, we experienced an unrelated aberration that affected the collection of some color imagery by GeoEye-1. We have successfully implemented modifications that we believe significantly reduce or eliminate the business impacts of these issues. Nonetheless, any failure of our cameras on any of our satellites or other loss of satellite capacity or functionality could require different satellite operational modifications that may have a material adverse effect on our imagery collection operations, and could materially affect our financial condition, liquidity and results from operations.

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

We have in the past experienced delays in satellite construction and launch, which have adversely affected our operations. Such interruptions can result from delays in the construction of satellites and the procurement of requisite components and launch vehicles; limited availability of appropriate launch windows; possible delays in obtaining regulatory approvals and launch failures. Failure to meet a satellite’s construction schedule, resulting in a significant delay in the future delivery of a satellite, could also adversely affect our marketing strategy for the satellite. Even after a satellite has been manufactured and is ready for launch, an appropriate launch date may not be available for several months. Further, any significant delay in the commencement of service of any of our satellites would allow customers who pre-purchased or agreed to utilize capacity on the satellite to terminate their contracts, which could affect our plans to replace an in-orbit satellite prior to the end of its service life.

Our success depends upon our ability to recruit and motivate key personnel.

Our success depends on attracting, retaining and motivating highly skilled engineering and information technology professionals. A number of our employees are highly skilled engineers and other information technology professionals. In addition, our success depends to a significant extent upon the abilities and efforts of the members of our senior executive management team. Competition for highly skilled individuals is intense, and if we fail to continue to attract, retain and motivate such professionals, our ability to compete in our industry could be adversely affected.

Failure to obtain, or the revocation of, regulatory approvals could result in service interruptions and materially adversely affect our business, financial position and results of operations.

U.S. Government Approvals.  Operation of our satellites requires licenses from, and is subject to regulation by, the DoC. The failure to obtain these licenses, or the revocation of one or more licenses (for example, as the result of our failure to comply with our licenses or applicable regulations), could adversely affect our ability to conduct our business. DoC regulations and license conditions provide that we must obtain prior DoC consent to certain changes in control over, or the holding of certain interests in, the Company. DoC regulations and license conditions also provide that the U.S. government may interrupt service or otherwise limit our ability to distribute satellite images to certain parties, including certain of our customers, to address national security or foreign policy concerns or because of the international obligations of the U.S. government. Actual or threatened interruptions or limitations on our service could adversely affect our ability to market our products. In addition, the DoC has the right to review and approve our agreements with foreign entities, including contracts with international customers for high-resolution imagery. We have received such approvals for the agreements in place with our existing international customers. However, such reviews could delay or prohibit us from executing new international agreements or renewals or extensions of our existing agreements, which could materially adversely affect our financial condition and results of operations. See “Government Regulation – United States – Department of Commerce Regulation.”

We have in the past and may in the future supply certain of our international customers with access to ground stations that enable these customers to downlink data directly from our satellites. Exporting these ground stations and technical information relating to these stations may require us to obtain export licenses from the DoC or the U.S. Department of State. If the DoC or the U.S. Department of State does not issue these export licenses in connection with future exports, or if these licenses are significantly delayed or contain restrictions, or if the DoC or the U.S. Department of State revokes, suspends or denies a request for renewal of existing licenses, then our business, financial condition and results of operations could be materially adversely affected. See “Government Regulation – United States – Export Controls and Security Clearance Regulation.”

We require certain facility and personnel security clearances to perform our classified U.S. government related business. Security clearances are subject to regulations and requirements including the National Industrial Security Program Operating Manual, or NISPOM, which provides baseline standards for the protection of classified information released or disclosed to industry in connection with classified U.S. government contracts. Among other things, the NISPOM restricts the ability of non-U.S. (“foreign”) entities or individuals to hold foreign ownership, control, or influence, or FOCI, over a U.S. person performing classified work for the U.S. government, such that investments in the Company by a non-U.S. entity or individual could require prior review by the U.S. Department of Defense. The suspension or cancellation of our facility security clearances, or the inability to maintain personnel security clearances for our personnel to perform classified U.S. government contracts, could have a material adverse effect on our business and results of operations. See “Government Regulation – United States – Export Controls and Security Clearance Regulation.”

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Our operation of satellites and ground stations also requires licenses from, and is subject to regulation by, the FCC. The FCC regulates the launch and operation of our satellites, the use of satellite spectrum and the licensing of our ground station terminals located within the United States. The FCC also regulates the ownership and control of its licensees, and must consent to certain changes in such ownership or control. We currently have all required FCC licenses necessary to operate our business as it is currently conducted and recently filed an application to modify the GeoEye-1 satellite FCC license to add the GeoEye-2 satellite and associated ground stations. However, these licenses have expiration dates, which are expected to occur while the satellites and ground systems are still in use. The FCC generally renews licenses in the ordinary course, but there can be no assurance that our licenses will be renewed at their expiration dates for full terms or without adverse conditions, or that our application to modify our GeoEye-1 satellite FCC license will be granted. Failure to renew or modify these licenses, obtain FCC authorization to launch and operate any new satellites or otherwise maintain our existing licenses (for example, as the result of our failure to comply with our licenses or applicable regulations) could have a material adverse effect on our ability to generate revenue and conduct our business as currently planned. See “Government Regulation – United States – Federal Communications Commission Regulation.”

International Registration and Approvals.  The use of satellite spectrum is subject to the requirements of the International Telecommunication Union, or ITU. Additionally, satellite operators must abide by the specific laws of the countries in which downlink services are provided from the satellite to ground station terminals within such countries. Our customers or distributors are responsible for obtaining local regulatory approval from the governments in the countries in which they receive imagery downlinked directly from our satellites to ground stations within such countries. If the necessary approvals are not obtained, we will not be able to distribute real-time imagery in those regions, and this inability to offer real-time service in a foreign country could negatively affect our business. In addition, regulatory provisions in countries where we wish to operate may impose unduly burdensome restrictions on our operations. Our business may also be adversely affected if the national authorities where we plan to operate adopt treaties, regulations or legislation unfavorable to foreign companies or limiting the provision of our products and services.

Risks Related to Competition and Markets

We operate in a highly competitive and specialized industry. The size and resources of some of our competitors may allow them to compete more effectively than we can, which could result in loss of our market share.

Our products and services compete with other satellite and aircraft-based imagery sources and related imagery products and services offered by a wide range and scale of commercial and government providers. Some competitors may have greater financial, personnel and other operating resources than us.

Our major U.S. competitor for high-resolution satellite imagery is DigitalGlobe.  DigitalGlobe currently operates three high-resolution satellites able to collect sub meter resolution imagery: Quickbird, launched in 2001; WorldView-1, launched in September 2007; and WorldView-2, launched in October 2009. DigitalGlobe’s three satellite constellation offers more collection capacity than GeoEye’s two satellite constellation of GeoEye-1 and IKONOS. While we believe GeoEye-1 offers the highest-resolution and positional accuracy of any commercial imagery satellite in the world, some customers may value collection capacity over image quality. In 2011, Astrium successfully launched their Pleiades satellite which collects sub meter imagery.  DigitalGlobe also announced intentions to expand their distribution option for international customers, known as the Direct Access Program. The emergence of Astrium as a commercial imagery vendor that offers radar, medium resolution, and high resolution imaging capabilities and DigitalGlobe’s increased investment in international growth could lead to increased pricing competition and put our market share at risk.

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If competitors develop and launch satellites with comparable or more advanced technologies than ours, or offer services at lower prices than ours, then our business, financial position and results of operations could be adversely affected.

U.S. and foreign government agencies may build and operate their own systems, which could affect the current and potential market share of our products and services and could lead to pricing pressure.

The U.S. government currently relies, and is likely to continue to rely, on government-owned and operated systems for classified satellite-based high-resolution imagery. The U.S. government could reduce its purchases from commercial satellite imagery providers or decrease the number of companies to which it contracts with no corresponding increase in the total amount spent.

The U.S. government and foreign governments also develop, construct, launch and operate their own imagery satellites, with comparable or higher resolution and accuracy, which could reduce their need to rely on commercial suppliers. In addition, such governments could sell Earth imagery from their satellites in the commercial market and thereby compete on price and technological capabilities with the sales of our imagery products and services. These governments could also subsidize the development, launch and operation of imagery satellites by our current or future competitors and subsidize the pricing of imagery from their satellites, which could lead to additional pricing pressure. Pricing pressure could lead to potential market share losses if we choose not to lower our prices to retain our existing customer base. Any reduction in purchases of our products and services by the U.S. government could have a material adverse effect on our business, operations and financial condition.

The success of our products and services will depend on market acceptance, and you should not rely on historic growth rates as an indicator of future growth.

Our success depends on existing markets accepting our imagery products and information services and our ability to develop new business markets and new services. Our business plan is based on the assumption that we will generate significant future revenues from sales of high-resolution imagery produced by our satellite constellation and from sales of our information services to current and new customers in our existing and new markets. The commercial availability of high-resolution satellite imagery is still a fairly new market. Consequently, it is difficult to predict accurately the ultimate size of the market and the market acceptance of our products and services. Our strategy is to target certain existing and new markets for our satellite imagery and relies on a number of assumptions. The actual market for our products and services could vary from the potential end markets that we have identified causing us to develop smaller end markets and potentially miss other market opportunities.

 We cannot accurately predict whether our products and services will achieve significant market acceptance or whether there will be a market for our products and services on terms we find acceptable. Market acceptance of our commercial high-resolution Earth imagery products and new information services depends on a number of factors, including the quality, scope, timeliness, sophistication and price of services and the availability of substitute products and services. Lack of significant market acceptance of our offerings, or other products and services that utilize our products and services, delays in acceptance, failure of certain markets to develop or our need to make significant investments to achieve acceptance by the market would negatively affect our business operations, financial condition and financial results.

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We may not continue to grow in line with our historical growth rates. If we are unable to achieve sustainable growth, we may be unable to execute our business strategy, expand our business or fund our liquidity needs. As a result, our prospects, financial condition and business operations could be materially and adversely affected.

We rely on resellers and a foreign distribution network to market and sell our products and services in certain markets and to certain customers. If these distributors and resellers fail to market our products and services successfully, our business, financial condition and results of operations will be materially adversely affected.

We rely principally on foreign regional resellers to market and sell our imagery from the GeoEye-1 and IKONOS satellites in various international markets. We are currently expanding our efforts to further develop our current and future operations in international markets. Our foreign regional resellers may not have the skill or experience to further develop international regional commercial markets for our products and services. If we fail to enter into additional foreign regional distribution agreements, or if our foreign regional resellers fail to market and sell our imagery products and services successfully abroad, these marketing failures could negatively affect our business operations and financial condition.

We rely on domestic and foreign value-added resellers to develop, market and sell our products and services to address certain target domestic and foreign markets, including certain industries and geographical markets. If our value-added resellers fail to develop, market and sell our products and services successfully, this failure could negatively affect our business, financial condition and results of operations.

Our international business exposes us to risks relating to increased regulation and political or economic instability in foreign markets.

For the year ended December 31, 2011, approximately 26 percent of our total revenues were derived from international sales. We intend to continue to pursue international contracts, and we expect to continue to derive substantial revenues from international sales of our products and services. International operations are subject to certain risks, such as:

· Changes in domestic and foreign governmental regulations and licensing requirements;

· Deterioration of relations between the United States and a particular foreign country;

· Increases in tariffs and taxes and other trade barriers;

· Changes in political and economic stability, including fluctuations in the value of foreign currencies, which may make payment in U.S. dollars, as provided for under our existing contracts, more expensive for foreign customers; and

· Difficulties in obtaining or enforcing judgments in foreign jurisdictions.

These risks are beyond our control and could have a material adverse effect on our business, financial position and results of operations.

Risks Related to Our Capital Structure and Strategy

Our Merger Agreement with DigitalGlobe, Inc. is subject to certain conditions beyond our control.

On July 22, 2012 we entered into an Agreement and Plan of Merger with DigitalGlobe, Inc. under which our stockholders are to receive newly issued shares of DigitalGlobe common stock and cash (and, for our preferred holders, DigitalGlobe preferred stock and cash) in exchange for their shares in GeoEye. Consummation of the Merger is subject to certain conditions beyond our control, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 12976, consent of the Federal Communications Commission, no pending temporary restraining order or preliminary or final injunction, receipt of certain tax opinions and the approval of the stockholders of both GeoEye and DigitalGlobe.  DigitalGlobe also has a right to terminate the Agreement based upon receipt by it of a superior proposal (as defined in the Merger Agreement) or other intervening event beyond our control prior to approval of the merger by its stockholders.  If the Merger is not consummated there could be an adverse effect on the market price for our common stock.

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Our business is capital intensive, and we may not be able to raise adequate capital to finance our business strategies, including funding any future satellite, or we may be able to do so only on terms that significantly restrict our ability to operate our business.

The implementation of our business strategies, such as expanding our satellite constellation and our value-added products and services offerings, requires a substantial outlay of capital. As we pursue our business strategies and seek to respond to opportunities and trends in our industry, our actual capital expenditures may differ from our expected capital expenditures, and there can be no assurance that we will be able to satisfy our capital requirements in the future. We currently expect that our ongoing liquidity requirements for sustaining our operations will be satisfied by cash on hand, cash generated from our existing and future operations and proceeds from the U.S. government cost-share. However, we cannot provide assurances that our businesses will generate sufficient cash flow from operations in the future or that future borrowings will be available in amounts sufficient to enable us to execute our business strategies.

Lending institutions have suffered and may continue to suffer losses due to their lending policies and their other financial relationships, especially because of the continued challenges and uncertainties in the U.S. and global economies. As a result, changes in the capital markets may impact our ability to obtain new financing or refinance our existing debt on reasonable terms and in adequate amounts, if at all. If we determine we need to obtain additional funds through external financing and are unable to do so, we may be prevented from fully implementing our business strategies. We can provide no assurance that we will be able to raise sufficient capital to continue funding our satellite constellation and expand our other products and services.

The continuing economic challenges and uncertainty may affect our business operations, financial condition and financial results in ways that we currently cannot predict.

The continuing economic challenges in the financial markets, national debt concerns and uncertainty regarding the global economy may have an impact on our business, our business operations, financial condition and financial results. As the cost of capital has increased substantially and the availability of funds from the capital markets has diminished significantly, our ability to access the capital markets may be restricted or be available only on terms we do not consider favorable. Limited access to the capital markets could adversely affect our ability to take advantage of business opportunities or react to changing economic and business conditions and could adversely affect our strategy.

The current economic situation could affect our customers, causing them to fail to meet obligations to us, which could have a material adverse effect on our revenue, results of operations and cash flows. A continued economic downturn coupled with the uncertainty and volatility of the global financial crisis may have a further adverse effect on our business and our consolidated financial condition, results of operations and cash flows that we currently cannot predict or anticipate. The uncertainty about future economic conditions also makes it more challenging for us to forecast our operation results, make business decisions, and identify and prioritize the risks that may affect our business, our business operations, financial condition and financial results.Our effective income tax rate may vary.

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Various internal and external factors may have favorable or unfavorable effects on our future effective income tax rate. These factors include, but are not limited to, changes in tax laws, regulations and or rates; the results of any tax examinations; changing interpretations of existing tax laws or regulations; changes in estimates of prior years’ items; acquisitions; changes in our corporate structure; and changes in overall levels of income before taxes. All of these factors may result in periodic revisions to our effective income tax rate.

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Although we carry insurance on our satellites, there can be no assurance that insurance proceeds would be available to us in the event of operational degradation of any our satellites, or that proceeds that might be available will adequately cover our losses.

We procure insurance covering risks associated with our satellite operations through the commercial insurance markets. The cost and amount of coverage available to us, and the types of loss coverage we are able to obtain at reasonable costs, are affected by factors beyond our control. These include recent loss experience in insurance markets, risk assessments by insurance carriers and their advisors, the carriers’ cost of capital, general economic conditions, and failures of other satellites using components similar to ours or using similar launch vehicles. Insurance premiums for satellite risk of loss coverage have historically been quite volatile, as have the terms of coverage and exclusions for coverage, and there can be no assurance that future premiums we may be required to pay to obtain or maintain our insurance will not exceed our ability to pay those premiums.  Higher premiums on insurance policies will increase our costs. Should the future terms of launch and in-orbit insurance policies become less favorable than those currently available, this may result in limits on amounts of coverage that we can obtain or may prevent us from obtaining insurance at all.

Our insurance policies contain various exclusions from coverage based upon commercial realities and the types of coverage available in the market. For example, the anomalies we have experienced in the operation of GeoEye-1 are excluded from our present policies, and any costs we have experienced to mitigate such anomalies are not covered by insurance. If we experience other operational anomalies associated with our satellites that could degrade their performance or our ability to collect the amount and/or quality of imagery that we anticipate, we may not have access to proceeds to cover our added costs or loss of revenue.

Our 2015 Notes and 2016 Notes require us to obtain launch and in-orbit insurance for our satellites, which is costly and may be difficult or impossible to obtain.  A loss of a high-resolution satellite such as GeoEye-1 will require us to offer to repurchase our 2015 Notes and 2016 Notes, and we may lack sufficient insurance to cover that cost.

The terms of the 2015 Notes and 2016 Notes, or Indentures, require us to obtain launch and in-orbit insurance for any future satellites we construct and launch and require us to maintain specified levels of in-orbit operation insurance for GeoEye-1, to the extent that such coverage can be obtained at a premium that is not disproportionately high. With respect to GeoEye-1, we currently carry $260.3 million of in-orbit insurance, consisting of $195.8 million of in-orbit insurance, expiring December 1, 2012, and $64.5 million of in-orbit insurance in the event of the total loss of the satellite, expiring December 1, 2012.  We believe, that under current market conditions, the premiums for additional coverage would be disproportionately high. This insurance is not sufficient to cover the cost of a replacement high-resolution imagery satellite such as GeoEye-1 or to provide us with sufficient funds to repurchase all of the 2015 Notes and the 2016 Notes then outstanding in the event that, as a result of such a loss, we are required to make a mandatory offer to repurchase the 2015 Notes and the 2016 Notes. We will seek to obtain insurance coverage for GeoEye-2 and all future satellites as required under the 2015 Notes and the 2016 Notes. However, any failure to obtain required insurance could cause a default under the 2015 Notes and the 2016 Notes.

We have a substantial amount of indebtedness.

Our substantial indebtedness has important consequences. For example, it:

· limits our ability to borrow additional funds;

· limits our ability to pay dividends;

· limits our flexibility in planning for, or reacting to, changes in our business and our industry;

· increases our vulnerability to general adverse economic and industry conditions;

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· limits our ability to make strategic acquisitions;

· requires us to dedicate a substantial portion of our cash flow from operations to payments on indebtedness, reducing the availability of cash flow to fund working capital, capital expenditures and other general corporate activities; and

· places us at a competitive disadvantage compared to competitors that have less debt.

Interest costs related to our debt are substantial and, as a result, the demands on our cash resources are significant. Our ability to make payments on our debt and to fund operations and planned capital expenditures will depend on our future results of operations and ability to generate cash. Our future results of operations are, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

The terms of the Indentures will permit us and our subsidiaries to incur substantial additional indebtedness in the future, including secured indebtedness with first-priority liens or pari passu liens, which could further exacerbate the risks described above.

Servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations.

Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, political, financial, competitive, legislative, regulatory and other factors that are beyond our control.

For the year ended December 31, 2011, our interest expense totaled $53.1 million, before considering the impact of capitalized interest. We cannot assure you that our business will generate sufficient cash flow from operations to enable us to pay our indebtedness or to fund our other liquidity needs. If our cash flows are insufficient to allow us to make scheduled payments on our indebtedness, we may need to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, or that we will be able to refinance on commercially reasonable terms or that these measures would satisfy our scheduled debt service obligations. If we are unable to generate sufficient cash flow or refinance our debt on favorable terms, it could have a material adverse effect on our financial condition, the value of our outstanding debt and our ability to make any required cash payments under our indebtedness.

A lowering or withdrawal of the credit ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.

Our debt currently has a non-investment grade credit rating, and any credit rating assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the Notes. Credit ratings are not recommendations to purchase, hold or sell the Notes. Additionally, credit ratings may not reflect the potential effect of risks relating to the structure or marketing of the Notes. Any downgrade by a rating agency could decrease earnings and may result in higher borrowing costs.

 Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing. If any credit rating initially assigned to the Notes is subsequently lowered or withdrawn for any reason, you may not be able to resell your Notes without a substantial discount.

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We may pursue acquisitions, investments, strategic alliances and joint ventures, which could affect our results of operations.

We may engage in various transactions, including purchases or sales of assets, acquisitions of businesses, or enter into investments or contractual arrangements, such as strategic alliances or joint ventures. These transactions may be intended to result in the realization of cost savings, the generation of cash, the generation of income or the reduction of risk. We cannot assure you that we will be able to identify suitable acquisition, investment, alliance or joint venture opportunities or that we will be able to consummate any such transactions or relationships on terms and conditions acceptable to us, or that such transactions or relationships will be successful.

In addition, upon consummation of an acquisition, investment, strategic alliance or joint venture, we may face challenges with integration efforts, including the combination and development of product and service offerings, sales and marketing approaches and establishment of combined operations. There can be no assurance that an acquired business will perform as expected; that we will not incur unforeseen obligations or liabilities; that the business will generate sufficient cash flow to support the indebtedness, if incurred, to acquire them or the expenditures needed to develop them; or that the rate of return from such businesses will justify the decision to invest the capital.

Any future acquisitions, investments, strategic alliances or joint ventures may require additional debt or equity financing, which, in the case of debt financing, would increase our leverage and potentially affect our creditworthiness. Any deterioration in our creditworthiness or our future credit ratings associated with an acquisition could adversely affect our ability to borrow by resulting in more restrictive borrowing terms.

Item 6. Exhibits.

(a) Exhibits:

		Incorporated by Reference
Exhibit No	Exhibit Description	Form	SEC File No.	Exhibit	Filing Date	Filed Herewith
2.1	Agreement and Plan of Merger, dated as of July 22, 2012, by and among GeoEye, Inc., 20/20 Acquisition Sub, Inc., WorldView, LLC, and DigitalGlobe, Inc.	8-K	001-33015	2.1	7/23/2012
2.2	Voting Agreement, dated as of July 22, 2012, by and between GeoEye, Inc. and General Howell M. Estes III	8-K	001-33015	2.2	7/23/2012
2.3	Voting Agreement, dated as of July 22, 2012, by and between GeoEye, Inc. and Jeffrey R. Tarr	8-K	001-33015	2.3	7/23/2012

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		Incorporated by Reference
Exhibit No	Exhibit Description	Form	SEC File No.	Exhibit	Filing Date	Filed Herewith
2.4	Voting Agreement, dated as of July 22, 2012, by and between GeoEye, Inc. and Morgan Stanley Principal Investments, Inc.	8-K	001-33015	2.4	7/23/2012
10.1	Amendment to Standstill Agreement, dated as of June 5, 2012, by and between the Company and Cerberus Capital Management, L.P.	8-K/A	001-33015	10.1	6/11/2012
31.1	Certification of the Company’s Chief Executive Officer, Matthew M. O’Connell, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification of the Company’s Chief Financial Officer, Joseph F. Greeves, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1	Certification of the Company’s Chief Executive Officer, Matthew M. O’Connell, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2	Certification of the Company’s Chief Financial Officer, Joseph F. Greeves, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.	The following financial information from GeoEye, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text					X

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GeoEye, Inc.
Date: August 7, 2012	/s/  Matthew M. O’Connell
	Matthew M. O’Connell
	Chief Executive Officer
Date: August 7, 2012	/s/  Joseph F. Greeves
	Joseph F. Greeves
	Executive Vice President and Chief Financial Officer
Date: August 7, 2012	/s/  Jeanine J. Montgomery
	Jeanine J. Montgomery
	Vice President, Accounting and Corporate Controller

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