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Intelsat Reports First Quarter 2010 Results

May 12, 2010

Intelsat S.A., reported results for the three months ended March 31, 2010.

Intelsat S.A. reported revenue of $621.1 million and a net loss of $102.6 million for the three months ended March 31, 2010. The company also reported Intelsat S.A. EBITDAi, or earnings before net interest, loss on early extinguishment of debt, taxes and depreciation and amortization, of $445.8 million, and Intelsat Luxembourg Adjusted EBITDAi of $483.1 million, or 78 percent of revenue, for the three months ended March 31, 2010.

“First quarter 2010 performance was as anticipated in light of the previously reported events that are restraining our growth in the first half of 2010,” said Intelsat CEO, David McGlade. “Our confidence in our business is well-founded. Our attractive contract backlog, which increased to $9.5 billion at the end of the first quarter, provides stability to our business and visibility into our future revenue streams.”

McGlade continued, “Our goal is to deliver sustainable growth over the long term. With new capacity entering service on our network and solid demand for the services we provide, we will continue to execute on our business plan. As we progress, we look forward to an improving growth profile in the second half of 2010.”

Business Highlights

• Intelsat received notice that the Government Accountability Office has dismissed the protests of the

Commercial Broadband Satellite Program, or CBSP, a Navy contract awarded earlier this year to

Intelsat General Corporation, a wholly owned subsidiary. The indefinite delivery, indefinite quantity

(“IDIQ”) program has a total value of up to $543 million. We expect to begin receiving orders

under the contract in the near future.

• Intelsat announced an expansion of its April 2009 agreement for UHF hosted payload services with

the Australian Defence Force (ADF). The ADF exercised its option to purchase the remainder of the

specialized UHF communications payload that we are integrating within our Intelsat 22 satellite,

scheduled for launch in the first quarter of 2012. As a result of this agreement, the entire UHF

payload on the satellite is fully contracted for the expected life of the satellite.

• Intelsat’s network services business continued to grow due to demand for capacity supporting

telecommunications infrastructure in emerging economies. Intelig Telecom of Brazil signed a new,

multi-transponder agreement for service on Intelsat 14 to support a number of infrastructure

applications, including cellular backhaul. We expanded our growing relationship with Mercury

Servicos de Telecommunicacoes of Angola (“MSTelcom”), under an agreement that provides

MSTelcom with managed services for IP connectivity on the Intelsat 1-R satellite which was

repositioned following the launch of Intelsat 14. Also in Africa, Empresa Nacional de Telecoms

Mozambique renewed a multi-transponder service agreement that supports telecommunications

services such as cellular backhaul and VSAT networks for Mozambique’s geographically dispersed

provinces.

• Intelsat expanded its relationship with one of its largest media customers under a contract that

extends through 2027. Grupo Televisa, S.A.B. announced that its Innova subsidiary agreed to buy

services on 24 transponders on Intelsat’s IS-21 satellite, extending and expanding its existing

agreement on Intelsat 9. The agreement covers the expected life of the IS-21 satellite, which is

expected to launch in 2012.

• On April 12, 2010, we announced our new, Cisco-based terrestrial infrastructure, IntelsatONE.

IntelsatONE is a global, terrestrial architecture, consisting of an IP/MPLS-based network, fiber,

teleports and points of presence. By year-end 2010, the network is expected to connect Intelsat’s

North America and Europe-based teleports.

• Intelsat's satellite development and launch programs continue to progress. On February 12, 2010,

the Intelsat 16 satellite was successfully launched and entered service in March 2010. Meanwhile,

the recently purchased Intelsat 25 satellite completed its drift and test period, entering service at

328.5° east longitude in early April 2010.

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• On April 5, 2010, Intelsat’s Galaxy 15 satellite experienced an anomaly. We have transitioned all

media traffic on this satellite to our Galaxy 12 satellite, which was the designated in-orbit spare for

the North American region. Galaxy 15 is an Orbital Star satellite manufactured by Orbital Sciences

Corporation. Along with the manufacturer, we are conducting a technical investigation with

respect to the anomaly. If we are not successful in our attempts to restore our communications

with the satellite, an impairment loss could be recognized in a future period. At March 31, 2010,

the net book value of Galaxy 15 was $142.4 million.

• Intelsat’s average fill rate on its approximately 2,025 station-kept transponders was 82 percent at

March 31, 2010.

• On April 21, 2010, Intelsat S.A. completed a consent solicitation to amend certain terms of Intelsat

S.A.’s 7 5/8% Senior Notes due 2012 and 6 ½% Senior Notes due 2013. The most significant

amendments replaced the limitation on secured debt covenant, which limited secured debt of

Intelsat S.A. and its restricted subsidiaries to 15 percent of their consolidated net tangible assets

(subject to certain restrictions), with a new limitation on liens covenant, which generally limits such

secured debt to two times the adjusted EBITDA of Intelsat S.A (as defined) plus certain general

baskets (subject to certain exceptions), and made certain corresponding changes to the sale and

leaseback covenant as a result of the addition of the new limitation on liens covenant.

Financial Results for the Three Months Ended March 31, 2010

We are introducing expanded disclosure with respect to On-Network and Off-Network and Other

revenues. On-Network revenues generally include revenues from any services delivered via our satellite or ground network. Off-Network and Other revenues generally include revenues from transponder services, mobile satellite services, or MSS, and other satellite-based transmission services utilizing capacity procured from other operators, often in frequencies not available on our network. It also includes revenues from consulting and other services. We believe the additional information will improve investors’ ability to analyze margin trends in our business.

Revenue for the three months ended March 31, 2010 decreased by $10.7 million, or 2 percent, to $621.1 million as compared to $631.8 million for the three months ended March 31, 2009. This decline was primarily due to the resale of a launch vehicle during the first quarter of 2009 with no similar resales in the first quarter of 2010. By service type, revenue increased or decreased due to the following:

On-Network Revenues:

• Transponder services— an aggregate increase of $6.4 million, due mostly to a $5.8 million increase in

revenue from network services customers, resulting from new business, renewals and traffic

transitioned from managed services. Customers located in the Africa and Middle East region

produced the highest growth. The change also reflects a $1.2 million increase in revenues resulting

from new services and strong renewals sold primarily to customers of our Intelsat General business.

• Managed services— an aggregate decrease of $4.6 million, due mostly to a $3.7 million decrease in

revenue from network services customers for broadband solutions primarily in the Africa and Middle

East region.

• Channel— an aggregate decrease of $2.9 million related to a continued decline from the migration

of point-to-point satellite traffic to fiber optic cables across transoceanic routes, a trend which we

expect will continue.

4Off-Network and Other Revenues:

• Transponder, MSS and other off-network services— an aggregate increase of $10.8 million, primarily

due to a $6.3 million increase in transponder services related to customers of our Intelsat General

business as well as $4.6 million in increased mobile satellite services revenue from usage-based mobile

services.

• Satellite-related services— an aggregate decrease of $20.5 million, resulting primarily from $22.1

million in launch vehicle resale revenues recorded in the first quarter of 2009 with no similar resales

occurring in the first quarter of 2010. This was partially offset by an increase in professional services

revenue generated by our Intelsat General business during the three months ended March 31, 2010.

Changes in direct costs of revenue, selling, general and administrative expenses, depreciation and amortization and interest expense, net are described below.

• Direct costs of revenue decreased by $6.2 million, or 6 percent, to $97.4 million for the three

months ended March 31, 2010 as compared to the three months ended March 31, 2009. The

decrease was primarily due to a net $6.8 million decline in cost of sales to $46.8 million related to

Off-Network and Other revenues. The $6.8 million decline consisted of a decrease of $17.8 million

related to the resale of a launch vehicle by our satellite-related services business in the first quarter

of 2009, offset by an increase of $10.9 million for purchases of fixed and mobile off-network

capacity related to increased services sold primarily by our Intelsat General business.

• Selling, general and administrative expenses decreased by $1.4 million, or 3 percent, to $45.1

million for the three months ended March 31, 2010 as compared to the three months ended

March 31, 2009. The decrease was primarily due to $6.0 million in lower compensation costs

associated with the Intelsat Global, Ltd. 2008 Share Incentive Plan, offset by an increase of $3.4

million in bad debt expense as compared to a credit in the first quarter of 2009.

• Depreciation and amortization expense decreased by $14.1 million, or 7 percent, to $196.8 million

for the three months ended March 31, 2010 as compared to the three months ended March 31,

2009. This decrease was primarily due to:

• an aggregate decrease of $30.2 million resulting from lower depreciation expense due to

certain satellites, ground and other assets becoming fully depreciated and the impairment of

our IS-4 satellite in 2010, together with a decline in amortization expense; partially offset by

• an aggregate increase of $16.0 million resulting from higher depreciation expense due to

satellites placed into service during the second half of 2009 and the first quarter of 2010,

together with changes in the estimated remaining useful lives of certain satellites.

• Our income (loss) from operations increased by $481.6 million to income from operations of

$245.5 million for the three months ended March 31, 2010 as compared to a loss from operations

of $236.2 million for the three months ended March 31, 2009. In addition to the impacts described

above, our financial results were affected by certain material pre-tax charges incurred during the

three months ended March 31, 2010, as discussed below:

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• a $6.5 million non-cash impairment charge recorded in the first quarter of 2010 to write off

our IS-4 satellite, which was deemed unrecoverable after an anomaly occurring in February

2010; and

• a $29.9 million loss recognized on our derivative financial instruments for the three months

ended March 31, 2010 due to cash settlements for interest, representing the difference

between the amount of floating rate interest we receive and the amount of fixed rate

interest we pay, together with changes resulting from marking the instruments to fair

value.

• Interest expense, net consists of the gross interest expense we incur less the amount of interest we

capitalize related to capital assets under construction and less interest income earned. Interest expense,

net decreased by $10.9 million, or 3 percent, to $339.8 million for the three months ended March 31,

2010, as compared to $350.7 million for the three months ended March 31, 2009. The decrease in

interest expense was principally due to the following:

• a decrease of $11.1 million due to lower interest rates on our variable rate debt in 2010 as

compared to 2009; 

• a decrease of $9.8 million resulting from higher capitalized interest expense due to an increase in

the number of satellites under construction as compared to 2009; offset by

• a net increase of $7.5 million in interest expense associated with higher net principal balance of

debt outstanding.

The non-cash portion of total interest expense, net was $97.4 million for the three months ended

March 31, 2010 and included $72.0 million of payment-in-kind interest expense. The remaining noncash

interest expense was primarily associated with the amortization of deferred financing fees incurred

as a result of new or refinanced debt and the amortization and accretion of discounts and premiums.

• Loss on early extinguishment of debt was $14.9 million for the three months ended March 31,

2009, with no similar charge during the three months ended March 31, 2010. The 2009 loss on

early extinguishment of debt was recognized in connection with Intelsat Subsidiary Holding

Company S.A.’s purchase of $114.2 million of Intelsat S.A.’s outstanding 7 5/8% Senior Notes due

2012 for $93.3 million and $346.5 million of Intelsat S.A.’s outstanding 6½% Senior Notes due

2013 for $254.6 million pursuant to a cash tender offer. The loss was primarily driven by the

difference between the carrying value of Intelsat S.A. notes purchased and the cash paid for the

purchase. The value of Intelsat S.A.’s notes had been adjusted to fair value in connection with the

acquisition of our parent company on February 4, 2008.

• Other income, net was $2.8 million for the three months ended March 31, 2010 as compared to

$0.9 million for the three months ended March 31, 2009. The increase of $1.8 million was

primarily due to a $1.3 million gain recorded related to our sale of Viasat, Inc. common stock

during the three months ended March 31, 2010.

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EBITDA, Intelsat Luxembourg Adjusted EBITDA and Other Financial Metrics

Intelsat S.A. EBITDA of $445.8 million for the three months ended March 31, 2010 reflected an increase of $470.2 million from a loss of $24.4 million for the same period in 2009. The 2009 loss reflects a non-cash impairment charge of $499.1 million incurred in the first quarter of 2009 for orbital location impairments.

Intelsat Luxembourg Adjusted EBITDA decreased by $11.3 million, or 2 percent, to $483.1 million, or 78 percent of revenue, for the three months ended March 31, 2010 from $494.4 million, or 78 percent of revenue, for the same period in 2009.

At March 31, 2010 and December 31, 2009, Intelsat’s backlog, representing expected future revenue

under contracts with customers and Intelsat’s pro rata share of backlog in its joint venture investments,

was $9.5 billion and $9.4 billion, respectively.

Free Cash Flow from Operations and Capital Expenditures

Free cash flow from operations ii was a negative $106.1 million during the three months ended March 31, 2010, as a result of interest and satellite construction payments as well as changes in working capital

during the period. Free cash flow from operations is defined as net cash provided by operating activities,

less payments for satellites and other property and equipment (including capitalized interest). Payments for satellites and other property and equipment during the three months ended March 31, 2010 totaled

$190.5 million, including $18.5 million in consolidated capital expenditures incurred for the Intelsat New

Dawn satellite.

Intelsat is in the process of procuring and building eight satellites that are expected to be launched by the

end of 2012, including the Intelsat New Dawn satellite. In addition to these announced programs, the

company expects to procure two additional replacement satellites during this period. Intelsat expects 2010 total capital expenditures to range from $825 million to $900 million. Expected annual capital expenditure ranges for fiscal years 2011 and 2012 are $800 million to $875 million, and $450 million to $525 million, respectively.