Form 10-Q
Table of Contents

 

 

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 March 31, 2013

OR

 

¨ 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 000-50262

 

 

INTELSAT INVESTMENTS S.A.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Luxembourg   98-0346003

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

4, rue Albert Borschette

Luxembourg

  L-1246
(Address of Principal Executive Offices)   (Zip Code)

+352 27-84-1600

(Registrant’s Telephone Number, Including Area Code)

Intelsat S.A.

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

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  ¨    No  x *

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  ¨

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   ¨    Accelerated filer   ¨
Non-accelerated filer   x    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  ¨    No  x

As of May 1, 2013, 5,000,000 ordinary shares, par value $1.00 per share, were outstanding.

 

* The registrant is not required to file this Quarterly Report on Form 10-Q pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, but has filed all reports during the preceding 12 months that would have been required pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  

PART I. FINANCIAL INFORMATION

  

Item 1.

  Financial Statements:   
 

Condensed Consolidated Balance Sheets as of December 31, 2012 and March 31, 2013 (Unaudited)

     3   
 

Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March  31, 2012 and 2013

     4   
 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2012 and 2013

     5   
 

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March  31, 2012 and 2013

     6   
 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

     7   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      34   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      43   

Item 4.

  Controls and Procedures      44   

PART II. OTHER INFORMATION

  

Item 1.

  Legal Proceedings      45   

Item 1A.

  Risk Factors      45   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      45   

Item 3.

  Defaults upon Senior Securities      45   

Item 4.

  Mine Safety Disclosures      45   

Item 5.

  Other Information      45   

Item 6.

  Exhibits      45   

SIGNATURES

     46   


Table of Contents

INTRODUCTION

In this Quarterly Report, unless otherwise indicated or the context otherwise requires, (1) the terms “we,” “us,” “our”, “the Company” and “Intelsat Investments” refer to Intelsat Investments S.A. (formerly Intelsat S.A.) and its subsidiaries on a consolidated basis, (2) the term “Intelsat” refers to Intelsat S.A. (formerly Intelsat Global Holdings S.A.), Intelsat Investments S.A.’s indirect parent, (3) the term “Intelsat Global” refers to Intelsat Global S.A., Intelsat Investments S.A.’s former indirect parent, (4) the term “Intelsat Holdings” refers to Intelsat Holdings S.A., Intelsat Investments S.A.’s direct parent, (5) the term “Intelsat Luxembourg” refers to Intelsat (Luxembourg) S.A., Intelsat Investments S.A.’s direct wholly-owned subsidiary, (6) the term “Intelsat Jackson” refers to Intelsat Jackson Holdings S.A., Intelsat Luxembourg’s direct wholly-owned subsidiary, (7) the term “Intelsat Corp” refers to Intelsat Corporation, Intelsat Jackson’s indirect wholly-owned subsidiary, and (8) the term “Intelsat General” refers to Intelsat General Corporation, our government business subsidiary.

In this Quarterly Report, unless the context otherwise requires, all references to transponder capacity or demand refer to transponder capacity or demand in the C-band and Ku-band frequencies only.

FINANCIAL AND OTHER INFORMATION

Unless otherwise indicated, all references to “dollars” and “$” in this Quarterly Report are to, and all monetary amounts in this Quarterly Report are presented in, U.S. dollars. Unless otherwise indicated, the financial information contained in this Quarterly Report has been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

Certain monetary amounts, percentages and other figures included in this Quarterly Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

In this Quarterly Report, we refer to and rely on publicly available information regarding our industry and our competitors. Although we believe the information is reliable, we cannot guarantee the accuracy and completeness of the information and have not independently verified it.

FORWARD-LOOKING STATEMENTS

Some of the statements in this Quarterly Report constitute forward-looking statements that do not directly or exclusively relate to historical facts. 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.

When used in this Quarterly Report, the words “may,” “will,” “might,” “should,” “expect,” “plan,” “anticipate,” “project,” “believe,” “estimate,” “predict,” “intend,” “potential,” “outlook” and “continue,” and the negative of these terms, and other similar expressions are intended to identify forward-looking statements and information.

The forward-looking statements made in this Quarterly Report reflect our intentions, plans, expectations, assumptions and beliefs about future events. These forward-looking statements speak only as of the date of this Quarterly Report and are not guarantees of future performance or results and are subject to risks, uncertainties and other factors, many of which are outside of our control. These factors could cause actual results or developments to differ materially from the expectations expressed or implied in the forward-looking statements and include known and unknown risks. Known risks include, among others, the risks discussed in Item 1A—Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012, the political, economic and legal conditions in the markets we are targeting for communications services or in which we operate, and other risks and uncertainties inherent in the telecommunications business in general and the satellite communications business in particular.

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:

 

   

risks associated with operating our in-orbit satellites;

 

   

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

 

   

potential changes in the number of companies offering commercial satellite launch services and 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 pay for such launches;

 

   

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;

 

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

 

   

U.S. and other government regulation;

 

   

changes in our contracted backlog or expected contracted backlog for future services;

 

   

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

 

   

inadequate access to capital markets;

 

   

the competitive environment in which we operate;

 

   

customer defaults on their obligations to us;

 

   

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

 

   

litigation.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results, level of activity, performance or achievements. Because actual results could differ materially from our intentions, plans, expectations, assumptions and beliefs about the future, you are urged not to rely on forward-looking statements in this Quarterly Report and to view all forward-looking statements made in this Quarterly Report with caution. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

INTELSAT INVESTMENTS S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

     As of     As of  
     December 31,     March 31,  
     2012     2013  
           (unaudited)  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 187,446      $ 328,746   

Receivables, net of allowance of $23,583 in 2012 and $30,305 in 2013

     318,805        543,149   

Deferred income taxes

     94,779        94,662   

Prepaid expenses and other current assets

     38,708        65,058   
  

 

 

   

 

 

 

Total current assets

     639,738        1,031,615   

Satellites and other property and equipment, net

     6,355,192        5,839,334   

Goodwill

     6,780,827        6,780,827   

Non-amortizable intangible assets

     2,458,100        2,458,100   

Amortizable intangible assets, net

     651,087        630,509   

Other assets

     416,777        409,372   
  

 

 

   

 

 

 

Total assets

   $ 17,301,721      $ 17,149,757   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDER’S DEFICIT

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 136,863      $ 87,957   

Taxes payable

     9,244        —     

Employee related liabilities

     46,565        26,218   

Accrued interest payable

     367,676        330,176   

Current portion of long-term debt

     56,598        924,409   

Deferred satellite performance incentives

     21,479        21,849   

Deferred revenue

     84,066        76,655   

Other current liabilities

     72,715        70,972   
  

 

 

   

 

 

 

Total current liabilities

     795,206        1,538,236   

Long-term debt, net of current portion

     15,846,728        14,966,035   

Deferred satellite performance incentives, net of current portion

     172,663        168,070   

Deferred revenue, net of current portion

     834,161        844,591   

Deferred income taxes

     286,673        287,946   

Accrued retirement benefits

     299,187        291,602   

Other long-term liabilities

     300,195        290,516   

Commitments and contingencies (Notes 11)

    

Shareholder’s deficit:

    

Ordinary shares, $1.00 par value, 100,000,000 shares authorized and 5,000,000 shares issued and outstanding at December 31, 2012 and March 31, 2013

     5,000        5,000   

Paid-in capital

     1,590,011        1,589,944   

Accumulated deficit

     (2,755,345     (2,761,841

Accumulated other comprehensive loss

     (118,428     (115,177
  

 

 

   

 

 

 

Total Intelsat Investments S.A. shareholder’s deficit

     (1,278,762     (1,282,074

Noncontrolling interest

     45,670        44,835   
  

 

 

   

 

 

 

Total liabilities and shareholder’s deficit

   $ 17,301,721      $ 17,149,757   
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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INTELSAT INVESTMENTS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

 

     Three Months     Three Months  
     Ended     Ended  
     March 31, 2012     March 31, 2013  

Revenue

   $  644,169      $  655,127   

Operating expenses:

    

Direct costs of revenue (excluding depreciation and amortization)

     105,010        97,646   

Selling, general and administrative

     50,966        57,952   

Depreciation and amortization

     186,871        187,411   

Losses on derivative financial instruments

     9,858        1,865   
  

 

 

   

 

 

 

Total operating expenses

     352,705        344,874   
  

 

 

   

 

 

 

Income from operations

     291,464        310,253   

Interest expense, net

     311,431        317,249   

Other income (expense), net

     2,903        (650
  

 

 

   

 

 

 

Loss before income taxes

     (17,064     (7,646

Provision for (benefit from) income taxes

     7,204        (2,038
  

 

 

   

 

 

 

Net loss

     (24,268     (5,608

Net income attributable to noncontrolling interest

     (181     (888
  

 

 

   

 

 

 

Net loss attributable to Intelsat Investments S.A.

   $ (24,449   $ (6,496
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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INTELSAT INVESTMENTS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

 

     Three Months     Three Months  
     Ended March 31,     Ended March 31,  
     2012     2013  

Net loss

   $  (24,268   $  (5,608

Other Comprehensive income (loss), net of tax:

    

Defined benefit retirement plans:

    

Reclassification adjustment for amortization of unrecognized prior service credits included in net periodic pension costs, net of a tax provision of $0.02 million in 2012 and $0.02 million in 2013

     (28     (27

Reclassification adjustment for amortization of unrecognized actuarial loss included in net periodic pension costs, net of a tax benefit of $1.4 million in 2012 and $1.9 million in 2013

     2,279        3,079   

Marketable securities:

    

Unrealized gains on investments, net of a tax benefit of $0.2 million in 2012 and $0.1 million in 2013

     304        222   

Reclassification adjustment for realized gains on investments, net of a tax provision of $0.01 million in 2013

     —          (23
  

 

 

   

 

 

 

Other comprehensive income

     2,555        3,251   
  

 

 

   

 

 

 

Comprehensive loss

     (21,713     (2,357

Comprehensive income attributable to noncontrolling interest

     (181     (888
  

 

 

   

 

 

 

Comprehensive loss attributable to Intelsat Investments S.A.

   $ (21,894   $ (3,245
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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INTELSAT INVESTMENTS S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Three Months     Three Months  
     Ended     Ended  
     March 31, 2012     March 31, 2013  

Cash flows from operating activities:

    

Net loss

   $  (24,268   $ (5,608

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization

     186,871        187,411   

Provision for doubtful accounts

     1,721        7,792   

Foreign currency transaction (gain) loss

     (1,044     1,211   

Loss on disposal of assets

     46        32   

Share-based compensation

     1,062        (59

Deferred income taxes

     2,504        (4,428

Amortization of discount, premium, issuance costs and other non-cash items

     14,445        14,942   

Interest paid-in-kind

     970        —     

Unrealized gains on derivative financial instruments

     (1,935     (4,907

Other non-cash items

     (1,085     4,947   

Changes in operating assets and liabilities:

    

Receivables

     124        (6,735

Prepaid expenses and other assets

     (15,359     (20,241

Accounts payable and accrued liabilities

     (60,704     (72,936

Deferred revenue

     24,308        1,914   

Accrued retirement benefits

     (4,924     (7,585

Other long-term liabilities

     (651     1,351   
  

 

 

   

 

 

 

Net cash provided by operating activities

     122,081        97,101   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Payments for satellites and other property and equipment (including capitalized interest)

     (260,867     (167,154

Proceeds from insurance settlements

     —          252,911   

Payment on satellite performance incentives from insurance proceeds

     —          (19,199

Other investing activities

     —          (1,000
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (260,867     65,558   
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Repayments of long-term debt

     (20,334     (60,254

Proceeds from issuance of long-term debt

     175,000        40,000   

Capital contribution from noncontrolling interest

     6,105        6,105   

Dividends paid to noncontrolling interest

     (2,255     (1,723

Principal payments on deferred satellite performance incentives

     (4,011     (4,276
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     154,505        (20,148
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     1,044        (1,211
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     16,763        141,300   

Cash and cash equivalents, beginning of period

     294,700        187,446   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 311,463      $ 328,746   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Interest paid, net of amounts capitalized

   $ 325,968      $ 336,905   

Income taxes paid, net of refunds

     14,012        15,558   

Supplemental disclosure of non-cash investing activities:

    

Accrued capital expenditures

   $ 44,624      $ 19,349   

Restricted cash received

     23,901        —     

See accompanying notes to unaudited condensed consolidated financial statements.

 

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INTELSAT INVESTMENTS S.A.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2013

Note 1 General

Basis of Presentation

The accompanying condensed consolidated financial statements of Intelsat Investments S.A. (formerly known as Intelsat S.A.) and its subsidiaries (“Intelsat Investments,” “we,” “us,” “our” or the “Company”) have not been audited, but are prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. References to U.S. GAAP issued by the Financial Accounting Standards Board (“FASB”) in these footnotes are to the FASB Accounting Standards Codification (“ASC”). The unaudited condensed consolidated financial statements include all adjustments (consisting only of normal and recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of these financial statements. The results of operations for the periods presented are not necessarily indicative of operating results for the full year or for any future period. The condensed consolidated balance sheet as of December 31, 2012 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 on file with the Securities and Exchange Commission.

On April 11, 2013, the name of the Company was changed from Intelsat S.A. to Intelsat Investments S.A.

Initial Public Offering

On April 23, 2013, Intelsat S.A. (formerly known as Intelsat Global Holdings S.A.), our indirect parent company, completed its initial public offering, in which it issued 22,222,222 common shares and a concurrent public offering, in which it issued 3,450,000 5.75% Series A mandatory convertible junior non-voting preferred shares (the “Series A preferred shares”) at public offering prices of $18.00 per share and $50.00 per share, respectively (the initial public offering together with the concurrent public offering, the “IPO”). See Note 14—Subsequent Events for further discussion.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of these condensed consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods, and the disclosures of contingent liabilities. Accordingly, ultimate results could differ from those estimates.

Recently Adopted Accounting Pronouncements

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. Beginning in the first quarter of 2013, entities are required to disclose the effect of reclassification of items out of accumulated other comprehensive income. The majority of our other comprehensive loss and our accumulated other comprehensive loss is related to our defined benefit retirement plans. Beginning in the first quarter of 2013, we have disclosed in Note 4—Retirement Plans and Other Retiree Benefits the effects of reclassifications out of accumulated comprehensive income on line items in our condensed consolidated statement of operations.

Note 2 Fair Value Measurements

FASB ASC Topic 820, Fair Value Measurements and Disclosure (“FASB ASC 820”) defines fair value, establishes a market-based framework or hierarchy for measuring fair value and provides for certain required disclosures about fair value measurements. The guidance is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value, but does not require any new fair value measurements.

The fair value hierarchy prioritizes the inputs used in valuation techniques into three levels as follows:

 

   

Level 1—unadjusted quoted prices for identical assets or liabilities in active markets;

 

   

Level 2—quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable or that can be corroborated by observable market data by correlation; and

 

   

Level 3—unobservable inputs based upon the reporting entity’s internally developed assumptions which market participants would use in pricing the asset or liability.

 

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We have identified investments in marketable securities and interest rate financial derivative instruments as those items that meet the criteria of the disclosure requirements and fair value framework of FASB ASC 820.

The following tables present assets and liabilities measured and recorded at fair value in our condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy (in thousands), excluding long-term debt (see Note 8—Long-Term Debt). We did not have any transfers between Level 1 and Level 2 fair value measurements during the three months ended March 31, 2013.

 

            Fair Value Measurements at December 31, 2012  

Description

   As of
December 31,
2012
     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
 

Assets

        

Marketable securities(1)

   $ 5,613       $ 5,613       $ —     
  

 

 

    

 

 

    

 

 

 

Total assets

   $  5,613       $  5,613       $ —    
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Undesignated interest rate swaps(2)

   $  74,564       $ —         $ 74,564   
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 74,564       $ —         $  74,564   
  

 

 

    

 

 

    

 

 

 

 

            Fair Value Measurements at March 31, 2013  

Description

   As of
March 31, 2013
     Quoted Prices in
Active Markets for
Identical Assets

(Level 1)
     Significant Other
Observable Inputs
(Level 2)
 

Assets

        

Marketable securities(1)

   $ 5,827       $  5,827       $ —     
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 5,827       $ 5,827       $ —     
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Undesignated interest rate swaps(2)

   $ 63,777       $ —         $  63,777   
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $  63,777       $ —         $ 63,777   
  

 

 

    

 

 

    

 

 

 

 

(1) The valuation measurement inputs of these marketable securities represent unadjusted quoted prices in active markets and, accordingly, we have classified such investments within Level 1 of the fair value hierarchy. The cost basis of our available-for-sale marketable securities was $5.5 million at December 31, 2012 and $5.4 million at March 31, 2013. We sold marketable securities with a cost basis of $0.1 million during the three months ended March 31, 2013 and recorded a gain on the sale of $0.04 million, which was included within other income (expense), net in our condensed consolidated statement of operations.
(2) The fair value of our interest rate financial derivative instruments reflects the estimated amounts that we would pay or receive to terminate the agreement at the reporting date, taking into account current interest rates, the market expectation for future interest rates and current creditworthiness of both the counterparties and ourselves. Observable inputs utilized in the income approach valuation technique incorporate identical contractual notional amounts, fixed coupon rates, periodic terms for interest payments and contract maturity. Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments, if any, associated with our derivatives utilize Level 3 inputs, such as the estimates of the current credit spread, to evaluate the likelihood of default by us or our counterparties. We also considered the existence of offset provisions and other credit enhancements that serve to reduce the credit exposure associated with the asset or liability being valued. We have assessed the significance of the inputs of the credit valuation adjustments to the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Note 3 Share-Based and Other Compensation Plans

On March 30, 2012, the board of directors of Intelsat S.A. adopted the amended and restated Intelsat Global, Ltd. 2008 Share Incentive Plan (the “2008 Share Plan”). The 2008 Share Plan provides for a variety of equity-based awards with respect to Class A common shares (the “Class A Shares”), and Class B common shares (the “Class B Shares” and, together with the Class A Shares, the “Common Shares”), including non-qualified share options, incentive share options (within the meaning of Section 422 of the United States Internal Revenue Service Tax Code), restricted share awards, restricted share unit awards, share appreciation rights, phantom share awards and performance-based awards.

 

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In connection with the IPO, in April 2013, Intelsat S.A. amended the 2008 Share Plan to reflect the reclassification of its equity into one class of common shares, and made certain grants of shares and options under the amended plan. Prior to the consummation of the IPO, each of the Class A Shares was reclassified into one common share and each of the Class B Shares was reclassified into 0.0735 common shares. In addition, immediately prior to the consummation of the IPO, an equivalent of a share split was effected by distributing common shares pro rata to existing holders of the common shares so that each existing holder received an additional 4.6 common shares for each common share owned at that time. Also, in connection with the IPO, in April 2013, the Board of Directors of Intelsat S.A. adopted the Intelsat S.A. 2013 Equity Incentive Plan (the “2013 Equity Plan”). See Note 14—Subsequent Events for further discussion.

During the three months ended March 31, 2013, Intelsat S.A. granted 8,400 Class A Share options and repurchased 1,771 vested Class B Shares, reflecting share-based compensation transactions prior to the impacts associated with the IPO as noted above. We recorded compensation expense of $1.1 million and a credit of $0.1 million during the three months ended March 31, 2012 and 2013, respectively, related to our share-based awards.

Note 4 Retirement Plans and Other Retiree Benefits

(a) Pension and Other Postretirement Benefits

We maintain a noncontributory defined benefit retirement plan covering substantially all of our employees hired prior to July 19, 2001. The cost of providing benefits to eligible participants under the defined benefit retirement plan is calculated using the plan’s benefit formulas, which take into account the participants’ remuneration, dates of hire, years of eligible service, and certain actuarial assumptions. In addition, as part of the overall medical plan, we provide postretirement medical benefits to certain current retirees who meet the criteria under the medical plan for postretirement benefit eligibility.

The defined benefit retirement plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. We expect that our future contributions to the defined benefit retirement plan will be based on the minimum funding requirements of the Internal Revenue Code and on the plan’s funded status. Any significant decline in the fair value of our defined benefit retirement plan assets or other adverse changes to the significant assumptions used to determine the plan’s funded status would negatively impact its funded status and could result in increased funding in future periods. The impact on the funded status as of October 1, the plan’s annual measurement date, is determined based upon market conditions in effect when we completed our annual valuation. During the three months ended March 31, 2013, we made cash contributions to the defined benefit retirement plan of $7.9 million. We anticipate that we will make additional contributions of approximately $24.0 million to the defined benefit retirement plan during the remainder of 2013. We fund the postretirement medical benefits throughout the year based on benefits paid. We anticipate that our contributions to fund postretirement medical benefits in 2013 will be approximately $4.3 million.

Included in accumulated other comprehensive loss at March 31, 2013 is $184.6 million ($116.9 million, net of tax) that has not yet been recognized in net periodic pension cost, which includes the unrecognized prior service credits and unrecognized actuarial losses.

 

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Prior service credits and actuarial losses are reclassified from accumulated other comprehensive loss to net periodic pension benefit costs, which are included in both direct costs of revenue and selling, general and administrative on our condensed consolidated statements of operations. The following table presents these reclassifications, net of tax, as well as the reclassification of the realized gain on investments, and the statement of operations line items that are impacted (in thousands):

 

     Three Months
Ended
March 31, 2013
 

Amortization of prior service credits reclassified from other comprehensive loss to net periodic pension benefit costs included in:

  

Direct costs of revenue (excluding depreciation and amortization)

   $ (16

Selling, general and administrative

     (11
  

 

 

 

Total

     (27
  

 

 

 

Amortization of actuarial loss reclassified from other comprehensive loss to net periodic pension benefit costs included in:

  

Direct costs of revenue (excluding depreciation and amortization)

     1,851   

Selling, general and administrative

     1,228   
  

 

 

 

Total

     3,079   
  

 

 

 

Realized gains on investments included in:

  

Other income (expense), net

     (23
  

 

 

 

Total

   $ (23
  

 

 

 

Net periodic pension benefit costs included the following components (in thousands):

 

     Three Months
Ended
March 31, 2012
    Three Months
Ended
March 31, 2013
 

Service cost

   $ 803      $ 829   

Interest cost

     4,765        4,561   

Expected return on plan assets

     (5,141     (5,316

Amortization of unrecognized prior service credit

     (43     (43

Amortization of unrecognized net loss

     3,498        4,856   
  

 

 

   

 

 

 

Net periodic costs

   $ 3,882      $ 4,887   
  

 

 

   

 

 

 

Net periodic other postretirement benefit costs included the following components (in thousands):

 

     Three Months
Ended
March 31, 2012
     Three Months
Ended
March 31, 2013
 

Service cost

   $ 89       $ 73   

Interest cost

     1,240         1,066   

Amortization of unrecognized net loss

     172         91   
  

 

 

    

 

 

 

Total costs

   $ 1,501       $ 1,230   
  

 

 

    

 

 

 

 

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(b) Other Retirement Plans

We maintain two defined contribution retirement plans, qualified under the provisions of Section 401(k) of the Internal Revenue Code, for our employees in the United States. We recognized compensation expense for these plans of $1.8 million and $2.0 million during the three months ended March 31, 2012 and 2013, respectively. We also maintain other defined contribution retirement plans in several non-U.S. jurisdictions, but such plans are not material to our financial position or results of operations.

Note 5 Satellites and Other Property and Equipment

(a) Satellites and Other Property and Equipment, net

Satellites and other property and equipment, net were comprised of the following (in thousands):

 

     As of
December 31,
2012
    As of
March 31,
2013
 

Satellites and launch vehicles

   $ 8,700,926      $ 8,233,627   

Information systems and ground segment

     524,285        530,623   

Buildings and other

     195,672        196,369   
  

 

 

   

 

 

 

Total cost

     9,420,883        8,960,619   

Less: accumulated depreciation

     (3,065,691     (3,121,285
  

 

 

   

 

 

 

Total

   $ 6,355,192      $ 5,839,334   
  

 

 

   

 

 

 

Satellites and other property and equipment are stated at historical cost, with the exception of satellites that have been impaired. Satellites and other property and equipment acquired as part of an acquisition are based on their fair value at the date of acquisition.

Satellites and other property and equipment, net as of December 31, 2012 and March 31, 2013 included construction-in-progress of $0.7 billion and $0.4 billion, respectively. These amounts relate primarily to satellites under construction and related launch services. Interest costs of $35.7 million and $11.6 million were capitalized during the three months ended March 31, 2012 and 2013, respectively.

We have entered into launch contracts for the launch of both specified and unspecified future satellites. Each of these launch contracts may be terminated at our option, subject to payment of a termination fee that increases as the applicable launch date approaches. In addition, in the event of a failure of any launch, we may exercise our right to obtain a replacement launch within a specified period following our request for re-launch.

(b) Satellite Launches

On February 1, 2013, the launch vehicle for our IS-27 satellite failed shortly after liftoff and the satellite was completely destroyed. A Failure Review Board has been established to determine the cause. The satellite and launch vehicle were fully insured, and we filed a total loss claim of $406.2 million with our insurers. Accounting for insured losses of fixed assets is governed by FASB ASC Topic 605-40, Revenue Recognition—Gains and Losses (“FASB ASC 605-40”). In accordance with FASB ASC 605-40, in the first quarter of 2013 we reclassified the $392.5 million book value of the IS-27 satellite and its related assets to receivables, net in anticipation of the expected insurance proceeds from the claim. We will recognize the expected surplus of insurance proceeds over the book value of the satellite as a gain upon receipt of any such excess. As of March 31, 2013, we had received $177.1 million of insurance proceeds related to our total loss claim. As of May 6, 2013, all $406.2 million of proceeds had been received. These proceeds will be used to redeem $366.4 million aggregate principal amount of Intelsat Luxembourg’s outstanding 11  1/4% Senior Notes due 2017 (the “2017 Senior Notes”). See Note 8—Long-Term Debt for further discussion.

(c) IS-19 Partial Loss Claim

On June 1, 2012, our IS-19 satellite experienced damage to its south solar array during launch operations. Although both solar arrays are deployed, the power available to the satellite is less than is required to operate 100% of the payload capacity. While the satellite is operational, the anomaly resulted in structural and electrical damage to one solar array wing, which reduced the amount of power available for payload operation. We filed a partial loss claim with our insurers related to the IS-19 solar array anomaly. As of March 31, 2013, we had received $78.9 million of insurance proceeds from the partial loss claim. As of May 6, 2013, all $84.8 million of the total insurance proceeds had been received.

 

 

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Note 6 Investments

We have ownership interests in two entities which met the criteria of a variable interest entity (“VIE”), Horizons Satellite Holdings, LLC (“Horizons Holdings”) and WP Com, S. de R.L. de C.V. (“WP Com”). We had a greater than 50% controlling ownership and voting interest in New Dawn Satellite Company, Ltd. (“New Dawn”) and therefore consolidated the New Dawn joint venture. In October 2012, we purchased the remaining ownership interest in New Dawn. Horizons Holdings, as well as WP Com, are discussed in further detail below, including our analyses of the primary beneficiary determination as required under FASB ASC Topic 810, Consolidation (“FASB ASC 810”).

(a) Horizons Holdings

We have a joint venture with JSAT International, Inc. (“JSAT”), a leading satellite operator in the Asia-Pacific region. The joint venture is named Horizons Satellite Holdings, LLC, and consists of two investments: Horizons-1 Satellite LLC (“Horizons-1”) and Horizons-2 Satellite LLC (“Horizons-2”). Horizons Holdings borrowed from JSAT a portion of the funds necessary to finance the construction of the Horizons-2 satellite pursuant to a loan agreement (the “Horizons 2 Loan Agreement”). We provide certain services to the joint venture and utilize capacity from the joint venture.

We have determined that this joint venture meets the criteria of a VIE under FASB ASC 810, and we have concluded that we are the primary beneficiary because decisions relating to any future relocation of the Horizons-2 satellite, the most significant asset of the joint venture, are effectively controlled by us. In accordance with FASB ASC 810, as the primary beneficiary, we consolidate Horizons Holdings within our condensed consolidated financial statements. Total assets and liabilities of Horizons Holdings were $136.2 million and $49.2 million as of December 31, 2012, respectively, and $122.2 million and $36.8 million as of March 31, 2013, respectively.

We also have a revenue sharing agreement with JSAT related to services sold on the Horizons satellites. We are responsible for billing and collection for such services and we remit 50% of the revenue, less applicable fees and commissions, to JSAT. Under the Horizons Holdings joint venture agreement, which was amended on September 30, 2011, we agreed to guarantee to JSAT certain minimum levels of annual gross revenues for a three-year period beginning in early 2012. This guarantee could require us to pay JSAT a maximum potential amount ranging from $7.8 million to $10.3 million per year over the three-year period, less applicable fees and commissions. We assess this guarantee on a quarterly basis, and in the first quarter of 2013 we recorded an expense of $1.2 million related to the guarantee, in addition to $5.6 million previously accrued in 2012. The expense was included in direct costs of revenue in our condensed consolidated statement of operations for the three months ended March 31, 2013. Our current estimate of the total amount we expect to pay over the period of the guarantee (before applicable fees and commissions) is $6.8 million, of which $5.5 million was paid in March 2013. The remaining liability of $1.3 million was included within accounts payable and accrued liabilities on our condensed consolidated balance sheet at March 31, 2013. Amounts payable to JSAT related to the revenue sharing agreement, net of applicable fees and commissions, from the Horizons-1 and Horizons-2 satellites were $3.6 million and $4.5 million as of December 31, 2012 and March 31, 2013, respectively.

In connection with the Horizons Holdings investment in Horizons-2, we entered into a capital contribution and subscription agreement with JSAT in August 2005, which requires both us and JSAT to fund 50% of the amount due from Horizons Holdings under the Horizons 2 Loan Agreement. As of March 31, 2013, we had a receivable of $18.3 million from JSAT representing the total remaining future payments to be received from JSAT to fund their portion of the amount due under the Horizons 2 Loan Agreement, $12.2 million of which is included in receivables, net and the remainder of which is included in other assets on our condensed consolidated balance sheet as of March 31, 2013.

(b) New Dawn

In June 2008, we entered into a project and shareholders’ agreement (the “New Dawn Project Agreement”) with Convergence SPV, Ltd. (“Convergence Partners”) pursuant to which New Dawn, a Mauritius company in which we had a 74.9% indirect ownership interest and Convergence Partners had a 25.1% noncontrolling ownership interest, launched a satellite in April 2011 to provide satellite transponder services to customers in Africa. On October 5, 2012, we purchased from Convergence Partners the remaining ownership interest in New Dawn for $8.7 million, increasing our ownership from 74.9% to 100% (the “New Dawn Equity Purchase”). As a result, we consolidate New Dawn within our condensed consolidated financial statements, net of eliminating entries. Prior to the New Dawn Equity Purchase, we accounted for the percentage interest in New Dawn owned by Convergence Partners as a noncontrolling interest according to the guidance provided under FASB ASC 480 specifically related to the classification and measurement of redeemable securities. As a result of the New Dawn Equity Purchase, we eliminated the redeemable noncontrolling interest of $8.7 million in the fourth quarter of 2012 in accordance with FASB ASC 480.

 

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(c) WP Com

We have formed a joint venture with Corporativo W. Com S. de R.L. de C.V. (“Corporativo”) named WP Com, S. de R.L. de C.V. We own 49% of the voting equity shares and 88% of the economic interest in WP Com and Corporativo owns the remaining 51% of the voting equity shares. PanAmSat de Mexico, S. de R.L. de C.V. (“PAS de Mexico”) is a subsidiary of WP Com, 99.9% of which is owned by WP Com, with the remainder of the equity interest split between us and Corporativo. We formed WP Com to enable us to operate in Mexico, and PAS de Mexico acts as a reseller of our satellite services to customers in Mexico and Ecuador. Profits and losses of WP Com are allocated to the joint venture partners based upon the voting equity shares.

We have determined that this joint venture meets the criteria of a VIE under FASB ASC 810. In accordance with FASB ASC 810, we evaluated this joint venture to determine the primary beneficiary. We have concluded that we are the primary beneficiary because we influence the underlying business drivers of PAS de Mexico, including by acting as the sole provider for satellite services that PAS de Mexico resells. Furthermore, we have modified our pricing for these services to ensure that PAS de Mexico continues to operate in the Mexican market. Corporativo does not fund any of the operating expenses of PAS de Mexico. Thus, we consolidate WP Com within our condensed consolidated financial statements and we account for the percentage interest in the voting equity of WP Com owned by Corporativo as a noncontrolling interest, which is included in the equity section of our condensed consolidated balance sheet in accordance with FASB ASC 810.

(d) Equity Attributable to Intelsat Investments and Noncontrolling Interests

The following tables present changes in equity attributable to the Company and equity attributable to our noncontrolling interests, which is included in the equity section of our condensed consolidated balance sheet (in thousands):

 

     Intelsat
Investments
Shareholder’s
Deficit
    Noncontrolling
Interest
    Total
Shareholder’s
Deficit
 

Balance at January 1, 2012

   $  (1,143,375   $  50,926      $  (1,092,449

Net income (loss)

     (146,643     3,582        (143,061

Liabilities assumed by parent and other contributed capital

     25,819        —          25,819   

Dividends paid to noncontrolling interests

     —          (8,838     (8,838

Mark to market adjustment for redeemable noncontrolling interest

     (7,663     —          (7,663

Pension/postretirement liability adjustment

     (7,288     —          (7,288

Other comprehensive income

     388        —          388   
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2012

   $  (1,278,762   $ 45,670      $  (1,233,092
  

 

 

   

 

 

   

 

 

 

 

     Intelsat
Investments
Shareholder’s
Deficit
    Noncontrolling
Interest
    Total
Shareholder’s
Deficit
 

Balance at January 1, 2013

   $  (1,278,762   $  45,670      $  (1,233,092

Net income (loss)

     (6,496     888        (5,608

Liabilities assumed by parent and other contributed capital

     (67     —          (67

Dividends paid to noncontrolling interests

     —          (1,723     (1,723

Pension/postretirement liability adjustment

     3,052        —          3,052   

Other comprehensive income

     199        —          199   
  

 

 

   

 

 

   

 

 

 

Balance at March 31, 2013

   $  (1,282,074   $ 44,835      $  (1,237,239
  

 

 

   

 

 

   

 

 

 

Note 7 Goodwill and Other Intangible Assets

The carrying amounts of goodwill and acquired intangible assets not subject to amortization consist of the following (in thousands):

 

     As of
December 31,
2012
     As of
March 31,
2013
 

Goodwill

   $ 6,780,827       $ 6,780,827   

Trade name

     70,400         70,400   

Orbital locations

     2,387,700         2,387,700   

We account for goodwill and other non-amortizable intangible assets in accordance with FASB ASC Topic 350, Intangibles—Goodwill and Other, and have deemed these assets to have indefinite lives. Therefore, these assets are not amortized but are tested on an annual basis for impairment during the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.

 

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The carrying amount and accumulated amortization of acquired intangible assets subject to amortization consist of the following (in thousands):

 

     As of December 31, 2012      As of March 31, 2013  
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net Carrying
Amount
 

Backlog and other

   $ 743,760       $ (520,204   $ 223,556       $ 743,760       $ (533,914   $ 209,846   

Customer relationships

     534,030         (106,499     427,531         534,030         (113,367     420,663   

Technology

     2,700         (2,700     —            2,700         (2,700     —      
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 1,280,490       $ (629,403   $ 651,087       $ 1,280,490       $ (649,981   $ 630,509   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Intangible assets are amortized based on the expected pattern of consumption. We recorded amortization expense of $22.9 million and $20.6 million for the three months ended March 31, 2012 and 2013, respectively.

Note 8 Long-Term Debt

The carrying values and fair values of our notes payable and long-term debt were as follows (in thousands):

 

     As of December 31, 2012      As of March 31, 2013  
     Carrying Value     Fair Value      Carrying Value     Fair Value  

Intelsat Investments S.A.:

         

6.5% Senior Notes due November 2013

   $ 353,550      $ 367,268       $ 353,550      $ 362,389   

Unamortized discount on 6.5% Senior Notes

     (25,312     —           (18,077     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Intelsat Investments S.A. obligations

     328,238        367,268         335,473        362,389   
  

 

 

   

 

 

    

 

 

   

 

 

 

Intelsat Luxembourg:

         

11.25% Senior Notes due February 2017

     2,805,000        2,966,288         2,805,000        2,983,959   

11.5% / 12.5% Senior PIK Election Notes due February 2017

     2,502,986        2,653,165         2,502,986        2,646,907   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Intelsat Luxembourg obligations

     5,307,986        5,619,453         5,307,986        5,630,866   
  

 

 

   

 

 

    

 

 

   

 

 

 

Intelsat Jackson:

         

8.5% Senior Notes due November 2019

     500,000        561,250         500,000        561,900   

Unamortized discount on 8.5% Senior Notes

     (3,218     —           (3,132     —     

7.25% Senior Notes due October 2020

     2,200,000        2,392,500         2,200,000        2,422,860   

Unamortized premium on 7.25% Senior Notes

     19,745        —           19,269        —     

7.25% Senior Notes due April 2019

     1,500,000        1,614,450         1,500,000        1,636,950   

7.5% Senior Notes due April 2021

     1,150,000        1,267,875         1,150,000        1,280,870   

6.625% Senior Notes due December 2022

     640,000        660,800         640,000        679,232   

Senior Unsecured Credit Facilities due February 2014

     195,152        192,713         195,152        193,455   

New Senior Unsecured Credit Facilities due February 2014

     810,876        800,740         810,876        800,740   

Senior Secured Credit Facilities due April 2018

     3,218,000        3,238,595         3,209,955        3,258,104   

Unamortized discount on Senior Credit Facilities

     (12,289     —           (11,762     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Intelsat Jackson obligations

     10,218,266        10,728,923         10,210,358        10,834,111   
  

 

 

   

 

 

    

 

 

   

 

 

 

Horizons Holdings:

         

Loan Payable to JSAT

     48,836        48,836         36,627        36,627   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Horizons Holdings obligation

     48,836        48,836         36,627        36,627   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Intelsat Investments S.A. long-term debt

     15,903,326      $ 16,764,480         15,890,444      $ 16,863,993   
  

 

 

   

 

 

    

 

 

   

 

 

 

Less:

         

Current portion of long-term debt

     56,598           924,409     
  

 

 

      

 

 

   

Total long-term debt, excluding current portion

   $ 15,846,728         $ 14,966,035     
  

 

 

      

 

 

   

The fair value for publicly traded instruments is determined using quoted market prices, and for non-publicly traded instruments, fair value is based upon composite pricing from a variety of sources, including market leading data providers, market makers, and leading brokerage firms. Substantially all of the inputs used to determine the fair value of our debt are classified as Level 1 inputs within the fair value hierarchy from FASB ASC 820, except our senior secured credit facilities, the inputs for which are classified as Level 2. The fair value of the Horizons Holdings obligation approximates its book value.

 

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Senior Secured Credit Facilities

On January 12, 2011, Intelsat Jackson Holdings S.A. (“Intelsat Jackson”), a wholly-owned subsidiary of Intelsat Investments, entered into a secured credit agreement (the “Intelsat Jackson Secured Credit Agreement”), which includes a $3.25 billion term loan facility maturing in April 2018 and a $500.0 million revolving credit facility with a five year maturity, and borrowed the full $3.25 billion under the term loan facility. The term loan facility requires regularly scheduled quarterly payments of principal equal to 0.25% of the original principal amount of the term loan beginning six months after January 12, 2011, with the remaining unpaid amount due and payable at maturity on April 2, 2018. Up to $350.0 million of the revolving credit facility is available for issuance of letters of credit. Additionally, up to $70.0 million of the revolving credit facility is available for swingline loans. Both the face amount of any outstanding letters of credit and any swingline loans reduce availability under the revolving credit facility on a dollar for dollar basis. Intelsat Jackson is required to pay a commitment fee for the unused commitments under the revolving credit facility, if any, at a rate per annum of 0.375%. As of March 31, 2013, Intelsat Jackson had $486.3 million (net of standby letters of credit) of availability remaining thereunder.

On October 3, 2012, Intelsat Jackson entered into an Amendment and Joinder Agreement (the “Jackson Credit Agreement Amendment”), which amended the Intelsat Jackson Secured Credit Agreement. As a result of the Jackson Credit Agreement Amendment, interest rates for borrowings under the term loan facility and the revolving credit facility are (i) the London Inter-Bank Offered Rate (“LIBOR”) plus 3.25%, or (ii) the Above Bank Rate (“ABR”) plus 2.25%. The Jackson Credit Agreement Amendment stipulates that the interest rate may decrease to LIBOR plus 3.00% or ABR plus 2.00% based on the corporate family rating of Intelsat Jackson from Moody’s Investors Service, Inc. LIBOR and the ABR, plus the applicable margins, are determined as specified in the Intelsat Jackson Secured Credit Agreement, as amended by the Jackson Credit Agreement Amendment, and LIBOR will not be less than 1.25% per annum. In April 2013, our corporate family rating was upgraded by Moody’s, and as a result, the interest rate for borrowing under the term loan facility and revolving credit facility decreased to LIBOR plus 3.00% or ABR plus 2.00%.

The Intelsat Jackson Secured Credit Agreement includes two financial covenants. Intelsat Jackson must maintain a consolidated secured debt to consolidated EBITDA ratio equal to or less than 3.50 to 1.00 at the end of each fiscal quarter as well as a consolidated EBITDA to consolidated interest expense ratio equal to or greater than 1.75 to 1.00 at the end of each fiscal quarter, in each case as such financial measures are defined in the Intelsat Jackson Secured Credit Agreement. Intelsat Jackson was in compliance with these financial maintenance covenant ratios with a consolidated secured debt to consolidated EBITDA ratio of 1.43 to 1.00 and a consolidated EBITDA to consolidated interest expense ratio of 2.99 to 1.00 as of March 31, 2013.

2013 Intelsat Luxembourg Notes Offerings and Redemptions

On April 5, 2013 Intelsat Luxembourg completed an offering of $3.5 billion aggregate principal amount of Senior Notes, consisting of $500.0 million aggregate principal amount of 6  3/4% Senior Notes due 2018 (the “2018 Luxembourg Notes”), $2.0 billion aggregate principal amount of 7  3/4% Senior Notes due 2021(the “2021 Luxembourg Notes”) and $1.0 billion aggregate principal amount of 8  1/8% Senior Notes due 2023 (the “2023 Luxembourg Notes” and collectively with the 2018 Luxembourg Notes and the 2021 Luxembourg Notes, the “New Luxembourg Notes”). The net proceeds from this offering were used by Intelsat Luxembourg in April 2013 to redeem all $2.5 billion aggregate principal amount of Intelsat Luxembourg’s outstanding 11  1/2/12  1/2% Senior PIK Election Notes and $754.8 million aggregate principal amount of the 2017 Senior Notes.

On April 23, 2013, Intelsat Luxembourg issued a notice of redemption pursuant to the indenture governing its 2017 Senior Notes that it intends to redeem $366.4 million aggregate principal amount of the 2017 Senior Notes on May 23, 2013. The redemption of the 2017 Senior Notes will be funded by insurance proceeds received from our total loss claim for the IS-27 satellite launch failure (see Note 5(b)—Satellites and Other Property and Equipment—Satellite Launches).

In connection with the pending and completed recent redemptions of the Intelsat Luxembourg notes, we expect to recognize a loss on early extinguishment of debt of approximately $232.0 million in the second quarter of 2013, consisting of the difference between the carrying value of the aggregate debt ultimately redeemed and the total cash amount paid (including related fees), and a write-off of unamortized debt issuance costs.

2013 Intelsat Investments Notes Pending Redemption

On April 12, 2012, we obtained agreements from affiliates of Goldman, Sachs & Co. and Morgan Stanley to provide unsecured term loan commitments sufficient to refinance in full the Intelsat Investments 6 1/2% Senior Notes due 2013 (the “Intelsat Investments Notes”) on or immediately prior to their maturity date, in the event that Intelsat Investments did not otherwise refinance or retire the Intelsat Investments Notes. These term loans would have had a maturity of two years from funding, and the funding thereof was subject to various terms and conditions. Prior to the completion of the IPO, based on our ability and intent to refinance the Intelsat Investments Notes, these notes were reflected in long-term debt, net of current portion, on our condensed consolidated balance sheet at December 31, 2012 and March 31, 2013.

On April 23, 2013, upon completion of the IPO, Intelsat Investments issued a notice of redemption pursuant to the indenture governing the Intelsat Investments Notes that it intends to redeem all of the outstanding $353.6 million aggregate principal amount of the Intelsat Investments Notes on May 23, 2013. The redemption of the Intelsat Investments Notes will be funded by the proceeds of the IPO. In connection with the redemption of the Intelsat Investments Notes, we expect to recognize a loss on early extinguishment of debt of approximately $24.2 million in the second quarter of 2013, consisting of the difference between the carrying value of the debt ultimately redeemed and the total cash paid (including related fees), and a write-off of unamortized debt discount and debt issuance costs. Additionally, on April 23, 2013, in conjunction with the pending redemption of the Intelsat Investments Notes, the agreements to provide unsecured term loan commitments discussed above have been terminated. We expect to record a charge of $7.6 million related to this termination in the second quarter of 2013.

 

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2013 Intelsat Jackson New Senior Unsecured Credit Facility Prepayment

On April 23, 2013, upon completion of the IPO, Intelsat Jackson prepaid $138.2 million of indebtedness outstanding under its Senior Unsecured Credit Agreement, dated July 1, 2008, consisting of a senior unsecured term loan facility due February 2014 (the “New Senior Unsecured Credit Facility”). The partial prepayment of the New Senior Unsecured Credit Facility was funded by the proceeds of the IPO. Therefore, in accordance with FASB ASC Topic 470, Debt, the $138.2 million of the New Senior Unsecured Credit Facility is included in long-term debt on our condensed consolidated balance sheet at March 31, 2013. In connection with the partial prepayment of the New Senior Unsecured Credit Facility, we expect to recognize a loss on early extinguishment of debt of $0.2 million in the second quarter of 2013, consisting of a write-off of unamortized debt issuance costs.

2012 Intelsat Jackson Notes Offerings, Tender Offers and Redemptions

On April 26, 2012, Intelsat Jackson completed an offering of $1.2 billion aggregate principal amount of its 7 1/4% Senior Notes due 2020 (the “2020 Jackson Notes”). Intelsat Jackson had previously issued $1.0 billion aggregate principal amount of the 2020 Jackson Notes on September 30, 2010. The net proceeds from the April 2012 offering were used by Intelsat Jackson to repurchase or redeem all of the $701.9 million aggregate principal amount of Intelsat Jackson’s outstanding 9 1/2% Senior Notes due 2016 and $445.0 million aggregate principal amount of Intelsat Jackson’s 11 1/4% Senior Notes due 2016 (the “2016 Jackson 11 1/4% Notes”). In connection with these repurchases and redemptions, we recognized a loss on early extinguishment of debt of $43.4 million during the second quarter of 2012, consisting of the difference between the carrying value of the aggregate debt repurchased or redeemed and the total cash amount paid (including related fees), and a write-off of unamortized debt premium and debt issuance costs.

On October 3, 2012, Intelsat Jackson completed an offering of $640.0 million aggregate principal amount of 6 5/8% Senior Notes due 2022 (the “2022 Intelsat Jackson Notes”). The net proceeds from the October 2012 offering were used by Intelsat Jackson to repurchase or redeem all of its remaining outstanding $603.2 million principal amount of 2016 Jackson 11 1/4% Notes. In connection with these repurchases and redemptions, we recognized a loss on early extinguishment of debt of $24.3 million in the fourth quarter of 2012, consisting of the difference between the carrying value of the debt repurchased or redeemed and the total cash amount paid (including related fees), and a write-off of unamortized debt premium.

Note 9 Derivative Instruments and Hedging Activities

Interest Rate Swaps

We are subject to interest rate risk primarily associated with our variable-rate borrowings. Interest rate risk is the risk that changes in interest rates could adversely affect earnings and cash flows. Specific interest rate risk includes: the risk of increasing interest rates on short-term debt; the risk of increasing interest rates for planned new fixed long-term financings; and the risk of increasing interest rates for planned refinancing using long-term fixed-rate debt. We have entered into interest rate swap agreements to reduce the impact of interest rate movements on future interest expense by converting substantially all of our floating-rate debt to a fixed rate.

As of March 31, 2013, we held interest rate swaps with an aggregate notional amount of $1.6 billion which mature in January 2016. These swaps were entered into, as further described below, 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, but have not been designated as hedges for accounting purposes. On a quarterly basis, we receive a floating rate of interest equal to the three-month LIBOR and pay a fixed rate of interest. On the interest rate reset date of March 14, 2013, the interest rate which the counterparties utilized to compute interest due to us was determined to be 0.28%. On March 14, 2013, our interest rate swap with an aggregate notional principal amount of $731.4 million expired.

The counterparties to our interest rate swap agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of the interest rate swaps, our exposure is limited to the interest rate differential on the notional amount at each quarterly settlement period over the life of the agreement. We do not anticipate non-performance by the counterparties.

All of our interest rate swaps were undesignated as of March 31, 2013. The swaps are marked-to-market quarterly with any change in fair value recorded within losses on derivative financial instruments in our consolidated statements of operations. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of our derivatives. The fair value measurement of derivatives could result in either a net asset or a net liability position for us. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting arrangements as applicable and necessary. When the swaps are in a net liability position for us, the credit valuation adjustments are calculated by determining the total expected exposure of the derivatives, incorporating the current and potential future exposures and then applying an applicable credit spread to the exposure. The total

 

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expected exposure of a derivative is derived using market-observable inputs, such as yield curves and volatilities. The inputs utilized for our own credit spread are based on implied spreads from traded levels of our debt. Accordingly, as of March 31, 2013 we recorded a non-cash credit valuation adjustment of approximately $4.4 million as a reduction to our liability.

The following table sets forth the fair value of our derivatives by category (in thousands):

 

          Liability Derivatives  

Derivatives not designated as hedging instruments

   Balance Sheet Location    December 31,
2012
     March 31,
2013
 

Undesignated interest rate swaps

   Other current liabilities    $ 7,246       $ 1,366   

Undesignated interest rate swaps

   Other long-term liabilities      67,318         62,411   
     

 

 

    

 

 

 

Total derivatives

      $ 74,564       $ 63,777   
     

 

 

    

 

 

 

The following table sets forth the effect of the derivative instruments on the condensed consolidated statements of operations (in thousands):

 

Derivatives not designated as
hedging instruments

   Presentation in Statements of
Operations
   Three Months
Ended

March  31,
2012
     Three Months
Ended

March  31,
2013
 

Undesignated interest rate swaps

   Losses on derivative financial instruments    $ 9,858       $ 1,865   
     

 

 

    

 

 

 

Total losses on derivative financial instruments

      $ 9,858       $ 1,865   
     

 

 

    

 

 

 

Note 10 Income Taxes

The majority of our operations are located in taxable jurisdictions, including Luxembourg, the United States and the United Kingdom. Our Luxembourg companies that file tax returns as a consolidated group generated a loss for the three months ended March 31, 2013. Due to our cumulative losses in recent years, and the inherent uncertainty associated with the realization of future taxable income in the foreseeable future, we recorded a full valuation allowance against the net operating losses generated in Luxembourg. The difference between tax expense (benefit) reported in the condensed consolidated statements of operations and tax computed at statutory rates is attributable to the valuation allowance on losses generated in Luxembourg, the provision for foreign taxes, which were principally in the United States and the United Kingdom, as well as withholding taxes on revenue earned in many of the foreign markets in which we operate.

As of December 31, 2012 and March 31, 2013, our gross unrecognized tax benefits were $67.0 million and $68.3 million, respectively (including interest and penalties), of which $48.4 million and $49.4 million, respectively, if recognized, would affect our effective tax rate. As of December 31, 2012 and March 31, 2013, we had recorded reserves for interest and penalties in the amount of $11.6 million and $12.5 million, respectively. We continue to recognize interest and, to the extent applicable, penalties with respect to the unrecognized tax benefits as income tax expense. Since December 31, 2012, the change in the balance of unrecognized tax benefits consisted of an increase of $0.9 million related to prior period tax positions and an increase of $0.5 million related to current tax positions.

We operate in various taxable jurisdictions throughout the world and our tax returns are subject to audit and review from time to time. We consider Luxembourg, the United States and the United Kingdom to be our significant tax jurisdictions. Our Luxembourg, U.S. and U.K. subsidiaries are subject to income tax examination for periods after December 31, 2003. Within the next twelve months, we believe that there are no jurisdictions in which the outcome of unresolved tax issues or claims is likely to be material to our results of operations, financial position or cash flows.

On March 7, 2011, Intelsat Holding Corporation, the former parent of Intelsat Corporation (“Intelsat Corp”), was notified by the Internal Revenue Service of its intent to initiate an audit for the tax years ending December 31, 2008 and 2009. We do not currently expect the result of this audit to have a material impact on our provision for income taxes.

On March 7, 2013, Intelsat USA Sales Corporation (since January 2011, Intelsat USA Sales LLC, a disregarded subsidiary of Intelsat Corp) was notified by the U. S. Internal Revenue Service of its intent to initiate an audit for the tax year ending on December 31, 2010. Intelsat USA Sales LLC wholly owns Intelsat General Corporation, which provides services to U.S. government and other select military organizations and their contractors, as well as other commercial customers. At this point in time, it is too early to assess the probability of any adjustments resulting from this audit.

 

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Prior to August 20, 2004, Intelsat Corp, joined with The DIRECTV Group and General Motors Corporation in filing a consolidated U.S. federal income tax return. In April 2004, Intelsat Corp entered into a tax separation agreement with The DIRECTV Group that superseded four earlier tax-related agreements among Intelsat Corp and its subsidiaries, The DIRECTV Group and certain of its affiliates. Pursuant to the tax separation agreement, The DIRECTV Group agreed to indemnify Intelsat Corp for all federal and consolidated state and local income taxes a taxing authority may attempt to collect from Intelsat Corp regarding any liability for the federal or consolidated state or local income taxes of General Motors Corporation and The DIRECTV Group, except those income taxes Intelsat Corp is required to pay under the tax separation agreement. In addition, The DIRECTV Group agreed to indemnify Intelsat Corp for any taxes (other than those taxes described in the preceding sentence) related to any periods or portions of such periods ending on, or prior to, the day of the closing of the PanAmSat Corporation recapitalization, which occurred on August 20, 2004, in amounts equal to 80% of the first $75.0 million of such other taxes and 100% of any other taxes in excess of the first $75.0 million. As a result, Intelsat Corp’s tax exposure after indemnification related to these periods is capped at $15.0 million, of which $4.0 million has been paid to date. The tax separation agreement with The DIRECTV Group is effective from August 20, 2004 until the expiration of the statute of limitations with respect to all taxes to which the tax separation agreement relates. As of December 31, 2012 and March 31, 2013, we had a tax indemnification receivable of $2.3 million.

Note 11 Commitments and Contingencies

(a) Litigation and Claims

We are subject to litigation in the ordinary course of business. Management does not believe that the resolution of any pending proceedings would have a material adverse effect on our financial position or results of operations.

(b) LCO Protection

Most of the customer service commitments entered into prior to our privatization were transferred to us pursuant to novation agreements. Certain of these agreements contain provisions, including provisions for lifeline connectivity obligation (“LCO”) protection, which constrain our ability to price services in some circumstances. Our LCO contracts require us to provide customers with the right to renew their service commitments covered by LCO contracts at prices no higher than the prices charged for those services on the privatization date. Under some circumstances, we may also be required by an LCO contract to reduce the price for a service commitment covered by the contract. LCO protection may continue until July 18, 2013. As of March 31, 2013, we had approximately $53.9 million of backlog covered by LCO contracts and to date we have not been required to reduce prices for our LCO-protected service commitments. There can be no assurance that we will not be required to reduce prices in the future under our LCO commitments.

Note 12 Business and Geographic Segment Information

We operate in a single industry segment in which we provide satellite services to our communications customers around the world. Revenue by region is based on the locations of customers to which services are billed. Our satellites are in geosynchronous orbit, and consequently are not attributable to any geographic location. Of our remaining assets, substantially all are located in the United States.

We earn revenue primarily by providing services over satellite transponder capacity to our customers. Our customers generally obtain satellite capacity from us by placing an order pursuant to one of several master customer service agreements. Our customer agreements also cover services that we procure from third parties and resell, which we refer to as off-network services. These services can include transponder services and other satellite-based transmission services in frequencies not available on our network. Under the category off-network and other revenues, we also include revenues from consulting and other services.

The geographic distribution of our revenue based upon billing region of the customer was as follows:

 

     Three Months
Ended

March  31,
2012
  Three Months
Ended

March  31,
2013

North America

   48%   46%

Europe

   16%   16%

Africa and Middle East

   16%   15%

Latin America and Caribbean

   14%   16%

Asia Pacific

   6%     7%

Approximately 5% and 4% of our revenue was derived from our largest customer during the three months ended March 31, 2012 and 2013, respectively. Our ten largest customers accounted for approximately 26% of our revenue for each of the three months ended March 31, 2012 and 2013.

 

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Our revenues were derived from the following services, with Off-Network and Other Revenues shown separately from On-Network Revenues (in thousands, except percentages):

 

     Three Months Ended
March  31, 2012
    Three Months Ended
March  31, 2013
 

On-Network Revenues

          

Transponder services

   $ 479,959         75   $ 501,807         77

Managed services

     65,972         10     72,371         11

Channel

     23,820         4     19,165         3
  

 

 

      

 

 

    

Total on-network revenues

     569,751         88     593,343         91

Off-Network and Other Revenues

          

Transponder, MSS and other off-network services

     64,434         10     48,977         7

Satellite-related services

     9,984         2     12,807         2
  

 

 

      

 

 

    

Total off-network and other revenues

     74,418         12     61,784         9
  

 

 

      

 

 

    

Total

   $ 644,169         100   $ 655,127         100
  

 

 

      

 

 

    

Note 13 Related Party Transactions

(a) Shareholders’ Agreements

Certain shareholders of Intelsat S.A. entered into shareholders’ agreements on February 4, 2008. The shareholders’ agreements were assigned to Intelsat S.A. by amendments effective as of March 30, 2012. The shareholders’ agreements and the articles of incorporation of Intelsat S.A. provided, among other things, for the governance of Intelsat S.A. and its subsidiaries and provided specific rights to and limitations upon the holders of Intelsat S.A.’s share capital with respect to shares held by such holders. In connection with the IPO in April 2013, these articles of incorporation and shareholders’ agreements were amended.

(b) Monitoring Fee Agreement

Intelsat Luxembourg, our direct wholly-owned subsidiary, had a monitoring fee agreement dated February 4, 2008 (the “2008 MFA”) with BC Partners Limited and Silver Lake Management Company III, L.L.C., (together, the “2008 MFA Parties”), pursuant to which the 2008 MFA Parties provided certain monitoring, advisory and consulting services to Intelsat Luxembourg. We recorded expense for services associated with the 2008 MFA of $6.3 million during each of the three months ended March 31, 2012 and 2013.

In connection with the IPO in April 2013, the 2008 MFA was assigned to Intelsat S.A. and terminated. Intelsat S.A. paid a fee of $39.1 million to the 2008 MFA Parties in connection with the termination of the 2008 MFA. During the first quarter of 2013, the 2008 MFA Parties received approximately $25.1 million for services that were performed, or expected to be performed, under the 2008 MFA in 2013. The $39.1 million payment made to terminate the 2008 MFA, together with a write-off of $17.2 million of prepaid fees relating to the balance of 2013, were expensed by Intelsat S.A. upon the consummation of the IPO.

(c) Ownership by Management

Certain directors, officers and key employees of Intelsat S.A. and its subsidiaries hold restricted shares, options and share-based compensation arrangements of Intelsat S.A. (see Note 3—Share-based and Other Compensation Plans). In the aggregate, these shares and arrangements outstanding as of March 31, 2013 provided for the issuance of approximately 12.0% of the voting equity of Intelsat S.A. on a fully diluted basis. Upon completion of the IPO, in the aggregate, these shares and arrangements outstanding provided for the issuance of approximately 8.5% of the voting equity of Intelsat S.A. on a fully-diluted basis.

(d) Horizons Holdings

We have a 50% ownership interest in Horizons Holdings as a result of a joint venture with JSAT (see Note 6(a)—Investments—Horizons Holdings).

(e) New Dawn

We had a 74.9% ownership interest in New Dawn as a result of the New Dawn Project Agreement with Convergence Partners. On October 5, 2012, we purchased the remaining ownership interest from Convergence Partners (see Note 6(b)—Investments—New Dawn).

(f) WP Com

We have a 49% ownership interest in WP Com as a result of a joint venture with Corporativo (see Note 6(c)—Investments—WP Com).

 

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(g) Receivable from Parents

We had receivables from our indirect parent entities as of December 31, 2012 and March 31, 2013 of $36.6 million and $38.1 million, respectively.

Note 14 Subsequent Events associated with the IPO

On April 23, 2013, Intelsat S.A., our indirect parent company, completed its IPO, receiving net proceeds of approximately $550 million after underwriting discounts and commissions. The net proceeds from the IPO have been or will be primarily used to redeem all of the outstanding $353.6 million aggregate principal amount of the Intelsat Investments Notes and to prepay $138.2 million of indebtedness outstanding under the New Senior Unsecured Credit Facility (see Note 8—Long-Term Debt).

In connection with the IPO, certain repurchase rights upon employee separation that were included in various share-based compensation agreements of management contractually expired. This resulted in (i) certain awards becoming deemed granted under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation (“FASB ASC 718”) and (ii) certain awards previously accounted for as liability awards becoming treated as equity awards under the provisions of FASB ASC 718. Also upon consummation of the IPO, options were granted to certain executives in accordance with the existing terms of their side letters to a management shareholders agreement, and cash payments were made to certain members of management. Based on awards outstanding at March 31, 2013, in connection with the IPO, the items described above are expected to result in a pre-tax charge of approximately $21.3 million, which will be recorded in the second quarter of 2013.

Also in connection with the IPO, the Board of Directors of Intelsat S.A. adopted the 2013 Equity Plan, effective April 18, 2013, to provide for equity incentive awards to management and members of the Intelsat S.A. Board of Directors. Under the 2013 Equity Plan, up to 10,000,000 equity incentive awards can be granted. Shortly after its adoption, the Compensation Committee approved the following awards: (i) 1,003,900 restricted stock units, of which 563,480 vest based on service in three annual installments, and 440,420 vest after three years based upon the achievement of certain long-term performance metrics; (ii) 500,000 restricted stock units vesting in four installments every six months; and (iii) 500,000 options, with an exercise price of $27.00 per share, vesting monthly over 24 months.

Additionally, in connection with the IPO, in April 2013, the 2008 MFA was terminated (see Note 13(b)—Related Party Transactions—Monitoring Fee Agreement).

Note 15 Supplemental Consolidating Financial Information

On June 27, 2008, Intelsat Luxembourg issued approximately $2.8 billion of 11 1/4% Senior Notes due 2017 and approximately $2.3 billion of 11 1/2% / 12 1/2% Senior PIK Election Notes due 2017, which are fully and unconditionally guaranteed, jointly and severally, by Intelsat Investments.

Separate financial statements of Intelsat Investments, Intelsat Luxembourg and Intelsat Jackson are not presented because management believes that such financial statements would not be material to investors. Investments in Intelsat Jackson’s subsidiaries in the following condensed consolidating financial information are accounted for under the equity method of accounting. Consolidating adjustments include the following:

 

   

elimination of investment in subsidiaries;

 

   

elimination of intercompany accounts; and

 

   

elimination of equity in earnings (losses) of subsidiaries.

Other comprehensive income for the three months ended March 31, 2012 was $2.6 million compared to other comprehensive income of $3.3 million for the three months ended March 31, 2013. Other comprehensive income is fully attributable to the subsidiaries of Intelsat Jackson.

 

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INTELSAT INVESTMENTS S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2013

(in thousands)

 

     Intelsat
Investments
S.A.
    Intelsat
Luxembourg
    Intelsat
Jackson
     Intelsat Jackson
Subsidiaries (Non-
Guarantors)
     Consolidation
and Eliminations
    Consolidated  

ASSETS

              

Current assets:

              

Cash and cash equivalents

   $ 536      $ 1,577      $ 110,152       $ 216,481       $ —        $ 328,746   

Receivables, net of allowance

     25        7        384         542,733         —          543,149   

Deferred income taxes

     —          —          —           94,662         —          94,662   

Prepaid expenses and other current assets

     245        18,854        1,835         44,323         (199     65,058   

Intercompany receivables

     —          —          76,518         420,741         (497,259     —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     806        20,438        188,889         1,318,940         (497,458     1,031,615   

Satellites and other property and equipment, net

     —          —          —           5,839,334         —          5,839,334   

Goodwill

     —          —          —           6,780,827         —          6,780,827   

Non-amortizable intangible assets

     —          —          —           2,458,100         —          2,458,100   

Amortizable intangible assets, net

     —          —          —           630,509         —          630,509   

Investment in affiliates

     (404,028     4,922,532        15,142,915         1,000         (19,661,419     1,000   

Other assets

     9,758        80,299        106,579         211,736         —          408,372   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ (393,464   $ 5,023,269      $ 15,438,383       $ 17,240,446       $ (20,158,877   $ 17,149,757   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDER’S EQUITY

              

Current liabilities:

              

Accounts payable and accrued liabilities

   $ 2,536      $ —        $ 310       $ 111,528       $ (199   $ 114,175   

Accrued interest payable

     9,575        77,102        241,408         2,091         —          330,176   

Current portion of long-term debt

     —          —          899,991         24,418         —          924,409   

Deferred satellite performance incentives

     —          —          —           21,849         —          21,849   

Other current liabilities

     —          —          1,365         146,262         —          147,627   

Intercompany payables

     496,191        1,068        —           —           (497,259     —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     508,302        78,170        1,143,074         306,148         (497,458     1,538,236   

Long-term debt, net of current portion

     335,473        5,307,986        9,310,367         12,209         —          14,966,035   

Deferred satellite performance incentives,

net of current portion

     —          —          —           168,070         —          168,070   

Deferred revenue, net of current portion

     —          —          —           844,591         —          844,591   

Deferred income taxes

     —          —          —           287,946         —          287,946   

Accrued retirement benefits

     —          —          —           291,602         —          291,602   

Other long-term liabilities

     —          39,659        62,410         188,447         —          290,516   

Shareholder’s equity (deficit):

              

Ordinary shares

     5,000        669,036        4,322,473         9,085,852         (14,077,361     5,000   

Other shareholder’s equity (deficit)

     (1,242,239     (1,071,582     600,059         6,055,581         (5,584,058     (1,242,239
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholder’s equity

   $ (393,464   $ 5,023,269      $ 15,438,383       $ 17,240,446       $ (20,158,877   $ 17,149,757   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

(Certain totals may not add due to the effects of rounding)

 

21


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INTELSAT INVESTMENTS S.A. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2012

(in thousands)

 

     Intelsat
Investments
S.A.
    Intelsat
Luxembourg
    Intelsat
Jackson
     Intelsat Jackson
Subsidiaries (Non-
Guarantors)
     Consolidation
and Eliminations
    Consolidated  

ASSETS

              

Current assets:

              

Cash and cash equivalents

   $ 42      $ 91      $ 2,271       $ 185,042       $ —        $ 187,446   

Receivables, net of allowance

     23        4        369         318,409         —          318,805   

Deferred income taxes

     —          —          —           94,779         —          94,779   

Prepaid expenses and other current assets

     525        —          50         38,133         —          38,708   

Intercompany receivables

     —          6,838        —           3,064,146         (3,070,984     —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     590        6,933        2,690         3,700,509         (3,070,984     639,738   

Satellites and other property and equipment, net

     —          —          —           6,355,192         —          6,355,192   

Goodwill

     —          —          —           6,780,827         —          6,780,827   

Non-amortizable intangible assets

     —          —          —           2,458,100         —          2,458,100   

Amortizable intangible assets, net

     —          —          —           651,087         —          651,087   

Investment in affiliates

     (403,929     5,085,233        17,963,969         1,010         (22,645,273     1,010   

Other assets

     9,064        84,402        111,836         210,465         —          415,767   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ (394,275   $ 5,176,568      $ 18,078,495       $ 20,157,190       $ (25,716,257   $ 17,301,721   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDER’S EQUITY

              

Current liabilities:

              

Accounts payable and accrued liabilities

   $ 2,289      $ —        $ 575       $ 189,808       $ —        $ 192,672   

Accrued interest payable

     3,830        227,953        133,335         2,558         —          367,676   

Current portion of long-term debt

     —          —          32,180         24,418         —          56,598   

Deferred satellite performance incentives

     —          —          —           21,479         —          21,479   

Other current liabilities

     —          —          7,244         149,537         —          156,781   

Intercompany payables

     504,460        —          2,566,524         —           (3,070,984     —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     510,579        227,953        2,739,858         387,800         (3,070,984     795,206   

Long-term debt, net of current portion

     328,238        5,307,986        10,186,086         24,418         —          15,846,728   

Deferred satellite performance incentives,

net of current portion

     —          —          —           172,663         —          172,663   

Deferred revenue, net of current portion

     —          —          —           834,161         —          834,161   

Deferred income taxes

     —          —          —           286,673         —          286,673   

Accrued retirement benefits

     —          —          —           299,187         —          299,187   

Other long-term liabilities

     —          41,760        67,318         191,117         —          300,195   

Shareholder’s equity (deficit):

              

Ordinary shares

     5,000        669,036        4,322,473         8,773,388         (13,764,897     5,000   

Other shareholder’s equity (deficit)

     (1,238,092     (1,070,167     762,760         9,187,783         (8,880,376     (1,238,092
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholder’s equity

   $ (394,275   $ 5,176,568      $ 18,078,495       $ 20,157,190       $ (25,716,257   $ 17,301,721   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

(Certain totals may not add due to the effects of rounding)

 

22


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INTELSAT INVESTMENTS S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2013

(in thousands)

 

     Intelsat
Investments
S.A.
    Intelsat
Luxembourg
    Intelsat
Jackson
    Intelsat
Jackson
Subsidiaries

(Non-
Guarantors)
    Consolidation
and
Eliminations
    Consolidated  

Revenue

   $ —        $ —        $ —        $  655,127      $ —        $  655,127   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Direct costs of revenue (excluding depreciation and amortization)

     —          —          —          97,646        —          97,646   

Selling, general and administrative

     763        6,447        634        50,108        —          57,952   

Depreciation and amortization

     —          —          —          187,411        —          187,411   

Losses on derivative financial instruments

     —          —          1,865        —          —          1,865   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     763        6,447        2,499        335,165        —          344,874   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (763     (6,447     (2,499     319,962        —          310,253   

Interest (income) expense, net

     16,399        152,855        184,181        (36,186     —          317,249   

Subsidiary income

     10,668        172,922        359,604        —          (543,194     —     

Other expense, net

     (2     —          (2     (646     —          (650
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (6,496     13,620        172,922        355,502        (543,194     (7,646

Benefit from income taxes

     —          —          —          (2,038     —          (2,038
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (6,496     13,620        172,922        357,540        (543,194     (5,608

Net income attributable to noncontrolling interest

     —          —          —          (888     —          (888
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Intelsat Investments S.A.

   $ (6,496   $ 13,620      $ 172,922      $ 356,652      $ (543,194   $ (6,496
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Certain totals may not add due to the effects of rounding)

 

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Table of Contents

INTELSAT INVESTMENTS S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(in thousands)

 

     Intelsat
Investments
S.A.
    Intelsat
Luxembourg
    Intelsat
Jackson
    Intelsat
Jackson
Subsidiaries

(Non-
Guarantors)
    Consolidation
and

Eliminations
    Consolidated  

Revenue

   $ —        $ —        $ —        $  644,169      $ —        $  644,169   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

            

Direct costs of revenue (excluding depreciation and amortization)

     —          —          —          105,010        —          105,010   

Selling, general and administrative

     1,049        6,426        461        43,030        —          50,966   

Depreciation and amortization

     —          —          —          186,871        —          186,871   

Loss on derivative financial instruments

     —          —          9,256        602        —          9,858   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,049        6,426        9,717        335,513        —          352,705   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (1,049     (6,426     (9,717     308,656        —          291,464   

Interest (income) expense, net

     15,499        152,599        150,682        (7,349     —          311,431   

Subsidiary income (loss)

     (7,899     154,013        314,414        —          (460,528     —     

Other income (expense), net

     (2     (1     (2     2,908        —          2,903   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (24,449     (5,013     154,013        318,913        (460,528     (17,064

Provision for income taxes

     —          —          —          7,204        —          7,204   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (24,449     (5,013     154,013        311,709        (460,528     (24,268

Net income attributable to noncontrolling interest

     —          —          —          (181     —          (181
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Intelsat Investments S.A.

   $ (24,449   $ (5,013   $ 154,013      $ 311,528      $ (460,528   $ (24,449
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Certain totals may not add due to the effects of rounding)

 

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Table of Contents

INTELSAT INVESTMENTS S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2013

(in thousands)

 

     Intelsat
Investments
S.A.
    Intelsat
Luxembourg
    Intelsat
Jackson
    Intelsat
Jackson
Subsidiaries

(Non-
Guarantors)
    Consolidation
and
Eliminations
    Consolidated  

Cash flows from operating activities:

   $  (1,579   $  (326,867   $ 41,158      $ 384,389      $ —        $ 97,101   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

            

Payments for satellites and other property and equipment (including capitalized interest)

     —          —          —          (167,154     —          (167,154

Proceeds from insurance settlements

     —          —          —          252,911        —          252,911   

Payment on satellite performance incentives from insurance proceeds

     —          —          —          (19,199     —          (19,199

Disbursements for intercompany loans

     —          —          —          (75,176     75,176        —     

Investment in subsidiaries

     (4,365     —          (11,613     —          15,978        —     

Dividend from affiliates

     5,090        333,443        346,000        —          (684,533     —     

Other investing activities

     —          —          —          (1,000     —          (1,000
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by investing activities

     725        333,443        334,387        (9,618     (593,379     (65,558
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

            

Repayments of long-term debt

     —          —          (48,045     (12,209     —          (60,254

Proceeds from issuance of long-term debt

     —          —          40,000        —          —          40,000   

Proceeds from intercompany borrowing

     1,350        —          73,826        —          (75,176     —     

Principal payments on deferred satellite performance incentives

     —          —          —          (4,276     —          (4,276

Capital contribution from parent

     —          —          —          15,978        (15,978     —     

Dividends to shareholders

     —          (5,090     (333,443     (346,000     684,533        —     

Capital contribution from noncontrolling interest

     —          —          —          6,105        —          6,105   

Dividends paid to noncontrolling interest

     —          —          —          (1,723     —          (1,723
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,350        (5,090     (267,662     (342,125     593,379        (20,148
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (2     —          (2     (1,207     —          (1,211
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     494        1,486        107,881        31,439        —          141,300   

Cash and cash equivalents, beginning of period

     42        91        2,271        185,042        —          187,446   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 536      $ 1,577      $ 110,152      $ 216,481      $ —        $ 328,746   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Certain totals may not add due to the effects of rounding)

 

25


Table of Contents

INTELSAT INVESTMENTS S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(in thousands)

 

     Intelsat
Investments
S.A.
    Intelsat
Luxembourg
    Intelsat
Jackson
    Intelsat
Jackson
Subsidiaries
(Non-
Guarantors)
    Consolidation
and
Eliminations
    Consolidated  

Cash flows from operating activities:

   $ 1,455      $  (324,777   $  (141,999   $ 587,402      $ —        $ 122,081   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

            

Payments for satellites and other property and equipment (including capitalized interest)

     —          —          —          (260,867     —          (260,867

Disbursements for intercompany loans

     —          —          —          (23,321     23,321        —     

Investment in subsidiaries

     (3,000     —          (35,690     —          38,690        —     

Dividend from affiliates

     1,500        325,550        479,241        —          (806,291     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (1,500     325,550        443,551        (284,188     (744,280     (260,867
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

            

Repayments of long-term debt

     —          —          (8,125     (12,209     —          (20,334

Proceeds from issuance of long-term debt

     —          —          175,000        —          —          175,000   

Proceeds from intercompany borrowing

     —          —          23,321        —          (23,321     —     

Principal payments on deferred satellite performance incentives

     —          —          —          (4,011     —          (4,011

Capital contribution from parent

     —          —          —          38,690        (38,690     —     

Dividends to shareholders

     —          (1,500     (325,550     (479,241     806,291        —     

Capital contribution from noncontrolling interest

     —          —          —          6,105        —          6,105   

Dividends paid to noncontrolling interest

     —          —          —          (2,255     —          (2,255
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     —          (1,500     (135,354     (452,921     744,280        154,505   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (1     —          (2     1,047        —          1,044   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     (46     (727     166,196        (148,660     —          16,763   

Cash and cash equivalents, beginning of period

     511        908        2,269        291,012        —          294,700   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 465      $ 181      $ 168,465      $ 142,352      $ —        $ 311,463   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Certain totals may not add due to the effects of rounding)

 

26


Table of Contents

On April 5, 2011, Intelsat Jackson completed an offering of $2.65 billion aggregate principal amount of senior notes, consisting of $1.5 billion aggregate principal amount of the 7 1/4% 2019 Jackson Notes and $1.15 billion aggregate principal amount of the 2021 Jackson Notes. The 7 1/4% 2019 Jackson Notes and the 2021 Jackson Notes are fully and unconditionally guaranteed, jointly and severally, by Intelsat Investments, Intelsat Luxembourg and certain wholly-owned subsidiaries of Intelsat Jackson (the “Subsidiary Guarantors”).

On April 26, 2012, Intelsat Jackson completed an offering of $1.2 billion aggregate principal amount of the 2020 Jackson Notes, which are fully and unconditionally guaranteed, jointly and severally, by Intelsat Investments, Intelsat Luxembourg and the Subsidiary Guarantors.

Separate financial statements of Intelsat Investments, Intelsat Luxembourg, Intelsat Jackson and the Subsidiary Guarantors are not presented because management believes that such financial statements would not be material to investors. Investments in Intelsat Jackson’s subsidiaries in the following condensed consolidating financial information are accounted for under the equity method of accounting. Consolidating adjustments include the following:

 

   

elimination of investment in subsidiaries;

 

   

elimination of intercompany accounts;

 

   

elimination of intercompany sales between guarantor and non-guarantor subsidiaries; and

 

   

elimination of equity in earnings (losses) of subsidiaries.

Other comprehensive income for the three months ended March 31, 2012 was $2.6 million compared to other comprehensive income of $3.3 million for the three months ended March 31, 2013. Other comprehensive income is fully attributable to the Subsidiary Guarantors, which are consolidated within Intelsat Jackson as well.

 

27


Table of Contents

INTELSAT INVESTMENTS S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2013

(in thousands)

 

     Intelsat
Investments
S.A.
    Intelsat
Luxembourg
    Intelsat
Jackson
     Jackson
Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     Consolidation
and  Eliminations
    Consolidated  

ASSETS

                 

Current assets:

                 

Cash and cash equivalents

   $ 536      $ 1,577      $ 287,209       $ 177,057       $ 39,424       $ (177,057   $ 328,746   

Receivables, net of allowance

     25        7        459,750         459,366         83,367         (459,366     543,149   

Deferred income taxes

     —          —          92,689         92,689         1,973         (92,689     94,662   

Prepaid expenses and other current assets

     245        18,854        32,753         30,918         13,866         (31,578     65,058   

Intercompany receivables

         453,397         376,879         43,862         (874,138     —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     806        20,438        1,325,798         1,136,909         182,492         (1,634,828     1,031,615   

Satellites and other property and equipment, net

     —          —          5,717,579         5,717,579         165,172         (5,760,996     5,839,334   

Goodwill

     —          —          6,780,827         6,780,827         —           (6,780,827     6,780,827   

Non-amortizable intangible assets

     —          —          2,458,100         2,458,100         —           (2,458,100     2,458,100   

Amortizable intangible assets, net

     —          —          630,509         630,509         —           (630,509     630,509   

Investment in affiliates

     (360,658     4,965,902        259,520         259,520         —           (5,123,284     1,000   

Other assets

     9,758        80,299        299,057         192,477         13,506         (186,725     408,372   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ (350,094   $ 5,066,639      $ 17,471,390       $ 17,175,921       $ 361,170       $ (22,575,269   $ 17,149,757   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDER’S EQUITY

                 

Current liabilities:

                 

Accounts payable and accrued liabilities

   $ 2,536      $ —        $ 87,237       $ 86,927       $ 25,062       $ (87,587   $ 114,175   

Accrued interest payable

     9,575        77,102        243,347         1,939         152         (1,939     330,176   

Current portion of long-term debt

     —          —          899,991         —           24,418         —          924,409   

Deferred satellite performance incentives

     —          —          20,328         20,328         1,521         (20,328     21,849   

Other current liabilities

     —          —          144,573         143,208         3,054         (143,208     147,627   

Intercompany payables

     496,191        1,068        —           —           —           (497,259     —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     508,302        78,170        1,395,476         252,402         54,207         (750,321     1,538,236   

Long-term debt, net of current portion

     335,473        5,307,986        9,310,367         —           12,209         —          14,966,035   

Deferred satellite performance incentives, net of current portion

     —          —          166,357         166,357         1,713         (166,357     168,070   

Deferred revenue, net of current portion

     —          —          841,382         841,382         3,209         (841,382     844,591   

Deferred income taxes

     —          —          264,643         264,643         17,598         (258,938     287,946   

Accrued retirement benefits

     —          —          291,602         291,602         —           (291,602     291,602   

Other long-term liabilities

     —          39,659        235,661         173,250         15,196         (173,250     290,516   

Shareholder’s equity (deficit):

                 

Ordinary shares

     5,000        669,036        4,322,518         9,085,852         24         (14,077,430     5,000   

Other shareholder’s equity (deficit)

     (1,198,869     (1,028,212     643,384         6,100,433         257,014         (6,015,989     (1,242,239
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholder’s equity

   $ (350,094   $ 5,066,639      $ 17,471,390       $ 17,175,921       $ 361,170       $ (22,575,269   $ 17,149,757   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

(Certain totals may not add due to the effects of rounding)

 

28


Table of Contents

INTELSAT INVESTMENTS S.A. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2012

(in thousands)

 

     Intelsat
Investments
S.A.
    Intelsat
Luxembourg
    Intelsat
Jackson
     Jackson
Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     Consolidation
and
Eliminations
    Consolidated  

ASSETS

                 

Current assets:

                 

Cash and cash equivalents

   $ 42      $ 91      $ 133,379       $ 131,107       $ 53,934       $ (131,107   $ 187,446   

Receivables, net of allowance

     23        4        229,667         229,298         89,111         (229,298     318,805   

Deferred income taxes

     —          —          92,806         92,806         1,973         (92,806     94,779   

Prepaid expenses and other current assets

     525        —          27,871         27,821         12,923         (30,432     38,708   

Intercompany receivables

     —          6,838        612,341         3,178,865         —           (3,798,044     —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     590        6,933        1,096,064         3,659,897         157,941         (4,281,687     639,738   

Satellites and other property and equipment, net

     —          —          6,111,636         6,111,636         259,650         (6,127,730     6,355,192   

Goodwill

     —          —          6,780,827         6,780,827         —           (6,780,827     6,780,827   

Non-amortizable intangible assets

     —          —          2,458,100         2,458,100         —           (2,458,100     2,458,100   

Amortizable intangible assets, net

     —          —          651,087         651,087         —           (651,087     651,087   

Investment in affiliates

     (403,878     5,085,284        213,001         213,001         10         (5,106,408     1,010   

Other assets

     9,064        84,402        296,410         184,574         20,138         (178,821     415,767   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ (394,224   $ 5,176,619      $ 17,607,125       $ 20,059,122       $ 437,739       $ (25,584,660   $ 17,301,721   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDER’S EQUITY

                 

Current liabilities:

                 

Accounts payable and accrued liabilities

   $ 2,289      $ —        $ 168,823       $ 168,248       $ 24,170       $ (170,858   $ 192,672   

Accrued interest payable

     3,830        227,953        135,623         2,288         270         (2,288     367,676   

Current portion of long-term debt

     —          —          32,180         —           24,418         —          56,598   

Deferred satellite performance incentives

     —          —          20,224         20,224         1,255         (20,224     21,479   

Other current liabilities

     —          —          153,857         146,611         4,257         (147,944     156,781   

Intercompany payables

     504,460        —          —           —           114,719         (619,179     —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     510,579        227,953        510,707         337,371         169,089         (960,493     795,206   

Long-term debt, net of current portion

     328,238        5,307,986        10,186,086         —           24,418         —          15,846,728   

Deferred satellite performance incentives,

net of current portion

     —          —          170,684         170,684         1,979         (170,684     172,663   

Deferred revenue, net of current portion

     —          —          845,327         845,327         3,498         (859,991     834,161   

Deferred income taxes

     —          —          266,340         266,340         14,627         (260,634     286,673   

Accrued retirement benefits

     —          —          299,187         299,187         —           (299,187     299,187   

Other long-term liabilities

     —          41,760        243,510         176,193         14,925         (176,193     300,195   

Shareholder’s equity (deficit):

                 

Ordinary shares

     5,000        669,036        4,322,518         8,773,388         24         (13,764,966     5,000   

Other shareholder’s equity (deficit)

     (1,238,041     (1,070,116     762,766         9,190,632         209,179         (9,092,512     (1,238,092
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholder’s equity

   $ (394,224   $ 5,176,619      $ 17,607,125       $ 20,059,122       $ 437,739       $ (25,584,660   $ 17,301,721   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

(Certain totals may not add due to the effects of rounding)

 

29


Table of Contents

INTELSAT INVESTMENTS S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2013

(in thousands)

 

     Intelsat
Investments
S.A.
    Intelsat
Luxembourg
    Intelsat
Jackson
    Jackson
Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Consolidation
and
Eliminations
    Consolidated  

Revenue

   $ —        $ —        $ 594,972      $ 594,972      $ 173,932      $ (708,749   $ 655,127   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

              

Direct costs of revenue (excluding depreciation and amortization)

     —          —          68,977        68,977        96,695        (137,003     97,646   

Selling, general and administrative

     763        6,447        37,519        36,887        13,223        (36,887     57,952   

Depreciation and amortization

     —          —          178,245        178,245        9,487        (178,566     187,411   

Losses on derivative financial instruments

     —          —          1,865        —          —          —          1,865