20-F 1 d20f.htm FORM 20-F Form 20-F
Table of Contents

As filed with the Securities and Exchange Commission on 29 April 2009

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 20-F

 

 

(Mark One)

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

   For the fiscal year ended 31 December 2008

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

Commission file number 333-115865

 

Inmarsat Finance plc

(Exact name of Registrant as specified in its charter)

 

Inmarsat Finance plc

(Translation of Registrant’s name into English)

 

England and Wales

(Jurisdiction of incorporation or organization)

 

99 City Road

London EC1Y 1AX

United Kingdom

(Address of principal executive office)

 

 

 

Commission file number 333-115865-06

 

Inmarsat Group Limited

(Exact name of Registrant as specified in its charter)

 

Inmarsat Group Limited

(Translation of Registrant’s name into English)

 

England and Wales

(Jurisdiction of incorporation or organization)

 

99 City Road

London EC1Y 1AX

United Kingdom

(Address of principal executive office)

 

 

 

Commission file number 333-115865-05

 

Inmarsat Investments Limited

(Exact name of Registrant as specified in its charter)

 

Inmarsat Investments Limited

(Translation of Registrant’s name into English)

 

England and Wales

(Jurisdiction of incorporation or organization)

 

99 City Road

London EC1Y 1AX

United Kingdom

(Address of principal executive office)

 

 


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Commission file number 333-115865-04

 

Inmarsat Ventures Limited

(Exact name of Registrant as specified in its charter)

 

Inmarsat Ventures Limited

(Translation of Registrant’s name into English)

 

England and Wales

(Jurisdiction of incorporation or organization)

 

99 City Road

London EC1Y 1AX

United Kingdom

(Address of principal executive office)

 

 

 

Commission file number 333-115865-03

 

Inmarsat Global Limited

(Exact name of Registrant as specified in its charter)

 

Inmarsat Global Limited

(Translation of Registrant’s name into English)

 

England and Wales

(Jurisdiction of incorporation or organization)

 

99 City Road

London EC1Y 1AX

United Kingdom

(Address of principal executive office)

 

 

 

Commission file number 333-115865-02

 

Inmarsat Leasing (Two) Limited

(Exact name of Registrant as specified in its charter)

 

Inmarsat Leasing (Two) Limited

(Translation of Registrant’s name into English)

 

England and Wales

(Jurisdiction of incorporation or organization)

 

99 City Road

London EC1Y 1AX

United Kingdom

(Address of principal executive office)

 

 

 

Commission file number 333-115865-01

 

Inmarsat Launch Company Limited

(Exact name of Registrant as specified in its charter)

 

Inmarsat Launch Company Limited

(Translation of Registrant’s name into English)

 

Isle of Man

(Jurisdiction of incorporation or organization)

 

15-19 Athol Street

Douglas 1M1 1LB

Isle of Man

(Address of principal executive office)

 

Rupert Pearce

Inmarsat

99 City Road

London EC1Y 1AX

United Kingdom

Tel +44 (0) 20 77281000

Fax +44 (0) 20 77281044

(Name, Telephone, Email and/or Facsimile and Address of Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Exchange on which Registered

None   None

 

 


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Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

7 5/8% Senior Notes due 2012

 

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

Inmarsat Finance plc

 

    Class    

 

Number of shares outstanding as of
31 December 2008

Ordinary Shares, par value £1.00   50,000 ordinary shares

 

Inmarsat Group Limited

 

    Class    

 

Number of shares outstanding as of
31 December 2008

Ordinary Shares, par value € 0.0005   610,239,894 ordinary shares

 

Inmarsat Investments Limited

 

    Class    

 

Number of shares outstanding as of
31 December 2008

Ordinary Shares, par value € 0.0005   534,600,000 ordinary shares

 

Inmarsat Ventures Limited

 

    Class    

 

Number of shares outstanding as of
31 December 2008

Ordinary Shares, par value £0.10

Preference Shares, par value £1.00

 

100,345,801 ordinary shares and 1 special rights

preference share

 

Inmarsat Global Limited

 

    Class    

 

Number of shares outstanding as of
31 December 2008

Ordinary Shares, par value £1.00   100,000,002 ordinary shares

 

Inmarsat Leasing (Two) Limited

 

    Class    

 

Number of shares outstanding as of
31 December 2008

Ordinary Shares, par value £1.00   1,061 ordinary shares

 

Inmarsat Launch Company Limited

 

    Class    

 

Number of shares outstanding as of
31 December 2008

Ordinary Shares, par value $1.00   4,000 ordinary shares

 

Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes  ¨    No  x

 

If this report is an annual or transition report, indicate by check mark if each registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

Yes  ¨    No  x

 

Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days.

 

Yes  x    No  ¨

 

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing

 

¨  U.S. GAAP    ¨  International Financial Reporting Standards as issued by the International Accounting Standards Board    x  Other

 

Indicate by check mark which financial statement item the registrants have elected to follow.

 

Item 17  x    Item 18  ¨

 

If this is an annual report, indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes  ¨    No  x

 

 

 


Table of Contents

Table Of Contents

 

      Page

GENERAL INFORMATION

   1

FORWARD-LOOKING STATEMENTS

   1

PRESENTATION OF FINANCIAL INFORMATION AND CERTAIN OTHER DATA

   1

GLOSSARY OF TERMS

   3
   PART I   

ITEM 1.

   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS    7

ITEM 2.

   OFFER STATISTICS AND EXPECTED TIMETABLE    7

ITEM 3.

   KEY INFORMATION    7
   SELECTED FINANCIAL DATA    7
   EXCHANGE RATE INFORMATION    8
   RISK FACTORS    9

ITEM 4.

   INFORMATION ON THE COMPANY    21
   HISTORY AND DEVELOPMENT    21
   BUSINESS OVERVIEW    23
   REGULATION    36
   ORGANIZATIONAL STRUCTURE    43
   PROPERTY, PLANT AND EQUIPMENT    44

ITEM 4A.

   UNRESOLVED STAFF COMMENTS    44

ITEM 5.

   OPERATING AND FINANCIAL REVIEW AND PROSPECTS    45
   CRITICAL ACCOUNTING POLICIES    45
   OPERATING RESULTS    49
   LIQUIDITY AND CAPITAL RESOURCES    55
   CAPITAL EXPENDITURES    57
   CONTRACTUAL OBLIGATIONS    58
   RESEARCH AND DEVELOPMENT    59
   OFF-BALANCE SHEET ARRANGEMENTS    59
   TREND INFORMATION    59

ITEM 6.

   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES    60
   DIRECTORS AND SENIOR MANAGEMENT    60
   BOARD PRACTICES    62
   COMPENSATION    64
   EMPLOYEES    66
   SHARE OWNERSHIP    67

ITEM 7.

   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS    73
   MAJOR SHAREHOLDERS    73
   RELATED PARTY TRANSACTIONS    74

ITEM 8.

   FINANCIAL INFORMATION    75

ITEM 9.

   THE OFFER AND LISTING    75


Table of Contents
           Page

ITEM 10.

   ADDITIONAL INFORMATION    75
   MEMORANDUM AND ARTICLES OF ASSOCIATION    75
   MATERIAL CONTRACTS    77
   DOCUMENTS ON DISPLAY    100

ITEM 11.

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

   100

ITEM 12.

   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES    102
   PART II   

ITEM 13.

   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES    103

ITEM 14.

  

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

   103

ITEM 15.

   CONTROLS AND PROCEDURES    103

ITEM 16A.

   AUDIT COMMITTEE FINANCIAL EXPERT    104

ITEM 16B.

   CODE OF ETHICS    104

ITEM 16C.

   PRINCIPAL ACCOUNTANT FEES AND SERVICES    104
   PART III   

ITEM 17.

   FINANCIAL STATEMENTS    105

ITEM 18.

   FINANCIAL STATEMENTS    105

ITEM 19.

   EXHIBITS    105

SIGNATURES

   109

INDEX TO FINANCIAL STATEMENTS AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION

   F-1


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GENERAL INFORMATION

 

In this Annual Report, the terms “we”, “us”, “our”, “our company”, “Company” and “Group” refer, as the context requires, either individually or collectively, to Inmarsat Group Limited (“Inmarsat Group”) together with all of its consolidated subsidiaries.

 

We publish our financial statements in United States dollars, which are referred to as “Dollars”, “US dollars” and “US$” and “$”.

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report contains “forward-looking statements” as defined in Section 21E of the US Securities Exchange Act of 1934. These forward-looking statements include all matters that are not historical facts. Statements containing the words “believe,” “expect,” “intend,” “plan,” “may,” “estimate” or, in each case, their negative and words of similar meaning are forward-looking.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual financial condition, results of operations and cash flows, and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this annual report. In addition, even if our financial condition, results of operations and cash flows, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this annual report, those results or developments may not be indicative of results or developments in subsequent periods.

 

As a consequence, our current plans, anticipated actions and future financial condition, results of operations and cash flows, as well as the anticipated development of the industry in which we operate, may differ from those expressed in any forward-looking statements made by us or on our behalf. We urge you to read this Annual Report, including the sections entitled Item 3 “Key Information—Risk Factors,” Item 4 “Information on the Company—Business Overview” and Item 5 “Operating and Financial Review and Prospects” for a more complete discussion of the factors that could affect our future performance and the industry in which we operate. These factors and this cautionary statement expressly qualify all forward-looking statements.

 

We do not intend to update or revise any forward-looking statements made herein to reflect actual results or changes in assumptions, future events or otherwise. You are cautioned not to rely unduly on forward-looking statements when evaluating the information presented in this Annual Report.

 

PRESENTATION OF FINANCIAL INFORMATION AND CERTAIN OTHER DATA

 

Financial Data

 

Consolidated financial information for the years ended 31 December 2008 included herein has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Unless otherwise indicated, historical consolidated financial information for the years ended 31 December 2007, 2006, 2005 and 2004 included herein has been prepared in accordance with IFRS as adopted by the European Union (“EU”) and IFRS as issued by the IASB. Inmarsat Investments Limited, Inmarsat Ventures Limited, Inmarsat Global Limited, Inmarsat Leasing (Two) Limited, Inmarsat Launch Company Limited and Inmarsat Finance plc have been prepared in accordance with UK GAAP as these companies have not converted to IFRS. For a discussion of principal differences between UK GAAP and US GAAP as they apply to these group companies see the following notes to the consolidated financial statements of:

 

   

Note 32 Inmarsat Investments Limited,

 

   

Note 31 Inmarsat Ventures Limited,

 

   

Note 30 Inmarsat Global Limited

 

   

Note 20 Inmarsat Leasing (Two) Limited

 

   

Note 16 Inmarsat Launch Company Limited

 

   

Note 15 Inmarsat Finance plc

 

Some of the financial information in this Annual Report has been rounded and, as a result, the totals of the data presented in this Annual Report may vary slightly from the actual arithmetic totals of such information.

 

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Non-GAAP Financial Measures

 

EBITDA

 

EBITDA (defined as profit before net interest payable, taxation and depreciation and amortization) and the related ratios presented in this Annual Report are supplemental measures of our performance and liquidity that are not required by, or presented in accordance with IFRS. Furthermore, EBITDA is not a measurement of our financial performance under IFRS and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with IFRS.

 

We believe EBITDA among other measures facilitates operating performance comparisons from period to period and management decision making. It also facilitates operating performance comparisons from company to company. EBITDA as a performance measure eliminates potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of tangible assets (affecting relative depreciation expense). We also present EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties in evaluating similar issuers, the vast majority of which present EBITDA when reporting their results.

 

Nevertheless, EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for analysis of, our results of operations, as reported under IFRS. Some of these limitations are:

 

   

it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

it does not reflect changes in, or cash requirements for, our working capital needs;

 

   

it does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements;

 

   

it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows; and

 

   

other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure.

 

Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our IFRS results and using EBITDA measures only supplementally. See Item 5—“Operating and Financial Review and Prospects” and the consolidated financial statements contained elsewhere in this Annual Report.

 

Free cash flow

 

We define free cash flow (“FCF”) as net cash generated from operating activities less capital expenditure, capitalized operating costs, net interest and cash tax payments. Other companies may define FCF differently and, as a result, our measure of FCF may not be directly comparable to the FCF of other companies.

 

FCF is a supplemental measure of our performance and liquidity under IFRS that is not required by, or presented in accordance with IFRS. Furthermore, FCF is not a measurement of our performance or liquidity under IFRS and should not be considered as an alternative to net income and operating income as a measure of our performance and net cash generated from operating activities as a measure of our liquidity, or any other performance measures derived in accordance with IFRS.

 

We believe FCF is an important financial measure for use in evaluating our financial performance and liquidity, which measures our ability to generate additional cash from our business operations. We believe it is important to view FCF as a measure that provides supplemental information to our entire statement of cash flows.

 

Net Borrowings

 

Net Borrowings is defined as total borrowings less cash at bank and in hand less short term deposits with an original maturity of less than three months. We use Net Borrowings as a part of our internal debt analysis. We believe that Net Borrowings is a useful measure as it indicates the level of borrowings after taking account of the financial assets within our business that could be utilized to pay down the outstanding borrowings. In addition the Net Borrowings balance provides an indication of the Net Borrowings on which we are required to pay interest. See Item 5—“Operating and Financial Review and Prospects” and the consolidated financial statements contained elsewhere in this Annual Report.

 

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GLOSSARY OF TERMS

 

active terminals    active terminals are the number of subscribers or terminals that have been used to access commercial services (except ACeS handheld terminals) at any time during the preceding twelve-month period and registered at 31 December. Active ACeS handheld terminals are the average number of terminals active on a daily basis during the period.
Americas    consisting of the continents of North America and South America with their associated islands and regions.
analogue    a method of storing, processing or transmitting information through a continuous varied (rather than pulsed) signal.
Asia Pacific    the area encompassing littoral East Asia, South Asia, Southeast Asia and Australasia near the Pacific Ocean, plus the states in the ocean itself (Oceania).
ATC services    ancillary terrestrial component services which combine terrestrial and satellite communications services and mobile terminals.
atmospheric interference    the attenuation of radio frequency signals due to the presence of moisture in the atmosphere.
avionics    electronics designed for use in aerospace vehicles.
bandwidth    a range of frequencies, expressed in Hertz (“Hz”) occupied by a modulated carrier or the range of frequencies which can be transmitted through a communications system. Bandwidth is one measure of the information carrying capacity of a transponder. The wider the bandwidth, the more information that can be transmitted.
beam    the directed electromagnetic rays emanating from a satellite or ground station. On satellites, typically refers to aggregates of these rays such as a China (coverage) beam or global (coverage) beam.
BGAN    our broadband global area network, including our land BGAN, aeronautical SwiftBroadband and maritime FleetBroadband services (collectively also referred to as broadband services).
BGAN BSS    BGAN Business Support System.
bits    the smallest unit of data in computing, with a value of either 0 or 1.
broadband    high capacity bandwidth.
C-band    in satellite communications used to refer to downlink frequencies between 3.4 GHz and 4.2 GHz and uplink frequencies between 5.85 GHz and 7.075 GHz. Often referred to as 4/6 GHz.
cellular    public mobile radio telecommunications service. Cellular systems are based on multiple base stations, or “cells”, that permit efficient frequency reuse and on software that permits the system to band mobile cells from cell to cell as subscribers move through the cellular service area.
circuit switched technology    technology that allows data connections that can be initiated when needed and terminated when communication is complete.
db    decibel, a unit for expressing the ratio of two amounts of electric or acoustic signal power equal to ten times the common logarithm of this ratio, which is often used as a measure of a satellite’s power.
Digital    referring to a method of storing, processing, or transmitting information through a pulsed (rather than continuously varied) signal.
downlink    the receiving portion of a satellite circuit extending from the satellite to the earth.

 

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earth station    the dishes, receivers, transmitters and other equipment needed on the ground to transmit and receive satellite communications signals.
EIRP    equivalent isotopic radiated power, a standard of comparison of performance of radio transmitters.
EMEA    Europe, the Middle East and Africa
FCC    Federal Communications Commission.
fixed satellite service or FSS    a radio communication service between earth stations at specified fixed points when one or more satellites are used; in some cases this service includes satellite-to-satellite links or feeder links for other space radio communications services.
FTM    fixed to mobile, which are calls where terrestrial users call satellite mobile phones.
GEO    geostationary orbit, which is orbit at an altitude of 36,000 km, where satellites turn at the same angular speed as the earth and thus appear to be on a fixed spot.
GHz    gigahertz, a measure of frequency. One billion cycles per second.
GEO orbit    the orbit of a geosynchronous satellite whose circular and direct orbit lies in the plane of the earth’s equator.
GMDSS    global maritime distress and safety system which is a system designed to automate a vessel’s radio distress alert, eliminating the need for manual watchkeeping of distress channels.
GPRS    General Packet Radio Service.
GPS    Global Positioning System.
GSM    Global System for Mobile communications.
GSPS    Global Satellite Phone Service.
hertz    unit of frequency equal to number of cycles per second.
ICAO    International Civil Aviation Organization.
IMSO    International Mobile Satellite Organization.
Insat    Indian National Satellite.
IP    Internet Protocol, the method or protocol by which data is sent from one computer to another on the Internet.
ISDN    Integrated Services Digital Network. Digital telephone line typically offering data rates of 64 kbps or multiples thereof.

International Telecommunication Union or ITU

   ITU is the United Nations treaty organization responsible for worldwide cooperation and standardization in the telecommunication sector. The ITU holds periodic conferences at which telecommunications issues of global importance are discussed; the main conferences are the World Radio Conference (“WRC”) and the World Telephone and Telegraph Conference (“WTTC”).
Ka-band    in satellite communications, used to refer to downlink frequencies between 18 GHz and 22 GHz and uplink frequencies between 27 GHz and 31 GHz. Often referred to as 20/30 GHz.
kbps    kilobits per second, a unit of data transmission speed.
Ku-band    in satellite communications, used to refer to downlink frequencies between 10.7 GHz and 12.74 GHz and uplink frequencies between 13.75 GHz and 14.8 GHz. Often referred to as 11/14 or 12/14 GHz.

 

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LAN    local area network, which is a group of computers and associated devices that share a common communications line or wireless link and typically share the resources of a single processor or server within a small geographic area.
Latency    signal transmission delay, which is dependent on several factors, including the transmission distance propagation speed, bandwidth and encoding/decoding methods used.
L-band    in satellite communications, used to refer to uplink and downlink frequencies between satellites and mobile users between 1.5 GHz and 1.6 GHz.
LEO    low-earth orbit of up to 800 km above the earth.
LES    Land Earth Station, which is a facility that routes Existing and Evolved service calls to and from mobile stations via satellite to and from terrestrial telephone networks.
MEO    medium-earth orbit between 800 km and 12,000 km above the earth.
MHz    megahertz, a measure of frequency. One million cycles per second.
Microwave    radio frequency carrier waves with wavelengths of less than one metre-frequencies above 300 MHz. Typically used to refer to frequencies above 1 GHz, but nominally includes all of UHF.
Model Code    Model Code for share transactions as required by Financial Services Authority.
MOO    a memorandum order and opinion from the FCC.
MSV    Mobile Satellite Ventures Corp. (Renamed SkyTerra “SKYT”)
OFCOM    the UK Office of Communications.
operational life    the time for which a satellite is capable of operating in its allotted position. The expected end of a satellite’s in-orbit operational life is mainly based on the period during which the satellite’s on-board fuel permits proper station-keeping maneuvers for the satellite.
orbital slots    for GEO satellites these are points on the GEO arc where satellites are permitted to operate. Orbital slots are designated by both location and frequency band.
PDA    personal digital assistant, which is typically a handheld device that combines computing, telephone/fax, internet and networking functionality.
PIK    pay in kind (interest added to loan principal rather than paid in cash)
QoS    Quality of Service, a networking term that specifies a guaranteed level of service for a specified product.
radio frequency    a frequency that is higher than the audio frequencies but below the infrared frequencies, usually above 20 KHz.
R-BGAN    our regional broadband global area network.
RSA    recognized spectrum access.
SAS    satellite access station
S-band    mobile satellite band between 1.98 and 2.20 GHz
Signal    a physical, time-dependent energy value used for the purpose of conveying information through a transmission line.
SIM-card    Subscriber Identity Module card, as used in existing cellular phones.
SKYT    SkyTerra (formerly MSV)

 

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Spectrum    the range of electromagnetic radio frequencies used in transmission of voice, data and television.
SPS    our satellite phone service.
TT&C    tracking, telemetry and command station, a land-based facility that monitors and controls the positioning, attitude and status of a satellite in orbit.
telemetry    radio transmission of coded or analogue data from a satellite to a ground station.
Transponder    a microwave repeater on a satellite which provides a discrete path to receive communications signals, translate and amplify such signals and retransmit them to earth or another satellite.
uplink    in satellite communications, the signal from the earth station to the space station (satellite).
VOIP    voice over internet protocol. This refers to a set of facilities for managing the delivery of voice information using internet protocol.
VPN    virtual private network, a network that is constructed using public wires to connect nodes.
VSAT    Very Small Aperture Terminal. A system for the reception and transmission of satellite signals using a small dish diameter, typically fixed and requiring a license to use.

 

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PART I

 

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable

 

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable

 

ITEM 3.    KEY INFORMATION

 

SELECTED FINANCIAL DATA

 

The financial statements are prepared in accordance with accounting policies that are in conformity with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and IFRS as issued by the International Accounting Standards Board (“IASB”). Pursuant to SEC Release 33-8879 eliminating the requirement for foreign private issuers to reconcile their financial statements to US GAAP, no US GAAP reconciliation has been presented.

 

You should read the table below in conjunction with Item 5—“Operating and Financial Review and Prospects” and the historical consolidated financial statements elsewhere in this Annual Report.

 

     2008     2007     2006     2005     2004  
     (US$ in millions)  

Income Statement

          

Revenue

   634.7     557.2     500.1     491.1     480.7  

Employee benefit costs

   (104.2 )   (93.7 )   (92.2 )   (96.5 )   (87.2 )

Network and satellite operations costs

   (39.7 )   (33.8 )   (31.1 )   (38.8 )   (50.0 )

Other operating costs

   (83.5 )   (64.7 )   (57.1 )   (63.6 )   (67.4 )

Work performed by the Group and capitalized

   24.0     18.5     12.0     25.2     25.8  

Losses on termination of subsidiary undertakings

               (1.1 )    

Gain on disposal of property

                   42.6  

Depreciation and amortization

   (167.0 )   (174.2 )   (156.8 )   (106.5 )   (124.1 )
                              

Operating profit

   264.3     209.3     174.9     209.8     220.4  

Interest receivable and similar income

   11.2     5.2     8.2     10.6     3.9  

Interest payable and similar charges

   (83.3 )   (86.6 )   (92.9 )   (167.2 )   (167.5 )
                              

Net interest payable

   (72.1 )   (81.4 )   (84.7 )   (156.6 )   (163.6 )
                              

Profit before income tax

   192.2     127.9     90.2     53.2     56.8  

Income tax credit/(expense)

   164.2     (29.0 )   37.8     (18.3 )   (15.4 )
                              

Profit for the year

   356.4     98.9     128.0     34.9     41.4  
                              

Other Financial Data

          

EBITDA1

   431.3     383.5     331.7     316.3     344.5  

Cash inflow from operating activities

   425.0     377.0     330.7     336.9     306.2  

Cash flow for capital expenditure

   (211.1 )   (209.9 )   (114.4 )   (204.3 )   (140.1 )

Cash flow used in investing activities

   (213.6 )   (230.4 )   (132.4 )   (67.6 )   (176.5 )

Dividends paid

   (159.6 )   (135.3 )   (101.4 )   (24.7 )    

Cash flow used in financing activities

   (197.5 )   (154.4 )   (193.0 )   (459.9 )   (136.5 )

Increase/(decrease) in cash and cash equivalents

   14.3     (8.1 )   5.1     (191.2 )   (6.5 )

Balance Sheet

          

Total assets

   2,131.5     1,998.1     1,979.2     2,029.1     2,192.8  

Total liabilities

   1,611.2     1,648.0     1,589.4     1,673.4     2,162.0  

Share capital

   346.1     346.5     346.5     346.5     34.5  

Shareholders’ equity

   520.3     350.1     389.8     355.7     30.8  

 

(1) EBITDA is a non GAAP performance measure and is defined as profit before taxation, net interest payable and depreciation and amortization. For a discussion of EBITDA please refer to “Presentation of Financial Information and Certain Other Data—Non-GAAP Financial Measures.”

 

(2) Set forth below is a reconciliation of profit for the year to EBITDA.

 

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     2008     2007    2006     2005    2004
     (US$ in millions)

Profit for the year

   356.4     98.9    128.0     34.9    41.4

Add back:

            

Income tax (credit)/expense

   (164.2 )   29.0    (37.8 )   18.3    15.4

Net interest payable

   72.1     81.4    84.7     156.6    163.6

Depreciation and amortization

   167.0     174.2    156.8     106.5    124.1
                          

EBITDA

   431.3     383.5    331.7     316.3    344.5
                          

 

EXCHANGE RATE INFORMATION

 

The following table shows for the dates and periods indicated information concerning the noon buying rate in The City of New York for cable transfers in pounds sterling, which we refer to in this annual report as sterling, as certified for customs purposes by the Federal Reserve Bank of New York and expressed in US dollars per £1.00:

 

Year

   Year End    Average(1)    High    Low

2004

   1.92    1.83    1.95    1.76

2005

   1.72    1.82    1.93    1.71

2006

   1.96    1.84    1.98    1.72

2007

   1.98    2.01    2.11    1.92

2008

   1.46    1.85    2.04    1.44

 

(1) The average of the noon buying rates on the last day of each month during the year.

 

The following table shows the high and low noon buying rates for each month during the previous six months, expressed in dollars per £1.00.

 

Month

   High    Low

October 2008

   1.79    1.53

November 2008

   1.64    1.46

December 2008

   1.57    1.44

January 2009

   1.54    1.35

February 2009

   1.50    1.41

March 2009

   1.46    1.37

 

Unless otherwise indicated, the exchange rate used in this Annual Report to convert sterling into dollars (and dollars into sterling) is the noon buying rate as of 31 December 2008 stated above. The noon buying rate as of 17 April 2009 was US$1.46 per £1.00.

 

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RISK FACTORS

 

Risks Relating to Our Business include the following:

 

We rely on third-party distribution partners and service providers to sell the majority of our services to end-users. If our independent distribution partners and service providers were to fail to market or distribute our services effectively or fail to offer our services at prices which are competitive, our revenues, profitability, liquidity and brand image could be adversely affected.

 

We currently sell the majority of our services to third-party distribution partners, many of whom operate the land earth stations that transmit and receive those services to and from our satellites (although now that our BGAN services have been launched all traffic relating to those services are handled by our own land earth stations in the Netherlands, Italy and Hawaii, the SPS service is handled by our land earth stations in Subic Bay, Philippines and Fucino, Italy, and following the acquisition of Stratos on 15 April 2009 we now operate our own land earth stations for existing and evolved services). These distribution partners then market and distribute our services including our BGAN services to end-users, either directly or through other distribution partners and service providers. For more information on the Distribution Agreements, see “Item 10: Additional Information—Material Contracts.”

 

As a result of these arrangements, we are dependent on the performance of our independent distribution partners to generate a substantial portion of our revenues. If our independent distribution partners were to fail to market or distribute our services effectively, or if they offered our services at prices which were not competitive, our revenues, profitability, liquidity and brand image could be adversely affected.

 

Sales to our key distribution partners represent a significant portion of our revenues and the loss of any of these distribution partners could adversely affect our revenues, profitability and liquidity.

 

For 2008, two distribution partners, Stratos and Vizada, accounted for 80.8% of our mobile satellite communications revenues. Sales to Stratos and Vizada represented 43.6% and 37.2%, respectively, of our mobile satellite communications services revenue during 2008. The loss of any key independent distribution partners could materially affect our routes to market, reduce customer choice or represent a significant bad debt risk. Further mergers among distribution partners could also increase our reliance on a few key distributors of our services.

 

The global communications industry is highly competitive. It is likely that we will face significant competition in the future from other network operators, which may adversely affect end-user take-up of our services and our revenues.

 

The global communications industry is highly competitive. We face competition today from a number of communications technologies in the various target markets for our services. It is likely that we will continue to face increasing competition from other network operators in some or all of our target market segments in the future, particularly from satellite network operators. Competition from Iridium, a global mobile satellite communications services operator, has been increasing, particularly with respect to low speed data and voice services. Iridium launched a competing maritime service to the low end of the FleetBroadband capability in 2008. In addition, we also face regional competition for low-speed data and voice services from Thuraya and SkyTerra (regional MSS operators) and to a lesser extent other regional mobile satellite communication services operators, which has influenced the price at which our distribution partners and service providers offer our services. Thuraya offers a 144kbps mobile data communications service on a regional basis and, following the successful launch by Thuraya in January 2008 of a satellite covering the Asian region, competition from Thuraya is expected to increase. Two other companies plan to deploy mobile satellite services in North America in the near future, ICO Global Communications Inc. in the United States (which already launched their satellite in April 2008, but do not have services available commercially as yet) and Terrestar Networks Inc. in the United States and Canada, in each case using the S-band, which has more contiguous bandwidth than the L-band in which we operate and may accommodate higher-speed multimedia services.

 

Communications providers who operate private networks using very small aperture terminals (“VSAT”) or hybrid systems also continue to target users of mobile satellite services. Technological innovation in VSAT terminals, together with increased C-band and Ku-band coverage and commoditization, have increased the competitiveness of VSAT and hybrid systems in some traditional mobile satellite communications services sectors, including the maritime and aeronautical sectors. Businesses such as Vizada, KVH, CapRock, Sealink, SeaMobile and ShipEquip deployed mobile VSAT systems in 2008 in direct competition with our maritime and aeronautical products. Furthermore, the gradual extension of terrestrial wireline and wireless communications networks to areas not currently served by them may reduce demand for some of our services in those areas.

 

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Our substantial debt could adversely affect our financial condition or results of operations.

 

We have a significant amount of debt and we may incur additional debt. The principal amount of our total long-term consolidated debt was US$560.4m as at 31 December 2008 (excluding US$766.9m principal amount of subordinated shareholder funding loan). In addition, we have a further US$300.0m Revolving Committed Facility (also referred to as the “Revolving Credit Facility”) under the Senior Facility Agreement (also referred to as the “Senior Credit facility”) of which we have drawn US$140.0m as at 31 December 2008.

 

The amount of our debt could:

 

   

require us to dedicate a substantial portion of our cash flows from operations to payments on our debt, which will reduce our cash flow available to fund capital expenditure, working capital, research and development and other general corporate purposes;

 

   

place us at a competitive disadvantage compared to those of our competitors that have less debt than we do;

 

   

limit our flexibility in planning for, or reacting to, changes to our industry;

 

   

increase our vulnerability, and reduce our flexibility to respond, to general and industry specific adverse economic conditions; and

 

   

limit our ability to borrow additional funds, increase the cost of any such borrowing and/or limit our ability to raise equity funding.

 

We may incur substantial additional debt in the future. The terms of our Senior Facility Agreement and the indenture governing our Senior Notes restrict (or will restrict) our ability to incur, but do not prohibit us from incurring, additional debt. If we were to incur additional debt, the related risks we now face could increase.

 

We may not retain sufficient rights to the spectrum required to operate our satellite system to its expected capacity or to take full advantage of future business opportunities.

 

We must retain rights to use sufficient L-band and C-band spectrum necessary for the transmission of signals between our satellites and end-user terminals and between our satellites and our control stations. Our access to C-band spectrum is obtained through frequency coordination under ITU procedures. Our access to L-band spectrum is also obtained through frequency coordination under ITU rules. The L-band coordination is governed, in part, by sharing arrangements with other satellite operators that are re-evaluated and re-established through two annual, regional multilateral meetings of those satellite operators—one for operators whose satellites cover North America, and a second for those which cover Europe, Africa, Asia and the Pacific.

 

We have agreed spectrum allocations for 2009 in the Europe, Africa, Asia and Pacific operators’ review meeting. We believe this agreement provides sufficient spectrum to support our existing services for the duration of the agreement. As part of our business planning we may need to apply for additional spectrum to support our future services and existing services growth.

 

During 2007 we held discussions with Mobile Satellite Ventures LP, Mobile Satellite Ventures (Canada) Limited and SkyTerra Communications, Inc. (together “SkyTerra”) about the efficient re-use of our respective L-band spectrum across the Americas and we announced in December 2007 that a cooperation agreement for spectrum re-use was signed between us and SkyTerra. This agreement includes conditional provisions for the co-ordination of the parties’ respective existing and planned satellites serving the Americas and for the reorganization of our spectrum and that of SkyTerra over the Americas to provide contiguous spectrum in larger blocks for both our operations and efficient re-use of L-band spectrum. The purpose of the agreement is to increase spectrum efficiency and protect both Mobile Satellite Communication Services (“MSS”) and Ancillary Terrestrial Component (“ATC”) operations from inter-system interference. Additionally, the agreement sets up a framework for commercial cooperation between the parties to support the exploitation by SkyTerra of hybrid MSS-ATC services in North America.

 

Competition for L-band and C-band spectrum from new operators or for new services or business opportunities could make it more difficult for us to retain rights to L-band and C-band spectrum or to take full advantage of future business opportunities by acquiring further L-band and C-band spectrum. If we were unable to retain sufficient rights to L-band and C-band spectrum, our ability to provide our services in the future could be prejudiced, which could have an adverse effect on our business and results of operations.

 

Use by our competitors of L-band spectrum for terrestrial services could interfere with our services.

 

On 29 January 2003, the Federal Communications Commission (the “FCC”), promulgated a general ruling (the “ATC Ruling”) that mobile satellite communications services spectrum, including the L-band spectrum we

 

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use to operate our services, could be used by mobile satellite communications services operators to integrate ancillary terrestrial component (“ATC”) services into their satellite networks in order to provide combined terrestrial and satellite communications services to mobile terminals in the United States. On 8 November 2004, the FCC issued an order granting SkyTerra an ATC license and approving several waivers of the ATC Ruling that SkyTerra requested, while deferring ruling on certain additional waivers. On 10 February 2005, following a series of petitions and requests for reconsideration, the FCC clarified the ATC Ruling by a further memorandum opinion and order (the “MOO”) which, inter alia, settled the applicable rules on inter-system interference and other general requirements for integrated mobile satellite communications/ATC systems (the “MOO”). SkyTerra filed applications to modify its ATC license and to take advantage of the new latitude afforded by the MOO and the Cooperation Agreement with Inmarsat, in which SkyTerra seeks certain waivers of the ATC rules. It may not be known whether the MOO, or the possible grant of modified ATC authority to SkyTerra, will provide effective protection of our mobile satellite services from harmful interference until third parties commence commercial operations of integrated mobile satellite communications/ATC services.

 

The implementation of ATC services by MSS operators in the United States or other countries may result in increased competition for the right to use L-band spectrum, and such competition may make it difficult for us to obtain or retain the spectrum resources we require for our existing and future services. In addition, the FCC’s decision to permit integrated MSS/ATC services was based on certain assumptions, particularly relating to the level of interference that the provision of integrated MSS/ATC services would likely cause to other MSS operators, such as us, who use the L-band spectrum. If the FCC’s assumptions with respect to the use of L-band spectrum for integrated MSS/ATC services prove inaccurate, or a significant level of integrated MSS/ATC services is provided in the United States, the provision of integrated MSS/ATC services could interfere with our satellites and user terminals, which may adversely impact our services. For example, the use of certain L-band spectrum to provide integrated MSS/ATC services in the United States could interfere with our satellites providing communications services outside the United States where the satellites’ “footprint” overlaps the United States. Such interference could limit our ability to provide services that are transmitted through any satellite visible to the United States. Two of our three Inmarsat-4 satellites, three of our Inmarsat-3 satellites and two of our Inmarsat-2 satellites are currently visible to the United States. In addition, users of our terminals in the United States could suffer interruptions to our services if they tried to use their terminals near ATC terrestrial base stations used to provide integrated MSS/ATC services. In the event that we anticipate significant usage of mobile user terminals near ATC terrestrial base stations, it may be necessary for the manufacturers of the mobile terminals to modify their products to make them less susceptible to interference and for Inmarsat to replace or upgrade existing user terminals to avoid harmful interference.

 

In December 2007, we announced a cooperation agreement with Mobile Satellite Ventures LP, Mobile Satellite Ventures (Canada) Limited and SkyTerra Communications, Inc. (together “SkyTerra”) addressing the efficient re-use and reorganization of our respective L-band spectrum across the Americas. This agreement includes conditional provisions for the co-ordination of the parties’ respective existing and planned satellites serving the Americas and for the reorganization of our spectrum and that of SkyTerra over the Americas to provide contiguous spectrum in larger blocks for both our operations and efficient re-use of L-band spectrum. The purpose of the agreement is to increase spectrum efficiency and protect both MSS and ATC operations from inter-system interference. Additionally, the agreement sets up a framework for commercial cooperation between the parties to support the exploitation by SkyTerra of hybrid MSS-ATC services in North America.

 

Jurisdictions other than the United States are considering, and could implement, similar regulatory regimes in the future. In May 2004, Industry Canada, the Canadian regulator, decided in principle to allow ATC services in Canada. European regulators are currently considering the technical and regulatory issues which would arise if mobile satellite communications services operators were authorized to provide terrestrial services, including ATC, in 2 GHz bands. Commission Decision 2007/98/EC of 14 February 2007 on the harmonised use of radio spectrum in the 2 GHz frequency bands for the implementation of systems providing mobile satellite services confirms this as being satellite spectrum and allows the installation of a terrestrial component. As the EU is expecting scarcity of spectrum, a pan-European selection and award process is currently being decided upon in a co-decision process between Council and Parliament. European and Latin American regulators are now also considering the possibility of allowing ATC in L-band in Europe and Latin America respectively.

 

Any or all of the preceding could have a material adverse effect on our revenues, profitability or liquidity.

 

We rely on third parties to manufacture and supply terminals to access our services and, as a result, we cannot control the availability of terminals.

 

Terminals used to access our services are built by a limited number of independent manufacturers. Although we provide manufacturers with key performance specifications for the terminals, these manufacturers could:

 

   

reduce production of, or cease to manufacture, some of the terminals that access our services;

 

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manufacture terminals with defects that fail to perform to our specifications;

 

   

fail to build or upgrade terminals that meet end-users’ requirements within our target market segments;

 

   

fail to meet delivery schedules or to market or distribute terminals effectively; or

 

   

sell some of our terminals at prices that end-users or potential end-users do not consider attractive.

 

Any of the foregoing could adversely affect the ability of our distribution partners to sell our services, which, in turn, could adversely affect our revenues, profitability and liquidity, as well as our brand image.

 

We are subject to foreign exchange risk.

 

We use the US dollar as our functional and reporting currency. While almost all of our revenues are denominated in US dollars, the majority of our operating expenses and a small proportion of our capital expenditures are denominated in currencies other than the US dollar. Our primary exchange rate risk is against pounds sterling. Although we generally seek to hedge our foreign currency exposure in the short-term, in the longer-term our results of operations would be affected by fluctuations of the US dollar against the pound sterling.

 

We may not be able to recruit and retain the number and calibre of management or employees necessary for our business, which may adversely affect our revenues and profitability.

 

Technological competence and innovation is critical to our business and depends, to a significant degree, on the work of technically skilled employees. The market for the services of these types of employees is competitive. We may not be able to attract and retain these employees. If we are unable to attract and retain adequate technically skilled employees, including those supporting the development and provision of our higher bandwidth services, our competitive position could be materially adversely affected.

 

Risks Relating to Our Technology and the Operation and Development of Our Network

 

Our satellites are subject to significant operational risks while in orbit which, if they were to occur, could adversely affect our revenues, profitability and liquidity.

 

Satellites are subject to significant operational risk while in orbit. These risks include malfunctions, commonly referred to as anomalies that have occurred in our satellites and the satellites of other operators as a result of various factors, such as satellite manufacturers’ errors, problems with the power or control systems of the satellites and general failures resulting from operating satellites in the harsh environment of space.

 

Although we work closely with satellite manufacturers to determine and eliminate the cause of anomalies in new satellites and provide redundancy for many critical components in our satellites, we may experience anomalies in the future, whether of the types described above or arising from the failure of other systems or components.

 

Any single anomaly or series of anomalies could materially adversely affect our operations, as well as our ability to attract new customers for our services. Anomalies could also reduce the expected useful life of a satellite, thereby reducing the revenue that we could generate with that satellite, or create additional expenses due to the need to provide replacement or back-up satellites. The occurrence of future anomalies could materially adversely affect our ability to insure our satellites at commercially reasonable premiums, if at all. For more information on the risk that we may be unable to obtain and maintain insurance for our satellites, see “—We may be unable to obtain and maintain insurance for our satellites, and the insurance we obtain may not cover all losses we experience. Even if our insurance were sufficient, delays in launching a satellite could adversely affect our revenues, profitability and liquidity” below.

 

Meteoroid events pose a potential threat to all satellites. The probability that a meteor will damage those satellites increases significantly when the earth passes through the particulate stream left behind by comets. Occasionally, increased solar activity poses a potential threat to all in-orbit satellites.

 

Some decommissioned spacecraft are in uncontrolled orbits that pass through the geostationary belt at various points, and present hazards to operational spacecraft, including our satellites. The loss, damage or destruction of any of our satellites as a result of an electrostatic storm, collision with space debris, malfunction or other event could have a material adverse effect on our business.

 

In addition, our satellite system includes seven tracking, telemetry and control ground stations and four network co-ordination stations located around the world. If two or more of these stations were to fail at the same time, our ability to operate our satellites effectively may be limited, which could adversely effect our revenues, profitability or liquidity. Inmarsat also operates three Satellite Access Stations (“SAS”) for our broadband

 

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services via our three Inmarsat-4 satellites. Two of these SAS sites provide service redundancy for the EMEA region, our busiest traffic area. However the third SAS, located in Hawaii, is currently providing services to two Inmarsat-4 satellites over the Americas and Asia-Pacific Regions. Whilst significant on-site redundancy has been incorporated into the Hawaii SAS, no redundant site is currently available in case of a failure of the Hawaii SAS. Such a scenario could affect our revenues and profitability.

 

The proposed use of frequency bands for terrestrial International Mobile Telecommunications (“IMT”) that are not compatible with our land earth stations (“LESs”) and satellite access stations (“SASs”) in the same band and in the same geographical area may cause interference with our services.

 

The 2007 World Radio Conference (“WRC-07”) considered the identification of frequency bands for terrestrial IMT (3rd and 4th generation mobile) systems. C-band (3400—4200 MHz), which is used for Inmarsat satellite feeder and telemetry links, was one of the candidate bands. Inmarsat is concerned over the potential use of the C-band for these new terrestrial mobile systems. The ubiquitous use of these systems is not compatible with the operation of satellite earth stations, such as Inmarsat LESs/SASs, in the same band and in the same geographical area. As a result, in countries where IMT systems are deployed in the C-band, existing Inmarsat LESs/SASs could suffer interference and Inmarsat may be unable to deploy new earth stations. If our ability to operate the LESs/SASs is limited by such interference, our revenues, profitability and liquidity could be adversely affected. Already, many countries have licensed Broadband Wireless Access (“BWA”) systems, which are similar to IMT systems, in the C-band and others are expected to follow suit.

 

At the WRC-07, the “no change” campaign, led by Inmarsat and other major satellite players, successfully prevented a global C-band identification for IMT services. The lack of harmonized identification for IMT should slow down the momentum for IMT deployment in C-band. There were, however, several countries which identified the C-band portion of 3400-3600 MHz for IMT through country footnotes to the Radio Regulations. These footnotes included technical constraints which will help to ensure protection to earth stations from IMT operations in neighboring countries. However, protection within national boundaries of countries intending to deploy IMT in the C-band still needs to be discussed with the individual Administration. As a result, Inmarsat is continuing to pursue protection of each LES and SAS through registration of stations with the ITU and discussion with LESOs and national administrations.

 

Our satellites have minimum design lives, but could fail or suffer reduced capacity before the end of their design lives.

 

Our ability to generate revenue depends on the useful lives of our satellites. Each satellite has a limited useful life. A number of factors affect the useful lives of the satellites, including, among other things, the quality of their construction, the durability of their component parts, the ability to continue to maintain proper orbit and control over the satellite’s functions, the efficiency of the launch vehicle used, and the remaining on-board fuel following orbit insertion. The minimum design life of our Inmarsat-2 satellites is ten years, whilst our Inmarsat-3 and Inmarsat-4 satellites each have a minimum design life of 13 years. However, whilst our Inmarsat-2 satellites have so far exceeded their original design lives, the actual useful lives of our other satellites could be shorter. Changes in asset lives can have a significant effect on our depreciation charge and affect profitability. As a result we regularly reassess the useful economic lives of the Group’s satellites. In October 2004 the Inmarsat-3 satellites useful lives were changed to better reflect their economic life resulting from improvements in satellite technology as supported by engineering analysis. As a result depreciation periods were extended for the Inmarsat-3 satellites from 10 years to 13 years. As of October 2005, the Group prospectively changed the useful economic lives of the Inmarsat-4 satellites from 13 years to 15 years to reflect the better-than-expected performance of the launch vehicles and the adoption of an optimal mission strategy which are expected to extend the orbital lives of these satellites beyond their initial design life. The Inmarsat-4 satellites are being depreciated over 15 years.

 

We may be unable to obtain and maintain insurance for our satellites, and the insurance we obtain may not cover all losses we experience. Even if our insurance were sufficient, delays in launching a replacement satellite could adversely affect our revenues, profitability and liquidity.

 

We have renewed our in-orbit insurance cover for our first two Inmarsat-4 satellites until August 2009 and expect to maintain commercially prudent levels of insurance in the future. In addition, we obtained “launch plus one year” insurance to cover the launch of the third Inmarsat-4 satellite and its first year of in-orbit operations, also until August 2009.

 

The price, terms and availability of insurance have fluctuated significantly since we began offering commercial satellite services. The cost of obtaining insurance can vary as a result of either satellite failures or general conditions in the insurance industry. Insurance policies on satellites may not continue to be available on

 

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commercially reasonable terms, or at all. In addition to higher premiums, insurance policies may provide for higher deductibles, shorter coverage periods and additional satellite health-related policy exclusions. An uninsured failure of one or more of our satellites could have a material adverse effect on our financial condition and results of operations. In addition, higher premiums on insurance policies would increase our costs, thereby reducing our operating income by the amount of such increased premiums.

 

Even where we have obtained in-orbit insurance for a satellite, this insurance coverage will not protect us against all losses that might arise as a result of a satellite failure. Our current in-orbit insurance policies contain, and any future policies can be expected to contain, specified exclusions and material change limitations customary in the industry at the time the policy is written. These exclusions typically relate to losses resulting from acts of war, insurrection or military action, government confiscation, as well as lasers, directed energy beams, or nuclear or anti-satellite devices or radioactive contamination.

 

In addition, should we wish to launch another satellite to replace a failed operational satellite, the timing of such launch will be dependent on the completion of manufacture of such a satellite and prior commitments made by potential suppliers of launch services to other satellite operators. Our insurance may not protect us against lost or delayed revenue, business interruption or lost business opportunities.

 

We also maintain third-party liability insurance. This insurance may not be adequate or available to cover all third-party damages that may be caused by any of our satellites, and we may not in the future be able to renew our third-party liability cover on reasonable terms and conditions, if at all.

 

New technologies introduced by our competitors may reduce demand for our services or render our technologies obsolete, which may have a material adverse effect on the cost structure and competitiveness of our services, possibly resulting in a negative effect on our revenues, profitability or liquidity.

 

The space and communications industries are subject to rapid advances and innovations in technology. We expect to face competition in the future from companies using new technologies and new satellite and terrestrial systems. Advances or innovations in technology could render our technologies obsolete or less competitive by satisfying consumer demand in more attractive or cost-effective ways, or by introducing standards incompatible with ours. Obsolescence of the technologies that we use could have a material adverse effect on our revenues, profitability or liquidity.

 

Our business relies on intellectual property, some of which third parties own, and we may inadvertently infringe upon their patents and proprietary rights.

 

Many entities, including some of our competitors, currently (or may in the future) hold patents and other intellectual property rights that cover or affect products or services related to those that we offer. We cannot assure you that we are aware of all intellectual property rights that our products may infringe upon. In general, if a court were to determine that one or more of our products infringes upon intellectual property held by others, we may be required to cease developing or marketing those products, to obtain licenses from the holders of the intellectual property, or to redesign those products in such a way as to avoid infringing upon others’ patents. We cannot estimate the extent to which we may be required in the future to obtain intellectual property licenses, or the availability and cost of any such licenses. To the extent that we are required to pay royalties to third parties to whom we are not currently making payments, these increased costs of doing business could negatively affect our profitability or liquidity.

 

If a competitor holds intellectual property rights, it may not allow us to use its intellectual property at any price, which could adversely affect our competitive position.

 

Regulatory Risks

 

Our business is subject to regulation and we face increasing regulation with respect to the transmission of our satellite signals and the provision of our mobile satellite communications services in some countries, which could require us to incur additional costs, could expose us to fines and could limit our ability to provide existing and new services in some countries.

 

The maintenance and expansion of our business is dependent upon, among other things, our ability (and/or the ability of our distribution partners and/or their service providers) to obtain required government licenses and authorizations in a timely manner, at reasonable costs and on satisfactory terms and conditions.

 

Our business is subject to the regulatory authority of the government of the United Kingdom and the national authorities of the countries in which we operate, as well as to the regulations of various international organizations. Government authorities generally regulate, among other things, the construction, launch and

 

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operation of satellites, the use of satellite spectrum at specific orbital locations, the licensing of land earth stations and mobile terminals, and the provision of satellite services. For more information on the regulatory environment in which we operate, see “Item 4: Information on the Company—Regulation”.

 

In particular, under the UK Outer Space Act 1986, we must obtain licenses to conduct our business, including for the launch of our satellites. The terms of these licenses provide that we indemnify the UK government without limit for any claim brought against it as a result of our licensed activities or in respect of any loss suffered by the UK government as a result of any breach of the terms of the license. We also must maintain insurance of up to £100m per satellite to be used to pay any sums to the UK government in respect of this indemnity. See “Item 4: Regulation—Regulation of our Satellite System—UK Outer Space Act 1986”.

 

Increasingly, regulatory authorities are imposing fees and introducing new regulatory requirements on businesses that use spectrum or offer communications services. This could significantly affect our business. In addition to the licenses issued to us by the UK government for the launch and operation of our satellites, to date, we have obtained specific telecommunications or frequency licenses with respect to our existing services in approximately 14 countries, and are currently discussing terms and conditions with an number of other countries. Additional countries are considering whether to implement such license requirements. These license requirements could require us to incur new and unforeseen additional costs, could expose us to fines if we were unable to obtain or retain any licenses or meet all regulatory requirements, and could limit our ability to provide existing or new services in some countries, which could adversely affect our revenues, profitability or liquidity.

 

It is also possible that regulatory authorities in some countries may require us to establish a land earth station or a point of presence in their countries as a condition to distribute our Global Satellite Phone Service (“GSPS”) or broadband services in those countries. This has in particular been a barrier to entry in India. Some countries may also require us to provide traffic reports on a regular basis or maintain a domestic billing database for their country. To the extent we own and/or operate the land earth stations for our broadband and GSPS services, we are required to obtain licenses for the operation of those stations as network facilities, and also will need to obtain rights to C-band spectrum for communications between the stations and our satellites. Approval of the offering of our services or operation of land earth stations will be contingent upon us or our distribution partners providing any countries as may so require with the ability to monitor calls made to or from such countries and/or to intercept traffic. Although we believe that we will be able to address the concerns of many of these countries as they arise, there is no assurance that we and/or our distribution partners and/or their service providers will be able to do so. In addition, some countries in which we or our distribution partners, or their service providers, operate have laws and regulations relating to privacy and the protection of data which may impair our ability to obtain licenses or offer our services on a timely basis.

 

Laws, policies and regulations affecting the satellite industry are subject to change in response to industry developments, new technology or political considerations. Legislators or regulatory authorities in various countries are considering, and may in the future adopt, new laws, policies and regulations or changes to existing regulations regarding a variety of matters that could, directly or indirectly, affect our operations or the operations of our distribution partners, or increase the cost of providing services over our system. Changes to current laws, policies or regulations or the adoption of new regulations could affect our ability to obtain or retain required government licenses and authorizations or could otherwise have a material adverse effect on our business.

 

Our contractual relationships with our distribution partners may be subject to regulatory challenge, which could require us to renegotiate the contractual relationships and could result in the imposition of fines.

 

Our overall relationship with our distribution partners is governed by our Distribution Agreements. There is a risk that regulatory authorities or other third parties could challenge the Distribution Agreements, for example under European Union (“EU”) competition laws. As of 1 May 2004, it is no longer possible to obtain an exemption from EU competition rules by notifying an agreement to the European Commission, and parties must make their own assessment as to whether their agreements fulfill EU competition requirements. We have previously conducted a regulatory review of the terms of our Distribution Agreements, and of our competitive position in the sectors in which we operate. We do not believe that we are party to any agreement that is, in the current competitive environment, anti-competitive, or otherwise faces a significant risk of regulatory challenge. However, the competitive environment may change, and regulatory risk analysis is by its nature subjective. Therefore, we cannot assure you that either we, or the Distribution Agreements, or our distribution partners face no risk of challenge. For example, competition authorities could determine that we have market power in one or more business sectors, and could challenge us, or the Distribution Agreements or our distribution partners as anti-competitive. A successful regulatory challenge could result in portions, or all, of the Distribution Agreements being declared unenforceable, could require us to modify or replace certain provisions of the Distribution Agreements in order to achieve compliance and, in certain circumstances, could result in the imposition of fines. Competition authorities generally have powers to impose fines (in the case of the European Commission, up to a

 

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maximum of 10% of a company’s worldwide annual group revenues) for breaches of competition laws. In addition, third parties could initiate civil litigation claiming damages caused by alleged anticompetitive practices and agreements.

 

We may not be aware of certain foreign government regulations.

 

We, our customers and companies with which we or they do business may be required to have authority from each country in which we or they provide services or provide our or their customers use of our satellites. We may not be aware if some of our customers and/or companies with which they or we do business, do not hold the requisite licenses and approvals.

 

Because regulatory schemes vary by country and evolve over time, we may be subject to regulations in foreign countries of which we are not presently aware. If that were to be the case, we could be subject to sanctions by a foreign government that could materially adversely affect our ability to operate in that country. Our current regulatory approvals could now be (or could become) insufficient in the view of foreign regulatory authorities, any additional necessary approvals may not be granted on a timely basis (or at all), in all jurisdictions in which we wish to offer services, and applicable restrictions in those jurisdictions could become unduly burdensome. The failure to obtain the authorizations necessary to operate satellites internationally could have a material adverse effect on our ability to generate revenue and on our overall competitive position.

 

Our distribution partners and service providers face increasing regulation in many countries, and end-users often require licenses to operate end-user terminals. This regulatory burden could increase the costs of our distribution partners and service providers or restrict their ability to sell our products.

 

Our distribution partners and service providers need licenses and regulatory consents to offer our services in many countries where they operate. In addition, end-users often require licenses to use our terminals. Furthermore, we expect that our distribution partners, their service providers and end-users will require licenses for our handheld services in many jurisdictions, and they may fail to obtain those licenses. Any delay or failure by distribution partners, their service providers or end-users to obtain required licenses in connection with the distribution of our services or use of terminals could prevent our services from being distributed, sold or used in some countries or lead to unauthorized use that could affect the reputation of our brand, which could adversely affect our revenues.

 

We may not be successful in co-ordinating our satellite operations under applicable international regulations and procedures or in obtaining spectrum and orbital resources we require for our operations.

 

The International Telecommunications Union (the “ITU”) regulates the use of radio frequency bands and orbital locations used by satellite networks to provide communications services. The use of spectrum and orbital resources by us and other satellite networks must be coordinated pursuant to the ITU’s Radio Regulations in order to avoid causing harmful interference between or among the respective networks. In the case of the L-band, the ITU process has been effected on the basis of agreements between the relevant national administrations whereby the use of frequencies by our satellite network and other satellite networks is coordinated in regional operator review meetings and negotiations. As evidenced by recent review meetings in Regions 1 and 3, it is not always possible to achieve unanimous agreement amongst operators. In Region 2, Inmarsat has recently achieved coordination of its satellites covering that region with SkyTerra. The increased competition for spectrum and orbital locations may make it difficult for us to obtain additional L-band spectrum allocations we require for our forecasted requirements. In the future, we may not be able to coordinate our satellite operations successfully under international telecommunications regulations and we may not be able to obtain or retain the spectrum and orbital resources we require to provide our existing or future services.

 

Risks Relating to the Senior Notes

 

We require a significant amount of cash to make payments on the Senior Notes and to service our debt. Our ability to generate sufficient cash depends on a number of factors, many of which are beyond our control.

 

Our ability to make payments on and to refinance our debt will depend on our future operating performance and ability to generate sufficient cash. This depends, to some extent, on general economic, financial, competitive, market, legislative, regulatory and other factors, many of which are beyond our control, as well as the other factors discussed in these “Risk Factors”.

 

Historically, we have met our debt service and other cash requirements with cash flows from operations, bank overdrafts and, more recently, our medium-term revolving facility. Our net cash interest expense for the year ended 31 December 2008 was US$32.1m (which amount excludes, among others, non-cash accretion of principal on the subordinated intercompany shareholder funding loan). In addition, the principal amount of our

 

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total long-term consolidated debt (including US$766.9m principal amount of intercompany shareholder funding loan) as of 31 December 2008 was US$560.4m. Our business might not generate sufficient cash flows from operating activities, and future debt and equity financing might not be available to us, in an amount sufficient to enable us to pay our debts when due, including the Senior Notes, or to fund our other liquidity needs. See Item 5: “Operating and Financial Review and Prospects”.

 

If our future cash flows from operations and other capital resources are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to:

 

   

reduce or delay our business activities, capital expenditures and research and development;

 

   

sell assets;

 

   

obtain additional debt or equity capital; or

 

   

restructure or refinance all or a portion of our debt, on or before maturity.

 

We might not be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of our existing debt, and the terms of the indenture governing the Senior Notes, will limit our ability to pursue any of these alternatives. If we obtain additional debt financing, the related risks we now face will increase.

 

The issuer and Inmarsat Investments Limited must rely on payments from Inmarsat Ventures Limited and its subsidiaries to fund payments on the Senior Notes and Inmarsat Ventures Limited and its subsidiaries might not be able to make payments to us in some circumstances.

 

The issuer is a finance subsidiary that conducts no business operations, and its only assets following the offering of the Senior Notes will be the subordinated intercompany Senior Note proceeds loan. If Inmarsat Investments Limited were to fail to make scheduled payments on the subordinated intercompany Senior Note proceeds loan, we do not expect the issuer to have any other sources of funds that would allow it to make payments to you.

 

Payments on the subordinated intercompany Senior Note proceeds loan are restricted by the intercreditor agreement which, in general, precludes payments of principal on the loans but permits interest payments (although interest payments are subject to suspension during an event of default under the Senior Facility Agreement).

 

Furthermore, Inmarsat Investments Limited is a holding company and does not directly conduct any business operations. Inmarsat Investments Limited’s only significant asset is the shares it holds in Inmarsat Ventures Limited. We do not expect Inmarsat Investments Limited to have any sources of funds that would allow Inmarsat Investments Limited to make payments to the issuer on the subordinated intercompany Senior Note proceeds loan or to otherwise make distributions to the issuer, other than funds lawfully distributed by operating subsidiaries of Inmarsat Investments Limited.

 

You will not have any direct claim on the cash flows of Inmarsat Investments Limited’s operating subsidiaries that are not subsidiary guarantors and any such subsidiaries will have no obligation, contingent or otherwise, to pay amounts due under the Senior Notes or the subordinated intercompany Senior Note proceeds loan or to make funds available to the issuer or Inmarsat Investments Limited for these payments.

 

Each subsidiary guarantee of the Senior Notes will not mature or be payable until certain events have occurred, and will be subordinated in right of payment to the senior debt of such subsidiary guarantor.

 

Each subsidiary guarantee:

 

   

is a general obligation of the subsidiary guarantor;

 

   

ranks below all existing and future senior debt of such subsidiary guarantor in right of payment;

 

   

ranks equally with any future senior subordinated debt of such subsidiary guarantor in right of payment; and

 

   

is unsecured (except for the second-ranking charge over the shares of Inmarsat Ventures Limited, granted by Inmarsat Investments Limited).

 

The subsidiary guarantees will not be due and payable unless: (i) an event of default arising out of the failure to pay any amount under the Senior Notes or any related document occurs and is continuing and (ii) either (A) 179 days has elapsed since the date of the default or (B) if earlier, (1) certain insolvency events occur in respect of the relevant subsidiary guarantor, (2) a default has occurred under the Senior Facility Agreement resulting in the acceleration of that Senior Facility Agreement or (3) the lenders under the Senior Facility Agreement have taken certain steps to enforce the Senior Facility Agreement.

 

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All payments on the subsidiary guarantee of a subsidiary guarantor will be permanently blocked following a payment event of default with respect to any senior debt, and will be blocked for 179 days following certain non-payment defaults with respect to the designated senior debt, including the Senior Facility Agreement.

 

Upon any distribution to creditors of a subsidiary guarantor in an insolvency, bankruptcy or similar proceeding, the holders of senior debt of the relevant subsidiary guarantor will be entitled to full repayment before the beneficiaries of the subsidiary guarantor’s subsidiary guarantee will be entitled to any repayment. As a result, there is a risk that holders of Senior Notes and the subsidiary guarantees may receive relatively less in an insolvency, bankruptcy or similar proceeding of the subsidiary guarantors than the holders of senior debt of the subsidiary guarantors, including the lenders under our Senior Facility Agreement.

 

The indenture will permit the trustee to enter into future intercreditor arrangements (without the consent of the holders of Senior Notes) on terms substantially the same as the existing intercreditor agreement in favor of future holders of designated senior debt.

 

As of 31 December 2008, the aggregate amount of senior debt of the subsidiary guarantors (including borrowings under our Senior Facility Agreement) was US$390.0m. We have a US$300.0m Revolving Committed Facility available under the Senior Facility Agreement of which US$140.0m was drawn as at 31 December 2008.

 

Your right to enforce the second-ranking charge over the shares of Inmarsat Ventures Limited and the security over the subordinated intercompany Senior Note proceeds loan is limited as long as any debt under the Senior Facility Agreement is outstanding.

 

The second-ranking charge over the shares of Inmarsat Ventures Limited in favor of the noteholders will rank behind the first priority charge in favor of the senior lenders under our Senior Facility Agreement. As a result, the proceeds of any enforcement over the shares will be applied first to repay the Senior Facility Agreement, and thereafter to repay the Senior Notes. In addition, the existing intercreditor deed provides that while any amounts are outstanding under the Senior Facility Agreement, the holders of the Senior Notes may not enforce their security over the shares of Inmarsat Ventures Limited or the subordinated intercompany Senior Note proceeds loan without the consent of a majority of the lenders under the Senior Facility Agreement, except as follows.

 

The second-ranking share charge cannot be enforced unless:

 

   

certain insolvency events in respect of the issuer, the guarantors, their material subsidiaries and certain of their holding companies are continuing; or

 

   

an event of default under the indenture has occurred and is continuing and: the senior agent has received a notice of the default, specifying the event or circumstances of that default, from the trustee acting on the instructions of the holders of more than 50% in principal amount of the outstanding Senior Notes; and a period of not less than 179 days has elapsed from the date that notice was given to the senior agent; and at such time, the senior lenders have taken no enforcement action (as defined in the intercreditor agreement) under the security documents in relation the senior lenders’ charge over the shares (or, they have taken such enforcement action but are not pursuing it diligently).

 

Until the date all obligations under the Senior Facility Agreement are repaid, the security agent will hold the share certificates in respect of the shares of Inmarsat Ventures Limited. The security agent has agreed to deliver the share certificates to the trustee once the second-ranking share charge becomes enforceable (in accordance with the terms of the Intercreditor Agreement), but if the security agent were not to deliver the share certificates in accordance with such undertaking, the trustee may not be able to sell the shares.

 

Until the foregoing events have occurred, the lenders and the agent under the Senior Facility Agreement will have the exclusive right to make all decisions with respect to the enforcement of the charge over the shares of Inmarsat Ventures Limited. Our senior lenders may have interests that are different from the interests of holders of the Senior Notes, and they may elect not to pursue their remedies under the share charge at a time when it would be advantageous for the holders of the Senior Notes to do so.

 

The pledge of the subordinated intercompany Senior Note proceeds loan cannot be enforced unless:

 

   

certain insolvency events in respect of the issuer, the guarantors, their material subsidiaries and certain of their holding companies are continuing; or

 

   

an event of default under the indenture has occurred and is continuing and: the senior agent has received a notice of the default from the trustee specifying the event or circumstances of that default; and a period of not less than 179 days has elapsed from the date that notice was given to the senior agent.

 

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The subordinated intercompany Senior Note proceeds loan are subordinated in right of payment to all of the senior debt of Inmarsat Investments Limited, and are subject to standstill provisions.

 

In accordance with the provisions of the intercreditor agreement, so long as any borrowings or commitments remain outstanding under the Senior Facility Agreement, Inmarsat Investments Limited may not make any payments on the subordinated intercompany Senior Note proceeds loans other than interest, fees or expenses thereon.

 

In addition, all payments in respect of the subordinated intercompany Senior Note proceeds loans will be permanently blocked in the event of a payment default with respect to “senior debt” and will be blocked for 179 days in the event of certain non-payment defaults with respect to “designated senior debt”.

 

Furthermore, no enforcement action under the subordinated intercompany Senior Note proceeds loans may be taken unless:

 

   

certain insolvency events in respect of the issuer, the guarantors, their material subsidiaries and certain of their holding companies are continuing; or

 

   

an event of default under the indenture governing the Senior Notes has occurred and 179 days have elapsed since notice has been given to the agent under the Senior Facility Agreement concerning such event of default.

 

Finally, upon any distribution to creditors of Inmarsat Investments Limited in a winding-up, dissolution, administration, reorganization, composition, receivership or similar proceeding, the holders of “senior debt” of Inmarsat Investments Limited will be entitled to be paid in full before any payment may be made with respect to the subordinated intercompany Senior Note proceeds loans. As a result, holders of Senior Notes may receive less, ratably, in an insolvency, bankruptcy or similar proceeding than the holders of senior debt of Inmarsat Investments Limited, including the lenders under our Senior Facility Agreement.

 

The indenture permits the trustee to accede to similar intercreditor arrangements (without the consent of the holders of the Senior Notes) in favor of future holders of designated senior debt.

 

We are subject to restrictive debt covenants.

 

The Senior Facility Agreement, as well as the indentures governing the Senior Notes, contain provisions that may restrict our ability and the ability of our subsidiaries to take certain actions.

 

The Senior Facility Agreement contains negative covenants that restrict or prohibit our direct subsidiary Inmarsat Investments Limited and its subsidiaries (subject to certain agreed exceptions) from:

 

   

merging or consolidating with or into any other person;

 

   

materially changing the general nature of their business;

 

   

selling, transferring, leasing or otherwise disposing of any of their assets;

 

   

creating security interests over any part of their assets, save (among other things) to secure the Senior Notes as permitted under the intercreditor agreement;

 

   

entering into any contract or arrangement unless it is on arms’ length terms;

 

   

conducting certain acquisitions or investments, or entering into joint ventures or partnerships;

 

   

incurring or having outstanding certain borrowings, guarantees, indemnities, loans or letters of credit;

 

   

making any repayment of principal under the indentures related to the Senior Notes and related documents, except as permitted by the intercreditor agreement.

 

In addition, the indentures governing the Senior Notes contain covenants that restrict our ability and the ability of our subsidiaries to:

 

   

make certain payments, including dividends or other distributions, with respect to the share capital of the parent or its subsidiaries;

 

   

incur or guarantee additional indebtedness and issue preferred stock;

 

   

make certain investments;

 

   

prepay or redeem subordinated debt or equity;

 

   

create certain liens or enter into sale and leaseback transactions;

 

   

engage in certain transactions with affiliates;

 

   

sell assets or consolidate or merge with or into other companies;

 

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issue or sell share capital of certain subsidiaries; and

 

   

enter into other lines of business.

 

Each of these limitations is subject to exceptions and qualifications which may be important.

 

We are subject to English and with respect to Inmarsat Launch Company Limited, Isle of Man insolvency laws, which pose particular risks for holders of the Senior Notes.

 

The obligors in respect of the Senior Notes and the guarantees are incorporated, have their registered offices and conduct the administration of their respective businesses on a regular basis, in England (other than Inmarsat Launch Company Limited). Any insolvency proceeding in respect of any English-incorporated issuer or any English incorporated guarantor would most likely be commenced in England and based on English insolvency law. English insolvency laws are favorable to secured creditors, and afford debtors and unsecured creditors only limited protection from enforcement by secured creditors.

 

The lenders under the Senior Facility Agreement have the benefit of a first fixed charge over the entire ordinary issued share capital of Inmarsat Ventures Limited. In addition, the indenture permits us and our restricted subsidiaries to incur other secured debt in the future.

 

Under English insolvency law, the liquidator or administrator of a company may, among other things, apply to the court to unwind a transaction entered into by such company, if such company were unable to pay its debts (as defined in Section 123 of the UK Insolvency Act 1986) at the time of, or as a result of, the transaction and enters into liquidation or administration proceedings within two years of the completion of the transaction.

 

A transaction might be subject to a challenge (pursuant to Section 238 of the UK Insolvency Act 1986) if it was entered into by a company “at an undervalue”, that is, it involved a gift by the company, or the company received consideration of significantly less value than the benefit given by such company. A court generally will not intervene if a company entered into a transaction in good faith for the purpose of carrying on its business, and that at the time it did so there were reasonable grounds for believing the transaction would benefit such company. A liquidator or administrator of Inmarsat Group Limited could also apply to the court to unwind the issuance of its guarantee if such liquidator or administrator believed that issuance of such guarantee constituted a transaction at an undervalue. The analysis of such a claim would generally be the same as set out above in relation to our issuance of the Senior Notes.

 

A transaction, such as a refinancing of indebtedness, might also be subject to challenge (pursuant to Section 239 of the UK Insolvency Act 1986) if the transaction were to create a “preference” for one creditor over another. A “preference” is created in a transaction in which a company takes any action, or allows any action to be taken, which has the effect of putting a creditor in a better position, relative to other creditors, than it would have been in had the transaction not occurred. Such a transaction can be voidable in the event that the company was (i) unable to pay its debts as described in the paragraph above and (ii) influenced by a desire to create such a preference. In cases where an affiliate receives such a preference, such a desire is presumed.

 

In respect of Inmarsat Launch Company Limited, the principles which underpin Isle of Man insolvency law are substantially the same as those which underpin English insolvency law. Therefore, the foregoing analysis in relation to the English-incorporated guarantors is broadly correct in terms of the Manx-incorporated guarantor. Isle of Man statute has no direct equivalent in Section 238 of the UK Insolvency Act 1986; however, the common law of the Isle of Man recognizes that a transaction entered into at an undervalue in relation to a Manx-incorporated company may, in certain cases, be open to examination.

 

In certain circumstances we may have to withhold tax from payments.

 

We may be obliged to withhold UK income tax from payments of interest on the Senior Notes, unless, among other things, the Senior Notes are and remain listed on a stock exchange that is treated by the UK Inland Revenue as a recognized stock exchange for the purposes of the relevant UK tax legislation. The Luxembourg Stock Exchange, upon which the Senior Notes are currently listed, is treated as a recognized stock exchange for these purposes.

 

Under the indenture, any payments we make on or with respect to the Senior Notes will be made without withholding or deduction for UK taxes unless required by law. Our failure to maintain a listing on a stock exchange treated by the UK Inland Revenue as a recognized stock exchange could result in a withholding or deduction of UK tax being required from payments of interest made in respect of the Senior Notes. If any such withholding or deduction is required, we may be required to pay additional amounts to holders of Senior Notes in respect of amounts withheld. The payment of those additional amounts could have a material adverse effect on our financial condition or results of operations, as it will effectively increase our obligations under the Senior Notes .

 

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On 3 June 2003, the EU Council of Economic and Finance Ministers adopted a new directive regarding the taxation of savings income. The directive, effective from 1 July 2005, provided that certain non-EU countries adopt similar measures from the same date. Under the directive, each member state will be required to provide to the tax authorities of another member state details of payments of interest or other similar income paid by a person within its jurisdiction to, or collected by such a person for, an individual resident in that other member state; however, Belgium, Luxembourg and Austria may instead apply a withholding system for a transitional period in relation to such payments, deducting tax at rates rising over time to 35%. The transitional period is to commence on the date from which the directive is to be applied by member states and to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to the exchange of information relating to such payments. There is a paying agent for the Senior Notes in Luxembourg and the United States. Where any obligation to withhold tax in respect of payments made under or with respect to the Senior Notes or the guarantee to an individual arises as a result of this EU directive, we will not have an obligation to pay any additional amounts.

 

ITEM 4.    INFORMATION ON THE COMPANY

 

HISTORY AND DEVELOPMENT

 

We began operating in 1979 as an international governmental organization formed pursuant to the Convention on the International Maritime Satellite Organization. Our original purpose was to provide the satellite capacity necessary to improve maritime communications, with a particular emphasis on distress and safety communications in the maritime sector. Under that convention, we were required to operate on a commercial basis and to provide a return on the capital contributed to our business. In April 1999, we became a private company.

 

Inmarsat Group Limited (the “Company”), a limited liability company organized and existing under the laws of England and Wales, was incorporated on 3 September 2003 with head office at 99 City Road, London EC1Y 1AX, United Kingdom (telephone +44 (0)20 7728 1000). The Company was incorporated as Grapedrive Limited and changed its name to Inmarsat Group Limited on 6 January 2004.

 

Inmarsat Satellite Constellation

 

On 18 August 2008, we announced the successful launch of the third Inmarsat-4 satellite, concluding a decade of development on the Inmarsat-4 programme. On 7 January 2009, the third Inmarsat-4 satellite began commercial service with the transfer of all BGAN, FleetBroadband and SwiftBroadband traffic from another Inmarsat-4 satellite.

 

In order to achieve enhanced coverage and provide global broadband services, we decided to reposition a number of satellites in our existing Inmarsat satellite constellation. With the third Inmarsat-4 satellite operational, we were able to implement these plans. The repositioning of our satellites has now been completed, giving us full global coverage for our broadband services—BGAN, FleetBroadband and SwiftBroadband—at the same time as optimising data connectivity across our worldwide network.

 

Alphasat programme

 

On 8 November 2007, Inmarsat entered into a contract with Astrium Satellites (“Astrium”), a subsidiary of the European Aeronautic Defence and Space Company (“EADS”), for construction of the Alphasat satellite. Milestone payments for the construction phase began in March 2008 for work started at the Astrium plants in Portsmouth and Toulouse and at key subcontractors. The programme is currently on schedule for a spacecraft delivery in 2012.

 

Inmarsat Services

 

On 16 September 2008, we announced that A. P. Möller—Maersk, one of the world’s largest shipping companies, had signed a contract with one of our service providers, Marlink, for a large-scale retrofit of our FleetBroadband service across its Maersk Supply Service and Maersk Tankers Fleet. The two-year retrofit programme is believed to be the largest in the history of maritime satellite communications, with over 150 vessels being converted to FleetBroadband in the first phase. The vessels will be equipped with Thrane & Thrane Sailor 500 terminals. By the end of 2008, over 100 vessels had been installed and were operational with our FleetBroadband 500 service and generating substantial traffic.

 

On 23 September 2008, we announced the expansion of the FleetBroadband product range to offer an entry-level, globally deployable, combined voice and data service to target and expand the addressable market of small vessels. The new service, FleetBroadband 150, will deliver voice, IP data up to 150kbps and SMS, and is planned to be available by mid-2009.

 

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On 31 December 2008, in line with our previously announced plan, we terminated our R-BGAN service which had been in operation since November 2002 and which was intended as a precursor to our BGAN service. During 2008 the R-BGAN service generated US$8.6m in revenue (2007: US$14.0m), however by December 2008 the monthly rate of revenue was no longer material. We believe that by the end of 2008 the vast majority of R-BGAN users had already migrated or made preparations to migrate to our BGAN services in anticipation of the planned termination of the R-BGAN service. At 31 December 2008, we recorded 4,708 (2007: 7,608) active R-BGAN terminals and removed these from our active terminal count with effect from 1 January 2009.

 

In January 2009, we mutually agreed with EMS Technologies Canada Limited to terminate a development contract for our GSPS. Inmarsat remains fully committed to launching a global handheld satellite phone service and has appointed Sasken Communications Technologies Limited to lead the programme, as well as making a number of decisions to increase the development effort and ensure that a compelling service offering is available at the earliest opportunity. As a result of this re-organisation of the development effort, Inmarsat believes the introduction of GSPS will be in the second quarter of 2010. It is not expected that this change will lead to any material increase in the overall cost of the programme.

 

European S-band application process

 

On 6 October 2008, our wholly-owned subsidiary, Inmarsat Ventures Limited, made an application under the European S-band Application Process (“ESAP”) for an award of S-band spectrum for deployment of services across the 27 member states of the European Community. The application is currently under review by the European Commission and a decision on the award of S-band spectrum is expected in the second quarter of 2009. This follows Inmarsat plc’s announcement in August 2008 that Thales Alenia Space (“Thales”) and International Launch Services (“ILS”) had been selected to support Inmarsat’s ESAP application. The development of the EuropaSat satellite by Thales and the launch contract with ILS are both subject to, inter alia, a successful outcome of the ESAP.

 

Harbinger Capital Partners

 

On 25 July 2008, Harbinger Capital Partners (“Harbinger”) and SkyTerra Communications, Inc. (“SkyTerra”) announced their intention to make an offer to acquire the Inmarsat group on terms to be announced following a satisfactory outcome of a regulatory approvals process. However, no offer has been put forward by Harbinger at this time. As previously reported, the Inmarsat plc Board will continue to maintain a constructive relationship with Harbinger and SkyTerra and will consider carefully any future offer that may maximise value for Inmarsat’s shareholders as a whole. The Board continues to remain highly confident in Inmarsat’s standalone business prospects and management’s future plans for the continued independent development of the business.

 

Appointment of new Chief Operating Officer

 

On 15 December 2008, we announced that Perry Melton would assume the responsibilities of Chief Operating Officer with effect from 1 January 2009. Mr Melton replaced Michael Butler, who will leave the business on 30 April 2009, as previously announced in March 2008. Mr Melton has been with Inmarsat for over 16 years, with his most recent role as Vice President of Sales and Marketing. Mr Melton has experience across many different operating areas of the business.

 

Acquisition of Stratos Global Corporation

 

On 15 April 2009, our ultimate parent company, Inmarsat plc, announced that a direct wholly-owned subsidiary, Inmarsat Finance III Limited (“Inmarsat III”), had completed the indirect acquisition of Stratos Global Corporation (“Stratos”) by exercising an option to acquire the entire share capital of CIP UK Holdings Limited (“CIP UK”).

 

On 11 December 2007, CIP Canada Investment Inc (“CIP Canada”), a wholly-owned subsidiary of Communications Investment Partners Limited (“CIP Limited”), acquired the entire issued share capital of Stratos Global Corporation, our largest distribution partner, for a consideration of $294.0m Canadian dollars (US$263.3m).

 

On the same date, Inmarsat III provided a loan for the full consideration paid and associated fees to CIP UK to fund the acquisition (“Transaction”) by its wholly-owned subsidiary CIP Canada (the “Loan Facility”).

 

On the same date, CIP Limited granted Inmarsat III an option to acquire the entire issued share capital of CIP UK (the “Call Option”).

 

The Call Option was exercised on 15 April 2009 resulting in Stratos (one of our key distribution partners) becoming an indirect wholly-owned subsidiary of Inmarsat plc.

 

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As described above, the acquisition of Stratos was funded in December 2007 and no material additional financing was required to complete the transaction in April 2009.

 

The acquisition of Stratos reduces our reliance on third party distribution partners to distribute our services. In the foreseeable future we expect Stratos operations to continue to be managed by the existing Stratos management team, reporting directly to Inmarsat at a corporate level.

 

As a result of the acquisition Inmarsat plc indirectly assumed all the assets and liabilities of Stratos, including its existing indebtedness of US$361.8m at 31 December 2008. As the acquisition of Stratos occurred at the level of our parent company, none of CIP UK, CIP Canada, Stratos nor any of its subsidiaries is or will become a Restricted Subsidiary of the Company. As a result, none of the Guarantors of the Senior Notes, nor the Guarantor of the Senior Discount Notes will have any obligation with respect to the liabilities and indebtedness of Stratos. Equally, the Company and its Restricted Subsidiaries will not benefit from any distributions by Stratos to its parent company, unless any distributions are re-invested in or otherwise passed to the Company or any of its Restricted Subsidiaries.

 

Under the terms of the agreements between Inmarsat and its distributors, including Stratos, Stratos will continue to purchase satellite capacity from Inmarsat and provide certain related services to Inmarsat. Payment and credit terms with Stratos will remain consistent with other distributors. Inmarsat has implemented a channel management policy with the intent of preventing unreasonable preference or differentiation between its direct and indirect distribution channels.

 

BUSINESS OVERVIEW

 

We are the leading provider of global mobile satellite communications services, providing data and voice connectivity to end-users worldwide. Inmarsat has 30 years of experience in designing, launching and operating its satellite-based network. With a fleet of eleven owned and operated geostationary satellites, the Group provides a comprehensive portfolio of global mobile satellite communications services for use on land, at sea and in the air. These include voice and broadband data services, which support safety communications, as well as standard office applications such as email, internet, secure VPN access and videoconferencing. The Group’s revenues, operating profit and EBITDA for 2008 were US$634.7m, US$264.3m and US$431.3m respectively.

 

During 2008, the maritime, land, leasing and aeronautical sectors of our business accounted for 54%, 23%, 13% and 10% of our total mobile satellite communications services revenues, respectively. Currently, some services are available at transmission rates of up to 128 kbps via our Inmarsat-2 and Inmarsat-3 network of satellites; although higher rates are possible where multiple terminals are bonded. Our Broadband Global Area Network (“BGAN”) service to the land mobile sector of up to 492 kbps, our FleetBroadband service of up to 432 kbps, and our SwiftBroadband service of up to 432 kbps, are provided via our Inmarsat-4 satellites. Our BGAN, FleetBroadband and SwiftBroadband services support higher-bandwidth applications, including, videoconferencing, live videostreaming and large file transfer, together with standard office applications such as email, internet, secure LAN access and voice telephony. These services have the same characteristics our end-users have historically enjoyed, including reliability, ease of use and security, and are supported by terminals that are smaller, more portable and cheaper than the terminals used to access our other services.

 

We have a successful launch and operating record, and have never experienced a satellite failure either upon launch or in orbit. Our current fleet of satellites includes three Inmarsat-2 satellites, launched in the early 1990s, five Inmarsat-3 satellites, launched between 1996 and 1998, and three Inmarsat-4 satellites, launched in March 2005, November 2005 and August 2008. Our Inmarsat-2 satellites have remained in commercial operation beyond their original design lives and our Inmarsat-3 satellites are expected to also. We currently expect that the last of our Inmarsat-2 satellites will cease commercial operation in approximately 2016, and that the last of our Inmarsat-3 satellites will cease commercial operation in approximately 2017.

 

The first Inmarsat-4 satellite was launched in March 2005 and began commercial service in the second quarter of 2005 as the primary satellite in the Indian Ocean region supporting our R-BGAN service, which was previously provided over satellite capacity we leased from Thuraya. The second Inmarsat-4 satellite was launched in November 2005 and began commercial service in the first quarter of 2006 as the primary satellite in the Atlantic Ocean region. The third Inmarsat-4 satellite was launched in August 2008 and entered commercial service in January 2009. This concludes a decade of development on the Inmarsat-4 programme. Each of our Inmarsat-4 satellites is up to 60 times more powerful and has up to 16 times more communications capacity than an Inmarsat-3 satellite and the Inmarsat-4 satellites extend the commercial life of our satellite fleet to beyond 2020. The Inmarsat-4 satellites serve as the platform for our broadband services—BGAN, FleetBroadband and SwiftBroadband and our satellite phone service (“SPS”).

 

With the third Inmarsat-4 satellite operational, we were able to implement plans to reposition a number of satellites in our satellite constellation. The repositioned constellation gives us full global coverage for our

 

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broadband services—BGAN, FleetBroadband and SwiftBroadband—at the same time as optimizing data connectivity across our worldwide network. The repositioning of our satellites and transfer of our broadband services has now been completed. The new global Inmarsat-4 satellites regions are:

 

   

Inmarsat-4 Americas—98 degrees West

 

   

Inmarsat-4 EMEA—25 degrees East

 

   

Inmarsat-4 Asia-Pacific—143.5 degrees East.

 

Also involved in the transfer were Inmarsat’s SPS—IsatPhone, LandPhone and FleetPhone—which now operate on two of the Inmarsat-4 satellites, namely the Inmarsat-4 EMEA and Inmarsat-4 Asia-Pacific satellites.

 

We sell the majority of our mobile satellite communications services on a wholesale on-demand basis via a well-established, global network of distribution partners, who provide our services to end-users, either directly or indirectly through service providers. Our global network of distribution partners and over 400 service providers in approximately 190 countries on six continents provide our services to end-users worldwide. Our distribution partners are affiliated with some of the largest communications companies in the world, including KDDI and Singtel and also include other significant distribution partners, such as Stratos and Vizada (formerly France Telecom Mobile Satellite Communications). We have targeted new distribution partners to distribute our broadband services either directly to end-users or through service providers. Pursuant to our Distribution Agreements, we charge our distribution partners wholesale rates, based on duration or volume of data transmitted or length of voice call according to the types of services they distribute to end-users, subject to annual volume discount arrangements.

 

In addition, third parties, such as the US Navy, lease mobile satellite communications services capacity from us through our distribution partners.

 

The following tables set forth the breakdown of revenue by business sector in dollar terms and as a percentage of total consolidated revenues for the periods indicated:

 

     2008     2007     2006  
     (US$ in millions)  

Maritime

   332.5     310.3     284.7  

Land

   141.8     125.8     116.1  

Aeronautical

   64.4     44.3     30.7  

Leasing

   79.7     66.2     60.3  
                  

Total mobile satellite communications services

   618.4     546.6     491.8  

Other income

   16.3     10.6     8.3  
                  

Total consolidated revenues

   634.7     557.2     500.1  
                  
     2008     2007     2006  
     (percentage)  

Maritime

   52.4 %   55.7 %   56.9 %

Land

   22.3 %   22.5 %   23.2 %

Aeronautical

   10.1 %   8.0 %   6.1 %

Leasing

   12.6 %   11.9 %   12.1 %
                  

Total mobile satellite communications services

   97.4 %   98.1 %   98.3 %

Other income

   2.6 %   1.9 %   1.7 %
                  

Total consolidated revenues

   100.0 %   100.0 %   100.0 %
                  

 

Geographical Markets

 

The Group operates in one business segment, the supply of mobile satellite communications services. Within this one business class, we operate in the maritime, land, aeronautical and leasing sectors. Our management evaluates the performance of all four sectors as a unified whole. The performance of all business sectors is viewed as a single segment by the decision-makers of the Group.

 

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We allocate revenues geographically based on the location of our distribution partners, whom we bill for mobile satellite communication services. These distribution partners sell services directly or indirectly to end-users, who may be located elsewhere. It is not possible for us to provide the geographical distribution of end-users, as we do not contract directly with them.

 

     2008    2007    2006
     (US$ in millions)

Europe

   224.5    196.8    251.0

North America

   323.1    289.3    155.5

Asia Pacific

   76.5    63.7    86.2

Rest of the world

   10.6    7.4    7.4
              

Total revenues

   634.7    557.2    500.1
              

 

Our Services and End-Users

 

Our principal services are mobile satellite communications services, which in 2008 accounted for approximately 97.4% of our revenue.

 

Mobile Satellite Communications Services

 

End-users access our mobile satellite communications services at sea, on land and in the air. We provide mobile data and voice services on a wholesale, on-demand basis through user terminals that vary based on bandwidth capability, size, mobility, and cost and lease capacity. Some of our services are available only in specified sectors (e.g., maritime-only applications), while others are available across a number of market sectors.

 

In 1982, we introduced our first service, Inmarsat A, an analogue voice and low-speed data product focused initially on the maritime sector. Since 1982, we have introduced a series of digital data and voice products that have helped consolidate our position in the maritime sector, facilitated our entry into the land and aeronautical sectors and added increasingly high-speed data products to our portfolio which we have grown for 30 years. The Inmarsat A service was terminated on 31 December 2007.

 

Our BGAN service and Other New Service Launches

 

BGAN

 

The broadband capability offered by our Inmarsat-4 satellites has allowed us to introduce a new generation of mobile satellite communications services. Our BGAN service is the first such service which we introduced in December 2005 initially in the land sector in EMEA and parts of Asia. BGAN offers end-users secure, reliable broadband capability for high-speed data applications. The service supports data transmission rates of up to 492 kbps, similar to, and in some cases higher than, the transmission rates planned for third generation (3G) terrestrial wireless networks, with the option of 64 kbps ISDN or IP streaming at 32, 64, 128 or 256 kbps. Inmarsat plans the introduction of asymmetric IP streaming rates of 384kbps in mid-2009. Applications for BGAN include office applications (VPN and LAN), large file transfer, video store-and-forward, video live broadcast, video conferencing and high-quality, price-competitive voice telephony. BGAN supports services such as SMS, call waiting, call forwarding and voicemail. Our BGAN service was commercially launched in the Americas in mid 2006. Service is now available globally.

 

Other broadband services (Aeronautical and Maritime)

 

In 2007 we launched our SwiftBroadband and FleetBroadband services. Our SwiftBroadband and FleetBroadband services can be accessed by end-users through dedicated terminals specifically designed for use in flight and at sea, respectively.

 

SwiftBroadband is suitable for a range of applications from aircraft operation and management to cabin applications such as email, internet access, SMS text messaging and integration into in-flight entertainment systems. SwiftBroadband is also being deployed in trials for the in-flight use of cellular phones and PDAs.

 

FleetBroadband is the first maritime communications service to provide cost-effective broadband data and voice, simultaneously, on a global basis. FleetBroadband brings vessels into the IP era, however it still supports the core ISDN capability of our existing services. Operational systems can be running online and users can simultaneously still access email, the internet and make phone calls, all via a single terminal.

 

SPS Services

 

Since 2007, our service portfolio has included the new handheld IsatPhone service and its fixed land and maritime derivatives, the LandPhone and FleetPhone services. IsatPhone, which is the first handheld satellite

 

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phone in the Inmarsat portfolio, is a dual-mode satellite/GSM phone. It is targeted at business and personal users who travel or work in areas where local telephone networks are unreliable or non-existent. LandPhone is a fixed land satellite phone installation targeted at remote villages. FleetPhone is a low-cost maritime voice service.

 

Initially SPS is available across much of the Middle East, Africa and Asia. Our GSPS will be rolled-out globally following an extensive network and terminal modernization and development programme currently expected to be completed in the second quarter of 2010.

 

Maritime End Users

 

We provide mobile satellite communications services to the maritime sector. During 2008, the maritime sector represented 52.4% of our total revenues, of which approximately 31.5% was generated by voice services and 68.5% was generated by data services.

 

End-users of our services in the maritime sector include companies engaged in merchant shipping, passenger transport, fishing, energy and leisure, as well as government and maritime patrol organizations (such as navies and coast guards). Merchant shipping accounts for the bulk of our maritime revenues, as those ships spend the majority of their time at sea away from coastal areas and out of reach of terrestrial communication services.

 

Maritime end-users utilize our satellite communications services for the following:

 

   

Data and information applications.    Ships’ crews and passengers use our services to send and receive email and data files, and to receive other information services such as electronic newspapers, weather reports, emergency bulletins and electronic charts and their updates. The new data speeds we now offer allow video conference applications to work over the premium services which enable video conference calling from any ocean region around the world.

 

   

Vessel management, procurement and asset tracking.    Shipping operators use our services to manage inventory on board ships and to transmit data, such as course, speed and fuel stock. Our services can be integrated with a global positioning system to provide a position reporting capability. Many fishing vessels are required to carry terminals using our services to monitor catches and to ensure compliance with geographic fishing restrictions. Furthermore, new security regulations in certain jurisdictions are expected to require tracking of merchant vessels in territorial waters.

 

   

Voice services for passengers and crew.    Maritime global voice services are used for both vessel operations and social communications for crew welfare. Merchant shipping operators increasingly use our services to provide phone cards and /or payphones for crew use with preferential rates during off peak times during the day.

 

With respect to existing services, we provide the following products to the maritime sector: Inmarsat B, Inmarsat C, Mini-C, Inmarsat D+, Inmarsat M, Mini M, Fleet 33, Fleet 55, Fleet 77 and Fleet 77 128K and leases. These products offer voice services and data transmission rates ranging from 600 bps to 128 kbps.

 

On 31 December 2007, at the end of a five-year notice period given to our end-user customers and the maritime industry, we switched off our only analogue service, known as Inmarsat A. This service had been in continuous operation since its launch in 1982, offering voice and data communications mostly to ships and other vessels at sea. Although at one time accounting for a significant proportion of our revenues, the vast majority of users of the Inmarsat A service had migrated to our newer digital services prior to the switch off. During 2007 the Inmarsat A service generated US$3.9m in revenue, however by December was not generating any material level of revenue, with the vast majority of users having migrated to newer Inmarsat services such as Fleet.

 

The remainder of our maritime services are digital, and typically offer higher-speed data transmission rates designed to meet increasing demand from shipping enterprises for cost-effective services and a broader range of applications, such as email and internet and intranet access.

 

In November 2007, Inmarsat commercially launched its FleetBroadband service offering voice and high-speed IP data service at transmission rates of up to 432 kbps to the world’s vessels, regardless of geographic location. This service represents a significant advancement in maritime mobile communications and will serve the maritime industry to 2023 and leverages the full capability of the Inmarsat BGAN network.

 

In addition to our commercial activities, we provide GMDSS safety services to the maritime sector. Ships in distress use our safety services to alert a maritime rescue co-ordination centre of their situation and position. The rescue co-ordination centre then uses our services to co-ordinate rescue efforts among ships in the area. The IMO requires all cargo vessels over 300 gross tons and all passenger vessels, irrespective of size, that travel in international waters to carry distress and safety terminals that use our services. European Union regulation

 

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requires EU-registered fishing vessels longer than 16 meters, to carry terminals for the purpose of positional reporting of those vessels. Typically, our maritime terminals support our commercial services as well as our GMDSS services, which are not revenue generating. We are currently recognized by the IMO as the sole provider of the satellite communications services required for GMDSS.

 

The IMO may in the future allow other satellite communications service providers that meet the requisite safety service requirements to provide the services required for GMDSS.

 

Land-Based End-users

 

We provide mobile satellite communications services to the land mobile sector globally, providing services to areas not served or not served well by existing terrestrial communications networks. We believe that increasing workforce mobility and widespread demand for reliable mobile communications devices capable of delivering higher data rates should contribute to increasing demand for our land-based data services by users operating outside the coverage of terrestrial networks.

 

During 2008, the land mobile sector represented 22.3% of our total revenues, of which voice services generated approximately 8.0% and data services generated approximately 92.0%.

 

Military and government agencies constitute the largest end-users in the land mobile sector and, similar to maritime end-users, demand reliable, high quality services. In addition to military and government users, aid organizations, media, construction, energy and transport companies utilize our services. Global security concerns, such as the recent conflicts and peacekeeping events in Afghanistan and Iraq and in response to natural disasters, continue to increase demand for our services around the globe.

 

Our land-based end-users utilize our satellite communications services for:

 

   

Voice, data and videophone.    Media companies and multinational corporations use our services for video conferencing, business telephony and to provide pay telephony services for employees in communities inadequately served by terrestrial networks. Media organizations transmit live broadcast quality voice, live videophone and store-and-forward video footage and still images using our services.

 

   

Mobile and remote office connectivity.    A variety of enterprises use our services to place and receive voice calls, access data, email, digital images, internet and facilitate corporate network connectivity.

 

   

Vehicle and facilities management.    Our services are used to monitor the location of transport fleets and to conduct two-way communications with drivers. Governments and multinational corporations use our services to run applications that enable the remote operation of facilities such as lighthouses, oil pipelines and utilities networks.

 

We offer both data and voice services to land sector end-users. Other than SPS, all of our existing land services are available globally (excluding extreme polar regions).

 

With respect to existing services, we provide the following products to the land sector: Inmarsat B, Inmarsat C, Inmarsat D+, Inmarsat M, Mini M, GAN, BGAN and SPS. These products offer data transmission rates ranging from 600 bps to 492 kbps (or higher, where multiple terminals are bonded).

 

Higher speed versions of our Inmarsat B service offer data transmission rates up to 64 kbps and our GAN service up to 256 kbps by combining channels; a rate higher than that available over most existing terrestrial wireless networks. Our GAN service offers a seamless extension for corporate networks for email, internet access, remote office connectivity and document transfer. Our Mobile Packet Data Service, for which end-users pay by the volume of data received and transmitted, rather than by the amount of time that they are on a call, further enhances our GAN service by supporting IP standards. This facilitates more cost-effective services and a wider variety of applications.

 

Commercial BGAN services commenced in December 2005 offering data rates up to 492 kbps. BGAN supports IP data services as well as traditional circuit switched data and voice, simultaneously via small, lightweight terminals that are easy to set up and simple to use. Furthermore BGAN is the first mobile communications service to offer guaranteed data rates on demand (“streaming”), to support real-time applications such as, ‘live’ news reports from the fields.

 

In September 2007 we announced the introduction of our new low data rate service, IsatM2M, which is a next-generation satellite telematics service based on our existing Inmarsat D+ service.

 

On 31 December 2008, in line with our previously announced plan, we terminated our R-BGAN service which had been in operation since November 2002 and which was intended as a precursor to our BGAN service. During 2008 the R-BGAN service generated US$8.6m in revenue (2007: US$14.0m), however by December 2008 the monthly rate of revenue was no longer material. We believe that by the end of 2008 the vast

 

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majority of R-BGAN users had already migrated or made preparations to migrate to our BGAN services in anticipation of the planned termination of the R-BGAN service. At 31 December 2008, we recorded 4,708 (2007: 7,608) active R-BGAN terminals and removed these from our active terminal count with effect from 1 January 2009.

 

Aeronautical End-users

 

We provide mobile satellite communications services to the aeronautical sector and in 2008 the sector represented 10.1% of our total revenues. In the aeronautical sector, our satellite communications services are used by commercial airlines, corporate jets, as well as government users. Avionics from our hardware partners have become factory options or standard equipment on a range of airframes in business aviation and air transport.

 

Our Aeronautical services are Aero C, Aero H/H+, Aero I, Aero L, Mini M, Swift 64 and SwiftBroadband. They offer voice and data communication rates ranging from 600 bps up to 432 kbps per channel. The Aero L, I, H and H+ services are compliant with ICAO’s standards for provision of safety services.

 

Aeronautical users utilize our satellite communications services for:

 

   

Air traffic control communications (“safety services”).    Aircraft crew and air traffic controllers use our services for data and voice communication between the flight deck and ground based control facilities. This includes ADS (Automatic Dependent Surveillance) for waypoint position reportings ACARS/FANS (Aircraft Communication and Reporting System/ Future Air Navigation System) for data link messages between controller and aircraft and CPDLC (Controller Pilot Data Link Communication “CPDLC”) for clearance and information services. Examples of this are user co-ordinate revisions of flight plans en route and transmission of aircraft systems’ data to the ground.

 

   

Operational communications.    Aircraft crew and airline ground operations use our services for air-to-ground telephony and data communications. For example aircraft systems’ “mission critical” condition data can be transmitted to the ground or administrative data can be transferred to the aircraft.

 

   

Aeronautical passenger communications.    Our services are being used for air-to-ground telephony, fax services and, communications as well as the enabler for in-flight mobile phone systems. The traditional in seat phone systems have been dominating passenger communication to date, but in addition to a number of ongoing trials, Emirates Airlines, Watanyia, RyanAir and Royal Jordanian are all now providing commercial services allowing passengers to communicate using their own mobile phones, Blackberry’s and other PDA’s.

 

Our Swift 64 service is firmly established as the recognised form of data connectivity to corporate jets and government aircraft. After the introduction of SwiftBroadband, which allows for higher data speed and simultaneous voice and data communication, the initial take up of the new service has come from these sectors.

 

End-user Terminals

 

Our data and voice services are provided over a range of communications terminals with different bandwidth capabilities, size, mobility and cost. Some of these terminals also provide maritime and air safety services. As size and portability are not as critical for maritime and aeronautical based users, the terminals available to these users are often larger, more expensive and satisfy the users’ requirements for stabilization and more stringent pointing capabilities (rather than portability). Other services and terminals, such as devices used for tracking and messaging, are also available.

 

Specialized third parties manufacture our user terminals and, except in the case of SPS terminals, sell them to end-users directly or via their own independent sales channels, as do our distribution partners and service providers. In the case of end-user terminals for SPS, we sell these terminals directly to our distribution partners. We establish the performance specifications of all terminals used to access our services with the terminal manufacturers. This helps us to ensure that our service quality objectives are met.

 

Our BGAN and SPS terminals are designed to provide access via our Inmarsat-4 satellites. BGAN terminals use the same Subscriber Identity Module (“SIM”) cards as terrestrial wireless terminals. This inter-operability enables distribution partners and service providers to deliver a single bill to users for both their mobile satellite and terrestrial communications services, subject to the establishment of appropriate roaming agreements.

 

Thrane & Thrane, Hughes Network Systems and Add Value have developed terminals to access our BGAN service. These manufacturers offer BGAN terminals for sale to end-users through their respective networks. We have not entered, and do not plan to enter, into any purchase commitments for BGAN distribution terminals. In 2007 we launched SPS and terminals for this service are produced by leading contract equipment manufacturers (“CEM”), for example Flextronics and PCI.

 

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In January 2009, we mutually agreed with EMS Technologies Canada Limited to terminate a development contract for our GSPS. Inmarsat remains fully committed to launching GSPS and has appointed Sasken Communications Technologies Limited to lead the programme, as well as making a number of decisions to increase the development effort and ensure that a compelling service offering is available at the earliest opportunity. As a result of this re-organisation of the development effort, we believe the introduction of GSPS will be in the second quarter of 2010. It is not expected that this change will lead to any material increase in the overall cost of the programme. The manufacturing and product distribution strategy for this new product will be announced in due course.

 

Leasing

 

We lease capacity on our satellites to distribution partners who provide the capacity to end-users. Typically, our capacity leases are short-term, with terms up to one year, although they can be as long as five years. We also lease specialized satellite navigation transponders on our Inmarsat-3 and Inmarsat-4 satellites primarily for the provision of navigation services to US and European civil aviation organizations, for up to five years. For 2008, total leasing revenues represented 12.6% of our total revenues.

 

Distribution

 

Existing Services

 

Our existing services (other than the family of broadband and SPS services) distributed through the network of our Land Earth Station Operators are governed by the Space Segment Access Agreement (“SSAA”) which came into effect on the 15th April 2009 and which replaces the former Land Earth Station Operator Agreement (“LESO Agreement”).

 

This agreement will subsist for a minimum period of five (5) years but has no fixed term although the SSAA may be terminated on two (2) years written notice by Inmarsat.

 

Whilst there are similarities between the SSAA and the LESO Agreement, there are substantive differences including;

 

   

the ability for Inmarsat to contract directly with end users

 

   

greater flexibility to amend pricing and other contractual terms after an appropriate notice period

 

   

less emphasis on volume discount schemes

 

It remains the case that we do not set the prices that end-users pay for our services.

 

For more information on the Distribution Agreements, see “Item 10: Additional Information—Material Contracts”.

 

Broadband and SPS family of Services

 

Our broadband and SPS family of services are governed by the Network Services Distribution Agreement (“NSDA”). The NSDA terms and conditions apply to all these services (with each service having different annexes) as well as future services that Inmarsat may elect to offer via its network to distribution partners. This will obviate the need to negotiate new agreements for each new service.

 

We distribute our broadband and SPS family of services through certain of our existing distribution partners (who include broadband and SPS services in their portfolio of Inmarsat services which they offer to end-users), as well as through distribution partners who focus exclusively on our broadband and/or SPS services. This group of distribution partners has been selected on the basis of strength to deliver our broadband and SPS services to key end-user markets and distribution partners’ willingness to invest significant resources to collaborate with us in the development and marketing of our broadband services and SPS services.

 

Whilst there are similarities between the NSDA and the previous individual distribution agreements as with the SSAA, there are substantive differences including;

 

   

the ability for Inmarsat to contract directly with end users

 

   

greater flexibility to amend pricing and other contractual terms after an appropriate notice period

 

   

less emphasis on volume discount schemes

 

   

the ability to recruit service providers as distribution partners

 

It remains the case that we do not set the prices that end-users pay for our services.

 

For more information on the Distribution Agreements, see “Item 10: Additional Information—Material Contracts”.

 

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Sales and Marketing

 

Our sales and marketing organization is designed to reflect our strategy as a mobile satellite services wholesaler, which leverages on our extensive network of distribution partners and service providers. Our sales and marketing organization interacts closely with our distribution partners and certain service providers to support them in marketing our existing and new mobile satellite communication services to end-users. We engage in targeted joint marketing activities with them to attract end-users to our services. At the same time, a key function of our sales and marketing organization is to gather, review and analyze end-user market intelligence as an important input towards our business and product strategy.

 

Our Network and Technology

 

Our Network

 

Our network is one of the largest satellite-based global mobile communications networks in the world. It comprises:

 

   

our fleet of 11 owned satellites in geostationary orbit;

 

   

land earth stations owned by our distribution partners, which transmit and receive our communications services to and from our satellites;

 

   

three satellite access stations comprising a total of seven antennae, all of which transmit and receive our BGAN traffic to and from our satellite network;

 

   

in respect of our SPS, we have established a gateway in Subic Bay, Philippines in cooperation with Philippines Long Distance Telephone Company and a gateway in Fucino, Italy as part of our BGAN SAS facility; and

 

   

a range of wireline communications links to terrestrial communications networks, which are procured or provided by our distribution partners (except for broadband and SPS services).

 

Our network is supported by four prime and three back-up tracking, telemetry and control stations and four principal network co-ordination stations owned by third parties located at different points around the globe. Our network operations centre and satellite control centre are in London. These facilities are further supported by a fully redundant disaster recovery site elsewhere in the United Kingdom.

 

Construction of a third satellite access station in Hawaii USA, which transmits and receives our broadband and SPS traffic to and from our satellite network, is now complete.

 

Our Satellites

 

The key characteristics of our existing geostationary satellites are summarized in the following table:

 

Key characteristics

   Inmarsat-2    Inmarsat-3   Inmarsat-4

Number of satellites

   3

(all in orbit)

   5

(all in orbit)

  3

(all in orbit)

Coverage and spot beams

   Global beam    Global beam and six wide
spot beams(1)
  Global beam, 19 wide spot

beams(1) and 200+ narrow
spot beams(2)

Launch dates

   October 1990 - April 1992    April 1996 - February 1998   F1 launched March 2005

F2 launched in November
2005 and

F3 launched in August 2008

Orbital position (on the equator)

   142W, 98W, 109E    64E, 15.5W, 178E, 54W,
25E
  143.5E, 25E, 98W

Geographic coverage

   Global (other than extreme
polar regions)
   Global (other than extreme
polar regions)
  Global (other than extreme
polar regions)

Manufacturer

   British Aerospace    Lockheed Martin   Astrium

Payload(4)

   Hughes    Marconi   Astrium

Launch vehicle

   Delta, Ariane    Atlas Centaur, Proton, Ariane   Atlas V (first launch)

Sea Launch (second launch)

Proton (third launch)

Cost (including launch insurance)

   US$675m    US$895m   US$1.1 billion(4)

 

(1) A wide spot beam has an average diameter of approximately 3,400 kilometres (2,100 miles), covering an area approximately the size of the continental United States.

 

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(2) A narrow spot beam has an average diameter of approximately 800 kilometres (500 miles), when pointed directly at the geographical regional immediately below the satellite (the “sub-satellite point”). This equates to an area approximately the size of Kenya. As the spot beam geographical coverage progressively moves away from the sub-satellite point, the geographical area covered by a narrow spot beam also progressively increases.

 

(3) Payload refers to communications subsystem.

 

(4) Based on our estimate of the costs to build, launch and insure three Inmarsat-4 satellites. Excludes the development cost of building our three satellite access stations and end-user terminals.

 

Our Inmarsat-2 and Inmarsat-3 Satellites

 

Each of our Inmarsat-2 satellites and Inmarsat-3 satellites covers up to one third of the earth’s surface, giving our existing services a global reach (except for the extreme polar regions).

 

Our satellites take advantage of the relatively wide coverage patterns of the antennae of mobile ground terminals with which they communicate to operate in orbits slightly inclined to the equatorial, thus reducing their station-keeping fuel requirements and thereby extending their maneuvering lifetimes. The satellites contain on-board fuel to support both regular position maintenance maneuvers and possible relocations to new orbital locations. All maneuvers consume on-board fuel and therefore reduce the remaining station-keeping life of a satellite. We have managed the maneuvers of our satellites in order to optimize the usable life of our satellite fleet.

 

In 2006 we de-orbited one of our four Inmarsat-2 satellites and now have only three of our Inmarsat-2 satellites remaining in orbit.

 

Our Inmarsat-4 Satellites

 

In May 2000, we entered into a contract with Astrium SAS for the development and construction of three Inmarsat-4 satellites. These satellites are designed to support high-bandwidth data services by incorporating higher-power transponders that can be focused into narrower beams than our earlier satellites. Each of our new Inmarsat-4 satellites has more than 200 narrow spot beams and 19 wide spot beams in addition to its global beam. The satellites also employ technology that enables us to adjust the size, shape and power of spot beams to meet changing user demand. The design of the spot beams on our Inmarsat-4 satellites allows us to use the available spectrum more than 12 times more efficiently than is possible on our Inmarsat-3 satellites. Each operational Inmarsat-4 satellite is 60 times more powerful than an Inmarsat-3 satellite (measured by maximum EIRP) on the narrowest spot beam, and each of our Inmarsat-4 satellites will be capable of providing approximately 16 times more communications capacity than each of our Inmarsat-3 satellites, based on estimates of forward and return data rates of GAN services on the Inmarsat-3 satellites and BGAN on our Inmarsat-4 satellites.

 

In early 2009 and following the successful launch of the third Inmarsat-4 satellite the previous year, we completed a satellite repositioning programme which created three new regions for our Inmarsat-4 satellites and the BGAN, SPS, SwiftBroadband and FleetBroadband services they support. This has enabled our Inmarsat-4 coverage to extend across the globe.

 

Ground Infrastructure for Inmarsat-2 and Inmarsat-3 Satellites

 

Our existing satellites receive and transmit our existing communications services through a network of land earth stations that are owned by our distribution partners. These land earth stations procure or provide the connections required to link our satellite system with terrestrial communications networks.

 

Our satellites are controlled from our satellite control and network operations centre in London via tracking, telemetry and control ground stations situated in the United States, Canada, Italy, Norway, China, New Zealand and Russia. Typically with a repetition rate of about every 16 seconds our satellites transmit a set of data about themselves comprising thousands of parameters. From our satellite control centre we manage each satellite’s on-board system, maintain each satellite within its designated orbital location and monitor the performance data transmitted from each satellite, taking corrective actions as required. Our network co-ordination stations allocate channels among the land earth stations in their regions. Our satellite control centre, our six ground stations and our four principal network co-ordination stations are all connected by a variety of leased communications links.

 

Our operation and control infrastructure is designed to ensure that redundant facilities are available should components in our operation and control system fail. Most of our satellites can be controlled from two ground stations, and we have a fully redundant back-up control centre in England that mirrors the functionality of our primary satellite control and network operations centre in London. Over the three years ended 31 December 2008, our average network availability for our existing and evolved services exceeded 99.99%.

 

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Ground Infrastructure for Our Inmarsat-4 Satellites

 

Following the successful launch for the third Inmarsat-4 satellite during the second half of 2008, we initiated in late 2008/early 2009 a series of changes to the orbital locations of our Inmarsat-4 satellites, and made some changes to the services being carried on these satellites. As a result, the Inmarsat-4 satellites no longer carry our Existing and Evolved services—these have in all cases returned to the Inmarsat-3 constellation on a global basis. Traffic carried on the Inmarsat-3 satellites is supported by existing land earth stations owned by LESOs with respect to the transmission and receipt of our Existing and Evolved services.

 

At the conclusion of the changes made to the orbital locations of the three Inmarsat-4 satellites, three new regions were created – the Americas, EMEA and Asia-Pacific. Two of our existing Satellite Access Stations (“SASs”), located at Fucino in Italy and at Burum in the Netherlands, transmit and receive our broadband family of services via the EMEA satellite, located at 25E longitude. These two stations provide complete site redundancy in case of partial or total outage of one SAS station for these services. In early 2009, a new SAS in Hawaii commenced operating over the Americas Inmarsat-4 satellite at 98W longitude and the Asia-Pacific satellite at 143.5E longitude.

 

We have entered into contracts with Telespazio S.p.A., with Stratos (Inmarsat plc’s indirect subsidiary company with effect from 15 April 2009) and with Intelsat Limited, to prepare and operate the Fucino SAS, the Burum SAS and the Hawaii SAS, respectively.

 

In respect of our recently launched SPS over Inmarsat-4 F1, we have established a gateway in Subic Bay, Philippines in cooperation with Philippine Long Distance Telephone Company. Our next generation SPS, GSPS, will be operated via the Subic Bay Gateway, together with the Gateways co-located with the Hawaii and Fucino SAS facilities.

 

Billing

 

Our billing systems collect and process data relating to all communications services we provide over our satellite network.

 

For circuit-switched Existing and Evolved data and voice services, where capacity is provided on a demand-assigned basis, our charges for the service commence from the time that one of our network co-ordination stations assigns a channel (when a signal is received by the network co-ordination station from one of our satellites) and end when the channel is released. Services billed on this basis include all Existing and Evolved voice services and our Inmarsat B, Mini M, Swift 64, Fleet and GAN ISDN data services.

 

For packet-switched Existing and Evolved services, provided on a demand-assigned basis, we charge on a usage basis according to the volume of data transmitted. Examples of such services include GAN Mobile Packet Data, Fleet Mobile Packet Data, Swift Mobile Packet Data, Inmarsat C and certain aeronautical data services.

 

We also utilize selected satellites to provide dedicated leased capacity for various Existing and Evolved services, and to provide specialized navigational transponder facilities. Lease charges are determined by satellite availability, lease duration, and the capacity, measured by service type, power and bandwidth, provided under the lease.

 

For circuit-switched Satellite Phone Services, where capacity is provided on a demand-assigned basis, we charge for usage according to call duration, measured at the appropriate switching centre.

 

Our broadband services are provided on a demand-assigned basis, with traffic being measured at the appropriate switching centre. For services other than streaming, we charge according to the volume of data transmitted. We market a number of rate plans, some of which feature advance payment in return for reduced rates and the facility to utilize the associated traffic allowance over an extended period of time. Streaming services are guaranteed IP communications services and are charged by duration of call.

 

Capacity provided on a demand-assigned basis is invoiced monthly and payable by the distribution partner on a monthly basis. Where capacity is leased, invoices are generated and payable by the distribution partner on a basis appropriate to the duration of the lease. Typically, for leases of 12 months or less, invoices are payable prior to commencement of the lease. Leases which are high value and for longer than 12 months are payable quarterly in advance.

 

Insurance of Our Business and Insurable Assets

 

Insurance of Our Satellites

 

In-orbit insurance.    We maintain in-orbit insurance for our first two Inmarsat-4 satellites and our current policy is in place until August 2009. In addition, we obtained “launch plus one year” insurance to cover the

 

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launch of the third Inmarsat-4 satellite and its first year of in-orbit operations, also until August 2009. The cost of obtaining insurance varies as a result of either satellite failures or general conditions in the insurance industry. For future years, in-orbit insurance policies for our Inmarsat-4 satellites may not continue to be available on commercially reasonable terms, or at all. We intend to maintain commercially prudent levels of in-orbit insurance for our Inmarsat-4 satellites on expiry of the existing in-orbit insurance coverage.

 

We do not intend to obtain in-orbit insurance for our Inmarsat-2 or Inmarsat-3 satellites due to the high level of operational flexibility in our satellite fleet as a whole.

 

Third Party Liability Insurance.    We also maintain third-party legal liability insurance. This insurance cover is in respect of sums which we might become legally obligated to pay for bodily injury or property damage caused by an occurrence related to services provided through the Inmarsat network or arising out of the ownership and/or operation of the Inmarsat fleet of satellites and including liability arising under the Convention on International Liability for Damage Caused by Space Objects (TIAS 7762) and the United Kingdom Outer Space Act 1986.

 

Intellectual Property

 

Our Brand

 

Our main brand is “Inmarsat”. The “Inmarsat” word is a trade mark licensed to us exclusively and perpetually by the International Mobile Satellite Organization (“IMSO”). We have the right to have IMSO apply for registration of this trade mark in the name of the IMSO in any country in the world. The trade mark is currently registered for equipment and services that are important to our business in countries including Australia, Brazil, the Netherlands, Belgium, Luxembourg, Canada, China, France, Germany, Norway, Singapore, Mexico, New Zealand, UAE, Egypt, Japan, Russia, South Africa, the United Kingdom and the United States.

 

Our license from IMSO allows us to grant sub-licenses. We have granted non-exclusive and royalty-free sub-licenses to, among others, our distribution partners and service providers to use the Inmarsat brand on the basis of the IMSO License.

 

Protecting Our Technological Developments

 

We use reasonable efforts to protect certain significant technology by filing patent applications in key jurisdictions. Our key jurisdictions vary depending on the technology involved. Patent applications are ordinarily filed in the United States, key European countries, Hong Kong, China, Canada, Mexico, the UAE and Japan. Priority applications are usually filed in the United Kingdom.

 

In addition to the above, or where patent protection is not possible or practicable for us, we seek to protect significant information about our technology, or “know-how”, by releasing it only to those third parties who have a reasonable need to access it (for example, for “Inmarsat Purposes,” in connection with the design, development, manufacture, reconstruction, modification, establishment, operation or maintenance of equipment, components or software capable of use, either directly or indirectly, with the satellites and other centralized infrastructure owned, leased or operated by or on behalf of Inmarsat) and who have signed confidentiality agreements or license agreements containing strict confidentiality obligations.

 

Key Operational Software

 

We own some of the key operational software used in our satellite control and network operations centre because it was created by our employees or by outside consultants who have transferred their intellectual property rights in that software to us. The main software suites of this kind are an Off-Air Monitoring System, an Inmarsat Network Monitoring System, both of which are used in our network operations center, and the Inmarsat Storm Satellite Support System suite of software used to control our satellite fleet and ground stations. In particular we commercially supply our satellite control software to third parties, as a way of reducing maintenance costs, funding of additional safety features for satellite control and retaining critical operational skills in the business.

 

The rest of our operational software is custom software designed by either third parties who have retained the intellectual property rights in it, but licensed those rights to us (normally on a non-exclusive, royalty-free, perpetual, worldwide basis) for use for Inmarsat Purposes (as defined above), or by our employees based on existing software supplied by third parties who have granted to us licenses to adapt that software.

 

All our key operational software is supported by appropriate technical maintenance and support arrangements that are either provided by our own employees or by third parties.

 

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Competition

 

Introduction

 

The global communications industry is highly competitive. We face competition from a number of communications technologies in a number of the target sectors for our services. It is likely that we will continue to face significant competition in some or all of our target sectors in the future.

 

Global Mobile Satellite Communications Services Competitors

 

We currently face competition globally from two mobile satellite communications services operators, Iridium (global) and Globalstar (multi-regional). Both Iridium and Globalstar operate in a separate part of the spectrum to us, in the “Big LEO” band, meaning that they do not interfere with our L-band operations or compete for spectrum in the L-band.

 

After commencing operations in 1998, Iridium filed for US bankruptcy protection in March 2000, Iridium recommenced service in early 2001. Since then, we have faced increasing competition from Iridium in some of our most material target markets, particularly in relation to voice and our lower speed Mini M data service in the maritime and land mobile sectors. Iridium provides data and voice services at rates of up to 9.6 kbps using compression software. In 2006, Iridium introduced a packet data service called SBD (Short Burst Data) which competes with IsatM2M and Inmarsat D+. In 2008, Iridium announced the introduction of a higher rate data service, OpenPort, targeted at the maritime market, and a new handheld terminal. The terminals used to access Iridium services are generally handheld devices that are smaller and less expensive than the terminals used to access our traditional services. In addition, Iridium’s end-user call charges are competitive with, and in some cases cheaper than, the rates offered by our distribution partners and service providers for our comparable services (not handheld).

 

Globalstar, which operates a multi-regional low-earth orbit system, began introducing commercial services in 2000. In February 2002, Globalstar filed for bankruptcy protection, which it exited in 2004 following its acquisition by Thermo Capital Partners. Globalstar was required to list publically by October 2006 under the conditions to exit from Chapter 11, and did so at that time, raising gross proceeds of approximately US$127.5m. Despite near-global satellite coverage, Globalstar’s service is available only on a multi-regional basis as a consequence of gaps in its ground transmission facilities but for which they have plans to reduce such gaps. The Globalstar system provides data and voice services at transmission rates of up to 9.6 kbps. The newest terminals used to access Globalstar services support only satellite mode, but older models can also be used to access GSM terrestrial wireless communications services if the end user has service contracts with the GSM providers. Globalstar’s end-user call charges are competitive with, and in some cases cheaper than, the rates offered by our distribution partners and other service providers for our comparable services.

 

In March 2005, Globalstar applied to the FCC for authorization to provide an integrated mobile satellite communication service/ATC service in the United States.

 

In February 2007, Globalstar announced that it was experiencing accelerated degradation of the amplifiers for S-band satellite communications in many of its satellites. This degradation has resulted in a significant adverse impact on Globalstar’s ability to provide uninterrupted two-way voice and data services on a continuous basis in any given location.

 

Globalstar successfully launched four satellites each on 29 May 2007 and 21 October 2007 which do not have the S-band amplifier problem. Globalstar did not launch any satellites in 2008.

 

In March 2009, Globalstar announced that the French government’s export credit agency intends to provide long-term credit insurance to support a US$574m credit facility to be extended by a syndicate of banks to Globalstar. Closing conditions for the credit facility include conversion into equity of senior secured term and revolving credit loans from Globalstar’s principal stockholder and the receipt by Globalstar of additional equity and contingent equity in an amount of approximately US$100m. Globalstar intends to use this financing to fund the manufacture and launch of Globalstar’s second generation satellites, the construction of its next-generation ground network and the design of its next-generation satellite interface chipsets.

 

Regional Mobile Satellite Communications Services Competitors

 

There are a number of regional mobile satellite operators with whom we compete in the provision of services to end-users who do not require global or multi-regional services. All of these competitors operate geostationary satellites. Some of them provide data and voice services at transmission rates ranging from 2.4 to 9.6 kbps while others provide data at transmission rates of up to 444 kbps. Our regional mobile satellite competitors currently include Thuraya, principally in the Middle East and Africa, SkyTerra (formerly Mobile Satellite Ventures—MSV) in the Americas, Optus MobileSat in Australia, INSAT 3C in India and N-Star in Japan.

 

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Thuraya offers voice and data services at transmission rates of up to 144 kbps in Europe (excluding parts of Scandinavia), Northern and Central Africa, the Middle East, parts of Central Asia and the Indian subcontinent. Thuraya supports GSM roaming services. In 2008 Thuraya successfully launched and brought into commercial service its Thuraya-3 satellite which provides additional coverage across the Asia-Pacific region.

 

SkyTerra offers voice and low-speed data services in the Americas using vehicle mounted devices that are smaller in size and less expensive than comparable Inmarsat terminals such as Mini M. On 8 November 2004, the FCC issued an order granting SkyTerra an ATC license and approving several waivers of the ATC Ruling that SkyTerra requested, while deferring ruling on certain additional waivers. For more information, see “Item 3: Risk Factors—Risks Relating to Our Business—Use by our competitors of L-band spectrum for terrestrial services could interfere with our services and to the discussion of a spectrum coordination agreement we have with SkyTerra.

 

Skyterra is constructing two satellites to support its ATC service, Skyterra 1 and Skyterra 2. Skyterra intends to launch the first of these satellites between March and May of 2010 and the second satellite during the fourth quarter of 2010 or the first quarter of 2011.

 

ACeS offers voice and low-speed data services in South East Asia, with particular focus on Indonesia, Thailand and the Philippines and a particularly strong customer base among Filipino crew for maritime communications services. In September 2006, Inmarsat entered into a strategic collaboration with ACeS.

 

Thuraya, SkyTerra and ACeS all operate in the L-band, SkyTerra in Region 2 (the Americas), Thuraya in Region 3 (Asia and Australia) and Region 1 (Europe, Middle East and Africa) and ACeS in Region 3, and therefore compete with us for spectrum allocations in the L-band. During 2007 we held discussions with Mobile Satellite Ventures LP, Mobile Satellite Ventures (Canada) and SkyTerra Communications, Inc. (together “SkyTerra”) about the efficient re-use and reorganization of our respective L-band spectrum across the Americas and we announced in December 2007 that a cooperation agreement for spectrum re-use was signed between Inmarsat plc and SkyTerra.

 

This agreement includes conditional provisions for the coordination of the parties’ respective existing and planned satellites serving the Americas and for the reorganization of our spectrum and that of SkyTerra over the Americas to provide contiguous spectrum in larger blocks for both our operations and efficient re-use of L-band spectrum. The purpose of the agreement is to increase spectrum efficiency and protect both Mobile Satellite Communication Services (“MSS”) and Ancillary Terrestrial Component (“ATC”) operations from inter-system interference. Additionally, the agreement sets up a framework for commercial cooperation between the parties to support the exploitation by SkyTerra of hybrid MSS-ATC services in North America.

 

We believe that the cooperation agreement will bring significant benefits to us with the reorganization of the spectrum allocation over the Americas allowing us to continue to grow and deploy our L-band services, especially our Broadband Global Area Network (“BGAN”) services and GSPS, in that region.

 

ICO Global Communications Inc. and TerreStar Networks Inc. are planning to deploy an integrated MSS/ATC service in North America. ICO successfully launched its satellite in 2008 and introduced trial services in two U.S. cities (Las Vegas and Raleigh-Durham). ICO’s trial services include live television, interactive navigation, and two-way messaging services for vehicles in North America. TerreStar had planned to begin commercial service in 2008 but satellite construction problems forced a delay. The US Federal Communications Commission (“FCC”) and Industry Canada granted a request by TerreStar for an extension of its satellite launch milestone from September 30, 2008 to June 30, 2009, and its operational milestone from November 30, 2008 to August 30, 2009. Both ICO and TerreStar will operate in the 2 GHz band, which will not interfere with our L-band operations. Because there is more contiguous spectrum available in the 2 GHz band, TerreStar will be able to provide higher-speed multimedia services which will compete with our higher-speed services recently launched.

 

VSAT Service Competitors

 

We face growing competition in some of our target market segments from communications providers such as Sealink, Vizada, SeaMobile, KVH, ShipEquip and CapRock who operate private networks using VSATs or hybrid systems to target business users. VSATs are fixed transportable or mobile terminals that access higher bandwidth services provided over satellite systems operating in the C-band, Ku-band and Ka-band radio frequencies. As well as new operators entering this area, the addition of further FSS satellite capacity is providing further competitive price pressure on the cost to end-users of VSAT services. Communication services provided by VSATs are primarily targeted at users who have a need for high-volume or high-bandwidth data services, although new entrants into the sector are offering lower volume and bandwidth products in competition with our services. The coverage area of VSAT services is not as extensive as the coverage area of MSS services,

 

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but growing rapidly to meet demand and is expected to be substantially global within two years. Technological innovation in VSAT terminals, together with increased C-band and Ku-band coverage and commoditization, have increased the competitiveness of VSAT and hybrid systems in some traditional mobile satellite communication services sectors by permitting smaller, more flexible and cheaper systems.

 

Terrestrial Competitors

 

We generally provide services primarily in areas that terrestrial networks do not serve at all or for which they are not the most cost effective or technically fit solution.

 

However, gradual extensions of terrestrial wireline and wireless communications networks and technologies to areas not currently served by them may reduce demand for our existing services and other services that we expect to provide. We expect that future extensions of terrestrial networks will be driven by economic returns generated by extending wireline or wireless networks. We also expect that many underdeveloped areas will be too sparsely populated to generate returns on investment required to build terrestrial communications networks. Unlike our terrestrial competitors, we can provide communications services to these underdeveloped areas at no incremental cost.

 

REGULATION

 

Introduction

 

Our business is regulated by a number of national and international regulatory authorities. We are subject to the regulatory authority of the government of the United Kingdom, as well as of the national authorities in the countries in which we operate. We are also subject to the regulations of various international organizations, including the ITU, IMSO and the EU.

 

The regulation of our business can be divided into three broad categories:

 

  1. rules governing the operation of our satellite system, which can in turn be divided into four areas:

 

   

launch and operation of satellites;

 

   

allocation and licensing of space orbital locations and associated electromagnetic spectrum;

 

   

licensing of ground infrastructure; and

 

   

licensing of end-user terminals (on the ground, at sea or in the air) and telecommunications services;

 

  2. antitrust and competition laws, which are generally applicable to national and international businesses; and

 

  3. other regulations, including rules restricting the export of satellite-related equipment and technology and public service obligations applicable to our business.

 

Regulation of Our Satellite System

 

UK Outer Space Act 1986

 

Our activities in outer space are regulated by the UK Outer Space Act 1986, which implements into UK law obligations under various international treaties. The Outer Space Act prohibits us from, among other things, operating a space object and carrying on any activity in outer space without a license from the UK Secretary of State for Trade and Industry issued under the Outer Space Act. Accordingly, we have obtained licenses under the Outer Space Act for our eleven in-orbit satellites.

 

Under the UK Outer Space Act, we are obliged to provide an indemnity to the UK government for an unlimited amount for any claims brought against it as a result of our licensed activities (for example, any actions brought against the UK government if one of our satellites were to collide with another spacecraft). We are also required by our licenses to obtain insurance of up to £100m per satellite to be used to pay any sums to the UK government in respect of this indemnity, which amount may be increased in the future by the UK government. We have obtained the required insurance for all our in-orbit satellites.

 

International Telecommunication Union Filings and Co-ordination Procedures

 

The ITU is the United Nations treaty organization responsible for worldwide cooperation and standardization in the telecommunications sector. The ITU registers radio frequency bands and orbital locations used by satellites and publishes the Radio Regulations, which set out detailed rules for use of spectrum.

 

Pursuant to the Radio Regulations, national regulators are required to file technical information with the ITU relating to the proposed satellite systems of operators under their jurisdiction. Ground-based transmission

 

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facilities operated by us or our distribution partners, called land earth stations, which connect our satellites to terrestrial communications networks, are also subject to the Radio Regulations if the land earth station co-ordination area crosses an international border.

 

All necessary filings for our in-orbit satellites have been made on our behalf by the UK Radiocommunications Agency (which, from 29 December 2003, was incorporated into and replaced by the UK Office of Communications, known as OFCOM). Once filings have been made with the ITU, a frequency co-ordination process follows to ensure that each operator’s services do not cause unacceptable interference to the services of other operators. The negotiations are conducted by the national administrations with the assistance of satellite operators. The timetable and procedures for co-ordination are also governed by the Radio Regulations. We have co-ordinated frequencies in the mobile satellite services spectrum at L-band (1.5 and 1.6 GHz) for communication between our satellites and end-user terminals, as well as frequencies in the C-band (4 and 6 GHz) for communications between land earth stations and our satellites. We also have co-ordinated frequencies in the C-band for our tracking, telemetry and command signals to and from our satellites.

 

Frequency in the L-band is supposed to be allocated on an annual basis in a regional multilateral co-ordination process, which takes place annually through two separate and independent regional operator review meetings among satellite operators using frequencies in the L-band. One meeting involves operators whose satellites cover North America (known as “Region 2”), while the other involves operators whose satellites cover Europe (known as “Region 1”), Africa, Asia and the Pacific (collectively known as “Region 3”). Both of these groups co-ordinate our use of frequencies in South America. In each case, satellite operators co-ordinate frequencies and assign spectrum by consensus. It is always possible to agree frequency allocation and co-ordination on a bilateral basis between operators outside this multilateral process, subject to non-interference with third parties.

 

In December 2007, we signed an agreement with SkyTerra for spectrum re-use and the reorganization of our respective L band spectrum across the Americas.

 

This agreement includes conditional provisions for the co-ordination of the parties’ respective existing and planned satellites serving the Americas and for the reorganization of our spectrum and that of SkyTerra over the Americas to provide contiguous spectrum in larger blocks for both our operations and efficient re-use of L-band spectrum. The purpose of the agreement is to increase spectrum efficiency and protect both Mobile Satellite Communication Services (“MSS”) and Ancillary Terrestrial Component (“ATC”) operations from inter-system interference. Additionally, the agreement sets up a framework for commercial cooperation between the parties to support the exploitation by SkyTerra of hybrid MSS-ATC services in North America.

 

In general, increased competition for spectrum and orbital locations (and/or disputes with parties to regional co-ordination processes) may make it difficult for us to retain rights to use the spectrum and orbital resources we require either generally or in relation to particular regions or countries. We cannot guarantee that we will be able in the future to retain spectrum and orbital rights sufficient to provide our existing or future services. We also cannot determine to what extent regulatory authorities will charge us or our distribution partners for the use of mobile satellite service spectrum or how much would need to be paid to acquire or retain such spectrum in the future. To the extent we or our distribution partners are unable to retain the rights to use such spectrum or are required to pay for such use (by spectrum auctions or otherwise), our ability to provide services may either be limited or become more costly, which may harm our business or our results of operations.

 

Use of Mobile Satellite Service Spectrum to Provide Terrestrial Communications Services

 

In January 2003, under the ATC Ruling the FCC decided to permit mobile satellite service operators to use their assigned mobile satellite service frequencies to provide ancillary terrestrial wireless communication services in the United States as part of an integrated service.

 

On 8 November 2004, the FCC issued an order granting SkyTerra an ATC license and approving several waivers of the ATC Ruling that SkyTerra requested, while deferring ruling on certain additional waivers. On 10 February 2005, following a series of petitions and requests for reconsideration, the FCC clarified the ATC Ruling by the MOO which, inter alia, settled the applicable rules on inter-system interference and other general requirements for integrated MSS/ATC systems. The December 2007 Cooperation Agreement entered into between Inmarsat and SkyTerra described in the preceding section provides a framework for collaboration on hybrid MSS-ATC services in the L band, and would provide the vehicle for these companies to participate in an MSS-ATC deployment. SkyTerra has filed an application seeking a modification of its U.S. FCC ATC authorization to seek waivers of certain technical rules applicable to its ATC license to reflect the multilateral coordination agreement reached between SkyTerra and Inmarsat. The FCC has yet to act on that application.

 

Globalstar was granted an ATC license in early 2006. Globalstar is proposing to operate its ATC system in the Big LEO band, a different part of the spectrum from the L-band, which we use for our mobile satellite

 

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communications services, so it should not cause any interference to our services. On 31 October 2008, the FCC granted Globalstar’s request that its existing ATC authority be modified to authorize the provision of MSS/ATC services using TDD WiMAX, WCDMA, TD-CDMA and LTE packet switched data protocols. On 4 September 2008, Globalstar requested that its existing space station license be modified to authorize the launch of 48 additional second-generation satellites to replenish and supplement the existing NGSO MSS constellation. The FCC has not acted on the space station license modification application.

 

On 7 September 2007, TerreStar Networks Inc (“TerreStar”) filed for ATC authority in the United States, and on 30 November and 3 December 2007, New ICO Satellite Services G.P. (“ICO”) filed companion base station and user terminal ATC applications. On 27 May 2008, TerreStar filed an amendment to its pending U.S. ATC application to request waiver of certain FCC ATC technical requirements. That amendment has been subject to public comment but the FCC has not taken final action on the request. On 15 January 2009, the FCC granted ICO’s ATC applications with certain conditions, including the requirement that they not commence ATC operations until they have firm arrangements in place to have a spare satellite available not later than one year after commencement of ATC operations.

 

The implementation of ATC services by MSS operators in the United States or other countries may result in increased competition for the right to use L-band spectrum, and such competition may make it difficult for us to obtain or retain spectrum resources we require for our existing and future services. In addition, the FCC’s decision to permit integrated MSS/ATC services was based on certain assumptions, particularly relating to the level of interference that the provision of integrated MSS/ATC services would likely cause to other MSS operators, such as us, who use the L-band spectrum. If the FCC’s assumptions with respect to the use of L-band spectrum for integrated MSS/ATC services prove inaccurate, or a significant level of integrated MSS/ATC services is provided in the United States, the provision of integrated MSS/ATC services could interfere with our satellites and user terminals, which may adversely impact our services. For example, the use of certain L-band spectrum to provide integrated MSS/ATC services in the United States could interfere with our satellites providing communications services outside the United States where the “footprint” of those satellites overlaps the United States. Such interference could limit our ability to provide services that are transmitted through any satellite visible to the United States. Two of our Inmarsat-2, two of our Inmarsat-3 and two of our Inmarsat-4 satellites are visible to the United States. In addition, users of our terminals in the United States could suffer interruptions to our services if they try to use their terminals near ATC terrestrial base stations used to provide integrated MSS/ATC services. In the event that we anticipate significant usage of mobile user terminals near ATC terrestrial base stations, it may be necessary for the manufacturers of the mobile terminals to modify their products to make them less susceptible to interference, or for us to develop new call set-up procedures which will redirect traffic to frequencies that are adequately removed from transmissions by nearby ATC base stations. Certain provisions in our December 2007 Cooperation Agreement with SkyTerra are also designed to offset the impact that deployment of ATC in the United States would have on users of Inmarsat services.

 

Other jurisdictions are considering and could implement similar regulatory regimes in the future. In May 2004, Industry Canada, the Canadian regulator, decided in principle to allow ATC services in Canada. European Commission Decision 2007/98/EC of 14 February 2007 on the harmonized use of radio spectrum in the 2 GHz frequency bands for the implementation of systems providing mobile satellite services confirms this as being satellite spectrum and allows the installation of a terrestrial component. A pan-European selection and award process is currently being decided upon in a co-decision process between Council and Parliament.

 

Other National Satellite Operator Authorizations

 

While in the majority of countries we have not been required to obtain specific telecommunications or spectrum licenses to transmit our satellite signals or offer our existing services, we have obtained specific telecommunications or frequency licenses with respect to our existing services in a number of countries. Inmarsat has also registered as a provider of space capacity, as required by national laws, in a few countries. Additional countries are considering whether to implement such license requirements. In some countries, we have been required to comply with additional or unique licensing requirements. To date, the requirements imposed on us to obtain these licenses have been minimal and the associated costs are reasonable.

 

Increasingly, regulatory authorities are imposing fees and introducing new regulatory requirements on businesses that use radio frequencies, which could significantly affect our business, including by imposing new and unforeseen additional costs and limiting our ability to provide existing or new services. We cannot determine to what extent regulatory authorities will charge us or our distribution partners for the use of mobile satellite communications services spectrum, or how much would need to be paid to acquire or retain such spectrum in the future. To the extent we or our distribution partners are unable to retain the rights to use such spectrum, or are required to pay large amounts for such use (by spectrum auctions or otherwise), our ability to provide services may either be limited or become more costly, which may harm our business or the results of our operations.

 

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Regulation of Use of Ground Infrastructure

 

Our agreements with our distribution partners who operate the land earth stations that connect our satellites to terrestrial communications networks includes provisions to ensure that they hold the appropriate licenses to operate their land earth stations. We provide assistance to our distribution partners both by ensuring they are aware of licenses they may be required to hold in the jurisdictions where they sell our services, and by assisting them to obtain the necessary licenses.

 

Our satellite control and network operation centre in London does not require individual licenses under UK communications law. The ground stations that control and monitor our satellites are operated by third parties (under service contracts with us) that are responsible for ensuring that they are appropriately licensed under national regulations.

 

The ground infrastructure that we have developed for our broadband services comprises fewer land earth stations than we have relied upon for the distribution of our existing services. However, it is possible that the regulatory authorities in some countries may require us to establish land earth stations in their countries as a condition of distributing our broadband services in those countries. In respect of the land earth stations for our broadband services, which we own and/or operate in Italy and the Netherlands, we have already obtained the necessary licenses for the operation of those stations as network facilities. We have also obtained and are seeking modifications to licenses from the U.S. FCC for operation of several antennas at a satellite access station that we own and operate in Paumalu, Hawaii for our broadband and GSPS services. The Paumalu land satellite access station is similar in design and operation as the land satellite access stations in Italy and the Netherlands.

 

For a further discussion of the regulatory risks we currently and in the future may face, see “Item 3: Risk Factors—Regulatory Risks—Our business is subject to regulation and we face increasing regulation with respect to the transmission of our satellite signals and the provision of our mobile satellite communications services in some countries, which could require that we or our distribution partners incur additional costs, could expose us to fines and could limit our ability to provide existing and new services in some countries”.

 

Licensing of End-user Terminals and Provision of Telecommunications Services

 

We, together with our distribution partners and their service providers, are subject to increasing regulation in many countries with respect to the distribution of our services to end-users, particularly in the land sector.

 

Different regulatory regimes apply to the use of end-user terminals depending on where they are located and whether they are installed in ships or aircraft or are for land use.

 

Regulatory authorities in approximately 180 countries permit the use of terminals to access our existing services. Most of these countries require end-users (and, in some cases, distribution partners) to obtain a license for such use. We have assessed the conditions of use that will apply to our planned GSPS service in over 100 countries and we are working closely with our distribution partners to develop optimal access strategies for each of these jurisdictions, particularly with respect to in-country provision of service.

 

Maritime Terminals

 

Terminals for using our services installed onboard ships are licensed by the country to whose jurisdiction the ship is subject. The licensing of terminals is generally part of a broader license that covers all the communications equipment on the ship. The International Agreement on the Use of Inmarsat Ship Earth Stations within the Territorial Sea and Ports came into force on 12 September 1993. Forty-six countries are parties to this agreement, which permits the operation of terminals in the territorial seas and ports of the signatory countries. In countries which are not party to this agreement, national law may nevertheless permit the use of our terminals. For example, in the United States—which is not party to this international agreement—foreign ships are authorized to use their communications equipment in domestic territorial waters and ports under Section 306 of the US Communications Act of 1934, as amended.

 

Land Terminals

 

In many of the countries that permit terminals to be used in their territory, the end-users and/or distribution partners of our services must obtain licenses under national laws relating to use of radio frequency. In addition, distribution partners may be required to obtain licenses relating to the provision of telecommunications services.

 

A number of countries, particularly in the Middle East and Central Europe, continue to maintain a monopoly on providing communication services or have onerous national security requirements that may effectively prevent us from offering (or restrict our ability to offer) satellite communications services to land-based users. In some countries, end-users are required to apply and obtain permission to use terminals to access our existing and new services, and in some cases to pay relatively high application fees. These requirements could deter some end-users from using terminals in those countries.

 

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In Europe, terminals do not generally require individual licenses. This eliminates the need for the regulator to issue individual licenses for multiple, identical terminals. This follows the spirit of EU Directive 2002/20/EC on the authorization of electronic communications networks and services which foresees that “the least onerous authorization system possible should be used to allow the provision of electronic communications networks and services in order to stimulate the development of new electronic communication services and pan-European communications networks and services and to allow service providers and consumers to benefit from the economies of scale of the single market.” The subject of free circulation of satellite terminals has also been dealt with substantially in the CEPT/ECC, which has recently adopted a decision that encourages administrations not to require any license of any kind as a condition to allow for free circulation and use of mobile satellite terminals. However, it is expected that the circulation of terminals will continue to be subject to service provision licenses resulting from those member states seeking payment for the use of frequencies.

 

The terms of and cost to the end-user of obtaining individual licenses vary by jurisdiction. We have actively participated in European Conference of Postal and Telecommunications Administration project teams and working groups and proposed a harmonization of the interpretation of “free circulation” to mean an exemption at all levels of any kind of licensing burden which many administrations within the EU have endorsed. In general, the cost of terminal licenses is decreasing worldwide, and the period of time an end-user may remain in a jurisdiction with a terminal before requiring a license is increasing.

 

In the United States, the FCC issues blanket licenses for many types of communications devices. Various companies have applied for, and been granted, blanket licenses to cover a number of different types of terminals, which access our services in the United States. On 11 February 2009, Inmarsat Hawaii Inc. filed an application with the FCC requesting a blanket user terminal license for certain land existing and evolved and BGAN terminals. The application is pending.

 

Aeronautical Terminals

 

Terminals installed on aircraft using our services are licensed by the country to whose jurisdiction the aircraft in question is subject. The licensing of equipment to use our services is generally part of a broader license that covers all the communications equipment on the aircraft. ICAO Resolution A29-19 recommends that countries grant general permission for the use of communications equipment aboard foreign-registered aircraft operating within their territory, subject to a number of limitations. In exceptional cases (e.g. Australia), the use of aeronautical terminals for passenger communications is subject to achieving compliance with national requirements on security of communications or equivalent.

 

Equipment Testing and Verification

 

In addition to licenses for the use of spectrum, terminals must also comply with applicable technical requirements. These technical requirements are intended to minimize radio interference to other communications services and ensure product safety.

 

In Europe, there is full harmonization of these standards and associated type approvals. European Directive 99/5 provides that EU member states will allow a mobile satellite terminal to be placed on the market if it bears a mark confirming conformity with the technical requirements of the Directive.

 

In the United States, the FCC is responsible for ensuring that communications devices comply with technical requirements for minimizing radio interference and human exposure to radio emissions. The FCC requires that equipment be tested either by the manufacturer or by a private testing organization to ensure compliance with the applicable technical requirements. For other classes of device, the FCC requires submission of an application, which must be approved by the FCC, or in some instances may be approved by a private testing organization.

 

In the Asia Pacific region, in the case of Japan completion of national type approval is an integral part of the authorization of new telecommunication services.

 

Other Communications Regulatory Issues

 

Universal Service Funds

 

Some countries, such as the United States, India, Kenya, South Africa and Australia, require a number of telecommunications service providers to contribute funds to “universal service” programmes. These programmes in turn use the funds to subsidize consumers’ access to services in high-cost areas, such as rural markets, access for low-income customers, and other services deemed to be socially desirable. We, as well as our distribution partners and their service providers may be required to make contributions to these programmes, which may increase the cost of providing services over our system.

 

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Law Enforcement and National Security Requirements

 

Generally, communications networks operate under national regulations that require operators to provide assistance to law enforcement and security agencies. These national regulations typically require operators of communications networks to assist in call interception by providing to such agencies call interception or information relating to persons or organizations subject to security or criminal investigations, surveillance or prosecutions under the relevant national jurisdictions.

 

We and our distribution partners who operate land earth stations are required to comply with these regulations in a number of jurisdictions, which may restrict our ability to offer our services in some countries or increase our costs.

 

Numbering

 

The International Telecommunications Union (“ITU”) controls the assignment of country codes used for placing telephone calls between different countries. Inmarsat were originally assigned the codes 871, 872, and 873, with the choice of code depending on the location (Ocean region) of the Inmarsat terminal in question. When Inmarsat applied to the ITU for a fourth code to enhance global coverage the ITU assigned the code 874 for the fourth Ocean Region and also assigned the code 870 to which all Inmarsat services should migrate to by the end of 2008. In accordance with the agreement with the ITU Inmarsat formally handed back the codes 871-4 at the final 2008 meeting of ITU-T Study Group 2 (the committee which manages the assignment of the codes within the ITU). A letter of acknowledgement was sent to Inmarsat on 8 of January 2009 by the Director of the ITU ‘T’ Sector and formal notification to the telecommunications community via the ITU-T Operational Bulletin number 925, dated 1 February 2009, reclaiming the assignment of code 871-4 from Inmarsat and re-assigning them to the category of ‘Spare’.

 

Antitrust and Competition Laws

 

EU Law

 

EU law prohibits anti-competitive agreements and abuse of dominant market positions through Articles 81 and 82 of the Treaty of Rome, as amended (previously Articles 85 and 86). Many member states, including the United Kingdom, also have similar prohibitions in national law.

 

Arrangements prohibited under Article 81(l) are void under Article 81(2). Until May 2004, the European Commission had the power to exempt agreements formally notified to it under Article 81(3). Where such an agreement was notified to the European Commission for an exemption under Article 81(3) and the notifying company’s activities and circumstances were unchanged, the European Commission could not impose a fine from the date of notification, except in very limited circumstances. In 1997, our proposed commercial arrangements with our distribution partners were notified to the European Commission. After examining the arrangements, the European Commission issued an administrative (comfort) letter on 19 October 1998 closing its examination of the arrangements and stating that the European Commission did not consider that the arrangements affected competition within the EU to an appreciable extent and therefore were not in breach of Article 81.

 

Since May 2004, when Regulation 1/2003 came into force, notifications of agreements to the European Commission have no longer been possible and it is up to the parties to assess whether the terms of the contract comply with the requirements of Article 81. Since May 2004, national competition authorities and courts of the member states have had the power to apply Article 81(3). We have therefore evaluated the terms of the Distribution Agreements in light of Article 81. For more information, see “Item 3: Risk Factors—Regulatory Risks—Our contractual relationships with our distribution partners may be subject to regulatory challenge, which could require us to renegotiate the contractual relationships and could result in the imposition of fines”.

 

From 2004 onwards our relationship with our distribution partners has been governed by the Distribution Agreements, which superseded the commercial arrangements notified in 1997 (and which came into effect in 1999). In April 2009 the Distribution Agreements from 2004 were replaced by a new set of Distribution Agreements, see “Item 10 Additional Information—Material Contracts”.

 

Article 82 prohibits the abuse of a dominant market position insofar as it may affect trade between EU member states. Antitrust authorities may determine that we have market power in one or more business sectors. We have implemented an antitrust compliance programme to decrease the possibility that we would enter into any agreements which might restrict competition without obtaining the appropriate clearance or that we would engage in any business practices that might be considered abusive.

 

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The European Commission can impose fines (up to 10% of a company’s worldwide annual group revenues) for breaches of Articles 81 and 82. The existence of our antitrust compliance programme may be a mitigating factor in determining the level of such fine. In addition, civil litigation may be brought by third parties claiming damages caused by allied anti-competitive practices and agreements.

 

US Law

 

US antitrust laws are generally applicable to our distribution partners who operate land earth stations in the United States, and, under some circumstances, could be applicable to us. These laws prohibit, among other things, the monopolization of markets (including attempted monopolization and conspiracies to monopolize) and agreements that restrain trade, such as agreements among competitors to fix prices. If US authorities were to determine that we, and/or our distribution partners who operate land earth stations in the United States, have violated any US antitrust laws, heightened regulatory burdens and/or sanctions could be imposed.

 

Other Regulation

 

US Export Control Requirements

 

The United States regulates the export and re-export of commercial communications satellites and most satellite-related components, subsystems, software and technology as defense articles under the Arms Export Control Act. Exports of these items from the United States require licensing by the US Department of State after consultation with the Department of Defense. Technical cooperation arrangements between US and UK companies also require approval. The launch location and launch-related technical arrangements for US satellites, and for foreign satellites containing regulated US origin components, also require separate approval by the US State Department. The timing of US license processing can be difficult to predict; licenses are often issued with commercially significant conditions and restrictions, and the use of some launch locations that may have pricing or other advantages may not be approved.

 

A number of satellite components and satellite related services for our Inmarsat-4 satellites were sourced from US suppliers and we have successfully obtained all relevant licenses and approvals from the US State Departments. We cannot, however assure you that our US suppliers will be able to secure requisite licenses in a timely fashion, that those licenses will permit transfer of all items requested, that launches will be permitted in locations that we may prefer, or that licenses, when approved, will not contain conditions or restrictions that pose significant commercial or technical problems. Such occurrences could delay the launch of any future satellites.

 

Our sale of SPS terminals to our distribution partners is also governed by US export and re-export controls. Whilst we contractually require our distribution partners to implement these controls within their distribution chain and with end-users, there is no assurance that end-users comply with these controls.

 

IMSO Requirements

 

IMSO oversees our provision of satellite communications services to support GMDSS. If we were to breach this public service obligation, IMSO has various powers to compel us to perform those obligations. The IMSO Assembly has agreed to admission of other GMDSS suppliers subject to relevant approvals of their GMDSS services being obtained. Inmarsat currently remains the sole provider of satellite communications services required for GMDSS.

 

IMSO holds a special rights non-voting redeemable preference share in Inmarsat Ventures Limited, known as the Special Share. The Special Share carries rights including an effective veto power over any amendment to our public service obligations for GMDSS and over any resolution to effect the voluntary winding-up of Inmarsat Ventures Limited.

 

Legal Proceedings

 

As of the date of this Annual Report, we are not engaged in or aware of any pending or threatened legal or arbitration proceedings that could have a material effect on our financial position.

 

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ORGANIZATIONAL STRUCTURE

 

As of 31 December 2008, Inmarsat Group Limited has the following direct or indirect wholly-owned subsidiaries:

 

     Principal activity    Country of
registration/
incorporation

and operation
   Effective interest in
issued ordinary share
capital at 31 December
2008
 

Inmarsat Finance plc

   Finance company    England and Wales    99.9 %

Inmarsat Investments Limited

   Holding company    England and Wales    100 %

Inmarsat Ventures Limited

   Holding company    England and Wales    100 %

Inmarsat Global Limited

   Satellite
telecommunications
   England and Wales    100 %

Inmarsat Employment Company Limited

   Employment company    Jersey    100 %

Inmarsat Inc

   Service provider    USA    100 %

Inmarsat Employee Share Plan Trustees Limited

   Corporate trustee    England and Wales    100 %

Inmarsat Trustee Company Limited

   Corporate trustee    England and Wales    100 %

Inmarsat Brasil Limitada

   Legal representative
of Inmarsat
   Brazil    99.9 %

Inmarsat Leasing Limited

   Satellite leasing    England and Wales    100 %

Inmarsat (IP) Company Limited

   Intellectual property
holding company
   England and Wales    100 %

Inmarsat Leasing (Two) Limited

   Satellite leasing    England and Wales    100 %

Inmarsat Services Limited

   Employment company    England and Wales    100 %

Inmarsat Launch Company Limited

   Satellite launch
company
   Isle of Man    100 %

EuropaSat Limited

   Operating company    England and Wales    100 %

Inmarsat Navigation Ventures Limited

   Dormant    England and Wales    100 %

Inmarsat B.V

   Service provider    The Netherlands    100 %

Inmarsat US Holdings Inc

   Holding company    USA    100 %

Inmarsat Government Services Inc.

   Service provider    USA    100 %

Inmarsat Hawaii Inc

   Service provider    USA    100 %

Inmarsat Canada Holdings Inc.

   Holding company    Canada    100 %

PT ISAT

   Management and
business consulting
services
   Indonesia    100 %

 

Galileo Ventures Limited changed its name to EuropaSat Limited on 10 July 2008.

 

Inmarsat Government Services Inc. was incorporated on 26 June 2008.

 

Inmarsat Canada Holdings Inc. was incorporated on 4 December 2008.

 

The Registrants

 

Inmarsat Finance plc—Issuer

 

Inmarsat Finance plc is a finance company whose sole purpose was to issue the Senior Notes, and to loan the proceeds to Inmarsat Investments Limited pursuant to subordinated intercompany Senior Note proceeds loans.

 

Inmarsat Group Limited—Parent Guarantor

 

Inmarsat Group Limited is the parent holding company and does not conduct any business operations directly. Its only significant assets are the shares of Inmarsat Finance plc and of Inmarsat Investments Limited. Excluding its guarantee of the Notes, its only indebtedness is a subordinated intercompany shareholder funding loan of US$766.9m borrowed in connection with the Acquisition.

 

Inmarsat Investments Limited—Subsidiary Guarantor

 

Inmarsat Investments Limited is an intermediate holding company whose only assets are the shares in Inmarsat Ventures Limited. Inmarsat Investments Limited is the borrower of $550m under a Senior Facility Agreement and also is the borrower of the US$310.4m subordinated intercompany Senior Note proceeds loan from the Issuer.

 

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Inmarsat Ventures Limited—Subsidiary Guarantor

 

Inmarsat Ventures Limited is an intermediate holding company. Its only significant assets are the shares of Inmarsat Limited, Inmarsat Leasing (Two) Limited and Inmarsat Launch Company Limited. It also holds shares in a number of other subsidiary companies. The International Maritime Satellite Organization holds one Inmarsat Ventures Limited special rights non-voting redeemable preference share of £1.00.

 

Inmarsat Global Limited—Subsidiary Guarantor

 

Inmarsat Global Limited is the Group’s principal operating company. Inmarsat Ventures Limited holds 100% of its shares.

 

Inmarsat Leasing (Two) Limited—Subsidiary Guarantor

 

In 2002, a wholly-owned subsidiary of Inmarsat Global Limited, Inmarsat Leasing Limited, transferred ownership of three of its satellites to a newly formed company, Inmarsat Leasing (Two) Limited, in connection with a financing transaction. Inmarsat Leasing (Two) Limited conducts no other operations apart from satellite leasing.

 

Inmarsat Launch Company Limited—Subsidiary Guarantor

 

Inmarsat Launch Company was formed on 4 December 2003 in the Isle of Man. Inmarsat Launch Company Limited (ILC) was assigned launch contracts related to the Inmarsat-4 satellites and is the beneficiary of the Inmarsat-4 launch insurance. ILC provides a fully managed launch service for the Inmarsat-4 satellites from intentional ignition to satellite separation. ILC has entered into an insurance contract to insure its exposure during its period of control. Any insurance proceeds received by ILC as beneficiary will be available to its customer (Inmarsat Global Limited).

 

PROPERTY, PLANT AND EQUIPMENT

 

Facilities

 

The table below sets out information on certain of our material facilities.

 

Facility

  

Principal Use

   Owned/Leased    Area (ft2)    Lease expiration

99 City Road, London, United Kingdom

   Head office    Leased    239,000    2029

Back-up facility, United Kingdom

   Secondary satellite control and network control facilities and disaster recovery facilities    Leased    4,894    2014

 

The lease for 99 City Road is a 25 year operating lease for an annual rental of approximately £6.0m. Rental costs were US$11.3m as at 31 December 2008 (2007: US$$10.7m, 2006: US$12.1m).

 

We rent out space in our leased headquarters building, including its conference facilities, to outside organizations. This generated revenues of US$5.1m in 2008 (2007: US$4.3m, 2006: US$3.5m).

 

For our land earth station sites in Fucino (Italy), Burum (the Netherlands) and Hawaii, US we incur costs for the operation of these facilities as part of service contracts that form part of network and services operations costs with Telespazio S.p.A, Stratos and Intelsat, respectively.

 

We believe that our current facilities are in good condition and adequate to meet the requirements of our present operations.

 

ITEM 4A.    UNRESOLVED STAFF COMMENTS

 

None

 

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ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following is a discussion of the results of operations and financial condition of Inmarsat Group Limited. You should read the following discussion, together with the whole of this Annual Report, including the historical consolidated financial statements and the related Notes included elsewhere in this Annual Report. The historical consolidated financial information for the years ended 31 December 2008, 2007 and 2006 included herein have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and IFRS as issued by the International Accounting Standards Board.

 

This section contains “forward-looking statements.” Those statements are subject to risks, uncertainties and other factors that could cause our future results of operations or cash flows to differ materially from the results of operations or cash flows expressed or implied in such forward-looking statements. Please see “Forward-Looking Statements”.

 

In this section, when we say “we”, “us”, “our” or other similar terms, it refers to Inmarsat Group Limited, and its subsidiaries, unless the context otherwise requires.

 

CRITICAL ACCOUNTING POLICIES

 

Our accounting policies are more fully described in Notes 2 and 4 to the consolidated financial statements of Inmarsat Group Limited. However, certain of our accounting policies are particularly important to the presentation of our results of operations and require the application of significant judgment by our management.

 

The preparation of the consolidated financial statements in conformity with IFRS requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the Balance Sheet dates and the reported amounts of revenue and expenses during the reported period.

 

Our management believes that the most critical accounting policies that involve management judgments and estimates are those related to revenue recognition, tangible and intangible assets, defined benefit pension plans and post-retirement healthcare benefits, deferred taxation and financial instruments and hedging activities.

 

Revenue recognition

 

Our revenues from mobile satellite communications services result from utilization charges that are recognized as revenue over the period in which the services are provided. Deferred income attributable to mobile satellite communications services or subscription fees represents the unearned balances remaining from amounts received from customers pursuant to prepaid contracts. Mobile satellite communications services lease revenues are recorded on a straight-line basis over the term of the contract concerned, which is typically between one and twelve months, unless another systematic basis is deemed more appropriate.

 

The Group’s revenues are stated net of volume discounts.

 

Revenue also includes income from services contracts, rental income, conference facilities and income from the sale of terminals and other communication equipment. Revenue from service contracts, rental income and conference facilities is recognised as the service is provided. Sales of terminals and other communication equipment are recognised when the risks and rewards of ownership are transferred to the purchaser.

 

Property, plant and equipment

 

Property, plant and equipment assets make up a significant portion of our total assets. We periodically review the carrying value of our property, plant and equipment and recognize an impairment if the recoverable amount (the higher of net realizable value and value in use) falls below its carrying value. Value in use is based upon our estimates of anticipated discounted future cash flows. While we believe that these estimates are reasonable, different assumptions regarding such cash flows could materially affect the carrying values.

 

Space segment assets comprise satellite construction, launch and other associated costs. Expenditure charged to space segment projects includes invoiced progress payments, amounts accrued appropriate to the stage of completion of contract milestone payments, external consultancy costs and direct internal costs. Internal costs, comprising primarily staff costs, are only capitalized when they are directly attributable to the construction of an asset. Progress payments are determined on milestones achieved to date together with agreed cost escalation indices. Deferred satellite payments represent the net present value of future payments dependent on the future performance of each satellite and are recognized in space segment assets when the satellite becomes operational. The associated liability is stated at its net present value and included within liabilities. These space segment assets are depreciated over the life of the satellites from the date they become operational and are placed into service.

 

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Assets in course of construction relate to the Inmarsat-4 F-3 satellite, which whilst it had been successfully launched in 2008 had not been placed into service by 31 December 2008, and other broadband services that we continue to develop. These assets will be transferred to space segment assets and depreciated over the life of the satellites once they become operational and placed into service. No depreciation has been charged on these assets as of 31 December 2008.

 

Other fixed assets are stated at historical cost less accumulated depreciation.

 

Changes in asset lives can have a significant impact on our depreciation charge for a financial period. We regularly review the depreciable lives and change them as necessary to reflect our current view of their remaining lives in light of numerous assumptions and estimates, including with respect to technological change, prospective economic utilization and physical condition of the assets concerned.

 

On 1 January 2008, the Group adopted IAS 23 (as revised), ‘Borrowing Costs’, in advance of its effective date, which is for annual reporting periods beginning on or after 1 January 2009. The impact of the adoption of IAS 23 (as revised) is the compulsory capitalization of interest and finance costs associated with assets that take a substantial period of time to get ready for intended use.

 

Intangible assets

 

Intangible assets comprise goodwill, patents, trademarks, software terminal development costs, spectrum rights and intellectual property. The amortization period and the amortization method for intangible assets with a finite useful life are reviewed each financial year. On the acquisition of a company or business, fair values reflecting conditions at the date of acquisition are attributed to the identifiable separable assets and liabilities acquired. Where the fair value of the consideration paid exceeds the fair value of the identifiable separable assets and liabilities acquired, the difference is treated as purchased goodwill.

 

Assets that are subject to amortization are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. The impairment review comprises a comparison of the carrying amount of the fixed asset or goodwill with its recoverable amount, which is the higher of fair value less costs to sell and value in use. Fair value less costs to sell is calculated by reference to the amount at which the asset could be disposed of. Value in use is calculated by discounting the expected future cash flows obtainable as a result of the asset’s continued use, including those resulting from its ultimate disposal, at a market-based discount rate on a pre-tax basis.

 

An impairment loss is recognized in the Income Statement whenever the carrying amount of an asset exceeds its recoverable amount. The carrying amount will only be increased where an impairment loss recognized in a previous period for an asset other than goodwill either no longer exists or has decreased, up to the amount that it would have been had the original impairment not occurred. Any impairment to goodwill recognized in a previous period will not be reversed.

 

For the purpose of conducting impairment reviews, cash generating units (“CGUs”) are identified as groups of assets, liabilities and associated goodwill that generate cash flows that are largely independent of other cash flow streams. The assets and liabilities include those directly involved in generating the cash flows and an appropriate proportion of corporate assets. For the purposes of impairment review space segment assets are treated as one cash generating unit. Goodwill is specifically allocated to CGUs and tested by comparing the carrying amount of the CGU with its value in use. The value in use calculation utilizes an estimate of the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate present value.

 

Two CGUs have been identified—these are ‘Mobile Satellite Services’ and ‘Other’. It has been determined that goodwill that arose on the acquisition of Inmarsat Ventures Limited represented goodwill of the Mobile Satellite Services CGU only. Therefore, goodwill has been tested for impairment on the Mobile Satellite Services CGU only.

 

Goodwill was tested for impairment at 31 December 2008, 2007 and 2006. No evidence of impairment was found.

 

Significant management judgement is required to assess the carrying value of the intangible assets. An annual review for impairment based on discounted cash flows using reasonable and appropriate assumptions, consistent with internal forecasts and based on management’s best estimates and judgement is performed. If the carrying value of intangible assets exceeds that of the impairment review above we will record a charge for the impairment in the then current period. We will not record any increases in the intangible assets as a result of this review. Management has determined that no impairments were required in 2008, 2007 and 2006.

 

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Fees and similar incremental costs incurred directly in making an acquisition, but excluding finance costs, are included in the cost of the relevant acquisition and are capitalized. Internal costs, and other expenses that we cannot attribute directly to an acquisition, are charged to the profit and loss account.

 

The Group capitalizes development costs associated with the development of user terminals. Costs are capitalized once a business case has been demonstrated as to technical feasibility and commercial viability. For broadband services terminal development costs are amortized using straight-line method over their estimated useful lives of ten years. The R-BGAN service was terminated on 31 December 2008. R-BGAN terminal development costs were being amortized over five years and have been fully written off.

 

Defined benefit plans and post-retirement healthcare benefits

 

The Group recognizes liabilities relating to defined benefit pension plans and post-retirement healthcare benefits in respect of employees in the UK and overseas. The Group’s net obligations in respect of these commitments are calculated separately for each plan. The cost of these benefits and the present value of our pension liabilities depend on such factors as the life expectancy of the members, the salary progression of our current employees, the return that the pension fund assets will generate in the time before they are used to fund the pension payments and the discount rate at which the future pension payments are discounted. We use estimates for all these factors in determining the pension costs and liabilities incorporated in our financial statements. The assumptions reflect historical experience and our judgement regarding future expectations. The calculation is performed by a qualified actuary using the projected unit credit method.

 

Income taxes

 

The Group’s income tax balance is the sum of the total current and deferred tax balances. The calculation of this, and of the Group’s potential liabilities or assets, necessarily involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority, or, as appropriate, through a formal legal process. Issues can, and often do, take a number of years to resolve. The amounts recognized or disclosed are derived from the Group’s best estimation and judgement. However, the inherent uncertainty regarding the outcome of these means eventual realization could differ from the accounting estimates and therefore impact the Group’s results and cash flows.

 

Deferred taxes

 

Significant judgement is required in determining the provision for income taxes. Deferred tax assets and liabilities require management judgement in determining the amounts to be recognized. Assumptions made are regularly reviewed to ensure that they accurately and appropriately reflect current tax positions and are in line with latest UK tax authority interpretations. In particular, judgement is used when assessing the extent to which deferred tax assets should be recognized with consideration given to the timing and level of future taxable income.

 

Financial instruments and hedging activities

 

Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the relevant instrument and derecognized when it ceases to be a party to such provisions. Financial instruments are initially measured at fair value. Subsequent measurement depends on the designation of the instrument. Non-derivative financial assets are classified as either short-term deposits or cash and cash equivalents. They are stated at amortized cost using the effective-interest method, subject to reduction for allowances for estimated irrecoverable amounts. For interest-bearing assets, their carrying value includes accrued interest receivable. Cash and cash equivalents include cash in hand and bank time deposits, together with other short-term highly liquid investments. In the Cash Flow Statement, cash and cash equivalents are shown net of bank overdrafts, which are included as current borrowings in liabilities on the balance sheet. Non-derivative financial liabilities are all classified as other liabilities and stated at amortized cost using the effective interest method. For borrowings, their carrying value includes accrued interest payable, as well as unamortized issue costs.

 

The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational and financing activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting under IAS 39 ‘Financial Instruments: Recognition and Measurement’ are accounted for as trading instruments. Derivatives are initially recognized and measured at fair value on the date a derivative contract is entered into and subsequently measured at fair value. The gain or loss on re-measurement is taken to the Income Statement except where the derivative is a designated cash flow hedging instrument.

 

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In order to qualify for hedge accounting, the Group is required to document in advance the relationship between the item being hedged and the hedging instrument. The Group is also required to document the relationship between the hedged item and the hedging instrument and demonstrate that the hedge will be highly effective on an ongoing basis. This effectiveness testing is re-performed at each period end to ensure that the hedge remains highly effective.

 

Gains or losses on cash flow hedges that are regarded as highly effective are recognized in equity. Where the forecast transaction results in a financial asset or liability, gains or losses previously recognized in equity are reclassified to the Income Statement in the same period as the asset or liability impacts income. If the forecasted transaction or commitment results in future income or expenditure, gains or losses deferred in equity are transferred to the Income Statement in the same period as the underlying income or expenditure. The ineffective portions of the gain or loss on the hedging instrument are recognized immediately in the Income Statement.

 

Where a hedge no longer meets the effectiveness criteria, any gains or losses deferred in equity are only transferred to the Income Statement when the committed or forecasted transaction is recognized in the Income Statement. However, where the Group has applied cash flow hedge accounting for a forecasted or committed transaction that is no longer expected to occur, then the cumulative gain or loss that has been recorded in equity is transferred to the Income Statement. When a hedging instrument expires or is sold, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the Income Statement.

 

Recently issued accounting pronouncements

 

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for future accounting periods but which the Group has chosen not to adopt early. The new standards which are expected to be relevant to the Group’s operations are as follows:

 

IAS 1 (as amended)—Presentation of Financial Statements—Capital Disclosures (effective for financial years beginning on or after 1 January 2009) provides revised rules for presentation of non-owner changes in equity. It also provides new titles for the main financial statements, for which use is optional. The Group has assessed the impact of this amendment and concluded that it will have no material impact on the financial statements of the Group.

 

IAS 27 (revised)—Consolidated and Separate Financial Statements (effective for financial years beginning on or after 1 July 2009) provides revised rules for recognition and de-recognition of a subsidiary’s net assets, liabilities and non-controlling interest. The Group has assessed the impact of this amendment and concluded that it will have no material impact on the financial statements of the Group.

 

IAS 32 (as amended)—Financial Instruments: Presentation, and IAS 1—Presentation of Financial Instruments—Puttable Financial Instruments Arising on Liquidation and Obligations (effective for financial years beginning on or after 1 January 2009) provides revised rules for the classification of certain puttable financial instruments as either liabilities or equity, to better reflect the substance of the instruments. The Group has assessed the impact of this amendment and concluded that it will have no material impact on the financial statements of the Group.

 

IAS 39 (as amended)—Financial Instruments: Recognition and Measurement—Eligible Hedged Items (effective for financial years beginning on or after 1 July 2009) provides clarification on the circumstances in which inflation can be identified as a hedged risk item and the effectiveness of a purchased option designated as a hedging instrument when the time value of the option is; a) included, and b) excluded from the designation. The Group has assessed the impact of this amendment and concluded that it will have no material impact on the financial statements of the Group.

 

IFRS 2 (as amended)—Share-based Payment—Vesting Conditions and Cancellations (effective for financial years beginning on or after 1 January 2009) clarifies the definition of vesting conditions and the accounting treatment of cancellations by the counterparty to a share-based payment arrangement. The Group has assessed the impact of this amendment and concluded that it will have no material impact on the financial statements of the Group.

 

IFRS 3 (revised)—Business Combinations (effective for financial years beginning on or after 1 July 2009) provides revised rules on recognition of a business combination. It also provides new rules for the treatment of acquisition related costs, contingent considerations, non-controlling interests and recording of goodwill in a business combination. The financial effect of IFRS 3 (revised) will be dependent upon the circumstances surrounding the future transactions to which they will apply, that are at present unknown.

 

IFRS 8—Operating Segments (effective for financial years beginning on or after 1 January 2009) sets out requirements for disclosure of information about an entity’s operating segments, its products and services, the

 

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geographical areas in which it operates, and its major customers. IFRS 8 replaces IAS 14—Segment Reporting. The Group has assessed the impact of this standard and concluded that it will have no material impact on the financial statements of the Group.

 

IFRIC 13—Customer Loyalty Programmes (effective for financial years beginning on or after 1 July 2008) provides guidance on measurement and recognition of award credits provided to customers as an incentive to purchase further goods and services. The Group has assessed the impact of this interpretation and concluded that it will have no material effect on the financial statements of the Group.

 

IFRIC 16—Hedges of a Net Investment in a Foreign Operation (effective for financial years beginning on or after 1 October 2008) provides guidance as to which foreign currency risks qualify for hedge accounting, where within a group these hedging instruments can be held and what amount is reclassified to profit and loss on disposal of a hedged foreign operation. The Group has assessed the impact of this interpretation and concluded that it will have no material impact on the financial statements of the Group.

 

IFRIC 17—Distribution of Non-cash Assets to Owners (effective for financial years beginning on or after 1 July 2009) clarifies the timing of recognition, measurement and disclosure when non-cash assets are distributed to owners. The Group has assessed the impact of this interpretation and concluded that it will have no material impact on the financial statements of the Group.

 

IFRIC 18—Transfers of Assets from Customers (effective for transfers received on or after 1 July 2009) clarifies the requirements of IFRSs for agreements in which an entity; a) receives from a customer an item of property, plant, and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services; or b) receives cash from a customer that must be used only to acquire or construct the item of property, plant, and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both). The Group has assessed the impact of this interpretation and concluded that it will have no material impact on the financial statements of the Group.

 

OPERATING RESULTS

 

Operating Environment and Overview

 

We are a leading provider of global mobile satellite communication services. We have been designing, implementing and operating satellite networks for 30 years. During the periods presented below, we generated more than 97% of our total revenues from mobile satellite voice and data services, including telephony, fax, video, email, and intranet, internet access and leasing services. End users of our mobile satellite services operate at sea, on land and in the air. In addition, we lease specialized navigation transponders, primarily for use in commercial aviation, for up to five years.

 

Other income includes revenue from launch support services for other satellite operators service contracts, rental income, conference facilities and income from the sale of R-BGAN and SPS terminals.

 

We report our results of operations in US dollars.

 

The following table sets out the components of our total revenues for each of the periods under review, and as a percentage of our total revenues from continuing operations.

 

     2008    2007    2006
     US$ in
millions
   %    US$ in
millions
   %    US$ in
millions
   %

Revenues:

                 

Maritime sector:

                 

voice services

   104.7    16.5    102.6    18.4    100.9    20.2

data services

   227.8    35.9    207.7    37.3    183.8    36.8
                             

Total maritime sector

   332.5    52.4    310.3    55.7    284.7    57.0

Land mobile sector:

                 

voice services

   11.3    1.8    14.8    2.6    19.2    3.8

data services

   130.5    20.6    111.0    19.9    96.9    19.4
                             

Total land mobile sector

   141.8    22.3    125.8    22.5    116.1    23.2

Aeronautical

   64.4    10.1    44.3    8.0    30.7    6.1

Leasing (incl. navigation)

   79.7    12.6    66.2    11.9    60.3    12.0
                             

Total mobile satellite communications services

   618.4    97.4    546.6    98.1    491.8    98.3

Other income

   16.3    2.6    10.6    1.9    8.3    1.7
                             

Total revenues

   634.7    100.0    557.2    100.0    500.1    100.0
                             

 

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     As at 31 December
     2008    2007    2006

Active Terminals(1)(2)

        

Maritime

   155,826    147,347    139,517

Land

   78,975    77,200    80,848

Aeronautical

   10,136    8,883    7,675
              

Total

   244,937    233,430    228,040
              

 

(1) Active terminals are the number of subscribers or terminals that have been used to access commercial services (except ACeS handheld terminals) at any time during the preceding twelve-month period and registered at 31 December. Active ACeS handheld terminals are the average number of terminals active on a daily basis during the period.

 

(2) Active terminals as at 31 December 2008 include 8,074 ACeS handheld terminals and 27,635 BGAN subscribers (as at 31 December 2007: 9,298 and 15,817, respectively).

 

Results of Operations

 

The table below sets out our results of operations and as a percentage of total revenues for the periods under review.

 

     2008     2007     2006  
     US$ in
millions
    %     US$ in
millions
    %     US$ in
millions
    %  

Mobile satellite communications services

   618.4     97.4     546.6     98.1     491.8     98.3  

Other income

   16.3     2.6     10.6     1.9     8.3     1.7  
                                    

Total Revenues

   634.7     100.0     557.2     100.0     500.1     100.0  

Employee benefit costs

   (104.2 )   (16.4 )   (93.7 )   (16.8 )   (92.2 )   (18.4 )

Network and satellite operations costs

   (39.7 )   (6.3 )   (33.8 )   (6.1 )   (31.1 )   (6.2 )

Other operating costs

   (83.5 )   (13.2 )   (64.7 )   (11.6 )   (57.1 )   (11.4 )

Work performed by the Group and capitalized

   24.0     3.8     18.5     3.3     12.0     2.4  
                                    

EBITDA

   431.3     68.0     383.5     68.8     331.7     66.2  

Depreciation and amortization

   (167.0 )   (26.3 )   (174.2 )   (31.2 )   (156.8 )   (31.2 )
                                    

Operating profit

   264.3     41.6     209.3     37.6     174.9     35.0  

Net interest payable

   (72.1 )   (11.4 )   (81.4 )   (14.6 )   (84.7 )   (16.9 )
                                    

Profit before income tax

   192.2     30.3     127.9     23.0     90.2     18.1  

Income tax credit/(expense)

   164.2     25.9     (29.0 )   (5.2 )   37.8     7.5  
                                    

Profit for the year

   356.4     56.2     98.9     17.8     128.0     25.6  
                                    

 

Results and Operations for the Year ended 31 December 2008 and 31 December 2007

 

Revenues

 

Revenues for 2008 were US$634.7m, an increase of US$77.5m, or 13.9%, compared with 2007.

 

During 2008, revenues from mobile satellite communications services (“MSS”) were US$618.4m, an increase of US$71.8m, or 13.1%, compared with 2007. Growth has been strong across all of our market sectors, particularly our aeronautical sector and our leasing business. Growth has been strongest in the newer services such as BGAN, Fleet and Swift 64. This growth has been partially offset by competition from other technologies. Revenues in 2008 were impacted by the increase in volume discounts which are driven by our overall revenue growth and by consolidation among distribution partners.

 

The maritime, land mobile, leasing and aeronautical sectors accounted for 54%, 23%, 13% and 10% of total revenues from mobile satellite communication services respectively during 2008.

 

Maritime Sector.    During 2008, revenues from the maritime sector were US$332.5m, an increase of US$22.2m, or 7.2%, compared with 2007. This reflects an increase in both data and voice revenue. Revenues from data services in the maritime sector during 2008 were US$227.8m, an increase of US$20.1m, or 9.7%, compared with 2007. The increase in revenues from data services primarily reflects greater demand, as a result of the take-up and utilisation of our Fleet services, which was partially offset by the decline in our mature Inmarsat-B service. Inmarsat-B terminals declined due to old ships being decommissioned and new ships being fitted with Fleet terminals, which has been driven by continued growth in the global shipping new-build market. Additionally, we experienced increased volume of the low-speed data services, typically used for email. FleetBroadband, introduced in November 2007, continues to gain early customer acceptance and by the end of

 

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2008 had passed 1,500 active terminals. These terminals are predominantly being deployed on refits of existing ships. Revenues from voice services in the maritime sector during 2008 were US$104.7m, an increase of US$2.1m, or 2.0%, compared with 2007. We have recorded growth for two consecutive years, reflecting stabilization and signs of renewed growth in this sector. The year has shown growth in demand for voice services particularly among users of our Fleet services including crew calling, offset by a reduction in voice usage on older services such as Inmarsat-B and the discontinuation of Inmarsat-A.

 

Land Mobile Sector.    In 2008, revenues from the land mobile sector were US$141.8m, an increase of US$16.0m, or 12.7%, compared with 2007. Revenues from data services in the land mobile sector during 2008 were US$130.5m, an increase of US$19.5m, or 17.6%, compared with 2007. The increase is a result of continued strong growth and usage of BGAN, offset in part by the decline in GAN high-speed data traffic following reduced traffic levels in the Middle East, competition from VSAT and the expected migration of users to our BGAN service. Revenues from our R-BGAN service of US$8.6m, which was discontinued on 31 December 2008, were lower compared with the previous year of US$14.0m, largely due to the expected migration to our BGAN service.

 

Revenues from BGAN services for 2008 were US$74.4m, an increase of US$37.8m, or 103%, compared with 2007. These figures include voice, data and subscription revenues. As at 31 December 2008, active BGAN subscribers were 27,635 compared with 15,817 as at 31 December 2007, an increase of 75% year on year. BGAN growth has been driven largely by new customers, the use of new applications by existing customers and the steady migration of customers from our GAN and R-BGAN services to our BGAN service. Although we expect the migration to BGAN to have an impact in the future, we do not expect migration adversely to impact overall land data revenues.

 

Revenues from voice services in the land mobile sector during 2008 were US$11.3m, a decrease of US$3.5m, or 23.6%, compared with 2007. This result continues the trend seen over the last few years of declining voice traffic volumes resulting from competition, principally for our Mini M and large antenna Mini M services, from other MSS operators. This decline was partially offset by the growth in voice traffic from BGAN customers and a small contribution from our IsatPhone service.

 

Aeronautical Sector.    During 2008, revenues from the aeronautical sector were US$64.4m, an increase of US$20.1m, or 45.4%, compared with 2007. The increase is primarily due to increased demand for our Swift 64 high-speed data service where active terminals increased by 35% year on year. Our Swift 64 service targets the government aircraft and business jet markets as well as being used by commercial airlines. In addition revenues for low-speed data services benefited from increased industry demand.

 

Leasing.    During 2008, revenues from leasing were US$79.7m, an increase of US$13.5m, or 20.4%, compared with 2007. The increase primarily relates to new maritime, land mobile and aeronautical lease contracts, partially offset by lower revenue from navigation contracts.

 

Other income.    Other income for 2008 was US$16.3m, an increase of US$5.7m or 54%, compared with 2007. The increase in other income primarily relates to additional revenue from sales of satellite phone services (“SPS”) end-user terminals. As well as the sale of SPS end-user terminals, other income consists primarily of provision of in-orbit support services, income from the provision of conference facilities and renting surplus office space.

 

Net operating costs

 

Net operating costs in 2008 were US$203.4m, an increase of US$29.7m or 17.1%, compared with 2007.

 

Impact of hedged foreign exchange rate

 

The functional currency of the Group is US dollars. Approximately 60% of the Group’s operating costs are denominated in Pounds Sterling. Net operating costs in 2008 have been affected by the adverse movement in the Group’s hedged rate of exchange from US$1.81/£1.00 in 2007 to US$2.01/£1.00 in 2008. The movement in the hedged rate of exchange in 2008 has resulted in an increase in comparative costs of US$10.4m. The Group has hedged its 2009 anticipated Pounds Sterling costs at an average exchange rate of US$1.92/£1.00.

 

Employee benefit costs

 

Employee benefit costs during 2008 were US$104.2m, an increase of US$10.5m, or 11.2%, compared with 2007. The increase can primarily be attributed to an adverse movement in the Groups hedged rate of exchange, higher salary costs, higher staff bonuses, increased stock compensation costs due to new share awards (commenced in March, May and September 2007 and March 2008) and additional headcount. Total full-time equivalent headcount at 31 December 2008 was 475 compared to 462 as at 31 December 2007.

 

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Network and satellite operations costs

 

Network and satellite operations costs during 2008 were US$39.7m, an increase of US$5.9m or 17.5%, compared with 2007. This expected increase is predominantly due to a service contract relating to our new Satellite Access Station (“SAS”) in Hawaii, which supports our broadband services, and additional support and maintenance contracts in respect of network infrastructure.

 

Other operating costs

 

During 2008, other operating costs were US$83.5m, an increase of US$18.8m, or 29.1%, compared with 2007. The increase relates principally to the movement in the Group’s hedged rate of exchange and increased professional fees, including those relating to the finance lease and operating leaseback transaction. Furthermore we have incurred higher direct cost of sales due to increased SPS terminal sales and some increased costs in relation to our investment in sales and marketing activities to support a broader channel to market. Partially offsetting the increase was a foreign exchange gain of US$1.4m recognized in 2008 (2007: loss of US$2.9m).

 

Work performed by the Group and capitalised

 

During 2008, own work capitalised was US$24.0m, an increase of US$5.5m, or 29.7%, compared with 2007. The increase can partly be attributed to the movement in the Group’s hedged rate of exchange on primarily Pounds Sterling denominated salary costs. Costs in relation to the launch and in-orbit testing of the third Inmarsat-4 satellite and the third SAS in Hawaii have been capitalized in 2008. Additionally, own work capitalised reflects the shift of work from our BGAN and Inmarsat-4 programmes to the development of the GSPS network and terminals and the Alphasat satellite project.

 

EBITDA

 

As a result of the factors discussed above, EBITDA for 2008 was US$431.3m, an increase of US$47.8m, or 12.5%, compared with 2007. EBITDA margin has slightly decreased to 68.0% for 2008 compared with 68.8% for 2007, primarily as a result of the adverse movement in the Group’s hedged rate of exchange.

 

Depreciation and amortization

 

During 2008, depreciation and amortization was US$167.0m, a decrease of US$7.2m, or 4.1%, compared with 2007. The decrease relates predominantly to accelerated depreciation of US$9.4m in relation to the cancellation of a launch vehicle contract for the launch of our third Inmarsat-4 satellite, which was accounted for in 2007.

 

Operating profit

 

As a result of the factors discussed above, operating profit during 2008 was US$264.3m, an increase of US$55.0m, or 26.3%, compared with 2007.

 

Net interest payable

 

Net interest payable for 2008 was US$72.1m, a decrease of US$9.3m compared with 2007.

 

Interest payable for 2008 was US$83.3m, a decrease of US$3.3m, or 3.8% compared with 2007. The decrease was primarily due to lower interest payable due to the increase in the principal amount of our Senior Notes owned by the Group (US$146.7m at 31 December 2008 compared to US$91.6m at 31 December 2007), as well as lower interest payable on the floating portion of our Senior Credit Facility as a result of a reduction in US LIBOR interest rates. Partially offsetting this decrease interest incurred on interest rate swaps in place during the year and additional interest due to increased borrowings under our Senior Credit Facility (US$390.0m at 31 December 2008 compared to US$320.0m at 31 December 2007).

 

Interest receivable for 2008 was US$11.2m, an increase of US$6.0m, or 115% compared with 2007. The increase is predominantly due to a foreign exchange gain in respect of our pension and post-retirement scheme liabilities. Partially offsetting the increase was a decrease in bank interest earned due to lower cash balances and lower interest rates.

 

Profit before tax

 

For 2008, profit before tax was US$192.2m, an increase of US$64.3m, or 50.3% compared with 2007. The increase is due to increased revenue, reduced depreciation and amortization and lower net interest payable, partially offset by increased operating costs.

 

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Income tax expense

 

The Group recorded a tax credit of US$164.2m for 2008, compared with a tax charge of US$29.0m in 2007.

 

The decrease in the tax charge is predominantly due to a deferred tax credit of US$211.8m and a current tax credit of US$6.8m that have been recorded in the current year. The tax credits relate to a finance lease and operating leaseback transaction that was entered into in 2007. We have recorded the tax benefit in the current year as we now consider it likely that we will receive the benefit.

 

Excluding the impact of the above transaction, the tax charge for 2008 would have been US$54.4m and the underlying effective tax rate in 2008 would have been 28.3% compared to 31.7% in 2007 (excluding a deferred tax credit to record the effect of the enacted reduction in the future corporation tax rate from 30% to 28%). The decrease in the underlying effective tax rate is due to the reduction in the Corporation Tax rate for the year from 30% to 28% and a reduction in the level of permanently disallowable expenditure.

 

Profit for the year

 

As a result of the factors discussed above, profit for 2008 was US$356.4m, an increase of US$257.5m, or 260%, compared with 2007.

 

Results and Operations for the Year ended 31 December 2007 and 31 December 2006

 

Revenues

 

Revenues for 2007 were US$557.2m, an increase of US$57.1m, or 11.4%, compared with 2006.

 

During 2007, revenues from mobile satellite communications services were US$546.6m, an increase of US$54.8m, or 11.2%, compared with 2006. Growth has been strong as a result of continued success in services such as Fleet and Swift 64 and the launch of BGAN in December 2005 and contribution from handheld services since September 2006. This growth was partly offset by a decline in high-speed data traffic following a reduction in traffic in the Middle East, competition from other technologies and the migration of GAN and R-BGAN users to our BGAN service. In addition, revenues for 2007 reflect the full year effect of the increased volume discounts arising from the merger of Stratos and Xantic, which was completed on 14 February 2006 and the increase in volume discounts as a result Vizada Satellite Communications’ consolidation with the former Telenor Satellite Services business which was completed in September 2007. The maritime, land mobile, aeronautical and leasing sectors accounted for 57%, 23%, 8% and 12% of total revenues from mobile satellite communication services respectively during 2007.

 

Maritime Sector.    During 2007, revenues from the maritime sector were US$310.3m, an increase of US$25.6m, or 9.0%, compared with 2006. This reflects an increase in both data and voice revenue. Revenues from data services in the maritime sector during 2007 were US$207.7m, an increase of US$23.9m, or 13.0%, compared with 2006. The increase in revenues from data services primarily reflects greater demand, as a result of the take-up and utilization of our Fleet services in the new-build market. Revenues from voice services in the maritime sector during 2007 were US$102.6m, an increase of US$1.7m, or 1.7%, compared with 2006, reflecting increasing signs of stabilization in this sector. Historically our voice revenues for maritime services have been affected in some cases by competition and by the migration of users from our higher-priced analogue service to our lower-priced digital services. This stabilization in voice has benefited from continued growth in our Fleet services and a full year of revenues from our ACeS collaboration, which began in September 2006 and the introduction of our SPS service in July 2007. As discussed earlier, with effect from 31 December 2007 we have ceased our Inmarsat A analogue service following a five-year notice period to end-users. During 2007 the Inmarsat A service generated US$3.9m in revenue, however by December it was not generating any material level of revenue, with the vast majority of users having migrated to newer Inmarsat services such as Fleet.

 

Land Mobile Sector.    In 2007, revenues from the land mobile sector were US$125.8m, an increase of US$9.7m, or 8.4%, compared with 2006. Revenues from data services in the land mobile sector during 2007 were US$111.0m, an increase of US$14.1m, or 14.6%, compared with 2006. The increase is a result of continued strong growth in BGAN offset in part by the decline in high-speed data traffic following a reduction in traffic in the Middle East, competition from VSAT and the migration of GAN and R-BGAN users to our BGAN service. Although we expect the migration to BGAN to have a larger impact in the future, we do not expect migration to adversely impact overall land data revenues. Revenues from voice services in the land mobile sector during 2007 were US$14.8m, a decrease of US$4.4m, or 22.9%, compared with 2006. This is as we had expected and continues the trend seen over the last few years of declining voice traffic volumes resulting from competition, principally for our Mini M and large antenna Mini M services, from other MSS operators. This was partially offset by the growth in BGAN voice and our own handheld voice product, IsatPhone, over the initial Inmarsat-4

 

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coverage area with global SPS coverage expected in 2009. We believe that SPS will enhance our land voice offering and enable us to continue to win customers in the handheld voice market and gain market share, particularly as competitive platforms come to the end of their lives.

 

Revenues, including voice, data and subscription, from BGAN services during 2007 were US$36.6m, an increase of US$27.1m, or 285%, compared with 2006. As at 31 December 2007, there were 15,817 (2006: 7,119) active BGAN subscribers, an increase of 122% compared with 31 December 2006. BGAN growth has been driven by new customers, the use of new applications by existing customers and, during the later part of 2007, the migration of GAN and R-BGAN users to our BGAN service.

 

Aeronautical Sector.    During 2007, revenues from the aeronautical sector were US$44.3m, an increase of US$13.6m, or 44.3%, compared with 2006. The increase continues to be attributed primarily to increased demand for our Swift 64 high-speed data service, which targets the government aircraft and business jet markets as well as being used by commercial airlines.

 

Leasing.    During 2007, revenues from leasing were US$66.2m, an increase of US$5.9m, or 9.8%, compared with 2006. The increase relates primarily to new navigation contracts and a full year of revenues for our Swift 64 lease.

 

Other income.    Other income for 2007 was US$10.6m, an increase of US$2.3m or 27.7%, compared with 2006. The increase in other income relates to additional in-orbit support services provided to other satellite operators. As well as the provision of in-orbit services to other operators, other income consists primarily of income from the provision of conference facilities, renting surplus office space and revenue from sales of R-BGAN and SPS end-user terminals.

 

Net operating costs

 

Net operating costs excluding depreciation and amortization during 2007 were US$173.7m, an increase of US$5.3m or 3.1% compared with 2006. The increase reflects higher employee benefit costs, network and satellite operations costs and other operating costs offset by higher capitalized costs.

 

Employee benefit costs

 

Employee benefit costs during 2007 were US$93.7m, an increase of US$8.3m, or 9.7% compared with 2006 (excluding restructuring costs of US$6.8m in 2006). The increase is a result of additional headcount in both London and Batam (our operation in Indonesia), higher staff bonuses, additional non-recurring costs incurred as a result of changes made to our existing healthcare and home leave employee benefit schemes, the impact of annual salary increases and an adverse movement in the Group’s hedged rate of exchange for Pounds Sterling, which has increased from US$1.77/£1.00 in 2006 to US$1.81/£1.00 in 2007 (the majority of staff costs are in Sterling and we report the Group’s results in US dollars). Total full-time equivalent headcount at 31 December 2007 was 462 compared to 436 as at 31 December 2006.

 

Network and satellite operations costs

 

Network and satellite operations costs during 2007 were US$33.8m, an increase of US$2.7m or 8.7%. The increase is primarily due to the inclusion of a full year of in-orbit insurance costs for the Inmarsat-4 F2 satellite in 2007 which commenced on expiry of the launch insurance policy, on 8 November 2006. The remainder of the increase relates to new maintenance contracts, in respect of network infrastructure, that commenced in 2007.

 

Other operating costs

 

During 2007, other operating costs were US$64.7m, an increase of US$7.6m, or 13.3%, compared with 2006. The increase primarily relates to the direct cost of sales of SPS terminals sold during the period and foreign exchange losses of US$2.9 million (2006: gain of US$1.6 million). Additionally, website development costs and an amount of irrecoverable VAT were incurred. Offsetting the increases in part, were lower office rental costs in 2007 due to an amendment made to the accounting treatment on rental payments for our head office in 2006 and lower professional fees in 2007 following the settlement of an outstanding arbitration proceeding in 2006.

 

Work performed by the Group and capitalized

 

During 2007, own work capitalized was US$18.5m, an increase of US$6.5m, or 54.2%. Own work capitalized reflects the shift of work from our BGAN and Inmarsat-4 programme, now that it is largely operational, to work on the rollout of our SPS service and our new services that were introduced in late 2007 such as FleetBroadband and SwiftBroadband.

 

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EBITDA

 

As a result of the factors discussed previously, EBITDA for 2007 was US$383.5m, an increase of US$51.8m, or 15.6%, compared with 2006 EBITDA. EBITDA margin increased to 68.8% for 2007 compared with 66.3% for 2006. This reflects an increase in revenue offset in part by a smaller increase in net operating costs.

 

Depreciation and amortization

 

During 2007, depreciation and amortization was US$174.2m, an increase of US$17.4m, or 11.1%, compared with 2006. The increase relates to both accelerated depreciation costs following the cancellation of the Atlas launch vehicle option we had in place for the launch of our third Inmarsat-4 satellite and higher depreciation charges following the commencement of depreciation on certain elements of the Inmarsat-4 ground network that became commercially operational during 2006.

 

Operating profit

 

As a result of the factors discussed above, operating profit during 2007 was US$209.3m, an increase of US$34.4m, or 19.7%, compared with 2006.

 

Net interest payable

 

Net interest payable for 2007 was US$81.4m, a decrease of US$3.3m compared with 2006.

 

Interest payable for 2007 was US$86.6m, a decrease of US$6.3m, or 6.8% compared with 2006 with a decrease in finance costs associated with our pension and post-retirement liabilities, offset in part by the increase in interest on the subordinated parent company loan.

 

Interest receivable for 2007 was US$5.2m, a decrease of US$3.0m, or 36.6% compared with 2006. The decrease relates to the absence of any comparable realized gain in 2007 (2006: US$2.8m) on an interest rate swap which expired at the end of 2006 and lower cash balances in 2007.

 

Profit before tax

 

For 2007, profit before tax was US$127.9m, an increase of US$37.7m compared with 2006, as a result of higher operating profits and interest costs largely unchanged year over year.

 

Income tax expense

 

In 2007 the Group recorded a tax charge of US$29.0m, compared with a tax credit of US$37.8m in 2006. In December 2006, an intragroup lease receivable asset was disposed of and subsequently terminated resulting in the net release of a deferred tax provision of US$58.1m, which offset our tax liability for 2006.

 

In 2007, the UK Government reduced the future corporation tax rate from 30% to 28% and this resulted in a deferred tax credit of US$11.6m. Excluding this adjustment, the tax charge for 2007 would have been US$40.6m, resulting in an effective tax rate of 31.7%.

 

Profit for the year

 

As a result of the factors discussed above, profit for the year 2007 was US$98.9m, a decrease of US$29.1m, or 22.7%, compared with 2006.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The following table sets out our historical cash flows for each of the years presented.

 

     As at 31 December  
     2008     2007     2006  
     (US$ in millions)  

Net cash from operating activities

   425.0     377.0     330.7  

Net cash used in investing activities

   (213.6 )   (230.4 )   (132.4 )

Net cash used in financing activities

   (197.5 )   (154.4 )   (193.0 )

Foreign exchange adjustment

   0.4     (0.3 )   (0.2 )
                  

Net increase/(decrease) in cash and cash equivalents during the year

   14.3     (8.1 )   5.1  
                  

 

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Net cash generated from operating activities during 2008 was US$425.0m compared to US$377.0m during 2007. The increase relates to increased EBITDA and movements in working capital. Net cash from operating activities during 2007 was US$377.0m compared to US$330.7m during 2006. The increase relates to increased EBITDA and movements in working capital.

 

Net cash used in investing activities during 2008 was US$213.6m compared with US$230.4m for 2007. Capital expenditure for 2008 reflects milestone payments and launch costs for the third Inmarsat-4 satellite, milestone payments for our third Satellite Access Station which is based in Hawaii, expenditure on the Alphasat satellite project and expenditure on our GSPS network and terminal development. In addition, capital expenditure for 2008 includes US$12.2m in relation to deferred satellite payments (2007: US$11.5m). Net cash used in investing activities during 2007 was US$230.4m compared with US$132.4m for 2006. The increase in cash outflows reflects capital expenditure for the continued construction of our Inmarsat-4 ground infrastructure, prepaid launch costs associated with our Inmarsat-4 F3 satellite, costs incurred on the construction of our third satellite access station in Hawaii, the payment of outstanding contractual milestones relating to the construction of our Inmarsat-4 satellites, investment in other new broadband services such as FleetBroadband and SwiftBroadband and our new SPS network.

 

Net cash used in financing activities during 2008 was US$197.5m compared with US$154.4m during 2007. During 2008, the Group drew down US$70.0m on its revolving credit facility. Offsetting this inflow was the Group’s purchase of US$55.1m principal of its Senior Notes (2007: US$38.0m), payment of US$33.2m interest on the Senior Notes and Facilities (2007: US$39.6m) and the payment of US$159.6m in dividends (2007: US$135.3m). Net cash used in financing activities during 2007 was US$154.4m compared with US$193.0m during 2006. During 2007, the Group drew down US$70.0m on its revolving credit facility. Offsetting this inflow was the Group’s purchase of US$38.0m principal of its Senior Notes (2006: US$43.6m), payment of US$39.6m interest on the Senior Notes and Facilities (2006: US$36.4m) and the payment of US$135.3m in dividends (2006: US$101.4m).

 

Among satellite companies, Inmarsat has historically maintained one of the lowest levels of debt leverage. This prudent approach means that we are today well positioned to access capital markets when needed to meet our financing needs. Inmarsat has no debt maturities in the next 12 months and the majority of our debt does not fall due until 2012 and beyond. Inmarsat has significant headroom in all of its debt covenants and it will be comfortably able to operate within these covenants in the coming year. In addition its business remains highly cash generative, meaning it can reduce debt and continue to fund dividends to shareholders.

 

The Group continually evaluates sources of capital and may repurchase, refinance, exchange or retire current or future borrowings and/or debt securities from time to time in private or open-market transactions, or by any other means permitted by the terms and conditions of borrowing facilities and debt securities.

 

Debt

 

Our third-party indebtedness at 31 December 2008 was US$560.4m. This primarily comprised the term loan under our Senior Facility Agreement in an aggregate principal amount of US$250.0m and US$310.4m principal amount of indebtedness under the Senior Notes (gross of US$146.7m purchased Senior Notes). In addition, we have a further US$300.0m Revolving Committed Facility available which was drawn by US$140.0m as at 31 December 2008 under the Senior Facility Agreement. The borrowings of the Group are mostly at fixed rates. The Senior Notes, which mature in 2012, are at a fixed rate.

 

The borrower under the Senior Facility Agreement is Inmarsat Investments Limited. Inmarsat Investments Limited’s obligations under the Senior Facility Agreement are guaranteed by Inmarsat Group Limited, Inmarsat Ventures Limited, Inmarsat Global Limited, Inmarsat Leasing Limited, Inmarsat Leasing (Two) Limited, Inmarsat Launch Company Limited, Inmarsat Services Limited and Inmarsat (IP) Company Limited. The borrower’s obligations under the Senior Facility Agreement are secured by a pledge over the shares of Inmarsat Ventures Limited.

 

Under the Senior Facility Agreement as discussed above the term loan and drawings under the Revolving Committed Facility were priced at a margin above LIBOR, which is payable quarterly, and set by reference to a leverage grid. The US$300.0m Revolving Committed Facility was US$140.0m drawn as at 31 December 2008 (2007: US$70.0m).

 

The Revolving Committed Facility is available (subject to satisfaction of drawing conditions) until the earliest of the date on which the term loan is repaid in full or cancelled and 24 May 2010. Each advance under the Revolving Committed Facility must be repaid on the last day of each interest period with respect to the advance and amounts repaid may be redrawn (subject to satisfaction of certain conditions).

 

Under the Senior Facility Agreement, we have agreed to maintain specified ratios of EBITDA to total net interest payable, total net debt to EBITDA and senior net debt to EBITDA.

 

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The Senior Facility Agreement contains customary events of default.

 

The Senior Facility Agreement contains customary covenants, including restrictions on the ability of Inmarsat Investments Limited to make payments on the subordinated intercompany note proceeds loans. Under the Senior Facility Agreement and the intercreditor agreement, Inmarsat Investments Limited may pay interest (but not principal), fees, expenses or other amounts (including reasonable legal fees and taxes) on the subordinated intercompany note proceeds loans; however, these payments will be suspended for specified periods during an event of default under the Senior Facility Agreement.

 

Future drawings under the Senior Facility Agreement will be available only if, among other things, we meet the financial covenants in the Senior Facility Agreement. Our ability to meet those covenants will depend on our results of operations, which may be affected by factors outside of our control. See “Risk Factors—We require a significant amount of cash to make payments on the notes and to service our debt. Our ability to generate sufficient cash depends on a number of factors, many of which are beyond our control”.

 

In 2004, Inmarsat Finance plc issued US$477.5m aggregate principal amount of 7 5/8% Senior Notes due 2012. The Senior Notes are guaranteed on a senior basis by Inmarsat Group Limited, the parent company of Inmarsat Finance plc, and on a senior subordinated basis by Inmarsat Investments Limited, Inmarsat Ventures Limited, Inmarsat Leasing Limited, Inmarsat Leasing (Two) Limited and Inmarsat Launch Company Limited. The proceeds from the offering of Senior Notes were loaned by Inmarsat Finance plc to Inmarsat Investments Limited pursuant to separate subordinated intercompany note proceed loans which provide that interest will accrue at a rate sufficient to fund interest on the Senior Notes (including default interest) and, if applicable, additional amounts. In July 2005 the Group redeemed 35% of its Senior Notes, reducing the notes outstanding from US$477.5m to US$310.4m. During 2008 Inmarsat Investments Limited purchased US$55.1m of our Senior Notes paying a premium of US$0.6m (2007: US$38.0m paying a premium of US$1.3m, 2006: US$43.6m paying a premium of US$1.2m).

 

Interest on the Senior Notes is payable semi-annually on 28 February and 31 August of each year. The Senior Notes are redeemable, at the option of Inmarsat Finance plc, in whole or in part, at any time on or after 1 March 2008 at 103.813% of their principal amount, plus accrued interest, declining to 100% of their principal amount, plus accrued interest, on or after 1 March 2011.

 

The indenture governing the Senior Notes contains customary covenants, limitations and requirements. In particular, covenants limit the ability of Inmarsat Group Limited to make payments to Inmarsat Holdings Limited to an amount equal to 50% of the net income of Inmarsat Group Limited (including 100% of any net loss) from 1 April 2004. The indenture also requires Inmarsat Finance plc to commence and consummate an offer to purchase the Senior Notes for 101% of their aggregate principal amount, together with any additional amounts and any accrued and unpaid interest owed on the Senior Notes to the date of purchase, upon events constituting or which may constitute a change of control of Inmarsat plc, our ultimate parent company.

 

The indenture also provides for events of default, which, if any of them were to occur, would permit or require the principal of, premium, if any, interest and other monetary obligations on the Senior Notes to be declared to be immediately due and payable.

 

The effective interest rates at the balance sheet dates were as follows:

 

     As at 31 December

Effective interest rate %

   2008    2007    2006

Bank overdrafts

   2.0    5.9    7.3

Senior Notes

   7.625    7.625    7.625

Senior Credit Facility

   4.59    5.69    6.06

 

The Group had net borrowings at 31 December 2008 of US$560.4m primarily comprising drawings on the Senior Credit Facility of US$250.0m, Revolving Credit Facility of US$140.0m, Senior Notes of US$163.7m (net of US$146.7m Senior Notes held by the Group, being 47.3% of the aggregate principal amount outstanding) and deferred satellite payments of US$41.4m, net of cash and cash equivalents of US$51.2m.

 

CAPITAL EXPENDITURES

 

We have incurred significant capital expenditures to fund the construction and launch of our Inmarsat-4 satellites, and the development, marketing and distribution of our broadband services. We anticipate incurring further capital expenditures to maintain our existing network assets and premises in the normal course of business.

 

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The following table summarizes our capital expenditure (on an accruals basis) for the periods set out below:

 

     2008    2007    2006
     (US$ in millions)

Total capital expenditure

   203.1    190.6    82.8
              

 

The three Inmarsat-4 satellites are now complete, with two successfully launched in 2005 and the third in August 2008. We expect our cash capital expenditure in 2009 will be in a range of US$150.0m to US$160.0m (excluding deferred satellite payments). Our 2009 capital expenditure forecast primarily reflects costs for the Alphasat project and GSPS.

 

In November 2007, we announced that agreements had been signed with the European Space Agency (“ESA”) for Inmarsat to become the commercial operator for the Alphasat project for the development and launch of a new satellite. Alphasat is an ESA initiative for the development of Alphabus, a new satellite platform capable of carrying a large communications payload. Through the Alphasat project, we will build and launch an advanced L-band satellite which will supplement the existing Inmarsat-4 satellite constellation and offer the opportunity for new and advanced services with access to a new allocation of L-band spectrum. Astrium Satellites, a subsidiary of the European Aeronautic Defence and Space Agency (“EADS”) has been contracted to build the satellite. We expect our investment for the satellite in orbit (excluding insurance) to be in the region of €260.0m (net of the funding provided by ESA) with the launch expected to occur in late 2012 or 2013.

 

As a result of the Group’s collaboration with ACeS (provider of low-cost handheld and fixed voice services) to enable expanded handheld coverage using the existing Inmarsat-4 satellites, the Group has begun a process of network infrastructure upgrades and an accelerated modernization of the existing handheld satellite phone. In connection with the network infrastructure upgrades, the Group has placed a contract with Lockheed Martin for US$54.9m for delivery in 2008.

 

In January 2009, Inmarsat and EMS Technologies Canada Limited mutually agreed to terminate a development contract for our Global Satellite Phone Service (“GSPS”). Inmarsat remains fully committed to launching a global handheld satellite phone service and has appointed Sasken Communications Technologies Limited to lead the programme, as well as making a number of decisions to increase the development effort and ensure that a compelling service offering is available at the earliest opportunity. As a result of this re-organisation of the development effort, Inmarsat believes the introduction of the GSPS will be in the second quarter of 2010. It is not expected that this change will lead to any material increase in the overall cost of the programme.

 

We estimate that our capital expenditure not related to new satellite programmes, existing network upgrades and GSPS terminal development, which are refer to as maintenance capital expenditure, will be in the range of US$25.0m–US$35.0m per year over the next ten years. In addition we may choose to incur additional capital expenditure in any year to fund revenue enhancing projects.

 

CONTRACTUAL OBLIGATIONS

 

The following table summarizes contractual obligations, commercial commitments and principal payments under our debt instruments that we would have been obliged to make as of 31 December 2008.

 

     Actual Payments due by period
     Total    Less than
1 year
   1-3
years
   3-5
Years
   More than
5 years
     (US$ in millions)

Long-term debt obligations(1)(2)

   1,333.7    50.2    200.4    1,083.1   

Short-term debt obligations(3)

   145.7    145.7         

Capital commitments relating primarily to Inmarsat-4 programme

   366.9    130.7    123.7    77.6    34.9

Deferred satellite payments

   41.4    10.2    13.4    10.5    7.3

Operating leases

              

Land and buildings(4)

   141.1    9.4    16.3    16.3    99.1

Other(5)

   18.8    9.2    8.0    1.6   
                        

Total contractual obligations

   2,047.6    355.4    361.8    1,189.1    141.3
                        

 

(1) Long-term debt obligations are gross of Senior Notes purchased by Inmarsat Investments Limited in the amount of US$146.7m.

 

(2) Excludes interest obligations on Senior Notes, Senior Discount Notes and Senior Credit Facility of US$29.4m due less than 1 year; US$49.7m due 1-3 years; and US$11.8m due 3-5 years.

 

(3) Excludes interest obligations on the Revolving Credit Facility. Should the current balance be held to maturity in May 2010, US$3.7m interest would be due in less than 1 year and US$1.6m would be due in 1-3 years.

 

(4) Relates to the 25-year lease of head office building 99 City Road, London.

 

(5) Relates primarily to network and satellite services contracts.

 

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RESEARCH AND DEVELOPMENT

 

Research and development costs were US$0.2m during the year ended 31 December 2008 and US$0.2m and US$0.2m during the years ended 31 December 2007 and 2006 respectively. We expect Research and Development costs to increase in future periods now the Inmarsat-4 development programme is virtually finished.

 

OFF BALANCE SHEET ARRANGEMENTS

 

We do not currently have any off-balance sheet arrangements other than operating leases. See “Contractual Obligations”.

 

TREND INFORMATION

 

Please see “Operating Results” and “Item 4. Information on the Company—Business Overview” for trend information.

 

Significant Factors Affecting Our Results of Operations

 

Effect of Global Events

 

Demand from government, media and international aid organizations for our services increases, sometimes substantially, in areas affected by global events.

 

The current weakness in the global economic environment may lead to a fall in demand for our services, particularly in the maritime and aeronautical sectors. However, many of the customers we serve are government and industrial corporations who, because of their own business needs, rely on our communications solutions and services even as economic conditions fluctuate. In addition, our business benefits from diversity of sectors, services offered and customer types on land, sea and air.

 

Effect of Shift from Voice to Data

 

The mix of our data and voice services has changed during the periods under review. As a percentage of mobile satellite communications services revenues, revenues from voice services decreased from 31.8% during 2005 to 22.2% during 2008, while revenues from our data services increased from 68.2% to 77.8% over the same period. Our voice revenues have declined primarily due to the migration of end-users from our higher priced analogue services to our lower priced digital services and to the loss of voice traffic to lower priced voice services provided by competitors, principally the voice handheld services of Iridium, Globalstar and Thuraya. We expect the decline in voice revenues to continue in the near to medium term, but at lower rates than we have experienced during the periods under review. We also expect data revenues to increase in the future, particularly with our broadband services. The growth in data revenues is expected to more than offset the decline in voice revenues during this period.

 

Effect of Volume Discounts

 

On 14 April 2009, our old distribution arrangements ceased to exist. These have been replaced with new distribution terms which took effect from 15 April 2009. The new distribution arrangements include the Space Segment Access Agreement, the Network Service Distribution Agreement and the New Lease Services Provider Agreement, which have been summarized in Item 10 “Additional Information: Material Contracts”.

 

The pricing for the new Distribution Agreements commences on 1st May 2009. The BGAN service has been removed from the land sector volume discount schemes. The discounts have been replaced with price reductions and performance incentives. The maritime volume discounts schemes were restructured to ensure volume discounts remain constant throughout the year.

 

Under the agreements which were in place between 14 April 2004 and 15 April 2009, for each of our services a distribution partner provides to end-users, the distribution partner had to pay us a fixed price (expressed in US dollars per chargeable unit) multiplied by the volume of traffic that the distribution partner generated in relation to that service. Prices were subject to service-specific, volume-based discounts for distribution partners that reach specified sales volume targets in any financial year. As a result of these volume-based discounts, our mobile satellite communications services revenues were increasingly affected as the year progressed because the discount increased as the distribution partners achieved higher aggregate volumes for the period. Accordingly, the effect of these volume discounts influenced our quarterly results of operations.

 

The minimum volume discount percentages in the old Distribution Agreements reflected the aggregate minimum volume discounts available in a specified year, rather than an overall year-on-year price reduction. The

 

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actual volume discount for the 12 months ended 31 December 2008 was US$63.8m (2007: US$51.3m, 2006: US$42.1m) or 12.0% of our revenues from “demand assigned” services we provided to our distribution partners during the twelve months ended 31 December 2007.

 

Effect of Inmarsat-4 Satellite Programme and our Broadband Services

 

We have incurred significant capital expenditure to fund the construction and launch of our Inmarsat-4 satellites and the development, marketing and distribution of our broadband services. We are now depreciating the majority of the Inmarsat-4 programme and our broadband services that have been commercially launched. Depreciation expense will increase in future periods following our third Inmarsat-4 satellite and Hawaii SAS being placed into operation in January 2009.

 

In addition, in the event that we encounter problems with the in-orbit operation of our Inmarsat-4 satellites or with our broadband services, we may be required to perform an impairment review, which could result in a write-down of the carrying book value of our Inmarsat-4 satellite assets in the relevant period. Furthermore, we may re-evaluate the depreciable lives of those assets in light of their revised estimated useful lives (which may change from our current expectations, depending on future events).

 

We believe our broadband services will enable us to exploit the profitable growth opportunities presented by existing and new end-users’ increasing demand for high-bandwidth mobile communication services, as evidenced by the strong underlying growth in data services we have experienced in recent years. In addition, the incremental capacity from our broadband network should allow us opportunities to expand our leasing business.

 

Effect of fluctuations in US Dollar Relative to Pound Sterling

 

We use the US dollar as our functional and reporting currency. While almost all of our revenues are denominated in US dollars, the majority of our operating expenses and a proportion of our capital expenditures are denominated in currencies other than the US dollar. Our primary exchange rate risk is against pounds sterling. Our existing currency hedging arrangements largely mitigate fluctuations in the US dollar. As our hedging arrangements are relatively short-term (generally up to 24 months), continued fluctuation in the US dollar will affect our results of operations in 2008 and future periods. The exchange rate between US dollars and pounds sterling as at 31 December 2008 was US$1.44/£1.00 (2007: US$1.99/£1.00, 2006: US US$1.96/£1.00). The hedged rate between US dollar and pounds sterling for 2008 was US$2.01/£1.00 (2007: US$1.81/£1.00, 2006: US$1.77/£1.00). Our hedged rate for 2009 is expected to be US$1.92/£1.00 on forecast expenditure.

 

ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

DIRECTORS AND SENIOR MANAGEMENT

 

(A)    Inmarsat plc

 

Board of Directors

 

Inmarsat plc is our ultimate parent company and manages each member of the Group.

 

The table below sets out the names of the directors of Inmarsat plc, their ages and their current positions.

 

Name

  

Position

Andrew Sukawaty

   Chairman and Chief Executive Officer

Michael Butler

   Executive Director, President

Rick Medlock

   Executive Director and Chief Financial Officer

Sir Bryan Carsberg

   Non-executive Director – Independent Director

Stephen Davidson

   Non-executive Director – Independent Director

Admiral James Ellis Jr (rtd)

   Non-executive Director – Independent Director

Kathleen Flaherty

   Non-executive Director – Independent Director

John Rennocks

   Non-executive Director – Independent Director and Deputy Chairman

 

The address for each director is c/o Inmarsat plc, 99 City Road, London EC1Y 1AX, United Kingdom.

 

Andrew Sukawaty, joined the Company as Chairman in December 2003 and was appointed Chief Executive Officer in March 2004. He is non-executive chairman of Xyratex Ltd (Nasdaq) and a non-executive director of Zesko Holding BV. Between 1996 and 2000, he served as chief executive officer and president of Sprint PCS. He was chief executive officer of NTL Limited from 1993 to 1996. Previously, he held various management positions with US West and AT&T. He has served on various listed company boards as a non-executive director. Mr. Sukawaty holds a BBA from the University of Wisconsin and an MBA from the University of Minnesota.

 

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Rick Medlock, joined the Board in September 2004. Prior to joining Inmarsat, he had served as chief financial officer and company secretary of NDS Group plc (Nasdaq and Euronext) since 1996. Mr. Medlock previously served as chief financial officer of several private equity backed technology companies in the United Kingdom and the United States. Mr Medlock is also a non-executive director of Cheapflights Limited and Chairman of their Audit Committee. He is a Fellow of the Institute of Chartered Accountants of England and Wales. Mr. Medlock holds an MA in Economics from Cambridge University.

 

Michael Butler, on 15 December 2008, the Company announced that Mr Butler would step down as Chief Operating Officer (“COO”) with effect from 1 January 2009 and be replaced by Perry Melton, formerly Vice President of Sales and Marketing. Mr Butler will remain as President and an Executive Director of the Company until 30 April 2009 when he will leave the business as announced in March 2008. Mr Butler joined the Board in December 2003. He had served as Managing Director of Inmarsat since May 2000 and became COO in June 2004 and President in November 2006. Previously he was the managing director of MCI WorldCom International in the UK and had held various general management positions, initially at MFS Communications Limited and subsequently MCI WorldCom International. He was also employed by British Telecommunications plc in a variety of managerial roles. He holds an HNC in Business and Finance and a Diploma from the Chartered Institute of Marketing.

 

John Rennocks, joined the Board in January 2005. He is an independent non-executive chairman of Diploma plc, Nestor plc, Intelligent Energy plc and Composite Energy Limited, and a non-executive director of two other companies. He has broad experience in emerging energy sources, support services and manufacturing. Mr. Rennocks previously served as a director of Inmarsat Ventures plc, and as Executive Director-Finance for British Steel plc/Corus Group plc, Powergen plc and Smith & Nephew plc. Mr. Rennocks is a Fellow of the Institute of Chartered Accountants of England and Wales.

 

Sir Bryan Carsberg, joined the Board in June 2005. He is currently Chairman of the Council of Loughborough University. He is an independent, non-executive director of RM plc and Novae Group plc. He was the first Director General of Telecommunications (head of Oftel, the telecommunications regulator that preceded Ofcom) from 1984 to 1992, Director General of Fair Trading from 1992 to 1995 and Secretary General of the International Accounting Standards Committee (predecessor of the International Accounting Standards Board) from 1995 to 2001. He was an independent, non-executive director of Cable and Wireless Communications plc from 1997 to 2000 and non-executive Chairman of MLL Telecom Ltd from 1999 to 2002. Sir Bryan is a Fellow of the Institute of Chartered Accountants of England and Wales and an Honorary Fellow of the Institute of Actuaries; he was knighted in January 1989. He holds an M.Sc. (Econ) from the University of London (London School of Economics).

 

Admiral James Ellis Jr (Rtd), joined the Board in June 2005. He is President and Chief Executive Officer of the Institute of Nuclear Power Operations (“INPO”), with headquarters in Atlanta, Georgia. Admiral Ellis retired from the US Navy in 2004 as Commander, United States Strategic Command. He was responsible for the global command and control of US strategic forces to meet decisive national security objectives. Admiral Ellis is a graduate of the US Naval Academy and was designated a Naval Aviator in 1971 and held a variety of sea and shore assignments in the United States and abroad. He holds Master of Science degrees in Aerospace Engineering and in Aeronautical Systems. He is a native of South Carolina and also serves as a Director of the Lockheed Martin Corporation and Level 3 Communications.

 

Stephen Davidson, joined the Board in June 2005. Mr Davidson is Chairman of Datatec Limited and Digital Marketing Group plc, the senior independent director of Mecom Group plc and is also a non-executive director of several other companies. He has held various positions in investment banking, most recently at West LB Panmure where he was Global Head of Media and Telecoms Investment Banking then Vice Chairman of Investment Banking. From 1992 to 1998 he was Finance Director then Chief Executive Officer of Telewest Communications plc. He was Chairman of the Cable Communications Association from 1996 to 1998. He holds an MA (first class) in Mathematics and Statistics from the University of Aberdeen.

 

Kathleen Flaherty, joined the Board in May 2006. She currently serves as a non-executive director of GenTek, Inc. (Nasdaq). Previously Ms. Flaherty served on the board of Marconi Corporation plc until it was sold to L. M. Ericsson in 2005, and on the board of telent plc until October 2006. She also served on the boards of CMS Energy Corporation (NYSE) and Consumers Energy Company (NYSE) from 1995 to 2004. Previous positions include Chief Marketing Officer at AT&T; President and Chief Operating Officer of Winstar International; Senior Vice President, Global Product Architecture for MCI Communications, Inc and Marketing Director for National Business Communications at BT. Ms. Flaherty graduated from Northwestern University, Evanston Illinois with a Ph.D. in Industrial Engineering and Management Sciences. She is a member of the McCormick Advisory Board, Northwestern University, and sits on its executive committee.

 

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Senior Management

 

In addition to the executive management on our Board, the day-to-day management of the Group is conducted by the following senior managers:

 

Name

  

Position

Alison Horrocks

   Vice President – Corporate Governance and Company Secretary

Eugene Jilg

   Chief Technical Officer

Debbie Jones

   Senior Vice President – Corporate Development

Perry Melton

   Chief Operating Officer

Rupert Pearce

   Senior Vice President – Inmarsat Enterprises and Group General Counsel

 

The following is a brief biography of the above senior managers:

 

Alison Horrocks has been Secretary to the Board since its inception and also serves the boards of Inmarsat’s other main operating companies. She was previously group company secretary of International Public Relations plc, a worldwide public relations company. She is a Fellow of the Institute of Chartered Secretaries and Administrators.

 

Eugene Jilg returned to Inmarsat Ventures Limited in January 1999 as our acting Vice President of Corporate Affairs and Strategy and subsequently was appointed as Chief Technical Officer and is also Vice President, Product Evolution, Inmarsat Global Limited. Previously, between November 1989 and April 1998, he held various positions within the intergovernmental predecessor principally managing satellite programmes and operations. Prior to joining Inmarsat, between August 1984 and September 1989, Mr Jilg co-owned and co-managed Celsius Joint Venture, doing business as Case Parts Company. Between 1979 and 1984, Mr Jilg was Deputy Director of the Space Systems Division of Ford Aerospace and Communications Corporation. Prior to this, from 1964, he held various positions at Communications Satellite Corporation. Prior to 1964, Mr Jilg was, inter alia, employed by the US Government and was an officer in the US Navy. He holds a BS degree and an MS degree in Mechanical Engineering from Stanford University.

 

Debbie Jones joined Inmarsat in 2000. She is currently Senior Vice President, Corporate Development and was Vice President of Business and Customer Operations until January 2009. Ms. Jones is a non-executive director of Capital Law LLP. Between 1995 and 2000, she was the senior human resources adviser for Eversheds Solicitors. Between 1988 and 1995, she was the head of personnel at Companies House in Cardiff. Between 1983 and 1988, Ms Jones held various operational, information technology supervisory and management positions at the Department of Trade and Industry and the Office for National Statistics. She is a member of the Chartered Institute of Personnel and Development.

 

Perry Melton has been with Inmarsat Global Limited and its intergovernmental predecessor since 1992 and was appointed as Chief Operating Officer with effect from 1 January 2009. Prior to his current position, he was Vice President of Sales and Marketing and, between 1992 and April 2002, he held various management positions, including Vice President of Strategic Development, manager of the Inmarsat-4 satellite investment planning team and head of procurement and contracts. Between 1982 and 1992, Mr Melton gained considerable experience in the space and information systems industries through his employment in various finance and contracts positions with Lockheed Martin. Mr Melton was educated at University of Notre Dame, where he received a BA degree in English Literature.

 

Rupert Pearce joined Inmarsat in January 2005 from Atlas Venture a venture capital company, where he was a partner working with the firm’s European and US investment teams on investment, divestment, M&A and corporate finance transactions and was a member of the firm’s investment and exit committees. He was previously a partner at the international law firm Linklaters, where he spent 13 years specializing in corporate finance, M&A and private equity transactions. He received an MA in Modern History from Oxford University, and won the 1995 Fulbright Fellowship in US securities law, studying at the Georgetown Law Center.

 

There are no family relationships between any director and senior management.

 

BOARD PRACTICES

 

Corporate Governance

 

Our parent company, Inmarsat plc has established audit, remuneration and nominations committees.

 

Audit Committee

 

The audit committee of the Board of directors of Inmarsat plc comprises John Rennocks (Chairman), Sir Bryan Carsberg and Stephen Davidson. All members of the audit committee are independent, non-executive

 

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directors and have significant, recent and relevant financial experience. By invitation, the meetings of the audit committee may be attended by the Chairman and Chief Executive Officer, Chief Financial Officer and the internal and external auditors.

 

The audit committee has particular responsibility for monitoring the adequacy and effectiveness of the operation of internal controls and risk management and ensuring that the Group’s financial statements present a true and fair view of the Group’s financial position. Its duties include keeping under review the scope and results of the audit and its cost effectiveness, consideration of management’s response to any major external or internal audit recommendation and the independence and objectivity of the internal and external auditors.

 

During the year to 31 December 2008, the audit committee reviewed and endorsed, prior to submission to the Board, half-year and full-year financial statements, interim management statements and results announcements and the quarterly financial reports for the Company and Inmarsat Group Limited. It considered internal audit reports and risk management updates, agreed external and internal audit plans and received updates on management responses to audit recommendations and approved the review of accounting policies. Pursuant to the requirements of Section 404 of the Sarbanes-Oxley Act 2002 for the Company and its fellow US reporting subsidiary, an annual assessment must be undertaken by management of the effectiveness of internal controls over financial reporting. The audit committee has overseen the progress of a project to document and test internal controls over financial reporting through regular status reports submitted by management. The first annual assessment and related report from management was included in the Forms 20-F filed in April 2008. The external auditors are required to conduct their attestation under Section 404 for the financial year ending 31 December 2009.

 

The Company Secretary, as Chairman of the Disclosure Committee, reported on matters that affected the quality and timely disclosure of financial and other material information to the Board, to the public markets and to shareholders. This enabled the audit committee to review and clarify the completeness of financial reporting disclosures prior to their release by the Board.

 

Remuneration Committee

 

The remuneration committee of the Board of directors comprises Stephen Davidson (Chairman), Sir Bryan Carsberg, Admiral James Ellis Jr (rtd) and Kathleen Flaherty. All committee members are independent, non-executive directors.

 

The remuneration committee, on behalf of the Board, meets as and when necessary to review and approve as appropriate the remuneration of the executive directors and senior management and major remuneration plans for the Group as a whole. The remuneration committee appraises the Chairman and Chief Executive Officer against his written objectives. Similarly, the Chairman and Chief Executive Officer appraises the other executive directors and makes recommendations to the remuneration committee relating to their bonus achievement. The remuneration committee approves the setting of objectives for all of the executive directors and authorizes their annual bonus payments for achievement of objectives. The remuneration committee provides remuneration packages necessary and sufficient to attract, retain and motivate executive directors to run the Company successfully. The remuneration committee is empowered to recommend the grant of share options under the existing share option plans and to make awards under the short and long-term incentive plans. The remuneration committee considers there to be an appropriate balance between fixed and variable remuneration and between short and long-term variable components of remuneration. All of the decisions of the remuneration committee on remuneration matters in 2008 were reported to and endorsed by the Board.

 

Nominations Committee

 

The nominations committee of the Board of directors comprises Andrew Sukawaty (Chairman), John Rennocks, Admiral James Ellis Jr (rtd) and Stephen Davidson.

 

The nominations committee meets as and when necessary. The nominations committee has responsibility for nominating to the Board, candidates for appointment as directors, bearing in mind the need for a broad representation of skills across the Board. The nominations committee will also make recommendations to the Board concerning the re-appointment of any independent, non-executive director by the Board at the conclusion of his or her specified term; the election and re-election of any director by shareholders under the retirement provisions of the Company’s articles of association; and changes to senior management, including executive directors.

 

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(B)    Management of the Issuer

 

Board of Directors

 

The directors of Inmarsat Finance II plc are Andrew Sukawaty, Michael Butler and Rick Medlock.

 

Audit Committees

 

The audit committee of Inmarsat Group Limited comprises Andrew Sukawaty and Michael Butler, neither of whom the board of directors considers to be an audit committee financial expert, and neither of whom is independent (as such term is defined under the rules adopted by the New York Stock Exchange pursuant to the Sarbanes-Oxley Act of 2002). We believe that the members of Inmarsat Group Limited’s audit committee have sufficient experience to perform their responsibilities. Neither the issuer nor the guarantor is required under its law of incorporation to include financial experts on its audit committee.

 

COMPENSATION

 

In the year ended 31 December 2008, Inmarsat Group Limited paid or accrued compensation (including salary, bonus, benefits and pension, excluding compensation resulting from the vesting of share awards) of US$8.0m to the Executive Staff (including Executive Directors and comprising eight individuals) employed during that period (2007: US$8.5m and 2006: US$6.8m for the Executive Management Board comprising ten and ten individuals respectively). This includes compensation in all capacities with respect to Inmarsat plc and its subsidiaries.

 

The following table sets out the total compensation for prior and current directors of Inmarsat plc for the year ended 31 December 2008:

 

     Year ended 31 December 2008
     Salaries/
Fees
   Bonus    Benefits    Total    Pension
     (US$000)

Executive directors

              

Andrew Sukawaty

   905    1,017    36    1,958    116

Rick Medlock

   551    424    11    986    23

Michael Butler

   626    462    12    1,100    23

Non-executive directors

              

Kathleen Flaherty

   92          92   

Sir Bryan Carsberg

   97          97   

Stephen Davidson

   111          111   

Admiral James Ellis Jr (ret)

   178          178   

John Rennocks

   173          173   
                        
   2,733    1,903    59    4,695    162
                        

 

1. The pension for Andrew Sukawaty includes an annual salary supplement in lieu of employer pension contribution.

 

2. The fee for Admiral James Ellis Jr (ret) included a fee as a director of Inmarsat Inc, a wholly-owned subsidiary in the US. As at 31 December 2008, this fee was US$82,732 per annum (2007: US$79,780 per annum).

 

Service Agreements

 

Messrs Sukawaty, Medlock and Butler, being the three executive directors, all have service agreements dated 17 June 2005.

 

As announced on 13 March 2008, Michael Butler will leave the Company on 30 April 2009. As part of the mutually agreed departure terms, Mr Butler will receive a payment of £100,000 as compensation principally for non-participation in the 2008 share awards made under the Inmarsat 2005 Bonus Share Plan (the “BSP”) and Inmarsat 2005 Performance Share Plan (the “PSP”). The remuneration committee has also agreed that Mr Butler is entitled to receive the two tranches of shares outstanding under the 2007 BSP award as the performance condition was fully achieved in 2007. His entitlement under the PSP award made in 2007 will vest in March 2010 subject to the performance conditions being achieved and his award will be scaled to reflect the period he was employed as a proportion of the vesting period, which will be over 2/3rds of the total period. Mr Butler will be entitled to receive a pro rata annual bonus based on the Company’s performance from 1 January 2009 to 30 April 2009 if the remuneration committee determines that key performance indicators of the results of Inmarsat give clear evidence that the bonus scheme would yield an award for the 2009 financial year.

 

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The employment of Mr Sukawaty and Mr Medlock is for an indefinite period and continues until either party terminates it. Either party may terminate the employment by giving to the other not less than twelve months’ written notice.

 

Fees for non-executive directors are determined annually by the Board as a whole, taking advice as appropriate and reflecting the time commitment and responsibilities of the role. With effect from 1 July 2008, the Board approved an increase of 3% to the basic non-executive directors’ fee. The fees are not pensionable. Non-executive directors’ fees currently comprise a basic fee of £44,006 per annum plus additional fees of £5,000 per annum for committee chairmanship of the audit and nominations committees, £7,500 per annum for chairmanship of the remuneration committee and £2,500 per annum for each committee membership. The Chairman and Chief Executive Officer who is Chairman of the Nominations Committee does not receive a fee for this position.

 

The Deputy Chairman and Senior Independent director receives a basic fee of £82,512 per annum (which includes fees for any committee membership) plus a fee of £5,000 per annum for chairmanship of the audit committee.

 

Admiral James Ellis Jr (ret) also receives a fee in respect of his directorship of Inmarsat Inc which was US$82,732 per annum as at 31 December 2008.

 

Non-executive directors do not participate in any annual bonus nor in the pension scheme, healthcare arrangements nor in any of the Company’s incentive plans. The Company repays the reasonable expenses they incur in carrying out their duties as directors.

 

Non-executive directors have letters of appointment instead of service contracts.

 

Pension Plans

 

Since April 1999 (when Inmarsat Ventures Limited was incorporated), we have operated the following pension schemes to provide benefits to employees.

 

Pensionsaver plan

 

This defined contribution plan is established pursuant to a trust deed and is managed by a trustee company. All UK employees on regular appointment or fixed-term staff (if provided for in their contract of employment) who are aged 18 or over may join this plan. Employees may be able to transfer benefits into this plan from other UK approved pension plans. Contributions to this plan are age-related and subject to a scheme specific cap. All contributions including those we make are invested in a retirement account in the employee’s name. On retirement, the employee’s account is used to provide a pension of the employee’s choice with the option to take part of the account as a tax-free cash payment. In addition, Inmarsat pays the cost of the employee’s life insurance and disability scheme benefits.

 

Pensionbuilder plan

 

This plan is established pursuant to a trust deed and managed by a trustee company. This plan combines a defined benefit tier with a defined contribution tier. This plan provides benefits based on the employee’s salary up to a maximum of a scheme specific cap. The defined benefit tier provides a pension determined by the employee’s pensionable service, final pensionable salary and career average salary. The defined contribution tier provides benefits determined by contributions paid into the employee’s retirement account, investment growth on those contributions and the cost of buying a pension at retirement. Only employees who were contributing members of the Inmarsat Staff Pension and Death Benefit Plan on 31 December 1998 were eligible to join this plan. This plan has been closed to new entrants. In addition, Inmarsat pays the cost of the employee’s life insurance and disability scheme benefits.

 

International pension plan

 

This plan is established pursuant to a trust deed and is managed by trustees. Contributions by the employee and our contributions are fixed according to the employee’s age. Contributions are paid into an individual account held in the name of the trustees. An employee’s plan is invested by a professional pension fund manager that we recommend and who is appointed by the trustees. At retirement, the employee can take the value of his/her plan as a lump sum payment or use his or her plan to buy a pension. Pensions started from 1 April 2006 will be subject to the UK Inland Revenue rules in that generally only part of the funds can be taken as a lump sum. All our non-UK tax domiciled employees who were employees of our predecessor in business, the International Mobile Satellite Organization, before 1 January 1999 were eligible to join this plan and such employees joining us on or after 1 January 1999 were eligible to join this plan once they reached the age of 18. From April 2006, only staff based overseas may join this plan. In addition, Inmarsat pays the cost of the employee’s life insurance and disability scheme benefits.

 

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Inmarsat funded unapproved retirement benefits plan

 

This plan was for former members of the Inmarsat Staff Pension and Death Benefit Plan at 31 December 1998. This plan is established under a formal trust deed. This plan was closed and frozen on 31 March 2006. No new entrants or contributions are allowed into this plan. Benefits are now administered through the defined contribution tier of the Pensionbuilder plan. At retirement, the employee can take the value of his/her plan as a lump sum payment or use his or her plan to buy a pension.

 

Inmarsat Inc 401(k) pension plan

 

This plan is established pursuant to a trust and is managed by a trustee. This plan is provided for our employees who are US citizens or permanent residents in the US. Both we and the employee make contributions to this plan. Contributions are paid into individual accounts held in an employee’s name. The accounts are invested by a professional pension fund manager. On retirement, an employee can take the value of his account as a cash lump sum payment or in regular instalments. Contributions to this plan are restricted by Internal Revenue Service limits. If the limit is exceeded, contributions that cannot be made to this plan will, subject to relevant rules, be invested in the Inmarsat International pension plan (for staff who joined prior to 1999 only). The total amount of contributions made will not be affected by which plan is used. In addition, we make contributions equal to a percentage of the difference between pensionable salary (meaning basic salary under the previous pension plan, grossed up for UK tax liabilities) and gross salary (for staff who joined prior to 1999 only). In addition, we pay the cost of providing lump sum life insurance and disability benefits from separate arrangements.

 

Before the incorporation of Inmarsat Ventures Limited in April 1999, other pension schemes were operated to provide benefits to employees. These other schemes were wound up prior to our incorporation. There may be liabilities related to the winding-up of these schemes of which we are not currently aware.

 

Shares and Stock Options

 

The non-executive directors hold no options over the shares of Inmarsat plc. See “Share Ownership—Stock Option Plan”.

 

See Item 7 “Major Shareholders and Related Party Transactions” for directors’ interests in Inmarsat plc.

 

EMPLOYEES

 

The following table sets out the average numbers of persons we employed in the Group for the years ended 31 December 2008, 2007 and 2006 by main category of activity:

 

     2008    2007    2006

Category of activity

        

Operations

   175    164    124

Sales and marketing

   79    78    81

Development and engineering

   87    86    79

Administration

   125    123    123
              

Total

   466    451    407
              

 

In the year ended 31 December 2008, the total compensation paid to (or accrued with respect to) our employees was US$104.2m.

 

The majority of our employees work in London. The remainder work generally in the United States, Dubai and Indonesia. Our multicultural workforce comprises more than 40 nationalities, which is important to the operation of our global business.

 

We do not recognize an official labor union although some of our employees have individual membership in such unions.

 

We believe that relations with our employees are good.

 

The group has ensured that employees are fully informed and involved in the business, through the use of various communications methods. These include an elected representative group covering all employees that is constituted to provide formal employee consultation in accordance with multi-jurisdictional employment legislation and more generally through briefing sessions and discussions with groups of employees, circulation of newsletters, company announcements, information releases and dissemination of information through normal management channels. Employees are actively encouraged to attend internal training courses to learn about the company’s business, its products and services.

 

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The group has a positive attitude towards the development of all its employees and does not discriminate between employees or potential employees on grounds of race, ethnic or national origin, sex, age, marital status or religious beliefs.

 

The group gives full consideration to applications from disabled persons and to the continuing employment of staff that become disabled, including making reasonable adjustments where appropriate or considering them for alternative positions.

 

SHARE OWNERSHIP

 

 

See Item 7 “—Major Shareholders and Related Party Transactions” for ownership by directors and management.

 

During the year, eligible employees participated in a grant of share options and were also able to exercise share options under an unapproved share option plan.

 

Awards under all of Inmarsat plc’s share plans (including the long-term incentive plans for executive Directors and management) will normally be made only during the six weeks following the announcement by Inmarsat plc of its results for any period and at any other time when the grant of awards will not be prohibited by the Model Code or its own share dealing code.

 

In any ten-year period, the number of shares which may be issued or placed under option under any executive share plan established by Inmarsat plc, may not exceed 5% of its issued ordinary share capital from time to time. In any ten-year period, the number of shares which may be issued or placed under option, under all employee share plans established by Inmarsat plc, may not exceed 10% of its issued ordinary share capital from time to time.

 

Options and awards granted before the IPO are not counted towards the above limits.

 

Inmarsat 2004 Staff Value Participation Plan (the “2004 Plan”)

 

In November 2004, the 2004 Plan was adopted. 280,800 A ordinary shares in Inmarsat plc were available to be granted under the 2004 Plan to eligible Directors or employees of the Group. All options under the 2004 Plan have now vested and are exercisable. Whenever options are exercised under the 2004 Plan, the holder must pay a de minimis charge of €1. The options expire 10 years from the date of grant.

 

Following the exercise of options granted under the 2004 Plan, shares are transferred to the optionholders from the Inmarsat Employees’ Share Ownership Plan Trust. No new shares are issued to satisfy the exercise of these options.

 

No executive Director or member of senior management at the date of grant participated in the 2004 Plan.

 

Inmarsat 2005 Sharesave Scheme (the “Sharesave Scheme”)

 

The Sharesave Scheme is a HM Revenue & Customs approved scheme open to all permanent employees paying UK PAYE, including executive Directors. The maximum that can be saved each month is £250 and savings plus interest may be used to acquire shares by exercising the related option at the end of the three-year savings contract.

 

The first grant under the Sharesave Scheme was made in July 2005 with an option grant price of £2.24 per ordinary share (a 20% discount to market value). All of the executive Directors and certain members of senior management participated in the first invitation under the Sharesave Scheme. The first grant matured on 1 September 2008.

 

A second grant under the Sharesave Scheme was made in December 2008 with an option grant price of £3.06 per ordinary share (a 20% discount to market value). Two of the executive Directors and certain members of senior management participated in the second invitation under the Sharesave Scheme.

 

Inmarsat 2005 International Sharesave Scheme

 

The International Sharesave Scheme is open to eligible employees based overseas who do not pay UK PAYE. The International Sharesave Scheme was established to replicate the UK approved Sharesave Scheme as closely as possible. Employees receive the gain on the growth in share price when they exercise their options and retain the savings they have made.

 

The first grant under the International Sharesave Scheme was made in October 2005 and used the same grant price as the UK Sharesave Scheme. The first grant matured on 1 September 2008.

 

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A second grant under the International Sharesave Scheme was made in December 2008 and used the same grant price as the UK Sharesave Scheme.

 

Inmarsat 2005 Share Incentive Plan (the “SIP”)

 

Awards under the SIP were made in April 2006 and in April 2007. The SIP is a HM Revenue & Customs approved plan open to all permanent employees paying UK PAYE and operates in conjunction with a UK tax-resident trust which holds shares on behalf of participating employees. Under the SIP, Inmarsat plc can award “Free Shares” (up to a maximum value of £3,000) to employees. Employees can also acquire “Partnership Shares” from their salary up to a maximum of £1,500 per annum and Inmarsat plc will match this with up to two free “Matching Shares” per “Partnership Share” (equivalent to a maximum value of £3,000 per annum). The market values per ordinary share at the date of the 2006 and 2007 awards were £3.7725 and £4.14 respectively.

 

Arrangements were put in place for eligible overseas employees to replicate the UK approved SIP as closely as possible. Additional arrangements were also put in place for the April 2006 award for employees to acquire shares over the capped amounts under the approved SIP. The same market value per ordinary share was used as for the approved SIP. Awards under these arrangements have been made using shares held by the Inmarsat Employees’ Share Ownership Plan Trust.

 

No executive Director applied to participate in the SIP or equivalent overseas arrangements when they were offered in 2006 and 2007.

 

The number of new shares issued to UK employees participating in the SIP on 7 April 2006 was 460,312 and on 10 April 2007, the number of new shares issued was 216,114.

 

Inmarsat 2005 Bonus Share Plan (the “BSP”)

 

The BSP provides the means by which a part of an employee’s annual bonus can be delivered in the form of shares, or their equivalent, and allows a bonus award of shares to be made in addition to a participant’s cash bonus. No part of the annual cash bonus payments have been delivered in the form of shares.

 

The following awards under the BSP have been made to the executive Directors and certain members of senior management:

 

   

during 2006, awards of shares were made relating to a monetary award determined in May 2005 and September 2005;

 

   

during 2008, awards of shares were made relating to a monetary award determined in March, May and September 2007; and

 

   

during 2009, awards of shares were made relating to a monetary award determined in March 2008.

 

The levels of bonus share award that can be made are equivalent to 200% (increased from 100% following shareholder approval at the Inmarsat plc 2008 AGM) of the maximum annual cash bonus which may be paid and in exceptional circumstances, equivalent to 300% (increased from 200%) of the maximum annual cash bonus. For the Chairman and Chief Executive Officer, the maximum annual cash bonus opportunity is 125% of basic salary and for the other executive Directors, the maximum annual cash bonus opportunity is 75-100% of basic salary. The remuneration committee will use these new limits carefully and does not intend automatically to make share awards at the higher level.

 

If a portion of a participant’s cash bonus is deferred into shares under the BSP, a matching award up to the value of 50% of an individual’s maximum bonus opportunity may also be made, which would vest after three years subject to the attainment of performance conditions determined by the remuneration committee. Matching awards have not been made under the BSP to date.

 

For the bonus share award, the remuneration committee sets the annual performance targets in respect of the financial year relating to the award. To date, these have been the same financial targets as those used for the annual cash bonus comprising four financial measures. These performance elements were also used for the basis of the 2009 BSP award based on the 2008 Inmarsat Financial Results. Bonus share awards may normally be exercised according to a vesting schedule set by the remuneration committee. The remuneration committee can determine how dividends paid during the vesting period shall be awarded to participants. For the awards made to date, dividends accrue in the form of ordinary shares which are added to the original award of shares and vest in line with the relevant award.

 

The first award under the BSP was made to the executive Directors and certain members of management in May 2005 as a bonus share award and was conditional upon the IPO occurring. The value of the bonus share

 

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award was based on a percentage of the target bonus for each individual. The number of shares was calculated based upon the mid-market closing price of the ordinary shares of Inmarsat plc following the announcement of the 2005 Preliminary Results on 9 March 2006. The annual performance targets relating to revenue, operating expenditure and EBITDA performance for the year ended 31 December 2005 were achieved in full and therefore the maximum bonus share awards were made to participants. The total number of shares awarded under the BSP was 215,542.

 

On 20 March 2007, 7 March 2008 and 13 March 2009, the first three tranches of shares awarded under the BSP in 2005 vested and included additional shares in respect of accrued dividends.

 

Share awards under the BSP were made in March, May and September 2007 to executive Directors and certain senior management. The allocation of shares in respect of all three awards was made based upon the mid-market closing price of the ordinary shares of Inmarsat plc on 7 March 2008 following the announcement of the 2007 Preliminary Results. The annual performance targets relating to revenue, operating expenditure, capital expenditure and EBITDA performance for the year ended 31 December 2007 were achieved in full and therefore the maximum bonus awards were made to participants. The total number of shares allocated under the BSP in March 2008 was 938,198. The first tranche of shares awarded in 2007 vested on 13 March 2009 and included additional shares in respect of accrued dividends. The shares will vest in two further tranches in March 2010 and 2011.

 

New share awards under the BSP were made in March 2008 to executive Directors and certain senior management. The allocation of shares was made based upon the mid-market closing price of the ordinary shares of Inmarsat plc on 12 March 2009 following the announcement of the 2008 Preliminary Results. The annual performance targets relating to revenue, operating expenditure and EBITDA performance for the year ended 31 December 2008 were achieved in full and therefore the maximum bonus awards were made to participants. The total number of shares allocated under the BSP in March 2009 was 807,630. The shares will vest in three tranches in March 2010, 2011 and 2012.

 

A new share award under the BSP was made in March 2009 to executive Directors and certain senior management. The number of shares to be allocated will depend upon the financial performance of Inmarsat plc in 2009.

 

Inmarsat 2005 Performance Share Plan (the “PSP”)

 

The PSP provides for an award of shares, which vest based on corporate performance measured over a three-year period. The PSP is intended for the participation of executive Directors and certain members of senior management.

 

The maximum number of shares subject to an award to an individual in any financial year may be equal to 200% (increased from 100% following shareholder approval at the 2008 Inmarsat AGM) of annual basic salary as at the award date (other than in exceptional circumstances, such as on recruitment or retention where larger awards of up to 300% (increased from 200%) of annual basic salary may be made). It is not the intention of the remuneration committee automatically to make share awards up to the increased levels.

 

The remuneration committee has the discretion to increase the size of a participant’s award to reflect the value of reinvested dividends that are paid during the vesting period. This may be paid as either shares or the cash equivalent. The intention of the remuneration committee is to pay this in shares at the end of the three year performance period.

 

The first awards under the PSP were made to the executive Directors and certain members of management as an allocation in May 2005, conditional upon the IPO of Inmarsat plc occurring, and the number of shares allocated was based upon the conditional IPO listing price of £2.45 per share. The remuneration committee determined that the awards for the executive Directors would be equivalent to 100% of basic salary. The first award vested in May 2008 and 100% of the award vested based upon the achievement of the performance criteria, being the performance of Inmarsat plc against an index and EBITDA growth. Over the period, the EBITDA growth performance was 8.3% per annum, exceeding the upper hurdle which was 7% per annum. The Total Shareholder Return (TSR) of Inmarsat plc, compared with an Index of FTSE 350 companies (excluding investment trusts), was at the 81st percentile, again exceeding the upper hurdle of the 75th percentile. The matrix calculation determined that both performance conditions were in the upper quartile of each performance requirement and therefore 100% of the shares vested.

 

A second award was made to the executive Directors in March 2007 and the shares allocated were based upon the mid-market closing price of the ordinary shares of Inmarsat plc on 28 March 2007 of £3.95 per share. The remuneration committee determined that the awards would be equivalent to 50% of basic salary. Subject to the performance conditions being met, the award will vest in full in March 2010.

 

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A third award was made to Mr Sukawaty and Mr Medlock and certain members of senior management in March 2008 and the shares allocated were based upon the mid-market closing price of the ordinary shares of Inmarsat plc on 18 March 2008 of £4.3875 per share. The remuneration committee determined that the awards would be equivalent to 100% of basic salary. Subject to the performance conditions being met, the award will vest in full in March 2011.

 

A fourth award was made to Mr Sukawaty and Mr Medlock and certain members of senior management in March 2009 and the shares allocated were based upon the mid-market closing price of the ordinary shares of Inmarsat plc on 19 March 2009 of £4.5675 per share. The remuneration committee determined that the awards would be equivalent to 75 to 100% of basic salary. Subject to the performance conditions being met, the award will vest fully in March 2012.

 

The performance conditions applicable to the existing awards will be determined by reference to the relative TSR performance of Inmarsat plc against companies within the FTSE 350 Index (excluding investment trusts), and its EBITDA performance at the end of the relevant three-year performance period.

 

For the performance targets to be met in full, in respect of the 207 and 2008 PSP awards, and 100% of the award to vest at the end of the three-year period, the relative performance of Inmarsat plc against the TSR must be in the upper quartile and have EBITDA growth at or above 10% per annum. If the relative TSR performance is below the median level or the EBITDA growth achieved is less than 6% per annum, none of the shares will vest. 30% of the award will vest for median TSR performance and EBITDA growth of 6% per annum target. There is pro-rata vesting of shares between median TSR performance and a minimum EBITDA growth of 6% per annum target and upper quartile TSR performance and EBITDA growth of 10% per annum. The parameters of the performance measure should not be construed as providing any view on the future performance of the Company.

 

     Annualized EBITDA growth  

Vesting Fractions

   Below 6%    At 6%     6% to 10%    At or above 10%  

Relative TSR performance

          

Upper quartile

   No vesting    75 %   Pro-rata    100 %

Median to upper quartile

   No vesting    Pro-rata     Pro-rata    Pro-rata  

Median

   No vesting    30 %   Pro-rata    75 %

Below median

   No vesting    No vesting     No vesting    No vesting  

 

The remuneration committee believes that the constituents of the FTSE 350 Index (excluding investment trusts) represent the most appropriate comparator group against which to measure the performance of Inmarsat plc. The remuneration committee also recently revisited whether it is still appropriate to use this index as the performance condition for future awards and considers that it is. As Inmarsat plc is relatively new to the FTSE 100 Index, it is not thought that this would be appropriate to use at this time. Also, the remuneration committee does not believe that there is another suitable comparator group which can be used. Growth in EBITDA was selected to reflect the primary driver of value for Inmarsat plc and this also remains appropriate at the moment for future awards.

 

Following the exercise of the option by Inmarsat plc to indirectly acquire Stratos in April 2009, the remuneration committee has already discussed that it will adjust the EBITDA range from 6-10% to 5-8% for the 2009 PSP award which is comparably demanding for the combined group.

 

It is intended that future awards under the PSP will also be made.

 

Chief Executive Officer Share Award

 

The remuneration committee made a special grant of performance-related shares to Andrew Sukawaty, the Chairman and Chief Executive Officer, on 28 September 2007. Discussions with major shareholders of Inmarsat plc took place before the award was made.

 

A conditional award of 1 million shares was made on 28 September 2007 (the mid-closing share price of the ordinary shares of Inmarsat plc on 27 September 2007 was £4.49 per share). No shares will be earned unless, three years after grant, the share price reaches a minimum price of £5.50. For performance above this level shares will be earned pro-rata up to a share price of £7.25 at which the full award will be earned. The share price performance condition will be assessed on the basis of the average closing price of Inmarsat plc shares over the last 20 trading days of the performance period. A further award over 0.7 million shares could be earned if, at that time that performance is assessed, the share price has reached £9.25. If the share price is below £7.25 none of the additional shares would be earned and between £7.25 and £9.25 shares would be earned pro-rata up to a share price of £9.25.

 

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Additional shares will accrue representing the value of dividends paid during the performance period on the number of shares that ultimately vest. Good leaver provisions would result in a scaled award pro-rata for time and performance. In the event of a change of control of Inmarsat, the award would be reduced taking account of time and performance against the original share price targets.

 

The Inmarsat Employees’ Share Ownership Plan Trust purchased 1 million shares on 26 November 2007 to hold against the satisfaction of the award. This has been funded through a loan from Inmarsat plc to the Trust.

 

Directors’ share options and share awards

 

Information in respect of share options and share awards held by the executive Directors of the Company during the year to 31 December 2008 is set out below. No other Director has received share options.

 

Inmarsat 2005

Sharesave Scheme

  Options
held at
1 January
2008
  Granted
during
the year
  Exercised
during
the year1
  Options
held at
31 December
2008
  Exercise
Price
  Market
price on
Exercise
  Date from
which exercisable
  Expiry
Date

Michael Butler

  4,229     4,229     £ 2.24   £ 5.00   1 September 2008  

Rick Medlock

  4,229     4,229     £ 2.24   £ 5.00   1 September 2008  
    3,137     3,137   £ 3.06       1 February 2012   July 2012

Andrew Sukawaty

  4,229     4,229     £ 2.24   £ 5.00   1 September 2008  
    3,137     3,137   £ 3.06       1 February 2012   July 2012

 

1) All of the Executive Directors exercised their options under the first grant of the Sharesave Scheme on 1 September 2008. Mr Butler retained the resulting shares and Messrs Medlock and Sukawaty sold their resulting shares at a price of £5.00 per share.

 

Inmarsat 2005

Bonus Share Plan

  Share
awards
held at
1 January
2008
  Vested
during
the year2,3
  Share awards
held at
31 December
20084
  Share awards
held at
12 March
2009
  Share price
at date of
award
  Vesting Date

Award made in March 20051

           

Michael Butler

  17,499   9,039   9,038   9,038   £ 3.83   March 2009

Rick Medlock

  17,499   9,039   9,038   9,038   £ 3.83   March 2009

Andrew Sukawaty

  37,859   19,555   19,555   19,555   £ 3.83   March 2009

Award made in March 20075

           

Michael Butler

  65,537     65,537   65,537   £ 4.58   March 2009-2011

Rick Medlock

  58,503     58,503   58,503   £ 4.58   March 2009-2011

Andrew Sukawaty

  66,248     66,248   66,248   £ 4.58   March 2009-2011

 

1) The shares vest in three equal instalments in March 2007, 2008 and 2009.

 

2) The number of shares subject to the award increases by the number of shares that the Executive Director could have purchased with the value of dividends they would have received on their award, based on the share price on the ex-dividend date.

 

3) On 7 March 2008, shares vested at £4.57 per share. On 10 March 2008, Messrs Butler and Medlock sold their vested shares at a market price of £4.57 per share, representing a monetary value of £41,297. On the same date, Mr Sukawaty sold sufficient of his vested shares at a price of £4.57 per share to cover the tax and national insurance contributions due on the value of the shares and retained 11,509 shares.

 

4) Following the 2008 Preliminary Results, the third tranche of the award made in 2005 vested on 13 March 2009. The number of shares vested included additional shares in respect of the value of reinvested dividends as noted in 2) above.

 

5) The shares vest in three equal instalments in March 2009, 2010 and 2011.

 

6) The monetary value of the award made in March 2008 was converted in full to ordinary shares following the announcement of the 2008 Preliminary Results at a price of £4.59 per share, resulting in 87,516 shares for Mr Medlock and 95,860 shares for Mr Sukawaty. These shares will vest in three equal instalments in March 2010, 2011 and 2012.

 

7) On 20 March 2009, Messrs Sukawaty and Medlock received a monetary award of £459,800 and £321,828 respectively which, subject to achievement of the performance conditions, will be converted to an award of shares in March 2010. These shares will then vest in March 2011, 2012 and 2013.

 

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Inmarsat 2005

Performance Share

Plan

  Share
awards
held at
1 January
2008
  Awarded
during
the year
  Vested
during
the year1,2
  Share awards
held at
31 December
2008
  Share price
at date of
award
  Vesting Date

Michael Butler

  106,123     116,402     £ 2.45   31 May 2008
  37,974       37,974   £ 3.95   29 March 2010

Rick Medlock

  106,123     116,402     £ 2.45   31 May 2008
  33,898       33,898   £ 3.95   29 March 2010
    91,555     91,555   £ 4.39   19 March 2011

Andrew Sukawaty

  153,062     167,890     £ 2.45   31 May 2008
  48,892       48,892   £ 3.95   29 March 2010
    100,284     100,284   £ 4.39   19 March 2011

 

1) The number of shares subject to the award increases by the number of shares that the Executive Director could have purchased with the value of dividends they would have received on their award, based on the share price on the ex-dividend date.

 

2) On 2 June 2008, shares vested at £4.62 per share, representing market values of £537,777, £537,777 and £775,652 for Messrs Butler, Medlock and Sukawaty respectively. On 3 June 2008, Mr Medlock sold his vested shares at a market price of £4.64 per share, representing a monetary value of £540,105. On the same date, Messrs Butler and Sukawaty sold sufficient of their vested shares at a price of £4.64 per share to cover the tax and national insurance contributions due on the value of the shares and retained 68,557 and 98,882 shares respectively.

 

3) An award was made on 20 March 2009 to Messrs Sukawaty and Medlock of 100,667 and 70,460 shares respectively, based on the mid-closing share price on 19 March 2008 of £4.5675. These shares will vest in March 2012.

 

Chief Executive

Officer Share

Award1

   Share awards
held at
1 January
2008
   Awarded
during
the year
   Vested
during
the year
   Share awards
held at
31 December
2008
   Share price
at date of
award
   Vesting Date

Andrew Sukawaty

   1,000,000          1,000,000    £ 4.49    28 September 2010

 

1) The award may be increased to 1.7 million shares subject to the achievement of certain performance conditions.

 

The market value of the ordinary shares at 31 December 2008 was 471.50p and the range during the year was 330.25p to 585.00p.

 

Directors’ interests

 

The interests of the Directors of the Company in office at the end of the period and their interests in the share capital of Inmarsat plc as at 17 April 2009 and their connected persons are shown below:

 

     As at
17 April 2009
   As at
31 December 2008
   As at 31
December 2007*
     Interest in ordinary shares of €0.0005 each

Executive Directors

        

Michael Butler

   322,786    322,786    500,000

Rick Medlock

   509,663    509,663    511,163

Andrew Sukawaty(1)

   1,133,393    1,108,036    997,645

Non-executive Directors

        

Sir Bryan Carsberg

   16,327    16,327    16,327

Stephen Davidson

   16,327    16,327    16,327

Admiral James Ellis Jr (ret)(2)

   21,727    21,727    16,327

Kathleen Flaherty

   1,500    1,500    1,500

John Rennocks(2)

   43,104    43,104    33,104

 

Note:

1) Changes to the interests of Andrew Sukawaty in the ordinary shares of the Company during the period from 1 January 2009 to 17 April 2009 relate to shares acquired through the Inmarsat 2005 Bonus Share Plan.

 

2) No right to subscribe for shares in the Company or any body corporate in the same group was granted to, or exercised by any Director or a member of a Director’s immediate family during the financial year.

 

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ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

MAJOR SHAREHOLDERS

 

Inmarsat plc

 

Inmarsat Group Limited is directly owned by Inmarsat plc. The company does not know of any arrangements that may, at a subsequent date, result in a change in control of the company. As of 17 April 2009, there were the following direct and indirect interests in more than 3% of the voting rights of Inmarsat plc:

 

     17 April 2009     18 April 2008  

Substantial shareholdings

   Number of
voting rights
        Percentage of
issued
Share Capital
    Number of
voting rights
   Percentage of
issued
Share Capital
 

Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P

   132,041,000    Indirect    28.76 %   129,068,751    28.2 %

Lansdowne Partners Limited Partnership

   50,958,170    Indirect    11.14 %   50,958,170    11.14 %

Blackrock, Inc

   42,576,471    Indirect    9.31 %   42,576,471    9.31 %

Legal & General Group Plc

   31,677,326    Direct    6.9 %   35,631,512    7.78 %

KDDI Corporation.

   21,739,149    Direct    4.76 %   21,739,149    4.76 %

F & C Asset Management plc

   19,164,056    Indirect    4.19 %   19,164,056    4.19 %

Allianz SE

   13,343,300    Indirect    2.91 %   13,812,748    3.02 %
   490,186    Direct    0.11 %       

Lehman Brothers International (Europe)

             48,724,097    10.64 %

The Goldman Sachs Group plc

             21,030,332    4.6 %
             1,875,000    0.41 %

Andrew Sukawaty

   *       *     *    *  

Rick Medlock

   *       *     *    *  

Michael Butler

   *       *     *    *  

Alison Horrocks

   *       *     *    *  

Eugene Jilg

   *       *     *    *  

Debra Jones

   *       *     *    *  

Perry Melton

   *       *     *    *  

Rupert Pearce

   *       *     *    *  

All Executive Officers and Directors as a group (8 persons)(1)

   4,525,026       0.98 %   4,945,605    1.08 %

 

Note: Percentages are based on the issued ordinary share capital as at the date of the respective notifications.

 

* Represents beneficial ownership of less than one percent of ordinary shares outstanding.

 

1) As at 17 April 2009, in addition, the Inmarsat Employees’ Share Ownership Plan Trust held 0.26% of the issued ordinary share capital, which may be allocated to senior management and employees in the future. None of these shares have been issued as of the date of this annual report.

 

As at 17 April 2009, the Directors and management of Inmarsat plc beneficially owned individually and in aggregate (including shares which may be allocated from within the Trust) 1.25% of the issued ordinary share capital of Inmarsat plc.

 

Our shareholders who hold 3% or more of the issued share capital of the Company do not have different voting rights to other shareholders.

 

KDDI

 

KDDI Corporation is a provider of a comprehensive range of voice, data, IP and mobile services to both business customers and consumers. KDDI Msat, a wholly-owned subsidiary of KDDI, offers mobile and IT-based solutions using Inmarsat products.

 

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Description of Share Capital of the Issuer and the Guarantors

 

As of the date hereof, Inmarsat Finance plc, the issuer, has an authorized share capital of £50,000 of which 50,000 shares have been issued, partly paid at a par value of £1.00 each, 49,999 of which are held by Inmarsat Group Limited and one of which is held by Inmarsat Holdings Limited, the direct parent company of Inmarsat Group Limited. A description of the share capital of Inmarsat Group Limited and the guarantor companies is as follows:

 

Name

  

Issued and fully paid share capital

  

Nature of

business/activity

Inmarsat Investments Limited

  

534,600,000 ordinary shares of €0.0005

  

Holding company

Inmarsat Ventures Limited

  

100,345,801 ordinary shares of £0.10 each and 1 special rights non-voting redeemable preference share of £1.00

  

Holding company

Inmarsat Global Limited

  

100,000,002 ordinary shares of £1.00 each

  

Satellite communications

Inmarsat Services Limited

  

1 ordinary share of £1.00 each

  

Employment company

Inmarsat Leasing (Two) Limited

  

1,061 ordinary shares of £1.00 each

  

Satellite leasing

Inmarsat Launch Company Limited

  

4,000 ordinary shares of $1.00 each

  

Launch insurance company

 

Inmarsat Ventures Limited Special Share

 

The International Mobile Satellite Organization, or IMSO, owns one special-rights, non-voting, non-transferrable redeemable preference share, par value £1.00 of Inmarsat Ventures Limited. The special share does not confer any right to participate in our profits.

 

As holder of the special share, IMSO has effective veto power over the following events:

 

   

any amendment, or removal, or change in the effect of:

 

   

our obligations to provide maritime and distress and safety services to the maritime community;

 

   

the right of IMSO to request an extraordinary meeting of shareholders of Inmarsat Ventures Limited; or

 

   

our obligations to comply with the public service requirements set out in clause 8 of the memorandum and articles of association of Inmarsat Ventures Limited.

 

   

the voluntary winding-up of Inmarsat Ventures Limited, the passage of a special resolution to the effect that Inmarsat Ventures Limited should be wound up by a court, the presentation of a petition for the winding-up of Inmarsat Ventures Limited by a court or any proposal for any of the foregoing, unless winding-up of Inmarsat Ventures Limited is occasioned by virtue of it being unable to pay its debts (in terms of section 123 of the Insolvency Act 1986), and

 

   

removal, or the alteration of the effect of all or any of the provisions of the memorandum and articles of association of Inmarsat Ventures Limited, insofar as they relate to the provision and support of maritime and distress and safety services.

 

IMSO may, after consulting us and unless otherwise required by law, require us to redeem the special share at par. This can take place at any time by giving written notice and delivering the relevant share certificate to us.

 

In a distribution of capital in the event of a winding-up of Inmarsat Ventures Limited, IMSO would be entitled to repayment of the capital paid up (or for the purposes of the Companies Act treated as paid up) on the special share in priority to any repayment of capital to any other shareholder of Inmarsat Ventures Limited.

 

RELATED PARTY TRANSACTIONS

 

Distribution Arrangements

 

During 2008, one of our principal shareholders, KDDI Corporation, was among our five largest distribution partners (measured by traffic volume over our network). These distribution partners are parties to the Distribution Agreements. For a description of these new Distribution Agreements, see “Item 10: Additional Information—Material contracts”.

 

Supply Arrangements

 

We enter into network and satellite control services and telephone and equipment services contracts with suppliers, including suppliers who are also our existing shareholders. During 2008, we made payments under

 

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these contracts in an aggregate amount of US$0.8m. These arrangements may be continuing, or we may enter into additional contracts with existing shareholders on an arm’s length basis on commercial terms.

 

Stratos Global Corporation

 

On 15 April 2009, Inmarsat plc (the ultimate parent company of the Inmarsat group) confirmed that it had completed the acquisition of Stratos. Following the acquisition, Stratos became a wholly-owned operating subsidiary of Inmarsat plc. Stratos operations will continue to be managed by the existing Stratos management team, reporting directly to Inmarsat at a corporate level. Inmarsat has implemented a fair channel management policy to ensure fair treatment between its direct and indirect distribution channel. Inmarsat remains committed to a primarily indirect distribution model through its existing channels to market. Revenue earned by the Group from Stratos for the year ended 31 December 2008 was US$256.4m. Other trading between the Group and Stratos was not material to either party for the year ended 31 December 2008. The amount held in accounts receivable owing from Stratos at 31 December 2008 was US$78.7m.

 

ITEM 8.    FINANCIAL INFORMATION

 

See Item 17. “Financial Statements” for the following registrants:

 

Inmarsat Finance plc

 

Inmarsat Group Limited

 

Inmarsat Investments Limited

 

Inmarsat Ventures Limited

 

Inmarsat Global Limited

 

Inmarsat Leasing (Two) Limited

 

Inmarsat Launch Company Limited

 

Significant Change

 

No significant changes have occurred since the date of our consolidated financial statements included in this annual report.

 

ITEM 9.    THE OFFER AND LISTING

 

The Senior Notes are currently listed on the Luxembourg Stock Exchange.

 

ITEM 10.    ADDITIONAL INFORMATION

 

MEMORANDUM AND ARTICLES OF ASSOCIATION

 

The following is a summary of the principal provisions of the Company’s Memorandum and Articles of Association (“Memorandum” and “Articles”) as in effect at the date of this report, and certain relevant provisions of the Companies Act 1985. The following summary description is qualified in its entirety by reference to the terms and provisions of the Memorandum and Articles, a copy of which have been filed with the Registrar of Companies for England and Wales.

 

It is intended that the Articles of Association of the Company will be amended to implement the parts of the new Companies Act 2006 which came into effect on 1 October 2007 and the remaining provisions which will come into effect on 1 October 2009.

 

Objects and purposes

 

The Company is incorporated under the name Inmarsat Group Limited, and is registered in England and Wales under registered number 4886115. The Company’s objects and purposes are set out in the third clause of its Memorandum and cover a wide range of activities, including to carry on business as manufacturers, builders and suppliers of and dealers in goods of all kinds, to carry on the business of a holdings company as well as to carry on all other businesses necessary to attain the Company’s objectives. The Memorandum grants the Company a broad range of powers to effect these objectives.

 

Directors

 

The Articles provide for a board of directors, consisting of not fewer than one director, who shall manage the business and affairs of the Company.

 

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Under the Company’s Articles, without prejudice to the obligation of any director to disclose his interest in accordance with section 317 of the Companies Act 1985, a director may vote at a meeting of directors on any resolution concerning a matter in respect of which he has, directly or indirectly, an interest or duty. The director must be counted in the quorum present at a meeting when any such resolution is under consideration and if he votes his vote must be counted.

 

The directors are empowered to exercise all of the powers of the Company to borrow, raise and secure the payment of money in any way the directors think fit, including, without limitation, by the issue of debentures and other securities, perpetual or otherwise, charged on all or any of the Company’s property (present and future) or its uncalled capital, and to purchase, redeem and pay off those securities.

 

The directors shall be entitled to such remuneration as the Company may by ordinary resolution determine. A director who, at the request of the directors, goes or resides abroad, makes a special journey or performs a special service on behalf of the Company may be paid such reasonable additional remuneration (whether by way of salary, percentage of profits or otherwise) and expenses as the directors may decide.

 

No person is disqualified from being a director or is required to vacate that office by reason of age.

 

Directors are not required to hold any shares of the Company as a qualification to act as a director.

 

Classes of shares

 

The Company has only one class of ordinary shares.

 

Rights attaching to the Company’s shares

 

Dividend rights:    The Company’s shareholders can declare dividends by passing an ordinary resolution provided that no dividend can exceed the amount recommended by the directors. The directors may also pay interim dividends.

 

All dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is paid.

 

Any dividend which has remained unclaimed for 12 years from the date when it became due for payment shall be forfeited at the discretion of the directors.

 

Voting rights:    Subject to any rights or restrictions attached to any shares, on a show of hands, every shareholder present in person or by proxy at any general meeting has one vote and on a poll, every shareholder present in person or by proxy has one vote for every share which they hold.

 

Voting at any meeting of shareholders is by a show of hands unless a poll is demanded by the chairman of the meeting or by at least five shareholders at the meeting who are entitled to vote (or their proxies), or by one or more shareholders at the meeting who are entitled to vote (or their proxies) and who have, between them, at least 10% of the total votes of all shareholders who have the right to vote at the meeting.

 

Liquidation rights:    If the Company is wound up, the liquidator can, with the authority of an extraordinary resolution passed by the shareholders, divide among the shareholders all or any part of the assets of the Company. For this purpose, the liquidator can place whatever value the liquidator considers fair on any property and decide how the division is carried out between shareholders or different groups of shareholders. The liquidator can also, with the same authority, transfer any assets to trustees upon any trusts for the benefit of shareholders which the liquidator decides. No past or present shareholder can be compelled to accept any assets which could give them a liability.

 

New issues of shares

 

Subject to the provisions of the Companies Act 1985, the directors have general and unconditional authority to allot (with or without conferring rights of renunciation), grant options over, offer or otherwise deal with or dispose of any unissued shares of the Company (whether forming part of the original or any increased share capital) to such persons, at such times and on such terms and conditions as the directors may decide but no share may be issued at a discount.

 

General meetings of shareholders

 

Every year the Company must hold an annual general meeting. The Board can call an extraordinary general meeting at any time and, under general law, must call one on a shareholders’ requisition.

 

Meetings are convened upon written notice of not less than 21 days in respect of meetings of members called for the passing of a special resolution or annual general meetings of members, and not less than 14 days in respect of most other meetings of members.

 

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Limitations on voting and shareholding

 

There are no limitations imposed by English law or the Articles on the right of non-residents or foreign persons to hold or vote the Company’s shares other than those limitations that would generally apply to all of the shareholders.

 

Changes in capital

 

The Company may by ordinary resolution:

 

  i) increase its share capital;

 

  ii) consolidate and divide all or any of its share capital into shares of a larger amount;

 

  iii) divide all or part of its share capital into shares of a smaller amount

 

  iv) cancel any shares which have not, at the date of the ordinary resolution, been taken or agreed to be taken by any person and reduce the amount of its share capital by the amount of the shares cancelled

 

The Company may also by special resolution:

 

  i) buy back its own shares; and

 

  ii) reduce its share capital, any capital redemption reserve and any share premium account.

 

MATERIAL CONTRACTS

 

Alphasat Phase B/C/D/E1 Contract with European Space Agency

 

On 8 November 2007 Inmarsat Global Limited entered into an agreement with the European Space Agency (ESA) to:

 

  a) procure the build and launch of Alphasat by 31 December 2013;

 

  b) embark certain technology demonstration payloads; and

 

  c) operate Alphasat for a period of three years after commissioning and provide ESA with telemetry data on technology demonstration payloads.

 

Term

 

The agreement terminates three years after the commissioning of Alphasat.

 

Price

 

In addition to providing us with the Alphabus satellite platform, ESA will pay Inmarsat an amount as a contribution towards the production of Alphasat and launch services costs and pay its contribution in relation to Alphasat to our main subcontractors (Astrium SAS and Astrium Limited) directly in accordance with a milestone delivery schedule.

 

Consequences of Failure to perform

 

If we fail to launch before 31 December 2013, we have an option to require further extension of the launch period until 31 December 2015. If we exercise this option we shall pay liquidated damages for any launch delay beyond 31 May 2014 up to an agreed amount. The payment shall be in lieu of any or all rights to terminate the agreement before 1 January 2016.

 

Termination

 

ESA may terminate the agreement in the following circumstances:

 

   

if we become insolvent or legal action leading to bankruptcy is taken against us by creditors;

 

   

if we resort to fraudulent practices in connection with the agreement;

 

   

if we fail to continue to meet the technical requirements of the agreement;

 

   

if we fail to launch Alphasat by 31 December 2013—or if the option to extend the launch period is exercised by 31 December 2015; or

 

   

if we transfer the agreement or conclude sub-contracts without ESA’s consent.

 

Alphasat Contract with Astrium SAS

 

On 8 November 2007 we entered into an agreement with Astrium SAS (“Astrium”) to design, develop, manufacture, test, integrate and prepare Alphasat for launch. The satellite is due for delivery to the launch site on or before 8 April 2012.

 

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Term

 

The agreement terminates 40 calendar quarters after Alphasat’s successful injection into its orbital location.

 

Price

 

The price to be paid includes the manufacture and integration of Alphasat, post-launch milestone and incentive payments. Payments are broken down between ESA payment stream and Inmarsat payment stream and will be made by in accordance with a milestone delivery schedule. In addition to milestone payments, Astrium may receive performance incentive payments from us for Alphasat being successfully operated during 40 calendar months after successful orbital injection. The aggregate of post launch milestone and incentive payments is 10% of the Inmarsat payment stream.

 

Option

 

Astrium has granted us the following options under the agreement:

 

   

an option to order up to four other optional spacecraft by 31 December 2015 at a base price subject to a currency conversion formula;

 

   

an option to require Alphasat to be stored for a period of up to five years at any time prior to launch. The first six months’ storage is free. At certain times we must pay storage and interest on performance incentives to Astrium. If we do not launch within five years both parties in good faith shall renegotiate performance incentives;

 

   

an option to purchase a payload control system by 30 June 2009;

 

   

an option to obtain launch support for other launch services ten months prior to shipping Alphasat; and

 

   

an option to purchase a beam weight engine by 31 December 2009.

 

Consequences of Failure to Perform

 

We are entitled to the following payments and have the following remedies against Astrium in the following circumstances:

 

   

if Alphasat is delivered late, we receive damages up to an agreed maximum;

 

   

if Astrium anticipates that it cannot deliver Alphasat by an agreed date and in the absence of a negotiated alternative, we notify Astrium that we are treating the contract as discharged with respect to all or part of the work related to the breach and choose between the following remedies:

 

   

take over the work and pay Astrium fair and reasonable price for the work. Astrium shall reimburse us for any and all increases costs up to a maximum percentage of the contract price; or

 

   

receive a refund of all amounts paid by us with interest at the EURIBOR rate calculated from the date of each payment until the date of reimbursement.

 

   

if Astrium fails promptly to correct satellite deficiencies, we can choose:

 

   

to have all deficiencies rectified by other means at Astrium’s cost (up to a maximum of 5% of price of the spacecraft); or

 

   

not to have the deficiency corrected but to negotiate an equitable reduction in the price and an appropriate limitation on the satellite performance incentive payment.

 

If Astrium fails to cure any other breach of the agreement within 30 days after it receives our notification of the breach, we may seek any remedy legally available to us.

 

Astrium may elect to terminate the agreement if any payment in excess of a minimum figure remains unpaid for more than 180 days.

 

If Inmarsat fails to cure any other breach of the agreement within 30 days after it receives notification from Astrium of the breach, Astrium may seek any remedy legally available to them.

 

Warranty

 

Astrium provides a warranty that covers equipment (including spacecraft) and services including, launch vehicle interfaces and support services, mission support, transportation and storage. The warranty provides that all equipment is free from any defects in design, materials and workmanship and that services shall be performed in a skilful and workmanlike manner and that both shall conform to the requirements of the contract. The warranty period for services, equipment and software shall commence at the time of final acceptance for the duration of one year.

 

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The warranty in relation to spacecraft shall commence at the time of final acceptance and shall run for one year or until launch whichever occurs first or if placed in storage, five years.

 

Termination

 

In addition to the circumstances which may give rise to a right to terminate summarized under “Consequences of Failure to Perform” above, the agreement may be terminated:

 

   

by either party, in whole or in part at any time, if either party becomes insolvent or goes into liquidation, or resorts to fraudulent practices in carrying out the contract;

 

   

by us, in whole or in part, at our convenience (in which case, we must pay termination charges, including a fixed profit element, to Astrium), at any time except in relation to a satellite that we have finally accepted; and

 

   

by us, if force majeure events delay delivery by more than 180 days or permanently prevent Astrium from complying with the timetable (in which case, we must pay Astrium a portion of the termination charge we would have paid if we had terminated for convenience).

 

Satellite Phone Services Handheld Terminal Development

 

Following a reorganization of the contractual structure on January 28th 2009 we entered into an agreement with Sasken Communication Technologies Ltd (“Sasken”) for the development and delivery to us of handheld satellite terminals capable of mass production (“HH”) and core modules (“CMs”) for the same. The HH are to be designed to function over the ground station equipment that is being developed by Lockheed Martin under a separate contract. The CMs to be developed will provide the essential platform for HH to function and will be capable of use and adaption into other terminals for use over the satellite phone services network being developed. The delivery of development prototypes and the final fully functioning models capable of productionisation are scheduled to occur in a complementary fashion with the development of the ground infrastructure and the launch of the satellite phone service (currently scheduled for Q2 2010).

 

Term

 

The agreement expires on 26 November 2011. The term includes 18 months of warranty on the deliverables and software following their acceptance by Inmarsat.

 

Price

 

The total contract price covers delivery of prototype CMs and HH and development of the software required to operate both. The price is payable in successive instalments in accordance with a milestone schedule.

 

Warranty

 

Sasken warrant that all deliverables under the contract, including equipment, will be new and free from any defects in materials, workmanship and that all services shall be performed in a skilful and workmanlike manner consistent with the best practices of the industry. All deliverables, services and equipment are warranted to conform to the requirements specified in this Contract. The warranty shall commence on the date of Inmarsat’s issuance of a Certificate of type approval of the HH and end 18 months later.

 

Sasken shall secure certain third party licenses for background technology embedded in the HH and CM. License fees for these intellectual properties may be recovered by the licensor both as a one off non recurring fee for integration into the HH and CM and subsequently on sale of the HH or derivative products to users of HH and derivative products.

 

If Sasken breach any warranty regarding the quality of the equipment and services provided we can require Sasken to correct or replace the defective or non-conforming equipment and services at their expense.

 

Remedies for Unsatisfactory Performance

 

If Sasken provide us with unsatisfactory performance we may terminate the agreement under defined circumstances. Sasken’s liability is limited to direct damages and does not extend to indirect, consequential or special damages, including loss of profit or business.

 

Remedies for late delivery/Incentives for early delivery

 

Liquidated damages shall accrue provided that such delay is caused by a contract item under Sasken’s control. Incentives are available should the HH be granted type approval prior to the contractual due date.

 

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Termination

 

We may terminate this agreement without prejudice to any other rights and remedies, which we have under the agreement or under the law:

 

   

if Sasken fail to remedy a breach of any of their material obligations, including failure to meet any of its scheduled performance milestones, within 30 days after we request them to do so in writing.

 

Either Sasken or us may terminate this agreement without prejudice to any other rights and remedies, which that each has under the agreement or under the law:

 

   

if the other party become subject to insolvency procedures; and

 

   

if after notice to the other party that time is of the essence in relation to specific obligations, they have not performed such obligations by a reasonable date stated in the notice.

 

If we terminate this agreement for cause (i.e., for those reasons above) we may receive the following remedies:

 

   

we may, at our sole discretion, take over all or part of the work completed prior to the termination, in which case, Sasken must compensate us for any increased cost reasonably incurred in completing the work; or

 

   

if we do not elect to take over and complete all or any part of the work completed prior to the termination provided that such termination occurs before the date of acceptance by Inmarsat of the first set of equipment to be installed and integrated for operation at our designated site, Sasken must refund to us all amounts paid by us for that work and pay the increased cost that we reasonably incur in procuring alternative goods and/or services.

 

In addition:

 

   

if a force majeure event delays the delivery timetable by more than two weeks, or permanently prevents Sasken from complying with the delivery timetable we may terminate this agreement in whole or in part.

 

Satellite Phone Services Ground Network Development

 

On 23 December 2006 we entered into an agreement with Lockheed Martin Integrated Systems & Solutions (LM) for the delivery to us of ground station equipment that we intend to use for satellite interface and transmission for the intended roll out of our global voice service. There are three sets of equipment to be delivered to three sites around the world in order that services may be modernized and extended in Asia by June 2009 and commenced in Europe by May 2009 and the rest of the world in April 2009.

 

Term

 

The agreement currently expires on 22 June 2010. The term includes one year of warranty on each of the three sets of equipment and software following their acceptance by Inmarsat.

 

Price

 

The total price covers delivery of the ground station equipment and development of the software required to operate the system and is payable in successive installments in accordance with a milestone schedule. The agreement has been subject to several change notes which have resulted in price increases.

 

If we elect to have LM provide maintenance support for the equipment after the expiry of the initial warranty we must pay a monthly fee per site. This fee is subject to a fixed increase in the second and third year of such maintenance.

 

Warranty

 

LM warrant that all deliverables under the agreement, including equipment, will be new and free from any defects in materials, workmanship and that all services shall be performed in a skilful and workmanlike manner consistent with the best practices of the industry. All services and equipment are warranted to conform to the requirements specified in this agreement. The warranty shall commence on the date of Inmarsat’s issuance of a Certificate of Final Site Acceptance and end 12 months later.

 

LM shall procure for and hold on Inmarsat’s behalf, Inmarsat-owned spares, above those held on the operational sites, as contingency for equipment failure.

 

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If LM breach any warranty regarding the quality of the equipment and services provided we can require LM to correct or replace the defective or non-conforming equipment and services at their expense.

 

Remedies for Unsatisfactory Service and Support

 

If LM provide us with an unsatisfactory performance (meaning performance that does not comply with the technical and functional requirements set out in the agreement or system availability that does not meet the minimum requirements agreed by the parties), we are entitled to damages of up to a maximum of US$1.0m per annum. If LM provide us with unsatisfactory performance we may terminate the agreement or continue to receive the service(s) but negotiate lower performance standards and lower prices. LM’s liability is limited to direct damages and does not extend to indirect, consequential or special damages, including loss of profit or business.

 

Remedies for late delivery/Incentives for early delivery

 

Liquidated damages shall accrue provided that such delay is caused by a contract item under LM’s control. Should acceptance occur prior to its scheduled date the contract price shall increase.

 

Termination

 

We may terminate this agreement without prejudice to any other rights and remedies, which we have under the agreement or under the law:

 

   

if LM fail to remedy a breach of any of their material obligations within 30 days after we request them to do so in writing;

 

   

if LM become subject to insolvency procedures;

 

   

for anticipatory breach, repudiation, inability to perform or lack of due diligence which LM fail to remedy within 30 days of our notice; or

 

   

if after notice to LM that time is of the essence in relation to specific obligations, they have not performed such obligations by a reasonable date stated in our notice.

 

If we terminate this agreement for cause (i.e. for those reasons above) we are entitled to the following remedies:

 

   

we may, at our sole discretion, take over all or part of the work completed prior to the termination, in which case, LM must compensate us for any increased cost reasonably incurred in completing the work; or

 

   

if we do not elect to take over and complete all or any part of the work completed prior to the termination provided that such termination occurs before the date of acceptance by Inmarsat of the first set of equipment to be installed and integrated for operation at our designated site, LM must refund to us all amounts paid by us for that work and pay the increased cost that we reasonably incur in procuring alternative goods and/or services.

 

In addition:

 

   

if a force majeure event delays the delivery timetable by more than ninety days, or permanently prevents LM from complying with the delivery timetable (in which case the financial consequences of the termination will be determined by reference to a pre-agreed termination for convenience profile), we may terminate this agreement or may renegotiate the agreement. However, in these circumstances we do not have the right to take over and complete the work as described above.

 

Senior Facility Agreement

 

Inmarsat Investments Limited (100% owned subsidiary of Inmarsat Group Limited), as borrower, and certain subsidiaries of Inmarsat plc, as guarantors, entered into a new Senior Facility Agreement (also referred to as the “Senior Credit Facility”) on 24 May 2005, with Barclays Capital, ING N.V. and The Royal Bank of Scotland plc as mandated lead arrangers, Barclays Capital, ING N.V. and the Royal Bank of Scotland plc as book runners and Barclays Bank plc as agent and security trustee, as amended.

 

The Senior Facility Agreement provides for an amortizing term loan of US$250.0m and a US$300.0m Revolving Committed Facility (also referred to as the “Revolving Credit Facility”) which was US$140.0m drawn as at 31 December 2008 (2007: US$70.0m).

 

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Interest Rates and Fees

 

Advances under the Senior Facility Agreement bear interest for each interest period at a rate per annum equal to LIBOR plus an applicable margin of between 1.35% to 0.6% tied to a leverage grid. The initial margin was 1.2% and at 31 December 2008 the margin was 0.7%.

 

We paid customary fees to the lenders under the Senior Facility Agreement for making the term loan available under the Senior Facility Agreement.

 

Guarantees and Security

 

Inmarsat Investments Limited’s obligations under the Senior Facility Agreement are guaranteed by Inmarsat Group Limited, Inmarsat Ventures Limited, Inmarsat Global Limited, Inmarsat Leasing Limited, Inmarsat Leasing (Two) Limited, Inmarsat Launch Company Limited, Inmarsat Services Limited and Inmarsat (IP) Company Limited. The obligations of the guarantors are joint and several. Subject to certain conditions, Inmarsat plc must procure that the aggregate of the unconsolidated total assets and unconsolidated subsidiary EBITDA of the guarantors exceeds 85% of our consolidated assets and EBITDA, respectively, calculated by reference to the most recent audited consolidated financial statements of each guarantor.

 

In addition, the Senior Facility Agreement lenders benefit from a pledge over the shares of Inmarsat Ventures Limited.

 

Maturity

 

The Senior Facility Agreement is comprised of one term loan—a US$250.0m principal amount term loan facility and a US$300.0m Revolving Committed Facility available to May 2010. Effective from 1 December 2006, Inmarsat received the consent of 100% of the lenders under the Senior Credit Facility to amend the term loan repayments due in 2007 (two equal instalments totaling US$50.0m) and 2008 (two equal instalments totaling US$50.0m) to reschedule them to the termination date in 2010. All other terms and conditions remained unchanged.

 

Use of Proceeds

 

The proceeds of the new Senior Facility Agreement, together with existing surplus cash and IPO proceeds were used to repay the Previous Senior Facility Agreement as well as the Subordinated Preference Certificates and the 35% Senior Notes principal repayment. The Revolving Committed Facility was US$140.0m drawn as at 31 December 2008.

 

Voluntary and Mandatory Prepayment

 

The term loans allow for voluntary prepayments and require mandatory prepayment at par in full or in part in certain circumstances, including:

 

   

a change of control or sale;

 

   

the disposal of assets other than in the ordinary course of trading or specific exceptions specified in the Senior Facility Agreement; or

 

   

the receipt of insurance claim proceeds in excess of US$1.0m unless (i) they are applied or contractually committed to be applied in the purchase, repair or replacement of fixed assets for use in the business within 12 months of receipt or have to be applied in payment of third party liabilities, (ii) they relate to the Inmarsat-4 satellite programme and, within 12 months of receipt, are committed to be applied in the case of the first loss (or partial loss) of an Inmarsat-4 satellite, in construction of a replacement launch vehicle, and in the case of any subsequent loss, in the construction of a new Inmarsat-4 satellite, a new launch vehicle and insurance for such satellite.

 

Amounts received by us which may become subject to the preceding prepayment provisions will be retained in a cash collateral account charged to the security agent until applied.

 

Representations, Warranties and Undertakings

 

The Senior Facility Agreement contains customary representations and warranties.

 

In addition, it contains negative covenants that restrict or prohibit Inmarsat Investments Limited and its subsidiaries (subject to certain agreed exceptions) from:

 

   

merging or consolidating with or into any other person;

 

   

materially changing the general nature of their business;

 

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selling, transferring, leasing or otherwise disposing of any of their assets;

 

   

creating security interests over any part of their assets, save (among other things) to secure the notes as permitted under the intercreditor agreement;

 

   

entering into any contract or arrangement unless it is on arm’s length terms;

 

   

conducting certain acquisitions or investments, or entering into joint ventures or partnerships;

 

   

incurring or having outstanding certain borrowings, guarantees, indemnities, loans or letters of credit;

 

   

conducting certain share issues or issuing options for the issue of any shares or loan capital, or redeeming or purchasing their own shares;

 

   

making any repayment of principal or payment of interest under the indenture related to the notes and related documents, except as permitted by the intercreditor agreement; or

 

   

declaring or paying certain dividends or making certain other distributions to our shareholders.

 

In addition, the Senior Facility Agreement requires us to maintain specified consolidated financial ratios, such as EBITDA to total net interest payable, total net debt to EBITDA and senior net debt to EBITDA.

 

The Senior Facility Agreement contains customary affirmative undertakings, including (among others) undertakings related to:

 

   

the maintenance of material insurance policies;

 

   

the maintenance of all relevant authorizations;

 

   

protection of our intellectual property;

 

   

implementing certain interest rate hedging policies; and

 

   

information and accounting.

 

The Senior Facility Agreement contains customary events of default, including (among others):

 

   

non-payment of amounts due under the Senior Facility Agreement, subject to a three business day grace period, solely in relation to any administrative or technical error;

 

   

breach of other covenants (including financial covenants);

 

   

breach of representations or warranties;

 

   

invalidity or unlawfulness of certain senior finance documents;

 

   

certain insolvency, receivership, liquidation, winding up or related events including creditors’ process;

 

   

cross default when any financial indebtedness of US$15.0m or more is not paid when due or is capable of being declared due and payable;

 

   

change of ownership;

 

   

breach of any term in the intercreditor agreement;

 

   

certain material litigation is commenced or threatened; or

 

   

regulatory proceedings or other events having materially adverse effects occur.

 

At any time after the occurrence of an event of default the lenders may terminate the availability of the facilities, declare any outstanding advances due and payable, require any borrower to prepay certain liabilities, and/or take any other action allowed under the documents or law.

 

The Senior Notes

 

Inmarsat Finance plc completed an offering of US$375.0m aggregate principal amount 7 5/8% Senior Notes due 2012 in January 2004. In April 2004, Inmarsat Finance plc issued a further US$102.5m aggregate principal amount of 7 5/8% Senior Notes due 2012. We refer to these notes collectively as the Senior Notes. The Senior Notes are guaranteed on a senior basis by Inmarsat Group Limited, the parent company of Inmarsat Finance plc, and on a senior subordinated basis by Inmarsat Investments Limited, Inmarsat Ventures Limited, Inmarsat Limited, Inmarsat Leasing (Two) Limited and Inmarsat Launch Company Limited. Inmarsat Investments Limited’s guarantee of the Senior Notes is secured by a second ranking charge over the shares of Inmarsat Ventures Limited. The proceeds from each offering of Senior Notes were loaned by Inmarsat Finance plc to Inmarsat Investments Limited pursuant to separate subordinated intercompany note proceeds loans on

 

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substantially identical terms. The terms of these subordinated intercompany note proceeds loans provide that interest will accrue at a rate sufficient to fund interest on the Senior Notes (including default interest) and, if applicable, additional amounts. In July 2005 the Group redeemed 35% of its Senior Notes, reducing the notes outstanding from US$477.5m to US$310.4m. During 2008 Inmarsat Investments Limited purchased US$55.1m of our Senior Notes at a premium of US$0.6m (2007: US$38.0m at a premium of US$1.3m, 2006: US$43.6m at a premium of US$1.2m).

 

In October 2004, Inmarsat Finance plc consummated a public exchange offer pursuant to which it exchanged the Senior Notes for substantially identical Senior Notes registered under the Securities Act.

 

Interest on the Senior Notes is payable semi-annually on 28 February and 31 August of each year. The Senior Notes are redeemable, at the option of Inmarsat Finance plc, in whole or in part, at any time on or after 1 March 2009, at 102.542% of their principal amount, plus accrued interest, declining to 100.0% of their principal amount, plus accrued interest, on or after 1 March 2011.

 

The indenture governing the Senior Notes contains customary covenants, limitations and requirements with respect to indebtedness, restricted payments, dividends and other payments affecting restricted subsidiaries, transactions with affiliates, liens, asset sales, issuance of guarantees of indebtedness of restricted subsidiaries, sale and leaseback transactions, consolidations and mergers, the provision of financial statements and reports and the maintenance of insurance with respect to our satellites. The indenture also requires Inmarsat Finance plc to commence and consummate an offer to purchase the Senior Notes for 101% of their aggregate principal amount, together with any additional amounts and any accrued and unpaid interest owed on the Senior Notes to the date of purchase, upon events constituting or which may constitute a change of control of use.

 

Intercreditor Agreement

 

On 21 June 2005, (1) Inmarsat Investments Limited as Original Borrower and Guarantor, (2) Inmarsat Ventures Limited, Inmarsat Global Limited, Inmarsat Leasing Limited, Inmarsat Leasing (Two) Limited, Inmarsat (IP) Company Limited, Inmarsat Group Limited and Inmarsat Launch Company Limited as Additional Guarantors, (3) Barclays Bank PLC, ING N.V., and The Royal Bank of Scotland plc, as the senior lenders, (4) Barclays Bank PLC as agent of the other senior finance parties, (5) Barclays Bank PLC as the security trustee and agent, (6) Barclays Bank PLC as the Issuing Bank, (7) The Royal Bank of Scotland plc as the Original Hedging Bank, (8) The Bank of New York as the trustee in connection with the Senior Notes (9) Inmarsat Finance plc as the issuer of the Senior Notes (10) Inmarsat Holdings Limited, Inmarsat Investments Limited, Inmarsat Ventures Limited, Inmarsat Global Limited, Inmarsat Leasing Limited, Inmarsat Leasing (Two) Limited, Inmarsat (IP) Company Limited, Inmarsat Group Limited and Inmarsat Launch Company Limited as the Original Intercompany Lenders, and (11) Inmarsat Holdings Limited, Inmarsat Investments Limited, Inmarsat Ventures Limited, Inmarsat Global Limited, Inmarsat Leasing Limited, Inmarsat Leasing (Two) Limited, Inmarsat (IP) Company Limited, Inmarsat Group Limited and Inmarsat Launch Company Limited as the Original Intercompany Borrowers, entered into an intercreditor agreement (the “Intercreditor Agreement”).

 

The Intercreditor Agreement sets out:

 

   

the relative ranking of certain debt (not including the notes or the guarantee) of Inmarsat plc and its subsidiaries (excluding Inmarsat Finance III Limited and its subsidiaries);

 

   

when payments can be made in respect of that debt;

 

   

when enforcement actions can be taken in respect of that debt;

 

   

the terms pursuant to which that debt will be subordinated upon the occurrence of certain insolvency events;

 

   

turnover provisions; and

 

   

agreements among secured creditors of the obligors regarding enforcement of their security.

 

Priority

 

The Intercreditor Agreement provides that certain outstan