10-Q 1 d10q.htm FORM 10-Q FORM 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2011

OR

 

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

For the transition period from              to             

Commission file number 000-50262

 

 

INTELSAT S.A.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Luxembourg   98-0346003

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

4, rue Albert Borschette

Luxembourg

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

+352 27-84-1600

(Registrant’s Telephone Number, Including Area Code)

N/A

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

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of August 1, 2011, 5,000,000 common shares, par value $1.00 per share, were outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

          Page  
PART I. FINANCIAL INFORMATION   

Item 1.

  

Financial Statements:

  
  

Condensed Consolidated Balance Sheets as of December 31, 2010 and June 30, 2011 (Unaudited)

     5   
  

Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June  30, 2010 and 2011

     6   
  

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2011

     7   
  

Notes to the Condensed Consolidated Financial Statements (Unaudited)

     8   

Item 2.

  

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

     33   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     47   

Item 4.

  

Controls and Procedures

     48   
PART II. OTHER INFORMATION   

Item 1.

  

Legal Proceedings

     49   

Item 1A.

  

Risk Factors

     49   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     49   

Item 3.

  

Defaults upon Senior Securities

     49   

Item 4.

  

(Removed and Reserved)

     49   

Item 5.

  

Other Information

     49   

Item 6.

  

Exhibits

     49   
SIGNATURES      51   

 

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INTRODUCTION

In this Quarterly Report, unless otherwise indicated or the context otherwise requires, (1) the terms “we,” “us,” “our”, “the Company” and “Intelsat” refer to Intelsat S.A. and its subsidiaries on a consolidated basis, (2) the terms “Serafina Holdings” and “Intelsat Global” refer to Intelsat Global S.A. (formerly known as Serafina Holdings Limited), (3) the terms “Serafina” and “Intelsat Global Subsidiary” refer to Intelsat Global Subsidiary S.A. (formerly known as Serafina Acquisition Limited), (4) the term “Intelsat Holdings” refers to Intelsat S.A.’s direct parent, Intelsat Holdings S.A., (5) the term “Intelsat Luxembourg” refers to Intelsat (Luxembourg) S.A., Intelsat S.A.’s direct wholly-owned subsidiary, (6) the term “Intelsat Jackson” refers to Intelsat Jackson Holdings S.A., Intelsat Luxembourg’s direct wholly-owned subsidiary, (7) the term “Intermediate Holdco” refers to Intelsat Intermediate Holding Company S.A., Intelsat Jackson’s direct wholly-owned subsidiary, (8) the term “Intelsat Sub Holdco” refers to Intelsat Subsidiary Holding Company S.A., Intermediate Holdco’s indirect wholly-owned subsidiary, (9) the term “Intelsat Corp” refers to Intelsat Corporation, Intelsat Sub Holdco’s indirect wholly-owned subsidiary and (10) the term “Intelsat General” refers to Intelsat General Corporation, our government business subsidiary.

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

FINANCIAL AND OTHER INFORMATION

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

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

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

FORWARD-LOOKING STATEMENTS

Some of the statements in this Quarterly Report constitute forward-looking statements that do not directly or exclusively relate to historical facts. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements as long as they are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements.

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

The forward-looking statements made in this Quarterly Report reflect our intentions, plans, expectations, assumptions and beliefs about future events. These forward-looking statements speak only as of the date of this Quarterly Report and are not guarantees of future performance or results and are subject to risks, uncertainties and other factors, many of which are outside of our control. These factors could cause actual results or developments to differ materially from the expectations expressed or implied in the forward-looking statements and include known and unknown risks. Known risks include, among others, the risks discussed in Item 1A—Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2010, the political, economic and legal conditions in the markets we are targeting for communications services or in which we operate and other risks and uncertainties inherent in the telecommunications business in general and the satellite communications business in particular.

 

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The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:

 

   

risks associated with operating our in-orbit satellites;

 

   

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

 

   

potential changes in the number of companies offering commercial satellite launch services and the number of commercial satellite launch opportunities available in any given time period that could impact our ability to timely schedule future launches and the prices we pay for such launches;

 

   

our ability to obtain new satellite insurance policies with financially viable insurance carriers on commercially reasonable terms or at all, as well as the ability of our insurance carriers to fulfill their obligations;

 

   

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

 

   

U.S. and other government regulation;

 

   

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

 

   

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

 

   

inadequate access to capital markets;

 

   

the competitive environment in which we operate;

 

   

customer defaults on their obligations to us;

 

   

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

 

   

litigation.

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

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

INTELSAT S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

     As of
December 31,
2010
    As of
June 30,
2011
 
           (unaudited)  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 692,930      $ 281,799   

Receivables, net of allowance of $21,748 in 2010 and $19,690 in 2011

     250,351        280,120   

Deferred income taxes

     24,090        23,063   

Prepaid expenses and other current assets

     31,817        50,730   
                

Total current assets

     999,188        635,712   

Satellites and other property and equipment, net

     5,997,283        6,066,085   

Goodwill

     6,780,827        6,780,827   

Non-amortizable intangible assets

     2,458,100        2,458,100   

Amortizable intangible assets, net

     848,318        795,592   

Other assets

     508,651        493,056   
                

Total assets

   $ 17,592,367      $ 17,229,372   
                

LIABILITIES AND SHAREHOLDER’S DEFICIT

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 140,984      $ 138,052   

Taxes payable

     2,342        —     

Employee related liabilities

     35,217        32,612   

Accrued interest payable

     403,446        355,602   

Current portion of long-term debt

     94,723        32,500   

Deferred satellite performance incentives

     16,693        17,520   

Deferred revenue

     79,845        73,572   

Other current liabilities

     67,584        63,833   
                

Total current liabilities

     840,834        713,691   

Long-term debt, net of current portion

     15,821,902        15,894,856   

Deferred satellite performance incentives, net of current portion

     132,884        125,166   

Deferred revenue, net of current portion

     407,103        594,975   

Deferred income taxes

     484,076        344,631   

Accrued retirement benefits

     257,455        243,002   

Other long-term liabilities

     326,531        413,233   

Redeemable noncontrolling interest

     18,621        —     

Commitments and contingencies (Note 11)

    

Shareholder’s deficit:

    

Ordinary shares, $1.00 par value, 100,000,000 shares authorized and 5,000,000 shares issued and outstanding at December 31, 2010 and June 30, 2011

     5,000        5,000   

Paid-in capital

     1,548,380        1,572,159   

Accumulated deficit

     (2,175,814     (2,604,780

Accumulated other comprehensive loss

     (76,507     (74,200
                

Total Intelsat S.A. shareholder’s deficit

     (698,941     (1,101,821

Noncontrolling interest

     1,902        1,639   
                

Total liabilities and shareholder’s deficit

   $ 17,592,367      $ 17,229,372   
                

See accompanying notes to unaudited condensed consolidated financial statements.

 

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INTELSAT S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

 

     Three Months
Ended
June 30, 2010
    Three Months Ended
June 30, 2011
    Six Months Ended
June 30, 2010
    Six Months Ended
June 30, 2011
 

Revenue

   $ 635,286      $ 642,446      $ 1,256,426      $ 1,282,634   

Operating expenses:

        

Direct costs of revenue (exclusive of depreciation and amortization)

     100,531        101,059        197,888        206,082   

Selling, general and administrative

     53,461        55,147        98,580        106,746   

Depreciation and amortization

     201,189        194,354        397,996        389,356   

Impairment of asset value

     104,088        —          110,625        —     

Losses on derivative financial instruments

     40,775        20,522        70,642        18,808   
                                

Total operating expenses

     500,044        371,082        875,731        720,992   
                                

Income from operations

     135,242        271,364        380,695        561,642   

Interest expense, net

     349,662        325,861        689,487        674,651   

Loss on early extinguishment of debt

     —          (157,953     —          (326,183

Other income (expense), net

     1,571        (1,298     4,344        2,698   
                                

Loss before income taxes

     (212,849     (213,748     (304,448     (436,494

Provision for (benefit from) income taxes

     (30,937     734        (19,108     (6,253
                                

Net loss

     (181,912     (214,482     (285,340     (430,241

Net loss attributable to noncontrolling interest

     1,266        1,114        2,076        1,275   
                                

Net loss attributable to Intelsat S.A.

   $ (180,646   $ (213,368   $ (283,264   $ (428,966
                                

See accompanying notes to unaudited condensed consolidated financial statements.

 

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INTELSAT S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Six Months Ended
June 30, 2010
    Six Months Ended
June 30, 2011
 

Cash flows from operating activities:

    

Net loss

   $ (285,340   $ (430,241

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

    

Depreciation and amortization

     397,996        389,356   

Impairment of asset value

     110,625        —     

Provision for doubtful accounts

     3,291        1,703   

Foreign currency transaction (gain) loss

     366        (3,920

Loss on disposal of assets

     288        5   

Share-based compensation expense

     (5,301     4,644   

Deferred income taxes

     (41,108     (14,677

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

     48,678        35,957   

Interest paid-in-kind

     146,288        23,130   

Loss on early extinguishment of debt

     —          326,183   

Share in (gain) loss of unconsolidated affiliates

     (249     4,469   

Gain on sale of investment

     (1,261     —     

Unrealized (gains) losses on derivative financial instruments

     25,453        (20,418

Other non-cash items

     1,735        3,342   

Changes in operating assets and liabilities:

    

Receivables

     (13,528     (31,471

Prepaid expenses and other assets

     (81,109     (17,220

Accounts payable and accrued liabilities

     10,019        12,001   

Deferred revenue

     78,487        178,664   

Accrued retirement benefits

     (1,859     (14,453

Other long-term liabilities

     (345     (3,893
                

Net cash provided by operating activities

     393,126        443,161   
                

Cash flows from investing activities:

    

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

     (437,524     (412,710

Proceeds from sale of investment

     28,594        —     

Capital contributions to unconsolidated affiliates

     (6,105     (6,105

Other investing activities

     7,360        2,261   
                

Net cash used in investing activities

     (407,675     (416,554
                

Cash flows from financing activities:

    

Repayments of long-term debt

     (51,249     (6,114,894

Proceeds from issuance of long-term debt

     23,462        5,918,923   

Debt issuance costs

     (15,370     (69,307

Capital contribution from parent

     18,000        —     

Payment of premium on early retirement of debt

     —          (171,047

Noncontrolling interest in New Dawn

     1,031        1,558   

Principal payments on deferred satellite performance incentives

     (8,876     (6,891

Principal payments on capital lease obligations

     (191     —     
                

Net cash used in financing activities

     (33,193     (441,658
                

Effect of exchange rate changes on cash and cash equivalents

     (366     3,920   
                

Net change in cash and cash equivalents

     (48,108     (411,131

Cash and cash equivalents, beginning of period

     477,571        692,930   
                

Cash and cash equivalents, end of period

   $ 429,463      $ 281,799   
                

Supplemental cash flow information:

    

Interest paid, net of amounts capitalized

   $ 460,086      $ 602,101   

Income taxes paid, net of refunds

     19,877        14,793   

Supplemental disclosure of non-cash investing activities:

    

Accrued capital expenditures

   $ 106,862      $ 59,965   

See accompanying notes to unaudited condensed consolidated financial statements.

 

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INTELSAT S.A.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2011

 

Note 1 General

Basis of Presentation

The accompanying condensed consolidated financial statements of Intelsat S.A. and its subsidiaries (“Intelsat,” “we,” “us” or “our”) have not been audited, but are prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. References to U.S. GAAP issued by the Financial Accounting Standards Board (“FASB”) in these footnotes are to the FASB Accounting Standards Codification (“ASC” or the “Codification”). The unaudited condensed consolidated financial statements include all adjustments (consisting only of normal and recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of these financial statements. The results of operations for the periods presented are not necessarily indicative of operating results for the full year. The condensed consolidated balance sheet as of December 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 on file with the Securities and Exchange Commission.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Examples of estimates include the allowance for doubtful accounts, pension and postretirement benefits, the fair value of our derivative instruments, the fair value of the redeemable noncontrolling interest, the fair value of share-based and other compensation awards, income taxes, useful lives of satellites, intangible assets and other property and equipment, the recoverability of goodwill and the fair value of non-amortizable intangible assets. Changes in such estimates may affect amounts reported in future periods.

Recently Adopted Accounting Pronouncements

In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). Certain provisions of ASU 2010-06 are effective for fiscal years beginning after December 15, 2010 and we adopted these provisions in the first quarter of 2011. These provisions of ASU 2010-06 amended FASB ASC Topic 820, Fair Value Measurements and Disclosures (“FASB ASC 820”), by requiring us to present as separate line items all purchases, sales, issuances, and settlements of financial instruments valued using significant unobservable inputs (Level 3) in the reconciliation for fair value measurements, whereas previously these were presented in aggregate as one line item. Although this may change the appearance of our reconciliation, this did not have a material impact on our financial statements or disclosures.

 

Note 2 Fair Value Measurements

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

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

 

   

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

 

   

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

 

   

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

 

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The following tables present assets and liabilities measured and recorded at fair value in our condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy (in thousands), excluding long-term debt (see Note 8—Long-Term Debt):

 

            Fair Value Measurements at December 31, 2010  

Description

   As of
December 31, 2010
     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Assets

           

Marketable securities(1)

   $ 5,949       $ 5,949       $ —         $ —     
                                   

Total assets

   $ 5,949       $ 5,949       $ —         $ —     
                                   

Liabilities

           

Undesignated interest rate swaps

   $ 147,815       $ —         $ 147,815       $ —     

Embedded derivative

     4,295         —           —           4,295   

Redeemable noncontrolling interest

     18,621         —           —           18,621   
                                   

Total liabilities

   $ 170,731       $ —         $ 147,815       $ 22,916   
                                   
            Fair Value Measurements at June 30, 2011  

Description

   As of
June 30, 2011
     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Assets

           

Marketable securities(1)

   $ 5,976       $ 5,976       $ —         $ —     
                                   

Total assets

   $ 5,976       $ 5,976       $ —         $ —     
                                   

Liabilities

           

Undesignated interest rate swaps

   $ 132,550       $ —         $ 132,550       $ —     
                                   

Total liabilities

   $ 132,550       $ —         $ 132,550       $ —     
                                   

 

(1) The cost basis of our available-for-sale marketable securities was $6.3 million at December 31, 2010 and $6.1 million at June 30, 2011. We sold marketable securities with a cost basis of $0.2 million during the six months ended June 30, 2011 and recorded a gain on the sale of $0.01 million which was included within other income, net in our condensed consolidated statement of operations.

 

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The following tables present the activity for those items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined in FASB ASC 820 (in thousands):

 

     Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
 
     Redeemable
Noncontrolling
Interest(1)
    Embedded
Derivative
    Total  

Balance at December 31, 2009

   $ 8,884      $ 14,600      $ 23,484   

Contributions

     1,128        —          1,128   

Mark to market valuation adjustment

     10,908        (10,305     603   

Net loss attributable to noncontrolling interest

     (2,299     —          (2,299
                        

Balance at December 31, 2010

   $ 18,621      $ 4,295      $ 22,916   
                        
     Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
 
     Redeemable
Noncontrolling
Interest(1)
    Embedded
Derivative
    Total  

Balance at December 31, 2010

   $ 18,621      $ 4,295      $ 22,916   

Contributions

     1,558        —          1,558   

Mark to market valuation adjustment

     (3,657     (4,295 (2)      (7,952

Net loss attributable to noncontrolling interest

     (82     —          (82
                        

Balance at March 31, 2011

     16,440        —          16,440   
                        

Mark to market valuation adjustment

     (15,511     —          (15,511

Net loss attributable to noncontrolling interest

     (929     —          (929
                        

Balance at June 30, 2011

   $ —        $ —        $ —     
                        

 

(1) In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity (“FASB ASC 480”), regarding the classification and measurement of redeemable securities, we mark to market the fair value of the noncontrolling interest in our joint venture investment in New Dawn Satellite Company Ltd. (“New Dawn”).
(2)

As of May 5, 2011, the Intelsat Sub Holdco 8  7/8% Senior Notes due 2015, Series B (the “2015 Intelsat Sub Holdco Notes, Series B’) were redeemed, and the embedded derivative liability was derecognized. As a result, the fair value of the embedded derivative was reduced to $0 (see Note 9—Derivative Instruments and Hedging Activities).

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, such items are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances, such as if there is evidence of impairment.

The fair value measurement of our Galaxy 15 satellite as of June 30, 2010, in conjunction with its related anomaly, was considered by us to be within Level 3 of the fair value hierarchy, as the most significant inputs were derived utilizing our internally prepared budgets and forecast information, which we believe a market participant would use in pricing such an asset. The estimated fair value was determined based on a probability weighted discounted cash flow analysis and was discounted at an appropriate weighted average cost of capital. During the second quarter of 2010, this long-lived asset was written down to a fair value of $35.0 million from its carrying value of $139.1 million, and continues to be depreciated. In accordance with the FASB ASC Topic 360, Property, Plant and Equipment, regarding the impairment or disposal of long-lived assets, we recorded an impairment charge of $104.1 million, which was included in our condensed consolidated statements of operations for the six months ended June 30, 2010 (see Note 5(b) —Satellites and Other Property and Equipment—Impairment of Asset Value).

 

Note 3 Share-Based and Other Compensation Plans

On May 6, 2009, the board of directors of Intelsat Global adopted the amended and restated Intelsat Global, Ltd. 2008 Share Incentive Plan (the “2008 Share Plan”). The 2008 Share Plan provides for a variety of equity-based awards with respect to Class A common shares and Class B common shares of Intelsat Global, including non-qualified share options, incentive share options (within the meaning of Section 422 of the United States Internal Revenue Code), restricted share awards, restricted share unit awards, share appreciation rights, phantom share awards and performance-based awards.

 

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Due to the expiration of certain repurchase features that are contained within the 2008 Share Plan, we have changed the classification of certain executive officers’ awards from liability classified awards to equity classified awards during the first quarter of 2011. The change has been accounted for in a manner similar to that of a modification in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, and did not have a material impact on our condensed consolidated balance sheet.

During the six months ended June 30, 2011, Intelsat Global granted 14,400 Class A share options, and repurchased 3,825 vested Class A rollover options, 531 vested Class A share options and 5,394 vested Class B common shares. We recorded compensation expense of $4.6 million during the six months ended June 30, 2011, and a credit to compensation expense of $5.3 million during the six months ended June 30, 2010, related to our share-based awards.

 

Note 4 Retirement Plans and Other Retiree Benefits

(a) Pension and Other Postretirement Benefits

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

The defined benefit retirement plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. We expect that our future contributions to the defined benefit retirement plan will be based on the minimum funding requirements of the Internal Revenue Code and on the plan’s funded status. Any significant decline in the fair value of our defined benefit retirement plan assets or other adverse changes to the significant assumptions used to determine the plan’s funded status would negatively impact its funded status and could result in increased funding in future periods. The impact on the funded status as of October 1, the plan’s annual measurement date, is determined based upon market conditions in effect when we completed our annual valuation. During the six months ended June 30, 2011, we made contributions to the defined benefit retirement plan of $17.1 million. We anticipate that we will make additional contributions of approximately $9.2 million to the defined benefit retirement plan during the remainder of 2011. We fund the postretirement medical benefits throughout the year based on benefits paid. We anticipate that our contributions to fund postretirement medical benefits in 2011 will be approximately $4.2 million.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Healthcare Reform Act”), was signed into law in March 2010. The Healthcare Reform Act codifies health care reforms with staggered effective dates from 2010 to 2018 with many provisions in the Healthcare Reform Act requiring the issuance of additional guidance from various governmental agencies. We assessed the future impact of several of the Healthcare Reform Act’s provisions on our other postretirement benefit liability and determined that as of June 30, 2011, the impact to our condensed consolidated balance sheets and condensed consolidated statements of operations would be immaterial. Given the complexity of the Healthcare Reform Act, the extended time period over which the reforms will be implemented, and the unknown impact of future regulatory guidance, further financial impact to our other postretirement benefit liability and related future expense may occur.

Included in accumulated other comprehensive loss at June 30, 2011 is $116.3 million ($73.6 million, net of tax) that has not yet been recognized in net periodic pension cost, which includes the amortization of unrecognized prior service credits and unrecognized actuarial losses.

 

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

 

     Three Months
Ended
June 30, 2010
    Three Months
Ended
June 30, 2011
    Six Months
Ended
June 30, 2010
    Six Months
Ended
June 30, 2011
 

Service cost

   $ 726      $ 775      $ 1,452      $ 1,550   

Interest cost

     5,221        5,015        10,442        10,030   

Expected return on plan assets

     (4,855     (4,932     (9,710     (9,864

Amortization of unrecognized prior service credit

     (43     (43     (86     (86

Amortization of unrecognized net loss

     910        1,715        1,820        3,430   
                                

Net periodic costs

   $ 1,959      $ 2,530      $ 3,918      $ 5,060   
                                

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

 

     Three Months
Ended
June 30, 2010
     Three Months
Ended
June 30, 2011
     Six Months
Ended
June 30, 2010
     Six Months
Ended
June 30, 2011
 

Service cost

   $ 138       $ 113       $ 276       $ 226   

Interest cost

     1,232         1,267         2,464         2,534   
                                   

Total costs

   $ 1,370       $ 1,380       $ 2,740       $ 2,760   
                                   

(b) Other Retirement Plans

We maintain two defined contribution retirement plans, qualified under the provisions of Section 401(k) of the Internal Revenue Code, for our employees in the United States. We recognized compensation expense for these plans of $3.7 million and $3.5 million during the six months ended June 30, 2010 and 2011, respectively. We also maintain other defined contribution retirement plans in several non-U.S. jurisdictions, but such plans are not material to our financial position or results of operations.

 

Note 5 Satellites and Other Property and Equipment

(a) Satellites and Other Property and Equipment, net

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

 

     As of
December 31,
2010
    As of
June 30,
2011
 

Satellites and launch vehicles

   $ 7,145,919      $ 7,495,157   

Information systems and ground segment

     429,888        445,742   

Buildings and other

     282,633        284,210   
                

Total cost

     7,858,440        8,225,109   

Less: accumulated depreciation

     (1,861,157     (2,159,024
                

Total

   $ 5,997,283      $ 6,066,085   
                

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

Satellites and other property and equipment, net as of December 31, 2010 and June 30, 2011 included construction-in-progress of $1.6 billion and $1.4 billion, respectively. These amounts relate primarily to satellites under construction and related launch services. Interest costs of $43.9 million and $60.6 million were capitalized during the six months ended June 30, 2010 and 2011, respectively.

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

 

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(b) Impairment of Asset Value

On February 1, 2010, our IS-4 satellite experienced an anomaly of its backup satellite control processor (“SCP”). The anomaly caused this satellite to be deemed unrecoverable, resulting in a net non-cash impairment charge in February 2010 of $6.5 million to write off the remaining carrying value of the satellite, which was not insured, and related deferred performance incentive obligations. Launched in 1995, IS-4 was expected to reach its end of service life later in 2010. IS-4 had previously experienced the failure of its primary SCP and was operating on its backup SCP.

On April 5, 2010, our Galaxy 15 satellite experienced an anomaly resulting in our inability to command the satellite. We transitioned all media traffic on this satellite to our Galaxy 12 satellite, which was our designated in-orbit spare satellite for the North America region. Galaxy 15 is a Star-2 satellite manufactured by Orbital Sciences Corporation. When the anomaly occurred there was substantial uncertainty as to our ability to recover use of the satellite and, accordingly, we recognized a $104.1 million non-cash impairment charge related to Galaxy 15 during the second quarter of 2010. On December 23, 2010, we recovered command of the spacecraft and we began diagnostic testing and uploading of software updates that protect against future anomalies of this type. In February 2011, Galaxy 15 initiated a drift to 133.1°W and returned to service, currently as an in-orbit spare.

(c) Satellite Launch

On April 22, 2011, the Intelsat New Dawn satellite was launched into orbit. Subsequent to the launch, the satellite experienced an anomaly during the deployment of its west antenna reflector, which controls communications in the C-band frequency. New Dawn initiated and continues with efforts to deploy the west antenna reflector, however, Intelsat New Dawn’s C-band frequency remains inoperable. A Failure Review Board was established to determine the cause of the anomaly. The Failure Review Board completed its investigation in July 2011 and concluded that the deployment anomaly of the C-band reflector was most likely due to a malfunction of the reflector sunshield. As a result, the sunshield interfered with the ejection release mechanism and prevented the deployment of the C-band antenna. Despite the C-band antenna reflector anomaly, the Ku-band antenna reflector deployed and that portion of the satellite is operating as planned, entering service in June 2011.

In accordance with our policy and the guidance provided for under FASB ASC Topic 360, Property, Plant and Equipment, we review our long-lived assets for impairment whenever events and circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. The recoverability of an asset or asset group held and used is measured by a comparison of the carrying amount of the asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. When a satellite experiences an anomaly or other health related issues, we believe the lowest level of identifiable cash flows exists at the individual satellite level. Accordingly, in the second quarter of 2011, we performed an impairment review of our Intelsat New Dawn satellite and determined that there was no impairment of the carrying amount of the asset due to the expected cash flows to be generated by the Ku-band payload over the satellite’s expected useful life.

The Intelsat New Dawn satellite and its operations are financed primarily with non-recourse debt through a joint venture in which we are the majority shareholder (see Note 6 (c)—Investments—New Dawn). The New Dawn joint venture has indicated to its insurers that, assuming continued failure of the west antenna reflector to deploy, the New Dawn Joint Venture is reasonably likely to file a partial loss claim. All, or most, of the proceeds of any insurance claim will be used to pay down the New Dawn joint venture’s debt in accordance with New Dawn’s existing debt agreements (see Note 8—Long-Term Debt—New Dawn Credit Facilities).

 

Note 6 Investments

We have ownership interests in a number of entities which met the criteria of a Variable Interest Entity (“VIE”), including Horizons Holdings and WP Com, as defined below. We have a greater than 50% controlling ownership and voting interest in New Dawn and therefore consolidate the New Dawn joint venture. Horizons Holdings, as well as WP Com, are discussed in further detail below, including our analyses of the primary beneficiary determination as required under FASB ASC Topic 810, Consolidation (“FASB ASC 810”).

(a) WildBlue

Prior to December 15, 2009, we had a noncontrolling ownership interest of approximately 28% in WildBlue Communications, Inc. (“WildBlue”), a company offering broadband Internet access services in the continental United States via Ka-band satellite capacity. We accounted for our investment using the equity method of accounting. On December 15, 2009, we sold our ownership interest in WildBlue to Viasat Inc. through a non-cash transaction whereby we exchanged our interest in WildBlue for shares of Viasat Inc. common stock. During the first quarter of 2010, we sold all of our shares of Viasat Inc. common stock for $28.6 million, and recorded a $1.3 million gain on the sale within our condensed consolidated statement of operations during the six months ended June 30, 2010.

(b) Horizons Holdings

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

 

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Under FASB ASC 810, we are required to reassess the primary beneficiary determination of Horizons Holdings on a recurring basis, as well as consider more qualitative factors when considering the primary beneficiary. Upon inception of the joint venture, we originally concluded that we were not the primary beneficiary of the joint venture and therefore did not consolidate Horizons Holdings. The assessment considered both quantitative and qualitative factors surrounding the joint venture, including which entity was more exposed to risk of loss or gain as well as other factors such as whether one partner of the joint venture had more voting power or other control of the joint venture. Horizons Holdings is set up with a joint 50/50 share of management authority as well as an equal share of the profits and revenues from Horizons-1 and Horizons-2. Therefore the equal share of quantitative and qualitative rights from the joint venture alone was not persuasive in defining a primary beneficiary. However, Horizons Holdings borrowed from JSAT a portion of the funds necessary to finance the construction of the Horizons-2 satellite. As a result, it was determined that we were not the primary beneficiary and would not consolidate Horizons Holdings. Rather, our investment is accounted for using the equity method of accounting. Subsequent to inception, there have been no events or revisions to the joint venture which would change our primary beneficiary determination. As of June 30, 2011, we continue to believe that we are not the primary beneficiary of the VIE and therefore we have not consolidated Horizons Holdings.

Horizons-1 owns and operates the Ku-band portion of the Horizons-1 satellite in the fixed satellite services sector, offering service to customers in the Asia-Pacific region. Through our investment in Horizons Holdings, we have an indirect 50% ownership interest in Horizons-1, an investment which is accounted for under the equity method of accounting. Our share of the results of Horizons-1 is included in other income, net in the accompanying condensed consolidated statements of operations and was income of $0.1 million for each of the six months ended June 30, 2010 and 2011. The investment balance of $9.8 million and $9.0 million as of December 31, 2010 and June 30, 2011, respectively, was included within other assets in the accompanying condensed consolidated balance sheets.

During each of the six months ended June 30, 2010 and 2011, we recorded expenses of $1.8 million in relation to the utilization of Ku-band satellite capacity from Horizons-1. Additionally, we provide tracking, telemetry and commanding (“TT&C”) and administrative services for the Horizons-1 satellite. We recorded revenue for these services of $0.3 million during each of the six months ended June 30, 2010 and 2011.

We also have a revenue share agreement with JSAT related to services sold on the Horizons-1 satellite. We are responsible for the billing and collecting for all such services sold, but recognize revenue on a net basis. The payable due to JSAT was $1.9 million and $1.6 million as of December 31, 2010 and June 30, 2011, respectively.

On August 1, 2005, Intelsat Corporation (“Intelsat Corp”) formed a second satellite joint investment with JSAT to build and launch a Ku-band satellite, Horizons–2. The Horizons-2 satellite was launched in December 2007 and placed into service in February 2008. Similar to the Horizons-1 joint venture, we share an indirect 50/50 ownership and voting interest in Horizons-2 with JSAT through our investment in Horizons Holdings. However, unlike Horizons-1, JSAT loaned funds to the Horizons-2 joint venture for the construction of the satellite.

The total future joint investment obligation in Horizons-2 is estimated to be $87.7 million as of June 30, 2011, of which each of the joint venture partners is required to fund their 50% share. Our share of the results of Horizons-2 is included in other income (expense), net in the accompanying condensed consolidated statements of operations and was income of $0.2 million and a loss of $4.4 million during the six months ended June 30, 2010 and 2011, respectively. As of December 31, 2010 and June 30, 2011, the investment balance of $71.0 million and $65.0 million, respectively, was included within other assets in the accompanying condensed consolidated balance sheets.

In connection with our investment in Horizons-2, we entered into a capital contribution and subscription agreement in August 2005, which requires us to fund our 50% share of the amounts due under Horizons-2’s loan agreement. Pursuant to this agreement, we made contributions of $6.1 million during each of the six months ended June 30, 2010 and 2011. The joint venture has entered into a security and pledge agreement with JSAT and, pursuant to this agreement, granted a security interest in our contribution obligation to JSAT. Therefore, we have recorded this obligation as an indirect guarantee. We recorded a liability of $12.2 million within accrued liabilities as of December 31, 2010 and June 30, 2011, and a liability of $36.6 million and $30.5 million within other long-term liabilities as of December 31, 2010 and June 30, 2011, respectively, in the accompanying condensed consolidated balance sheets.

We provide TT&C and administrative services for the Horizons-2 satellite. We recorded revenue for these services of $0.4 million during each of the six months ended June 30, 2010 and 2011. During the six months ended June 30, 2010 and 2011, we recorded expenses of $3.4 million and $3.2 million, respectively, in relation to the utilization of satellite capacity for the Horizons-2 satellite.

 

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We also have a revenue share agreement with JSAT related to services sold on the Horizons-2 satellite. We are responsible for the billing and collecting for all such services sold, but recognize revenue on a net basis. The amount payable to JSAT was $1.5 million and $1.2 million as of December 31, 2010 and June 30, 2011, respectively.

(c) New Dawn

In June 2008, we entered into a project and shareholders’ agreement (the “New Dawn Project Agreement”) with Convergence SPV, Ltd. (“Convergence Partners”) pursuant to which New Dawn, a Mauritius company in which we have a 74.9% indirect ownership interest and Convergence Partners has a 25.1% noncontrolling ownership interest, launched a new satellite in April 2011 to provide satellite transponder services to customers in Africa (see Note 5(c)—Satellite Launch).

New Dawn entered into a secured loan financing arrangement, which is non-recourse to New Dawn’s shareholders, including us and our wholly-owned subsidiaries, beyond the shareholders’ scheduled capital contributions, on December 5, 2008 to obtain $215.0 million of financing to fund a portion of the cost of construction and launch of the new satellite (see Note 8—Long-Term Debt). In addition, we and Convergence Partners have agreed to make certain capital contributions to New Dawn in proportion to our respective ownership interests in New Dawn to fund a portion of these costs. Total equity contributions during the six months ended June 30, 2010 and 2011 were $4.1 million and $6.2 million, respectively, of which $3.1 million and $4.6 million were attributable to us with the remaining $1.0 million and $1.6 million contributed by Convergence Partners. New Dawn and its subsidiaries are unrestricted subsidiaries for purposes of our applicable indentures and credit agreements.

We have agreed to provide sales and marketing services, engineering and administrative support services, and have agreed to perform satellite-related consulting and technical services for New Dawn. The services include the provision of program management services with respect to the satellite and launch vehicle construction programs as well as TT&C services for the new satellite. In addition, for a fee of $15.0 million together with assumption of continuing payment obligations, we assigned New Dawn a launch service contract to provide for the launch of the New Dawn satellite.

Convergence Partners has at its option the ability to require us to buy its ownership interest at fair value subsequent to the operations of New Dawn’s assets for a period as defined in the New Dawn Project Agreement. As a result of this option, as of each balance sheet date, we have reflected within mezzanine equity the estimated amount that we would pay to Convergence Partners if the option were exercised. This amount reflects the fair value analysis we performed at June 30, 2011, which resulted in a $19.2 million decrease in the fair value of the option during the six months ended June 30, 2011, reducing it to $0. This decrease reflects the impact of the C-band antenna reflector anomaly on the Intelsat New Dawn satellite (see Note 5(c)—Satellite Launch). The $19.2 million change in fair value is shown as an increase in our paid-in capital at June 30, 2011. We have assessed the significance of the Level 3 inputs to the overall valuation and have concluded that the valuation in its entirety is classified in Level 3 of the fair value hierarchy (see Note 2—Fair Value Measurements).

We consolidated New Dawn within our condensed consolidated financial statements, net of eliminating entries. Additionally, we accounted for the percentage interest in New Dawn owned by Convergence Partners as a noncontrolling interest. We recorded the transaction in accordance with the guidance provided under FASB ASC 480 specifically related to the classification and measurement of redeemable securities.

(d) WP Com

We have formed a joint venture with Corporativo W. Com S. de R.L. de C.V. (“Corporativo”) named WP Com, S. de R.L. de C.V. (“WP Com”). We own 49% of the voting equity shares and 88% of the economic interest in WP Com and Corporativo owns the remaining 51% of the voting equity shares. PanAmSat de Mexico, S. de R.L. de C.V. (“PAS de Mexico”) is a subsidiary of WP Com, 99.9% of which is owned by WP Com, with the remainder of the equity interest split between us and Corporativo. We formed WP Com to enable us to operate in Mexico, and PAS de Mexico acts as a reseller of our satellite services to customers in Mexico and, beginning in the second quarter of 2011, in Ecuador. Profits and losses of WP Com are allocated to the joint venture partners based upon the voting equity shares.

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

 

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Note 7 Goodwill and Other Intangible Assets

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

 

     As of
December 31,
2010
     As of
June 30,
2011
 

Goodwill

   $ 6,780,827       $ 6,780,827   

Trade name

     70,400         70,400   

Orbital locations

     2,387,700         2,387,700   

We determined the estimated fair value of our rights to operate at orbital locations using the build up method, as described below, to determine the cash flows for the income approach, with the resulting projected cash flows discounted at an appropriate weighted average cost of capital. In instances where the build up method did not generate positive value for the right to operate at an orbital location, but the right was expected to generate revenue, we assigned a value based upon independent source data for recent transactions related to similar orbital locations, which are considered Level 3 inputs within the fair value hierarchy under FASB ASC 820.

Under the build up method, the amount an investor would be willing to pay for the right to operate a satellite business at an orbital location is calculated by first estimating the cash flows that typical market participants would assume could be available from the right to operate satellites using the subject location in a similar market. It is assumed that rather than acquiring such a business as a going concern, the buyer would hypothetically start with the right to operate at the orbital locations and build a new operation with similar attributes from scratch. Thus the buyer or builder is considered to incur the start-up costs and losses typically associated with the going concern value and pay for all other tangible and intangible assets.

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

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

 

     As of December 31, 2010      As of June 30, 2011  
     Gross Carrying
Amount
     Accumulated
Amortization
    Net Carrying
Amount
     Gross Carrying
Amount
     Accumulated
Amortization
    Net Carrying
Amount
 

Backlog and other

   $ 743,760       $ (376,455   $ 367,305       $ 743,760       $ (416,530   $ 327,230   

Customer relationships

     534,030         (53,017     481,013         534,030         (65,668     468,362   

Technology

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

Total

   $ 1,280,490       $ (432,172   $ 848,318       $ 1,280,490       $ (484,898   $ 795,592   
                                                   

Intangible assets are amortized based on the expected pattern of consumption. We recorded amortization expense of $65.1 million and $52.7 million for the six months ended June 30, 2010 and 2011, respectively.

 

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Note 8 Long-Term Debt

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

 

     As of December 31, 2010      As of June 30, 2011  
     Carrying Value     Fair Value      Carrying Value     Fair Value  

Intelsat S.A.:

         

6.5% Senior Notes due November 2013

   $ 353,550      $ 368,152       $ 353,550      $ 372,995   

Unamortized discount on 6.5% Senior Notes

     (73,687     —           (63,032     —     

7.625% Senior Notes due April 2012

     485,841        510,133         —          —     

Unamortized discount on 7.625% Senior Notes

     (43,757     —           —          —     
                                 

Total Intelsat S.A. obligations

     721,947        878,285         290,518        372,995   
                                 

Intelsat Luxembourg:

         

11.25% Senior Notes due February 2017

     2,805,000        3,064,463         2,805,000        3,001,350   

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

     2,427,138        2,675,919         2,502,986        2,703,225   
                                 

Total Intelsat Luxembourg obligations

     5,232,138        5,740,382         5,307,986        5,704,575   
                                 

Intelsat Jackson:

         

11.25% Senior Notes due June 2016

     1,048,220        1,129,457         1,048,220        1,111,113   

Unamortized premium on 11.25% Senior Notes

     4,990        —           4,648        —     

11.5% Senior Notes due June 2016

     284,595        305,940         —          —     

9.5% Senior Notes due June 2016

     701,913        740,518         701,913        736,166   

9.25% Senior Notes due June 2016

     55,035        59,509         —          —     

Senior Secured Credit Facilities due April 2018

     —          —           3,250,000        3,258,775   

Unamortized discount on Senior Secured Credit Facilities

     —          —           (15,348     —     

Senior Unsecured Credit Facilities due February 2014

     195,152        185,161         195,152        187,834   

New Senior Unsecured Credit Facilities due February 2014

     810,876        769,359         810,876        780,468   

8.5% Senior Notes due November 2019

     500,000        543,750         500,000        520,000   

Unamortized discount on 8.5% Senior Notes

     (3,845     —           (3,698     —     

7.25% Senior Notes due October 2020

     1,000,000        1,010,000         1,000,000        992,500   

7.25% Senior Notes due April 2019

     —          —           1,500,000        1,488,750   

7.5% Senior Notes due April 2021

     —          —           1,150,000        1,141,375   
                                 

Total Intelsat Jackson obligations

     4,596,936        4,743,694         10,141,763        10,216,981   
                                 

Intermediate Holdco:

         

9.25% Senior Discount Notes due February 2015

     4,545        4,681         —          —     

9.5% Senior Discount Notes due February 2015

     481,020        495,451         —          —     
                                 

Total Intermediate Holdco obligations

     485,565        500,132         —          —     
                                 

Intelsat Sub Holdco:

         

8.5% Senior Notes due January 2013

     850,346        852,472         —          —     

8.875% Senior Notes due January 2015

     681,012        699,740         —          —     

Senior Secured Credit Facilities due July 2013

     330,960        328,478         —          —     

8.875% Senior Notes due January 2015, Series B

     400,000        411,000         —          —     

Unamortized discount on 8.875% Senior Notes

     (63,050     —           —          —     
                                 

Total Intelsat Sub Holdco obligations

     2,199,268        2,291,690         —          —     
                                 

New Dawn:

         

Senior Secured Debt Facility

     84,773        84,773         107,239        107,239   

Mezzanine Facility Term Loan

     62,819        62,819         79,850        79,850   
                                 

New Dawn obligations

     147,592        147,592         187,089        187,089   
                                 

Intelsat Corp:

         

Senior Secured Credit Facilities due January 2014

     1,715,522        1,709,517         —          —     

Unamortized discount on Senior Secured Credit Facilities

     (8,361     —           —          —     

Senior Secured Credit Facilities due July 2012

     133,466        132,305         —          —     

9.25% Senior Notes due August 2014

     111,833        115,333         —          —     

9.25% Senior Notes due June 2016

     580,719        627,177         —          —     
                                 

Total Intelsat Corp obligations

     2,533,179        2,584,332         —          —     
                                 

Total Intelsat S.A. long-term debt

     15,916,625      $ 16,886,107         15,927,356      $ 16,481,640   
                                 

Less:

         

Current portion of long-term debt

     94,723           32,500     
                     

Total current portion

     94,723           32,500     
                     

Total long-term debt, excluding current portion

   $ 15,821,902         $ 15,894,856     
                     

 

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

Senior Secured Credit Facilities

On January 12, 2011, Intelsat Jackson Holdings S.A. (“Intelsat Jackson”), a wholly-owned subsidiary of Intelsat S.A., entered into a secured credit agreement (the “Intelsat Jackson Secured Credit Agreement”), which includes a $3.25 billion term loan facility maturing in April 2018 and a $500.0 million revolving credit facility with a five year maturity, and borrowed the full $3.25 billion under the term loan facility. The term loan facility requires regularly scheduled quarterly payments of principal equal to 0.25% of the original principal amount of the term loan beginning six months after January 12, 2011, with the remaining unpaid amount due and payable at maturity on April 2, 2018. Up to $350.0 million of the revolving credit facility is available for issuance of letters of credit. Additionally, up to $70.0 million of the revolving credit facility is available for swingline loans. Both the face amount of any outstanding letters of credit and any swingline loans reduce availability under the revolving credit facility on a dollar for dollar basis. Intelsat Jackson is required to pay a commitment fee for the unused commitments under the revolving credit facility, if any, at a rate per annum of 0.375%. As of June 30, 2011, Intelsat Jackson had $462.2 million (net of standby letters of credit) of availability remaining under its revolving credit facility. On August 3, 2011, we borrowed $200.0 million under the Intelsat Jackson revolving credit facility.

The Intelsat Jackson Secured Credit Agreement includes two financial covenants. Intelsat Jackson must maintain a consolidated secured debt to consolidated EBITDA ratio of less than or equal to 3.50 to 1.00 at the end of each fiscal quarter as well as a consolidated EBITDA to consolidated interest expense ratio of greater than or equal to 1.75 to 1.00 at the end of each fiscal quarter, in each case as such financial measures are defined in the Intelsat Jackson Secured Credit Agreement. We were in compliance with these financial maintenance covenant ratios with a consolidated secured debt to consolidated EBITDA ratio of 1.48 to 1.00 and a consolidated EBITDA to consolidated interest expense ratio of 2.75 to 1.00 as of June 30, 2011.

New Dawn Credit Facilities

On December 5, 2008, New Dawn entered into a $215.0 million secured financing arrangement with an eight year maturity that consists of senior and mezzanine term loan facilities. The credit facilities are non-recourse to New Dawn’s shareholders, including us and our wholly-owned subsidiaries, beyond the shareholders’ scheduled capital contributions. During the six months ended June 30, 2011, New Dawn drew $35.2 million under this facility, primarily to fund the purchase of launch insurance for the launch of the Intelsat New Dawn satellite in the second quarter of 2011, and insurance on the satellite for five years in-orbit. The senior facility provides for a commitment of up to $125.0 million. The interest rate on term loans under the senior facility is the aggregate of the London Inter-Bank Offered Rate (“LIBOR”) plus an applicable margin between 3.0% and 4.0% and certain costs, if incurred. The mezzanine facility provides for a commitment of up to $90.0 million. The interest rate on term loans under the mezzanine facility is the aggregate of LIBOR plus an applicable margin between 5.3% and 6.3% and certain costs, if incurred. New Dawn is required to pay a commitment fee at a rate per annum of  1/2% on any unused commitments under the credit facilities. During the six months ended June 30, 2011, New Dawn paid $46.4 million for satellite related capital expenditures, and had aggregate outstanding borrowings of $187.1 million under its credit facilities as of June 30, 2011.

2011 Reorganization and 2011 Secured Loan Refinancing

On January 12, 2011, certain of our subsidiaries completed a series of internal transactions and related steps that reorganized the ownership of our assets among our subsidiaries and effectively combined the legacy businesses of Intelsat Subsidiary Holding Company S.A. (“Intelsat Sub Holdco”) and Intelsat Corp in order to simplify our operations and enhance our ability to transact business in an efficient manner (the “2011 Reorganization”). Also on January 12, 2011, Intelsat Jackson entered into the Intelsat Jackson Secured Credit Agreement as discussed above, and borrowed $3.25 billion under a term loan facility. Part of the net proceeds of the term loan, amounting to $2.4 billion, were contributed or loaned to Intelsat Corp, which used such funds to repay its existing indebtedness under Intelsat Corp’s senior secured facilities and to redeem Intelsat Corp’s 9  1/4% Senior Notes due 2016. Separately, Intelsat Corp also redeemed all of its 9  1/4% Senior Notes due 2014 and its 6  7/8% Senior Secured Debentures due 2028. In addition, Intelsat Jackson contributed approximately $330.2 million of the net proceeds of the new term loan to Intelsat Sub Holdco to repay all existing indebtedness under Intelsat Sub Holdco’s senior secured credit facilities. The entry into the Intelsat Jackson Secured Credit Agreement, the repayment of the existing indebtedness of Intelsat Corp and the repayment of all the secured existing indebtedness of Intelsat Sub Holdco are referred to collectively as the “2011 Secured Loan Refinancing”. In connection with the 2011 Secured Loan Refinancing, certain of our interest rate swaps were assigned by Intelsat Sub Holdco and Intelsat Corp to Intelsat Jackson, and are now secured by a first priority security interest in the collateral that also secures obligations under the Intelsat Jackson Secured Credit Agreement. Additionally, in connection with the 2011 Secured Loan Refinancing, we recognized a loss on early extinguishment of debt of $87.9 million during the first quarter of 2011, which consists of the difference between the carrying value of the Intelsat Corp and Intelsat Sub Holdco debt repaid and the total cash amount paid (including related fees), and a write-off of unamortized debt discounts and debt issuance costs.

 

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2011 Notes Redemptions

On March 18, 2011, Intelsat S.A. redeemed all of the $485.8 million aggregate principal amount outstanding of its 7  5/8% Senior Notes due 2012. Additionally, on March 18, 2011, Intelsat Sub Holdco redeemed $225.0 million aggregate principal amount outstanding of its 8  1/2% Senior Notes due 2013 (the “2013 Sub Holdco Notes”). In connection with these redemptions, we recognized a loss on early extinguishment of $80.3 million during the first quarter of 2011, which consists of the difference between the carrying value of the Intelsat S.A. and Intelsat Sub Holdco debt repaid and the total cash paid (including related fees), and a write-off of unamortized debt discounts and debt issuance costs. On April 8, 2011, Intelsat Intermediate Holding Company S.A. (“Intermediate Holdco”) redeemed all of the $4.5 million aggregate principal amount outstanding of its 9  1/4% Senior Discount Notes due 2015.

2011 Intelsat Jackson Notes Offering, Tender Offers and Additional Redemptions

On April 5, 2011, Intelsat Jackson completed an offering of $2.65 billion aggregate principal amount of senior notes (the “2011 Intelsat Jackson Notes Offering”), consisting of $1.5 billion aggregate principal amount of 7  1/4% Senior Notes due 2019 and $1.15 billion aggregate principal amount of 7  1/2% Senior Notes due 2021 (collectively, the “New Jackson Notes”). The net proceeds from the sale of the New Jackson Notes were primarily used to repurchase all of the following notes in tender offers launched on March 21, 2011 and completed on April 15, 2011, and to subsequently redeem the remaining outstanding amounts of such notes on May 5, 2011:

 

   

$481.0 million aggregate principal amount outstanding of the Intermediate Holdco 9  1/2% Senior Discount Notes due 2015;

 

   

$625.3 million aggregate principal amount outstanding of the 2013 Sub Holdco Notes, after giving effect to the March 2011 partial redemption of the 2013 Sub Holdco Notes, as discussed above;

 

   

$681.0 million aggregate principal amount outstanding of the Intelsat Sub Holdco 8  7/8% Senior Notes due 2015;

 

   

$400.0 million aggregate principal amount outstanding of the 2015 Intelsat Sub Holdco Notes, Series B;

 

   

$55.0 million aggregate principal amount outstanding of the Intelsat Jackson 9  1/4% Senior Notes due 2016; and

 

   

$284.6 million aggregate principal amount outstanding of the Intelsat Jackson 11  1/2% Senior Notes due 2016.

As a result, all of the above series of notes were paid off in full and no third party debt remained outstanding at Intermediate Holdco and Intelsat Sub Holdco as of May 5, 2011. Additionally, in connection with the above transactions, we recognized a loss on early extinguishment of debt of $158.0 million during the three months ended June 30, 2011, which consists of the difference between the carrying value of the debt repaid or redeemed and the total cash amount paid (including related fees), and a write-off of unamortized debt discounts and debt issuance costs.

 

Note 9 Derivative Instruments and Hedging Activities

Interest Rate Swaps

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

In connection with the 2011 Secured Loan Refinancing, certain of our interest rate swaps were assigned by Intelsat Sub Holdco and Intelsat Corp to Intelsat Jackson, and are now secured by a first priority security interest in the collateral that also secures obligations under the Intelsat Jackson Secured Credit Agreement (see Note 8 – Long-Term Debt).

As of June 30, 2011 we held interest rate swaps with an aggregate notional amount of $2.3 billion which mature in 2013. These swaps were entered into as further described below to economically hedge the variability in cash flow on a portion of the floating-rate term loan under our senior secured and unsecured credit facilities, but have not been designated as hedges for accounting purposes. On a quarterly basis, we receive a floating rate of interest equal to the three-month LIBOR and pay a fixed rate of interest. On the interest rate reset date of June 14, 2011, the interest rate which the counterparties utilized to compute interest due to us was determined to be 0.2485%.

Additionally, as of June 30, 2011, New Dawn had two floating to fixed interest rate swaps to hedge future interest payments on loans under New Dawn’s senior and mezzanine term loan facilities. The first interest rate swap had varying notional amounts and matured on July 7, 2011. The second interest rate swap has an effective date of July 7, 2011, maturing on July 7, 2014, with a notional

 

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amount of $65.5 million for mezzanine loans and varying notional amounts for underlying senior loans. We receive an interest rate of three-month LIBOR and pay a fixed coupon of 3.72%. Both of these swaps were undesignated as hedges for accounting purposes.

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

All of these interest rate swaps were undesignated as of June 30, 2011. The swaps are marked-to-market quarterly with any change in fair value recorded within (gains) losses on derivative financial instruments in our condensed consolidated statements of operations. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of our derivatives. The fair value measurement of derivatives could result in either a net asset or a net liability position for us. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting arrangements as applicable and necessary. When the swaps are in a net liability position for us, the credit valuation adjustments are calculated by determining the total expected exposure of the derivatives, incorporating the current and potential future exposures and then applying an applicable credit spread to the exposure. The total expected exposure of a derivative is derived using market-observable inputs, such as yield curves and volatilities. The inputs utilized for our own credit spread are based on implied spreads from traded levels of our debt. Accordingly, as of June 30, 2011, we recorded a non-cash credit valuation adjustment of approximately $5.3 million as a reduction to our liability.

As of December 31, 2010 and June 30, 2011, $6.4 million was included in other current liabilities, and $141.4 million and $126.1 million was included in other long-term liabilities, respectively, within our condensed consolidated balance sheets related to the interest rate swaps.

Put Option Embedded Derivative Instrument

At the date of issuance of the 2015 Intelsat Sub Holdco Notes, Series B, we determined that these debt instruments contained a contingent put option clause within the host contract, which afforded the holders of the notes the option to require the issuer to repurchase such notes at 101% of their principal amount in the event of a change of control, as defined in the indenture governing the notes. In our evaluation of the financing arrangement, we concluded that the contingent put option required bifurcation in accordance with current accounting standards under FASB ASC Topic 815, Derivatives and Hedging, (“FASB ASC 815”). We therefore bifurcated the contingent put option and carried it as a derivative liability at fair value. We estimated the fair value of the derivative on the date of inception using a standard valuation technique, which places the most significant emphasis upon the estimated date and probability of a change of control and incorporated the issue price, maturity date and change of control put price. We subsequently revalued the derivative at the end of each reporting period, recognizing any change in fair value through earnings. The fair value of the embedded derivative was calculated as $4.3 million at December 31, 2010. As of May 5, 2011, we redeemed the entire $400 million aggregate principal amount outstanding of the 2015 Intelsat Sub Holdco Notes, Series B (see Note 8—Long-Term Debt for further discussion). Therefore, we derecognized the embedded derivative liability and the value at June 30, 2011 was $0. We recorded a gain of $4.3 million included in (gains) losses on derivative financial instruments in our condensed consolidated statement of operations during the six months ended June 30, 2011 to adjust the fair market value of the put option embedded derivative to $0.

 

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In accordance with disclosure requirements provided under FASB ASC 815, we include the following tabular presentation, which sets forth the fair value of our derivatives by category (in thousands):

 

          Liability Derivatives  

Derivatives not designated as hedging instruments

  

Balance Sheet Location

   December 31,
2010
     June 30,
2011
 

Undesignated interest rate swaps

   Other long-term liabilities    $ 141,411       $ 126,105   

Undesignated interest rate swaps

   Other current liabilities      6,404         6,445   

Put option embedded derivative

   Other long-term liabilities      4,295         —     
                    

Total derivatives

      $ 152,110       $ 132,550   
                    

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

 

Derivatives not designated as hedging
instruments

  

Presentation in Statements of

Operations

   Three Months
Ended
June 30,
2010
     Three Months
Ended

June  30,
2011
     Six Months Ended
June 30,

2010
    Six Months Ended
June 30,

2011
 

Undesignated interest rate swaps

  

Losses on derivative financial

instruments

   $ 39,474       $ 20,522       $ 73,461      $ 23,103   

Put option embedded derivative

  

Losses on derivative financial

instruments

     1,301         —           (2,819     (4,295
                                     

Total losses on derivative financial instruments

   $ 40,775       $ 20,522       $ 70,642      $ 18,808   
                                     

 

Note 10 Income Taxes

The majority of our operations are located in taxable jurisdictions, including Luxembourg, the United States and the United Kingdom. Our Luxembourg companies that file tax returns as a consolidated group generated a loss for the six months ended June 30, 2011. Due to our cumulative losses in recent years, and the inherent uncertainty associated with the realization of future taxable income in the foreseeable future, we recorded a full valuation allowance against the net operating losses generated in Luxembourg. The difference between tax expense (benefit) reported in the condensed consolidated statements of operations and tax computed at statutory rates is attributable to the valuation allowance on losses generated in Luxembourg, the provision for foreign taxes, which were principally in the United States and the United Kingdom, as well as withholding taxes on revenue earned in many of the foreign markets in which we operate.

Cash paid for income taxes, net of refunds, totaled $19.9 million and $14.8 million for the six months ended June 30, 2010 and 2011, respectively.

As of December 31, 2010 and June 30, 2011, our gross unrecognized tax benefits were $72.0 million and $58.9 million, respectively (including interest and penalties), of which $50.6 million and $41.6 million, respectively, if recognized, would affect our effective tax rate. As of December 31, 2010 and June 30, 2011, we had recorded reserves for interest and penalties in the amount of $5.7 million and $5.8 million, respectively. We continue to recognize interest and, to the extent applicable, penalties with respect to the unrecognized tax benefits as income tax expense. Since December 31, 2010, the change in the balance of unrecognized tax benefits consisted of a decrease of $13.0 million related to prior period tax positions.

During the first half of 2011, we released $14.3 million of liabilities related to withholding taxes resulting from certain sales in the Asia-Pacific market. These liabilities were previously recorded in accordance with FASB ASC 740, Income Taxes.

We operate in various taxable jurisdictions throughout the world and our tax returns are subject to audit and review from time to time. We consider Luxembourg, the United States and the United Kingdom to be our significant tax jurisdictions. Our Luxembourg, U.S. and U.K. subsidiaries are subject to income tax examination for periods beginning after December 31, 2003.

Within the next twelve months, we believe that there are no jurisdictions in which the outcome of unresolved tax issues or claims is likely to be material to our results of operations, financial position or cash flows.

 

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During the first half of 2011, the U.S. Internal Revenue Service began its audit of Intelsat Holding Corporation for the years ended December 31, 2008 and 2009. At this point in time, it is too early to anticipate the probability of any adjustments resulting from this audit.

Prior to August 20, 2004, Intelsat Corp, joined with The DIRECTV Group and General Motors Corporation in filing a consolidated U.S. federal income tax return. In April 2004, Intelsat Corp entered into a tax separation agreement with The DIRECTV Group that superseded four earlier tax-related agreements among Intelsat Corp and its subsidiaries, The DIRECTV Group and certain of its affiliates. Pursuant to the tax separation agreement, The DIRECTV Group agreed to indemnify Intelsat Corp for all federal and consolidated state and local income taxes a taxing authority may attempt to collect from Intelsat Corp regarding any liability for the federal or consolidated state or local income taxes of General Motors Corporation and The DIRECTV Group, except those income taxes Intelsat Corp is required to pay under the tax separation agreement. In addition, The DIRECTV Group agreed to indemnify Intelsat Corp for any taxes (other than those taxes described in the preceding sentence) related to any periods or portions of such periods ending on, or prior to, the day of the closing of the PanAmSat recapitalization, which occurred on August 20, 2004, in amounts equal to 80% of the first $75.0 million of such other taxes and 100% of any other taxes in excess of the first $75.0 million. As a result, Intelsat Corp’s tax exposure after indemnification related to these periods is capped at $15.0 million, of which $4.0 million has been paid to date. The tax separation agreement with The DIRECTV Group is effective from August 20, 2004 until the expiration of the statute of limitations with respect to all taxes to which the tax separation agreement relates. As of December 31, 2010 and June 30, 2011, we had a tax indemnification receivable of $2.3 million.

 

Note 11 Contingencies

(a) Litigation and Claims

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

(b) LCO Protection

Most of the customer service commitments entered into prior to our privatization in 2001 were transferred to us pursuant to novation agreements. Certain of these agreements contain provisions, including provisions for lifeline connectivity obligation (“LCO”) protection, which constrain our ability to price services in some circumstances. Our LCO contracts require us to provide customers with the right to renew their service commitments covered by LCO contracts at prices no higher than the prices charged for those services on the privatization date. Under some circumstances, we may also be required by an LCO contract to reduce the price for a service commitment covered by the contract. LCO protection may continue until July 18, 2013. As of June 30, 2011, we had approximately $108.6 million of contracted backlog covered by LCO contracts and to date we have not been required to reduce prices for our LCO-protected service commitments. There can be no assurance that we will not be required to reduce prices in the future under our LCO commitments.

 

Note 12 Business and Geographic Segment Information

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

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

 

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The geographic distribution of our revenue was as follows:

 

     Three Months
Ended
June  30,

2010
    Three Months
Ended
June  30,

2011
 

North America

     45     47

Europe

     16     16

Africa and Middle East

     18     17

Latin America and Caribbean

     14     14

Asia Pacific

     7     6

Approximately 4% of our revenue was derived from our largest customer during each of the three months ended June 30, 2010 and 2011. Our ten largest customers accounted for approximately 26% of our revenue for each of the three months ended June 30, 2010 and 2011.

 

     Six Months Ended
June  30,

2010
    Six Months Ended
June  30,
2011
 

North America

     46     46

Europe

     16     16

Africa and Middle East

     18     17

Latin America and Caribbean

     13     14

Asia Pacific

     7     7

Approximately 4% of our revenue was derived from our largest customer during each of the six months ended June 30, 2010 and 2011. Our ten largest customers accounted for approximately 26% of our revenue for each of the six months ended June 30, 2010 and 2011.

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

 

     Three Months Ended
June  30, 2010
    Three Months Ended
June  30, 2011
    Six Months Ended
June  30, 2010
    Six Months Ended
June  30, 2011
 

On-Network Revenues

                    

Transponder services

   $ 457,152         72   $ 474,722         74   $ 907,792         72   $ 942,005         73

Managed services

     85,746         13     70,895         11     165,119         13     147,637         12

Channel

     30,552         5     26,723         4     61,836         5     54,019         4
                                                                    

Total on-network revenues

     573,450         90     572,340         89     1,134,747         90     1,143,661         89

Off-Network and Other Revenues

                    

Transponder, MSS and other off-network services

     53,278         9     56,134         9     102,852         9     109,808         9

Satellite-related services

     8,558         1     13,972         2     18,827         1     29,165         2
                                                                    

Total off-network and other revenues

     61,836         10     70,106         11     121,679         10     138,973         11
                                                                    

Total

   $ 635,286         100   $ 642,446         100   $ 1,256,426         100   $ 1,282,634         100
                                                                    

 

Note 13 Related Party Transactions

(a) Shareholders’ Agreement

The shareholders of Intelsat Global entered into shareholders agreements on February 4, 2008. The shareholders agreements and the articles of incorporation of Intelsat Global provide, among other things, for the governance of Intelsat Global and its subsidiaries and provide specific rights to and limitations upon the holders of Intelsat Global’s share capital with respect to shares held by such holders.

(b) Monitoring Fee Agreements and Transaction Fees

Intelsat Luxembourg, our direct wholly-owned subsidiary, has a monitoring fee agreement dated February 4, 2008 (the “2008 MFA”) with BC Partners Limited and Silver Lake Management Company III, L.L.C. (together, the “2008 MFA parties”), pursuant to which the 2008 MFA parties provide certain monitoring, advisory and consulting services to Intelsat Luxembourg. We recorded expense for services associated with the 2008 MFA of $12.4 million during each of the six months ended June 30, 2010 and 2011.

 

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(c) Ownership by Management

Certain directors, officers and key employees of Intelsat Global and its subsidiaries hold restricted shares, options and SCAs of Intelsat Global (see Note 3—Share-based and Other Compensation Plans). In the aggregate, these shares and arrangements outstanding as of June 30, 2011 provided for the issuance of approximately 12.7% of the voting equity of Intelsat Global on a fully diluted basis.

(d) Resale of Intelsat Luxembourg Notes

In April 2011, entities associated with funds and investment vehicles advised or controlled by Silver Lake Partners, one of our principal shareholders, sold all of the $190.9 million aggregate principal amount of the Intelsat Luxembourg 11  1/4% Senior Notes due 2017 (the “2017 Senior Notes”) and $854 million aggregate principal amount of the Intelsat Luxembourg 11  1/2%/12  1/2% Senior PIK Election Notes due 2017 (the “2017 PIK Election Notes”) that they had purchased in 2008.

(e) Horizons Holdings

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

(f) New Dawn

We have a 74.9% ownership interest in New Dawn as a result of the New Dawn Project Agreement (see Note 6—Investments).

(g) WP Com

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

(h) Receivable from Parent

We had a receivable from Intelsat Global as of December 31, 2010 and June 30, 2011 of $5.0 million and $5.9 million, respectively.

 

Note 14 Supplemental Consolidating Financial Information

Intelsat Jackson is the issuer of approximately $1.0 billion of 11  1/4% Senior Notes due 2016 (the “2016 Intelsat Jackson Notes”). The 2016 Intelsat Jackson Notes are fully and unconditionally guaranteed, jointly and severally, by Intelsat S.A. and Intelsat Luxembourg. The 2016 Intelsat Jackson Notes are not guaranteed by any of Intelsat Jackson’s direct or indirect subsidiaries.

In addition, on June 27, 2008, Intelsat Luxembourg issued the 2017 Senior Notes and the 2017 PIK Election Notes, which are fully and unconditionally guaranteed, jointly and severally, by Intelsat S.A.

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

 

   

elimination of investment in subsidiaries;

 

   

elimination of intercompany accounts; and

 

   

elimination of equity in earnings (losses) of subsidiaries.

 

24


Table of Contents

INTELSAT S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2011

(in thousands)

 

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

(Non-Guarantors)
     Consolidation and
Eliminations
    Consolidated  

ASSETS

              

Current assets:

              

Cash and cash equivalents

   $ 2,312      $ 1,128      $ 54,875       $ 223,484       $ —        $ 281,799   

Receivables, net of allowance

     5,914        2        16         274,188         —          280,120   

Deferred income taxes

     —          —          —           23,063         —          23,063   

Prepaid expenses and other current assets

     4        12,497        241         37,988         —          50,730   

Intercompany receivables

     —          301,697        —           426,319         (728,016     —     
                                                  

Total current assets

     8,230        315,324        55,132         985,042         (728,016     635,712   

Satellites and other property and equipment, net

     —          —          —           6,066,085         —          6,066,085   

Goodwill

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

Non-amortizable intangible assets

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

Amortizable intangible assets, net

     —          —          —           795,592         —          795,592   

Investment in affiliates

     (335,988     4,832,094        15,304,687         75,033         (19,800,793     75,033   

Other assets

     5,298        106,683        101,222         204,820         —          418,023   
                                                  

Total assets

   $ (322,460   $ 5,254,101      $ 15,461,041       $ 17,365,499       $ (20,528,809   $ 17,229,372   
                                                  

LIABILITIES AND SHAREHOLDER’S EQUITY

              

Current liabilities:

              

Accounts payable and accrued liabilities

   $ 1,139      $ 78      $ 272       $ 169,175       $ —        $ 170,664   

Accrued interest payable

     3,830        227,953        122,127         1,692         —          355,602   

Current portion of long-term debt

     —          —          32,500         —           —          32,500   

Deferred satellite performance incentives

     —          —          —           17,520         —          17,520   

Other current liabilities

     —          —          3,646         133,759         —          137,405   

Intercompany payables

     482,235        —          245,781         —           (728,016     —     
                                                  

Total current liabilities

     487,204        228,031        404,326         322,146         (728,016     713,691   

Long-term debt, net of current portion

     290,518        5,307,985        10,109,262         187,091         —          15,894,856   

Deferred satellite performance incentives, net of current portion

     —          —          —           125,166         —          125,166   

Deferred revenue, net of current portion

     —          —          —           594,975         —          594,975   

Deferred income taxes

     —          —          —           344,631         —          344,631   

Accrued retirement benefits

     —          —          —           243,002         —          243,002   

Other long-term liabilities

     —          53,358        115,359         244,516         —          413,233   

Noncontrolling interest

     —          —          —           —           —          —     

Shareholder’s equity (deficit):

              

Ordinary shares

     5,000        669,036        4,322,473         9,576,008         (14,567,517     5,000   

Other shareholder’s equity (deficit)

     (1,105,182     (1,004,309     509,621         5,727,964         (5,233,276     (1,105,182
                                                  

Total liabilities and shareholder’s equity

   $ (322,460   $ 5,254,101      $ 15,461,041       $ 17,365,499       $ (20,528,809   $ 17,229,372   
                                                  

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

 

25


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INTELSAT S.A. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2010

(in thousands)

 

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

ASSETS

              

Current assets:

              

Cash and cash equivalents

   $ 7,315      $ 10,017      $ 126,605       $ 548,993       $ —        $ 692,930   

Receivables, net of allowance

     4,962        —          25         245,364         —          250,351   

Deferred income taxes

     —          —          —           24,090         —          24,090   

Prepaid expenses and other current assets

     608        16        9         31,184         —          31,817   

Intercompany receivables

     —          —          —           660,379         (660,379     —     
                                                  

Total current assets

     12,885        10,033        126,639         1,510,010         (660,379     999,188   

Satellites and other property and equipment, net

     —          —          —           5,997,283         —          5,997,283   

Goodwill

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

Non-amortizable intangible assets

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

Amortizable intangible assets, net

     —          —          —           848,318         —          848,318   

Investment in affiliates

     498,926        5,896,195        10,588,831         81,764         (16,983,952     81,764   

Other assets

     11,616        113,290        41,845         260,136         —          426,887   
                                                  

Total assets

   $ 523,427      $ 6,019,518      $ 10,757,315       $ 17,936,438       $ (17,644,331   $ 17,592,367   
                                                  

LIABILITIES AND SHAREHOLDER’S EQUITY

              

Current liabilities:

              

Accounts payable and accrued liabilities

   $ 803      $ (12   $ 2,111       $ 175,641       $ —        $ 178,543   

Accrued interest payable

     11,651        229,242        43,025         119,528         —          403,446   

Current portion of long-term debt

     —          —          —           94,723         —          94,723   

Deferred satellite performance incentives

     —          —          —           16,693         —          16,693   

Other current liabilities

     —          —          1,274         146,155         —          147,429   

Intercompany payables

     486,065        450        173,864         —           (660,379     —     
                                                  

Total current liabilities

     498,519        229,680        220,274         552,740         (660,379     840,834   

Long-term debt, net of current portion

     721,947        5,232,138        4,596,936         5,270,881         —          15,821,902   

Deferred satellite performance incentives, net of current portion

     —          —          —           132,884         —          132,884   

Deferred revenue, net of current portion

     —          —          —           407,103         —          407,103   

Deferred income taxes

     —          —          —           484,076         —          484,076   

Accrued retirement benefits

     —          —          —           257,455         —          257,455   

Other long-term liabilities

     —          56,872        43,910         225,749         —          326,531   

Noncontrolling interest

     —          —          —           18,621         —          18,621   

Shareholder’s equity (deficit):

              

Ordinary shares

     5,000        669,037        4,959,000         3,602,044         (9,230,081     5,000   

Other shareholder’s equity (deficit)

     (702,039     (168,209     937,195         6,984,885         (7,753,871     (702,039
                                                  

Total liabilities and shareholder’s equity

   $ 523,427      $ 6,019,518      $ 10,757,315       $ 17,936,438       $ (17,644,331   $ 17,592,367   
                                                  

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

 

26


Table of Contents

INTELSAT S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2011

(in thousands)

 

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

(Non-Guarantors)
    Consolidation and
Eliminations
    Consolidated  

Revenue

   $ —        $ —        $ —        $ 642,449      $ (3   $ 642,446   
                                                

Operating expenses:

            

Direct costs of revenue (exclusive of depreciation and amortization)

     —          —          —          101,059        —          101,059   

Selling, general and administrative

     669        6,519        320        47,639        —          55,147   

Depreciation and amortization

     —          —          —          194,354        —          194,354   

Losses on derivative financial instruments

     —          —          17,801        2,721        —          20,522   
                                                

Total operating expenses

     669        6,519        18,121        345,773        —          371,082   
                                                

Income (loss) from operations

     (669     (6,519     (18,121     296,676        (3     271,364   

Interest expense, net

     14,177        152,451        160,333        (1,100     —          325,861   

Loss on early extinguishment of debt

     —          —          (28,963     (128,990     —          (157,953

Subsidiary income (loss)

     (198,519     (36,238     171,179        —          63,578        —     

Other income, net

     —          —          —          (1,298     —          (1,298
                                                

Income (loss) before income taxes

     (213,365     (195,208     (36,238     167,488        63,575        (213,748

Provision for income taxes

     —          —          —          734        —          734   
                                                

Net income (loss)

     (213,365     (195,208     (36,238     166,754        63,575        (214,482

Net loss attributable to noncontrolling interest

     —          —          —          1,114        —          1,114   
                                                

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

   $ (213,365   $ (195,208   $ (36,238   $ 167,868      $ 63,575      $ (213,368
                                                

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

 

27


Table of Contents

INTELSAT S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2010

(in thousands)

 

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

(Non-Guarantors)
     Consolidation  and
Eliminations
     Consolidated  

Revenue

   $ —        $ —        $ —        $ 635,286       $ —         $ 635,286   
                                                  

Operating expenses:

              

Direct costs of revenue (exclusive of depreciation and amortization)

     —          —          —          100,531         —           100,531   

Selling, general and administrative

     890        6,153        (12     46,430         —           53,461   

Depreciation and amortization

     —          —          —          201,189         —           201,189   

Impairment of asset value

     —          —          —          104,088         —           104,088   

Losses on derivative financial instruments

     —          —          15,739        25,036         —           40,775   
                                                  

Total operating expenses

     890        6,153        15,727        477,274         —           500,044   
                                                  

Income (loss) from operations

     (890     (6,153     (15,727     158,012         —           135,242   

Interest expense, net

     32,097        153,516        77,795        86,254         —           349,662   

Subsidiary income (loss)

     (182,499     (34,499     10,271        —           206,727         —     

Other income (loss), net

     —          (1     —          1,572         —           1,571   
                                                  

Income (loss) before income taxes

     (215,486     (194,169     (83,251     73,330         206,727         (212,849

Provision for (benefit from) income taxes

     (34,840     (13,594     (48,752     66,249         —           (30,937
                                                  

Net income (loss)

     (180,646     (180,575     (34,499     7,081         206,727         (181,912

Net loss attributable to noncontrolling interest

     —          —          —          1,266         —           1,266   
                                                  

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

   $ (180,646   $ (180,575   $ (34,499   $ 8,347       $ 206,727       $ (180,646
                                                  

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

 

28


Table of Contents

INTELSAT S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(in thousands)

 

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

Revenue

   $ —        $ —        $ —        $ 1,282,637      $ (3   $ 1,282,634   
                                                

Operating expenses:

            

Direct costs of revenue (exclusive of depreciation and amortization)

     —          —          —          206,082        —          206,082   

Selling, general and administrative

     1,594        12,845        576        91,731        —          106,746   

Depreciation and amortization

     —          —          —          389,356        —          389,356   

(Gains) losses on derivative financial instruments

     —          —          20,337        (1,529     —          18,808   
                                                

Total operating expenses

     1,594        12,845        20,913        685,640        —          720,992   
                                                

Income (loss) from operations

     (1,594     (12,845     (20,913     596,997        (3     561,642   

Interest expense, net

     43,624        307,387        293,269        30,371        —          674,651   

Loss on early extinguishment of debt

     (78,960     —          (28,963     (218,260     —          (326,183

Subsidiary income (loss)

     (304,785     22,359        365,504        —          (83,078     —     

Other income, net

     —          —          —          2,698        —          2,698   
                                                

Income (loss) before income taxes

     (428,963     (297,873     22,359        351,064        (83,081     (436,494

Benefit from income taxes

     —          —          —          (6,253     —          (6,253
                                                

Net income (loss)

     (428,963     (297,873     22,359        357,317        (83,081     (430,241

Net loss attributable to noncontrolling interest

     —          —          —          1,275        —          1,275   
                                                

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

   $ (428,963   $ (297,873   $ 22,359      $ 358,592      $ (83,081   $ (428,966
                                                

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

 

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Table of Contents

INTELSAT S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2010

(in thousands)

 

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

(Non-Guarantors)
     Consolidation  and
Eliminations
     Consolidated  

Revenue

   $ —        $ —        $ —        $ 1,256,426       $ —         $ 1,256,426   
                                                  

Operating expenses:

              

Direct costs of revenue (exclusive of depreciation and amortization)

     —          —          —          197,888         —           197,888   

Selling, general and administrative

     2,058        12,451        156        83,915         —           98,580   

Depreciation and amortization

     —          —          —          397,996         —           397,996   

Impairment of asset value

     —          —          —          110,625         —           110,625   

Losses on derivative financial instruments

     —          —          28,374        42,268         —           70,642   
                                                  

Total operating expenses

     2,058        12,451        28,530        832,692         —           875,731   
                                                  

Income (loss) from operations

     (2,058     (12,451     (28,530     423,734         —           380,695   

Interest expense, net

     60,782        305,637        155,711        167,357         —           689,487   

Subsidiary income (loss)

     (258,409     45,287        178,872        —           34,250         —     

Other income, net

     —          —          —          4,344         —           4,344   
                                                  

Income (loss) before income taxes

     (321,249     (272,801     (5,369     260,721         34,250         (304,448

Provision for (benefit from) income taxes

     (37,985     (14,090     (50,656     83,623         —           (19,108
                                                  

Net income (loss)

     (283,264     (258,711     45,287        177,098         34,250         (285,340

Net loss attributable to noncontrolling interest

     —          —          —          2,076         —           2,076   
                                                  

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

   $ (283,264   $ (258,711   $ 45,287      $ 179,174       $ 34,250       $ (283,264
                                                  

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

 

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INTELSAT S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(in thousands)

 

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

Cash flows from operating activities:

   $ (30,136   $ (255,417   $ (20,132   $ 748,846      $ —        $ 443,161   
                                                

Cash flows from investing activities:

            

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

     —          —          —          (412,710     —          (412,710

Repayment from (disbursements for) intercompany loans

     —          —          (113,206     1,480        111,726        —     

Capital contribution to unconsolidated affiliates

     —          —          —          (6,105     —          (6,105

Investment in subsidiaries

     (3,100     —          (4,993,408     —          4,996,508        —     

Dividend from affiliates

     550,844        797,373        405,170        —          (1,753,387     —     

Other investing activities

     —          —          —          2,261        —          2,261   
                                                

Net cash provided by (used in) investing activities

     547,744        797,373        (4,701,444     (415,074     3,354,847        (416,554
                                                

Cash flows from financing activities:

            

Repayments of long-term debt

     (485,841     —          (339,630     (5,289,423     —          (6,114,894

Proceeds from issuance of long-term debt

     —          —          5,883,750        35,173        —          5,918,923   

Proceeds from (repayment of) intercompany borrowing

     —          —          (1,480     113,206        (111,726     —     

Debt issuance costs

     —          —          (69,307     —          —          (69,307

Payment of premium on early retirement of debt

     (36,770     —          (26,114     (108,163     —          (171,047

Principal payments on deferred satellite performance incentives

     —          —          —          (6,891     —          (6,891

Capital contribution from parent

     —          —          —          4,996,508        (4,996,508     —     

Dividends to shareholders

     —          (550,844     (797,373     (405,170     1,753,387        —     

Noncontrolling interest in New Dawn

     —          —          —          1,558        —          1,558   
                                                

Net cash provided by (used in) financing activities

     (522,611     (550,844     4,649,846        (663,202     (3,354,847     (441,658
                                                

Effect of exchange rate changes on cash and cash equivalents

     —          (1     —          3,921        —          3,920   
                                                

Net change in cash and cash equivalents

     (5,003     (8,889     (71,730     (325,509     —          (411,131

Cash and cash equivalents, beginning of period

     7,315        10,017        126,605        548,993        —          692,930   
                                                

Cash and cash equivalents, end of period

   $ 2,312      $ 1,128      $ 54,875      $ 223,484      $ —        $ 281,799   
                                                

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

 

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INTELSAT S.A. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010

(in thousands)

 

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

(Non-Guarantors)
    Consolidation  and
Eliminations
    Consolidated  

Cash flows from operating activities:

   $ (34,462   $ (183,355   $ (86,809   $ 697,752      $ —        $ 393,126   
                                                

Cash flows from investing activities:

            

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

     —          —          —          (437,524     —          (437,524

Proceeds from sale of investment

     —          —          —          28,594        —          28,594   

Disbursements for intercompany loans

     —          —          —          (228,545     228,545        —     

Capital contribution to unconsolidated affiliates

     —          —          —          (6,105     —          (6,105

Investment in subsidiaries

     (6,250     —          —          —          6,250        —     

Dividend from affiliates

     3,000        3,000        58,440        —          (64,440     —     

Other investing activities

     —          —          —          7,360        —          7,360   
                                                

Net cash provided by (used in) investing activities

     (3,250     3,000        58,440        (636,220     170,355        (407,675
                                                

Cash flows from financing activities:

            

Repayments of long-term debt

     —          —          —          (51,249     —          (51,249

Proceeds from issuance of long-term debt

     —          —          —          23,462        —          23,462   

Proceeds from intercompany borrowing

     23,253        167,281        38,011        —          (228,545     —     

Debt issuance costs

     (15,370     —          —          —          —          (15,370

Principal payments on deferred satellite performance incentives

     —          —          —          (8,876     —          (8,876

Principal payments on capital lease obligations

     —          —          —          (191     —          (191

Capital contribution from parent

     18,000        —          —          6,250        (6,250     18,000   

Dividends to shareholders

     —          (3,000     (3,000     (58,440     64,440        —     

Noncontrolling interest in New Dawn

     —          —          —          1,031        —          1,031   
                                                

Net cash provided by (used in) financing activities

     25,883        164,281        35,011        (88,013     (170,355     (33,193
                                                

Effect of exchange rate changes on cash and cash equivalents

     —          —          —          (366     —          (366
                                                

Net change in cash and cash equivalents

     (11,829     (16,074     6,642        (26,847     —          (48,108

Cash and cash equivalents, beginning of period

     21,817        16,115        2,206        437,433        —          477,571   
                                                

Cash and cash equivalents, end of period

   $ 9,988      $ 41      $ 8,848      $ 410,586      $ —        $ 429,463   
                                                

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

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and their notes included elsewhere in this Quarterly Report. See “Forward-Looking Statements” for a discussion of factors that could cause our future financial condition and results of operations to be different from those discussed below.

Overview

We operate the world’s largest satellite services business, providing a critical layer in the global communications infrastructure. We generate more revenue, operate more satellite capacity, hold more orbital location rights, contract more backlog, serve more commercial customers and deliver services in more countries than any other commercial satellite operator. We provide diversified communications services to the world’s leading media companies, fixed and wireless telecommunications operators, data networking service providers for enterprise and mobile applications, multinational corporations and ISPs. We are also the leading provider of commercial satellite capacity to the U.S. government and other select military organizations and their contractors.

Our network solutions