Intelsat Reports Second Quarter 2010 Results

10 August 2010

Intelsat S.A., the world’s leading provider of fixed satellite services, reported results for the three and six months ended June 30, 2010.

Intelsat S.A. reported revenue of $635.3 million and a net loss of $180.6 million for the three months ended June 30, 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 $339.3 million, and Intelsat

Luxembourg Adjusted EBITDAi of $496.9 million, or 78 percent of revenue, for the three months ended June 30, 2010.

“Intelsat executed well in the second quarter, as we managed through the impact of several previously reported events,” said Intelsat CEO, David McGlade. “We enter the second half of the year making good progress on the initiatives that position us for long-term growth. We are building backlog on our new

satellites, enhancing the value of our regional satellite neighborhoods and capturing government opportunities with long-term commitments.” McGlade continued, “Our ability to execute on these strategic projects and

others, combined with our solid contract backlog of $9.4 billion, supports our view that our revenue growth profile will improve in the second half of 2010.”

Business Highlights

• Intelsat’s network services business continued to grow due to demand for infrastructure for providers of telecom and data networking services. Hughes do Brasil signed a long-term agreement for capacity on multiple Intelsat satellites to support its growing data networking business in South America. Other telecommunications and networking customers with new or renewed agreements in the second quarter of 2010 included Russian services provider, Rusat, Middle East operator, Saudi Telecom Company, and South American services provider, Axesat, for applications including corporate networking and services for the oil and gas industry.

• Wireless network operators use Intelsat’s capacity for backhaul services that allow them to extend

service territories and service offerings. North African network operator, Orascom, will be using capacity on our Intelsat 901 satellite to expand its services in Algeria.

• We continue to build the value of our regional satellite neighborhoods, as replacement satellites with enhanced capacity increase our inventory at key orbital locations. Sony Pictures Television signed a long-term agreement on the Intelsat 17 satellite, to be launched to the 66º East longitude location later this year. The new linear C-band capacity to be provided by the Intelsat 17 satellite will expand Intelsat’s sold out program distribution platform on the neighboring Intelsat 10 satellite at 68.5º East longitude.

• Intelsat continued its leadership in supporting global news and sports broadcasters. In addition to

full-time transmission services booked to support the recent World Cup soccer tournament, Intelsat’s Special Events team deployed to South Africa delivered over 500 transmissions for global broadcasters covering the games. Separately, BBC World News has contracted with Intelsat for a complex solution including four satellites and IntelsatONE fiber and managed services to support its Americas and Asian operations.

• Intelsat's development and launch programs for eight satellites continue to progress. Intelsat’s next launch is planned for late 2010 with the launch of the Intelsat 17 satellite, replacing the Intelsat 702 satellite at 66º East longitude.

• The investigation and management of the Galaxy 15 satellite anomaly continues, as the satellite drifts eastward of 125º West longitude. We currently anticipate that during the second half of 2010 the satellite will lose earth lock, and the electrical equipment onboard will shut down. It is uncertain as to whether the satellite can be restored to normal operations at that time. In the second quarter of 2010, we took a non-cash impairment charge of $104 million to write down the net book value to the satellite’s estimated fair value.

• Intelsat’s average fill rate on its approximately 2,075 station-kept transponders was 81 percent at

June 30, 2010.

Financial Results for the Three Months Ended June 30, 2010

Total revenue for the three months ended June 30, 2010 decreased by $7.2 million, or 1%, as compared to

the three months ended June 30, 2009, largely due to a decline in satellite-related services revenues as a

result of a launch vehicle resale that occurred in the second quarter of 2009, with no similar resales in the

second quarter of 2010. Excluding the launch vehicle resale, revenues for the three months ended June 30,

2010 would have increased by 2% as compared to same period in 2009. By service type our revenue increased or decreased due to the following:

On-Network Revenues:

• Transponder services— an aggregate increase of $4.8 million, due to a net increase of $11.6 million in revenue resulting from favorable terms, new business driven by new satellite capacity entering service, and strong renewals primarily in the Africa and Middle East and Latin America and Caribbean regions, as well as the migration of a customer from managed services to transponder services. These increases were offset by an aggregate decrease of $6.8 million in revenues related to the IS-4 satellite anomaly, which primarily affected the Europe and Africa and Middle East regions, and the Galaxy 15 satellite anomaly, which primarily affected revenues in the North America region.

• Managed services— an aggregate increase of $1.3 million, due primarily to an increase in revenues of $3.9 million from media customers, mostly in the Latin America and Caribbean region, offset by an aggregate decrease of $2.6 million in revenues primarily related to the migration of a customer from managed services to transponder services.

• Channel— an aggregate decrease of $3.6 million related to a continued decline from the migration of point-to-point satellite traffic to fiber optic cables, a trend which we expect will continue.

Off-Network and Other Revenues:

• Transponder, mobile satellite services (“MSS”) and other off-network services— an aggregate increase of $13.3 million, due primarily to a $12.1 million increase in transponder services sold to customers of Intelsat General Corporation (“Intelsat General”), a wholly-owned subsidiary of Intelsat S.A.

• Satellite-related services— an aggregate decrease of $23.0 million, resulting primarily from $21.9 million in launch vehicle resale revenues recorded in the second quarter of 2009, with no similar resales occurring in the second quarter of 2010.

Changes in direct costs of revenue, selling, general and administrative expenses, deprecation and amortization, impairment charges, losses on derivative financial instruments and interest expense, net are

described below.

• Direct costs of revenue decreased by $6.8 million, or 6%, to $100.5 million for the three months ended June 30, 2010 as compared to the three months ended June 30, 2009. The decrease was primarily due to a $7.0 million decline in cost of sales. The $7.0 million decline consisted of a decrease of $17.4 million primarily related to the resale of a launch vehicle by our satellite-related services business in the second quarter of 2009, offset by an increase of $10.3 million for purchases of off-network fixed satellite services capacity related to increased transponder services sold by our Intelsat General business.

• Selling, general and administrative expenses decreased by $16.7 million, or 24%, to $53.5 million for the three months ended June 30, 2010 as compared to the three months ended June 30, 2009. The decrease was primarily due to $18.1 million in lower non-cash compensation costs, resulting from higher compensation costs in the second quarter of 2009, stemming from new equity awards and revisions to the terms of existing equity awards, as compared to 2010.

• Depreciation and amortization expense increased by $1.0 million, or 1%, to $201.2 million for the three months ended June 30, 2010 as compared to the three months ended June 30, 2009. This increase was primarily due to the following:

• an increase of $15.7 million in depreciation expense resulting from the impact of satellites placed into service during the second half of 2009 and the first quarter of 2010; partially offset by

• a decrease of $15.5 million in depreciation expense due to certain satellites, ground and other assets becoming fully depreciated, and the impairment of IS-4 in 2010.

• Impairment charges were $104.1 million for the three months ended June 30, 2010, with no similar

charges incurred for the three months ended June 30, 2009. This non-cash impairment charge was related to the impairment of our Galaxy 15 satellite after an anomaly occurred in April 2010.

• Losses on derivative financial instruments were $40.8 million for the three months ended June 30, 2010 compared to $52.1 million of gains on derivative financial instruments for the three months ended June 30, 2009. For the three months ended June 30, 2010, the loss on derivative financial instruments primarily related to a $39.5 million loss on our interest rate swaps.

• 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. As of June 30,

2010, we also held interest rate swaps with an aggregate notional amount of $2.3 billion to economically hedge the variability in cash flow on a portion of the floating-rate term loans under our senior secured and unsecured credit facilities. The swaps have not been designated as hedges for accounting purposes. Interest expense, net increased by $10.1 million, or 3%, to $349.7 million for the three months ended June 30, 2010, as compared to $339.6 million for the three months ended June 30, 2009. The increase in interest expense, net was principally due to the higher net principal amount of debt outstanding.

• The non-cash portion of total interest expense, net was $97.6 million for the three months ended June 30, 2010 and included $74.3 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.

• Other income, net was $1.6 million for the three months ended June 30, 2010 as compared to $5.3 million for the three months ended June 30, 2009. The decrease of $3.7 million was primarily due to a $3.8 million decrease in exchange rate gains, primarily due to the U.S. dollar weakening against the Brazilian real, which impacts our service contracts with our Brazilian customers.

EBITDA, Intelsat Luxembourg Adjusted EBITDA and Other Financial Metrics

Intelsat S.A. EBITDA of $339.3 million for the three months ended June 30, 2010 reflected a decrease

of $183.1 million from $522.4 million for the same period in 2009. The results for the three months ended June 30, 2010 reflect a non-cash impairment charge of $104.1 million incurred in the second quarter of 2010 for the impairment of the Galaxy 15 satellite, and a $40.8 million loss on derivative financial instruments as compared to a $52.1 million gain in the same period in 2009. Intelsat Luxembourg Adjusted EBITDA decreased by $5.8 million, or 1 percent, to $496.9 million, or 78 percent of revenue, for the three months ended June 30, 2010 from $502.7 million, or 78 percent of revenue, for the same period in 2009.

As of both June 30, 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 $9.4 billion.

Free Cash Flow from Operations and Capital Expenditures

Free cash flow from operations i was $61.7 million during the three months ended June 30, 2010. 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 June 30, 2010 totaled $247.0 million,

including $15 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. This guidance excludes the capital expenditures associated with the

Intelsat New Dawn satellite.