Management's Discussion and Analysis of Financial Condition and Results of Operations Item 2: Management's Discussion and Analysis Of Financial Condition And Results Of Operations

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This presentation and other of our reports, filings, and public announcements may contain or incorporate forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words, although not all forward-looking statements contain these words.
Any forward-looking statements are based upon our historical performance and on our current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions. A number of important factors could cause our actual results or performance to differ materially from those indicated by such forward looking statements, including: the loss or reduction of any of our primary contracts; the failure of our WorldView-2 satellite to commission successfully or as scheduled; the loss or impairment of our satellites; loss or damage to the content contained in our ImageLibrary; interruption or failure of our ground system and other infrastructure, decrease in demand for our imagery products and services; increased competition that may reduce our market share or cause us to lower our prices; our failure to obtain or maintain required regulatory approvals and licenses; changes in U.S. foreign law or regulation that may limit our ability to distribute our imagery products and services; the costs associated with being a public company; and other important factors, all as described more fully in our filings with the Securities and Exchange Commission, including our Prospectus filed with the Commission on May 14, 2009. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on any of these forward looking statements. Overview
We are a leading global provider of commercial high resolution earth imagery products and services. We own and operate three imagery satellites; we believe that with QuickBird and WorldView-1 we offer among the highest collection rates, resolution and among the most sophisticated technical capabilities in the commercial market today. We launched our WorldView-2 satellite on October 8, 2009 and upon successful commissioning, we expect that the collection capacity from our constellation will nearly double. Together, our QuickBird, WorldView-1, and WorldView-2 satellites will be capable of collecting over 500 million square kilometers of imagery per year upon successful commissioning of our WorldView-2 satellite. The proprietary imagery we collect is added daily to our ImageLibrary, which currently houses more than 815 million square kilometers of high resolution earth imagery, an area greater than five times the earth's land mass. We believe that our ImageLibrary is the largest, most up-to-date and comprehensive archive of high resolution earth imagery commercially available. Our products and services support a wide variety of uses such as defense and intelligence initiatives, mapping and analysis, environmental monitoring, oil and gas exploration, and infrastructure management. We offer a range of on- and off-line distribution options designed to enable customers to easily access and integrate our imagery into their business operations and applications. Our principal customers include U.S. and foreign defense and intelligence agencies and a wide variety of commercial customers, such as internet portals, companies in the energy, telecommunications, utility and agricultural industries, and foreign civil government agencies.
We conduct our business through two segments: (i) defense and intelligence and
(ii) commercial. We have organized our business into these two segments because we believe that customers in these two groups are functionally similar in terms of their areas of focus and purchasing habits. Our imagery products and services are comprised of satellite and aerial imagery that we process to varying levels according to the customer's specifications. We deliver our products and services using the distribution method that best suits our customers' needs. Customers acquire our imagery either by placing a tasking order for our satellites to collect data to their specifications or purchasing satellite and aerial images that are archived in our ImageLibrary. On May 14, 2009, we completed an initial public offering consisting of 14,700,000 shares of common stock at $19.00 per share. The total shares sold in the offering included 13,333,744 shares sold by selling shareholders and 1,366,256 shares sold by us. After deducting payment of the underwriters' discounts and commissions and offering expenses, the net proceeds to us from the sale of the shares in the offering were approximately $19.0 million.

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DigitalGlobe, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue
Our principal source of revenue is the licensing of our earth imagery products and services to end users, application providers and resellers.
Revenue from defense and intelligence customers accounted for 82.5% and 80.6% of our total revenue in the three months ended September 30, 2008 and 2009, respectively, and 82.0% and 83.0% of our total revenue in the nine months ended September 30, 2008 and 2009, respectively. Revenue from commercial customers accounted for 17.5% and 19.4% of our total revenue in the three months ended September 30, 2008 and 2009, respectively, 18.0% and 17.0% of our total revenue in the nine months ended September 30, 2008 and 2009, respectively. Growth in defense and intelligence revenue as a percentage of total revenue was due to increases in National Geospatial-Intelligence Agency (NGA) purchases under the NextView agreement, including the start of deliveries of imagery products and services from our WorldView-1 satellite to NGA in late 2007. We expect this trend to continue through 2009 as a result of the NextView extension. The successful operational commissioning of our WorldView-2 satellite, launched on October, 8, 2009, may contribute to a continuation of this trend, depending upon, in part, the date on which WorldView-2 is fully commissioned and we begin receiving revenue from the sales of WorldView-2 imagery, continued funding by the U.S. government of purchases of our imagery products and services, including WorldView-2 imagery, and the success of our Direct Access Program (DAP). Funding for U.S. government purchases of our imagery products and services is subject to appropriation of funds by Congress. Should appropriated funds fall below current levels, we could experience a decrease in our defense and intelligence revenue trend. We generated approximately 84.6% and 83.5% of our revenue in the United States and Canada for the three months ended September 30, 2008 and 2009, respectively, and 85.4% and 84.6% of our revenue in the United States and Canada for the nine months ended September 30, 2008 and 2009, respectively. We generated approximately 15.4% and 16.5% of our revenue outside of the United States and Canada in the three months ended September 30, 2008 and 2009, and 14.6% and 15.4% of our revenue outside of the United States and Canada in the nine months ended September 30, 2008 and 2009, respectively. We generated approximately 69.7% of our revenue from paid tasking and 30.3% from our ImageLibrary for the nine month period ended September 30, 2009 (treating all of the revenue from the Service Level Agreement (SLA) under the NextView agreement as paid tasking and excluding amortized revenue).
We will not recognize revenue from a DAP customer until the ground terminal is placed into operation and we can provide contractually specified access time to our WorldView-1 and World-View-2 satellites. The success of DAP will depend on our ability to secure contracts with potential customers and on our ability to obtain U.S. government approval for contracts with these customers. As described in "Risk Factors - Failure to obtain or maintain regulatory approvals could result in service interruptions or could impede us from executing our business plan," in our Prospectus filed with the SEC on May 14, 2009, our failure to obtain approval from the U.S. government for future DAP customers could limit our sales and negatively affect our defense and intelligence revenue trend. Defense and Intelligence Revenue
Our defense and intelligence segment consists of customers who are principally defense and intelligence agencies of U.S. or foreign governments. The U.S. government purchases our imagery products and services primarily through NGA, under the NextView agreement on behalf of various agencies within the U.S. government. Other U.S. defense and intelligence customers include defense and intelligence contractors, such as Harris Corporation and Lockheed Martin Corporation. Defense and intelligence contractors provide an additional outlet for our imagery by providing value added services, including advanced processing and/or combining our data with other information to deliver a final product to a customer.
Our defense and intelligence customers focus on image quality and availability. Quality includes resolution, accuracy, and visual clarity; availability includes frequency of area revisit and coverage, as well as committed access to certain amounts of our capacity as they integrate our products and services into their operational planning. Our customers in this segment prefer to operate under contracts with purchase commitments, through which we receive quarterly or semi-annual pre-payments in exchange for delivering specific orders to the customer. The revenue from our defense and intelligence customers has historically been largely from tasking orders, with a smaller portion from sales of imagery from our ImageLibrary. We believe this trend will continue. For the nine month period ended September 30, 2009, we generated approximately 80.4% of our defense and intelligence revenue from paid tasking and 19.6% from our ImageLibrary (treating all of the revenue from the SLA under the NextView agreement as paid tasking and excluding amortized revenue).

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DigitalGlobe, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations For the three and nine months ended September 30, 2009, we sold to our defense and intelligence customers both directly and through resellers, with 96.9% and 96.2%, respectively, of our defense and intelligence revenue coming from direct sales and 3.1% and 3.8%, respectively, from resellers.
For the three and nine months ended September 30, 2009, $54.6 million, or 94.2%, and $160.9 million, or 92.7%, respectively of our defense and intelligence revenue was generated within the United States and Canada, and $3.3 million, or 5.8%, and $12.6 million, or 7.3%, respectively was generated from international defense and intelligence customers. For the three and nine months ended September 30, 2009, our top five defense and intelligence customers accounted for 96.4% and 97.1%, respectively of our defense and intelligence revenue. NGA was our only customer that accounted for more than 10% of our revenue in the three and nine months period ended September 30, 2009. NGA accounted for approximately 74.0% and 74.2% of our revenue for the three months ended September 30, 2008 and 2009, respectively, and 74.4% and 75.8% for the nine months ended September 30, 2008 and 2009, respectively. Commercial Revenue
Our commercial business consists of (i) traditional customers, primarily international civil governments and energy, telecommunications, utility and agricultural companies that use our content for mapping, monitoring, analysis, planning activities and content aggregation, and (ii) customers that add our content to enhance and expand the information products and services that they develop and sell to the commercial market. We call this second type of customer an integrated information customer.
Most of our traditional commercial customers purchase our imagery products and services on an as-needed basis, either from the ImageLibrary or by placing tasking orders. By contrast, some of our integrated information customers prefer contracts to maintain access to our imagery archive, or provide subscriptions to access our ImageLibrary. The majority of revenue from the commercial segment has historically been generated from sales of imagery products and services from our ImageLibrary, with a smaller proportion from tasking orders. We believe this trend will continue in 2009. For the nine month period ended September 30, 2009, we generated approximately 24.7% of our commercial revenue from paid tasking and 75.3% from our ImageLibrary.
Our commercial customers are located throughout the world. We sell to these customers both directly and through resellers, with 63.4% and 59.1%, respectively, of our commercial revenue coming from resellers and 36.6% and 40.9%, respectively, coming from direct sales for the three and nine month periods ended September 30, 2009.
For the three and nine month periods ended September 30, 2009, $5.4 million, or 38.9%, and $15.9 million, or 44.8%, respectively, of our commercial revenue was generated in the United States and Canada and $8.5 million, or 61.1%, and $19.6 million, or 55.2%, respectively, was generated outside of the United States and Canada. For the three and nine month periods ended September 30, 2009, our top five commercial customers accounted for 51.5% and 45.7%, respectively, of our commercial revenue. None of these customers accounted for more than 10% of our revenue for the three and nine month periods ended September 30, 2009. We believe that we will have additional opportunities in some of the countries with developing economies, such as Brazil, China, India and Russia, and, as a result, we expect that over the long-term, revenue in our commercial segment will be higher outside of the United States and Canada. Backlog
Total backlog was $298.4 million as of September 30, 2009. Total backlog includes $75.0 million under the NextView agreement, substantially all of which is expected to be recognized prior to March 31, 2010 when the NextView agreement is scheduled to expire. This represents payments under the SLA for imagery time on WorldView- 1 that is committed to NGA. Total backlog also includes $223.4 million of firm orders, minimum commitments under signed customer contracts, remaining amounts under pre-paid subscriptions, amounts committed under DAP agreements and funded and unfunded task orders from our government customers. Of this amount, we expect that $11.5 million will be recognized over the remainder of 2009. In addition, there is $220.1 million of remaining unamortized revenue related to pre-FOC payments from NGA, of which $6.4 million is expected to be recognized during the remainder of 2009.
Although we believe backlog to be a reasonable representation of our firm orders and customer commitments that will be recognized as revenue in the future, these orders and commitments are subject to risks which could impact the timing or amount of revenue we actually realize. These risks include order cancellations, government appropriations risk, delays due to weather and changes in the periods over which we amortize deferred revenue. In addition, because backlog includes amounts which have been pre-paid and classified as deferred revenue, it is not an indication of the cash revenue we expect to receive in the future.

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DigitalGlobe, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations For the Three Month Period Ended September 30, 2009 Compared to the Three Month Period Ended September 30, 2008 The following table summarizes our historical results of operations for the three month period ended September 30, 2009 compared to the three month period ended September 30, 2008 and our expenses as a percentage of revenue for the periods indicated: Three Months Ended September 30, Change (in millions) 2008 2009 $ Percent Historical results of operations: Defense and Intelligence revenue $ 55.1 $ 57.9 $ 2.8 5.1 % Commercial revenue 11.7 13.9 2.2 18.8 Total revenue 66.8 71.8 5.0 7.5 Cost of revenue excluding depreciation and amortization 5.7 7.8 2.1 36.8 Selling, general and administrative 17.8 21.5 3.7 20.8 Depreciation and amortization 18.8 18.6 (0.2 ) (1.1 ) Income from operations 24.5 23.9 (0.6 ) (2.4 ) Interest income (expense), net (0.7 ) - 0.7 100.0 Income before income taxes 23.8 23.9 0.1 0.4 Income tax expense (9.5 ) (9.3 ) 0.2 2.1 Net income $ 14.3 $ 14.6 $ 0.3 2.1 % Three Months Ended September 30, 2008 2009 Expenses as a percentage of revenue: Total revenue 100.0 % 100.0 % Cost of revenue excluding depreciation and amortization 8.5 10.9 Selling, general and administrative 26.6 29.9 Depreciation and amortization 28.1 25.9 Income from operations 36.8 33.3 Interest income (expense), net (1.0 ) - Income before income taxes 35.8 33.3 Income tax expense (14.2 ) (13.0 ) Net income 21.6 % 20.3 %

Domestic defense and intelligence revenue increased by $3.9 million, primarily due to $3.7 million from NGA projects and a $0.2 million increase in domestic defense contractors and civil government sales during the three months ended September 30, 2009. International defense and intelligence revenue decreased by $1.1 million, due to weaker sales volumes in Europe and Asia.
The decrease in domestic commercial revenue of $0.6 million was due to a decline of sales in the Americas. In the Americas, the lower sales were a result of lower sales volume through our resellers. International commercial revenue increased $2.8 million primarily due to higher sales volumes in Asia with strategic accounts.
Cost of revenue increased due to (i) a $0.9 million increase in consulting and other third-party costs related to certain project sales, (ii) a $0.7 million increase in labor costs resulting from increase in salaries and fringe benefit costs and overhead allocation, and (iii) a $0.4 million increase in the amortization of purchased aerial imagery.
Selling, general and administrative expenses increased due to (i) a $3.6 million increase in expenses from compensation, travel and related costs due to increased headcount, (ii) increased stock compensation expense of $0.6 million resulting from stock awards and option grants made in the second quarter of 2009, offset by $0.2 million decrease in bad debt expense, and a decrease of $0.4 million in marketing, accounting, consulting and other professional services expenses.

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DigitalGlobe, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations Depreciation and amortization for the three month period ended September 30, 2009, decreased by $0.2 million due to a decrease of $1.4 million due to extending the life of QuickBird satellite, offset by an increase of $1.2 million primarily due to bringing other assets into service.
The change from interest expense to interest income is primarily due to all interest expense being capitalized in 2009, due to the fact that our total costs incurred on WorldView-2 exceeds our outstanding debt, whereas, not all interest was capitalized in the comparable period in 2008 based on our spending level on the satellite and other projects. Upon operational commissioning of WorldView-2, most of our interest will no longer be capitalized and interest expense will increase.
In order to calculate our income tax expense, we performed an analysis of our projected 2009 operating results to determine an effective overall tax rate to be applied for each quarter of 2009.
For the Nine Month Period September 30, 2009 Compared to the Nine Month Period September 30, 2008
The following tables summarize our historical results of operations for the nine month period September 30, 2009 compared to the nine month period September 30, 2008, and our expenses as a percentage of revenue for the periods indicated:

Nine Months Ended September 30, Change (in millions) 2008 2009 $ Percent Historical results of operations: Defense and Intelligence revenue $ 166.5 $ 173.5 $ 7.0 4.2 % Commercial revenue 36.5 35.5 (1.0 ) (2.7 ) Total revenue 203.0 209.0 6.0 3.0 Cost of revenue excluding depreciation and amortization 19.9 22.2 2.3 11.6 Selling, general and administrative 54.5 65.6 11.1 20.4 Depreciation and amortization 56.4 56.2 (0.2 ) (0.4 ) Income from operations 72.2 65.0 (7.2 ) (10.0 ) Loss from early extinguishment of debt - (7.7 ) (7.7 ) (100.0 ) Loss on derivative instruments - (1.8 ) (1.8 ) (100.0 ) Interest income (expense), net (3.2 ) 0.1 3.3 103.1 Net income before income taxes 69.0 55.6 (13.4 ) (19.4 ) Income tax expense (29.0 ) (22.0 ) 7.0 24.1 Net income $ 40.0 $ 33.6 $ (6.4 ) (16.0 )% Nine Months Ended September 30, 2008 2009 Expenses as a percentage of revenue: Total revenue 100.0 % 100.0 % Cost of revenue excluding depreciation and amortization 9.8 10.6 Selling, general and administrative 26.8 31.4 Depreciation and amortization 27.8 26.9 Income from operations 35.6 31.1 Loss from early extinguishment of debt - (3.7 ) Loss on derivative instruments - (0.9 ) Interest income, net of interest expense (1.6 ) - Income before income taxes 34.0 26.5 Income tax expense (14.3 ) (10.5 ) Net income 19.7 % 16.0 %

Domestic defense and intelligence revenue, increased by $6.3 million, primarily due to $7.0 million from NGA projects offset by a $0.7 million decrease in civil government revenue. International defense and intelligence revenue increased $0.7 million, primarily due to increased revenue from customers in Europe and the Middle East.

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DigitalGlobe, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations Domestic commercial revenue decreased $2.9 million, primarily due to lower sales volumes in both subscriptions and sales of archive imagery in the Americas. International commercial revenue increased $1.9 million, primarily due to increased sales to customers in Asia.
The increase in cost of revenue expenses is attributable to (i) a $1.0 million increase in the amortization of purchased aerial imagery, and (ii) an increase in labor costs, stock compensation and bonus expense of $1.0 million and
(iii) an increase in consulting, accounting and other professional services costs of $0.3 million. Selling, general and administrative expenses increased by (i) $7.7 million of increased expenses from compensation, travel and related costs resulting from increased headcount, (ii) an increase in stock compensation of $2.9 million,
(iii) an increase in third party commission of $1.3 million, (iv) an increase in bad debt expenses of $0.8 million, and (v) an increase of $0.5 million in insurance expense, partially offset by a decrease of $2.1 million in accounting, professional services, and consulting costs. Depreciation and amortization for the nine months ended September 30, 2009 decreased by $0.2 million due to a decrease of $1.4 million as a result of extending the life of QuickBird satellite, offset by an increase of $1.2 million primarily due to bringing other assets into service. The loss from early extinguishment of debt for the nine month period ended September 30, 2009, was $7.7 million, due to our issuance of senior secured notes with a face value of $355.0 million in April 2009 and repayment in full of our senior credit facility and our senior subordinated notes. The early extinguishment of debt represents the expensing of the deferred financing costs of $5.9 million related to the senior credit facility and senior subordinated notes, and includes a prepayment penalty of $1.8 million related to the senior subordinated notes. Due to changes made on our senior secured debt in the first quarter of 2009, our . . .