Restatement Pulls GeoEye's Goals Back Down to Earth
Thursday, August 14, 2008
GeoEye's dreams have long been anchored high in the sky, with plans to launch next month a $500 million satellite powerful enough to snap a picture of home plate at Nationals Park from 423 miles above the planet.
But on Tuesday, the Dulles satellite company disclosed that it is confronting setbacks here on Earth.
GeoEye said it will have to restate its accounting for 2005 through 2007, lowering profit for the period by $31 million.
In addition, the company said a delay this year in launching the satellite, known as GeoEye-1, caused a major government customer to cut back on its orders. The reductions by the National Geospatial-Intelligence Agency, which provides satellite imagery to the spy agencies and the Pentagon, sharply lowered GeoEye's sales and profit in the quarter ending June 30.
Chief executive Matthew M. O'Connell said in an interview that the restatement is partly related to a tax issue the company hopes to resolve with the Internal Revenue Service. He said the accounting issue was a temporary setback. "The net effect on the company is not significant," he said.
GeoEye, a public company, was formed in 2006 out of the merger of Dulles- and Denver-based satellite concerns. It serves government, commercial and international clients. The firm also operates IKONOS, a satellite that provides the images for map Web sites run by Google, Yahoo and Microsoft.
The $500 million price tag of GeoEye-1 includes insurance, launch operations and ground facilities. The company is in the early stages of planning a second satellite, too.
GeoEye's shares fell sharply in April after it failed to launch GeoEye on time. Yesterday, shares fell 69 cents, or 2.8 percent, to $23.84, down about a third from the company's 52-week high.
In a statement, GeoEye said it incorrectly accounted for taxes related to payments received under a cost-sharing program with the National Geospatial-Intelligence Agency. The agency agreed to pay for slightly less than half the cost of GeoEye-1 as part of a program to help companies afford big technology outlays that will benefit the government.
The company also adjusted losses that were carried over from before GeoEye was formed in 2006.
But GeoEye said it would register $31 million in additional earnings in 2008, wiping out the financial impact of the restatement, after filing an application with the IRS to change its accounting methods.
GeoEye said profit in the second quarter of 2008 was $2.4 million compared with a restated $11.2 million in the same period in 2007. Revenue in the second quarter of 2008 was $34.2 million, down from $48.3 million in 2007.
GeoEye said the declines followed reduced orders from the National Geospatial-Intelligence Agency. The company said the agency may have allocated imagery orders to a competitor, Colorado-based DigitalGlobe, which launched its satellite last fall. The launch of GeoEye-1 was originally expected in 2007, then moved to April.
But that was postponed, first to Aug. 22, now to Sept. 4. The United Launch Alliance, a venture run by Boeing and Lockheed Martin to manage the launch of satellites into space using rockets manufactured by the companies, said that a government satellite needed to be sent up ahead of GeoEye-1 for national security purposes.
O'Connell expressed frustration with the decision and said it denied GeoEye four months of business with an important asset.
"We're certainly a lot smaller and since [the United Launch Alliance] are the only guys in town, they don't have to be very responsive to commercial launches," he said.
O'Connell was crossing his fingers that GeoEye-1 would rocket into the air Sept. 4 from Vandenberg Air Force Base in Santa Barbara, Calif. Final word on last-minute tests should come in the next few days.
"In the space business you're never guaranteed of anything," he said. "But we're standing up on the pad. The boosters are strapped on. And the disassembling of these things is a big pain."