UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐
☒
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☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 001-35878
INTELSAT S.A.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Grand Duchy of Luxembourg
(Jurisdiction of incorporation or organization)
4 rue Albert Borschette
Luxembourg
Grand-Duchy of Luxembourg
L-1246
(Address of principal executive offices)
Michelle V. Bryan, Esq.
Executive Vice President, General Counsel and Chief Administrative Officer
Intelsat S.A.
4, rue Albert Borschette
L-1246 Luxembourg
Telephone: +352 27-84-1600
Fax: +352 27-84-1690
(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange On Which Registered
Common Shares, nominal value $0.01 per share
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.
138,018,894 common shares, nominal value $0.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Yes ☐ No ☒
Note—checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See
definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated Filer
Emerging growth company
☐
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to
use the extended transition period for complying with any new or revised financial accounting standards* provided pursuant to Section 13(a) of the Exchange
Act. ☐
*
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting
Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to
follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
TABLE OF CONTENTS
Page
Part I
Forward-Looking Statements
Item 1
Item 2
Item 3
Item 3A
Item 3B
Item 3C
Item 3D
Item 4
Item 4A
Item 4B
Item 4C
Item 4D
Item 4A
Item 5
Item 5A
Item 5B
Item 5C
Item 5D
Item 5E
Item 5F
Item 5G
Item 6
Item 6A
Item 6B
Item 6C
Item 6D
Item 6E
Item 7
Identity of Directors, Senior Management and Advisors
Offer Statistics and Expected Timetable
Key Information
Selected Financial Data
Capitalization and indebtedness
Reasons for the offer and use of proceeds
Risk Factors
Information on the Company
History and development of the company
Business Overview
Organizational Structure
Property, plant and equipment
Unresolved Staff Comments
Operating and Financial Review and Prospects
Operating Results
Liquidity and capital resources
Research and development, patents and licenses
Trend information
Off-balance sheet arrangements
Tabular disclosure of contractual obligations
Safe Harbor
Directors, Senior Management and Employees
Directors and senior management
Compensation of Executive Officers and Directors
Board practices
Employees
Share ownership
Major Shareholders and Related Party Transactions
Item 7A Major shareholders
Item 7B
Item 7C
Related party transactions
Interests of experts and counsel
Financial information
Consolidated statements and other financial information
Significant changes
The Offer and Listing
Offer and listing details
Plan of Distribution
Item 8
Item 8A
Item 8B
Item 9
Item 9A
Item 9B
Item 9C Markets
Item 9D
Item 9E
Item 9F
Selling Shareholders
Dilution
Expenses of the Issue
Additional Information
Item 10
Item 10A Share capital
Item 10B Memorandum and articles of association
Item 10C Material contracts
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2
3
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3
5
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57
62
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Item 10D Exchange controls
Item 10E Taxation
Item 10F Dividends and paying agents
Item 10G Statements by experts
Item 10H Documents on display
Subsidiary information
Item 10I
Quantitative and Qualitative Disclosures about Market Risk
Item 11
Description of Securities Other than Equity Securities
Item 12
Part II
Item 13
Item 14
Item 15
Item 16
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
[Reserved]
Item 16A Audit Committee Financial Expert
Item 16B Code of Ethics
Item 16C Principal Accountant Fees and Services
Item 16D Exemptions from the Listing Standards for Audit Committees
Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F Change in Registrant’s Certifying Accountant
Item 16G Corporate Governance
Item 16H Mine Safety Disclosure
Part III
Item 17
Item 18
Item 19
Financial Statements
Financial Statements
Exhibits
Index to Exhibits
Signatures
Index to Consolidated Financial Statements
Page
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F- 1
FORWARD-LOOKING STATEMENTS
Some of the statements in this Annual Report on Form 20-F, or Annual Report, and oral statements made from time to
time by our representatives 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 Annual 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. Examples of these forward-looking
statements include, but are not limited to, statements regarding the following: our belief that the growing worldwide demand
for reliable broadband connectivity everywhere at all times, together with our leadership position in our attractive sector, global
scale, efficient operating and financial profile, diversified customer sets and sizeable contracted backlog, provide us with a
platform for long-term success; our belief that the new and differentiated capacity of our next generation Intelsat EpicNG
satellites will provide inventory to help offset recent trends of pricing pressure in our network services business; our outlook
that the increased volume of services provided by our Intelsat EpicNG fleet is expected to stabilize business activity in the
network services sector; our expectation that over time incremental demand for capacity to support the new 4K format, also
known as ultra-high definition, could compensate for reductions in demand related to use of new compression technologies in
our media business; our expectation that our investment in a new generation of ground hardware will simplify access to satellite
communications, potentially opening much larger and faster growing sectors than those traditionally served by our industry;
our belief that employing a disciplined yield management approach, and focusing our marketing and distribution strategies
around our four primary customer sets will drive stability in our core business; our expectation that designing and deploying
differentiated managed service offerings in targeted verticals, leveraging the scale, higher performance and better economics of
our Intelsat EpicNG fleet will drive revenue growth; innovate through targeted investments and partnerships to develop a
standards-based ecosystem that will provide seamless interface with low earth orbit technologies and the broader
telecommunications ecosystem; our ability to efficiently incorporate new technologies into our network to capture growth; our
intention to maximize our revenues and returns generated by our assets by developing and managing our capacity in a
disciplined and efficient manner; our projection that our government business will benefit from the increasing demands for
mobility services from the U.S. government for aeronautical and ground mobile requirements; our intention to leverage our
satellite launches and maximize the value of our spectrum rights, including the pursuit of partnerships to optimize new satellite
business cases and the exploration of joint-use of certain spectrum with the wireless sector in certain geographies; our
expectations as to the potential timing of a final U.S. Federal Communications Commission ("FCC") ruling with respect to our
C-band joint-use proposal; our intent to consider select acquisitions of complementary businesses or technologies that enhance
our product and geographic portfolio; our belief that developing differentiated services and investing in new technology will
allow us to unlock opportunities that are essential, but have been slow to develop due to cost and/or technology challenges; the
trends that we believe will impact our revenue and operating expenses in the future; our assessments regarding how long
satellites that have experienced anomalies in the past should be able to provide service on their transponders; our assessment of
the risks of future anomalies occurring on our satellites; our plans for satellite launches in the near-term; our expected capital
expenditures in 2019 and during the next several years; our belief that the diversity of our revenue and customer base allows us
to recognize trends, capture new growth opportunities, and gain experience that can be transferred to customers in other
regions; our belief that the scale of our fleet can reduce the financial impact of any satellite or launch failures and protect
against service interruption; and the impact on our financial position or results of operations of pending legal proceedings.
Forward-looking statements reflect our intentions, plans, expectations, anticipations, projections, estimations, predictions,
outlook, assumptions and beliefs about future events. These forward-looking statements speak only as of their dates 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 3D—Risk Factors, 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.
Other factors that may cause results or developments to differ materially from historical results or developments or the
forward-looking statements made in this Annual Report include, but are not limited to:
•
•
risks associated with operating our in-orbit satellites;
satellite launch failures, satellite launch and construction delays and in-orbit failures or reduced satellite performance;
1
•
•
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;
our ability to access capital markets for debt or equity;
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;
litigation; and
other risks discussed under Item 3D—Risk Factors.
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, anticipations, projections, estimations, predictions, outlook, assumptions and beliefs about
the future, you are urged not to rely on forward-looking statements in this Annual Report and to view all forward-looking
statements made in this Annual 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.
INDUSTRY AND MARKET DATA
This Annual Report includes information with respect to regional and sector share and industry conditions from third-
party sources, public filings and based upon our estimates using such sources when available. While we believe that such
information and estimates are reasonable and reliable, we have not independently verified the data from third-party sources,
including Euroconsult Satellite Communications & Broadcasting Markets Survey, 25th Edition (September 2018), Euroconsult
Prospects for In-Flight Entertainment and Connectivity, 6th Edition (June 2018), Euroconsult Prospects for Maritime Satellite
Communications, 6th Edition (March 2018), NSR Government & Military Satellite Communications, 15th Edition (October
2018), NSR Global Satellite Capacity Supply & Demand, 15th Edition (July 2018), NSR Wireless Backhaul via Satellite, 12th
Edition (April 2018), NSR VSAT and Broadband Satellite Markets, 17th edition (December 2018), NSR VSAT and Broadband
Satellite Markets, 16th edition (November 2017), NSR Aeronautical Satcom Market, 6th Edition (June 2018), NSR M2M and
IoT via Satellite, 9th Edition (September 2018), NSR Maritime Services Markets, 6th edition (July 2018), the World Bank
Group, Seradata Spacetrak, Valour Consltancy In-Flight Connectivity Update Q3 2018 (November 2018), Boeing Commercial
Market Outlook (2017), and GSMA Intelligence. Unless otherwise specified, all references contained in this Annual Report to
these third-party sources are as of the dates of these sources stated above. Similarly, our internal research is based upon our
understanding of industry conditions, and such information has not been verified by independent sources. Specifically, when
we refer to the relative size, regions served, number of customers contracted, experience and financial performance of our
business as compared to other companies in our sector, our assertions are based upon public filings of other operators and
comparisons provided by third-party sources, as outlined above.
Throughout this Annual Report, unless otherwise indicated, references to market positions are based on third-party
market research. If a regional position or statement as to industry conditions is based on internal research, it is identified as
management’s belief. Throughout this Annual Report, unless otherwise indicated, statements as to our relative positions as a
provider of services to customers and regions are based upon our relative share. For additional information regarding our
regional share with respect to our customer sets, services and regions, and the bases upon which we determine our share, see
Item 4B—Business Overview.
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Not applicable.
2
Item 2.
Offer Statistics and Expected Timetable
Not applicable.
Item 3.
Key Information
In this Annual 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 term “Intelsat Holdings”
refers to our indirect subsidiary, Intelsat Holdings S.A., (3) the term “Intelsat Investments” refers to Intelsat Investments S.A.,
Intelsat Holdings’ direct wholly-owned subsidiary, (4) the term “Intelsat Luxembourg” refers to Intelsat (Luxembourg) S.A.,
Intelsat Investments’ direct wholly-owned subsidiary, (5) the term "Intelsat Envision" refers to Intelsat Envision Holdings LLC,
Intelsat Luxembourg's direct wholly-owned subsidiary, (6) the terms “Intelsat Connect” and “ICF” refer to Intelsat Connect
Finance S.A., Intelsat Envision’s direct wholly-owned subsidiary, (7) the term “Intelsat Jackson” refers to Intelsat Jackson
Holdings S.A., Intelsat Connect’s direct wholly-owned subsidiary, and (8) the term “Intelsat” refers to specific Intelsat-
satellites. We refer to Intelsat General Communications LLC, one of our subsidiaries, as “Intelsat General.” In this Annual
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 only.
A. Selected Financial Data
The following selected historical consolidated financial data should be read in conjunction with, and is qualified by
reference to, Item 5—Operating and Financial Review and Prospects and our audited consolidated financial statements and
their notes included elsewhere in this Annual Report. The consolidated statement of operations data and consolidated cash flow
data for the years ended December 31, 2016, 2017 and 2018, and the consolidated balance sheet data as of December 31, 2017
and 2018 have been derived from audited consolidated financial statements included elsewhere in this Annual Report. The
consolidated statement of operations data and consolidated cash flow data for the years ended December 31, 2014 and 2015
and the consolidated balance sheet data as of December 31, 2014, 2015 and 2016, have been derived from audited consolidated
financial statements that are not included in this Annual Report.
3
Consolidated Statement of Operations Data
Revenue
Operating expenses:
Direct costs of revenue (excluding depreciation and amortization)
Selling, general and administrative
Impairment of goodwill and other intangibles
Depreciation and amortization
Gain on satellite insurance recoveries
Total operating expenses
Income (loss) from operations
Interest expense, net
Gain (loss) on early extinguishment of debt
Other income (expense), net
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income attributable to noncontrolling interest
Net income (loss) attributable to Intelsat S.A.
Cumulative preferred dividends
Net income (loss) attributable to common shareholders
Other Data
Capital expenditures
Other payments for satellites
Basic income (loss) per common share attributable to Intelsat S.A.
Diluted income (loss) per common share attributable to Intelsat S.A.
Basic weighted average shares outstanding (in millions)
Diluted weighted average shares outstanding (in millions)
Dividends declared per 5.75% series A mandatory convertible junior non-voting
preferred share
Consolidated Cash Flow Data(3)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Consolidated Balance Sheet Data
Cash and cash equivalents, net of restricted cash(3)
Restricted cash(3)
Satellites and other property and equipment, net
Total assets
Total debt
Shareholders’ deficit
Net assets
Number of common shares (in millions)
Number of 5.75% series A mandatory convertible junior non-voting preferred
shares (in millions)
2014
Year Ended December 31,
2016 (1)
2017 (1)
2015
2018 (2)
(in thousands, except per share amounts)
$ 2,472,386
$ 2,352,521
$ 2,188,047
$ 2,148,612
$ 2,161,190
348,348
197,407
328,501
199,412
—
4,165,400
342,634
232,537
—
324,232
205,475
—
330,874
200,857
—
679,351
687,729
694,891
707,824
687,589
—
—
—
—
—
1,225,106
5,381,042
1,270,062
1,237,531
1,219,320
1,247,280
(3,028,521)
944,787
890,279
917,985
938,501
911,081
941,870
1,020,770
1,212,374
(40,423)
(2,593)
7,061
1,030,092
(4,109)
(199,658)
(6,201)
522
10,114
4,541
259,477
(3,917,940)
1,010,098
(103,684)
(465,621)
22,971
1,513
236,506
(3,919,453)
15,986
994,112
71,130
130,069
(174,814)
(595,690)
(3,974)
(3,934)
(3,915)
(3,914)
(3,915)
232,532
(3,923,387)
990,197
(178,728)
(599,605)
(9,917)
(9,919)
—
—
—
222,615
$(3,933,306) $
990,197
$ (178,728) $ (599,605)
$
$
$
$
$
$
645,424
$
724,362
$
714,570
— $
— $
18,333
2.09
1.99
106.5
116.6
2.87
$
$
$
$
(36.68) $
(36.68) $
107.2
107.2
2.88
910,031
$
$
$ 1,046,170
$
$
$
$
461,627
35,396
$
$
(1.50) $
(1.50) $
118.9
118.9
255,696
—
(4.63)
(4.63)
129.6
129.6
8.65
8.36
114.5
118.5
— $
— $
—
678,755
$
464,246
$
344,173
(645,250)
(749,354)
(730,589)
(468,297)
(283,634)
(519,003)
(102,986)
546,347
(121,698)
(90,323)
$
123,147
$
171,541
$
666,024
$
525,215
$
485,120
—
—
—
16,176
22,037
5,880,264
5,998,317
6,185,842
5,923,619
5,511,702
16,326,434
12,253,590
12,942,009
12,610,036
12,241,513
14,668,221
14,611,379
14,198,084
14,208,658
14,028,352
(776,268)
(4,649,565)
(3,634,145)
(3,807,870)
(4,097,005)
(742,567)
(4,620,353)
(3,609,998)
(3,788,564)
(4,082,609)
106.7
107.6
118.0
119.6
138.0
3.5
3.5
—
—
—
(1)
We adopted Accounting Standard Update (“ASU”) 2017-07, Compensation-Retirement Benefits (Topic 715):
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, on January 1,
2018 using the retrospective method. As a result, the company reclassified a net credit for pension and postretirement
benefits from operating expenses to other income for the years ended December 31, 2017 and 2016, to conform to the
current year presentation. Years prior to 2016 do not reflect the effects from our January 1, 2018, adoption of ASC
Topic 715.
4
(2)
(3)
We adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606"), effective January 1,
2018, using the modified retrospective method. Years prior to 2018 do not reflect the effects from our January 1, 2018,
adoption of ASC 606.
We adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments and ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash on January 1, 2018 using the
retrospective method. Balance sheets prior to 2017 and statements of cash flows prior to 2016 have not been restated.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
The risks described below are not the only ones that we may face. Additional risks that are not currently known to us or
that we currently consider immaterial may also impair our business, financial condition or results of operations.
Risk Factors Relating to Our Business
We are subject to significant competition from within the fixed satellite services (“FSS”) sector, from alternative satellite
service providers and from other providers of communications capacity, such as fiber optic cable capacity. Competition from
other telecommunications providers could have a material adverse effect on our business and could prevent us from
implementing our business strategy and expanding our operations as planned.
We face significant competition in the FSS sector in different regions around the world. We compete against other
satellite operators and against suppliers of ground-based communications capacity. The increasing availability of satellite
capacity and capacity from other forms of communications technology has historically created an excess supply of
telecommunications capacity in certain regions from time to time. We believe such an imbalance could again occur in certain
regions, particularly as we and other operators begin to introduce next generation high-throughput satellite technology to our
fleets. Additionally, there is emerging interest from new entrants to launch new constellations in different orbits that could
potentially compete with portions of our business. Increased competition in the FSS sector could lower prices, which could
reduce our operating margins and the cash available to fund our operations and service our debt obligations. In addition, there
has been a trend toward consolidation of major FSS providers as customers increasingly demand more robust distribution
platforms with network redundancies and worldwide reach, and we expect to face increased competition as a result of this
trend. Our direct competitors are likely to continue developing and launching satellites with greater power and more
transponders, which may create satellite capacity at lower costs. In order to compete effectively, we invest in similar
technology.
We also believe that there are many companies that are seeking ways to improve the ability of existing land-based
infrastructure, such as fiber optic cable, to transmit signals. Any significant improvement or increase in the amount of land-
based capacity, particularly with respect to the existing fiber optic cable infrastructure and point-to-point applications, may
cause our video and network services customers to shift their transmissions to land-based capacity or make it more difficult for
us to obtain new customers. If fiber optic cable networks or other ground-based high-capacity transmission systems are
available to service a particular point, that capacity, when available, is generally less expensive than satellite capacity. As land-
based telecommunications services expand, demand for some satellite-based services may be reduced.
In addition, we face challenges to our business apart from these industry trends that our competition may not face. A
portion of our revenue has historically been derived from channel services, and from other point-to-point services which
comprise a portion of our transponder services. Because fiber optic cable capacity is generally available at lower prices than
satellite capacity, competition from fiber optic cable providers has historically caused a migration of our point-to-point
customers from satellite to fiber optic cable on certain routes, resulting in erosion in our revenue from point-to-point services
over the last ten years. Some other FSS operators have service mixes that are less weighted towards point-to-point connectivity
than our current service mix. We have been addressing this erosion and sustaining our business by expanding our customer base
in point-to-multipoint services, such as video, and growing our presence in serving wireless communications providers and the
mobility sector.
5
Failure to compete effectively with other FSS operators and to adapt to new competition and new technologies or failure
to implement our business strategy while maintaining our existing business could result in a loss of revenue and a decline in
profitability, a decrease in the value of our business and a downgrade of our credit ratings, which could restrict our access to the
capital markets.
The market for FSS may not grow or may shrink, and therefore we may not be able to attract new customers, retain our
existing customers or implement our strategies to grow our business. In addition, pricing pressures may have an adverse
impact on FSS sector revenue.
The FSS sector, as a whole, has experienced growth over the past few years. However, the future market for FSS may not
grow or may shrink. Competing technologies, such as fiber optic cable, continue to adversely affect the point-to-point segment
of the FSS sector. In the point-to-multipoint segment, economic downturns, the transition of video traffic from analog to digital
and continuing improvements in compression technology, which allow for improved transmission efficiency, have negatively
impacted demand for certain fixed satellite services. Developments that we expect to support the growth of the satellite services
industry, such as continued growth in data traffic and the proliferation of direct-to-home (“DTH”) platforms, high definition
television (“HDTV”) and niche programming, may fail to materialize or may not occur in the manner or to the extent we
anticipate. Any of these industry dynamics could negatively affect our operations and financial condition.
Because the market for FSS may not grow or may shrink, we may not be able to attract customers for the services that we
are providing as part of our strategy to sustain and grow our business. Reduced growth in the FSS sector may also adversely
affect our ability to retain our existing customers. A shrinking market could reduce the number and value of our customer
contracts and would have a material adverse effect on our business and results of operations. In addition, there could be a
substantial negative impact on our credit ratings and our ability to access the capital markets.
The FSS sector has in the past experienced periods of pricing pressures that have resulted in reduced revenues of FSS
operators. Current pricing pressures and potential pricing pressures in the future could have a significant negative impact on our
revenues and financial condition.
We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our
business, remain in compliance with debt covenants and make payments on our indebtedness.
As of December 31, 2018, on a consolidated basis, we had approximately $14.3 billion principal amount of third-party
indebtedness outstanding, approximately $4.9 billion of which was secured debt. Our subsidiaries were the issuers or borrowers
of portions of this debt as follows: (a) Intelsat (Luxembourg) S.A. (“Intelsat Luxembourg”), had approximately $13.9 billion
principal amount of total third-party indebtedness outstanding on a consolidated basis, approximately $4.9 billion of which was
secured debt, (b) Intelsat Connect Finance S.A. (“ICF”), had approximately $1.25 billion principal amount of total third-party
indebtedness outstanding on a stand-alone basis, and (c) Intelsat Jackson Holdings S.A. (“Intelsat Jackson”), had approximately
$11.4 billion principal amount of total third-party indebtedness outstanding on a consolidated basis, approximately $4.9 billion
of which was secured debt. Intelsat Luxembourg debt, ICF debt and Intelsat Jackson debt are included in our consolidated debt.
The indentures and credit agreements governing a substantial portion of the outstanding debt of Intelsat Luxembourg,
ICF and Intelsat Jackson and their respective subsidiaries permit each of these companies to make payments to their respective
direct and indirect parent companies to fund the cash interest payments on such indebtedness, so long as no default or event of
default shall have occurred and be continuing or would occur as a consequence thereof.
Our substantial indebtedness could have important consequences. For example, it could:
• make it more difficult for us to satisfy obligations with respect to indebtedness, and any failure to comply with the
obligations of any of our debt instruments, including financial and other restrictive covenants, could result in an event
of default under the indentures governing our notes and the agreements governing such other indebtedness;
require us to dedicate a substantial portion of available cash flow to pay principal and interest on our outstanding debt,
which will reduce the funds available for working capital, capital expenditures, acquisitions and other general corporate
purposes;
limit flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
increase our vulnerability to general adverse economic and industry conditions and to deterioration in operating results;
limit our ability to engage in strategic transactions or implement our business strategies;
limit our ability to borrow additional funds, or to refinance, repay or restructure our existing indebtedness; and
place us at a disadvantage compared to any competitors that have less debt.
•
•
•
•
•
•
6
Any of the factors listed above could materially and adversely affect our business and our results of operations.
Furthermore, our interest expense could increase if interest rates rise because certain portions of our debt bear interest at
floating rates. Although we have hedged the full amount of our floating rate debt of $2.4 billion for the upcoming two years for
increases in the 1-month London InterBank Offered Rate (“LIBOR”) to a rate above 1.89%, any increases in 1-month LIBOR
from current levels to 1.89% would cause our interest expense to increase. Our interest expense could also increase when we
refinance debt. If we do not have sufficient cash flow to service our debt, we may be required to refinance all or part of our
existing debt, sell assets, borrow more money or sell securities, none of which we can guarantee we will be able to do.
We may be able to incur significant additional indebtedness in the future. Although the agreements governing our
indebtedness contain restrictions on the incurrence of certain additional indebtedness, these restrictions are subject to a number
of important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be
substantial. If we incur new indebtedness, the related risks, including those described above, could intensify.
To service our third-party indebtedness, we will require a significant amount of cash. Our ability to generate cash depends
on many factors beyond our control, and any failure to meet our third-party debt service obligations could harm our
business, financial condition and results of operations.
Our estimated payment obligations with respect to third-party indebtedness (i.e., not held by ICF or any of our other
subsidiaries) for 2019 comprise approximately $1.1 billion of interest payments, excluding payments related to satellite
performance incentives due to satellite manufacturers. Of this amount, $864 million is attributable to Intelsat Jackson,
$105 million is attributable to Intelsat Luxembourg, $119 million is attributable to ICF, and $18 million is attributable to
Intelsat S.A.
Our ability to satisfy our debt obligations will depend principally upon our future operating performance. As a result,
prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our
ability to make payments on our indebtedness. If we do not generate sufficient cash flow from operations to satisfy our debt
service obligations, or if our subsidiaries are prohibited from paying dividends or making distributions because of restrictions
in the agreements governing their indebtedness or otherwise, we may have to pursue alternative financing plans, such as
refinancing or restructuring our indebtedness, selling assets, reducing or delaying capital investments or seeking to raise
additional capital. Our ability to refinance or restructure our debt will depend on the capital markets and our financial condition
at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous
covenants, which could further restrict our business operations. In addition, the terms of our and our subsidiaries’ existing or
future debt instruments, including the Intelsat Jackson Secured Credit Agreement and the indentures governing Intelsat S.A.'s,
Intelsat Luxembourg’s, Intelsat Jackson’s and ICF’s outstanding notes, may restrict us from adopting some of these alternatives.
Furthermore, the Sponsor (as defined below in Item 4A—History and Development of the Company—The Sponsors
Acquisition Transactions) has no obligation to provide us with debt or equity financing in the future. Our inability to generate
sufficient cash flow to satisfy our debt service obligations, or to refinance our obligations on commercially reasonable terms
would have an adverse effect, which could be material, on our business, financial position, results of operations and cash flows.
The terms of the Intelsat Jackson Secured Credit Agreement, the indentures governing our existing notes and the terms of
our other indebtedness may restrict our current and future operations, particularly our ability to respond to changes in our
business or to take certain actions.
On January 12, 2011, Intelsat Jackson, our wholly-owned subsidiary, entered into a secured credit agreement (as
amended, the “Intelsat Jackson Secured Credit Agreement”). The Intelsat Jackson Secured Credit Agreement, the indentures
governing our existing notes and the terms of our other outstanding indebtedness contain, and any future indebtedness of ours
would likely contain, a number of restrictive covenants imposing significant operating and financial restrictions on Intelsat S.A.
and some or all of its subsidiaries, including restrictions that may limit our ability to engage in acts that may be in our long-
term best interests. The Intelsat Jackson Secured Credit Agreement includes one financial covenant: 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 such financial measure is defined in the Intelsat Jackson Secured Credit Agreement.
In addition, the Intelsat Jackson Secured Credit Agreement requires Intelsat Jackson to use a portion of the proceeds of
certain asset sales, in excess of a specified amount, that are not reinvested in its business to repay indebtedness under the
agreement.
The Intelsat Jackson Secured Credit Agreement, the indentures governing our existing notes and the terms of our other
outstanding indebtedness include covenants restricting, among other things, the ability of Intelsat S.A. and its subsidiaries to:
•
incur or guarantee additional debt or issue disqualified stock;
7
•
pay dividends (including to fund cash interest payments at different entity levels), or make redemptions, repurchases or
distributions, with respect to ordinary shares or capital stock;
•
create or incur certain liens;
• make certain loans or investments;
•
•
engage in mergers, acquisitions, amalgamations, asset sales and sale and leaseback transactions; and
engage in transactions with affiliates.
In addition, under certain circumstances as described in the Intelsat Jackson Secured Credit Agreement, Intelsat could be
required to apply a certain percentage of its Excess Cash Flow (as defined in such agreement), if any, after operational needs
for each fiscal year towards the repayment of outstanding term loans, subject to certain deductions.
These covenants are subject to a number of qualifications and exceptions. The operating and financial restrictions and
covenants in our existing debt agreements and any future financing agreements may adversely affect our ability to finance
future operations or capital needs or to engage in other business activities. A breach of any of the restrictive covenants in the
Intelsat Jackson Secured Credit Agreement including the financial maintenance covenant referred to above could result in a
default under such agreement. If any such default occurs, the lenders under the Intelsat Jackson Secured Credit Agreement may
elect to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable,
enforce their security interest or require us to apply all available cash to repay these borrowings. If this occurred under the
Intelsat Jackson Secured Credit Agreement, this would result in an event of default under our existing notes. If Intelsat Jackson
were unable to repay outstanding borrowings when due, the lenders under the Intelsat Jackson Secured Credit Agreement
would have the right to proceed against the collateral granted to them to secure the debt owed to them. If the debt under the
Intelsat Jackson Secured Credit Agreement were to be accelerated, our assets might not be sufficient to repay such debt in full
or to repay our notes and our other debt.
Our business is capital intensive and requires us to make long-term capital expenditure decisions, and we may not be able to
raise adequate capital to finance our business strategies, or we may be able to do so only on terms that significantly restrict
our ability to operate our business.
Implementation of our business strategy requires a substantial outlay of capital. As we pursue our business strategies and
seek to respond to opportunities and trends in our industry, our actual capital expenditures may differ from our expected capital
expenditures and there can be no assurance that we will be able to satisfy our capital requirements in the future. The nature of
our business also requires us to make capital expenditure decisions in anticipation of customer demand, and we may not be able
to correctly predict customer demand. We have only a fixed amount of transponder capacity available to serve a particular
region. If our customer demand exceeds our transponder capacity, we may not be able to fully capture the growth in demand in
the region served by that capacity. We currently expect that our liquidity requirements in 2019 will be satisfied by cash on hand
and cash generated from our operations. However, if we determine we need to obtain additional funds through external
financing and are unable to do so, we may be prevented from fully implementing our business strategy.
The availability and cost to us of external financing depend on a number of factors, including general market conditions,
our financial performance and our credit rating. Both our credit rating and our ability to obtain financing generally may be
influenced by the supply and demand characteristics of the telecommunications sector in general and of the FSS sector in
particular. Declines in our expected future revenue under contracts with customers and challenging business conditions faced
by our customers are among factors that may adversely affect our credit. Other factors that could impact our credit include the
amount of debt in our current capital structure, activities associated with our strategic initiatives, our expected future cash flows
and the capital expenditures required to execute our business strategy. The overall impact on our financial condition of any
transaction that we pursue may be negative or may be negatively perceived by the financial markets and ratings agencies and
may result in adverse rating agency actions with respect to our credit rating. A disruption in the capital markets, a deterioration
in our financial performance or a credit rating downgrade could limit our ability to obtain financing or could result in any such
financing being available only at greater cost or on more restrictive terms than might otherwise be available. Our debt
agreements also impose restrictions on our operation of our business and could make it more difficult for us to obtain further
external financing if required. See—The terms of the Intelsat Jackson Secured Credit Agreement, the indentures governing our
existing notes and the terms of our other indebtedness may restrict our current and future operations, particularly our ability to
respond to changes in our business or to take certain actions.
Long-term disruptions in the capital and credit markets as a result of uncertainty due to recessions, changing or increased
regulation or failures of significant financial institutions could adversely affect our access to capital. If financial market
disruptions intensify, it may become difficult for us to raise additional capital or refinance debt when needed, on acceptable
terms or at all. Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative
credit arrangements or other funding for our business needs can be arranged. Such measures could include deferring capital
8
expenditures and reducing or eliminating other discretionary uses of cash, which could adversely impact our business and our
ability to execute our business strategies.
Our financial condition could be materially and adversely affected if we were to suffer a satellite loss that is not adequately
covered by insurance.
We currently carry in-orbit insurance only with respect to a small portion of our satellite fleet, generally for a short period
of time following launch. As of December 31, 2018, four of the 54 satellites in our fleet were covered by in-orbit insurance.
Amounts recoverable from in-orbit insurance coverage may initially be comparable to amounts recoverable with respect to
launch insurance coverage; however, such amounts generally decrease over time and are typically based on our declining
potential repayment obligations with respect to certain customer prepayments made prior to or during the manufacture of
certain satellites, or the declining book value of the satellite.
As our satellite insurance policies expire, we may elect to reduce or eliminate insurance coverage relating to certain of
our satellites to the extent permitted by our debt agreements if, in our view, exclusions make such policies ineffective or the
costs of coverage make such insurance impractical and we believe that we can more reasonably protect our business through
the use of in-orbit spare satellites, backup transponders and self-insurance. A partial or complete failure of a revenue-producing
satellite, whether insured or not, could require additional, unplanned capital expenditures, an acceleration of planned capital
expenditures, interruptions in service, a reduction in contracted backlog and lost revenue and could have a material adverse
effect on our business, financial condition and results of operations. We do not currently insure against lost revenue in the event
of total or partial loss of a satellite.
We also maintain third-party liability insurance on some of our satellites to cover damage caused by our satellites. This
insurance, however, may not be adequate or available to cover all third-party liability damages that may be caused by any of
our satellites, and we may not in the future be able to renew our third-party liability coverage on reasonable terms and
conditions, if at all.
We may become subject to unanticipated tax liabilities that may have a material adverse effect on our results of operations.
Intelsat S.A. and certain of its subsidiaries are Luxembourg-based companies and are subject to Luxembourg taxation for
corporations. We believe that a significant portion of the income derived from our communications network will not be subject
to tax in certain countries in which we own assets or conduct activities or in which our customers are located, including the
United States and the United Kingdom. However, this belief is based on the presently anticipated nature and conduct of our
business and on our current position under the tax laws of the countries in which we own assets or conduct activities. This
position is subject to review and possible challenge by taxing authorities and to possible changes in law that may have a
retroactive effect.
In addition, we conduct business with customers and counterparties in multiple countries and jurisdictions. Our overall
tax burden is affected by tax legislation in these jurisdictions and the terms of income tax treaties between these countries and
the countries in which our subsidiaries are qualified residents for treaty purposes as in effect from time to time. Tax legislation
in these countries and jurisdictions may be amended and treaties are regularly renegotiated by the contracting countries and, in
each case, may change. If tax legislation or treaties were to change, we could become subject to additional taxes, including
retroactive tax claims or assessments of withholding on amounts payable to us or other taxes assessed at the source, in excess
of the taxation we anticipate based on business contracts and practices and the current tax regimes. The extent to which certain
taxing jurisdictions may require us to pay tax or to make payments in lieu of tax cannot be determined in advance. Our results
of operations could be materially adversely affected if we become subject to a significant amount of unanticipated tax
liabilities.
We are subject to political, economic, regulatory and other risks due to the international nature of our operations.
We provide communications services in approximately 200 countries and territories. Accordingly, we may be subject to
greater risks than other companies as a result of the international nature of our business operations. We could be harmed
financially and operationally by tariffs, taxes, government sanctions and regulatory actions, and other trade barriers that may be
imposed on our services, or by political and economic instability in the countries in which we provide services, for instance in
countries heavily reliant on revenues from natural resources. If we ever need to pursue legal remedies against our customers or
our business partners located outside of Luxembourg, the United States or the United Kingdom, it may be difficult for us to
enforce our rights against them depending on their location.
Substantially all of our ongoing technical operations are conducted and/or managed in the United States, Luxembourg
and Germany. However, providers of satellite launch services, upon which we are reliant to place our satellites into orbit, locate
9
their operations in other countries, including Kazakhstan. Political disruptions in this country could increase the risk of
launching the satellites that provide capacity for our operations, which could result in financial harm to us.
Our business is subject to foreign currency risk.
Almost all of our customers pay for our services in U.S. dollars, although we are exposed to some risk related to
customers who do not pay in U.S. dollars. Fluctuations in the value of non-U.S. currencies may make payment in U.S. dollars
more expensive for our non-U.S. customers, and in certain circumstances, cause us to renegotiate prices or other terms in
contracts in order to retain such customers. For instance, our Russian customers and others may face difficulties paying for our
services because of recent deterioration in the Russian currency and the relative strength of the U.S. dollar compared to many
other currencies. In addition, our non-U.S. customers may have difficulty obtaining U.S. currency and/or remitting payment
due to currency exchange controls.
The Sponsor owns a significant amount of our common shares and may have conflicts of interest with us in the future.
Our Sponsor (as defined below in Item 4A—History and Development of the Company—The Sponsors Acquisition
Transactions) holds in the aggregate approximately 41% of our common shares. By virtue of its share ownership, the Sponsor
may be able to influence decisions to enter into any corporate transaction or other matter that requires the approval of
shareholders. Additionally, the Sponsor is in the business of making investments in companies and, although it does not
currently hold interests in any business that competes directly or indirectly with us, it may from time to time acquire and hold
interests in businesses that compete with us. The Sponsor may also pursue acquisition opportunities that may be
complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
We have several large customers and the loss of, or default by, these customers could materially reduce our revenue and
materially adversely affect our business.
A limited number of customers provide a substantial portion of our revenue and contracted backlog. For the year ended
December 31, 2018, our ten largest customers and their affiliates represented approximately 37% of our revenue. The loss of, or
default by, our larger customers could adversely affect our current and future revenue and operating margins.
Some customers have in the past defaulted and, although we monitor our larger customers’ financial performance and
seek deposits, guarantees and other methods of protection against default where possible, our customers may in the future
default on their obligations to us due to bankruptcy, lack of liquidity, operational failure, devaluation of local currency or other
reasons. Defaults by any of our larger customers or by a group of smaller customers who, collectively, represent a significant
portion of our revenue could adversely affect our revenue, operating margins and cash flows. If our contracted backlog is
reduced due to the financial difficulties of our customers, our revenue, operating margins and cash flows would be further
negatively impacted.
Reductions or changes in U.S. government spending, including the U.S. defense budget, could reduce our revenue and
adversely affect our business.
The U.S. government, through the U.S. Department of Defense and other agencies, is one of our largest customers.
Spending authorizations for defense-related and other programs by the U.S. government have fluctuated in the past, and future
levels of expenditures and authorizations for these programs may decrease, remain constant or shift to programs in areas where
we do not currently provide services. We provide services to the U.S. government and its agencies through contracts that are
conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds on a fiscal
year basis, even though contract performance may extend over many years. In recent years, there has been a pattern of delays in
the finalization and approval of the U.S. government budget, which can create uncertainty over the extent of future U.S.
government demand for our services. Furthermore, in light of the current geopolitical situation, with reductions in U.S.
operational presence in Iraq, Afghanistan and potentially the Middle East more generally, there may be additional future
declines in the U.S. government’s demand for and use of our services. To the extent the U.S. government and its agencies
reduce spending on commercial satellite services, this could adversely affect our revenue and operating margins.
The loss of the services of key personnel could have a material adverse effect on our business.
Our executive officers and other members of our senior management have been a critical element of our success. These
individuals have substantial experience and expertise in our business and have made significant contributions to its growth and
success. We have entered into employment agreements with each of our executive officers, including Stephen Spengler, our
Chief Executive Officer, Michelle Bryan, our Executive Vice President, General Counsel and Chief Administrative Officer,
Michael DeMarco, our Executive Vice President, Operations, Samer Halawi, our Executive Vice President and Chief
Commercial Officer, and Jacques Kerrest, our Executive Vice President and Chief Financial Officer (who has informed us that
10
he intends to retire in the spring of 2019), and certain targeted retention mechanisms; however, these agreements and
mechanisms do not guarantee that these executives will remain with us. The unexpected loss of services of one or more of our
executive officers or members of senior management could have a material adverse effect on our business.
Risk Factors Relating to Our Industry
We may experience in-orbit satellite failures or degradations in performance that could impair the commercial performance
of our satellites, which could lead to lost revenue, an increase in our cash operating expenses, lower operating income or
lost backlog.
Satellites utilize highly complex technology and operate in the harsh environment of space and, accordingly, are subject
to significant operational risks while in orbit. These risks include malfunctions, commonly referred to as anomalies that have
occurred in our satellites and the satellites of other operators as a result of:
•
•
•
•
•
the satellite manufacturer’s error, whether due to the use of new and largely unproven technology or due to a design,
manufacturing or assembly defect that was not discovered before launch;
problems with the power systems of the satellites, including:
•
circuit failures or other array degradation causing reductions in the power output of the solar arrays on the satellites,
which could cause us to lose some of our capacity, require us to forego the use of some transponders initially and to
turn off additional transponders in later years; and/or
failure of the cells within the batteries, whose sole purpose is to power the payload and spacecraft operations during
the daily eclipse periods which occur for brief periods of time during two 40-day periods around March 21 and
September 21 of each year; and/or
•
problems with the control systems of the satellites, including:
•
•
failure of the primary and/or backup satellite control processor (“SCP”); and/or
failure of one or more gyroscope and/or associated electronics that are used to provide satellite attitude information
during maneuvers;
problems with the propulsion systems of the satellites, including:
•
•
failure of the primary and/or backup thrusters; and/or
failure of the Xenon-Ion Propulsion System (“XIPS”) used on certain Boeing satellites, which is an electronic
propulsion system that maintains the spacecraft’s proper in-orbit position; and/or
general failures resulting from operating satellites in the harsh space environment, such as premature component failure
or wear out of mechanisms.
We have experienced anomalies in each of the categories described above. Although we work closely with the satellite
manufacturers to determine and eliminate the cause of these anomalies in new satellites and provide for on-satellite backups for
certain critical components to minimize or eliminate service disruptions in the event of failure, we may experience anomalies in
the future, whether of the types described above or arising from the failure of other systems or components. These anomalies
can manifest themselves in scale from minor reductions of equipment redundancy to marginal reductions in capacity to
complete satellite failure. Some of our satellites have experienced significant anomalies in the past and some have components
that are now known to be susceptible to similar significant anomalies. Each of these is discussed in Item 4B—Business
Overview—Satellite Health and Technology. An on-satellite backup for certain components may not be available upon the
occurrence of such an anomaly.
Any single anomaly or series of anomalies could materially and adversely affect our operations, our revenues, our
relationships with our current customers and our ability to attract new customers for our satellite services. In particular, future
anomalies may result in the loss of individual transponders on a satellite, a single beam or multiple beams, a group of
transponders on that satellite or the entire satellite, depending on the nature of the anomaly and the availability of on-satellite
backups. Anomalies and our estimates of their future effects may also cause a reduction of the expected service life of a satellite
and contracted backlog. Anomalies may also cause a reduction of the revenue generated by that satellite or the recognition of an
impairment loss, and in some circumstances could lead to claims from third parties for damages, if a satellite experiencing an
anomaly were to cause physical damage to another satellite, create interference to the transmissions on another satellite, cause
other satellite operators to incur expenses to avoid such physical damage or interference or lower operating income as a result
of an impairment charge. Finally, the occurrence of anomalies may adversely affect our ability to insure our satellites at
commercially reasonable premiums, if at all. While some anomalies are covered by insurance policies, others are not or may
not be covered. See—Risk Factors Relating to Our Business—Our financial condition could be materially and adversely
affected if we were to suffer a satellite loss that is not adequately covered by insurance.
Many of the technical problems we have experienced on our current fleet have been component failures and anomalies.
Our Intelsat 804 satellite experienced a sudden and unexpected electrical power system anomaly that resulted in the total loss of
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the satellite in January 2005. The Intelsat 804 satellite was an LM 7000 series satellite, and as of December 31, 2018, we
operated one other satellite in the LM 7000 series, Intelsat 805. We believe that the Intelsat 804 satellite failure was most likely
caused by a high current event in the battery circuitry triggered by an electrostatic discharge that propagated to cause the
sudden failure of the high voltage power system.
Our Galaxy 15 satellite experienced an anomaly in April 2010 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 Northrup Grumman Innovation Systems ("NGIS"). On
December 23, 2010, we recovered command of the spacecraft and subsequently completed diagnostic testing and uploading of
software updates that protect against future anomalies of this type. As of December 31, 2018, Galaxy 15 continues to provide
normal service.
We may also experience additional anomalies relating to the failure of the SCP in our BSS 601 satellite, various
anomalies associated with XIPS in our BSS 601 HP satellites or a progressive degradation of the solar arrays in certain of our
BSS 702 satellites.
Three of the BSS 601 satellites that we operated in the past, as well as BSS 601 satellites operated by others, have
experienced a failure of the primary and backup SCPs. On February 1, 2010, our Intelsat 4 satellite experienced an anomaly of
its backup SCP and was taken out of service. This event did not have a material impact on our operations or financial results.
As of December 31, 2018, we operate only one BSS 601 satellite, Intelsat 26.
Certain of the BSS 601 HP satellites have experienced various problems associated with their XIPS. We currently operate
four BSS 601 HP satellites of this type, three of which have experienced failures of both XIPS and the other has experienced a
partial loss of its XIPS. We may in the future experience similar problems associated with XIPS or other propulsion systems on
our satellites.
Two of the three BSS 702 HP satellites that we operate, as well as BSS 702 HP satellites of a similar design operated by
others, have experienced a progressive degradation of their solar arrays causing a reduction in output power. Along with the
manufacturer, we continually monitor the problem to determine its cause and its expected effect. The power reduction may
require us to permanently turn off certain transponders on the affected satellites to allow for the continued operation of other
transponders, which could result in a loss of revenues, or may result in a reduction of the satellite’s service life. In 2004, based
on a review of available data, we reduced our estimate of the service lives of both satellites due to the continued degradation.
On April 22, 2011, our Intelsat 28 satellite, formerly known as 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. The anomaly had not been experienced previously on other STAR satellites
manufactured by NGIS, including those in our fleet. The New Dawn joint venture filed a partial loss claim with its insurers
relating to the C-band antenna reflector anomaly and all of the insurance proceeds from the partial loss claim were received in
2011. The Ku-band antenna reflector deployed and that portion of the satellite is operating as planned, entering service in June
2011. A Failure Review Board established to determine the cause of the anomaly 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.
The Failure Review Board also recommended corrective actions for Orbital Sciences Corporation satellites not yet launched to
prevent reoccurrence of the anomaly. Appropriate corrective actions were implemented on Intelsat 18, which was successfully
launched on October 5, 2011, and on Intelsat 23, which was launched in October 2012.
During launch operations of Intelsat 19 on June 1, 2012, the satellite experienced damage to its south solar array.
Although both solar arrays are deployed, the power available to the satellite is less than is required to operate 100% of the
payload capacity. The Independent Oversight Board, formed by Space Systems/Loral, LLC (“SSL”) and Sea Launch to
investigate the solar array deployment anomaly, concluded that the anomaly occurred before the spacecraft separated from the
launch vehicle during the ascent phase of the launch, and originated in one of the satellite’s two solar array wings due to a rare
combination of factors in the panel fabrication that was unrelated to the launch vehicle. While the satellite is operational, the
anomaly resulted in structural and electrical damage to one solar array wing, which reduced the amount of power available for
payload operation. Additionally, we filed a partial loss claim with our insurers relating to the solar array anomaly. We received
$84.8 million of insurance proceeds related to the claim in 2013. As planned, Intelsat 19 replaced Intelsat 8 at 166°E, in August
2012.
During orbit raising of Intelsat 33e in September 2016, the satellite experienced a malfunction of the main satellite
thruster. Orbit raising was subsequently completed using a different set of satellite thrusters. The anomaly resulted in a delay of
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approximately three months in reaching the geostationary orbit, as well as a reduction in the projected lifetime of the satellite.
Intelsat 33e entered service in January 2017. In addition, in February 2017, measurements indicated higher than expected fuel
use while performing stationkeeping maneuvers. There is no evidence of any impact to the communications payload. A Failure
Review Board has completed investigation of the primary thruster failure and fuel use anomaly.
We may experience a launch failure or other satellite damage or destruction during launch, which could result in a total or
partial satellite loss. A new satellite could also fail to reach its designated orbital location after launch. Any such loss of a
satellite could negatively impact our business plans and could reduce our revenue.
Satellites are subject to certain risks related to failed launches. Launch failures result in significant delays in the
deployment of satellites because of the need both to construct replacement satellites, which can take 24 months or longer, and
to obtain other launch opportunities. Such significant delays could materially and adversely affect our operations and our
revenue. In addition, significant delays could give customers who have purchased or reserved capacity on that satellite a right
to terminate their service contracts relating to the satellite. We may not be able to accommodate affected customers on other
satellites until a replacement satellite is available. A customer’s termination of its service contracts with us as a result of a
launch failure would reduce our contracted backlog. Delay caused by launch failures may also preclude us from pursuing new
business opportunities and undermine our ability to implement our business strategy.
Launch vehicles may also under-perform, in which case the satellite may still be placed into service by using its onboard
propulsion systems to reach the desired orbital location, resulting in a reduction in its service life. In addition, although we have
had launch insurance on all of our launches to date, if we were not able to obtain launch insurance on commercially reasonable
terms and a launch failure were to occur, we would directly suffer the loss of the cost of the satellite and related costs, which
could be more than $300 million.
On February 1, 2013, the launch vehicle for our Intelsat 27 satellite failed shortly after liftoff and the satellite was
completely destroyed. A Failure Review Board was established and subsequently concluded that the launch failed due to the
mechanical failure of one of the first stage engine’s thrust control components. The satellite and launch vehicle were fully
insured, and all of the insurance proceeds from the loss claim were received in 2013.
Since 1980, we and the entities we have acquired have launched 123 satellites. Including the Intelsat 27 satellite, seven of
these satellites were destroyed as a result of launch failures, all but one of which occurred prior to 2000. In addition, certain
launch vehicles that we have used or are scheduled to use have experienced launch failures in the past. Launch failure rates
vary according to the launch vehicle used. Our capital expenditure guidance for 2019 through 2021 assumes investment in five
satellites, two of which are in the manufacturing phase. Of the remaining three satellites, no manufacturing contracts have yet
been signed.
New or proposed satellites are subject to construction and launch delays, the occurrence of which can materially and
adversely affect our operations.
The construction and launch of satellites are subject to certain delays. Such delays can result from delays in the
construction of satellites and launch vehicles, the periodic unavailability of reliable launch opportunities, possible delays in
obtaining regulatory approvals and launch failures. We have in the past experienced delays in satellite construction and launch
which have adversely affected our operations. Future delays may have the same effect. A significant delay in the future delivery
of any satellite may also adversely affect our marketing plan for the satellite. If satellite construction schedules are not met, a
launch opportunity may not be available at the time a satellite is ready to be launched. Further, any significant delay in the
commencement of service of any of our satellites could enable customers who pre-purchased or agreed to utilize transponder
capacity on the satellite to terminate their contracts and could affect our plans to replace an in-orbit satellite prior to the end of
its service life. The failure to implement our satellite deployment plan on schedule could have a material adverse effect on our
financial condition and results of operations. Delays in the launch of a satellite intended to replace an existing satellite that
result in the existing satellite reaching its end of life before being replaced could result in loss of business to the extent an in-
orbit backup is not available.
Our dependence on outside contractors could result in increased costs and delays related to the launch of our new satellites,
which would in turn adversely affect our business, operating results and financial condition.
There are a limited number of companies that we are able to use to launch our satellites and a limited number of
commercial satellite launch opportunities available in any given time period. Adverse events with respect to our launch service
providers, such as satellite launch failures or financial difficulties (which some of these providers have previously experienced),
could result in increased costs or delays in the launch of our satellites. General economic conditions may also affect the ability
of launch providers to provide launch services on commercially reasonable terms or to fulfill their obligations in terms of
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launch dates, pricing, or both. In the event that our launch service providers are unable to fulfill their obligations, we may have
difficulty procuring alternative services in a timely manner and may incur significant additional expenses as a result. Any such
increased costs and delays could have a material adverse effect on our business, operating results and financial condition.
A natural disaster could diminish our ability to provide communications service.
Natural disasters could damage or destroy our ground stations, resulting in a disruption of service to our customers. We
currently have the technology to help safeguard our antennas and protect our ground stations during natural disasters such as a
hurricane, but the collateral effects of disasters such as flooding may impair the functioning of our ground equipment. If a
future natural disaster impairs or destroys any of our ground facilities, we may be unable to provide service to our customers in
the affected area for a period of time and may incur an impairment charge lowering our operating income.
Risk Factors Relating to Regulation
We are subject to orbital slot and spectrum access requirements of the International Telecommunication Union (“ITU”) and
regulatory and licensing requirements in each of the countries in which we provide services, and our business is sensitive to
regulatory changes internationally and in those countries.
The telecommunications industry is highly regulated, and we depend on access to orbital slots and spectrum resources to
provide satellite services. The ITU and national regulators allocate spectrum for satellite services, and may change these
allocations, which could change or limit how Intelsat’s current satellites are able to be used. In addition, in connection with
providing satellite capacity, ground network uplinks, downlinks and other value-added services to our customers, we need to
maintain regulatory approvals, and from time to time obtain new regulatory approvals, from various countries. Obtaining and
maintaining these approvals can involve significant time and expense. If we cannot obtain or are delayed in obtaining the
required regulatory approvals, we may not be able to provide these services to our customers or expand into new services. In
addition, the laws and regulations to which we are subject could change at any time, thus making it more difficult for us to
obtain new regulatory approvals or causing our existing approvals to be revoked or adversely modified. Because the regulatory
schemes vary by country, we may also be subject to regulations of which we are not presently aware and could be subject to
sanctions by a foreign government that could materially and adversely affect our operations in that country. If we cannot
comply with the laws and regulations that apply to us, we could lose our revenue from services provided to the countries and
territories covered by these laws and regulations and be subject to criminal or civil sanctions.
If we do not maintain regulatory authorizations for our existing satellites, associated ground facilities and terminals or
obtain authorizations for our future satellites, associated ground facilities and terminals, we may not be able to operate our
existing satellites or expand our operations.
The operation of our existing satellites is authorized and regulated by the U.S. Federal Communications Commission
(“FCC”), the U.K. Office of Communications (“Ofcom”) and the U.K. Space Agency (“UKSA”), the National Information &
Communications Technology Authority of Papua New Guinea (“NICTA”), the Ministry of Internal Affairs and
Communications of Japan, and the Bundesnetzagentur (“BNetzA”) in Germany.
We believe our current operations are in compliance with FCC and non-U.S. licensing jurisdiction
requirements. However, if we do not maintain the authorizations necessary to operate our existing satellites, we will not be able
to operate the satellites covered by those authorizations, unless we obtain authorization from another licensing
jurisdiction. Some of our authorizations provide waivers of technical regulations. If we do not maintain these waivers, we will
be subject to operational restrictions or interference that will affect our use of existing satellites. Loss of a satellite authorization
could cause us to lose the revenue from services provided by that satellite at a particular orbital location to the extent these
services cannot be provided by satellites at other orbital locations.
Our launch and operation of planned satellites require additional regulatory authorizations from the FCC or a non-U.S.
licensing jurisdiction. Likewise, if any of our current operations are deemed not in compliance with applicable regulatory
requirements, we may be subject to various sanctions, including fines, loss of authorizations, or denial of applications for new
authorizations or renewal of existing authorizations. It is not uncommon for licenses for new satellites to be granted just prior to
launch, and we expect to receive such licenses for all planned satellites. If we do not obtain required authorizations in the
future, we will not be able to operate our planned satellites. If we obtain a required authorization but we do not meet milestones
regarding the construction, launch and operation of a satellite by deadlines that may be established in the authorization, we may
lose our authorization to operate a satellite using certain frequencies in an orbital location. Any authorizations we obtain may
also impose operational restrictions or permit interference that could affect our use of planned satellites.
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If we do not occupy unused orbital locations by specified deadlines, or do not maintain satellites in orbital locations we
currently use, those orbital locations and associated frequencies may become available for other satellite operators to use.
If we are unable to place satellites into currently unused orbital locations by specified deadlines and in a manner that
satisfies the ITU or national regulatory requirements, or if we are unable to maintain satellites at the orbital locations that we
currently use, we may lose our rights and/or priority to use these orbital locations and associated frequencies, and the locations
and frequencies with ITU priority could become available for other satellite operators to use. The loss of one or more of our
orbital locations could negatively affect our plans and our ability to implement our business strategy.
Coordination results may adversely affect our ability to use a satellite at a given orbital location for our proposed service or
coverage area.
We are required to record frequencies and orbital locations used by our satellites with the ITU and to coordinate with
other satellite operators and national administrations the use of these frequencies and orbital locations in order to avoid
interference to or from other satellites. The results of coordination may adversely affect our use of satellites at particular orbital
locations, as well as the type of applications or services that we can accommodate. If we are unable to coordinate our satellites
by specified deadlines, we may not be able to use a satellite at a given orbital location for our proposed service or coverage
area. The use of our satellites may also be temporarily or permanently adversely affected if the operation of adjacent satellite
networks does not conform to coordination agreements resulting in the acceptable interference levels being exceeded (e.g., due
to operational errors associated with the transmissions to adjacent satellite networks).
We can provide no assurance as to the likelihood of the FCC’s acceptance of the various facets of our C-band Proposal, or
as to the actual timing of a final ruling. In addition, even if a final ruling were to be issued that adopted our proposal, we
can provide no assurances as to our ability to effectuate agreements to make C-band spectrum available for 5G in the
United States or the amount we would receive in such transactions. Furthermore, there are a number of technical
challenges to making C-band spectrum available.
On October 2, 2017, Intelsat and Intel Corporation submitted a proposal to the FCC that would enable joint use of
3.7-4.2 GHz C-band spectrum in the United States by fixed satellite services operators and terrestrial mobile services providers
(the “C-band Proposal”). The FCC issued a Notice of Proposed Rule Making (“NPRM”) in July 2018 that included aspects of
our proposal and the proposal is now supported by a consortium of satellite operators comprised of Intelsat, SES Americom,
Inc., Eutelsat, and Telesat. The C-band Proposal was not the only proposal that was included in the NPRM. The NPRM’s
official comment period has concluded, although parties are still able to add to the record. To the extent the FCC does not
ultimately accept our proposal, the benefits to Intelsat of making the C-band spectrum available for terrestrial mobile services
in the United States could be materially limited. Furthermore, while we believe that there is potential for a final order to be
issued by the FCC in 2019, assuming making additional spectrum available for terrestrial mobile services remains a priority for
the FCC, we can provide no assurances as to the actual timing of a final ruling. All of these matters are in the control of the
FCC.
Even if a final ruling were to be issued that adopted our proposal, we can provide no assurances as to our ability to
effectuate agreements for the spectrum or the amount we would receive in such transactions. Our ability to obtain value for
making spectrum available for terrestrial mobile services in the United States would be dependent on market forces that we
cannot control or predict.
Furthermore, there are a number of technical challenges to making C-band spectrum available for terrestrial mobile
services. The technical solutions could include moving services and customers to another portion of the licensed C-band
spectrum, implementing filters at earth station antennas, relocating earth station antennas or other technical solutions which
may result in significant cost to incumbent satellite operators.
Our failure to maintain or obtain authorizations under the U.S. export control and trade sanctions laws and regulations
could have a material adverse effect on our business.
The export of satellites and technical data related to satellites, earth station equipment and provision of services are
subject to U.S. Department of State, U.S. Department of Commerce and U.S. Department of Treasury regulations. If we do not
maintain our existing authorizations or obtain necessary future authorizations under the export control laws and regulations of
the United States, we may be unable to export technical data or equipment to non-U.S. persons and companies, including to our
own non-U.S. employees, as required to fulfill existing contracts. If we do not maintain our existing authorizations or obtain
necessary future authorizations under the trade sanctions laws and regulations of the United States, we may not be able to
provide satellite capacity and related administrative services to certain countries subject to U.S. sanctions. Our ability to
acquire new satellites, launch new satellites or operate our satellites could also be negatively affected if our suppliers do not
obtain required U.S. export authorizations.
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If we do not maintain required security clearances from, and comply with our agreements with, the U.S. Department of
Defense, or if we do not comply with U.S. law, we may not be able to continue to perform our obligations under U.S.
government contracts.
To participate in classified U.S. government programs, we sought and obtained security clearances for one of our
subsidiaries from the U.S. Department of Defense. Given our foreign ownership, we entered into a proxy agreement with the
U.S. government that limits our ability to control the operations of this subsidiary, as required under the national security laws
and regulations of the United States. If we do not maintain these security clearances, we will not be able to perform our
obligations under any classified U.S. government contracts to which our subsidiary is a party, the U.S. government would have
the right to terminate our contracts requiring access to classified information and we will not be able to enter into new classified
contracts. As a result, our business could be materially and adversely affected. Further, if we materially violate the terms of the
proxy agreement or if we are found to have materially violated U.S. law, we or the subsidiary holding the security clearances
may be suspended or barred from performing any U.S. government contracts, whether classified or unclassified, and we could
be subject to civil or criminal penalties.
Item 4.
Information on the Company
A. History and Development of the Company
The Company
Our legal and commercial name is Intelsat S.A. The Company was organized as a public limited liability company
(société anonyme) under the laws of the Grand-Duchy of Luxembourg on July 8, 2011. Our principal executive office is located
at 4, rue Albert Borschette, L-1246, Luxembourg, telephone number +352 27 84 1600. The Company is registered with the
Luxembourg Registre de Commerce et des Sociétés under number B162135.
Our History
Intelsat, Ltd. was the successor entity to the International Telecommunications Satellite Organization (the “IGO”), and a
Bermuda company. The IGO was a public intergovernmental organization created on an interim basis by its initial member
states in 1964 and formally established in February 1973 upon entry into force of an intergovernmental agreement. The member
states that were party to the treaty governing the IGO designated certain entities to market and use the IGO’s communications
system within their territories and to hold investment share in the IGO.
The Privatization
In November 2000, the IGO’s Assembly of Parties unanimously approved our management’s specific plan for our
privatization and set the date of privatization for July 18, 2001. On July 18, 2001, substantially all of the assets and liabilities of
the IGO were transferred to Intelsat, Ltd., which was domiciled as a Bermuda company.
The IGO, referred to post-privatization as the International Telecommunications Satellite Organization (“ITSO”), was
established and was to exist as an intergovernmental organization for a period of at least 12 years after July 18, 2001, and then
could be terminated by a decision of a governing body of ITSO called the Assembly of Parties. The Assembly of Parties voted
in 2012 to continue ITSO until at least 2021. Pursuant to a Public Services Agreement among ITSO and Intelsat, Ltd. and
certain of our subsidiaries, we have an obligation to provide our services in a manner consistent with the core principles of
global coverage and connectivity, lifeline connectivity and non-discriminatory access, and ITSO monitors our implementation
of this obligation.
The 2005 Acquisition Transactions
On January 28, 2005, Intelsat, Ltd. was acquired by Intelsat Holdings, Ltd. (“Intelsat Holdings”) for total cash
consideration of approximately $3.2 billion, with pre-acquisition debt of approximately $1.9 billion remaining outstanding.
Intelsat Holdings was initially formed as a Bermuda company.
The PanAmSat Acquisition Transactions
In August 2005, Intelsat (Bermuda), Ltd. (“Intelsat Bermuda”), our indirect wholly-owned subsidiary now known as
Intelsat (Luxembourg) S.A., PanAmSat Holding Corporation (“PanAmSat”) and Proton Acquisition Corporation, a wholly-
owned subsidiary of Intelsat Bermuda, signed a definitive merger agreement pursuant to which on July 3, 2006, Intelsat
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Bermuda acquired all of the outstanding equity interests in PanAmSat for $25.00 per common share in cash, or approximately
$3.2 billion in the aggregate (plus approximately $0.00927 per share as the pro rata share of undeclared regular quarterly
dividends).
The Sponsors Acquisition Transactions
On February 4, 2008, Serafina Acquisition Limited completed its acquisition of 100% of the equity ownership of Intelsat
Holdings for total cash consideration of approximately $5.0 billion, pursuant to a share purchase agreement among Serafina
Acquisition Limited, Intelsat Holdings, certain shareholders of Intelsat Holdings and Serafina Holdings Limited (“Serafina
Holdings”) (the “Sponsors Acquisition Transactions”). Serafina Holdings is an entity formed by funds controlled by BC
Partners Holdings Limited (the “BCEC Funds” or the "Sponsor") and certain other investors. Subsequent to the execution of
the share purchase agreement, two investment funds controlled by Silver Lake Partners, L.P. (“Silver Lake Partners”) and other
equity investors joined the BCEC Funds as the equity sponsors of Serafina Holdings. As a result of completion of the Sponsors
Acquisition Transactions and related financing transactions, we and our subsidiaries assumed aggregate net incremental debt of
approximately $3.7 billion.
The Luxembourg Migration
On December 15, 2009, Intelsat, Ltd. and certain of its parent holding companies and subsidiaries migrated their
jurisdiction of organization from Bermuda to Luxembourg (the “Migration”). As a result of the Migration, our headquarters are
located in Luxembourg. Each company that migrated has continued its corporate and legal personality in Luxembourg.
Subsequent to the Migration, Intelsat Global, Ltd. became known as Intelsat Global S.A., Intelsat Global Subsidiary, Ltd.
became known as Intelsat Global Subsidiary S.A., Intelsat Holdings, Ltd. became known as Intelsat Holdings S.A., Intelsat,
Ltd. became known as Intelsat S.A., Intelsat (Bermuda), Ltd. became known as Intelsat (Luxembourg) S.A. and Intelsat
Jackson Holdings, Ltd. became known as Intelsat Jackson Holdings S.A.
The Initial Public Offering
On April 23, 2013, we completed our initial public offering, in which we issued 22,222,222 common shares, and a
concurrent public offering, in which we issued 3,450,000 5.75% Series A mandatory convertible junior non-voting preferred
shares (the “Series A Preferred Shares”), at public offering prices of $18.00 and $50.00 per share, respectively (the initial public
offering together with the concurrent public offering, the “IPO”), for total proceeds of $572.5 million (or approximately
$550 million after underwriting discounts and commissions). In connection with the IPO, on April 16, 2013, the name of the
Company was changed from Intelsat Global Holdings S.A. to Intelsat S.A. In May 2016, all of the outstanding Series A
Preferred Shares were converted in accordance with their terms into common shares.
B. Business Overview
Overview
We operate one of the world’s largest satellite services businesses, providing a critical layer in the global communications
infrastructure.
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 in the air and on the
seas, multinational corporations and Internet Service Providers (“ISPs”). We are also the leading provider of commercial
satellite communication services to the U.S. government and other select military organizations and their contractors. Our
network solutions are a critical component of our customers’ infrastructures and business models. Generally, our customers
need the specialized connectivity that satellites provide so long as they are in business or pursuing their mission. In recent
years, mobility services providers have contracted for services on our fleet that support broadband connections for passengers
on commercial flights, cruise ships and commercial shipping, connectivity that in some cases is only available through our
network. In addition, our satellite neighborhoods provide our media customers with efficient and reliable broadcast distribution
that maximizes audience reach, a technical and economic benefit that is difficult for terrestrial services to match. In developing
regions, our satellite solutions often provide higher reliability than is available from local terrestrial telecommunications
services and allow our wireless and enterprise customers to reach geographies that they would otherwise be unable to serve.
In the future, we expect our Globalized Network to be an integral part of machine-to-machine networks, especially those
requiring massive software updates best delivered via broadcast, such as networks connecting cars and other vehicles. As we
invest in new constellations, such as our Intelsat EpicNG high-throughput satellite platform and partner on new low earth orbit
(“LEO”) satellites, and new ground technologies, such as electronic antennas and standards-based modems, we are creating a
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portfolio of solutions that will be interoperable with other telecommunications technologies and seamlessly integrated with
other telecommunications solutions to address the immense connectivity requirements of a fully-connected and converged
landscape.
We hold the largest collection of rights to well-placed orbital slots in the most valuable C- and Ku-band spectrums. From
these locations, our satellites are able to offer services in the established regions historically using the most satellite capacity, as
well as the higher growth emerging regions, where approximately 60% of our capacity is currently focused.
We believe our global scale, Globalized Network, leadership position and valuable customer relationships enable us to
benefit from growing demand for reliable broadband connectivity, resulting from trends such as:
• Global distribution of television entertainment and news programming to fixed and mobile devices;
• Completion and extension of international, national and regional data networks, fixed and wireless, notably in emerging
regions, and the upgrade of those networks to 3G/4G/5G as content is increasingly consumed on mobile devices;
• Universal access to broadband connectivity through fixed and mobile networks for consumers, corporations,
•
government and other organizations;
Increasing deployment of in-flight and on-board broadband access for consumer and business applications in the
commercial, business aviation and maritime sectors;
• Requirements for cost-efficient space-based network solutions for fixed and mobile government and military
applications; and
• Global demand for services which enable connected devices, such as machine-to-machine communications and the
Internet of Things (“IoT”), particularly with respect to connected car applications.
We believe that we have the largest, most reliable and most technologically advanced commercial communications
network in the world. Our global communications system features a fleet of 54 geosynchronous satellites as of December 31,
2018 that covers more than 99% of the world’s populated regions. Our satellites primarily provide services in the C- and Ku-
band frequencies, which form the largest part of the FSS sector.
Our next generation fleet of six high-throughput satellites, known as Intelsat EpicNG, are designed specifically to reduce
cost of service by optimizing performance and efficiency to the user. We expect we will be able to provide commercial
customers with services that allow them to innovate and develop new high bandwidth applications, in turn transforming their
businesses and expanding the territories that they can profitably serve. Our new Intelsat EpicNG fleet is designed to commercial-
grade standards. This allows us to offer committed information rates for our service provider customers, as compared to
satellite networks designed primarily to provide consumer “best effort”-grade services.
Our satellite capacity is complemented by our IntelsatOne® terrestrial network and a growing suite of Flex managed
services optimized to the requirements of attractive vertical applications, including the maritime and aeronautical sectors. Our
managed services combine satellite services with network management, access to our terrestrial network comprised of leased
fiber optic cable, access to Internet points of presence (“PoPs”), as well as multiplexed video and data platforms. Our satellite-
based networking solutions offer distinct technical and economic benefits to our target customers and provide a number of
advantages over terrestrial communications systems, including the following:
•
•
Fast, scalable, secure and high performance infrastructure deployments;
Superior end-to-end network availability as compared to the availability of terrestrial networks, due to fewer potential
points of failure;
• Highly reliable bandwidth and consistent application performance, as satellite beams effectively blanket service
regions;
• Ability to extend beyond terrestrial network end points or to provide an alternative path to terrestrial infrastructure;
• Efficient content distribution through the ability to broadcast high quality signals from a single location to many
locations simultaneously;
• Maximizing potential distribution of television programming, video neighborhoods, or capacity at orbital locations with
a large number of consumer dishes or cable headend dishes pointed to them; and
• Rapidly deployable communications infrastructure for disaster recovery.
We believe that our hybrid satellite-terrestrial network, combined with the world’s largest collection of FSS spectrum
rights, is a unique and valuable asset.
Our network architecture is flexible and, coupled with our global scale, provides strong capital and operating efficiency.
In certain circumstances we are able to re-deploy capacity, moving satellites or repositioning beams to capture demand. In
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2018, we launched the final next generation Intelsat EpicNG satellite, Horizons 3e, which was placed into service in early 2019.
Our technology has utility across a number of requirements with minimal customization to address diverse applications.
We have a reputation for operational and engineering excellence, built on our experience of over 50 years in the
communications sector. Our network delivered 99.997% network availability on all satellites to our customers in 2018. We
operate our global network from a fully-integrated, centralized satellite operations facility, with regional sales and marketing
offices located close to our customers. The operational flexibility of our network is an important element of our differentiation
and our ability to grow.
As of December 31, 2018, our contracted backlog, which is our expected future revenue under existing customer
contracts, was approximately $8.1 billion, roughly four times our 2018 annual revenue. For the year ended December 31, 2018,
we generated revenue of $2.2 billion and net loss attributable to Intelsat S.A. of $599.6 million. Our Adjusted EBITDA, which
consists of EBITDA as adjusted to exclude or include certain unusual items, certain other operating expense items and certain
other adjustments, was $1.7 billion, or 77% of revenue, for the year ended December 31, 2018.
In 2016, and to a lesser extent in 2017, the satellite sector encountered pricing pressure in certain regions and
applications, which affected our business. Also during those periods, older point-to-point and trunking services renewed at a
much lower rate than our other services, pressuring revenue. In 2018, we continued to experience pricing pressure, but at a
slower rate of decline than experienced in earlier periods, particularly in certain regions and applications. In addition,
underlying trends in our media business resulted in lower renewal rates and new business capture. Overall, we believe we
benefit from a number of characteristics that allow us to effectively manage our business despite these competitive and geo-
economic pressures:
Significant long-term contracted backlog, providing a foundation for predictable revenue streams;
•
• The entry into service of our next generation Intelsat EpicNG platform. Our Intelsat EpicNG platform was designed to
support new services representing $4.5 billion of potential incremental growth by 2023 from expanded enterprise,
wireless infrastructure, mobility, IoT and government applications;
• High operating leverage, which has allowed us to generate an average Adjusted EBITDA margin of 77% in the past
three years; and
• A stable, efficient and sustainable tax profile for our global business.
We believe that our leadership position in our attractive sector, global scale, efficient operating and financial profile,
diversified customer sets and sizeable contracted backlog, together with the growing worldwide demand for reliable broadband
connectivity everywhere at all times, provide us with a platform for long-term success.
Our Sector
Satellite services are an integral and growing part of the global communications infrastructure. Through unique
capabilities, such as the ability to effectively blanket service regions, to offer point-to-multipoint distribution and to provide a
flexible architecture, satellite services complement, and for certain applications are preferable to, terrestrial telecommunications
services, including fiber and wireless technologies. The FSS sector, excluding all consumer broadband, is expected to generate
revenues of approximately $11.7 billion in 2019, and transponder service revenue is expected to grow by a compound annual
growth rate (“CAGR”) of 2.6% from 2018 to 2023 according to a study issued in 2018 by NSR, a leading international market
research and consulting firm specializing in satellite and wireless technology and applications.
In recent years, the addressable market for FSS has expanded to include mobile applications because of satellite’s ability
to provide the broadband access required by high bandwidth mobile platforms, such as for consumer broadband services on
commercial ships and aircraft, as well as military mobility applications, including unmanned aerial vehicles.
Satellite services provide secure bandwidth capacity ideal for global in-theater communications since military operations
often occur in locations without reliable communications infrastructure. According to a study by NSR, global revenue from
FSS used for government and military applications is expected to grow at a CAGR of 5.3% from 2018 to 2023.
Our sector is noted for having favorable operating characteristics, including long-term contracts, high renewal rates and
strong cash flows. The fundamentals of the sector are attractive, given the global need for connectivity everywhere and
explosion of global content. The expected growth in demand for satellite-based solutions, combined with the high operating
margins which are characteristic of the sector, provides a resilient business model.
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There is a finite number of geostationary orbital slots in which FSS satellites can be located, and many orbital locations
are already occupied by operational satellites pursuant to complex regulatory processes involving many international and
national governmental bodies. These satellites typically are operated under coordination agreements designed to avoid
interference with other operators’ satellites. See—Regulation below for a more detailed discussion of regulatory processes
relating to the operation of satellites.
A resurgence of interest in LEO and mid-earth orbit constellations is resulting in the potential for new satellite-based
solutions that will complement and, in some cases, compete with our services. We are an investor in one such constellation,
with which we plan to offer integrated solutions. See—Our Strategy below. We believe that the ability of our GEO satellites to
offer highly efficient point-to-multipoint services, and to concentrate throughput over areas of highest demand, provides us
with competitive benefits that will be sustained even as new services come to market.
Today, there are only four FSS operators, including us, providing global services, which is important as multinationals
and governments seek a one-stop solution for obtaining global connectivity. In addition, there are a number of operators with
fewer satellites that provide regional and/or national services. We currently hold the largest number of rights to orbital slots in
the most valuable C- and Ku-band spectrums.
We believe a number of fundamental trends in our sector are creating increasing demand for satellite services:
• Connectivity and broadband access are essential elements of infrastructure supporting the rapid economic growth of
developing nations. Globally dispersed organizations and regional businesses often turn to satellite-based infrastructure
to provide better access, reliability and control of broadband services. Penetration of broadband connectivity in less
developed regions has been growing rapidly and is expected to continue. Over the past 10 years, broadband penetration,
including satellite connectivity, in the East Asia & Pacific Ocean regions grew at a 15% CAGR, in the Latin America &
Caribbean region at a 14% CAGR, and in the Middle East & North Africa regions at a 20% CAGR, according to the
World Bank.
• Wireless infrastructure in the global race to 5G represents a potentially generational opportunity for satellite
technology. Wireless telecommunications companies often use satellite-based solutions to extend networks into areas
where geographic or low population density makes it economically unfeasible to deploy other technology. Further
deployments of wireless telecom infrastructure and the migration from 2G to 3G, 4G and 5G networks, which adds
content and data to basic voice communications, create demand for satellite bandwidth. We believe that the emergence
of 5G networks results in a new growth vector for satellite connectivity. Satellite technology is uniquely responsive to
the 5G requirement of ubiquitous coverage and fast deployments. We believe satellite systems will complement
terrestrial networks and enable reliable and consistent global 5G user experience in a cost-effective manner. In 2018,
3GPP, the telecommunications standard development organization, approved work item studies to incorporate satellite
systems in 5G standards to demonstrate key satellites attributes, including broadcasting, multicasting, and ubiquity and
global mobile connectivity. According to GSMA, 4G & 5G mobile connections are expected to increase from 29% to
67% of total connections for the period from 2017 to 2025.
• Mobility applications, such as maritime communications and aeronautical broadband services for commercial and
government applications, are fueling demand for mobile connectivity. Commercial applications, such as broadband
services for consumer air flights and cruise ships, as well as broadband requirements from the maritime commercial
shipping and oil and gas sectors, provide increased demand for satellite-based services. The increasing demand for
global broadband connectivity on commercial airlines is a key driver of satellite connectivity and services. 78% of
North American aircraft provide in-flight entertainment and wi-fi services, while about 13% of Europe, Africa, Asia
Pacific and South America aircraft were connected in 2018, according to Valour Consultancy and Boeing. Global
satellite services revenue related to demand for broadband mobility applications from land, aeronautical and maritime is
expected to grow at a CAGR of 20% for the period from 2018 to 2023, according to NSR.
• Globalization of economic activities is increasing the geographic expansion of corporations and the communications
•
networks that support them, while creating new audiences for content. Globalization also increases the communications
requirements for governments supporting embassy and military applications.
The emergence of new content consumers resulting from economic growth in developing regions leads to increased
demand for free-to-air and pay-TV content. According to NSR, the highest expected growth in television channels is
from developing regions, including Latin America at a CAGR of 2.8%, Middle East and North Africa at 2.7%, Sub-
Saharan Africa at 4.6%, and Asia Pacific at 2.5% for the period from 2018 to 2023, respectively.
• Proliferation of formats and new sources of entertainment content result in increased bandwidth requirements, as
content owners seek to maximize distribution to multiple viewing audiences across multiple technologies. HDTV, the
introduction of ultra-high definition (“UHD”) television, internet distribution of traditional television programming
known as “Over the Top” or “OTT”, and video to mobile devices are all examples of the expanding format and
distribution requirements of media programmers, the implementation of which varies greatly from developed to
20
emerging regions. In its 2018 study, NSR forecasted that the aggregate number of standard definition (“SD”), high
definition (“HD”), and UHD television channels distributed worldwide for cable, broadcast and DTH is expected to
grow at a CAGR of 2% for the period from 2018 to 2023.
• Connected Devices and vehicles, such as those contemplated by machine-to-machine communications, the IoT and
other future technology trends, will require ubiquitous coverage that might be best provided by satellite technology for
certain applications in certain regions, and also for applications where ubiquitous, global access is required, such as
enabling software downloads for connected cars marketed by the automotive sector or for the operations of connected
vehicles, such as in agriculture applications. This represents an important potential source of longer-term demand.
In total, transponder service revenue (excluding consumer broadband) is expected to grow at a CAGR of 2.6% for the
period from 2018 to 2023, according to NSR.
Our Customer Sets and Growing Applications
We focus on business-to-business services that indirectly enable enterprise, government and consumer applications
through our customers. Our customer contracts offer four different service types: transponder services, managed services,
channel services and mobile satellite services and other. See Item 5—Operating and Financial Review and Prospects—Revenue
for further discussion of our service types. Characteristics of our customer sets are summarized below:
Customer Set
Network
Services
Media
Government
Representative Customers
Marlink, BT, Orange, Speedcast, Global
Eagle, Verizon, Vodafone, America Movil,
Gogo, Panasonic Avionics, Telecom Italia Mobile
Discovery Communications, Fox Broadcasting Company
Entertainment Group, MultiChoice, Home
Box Office, AT&T, The Walt Disney Company, Turner
Australian Defence Force, U.S. Department
of Defense, U.S. Department of State,
Leonardo
Year
2016
2017
2018(3)
2016
2017
2018(4)
2016
2017
2018(5)
$
$
$
$
$
$
$
$
$
Annual
Revenue
(1) (2)
% of 2018
Total
Revenue
(2)
% of 2018
Total
Backlog
(1) (2)
Backlog to
2018
Revenue
Multiple
900
852
798
868
910
938
387
353
392
37%
26%
2.6x
43%
62%
5.4x
18%
10%
2.1x
(1) Dollars in millions; backlog as of December 31, 2018.
(2) Does not include satellite-related services and other.
(3)
(4)
(5)
Includes $3 million of ASC 606 adjustments.
Includes $67 million of ASC 606 adjustments.
Includes $33 million of ASC 606 adjustments.
We provide satellite capacity and related communications services for the transmission of video, data and voice signals.
Our customer contracts cover on- and off-network capacity with primarily three different service types:
On-Network:
• Transponder services
• Managed services
Off-Network:
• Transponder services
• Mobile satellite services and other
We also perform satellite-related consulting services and technical services for various third parties, such as operating
satellites for other satellite owners. We no longer proactively market a fourth service, known as channel services, although we
still earn modest revenues from this type of on-network service.
Media
Media customers are our largest customer set and accounted for 43% of our revenue for the year ended December 31,
2018 and $5.1 billion of our contracted backlog as of December 31, 2018. Our business generated from the media sector is
21
generally characterized by non-cancellable, long-term contracts with terms of up to 15 years with premier customers, including
national and global broadcasters, content providers and distributors, television programmers and DTH platform operators.
We are the world’s largest provider of satellite capacity for media services, according to Euroconsult, with a 20% global
share. We have delivered television programming to the world since the launch of our first satellite, Early Bird, in 1965. We
provide satellite capacity for the transmission of entertainment, news, sports and educational programming for over 300
broadcasters, content providers and DTH platform operators worldwide. We have well-established relationships with our media
customers, and in some cases have distributed their content on our satellites for over 30 years.
Broadcasters, content providers and television programmers seek efficient distribution of their content to make it easily
obtainable by affiliates, cable operators and DTH platforms; satellites’ point-to-multipoint capability is difficult to replicate via
terrestrial alternatives. Our strong cable distribution neighborhoods offer media customers high penetration of regional and
national audiences.
Broadcasters, content providers and television programmers also select us because our global capabilities enable the
distribution or retrieval of content to or from virtually any point on earth. For instance, we regularly provide fully integrated
global distribution networks for content providers that need to distribute their products across multiple continents. DTH
platform operators use our services because of our attractive orbital locations and because the scale and flexibility of our fleet
can improve speed to market and lower their operating risk, as we have multiple satellites serving every region.
We believe that we enjoy a strong reputation for delivering the high network reliability required to serve the demanding
media sector. As our media customers add additional distribution platforms and adopt new business models, such as OTT
internet-delivered content, our goal is to deliver value beyond our cost-efficient linear distribution solutions to include cloud-
based services that streamline multi-format content delivery.
Our fully integrated satellite, fiber and teleport facilities provide enhanced quality control for programmers. In addition to
basic satellite services, we offer bundled, value-added services under our IntelsatOne brand that include managed fiber
services, digital encoding of video channels and up-linking and down-linking services to and from our satellites and teleport
facilities. Our IntelsatOne® bundled services address programmers’ interests in delivering content to multiple distribution
channels, such as television and Internet, and their needs for launching programs to new regions in a cost-efficient manner.
Highlights of our media business include the following:
• Our fleet hosts 37 premium video neighborhoods, offering programmers superior audience penetration, with 10
serving North America, nine serving Latin America, eight serving Africa and the Middle East, six serving Asia and
four serving Europe;
• We are a leading provider of services used in global content distribution to media customers, according to Euroconsult.
Our top 10 video distribution customers buy service on our network, on average, across three or more geographic
regions, demonstrating the value provided by the global reach of our network;
• We believe that we are the leading provider of satellite service capacity for the distribution of cable television
programming in North America, with thousands of cable headends pointed to our satellites. Our Galaxy 13 satellite
provided the first HD neighborhood in North America, and today, our Galaxy fleet distributes over 350 HD channels;
globally, we distribute over 5,400 TV channels, including approximately 1,350 HD channels;
• We are a leading provider of satellite services for DTH providers, supporting 29 DTH platforms around the world,
including AT&T DIRECTV in Latin America, Orion Express in Russia, Telefonica in Brazil, MultiChoice in Africa,
and Canal+ in multiple regions;
• We are a leading provider of services used in video contribution managed occasional use services, supporting coverage
•
of major events for news and sports organizations, according to Euroconsult. For instance, we have carried
programming on a global basis for every Olympiad since 1968, including use of our Intelsat 29e satellite for
transmission of certain programming for the 2016 Olympics in Rio de Janeiro, Brazil; and
In its 2018 study, NSR forecasted that the number of SD, HD, and UHD television channels distributed worldwide for
cable, broadcast and DTH is expected to grow at a CAGR of 2% for the period from 2018 to 2023. According to NSR,
the highest expected growth in television channels is from developing regions, including Latin America at a CAGR of
2.8%, Middle East and North Africa at 2.7%, Sub-Saharan Africa at 4.6%, and Asia Pacific at 2.5% for the period from
2018 to 2023, respectively.
In 2018, several non-renewals, the largest of which were in the Latin America, North America and Asia-Pacific regions,
caused our media business to underperform our expectations for the year. In 2019, we expect continuing pressure on our media
business. Broadly, our global media customers increasingly seek to economize due to the need to support expanding
22
infrastructure requirements. We expect customers to use compression, the elimination of distribution of standard definition
feeds, and reduced commitments for contribution and ad hoc requirements, which will result in reduced volume for our
business. In time, we expect some incremental demand for capacity to support the new 4K format, also known as UHD, which
could offset some of the reductions in demand related to compression.
Network Services
Network services is our second largest customer set and accounted for 37% of our revenue for the year ended
December 31, 2018 and $2.1 billion of our contracted backlog as of December 31, 2018. Our business generated from the
network services sector is generally characterized by non-cancellable contracts, typically up to five years in length, with many
of the world’s leading communications providers. This includes fixed and wireless telecommunications companies, such as
global carriers and regional and national providers in emerging regions, corporate network service providers, such as VSAT
services providers to vertical markets including banks, value-added services providers, such as those serving the aeronautical
and maritime industries, as well as multinational corporations and other organizations operating globally.
According to Euroconsult, we are the world’s largest provider of satellites capacity for network services, with a 28%
global share. Our satellite services, comprised of satellite capacity, and terrestrial network comprised of leased fiber, teleports
and data networking platforms, enable the transmission of video and data to and from virtually any point on the surface of the
earth. Basic communications and broadband connectivity in developed and emerging regions are meaningful contributors to
economic growth. We provide an essential element of the communications infrastructure, enabling the rapid expansion of
wireless services that support businesses, communities and governments in many emerging regions.
Our network services offerings are an essential component of our customers’ services, providing backbone infrastructure,
expanded service areas and connectivity where reliability or geography is a challenge. We believe that we are a preferred
provider because of our global service capability and our expertise in delivering services with enterprise-grade network
availability and efficient network control.
Furthermore, as mobile communications have become essential to global networking and internet use, our satellite
solutions, such as those provided by the Intelsat EpicNG platform, are being used for mobility applications. This includes
services ranging from maritime enterprise VSAT data services to consumer broadband connectivity for cruise ships. In addition
to maritime applications, Intelsat’s satellite solutions are used by service providers to deliver broadband connectivity for in-
flight entertainment and wi-fi services for the aeronautical industry.
Our managed services, including Flex Enterprise and Flex Maritime, provide regional shared data networking platforms
at our teleports that are connected to approximately 40 of our satellites, with network transmissions managed by our operations
team. In 2018, we introduced new platform as a service (PaaS) offerings under the AgileCore brand, combining our satellite
services with shared data platforms and our fiber network. As a result, our customers can quickly establish highly reliable
services across multiple regions, yet operate them on a centralized basis. Our satellite-based solutions allow customers to
rapidly expand their service territories, flexibly customize the access speed and capabilities for their existing networks and
efficiently address new customer and end-user requirements. In 2018, we introduced Flex managed services that are customized
to the business jet (FlexExec), joining the Flex Maritime managed service introduced in 2017.
Our leading position in network services has been pressured by new capacity from other satellite operators and improved
access to fiber links, changing the competitive environment in certain regions. The increase in satellite supply resulted in
significant declines in pricing beginning in 2013, although the rate of decline has reduced over time. In addition, the increase in
the availability of fiber has resulted in the accelerated retirement of our channel business, which essentially reached end of
lifecycle at 2015 year end, and our international point-to-point trunking services, which was a continuing source of decline in
2018. The new and differentiated capacity of our next generation Intelsat EpicNG satellites is providing inventory to help offset
these recent trends, targeting wireless infrastructure, mobility and enterprise applications. In 2018, we successfully added new
distribution channels in the maritime, business jet and wireless infrastructure verticals. As the volume of services sold on our
Intelsat EpicNG fleet increases over time, we believe that the level of business activity in this sector will stabilize.
Highlights of our network services business include the following:
• Our largest network services customer type is enterprise networking. We are the world’s largest provider of satellite
capacity for satellite-based private data networks, including VSAT networks, according to Euroconsult;
• The second largest and fastest growing customer type in our network services business is mobility services for the
aeronautical and maritime sectors. We believe we hold a leading share of the aeronautical broadband services
powering in-flight passenger connectivity. FSS revenue growth related to capacity demand for broadband aeronautical
23
services is expected to grow from approximately $251 million to $1.2 billion annually, for the period from 2018 to
2023, at a CAGR of 37%. In addition, Euroconsult forecasts growth in FSS aeronautical terminals (excluding MSS
and air-to-ground technology) at a CAGR of 23% for the period from 2018 to 2023.
•
• We are the leader in the provision of FSS bandwidth for maritime broadband connectivity. FSS VSAT terminal related
to capacity demand for maritime broadband services (excluding MSS) is expected to grow at a CAGR of 15% for the
period from 2018 to 2023. Of the world’s largest cruise vessels, Intelsat’s services are incorporated in the broadband
infrastructure for over 80% of approximately 300 ships, in substantially all cases as the exclusive or primary source of
satellite services;
Infrastructure for wireless operator services represents our third largest network services customer type. We believe we
are the leading provider of satellite capacity for cellular backhaul applications in emerging regions, connecting cellular
towers to the global telecommunications network, a global sector expected to generate over $1 billion in revenue in
2019, according to NSR. Approximately 100 of our customers use our satellite-based backhaul services as a core
component of their network infrastructure due to unreliable or non-existent terrestrial infrastructure. Our cellular
backhaul customers include 6 of the top 10 mobile groups worldwide, which serve a quarter of the world’s subscribers,
excluding China;
• Approximately 135 value-added network operators use our IntelsatOne broadband hybrid infrastructure to deliver their
regional and global services. Applications for these services include corporate networks for multinationals, internet
access and broadband for maritime and commercial aeronautical applications. C, Ku, Ka-band and HTS revenue from
capacity demand for mobility applications is expected to grow at a CAGR of 20% for the period from 2018 to 2023,
according to NSR; and
• The fixed enterprise VSAT sector (excluding all non-GEO HTS bandwidth) is expected to generate capacity revenues
of approximately $2.3 billion in 2019, and capacity revenues are expected to grow at a CAGR of 10% from 2018 to
2023, according to NSR.
Government
We are the leading provider of commercial satellite services to the government sector, according to NSR, with a 25%
share of military and government use of use of commercial satellite capacity worldwide. With more than 50 years of experience
serving this customer set, we have built a reputation as a trusted partner for the provision of highly customized, secure and
mission critical satellite-based solutions. The government sector accounted for 18% of our revenue for the year ended
December 31, 2018 and $823 million of our contracted backlog as of December 31, 2018.
Our satellite communication services business generated from the U.S. government sector is generally characterized by
single year contracts that are cancellable by the customer upon payment of termination for convenience charges, and include
annual options to renew for periods of up to four additional years. In addition to communication services, our backlog includes
some longer-term services, such as hosted payloads, which are characterized by contracts with originally contracted service
periods extending up to the 15-year life of the satellite, cancellable upon payment of termination penalties defined by the
respective contracts.
Our customer base includes the U.S. government’s military and civilian agencies, global government militaries, and
commercial customers serving the defense sector. We consider each party within the U.S. Department of Defense and other
U.S. government agencies that has the ability to initiate a purchase requisition and select a contractor to provide services to be a
separate customer, although such party may not be the party that awards us the contract for the services.
We attribute our strength in serving U.S. military and government users to our global infrastructure of satellites, including
the addition of the high-performance Intelsat EpicNG fleet, and our IntelsatOne network of teleports and fiber that complement
the U.S. government’s own communications networks. Our fleet provides flexible, secure and resilient global network capacity,
and critical surge capabilities. Our Intelsat EpicNG satellites provide high-throughput and performance that is highly attractive
for aeronautical surveillance applications, offering HD video from small antennas, enabling use of a smaller airframe. In some
instances, we provide our U.S. government customers managed, end-to-end secure networks, combining our resources in space
and on the ground, for fixed and mobile applications.
In responding to certain unique customer requirements, we also procure and integrate satellite services provided by other
satellite operators, either to supplement our capacity or to obtain capacity in frequencies not available on our fleet, such as L-
band, X-band and other spectrums not available on our network. These off-network services are generally low risk in nature,
typically with the terms and conditions of the third-party capacity and services we procure matched to contractual commitments
from our customer. We are an attractive supplier to the government sector because of our ability to leverage not only our assets
but also other space-based solutions, providing a single contracting source for multiple, integrated technologies.
24
Highlights of our government business include the following:
• We are increasing our focus on managed services for government applications, simplifying the use of high throughput
services. In 2018, we introduced a global managed end-to-end service providing cost-effective, high-performance, in-
flight broadband connectivity to a wide range of military aircraft. The service, branded FlexAir, supports en route
communications and intelligence, surveillance, and reconnaissance (ISR) applications, as well as in-flight
communications for government officials, troops, and cargo aircraft. Expanding our marketing capabilities, we also
announced the signing of two distributors with expertise in the government aeronautical sector.
• The reliability and scale of our fleet and planned launches of new and replacement satellites allow us to address
changing demand for satellite coverage and to provide mission-critical communications capabilities. For example, in
2018, we were awarded a hosted payload contract that will support aviation navigation systems for the U.S. Federal
Aviation Administration ("FAA"). The payload will be part of the FAA’s Wide Area Augmentation System ("WAAS")
that corrects and enhances information provided by Global Positioning System ("GPS") satellites to give commercial
and civilian pilots more precise approach and departure guidance. WAAS provides safety improvements in the
National Air Space and has been operational since 2003. This hosted payload, known as Geostationary Earth Satellite
(GEO) 7, is the seventh payload delivering a continuous and robust signal in space across the contiguous United States
and Alaska. This payload is part of an ongoing WAAS constellation replenishment/sustainment effort by the FAA.
• The U.S. government and military is one of the largest users of commercial satellites for U.S. government and military
applications on a global basis. In 2018, we served approximately 100 customers consisting of U.S. government
customers, resellers to U.S. government customers or integrators.
• According to a study by NSR, global revenue from FSS used for U.S. government and military applications is
expected to grow at a CAGR of 5.3% for the period from 2018 to 2023.
Overall, business activity in this customer set reflects the current tempo of our end-customers’ operations and the
budgetary constraints of the U.S. government; visibility into the U.S. government’s planned contract awards remains low and
the pace of new business and subsequent awards remains flat.
Over the mid-term, we believe our reputation as a provider of secure solutions, our global fleet including our new high-
performance Intelsat EpicNG platform and affiliated FlexAir managed service, our well-established customer relationships, our
ability to provide turn-key services and our demonstrated willingness to reposition or procure capacity to support specific
requirements position us to successfully compete for commercial satellite solutions for bandwidth-intensive military and
civilian applications. We expect our government business to benefit over time from the increasing demands for mobility
services from the U.S. government for aeronautical and ground mobile requirements.
Our Diverse Business
Our revenue and backlog diversity spans customer sets and applications, as discussed above, as well as geographic
regions and satellites. We believe our diversity allows us to recognize trends to capture new growth opportunities, and gain
experience that can be transferred to customers in different regions. For further details regarding geographic distribution of our
revenue, see Note 17 to our consolidated financial statements included elsewhere in this Annual Report.
We believe we are the sector leader by transponder share in three of the geographic regions covered by our network. We
are generally ranked first or second in the regions identified by industry analysts as those that either purchase the most satellite
capacity or are regions with high growth prospects, such as North America and Asia Pacific.
25
The scale of our fleet can also reduce the financial impact of satellite failures and protect against service interruption. No
single satellite generated more than 6% of our revenue and no single customer accounted for more than 11% of our revenue for
the year ended December 31, 2018.
The following chart shows the geographic diversity of our contracted backlog as of December 31, 2018 by region and
service sector, based upon the billing address of the customer.
26
The majority of our on-network revenue aligns to emerging regions, based upon the position of our satellites and beams.
The following chart shows the breakdown of our on-network revenue by the region in which the service is delivered as of
December 31, 2018:
Our Strategy: Transforming Our Business and Our Sector
We are transforming our business and sector, investing in and deploying innovative new technologies that will change the
types of applications that we can serve and increase our share of the global demand for broadband connectivity everywhere—
for all communities and for all devices.
Our strategy is built around four competitive advantages that strengthen our ability to reach our goals:
• Our global footprint, which is essential given that the fastest growing applications, such as mobility and upcoming 5G
deployments, require ubiquitous, consistent network performance;
• Operating scale, with service delivery in over 200 countries and territories, which is important to new opportunities,
such as connected car, machine-to-machine, land mobility and government, where service providers will look for
global access. The ability to serve these applications on a global basis creates new satellite-based communication
solutions with multi-billion dollar revenue potential;
• Our innovative technology, which is already in-orbit and gained further depth and resilience as we completed our
current high-throughput investment program in 2018, together with our expertise in integrating this new technology
into network solutions, providing our customers first-to-market advantage and experience; and
• Our portfolio of spectrum rights, which provides unmatched flexibility and agility as we look at new opportunities.
Our strategy is to seek revenue growth with the following actions:
• Drive stability in our core business, employing a disciplined yield management approach and emphasizing the
development of strong distribution channels for our four primary customer sets of broadband, mobility, media and
government;
Scale our differentiated managed service offerings in targeted growth verticals in broadband, mobility, media and
government, leveraging the global footprint, higher performance and better economics of our Intelsat EpicNG fleet and
the flexibility of our innovative terrestrial network; and
Innovate through targeted investments and partnerships to develop a standards-based ecosystem that will provide a
seamless interface with low earth orbit technologies and the broader telecommunications ecosystem.
•
•
27
We believe that developing differentiated managed services and investing in related software- and standards-based
technology will allow us to increase our relevance within the broader telecommunications landscape, unlocking opportunities
that are essential to providing global broadband.
Our new services and technologies will also open new sectors that are much larger, and growing much faster, than the
sectors we support today. Examples include:
•
•
•
•
Providing network infrastructure for 2G/3G/4G/5G wireless in developing regions;
Providing signal ubiquity in support of 5G services globally;
Providing broadband connectivities that enable non-traditional telecommunications providers to deliver wi-fi services
in underserved regions;
Providing flexible broadband services for enterprise networks and for commercial and government-related
aeronautical, maritime and other mobile applications, and using our high-throughput platform and global footprint to
provide differentiated services;
• Optimizing content distribution networks that support UHD, OTT programming and other multiscreen viewing
•
applications; and
Providing ubiquitous broadband for global deployment of connected devices, such as the connected car, and the
continuing formation of the IoT.
Our strategy with respect to capital investment and spectrum is expected to lead to longer-term outcomes, achieving the
transformation of our business as we take the following actions:
• Lower overall capital intensity and improve cost effectiveness through innovation emphasis on software-defined
infrastructure and encouraging a standards-based ecosystem built on widely adopted technologies, including the 3GPP
standards. We will enhance our space and terrestrial infrastructure with platforms that are software defined and less
expensive to manufacture resulting in faster deployments and mission flexibility; and
• Maximize the value of our spectrum rights, using strategic alliances to deliver on our market-based proposal to the
U.S. Federal Communications Commission (“FCC”) that addresses the need for mid-band spectrum in the U.S. to fuel
adoption of 5G, while also protecting and maintaining the essential services we provide in the mid-band today.
In advancing our spectrum rights strategy, we have established the C-Band Alliance (“CBA”) with the three other satellite
operators providing C-band satellite services in the continental U.S. We are actively advocating for our proposal to the FCC
under Docket No. 18-122.
The CBA is working with customer groups, associations and other stakeholders to provide detailed technical and
operational plans that will enable safely clearing a portion of the band in a way that highly reliable C-band satellite services can
continue. The CBA is also meeting with prospective parties interested in the cleared spectrum to ensure that the cleared
spectrum meets their operational requirements for 5G services, with the goal of maximizing proceeds from a market-based
transaction.
Competition
We compete in the communications market for the provision of video, data and voice connectivity worldwide.
Communications services are provided using various communications technologies, including satellite networks, which provide
services as a substitute for, or as a complement to, the capabilities of terrestrial networks. We also face competition from
suppliers of terrestrial communications capacity.
We operate on a global scale. Our competition includes national, regional and global providers of traditional and high
throughput FSS. We also compete with providers of MSS, or mobile satellite services, for broadband services delivered for
aeronautical and maritime applications.
We also compete with providers of terrestrial fiber optic cable capacity on certain routes and networks, principally for
point-to-point services. The primary use of fiber optic cable is carrying high-volume communications traffic from point to
point, and fiber capacity is available at substantially lower prices than satellite capacity once operational. Consequently, the
growth in fiber optic cable capacity has led voice, data and video contribution customers that require service between major
city hubs to migrate from satellite to fiber optic cable.
28
In recent years, increased availability of fiber in metropolitan regions of developing countries, and the oversupply of
satellite services in certain regions, have resulted in increased competition in some of the regions we serve. The effect of these
two trends has been significant price reductions for both fiber and satellite connectivity, primarily impacting our commercial
and government data applications. As a result, Intelsat’s revenues have been reduced as services were terminated by customers
moving to fiber alternatives, and also as contracts were renewed at lower prices. As of December 31, 2018, we identified
approximately $150 million of contracted backlog that has not been renewed since January 1, 2015. As that business is
renewed, we will adjust pricing to current market rates.
Sales, Marketing and Distribution Channels
We strive to maintain a close working relationship with our customers. Our primary sales and marketing operations are
located in the United Kingdom and the United States. In addition, we have established local sales and marketing support offices
in the following countries around the world:
•Australia
•Brazil
•China
•France
•Germany
•India
•Kenya
•Russian Federation
•Senegal
•Singapore
•South Africa
•United Arab Emirates
•Japan
By establishing local offices closer to our customers and staffing those offices with experienced personnel, we believe
that we are able to provide flexible and responsive service and technical support to our customers. Our sales and marketing
organization reflects our corporate focus on our three principal customer sets of network services, media and government. Our
sales team includes technical marketing and sales engineering application expertise and a sales approach focused on creating
integrated solutions for our customers’ communications requirements.
We use a range of direct and wholesale distribution methods to sell our services, depending upon the region, the vertical
application, regulatory requirements and customer application.
Our Network
Our global network is comprised of 54 satellites and ground facilities, including teleports, access to internet PoPs and
leased fiber that support our commercial services and the operation and control of our satellites.
Our customers depend on our global communications network and our operational and engineering leadership. Highlights
of our network include:
•
Prime orbital locations, reflecting a valuable portfolio of coordinated fixed satellite spectrum rights;
• Highly reliable services, including transponder availability of 99.997% on all satellites for the year ended
•
December 31, 2018;
Flexibility to relocate satellites to other orbital locations as we manage fleet replacement, demand patterns change or
in response to new customer requirements;
• Design features and steerable beams on many of our satellites that enable us to reconfigure capacity to provide
different areas of coverage; and
• Resilience, with multiple satellites serving each region, allowing for improved restoration alternatives should a
satellite anomaly occur.
As we design our new satellites, we work closely with our strategic customers to incorporate technology and service
coverage that provide them with a cost-effective platform for their respective requirements.
The table below provides a summary of our satellite fleet as of December 31, 2018, except where noted.
29
Satellite
Station Kept in Primary Orbital Role (2):
Galaxy 11
Intelsat 902
Intelsat 905
Galaxy 3C
Intelsat 906
Intelsat 907
Galaxy 23 (6)
Galaxy 13/Horizons 1 (7)
Intelsat 1002 (8)
Galaxy 28
Galaxy 14
Galaxy 15
Galaxy 16
Galaxy 17
Intelsat 11
Horizons 2 (11)
Galaxy 18
Intelsat 25
Galaxy 19
Intelsat 14
Intelsat 15
Intelsat 16
Intelsat 17
Intelsat 28 (12)
Intelsat 18
Intelsat 22 (13)
Intelsat 19
Intelsat 20
Intelsat 21
Intelsat 23
Intelsat 30
Intelsat 34
Intelsat 29e
Intelsat 31
Intelsat 36
Intelsat 33e
Manufacturer
Orbital
Location
Launch
Date
Estimated End of
Service Life (1)
BSS (4)
SSL (5)
SSL
BSS
SSL
SSL
SSL
BSS
Airbus
SSL
NGIS (9)
NGIS
SSL
Thales (10)
NGIS
NGIS
SSL
SSL
SSL
SSL
NGIS
NGIS
SSL
NGIS
NGIS
BSS
SSL
SSL
BSS
NGIS
SSL
SSL
BSS
SSL
SSL
BSS
44.9°E
62°E
24.5°W
95.05°W
64.15°E
27.5°W
121°W
127°W
1°W
89°W
125°W
133°W
99°W
91°W
42.99°W
84.85°E
123°W
31.5°W
97°W
45°W
85.15°E
76.2°W
66°E
32.8°E
180°E
72.1°E
166°E
68.5°E
58°W
53°W
95.05°W
55.5°W
50°W
95.05°W
68.5°E
60°E
Dec-99
Aug-01
Jun-02
Jun-02
Sep-02
Feb-03
Aug-03
Oct-03
Jun-04
Jun-05
Aug-05
Oct-05
Jun-06
May-07
Oct-07
Dec-07
May-08
Jul-08
Sep-08
Nov-09
Nov-09
Feb-10
Nov-10
Apr-11
Oct-11
Mar-12
Jun-12
Aug-12
Aug-12
Oct-12
Oct-14
Aug-15
Jan-16
Jun-16
Aug-16
Aug-16
Q4 2019
Q4 2019
Q4 2019
Q1 2023
Q3 2020
Q1 2020
Q1 2023
Q2 2026
Q4 2021
Q3 2022
Q3 2021
Q1 2024
Q1 2029
Q1 2024
Q4 2022
Q4 2024
Q2 2031
Q3 2024
Q2 2031
Q3 2027
Q2 2027
Q4 2035
Q2 2027
Q3 2025
Q4 2028
Q2 2028
Q2 2028
Q4 2036
Q3 2032
Q2 2040
Q1 2036
Q1 2034
Q2 2031
Q2 2037
Q1 2033
Q1 2028
30
Intelsat 35e
Intelsat 37e
Horizons 3e(14)
Inclined Orbit:
Intelsat 26
Galaxy 25
Intelsat 5
Intelsat 805
Intelsat 9
Intelsat 12
Intelsat 1R
Intelsat 10
Intelsat 901
Intelsat 904
Intelsat 903
Galaxy 12
Payload Hosted on Third-Party Satellites:
Intelsat 1W(15)
Intelsat 32e(16)
Intelsat 38(17)
BSS
BSS
BSS
BSS
SSL
BSS
LM (3)
BSS
SSL
BSS
BSS
SSL
SSL
SSL
NGIS
Thales
Airbus
SSL
34.5°W
18°W
169.0°E
62.2°E
93.1°W
137°W
169.1°E
DRIFT
45°E
157.1°E
47.5°E
29.5°W
45.1°E
31.5°W
129°W
0.8°W
317.0°E
45.0°E
Jul-17
Sep-17
Sep-18
Feb-97
May-97
Aug-97
Jun-98
Jul-00
Oct-00
Nov-00
May-01
Jun-01
Feb-02
Mar-02
Apr-03
Oct-09
Feb-17
Sep-18
Q2 2037
Q1 2030
Q1 2047
Q4 2019
Q3 2024
Q4 2024
Q1 2020
Q3 2019
Q4 2019
Q2 2023
Q3 2026
Q3 2024
Q1 2025
Q4 2030
Q2 2025
Q2 2029
Q2 2034
Q3 2041
(1) Engineering estimates of the service life as of December 31, 2018 as determined by remaining fuel levels,
consumption rates and other considerations (including power) and assuming no relocation of the satellite. Such
estimates are subject to change based upon a number of factors, including updated operating data from manufacturers.
(2) Primary orbital roles are those that are populated with station-kept satellites, generally, but not always, in their initial
service positions, and where our general expectation is to provide continuity of service over the long-term.
(3) Lockheed Martin Corporation.
(4) Boeing Satellite Systems, Inc., formerly Hughes Aircraft Company.
(5) Space Systems/Loral, LLC (“SSL”).
(6) EchoStar Communications Corporation owns all of this satellite’s Ku-band transponders and a portion of the common
elements of the satellite.
(7) Horizons Satellite Holdings, LLC (“Horizons Holdings”), our joint venture with JSAT International, Inc. (“JSAT”),
owns and operates the Ku-band payload on this satellite. We are the exclusive owner of the C-band payload.
(8) Telenor owns 18 Ku-band transponders (measured in equivalent 36 MHz transponders) on this satellite. EADS
Astrium was renamed AIRBUS Defence & Space.
(9) Northrop Grumman Innovation Systems ("NGIS").
(10) Thales Alenia Space.
(11) Horizons Holdings owns the payload on this satellite and we operate the payload for the joint venture.
(12) Intelsat 28 was formerly known as Intelsat New Dawn.
(13) Intelsat 22 includes a UHF payload owned by the Australian Defence Force.
(14) Horizons-3 Satellite LLC, our joint venture with JSAT, owns and operates this satellite. Horizons 3e entered into
service in Q1 2019.
(15) Intelsat 1W refers to a Ku-band payload on Thor 6, a satellite operated by Telenor.
(16) Intelsat 32e refers to an HTS Ku-band payload we operate on a satellite also known as Sky Brasil 1.
(17) Intelsat 38 refers to a Ku-band payload on Azerspace-2, a satellite operated by Azercosmos. Intelsat 38 entered into
service in Q1 2019.
Satellite Systems
There are three primary types of commercial communications satellite systems: low-earth orbit systems, medium-earth
orbit systems and geosynchronous systems. All of our satellites are geosynchronous satellites and are located approximately
22,200 miles, or 35,800 kilometers, above the equator. These satellites can receive radio frequency communications from an
origination point, relay those signals over great distances and distribute those signals to a single receiver or multiple receivers
within the coverage areas of the satellites’ transmission beams.
31
Geosynchronous satellites send these signals using various parts of the radio frequency spectrum. The spectrum available
for use at each orbital location includes the following frequency bands in which most commercial satellite services are offered
today:
• C-band—low power, broad beams requiring use of relatively larger antennae, valued as spectrum least susceptible to
transmission impairments such as rain;
• Ku-band—high power, narrow to medium size beams facilitating use of smaller antennae favored by businesses; and
• Ka-band—very high power, very narrow beams facilitating use of very small transmit/receive antennae, but somewhat
less reliable due to high transmission weather-related impairments. The Ka-band is utilized for various applications,
including consumer broadband services.
Substantially all of the station-kept satellites in our fleet are designed to provide capacity using the C- and/or Ku-bands of
this spectrum.
A geosynchronous satellite is referred to as geostationary, or station-kept, when it is operated within an assigned orbital
control, or station-keeping box, which is defined by a specific range of latitudes and longitudes. Geostationary satellites revolve
around the earth with a speed that corresponds to that of the earth’s rotation and appear to remain above a fixed point on the
earth’s surface at all times. Geosynchronous satellites that are not station-kept are in inclined orbit. The daily north-south
motion of a satellite in inclined orbit exceeds the specified range of latitudes of its assigned station-keeping box, and the
satellite appears to oscillate slowly, moving above and below the equator every day. An operator will typically operate a
satellite in inclined orbit toward the end of its service life because the operator is able to save significant amounts of fuel by not
controlling the north-south position of the satellite and is thereby able to substantially extend the service life of the satellite.
The types of services and customers that can access an inclined orbit satellite have traditionally been limited due to the
movement of the satellite relative to a fixed ground antenna. However, recent technology innovations now allow the use of
inclined orbit capacity for certain applications. As a result, we anticipate demand for inclined orbit capacity may increase over
the next few years if these applications are successfully introduced. As of December 31, 2018, 12 of our satellites were
operating in an inclined orbit, with most continuing to earn revenue beyond our original estimated life for each of these
satellites.
In-Orbit Satellites
We believe that our strong operational performance is due primarily to our satellite procurement and operations
philosophy. Our operations and engineering staff is involved from the design through the decommissioning of each satellite that
we procure. Our staff works at the manufacturers’ and launchers’ sites to monitor progress, allowing us to maintain close
technical collaboration with our contractors during the process of designing, manufacturing and launching a satellite. We
continue our engineering involvement throughout the operating lifetime of each satellite. Extensive monitoring of earth station
operations, around-the-clock satellite control and network operations support ensure our consistent operational quality, as well
as timely corrections when problems occur. In addition, we have in place contingency plans for technical problems that may
occur during the lifetime of a satellite.
These features also contribute to the resilience of our network, which enables us to ensure the continuity of service that is
important for our customers and to retain revenue in the event that we need to move customers to alternative capacity. The
design flexibility of some of our satellites enables us to meet customer demand and respond to changing market conditions.
As of December 31, 2018, we had approximately 1,775 station-kept transponders, for which the average fill rate was
78%. The HTS Intelsat EpicNG transponder unit count was approximately 1,150, reflecting an increase from 2017 as a result of
the entry into service of Intelsat 37e.
The design life of a satellite is the length of time that the satellite’s hardware is designed by the manufacturer to remain
operational under normal operating conditions. In contrast, a satellite’s orbital maneuver life is the length of time the satellite
has enough fuel to remain operational. A satellite’s service life is based upon fuel levels and other considerations, including
power. Satellites launched in the recent past are generally expected to remain in service for the lesser of maneuver life and 16
years. Satellites typically have enough fuel to maintain between 16 and 18 years of station-kept operations. The average
remaining service life of our satellites was approximately 7.7 years as of December 31, 2018, weighted on the basis of
nominally available capacity for the station-kept satellites we own.
Satellites on Order
32
As of December 31, 2018, we had placed orders for the following two satellites. Generally, these satellites are being built
over a period of three years.
Satellite
Manufacturer
Intelsat 39
SSL
Large capacity satellite with a combination of C-band and Ku-band beams to be located
at the 62°E, certain of which are customized for the digital inclusion requirements of an
Asian nation
Role
Earliest
Launch Date
Expected
Launch
Provider
2019
Arianespace
Galaxy 30
NGIS
Next generation North American video distribution platform
2020
Arianespace
Future Satellites
We would expect to replace other existing satellites, as necessary, with satellites that meet customer needs and that have a
compelling economic rationale. We periodically conduct evaluations to determine the current and projected strategic and
economic value of our existing and any planned satellites and to guide us in redeploying satellite resources as appropriate.
Network Operations and Current Ground Facilities
We control and operate each of our satellites and manage the communications services for which each satellite is used
from the time of its initial deployment through the end of its operational life, and we believe that our technical skill in
performing these critical operations differentiates us from our competition. We provide most of these services from our satellite
operations centers in McLean, Virginia and Long Beach, California, and our customer service center in Ellenwood, Georgia. In
the event of a natural disaster or other situation disabling one of the facilities, each satellite operations center has the functional
ability to provide instantaneous restoration of services on behalf of the other, demonstrating the efficiency and effectiveness of
our network. Utilizing state of the art satellite command and control hardware and software, our satellite operations centers
analyze telemetry from our satellites in order to monitor their status and track their location.
Our satellite operations centers use a network of ground facilities to perform their functions. This network includes 21
earth stations that provide tracking, telemetry and commanding (“TT&C”) services for our satellites and various other earth
stations worldwide. Through our ground facilities, we constantly monitor signal quality, protect bandwidth from piracy or other
interference and maintain customer installed equipment.
Our customer service center located in Ellenwood, Georgia includes an RF Operations Center, a Managed Services
Operations Center and an Intelsat Secured Operations Center. This facility is responsible for managing the communications
services that we provide to our customers and is the first point of contact for customers needing assistance in using our
network. We also maintain a back-up operations facility and data center a relatively short distance from our McLean, Virginia
facility in Hagerstown, Maryland. This facility provides back-up emergency operational services in the event that our
Ellenwood, Georgia customer service center experiences an interruption.
We have invested heavily in our fully integrated IntelsatOne® terrestrial network which complements our satellite
network. Our network includes teleport, leased fiber and network performance monitoring systems and enables us to provide
end-to-end managed solutions to our customers. In addition to leased fiber connecting high-density routes, our ground network
also features strategically located PoPs, which are drop-off points for our customers’ traffic that are close to major
interconnection hubs for telecommunications applications, video transmissions and trunking to the internet backbone. Our
terrestrial network is an all IP network environment that results in improved ground support of high bandwidth applications
such as HD video. The network architecture allows us to converge our media and network services terrestrial network
infrastructures, resulting in reduced costs, and provides opportunities for generating additional revenue from existing and new
customers by bundling combinations of media and network services products that can be offered through a single access circuit
into our network.
Capacity Sparing and Backup and General Satellite Risk Management
As part of our satellite risk management, we continually evaluate, and design plans to mitigate, the areas of greatest risk
within our fleet, especially for those satellites with known technical risks. We believe that the availability of spare transponder
services capacity, together with the overlapping coverage areas of our satellites and flexible satellite design features described
in—Our Network—Satellite Systems above, are important aspects of our ability to provide reliable service to our customers. In
addition, these factors could help us to mitigate the financial impact to our operations attributable to the occurrence of a major
satellite anomaly, including the loss of a satellite. Although we do not maintain backup for all of our transponder services
33
operating capacity, we generally maintain some form of backup capacity for each satellite designated as being in primary
operating service. Our restoration backup capacity may include any one or more of the following:
•
•
•
designated reserve transponders on the satellite or other on-board backup systems or designed-in redundancies,
an in-orbit spare satellite, or
interim restoration capacity on other satellites.
In addition, we provide some capacity on a preemptible basis and could preempt the use of this capacity to provide
backup capacity in the event of a loss of a satellite.
We typically obtain launch insurance for our satellites before launch and will decide whether or not to obtain such
insurance taking into consideration launch insurance rates, terms of available coverage and alternative risk management
strategies, including the availability of backup satellites and transponders in the event of a launch failure. Launch insurance
coverage is typically in an amount equal to the fully capitalized cost of the satellite, which generally includes the construction
costs, the portion of the insurance premium related to launch, the cost of the launch services and capitalized interest (but may
exclude any unpaid incentive payments to the manufacturer).
As of December 31, 2018, four of the satellites in our fleet were covered by in-orbit insurance. In-orbit insurance
coverage may initially be for an amount comparable to launch insurance levels, generally decreases over time and is typically
based on the declining book value of the satellite. We do not currently insure against lost revenue in the event of a total or
partial loss of a satellite.
Satellite Health and Technology
Our satellite fleet is diversified by manufacturer and satellite type, and is generally healthy, with 99.997% transponder
availability on all satellites during the year ended December 31, 2018. We have experienced some technical problems with our
current fleet but have been able to minimize the impact of these problems on our customers, our operations and our business in
recent years. Many of these problems have been component failures and anomalies that have had little long-term impact to date
on the overall transponder availability in our satellite fleet. All of our satellites have been designed to accommodate an
anticipated rate of equipment failures with adequate redundancy to meet or exceed their orbital design lives, and to date, this
redundancy design scheme has proven effective. After each anomaly we have generally restored services for our customers on
the affected satellite, provided alternative capacity on other satellites in our fleet, or provided capacity that we purchased from
other satellite operators.
Significant Anomalies
On January 14, 2005, our Intelsat 804 satellite experienced a sudden and unexpected electrical power system anomaly
that resulted in the total loss of the satellite. Intelsat 804 was a Lockheed Martin 7000 series (the “LM 7000 series”) satellite,
and as of December 31, 2018 we operated one other satellite in the LM 7000 series, Intelsat 805. Based on the report of the
Failure Review Board that we established with Lockheed Martin Corporation, we believe that the Intelsat 804 failure was not
likely to have been caused by an Intelsat 804 specific workmanship or hardware element, but was most likely caused by a high
current event in the battery circuitry triggered by an electrostatic discharge that propagated to cause the sudden failure of the
high voltage power system. We therefore believe that although this risk exists for our other LM 7000 series satellite, the risk of
any individual satellite having a similar anomaly is low.
On April 5, 2010, our Galaxy 15 satellite experienced an anomaly resulting in our inability to command the satellite.
Galaxy 15 is a Star-2 satellite manufactured by Orbital Sciences Corporation. On December 23, 2010, we recovered command
of the spacecraft and we have since uploaded flight software code to protect against future anomalies of this type. As of
December 31, 2018, Galaxy 15 continues to provide normal service.
On April 22, 2011, our Intelsat 28 satellite, formerly known as 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. The anomaly had not been experienced previously on other STAR satellites
manufactured by Orbital Sciences Corporation, including those in our fleet. The New Dawn joint venture filed a partial loss
claim with its insurers relating to the C-band antenna reflector anomaly and all of the insurance proceeds from the partial loss
claim were received in 2011. The Ku-band antenna reflector deployed and that portion of the satellite is operating as planned,
entering service in June 2011. A Failure Review Board established to determine the cause of the anomaly, 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. The Failure Review Board also recommended corrective actions for Orbital Sciences
34
Corporation satellites not yet launched to prevent reoccurrence of the anomaly. Appropriate corrective actions were
implemented on Intelsat 18, which was successfully launched on October 5, 2011, and on Intelsat 23, which was launched in
October 2012.
During launch operations of Intelsat 19 on June 1, 2012, the satellite experienced damage to its south solar array.
Although both solar arrays are deployed, the power available to the satellite is less than is required to operate 100% of the
payload capacity. An Independent Oversight Board (“IOB”) was formed by SSL and Sea Launch to investigate the solar array
deployment anomaly. The IOB concluded that the anomaly occurred before the spacecraft separated from the launch vehicle,
during the ascent phase of the launch, and originated in one of the satellite’s two solar array wings due to a rare combination of
factors in the panel fabrication and was unrelated to the launch vehicle. While the satellite is operational, the anomaly resulted
in structural and electrical damage to one solar array wing, which reduced the amount of power available for payload operation.
Additionally, we filed a partial loss claim with our insurers relating to the solar array anomaly. We received $84.8 million of
insurance proceeds related to the claim in 2013. As planned, Intelsat 19 replaced Intelsat 8 at 166°E, in August 2012.
On February 1, 2013, the launch vehicle for our Intelsat 27 satellite failed shortly after liftoff and the satellite was
completely destroyed. A Failure Review Board was established and subsequently concluded that the launch failed due to the
mechanical failure of one of the first stage engine’s thrust control components. The satellite and launch vehicle were fully
insured, and we received $406.2 million of insurance proceeds in 2013.
During orbit raising of Intelsat 33e in September 2016, the satellite experienced a malfunction of the main satellite
thruster. Orbit raising was subsequently completed using a different set of satellite thrusters. The anomaly resulted in a delay of
approximately three months in reaching the geostationary orbit, as well as a reduction in the projected lifetime of the satellite.
Intelsat 33e entered service in January 2017. In addition, in February 2017, measurements indicated higher than expected fuel
use while performing stationkeeping maneuvers. There is no evidence of any impact to the communications payload. A Failure
Review Board has completed investigation of the primary thruster failure and the fuel use anomaly. We filed a loss claim with
our insurers in March 2017 relating to the reduction of life. As of December 31, 2018, we have settled with all insurers and
received total collection and settlement payments of $70 million in cash.
Other Anomalies
We have also identified four other types of common anomalies among the satellite models in our fleet, which have had an
operational impact in the past and could, if they materialize, have an impact in the future. These are:
•
•
•
•
failure of the on-board SCP in Boeing 601 (“BSS 601”) satellites;
failure of the on-board XIPS used to maintain the in-orbit position of Boeing 601 High Power Series (“BSS 601 HP”)
satellites;
accelerated solar array degradation in early Boeing 702 High Power Series (“BSS 702 HP”) satellites; and
failure of gyroscopes on certain SSL satellites.
SCP Failures. Many of our satellites use an on-board SCP to provide automatic on-board control of many operational
functions. SCPs are a critical component in the operation of such satellites. Each such satellite has a backup SCP, which is
available in the event of a failure of the primary SCP. Certain BSS 601 satellites have experienced SCP failures. The risk of
SCP failure appears to decline as these satellites age.
As of December 31, 2018, we operated one BSS 601 satellite, Intelsat 26. This satellite was identified as having
heightened susceptibility to the SCP problem. Intelsat 26 has been in continuous operation since 1997. Both primary and
backup SCPs on this satellite are monitored regularly and remain fully functional. Accordingly, we believe it is unlikely that
additional SCP failures will occur. Intelsat 26 is expected to be removed from its in-orbit position in 2019.
BSS 601 HP XIPS. The BSS 601 HP satellite uses XIPS as its primary propulsion system. There are two separate XIPS on
each satellite, each one of which is capable of maintaining the satellite in its orbital position. The BSS 601 HP satellite also has
a completely independent chemical propulsion system as a backup to the XIPS. As a result, the failure of a XIPS on a BSS 601
HP satellite typically would have no effect on the satellite’s performance or its operating life. However, the failure of both XIPS
would require the use of the backup chemical propulsion system, which could result in a shorter operating life for the satellite
depending on the amount of chemical fuel remaining. XIPS failures do not typically result in a catastrophic failure of the
satellite or affect the communications capability of the satellite.
35
As of December 31, 2018, we operated four BSS 601 HP satellites, Intelsat 5, Intelsat 9, and Intelsat 10, which are now in
inclined orbit, and Galaxy 13/Horizons 1. Galaxy 13/Horizons 1 has one XIPS system available as its primary propulsion
system. Intelsat 5, Intelsat 9 and Intelsat 10 have experienced the failure of both XIPS and are operating on their backup
chemical propulsion systems. Intelsat 5 was redeployed in 2012 following its replacement by Intelsat 8, which was
subsequently replaced by Intelsat 19. Also in 2012, Intelsat 9 and Intelsat 10 were redeployed following their replacements by
Intelsat 21 and Intelsat 20, respectively. No assurance can be given that we will not have further XIPS failures that result in
shortened satellite lives. We have decommissioned three satellites that had experienced failure of both XIPS. Intelsat 6B was
replaced by Intelsat 11 during the first quarter of 2008, Galaxy 10R was replaced by Galaxy 18 during the second quarter of
2008, and Galaxy 4R was decommissioned in March 2009.
BSS 702 HP Solar Arrays. All of our satellites have solar arrays that power their operating systems and transponders and
recharge the batteries used when solar power is not available. Solar array performance typically degrades over time in a
predictable manner. Additional power margins and other operational flexibility are designed into satellites to allow for such
degradation without loss of performance or operating life. Certain BSS 702 HP satellites have experienced greater than
anticipated degradation of their solar arrays resulting from the design of the solar arrays. Such degradation, if continued, results
in a shortened operating life of a satellite or the need to reduce the use of the communications payload.
As of December 31, 2018, we operated three BSS 702 HP satellites, two of which are affected by accelerated solar array
degradation, Galaxy 11 and Intelsat 1R. Service to customers has not been affected, and we expect that both of these satellites
will continue to serve customers until we replace or supplement them with new satellites. Along with the manufacturer, we
continually monitor the problem to determine its cause and its expected effect. Due to this continued degradation, Galaxy 11
was redeployed following its replacement by Intelsat 34. Intelsat 1R was redeployed following its replacement by Intelsat 14.
The third BSS 702 HP satellite that we operated as of December 31, 2018, Galaxy 3C, was launched after the solar array
anomaly was identified, and it has a substantially different solar array design intended to eliminate the problem. This satellite
has been in service since September 2002 and has not experienced similar degradation problems.
SSL gyroscopes. Some of our satellites use gyroscopes to provide 3-axes attitude information during orbit inclination
maneuvers. Certain SSL satellites use gyroscopes that have been identified as having a higher probability of failing. There are
four gyroscopes on each of these SSL satellites, three of which are needed for normal operation, and the fourth is a spare. The
failure of a single gyroscope on a given satellite would have no effect on the satellite’s performance or its operating life. A
failure of two or more gyroscopes on a given satellite would require us to use an alternative method for inclination control. This
alternative method would likely result in a reduction in the remaining life of the satellite. As of December 31, 2018, we
operated 11 SSL satellites that use these gyroscopes, five of which are in inclined orbit. While in inclined orbit, inclination
maneuvers are no longer required. The six satellites in station-kept orbit, are being operated through an alternative method for
inclination control.
Regulation
As an operator of a privately owned global satellite system, we are subject to U.S. government regulation, regulation by
foreign national telecommunications authorities and the ITU frequency coordination process and regulations.
U.S. Government Regulation
FCC Regulation. The majority of the satellites in our current constellation are licensed and regulated by the FCC. We
have final or temporary FCC authorization for all of our U.S.-licensed operating satellites. The special temporary authorizations
(“STAs”) in effect relating to our satellites cover various time periods, and thus the number held at any given time varies. In
some cases, we have sought STAs because we needed temporary operational authority while we are awaiting grant of identical
permanent authority. In others, we sought STAs because the activity was temporary in nature, and thus no permanent authority
was needed. Historically, we have been able to obtain the STAs that we have needed on a timely basis. FCC satellite licenses
have a fifteen-year term. At the end of a license term, we can request an extension to continue operating a satellite. In addition,
our FCC satellite licenses that relate to use of those orbital locations and associated frequencies that were transferred to the
United States at the time of our privatization in July 2001 are conditioned on our remaining a signatory to the Public Services
Agreement with ITSO. Furthermore, any transfer of these licenses by us to a successor-in-interest is only permitted if such
successor-in-interest has undertaken to perform our obligations under the Public Services Agreement. Some of our
authorizations contain waivers of technical regulations. Many of our technical waivers were required when our satellites were
initially licensed by the United States at privatization in 2001 because, as satellites previously operated by an intergovernmental
entity, they had not been built in compliance with certain U.S. regulations. Since privatization, several replacement satellites for
satellites licensed at privatization also have needed technical waivers as they are technically similar to the satellites they are
replacing.
36
Changes to our satellite system generally require prior FCC approval. From time to time, we have pending applications
for permanent or temporary changes in orbital locations, frequencies and technical design. From time to time, we also file
applications for replacement or additional satellites. Replacement satellite applications are eligible for streamlined processing if
they seek authority for the same orbital location, frequency bands and coverage area as an existing satellite and will be brought
into use at approximately the same time, but no later than, the existing satellite is retired. The FCC processes satellite
applications for new orbital locations or frequencies on a first come, first served basis. The FCC requires licensees of new, non-
replacement, geostationary satellites to post a bond and to comply with a milestone to launch and operate the satellite within
five years of the license grant. The bond starts at $1 million and increases, pro rata, in proportion to the time that has elapsed
since the license was granted to the time of the launch and operate milestone. At the end of the five-year period, the bond
amount will be $3 million. A satellite licensee that does not satisfy the launch and operate milestone will lose its license and
must forfeit the bond absent circumstances warranting a milestone extension under the FCC’s rules and policies. An operator
that elects to relinquish its license prior to the five-year launch and operate milestone will forfeit the amount of accrued bond as
of the date the license is relinquished. We hold other FCC licenses, including earth station licenses associated with technical
facilities located in several states and licenses for terminals. We must pay FCC filing fees in connection with our space station
and earth station applications, and we must also pay annual regulatory fees to the FCC. Violations of the FCC’s rules can result
in various sanctions including fines, loss of authorizations or the denial of applications for new authorizations or the renewal of
existing authorizations.
One of our subsidiaries holds a Section 214 authorization. However, we currently do not sell services as a common
carrier. Therefore, we are not subject to rate regulation or the obligation not to discriminate among customers.
U.S. Export Control Requirements and Sanctions Regulation. Intelsat must comply with U.S. export control and trade
sanctions laws and regulations as follows:
Under the Export Control Reform (“ECR”) effort, authorized by Congress and the President, the control of commercial
communications satellites along with their associated ground control equipment, related software, and technology was moved,
effective November 10, 2014, from the International Traffic in Arms Regulations (“ITAR”) to the Export Administration
Regulations (“EAR”). Originally there was a two-year timeframe allowed for companies to make this change. This transition
timeframe expired in November 2017. Intelsat has transitioned our export authorizations in response to the new regulatory
licensing requirements created by this reform. Intelsat has moved all programs to EAR authorizations, as needed.
The Arms Export Control Act, implemented by ITAR and administered by the U.S. Department of State’s Directorate of
Defense Trade Controls (“DDTC”), regulates the export of certain satellites with defined military and government end use
capabilities and characteristics, certain associated hardware, defense services, and technical information relating to satellites to
non-U.S. persons (including satellite manufacturers, component suppliers, launch services providers, insurers, customers,
Intelsat employees, and other non-U.S. persons). Intelsat has made the regulatory transition from the ITAR to the EAR, and a
small portion of our controlled technology remains under ITAR. Intelsat does not currently have any active ITAR licenses.
Standard satellite operations were de-controlled as part of the regulatory update, and that technology is now being exported
without the need for authorization. Certain of Intelsat’s contracts for consulting, manufacture, launch, and insurance of
Intelsat’s and third-party satellites involve the export to non-U.S. persons of technical data and/or hardware; these exports are
those that were regulated by the ITAR are now controlled under the EAR, and have been transitioned to EAR authorizations.
We believe that we do not currently need any ITAR authorizations to fulfill our obligations under contracts with non-U.S.
entities.
The Export Administration Act/International Emergency Economic Powers Act, implemented by the EAR and
administered by the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”), regulates exports of non-ITAR,
dual-use, controlled items, which as a result of ECR now includes commercial communications satellites, associated ground
equipment, related software, and technology. The EAR also controls non-ITAR equipment exported to earth stations in our
ground network located outside of the United States and to customers as needed. Intelsat uses EAR approved licensing
exceptions for many of our export-controlled programs, and EAR licenses as required. It is our practice to obtain all licenses
necessary, or correctly document the license exception authorized, for the furnishing of original or spare equipment for the
operation of our TT&C ground stations, other network stations, and customer locations in a timely manner to facilitate the
shipment of this equipment when needed.
Trade sanctions laws and regulations administered by the U.S. Department of Treasury’s Office of Foreign Assets Control
(“OFAC”) regulate the provision of services to certain countries subject to U.S. trade sanctions. As required, Intelsat holds the
authorizations needed to provide satellite capacity and related administrative services to U.S.-sanctioned countries.
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U.S. Department of Defense Security Clearances. To participate in classified U.S. government programs, we entered into
a proxy agreement with the U.S. government that allows one of our subsidiaries to obtain security clearances from the U.S.
Department of Defense as required under the national security laws and regulations of the United States. Such a proxy
agreement is required to insulate the subsidiary performing this work from inappropriate foreign influence and control by
Intelsat S.A., a Luxembourg company with significant non-U.S. investments and employees. Security clearances are subject to
ongoing scrutiny by the issuing agency, as well as renewal every five years. Intelsat must maintain the security clearances
obtained from the U.S. Department of Defense, or else lose the ability to perform our obligations under any classified U.S.
government contracts to which our subsidiary is a party. Under those circumstances, the U.S. government would have the right
to terminate our contracts requiring access to classified information and we would not be able to enter into new classified
contracts. Compliance with the proxy agreement is regularly monitored by the U.S. Department of Defense and reviewed at
least annually, and if we materially violate the terms of the proxy agreement, the subsidiary holding the security clearances may
be suspended or debarred from performing any U.S. government contracts, whether classified or unclassified. Our current
proxy agreement is subject to extension every five years with the agreement of the U.S. Department of Defense.
Regulation by Non-U.S. National Telecommunications Authorities
U.K. Regulation. The United Kingdom is the licensing jurisdiction for the Intelsat 12 and Intelsat 26 satellites. Satellite
operators in the United Kingdom are regulated by Ofcom and by the UKSA.
Papua New Guinea Regulation. NICTA regulates the use of certain spectrum and orbital resources associated with some
of our satellites. Specifically, the following satellites were operated under the regulation of NICTA for all or part of, the year
ended December 31, 2018: Galaxy 23, Intelsat 26, Intelsat 30, Intelsat 31, Intelsat 29e, Intelsat 33e, and Intelsat 36. We are
required to pay annual fees to NICTA in connection with the spectrum and orbital resources utilized by these satellites, as well
as for other satellite network filings we have the right to use. In 2003, the FCC added the C-band payload of the Galaxy 23
satellite, which is licensed by NICTA, to its “Permitted Space Station List,” enabling use of the payload to provide non-DTH
services in the United States.
German Regulation. We hold licenses from the BNetzA for several earth stations in Germany, as well as authorizations to
use spectrum and orbital resources associated with the operation of the Intelsat 10, Intelsat 12, Intelsat 38, Intelsat 904 and
Galaxy 11 satellites and with future satellites. We are required to pay annual fees to BNetzA in connection with the spectrum
and orbital resources utilized by these satellites, as well as for other satellite network filings we have the right to use.
Australian Regulation. We hold licenses from the Australian Communications and Media Authority (“ACMA”) for
several earth stations in Australia, as well as a Nominated Carrier Declaration.
Japanese Regulation. We hold licenses from the Ministry of Internal Affairs and Communications for several earth
stations in Japan, terminals, as well as Carrier registrations. We and JSAT are the sole members of Horizons Holdings, and in
2002 the Japanese telecommunications ministry authorized Horizons to operate the Ku-band payload on the Galaxy 13/
Horizons 1 satellite. In 2003, the FCC added this Ku-band payload to its “Permitted Space Station List,” enabling Horizons to
use the payload to provide non-DTH services in the United States. In May 2004, the FCC expanded this authority to include
one-way DTH services. We are the exclusive owner of the C-band payload on Galaxy 13/Horizons 1, which the FCC has
licensed us to operate.
Other National Telecommunications Authorities. As a provider of satellite capacity and services, we are also subject to
the national communications and broadcasting laws and regulations of many other countries in which we operate. In addition,
in some cases our ability to operate a satellite in a non-U.S. jurisdiction also arises from a contractual arrangement with a third
party. Some countries require us to obtain a license or other form of written authorization from the regulator prior to offering
satellite capacity services. We have obtained these licenses or written authorizations in all countries that have required us to
obtain them. As satellites are launched or relocated, we determine whether such licenses or written authorizations are required
and, if so, we obtain them. Most countries allow authorized telecommunications providers to own their own transmission
facilities and to purchase satellite capacity without restriction, facilitating customer access to our services. Other countries
maintain strict monopoly regimes or otherwise regulate the provision of our services. In order to provide services in these
countries, we may need to negotiate an operating agreement with a monopoly entity that covers the types of services to be
offered by each party, the contractual terms for service and each party’s rates. As we have developed our ground network and
expanded our service offerings, we have been required to obtain additional licenses and authorizations. To date, we believe that
we have identified and complied with all of the regulatory requirements applicable to us in connection with our ground network
and expanded services.
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The International Telecommunication Union Frequency Coordination Process and Associated Regulations
Our use of orbital locations is subject to the frequency coordination and recording process of the ITU. In order to protect
satellite networks from harmful radio frequency interference from other satellite networks, the ITU maintains a Master
International Frequency Register (“MIFR”) of radio frequency assignments and their associated orbital locations. Each ITU
notifying administration is required by treaty to give notice of, coordinate and record its proposed use of radio frequency
assignments and associated orbital locations with the ITU’s Radiocommunication Bureau.
When a frequency assignment is recorded in the MIFR, the ITU publishes this information so that all potential users of
frequencies and orbital locations are aware of the need to protect the recorded assignments associated with a given orbital
location from subsequent or nonconforming interfering uses by Member States of the ITU. The ITU’s Radio Regulations do not
contain mandatory dispute resolution or enforcement mechanisms. The Radio Regulations’ arbitration procedure is voluntary
and neither the ITU specifically, nor international law generally, provides clear remedies if this voluntary process fails. Only
nation states have full standing as ITU members. Therefore, we must rely on governments to represent our interests before the
ITU, including obtaining new rights to use orbital locations and resolving disputes relating to the ITU’s regulations.
An operator may submit an ITU satellite network filing to the FCC for forwarding to the ITU prior to the operator filing a
complete FCC license application. Submission of such an ITU filing will reserve for the operator a place in the FCC’s first
come, first served licensing queue provided the operator posts a $500,000 bond. If the operator fails within two years to file a
complete FCC license application for the orbital location, frequencies and polarization proposed in the ITU satellite network
filing, the bond will be forfeited.
Environmental Matters
Our operations are subject to various laws and regulations relating to the protection of the environment, including those
governing the management, storage and disposal of hazardous materials and the cleanup of contamination. As an owner or
operator of property and in connection with current and historical operations at some of our sites, we could incur significant
costs, including cleanup costs, fines, sanctions and third-party claims, as a result of violations of or liabilities under
environmental laws and regulations. For instance, some of our operations require continuous power supply, and, as a result,
current and past operations at our teleports and other technical facilities include fuel storage and batteries for back-up power
generators. We believe, however, that our operations are in substantial compliance with environmental laws and regulations.
C. Organizational Structure
Intelsat S.A. is a holding company with 53 subsidiaries incorporated in the U.S., Luxembourg, Bermuda, Australia,
Brazil, China, Hong Kong, Cayman Islands, France, Germany, Gibraltar, India, Ireland, Mexico, the Russian Federation,
Singapore, South Africa, and the United Kingdom as of December 31, 2018. All of the aforementioned subsidiaries are wholly-
owned by us. A list of our significant subsidiaries as of December 31, 2018 is set forth in Exhibit 8.1 to this Annual Report.
D. Property, Plant and Equipment
We lease approximately 217,650 square feet of office space in McLean, Virginia for our U.S. administrative headquarters
and primary satellite operations center. The building also houses the majority of our sales and marketing support staff and other
administrative personnel. The lease for the building expires on July 31, 2029.
We own a facility in Ellenwood, Georgia in which our primary customer service center is located, together with our
Atlanta Teleport. The facility has approximately 130,000 square feet of office space and operations facilities, which are based
in two buildings and multiple antenna shelters and 68 antennas on the property. See Item 4B—Business Overview—Our
Network—Network Operations and Current Ground Facilities for a description of this facility.
Our backup satellite operations center is located at a facility that we own in Long Beach, California, which includes
approximately 68,875 square feet for administrative and operational facilities. We have entered into two lease agreements for
20,900 square feet with two third-party tenants.
We use a worldwide terrestrial ground network to operate our satellite fleet and to manage the communications services
that we provide to our customers. This network is comprised of 65 owned and leased earth station and teleport facilities around
the world, including 21 teleports that allows us to perform TT&C services.
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The eight teleports in our terrestrial ground network that we own are located in Hagerstown, Maryland, Ellenwood,
Georgia, Castle Rock, Colorado, Fillmore, Napa and Riverside, California, Paumalu, Hawaii and Fuchsstadt, Germany. We
lease facilities at 57 other locations for satellite and commercial operations worldwide. We also contract with the owners of
some of these facilities for the provision of additional services. The locations of other earth stations in our ground network
include Argentina, Australia, Bahrain, Brazil, Canada, Chile, Colombia, Germany, India, Italy, Kazakhstan, Kenya, Mongolia,
the Netherlands, New Zealand, Nigeria, Norway, Peru, South Korea, South Africa, Taiwan, the United Arab Emirates, and the
United States. Our network also consists of the leased communications links that connect the earth stations to our satellite
operations center located at our McLean, Virginia location and to our back-up operations facility.
We have established PoPs connected by leased fiber at key traffic exchange points around the world, including Atlanta,
Los Angeles, New York, McLean, Miami, Palo Alto and London. We lease our facilities at these traffic exchange points. We
have also established video PoPs connected by leased fiber at key video exchange points around the world, including
Johannesburg, Los Angeles, Denver, New York, Washington, D.C., Miami and London. We lease our facilities at these video
exchange points. We use our teleports and PoPs in combination with our satellite network to provide our customers with
managed data and video services.
We lease office space in Luxembourg and London, England. Our Luxembourg office serves as the global headquarters for
us and our Luxembourg parents and subsidiaries. Our London office houses the employees of Intelsat Global Sales and
Marketing Ltd., our sales and marketing subsidiary, and administrative support, and functions as our global sales headquarters.
We also lease office space in Florida, Australia, Brazil, China, France, Germany, India, Japan, Kenya, Mexico, the
Russian Federation, Singapore, South Africa, Senegal and the United Arab Emirates for our local sales and marketing and
administrative support offices.
The leases relating to our TT&C earth stations, teleports, PoPs and office space expire at various times. We do not believe
that any such properties are individually material to our business or operations, and we expect that we could find suitable
properties to replace such locations if the leases were not renewed at the end of their respective terms.
Item 4A.
Unresolved Staff Comments
Not applicable.
Item 5.
Operating and Financial Review and Prospects
This discussion should be read together with Item 3A—Selected Financial Data and our consolidated financial
statements and their notes included elsewhere in this Annual Report. Our consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and, unless otherwise indicated,
the other financial information contained in this Annual Report has also been prepared in accordance with U.S. GAAP. See
“Forward-Looking Statements” and Item 3D—Risk Factors, for a discussion of factors that could cause our future financial
condition and results of operations to be different from those discussed below. Certain monetary amounts, percentages and
other figures included in this Annual 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. Unless otherwise indicated, all references to “dollars” and “$” in this Annual Report are to, and all monetary
amounts in this Annual Report are presented in, U.S. dollars.
Overview
We operate one of the world’s largest satellite services businesses, providing a critical layer in the global communications
infrastructure.
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 in the air and on the
seas, 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.
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Our customers use our Global Network for a broad range of applications, from global distribution of content for media
companies to providing the transmission layer for commercial aeronautical consumer broadband connectivity, to enabling
essential network backbones for telecommunications providers in high-growth emerging regions.
Our network solutions are a critical component of our customers’ infrastructures and business models. Generally, our
customers need the specialized connectivity that satellites provide so long as they are in business or pursuing their mission. In
recent years, mobility services providers have contracted for services on our fleet that support broadband connections for
passengers on commercial flights and cruise ships, connectivity that in some cases is only available through our network. In
addition, our satellite neighborhoods provide our media customers with efficient and reliable broadcast distribution that
maximizes audience reach, a technical and economic benefit that is difficult for terrestrial services to match. In developing
regions, our satellite solutions often provide higher reliability than is available from local terrestrial telecommunications
services and allow our customers to reach geographies that they would otherwise be unable to serve.
Critical Accounting Policies
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and
assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if: (1) it
requires assumptions to be made that were uncertain at the time the estimate was made; and (2) changes in the estimate, or
selection of different estimates, could have a material effect on our consolidated results of operations or financial condition.
We believe that some of the more important estimates and related assumptions that affect our financial condition and
results of operations are in the areas of revenue recognition, the allowance for doubtful accounts, asset impairments, income
taxes and pension and other postretirement benefits.
In January 2018, we adopted the Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with
Customers (Topic 606) using the modified retrospective method. We recognized the cumulative effect of initially applying the
new standard as an adjustment to the opening balance of accumulated deficit. The comparative information has not been
restated and continues to be reported under the accounting standards in effect for those periods. Based on our assessment, the
adoption of the new standard impacts the total consideration for prepayment contracts, accounting of incremental costs for
obtaining a contract, allocation of the transaction price to performance obligations and accounting for contract modifications,
and requires additional disclosures.
While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information presently
available. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result
of unforeseen events or otherwise could have a material impact on our financial position or results of operations.
Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts
Revenue Recognition. We earn revenue primarily from satellite utilization services and, to a lesser extent, from providing
managed services to our customers. The Company’s contracts for satellite utilization services often contain multiple service
orders for the provision of capacity on or over different beams, satellites, frequencies, geographies or time periods. Under each
separate service order, the Company’s satellite services, comprised of transponder services, managed services, channel services,
and occasional use managed services, are delivered in a series of time periods that are distinct from each other and have the
same pattern of transfer to the customer. In each period, the Company’s obligation is to make those services available to the
customer. Throughout each period of services being provided, the customer simultaneously receives and consumes the benefits,
resulting in revenue recognition over time. Our contract assets include unbilled amounts typically resulting from sales under
our long-term contracts when the total contract value is recognized on a straight-line basis and the revenue recognized exceeds
the amount billed to the customer. Contract liabilities consist of advance payments and collections in excess of revenue
recognized and deferred revenue.
While the majority of our revenue transactions contain standard business terms and conditions, there are certain
transactions that contain non-standard business terms and conditions. As a result, significant contract interpretation is
sometimes required to determine the appropriate accounting for these transactions, including but not limited to:
• whether contracts with a prepayment contain a significant financing component;
• whether an arrangement should be reported gross as a principal versus net as an agent; and
• whether an arrangement contains a service contract or a lease.
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In addition, our revenue recognition policy requires an assessment as to whether collection is reasonably assured, which
requires us to evaluate the creditworthiness of our customers. Changes in judgments in making these assumptions and
estimates could materially impact the timing and/or amount of revenue recognition.
Allowance for Doubtful Accounts. Our allowance for doubtful accounts is determined through a subjective evaluation of
the aging of our accounts receivable, and considers such factors as the likelihood of collection based upon an evaluation of the
customer’s creditworthiness, the customer’s payment history and other conditions or circumstances that may affect the
likelihood of payment, such as political and economic conditions in the country in which the customer is located. If our
estimate of the likelihood of collection is not accurate, we may experience lower revenue or a change in our provision for
doubtful accounts.
Asset Impairment Assessments
Goodwill. We account for goodwill and other intangible assets in accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC” or the “Codification”) Topic 350—Intangibles—Goodwill and Other.
Under this topic, goodwill acquired in a business combination and determined to have an indefinite useful life is not amortized
but is tested for impairment annually or more often if an event or circumstances indicate that an impairment loss has been
incurred. We are required to identify reporting units for impairment analysis. We have identified only one reporting unit for the
goodwill impairment test. Additionally, our identifiable intangible assets with estimable useful lives are amortized based on the
expected pattern of consumption for each respective asset.
Assumptions and Approach Used. We make our qualitative evaluation considering, among other things, general
macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant
entity-specific events.
At December 31, 2017, we reassessed the different qualitative factors and updated our assessment. Based on our review,
since the fixed and mobile satellite services industry was under pressure (pricing over-supply, value-chain inefficiencies) and
since comparable companies had demonstrated negative to minimal revenue growth with equities underperforming, we
determined that a quantitative assessment of goodwill was appropriate. Based on our quantitative analysis, we concluded that
there was no impairment for goodwill at December 31, 2017.
Based on our qualitative assessment performed at December 31, 2018, we concluded that there was not a likelihood of
more than 50% that the fair value of our reporting unit was less than its carrying value; therefore, no further testing of goodwill
was required.
Orbital Locations and Trade Name. Intelsat is authorized by governments to operate satellites at certain orbital locations
—i.e., longitudinal coordinates along the Clarke Belt. The Clarke Belt is the part of space approximately 35,800 kilometers
above the plane of the equator where geostationary orbit may be achieved. Various governments acquire rights to these orbital
locations through filings made with the ITU, a sub-organization of the United Nations. We will continue to have rights to
operate satellites at our orbital locations so long as we maintain our authorizations to do so. See “Part I—Item 3D—Risk
Factors—Risk Factors Relating to Regulation”.
Our rights to operate at orbital locations can be used and sold individually; however, since satellites and customers can be
and are moved from one orbital location to another, our rights are used in conjunction with each other as a network that can be
adapted to meet the changing needs of our customers and market demands. Due to the interchangeable nature of orbital
locations, the aggregate value of all of the orbital locations is used to measure the extent of impairment, if any.
At December 31, 2017 and 2018, we determined, based on an examination of qualitative factors, that there was no
impairment of our orbital locations and trade name.
Long-Lived and Amortizable Intangible Assets. We review our long-lived and amortizable intangible assets to assess
whether an impairment has occurred in accordance with the guidance provided under FASB ASC Topic 360—Property, Plant
and Equipment, whenever events or changes in circumstances indicate, in our judgment, that the carrying amount of an asset
may not be recoverable. These indicators of impairment can include, but are not limited to, the following:
•
•
•
satellite anomalies, such as a partial or full loss of power;
under-performance of an asset as compared to expectations; and
shortened useful lives due to changes in the way an asset is used or expected to be used.
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The recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the
estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its
estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of
the asset exceeds its fair value, determined by either a quoted market price, if any, or a value determined by utilizing discounted
cash flow techniques. Additionally, when assets are expected to be used in future periods, a shortened depreciable life may be
utilized if appropriate, resulting in accelerated depreciation.
Assumptions and Approach Used. We employ a discounted future cash flow approach to estimate the fair value of our
long lived intangible assets when an impairment assessment is required.
Income Taxes
We account for income taxes in accordance with the guidance provided under the Income Taxes topic of the Codification
(“FASB ASC 740”). We are subject to income taxes in Luxembourg as well as a number of foreign jurisdictions, including the
United States. Significant judgment is required in the calculation of our tax provision and the resultant tax liabilities and in the
recoverability of our deferred tax assets that arise from temporary differences between the tax and financial statement
recognition of revenue and expense and net operating loss and credit carryforwards.
We regularly assess the likelihood that our deferred tax assets can be recovered. A valuation allowance is required when it
is more likely than not that all or a portion of the deferred tax asset will not be realized. We evaluate the recoverability of our
deferred tax assets based in part on the existence of deferred tax liabilities that can be used to realize the deferred tax assets.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax
determination is uncertain. We evaluate our tax positions to determine if it is more likely than not that a tax position is
sustainable, based solely on its technical merits and presuming the taxing authorities have full knowledge of the position, and
access to all relevant facts and information. When a tax position does not meet the more likely than not standard, we record a
liability for the entire amount of the unrecognized tax impact. Additionally, for those tax positions that are determined more
likely than not to be sustainable, we measure the tax position at the largest amount of benefit more likely than not (determined
by cumulative probability) to be realized upon settlement with the taxing authority.
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.
Expenses for our defined benefit retirement plan and for postretirement medical benefits that are provided under our
medical plan are developed from actuarial valuations. 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.
Key assumptions, including discount rates used in determining the present value of future benefit payments and expected
return on plan assets, are reviewed and updated on an annual basis. The discount rates reflect market rates for high-quality
corporate bonds. We consider current market conditions, including changes in interest rates, in making assumptions. The
Society of Actuaries (“SOA”) issued new mortality and mortality improvement tables and modified those tables in 2016, 2017
and 2018. Our December 31, 2018 valuation used mortality and improvement tables based on the SOA tables, adjusted to
reflect (1) an ultimate rate of mortality improvement consistent with both historical experience and U.S. Social Security long-
term projections, and (2) a shorter transition period to reach the ultimate rate, which is consistent with historical patterns. In
establishing the expected return on assets assumption, we review the asset allocations considering plan maturity and develop
return assumptions based on different asset classes. The return assumptions are established after reviewing historical returns of
broader market indexes, as well as historical performance of the investments in the plan.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability by
recognizing substantially all leases on the balance sheet. Under the new standard, a lessee will recognize on its balance sheet a
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lease liability and a right-of-use (“ROU”) asset for most leases, with certain practical expedients available. ASU 2016-02 is
effective for interim and annual periods beginning after December 15, 2018. Subsequent to ASU 2016-02, the FASB issued
ASU 2018-10 Codification Improvements to Topic 842, Leases, ASU 2018-11 Targeted Improvements, and ASU 2018-20
Narrow-Scope Improvements for Lessors, which amend and clarify aspects of the guidance issued in ASU 2016-02. ASU
2018-11 provides an alternative transition method (the “effective date method”).
We intend to adopt ASU 2016-02 on January 1, 2019 and apply the package of practical expedients included therein, as
well as utilize the effective date method included in ASU 2018-11. Under the package of practical expedients, we will not
reassess (a) whether expired or existing contracts contain a lease under the new definition of a lease, (b) lease classification for
expired or existing leases, and (c) whether previously capitalized initial direct costs would qualify for capitalization under
Topic 842. We also intend to apply the practical expedients for lessees and lessors to exempt short term leases and to account
for each non lease component associated with a lease component as a single component when the applicable criteria are met.
By applying ASU 2016-02 at the adoption date, as opposed to at the beginning of the earliest period presented, our reporting for
periods prior to January 1, 2019 will continue to be in accordance with Leases (Topic 840). In preparation for adoption of the
standard, we have implemented internal controls and key system functionality to enable the preparation of the necessary
financial information.
The new standard will have a material impact on our consolidated balance sheets, and we expect to recognize ROU assets
and related lease liabilities for operating leases in the range of $85.0 million to $95.0 million, and $110.0 million to $120.0
million, respectively, with no material impact on our consolidated statement of operations and statement of cash flows. The
new standard may have lessor accounting implications where certain future contracts that convey the right to control the use of
a significant portion of the satellite may be accounted for using an approach that is substantially equivalent to existing guidance
for sales-type leases, direct financing leases and operating leases, which could potentially result in more upfront revenue
recognition.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, which changes how companies measure and recognize credit impairment for any financial
assets. The standard requires companies to immediately recognize an estimate of credit losses expected to occur over the
remaining life of the financial assets that are within the scope of the standard. The scope of Subtopic 326-20, Financial
Instruments - Credit Losses - Measured at Amortized Cost, includes financial assets measured at amortized cost basis, including
net investments in leases arising from sales-type and direct financing leases. The scope does not specifically address
receivables arising from operating leases. In November 2018, the FASB issued 2018-19, Codification Improvements to Topic
326, Financial Instruments—Credit Losses to clarify that receivables arising from operating leases are not within the scope of
Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with
Topic 842, Leases. Both ASU 2016-13 and ASU 2018-19 are effective for interim and annual periods beginning after
December 15, 2019 for public business entities that are SEC filers, on a modified retrospective basis. Early adoption is
permitted for interim and annual periods beginning after December 15, 2018. We are in the process of evaluating the impact
that ASU 2016-13 and ASU 2018-19 will have on our consolidated financial statements and associated disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment, which is intended to simplify the subsequent measurement of goodwill. The amendments in ASU
2017-04 modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its fair
value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity will no longer
determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit
to all of its assets and liabilities, as if that reporting unit had been acquired in a business combination. ASU 2017-04 will be
effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019 for public
business entities, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates after January 1, 2017. When adopted, we will measure impairment using the difference between the carrying
amount and the fair value of the reporting unit, if required.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220),
which allows for an optional reclassification from accumulated other comprehensive income to retained earnings for stranded
tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting
from the Tax Cuts and Jobs Act for those entities that elect the optional reclassification. The amendments in this update will
also require certain disclosures about stranded tax effects. ASU 2018-02 is effective for all entities for interim and annual
periods beginning after December 15, 2018. The adoption of ASU 2018-02 is not expected to have a significant impact on our
consolidated financial statements and associated disclosures.
44
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), as part of its disclosure framework
project to improve the effectiveness of disclosures in the notes to financial statements. ASU 2018-13 modifies disclosure
requirements on fair value measurements in Topic 820, and is effective for all entities for interim and annual periods beginning
after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of
significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement
uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year
of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early
adoption is allowed for any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption for the
additional disclosures until their effective date. We are in the process of evaluating the impact that ASU 2018-13 will have on
our consolidated financial statements and associated disclosures.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General
(Subtopic 715-20), as part of its disclosure framework project to improve the effectiveness of disclosures in the notes to
financial statements. ASU 2018-14 modifies and clarifies disclosure requirements for employers that sponsor defined benefit
pension or other postretirement plans. The amendments remove certain disclosure requirements and require additional
disclosures including the weighted-average interest crediting rates for cash balance plans and other plans with promised interest
crediting rates, an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the
period, the projected benefit obligation "PBO" and fair value of plan assets for plans with PBOs in excess of plan assets, and
the accumulated benefit obligation "ABO" and fair value of plan assets for plans with ABOs in excess of plan assets. ASU
2018-14 is effective for public business entities for fiscal years ending after December 15, 2020, on a retrospective basis to all
periods presented with early adoption allowed. We are in the process of evaluating the impact that ASU 2018-14 will have on
our consolidated financial statements and associated disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other Internal-Use Software (Subtopic
350-40), to improve current U.S. GAAP by clarifying the accounting for implementation costs of a hosting arrangement that is
a service contract. The amendments align the requirements for capitalizing implementation costs incurred in a cloud computing
arrangement (hosting arrangement) that is a service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
The amendments require costs for implementation activities in the application development stage to be capitalized depending
on the nature of the costs, and costs incurred during the preliminary project and post-implementation stages to be expensed as
the activities are performed. ASU 2018-15 also requires the entity (customer) to expense capitalized implementation costs of a
hosting arrangement that is a service contract over the term of the hosting arrangement, and the entity (customer) to present the
expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated
with the hosting element (service) of the arrangement, as well as to classify payments for capitalized implementation costs in
the statement of cash flows in the same manner as payments made for fees associated with the hosting element. ASU 2018-15
is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years. ASU 2018-15 can be applied either retrospectively or prospectively to all implementation costs incurred after the
date of adoption, with early adoption allowed. We are in the process of evaluating the impact that ASU 2018-15 will have on
our consolidated financial statements and associated disclosures.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808) - Clarifying the Interaction
between Topic 808 and Topic 606, to clarify the interaction between Topic 808, Collaborative Arrangements and Topic 606,
Revenue from Contracts with Customers. ASU 2018-18 is effective for public business entities for fiscal years beginning after
December 15, 2019, and interim periods within those fiscal years, with early adoption allowed. ASU 2018-18 can be applied
retrospectively to the date of initial application of Topic 606, with cumulative effect of initially applying the amendments in
this update adjusted to the opening balance of retained earnings of the later of the earliest annual period presented and the
annual period that includes the date of the entity's initial application of Topic 606. The amendments in ASU 2018-18 can be
applied to all contracts or only to contracts that are not completed at the date of initial application of Topic 606. We are in the
process of evaluating the impact that ASU 2018-18 will have on our consolidated financial statements and associated
disclosures.
Revenue
Revenue Overview
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.
The master customer agreements and related service orders under which we sell services specify, among other things, the
amount of satellite capacity to be provided, whether service will be non-preemptible or preemptible and the service term. Most
45
services are full time in nature, with service terms ranging from one year to as long as 16 years. Occasional use services used
for video applications can be for much shorter periods, including increments of one hour. Our master customer service
agreements offer different service types, including transponder services, managed services, and channel, which are all services
that are provided on, or used to provide access to, our global network. We refer to these services as on-network services. 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 sourced from other
operators, often in frequencies not available on our network, and other operational fees related to satellite operations provided
on behalf of third-party satellites. The following table describes our primary service types:
Service Type
On-Network Revenues:
Transponder Services
Managed Services
Channel
Transponder, Mobile Satellite Services and Other
Satellite-related Services
Description
Commitments by customers to receive service via, or to utilize capacity
on, particular designated transponders according to specified technical
and commercial terms. Transponder services also include revenues
from hosted payload capacity. Transponder services are marketed to
each of our primary customer sets as follows:
•Network Services: fixed and wireless telecom operators, data
network operators, enterprise operators of private data networks, and
value-added network operators for fixed and mobile broadband network
infrastructure.
•Media: broadcasters (for distribution of programming and full time
contribution, or gathering, of content), programmers and DTH
operators.
•Government: civilian and defense organizations, for use in
implementing private fixed and mobile networks, or for the provision of
capacity or capabilities through hosted payloads.
Hybrid services primarily using IntelsatOne®, including our
IntelsatOne® Flex broadband platform, which combine satellite
capacity, teleport facilities, satellite communications hardware such as
broadband hubs or video multiplexers and fiber optic cable and other
ground facilities to provide managed and monitored broadband,
trunking, video and private network services to customers. Managed
services are marketed to each of our customer sets as follows:
•Network Services: enterprises, cellular operators and fixed and
mobile value-added service providers which deliver end-services such
as private data networks, wireless infrastructure and maritime and
aeronautical broadband.
•Media: programmers outsourcing elements of their transmission
infrastructure and part time occasional use services used primarily by
news and sports organizations to gather content from remote locations.
•Government: users seeking secured, integrated, end-to-end solutions.
Standardized services of predetermined bandwidth and technical
characteristics primarily used for point-to-point bilateral services for
telecommunications providers. Channel is not considered a core service
offering due to changing market requirements and the proliferation of
fiber alternatives for point-to-point customer applications. Channel
services are exclusively marketed to traditional telecommunications
providers in our network services customer set.
Capacity for voice, data and video services provided by third-party
commercial satellite operators for which the desired frequency type or
geographic coverage is not available on our network. These services
include L-band MSS, for which Intelsat General is a reseller. In
addition, this revenue category includes the sale of customer premises
equipment and other hardware, as well as certain fees related to
services provided to other satellite operators. These products are
primarily marketed as follows:
•Government: direct government users, and government contractors
working on programs where aggregation of capacity is required.
Services include a number of satellite-related consulting and technical
services that involve the lifecycle of satellite operations and related
infrastructure, from satellite and launch vehicle procurement through
TT&C services and related equipment sales. These services are
typically marketed to other satellite operators.
We market our services on a global basis, with almost every populated region of the world contributing to our revenue.
The diversity of our revenue allows us to benefit from changing market conditions and lowers our risk from revenue
fluctuations in our service applications and geographic regions.
46
Trends Impacting Our Revenue
Our revenue at any given time is dependent upon a number of factors, including, but not limited to, demand for our
services from existing and emerging applications; the supply of capacity available on our fleet and those of our competitors in a
given region, and the substitution of competing technologies such as fiber optic cable networks. See Item 4B—Business
Overview—Our Sector for a discussion of the global trends creating demand for our services. Trends in revenue can be
impacted by:
• Growth in demand from wireless telecommunications companies seeking to complete or enhance broadband
infrastructure, particularly those operating in developing regions or regions with geographic challenges;
• Growth in demand for broadband connectivity for enterprises and government organizations, providing fixed and
mobile services and value-added applications on a global basis;
• Lower overall pricing for satellite-based services, resulting from oversupply of wide beam capacity or due to
introduction of high throughput technology, which is designed to achieve a lower cost per unit;
• Lower demand for satellite-based solutions, resulting from fiber substitution;
•
Satellite capacity needed to provide broadband connectivity for mobile networks on ships, planes and oil and gas
platforms;
• Global demand for television content in standard, HD and UHD television formats, which uses our satellite network
•
and IntelsatOne® terrestrial services for distribution, in some regions offset by next generation compression
technologies;
Increased popularity of OTT content distribution, which will increase the demand for broadband infrastructure in the
developing world, but could decrease demand in developed markets over the mid to long-term as niche and ethnic
programming transitions from satellite to internet distribution;
• Use of commercial satellite services by governments for military and other operations, which has partially slowed as a
result of the tempo of military operations and recent changes in the U.S. budget; and
• Our use of third-party or off-network services to satisfy government demand for capacity not available on our network.
These services are low risk in nature, with no required up-front investment and terms and conditions of the procured
capacity which typically match the contractual commitments from our customers. Demand for certain of these off-
network services has declined with reductions in troop deployment in regions of conflict.
See Item 4B—Business Overview—Our Customer Sets and Growing Applications for a discussion of our customers’
uses of our services and see Item 4B—Business Overview—Our Strategy for a discussion of our strategies with respect to
marketing to our various customer sets.
Customer Applications
Our transponder services, managed services, MSS and channel are used by our customers for three primary customer
applications: network service applications, media applications and government applications.
Pricing
Pricing of our services is based upon a number of factors, including, but not limited to, the region served by the capacity,
the power and other characteristics of the satellite beam, the amount of demand for the capacity available on a particular
satellite and the total supply of capacity serving any particular region. In 2018, pricing trends were fairly stable throughout the
year, albeit slightly lower than 2017, with declines in network services from lower pricing on high volume commitments
leveraging our global wide beam and Intelsat EpicNG fleets and government applications commanding competitive prices due to
lowest price technically acceptable ("LPTA") policies. Media application pricing was stronger in 2018 as compared to 2017,
but under pressure from competing lower-cost terrestrial alternatives. According to Euroconsult, the annual average price per
transponder for C- and Ku- band capacity is forecasted to be on a slight downward trend globally from $1.28 million to
$1.14 million per 36 MHz transponder over the period from 2018 to 2023, reflecting increasing supply from new satellite
entrants, among other factors. HTS capacity, which is designed to attain a lower cost point, facilitating market expansion into
new applications, is expected to have similar rates of yield decline over time as increased supply enters the market.
The pricing of our services is generally fixed for the duration of the service commitment. New and renewing service
commitments are priced to reflect regional demand and other factors as discussed above.
Operating Expenses
Direct Costs of Revenue (Excluding Depreciation and Amortization)
47
Direct costs of revenue relate to costs associated with the operation and control of our satellites, our communications
network and engineering support, and the purchase of off-network capacity. Direct costs of revenue consist principally of
salaries and related employment costs, in-orbit insurance, earth station operating costs and facilities costs. Our direct costs of
revenue fluctuate based on the number and type of services offered and under development, particularly as sales of off-network
transponder services and sales of customer premises equipment fluctuate. We expect our direct costs of revenue to increase as
we add customers and expand our managed services and use of off-network capacity.
Selling, General and Administrative Expenses
Selling, general and administrative expenses relate to costs associated with our sales and marketing staff and our
administrative staff, which include legal, finance, corporate information technology and human resources. Staff expenses
consist primarily of salaries and related employment costs, including stock compensation, travel costs and office occupancy
costs. Selling, general and administrative expenses also include building maintenance and rent expenses and the provision for
uncollectible accounts. Selling, general and administrative expenses generally fluctuate with the number of customers served
and the number and types of services offered. These expenses also include research and development expenses, and fees for
professional services.
Depreciation and Amortization
Our capital assets consist primarily of our satellites and associated ground network infrastructure. Included in capitalized
satellite costs are the costs for satellite construction, satellite launch services, insurance premiums for satellite launch and the
in-orbit testing period, the net present value of deferred satellite performance incentives payable to satellite manufacturers, and
capitalized interest incurred during the satellite construction period.
Capital assets are depreciated or amortized on a straight-line basis over their estimated useful lives. The remaining
depreciable lives of our satellites range from less than one year to 16 years as of December 31, 2018.
Contracted Backlog
We benefit from strong visibility of our future revenues. Our contracted backlog is our expected future revenue under
existing customer contracts and includes both cancellable and non-cancellable contracts. As of December 31, 2018, our
contracted backlog was approximately $8.1 billion after the adoption of ASC 606 and $7.1 billion excluding the impact of the
adoption of ASC 606. Referring to contracted backlog including the adoption of ASC 606, approximately 88% of this backlog
related to contracts that were non-cancellable and approximately 11% related to contracts that were cancellable subject to
substantial termination fees. As of December 31, 2018, the weighted average remaining customer contract life was
approximately 4 years. We expect to deliver services associated with approximately $1.8 billion, or approximately 22%, of our
December 31, 2018 contracted backlog during the year ending December 31, 2019. The amount included in backlog represents
the full service charge for the duration of the contract and does not include termination fees. The amount of the termination
fees, which is not included in the backlog amount, is generally calculated as a percentage of the remaining backlog associated
with the contract. In certain cases of breach for non-payment or customer financial distress or bankruptcy, we may not be able
to recover the full value of certain contracts or termination fees. Our contracted backlog includes 100% of the backlog of our
consolidated ownership interests, which is consistent with the accounting for our ownership interest in these entities.
Our contracted backlog as of December 31, 2018 was as follows (in millions):
Period
2019
2020
2021
2022
2023
2024 and thereafter
Total
Amount
Excluding ASC 606
Amount
Including ASC 606
$
$
1,662.0
$
1,201.2
856.7
669.8
548.6
2,112.4
7,050.7
$
1,764.7
1,308.2
964.3
778.7
657.5
2,664.2
8,137.6
Our contracted backlog by service type as of December 31, 2018 was as follows (in millions, except percentages):
48
Service Type
Transponder services
Managed services
Off-Network and Other
Channel
Total
Amount
Excluding ASC 606
Percent
Amount
Including ASC 606
Percent
$
$
5,693.2
1,126.3
228.7
2.5
7,050.7
81% $
16%
3%
—%
100% $
6,740.1
1,166.3
228.7
2.5
8,137.6
83%
14%
3%
—%
100%
We believe this backlog and the resulting predictable cash flows in the FSS sector make our results less volatile than that
of typical companies outside our industry.
A.
Operating Results Years Ended December 31, 2017 and 2018
The following table sets forth our comparative statements of operations for the periods shown with the increase (decrease) and
percentage changes, except those deemed not meaningful (“NM”), between the periods presented (in thousands, except percentages):
Year Ended December 31, 2017 Compared
to Year Ended December 31, 2018
Year Ended
December 31, 2017
2,148,612
$
Year Ended
December 31, 2018
2,161,190
$
Increase
(Decrease)
Percentage
Change
$
12,578
1 %
324,232
205,475
707,824
1,237,531
911,081
1,020,770
(4,109)
10,114
(103,684)
71,130
(174,814)
(3,914)
(178,728) $
330,874
200,857
687,589
1,219,320
941,870
1,212,374
(199,658)
4,541
(465,621)
130,069
(595,690)
(3,915)
(599,605) $
6,642
(4,618)
(20,235)
(18,211)
30,789
191,604
(195,549)
(5,573)
(361,937)
58,939
(420,876)
(1)
(420,877)
2 %
(2)%
(3)%
(1)%
3 %
19 %
NM
(55)%
NM
83 %
NM
— %
NM
Revenue
Operating expenses:
Direct costs of revenue (excluding
depreciation and amortization)
Selling, general and administrative
Depreciation and amortization
Total operating expenses
Income from operations
Interest expense, net
Loss on early extinguishment of debt
Other income, net
Loss before income taxes
Provision for income taxes
Net loss
Net income attributable to noncontrolling interest
Net loss attributable to Intelsat S.A.
$
Revenue
The following table sets forth our comparative revenue by service type, with Off-Network and Other Revenues shown separately
from On-Network Revenues for the periods below (in thousands, except percentages):
49
Year Ended December 31, 2018
Year Ended
December
31, 2017
Revenues
Without the
Adoption of
ASC 606
ASC 606
Adjustments
Revenues
After the
Adoption of
ASC 606
Increase
(Decrease)
With
Adoption of
ASC 606
Percentage
Change
With
Adoption of
ASC 606
Increase
(Decrease)
Without
Adoption of
ASC 606
Percentage
Change
Without
Adoption of
ASC 606
On-Network
Transponder
services
$1,543,384
$1,475,247
$
95,031
$1,570,278
$
Managed services
412,147
386,597
6,667
393,264
5,405
4,250
—
4,250
26,894
(18,883)
(1,155)
2% $ (68,137)
(25,550)
(5)
(1,155)
(21)
(4)%
(6)
(21)
Channel
Total on-
network
revenues
Off-Network and
Other Revenues
Transponder, MSS
and other off-
network services
Satellite-related
services
Total off-
network and
other revenues
1,960,936
1,866,094
101,698
1,967,792
6,856
—
(94,842)
(5)
141,845
148,807
1,379
150,186
8,341
45,831
43,082
130
43,212
(2,619)
187,676
191,889
1,509
193,398
5,722
6
(6)
3
6,962
(2,749)
4,213
5
(6)
2
Total
$2,148,612
$2,057,983
$ 103,207
$2,161,190
$
12,578
1% $ (90,629)
(4)%
Total revenue for the year ended December 31, 2018 increased by $12.6 million, or 1%, as compared to the year ended
December 31, 2017. Excluding the impact of ASC 606 adjustments, total revenue for the year ended December 31, 2018 decreased by
$90.6 million or 4% as compared to the year ended December 31, 2017. By service type, our revenues increased or decreased due to
the following:
On-Network Revenues:
•
Transponder services—an aggregate increase of $26.9 million, of which $95.0 million is attributable to ASC 606 adjustments.
Excluding the impact of ASC 606 adjustments, the resulting decrease of $68.1 million was primarily due to a $35.0 million
net decrease in revenue from network services customers and a $27.9 million decrease from media customers. The decrease
in network services revenue was mainly due to declines for wide-beam wireless infrastructure and enterprise services due to
non-renewals, renewals at lower pricing, and service contractions, partially offset by increases for maritime and aeronautical
mobility applications. The decrease in media revenue was mainly due to non-renewals and pricing declines largely in the
North America region.
• Managed services—an aggregate decrease of $18.9 million, inclusive of an increase of $6.7 million attributable to ASC 606
adjustments. Excluding the impact of ASC 606 adjustments, the resulting decrease of $25.6 million was largely due to a
decrease of $12.7 million in revenue from media customers mainly due to advanced payments forfeited and fees related to a
partial customer contract termination in 2017 with no comparable amounts in 2018, non-renewals related to managed video
solutions, and a decline in managed media occasional use services. Revenue from network services customers decreased by
$9.1 million, relating to point-to-point trunking applications that are switching to fiber alternatives, and revenue for managed
network applications from our government customers decreased by $7.6 million largely in connection with a previously
disclosed termination of a maritime contract. These declines were partially offset by a $6.0 million increase in revenue from
network services customers largely related to mobility applications.
• Channel—an aggregate decrease of $1.2 million related to a continued decline due to the migration of international point-to-
point satellite traffic to fiber optic cable, a trend we expect will continue.
Off-Network and Other Revenues:
50
•
•
Transponder, MSS and other off-network services—an aggregate increase of $8.3 million, of which $1.4 million is attributable
to ASC 606 adjustments. Excluding the impact of ASC 606 adjustments, the resulting increase of $7.0 million was primarily
due to growth in revenue from third-party applications in support of government customers and an increase in managed
services revenue from network services and media customers.
Satellite-related services—an aggregate decrease of $2.6 million, inclusive of an increase of $0.1 million attributable to ASC
606 adjustments. Excluding the impact of ASC 606 adjustments, the resulting decrease of $2.8 million reflects decreased
revenues from professional services supporting third-party satellites and government customers.
Operating Expenses
Direct Costs of Revenue (Excluding Depreciation and Amortization)
Direct costs of revenue increased by $6.6 million, or 2%, to $330.9 million for the year ended December 31, 2018, as
compared to the year ended December 31, 2017. The increase was primarily due to the following:
•
•
•
•
•
an increase of $8.8 million largely due to higher cost of sales for customer premise equipment and higher third-party costs for
off-network services; and
an increase of $4.7 million in staff-related expenses; partially offset by
a decrease of $2.9 million primarily driven by lower expenses related to ground network enhancements for our media
business;
a decrease of $2.0 million in satellite-related insurance costs; and
a decrease of $1.4 million in licenses and fees.
Selling, General and Administrative
Selling, general and administrative expenses decreased by $4.6 million, or 2%, to $200.9 million for the year ended
December 31, 2018, as compared to the year ended December 31, 2017. The decrease was primarily due to the following:
•
•
•
•
a decrease of $8.9 million in staff-related expenses due to share-based compensation; and
a decrease of $1.4 million in sales and marketing expenses; partially offset by
an increase of $3.3 million in bad debt expense primarily due to settlement of a delinquent account in 2017; and
an increase of $1.8 million in operating tax expenses mainly due to higher property taxes.
Depreciation and Amortization
Depreciation and amortization expense decreased by $20.2 million, or 3%, to $687.6 million for the year ended December 31,
2018, as compared to the year ended December 31, 2017. Significant items impacting depreciation and amortization included:
•
•
•
•
a decrease of $72.1 million in depreciation expense due to the timing of certain satellites becoming fully depreciated, and
other satellite related expenses; and
a decrease of $3.8 million in amortization expense primarily due to changes in the pattern of consumption of amortizable
intangible assets, as these assets primarily include acquired backlog, which relates to contracts covering varying periods that
expire over time, and acquired customer relationships, for which the value diminishes over time; partially offset by
an increase of $45.2 million in depreciation expense resulting from the impact of satellites placed in service; and
an increase of $10.5 million in depreciation expense resulting from the impact of certain ground segment and building
segment assets placed in service.
51
Interest Expense, Net
Interest expense, net consists of gross interest expense we incur together with gains and losses on interest rate cap contracts
(which reflect the change in their fair value), offset by interest income earned and the amount of interest we capitalize related to assets
under construction. As of December 31, 2018, we held interest rate cap contracts with an aggregate notional amount of $2.4 billion to
mitigate the risk of interest rate increases on the floating-rate term loans under our senior secured credit facilities. The caps have not
been designated as hedges for accounting purposes.
Interest expense, net increased by $191.6 million, or 19%, to $1.2 billion for the year ended December 31, 2018, as compared to
the year ended December 31, 2017. The increase in interest expense, net was principally due to:
•
•
•
an increase of $116.3 million primarily related to the significant financing component identified in customer contracts in
accordance with ASC 606;
an increase of $68.4 million primarily driven by our new debt issuances and amendments with higher interest rates, partially
offset by certain debt repurchases and exchanges in 2018; and
an increase of $26 million from lower capitalized interest, primarily resulting from decreased levels of satellites and related
assets under construction; partially offset by
•
a decrease of $15.4 million corresponding to the increase in fair value of the interest rate cap contracts.
The non-cash portion of total interest expense, net was $150.4 million for the year ended December 31, 2018. The non-cash
interest expense was primarily due to the significant financing component identified in customer contracts in accordance with ASC
606 and the amortization of deferred financing fees, amortization and accretion of discounts and premiums, and interest expense
related to the significant financing component identified in customer contracts offset, in part, by the gain from the increase in fair
value of the interest rate cap contracts we hold.
Loss on Early Extinguishment of Debt
Loss on early extinguishment of debt was $199.7 million for the year ended December 31, 2018, as compared to a loss of $4.1
million for the year ended December 31, 2017. The loss of $199.7 million consisted of the difference between the carrying value of the
debt repurchased (see-Liquidity and Capital Resources-Long-Term Debt) and the total cash amount paid (including related fees and
expenses), together with write-offs of unamortized debt issuance costs and unamortized debt discount or premium, if applicable.
Other Income, Net
Other income, net was $4.5 million for the year ended December 31, 2018, as compared to other income, net of $10.1 million
for the year ended December 31, 2017. The decrease of $5.6 million was primarily driven by an $8.1 million foreign exchange
fluctuation mainly related to our business conducted in Brazilian reais and Euros, partially offset by an increase of $2.0 million in
other miscellaneous income not associated with our core operations.
Provision for Income Taxes
Our income tax expense increased by $59 million to $130.1 million for the year ended December 31, 2018, as compared to
$71.1 million for the year ended December 31, 2017. The increase was principally due to additional tax expense for our U.S.
subsidiaries as a result of the reorganization of ownership of certain assets among our subsidiaries that was implemented in the three
months ended September 30, 2018 (the "2018 Internal Reorganization").
Cash paid for income taxes, net of refunds, totaled $57.1 million and $33.7 million for the years ended December 31, 2018 and
2017, respectively.
Net Loss Attributable to Intelsat S.A.
Net loss attributable to Intelsat S.A was $599.6 million for the year ended December 31, 2018, as compared to net loss
attributable to Intelsat S.A. of $178.7 million for the year ended December 31, 2017. The change reflects the various items discussed
above.
Operating Results Years Ended December 31, 2016 and 2017
52
The following table sets forth our comparative statements of operations for the periods shown with the increase (decrease) and
percentage changes, except those deemed not meaningful (“NM”), between the periods presented (in thousands, except percentages):
Year Ended December 31, 2016
Compared to Year Ended December 31,
2017
Year Ended
December 31, 2016
2,188,047
$
Year Ended
December 31,
2017
2,148,612
$
Increase
(Decrease)
Percentage
Change
$
(39,435)
(2)%
342,634
232,537
694,891
1,270,062
917,985
938,501
1,030,092
522
1,010,098
15,986
994,112
(3,915)
990,197
$
324,232
205,475
707,824
1,237,531
911,081
1,020,770
(4,109)
10,114
(103,684)
71,130
(174,814)
(3,914)
(178,728) $
(18,402)
(27,062)
12,933
(32,531)
(6,904)
82,269
(1,034,201)
9,592
(1,113,782)
55,144
(1,168,926)
1
(1,168,925)
(5)%
(12)%
2 %
(3)%
(1)%
9 %
NM
NM
NM
NM
NM
— %
NM
Revenue
Operating expenses:
Direct costs of revenue (excluding
depreciation and amortization)
Selling, general and administrative
Depreciation and amortization
Total operating expenses
Income from operations
Interest expense, net
Gain (loss) on early extinguishment of debt
Other income, net
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Net income attributable to noncontrolling interest
Net income (loss) attributable to Intelsat S.A.
$
Revenue
The following table sets forth our comparative revenue by service type, with Off-Network and Other Revenues shown separately
from On-Network Revenues for the periods below (in thousands, except percentages):
On-Network Revenues
Transponder services
Managed services
Channel
Total on-network revenues
Off-Network and Other Revenues
Transponder, MSS and other off-network
services
Satellite-related services
Total off-network and other revenues
Total
Year Ended
December 31,
2016
Year Ended
December 31,
2017
Increase
(Decrease)
Percentage
Change
$
$
1,561,108
414,758
9,134
1,985,000
157,212
45,835
203,047
2,188,047
$
$
1,543,384
412,147
5,405
1,960,936
141,845
45,831
187,676
2,148,612
$
$
(17,724)
(2,611)
(3,729)
(24,064)
(15,367)
(4)
(15,371)
(39,435)
(1)%
(1)
(41)
(1)
(10)
—
(8)
(2)%
Total revenue for the year ended December 31, 2017 decreased by $39.4 million, or 2%, as compared to the year ended
December 31, 2016. By service type, our revenues decreased due to the following:
On-Network Revenues:
•
Transponder services-an aggregate decrease of $17.7 million, primarily due to a $54.6 million decrease in revenue from
network services customers, partially offset by a $33.6 million increase in revenue from media customers and a
$3.3 million increase in revenue from government customers. The network services decline was mainly due to non-
renewals and renewal pricing at lower rates for wide-beam enterprise and wireless infrastructure services. The network
services decline also reflects non-renewals of point-to-point connectivity, which is shifting to fiber alternatives. The
53
increase in media revenue resulted primarily from the growth of DTH services in the Africa and Latin America and
Caribbean regions, partially offset by declines in the North America, Europe and Middle East regions. The increase in
government revenues is related to new revenues for mobility and other applications.
• Managed services-an aggregate decrease of $2.6 million, primarily due to a decrease of $13.9 million in revenue from
network services customers largely for point-to-point trunking applications which are switching to fiber alternatives, a
decrease of $12.4 million in revenue from our government customers for managed services largely related to government
trunking and managed network applications related to a previously disclosed termination of a maritime contract, and a
$4.1 million decrease in occasional use video services. These declines were partially offset by an increase of $22.5 million
in revenue from network services customers for broadband solutions largely related to maritime and aeronautical mobility
applications and a $6.6 million increase in managed video solutions in large part due to advanced payments forfeited and
fees paid by a customer upon partial termination of services.
• Channel-an aggregate decrease of $3.7 million related to a continued decline due to the migration of international point-
to-point satellite traffic to fiber optic cable, a trend we expect will continue.
Off-Network and Other Revenues:
•
Transponder, MSS and other off-network services-an aggregate decrease of $15.4 million, primarily due to the previously
disclosed termination of a maritime government contract, partially offset by increased revenue from services provided for
a media customer on a third-party satellite.
•
Satellite-related services-remained effectively unchanged from the prior year.
Operating Expenses
Direct Costs of Revenue (Excluding Depreciation and Amortization)
Direct costs of revenue decreased by $18.4 million, or 5%, to $324.2 million for the year ended December 31, 2017, as
compared to the year ended December 31, 2016. The decrease was primarily due to the following:
•
•
•
a decrease of $22.2 million largely due to lower cost of sales for customer premises equipment and lower third-party costs
for off-network services associated with our government business; and
a decrease of $7.6 million in staff-related expenses; partially offset by
an increase of $7.0 million due to increases in direct costs associated with capacity provided through an Intelsat payload
on a third-party satellite.
Selling, General and Administrative
Selling, general and administrative expenses decreased by $27.1 million, or 12%, to $205.5 million for the year ended
December 31, 2017, as compared to the year ended December 31, 2016. The decrease was primarily due to the following:
•
•
•
a decrease of $28.7 million in bad debt expense primarily related to two customers in the Latin America and Caribbean
region; and
a decrease of $14.2 million in staff-related expenses; partially offset by
an increase of $19.0 million in professional fees primarily due to our liability management initiatives and costs associated
with a proposed merger that was later terminated.
Depreciation and Amortization
Depreciation and amortization expense increased by $12.9 million, or 2%, to $707.8 million for the year ended December 31,
2017, as compared to the year ended December 31, 2016. Significant items impacting depreciation and amortization included:
•
•
•
an increase of $83.3 million in depreciation expense resulting from the impact of satellites placed in service; and
an increase of $8.2 million in depreciation expense resulting from the impact of certain ground segment assets placed in
service; partially offset by
a decrease of $72.6 million in depreciation expense due to the timing of certain satellites becoming fully depreciated, and
other satellite related expenses; and
54
•
a decrease of $6.2 million in amortization expense primarily due to changes in the pattern of consumption of amortizable
intangible assets, as these assets primarily include acquired backlog, which relates to contracts covering varying periods
that expire over time, and acquired customer relationships, for which the value diminishes over time.
Interest Expense, Net
Interest expense, net consists of gross interest expense we incur together with gains and losses on interest rate hedging
transactions (which reflect the change in their fair value), offset by interest income earned and the amount of interest we capitalize
related to assets under construction. As of December 31, 2017, we held interest rate caps with an aggregate notional amount of
$2.4 billion to mitigate the risk of interest rate increase on the floating-rate term loans under our senior secured credit facilities. The
caps have not been designated as hedges for accounting purposes.
Interest expense, net increased by $82.3 million, or 9%, to $1.0 billion for the year ended December 31, 2017, as compared to
the year ended December 31, 2016. The increase in interest expense, net was principally due to:
•
•
a net increase of $44.3 million in interest expense primarily driven by our new debt issuances with higher interest rates,
partially offset by certain debt repurchases and exchanges in 2016 and 2017; and
a net increase of $35.3 million from lower capitalized interest, primarily resulting from decreased levels of satellites and
related assets under construction.
The non-cash portion of total interest expense, net was $48.7 million for the year ended December 31, 2017. The non-cash
interest expense was due to the amortization of deferred financing fees and the amortization and accretion of discounts and premiums.
Gain (Loss) on Early Extinguishment of Debt
Loss on early extinguishment of debt was $4.1 million for the year ended December 31, 2017, as compared to a gain of
$1.0 billion for the year ended December 31, 2016. The loss and gain were related to certain debt transactions that occurred during
each of the respective years (see-Liquidity and Capital Resources-Long-Term Debt). The respective loss and gain consisted of the
difference between the carrying value of the debt redeemed or exchanged and the fair value of the debt issued, if applicable, and total
cash amount paid (including related fees and expenses), together with write-offs of unamortized debt issuance costs.
Other Income, Net
Other income, net was $10.1 million for the year ended December 31, 2017, as compared to other income, net of $0.5 million
for the year ended December 31, 2016. The variance of $9.6 million was primarily driven by a $5.3 million foreign exchange
fluctuation related to our business conducted in Brazilian reais and Euros, and a $3.1 million increase in other miscellaneous income
related to activities that are not associated with our core operations.
Provision for Income Taxes
Our income tax expense increased by $55.1 million to $71.1 million for the year ended December 31, 2017, as compared to
$16.0 million for the year ended December 31, 2016. The increase in expense was principally due to valuation allowances recorded on
certain deferred tax assets partially offset by tax benefits related to the tax rate change for our U.S. subsidiaries as a result of the U.S.
Tax Cuts and Jobs Act which was enacted on December 22, 2017
Cash paid for income taxes, net of refunds, totaled $33.7 million and $22.7 million for the years ended December 31, 2017 and
2016, respectively.
Net Income (Loss) Attributable to Intelsat S.A.
Net loss attributable to Intelsat S.A was $178.7 million for the year ended December 31, 2017, as compared to net income
attributable to Intelsat S.A. of $990.2 million for the year ended December 31, 2016. The change reflects the various items discussed
above.
EBITDA
EBITDA consists of earnings before net interest, loss (gain) on early extinguishment of debt, taxes and depreciation and
amortization. Given our high level of leverage, refinancing activities are a frequent part of our efforts to manage our costs of
borrowing. Accordingly, we consider loss (gain) on early extinguishment of debt an element of interest expense. EBITDA is a measure
55
commonly used in the FSS sector, and we present EBITDA to enhance the understanding of our operating performance. We use
EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that EBITDA is an operating
performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected
by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies.
However, EBITDA is not a measure of financial performance under U.S. GAAP, and our EBITDA may not be comparable to similarly
titled measures of other companies. EBITDA should not be considered as an alternative to operating income (loss) or net income (loss)
determined in accordance with U.S. GAAP, as an indicator of our operating performance, or as an alternative to cash flows from
operating activities determined in accordance with U.S. GAAP, as an indicator of cash flows, or as a measure of liquidity.
A reconciliation of net income (loss) to EBITDA for the periods shown is as follows (in thousands):
Net income (loss)
Add (Subtract):
Interest expense, net (1)
Loss (gain) on early extinguishment of debt
Provision for income taxes (2)
Depreciation and amortization
EBITDA
Effect of ASC 606 adoption (3)
Year Ended
December 31, 2016
Year Ended
December 31, 2017
Year Ended
December 31, 2018
$
994,112
$
(174,814) $
(595,690)
938,501
(1,030,092)
15,986
694,891
1,613,398
—
1,020,770
4,109
71,130
707,824
1,629,019
—
1,212,374
199,658
130,069
687,589
1,634,000
(103,447)
1,530,553
EBITDA excluding ASC 606 adoption effect
$
1,613,398
$
1,629,019
$
(1)
(2)
(3)
Interest expense, net for the twelve months ended December 31, 2018 includes $116,190 related to the significant financing
component identified in customer contracts in accordance with ASC 606.
Includes a provision of $43,349 for the twelve months ended December 31, 2018 related to the adoption of ASC 606 and
implementation of the 2018 Internal Reorganization.
Includes $103,207 of revenue relating to the significant financing, multi-product, and contract modification components
identified in customer contracts for the twelve months ended December 31, 2018, operating expense adjustments of $1,028
for the twelve months ended December 31, 2018, and adjustments of $788 to other income, net for the twelve months ended
December 31, 2018, in accordance with the adoption of ASC 606.
Adjusted EBITDA
In addition to EBITDA, we calculate a measure called Adjusted EBITDA to assess the operating performance of Intelsat S.A.
Adjusted EBITDA consists of EBITDA of Intelsat S.A. as adjusted to exclude or include certain unusual items, certain other operating
expense items and certain other adjustments as described in the table and related footnotes below. Our management believes that the
presentation of Adjusted EBITDA provides useful information to investors, lenders and financial analysts regarding our financial
condition and results of operations because it permits clearer comparability of our operating performance between periods. By
excluding the potential volatility related to the timing and extent of non-operating activities, such as impairments of asset value and
other non-recurring items, our management believes that Adjusted EBITDA provides a useful means of evaluating the success of our
operating activities. We also use Adjusted EBITDA, together with other appropriate metrics, to set goals for and measure the operating
performance of our business, and it is one of the principal measures we use to evaluate our management’s performance in determining
compensation under our incentive compensation plans. Adjusted EBITDA measures have been used historically by investors, lenders
and financial analysts to estimate the value of a company, to make informed investment decisions and to evaluate performance. Our
management believes that the inclusion of Adjusted EBITDA facilitates comparison of our results with those of companies having
different capital structures.
Adjusted EBITDA is not a measure of financial performance under U.S. GAAP and may not be comparable to similarly titled
measures of other companies. Adjusted EBITDA should not be considered as an alternative to operating income (loss) or net income
(loss) determined in accordance with U.S. GAAP, as an indicator of our operating performance, as an alternative to cash flows from
operating activities determined in accordance with U.S. GAAP, as an indicator of cash flows, or as a measure of liquidity.
A reconciliation of net income (loss) to EBITDA and EBITDA to Adjusted EBITDA is as follows (in thousands):
56
Net income (loss)
Add (Subtract):
Interest expense, net (1)
Loss (gain) on early extinguishment of debt
Provision for income taxes (2)
Depreciation and amortization
EBITDA
Add:
Compensation and benefits (3)
Non-recurring and other non-cash items (4)
Adjusted EBITDA
Effect of ASC 606 adoption (5)
Adjusted EBITDA excluding ASC 606 adoption effect
Year Ended
December 31, 2016
Year Ended
December 31, 2017
Year Ended
December 31, 2018
$
994,112
$
(174,814) $
(595,690)
938,501
(1,030,092)
15,986
694,891
1,613,398
23,222
14,050
1,650,670
—
1,020,770
4,109
71,130
707,824
1,629,019
15,995
19,589
1,664,603
—
1,212,374
199,658
130,069
687,589
1,634,000
6,824
27,646
1,668,470
(103,447)
$
1,650,670
$
1,664,603
$
1,565,023
(1)
(2)
(3)
(4)
(5)
Interest expense, net for the twelve months ended December 31, 2018 includes $116,190 related to the significant financing
component identified in customer contracts in accordance with ASC 606.
Includes a provision of $43,349 for the twelve months ended December 31, 2018 related to the adoption of ASC 606 and
implementation of the 2018 Internal Reorganization.
Reflects non-cash expenses incurred relating to our equity compensation plans.
Reflects certain non-recurring gains and losses and non-cash items, including the following: professional fees related to our
liability and tax management initiatives; costs associated with our C-band spectrum solution proposal; severance, retention
and relocation payments; and other various non-recurring expenses. These costs were partially offset by non-cash income
related to the recognition of deferred revenue on a straight-line basis for certain prepaid capacity service contracts.
Includes $103,207 of revenue relating to the significant financing, multi-product, and contract modification components
identified in customer contracts for the twelve months ended December 31, 2018, operating expense adjustments of $1,028
for the twelve months ended December 31, 2018, and adjustments of $788 to other income, net for the twelve months ended
December 31, 2018, in accordance with the adoption of ASC 606.
B.
Liquidity and Capital Resources
Overview
We are a highly leveraged company and our contractual obligations, commitments and debt service requirements over the
next several years are significant. At December 31, 2018, the aggregate principal amount of our debt outstanding not held by
affiliates was $14.0 billion. Our interest expense, net for the year ended December 31, 2018 was $1.2 billion, which included
$48.5 million of non-cash interest expense. We also expect to make significant capital expenditures in 2019 and future years, as
set forth below in—Capital Expenditures. Our primary source of liquidity is and will continue to be cash generated from
operations, as well as existing cash. At December 31, 2018, cash and cash equivalents were approximately $485.1 million. In
addition, $22.0 million of restricted cash was included within current assets on the consolidated balance sheet as compensating
balances against certain letters of credit outstanding. We currently expect to use cash on hand, cash flows from operations and
refinancing of our third party debt to fund our most significant cash outlays, including debt service requirements and capital
expenditures, in the next twelve months and beyond, and expect such sources to be sufficient to fund our requirements over that
time and beyond. In past years, our cash flows from operations and cash on hand have been sufficient to fund interest
obligations ($915.6 million and $1.1 billion in 2017 and 2018, respectively) and significant capital expenditures ($461.6
million and $255.7 million in 2017 and 2018, respectively). Our total capital expenditures are expected to range from
$250 million to $300 million in 2019, $275 million to $350 million in 2020, and $250 million to $350 million in 2021.
However, an inability to generate sufficient cash flow to satisfy our debt service obligations or to refinance our obligations on
commercially reasonable terms would have an adverse effect on our business, financial position, results of operations and cash
flows, as well as on our and our subsidiaries’ ability to satisfy their obligations in respect of their respective debt. See Item 3D
—Risk Factors—Risk Factors Relating to Our Business—We have a substantial amount of indebtedness, which may adversely
affect our cash flow and our ability to operate our business, remain in compliance with debt covenants, and make payments on
our indebtedness. We also continually evaluate ways to simplify our capital structure and opportunistically extend our
57
maturities and reduce our costs of debt. In addition, we may from time to time retain any future earnings and cash to
repurchase, repay, redeem or retire any of our outstanding debt securities in privately negotiated or open market transactions,
by tender offer or otherwise.
Cash Flow Items
Our cash flows consisted of the following for the periods shown (in thousands):
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used) in financing activities
Net change in cash, cash equivalents and restricted cash
Net Cash Provided by Operating Activities
Year Ended
December 31,
2016
Year Ended
December 31,
2017
Year Ended
December 31,
2018
$
678,755
$
464,246
$
(730,589)
546,347
494,483
(468,297)
(121,698)
(124,633)
344,173
(283,634)
(90,323)
(34,234)
Net cash provided by operating activities decreased by $120.1 million to $344.2 million for the year ended December 31,
2018 as compared to the year ended December 31, 2017. The decrease was due to a $221.8 million decrease in net income and
changes in non-cash items offset by a $101.7 million increase from changes in operating assets and liabilities. The primary
drivers of the increase in operating assets and liabilities were higher inflows from deferred revenue and contract liabilities and
lower outflows related to the payment of accounts payable, partially offset by higher outflows related to the amount and timing
of interest payments and lower inflows from customer receivables.
Net Cash Used in Investing Activities
Net cash used in investing activities decreased by $184.7 million to $283.6 million during the year ended December 31,
2018 as compared to the year ended December 31, 2017. The decrease was primarily due to lower capital expenditures,
partially offset by lower insurance proceeds received related to Intelsat 33e and increased capital contributions to a joint
venture.
Net Cash Used in Financing Activities
Net cash used in financing activities decreased by $31.4 million to $90.3 million during the year ended December 31,
2018 as compared to the year ended December 31, 2017. The decrease was primarily due to $224.3 million net proceeds from
our common shares offering (see - Long-Term Debt below), $35.4 million in other payments for satellites in 2017 with no
comparable amounts in 2018, and a decrease of $11.7 million in principal payments on deferred satellite performance
incentives, partially offset by an increase of $242.6 million in net cash paid in connection with our refinancing activities in
2018 (see - Long-Term Debt below).
Restricted Cash
As of December 31, 2018, $22.0 million of cash was legally restricted, being held as a compensating balance for certain
outstanding letters of credit.
Long-Term Debt
This section describes the changes to our long-term debt during the years ended December 31, 2017 and 2018. For detail
regarding our outstanding long-term indebtedness as of December 31, 2018, see Note 12 to our consolidated financial
statements included elsewhere in this Annual Report.
Senior Secured Credit Facilities
Intelsat Jackson Senior Secured Credit Agreement
On January 12, 2011, Intelsat Jackson entered into a secured credit agreement (the “Intelsat Jackson Secured Credit
Agreement”), which included a $3.25 billion term loan facility and a $500.0 million revolving credit facility, and borrowed the
full $3.25 billion under the term loan facility. The term loan facility required regularly scheduled quarterly payments of
58
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 October 3, 2012, Intelsat Jackson entered into an Amendment and Joinder Agreement (the “Jackson Credit Agreement
Amendment”), which amended the Intelsat Jackson Secured Credit Agreement. As a result of the Jackson Credit Agreement
Amendment, interest rates for borrowings under the term loan facility and the revolving credit facility were reduced. In April
2013, our corporate family rating was upgraded by Moody’s, and as a result, the interest rate for the borrowing under the term
loan facility and revolving credit facility were further reduced to LIBOR plus 3.00% or the Above Bank Rate (“ABR”) plus
2.00%.
On November 27, 2013, Intelsat Jackson entered into a Second Amendment and Joinder Agreement (the “Second Jackson
Credit Agreement Amendment”), which further amended the Intelsat Jackson Secured Credit Agreement. The Second Jackson
Credit Agreement Amendment reduced interest rates for borrowings under the term loan facility and extended the maturity of
the term loan facility. In addition, it reduced the interest rate applicable to $450 million of the $500 million total revolving
credit facility and extended the maturity of such portion. As a result of the Second Jackson Credit Agreement Amendment,
interest rates for borrowings under the term loan facility and the new tranche of the revolving credit facility were (i) LIBOR
plus 2.75%, or (ii) the ABR plus 1.75%. The LIBOR and the ABR, plus applicable margins, related to the term loan facility and
the new tranche of the revolving credit facility were determined as specified in the Intelsat Jackson Secured Credit Agreement,
as amended by the Second Jackson Credit Agreement Amendment, and the LIBOR was not to be less than 1.00% per annum.
The maturity date of the term loan facility was extended from April 2, 2018 to June 30, 2019 and the maturity of the new
$450 million tranche of the revolving credit facility was extended from January 12, 2016 to July 12, 2017. The interest rates
and maturity date applicable to the $50 million tranche of the revolving credit facility that was not amended did not change.
The Second Jackson Credit Agreement Amendment further removed the requirement for regularly scheduled quarterly principal
payments under the term loan facility.
In June 2017, Intelsat Jackson terminated all remaining commitments under its revolving credit facility.
On November 27, 2017, Intelsat Jackson entered into a Third Amendment and Joinder Agreement (the “Third Jackson
Credit Agreement Amendment”), which further amended the Intelsat Jackson Secured Credit Agreement. The Third Jackson
Credit Agreement Amendment extended the maturity date of $2.0 billion of the existing floating rate B-2 Tranche of term loans
(the “B-3 Tranche Term Loans”), to November 27, 2023, subject to springing maturity in the event that certain series of Intelsat
Jackson’s senior notes are not refinanced prior to the dates specified in the Third Jackson Credit Agreement Amendment. The
B-3 Tranche Term Loans have an applicable interest rate margin of 3.75% for LIBOR loans and 2.75% for base rate loans (at
Intelsat Jackson’s election as applicable).
The B-3 Tranche Term Loans were subject to a prepayment premium of 1.00% of the principal amount for any
voluntary prepayment of, or amendment or modification in respect of, the B-3 Tranche Term Loans prior to November 27, 2018
in connection with prepayments, amendments or modifications that have the effect of reducing the applicable interest rate
margin on the B-3 Tranche Term Loans, subject to certain exceptions. The Third Jackson Credit Agreement Amendment also
(i) added a provision requiring that, beginning with the fiscal year ending December 31, 2018, Intelsat Jackson to apply a
certain percentage of its Excess Cash Flow (as defined in the Third Jackson Credit Agreement Amendment), if any, after
operational needs for each fiscal year towards the repayment of outstanding term loans, subject to certain deductions,
(ii) amended the most-favored nation provision with respect to the incurrence of certain indebtedness by Intelsat Jackson and
its restricted subsidiaries, and (iii) amended the covenant limiting the ability of Intelsat Jackson to make certain dividends,
distributions and other restricted payments to its shareholders based on its leverage level at that time.
On December 12, 2017, Intelsat Jackson further amended the Intelsat Jackson Secured Credit Agreement by entering into
a Fourth Amendment and Joinder Agreement (the “Fourth Jackson Credit Agreement Amendment”), which, among other
things, (i) permitted Intelsat Jackson to establish one or more series of additional incremental term loan tranches if the proceeds
thereof are used to refinance an existing tranche of term loans, and (ii) added a most-favored nation provision applicable to the
B-3 Tranche Term Loans for further extensions of the existing floating rate B-2 Tranche Term Loans under certain
circumstances.
On January 2, 2018, Intelsat Jackson entered into a Fifth Amendment and Joinder Agreement (the “Fifth Jackson Credit
Agreement Amendment”), which further amended the Intelsat Jackson Secured Credit Agreement. The Fifth Jackson Credit
Agreement Amendment refinanced the remaining $1.095 billion B-2 Tranche Term Loans, through the creation of (i) a new
incremental floating rate tranche of term loans with a principal amount of $395.0 million (the “B-4 Tranche Term Loans”), and
(ii) a new incremental fixed rate tranche of term loans with a principal amount of $700.0 million (the “B-5 Tranche Term
Loans”). The maturity date of both the B-4 Tranche Term Loans and the B-5 Tranche Term Loans is January 2, 2024, subject to
59
springing maturity in the event that certain series of Intelsat Jackson’s senior notes are not refinanced or repaid prior to the
dates specified in the Fifth Jackson Credit Agreement Amendment. The B-4 Tranche Term Loans have an applicable interest
rate margin of 4.50% per annum for LIBOR loans and 3.50% per annum for base rate loans (at Intelsat Jackson’s election as
applicable). We entered into interest rate cap contracts in December 2017 and amended them in May 2018 to mitigate the risk
of interest rate increases on the B-4 Tranche Term Loans. The B-5 Tranche Term Loans have an interest rate of 6.625% per
annum. The Fifth Jackson Credit Agreement Amendment also specified make-whole and prepayment premiums applicable to
the B-4 Tranche Term Loans and the B-5 Tranche Term Loans at various dates.
Intelsat Jackson’s obligations under the Intelsat Jackson Secured Credit Agreement are guaranteed by ICF and certain of
Intelsat Jackson’s subsidiaries. Intelsat Jackson’s obligations under the Intelsat Jackson Secured Credit Agreement are secured
by a first priority security interest in substantially all of the assets of Intelsat Jackson and the guarantors party thereto, to the
extent legally permissible and subject to certain agreed exceptions, and by a pledge of the equity interests of the subsidiary
guarantors and the direct subsidiaries of each guarantor, subject to certain exceptions, including exceptions for equity interests
in certain non-U.S. subsidiaries, existing contractual prohibitions and prohibitions under other legal requirements.
The Intelsat Jackson Secured Credit Agreement following a further amendment in November 2018 includes one financial
covenant: Intelsat Jackson must maintain a consolidated secured debt to consolidated EBITDA ratio equal to or less than 3.50
to 1.00 at the end of each fiscal quarter as such financial measure is defined in the Intelsat Jackson Secured Credit Agreement.
Intelsat Jackson was in compliance with this financial maintenance covenant ratio with a consolidated secured debt to
consolidated EBITDA ratio of 2.94 to 1.00 as of December 31, 2018.
2018 Debt and Other Capital Markets Transactions
March/May 2018 ICF Tender Offer for Intelsat Luxembourg Notes and Redemption
In March 2018, ICF commenced a cash tender offer to purchase any and all of the outstanding aggregate principal
amount of the 6.75% Senior Notes due 2018 (the "2018 Luxembourg Notes"). ICF purchased a total of $31.2 million aggregate
principal amount of the 2018 Luxembourg Notes at par value in March 2018 and April 2018. In May 2018, pursuant to a
previously issued notice of redemption, Intelsat Luxembourg redeemed $46.0 million aggregate principal amount of the 2018
Luxembourg Notes at par value together with accrued and unpaid interest thereon.
June 2018 Intelsat S.A. Senior Convertible Notes Offering and Common Shares Offering
In June 2018, we completed an offering of 15,498,652 Intelsat S.A. common shares, nominal value $0.01 per share (the
“Common Shares”), at a public offering price of $14.84 per common share, and we completed an offering of $402.5 million
aggregate principal amount of our 4.5% Convertible Senior Notes due 2025 (the "2025 Convertible Notes"). These notes are
guaranteed by Intelsat Envision. The net proceeds from the Common Shares offering and 2025 Convertible Notes offering were
used to repurchase approximately $600 million aggregate principal amount of Intelsat Luxembourg's 7.75% Senior Notes due
2021 (the “2021 Luxembourg Notes”) in privately negotiated transactions with individual holders in June 2018. We used the
remaining net proceeds of the Common Shares offering and 2025 Convertible Notes offering for further repurchases of 2021
Luxembourg Notes and for other general corporate purposes, including repurchases of other tranches of debt of Intelsat S.A.’s
subsidiaries.
August 2018 Intelsat Connect Senior Notes Refinancing and Exchange of Intelsat Luxembourg Senior Notes
In August 2018, Intelsat Connect completed an offering of $1.25 billion aggregate principal amount of 9.5% Senior Notes
due 2023 (the "2023 ICF Notes"). These notes are guaranteed by Intelsat Envision and Intelsat Luxembourg. Intelsat Connect
used the net proceeds from the offering to repurchase or redeem all $731.9 million outstanding aggregate principal amount of
Intelsat Connect 12.5% Senior Notes due 2022 (the "2022 ICF Notes"). The remaining net proceeds from the offering were
used to repurchase approximately $448.9 million aggregate principal amount of Intelsat Jackson's 7.25% Senior Notes due
2020 (the "2020 Jackson Notes") and $30.0 million aggregate principal amount of other unsecured notes of Intelsat Jackson,
and to pay related fees and expenses. Also in August 2018, Intelsat Connect and Intelsat Envision completed debt exchanges
receiving new notes issued by Intelsat Luxembourg, which mature in August 2026 and have an interest rate of 13.5%, in
exchange for $1.58 billion aggregate principal amount of 2021 Luxembourg Notes that were previously held by Intelsat
Connect and Intelsat Envision.
September 2018 Intelsat Jackson Senior Notes Offering and Tender Offer
60
In September 2018, Intelsat Jackson completed an offering of $2.25 billion aggregate principal amount of 8.5% Senior
Notes due 2024 (the "2024 Jackson Senior Unsecured Notes"). The notes are guaranteed by all of Intelsat Jackson’s
subsidiaries that guarantee its obligations under the Intelsat Jackson Secured Credit Agreement, as well as by certain of Intelsat
Jackson’s parent entities. Intelsat Jackson used the net proceeds from the offering to repurchase through a tender offer and
redeem approximately $1.75 billion aggregate principal amount of the remaining outstanding 2020 Jackson Notes. The
remaining net proceeds from the 2024 Jackson Senior Unsecured Notes offering were used to repurchase and redeem
approximately $441.3 million aggregate principal amount of Intelsat Jackson's 7.5% Senior Notes due 2021 (the "2021 Jackson
Notes") in September 2018 and October 2018, and to pay related fees and expenses.
October 2018 Intelsat Jackson Senior Notes Add-On Offering and Redemption of 2021 Jackson Notes
In October 2018, Intelsat Jackson completed an add-on offering of $700 million aggregate principal amount of its 2024
Jackson Senior Unsecured Notes. The net proceeds from the add-on offering, together with cash on hand, were used to
repurchase and redeem all the remaining approximately $708.7 million aggregate principal amount of outstanding 2021
Jackson Notes in October 2018 that were not earlier repurchased or redeemed, and to pay related fees and expenses.
2017 Debt Transactions
January 2017 Intelsat Luxembourg Exchange Offer
In January 2017, Intelsat Luxembourg completed a debt exchange (the “Second 2018 Luxembourg Exchange”), whereby
it exchanged $403.3 million aggregate principal amount of its 2018 Luxembourg Notes for an equal aggregate principal amount
of newly issued unsecured 12.50% Senior Notes due 2024 (the “2024 Luxembourg Notes”). The Second 2018 Luxembourg
Exchange consisted of $377.6 million aggregate principal amount of 2018 Luxembourg Notes held by ICF as a result of the
First 2018 Luxembourg Exchange (as defined and described below), together with $25 million aggregate principal amount of
2018 Luxembourg Notes repurchased by us in the fourth quarter of 2015. We consolidate ICF, the holder of the 2018
Luxembourg Notes exchanged in the Second 2018 Luxembourg Exchange.
July 2017 Intelsat Jackson Senior Notes Refinancing
On July 5, 2017, Intelsat Jackson completed an offering of $1.5 billion aggregate principal amount of 9.75% Senior
Notes due 2025 (the “2025 Jackson Notes”). These notes are guaranteed by all of Intelsat Jackson’s subsidiaries that guarantee
its obligations under the Intelsat Jackson Secured Credit Agreement and senior notes, as well as by certain of Intelsat Jackson’s
parent entities. Also on July 5, 2017, the net proceeds from the sale of the 2025 Jackson Notes were used, along with other
available cash, to satisfy and discharge all $1.5 billion aggregate principal amount of Intelsat Jackson’s 7.25% Senior Notes due
2019. In connection with the satisfaction and discharge, we recognized a loss on early extinguishment of debt of $4.6 million,
consisting of the difference between the carrying value of the debt redeemed and the total cash amount paid (including related
fees and expenses), together with a write-off of unamortized debt issuance costs.
November & December 2017 and January 2018 Amendments to Intelsat Jackson Senior Secured Credit Facilities
In November and December 2017, and January 2018, Intelsat Jackson entered into amendments to the Intelsat Jackson
Secured Credit Agreement. See—Description of Indebtedness—Intelsat Jackson—Intelsat Jackson Senior Secured Credit
Agreement, above.
Satellite Performance Incentives
Our cost of satellite construction includes an element of deferred consideration to satellite manufacturers referred to as
satellite performance incentives. We are contractually obligated to make these payments over the lives of the satellites,
provided the satellites continue to operate in accordance with contractual specifications. We capitalize the present value of
these payments as part of the cost of the satellites and record a corresponding liability to the satellite manufacturers. This asset
is amortized over the useful lives of the satellites, interest expense is recognized on the deferred financing and the liability is
reduced as the payments are made. Our total satellite performance incentive payment liability as of December 31, 2017 and
2018 was $241.1 million and $245.6 million, respectively.
Capital Expenditures
Our capital expenditures depend on our business strategies and reflect our commercial responses to opportunities and
trends in our industry. Our actual capital expenditures may differ from our expected capital expenditures if, among other things,
we enter into any currently unplanned strategic transactions. Levels of capital spending from one year to the next are also
61
influenced by the nature of the satellite life cycle and by the capital-intensive nature of the satellite industry. For example, we
incur significant capital expenditures during the years in which satellites are under construction. We typically procure a new
satellite within a timeframe that would allow the satellite to be deployed at least one year prior to the end of the service life of
the satellite to be replaced. As a result, we frequently experience significant variances in our capital expenditures from year to
year. The following table compares our satellite-related capital expenditures to total capital expenditures from 2014 through
2018 (in thousands).
Year
2014
2015
2016
2017
2018
Total
Satellite-Related
Capital Expenditures
Total Capital
Expenditures
$
$
566,716
$
657,656
629,346
355,675
165,143
645,424
724,362
714,570
461,627
255,696
2,374,536
$
2,801,679
Capital expenditure guidance for 2019 through 2021 (the “Guidance Period”) assumes investment in five satellites, two
of which are in the design and manufacturing phase. Of the remaining three satellites, no manufacturing contracts have yet been
signed.
Payments for satellites and other property and equipment for the year ended December 31, 2018 were $255.7 million. We
intend to fund our capital expenditure requirements through cash on hand and cash provided from operating activities.
Currency and Exchange Rates
Substantially all of our customer contracts, capital expenditure contracts and operating expense obligations are
denominated in U.S. dollars. Consequently, we are not exposed to material foreign currency exchange risk. However, the
service contracts with our Brazilian customers provide for payment in Brazilian reais. Accordingly, we are subject to the risk of
a reduction in the value of the Brazilian real as compared to the U.S. dollar in connection with payments made by Brazilian
customers, and our exposure to fluctuations in the exchange rate for Brazilian reais is ongoing. However, the rates payable
under our service contracts with Brazilian customers are adjusted annually to account for inflation in Brazil, thereby mitigating
the risk. For the years ended December 31, 2016, 2017 and 2018, our Brazilian customers represented approximately 3.7%,
4.0% and 3.3% of our revenue, respectively. Transactions in other currencies are converted into U.S. dollars using exchange
rates in effect on the dates of the transactions.
We recorded foreign currency exchange gains of $3.3 million and $0.9 million and losses of $6.7 million for the years
ended December 31, 2016, 2017 and 2018, respectively. The gains and losses for each year were primarily attributable to the
conversion of our Brazilian reais receivables and cash balances held in Brazil, and were net of other working capital account
balances translated into U.S. dollars at the exchange rates in effect on the last day of the applicable year or, with respect to
exchange transactions effected during the year, at the time the exchange transactions occurred.
C.
Research and Development, Patents and Licenses
During the year ended December 31, 2018, we incurred expenses of $1.2 million for development activities. Further,
Intelsat personnel regularly engage in activities that are intended to result in new or improved functions, performance, or
quality related to our network, teleports and satellites.
D.
Trend Information
Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands,
commitments or events that are reasonably likely to have a material adverse effect on our revenues, income, profitability,
liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future
operating results or financial conditions. See Item 5—Operating and Financial Review and Prospects for further discussion.
62
E.
Off-Balance Sheet Arrangements
We have a revenue sharing agreement with JSAT International, Inc. (“JSAT”) related to services sold on the Horizons
Holdings satellites. We are responsible for billing and collection for such services and we remit 50% of the revenue, less
applicable fees and commissions, to JSAT. Refer to Note 10—Investments for disclosures relating to the revenue sharing
agreement with JSAT.
F.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations and capital and certain other commitments as of December 31,
2018, and the expected year of payments (in thousands):
Contractual Obligations (1)
2019
2020
2021
2022
2023
2024 and
thereafter
Other
Total
Payments due by year
Long-Term debt obligations
Intelsat S.A. and
subsidiary notes and credit
facilities—principal
payments
Intelsat S.A. and
subsidiary notes and credit
facilities—interest
payments (2)
Operating lease obligations
Sublease rental income
Horizons-3 Satellite LLC
Capital Contributions (3)
Purchase obligations (4)
Other long-term liabilities
(including interest) (5)
Income tax contingencies
(6)
$
— $
— $
421,219
$
490,000
$
6,123,337
$ 7,282,283
$ — $
14,316,839
1,106,021
1,087,911
1,090,157
1,077,549
20,065
(826)
4,500
414,452
18,730
(745)
14,832
(535)
11,700
254,106
13,300
163,548
13,979
(372)
15,700
38,353
884,871
13,600
641,556
80,216
(78)
(150)
15,300
35,813
43,600
89,420
59,783
50,021
49,220
38,503
27,053
131,136
—
—
—
—
—
5,888,065
161,422
(2,706)
104,100
995,692
355,716
—
—
—
—
—
— 29,144
29,144
Total contractual obligations
$ 1,603,995
$ 1,421,723
$ 1,751,741
$ 1,673,712
$
7,099,896
$ 8,268,061
$29,144
$
21,848,272
(1) Obligations related to our pension and postretirement medical benefit obligations are excluded from the table. We maintain a noncontributory defined
benefit retirement plan covering substantially all of our employees hired prior to July 19, 2001. 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. The impact
on the funded status is determined based upon market conditions in effect when we completed our annual valuation. In the first quarter of 2015, we
amended the defined benefit retirement plan to cease the accrual of additional benefits for the remaining active participants effective March 31, 2015.
We anticipate that our contributions to the defined benefit retirement plan in 2019 will be approximately $5.1 million. We fund the postretirement
medical benefits throughout the year based on benefits paid. We anticipate that our contributions to fund postretirement medical benefits in 2019 will
be approximately $3.1 million. See Note 7—Retirement Plans and Other Retiree Benefits to our consolidated financial statements included elsewhere
in this Annual Report.
(2) Represents estimated interest payments to be made on our fixed and variable rate debt. Interest payments for variable rate debt and incentive
obligations have been estimated based on the current interest rates.
(3) See Note 10(b)—Investments—Horizons-3 Satellite LLC.
(4)
Includes satellite construction and launch contracts, estimated payments to be made on performance incentive obligations related to certain satellites
that are currently under construction, vendor contracts and customer commitments.
(5) Represents satellite performance incentive obligations related to satellites that are in service (and interest thereon).
(6) The timing of future cash flows from income tax contingencies cannot be reasonably estimated and therefore is reflected in the other column. See Note
14—Income Taxes to our consolidated financial statements included elsewhere in this Annual Report for further discussion of income tax
contingencies.
Satellite Construction and Launch Obligations
As of December 31, 2018, we had approximately $694.4 million of expenditures remaining under our existing satellite
construction contracts and satellite launch contracts. Satellite launch and in-orbit insurance contracts related to future satellites
to be launched are cancelable up to thirty days prior to the satellite’s launch. As of December 31, 2018, we did not have any
non-cancelable commitments related to existing launch insurance or in-orbit insurance contracts for satellites to be launched.
See Item 4B—Business Overview—Our Network—Satellite Systems—Planned Satellites for details relating to certain of
our satellite construction and launch contracts.
63
Operating Leases
We have commitments for operating leases primarily relating to equipment and office facilities. These leases contain
escalation provisions for increases. As of December 31, 2018, minimum annual rentals of all leases (net of sublease income on
leased facilities), totaled approximately $158.7 million, exclusive of potential increases in real estate taxes, operating
assessments and future sublease income.
Customer and Vendor Contracts
We have contracts with certain of our customers which require us to provide equipment, services and other support
during the term of the related contracts. We also have long-term contractual obligations with service providers primarily related
to the operation of certain of our satellites. As of December 31, 2018, we had commitments under these customer and vendor
contracts which totaled approximately $301.3 million related to the provision of equipment, services and other support.
G.
Safe Harbor
See the section entitled “Forward-Looking Statements” at the beginning of this Annual Report.
Item 6.
Directors, Senior Management and Employees
A. Directors and Senior Management
Our current executive officers and directors are as follows:
Name
David McGlade
Stephen Spengler
Michelle Bryan
Michael DeMarco
Samer Halawi
Jacques Kerrest
Justin Bateman
Robert Callahan
John Diercksen
Edward A. Kangas
Raymond Svider
Age
58
59
62
48
48
72
45
67
69
74
56
Director and Non-Executive Chairman, Intelsat S.A.
Director and Chief Executive Officer, Intelsat S.A.
Position
Executive Vice President, General Counsel, Chief Administrative Officer and Secretary, Intelsat S.A.
Executive Vice President, Operations, Intelsat US LLC
Executive Vice President & Chief Commercial Officer, Intelsat US LLC
Executive Vice President & Chief Financial Officer, Intelsat S.A.
Director, Intelsat S.A.
Director, Intelsat S.A.
Director, Intelsat S.A.
Director, Intelsat S.A.
Director, Intelsat S.A.
The following is a brief biography of each of our executive officers and directors:
Mr. McGlade has been the Chairman of the board of directors of Intelsat S.A. since April of 2015, and prior to that
served as Deputy Chairman of the Company and its predecessor from August 2008 to April 2015. In addition, Mr. McGlade
served as the Chief Executive Officer of Intelsat S.A. and its predecessor from April 2005 to March 2015. Before joining
Intelsat, Mr. McGlade was the Chief Executive Officer of O2 UK, the largest subsidiary of O2 plc and a leading U.K. cellular
telephone company, a position he took in October 2000. He was also an Executive Director of O2 plc. During his tenure at O2
UK and O2 plc, Mr. McGlade was a director of the GSM Association, a trade association for GSM mobile operators, and
served as Chairman of its Finance Committee from February 2004 to February 2005. He was also a director of Tesco Mobile
from September 2003 to March 2005 and a director of The Link, a distributor of mobile phones and other high technology
consumer merchandise, from December 2000 to May 2004. Mr. McGlade is currently a director of Skyworks Solutions, Inc., an
innovator of high performance analog semiconductors , and is currently the first vice chairman of the board of the EMEA
Satellite Operators Association (ESOA), a trade organization that serves and promotes the common interests of EMEA satellite
operators. Mr. McGlade holds a Bachelor of Arts degree from Rutgers University. Mr. McGlade’s business address is 4, rue
Albert Borschette, L-1246 Luxembourg.
Mr. Spengler became the Chief Executive Officer of Intelsat S.A. on April 1, 2015, and became a director of Intelsat S.A.
in October 2015. Prior to April 2015, Mr. Spengler served as Deputy Chief Executive Officer of Intelsat S.A. from December
2014, and prior to that he served as President and Chief Commercial Officer of Intelsat US LLC (f/k/a Intelsat Corporation)
from March 2013 to December 2014. Mr. Spengler also served as Executive Vice President, Sales, Marketing and Strategy of
64
Intelsat US LLC from February 2008 to March 2013. Before joining Intelsat in 2003, Mr. Spengler held various positions in the
telecommunications industry, including Senior Vice President of Global Sales, Broadband Access Networks at Cirronet, Inc.,
Vice President of Sales and Marketing at ViaSat Satellite Networks, Regional Sales Director for Satellite Networks in Europe,
the Middle East and Africa for Scientific-Atlanta Europe based in London, and sales and marketing positions at GTE Spacenet
and GTE Corporation. Mr. Spengler received his Bachelor of Arts degree from Dickinson College in Carlisle, Pennsylvania,
and his Masters of Business Administration from Boston University in Massachusetts. Mr. Spengler’s business address is 4, rue
Albert Borschette, L-1246 Luxembourg.
Ms. Bryan became the Executive Vice President, General Counsel and Chief Administrative Officer and Secretary of
Intelsat S.A. in March 2013. Prior to that, Ms. Bryan served as Senior Vice President, Human Resources and Corporate
Services of Intelsat US LLC since January 2007. Prior to joining Intelsat, Ms. Bryan served as General Counsel and Corporate
Secretary for Laidlaw International, and prior to that held a number of executive positions with US Airways Group, Inc.
including Executive Vice President, Corporate Affairs and General Counsel and Corporate Secretary, as well as Senior Vice
President of Human Resources. Ms. Bryan earned a Bachelor of Arts degree from the University of Rochester and a Juris
Doctor from Georgetown University. Ms. Bryan’s business address is 4, rue Albert Borschette, L-1246 Luxembourg.
Mr. DeMarco became the Executive Vice President, Operations of Intelsat US LLC in August 2017. Prior to that,
Mr. DeMarco served as Senior Vice President, Operations since April 2015, and prior to that as Senior Vice President, Product
and Asset Management, with responsibility for product management, marketing, customer solutions engineering and asset
management functions. From 2006 to 2009 he served as Intelsat US LLC’s Vice President of Media Services and has held roles
of increasing responsibility within the Company, serving as Vice President of Core Video Services, Senior Director of Business
Operations, and Director of Product Finance at PanAmSat prior to its 2006 merger with Intelsat. Since November 2017, he has
also served as director of Dejero Labs, Inc., a provider of connectivity required for cloud computing, online collaborations, and
the secure exchange of video and data. Mr. DeMarco earned a Bachelor of Science Degree in Finance and a Masters of
Business Administration from Fairfield University in Connecticut. Mr. DeMarco’s business address is 7900 Tysons One Place,
McLean, VA 22102, United States.
Mr. Halawi became the Executive Vice President and Chief Commercial Officer of Intelsat S.A. on January 9, 2018.
Prior to joining Intelsat, Mr. Halawi served as Chief Commercial Officer for WorldVu Satellites Limited (“OneWeb”) from
April 2017 to January 2018, where he established and oversaw the distribution, product management, communications,
business development, strategy, and sales and marketing functions. From 2011 to 2017, he served as Chief Executive Officer
for Thuraya Telecommunications Company, a leader in mobile satellite services, with responsibility for performance,
positioning and growth of the company. Mr. Halawi previously spent eight years at Inmarsat PLC in global strategy, running
operations for the Middle East, Africa and Asia-Pacific. He also held prior roles in the telecommunications industry at Flag
Telecom and ICO Global Communications (“ICO”), including a three year period in investment banking in the Middle East
while at ICO. Mr. Halawi began his career in the automotive industry, occupying several positions with Chrysler Corporation
and Ford Motor Company. He is currently a director of OmniSpace LLC, a mobile satellite services provider. He holds a
Bachelor of Science degree in Electrical Engineering from Lawrence Technological University in Michigan, and a Masters of
Business Administration from the University of Michigan. Mr. Halawi’s business address is 7900 Tysons One Place, McLean,
VA 22102, United States.
Mr. Kerrest became the Executive Vice President and Chief Financial Officer of Intelsat S.A. on February 1, 2016. Prior
to this, Mr. Kerrest served as President of DPC Data Inc., a data products and specialized data services company, from July
2014 to February 2016, and has been serving as a director of that company since 2011. From 2008 to 2011, Mr. Kerrest served
as Chief Financial Officer and Chief Operating Officer of ActivIdentity Corporation, an identity assurance provider. He also
served as the Chief Financial Officer of Virgin Media plc, the second largest communications company in the United Kingdom,
from 2004 to 2008. Prior to 2004, Mr. Kerrest held the role of Chief Financial Officer at companies including Equant Inc.,
Harte-Hanks, Inc., Chancellor Broadcasting Company and Positive Communications. Since June 2017, he also serves as a
director of Comscore, Inc., a cross-platform measurement company that measures audiences, brands and consumer behavior.
Mr. Kerrest has notified us that he intends to retire in the spring of 2019. Mr. Kerrest received his Masters of Science degree
from Faculte Des Sciences Economiques in Paris, France, and a Masters of Business Administration from Institut D’Etudes
Politiques De Paris in Paris, France as well as the Thunderbird School of Global Management in Glendale, Arizona.
Mr. Kerrest’s business address is 4, rue Albert Borschette, L-1246 Luxembourg.
Mr. Bateman became a director of Intelsat S.A. in July 2011. Mr. Bateman also served as a director of Intelsat
Investments S.A. from August 2008 to May 2013. Mr. Bateman is a Partner of BC Partners based in its New York office, the
investment arm of which he co-established in early 2008. He initially joined BC Partners’ London office in 2000 from
PricewaterhouseCoopers, where he spent three years in Transaction Services working on projects for both financial investors
and corporate clients. In 2002/2003 he left BC Partners to complete his MBA at INSEAD before rejoining its London office.
65
Mr. Bateman serves on the board of Cyxtera Technologies, Inc., Teneo Global LLC, and Zest Dental Holdings Inc. He has
previously served on the boards of Office Depot, Inc., MultiPlan, Inc. and Suddenlink Communications. He has a degree in
economics from the University of Cambridge in the UK. Mr. Bateman’s business address is 4, rue Albert Borschette, L-1246
Luxembourg.
Mr. Callahan became a director of Intelsat S.A. in April 2014. Mr. Callahan is the Chairman of Longueview Advisory, a
media, internet and technology advisory firm. Prior to joining Longueview, he served as a special advisor with General
Atlantic, Inc., a leading global growth equity firm, where he worked on internet, technology and resource investments, such as
the Alibaba Group and Network Solutions, Inc., where he served as Chairman. He previously held the position of Chairman and
Chief Executive Officer of Ziff Davis Media, Inc. Mr. Callahan also spent 20 years at the Walt Disney Company/ABC/Capital
Cities, where he held numerous positions, including President of ABC Inc. Mr. Callahan holds a Bachelor of Science degree in
Journalism from the University of Kansas. Mr. Callahan’s business address is 4, rue Albert Borschette, L-1246 Luxembourg.
Mr. Diercksen became a director of Intelsat S.A. in September 2013. Mr. Diercksen serves as a Senior Advisor at
LionTree Investment Advisors, addressing financial, operational and management services with client business development.
From December 2015 to June 2017, Mr. Diercksen served as the Chief Executive Officer of Beachfront Wireless. Previously,
Mr. Diercksen retired from Verizon Communications as the executive vice president for strategy, development and planning in
September 2013, with responsibility for key strategic initiatives related to the review and assessment of potential mergers,
acquisitions and divestitures. Earlier in his career, Mr. Diercksen held a number of senior financial and leadership positions at
Verizon, Bell Atlantic, and NYNEX, among other companies. Mr. Diercksen also serves on the boards of Cyxtera
Technologies, Inc. and Banco Popular, Inc. and previously served on the board of Harman International Industries.
Mr. Diercksen holds an MBA from Pace University and a Bachelor of Business Administration in finance from Iona College.
Mr. Diercksen also qualifies as an audit committee financial expert. Mr. Diercksen’s business address is 4, rue Albert
Borschette, L-1246 Luxembourg.
Mr. Kangas became a director of Intelsat S.A. in July 2012. He also serves as Chairman of the board of directors of
Deutsche Bank USA Corp., the U.S. holding company of Deutsche Bank AG. Mr. Kangas serves as Lead Director of Tenet
Healthcare Corporation, where he previously served as Non-Executive Chairman (and member of the Compensation
Committee) from 2003 to 2015. Mr. Kangas also serves as Lead Director of United Technologies Corporation, and serves as a
member of the board of directors of Hovnanian Enterprises, Inc. (and member of the Compensation, Audit and Governance and
Nominating Committees) and Vivus, Inc. (and member of the Compensation Committee). He also formerly served as a director
of Intuit, Inc. and Electronic Data Systems Corp. Mr. Kangas previously served as Global Chairman and Chief Executive
Officer of Deloitte, Touche, Tohmatsu from 1989 to 2000. He also served as the managing partner of Deloitte & Touche (USA)
from 1989 to 1994. Mr. Kangas holds a bachelor’s degree in business and an MBA from the University of Kansas and is a
Certified Public Accountant. Mr. Kangas also qualifies as an audit committee financial expert. Mr. Kangas’ business address is
4, rue Albert Borschette, L-1246 Luxembourg.
Mr. Svider became a director of Intelsat S.A. in July 2011. Prior to April 2013, Mr. Svider also served as Chairman of the
board of directors. Mr. Svider was a director of Intelsat Investments S.A. from February 2008 to May 2013 and became the
Chairman of the board of directors of Intelsat S.A. in May 2008. Mr. Svider has been Co-Chairman of BC Partners since
December 2008 and has been a Managing Partner of BC Partners since 2003. He joined BC Partners in 1992 in Paris before
moving to London in 2000 to lead its investments in the technology and telecommunications industries. Over the years,
Mr. Svider has participated in or led a variety of investments, including Tubesca, Nutreco, UTL, Neopost, Polyconcept, Neuf
Telecom, Unity Media/Tele Columbus, Office Depot Inc., ATI Enterprises, MultiPlan, Inc., Suddenlink Communications,
Accudyne Industries, Teneo Global LLC and PetSmart. He is currently on the board of Altice USA, Accudyne Industries, Teneo
Global LLC, PetSmart, Navex Global and GFL Environmental. Prior to joining BC Partners, Mr. Svider worked in investment
banking at Wasserstein Perella in New York and Paris, and at the Boston Consulting Group in Chicago. Mr. Svider holds a
Master of Business Administration from the University of Chicago and a Master of Science in Engineering from both École
Polytechnique and École Nationale Superieure des Telecommunications in France. Mr. Svider’s business address is 4, rue
Albert Borschette, L-1246 Luxembourg.
B.
Compensation of Officers and Directors
This section sets forth (i) the compensation and benefits provided to our executive officers and directors for 2018, (ii) a
description of the bonus program in which our executive officers participated in 2018, (iii) the total amounts set aside or
accrued in 2018 for pension, retirement and similar benefits for our executive officers, and (iv) the number, exercise price and
expiration date of share option grants made during 2018.
66
2018 Compensation
For 2018, our executive officers received total compensation, including base salary, bonus, non-equity incentive
compensation, equity-related income, contributions to the executive officer’s account under our 401(k) plans and other
retirement plans and certain perquisites, equal to $38 million in the aggregate.
Annual Cash Bonuses
In April 2013, our board of directors adopted, and our shareholders approved, a Bonus Plan (the “Bonus Plan”) which
provides that certain of our and our subsidiaries’ employees, including the executive officers, may be awarded cash bonuses
based on the attainment of specific performance goals and business criteria established by our board of directors for
participants in the Bonus Plan. The goals and criteria for the 2018 fiscal year included certain financial metrics, including
revenue and adjusted EBITDA targets, as well as certain management objectives, all as defined by the compensation
committee. The bonus target percentages for our executives are set forth in their respective employment agreements. Awards
for the subject year are determined based upon completion of the audited consolidated financial statements for that year. The
Bonus Plan is a discretionary plan and the compensation committee retains the right to award compensation absent the
attainment of performance criteria.
The Bonus Plan enables the compensation committee to grant bonuses that are intended to qualify as performance-based
compensation for purposes of Section 162(m) of the United States Internal Revenue Service Tax Code (the “Code”) by
conditioning the payout of the bonus on the satisfaction of certain performance goals (which are selected from the same list of
performance goals applicable under our 2013 Equity Plan (see “—2013 Equity Incentive Plan” below)). In addition, the Bonus
Plan also provides that, except to the extent otherwise provided in an award agreement, or any applicable employment, change
in control, severance or other agreement between a participant and the Company, in the event of a change in control (as defined
in our 2013 Equity Plan), the compensation committee may provide that all or a portion of any such bonus award will become
fully vested based on (i) actual performance through the date of the change in control, as determined by the compensation
committee or (ii) if the compensation committee determines that measurements of actual performance cannot be reasonably
assessed, the assumed achievement of target performance as determined by the compensation committee. All awards previously
deferred will be settled in full upon, or as soon as practicable following, the change in control.
Pension, Retirement and Similar Benefits
Our executive officers participate in a tax-qualified 401(k) plan on the same terms as our other employees. Our executive
officers also participate in the Intelsat Excess Benefit Plan, a nonqualified retirement plan under which our executive officers
and certain key employees receive additional contributions to address limitations placed on contributions under the tax-
qualified 401(k) plan. Under the terms of his employment agreement, Mr. McGlade is provided with certain retiree medical
benefits that are not otherwise provided to participants under the terms of our medical plan. The aggregate amount of the
employer contributions to the 401(k) plans and the Intelsat Excess Benefit Plan for our executive officers during 2018 was
$16,019. Total present value of Mr. McGlade’s post-retirement medical benefits was $89,870.
Employment Agreements and Severance Protection
We have entered into employment agreements with each of our executive officers. Among other things, the employment
agreements provide for minimum base salary, bonus eligibility and severance protection in the event of involuntary
terminations of employment. Specifically, under the employment agreements, if the executive officer’s employment is
terminated by us without cause or if the officer resigns for good reason (in either case, as defined in the executive officer’s
respective employment agreement), then, subject to the executive officer’s execution of a release of claims and compliance
with certain restrictive covenants, the executive officer will be paid a severance amount on the sixtieth day after such
termination of employment equal to the product of (x) the sum of the executive officer’s annual base salary and target annual
bonus as in effect on the date of such termination of employment, multiplied by (y) a severance multiplier equal to 2.0 in the
case of Mr. Spengler, and 1.5 in the case of Messrs. DeMarco, Halawi, and Kerrest and Ms. Bryan. Mr. McGlade’s employment
agreement terminated on March 31, 2018, after which he transitioned to a non-executive chairman of the board.
Director Compensation
We provide non-executive members of the board with compensation (including equity based compensation) for their
service on the board and any committees of the board. We do not provide any compensation to members of the board elected as
representatives of an entity that is a sponsor shareholder. The director compensation policy provides that each director eligible
for compensation (an “outside director”) receives an annual board cash retainer of $75,000 (the “basic cash retainer”). Effective
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April 1, 2018 Mr. McGlade became an outside director eligible for compensation under the director compensation policy. In
addition to the basic cash retainer, Mr. McGlade received an additional annual cash retainer of $50,000 for serving as the
chairman of the board. The chairman of the Audit Committee receives an annual cash retainer of $22,500 and each other
member of the Audit Committee receives an annual cash retainer of $15,000. The chairman of the Compensation Committee
receives an annual cash retainer of $17,500 and each other member of the Compensation Committee receives an annual cash
retainer of $10,000. Effective January 1, 2019, the board of directors established a Nominating and Governance Committee.
The chairman of the Nominating and Governance Committee receives an annual cash retainer of $10,000 and each other
member of the Nominating and Governance Committee receives an annual cash retainer of $5,000. In addition, each outside
director receives an annual restricted stock unit award (pursuant to the 2013 Equity Incentive Plan) with a grant date value of
approximately $125,000, or $175,000 in the case of the chairman of the board, that vests on the first anniversary of the date of
grant, subject to continued service on the board of directors on such vesting date, and subject to such other terms and conditions
as established by the board of directors from time to time.
Each outside director may elect to receive any of the foregoing cash retainers in the form of fully vested restricted share
unit (“RSU”) awards with a grant date value equal to the amount of such cash retainer, subject to such terms and conditions as
established by the board of directors from time to time.
Other than the severance protection provided under the employment agreement of Mr. Spengler described above, no
directors are party to service contracts with the Company providing for benefits upon termination of employment or service.
Non-executive members of the board are entitled to reimbursements for travel and other out-of-pocket expenses related to
their board service.
Pursuant to a governance agreement (the “Governance Agreement”) we are party to with the shareholder affiliated with
BC Partners (the “BC Shareholder”), we have agreed to reimburse directors nominated by the BC Shareholder for travel and
other expenses related to their board and committee service.
Equity Grants issued during 2018
In 2018, we granted a total of 951,000 RSUs to our executive officers as a group and 28,600 RSUs to our outside
directors pursuant to the 2013 Equity Plan (—see Equity Compensation Plans below). The units granted to the executive
officers included both time-vesting restricted stock units as well as performance-based restricted stock units which vest on the
basis of achievement of certain financial metrics. The units grants to the outside directors are time-vesting restricted stock units
which vest on the anniversary of the grant date.
Equity Compensation Plans
2008 Share Incentive Plan
On May 6, 2009, the board of directors of Intelsat Global S.A. adopted the amended and restated Intelsat Global, Ltd.
2008 Share Incentive Plan (the “2008 Equity Plan”). Intelsat S.A. adopted the 2008 Equity Plan by an amendment effective as
of March 30, 2012. The 2008 Equity Plan provides for a variety of equity-based awards with respect to our common shares,
including non-qualified share options, incentive share options (within the meaning of Section 422 of the Code), restricted share
awards, restricted share unit awards, share appreciation rights, phantom share awards and performance-based awards. While
certain awards remain outstanding under the 2008 Equity Plan, no new awards may be granted under the 2008 Equity Plan.
In addition, in connection with the IPO, each of our executive officers agreed to cancel a portion of their unvested
performance options in exchange for grants of new stock options and restricted share units granted to our executive officers
under the 2013 Equity Incentive Plan.
Except for certain grants of restricted shares and stock options made immediately following the IPO, following the
consummation of the IPO no new awards may be granted under the 2008 Equity Plan.
2013 Equity Incentive Plan
In connection with the IPO, we established the Intelsat S.A. 2013 Equity Incentive Plan (the “2013 Equity Plan”). Any of
the employees, directors, officers, consultants or advisors (or prospective employees, directors, officers, consultants or
advisors) of the Company or any of our subsidiaries or their respective affiliates, are eligible for awards under the 2013 Equity
Plan. The compensation committee has the authority to determine who is granted an award under the 2013 Equity Plan, and it
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has delegated authority to the Chief Executive Officer of the Company to make awards to individuals below the executive
officer level, subject to reporting such awards to the compensation committee at the next following committee meeting.
No more than 20,000,000 of our common shares in the aggregate may be issued with respect to incentive stock options
under the 2013 Equity Plan. No participant may be granted awards in any one calendar year with respect to more than
1,500,000 of our common shares in the aggregate (or the equivalent amount in cash, other securities or property).
Our common shares subject to awards are generally unavailable for future grant. If any shares are surrendered or tendered
to pay the exercise price of an award or to satisfy withholding taxes owed, such shares will not be available for grant under the
2013 Equity Plan. If any award granted under the 2013 Equity Plan expires, terminates, is canceled or forfeited without being
settled or exercised, our common shares subject to such award will again be made available for future grant.
The compensation committee may grant awards of non-qualified stock options, incentive (qualified) stock options, stock
appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, performance compensation awards
(including cash bonus awards), or any combination of the foregoing. Awards may be granted under the 2013 Equity Plan and in
assumption of, or in substitution for, outstanding awards previously granted.
C.
Board Practices
Board Leadership Structure
Our board of directors consists of seven directors. Our articles of incorporation provide that our board of directors shall
consist of not less than three directors and not more than twenty directors. Under Luxembourg law, directors are appointed by
the general meeting of shareholders for a period not exceeding six years or until a successor has been elected. Our board is
divided into three classes as described below. Pursuant to our articles of incorporation, our directors are appointed by the
general meeting of shareholders for a period of up to three years (or, if longer, up to the annual meeting held following the third
anniversary of the appointment), with each director serving until the third annual general meeting of shareholders following
their election. Upon the expiration of the term of a class of directors, directors in that class will be elected for three-year terms
at the annual general meeting of shareholders in the year in which their term expires. Messrs. Svider and Bateman are serving
as Class I directors for a term expiring in 2020. Messrs. Spengler, McGlade and Callahan are serving as Class II directors for a
term expiring in 2021. Messrs. Kangas and Diercksen are serving as Class III directors for a term expiring in 2019.
Mr. McGlade serves as the Chairman of our board of directors.
Audit Committee
Intelsat S.A. has an audit committee consisting of Messrs. Kangas, Diercksen and Callahan. All members of the audit
committee are independent directors. Pursuant to its charter and the authority delegated to it by the board of directors, the audit
committee has sole authority for the engagement, compensation and oversight of our independent registered public accounting
firm. In addition, the audit committee reviews the results and scope of the audit and other services provided by our independent
registered public accounting firm, and also reviews our accounting and control procedures and policies. The audit committee
meets as often as it determines necessary but not less frequently than once every fiscal quarter. Our board of directors has
determined that each of Messrs. Kangas and Diercksen is an audit committee financial expert.
Compensation Committee
Intelsat S.A. has a compensation committee consisting of Messrs. Svider, Diercksen and Kangas. Messrs. Diercksen and
Kangas are independent, and Mr. Svider is not independent, since he is associated with the Sponsor. Pursuant to its charter and
the authority delegated to it by the board of directors, the compensation committee has responsibility for the approval and
evaluation of all of our compensation plans, policies and programs as they affect Intelsat S.A.’s chief executive officer and
other executive officers. The compensation committee meets as often as it determines necessary.
Nominating & Governance Committee
Intelsat S.A. has a nominating & governance committee consisting of Messrs. McGlade, Bateman, Callahan and Kangas.
Messrs. Callahan and Kangas are independent, and Mr. McGlade is not independent, since he served as our chief executive
officer within the past three years, and Mr. Bateman is not independent, since he is associated with the Sponsor. Pursuant to its
charter and the authority delegated to it by the board of directors, the nominating & governance committee has responsibility
for recommending to the board individuals qualified to serve as directors and on committees of the board; to advise the board
69
with respect to the board composition, procedures and committees; and to develop and recommend to the board a set of
corporate governance principles applicable to the Company. The nominating & governance committee meets as often as it
determines necessary but not less frequently than twice annually.
D.
Employees
As of December 31, 2018, we had 1,187 full-time regular employees. These employees consisted of:
•
•
•
•
609 employees in engineering, operations and related information systems;
194 employees in finance, legal and other administrative functions;
298 employees in sales, marketing and strategy; and
86 employees in support of government sales and marketing.
We believe that our relations with our employees are good. None of our employees is represented by a union or covered
by a collective bargaining agreement.
E.
Share Ownership
The following table and accompanying footnotes show information regarding the beneficial ownership of our common
shares by:
•
•
•
•
each person known by us to beneficially own 5% or more of our outstanding common shares;
each of our directors;
each executive officer, subject to permitted exceptions; and
all directors and executive officers as a group.
The percentage of beneficial ownership set forth below is based on approximately 138,073,226 common shares issued and
outstanding as of February 12, 2019. All common shares listed in the table below are entitled to one vote per share, unless
otherwise indicated in the notes thereto. Unless otherwise indicated, the address of each person named in the table below is c/o
Intelsat S.A., 4, rue Albert Borschette, L-1246 Luxembourg.
Name of Beneficial Owner:
Serafina S.A.(2)(12)
Silver Lake Group, L.L.C.(3)(12)
SLP III Investment Holdings S.à r.l.(3)(12)
Point State Capital LP and related entities(4)
David McGlade(5)(12)
Stephen Spengler(6)
Michelle Bryan(7)
Michael DeMarco(8)
Samer Halawi(9)
Jacques Kerrest(10)
Justin Bateman
Robert Callahan
John Diercksen
Edward Kangas
Raymond Svider
Common Shares Beneficially
Owned(1)
Number
Percentage
56,774,455
12,380,437
12,102,657
10,953,321
4,537,793
1,440,163
328,700
151,500
31,573
741,209
—
20,124
90,115
90,121
—
41.1%
9.0%
8.8%
7.9%
3.2%
1.0%
*
*
*
*
*
*
*
*
*
Directors and executive officers as a group(11) (11 persons)
7,431,298
5.2%
*
Represents beneficial ownership of less than one percent of shares outstanding.
(1) The amounts and percentages of our common shares beneficially owned are reported on the basis of regulations of the
U.S. Securities and Exchange Commission (the “SEC”) governing the determination of beneficial ownership of
70
securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or
shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,”
which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under
these rules, more than one person may be deemed to be a beneficial owner of such securities as to which such person has
an economic interest.
(2) The common shares beneficially owned by Serafina S.A. are also beneficially owned by the limited partnerships
comprising the fund commonly known as BC European Capital VIII, BC European Capital—Intelsat Co-Investment and
BC European Capital—Intelsat Co-Investment 1. CIE Management II Limited is the general partner of, and has
investment control over the shares beneficially owned by, each of the limited partnerships comprising the BC European
Capital VIII fund that are domiciled in the United Kingdom, BC European Capital—Intelsat Co-Investment, and BC
European Capital—Intelsat Co-Investment 1 (collectively, the “CIE Funds”). CIE Management II Limited may,
therefore, be deemed to have shared voting and investment power over the common shares beneficially owned by each of
the CIE Funds. LMBO Europe SAS is the Ge ant of, and has investment control over the shares beneficially owned by,
each of limited partnerships comprising the BC European Capital VIII fund that are domiciled in France (collectively, the
“LMBO Funds”). LMBO Europe SAS may, therefore, be deemed to have shared voting and investment power over the
common shares beneficially owned by each of the LMBO Funds. Because each of CIE Management II Limited and
LMBO Europe SAS is managed by a board of directors, no individuals have ultimate voting or investment control for
purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Act”), over the shares that may
be deemed beneficially owned by CIE Management II Limited or LMBO Europe SAS. The address of Serafina S.A. is
29, avenue de la Porte Neuve, L-2227 Luxembourg. The address of CIE Management II Limited and the CIE Funds is
Heritage Hall, Le Marchant Street, St. Peter Port, Guernsey, GY1 4HY, Channel Islands and the address of LMBO
Europe SAS and the LMBO Funds is 58-60 Avenue Kleber, Paris, France 75116.
(3) The common shares held of record by SLP III Investment Holding S.à r.l. are beneficially owned by its shareholders
Silver Lake Partners III, L.P. (“SLP”) and Silver Lake Technology Investors III, L.P. (“SLTI”). Silver Lake Technology
Associates III, L.P. (“SLTA”) serves as the general partner of each of SLP and SLTI and may be deemed to beneficially
own the shares directly owned by SLP and SLTI. SLTA III (GP), L.L.C. (“SLTA GP”) serves as the general partner of
SLTA and may be deemed to beneficially own the shares directly owned by SLP and SLTI. Silver Lake Group, L.L.C.
(“SLG”) serves as the managing member of SLTA GP and may be deemed to beneficially own the shares directly owned
by SLP and SLTI. The address for each of SLP, SLTI, SLTA, SLTA GP and SLG is 2775 Sand Hill Road, Suite 100,
Menlo Park, CA 94025.
(4) Based on the most recently available Schedule 13G/A filed with the SEC on February 14, 2019 by PointState Capital LP
(“PointState”), PointState reports that it serves as the investment manager to SteelMill Master Fund LP (“SteelMill”),
PointState Holdings LLC (“PointState Holdings”) serves as the general partner of SteelMill, PointState Capital GP LLC
(“PointState GP”) serves as the general partner of PointState, and Zachary J. Schreiber (“Mr. Schreiber”) serves as
managing member of PointState GP and PointState Holdings. PointState reports that SteelMill, PointState Holdings,
PointState, PointState GP and Mr. Schreiber (collectively, the “Reporting Persons”) filed a Schedule 13G/A jointly with
respect to the same securities as contemplated by Rule 13d-1(k)(1) under the U.S. Securities Exchange Act of 1934 (the
“Exchange Act”), and not as members of a group. PointState further reports that PointState, as investment manager to
SteelMill, and Mr. Schreiber, as managing member of PointState GP and PointState Holdings, may be deemed to
beneficially own, within the meaning of Section 13(d) of the Exchange Act and the rules and regulations thereunder, the
common shares of Intelsat S.A. held directly by SteelMill. The address of each of the Reporting Persons is care of
PointState Capital LP, 40 West 57th Street, 25th Floor, New York, New York 10019.
(5) Includes common shares held by McGlade Investments II, LLC, the Article 4 Family Trust U/T David McGlade 2009
GRAT and the David P. McGlade Declaration of Trust. Mr. McGlade exercises voting power over a total of 2,497,181
common shares. Mr. McGlade also holds restricted share units and options entitling him to receive or purchase 2,040,612
common shares within sixty days of February 12, 2019.
(6) Mr. Spengler exercises voting power over 581,913 common shares and holds restricted share units and options entitling
him to receive or purchase 858,250 common shares within sixty days of February 12, 2019. A portion of these shares,
restricted share units and options is subject to vesting and other restrictions.
(7) Ms. Bryan exercises voting power over 97,450 common shares and holds restricted share units and options entitling her
to receive or purchase 231,250 common shares within sixty days of February 12, 2019. A portion of these restricted share
units and options is subject to vesting and other restrictions.
(8) Mr. DeMarco exercises voting power over 30,000 shares and holds restricted share units and options entitling him to
receive or purchase 121,500 common shares within sixty days of February 12, 2019. A portion of these shares, restricted
share units and options is subject to vesting and other restrictions.
(9) Mr Halawi exercises voting power over 6,573 shares and holds restricted share units and options entitling him to receive
or purchase 25,000 shares within 60 days of February 12, 2019. A portion of these restricted share units and options is
subject to vesting and other restrictions.
71
(10) Mr. Kerrest exercises voting power over 207,709 shares and holds restricted share units and options entitling him to
receive or purchase 533,500 common shares within sixty days of February 12, 2019. A portion of these restricted share
units and options is subject to vesting and other restrictions.
(11) Directors and executive officers as a group exercise voting power over 3,621,186 common shares and hold restricted
share units and options entitling them to receive or purchase 3,810,112 common shares within sixty days of February 12,
2019 under applicable vesting schedules.
(12) Under our Governance Agreement and Shareholders Agreement, Serafina S.A. currently has the right to nominate two
directors for election to our board of directors and Serafina S.A., Silver Lake entities and Mr. McGlade and his affiliated
trusts and entities have certain drag along and tag along rights. As a result, Serafina S.A. and certain related parties
named in footnote (2) above, SLP III Investment Holdings S.à r.l. and certain related parties named in footnote (3) above
and David McGlade may be deemed to constitute a “group” that beneficially owns approximately 52.6% of our common
shares for purposes of Section 13(d)(3) of the Act. Each of Serafina S.A., SLP III Investment Holdings S.à r.l., their
respective related parties and David McGlade disclaim beneficial ownership of any common shares held by each other.
Item 7.
Major Shareholders and Related Party Transactions
A. Major Shareholders
See Item 6E—Share Ownership.
B. Related Party Transactions
See Item 10C - Material Contracts. Also, in June 2018, in a public offering of approximately 15.5 million Common
Shares by the Company, funds controlled by BC Partners, our largest beneficial owner, purchased an additional 2,021,563
Common Shares at the public offering price of $14.84 per Common Share.
C. Interests of experts and counsel
Not applicable.
Item 8.
Financial Information
A. Consolidated Statements and Other Financial Information
Our consolidated financial statements are filed under this item, beginning on page F-1 of this Annual Report on Form 20-
F. The financial statement schedules required under Regulation S-X are filed pursuant to Item 18 and Item 19 on Form 20-F.
Legal Proceedings
We are subject to litigation in the ordinary course of business, but 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.
Dividend Policy
We do not expect to pay dividends or other distributions on our common shares in the foreseeable future. We currently
intend to retain any future earnings for working capital and general corporate purposes, which could include the financing of
operations or the repayment, redemption, retirement or repurchase in the open market of our indebtedness. Under Luxembourg
law, the amount and payment of dividends or other distributions is determined by a simple majority vote at a general
shareholders’ meeting based on the recommendation of our board of directors, except in certain limited circumstances. Pursuant
to our articles of incorporation, the board of directors has the power to pay interim dividends or make other distributions in
accordance with applicable Luxembourg law. Distributions may be lawfully declared and paid if our net profits and/or
distributable reserves are sufficient under Luxembourg law. All of our common shares rank pari passu with respect to the
payment of dividends or other distributions unless the right to dividends or other distributions has been suspended in
accordance with our articles of incorporation or applicable law.
Under Luxembourg law, up to 5% of our net profits per year must be allocated to the creation of a legal reserve until such
reserve has reached an amount equal to 10% of our issued share capital. The allocation to the legal reserve becomes
72
compulsory again when the legal reserve no longer represents 10% of our issued share capital. The legal reserve is not available
for distribution.
We are a holding company and have no material assets other than our indirect ownership of shares in our operating
subsidiaries. If we were to pay a dividend or other distribution on our common shares at some point in the future, we would
cause the operating subsidiaries to make distributions to us in an amount sufficient to cover any such dividends. Our
subsidiaries’ ability to make distributions to us is restricted under certain of their debt and other agreements.
B. Significant Changes
No significant change has occurred since the date of the annual financial statements included in this Annual Report on
Form 20-F.
Item 9.
The Offer and Listing
A. Offering and Listing Details
Since our IPO on April 23, 2013, our common shares have traded on the NYSE under the symbol “I”.
B. Plan of Distribution
Not applicable.
C. Markets
See Item 9A—Offering and Listing Details.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10.
Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
73
A copy of our amended and restated consolidated articles of incorporation is being filed as an exhibit to this Annual
Report, and is incorporated herein by reference. The information called for by this Item 10B—“Additional Information—
Memorandum and Articles of Association” has been reported previously in our Registration Statement on Form F-1, as
amended (File No. 333- 181527), initially filed with the SEC on May 18, 2012, under the heading “Description of Share
Capital,” and in our Annual Report on Form 20-F as amended (File No. 001-35878), initially filed with the SEC on
February 26, 2018, under the heading “Additional Information – Memorandum and Articles of Association,” and is
incorporated by reference into this Annual Report. There are no limitations on the rights to own securities, including the rights
of non-resident or foreign shareholders to hold or exercise voting rights on the securities imposed by the laws of Luxembourg
or by our articles of incorporation.
C. Material Contracts
The following is a summary of each material contract, other than material contracts entered into in the ordinary course of
business, to which we are a party, for the two years immediately preceding the date of this Annual Report:
Employment Agreements and Other Arrangements
See summary of Employment Agreements provided under Item 6B above. From time to time, we also enter into other
compensation agreements and retention mechanisms with our executive officers.
Equity Compensation Agreements
Equity Grant Agreements under 2008 Equity Plan
Certain of our executive officers hold options granted under the 2008 Equity Plan that are subject to forfeiture and other
restrictions as set forth in the executive officers’ respective award agreements.
Option and Restricted Share Unit Agreements under 2013 Equity Plan
Certain of our executive officers hold restricted share units (“RSUs”) and option agreements under our 2013 Equity Plan
that vest as follows:
• RSUs which vest based on continued service or achievement of one or more long-term performance and financial
•
metrics over one to three years; and
options to purchase common shares at exercise prices of $3.29 per share and $3.77 per share, which are fully vested or
vest based on continued service over 2 to 3 years and expire on the 10th anniversary of the date of grant.
New Governance Agreement
In December 2018, we entered into a new governance agreement (the “New Governance Agreement”) with Serafina S.A.
(the “BC Shareholder”). Key terms of the New Governance Agreement include:
Nomination Rights
Under the New Governance Agreement, the BC Shareholder has the right to nominate (i) two directors for election to our
board of directors as long as the BC Shareholder owns at least 25% of our outstanding common shares; and (ii) one director for
election to our board of directors as long as the BC Shareholder owns at least 5% but less than 25% of our outstanding common
shares, in each case calculated on a fully diluted basis, after giving effect to convertible, exchangeable or exercisable rights or
securities held by the BC Shareholder (other than our 4.50% convertible senior notes due 2025 issued on June 18, 2018).
In the event that the BC Shareholder’s nomination rights are decreased as described above, the BC Shareholder will agree
to cause its respective director or directors to resign from our board of directors as appropriate to reflect the decrease, and,
subject to the rights described above, the majority of the remaining directors on our board of directors appointed by the general
meeting may fill such vacancy.
We have agreed to include the director nominees proposed by the BC Shareholder on each slate of nominees for election
to our board of directors, to recommend the election of those nominees to our shareholders and to use reasonable best efforts to
have them elected to our board of directors.
74
Information Rights; Confidentiality
Under the New Governance Agreement, if the BC Shareholder is not entitled to nominate a director for election to our
board of directors but remains a shareholder, it will be entitled to certain information rights, including the receipt of the board
meeting materials provided to each director. The BC Shareholder is subject to customary confidentiality obligations.
Termination
The New Governance Agreement will terminate upon the earlier of (i) April 23, 2023 and (ii) the day on which the BC
Shareholder first either (x) owns shares representing less than 5% of our outstanding common shares or (y) is no longer entitled
to nominate a director.
New Shareholders Agreement
In December 2018, we entered into a new shareholders agreement (the “New Shareholders Agreement”) with the BC
Shareholder, certain shareholders affiliated with Silver Lake Group, L.L.C. (the “Silver Lake Shareholder”) and David
McGlade and certain of his affiliated trusts and entities (the “McGlade Shareholder” and, together with the BC Shareholder and
the Silver Lake Shareholder, the “Shareholders”). Key terms of the New Shareholders Agreement include:
Tag-Along and Drag-Along Rights
Under the New Shareholders Agreement, each of the Silver Lake Shareholder and the McGlade Shareholder has certain
tag-along rights on transfers by the BC Shareholder, and the BC Shareholder has drag-along rights with respect to the Silver
Lake Shareholder and the McGlade Shareholder under certain circumstances.
The tag-along rights will terminate at such time as either the BC Shareholder or the Silver Lake Shareholder owns less
than 5% of our outstanding common shares. The drag-along rights will terminate at such time as either (i) the BC Shareholder
and the Silver Lake Shareholder together own in the aggregate less than 10% of our outstanding common shares or (ii) either
the BC Shareholder or the Silver Lake Shareholder ceases to own any common shares.
Information Rights; Confidentiality
Under the New Shareholders Agreement, until such time as the Silver Lake Shareholder owns less than 5% of our
outstanding common shares, the Silver Lake Shareholder will be entitled to receive certain information required to meet
internal and external reporting or other legal/compliance obligations. The Silver Lake Shareholder is subject to customary
confidentiality obligations.
Registration Rights
Under the New Shareholders Agreement, the BC Shareholder, the Silver Lake Shareholder and the McGlade Shareholder
have certain registration rights. Subject to certain exceptions, the BC Shareholder is entitled to unlimited demand registrations,
and the Silver Lake Shareholder is entitled to one demand registration within any 12-month period. Each Shareholder is entitled
to piggyback registration rights with respect to any registrations by us, for our own account or for the account of other
Shareholders, subject to certain exceptions. The registration rights are subject to customary limitations and exceptions,
including our right to withdraw or defer the registration or a sale pursuant thereto in certain circumstances and certain cutbacks
by the underwriters if marketing factors require a limitation on the number of shares to be underwritten in a proposed offering.
In connection with the registrations described above, we have agreed to indemnify the Shareholders against certain
liabilities. In addition, we and the Shareholders have agreed that certain fees, costs and expenses of any registration will be paid
pro rata by us and selling Shareholders based on the number of securities to be registered or sold, except that (a) the pro rata
expenses attributable to the McGlade Shareholder and the costs of one counsel for the selling Shareholders will be borne by us
and (b) underwriting discounts and commissions and similar brokers’ fees, transfer taxes and costs of more than one counsel for
the selling Shareholders will be borne by the Shareholders incurring the same.
The registration rights will terminate (i) as to the McGlade Shareholder, at such time as the McGlade Shareholder no
longer owns any registrable securities and (ii) as to each of the BC Shareholder and the Silver Lake Shareholder, at such time as
such Shareholder owns less than 5% of our outstanding common shares.
Termination
75
The New Shareholders Agreement will terminate at such time as the tag-along rights, drag-along rights and registration
rights provisions have all terminated according to their terms.
Indemnification Agreements
We have entered into agreements with our executive officers and directors to provide contractual indemnification in
addition to the indemnification provided for in our articles of incorporation.
Debt Agreements
For a summary of the terms of our material debt agreements, see Note 12 to our consolidated financial statements
included elsewhere in this Annual Report. In addition, with regard to all the notes issued by Intelsat Luxembourg, ICF and
Intelsat Jackson, the following covenants and events of default apply:
Covenants that limit the issuers, and in some cases some of the issuers’ subsidiaries’, ability to:
incur additional debt or issue disqualified or preferred stock;
pay dividends or repurchase shares of Intelsat Jackson or any of its parent companies;
•
•
• make certain investments;
•
• merge, consolidate and sell assets; and
•
enter into transactions with affiliates;
incur liens on any of their assets securing other indebtedness, unless the applicable notes are equally and ratably
secured.
Events of Default
•
•
•
•
•
•
default in payments of interest after a 30-day grace period or a default in the payment of principal when due;
default in the performance of any covenant in the indenture that continues for more than 60 days after notice of default
has been provided to the issuer;
failure to make any payment when due, including applicable grace periods, under any indebtedness for money
borrowed by Intelsat Luxembourg, ICF, Intelsat Jackson or a significant subsidiary thereof having a principal amount
in excess of $75 million;
the acceleration of the maturity of any indebtedness for money borrowed by Intelsat Luxembourg, ICF, Intelsat
Jackson or a significant subsidiary thereof having a principal amount in excess of $75 million;
insolvency or bankruptcy of Intelsat Luxembourg, ICF, Intelsat Jackson or a significant subsidiary thereof; and
failure by Intelsat Luxembourg, ICF, Intelsat Jackson or a significant subsidiary thereof to pay final judgments
aggregating in excess of $75 million, which are not discharged, waived or stayed for 60 days after the entry thereof.
If any event of default occurs and is continuing with respect to the notes, the trustee or the holders of at least 25% in
principal amount of the notes may declare the entire principal amount of the notes to be immediately due and payable. If any
event of default with respect to the notes occurs because of events of bankruptcy, insolvency or reorganization, the entire
principal amount of the notes will be automatically accelerated, without any action by the trustee or any holder.
D. Exchange Controls
We are not aware of any governmental laws, decrees, regulations or other legislation in Luxembourg that restrict the
export or import of capital, including the availability of cash and cash equivalents for use by our affiliated companies, or that
affect the remittance of dividends, interest or other payments to non-resident holders of our securities.
E. Taxation
The following sets forth material Luxembourg income tax consequences of an investment in our common shares. It is
based upon laws and relevant interpretations thereof in effect as of the date of this Annual Report, all of which are subject to
change. This discussion does not deal with all possible tax consequences relating to an investment in our common shares, such
as the tax consequences under U.S. federal, state, local and other tax laws.
76
Material Luxembourg Tax Considerations for Holders of Shares
The following is a summary discussion of certain Luxembourg tax considerations of the acquisition, ownership and
disposition of your common shares that may be applicable to you if you acquire our common shares. This does not purport to
be a comprehensive description of all of the tax considerations that may be relevant to any of our common shares or the
Holders thereof, and does not purport to include tax considerations that arise from rules of general application or that are
generally assumed to be known to Holders. This discussion is not a complete analysis or listing of all of the possible tax
consequences of such transactions and does not address all tax considerations that might be relevant to particular Holders in
light of their personal circumstances or to persons that are subject to special tax rules.
It is not intended to be, nor should it be construed to be, legal or tax advice. This discussion is based on Luxembourg laws
and regulations as they stand on the date of this Annual Report and is subject to any change in law or regulations or changes in
interpretation or application thereof (and which may possibly have a retroactive effect). Prospective investors should therefore
consult their own professional advisers as to the effects of state, local or foreign laws and regulations, including Luxembourg
tax law and regulations, to which they may be subject.
As used herein, a “Luxembourg individual” means an individual resident in Luxembourg who is subject to personal
income tax (impôt sur le revenu) on his or her worldwide income from Luxembourg or foreign sources, and a “Luxembourg
corporate Holder” means a company (that is, a fully taxable entity within the meaning of Article 159 of the Luxembourg
Income Tax Law) resident in Luxembourg subject to corporate income tax (impôt sur le revenu des collectivités) and municipal
business tax (impôt commercial communal) on its worldwide income from Luxembourg or foreign sources. For purposes of this
summary, Luxembourg individuals and Luxembourg corporate Holders are collectively referred to as “Luxembourg Holders.”
A “non-Luxembourg Holder” means any investor in our common shares other than a Luxembourg Holder.
Tax Regime Applicable to Realized Capital Gains
Luxembourg Holders
Luxembourg resident individual Holders
Capital gains realized by Luxembourg resident individuals who do not hold their shares as part of a commercial or
industrial or independent business and who hold no more than 10% of the share capital of the Company will only be taxable if
they are realized on a disposal of common shares that takes place before their acquisition or within the first six months
following their acquisition. If such is the case, capital gains will be taxed at ordinary rates according to the progressive income
tax schedule plus surcharges.
For Luxembourg resident individuals holding (alone or together with his/her spouse or civil partner and underage
children), directly or indirectly, more than 10% of the capital of the Company at any time during the five years prior to the
disposal (or if the Luxembourg resident individuals have received the shares for no consideration within the last five years prior
to the disposal and that the former holder held at least 10% in the capital of the Company at any moment during said five
years), capital gains will be taxable, regardless of the holding period. In case of a disposal after six months from acquisition, the
capital gain is subject to tax as extraordinary income subject to the half-global rate method. Within the six month period, capital
gains will be taxed at ordinary rates according to the progressive income tax schedule plus surcharges.
If such shares are held as part of a commercial or industrial business, capital gains would be taxable in the same manner
as income from such business.
Luxembourg resident corporate Holders
Capital gains realized upon the disposal of common shares by a fully taxable Luxembourg resident corporate Holder will
in principle be subject to corporate income tax and municipal business tax. The combined applicable rate (including an
unemployment fund contribution) is 26.01% for the fiscal years as from January 1, 2018 for a Luxembourg resident corporate
Holder established in Luxembourg-City. An exemption from such taxes may be available to the Luxembourg resident corporate
Holder pursuant to Article 166 of the Luxembourg Income Tax Law subject to the fulfillment of the conditions set forth therein.
The scope of the capital gains exemption can be limited in the cases provided by the Grand Ducal Decree of December 21,
2001, as amended.
Non-Luxembourg Holders
77
An individual who is a non-Luxembourg Holder of shares (and who does not have a permanent establishment, a
permanent representative or a fixed place of business in Luxembourg) will only be subject to Luxembourg taxation on capital
gains arising upon disposal of such shares if such non-Luxembourg Holder has (alone or together with his or her spouse or civil
partner and underage children), directly or indirectly held, more than 10% of the capital of the Company at any time during the
past five years, and either (i) such non-Luxembourg Holder has been a resident of Luxembourg for tax purposes for at least 15
years and has become a non-resident within the last five years preceding the realization of the gain, subject to any applicable
tax treaty, or (ii) the disposal of shares occurs within six months from their acquisition (or prior to their actual acquisition),
subject to any applicable tax treaty.
A corporate non-Luxembourg Holder which has a permanent establishment, a permanent representative or a fixed place
of business in Luxembourg to which shares are attributable, will bear corporate income tax and municipal business tax on a
gain realized on a disposal of such shares as set forth above for a Luxembourg corporate Holder. However, gains realized on the
disposal of the shares may benefit from the full exemption provided for by Article 166 of the Luxembourg Income Tax Law and
by the Grand Ducal Decree of December 21, 2001, as amended, subject in each case to fulfillment of the conditions set out
therein.
A corporate non-Luxembourg Holder, which has no permanent establishment in Luxembourg to which the shares are
attributable, will bear corporate income tax and municipal business tax on a gain realized on a disposal of such shares under the
same conditions applicable to an individual non-Luxembourg Holder, as set out above under (ii).
Tax Regime Applicable to Distributions
Withholding tax
Distributions imputed for tax purposes on current or accumulated profits are subject to a withholding tax of 15%.
Distributions sourced from a reduction of capital as defined in Article 97 (3) of the Luxembourg Income Tax Law, including,
among others, share premium, should not be subject to withholding tax, provided no newly accumulated fiscal profits are
recognized. For the foreseeable future, we do not expect to recognize newly accumulated fiscal profits in the relevant annual
standalone accounts of the Company prepared under Luxembourg GAAP, and so, on that basis, distributions should not be
subject to Luxembourg withholding tax.
To the extent, however, that the Company would recognize, against our expectation, newly accumulated fiscal profits in
its annual standalone accounts prepared under Luxembourg GAAP, there will be a 15% withholding tax, unless one of the
below exemptions or reductions is available for the dividend recipient.
The rate of the withholding tax may be reduced pursuant to any applicable double taxation treaty existing between
Luxembourg and the country of residence of the relevant Holder, subject to the fulfillment of the conditions set forth therein.
No withholding tax applies if the distribution is made to (i) a Luxembourg resident corporate Holder (that is, a fully
taxable entity within the meaning of Article 159 of the Luxembourg Income Tax Law), (ii) an undertaking of collective
character which is resident of a Member State of the European Union and is referred to by article 2 of the Council Directive
2011/96/EU of 30 November 2011 and concerning the system of taxation applicable in the case of parent companies and
subsidiaries of different member states (subject to the general anti-abuse rule provided for by Council Directive 2015/121/EU
as implemented into Luxembourg laws), (iii) a corporation or a cooperative company resident in Norway, Iceland or
Liechtenstein and subject to a tax comparable to corporate income tax as provided by the Luxembourg Income Tax Law, (iv) an
undertaking with a collective character subject to a tax comparable to corporate income tax as provided by the Luxembourg
Income Tax Law which is resident in a country that has concluded a tax treaty with Luxembourg, (v) a share capital company
resident in Switzerland which is subject to corporate income tax in Switzerland without benefiting from an exemption and
(vi) a Luxembourg permanent establishment of one of the aforementioned categories under (i) to (iv), provided that at the date
of payment, the Holder holds or commits to hold directly or through a tax transparent vehicle, during an uninterrupted period of
at least twelve months, shares representing at least 10% of the share capital of the Company or acquired for an acquisition price
of at least EUR 1.2 million.
Income Tax
Luxembourg individual Holders
Luxembourg individual Holders must include the distributions paid on the shares in their taxable income. However, 50%
of the amount of such dividends may be exempted from tax under the Luxembourg Income Tax Law. The applicable
withholding tax can, under certain conditions, entitle the relevant Luxembourg Holder to a tax credit.
78
Luxembourg resident corporate Holders
Luxembourg resident corporate Holders can benefit from an exemption of 100% of the amount of a dividend received
provided that, at the date when the income is made available, they hold or commit to hold a participation of minimum 10% of
the share capital of the Company or which has an acquisition price equivalent to minimum EUR 1.2 million for an
uninterrupted period of at least 12 months.
Net Wealth Tax
Luxembourg Holders
Luxembourg net wealth tax will not be levied on a Luxembourg Holder with respect to the shares held unless (i) the
Luxembourg Holder is a legal entity subject to net wealth tax in Luxembourg; or (ii) the shares are attributable to an enterprise
(other than of an individual Holder) or part thereof which is carried on through a permanent establishment, a fixed place of
business or a permanent representative in Luxembourg.
Net wealth tax is levied annually at a digressive rate depending on the amount of the net wealth of the above, as
determined for net wealth tax purposes (i.e., 0.5% on amounts up to EUR 500 million and 0.05% on the amount of taxable net
wealth exceeding EUR 500 million).
The shares of the Company may be exempt from net wealth tax subject to the conditions set forth by Paragraph 60 of the
Law of October 16, 1934 on the valuation of assets (Bewertungsgesetz), as amended.
Non-Luxembourg Holders
Luxembourg net wealth tax will not be levied on a non-Luxembourg Holder with respect to the shares held unless the
shares are attributable to an enterprise of a non-Luxembourg corporate Holder or part thereof which is carried on through a
permanent establishment or a permanent representative in Luxembourg.
Stamp and Registration Taxes
No registration tax or stamp duty will be payable by a Holder of shares in Luxembourg solely upon the disposal of shares
by sale or exchange.
Estate and Gift Taxes
No estate or inheritance tax is levied on the transfer of shares upon the death of a Holder of shares in cases where the
deceased was not a resident of Luxembourg for inheritance tax purposes, and no gift tax is levied upon a gift of shares if the
gift is not passed before a Luxembourg notary or recorded in a deed registered in Luxembourg. Where a Holder of shares is a
resident of Luxembourg for tax purposes at the time of his or her death, the shares are included in his or her taxable estate for
inheritance tax or estate tax purposes.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
Documents concerning us that are referred to herein may be inspected at our principal executive offices at 4, rue Albert
Borschette, L-1246 Luxembourg. Those documents, which include our registration statements, periodic reports and other
documents which were filed with or furnished to the SEC, may be obtained electronically from the Investors section of our
79
website at www.intelsat.com, from the SEC’s website at www.sec.gov or from the SEC public reference room at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. Further information on the operation of the public reference rooms may be
obtained by calling the SEC at 1-202-551-8909. Copies of documents can also be requested from the SEC public reference
rooms for a copying fee at prescribed rates.
I. Subsidiary Information
Not applicable.
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
We are primarily exposed to the market risk associated with unfavorable movements in interest rates and foreign
currencies. The risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse
changes in those factors. We do not purchase or hold any derivative financial instruments for speculative purposes.
Interest Rate Risk
The satellite communications industry is a capital intensive, technology driven business. We are subject to interest rate
risk primarily associated with our borrowings. Interest rate risk is the risk that changes in interest rates could adversely affect
earnings and cash flows. Specific risks include the risk of increasing interest rates on short-term debt, for planned new fixed-
rate long-term financings, and for planned refinancings using long-term fixed-rate debt.
Excluding the impact of our outstanding interest rate cap contracts, approximately 79% of our debt, or $11.4 billion
principal amount was fixed-rate debt as of December 31, 2017. As of December 31, 2018, our fixed-rate debt increased to
approximately 83%, or $11.9 billion. We also perform interest rate sensitivity analyses on our variable-rate debt. While our
variable-rate debt may impact earnings and cash flows as interest rates change, it is not subject to changes in fair values. Based
on the level of fixed-rate debt outstanding at December 31, 2018, a 100 basis point decrease in market rates would result in an
increase in fair value of this fixed-rate debt of approximately $446.0 million. These analyses indicate that a 100 basis point
increase in interest rates would have an annual impact of approximately $24.0 million on our consolidated statements of
operations and cash flows as of December 31, 2018.
As of December 31, 2018, we held interest rate cap contracts with an aggregate notional amount of $2.4 billion, which
mature in February 2021. These contracts were entered into to mitigate our risk of interest rate increases on the floating rate
term loans under our senior secured credit facilities. If LIBOR exceeds 1.89% prior to the 3 year expiration date of the cap
contracts, the Company will receive the resulting increase in interest payment required to the term loan holders from the
counterparties to the arrangement.
These interest rate cap contracts have not been designated for hedge accounting treatment in accordance with the
Derivatives and Hedging topic of the FASB ASC 815, as amended and interpreted, and the changes in fair value of these
instruments are recognized in earnings during the period of change.
Foreign Currency Risk
We do not currently use material foreign currency derivatives to hedge our foreign currency exposures. Substantially all
of our customer contracts, capital expenditure contracts and operating expense obligations are denominated in U.S. dollars.
Consequently, we are not exposed to material foreign currency exchange risk. However, the service contracts with our Brazilian
customers provide for payment in Brazilian reais. Accordingly, we are subject to the risk of a reduction in the value of Brazilian
reais as compared to U.S. dollars in connection with payments made by Brazilian customers, and our exposure to fluctuations
in the exchange rate for Brazilian reais is ongoing. However, the rates payable under our service contracts with Brazilian
customers are adjusted annually to account for inflation in Brazil, thereby partially mitigating the risk. For the years ended
December 31, 2016, 2017 and 2018 our Brazilian customers represented approximately 3.7%, 4.0% and 3.3% of our revenue,
respectively. Transactions in other currencies are converted into U.S. dollars using exchange rates in effect on the dates of the
transactions.
80
Item 12.
Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
Not applicable.
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable.
Item 15.
Controls and Procedures
(a) Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be
disclosed by us in reports that we file or furnish under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We
periodically review the design and effectiveness of our disclosure controls and procedures worldwide, including compliance
with various laws and regulations that apply to our operations. We make modifications to improve the design and effectiveness
of our disclosure controls and procedures, and may take other corrective action, if our reviews identify a need for such
modifications or actions. In designing and evaluating the disclosure controls and procedures, we recognize that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives.
We have carried out an evaluation, under the supervision and with the participation of our management, including our
principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of the year ended
December 31, 2018. Based upon that evaluation, our principal executive officer and our principal financial officer concluded
that our disclosure controls and procedures were effective as of December 31, 2018.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework set forth in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation,
management has concluded that our internal control over financial reporting was effective as of December 31, 2018.
(c) Attestation Report of the Registered Public Accounting Firm
See the report of KPMG LLP, an independent registered public accounting firm, included under “Item 18. Financial
Statements” on pages F-2 and F-3 of this Annual Report.
(d) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended December 31, 2018 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16.
[Reserved]
81
Item 16A. Audit Committee Financial Expert
The board of directors has determined that each of Messrs. Kangas and Diercksen qualifies as an audit committee
financial expert, as defined in Item 16A of Form 20-F, and that Messrs. Kangas and Diercksen are also “independent,” as
defined in Rule 10A-3 under the Exchange Act and applicable NYSE standards. For more information about Messrs. Kangas
and Diercksen, see Item 6A—Directors, Senior Management and Employees—Directors and Senior Management.
Item 16B. Code of Ethics
We have adopted a Code of Ethics for Senior Financial Officers, including our chief executive officer, chief financial
officer, principal accounting officer, controller and any other person performing similar functions. The Code of Ethics is posted
on our website at www.intelsat.com. We intend to disclose on our website any amendments to or waivers of this Code of Ethics.
Item 16C.
Principal Accountant Fees and Services
Audit Fees
Our audit fees were $3.6 million and $4.9 million for the years ended 2017 and 2018, respectively.
Audit-Related Fees
Our audit-related fees were none for the years ended 2017 and 2018, respectively.
Tax Fees
Our tax fees paid to our principal accountants were none and $11,000 for the years ended 2017 and 2018, respectively.
The fees were primarily associated with U.S. state taxation.
All Other Fees
All other fees paid to our principal accountants were $150,000 for each of the two years ended 2017 and 2018. Our other
fees for 2017 and 2018 included fees associated with attestation of IT security controls.
Audit Committee Pre-Approval Policies and Procedures
Consistent with SEC requirements regarding auditor independence, the audit committee has adopted a policy to pre-
approve services to be provided by our independent registered public accounting firm prior to commencement of the specified
service. The requests for pre-approval are submitted to the audit committee, or a designated member of the audit committee, by
our Chief Financial Officer or Controller, and the audit committee chairman executes engagement letters with our independent
registered public accounting firm following approval by audit committee members, or the designated member of the audit
committee. All services performed by KPMG LLP during 2018 were pre-approved by the audit committee.
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
Item 16F.
Change in Registrants’ Certifying Accountant
Not applicable.
82
Items 16G. Corporate Governance
Our common shares are listed on the NYSE. For purposes of NYSE rules, so long as we are a foreign private issuer, we
are eligible to take advantage of certain exemptions from NYSE corporate governance requirements provided in the NYSE
rules. We are required to disclose the significant ways in which our corporate governance practices differ from those that apply
to U.S. companies under NYSE listing standards. Set forth below is a summary of these differences:
Director Independence—The NYSE rules require domestic companies to have a majority of independent directors, but as
a foreign private issuer we are exempt from this requirement. Our board of directors consists of seven members and we believe
that three of our board members satisfy the “independence” requirements of the NYSE rules.
Board Committees—The NYSE rules require domestic companies to have a compensation committee and a nominating
and corporate governance committee composed entirely of independent directors, but as a foreign private issuer we are exempt
from these requirements. We have a compensation committee comprised of three members, and we believe that two of the
committee members satisfy the “independence” requirements of the NYSE rules. We have a nominating and corporate
governance committee comprised of four members, and we believe that two of the committee members satisfy the
“independence” requirements of the NYSE rules.
Item 16H. Mine Safety Disclosure
Not applicable.
Item 17.
Financial Statements
Not applicable.
Item 18.
Financial Statements
PART III
(a)(1) The following financial statements are included in this Annual Report on Form 20-F:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2018
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2017 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2017 and 2018
Consolidated Statements of Changes in Shareholders’ Deficit for the Years Ended December 31, 2016, 2017 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2017 and 2018
Notes to Consolidated Financial Statements
(a)(2) The following Financial Statement schedule is included in this Annual Report on Form 20-F:
Schedule II—Valuation and Qualifying Accounts for the Years Ended December 31, 2016, 2017 and 2018
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-10
F-53
Item 19.
Exhibits
The following exhibits are filed as part of this Annual Report:
83
Exhibit
No.
EXHIBIT INDEX
Document Description
1.1
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
2.13
2.14
2.15
Consolidated Articles of Incorporation of Intelsat S.A., as amended on June 19, 2018.*
Indenture for Intelsat (Luxembourg) S.A.’s 6 3/4% Senior Notes due 2018, 7 3/4% Senior Notes due 2021 and 8 1/8% Senior
Notes due 2023, dated as of April 5, 2013, by and among Intelsat (Luxembourg) S.A., as Issuer, Intelsat S.A., as Parent
Guarantor, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 of Intelsat
Investments S.A.’s Current Report on Form 8-K, File No. 000-50262, filed on April 5, 2013).
First Supplemental Indenture for Intelsat (Luxembourg) S.A.’s 6 3/4% Senior Notes due 2018, 7 3/4% Senior Notes due 2021 and
8 1/8% Senior Notes due 2023, dated as of May 20, 2013, by and among Intelsat S.A., Intelsat Investment Holdings S.à r.l.,
Intelsat Holdings S.A., each as a Guarantor, Intelsat Jackson Holdings S.A., as Issuer, and Wells Fargo Bank, National
Association, as Trustee (incorporated by reference to Exhibit 2.32 of Intelsat S.A.’s Annual Report on Form 20-F, File
No. 001-35878, filed on February 20, 2014).
Indenture for Intelsat Jackson Holdings S.A.’s 5 1/2% Senior Notes due 2023, dated as of June 5, 2013, by and among Intelsat
Jackson Holdings S.A., as Issuer, Intelsat S.A., Intelsat Investment Holdings S.à r.l., Intelsat Holdings, S.A., Intelsat Investments
S.A., Intelsat (Luxembourg) S.A., each as a Parent Guarantor, the subsidiary guarantors named therein and Wells Fargo Bank,
National Association, as Trustee (incorporated by reference to Exhibit 99.1 of Intelsat S.A.’s Current Report on Form 6-K, File
No. 001-35878, filed on June 5, 2013).
First Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 5 1/2% Senior Notes due 2023, dated as of June 28, 2013, by
and among Intelsat Finance Bermuda Ltd., as guarantor, Intelsat Jackson Holdings S.A., as Issuer, and Wells Fargo Bank, National
Association, as Trustee (incorporated by reference to Exhibit 2.35 of Intelsat S.A.’s Annual Report on Form 20-F, File
No. 001-35878, filed on February 20, 2014).
Second Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 5 1/2% Senior Notes due 2023, dated as of November 25,
2015, by and among Intelsat Ireland Operations Limited, as guarantor, Intelsat Jackson Holdings S.A., as Issuer, and Wells Fargo
Bank, National Association, as Trustee (incorporated by reference to Exhibit 2.25 of Intelsat S.A.’s Annual Report on Form 20-F,
File No. 001-35878, filed on March 8, 2016).
Third Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 5 1/2% Senior Notes due 2023, dated as of December 22,
2016, by and among Intelsat Connect Finance S.A., as New Guarantor, Intelsat Jackson Holdings S.A., as Issuer, and U.S. Bank
National Association, as Trustee (incorporated by reference to Exhibit 2.25 of Intelsat S.A.’s Annual Report on Form 20-F, File
No. 000-35878, filed on February 28, 2017, as amended).
Indenture for Intelsat Jackson Holdings S.A.’s 8% Senior Secured Notes due 2024, dated as of March 29, 2016, by and among
Intelsat Jackson Holdings S.A., as Issuer, Intelsat (Luxembourg) S.A. as Parent Guarantor, the subsidiary guarantors named
therein and Wilmington Trust, National Association, as Trustee (including the form of the 8% Notes) (incorporated by reference to
Exhibit 99.1 of Intelsat S.A.’s Current Report on Form 6-K, File No. 001-35878, filed on March 29, 2016).
First Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 8% Senior Secured Notes due 2024, dated as of December 22,
2016, by and among Intelsat (Luxembourg) S.A., as Released Guarantor, Intelsat Connect Finance S.A., as New Guarantor,
Intelsat Jackson Holdings S.A., as Issuer, and Wilmington Trust, National Association, as Trustee (incorporated by reference to
Exhibit 2.27 of Intelsat S.A.’s Annual Report on Form 20-F, File No. 000-35878, filed on February 28, 2017, as amended).
Indenture for Intelsat Jackson Holdings S.A.’s 9 1/2% Senior Secured Notes due 2022, dated as of June 30, 2016, by and among
Intelsat Jackson Holdings S.A., as Issuer, Intelsat (Luxembourg) S.A. as Parent Guarantor, the subsidiary guarantors named
therein and Wilmington Trust, National Association, as Trustee (including the form of the 91/2% Notes) (incorporated by
reference to Exhibit 99.1 of Intelsat S.A.’s Current Report on Form 6-K, File No. 001-35878, filed on July 1, 2016).
First Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 9 1/2% Senior Secured Notes due 2022, dated as of December
22, 2016, by and among Intelsat (Luxembourg) S.A., as Released Guarantor, Intelsat Connect Finance S.A., as New Guarantor,
Intelsat Jackson Holdings S.A., as Issuer, and Wilmington Trust, National Association, as Trustee (incorporated by reference to
Exhibit 2.29 of Intelsat S.A.’s Annual Report on Form 20-F, File No. 000-35878, filed on February 28, 2017, as amended).
Indenture for Intelsat Jackson Holdings S.A.’s 9 3/4% Senior Notes due 2025, dated as of July 5, 2017, by and among Intelsat
Jackson Holdings S.A., as Issuer, Intelsat S.A., Intelsat Investment Holdings S.à r.l., Intelsat Holdings S.A., Intelsat Investments
S.A., Intelsat (Luxembourg) S.A. and Intelsat Connect Finance S.A., each as a Parent Guarantor, the subsidiary guarantors named
therein and U.S. Bank, National Association, as Trustee (incorporated by reference to Exhibit 99.1 of Intelsat S.A.’s Current
Report on Form 6-K, File No. 001-35878, filed on July 5, 2017).
Indenture for Intelsat Connect Finance S.A.’s 9 1/2% Senior Notes due 2023, dated as of August 16, 2018, by and among Intelsat
Connect Finance S.A., as Issuer, Intelsat Envision Holdings LLC, Intelsat (Luxembourg) S.A., as Parent Guarantor and U.S. Bank,
National Association, as Trustee (including the form of the 9 1/2% Notes) (incorporated by reference to Exhibit 99.1 of Intelsat
S.A.’s Current Report on Form 6-K, File No. 001-35878, filed on August 16, 2018).
Indenture for Intelsat (Luxembourg) S.A.’s 12 1/2% Senior Notes due 2024, dated as of January 6, 2017, by and between Intelsat
(Luxembourg) S.A., as Issuer and U.S. Bank, National Association, as Trustee (including the form of the 12 1/2% Notes)
(incorporated by reference to Exhibit 99.1 of Intelsat S.A.’s Current Report on Form 6-K, File No. 001-35878, filed on January 6,
2017).
Indenture for Intelsat S.A.’s 4½% Convertible Senior Notes due 2025, dated as of June 18, 2018, by and between Intelsat S.A., as
Issuer, Intelsat Envision Holdings LLC, as Guarantor and U.S. Bank National Association, as Trustee (incorporated by reference
to Exhibit 99.1 of Intelsat S.A.’s Current Report on Form 6-K, File No. 001-35878, filed on June 18, 2018).
Indenture for Intelsat Jackson Holdings S.A.’s 8½% Senior Notes due 2024, dated as of September 19, 2018, by and between
Intelsat Jackson Holdings S.A., as Issuer, Intelsat S.A., Intelsat Investment Holdings S.à r.l., Intelsat Holdings S.A., Intelsat
Investments S.A., Intelsat (Luxembourg) S.A. and Intelsat Connect Finance S.A., each as a Parent Guarantor, the subsidiary
guarantors named therein and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 99.1 to Intelsat
S.A.’s Current Report on Form 6-K, File No. 001-35878, filed September 19, 2018).
84
Exhibit
No.
2.16
2.17
2.18
2.19
2.20
2.21
2.22
2.23
2.24
2.25
2.26
2.27
3.1
4.1
4.2
4.3
4.4
4.5
Document Description
First Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 9¾% Senior Notes due 2025, dated as of June 29, 2018, by and
among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Genesis Inc., as New Guarantor, and U.S. Bank National Association, as
Trustee.*
Second Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 9¾% Senior Notes due 2025, dated as of July 2, 2018, by and
among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Alliance LP and Intelsat Genesis GP LLC, collectively as New
Guarantors, and U.S. Bank National Association, as Trustee.*
Second Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 9½% Senior Secured Notes due 2022, dated as of June 29,
2018, by and among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Genesis Inc., as New Guarantor, and U.S. Bank National
Association, as Trustee.*
Third Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 9½% Senior Secured Notes due 2022, dated as of July 2, 2018,
by and among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Alliance LP, Intelsat Genesis GP LLC and Intelsat Ventures S.à
r.l., collectively as New Guarantors, and U.S. Bank National Association, as Trustee.*
Second Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 8% Senior Secured Notes due 2024, dated as of June 29,
2018, by and among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Genesis Inc., as New Guarantor, and Wilmington Trust,
National Association, as Trustee.*
Third Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 8% Senior Secured Notes due 2024, dated as of July 2, 2018,
by and among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Alliance LP, Intelsat Genesis GP LLC and Intelsat Ventures S.à
r.l., collectively as New Guarantors, and Wilmington Trust, National Association, as Trustee.*
Fourth Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 5½% Senior Notes due 2023, dated as of June 29, 2018, by
and among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Genesis Inc., as New Guarantor, and U.S. Bank National
Association, as Trustee.*
Fifth Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 5½% Senior Notes due 2023, dated as of July 2, 2018, by and
among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Alliance LP, Intelsat Genesis GP LLC and Intelsat Ventures S.à r.l.,
collectively as New Guarantors, and U.S. Bank National Association, as Trustee.*
Eighth Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 7½% Senior Notes due 2021, dated as of June 29, 2018, by
and among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Genesis Inc., as New Guarantor, and U.S. Bank National
Association, as Trustee.*
Ninth Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 7½% Senior Notes due 2021, dated as of July 2, 2018, by and
among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Alliance LP, Intelsat Genesis GP LLC and Intelsat Ventures S.à r.l.,
collectively as New Guarantors, and U.S. Bank National Association, as Trustee.*
Eleventh Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 7¼% Senior Notes due 2020, dated as of June 29, 2018, by
and among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Genesis Inc., as New Guarantor, and U.S. Bank National
Association, as Trustee.*
Twelfth Supplemental Indenture for Intelsat Jackson Holdings S.A.’s 7¼% Senior Notes due 2020, dated as of July 2, 2018, by
and among Intelsat Jackson Holdings S.A., as Issuer, Intelsat Alliance LP, Intelsat Genesis GP LLC and Intelsat Ventures S.à r.l.,
collectively as New Guarantors, and U.S. Bank National Association, as Trustee.*
Governance Agreement, dated as of December 18, 2018, by and among Intelsat S.A. and the shareholders of Intelsat S.A. party
thereto.*
Credit Agreement, dated as of January 12, 2011, by and among Intelsat Jackson, as the Borrower, Intelsat (Luxembourg) S.A., the
several lenders from time to time parties thereto, Bank of America, N.A., as Administrative Agent, Credit Suisse Securities (USA)
LLC (“Credit Suisse”) and J.P. Morgan Securities LLC (“J.P. Morgan”), as Co-Syndication Agents, Barclays Bank Plc and
Morgan Stanley Senior Funding, Inc., as Co-Documentation Agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated
(“Merrill Lynch”), Credit Suisse and J.P. Morgan, as Joint Lead Arrangers, Merrill Lynch, Credit Suisse, J.P. Morgan, Barclays
Capital, Deutsche Bank Securities Inc., Morgan Stanley & Co. Incorporated and UBS Securities LLC, as Joint Bookrunners, and
HSBC Bank USA, N.A., Goldman Sachs Partners LLC and RBC Capital Markets, as Co-Managers (incorporated by reference to
Exhibit 10.1 of Intelsat Investments S.A.’s Current Report on Form 8-K, File No. 000-50262, filed on January 19, 2011).
Guarantee, dated as of January 12, 2011, made among each of the subsidiaries of Intelsat Jackson Holdings S.A. listed on Annex
A thereto and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 of Intelsat Investments
S.A.’s Current Report on Form 8-K, File No. 000-50262, filed on January 19, 2011).
Luxembourg Shares and Beneficiary Certificates Pledge Agreement, dated as of January 12, 2011, by and among Intelsat
(Luxembourg) S.A., Intelsat Jackson Holdings S.A., Intelsat Intermediate Holding Company S.A., Intelsat Phoenix Holdings S.A.,
Intelsat Subsidiary Holding Company S.A., Intelsat (Gibraltar) Limited, as Pledgors, and Wilmington Trust FSB, as Pledgee
(incorporated by reference to Exhibit 10.3 of Intelsat Investments S.A.’s Current Report on Form 8-K, File No. 000-50262, filed
on January 19, 2011).
Security and Pledge Agreement, dated as of January 12, 2011, by and among Intelsat Jackson Holdings S.A., each of the
subsidiaries of Intelsat Jackson Holdings S.A. listed on Annex A thereto, Bank of America, N.A., as Administrative Agent, and
Wilmington Trust FSB, as Collateral Trustee (incorporated by reference to Exhibit 10.4 of Intelsat Investments S.A.’s Current
Report on Form 8-K, File No. 000-50262, filed on January 19, 2011).
Collateral Agency and Intercreditor Agreement, dated as of January 12, 2011 by and among Intelsat (Luxembourg) S.A., Intelsat
Jackson Holdings S.A., the other grantors from time to time party thereto, Bank of America, N.A., as Administrative Agent under
the Existing Credit Agreement, each additional First Lien Representative from time to time a party thereto, each Second Lien
Representative from time to time a party thereto and Wilmington Trust FSB, as Collateral Trustee (incorporated by reference to
Exhibit 10.5 of Intelsat Investments S.A.’s Current Report on Form 8-K, File No. 000-50262, filed on January 19, 2011).
85
Exhibit
No.
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
Document Description
Amendment and Joinder Agreement, dated as of October 3, 2012, by and among Intelsat (Luxembourg) S.A., Intelsat Jackson
Holdings S.A., the Subsidiary Guarantors party thereto, Bank of America, N.A., as Administrative Agent for the Lenders and
collateral agent for the Secured Parties, the Lenders party thereto and the Tranche B-1 Term Loan Lenders party thereto, to the
Credit Agreement, dated as of January 12, 2011 (incorporated by reference to Exhibit 10.1 of Intelsat Investments S.A.’s Current
Report on Form 8-K, File No. 000-50262, filed on October 3, 2012).
Amendment No. 2 and Joinder Agreement, dated as of November 27, 2013, by and among Intelsat (Luxembourg) S.A., Intelsat
Jackson Holdings S.A., the Subsidiary Guarantors party hereto, Bank of America, N.A., as Administrative Agent for the lenders
and collateral agent for the secured parties thereto, the lenders party thereto and the Tranche B-2 Term Loan Lenders (as defined
therein) party thereto, to the Credit Agreement, dated as of January 12, 2011 (as amended by the Amendment and Joinder
Agreement, dated as of October 3, 2012) (incorporated by reference to Exhibit 4.7 of Intelsat S.A.’s Annual Report on Form 20-F,
File No. 001-35878, filed on February 20, 2014).
Amendment No. 3 and Joinder Agreement, dated as of November 27, 2017, by and among Intelsat Connect Finance S.A., Intelsat
Jackson Holdings S.A., the Subsidiary Guarantors party hereto, Bank of America, N.A., as Administrative Agent for the lenders
and collateral agent for the secured parties thereto, the lenders party thereto and the Tranche B-3 Term Loan Lenders (as defined
therein) party thereto, to the Credit Agreement, dated as of January 12, 2011 (as amended by the Amendment and Joinder
Agreement, dated as of October 3, 2012, and the Amendment No. 2 and Joinder Agreement, dated as of November 27, 2013)
(incorporated by reference to Exhibit 99.1 of Intelsat S.A.’s Current Report on Form 6-K, File No. 001-35878, filed on
November 27, 2017).
Amendment No. 4 and Joinder Agreement, dated as of December 12, 2017, by and among Intelsat Connect Finance S.A., Intelsat
Jackson Holdings S.A., the Subsidiary Guarantors party hereto, Bank of America, N.A., as Administrative Agent for the lenders
and collateral agent for the secured parties thereto, the lenders party thereto and the Tranche B-3 Term Loan Lenders (as defined
therein) party thereto, to the Credit Agreement, dated as of January 12, 2011 (as amended by the Amendment and Joinder
Agreement, dated as of October 3, 2012, the Amendment No. 2 and Joinder Agreement, dated as of November 27, 2013, and the
Amendment No. 3 and Joinder Agreement, dated as of November 27, 2017) (incorporated by reference to Exhibit 99.1 of Intelsat
S.A.’s Current Report on Form 6-K, File No. 001-35878, filed on December 12, 2017).
Amendment No. 5 and Joinder Agreement, dated as of January 2, 2018, by and among Intelsat Connect Finance S.A., Intelsat
Jackson Holdings S.A., the Subsidiary Guarantors party hereto, Bank of America, N.A., as Administrative Agent for the lenders
and collateral agent for the secured parties thereto, the lenders party thereto and the Tranche B-4 Term Loan Lenders and the
Tranche B-5 Term Loan Lenders (as defined therein) party thereto, to the Credit Agreement, dated as of January 12, 2011 (as
amended by the Amendment and Joinder Agreement, dated as of October 3, 2012, the Amendment No. 2 and Joinder Agreement,
dated as of November 27, 2013, the Amendment No. 3 and Joinder Agreement, dated as of November 27, 2017, and the
Amendment No. 4 and Joinder Agreement, dated as of December 12, 2017) (incorporated by reference to Exhibit 99.1 of Intelsat
S.A.’s Current Report on Form 6-K, File No. 001-35878, filed on January 2, 2018).
Amendment No. 6 and Joinder Agreement, dated as of November 8, 2018, by and among Intelsat Connect Finance S.A., Intelsat
Jackson Holdings S.A., the Subsidiary Guarantors party hereto, Bank of America, N.A., as Administrative Agent for the lenders
and collateral agent for the secured parties thereto, the lenders party thereto, to the Credit Agreement, dated as of January 12, 2011
(as amended by the Amendment and Joinder Agreement, dated as of October 3, 2012, the Amendment No. 2 and Joinder
Agreement, dated as of November 27, 2013, the Amendment No. 3 and Joinder Agreement, dated as of November 27, 2017, the
Amendment No. 4 and Joinder Agreement, dated as of December 12, 2017, and the Amendment No. 5 and Joinder Agreement,
dated January 2, 2018) (incorporated by reference to Exhibit 99.1 of Intelsat S.A.’s Current Report on Form 6-K, File
No. 001-35878, November 8, 2018).
Severance Agreement, dated as of May 8, 2009, by and between Intelsat Global, Ltd. and Stephen Spengler (incorporated by
reference to Exhibit 10.27 of Intelsat, Ltd.’s Current Report on Form 8-K, File No. 000-50262, filed on May 12, 2009).
Intelsat S.A.’s Amended and Restated 2008 Share Incentive Plan (incorporated by reference to Exhibit 4.15 of Intelsat S.A.’s
Annual Report on Form 20-F, File No. 001-35878, filed on February 20, 2014).
Amendment, dated as of March 30, 2012, to the employment letter agreement, dated as of May 8, 2009, by and between Intelsat
Global and Stephen Spengler (incorporated by reference to Exhibit 10.10 of Intelsat Investments S.A.’s Current Report on Form 8-
K, File No. 000-50262, filed on April 5, 2012).
Shareholders Agreement, dated as of December 18, 2018, by and among Intelsat S.A. and the shareholders party thereto*.
Intelsat S.A.’s 2013 Equity Incentive Plan (incorporated by reference to Exhibit 4.39 of Intelsat S.A.’s Annual Report on Form 20-
F, File No. 001-35878, filed on February 20, 2014).
Intelsat S.A.’s Bonus Plan (incorporated by reference to Exhibit 4.40 of Intelsat S.A.’s Annual Report on Form 20-F,
File No. 001-35878, filed on February 20, 2014).
Supplement No. 2 to Guarantee, dated as of July 31, 2012, by and between Intelsat Luxembourg Investment S.à r.l. and Bank of
America, N.A. (incorporated by reference to Exhibit 10.2 of Intelsat Investments S.A.’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, File No. 000-50262, filed on August 1, 2012).
Agreement for the Adherence by Intelsat Luxembourg Investment S.à r.l. and Intelsat Corporation to the Luxembourg Shares and
Beneficiary Certificates Pledge Agreement, dated as of January 12, 2011, and for the Amendment of the Pledge Agreement, dated
as of July 31, 2012, by and among the Pledgors listed therein and Wilmington Trust, National Association (as successor by merger
to Wilmington Trust FSB), as Collateral Trustee (incorporated by reference to Exhibit 10.3 of Intelsat Investments S.A.’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, File No. 000-50262, filed on August 1, 2012).
Supplement No. 2 to Security and Pledge Agreement, dated as of July 31, 2012, by and among Intelsat Luxembourg Investment
S.à r.l., as New Guarantor, Bank of America, N.A., as Administrative Agent and Wilmington Trust, National Association (as
successor by merger to Wilmington Trust FSB), as Collateral Trustee (incorporated by reference to Exhibit 10.4 of Intelsat
Investments S.A.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, File No. 000-50262, filed on August 1,
2012).
86
Exhibit
No.
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
4.35
4.36
4.37
Document Description
Collateral Agency and Intercreditor Joinder, dated as of July 31, 2012, by and between Intelsat Luxembourg Investment S.à r.l.
and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as Collateral Trustee
(incorporated by reference to Exhibit 10.5 of Intelsat Investments S.A.’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2012, File No. 000-50262, filed on August 1, 2012).
Form of Indemnification Agreement between Intelsat S.A. and its directors and officers (previously filed as Exhibit 10.64 to
Amendment No. 2 to Intelsat Global Holdings S.A.’s Registration Statement on Form F-1, File No. 333-181527, filed on
August 8, 2012).
Supplement No. 3 to Guarantee, dated as of January 31, 2013, to the Guarantee dated as of January 12, 2011, by and among
Intelsat Align S.à r.l. and Intelsat Finance Nevada LLC, as New Guarantors, and Bank of America, N.A., as Administrative Agent
(incorporated by reference to Exhibit 10.84 of Intelsat Investments S.A.’s Annual Report on Form 10-K, File No. 000-50262, filed
on February 28, 2013).
Agreement for the Adherence by Intelsat Align S.à r.l. to the Luxembourg Shares and Beneficiary Certificates Pledge Agreement,
dated as of January 12, 2011, and for the Amendment of the Pledge Agreement, dated as of January 31, 2013, by and among the
Pledgors listed therein and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as
Collateral Trustee (incorporated by reference to Exhibit 10.85 of Intelsat Investments S.A.’s Annual Report on Form 10-K,
File No. 000-50262, filed on February 28, 2013).
Supplement No. 3 to Security and Pledge Agreement, dated as of January 31, 2013, to the Security and Pledge Agreement dated
as of January 12, 2011, by and among Intelsat Align S.àr.l. and Intelsat Nevada LLC, as New Guarantors, Bank of America, N.A.,
as Administrative Agent and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as
Collateral Trustee (incorporated by reference to Exhibit 10.86 of Intelsat Investments S.A.’s Annual Report on Form 10-K, File
No. 000-50262, filed on February 28, 2013).
Collateral Agency and Intercreditor Joinder, dated as of January 31, 2013, by and among Intelsat Align S.à r.l. and Intelsat Nevada
LLC, as new Grantors, and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as
Collateral Trustee (incorporated by reference to Exhibit 10.87 of Intelsat Investments S.A.’s Annual Report on Form 10-K,
File No. 000-50262, filed on February 28, 2013).
Collateral Agency and Intercreditor Joinder, dated as of November 25, 2015, by and among Intelsat Ireland Operations Limited,
as new Grantor, and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as Collateral
Trustee (incorporated by reference to Exhibit 4.46 of Intelsat S.A.’s Annual Report on Form 20-F, File No. 001-35878, filed on
March 8, 2016).
Guarantee, dated as of January 31, 2013, made among Intelsat Align S.à r.l. and Intelsat Finance Nevada LLC, as New
Guarantors, and Credit Suisse AG, Cayman Islands Branch (f/k/a Credit Suisse, Cayman Island Branch), as Administrative Agent
(incorporated by reference to Exhibit 10.88 of Intelsat Investments S.A.’s Annual Report on Form 10-K, File No. 000-50262, filed
on February 28, 2013).
Guarantee, dated as of January 31, 2013, made among Intelsat Align S.à r.l. and Intelsat Finance Nevada LLC, as New
Guarantors, and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.89 of Intelsat
Investments S.A.’s Annual Report on Form 10-K, File No. 000-50262, filed on February 28, 2013).
Supplement No. 5 to Guarantee, dated as of November 25, 2015, to the Guarantee dated as of January 12, 2011, by and between
Intelsat Ireland Operations Limited, as New Guarantor, and Bank of America, N.A., as Administrative Agent (incorporated by
reference to Exhibit 4.49 of Intelsat S.A.’s Annual Report on Form 20-F, File No. 001-35878, filed on March 8, 2016).
Employment Agreement, dated as of March 18, 2013, by and between Intelsat Corporation and Stephen Spengler (incorporated
by reference to Exhibit 10.77 to Amendment No. 7 to Intelsat Global Holdings S.A.’s Registration Statement on Form F-1,
File No. 333-181527, filed on March 20, 2013).
Employment Agreement, dated as of March 18, 2013, by and among Intelsat Global Holdings S.A., Intelsat S.A. and Michelle
Bryan (incorporated by reference to Exhibit 10.78 to Amendment No. 7 to Intelsat Global Holdings S.A.’s Registration Statement
on Form F-1, File No. 333-181527, filed on March 20, 2013).
Second Amendment, dated as of December 11, 2014, to Employment Agreement, dated as of March 18, 2013, by and between
Stephen Spengler and Intelsat Corporation (incorporated by reference to Exhibit 4.63 to Intelsat S.A.’s Annual Report on Form
20-F, File No. 001-35878, filed on February 18, 2015).
Amendment to Intelsat S.A.’s 2013 Equity Incentive Plan, effective as of October 23, 2014 (incorporated by reference to
Exhibit 4.64 to Intelsat S.A.’s Annual Report on Form 20-F, File No. 001-35878, filed on February 8, 2015).
Second Amendment to Intelsat S.A.’s 2013 Equity Incentive Plan, effective as of June 16, 2016 (incorporated by reference to
Exhibit 10.3 of Intelsat S.A.’s Registration Statement on Form S-8, File No. 333-212417, filed on July 6, 2016).
Collateral Agency and Intercreditor Joinder, dated as of July 31, 2012, between Intelsat Luxembourg Investment S.a r.l. and
Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as Collateral Trustee (incorporated by
reference to Exhibit10.5 of Intelsat Investments S.A.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, File
No. 000-50262, filed on August 1, 2012).
Collateral Agency and Intercreditor Joinder, dated as of March 29, 2016, by and among Intelsat (Luxembourg) S.A., Intelsat
Jackson Holdings S.A., the other grantors from time to time party thereto, Bank of America, N.A., as Administrative Agent under
the Existing Credit Agreement, each additional First Lien Representative from time to time a party thereto, each Second Lien
Representative from time to time a party thereto and Wilmington Trust, National Association (as successor by merger to
Wilmington Trust FSB), as Collateral Trustee (incorporated by reference to Exhibit 4.52 of Intelsat S.A.’s Annual Report on Form
20-F, File No. 000-35878, filed on February 28, 2017, as amended).
87
Exhibit
No.
4.38
4.39
4.40
4.41
4.42
4.43
4.44
4.45
4.46
8.1
12.1
12.2
13.1
13.2
15.1
101.
Document Description
Collateral Agency and Intercreditor Joinder, dated as of June 30, 2016, by and among Intelsat (Luxembourg) S.A., Intelsat
Jackson Holdings S.A., the other grantors from time to time party thereto, Bank of America, N.A., as Administrative Agent under
the Existing Credit Agreement, each additional First Lien Representative from time to time a party thereto, each Second Lien
Representative from time to time a party thereto and Wilmington Trust, National Association (as successor by merger to
Wilmington Trust FSB), as Collateral Trustee (incorporated by reference to Exhibit 4.53 of Intelsat S.A.’s Annual Report on Form
20-F, File No. 000-35878, filed on February 28, 2017, as amended).
Amendment Agreement to the Luxembourg Shares and Beneficiary Certificates Pledge Agreement, dated as of March 23, 2016,
by and among Intelsat (Luxembourg) S.A., Intelsat Jackson Holdings S.A., Intelsat Operations S.A., and Intelsat Corporation, as
Pledgors, and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as Collateral Trustee or
Pledgee (incorporated by reference to Exhibit 4.54 of Intelsat S.A.’s Annual Report on Form 20-F, File No. 000-35878, filed on
February 28, 2017, as amended).
Confirmation and Amendment Agreement to the Luxembourg Claims Pledge Agreement, dated as of October 24, 2016, by and
among Intelsat Jackson Holdings S.A., Intelsat Operations S.A. and Intelsat Align S.à r.l., as Pledgors, and Wilmington Trust,
National Association (as successor by merger to Wilmington Trust FSB), as Collateral Trustee or Pledgee (incorporated by
reference to Exhibit 4.55 of Intelsat S.A.’s Annual Report on Form 20-F, File No. 000-35878, filed on February 28, 2017, as
amended).
Confirmation and Amendment Agreement to the Luxembourg Shares and Beneficiary Certificates Pledge Agreement, dated as of
October 24, 2016, by and among Intelsat (Luxembourg) S.A., Intelsat Jackson Holdings S.A., Intelsat Operations S.A., and
Intelsat Corporation, as Pledgors, and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB),
as Collateral Trustee or Pledgee (incorporated by reference to Exhibit 4.56 of Intelsat S.A.’s Annual Report on Form 20-F, File
No. 000-35878, filed on February 28, 2017, as amended).
Collateral Agency and Intercreditor Joinder, dated as of December 22, 2016, by and among Intelsat Connect Finance S.A., Intelsat
(Luxembourg) S.A., Intelsat Jackson Holdings S.A., the other grantors from time to time party thereto, Bank of America, N.A., as
Administrative Agent under the Existing Credit Agreement, each additional First Lien Representative from time to time a party
thereto, each Second Lien Representative from time to time a party thereto and Wilmington Trust, National Association (as
successor by merger to Wilmington Trust FSB), as Collateral Trustee (incorporated by reference to Exhibit 4.57 of Intelsat S.A.’s
Annual Report on Form 20-F, File No. 000-35878, filed on February 28, 2017, as amended).
Joinder No. 1 to Credit Agreement, dated as of December 22, 2016, by and between Intelsat Connect Finance S.A. and Bank of
America, N.A., as Administrative Agent (incorporated by reference to Exhibit 4.58 of Intelsat S.A.’s Annual Report on Form 20-F,
File No. 000-35878, filed on February 28, 2017, as amended).
Release of Intelsat (Luxembourg) S.A. from Credit Agreement, dated as of December 22, 2016, by Bank of America, N.A., as
Administrative Agent (incorporated by reference to Exhibit 4.59 of Intelsat S.A.’s Annual Report on Form 20-F, File No.
000-35878, filed on February 28, 2017, as amended).
Confirmation and Amendment Agreement to the Luxembourg Claims Pledge Agreement, dated as of December 22, 2016, by and
among Intelsat Jackson Holdings S.A., Intelsat Operations S.A., Intelsat Align S.à r.l. and Intelsat Connect Finance S.A. as
Pledgors, and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as Collateral Trustee or
Pledgee (incorporated by reference to Exhibit 4.60 of Intelsat S.A.’s Annual Report on Form 20-F, File No. 000-35878, filed on
February 28, 2017, as amended).
Amendment Agreement to the Luxembourg Shares and Beneficiary Certificates Pledge Agreement, dated as of December 22,
2016, by and among Intelsat (Luxembourg) S.A., Intelsat Jackson Holdings S.A., Intelsat Operations S.A., Intelsat Connect
Finance S.A. and Intelsat Corporation, as Pledgors, and Wilmington Trust, National Association (as successor by merger to
Wilmington Trust FSB), as Collateral Trustee or Pledgee (incorporated by reference to Exhibit 4.61 of Intelsat S.A.’s Annual
Report on Form 20-F, File No. 000-35878, filed on February 28, 2017, as amended).
List of significant subsidiaries of Intelsat S.A.*
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.*
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.*
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.*
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.*
Consent of KPMG LLP*
Interactive Data Files
101.INS
XBRL Instance Document. **
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Taxonomy Extension Schema Document. **
XBRL Taxonomy Extension Calculation Linkbase Document. **
XBRL Taxonomy Extension Definition Linkbase Document. **
XBRL Taxonomy Extension Label Linkbase Document. **
XBRL Taxonomy Extension Presentation Linkbase Document. **
*
Filed herewith.
88
**
Attached as Exhibit 101 to this Annual Report on Form 20-F are the following formatted in Extensible Business Reporting Language (“XBRL”):
(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss,
(iv) Consolidated Statements of Changes in Shareholders’ Deficit, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated
Financial Statements.
89
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this Annual Report on its behalf.
SIGNATURE
Date: February 20, 2019
By
/s/ STEPHEN SPENGLER
INTELSAT S.A.
Date: February 20, 2019
Stephen Spengler
Chief Executive Officer
By
/s/ JACQUES KERREST
Jacques Kerrest
Executive Vice President and Chief Financial
Officer
90
Intelsat S.A.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2018
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2017 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2017 and 2018
Consolidated Statements of Changes in Shareholders’ Deficit for the Years Ended December 31, 2016, 2017 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2017 and 2018
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts for the Years Ended December 31, 2016, 2017 and 2018
Page
F- 2
F- 4
F- 5
F- 6
F- 7
F- 8
F- 10
F- 53
F- 1
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Intelsat S.A.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Intelsat S.A. and subsidiaries (the Company) as of
December 31, 2017 and 2018, the related consolidated statements of operations, comprehensive income (loss), changes in
shareholders’ deficit, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related
notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial
statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2018, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2018 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for
revenue effective January 1, 2018 due to the adoption of Accounting Standards Codification No. 606, Revenue from Contracts
with Customers.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Part II, Item 15b Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
F- 2
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
McLean, Virginia
February 20, 2019
F- 3
INTELSAT S.A.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Receivables, net of allowances of $29,669 in 2017 and $28,542 in 2018
Contract assets
Prepaid expenses and other current assets
Total current assets
Satellites and other property and equipment, net
Goodwill
Non-amortizable intangible assets
Amortizable intangible assets, net
Contract assets, net of current portion
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities
Taxes payable
Employee related liabilities
Accrued interest payable
Current portion of long-term debt
Contract liabilities
Deferred satellite performance incentives
Deferred revenue
Other current liabilities
Total current liabilities
Long-term debt, net of current portion
Contract liabilities, net of current portion
Deferred satellite performance incentives, net of current portion
Deferred revenue, net of current portion
Deferred income taxes
Accrued retirement benefits
Other long-term liabilities
Shareholders’ deficit:
Common shares; nominal value $0.01 per share
Paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Intelsat S.A. shareholders’ deficit
Noncontrolling interest
Total liabilities and shareholders’ deficit
December 31,
2017
December 31,
2018
$
$
$
$
$
$
$
525,215
16,176
221,223
—
56,862
819,476
5,923,619
2,620,627
2,452,900
349,584
—
443,830
12,610,036
116,396
12,007
29,328
263,207
96,572
—
25,780
149,749
47,287
740,326
14,112,086
—
215,352
794,707
48,434
191,079
296,616
1,196
2,173,367
(5,894,659)
(87,774)
(3,807,870)
19,306
12,610,036
$
485,120
22,037
271,393
45,034
24,075
847,659
5,511,702
2,620,627
2,452,900
311,103
96,108
401,414
12,241,513
108,101
5,679
29,696
284,649
—
137,746
35,261
—
59,080
660,212
14,028,352
1,131,319
210,346
—
82,488
133,735
77,670
1,380
2,551,471
(6,606,426)
(43,430)
(4,097,005)
14,396
12,241,513
See accompanying notes to consolidated financial statements.
F- 4
INTELSAT S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Revenue
Operating expenses:
Direct costs of revenue (excluding depreciation and
amortization)
Selling, general and administrative
Depreciation and amortization
Total operating expenses
Income from operations
Interest expense, net
Gain (loss) on early extinguishment of debt
Other income, net
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Net income attributable to noncontrolling interest
Net income (loss) attributable to Intelsat S.A.
Net income (loss) per common share attributable to Intelsat S.A.:
Basic
Diluted
Year Ended
December 31,
2016
2,188,047
$
Year Ended
December 31,
2017
2,148,612
$
Year Ended
December 31,
2018
2,161,190
$
342,634
232,537
694,891
1,270,062
917,985
938,501
1,030,092
522
1,010,098
15,986
994,112
(3,915)
990,197
8.65
8.36
$
$
$
324,232
205,475
707,824
1,237,531
911,081
1,020,770
(4,109)
10,114
(103,684)
71,130
(174,814)
(3,914)
(178,728) $
330,874
200,857
687,589
1,219,320
941,870
1,212,374
(199,658)
4,541
(465,621)
130,069
(595,690)
(3,915)
(599,605)
(1.50) $
(1.50) $
(4.63)
(4.63)
$
$
$
See accompanying notes to consolidated financial statements.
F- 5
INTELSAT S.A.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive income (loss), net of tax:
Defined benefit retirement plans:
Reclassification adjustment for amortization of unrecognized prior
service credits, net of tax included in other income, net
Reclassification adjustment for amortization of unrecognized actuarial
loss, net of tax included in other income, net
Actuarial gain (loss) arising during the year, net of tax
Benefit plan amendment, net of tax of $0.7 million
Marketable securities:
Unrealized gains on investments, net of tax
Reclassification adjustment for realized gain on investments, net of tax
Reclassification adjustment for pension assets' gains, net of tax included
in other income, net
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interest
Year Ended
December 31, 2016
Year Ended
December 31, 2017
Year Ended
December 31, 2018
$
994,112
$
(174,814) $
(595,690)
(5)
2,223
(177)
—
285
(192)
—
2,134
996,246
(3,915)
21
2,074
(13,896)
—
567
(235)
—
(11,469)
(186,283)
(3,914)
(839)
4,064
2,960
38,510
—
—
(351)
44,344
(551,346)
(3,915)
(555,261)
Comprehensive income (loss) attributable to Intelsat S.A.
$
992,331
$
(190,197) $
See accompanying notes to consolidated financial statements.
F- 6
INTELSAT S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
(in thousands)
Preferred
Common
Shares
(in millions)
Amount
Shares
(in millions)
Amount
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Total
Intelsat S.A.
Shareholders’
Deficit
(4,649,565) $
Accumulated
Deficit
(6,706,128) $
$
Noncontrolling
Interest
Balance at December 31, 2015
3.5
$
Net income
Dividends paid to noncontrolling interests
Share-based compensation
Preferred shares conversion
Postretirement/pension liability
adjustment, net of tax of $1.0 million
Other comprehensive income, net of tax of
$0.2 million
Balance at December 31, 2016
Net income (loss)
Dividends paid to noncontrolling interests
Share-based compensation
Postretirement/pension liability
adjustment, net of tax of ($3.1) million
Other comprehensive income, net of tax of
$0.2 million
Balance at December 31, 2017
Net income (loss)
Dividends paid to noncontrolling interests
Share-based compensation
Equity offering and 2025 Convertible
Notes offering
Postretirement/pension liability
adjustment, net of tax of $0.6 million
Benefit plan amendment, net of tax
of $0.7 million
Other comprehensive income, net of tax of
($0.2) million
Adoption of ASU 2014-09 (see Note 2—
Significant Accounting Policies)
Adoption of ASU 2016-16 (see Note 14—
Income Taxes)
Balance at December 31, 2018
—
—
—
(3.5)
—
—
— $
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
— $
35
—
—
—
(35)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
107.6
$
1,076
$
2,133,891
(78,439) $
—
—
0.8
9.6
—
—
—
—
8
96
—
—
—
—
23,081
(61)
—
—
990,197
—
—
—
—
—
—
—
—
—
2,041
93
990,197
—
23,089
—
2,041
93
118.0
$
1,180
$
2,156,911
$
(5,715,931) $
(76,305) $
(3,634,145) $
—
—
1.6
—
—
—
—
16
—
—
—
—
16,456
—
—
(178,728)
—
—
—
—
—
—
—
(178,728)
—
16,472
(11,801)
(11,801)
332
332
119.6
$
1,196
$
2,173,367
$
(5,894,659) $
(87,774) $
(3,807,870) $
—
—
2.9
15.5
—
—
—
—
—
—
—
29
155
—
—
—
—
—
—
—
10,006
368,098
—
—
—
—
—
(599,605)
—
—
—
—
—
—
(281,741)
169,579
—
—
—
—
6,185
38,510
(599,605)
—
10,035
368,253
6,185
38,510
(351)
(351)
—
—
(281,741)
169,579
29,212
3,915
(8,980)
—
—
—
—
24,147
3,914
(8,755)
—
—
—
19,306
3,915
(8,825)
—
—
—
—
—
—
—
138.0
$
1,380
$
2,551,471
$
(6,606,426) $
(43,430) $
(4,097,005) $
14,396
See accompanying notes to consolidated financial statements.
F- 7
INTELSAT S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Provision for (benefit from) doubtful accounts
Foreign currency transaction (gain) loss
Loss on disposal of assets
Share-based compensation
Deferred income taxes
Amortization of discount, premium, issuance costs and related costs
(Gain) loss on early extinguishment of debt
Unrealized (gains) losses on derivative financial instruments
Amortization of actuarial loss and prior service credits for retirement benefits
Other non-cash items
Changes in operating assets and liabilities:
Receivables
Prepaid expenses, contract and other assets
Accounts payable and accrued liabilities
Accrued interest payable
Deferred revenue and contract liabilities
Accrued retirement benefits
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Payments for satellites and other property and equipment (including capitalized interest)
Purchase of investments
Capital contribution to unconsolidated affiliate
Proceeds from insurance settlements
Other proceeds from satellites
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Repayments of long-term debt
Debt issuance costs
Debt modification fees
Proceeds from stock issuance, net of issuance costs
Payment of premium on early extinguishment of debt
Payments on tender, debt exchange and consent
Dividends paid to preferred shareholders
Other payments for satellites
Principal payments on deferred satellite performance incentives
Dividends paid to noncontrolling interest
Proceeds from exercise of employee stock options
Other financing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
F- 8
Year Ended
December 31,
2016
Year Ended
December 31,
2017
Year Ended
December 31,
2018
$
994,112
$
(174,814) $
(595,690)
694,891
24,591
(3,300)
20
23,222
(9,737)
24,622
(1,030,092)
(764)
3,361
220
6,478
(51,388)
35,850
43,347
(58,796)
(9,385)
(8,497)
678,755
(714,570)
(4,000)
(12,019)
—
—
(730,589)
1,730,200
(791,944)
(48,900)
—
—
(32)
(293,276)
(4,959)
(18,333)
(17,429)
(8,980)
—
—
546,347
(30)
494,483
171,541
707,824
(4,094)
(876)
45
15,995
43,931
48,696
4,109
275
3,287
(287)
(14,333)
(24,760)
(42,337)
58,367
(134,577)
(13,422)
(8,783)
464,246
(461,627)
(25,744)
(30,714)
49,788
—
(468,297)
1,500,000
(1,500,000)
(41,237)
—
—
—
(14)
—
(35,396)
(37,186)
(8,755)
476
414
(121,698)
1,116
(124,633)
666,024
$
666,024
$
541,391
$
687,589
(836)
6,736
46
6,824
79,160
48,495
199,658
(14,685)
3,823
1,178
(63,814)
3,708
7,291
21,442
(39,763)
(15,902)
8,913
344,173
(255,696)
(19,000)
(48,097)
20,409
18,750
(283,634)
4,585,875
(4,782,451)
(49,436)
(3,954)
224,250
(33,890)
—
—
—
(25,488)
(8,825)
3,211
385
(90,323)
(4,450)
(34,234)
541,391
507,157
Supplemental cash flow information:
Interest paid, net of amounts capitalized
Income taxes paid, net of refunds
Supplemental disclosure of non-cash investing activities:
Accrued capital expenditures and payments for satellites
Capitalization of deferred satellite performance incentives
Supplemental disclosure of non-cash financing activities:
Repayments of long-term debt
Issuance of long-term debt
Discount on long-term debt
Write-off of debt issuance costs
$
$
$
$
$
$
870,370
22,687
127,008
69,909
1,468,401
(731,884)
212,660
(9,253)
915,627
33,731
38,450
44,445
$
$
1,052,885
57,085
28,203
28,161
— $
—
—
—
—
—
—
—
See accompanying notes to consolidated financial statements.
F- 9
INTELSAT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Background of Company
Intelsat S.A. (the “Company”, “we”,” us” or “our”) provides satellite communications services worldwide through a
global communications network of 54 satellites and ground facilities related to the satellite operations and control, and teleport
services.
Note 2 Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Intelsat S.A., its wholly-owned subsidiaries,
and variable interest entities (“VIE”) of which we are the primary beneficiary, and are prepared in conformity with accounting
principles generally accepted in the United States of America (“U.S. GAAP”). We are the primary beneficiary of one VIE, as
more fully described in Note 10—Investments, and accordingly, we include in our consolidated financial statements the assets
and liabilities and results of operations of the entity, even though we may not own a majority voting interest. We use the equity
method to account for our investments in entities where we exercise significant influence over operating and financial policies
but do not retain control under either the voting interest model (generally 20% to 50% ownership interest) or the variable
interest model. In 2015, we entered into a joint venture agreement as further described in Note 10—Investments, and the
investment is accounted for using the equity method. We have eliminated all significant intercompany accounts and
transactions.
(b) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported
amounts of revenues and expenses during the reporting periods, and the disclosures of contingent liabilities. Accordingly,
ultimate results could differ from those estimates.
(c) Revenue Recognition
Revenue from Contracts with Customers
We earn revenue primarily by providing services over satellite transponder capacity to our customers. Our customers
generally obtain satellite services from us by placing an order pursuant to one of several master customer service agreements
and related service orders. The service agreements specify, among other things, the amount of satellite bandwidth or throughput
to be provided, whether service will be non-pre-emptible or pre-emptible and the service term. Most services are full time in
nature, with service terms ranging from one year to as long as 16 years. Occasional use services used for video applications can
be for much shorter periods, including as small as increments of one hour. Our service agreements offer different service types,
including transponder services, managed services, and channel, which are all services that are provided on, or used to provide
access to, our global network. We refer to these services as on-network services. Our service 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 sourced from other operators, often in frequencies not available on our
network.
To determine the proper revenue recognition method for contracts, we evaluate whether two or more services should be
combined and accounted for as a single performance obligation. Our specific revenue recognition policies are as follows:
Satellite Utilization Charges. The Company’s contracts for satellite utilization services often contain multiple service
orders for the provision of capacity on or over different beams, satellites, frequencies, geographies or time periods. Under each
separate service order, the Company’s satellite services, comprised of transponder services, managed services, channel services,
and occasional use managed services, are delivered in a series of time periods that are distinct from each other and have the
same pattern of transfer to the customer. In each period, the Company’s obligation is to make those services available to the
customer. Throughout each period of services being provided, the customer simultaneously receives and consumes the benefits,
resulting in revenue recognition over time. We have certain obligations, including providing spare or substitute capacity if
F- 10
available, in the event of satellite service failure under certain long-term agreements. We are generally not obligated to refund
satellite utilization payments previously made.
Satellite Related Consulting and Technical Services. We recognize revenue from the provision of consulting services as
those services are performed. We recognize revenue for consulting services with specific performance obligations, such as
transfer orbit support services or training programs over the service period.
Tracking, Telemetry and Commanding (“TT&C”). We earn TT&C services revenue from providing operational services
to other satellite owners and from certain customers on our satellites. TT&C agreements entered into in connection with our
satellite utilization contracts are typically for the period of the related service agreement. We recognize this revenue over the
term of the service agreement.
In-Orbit Backup Services. We provide back-up transponder capacity that is held on reserve for certain customers on
agreed-upon terms. We recognize revenues for in-orbit protection services over the term of the related agreement.
Revenue Share Arrangements. We recognize revenues under revenue share agreements for satellite-related services either
on a gross or net basis in accordance with principal versus agent considerations.
We occasionally sell products or services individually or in some combination to our customers. When products or
services are sold together, we allocate revenue for each performance obligation based on each obligation’s relative selling price.
In these arrangements, revenue for products is recognized when the transfer of control passes to the customer, while service
revenue is recognized over the service term.
Contract Assets
Contract assets include unbilled amounts typically resulting from sales under our long-term contracts when the total
contract value is recognized on a straight-line basis and the revenue recognized exceeds the amount billed to the customer.
Contract Liabilities
Contract liabilities consist of advance payments and collections in excess of revenue recognized and deferred revenue.
Our contracts at times contain prepayment terms that range from one month to one year in advance of providing the service. As
a practical expedient, we do not need to adjust the promised amount of consideration for the effects of a significant financing
component if we expect, at contract inception, that the period between when the Company transfers a promised good or service
to a customer and when the customer pays for that good or service will be one year or less. For a small subset of contracts with
advance payments that contain prepayment terms greater than one year and up to 15 years, we assess whether a significant
financing component exists by considering the difference between the amount of promised consideration and the cash selling
price of the promised services. The prepayment amount is generally based on a standard methodology that discounts the total of
the standard monthly charges over the service term to determine the prepayment amount, resulting in a difference between the
amount of promised consideration and the cash selling price of the promised services. The Company considers the timing
difference between payment and the promised transfer of services, combined with the Company’s incremental borrowing rates,
to determine whether a significant financing component exists. When a significant financing component exists, the amount of
revenue recognized exceeds the amount of cash received from the customer. After receiving cash from the customer but prior to
the Company providing services, the Company records additional contract liabilities as well as offsetting interest expense to
reflect the upfront financing the Company is effectively receiving from the customer.
Once the Company begins providing services, additional interest expense is recorded each period, using the effective
interest method, as well as corresponding additional revenue which is recognized ratably over the service period.
For the year ended December 31, 2018, we recognized revenue of $247.0 million that was included in the contract
liability balance as of January 1, 2018. In addition, the total amount of consideration included in contract assets as of January 1,
2018 that became unconditional for the year ended December 31, 2018 was $11.0 million.
Our remaining performance obligation, which we refer to as contracted backlog, is our expected future revenue under
existing customer contracts, and includes both cancelable and non-cancelable contracts. Our remaining performance obligation
was approximately $8.1 billion as of December 31, 2018, approximately 88% of which related to contracts that were non-
cancelable and approximately 11% related to contracts that were cancelable subject to substantial termination fees. We assess
the contract term of our cancelable contracts as the full stated term of the contract assuming each contract is not canceled since
the termination penalty upon cancellation is substantive. As of December 31, 2018, the weighted average remaining customer
contract life was approximately 4.5 years. Approximately 38%, 21%, and 41% of our total remaining performance obligation as
F- 11
of December 31, 2018 is expected to be recognized as revenue during 2019 and 2020, 2021 and 2022, and 2023 and thereafter,
respectively. The amount included in the remaining performance obligation represents the full service charge for the duration of
the contract and does not include termination fees. The amount of the termination fees, which is not included in the remaining
performance obligation amount, is generally calculated as a percentage of the remaining performance obligation associated
with the contract. In certain cases of breach for non-payment or customer financial distress or bankruptcy, we may not be able
to recover the full value of certain contracts or termination fees. Our remaining performance obligation includes 100% of the
remaining performance obligation of our consolidated ownership interests, which is consistent with the accounting for our
ownership interest in these entities.
Assets Recognized from the Costs to Obtain a Customer Contract
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those
costs to be longer than one year. We have determined that our sales incentive program meets the requirements to be capitalized
due to the incremental nature of the costs and the expectation that the Company will recover such costs. The assets recognized
from the costs to obtain a customer contract are amortized over a period that is consistent with the transfer to the customer of
the services to which the asset relates. We capitalized $6.6 million for our sales incentive program and amortized $6.5
million for the year ended December 31, 2018.
Contract Modifications
Contracts are often modified to account for changes in contract specifications or requirements. We consider contract
modifications to exist when the modification either creates new rights or obligations or changes the existing enforceable rights
and obligations of either party. Most of our contract modifications are for goods and services that are distinct from the existing
contract, as they consist of additional months of service priced at the Company’s standalone selling prices of the additional
services and are therefore treated as separate contracts. For contract modifications that do not result in additional distinct goods
or services, the effect of a contract modification on the transaction price and our measure of progress for the performance
obligation to which it relates is recognized as an adjustment to revenue.
Significant Judgments
We occasionally enter into certain contracts in which the customer makes payments in advance of services to be
delivered, which may be years in the future. The reasons for the prepayments in these contracts vary, but generally can be either
for the customer’s benefit or for the Company’s benefit (ability to use the cash received from the customer to pay for the
construction of a satellite asset). The determination of whether contracts with a prepayment provision contain a significant
financing component requires judgment. The Company makes this determination based on various factors, including the
differences between the amount of promised consideration and cash selling prices, the length of time between payment and the
transfer of services and prevailing interest rates in the market.
Our contracts generally contain multiple performance obligations. When a contract is separated into multiple
performance obligations, we allocate the total transaction price to each performance obligation in an amount based on the
estimated relative standalone selling price of the promised good or service underlying such performance obligation. Judgment
is required to determine the standalone selling price for each distinct performance obligation. In order to estimate standalone
selling prices, we use an adjusted market assessment approach which involves an evaluation of the market and an estimate of
the price that our customers are willing to pay, or an expected cost plus a margin approach.
When more than one party is involved in providing goods or services to a customer, we generally recognize the
transaction on a gross basis due to the level of control that we have prior to the transfer of the good or service. Judgment is
required in determining whether we are the principal or the agent in transactions involving third parties.
(d) Fair Value Measurements
We estimate the fair value of our financial instruments using available market information and valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate their fair
values because of the short maturity of these financial instruments.
FASB ASC Topic 820, Fair Value Measurements and Disclosure (“FASB ASC 820”) defines fair value as the price that
would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. FASB ASC 820 requires disclosure of the extent to which fair value is used to measure financial assets
and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant
unobservable inputs on earnings, or changes in net assets, as of the measurement date. FASB ASC 820 establishes a three-level
F- 12
valuation hierarchy based upon the transparency of inputs utilized in the measurement and valuation of financial assets or
liabilities as of the measurement date. We apply fair value accounting for all financial assets and liabilities and non-financial
assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.
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.
(e) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months
or less, which are generally time deposits with banks and money market funds. The carrying amount of these investments
approximates fair value.
(f) Receivables and Allowances for Doubtful Accounts
We provide satellite services and extend credit to numerous customers in the satellite communication,
telecommunications and video markets. We monitor our exposure to credit losses and maintain allowances for doubtful
accounts and anticipated losses. We believe we have adequate customer collateral and reserves to cover our exposure.
(g) Satellites and Other Property and Equipment
Satellites and other property and equipment are stated at historical cost, or in the case of certain satellites acquired, the
fair value at the date of acquisition. Capitalized costs consist primarily of the costs of satellite construction and launch,
including launch insurance and insurance during the period of in-orbit testing, the net present value of performance incentives
expected to be payable to the satellite manufacturers (dependent on the continued satisfactory performance of the satellites),
costs directly associated with the monitoring and support of satellite construction, and interest costs incurred during the period
of satellite construction.
We depreciate satellites and other property and equipment on a straight-line basis over the following estimated useful
lives:
Buildings and improvements
Satellites and related costs
Ground segment equipment and software
Furniture and fixtures and computer hardware
Leasehold improvements(1)
Years
10 - 40
10 - 17
4 - 15
4 - 12
2 - 12
(1) Leasehold improvements are depreciated over the shorter of the useful life of the improvement or the remaining lease
term.
(h) Other Assets
Other assets consist of investments in certain equity securities, long-term deposits, long-term receivables and other
miscellaneous deferred charges and long-term assets.
(i) Goodwill and Other Intangible Assets
We account for goodwill and other intangible assets in accordance with FASB ASC Topic 350, Intangibles—Goodwill
and Other (“FASB ASC 350”). Goodwill represents the excess of the consideration transferred plus the fair value of any
noncontrolling interest in the acquiree at the acquisition date over the fair values of identifiable net assets of businesses
F- 13
acquired. Goodwill and certain other intangible assets deemed to have indefinite lives 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. See Note 11—Goodwill and Other Intangible Assets.
Intangible assets arising from business combinations are initially recorded at fair value. We record other intangible assets
at cost. We amortize intangible assets with determinable lives (consisting of backlog and customer relationships) based on the
expected pattern of consumption. We review these intangible assets for impairment whenever facts and circumstances indicate
that the carrying amounts may not be recoverable. See Note 11—Goodwill and Other Intangible Assets.
(j) Impairment of Long-Lived Assets
We review long-lived assets, including property and equipment and acquired intangible assets with estimable useful lives,
for impairment whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be
recoverable. These indicators of impairment can include, but are not limited to, the following:
•
•
•
satellite anomalies, such as a partial or full loss of power;
under-performance of an asset compared to expectations; and
shortened useful lives due to changes in the way an asset is used or expected to be used.
The recoverability of an asset to be held and used is determined by comparing the carrying amount to the estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated
undiscounted future cash flows, we record an impairment charge in the amount by which the carrying amount of the asset
exceeds its fair value, which we determine by either a quoted market price, if any, or a value determined by utilizing discounted
cash flow techniques.
(k) Income Taxes
We account for income taxes in accordance with FASB ASC Topic 740—Income Taxes. We are subject to income taxes in
the United States as well as a number of other foreign jurisdictions. Significant judgment is required in the calculation of our
tax provision and the resulting tax liabilities and in the recoverability of our deferred tax assets that arise from temporary
differences between the tax and financial statement recognition of revenue and expense and net operating loss and credit
carryforwards.
We regularly assess the likelihood that our deferred tax assets can be recovered. A valuation allowance is required when it
is more likely than not that all or a portion of the deferred tax asset will not be realized. We evaluate the recoverability of our
deferred tax assets based in part on the existence of deferred tax liabilities that can be used to realize the deferred tax assets.
During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is
uncertain. We evaluate our tax positions to determine if it is more likely than not that a tax position is sustainable, based solely
on its technical merits and presuming the taxing authorities have full knowledge of the position and access to all relevant facts
and information. When a tax position does not meet the more likely than not standard, we record a liability or contra asset for
the entire amount of the unrecognized tax impact. Additionally, for those tax positions that are determined more likely than not
to be sustainable, we measure the tax position at the largest amount of benefit more likely than not (determined by cumulative
probability) to be realized upon settlement with the taxing authority.
(l) Foreign Currency Translation
Our functional currency is the U.S. dollar, since substantially all customer contracts, capital expenditure contracts and
operating expense obligations are denominated in U.S. dollars. Transactions not denominated in U.S. dollars have been
translated using the spot rates of exchange at the dates of the transactions. We recognize differences on exchange arising on the
settlement of the transactions denominated in currencies other than the U.S. dollar in the consolidated statement of operations.
(m) Comprehensive Income
Comprehensive income consists of net income or loss and other gains and losses affecting shareholders’ equity that,
under U.S. GAAP, are excluded from net income or loss. Such items consist primarily of the change in the market value of
pension liability adjustments.
F- 14
(n) Share-Based Compensation
Compensation cost is recognized based on the requirements of FASB ASC Topic 718, Compensation—Stock
Compensation (“FASB ASC 718”), for all share-based awards granted.
Option awards are measured at the grant date based on the fair value as calculated using either the Black-Scholes option
pricing model, a Monte Carlo simulation model, a binomial tree model or any other acceptable model. Awards of shares or
restricted share units are valued based on the closing market price at the grant date. The expense is recognized over the
requisite service period, based on attainment of certain vesting requirements.
The determination of the value of certain awards requires considerable judgment, including estimating expected
volatility, expected term, correlation between share price and market conditions and risk-free rate. The Company’s expected
volatility is based on either implied volatility of traded options on the shares of the Company or the historical volatility. The
expected term is based on the midpoint between the expected vesting time and the remaining contractual life. The risk-free rate
is derived from the applicable Constant Maturity Treasury rate.
(o) Deferred Satellite Performance Incentives
The cost of satellite construction may include an element of deferred consideration that we are obligated to pay to
satellite manufacturers over the lives of the satellites, provided the satellites continue to operate in accordance with contractual
specifications. Historically, the satellite manufacturers have earned substantially all of these payments. Therefore, we account
for these payments as deferred financing. We capitalize the present value of these payments as part of the cost of the satellites
and record a corresponding liability to the satellite manufacturers. Interest expense is recognized on the deferred financing and
the liability is reduced as the payments are made.
(p) Derivative Instruments
We enter into derivative transactions primarily to manage our exposure to fluctuations in foreign exchange rates and
interest rates. We employ risk management strategies, which may include the use of foreign currency swaps, interest rate swaps
and interest rate caps. We measure all derivatives at fair value and recognize them as either assets or liabilities on our
consolidated balance sheets. Changes in the fair value of derivative instruments not qualifying as hedges are recognized in
earnings in the current period.
(q) New Accounting Pronouncements
In May 2014, the FASB issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers
(Topic 606), which supersedes the revenue recognition requirements in FASB ASC Topic 605 - Revenue Recognition. The
guidance in ASU 2014-09 clarifies the principles for recognizing revenue by creating a common revenue standard for U.S.
GAAP (“ASC 606”). The FASB issued several amendments to the standard, including clarification of accounting for licenses of
intellectual property and identifying performance obligations.
We adopted the standard effective January 1, 2018 using the modified retrospective method. We recognized the
cumulative effect of initially applying the new standard as an adjustment to the opening balance of accumulated deficit. The
comparative information has not been restated and continues to be reported under the accounting standards in effect for those
years. Based on our assessment, the adoption of the new standard impacts the total consideration for prepayment contracts,
accounting of incremental costs for obtaining a contract, allocation of the transaction price to performance obligations and
accounting for contract modifications, and requires additional disclosures.
The cumulative effects of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC
606 were as follows (in thousands):
F- 15
Consolidated Balance Sheets
Assets
Receivables
Prepaid expenses and other current assets
Contract assets
Contract assets, net of current portion
Other assets
Liabilities
Accounts payable and accrued liabilities
Deferred revenue
Contract liabilities
Deferred revenue, net of current portion
Contract liabilities, net of current portion
Deferred income taxes
Other long-term liabilities
Shareholders’ deficit
Accumulated deficit
As of
December 31,
2017
Adjustment
As of
January 1,
2018
$
$
221,223
56,862
—
—
443,830
116,396
149,749
—
794,707
—
48,434
296,616
$
(11,025) $
(28,545)
40,618
97,148
(74,643)
$
(4,071) $
(149,749)
143,705
(794,707)
1,164,138
(43,846)
(10,176)
210,198
28,317
40,618
97,148
369,187
112,325
—
143,705
—
1,164,138
4,588
286,440
$ (5,894,659) $
(281,741) $
(6,176,400)
The cumulative effect adjustment was comprised of $347.0 million, ($8.5) million, ($7.0) million, and ($49.7) million
for the significant financing component, timing of revenue recognition on our multi-product contracts that include both the
provision of services and the delivery of equipment that are distinct, cost to obtain a contract adjustment and the related
cumulative tax impact, respectively.
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption of ASC 606 on
our consolidated statements of operations, balance sheets, and statements of cash flows was as set forth in the tables below (in
thousands). The impact to our consolidated statement of other comprehensive income (loss) was an increase in net loss of $56.1
million for the year ended December 31, 2018.
For the Year Ended December 31, 2018
As Reported
Balances without
the adoption of
ASC 606
Effect of adoption
increase
(decrease)
Consolidated Statements of Operations
Revenue
Direct costs of revenue (excluding depreciation and amortization)
Selling, general and administrative
Interest expense, net
Other income, net
Provision for income taxes(1)
Net loss
Net loss attributable to Intelsat S.A.
Net loss per common share attributable to Intelsat S.A.:
Basic
Diluted
$
$
$
$
2,161,190
330,874
200,857
1,212,374
4,541
130,069
(595,690)
(599,605)
$
2,057,983
331,786
200,973
1,096,184
5,329
86,720
(539,598)
(543,513)
(4.63) $
(4.63) $
(4.20) $
(4.20) $
103,207
(912)
(116)
116,190
(788)
43,349
(56,092)
(56,092)
(0.43)
(0.43)
(1) Provision for income taxes includes a deferred tax asset that was established upon adoption of ASC 606 that was
eliminated as a result of the 2018 Internal Reorganization (see Note 14 - Income Taxes).
F- 16
Consolidated Balance Sheets
Assets
Receivables
Prepaid expenses and other current assets
Contract assets
Contract assets, net of current portion
Other assets
Liabilities
Accounts payable and accrued liabilities
Deferred revenue
Contract liabilities
Deferred revenue, net of current portion
Contract liabilities, net of current portion
Taxes payable
Other long-term liabilities
Deferred income taxes
Shareholders’ deficit
Accumulated deficit
Consolidated Statement of Cash Flows
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash provided by operating
activities:
Deferred income taxes
Other non-cash items
Changes in operating assets and liabilities:
Receivables
Prepaid expenses, contract and other assets
Accounts payable and accrued liabilities
Accrued interest payable
Deferred revenue and contract liabilities
Accrued retirement benefits
Other long-term liabilities
Net cash provided by operating activities
As of December 31, 2018
As Reported
Balances without
the adoption of
ASC 606
Effect of adoption
increase
(decrease)
$
$
$
$
271,393
24,075
45,034
96,108
401,414
108,101
—
137,746
—
1,131,319
5,679
77,670
82,488
$
$
278,233
61,237
—
—
483,589
113,627
134,799
—
763,478
—
4,886
83,776
89,639
(6,840)
(37,162)
45,034
96,108
(82,175)
(5,526)
(134,799)
137,746
(763,478)
1,131,319
793
(6,106)
(7,151)
$
(6,606,426) $
(6,268,593) $
(337,833)
For the Year Ended December 31, 2018
As Reported
Balances without
the adoption of
ASC 606
Effect of adoption
increase
(decrease)
$
(595,690) $
(539,598) $
(56,092)
79,160
938,828
(63,814)
3,708
7,291
21,442
(39,763)
(15,902)
8,913
344,173
$
42,465
938,828
(59,629)
(9,065)
7,953
21,442
(47,164)
(15,902)
4,843
344,173
$
$
36,695
—
(4,185)
12,773
(662)
—
7,401
—
4,070
—
Refer to Note 17—Business and Geographic Segment Information for the required disclosures related to the
disaggregation of revenue.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments, which addresses specific issues relating to diversity in practice in how certain cash receipts and
cash payments are presented and classified in the statement of cash flows. Additionally, in November 2016, the FASB issued
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force),
which requires that amounts described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
We adopted ASU 2016-15 and ASU 2016-18 in the first quarter of 2018 on a retrospective basis. The adoption of ASU 2016-15
has no impact on our consolidated statement of cash flows. The effect of the adoption of ASU 2016-18 on our consolidated
statements of cash flows are as follows (in thousands):
F- 17
For the Year Ended December 31, 2016
As Reported
Balances without
the adoption of
ASU 2016-18
Effect of
adoption
increase
(decrease)
Consolidated Statement of Cash Flows
Net cash provided by operating activities
$
Net cash provided by investing activities
Net cash provided by financing activities
$
678,755
(730,589)
546,347
$
683,506
(730,589)
541,596
Net change in cash, cash equivalents and restricted cash $
494,483
$
494,483
$
(4,751)
—
4,751
—
For the Year Ended December 31, 2017
As Reported
Balances without
the adoption of
ASU 2016-18
Effect of
adoption
increase
(decrease)
Consolidated Statement of Cash Flows
Net cash provided by operating activities
$
Net cash provided by investing activities
Net cash used in financing activities
Net change in cash, cash equivalents and restricted cash $
$
464,246
(468,297)
(121,698)
(124,633) $
$
464,230
(468,297)
(137,858)
(140,809) $
16
—
16,160
16,176
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our
consolidated balance sheets to the total sum of these same amounts reported in our consolidated statements of cash flows:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash reported in the statements of cash
flows
As of
December 31,
2016
As of
December 31,
2017
As of
December 31,
2018
$
666,024
$
525,215
$
485,120
—
16,176
22,037
$
666,024
$
541,391
$
507,157
Restricted cash represents legally restricted amounts being held as a compensating balance for certain outstanding letters
of credit.
We adopted ASU 2016-16 in the first quarter of 2018 and the adoption resulted in approximately a $170 million benefit to
accumulated deficit. See Note 14—Income Taxes. We also adopted ASU 2016-01, ASU 2017-07 and ASU 2017-09 in the first
quarter of 2018. See Note 10—Investments, Note 7—Retirement Plans and Other Retiree Benefits, and Note 5—Share-Based
and Other Compensation Plans, respectively.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability by
recognizing substantially all leases on the balance sheet. Under the new standard, a lessee will recognize on its balance sheet a
lease liability and a right-of-use (“ROU”) asset for most leases, with certain practical expedients available. ASU 2016-02 is
effective for interim and annual periods beginning after December 15, 2018. Subsequent to ASU 2016-02, the FASB issued
ASU 2018-10 Codification Improvements to Topic 842, Leases, ASU 2018-11 Targeted Improvements, and ASU 2018-20
Narrow-Scope Improvements for Lessors, which amend and clarify aspects of the guidance issued in ASU 2016-02. ASU
2018-11 provides an alternative transition method (the “effective date method”).
We intend to adopt ASU 2016-02 on January 1, 2019 and apply the package of practical expedients included therein, as
well as utilize the effective date method included in ASU 2018-11. Under the package of practical expedients, we will not
F- 18
reassess (a) whether expired or existing contracts contain a lease under the new definition of a lease, (b) lease classification for
expired or existing leases, and (c) whether previously capitalized initial direct costs would qualify for capitalization under
Topic 842. We also intend to apply the practical expedients for lessees and lessors to exempt short term leases and to account
for each non lease component associated with a lease component as a single component when the applicable criteria are met.
By applying ASU 2016-02 at the adoption date, as opposed to at the beginning of the earliest period presented, our reporting for
periods prior to January 1, 2019 will continue to be in accordance with Leases (Topic 840). In preparation for adoption of the
standard, we have implemented internal controls and key system functionality to enable the preparation of the necessary
financial information.
The new standard will have a material impact on our consolidated balance sheets, and we expect to recognize ROU assets
and related lease liabilities for operating leases in the range of $85 million to $95 million, and $110 million to $120 million,
respectively, with no material impact on our consolidated statement of operations and statement of cash flows. The new
standard may have lessor accounting implications where certain future contracts that convey the right to control the use of a
significant portion of the satellite may be accounted for using an approach that is substantially equivalent to existing guidance
for sales-type leases, direct financing leases and operating leases, which could potentially result in more upfront revenue
recognition.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, which changes how companies measure and recognize credit impairment for any financial
assets. The standard requires companies to immediately recognize an estimate of credit losses expected to occur over the
remaining life of the financial assets that are within the scope of the standard. The scope of Subtopic 326-20, Financial
Instruments - Credit Losses - Measured at Amortized Cost, includes financial assets measured at amortized cost basis, including
net investments in leases arising from sales-type and direct financing leases. The scope does not specifically address
receivables arising from operating leases. In November 2018, the FASB issued 2018-19, Codification Improvements to Topic
326, Financial Instruments—Credit Losses to clarify that receivables arising from operating leases are not within the scope of
Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with
Topic 842, Leases. Both ASU 2016-13 and ASU 2018-19 are effective for interim and annual periods beginning after
December 15, 2019 for public business entities that are SEC filers, on a modified retrospective basis. Early adoption is
permitted for interim and annual periods beginning after December 15, 2018. We are in the process of evaluating the impact
that ASU 2016-13 and ASU 2018-19 will have on our consolidated financial statements and associated disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment, which is intended to simplify the subsequent measurement of goodwill. The amendments in ASU
2017-04 modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its fair
value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity will no longer
determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit
to all of its assets and liabilities, as if that reporting unit had been acquired in a business combination. ASU 2017-04 will be
effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019 for public
business entities, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates after January 1, 2017. When adopted, we will measure impairment using the difference between the carrying
amount and the fair value of the reporting unit, if required.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220),
which allows for an optional reclassification from accumulated other comprehensive income to retained earnings for stranded
tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting
from the Tax Cuts and Jobs Act for those entities that elect the optional reclassification. The amendments in this update will
also require certain disclosures about stranded tax effects. ASU 2018-02 is effective for all entities for interim and annual
periods beginning after December 15, 2018. The adoption of ASU 2018-02 is not expected to have a significant impact on our
consolidated financial statements and associated disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), as part of its disclosure framework
project to improve the effectiveness of disclosures in the notes to financial statements. ASU 2018-13 modifies disclosure
requirements on fair value measurements in Topic 820, and is effective for all entities for interim and annual periods beginning
after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of
significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement
uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year
of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early
adoption is allowed for any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption for the
F- 19
additional disclosures until their effective date. We are in the process of evaluating the impact that ASU 2018-13 will have on
our consolidated financial statements and associated disclosures.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General
(Subtopic 715-20), as part of its disclosure framework project to improve the effectiveness of disclosures in the notes to
financial statements. ASU 2018-14 modifies and clarifies disclosure requirements for employers that sponsor defined benefit
pension or other postretirement plans. The amendments remove certain disclosure requirements and require additional
disclosures including the weighted-average interest crediting rates for cash balance plans and other plans with promised interest
crediting rates, an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the
period, the projected benefit obligation "PBO" and fair value of plan assets for plans with PBOs in excess of plan assets, and
the accumulated benefit obligation "ABO" and fair value of plan assets for plans with ABOs in excess of plan assets. ASU
2018-14 is effective for public business entities for fiscal years ending after December 15, 2020, on a retrospective basis to all
periods presented with early adoption allowed. We are in the process of evaluating the impact that ASU 2018-14 will have on
our consolidated financial statements and associated disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other Internal-Use Software (Subtopic
350-40), to improve current U.S. GAAP by clarifying the accounting for implementation costs of a hosting arrangement that is
a service contract. The amendments align the requirements for capitalizing implementation costs incurred in a cloud computing
arrangement (hosting arrangement) that is a service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
The amendments require costs for implementation activities in the application development stage to be capitalized depending
on the nature of the costs, and costs incurred during the preliminary project and post-implementation stages to be expensed as
the activities are performed. ASU 2018-15 also requires the entity (customer) to expense capitalized implementation costs of a
hosting arrangement that is a service contract over the term of the hosting arrangement, and the entity (customer) to present the
expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated
with the hosting element (service) of the arrangement, as well as to classify payments for capitalized implementation costs in
the statement of cash flows in the same manner as payments made for fees associated with the hosting element. ASU 2018-15
is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years. ASU 2018-15 can be applied either retrospectively or prospectively to all implementation costs incurred after the
date of adoption, with early adoption allowed. We are in the process of evaluating the impact that ASU 2018-15 will have on
our consolidated financial statements and associated disclosures.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808) - Clarifying the Interaction
between Topic 808 and Topic 606, to clarify the interaction between Topic 808, Collaborative Arrangements and Topic 606,
Revenue from Contracts with Customers. ASU 2018-18 is effective for public business entities for fiscal years beginning after
December 15, 2019, and interim periods within those fiscal years, with early adoption allowed. ASU 2018-18 can be applied
retrospectively to the date of initial application of Topic 606, with cumulative effect of initially applying the amendments in
this update adjusted to the opening balance of retained earnings of the later of the earliest annual period presented and the
annual period that includes the date of the entity's initial application of Topic 606. The amendments in ASU 2018-18 can be
applied to all contracts or only to contracts that are not completed at the date of initial application of Topic 606. We are in the
process of evaluating the impact that ASU 2018-18 will have on our consolidated financial statements and associated
disclosures.
Note 3 Share Capital
Under our Articles of Incorporation, we have an authorized share capital of $10 million, represented by 1.0 billion shares
of any class with a nominal value of $0.01 per share. At December 31, 2018, there were 138.0 million common shares issued
and outstanding.
In June 2018, Intelsat S.A. completed an offering of 15,498,652 common shares, nominal value 0.01 per share, at a
public offering price of 14.84 per common share.
Note 4 Net Income (Loss) per Share
Basic earnings per share (“EPS”) is computed by dividing net income (loss) attributable to Intelsat S.A.’s common
shareholders by the weighted average number of common shares outstanding during the periods.
The following table sets forth the computation of basic and diluted net income (loss) per share attributable to Intelsat S.A.:
F- 20
(in thousands, except per share data or where otherwise noted)
Year Ended
December 31, 2016
Year Ended
December 31, 2017
Year Ended
December 31, 2018
Numerator:
Net income (loss)
Net income attributable to noncontrolling interest
Net income (loss) attributable to Intelsat S.A.
Net income (loss) attributable to common shareholders
Numerator for Basic EPS—income/ (loss) available to common
shareholders
Numerator for Diluted EPS
Denominator:
Basic weighted average shares outstanding (in millions)
Weighted average dilutive shares outstanding (in millions):
Preferred shares (in millions)
Employee compensation related shares including options and
restricted stock units (in millions)
Diluted weighted average shares outstanding (in millions)
Basic net income (loss) per common share attributable to Intelsat S.A.
Diluted net income (loss) per common share attributable to Intelsat S.A.
$
$
$
$
$
$
994,112
$
(174,814) $
(3,915)
990,197
990,197
990,197
990,197
114.5
3.2
0.8
118.5
8.65
8.36
$
$
$
$
$
(3,914)
(178,728)
(178,728) $
(178,728) $
(178,728) $
118.9
—
—
118.9
(1.50) $
(1.50) $
(595,690)
(3,915)
(599,605)
(599,605)
(599,605)
(599,605)
129.6
—
—
129.6
(4.63)
(4.63)
In June 2018, Intelsat S.A. completed an offering of $402.5 million aggregate principal amount of its 4.5% Convertible
Senior Notes due 2025 (the “2025 Convertible Notes”). We do not expect to settle the principal amount of the 2025 Convertible
Notes in cash, and therefore use the if-converted method for calculating any potential dilutive effect of the conversion on
diluted net income per share, if applicable. The 2025 Convertible Notes are eligible for conversion depending upon the trading
price of our common shares and under other conditions set forth in the 2025 Indenture (as defined below in Note 12—Long
Term Debt) until December 15, 2024, and thereafter without regard to any conditions. See Note 12—Long Term Debt for
additional information on the conversion conditions.
Due to a net loss in the years ended December 31, 2017 and 2018, there were no dilutive securities, and therefore, basic
and diluted EPS were the same. The weighted average number of shares that could potentially dilute basic EPS in the future
was 6.2 million, 3.5 million and 12.5 million (consisting of restricted share units, performance units, options to purchase
common shares, and potentially issuable shares from the conversion of the 2025 Convertible Notes) for the years ended
December 31, 2016, 2017 and 2018, respectively.
Note 5 Share-Based and Other Compensation Plans
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification
Accounting, which is intended to clarify when to account for a change to the terms or conditions of a share-based payment
award as a modification. Under ASU 2017-09 modification accounting is required only if the fair value (or calculated intrinsic
value, if those amounts are being used to measure the award under ASC 718), the vesting conditions, or the classification of the
award changes as a result of the change in terms or conditions. ASU 2017-09 is effective for all entities for annual periods, and
interim periods within those annual periods, beginning after December 15, 2017. We adopted ASU 2017-09 on January 1, 2018.
The adoption of this standard did not have an impact on our consolidated financial statements and associated disclosures. We
will continue to evaluate the impact of ASU 2017-09 as any modifications occur.
In April 2013, our board of directors adopted the amended and restated Intelsat Global, Ltd. 2008 Share Incentive Plan
(as amended, the “2008 Equity Plan”). Also in April 2013, our board of directors adopted the Intelsat S.A. 2013 Equity
Incentive Plan (the “2013 Equity Plan”). No new awards may be granted under the 2008 Equity Plan.
The 2013 Equity Plan provides for a variety of equity based awards, including incentive stock options (within the
meaning of Section 422 of the United States Internal Revenue Service Tax Code), restricted shares, restricted share units
(“RSUs”), other share-based awards and performance compensation awards. Effective June 16, 2016, we increased the
aggregate number of common shares authorized for issuance under the 2013 Equity Plan to 20.0 million common shares. The
total aggregate number of shares available for future issuance under the 2013 Equity Plan was 7.3 million as of December 31,
2018.
F- 21
For all share-based awards, we recognize the compensation costs over the vesting period during which the employee
provides service in exchange for the award. During the years ended December 31, 2016, 2017 and 2018, we recorded
compensation expense of $23.2 million, $16.0 million, and $6.8 million, respectively. The income tax benefit related to share-
based compensation expense was $0.4 million for the year ended December 31, 2018. We did not recognize any income tax
benefit related to share-based compensation expense for the years ended December 31, 2017 and December 31, 2016.
Stock Options
Stock options generally expire 10 years from the date of grant. In some cases, options have been granted which expire 15
years from the date of grant. The options vest monthly over service periods ranging from six months to five years.
Stock Option activity during 2018 was as follows:
Outstanding at January 1, 2018
Granted
Exercised
Expired
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Number of Stock Options
(in thousands)
Weighted Average
Exercise price
Weighted Average
remaining contractual
term
(in years)
Aggregate
intrinsic value
(in millions)
2,084
$
3
(852)
(126)
1,109
1,037
$
$
3.84
19.5
3.77
5.67
3.71
3.71
5.7
5.6
$
$
19.6
18.3
The total intrinsic value of stock options exercised during the years ended December 31, 2017 and 2018 was $0.2 million
and $7.9 million, respectively. No stock options were exercised during the year ended December 31, 2016. As of December 31,
2018, there was a minimal amount of total unrecognized compensation cost related to unvested options, which is expected to be
recognized over a weighted average period of 0.1 years.
During the years ended December 31, 2016, 2017 and 2018, we recorded compensation expense of $2.6 million, $1.4
million and $0.2 million, respectively, including compensation expense from option modifications in 2014 and 2016, further
described below. During years ended 2017 and 2018, we received cash of $0.5 million and $3.2 million, respectively, from the
exercise of stock options. No stock options were exercised during the year ended December 31, 2016.
Anti-Dilution Options
In connection with our initial public offering of common shares in April 2013 (the “IPO”) and upon consummation of the
IPO, options were granted to certain individuals in accordance with the existing terms of their side letters to a management
shareholders agreement to which we are a party, which, when taken together with the common shares received in connection
with the reclassification of our outstanding former Class B Shares at the time of our IPO, preserved their ownership interests
represented by their outstanding former Class B Shares immediately prior to the reclassification.
These options generally expire 10 years from the date of the grant.
Outstanding at January 1, 2018
Outstanding at December 31, 2018
Excercisable at December 31, 2018
Number of Stock
Options
(in thousands)
Weighted Average
Exercise price
Weighted Average
remaining contractual
term
(in years)
Aggregate
intrinsic value
(in millions)
1,610
1,610
1,610
$
$
$
11.98
11.98
11.98
4.1
4.1
$
$
15.1
15.1
We measure the fair value of anti-dilution option grants at the date of grant using a Black-Scholes option pricing model.
There were no anti-dilution options granted during the years ended December 31, 2016, 2017 and 2018.
During the year ended December 31, 2016, we recorded compensation expense associated with anti-dilution option
awards of $1.0 million related to 2016 option modifications further described below. No compensation expense was recorded
for these awards during the years ended December 31, 2017 and 2018.
F- 22
There were no anti-dilution options exercised during the years ended 2016, 2017 or 2018.
2016 Option modifications
During the year ended December 31, 2016, we amended 1.2 million stock options under the 2008 Equity Plan (including
0.7 million of anti-dilution options), and 0.4 million stock options under the 2013 Equity Plan in order to modify the exercise
prices to $4.16 for the anti-dilution options and to $3.77 for the remainder. As a result of the change, we estimated the
difference between fair value of the amended options and the fair value of the original awards before settlement. The fair value
was measured using the Black-Scholes option pricing model and the following assumptions were used for the amended options
and the original awards before amendment: risk-free interest rates of 0.8% to 1.5%; dividend yields of 0.0%; expected volatility
of 50-60%; and expected life of one to four years.
All such options were fully vested and we recognized additional compensation expense associated with the modifications
of $2.0 million for the year ended December 31, 2016, which has been included in the respective sections above.
Time-based RSUs
Time-based RSUs vest over periods ranging from one to three years from the date of grant.
Time-based RSUs activity during 2018 was as follows:
Outstanding at January 1, 2018
Granted
Vested (1)
Forfeited
Outstanding at December 31, 2018
Number of RSUs
(in thousands)
Weighted Average
grant date fair value
Weighted Average
remaining
contractual term
(in years)
Aggregate
intrinsic value
(in millions)
3,417
$
1,490
(2,113)
(192)
2,602
$
7.56
7.99
10.07
5.42
5.93
1.6
$
40.2
(1) The total vested RSUs includes 1,025 RSUs that were vested in prior years but settled in 2018.
The fair value of time-based RSUs is deemed to be the market price of common shares on the date of grant. The weighted
average grant date fair value of time-based RSUs granted during the years ended December 31, 2016, 2017, and 2018 was
$1.67, $4.36, and $7.99, respectively. The total intrinsic value of time-based RSUs vested during the years ended December 31,
2016, 2017 and 2018 was $1.7 million, $6.0 million, and $9.2 million, respectively. As of December 31, 2018, there was $10.7
million of total unrecognized compensation cost related to unvested time-based RSUs, which is expected to be recognized over
a weighted average period of 1.6 years.
During the years ended December 31, 2016, 2017, and 2018, we recorded compensation expense associated with these
time-based RSUs of $17.9 million, $13.7 million, and $5.7 million, respectively.
Performance-based RSUs
Performance-based RSUs vest after three years from the date of grant upon achievement of certain performance
conditions. These grants are subject to vesting upon achievement of an adjusted EBITDA target or achievement of a relative
shareholder return (“RSR”), which is based on the Company’s relative shareholder return percentile ranking versus the S&P
900 Index target as defined in the grant agreement.
Performance-based RSUs activity during 2018 was as follows:
F- 23
Outstanding at January 1, 2018
Granted
Cancelled
Forfeited
Outstanding at December 31, 2018
Number of RSUs
(in thousands)
Weighted
Average grant
date fair value
Weighted Average
remaining
contractual term
(in years)
Aggregate
intrinsic value
(in millions)
2,156
$
930
(348)
(114)
2,624
$
2.89
4.53
8.97
2.28
2.69
1.1
$
49.1
We measure the fair value of performance-based RSUs at the date of grant using the market price of our common shares.
The weighted average grant date fair value of performance-based RSUs granted during the years ended December 31,
2016, 2017, and 2018 was $0.94, $2.79, and $4.53, respectively. As of December 31, 2018, there was $2.3 million of total
unrecognized compensation cost related to unvested performance-based RSUs, which is expected to be recognized over a
weighted average period of 1.1 years.
Achievement of the adjusted EBITDA target for awards granted in 2016, 2017, and 2018 is not currently considered
probable. No compensation cost associated with these awards (based on the adjusted EBITDA condition) was recognized
during the years ended December 31, 2017, and 2018. We recorded compensation expense associated with the awards granted
in 2016 (based on the adjusted EBITDA condition) of $0.1 million during the year ended December 31, 2016, which was
reversed during the year ended December 31, 2017. We recorded compensation expense associated with the RSR portion of
performance-based RSUs of $1.6 million, $1.0 million, and $0.9 million during the years ended December 31, 2016, 2017 and
2018, respectively.
Note 6 Fair Value Measurements
We have identified investments in marketable securities, interest rate financial derivative instruments, warrant
instruments as those items that meet the criteria of the disclosure requirements and fair value framework of FASB ASC 820.
The following tables present assets measured and recorded at fair value in our consolidated balance sheets on a recurring
basis and their corresponding level within the fair value hierarchy (in thousands), excluding long-term debt (see Note 12—
Long-Term Debt) and pension plan assets (see Note 7—Retirement Plans and Other Retiree Benefits). No transfers between
Level 1 and Level 2 fair value measurements occurred during the year ended December 31, 2018.
Description
Assets
Marketable securities(1)
Undesignated interest rate cap(2)
Warrant(3)
Total assets
As of
December 31, 2017
$
$
5,776
$
22,336
4,100
32,212
$
Description
Assets
Marketable securities(1)
Undesignated interest rate cap(2)
Warrant(3)
Total assets
As of
December 31, 2018
$
$
4,700
$
33,086
4,100
41,886
$
Fair Value Measurements at December 31, 2017
Quoted Prices
in Active Markets
for Identical Assets
Significant Other
Observable Inputs
(Level 1)
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
5,776
$
—
—
5,776
$
— $
22,336
—
22,336
$
Fair Value Measurements at December 31, 2018
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
(Level 1)
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
4,700
$
—
—
4,700
$
— $
33,086
—
33,086
$
—
—
4,100
4,100
—
—
4,100
4,100
(1) The valuation measurement inputs of these marketable securities represent unadjusted quoted prices in active markets
and, accordingly, we have classified such investments within Level 1 of the fair value hierarchy. The cost basis of our
marketable securities was $4.7 million at December 31, 2017 and $4.6 million at December 31, 2018. We sold
F- 24
marketable securities with a cost basis of $0.7 million during the year ended December 31, 2018 and recorded a
nominal gain on the sale within other income, net in our consolidated statement of operations.
(2) The valuation of our interest rate derivative instruments reflects the fair value of premiums paid, taking into account
observable inputs including current interest rates, the market expectation for future interest rates volatility and current
creditworthiness of the counterparties. As a result, we have determined that our derivative valuations in their entirety
are classified within Level 2 of the fair value hierarchy.
(3) We valued the warrant using a valuation technique which reflects the risk free rate, time to maturity and volatility of
comparable companies. We identified the inputs used to calculate the fair value as Level 3 inputs and concluded that the
valuation in its entirety was classified as Level 3 within the fair value hierarchy.
Note 7 Retirement Plans and Other Retiree Benefits
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, to require that an employer report the
service cost component in the same line item or items as other compensation costs arising from services rendered by the
pertinent employees during the period in the operating income section of the income statement, if one is presented. The other
components of net benefit cost, as defined, are required to be presented in the income statement separately from the service cost
component and outside a subtotal of income from operations. If a separate line item or items are used to present the other
components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not
used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.
The amendments in this ASU also allow only the service cost component to be eligible for capitalization when applicable.
ASU 2017-07 is effective for interim and annual periods beginning after December 15, 2017 for public business entities. As
discussed in Note 2, we adopted ASU 2017-07 on January 1, 2018 using the retrospective method, which changed the financial
statement presentation of service costs and the other components of net periodic benefit cost. The service cost component,
which does not apply to our plans since they are frozen, continues to be included in operating income; however, the other
components are now presented in other income (expense), net in the consolidated statements of operations. As a result, the
company reclassified a net credit for pension and postretirement benefits from operating expenses to other income for the years
ended December 31, 2016 and 2017, to conform to the current year presentation.
The reclassifications to conform to the current year presentation are as follows (in thousands):
Operating Expenses:
Direct costs of revenue (excluding depreciation and amortization)
Selling, general and administrative
Other income (expense), net
(a) Pension and Other Postretirement Benefits
Year Ended
December 31, 2016
Year Ended
December 31, 2017
$
$
1,487
$
1,140
2,627
$
2,016
1,460
3,476
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.
In September 2018, the Company communicated a plan to its retiree medical group Medicare eligible plan participants to
transition to a private exchange, effective January 1, 2019, which was accounted for as a plan amendment. As a result of the
plan amendment, we recognized a decrease of $38.5 million (net of $0.7 million in tax impact) in our other postretirement
benefit obligation as of December 31, 2018, with a corresponding increase to other comprehensive income for the year ended
December 31, 2018.
In the first quarter of 2015, we amended the defined benefit retirement plan to cease the accrual of additional benefits for
the remaining active participants effective March 31, 2015. As a result of the curtailment, all of the plan’s participants are now
considered inactive. Accordingly, all amounts recorded in accumulated other comprehensive loss are being recognized as an
increase to net periodic benefit cost over the average remaining life expectancy of plan participants, which is approximately 20
years.
F- 25
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 years. The impact on the
funded status is determined based upon market conditions in effect when we completed our annual valuation. We anticipate that
our contributions to the defined benefit retirement plan in 2019 will be approximately $5.1 million. We fund the postretirement
medical benefits throughout the year based on benefits paid. We anticipate that our contributions to fund postretirement medical
benefits in 2019 will be approximately $3.1 million.
Prior service credits and actuarial losses are reclassified from accumulated other comprehensive loss to net periodic
pension benefit costs, which are included in other income (expense), net on our consolidated statements of operations for the
year ended December 31, 2018. The following table presents these reclassifications, net of tax, as well as the reclassification of
the realized gain on investments, and the statement of operations line items that are impacted (in thousands):
Amortization of prior service credits reclassified from other comprehensive
loss to net periodic pension benefit costs included in:
Other income (expense), net
Total
Amortization of actuarial loss reclassified from other comprehensive loss to
net periodic pension benefit costs included in:
Other income (expense), net
Total
Realized gain on investments included in:
Other income (expense), net
Total
Year Ended December
31, 2016
Year Ended December
31, 2017
Year Ended December
31, 2018
$
$
$
$
(5)
(5) $
2,223
2,223
$
(192) $
(192) $
21
21
$
2,074
2,074
$
(235) $
(235) $
(839)
(839)
4,064
4,064
(351)
(351)
Reconciliation of Funded Status and Accumulated Benefit Obligation. Expenses for our defined benefit retirement
plan and for postretirement medical benefits that are provided under our medical plan are developed from actuarial valuations.
The following summarizes the projected benefit obligations, plan assets and funded status of the defined benefit retirement
plan, as well as the projected benefit obligations of the postretirement medical benefits provided under our medical plan (in
thousands, except percentages):
F- 26
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Employee contributions
Plan amendments
Benefits paid
Actuarial (gain) loss
Benefit obligation at end of year
Change in plan assets
Plan assets at beginning of year
Employer contributions
Employee contributions
Actual return on plan assets
Benefits paid
Plan assets at fair value at end of year
Accrued benefit costs and funded status of the plans
Accumulated benefit obligation
Weighted average assumptions used to determine accumulated
benefit obligation and accrued benefit costs
Discount rate
Weighted average assumptions used to determine net periodic
benefit costs
Discount rate
Expected rate of return on plan assets
Rate of compensation increase
Amounts in accumulated other comprehensive loss recognized
in net periodic benefit cost
Actuarial (gain) loss, net of tax
Prior service credits, net of tax
Total
Amounts in accumulated other comprehensive loss not yet
recognized in net periodic benefit cost
Actuarial (gain) loss, net of tax
Prior service credits, net of tax
Total
Amounts in accumulated other comprehensive loss expected to
be recognized in net periodic benefit cost in the subsequent year
Actuarial (gain) loss
Prior service credits
Total
Year Ended
December 31, 2017
Year Ended
December 31, 2018
Pension
Benefits
Other Post-
retirement
Benefits
Pension
Benefits
Other Post-
retirement
Benefits
424,929
—
14,778
—
—
(24,380)
31,895
447,222
317,510
2,888
—
38,564
(24,380)
334,582
(112,640)
447,222
$
$
$
$
$
$
82,897
—
2,869
416
—
(4,125)
530
82,587
$
447,222
—
14,428
—
—
(30,741)
(36,827)
394,082
— $
334,582
3,709
416
—
(4,125)
— $
(82,587)
$
$
5,115
—
(11,325)
(30,741)
297,631
(96,451)
394,082
$
$
$
$
$
82,587
—
2,314
390
(33,907)
(3,600)
(7,258)
40,526
—
3,210
390
—
(3,600)
—
(40,526)
3.67%
3.64%
4.35%
4.27%
4.23%
7.60%
—
2,363
(8)
2,355
99,152
(366)
98,786
(5,307)
—
(5,307)
$
$
$
$
$
$
4.19%
—
—
(289)
29
(260)
(8,815)
—
(8,815)
403
8
411
$
$
$
$
$
$
3.67%
7.60%
—
4,640
(854)
3,786
93,509
(343)
93,166
(4,222)
—
(4,222)
$
$
$
$
$
$
3.64%/4.18%
—
—
(576)
15
(561)
(15,377)
(32,514)
(47,891)
1,229
2,544
3,773
$
$
$
$
$
$
$
$
$
$
$
$
Our benefit obligations are determined by discounting each future year's expected benefit cash flow using the
corresponding spot rates along a yield curve that is derived from the monthly bid-price data of bonds that are rated high grade
by either Moody’s Investor Service or Standard and Poor’s Rating Services. The bond types included are noncallable bonds,
private placement bonds that are traded among qualified institutional buyers and are at least two years from date of issuance,
bonds with a make-whole provision, and bonds issued by foreign corporations that are denominated in U.S. dollars. Excluded
are bonds that are callable, sinkable and puttable as well as those for which the quoted yield-to-maturity is zero. Using the
bonds from this universe that have a yield higher than the regression mean yield curve for the full universe, regression analysis
is used to determine the best-fitting curve, which gives a good fit to the data at both long and short maturities. The resulting
regressed coupon yield curve is smoothed continuously along its entire length and represents an unbiased average of the
observed market data.
F- 27
In the first quarter of 2016, we changed the method we use to estimate the interest cost component of net periodic benefit
cost for our defined benefit pension and other postretirement benefit plans. Historically, we estimated the interest cost
component using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at
the beginning of the year. We elected to use a full yield curve approach in the estimation of this component of benefit cost by
applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant
projected cash flows. We made this change to improve the correlation between projected benefit cash flows and the
corresponding yield curve spot rates, and to provide a more precise measurement of interest costs. This change does not affect
the measurement of our total benefit obligations, as the change in the interest cost is completely offset in the actuarial (gain)
loss reported. We accounted for this change as a change in estimate and, accordingly, accounted for it prospectively starting in
the first quarter of 2016. The discount rate that we used to measure interest cost as of December 31, 2016 was approximately
3.8%. The discount rate that we measured at December 31, 2016 and would have used for interest cost under our prior
estimation technique was approximately 4.5%. The reduction in interest cost as of December 31, 2016, associated with this
change in estimate was approximately $3.6 million. The discount rate that we used to measure interest cost was approximately
3.6% and 3.3% as of December 31, 2017 and 2018, respectively.
Interest rates used in these valuations are key assumptions, including discount rates used in determining the present value
of future benefit payments and expected return on plan assets, which are reviewed and updated on an annual basis. The
discount rates reflect market rates for high-quality corporate bonds. We consider current market conditions, including changes
in interest rates, in making assumptions. The Society of Actuaries (“SOA”) issued new mortality and mortality improvement
tables in 2014, and modified those tables in 2015, 2016, 2017 and 2018. Our December 31, 2018 valuation used mortality and
improvement tables based on the SOA tables, adjusted to reflect (1) an ultimate rate of mortality improvement consistent with
both historical experience and U.S. Social Security long-term projections, and (2) a shorter transition period to reach the
ultimate rate, which is consistent with historical patterns. In establishing the expected return on assets assumption, we review
the asset allocations considering plan maturity and develop return assumptions based on different asset classes. The return
assumptions are established after reviewing historical returns of broader market indexes, as well as historical performance of
the investments in the plan. Our pension plan assets are managed in accordance with an investment policy adopted by the
pension committee, as discussed below.
Plan Assets. The investment policy of the Plan includes target allocation percentages of approximately 49% for
investments in equity securities (29% U.S. equities and 20% non-U.S. equities), 36% for investments in fixed income securities
and 15% for investments in other securities, which is broken down further into 5% for investments in hedge fund of funds and
10% for investments in real estate fund of funds. Plan assets include investments in both U.S. and non-U.S. equity funds. Fixed
income investments include a long duration bond fund, a high yield bond fund and an emerging markets debt fund. The funds
in which the plan’s assets are invested are institutionally managed and have diversified exposures into multiple asset classes
implemented with over 63 investment managers. The guidelines and objectives of the funds are congruent with the Intelsat
investment policy statement.
The target and actual asset allocation of our pension plan assets were as follows:
Asset Category
Equity securities
Debt securities
Other securities
Total
As of December 31, 2017
As of December 31, 2018
Target
Allocation
Actual
Allocation
Target
Allocation
Actual
Allocation
49%
36%
15%
100%
50%
35%
15%
100%
49%
36%
15%
100%
45%
36%
19%
100%
The fair values of our pension plan assets by asset category are as follows (in thousands):
F- 28
Asset Category
Equity Securities
U.S. Large-Cap (1)
U.S. Small/Mid-Cap (2)
World Equity Ex-US (3)
Fixed Income Securities
Long Duration Bonds (4)
High Yield Bonds (5)
Emerging Market Fixed income (Non-US) (6)
Other Securities
Hedge Funds (7)
Core Property Fund (8)
Cash and income earned but not yet received
Total
Asset Category
Equity Securities
U.S. Large-Cap (1)
U.S. Small/Mid-Cap (2)
World Equity Ex-US (3)
Fixed Income Securities
Short Duration Bonds (4)
High Yield Bonds (5)
Emerging Market Fixed income (Non-US) (6)
Other Securities
Hedge Funds (7)
Core Property Fund (8)
Income earned but not yet received
Total
Fair Value Measurements at
December 31, 2018
Level 1
Level 2
Level 3
$
$
62,243
$
62,243
$
— $
15,739
54,994
15,739
54,994
91,278
91,278
8,440
8,923
8,440
8,923
—
—
—
—
—
$ 241,617
$
— $
—
—
—
—
—
—
—
18,062
37,559
393
297,631
Fair Value Measurements at
December 31, 2017
Level 1
Level 2
Level 3
$
$
78,076
$ 78,076
$
— $
19,952
67,835
19,952
67,835
98,421
98,421
9,419
9,127
9,419
9,127
—
—
—
—
—
$282,830
$
— $
—
—
—
—
—
—
—
17,121
34,486
145
334,582
(1) US large cap equity fund invests primarily in a portfolio of common stocks included in the S&P 500 Index, as well as
other equity securities and derivative instruments whose value is derived from the performance of the S&P 500.
(2) The US small/mid cap equity includes the U.S. Small/Mid Cap Equity Fund and the Extended Market Index Fund. The
U.S. Small/Mid Cap Equity Fund will invest primarily in U.S. small- and mid-cap stocks with market capitalization
ranges similar to those found in the FTSE Russell 2500 Index. The Extended Markets Index Fund aims to produce
investment results that correspond to the performance of the FTSE/Russell Small Cap Completeness Index.
(3) World equity ex-US fund invests primarily in common stocks and other equity securities whose issuers comprise a
broad range of capitalizations and are located outside of the U.S. The fund invests primarily in developed countries but
may also invest in emerging markets.
(4) The Long Duration Bond Fund will invest primarily in long-duration government and corporate fixed income securities
and use derivative instruments (including interest rate swaps and Treasury futures contracts) for the purpose of
managing the overall duration and yield curve exposure of the Fund's portfolio. Short duration bond fund includes the
Opportunistic Income fund and the Limited Duration Bond Fund.
(5) High yield bond fund seeks to maximize return by investing primarily in a diversified portfolio of higher yielding,
lower rated fixed income securities. The fund will invest primarily in securities rated below investment grade, including
corporate bonds, convertible and preferred securities and zero coupon obligations.
(6) Emerging markets debt fund seeks to maximize return investing in fixed income securities of emerging markets issuers.
The fund will invest primarily in U.S. dollar denominated debt securities of government, government-related and
corporate issuers in emerging market countries, as well as entities organized to restructure the outstanding debt of such
issuers.
F- 29
(7) Hedge fund seeks to provide returns that are different from (less correlated with) investments in more traditional asset
classes. The fund will pursue its investment objective by investing substantially all of its assets in various hedge funds.
The fund has semi-annual redemptions in June and December with a 95 days pre-notification period, and a two year
lock-up on all purchases which have expired.
(8) Core property fund is a fund of funds that invests in direct commercial property funds primarily in the U.S. The fund is
meant to provide current income-oriented returns, diversification, and modest inflation protection to an overall
investment portfolio. Total returns are expected to be somewhere between stocks and bonds, with moderate volatility
and low correlation to public markets. The fund has quarterly redemptions with a 95 days pre-notification period, and
no lock-up period.
Our plan assets are measured at fair value. FASB ASC 820 prioritizes the inputs used in valuation techniques including
Level 1, Level 2 and Level 3 (see Note 2 (d)—Significant Accounting Policies—Fair Value Measurements).
The majority of our plan assets are valued using measurement inputs which include unadjusted prices in active markets
and we have therefore classified these assets within Level 1 of the fair value hierarchy. Our other securities include Hedge
Funds and Core Property Funds, which are measured at fair value using the net asset value per share practical expedient, and
are not classified in the fair value hierarchy.
Net periodic pension benefit costs included the following components (in thousands):
Interest cost
Expected return on plan assets
Amortization of unrecognized net loss
Total benefit
Year Ended
December 31, 2016
Year Ended
December 31, 2017
Year Ended
December 31, 2018
$
$
16,183
$
14,778
$
(25,535)
3,370
(24,410)
3,751
(5,982) $
(5,881) $
14,428
(24,482)
5,307
(4,747)
We had accrued benefit costs at December 31, 2017 and 2018 of $112.6 million and $96.4 million, respectively, related to
the pension benefits, of which $0.6 million for each year were recorded within other current liabilities, and $112.0 million and
$95.8 million were recorded in other long-term liabilities, respectively.
Net periodic other postretirement benefit costs included the following components (in thousands):
Interest cost
Amortization of prior service cost
Amortization of unrecognized net (gain) loss
Total costs
Year Ended
December 31, 2016
Year Ended
December 31, 2017
Year Ended
December 31, 2018
$
$
3,363
$
2,869
$
—
(8)
(8)
(455)
3,355
$
2,406
$
2,314
(854)
(630)
830
We had accrued benefit costs at December 31, 2017 and 2018 related to the other postretirement benefits of $82.6 million
and $40.5 million, respectively, of which $4.1 million and $3.1 million were recorded in other current liabilities, and $78.5
million and $37.4 million were recorded in other long-term liabilities, respectively.
Depending on our actual future health care claims, our actual costs may vary significantly from those projected above. As
of December 31, 2017 and December 31, 2018, the assumed health care cost trend rates prior to Medicare were 6.6% and 6.3%,
respectively. These rates are expected to decrease annually to an ultimate rate of 4.5% by December 31, 2038. Increasing the
assumed health care cost trend rate by 1% each year would increase the other postretirement benefits obligation as of
December 31, 2018 by $3.8 million. Decreasing this trend rate by 1% each year would reduce the other postretirement benefits
obligation as of December 31, 2018 by $3.2 million. A 1% increase in the assumed health care cost trend rate would have
increased the net periodic other postretirement benefits cost by $0.2 million and a 1% decrease would have decreased the cost
by $0.2 million for 2018.
The benefits expected to be paid in each of the next five years and in the aggregate for the five years thereafter are as
follows (in thousands):
F- 30
2019
2020
2021
2022
2023
2024 to 2028
Total
Pension
Benefits
Other Post-
retirement Benefits
$
$
37,034
$
28,141
27,013
27,021
27,082
127,278
273,569
$
3,107
3,129
3,132
3,129
3,087
14,231
29,815
(b) Other Retirement Plans
We maintain a defined contribution retirement plan, 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 this plan of $10.3 million,
$7.8 million and $7.9 million for the years ended December 31, 2016, 2017 and 2018, 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 8 Receivables
Receivables were comprised of the following (in thousands):
Service charges:
Billed
Unbilled
Other
Allowance for doubtful accounts
Total
As of
December 31, 2017
As of
December 31, 2018
$
$
234,724
$
11,025
5,143
(29,669)
221,223
$
292,634
—
7,301
(28,542)
271,393
As a result of the adoption of ASC 606, the total receivables balance as of December 31, 2018 does not reflect unbilled
service charges, which are now presented as part of the contract assets on the balance sheet. Unbilled service charges as of
December 31, 2017 represent amounts earned and accrued as receivables from customers for services rendered prior to the end
of the reporting period.
Note 9 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):
Satellites and launch vehicles
Information systems and ground segment
Buildings and other
Total cost
Less: accumulated depreciation
Total
As of
December 31, 2017
As of
December 31, 2018
10,653,213
$
10,786,802
808,203
264,417
11,725,833
(5,802,214)
5,923,619
$
894,796
273,155
11,954,753
(6,443,051)
5,511,702
$
$
Satellites and other property and equipment are stated at historical cost, with the exception of satellites that have been
impaired. Satellites and other property and equipment acquired as part of an acquisition are based on their fair value at the date
of acquisition.
Satellites and other property and equipment, net as of December 31, 2017 and 2018 included construction-in-progress of
$705.8 million and $371.3 million, respectively. These amounts relate primarily to satellites under construction and related
launch services. Interest costs of $60.0 million and $30.2 million were capitalized during the years ended December 31, 2017
F- 31
and 2018, respectively. Additionally, we recorded depreciation expense of $646.4 million, $665.6 million and $649.1 million
during the years ended December 31, 2016, 2017 and 2018, 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 as the applicable launch date approaches. In addition, in the event of a failure of any launch, we may exercise our
right to obtain a replacement launch within a specified period following our request for re-launch.
(b) Recent Satellite Launches
Horizons 3e, a satellite owned by a joint venture between the Company and JSAT International, Inc. ("JSAT"), was
successfully launched on September 25, 2018 and will complete the Intelsat EpicNG constellation. Horizons 3e will bring high-
throughput satellite ("HTS") solutions in both C- and Ku-bands to broadband, mobility and government customers in the Asia-
Pacific Ocean region from its orbital slot at 169ºE. Horizons 3e is the first Intelsat EpicNG satellite to feature a multiport
amplifier that enables power portability across all Ku-band spot beams. This enhanced, advanced digital payload features full
beam interconnectivity in three commercial bands and significant upgrades to power, efficiency and coverage flexibility.
Horizons 3e entered into service in January 2019.
Intelsat 38, a customized Ku-band payload positioned on a third-party satellite, was successfully launched on September
25, 2018. Intelsat 38 will replace Intelsat 12 at the 45ºE location and host direct-to-home ("DTH") platforms for Central and
Eastern Europe as well as the Asia-Pacific region. The satellite will also provide connectivity for corporate networks and
government applications in Africa. Intelsat 38 entered into service in January 2019.
Intelsat 37e, the fifth satellite in the Intelsat EpicNG fleet, was successfully launched on September 29, 2017. The all-
digital Intelsat 37e is the first high-throughput (“HTS”) satellite to offer full, high-resolution interconnectivity between C-, Ku-
and Ka- bands, delivering additional services and improved throughput to support enterprise, broadband, government and
mobility applications in the Americas, Africa and Europe. Intelsat 37e entered into service in March 2018.
On July 5, 2017, we successfully launched our Intelsat 35e satellite into orbit. The fourth of our Intelsat EpicNG next-
generation HTS satellites, Intelsat 35e will deliver high-performance services in the C- and Ku-bands. The Intelsat 35e Ku-
band services include a customized high power wide beam for direct-to-home (“DTH”) service delivery in the Caribbean, as
well as services for mobility and government applications in the Caribbean, trans-Europe to Africa and the African continent.
Intelsat 35e entered into service in August 2017.
Intelsat 32e, a customized payload positioned on a third-party satellite, was successfully launched on February 14, 2017.
Intelsat 32e is the third of six in our planned Intelsat EpicNG fleet, featuring high-performance spot beams. Intelsat 32e increases
our service capabilities over the in-demand North Atlantic and Caribbean regions, supplying services for applications such as
in-flight connectivity for commercial flights and passenger and commercial broadband for cruise lines and shipping vessels.
Intelsat 32e entered into service in March 2017.
(c) Satellite Health
Our satellite fleet is diversified by manufacturer and satellite type, and as a result, our fleet is generally healthy. We have
experienced some technical problems with our current fleet but have been able to minimize the impact of these problems on our
customers, our operations and our business in recent years. Many of these problems have been component failures and
anomalies that have had little long-term impact to date on the overall transponder availability in our satellite fleet. All of our
satellites have been designed to accommodate an anticipated rate of equipment failures with adequate redundancy to meet or
exceed their orbital design lives, and to date, this redundancy design scheme has proven effective. After each anomaly we have
generally restored services for our customers on the affected satellite, provided alternative capacity on other satellites in our
fleet, or provided capacity that we purchased from other satellite operators.
Significant Anomalies
During orbit raising of Intelsat 33e in September 2016, the satellite experienced a malfunction of the main satellite
thruster. Orbit raising was subsequently completed using a different set of satellite thrusters. The anomaly resulted in a delay of
approximately three months in reaching the geostationary orbit, as well as a reduction in the projected lifetime of the satellite.
Intelsat 33e entered service in January 2017. In addition, in February 2017, measurements indicated higher than expected fuel
use while performing stationkeeping maneuvers. There is no evidence of any impact to the communications payload. A Failure
Review Board was established to determine the cause of the primary thruster failure and a separate team to investigate the fuel
F- 32
use anomaly. We filed a loss claim with our insurers in March 2017 relating to the reduction of life. As of December 31, 2018,
we have settled with all insurers and received total collection and settlement payments of $70 million in cash.
Note 10 Investments
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Topic 825), to require equity
investments (except those accounted for under the equity method of accounting or those that result in consolidation of the
investee) to be measured at fair value with changes in fair value recognized in net income. An entity may choose to measure
equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes
resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer (the
measurement alternative). In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to
Financial Instruments Overall (Subtopic 825-10) to clarify certain aspects of the guidance issued in ASU 2016-01 that was
effective for interim and annual periods beginning after December 15, 2017, including clarification that ASU 2016-01 related to
equity investments without readily determinable fair values (including disclosure requirements) should be applied prospectively
to equity investments that exist as of the date of adoption. We adopted the standards in the first quarter of 2018 and have
elected the measurement alternative. We considered available information for any observable orderly transactions for identical
or similar investments and did not make any upward or downward adjustments to our investments. The adoption of the
standards did not have a material impact on our consolidated financial statements and associated disclosures.
We have ownership interests in two entities that meet the criteria of a VIE: Horizons Satellite Holdings, LLC (“Horizons
Holdings”) and Horizons-3 Satellite LLC (“Horizons 3”), which 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”). We also
own noncontrolling investments recognized under the measurement alternative, discussed further below.
(a) Horizons Holdings
Our first joint venture with JSAT is named Horizons Satellite Holdings, LLC, and consists of two investments:
Horizons-1 Satellite LLC (“Horizons-1”) and Horizons-2 Satellite LLC (“Horizons-2”). Horizons Holdings borrowed from
JSAT a portion of the funds necessary to finance the construction of the Horizons 2 satellite pursuant to a loan agreement. The
borrowing was subsequently repaid. We provide certain services to the joint venture and in return utilize capacity from the joint
venture.
We have determined that this joint venture meets the criteria of a VIE under FASB ASC 810, and we have concluded that
we are the primary beneficiary because decisions relating to any future relocation of the Horizons 2 satellite, the most
significant asset of the joint venture, are effectively controlled by us. In accordance with FASB ASC 810, as the primary
beneficiary, we consolidate Horizons Holdings within our consolidated financial statements. Total assets of Horizons Holdings
were $38.7 million and $28.8 million as of December 31, 2017 and 2018, respectively. Total liabilities at both dates were
nominal.
We have a revenue sharing agreement with JSAT related to services sold on the Horizons 1 and Horizons 2 satellites. We
are responsible for billing and collection for such services, and we remit 50% of the revenue, less applicable fees and
commissions, to JSAT. Amounts payable to JSAT related to the revenue sharing agreement, net of applicable fees and
commissions, from the Horizons 1 and Horizons 2 satellites were $5.4 million and $5.5 million as of December 31, 2017 and
2018, respectively.
(b) Horizons-3 Satellite LLC
On November 4, 2015, we entered into a new joint venture agreement with JSAT. The joint venture, named Horizons 3,
was formed for the purpose of developing, launching, managing, operating and owning a high-performance satellite located at
the 169ºE orbital location.
Horizons 3, which is 50% owned by each of Intelsat and JSAT, was set up with a joint share of management authority and
equal rights to profits and revenues from the joint venture. Similar to Horizons Holdings, we have a revenue sharing agreement
with JSAT related to services sold on the Horizons 3 satellite. In addition, we are responsible for billing and collection for such
services, and we remit 50% of the revenue, less applicable fees and commissions, to JSAT.
We have determined that this joint venture meets the criteria of a VIE under FASB ASC 810, however we have concluded
that we are not the primary beneficiary and therefore do not consolidate Horizons 3. The assessment considered both
quantitative and qualitative factors, including an analysis of voting power and other means of control of the joint venture as
F- 33
well as each owner’s exposure to risk of loss or gain. Because we and JSAT equally share control over the operations of the
joint venture and also equally share exposure to risk of losses or gains, we concluded that we are not the primary beneficiary of
Horizons 3. Our investment, included within other assets in our consolidated balance sheets, is accounted for using the equity
method of accounting. The investment balance was $61.8 million and $109.9 million as of December 31, 2017 and 2018,
respectively.
In connection with our investment in Horizons 3, we entered into a capital contribution and subscription agreement which
requires us to fund our 50% share of the amounts due in order to maintain our respective 50% interest in the joint venture.
Pursuant to this agreement, we made contributions of $27.4 million and $41.2 million during the years ended December 31,
2017 and 2018, respectively. In addition, our indirect subsidiary that holds our investment in Horizons 3 has entered into a
security and pledge agreement with Horizons 3, pursuant to which it has granted a security interest in its membership interests
in Horizons 3. Further, our indirect subsidiary has granted a security interest to Horizons 3 in its customer capacity contracts
and its ownership interest in its wholly-owned subsidiary that will hold the U.S. Federal Communications Commission license
required for the joint venture’s operations.
(c) Investments Without Readily Determinable Fair Values
Our investments without readily determinable fair values recorded in other assets in our consolidated balance sheets had a
total carrying value of $54.7 million and $73.7 million, consisting of five and six separate noncontrolling investments as of
December 31, 2017 and 2018, respectively.
(d) Equity Attributable to Intelsat S.A. and Non-controlling Interests
The following tables present changes in equity attributable to the Company and equity attributable to our noncontrolling
interests, which is included in the equity section of our consolidated balance sheet (in thousands):
Balance at January 1, 2017
Net income (loss)
Dividends paid to noncontrolling interests
Share-based compensation
Postretirement/pension liability adjustment
Other comprehensive income
Balance at December 31, 2017
Balance at January 1, 2018
Net income (loss)
Dividends paid to noncontrolling interests
Common shares and 2025 Convertible Notes offering
Share-based compensation
Postretirement/pension liability adjustment
Other comprehensive loss
Adoption of accounting standards(1)
Intelsat S.A.
Shareholders’ Deficit
Noncontrolling
Interests
Total Shareholders’
Deficit
(3,634,145) $
24,147
$
(178,728)
—
16,472
(11,801)
332
3,914
(8,755)
—
—
—
(3,609,998)
(174,814)
(8,755)
16,472
(11,801)
332
(3,807,870) $
19,306
$
(3,788,564)
Intelsat S.A.
Shareholders’ Deficit
Noncontrolling
Interests
Total Shareholders’
Deficit
(3,807,870) $
19,306
$
(3,788,564)
$
$
$
(599,605)
—
368,253
10,035
44,695
(351)
(112,162)
3,915
(8,825)
—
—
—
—
—
(595,690)
(8,825)
368,253
10,035
44,695
(351)
(112,162)
(4,082,609)
Balance at December 31, 2018
$
(4,097,005) $
14,396
$
(1) See Note 2—Significant Accounting Policies and Note 14—Income Taxes
F- 34
Note 11 Goodwill and Other Intangible Assets
The carrying amounts of goodwill and acquired intangible assets not subject to amortization consist of the following (in
thousands):
Goodwill (1)
Orbital locations
Trade name
As of
December 31, 2017
2,620,627
$
2,387,700
65,200
As of
December 31, 2018
2,620,627
$
2,387,700
65,200
(1) Net of accumulated impairment losses of $4,160,200.
We account for goodwill and other non-amortizable intangible assets in accordance with FASB ASC 350, and have
deemed these assets to have indefinite lives. Therefore, these assets are not amortized but are instead 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.
(a) Goodwill
We perform our annual goodwill impairment assessment using a qualitative approach to identify and consider the
significance of relevant key factors, events, and circumstances that affect the fair value of our reporting unit. We are required to
identify reporting units at a level below the Company’s identified operating segments for impairment analysis. We have
identified only one reporting unit for the goodwill impairment test.
Assumptions and Approach Used. We make our qualitative evaluation considering, among other things, general
macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant
entity-specific events.
Based on our review at December 31, 2017, since the fixed and mobile satellite services industry is under pressure
(pricing, over-supply, value-chain inefficiencies) and since comparable companies have demonstrated negative to minimal
revenue growth with equities underperforming, we determined that a quantitative assessment of goodwill was appropriate.
We determined the estimated fair value of our reporting unit using discounted cash flow analysis, along with independent
source data related to the comparative market multiples and, when available, recent transactions, each of which is considered a
Level 3 input within the fair value hierarchy under FASB ASC 820. The discounted cash flows were derived from a five-year
projection of cash flows plus a residual value, with the resulting projected cash flows discounted at an appropriate weighted
average cost of capital.
In estimating the undiscounted cash flows, we primarily used our internally prepared budgets and forecast information.
The key assumptions included in our model were projected growth rates, cost of capital, effective tax rates, and industry and
economic trends. A change in the estimated future cash flows or other assumptions could change our estimated fair values and
result in future impairments. Based on our quantitative analysis as described above, we concluded that there was no impairment
for goodwill at December 31, 2017.
Based on our examination of the qualitative factors at December 31, 2018, we concluded that there was not a likelihood
of more than 50% that the fair value of our reporting unit was less than its carrying value; therefore, no further testing of
goodwill was required.
(b) Orbital Locations, Trade Name and other Intangible Assets
Intelsat is authorized by governments to operate satellites at certain orbital locations—i.e., longitudinal coordinates along
the Clarke Belt. The Clarke Belt is the part of space approximately 35,800 kilometers above the plane of the equator where
geostationary orbit may be achieved. Various governments acquire rights to these orbital locations through filings made with
the ITU, a sub-organization of the United Nations. We will continue to have rights to operate satellites at our orbital locations
so long as we maintain our authorizations to do so.
F- 35
Our rights to operate at orbital locations can be used and sold individually; however, since satellites and customers can be
and are moved from one orbital location to another, our rights are used in conjunction with each other as a network that can be
adapted to meet the changing needs of our customers and market demands. Due to the interchangeable nature of orbital
locations, the aggregate value of all of the orbital locations is used to measure the extent of impairment, if any.
At December 31, 2017 and 2018, we determined, based on an examination of qualitative factors, that there was no
impairment of our orbital locations and trade name.
The carrying amount and accumulated amortization of acquired intangible assets subject to amortization consisted of the
following (in thousands):
Backlog and other
Customer relationships
Total
As of December 31, 2017
As of December 31, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
743,760
534,030
1,277,790
$
$
(686,425) $
(241,781)
(928,206) $
57,335
292,249
349,584
$
$
743,760
534,030
1,277,790
$
$
(701,445) $
(265,242)
(966,687) $
42,315
268,788
311,103
Intangible assets are amortized based on the expected pattern of consumption. We recorded amortization expense of
$48.5 million, $42.3 million and $38.5 million for the years ended December 31, 2016, 2017 and 2018, respectively.
Scheduled amortization charges for the intangible assets over the next five years are as follows (in thousands):
Year
2019
2020
2021
2022
2023
$
Amount
34,351
31,103
28,635
25,479
21,353
Our policy is to expense all costs incurred to renew or extend the terms of our intangible assets. The renewal expenses for
the years ended December 31, 2016, 2017 and 2018 were immaterial to our consolidated results of operations.
Note 12 Long-Term Debt
The carrying values and fair values of our notes payable and long-term debt were as follows (in thousands):
$
$
Intelsat S.A.:
4.5% Convertible Senior Notes due June 2025
Unamortized prepaid debt issuance costs and discount
on 4.5% Convertible Senior Notes
Total Intelsat S.A. obligations
Intelsat Luxembourg:
6.75% Senior Notes due June 2018
Unamortized prepaid debt issuance costs on 6.75%
Senior Notes
7.75% Senior Notes due June 2021
Unamortized prepaid debt issuance costs on 7.75%
Senior Notes
8.125% Senior Notes due June 2023
Unamortized prepaid debt issuance costs on 8.125%
Senior Notes
12.5% Senior Notes due November 2024
As of December 31, 2017
As of December 31, 2018
Carrying Value
Fair Value
Carrying Value
Fair Value
— $
— $
402,500
$
590,427
—
—
—
—
(149,083)
253,417
96,650
$
94,717
$
— $
(78)
2,000,000
(13,325)
1,000,000
(8,562)
403,350
F- 36
—
1,070,000
—
515,000
—
265,052
—
421,219
(2,062)
1,000,000
(7,256)
403,350
—
590,427
—
—
381,203
—
765,000
—
376,807
Unamortized prepaid debt issuance costs and discount
on 12.5% Senior Notes
Total Intelsat Luxembourg obligations
Intelsat Connect Finance:
12.5% Senior Notes due April 2022
Unamortized prepaid debt issuance costs and discount
on 12.5% Senior Notes
9.5% Senior Notes due February 2023
Unamortized prepaid debt issuance costs and discount
on 9.5% Senior Notes
(209,165)
3,268,870
—
1,944,769
(198,620)
1,616,631
$
731,892
$
640,406
$
— $
(267,108)
—
—
—
—
—
—
1,250,000
(34,904)
1,215,096
—
1,523,010
—
—
1,062,500
—
1,062,500
Total Intelsat Connect Finance obligations
464,784
640,406
Intelsat Jackson:
9.5% Senior Secured Notes due September 2022
$
490,000
$
565,950
$
490,000
$
556,150
Unamortized prepaid debt issuance costs and discount
on 9.5% Senior Secured Notes
8% Senior Secured Notes due February 2024
Unamortized prepaid debt issuance costs and premium
on 8.0% Senior Secured Notes
7.25% Senior Notes due October 2020
Unamortized prepaid debt issuance costs and premium
on 7.25% Senior Notes
7.5% Senior Notes due April 2021
Unamortized prepaid debt issuance costs on 7.5%
Senior Notes
5.5% Senior Notes due August 2023
Unamortized prepaid debt issuance costs on 5.5%
Senior Notes
9.75% Senior Notes due July 2025
Unamortized prepaid debt issuance costs on 9.75%
Senior Notes
8.5% Senior Notes due October 2024
Unamortized prepaid debt issuance costs and premium
on 8.5% Senior Notes
Senior Secured Credit Facilities due June 2019
Unamortized prepaid debt issuance costs and discount
on Senior Secured Credit Facilities
Senior Secured Credit Facilities due November 2023
Unamortized prepaid debt issuance costs and discount
on Senior Secured Credit Facilities
Senior Secured Credit Facilities due January 2024
Unamortized prepaid debt issuance costs and discount
on Senior Secured Credit Facilities
6.625% Senior Secured Credit Facilities due January 2024
Unamortized prepaid debt issuance costs and discount
on Senior Secured Credit Facilities
Total Intelsat Jackson obligations
Eliminations:
7.75% Senior Notes of Intelsat Luxembourg due June 2021
owned by Intelsat Connect Finance
Unamortized prepaid debt issuance costs on 7.75%
Senior Notes
8.125% Senior Notes of Intelsat Luxembourg due June 2023
owned by Intelsat Connect Finance and Intelsat Jackson
Unamortized prepaid debt issuance costs on 8.125%
Senior Notes
12.5% Senior Notes of Intelsat Luxembourg due November
2024 owned by Intelsat Connect Finance, Intelsat Jackson,
and Intelsat Envision
Unamortized prepaid debt issuance costs and discount
on 12.5% Senior Notes
Unamortized prepaid debt issuance costs and discount on
12.5% Senior Notes due 2022
(17,556)
1,349,678
(5,378)
2,200,000
(5,151)
1,150,000
(5,415)
2,000,000
(12,977)
1,500,000
(20,315)
—
—
1,095,000
(4,636)
2,000,000
(28,600)
—
—
—
—
1,423,910
—
2,068,000
—
1,040,750
—
1,630,000
—
1,455,000
—
—
—
1,093,631
—
1,947,500
—
—
—
—
—
11,684,650
—
11,224,741
(14,545)
1,349,678
(4,671)
—
—
—
—
—
1,390,168
—
—
—
—
—
1,985,000
1,717,025
(10,859)
1,485,000
(18,230)
2,950,000
(15,310)
—
—
—
1,488,713
—
2,832,000
—
—
—
2,000,000
1,940,000
(26,965)
395,000
(1,933)
700,000
(3,427)
—
395,988
—
694,750
—
11,258,738
11,014,794
$
(979,168) $
(523,855) $
6,524
—
— $
—
—
—
(111,663)
(57,506)
(111,663)
(85,422)
956
—
810
—
(402,595)
(264,556)
(403,245)
(376,708)
208,775
67,525
F- 37
—
—
198,568
—
—
—
Total eliminations:
Total Intelsat S.A. long-term debt
Less:
Current portion of long-term debt
Total long-term debt, excluding current portion
$
$
(1,209,646)
(845,917)
(315,530)
(462,130)
14,208,658
$
12,963,999
$
14,028,352
$
13,728,601
96,572
14,112,086
—
$
14,028,352
The fair value for publicly traded instruments is determined using quoted market prices, and for non-publicly traded
instruments, fair value is based upon composite pricing from a variety of sources, including market leading data providers,
market makers and leading brokerage firms. Substantially all of the inputs used to determine the fair value of our debt are
classified as Level 1 inputs within the fair value hierarchy from FASB ASC 820, except our senior secured credit facilities, the
inputs for which are classified as Level 2.
Required principal repayments of long-term debt over the next five years and thereafter as of December 31, 2018 are as
follows (in thousands):
Year
2019
2020
2021
2022
2023
2024 and thereafter
Total principal repayments
Unamortized discounts, premiums and prepaid issuance costs
Total Intelsat S.A. long-term debt
2018 Debt and Other Capital Markets Transactions
Amount
—
—
421,219
490,000
6,123,337
7,282,283
14,316,839
(288,487)
14,028,352
$
$
March 2018/May 2018 ICF Tender Offer for Intelsat Luxembourg Notes and Redemption
In March 2018, ICF commenced a cash tender offer to purchase any and all of the outstanding aggregate principal
amount of the 6.75% Senior Notes due 2018 (the “2018 Luxembourg Notes”). ICF purchased a total of $31.2 million aggregate
principal amount of the 2018 Luxembourg Notes at par value in March 2018 and April 2018. In May 2018, pursuant to a
previously issued notice of redemption, Intelsat Luxembourg redeemed $46.0 million aggregate principal amount of the 2018
Luxembourg Notes at par value together with accrued and unpaid interest thereon.
June 2018 Intelsat S.A. Senior Convertible Notes Offering and Common Shares Offering
In June 2018, we completed an offering of 15,498,652 Intelsat S.A. common shares, nominal value $0.01 per share (the
“Common Shares”), at a public offering price of $14.84 per common share, and we completed an offering of $402.5 million
aggregate principal amount of the 2025 Convertible Notes. These notes are guaranteed by a direct subsidiary of Intelsat
Luxembourg, Intelsat Envision. The net proceeds from the Common Shares offering and 2025 Convertible Notes offering were
used to repurchase approximately $600 million aggregate principal amount of Intelsat Luxembourg’s 7.75% Senior Notes due
2021 (the “2021 Luxembourg Notes”) in privately negotiated transactions with individual holders in June 2018. In connection
with the repurchase of the 2021 Luxembourg Notes, we recognized a net gain on early extinguishment of debt of $22.1 million
consisting of the difference between the carrying value of debt repurchased and the total cash amount paid (including related
fees and expenses), together with a write-off of unamortized debt issuance costs. We used the remaining net proceeds of the
Common Shares offering and 2025 Convertible Notes offering for further repurchases of 2021 Luxembourg Notes and for other
general corporate purposes, including repurchases of other tranches of debt of Intelsat S.A.’s subsidiaries.
The 2025 Convertible Notes mature on June 15, 2025 unless earlier repurchased, converted or redeemed, as set forth in
the indenture governing the 2025 Convertible Notes (the “2025 Indenture”). Holders may elect to convert their notes depending
upon the trading price of our common shares and under other conditions set forth in the 2025 Indenture until December 15,
2024, and thereafter without regard to any conditions. The initial conversion rate is 55.0085 common shares per $1,000
principal amount of notes, which is equivalent to an initial conversion price of approximately $18.18 per common share,
subject to customary adjustments, and will be increased upon the occurrence of specified events set forth in the 2025 Indenture.
We may redeem the 2025 Convertible Notes at our option, on or after June 15, 2022, and prior to the forty-second scheduled
F- 38
trading day preceding the maturity date, in whole or in part, depending upon the trading price of our common shares as set forth
in the optional redemption provisions in the 2025 Indenture or in the event of certain developments affecting taxation with
respect to the 2025 Convertible Notes. Based on the closing price of our common shares of $21.39 on December 31, 2018, the
if-converted value of the 2025 Convertible Notes was greater than the aggregate principal amount. However, the 2025
Convertible Notes are not currently convertible based on the conditions set forth in the 2025 Indenture.
In accounting for the transaction, the 2025 Convertible Notes were separated into liability and equity components. The
carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not
have an associated convertible feature. The carrying amount of the equity component is $149.4 million, which is also
recognized as a discount on the 2025 Convertible Notes and represents the value assigned to the conversion option which was
determined by deducting the fair value of the liability component from the par value of the 2025 Convertible Notes. The $149.4
million equity component is included in additional paid-in capital on our consolidated balance sheet as of June 30, 2018 and
will not be remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal
amount of the liability component over its carrying amount was recorded as a discount on the 2025 Convertible Notes and will
be amortized to interest expense over the contractual term of the 2025 Convertible Notes at an effective interest rate of 13.0%.
We incurred debt issuance costs of $12.7 million related to the 2025 Convertible Notes, which were allocated to the
liability and equity components based on their relative values. Issuance costs attributable to the liability component were $7.3
million and will be amortized to interest expense using the effective interest method over the contractual term of the 2025
Convertible Notes. Issuance costs attributable to the equity component were netted against the equity component in additional
paid-in capital.
Interest expense for the year ended December 31, 2018 related to the 2025 Convertible Notes was as follows (in
thousands):
Coupon interest
Amortization of discount and prepaid debt issuance costs
Total interest expense
Year Ended
December 31,
2018
$
$
9,710
7,654
17,364
August 2018 Intelsat Connect Senior Notes Refinancing and Exchange of Intelsat Luxembourg Senior Notes
In August 2018, Intelsat Connect completed an offering of $1.25 billion aggregate principal amount of 9.5% Senior Notes
due 2023 (the "2023 ICF Notes"). These notes are guaranteed by Intelsat Envision and Intelsat Luxembourg. Intelsat Connect
used the net proceeds from the offering to repurchase or redeem all $731.9 million outstanding aggregate principal amount of
its 12.5% Senior Notes due 2022 (the "2022 ICF Notes"). The remaining net proceeds from the offering were used to
repurchase approximately $448.9 million of aggregate principal amount of Intelsat Jackson's 7.25% Senior Notes due 2020 (the
"2020 Jackson Notes") and $30.0 million aggregate principal amount of other unsecured notes of Intelsat Jackson. Also in
August 2018, Intelsat Connect and Intelsat Envision completed debt exchanges receiving new notes issued by Intelsat
Luxembourg, which mature in August 2026 and have an interest rate of 13.5% in exchange for $1.58 billion aggregate principal
amount of 2021 Luxembourg Notes that were previously held by Intelsat Connect and Intelsat Envision. In connection with
these transactions, we recognized a loss on extinguishment of debt of $188.2 million, consisting of the difference between the
carrying value of the debt and the total cash amount paid (including related fees and expenses), together with a write-off of
unamortized debt issuance costs and unamortized discount or premium, if applicable.
September 2018 Intelsat Jackson Senior Notes Offering and Tender Offer
In September 2018, Intelsat Jackson completed an offering of $2.25 billion aggregate principal amount of 8.5% Senior
Notes due 2024 (the "2024 Jackson Senior Unsecured Notes"). The notes are guaranteed by all of Intelsat Jackson’s
subsidiaries that guarantee its obligations under the Intelsat Jackson Secured Credit Agreement, as well as by certain of Intelsat
Jackson’s parent entities. Intelsat Jackson used the net proceeds from the offering to repurchase through a tender offer and
redeem all remaining outstanding 2020 Jackson Notes. The remaining net proceeds from the 2024 Jackson Senior Unsecured
Notes offering were used to repurchase and redeem $195.3 million aggregate principal amount of Intelsat Jackson's 7.5%
Senior Notes due 2021 (the "2021 Jackson Notes") as of September 30, 2018, $246.0 million additional aggregate principal
amount of 2021 Jackson Notes in October 2018, and to pay related fees and expenses. In connection with the repurchase and
redemption, we recognized a loss on extinguishment of debt of $15.9 million, consisting of the difference between the carrying
value of the debt and the total cash amount paid (including related fees and expenses), together with a write-off of unamortized
debt issuance costs and unamortized premium, if applicable.
F- 39
October 2018 Intelsat Jackson Senior Notes Add-On Offering and Redemption of 2021 Jackson Notes
In October 2018, Intelsat Jackson completed an add-on offering of $700.0 million aggregate principal amount of its 2024
Jackson Senior Unsecured Notes. The net proceeds from the add-on offering, together with cash on hand, were used to
repurchase and redeem all of the remaining approximately $708.7 million aggregate principal amount of outstanding 2021
Jackson Notes in October 2018 that were not earlier repurchased or redeemed, and to pay related fees and expenses. In
connection with the repurchase, we recognized a loss on extinguishment of debt of $17.8 million, consisting of the difference
between the carrying value of the debt and the total cash amount paid (including related fees and expenses), together with a
write-off of unamortized debt issuance costs.
2017 Debt Transactions
January 2017 Intelsat Luxembourg Exchange Offer
In January 2017, Intelsat Luxembourg completed a debt exchange (the “Second 2018 Luxembourg Exchange”), whereby
it exchanged $403.3 million aggregate principal amount of its 2018 Luxembourg Notes for an equal aggregate principal amount
of newly issued unsecured 12.5% Senior Notes due 2024 (the “2024 Luxembourg Notes”). The Second 2018 Luxembourg
Exchange consisted of $377.6 million aggregate principal amount of 2018 Luxembourg Notes held by ICF as a result of a
previous debt exchange, together with $25 million aggregate principal amount of 2018 Luxembourg Notes repurchased by us in
the fourth quarter of 2015. We consolidate ICF, the holder of the 2018 Luxembourg Notes exchanged in the Second 2018
Luxembourg Exchange.
July 2017 Intelsat Jackson Senior Notes Refinancing
On July 5, 2017, Intelsat Jackson completed an offering of $1.5 billion aggregate principal amount of 9.75% Senior
Notes due 2025 (the “2025 Jackson Notes”). These notes are guaranteed by all of Intelsat Jackson’s subsidiaries that guarantee
its obligations under the Intelsat Jackson Secured Credit Agreement and senior notes, as well as by certain of Intelsat Jackson’s
parent entities. Also on July 5, 2017, the net proceeds from the sale of the 2025 Jackson Notes were used, along with other
available cash, to satisfy and discharge all $1.5 billion aggregate principal amount of Intelsat Jackson’s 7.25% Senior Notes due
2019. In connection with the satisfaction and discharge, we recognized a loss on early extinguishment of debt of $4.6 million,
consisting of the difference between the carrying value of the debt redeemed and the total cash amount paid (including related
fees and expenses), together with a write-off of unamortized debt issuance costs.
November & December 2017 Amendments to Intelsat Jackson Senior Secured Credit Facility
In November and December 2017, Intelsat Jackson entered into amendments of the Intelsat Jackson Secured Credit
Agreement. See—Description of Indebtedness—Intelsat Jackson—Intelsat Jackson Senior Secured Credit Agreement, below.
Description of Indebtedness
(a) Intelsat S.A.
4 ½% Convertible Senior Notes due 2025
In June 2018, we completed an offering of $402.5 million aggregate principal amount of the 2025 Convertible Notes. See
—2018 Debt and Other Capital Markets Transactions—June 2018 Intelsat S.A. Senior Convertible Notes Offering and
Common Shares Offering, above.
(b) Intelsat Luxembourg
7 ¾% Senior Notes due 2021
Intelsat Luxembourg had $421.2 million in aggregate principal amount of the 2021 Luxembourg Notes outstanding at
December 31, 2018. The 2021 Luxembourg Notes bear interest at 7 ¾% annually and mature in June 2021. The 2021
Luxembourg Notes are guaranteed by Intelsat S.A., Intelsat Investment Holdings S.à r.l., Intelsat Holdings S.A. and Intelsat
Investments S.A. (the “Parent Guarantors”).
Interest is payable on the 2021 Luxembourg Notes semi-annually on June 1 and December 1. Intelsat Luxembourg may
redeem some or all of the notes at the applicable redemption prices set forth in the notes.
F- 40
The 2021 Luxembourg Notes are senior unsecured obligations of Intelsat Luxembourg and rank equally with Intelsat
Luxembourg’s other senior unsecured indebtedness.
8 % Senior Notes due 2023
Intelsat Luxembourg had $1.0 billion in aggregate principal amount of the 2023 Luxembourg Notes outstanding at
December 31, 2018. $111.7 million principal amount was held by Intelsat Jackson. The 2023 Luxembourg Notes bear interest
at 8 % annually and mature in June 2023. The 2023 Luxembourg Notes are guaranteed by the Parent Guarantors.
Interest is payable on the 2023 Luxembourg Notes semi-annually on June 1 and December 1. Intelsat Luxembourg may
redeem some or all of the notes at the applicable redemption prices set forth in the notes.
The 2023 Luxembourg Notes are senior unsecured obligations of Intelsat Luxembourg and rank equally with Intelsat
Luxembourg’s other senior unsecured indebtedness.
12 ½% Senior Notes due 2024
Intelsat Luxembourg had $403.4 million in aggregate principal amount of the 2024 Luxembourg Notes outstanding at
December 31, 2018. $182.0 million principal amount was held by ICF, $220.6 million was held by Intelsat Jackson and $0.7
million was held by Intelsat Envision. The 2024 Luxembourg Notes bear interest at 12 ½% annually and mature in November
2024.
Interest is payable on the 2024 Luxembourg Notes semi-annually on May 15 and November 15.
The 2024 Luxembourg Notes are senior unsecured obligations of Intelsat Luxembourg and rank equally with Intelsat
Luxembourg’s other senior unsecured indebtedness.
(c) Intelsat Connect Finance
9 ½% Senior Notes due 2023
ICF had $1.3 billion in aggregate principal amount of 2023 ICF Notes outstanding at December 31, 2018. The 2023 ICF
Notes bear interest at 9 ½% annually and mature in February 2023. These notes are guaranteed by Intelsat Envision and Intelsat
Luxembourg.
Interest is payable on the 2023 ICF Notes semi-annually on June 15 and December 15. ICF may redeem the 2023 ICF
Notes, in whole or in part, prior to August 15, 2020, at a price equal to 100% of the principal amount plus the applicable
premium described in the notes. Thereafter, ICF may redeem some or all of the notes at the applicable redemption prices set
forth in the notes.
(d) Intelsat Jackson
9 ½% Senior Secured Notes due 2022
Intelsat Jackson had $490.0 million in aggregate principal amount of 2022 Jackson Secured Notes outstanding at
December 31, 2018. The 2022 Jackson Secured Notes bear interest at 9 ½% annually and mature in September 2022. These
notes are guaranteed by ICF and certain of Intelsat Jackson’s subsidiaries.
Interest is payable on the 2022 Jackson Secured Notes semi-annually on March 30 and September 30. Intelsat Jackson
may redeem some or all of the notes at the applicable redemption prices set forth in the notes.
The 2022 Jackson Secured Notes are senior secured obligations of Intelsat Jackson.
8% Senior Secured Notes due 2024
Intelsat Jackson had $1.3 billion in aggregate principal amount of 2024 Jackson Secured Notes outstanding at
December 31, 2018. The 2024 Jackson Secured Notes bear interest at 8% annually and mature in February 2024. These notes
are guaranteed by ICF and certain of Intelsat Jackson’s subsidiaries.
F- 41
Interest is payable on the 2024 Jackson Secured Notes semi-annually on February 15 and August 15. Intelsat Jackson
may redeem some or all of the notes at the applicable redemption prices set forth in the notes.
The 2024 Jackson Secured Notes are senior secured obligations of Intelsat Jackson.
5 ½% Senior Notes due 2023
Intelsat Jackson had $2.0 billion in aggregate principal amount of the 2023 Jackson Notes outstanding at December 31,
2018. The 2023 Jackson Notes bear interest at 5 ½% annually and mature in August 2023. These notes are guaranteed by the
Parent Guarantors, Intelsat Luxembourg, ICF and certain of Intelsat Jackson’s subsidiaries.
Interest is payable on the 2023 Jackson Notes semi-annually on February 1 and August 1. Intelsat Jackson may redeem
some or all of the 2023 Jackson Notes at the applicable redemption prices set forth in the notes.
The 2023 Jackson Notes are senior unsecured obligations of Intelsat Jackson and rank equally with Intelsat Jackson’s
other senior unsecured indebtedness.
9 ¾% Senior Notes due 2025
Intelsat Jackson had $1.5 billion in aggregate principal amount of the 2025 Jackson Notes outstanding at December 31,
2018. The 2025 Jackson Notes bear interest at 9 ¾% annually and mature in July 2025. These notes are guaranteed by the
Parent Guarantors, Intelsat Luxembourg, ICF and certain of Intelsat Jackson’s subsidiaries.
Interest is payable on the 2025 Jackson Notes semi-annually on January 15 and July 15. Intelsat Jackson may redeem
some or all of the 2025 Jackson Notes at any time prior to July 15, 2021 at a price equal to 100% of the principal amount
thereof plus the applicable premium described in the notes. Thereafter, Intelsat Jackson may redeem some or all of the notes at
the applicable redemption prices set forth in the notes.
The 2025 Jackson Notes are senior unsecured obligations of Intelsat Jackson and rank equally with Intelsat Jackson’s
other senior unsecured indebtedness.
8 ½% Senior Unsecured Notes due 2024
Intelsat Jackson had $3.0 billion in aggregate principal amount of the 2024 Jackson Senior Unsecured Notes outstanding
at December 31, 2018. The 2024 Jackson Senior Unsecured Notes bear interest at 8 ½% annually and mature in October 2024.
These notes are guaranteed by the Parent Guarantors, Intelsat Luxembourg, ICF and certain of Intelsat Jackson’s subsidiaries.
Interest is payable on the 2024 Jackson Senior Unsecured Notes semi-annually on April 15 and October 15. Intelsat
Jackson may redeem some or all of the 2024 Jackson Senior Unsecured Notes at any time prior to October 15, 2020 at a price
equal to 100% of the principal amount thereof plus the applicable premium described in the notes. Thereafter, Intelsat Jackson
may redeem some or all of the 2024 Jackson Senior Unsecured Notes at the applicable redemption prices set forth in the notes.
The 2024 Jackson Senior Unsecured Notes are senior unsecured obligations of Intelsat Jackson and rank equally with
Intelsat Jackson’s other senior unsecured indebtedness.
Intelsat Jackson Senior Secured Credit Agreement
On January 12, 2011, Intelsat Jackson entered into a secured credit agreement (the “Intelsat Jackson Secured Credit
Agreement”), which included a $3.25 billion term loan facility and a $500.0 million revolving credit facility, and borrowed the
full $3.25 billion under the term loan facility. The term loan facility required 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 October 3, 2012, Intelsat Jackson entered into an Amendment and Joinder Agreement (the “Jackson Credit Agreement
Amendment”), which amended the Intelsat Jackson Secured Credit Agreement. As a result of the Jackson Credit Agreement
Amendment, interest rates for borrowings under the term loan facility and the revolving credit facility were reduced. In April
2013, our corporate family rating was upgraded by Moody’s, and as a result, the interest rate for the borrowing under the term
loan facility and revolving credit facility were further reduced to LIBOR plus 3.00% or the Above Bank Rate (“ABR”) plus
2.00%.
F- 42
On November 27, 2013, Intelsat Jackson entered into a Second Amendment and Joinder Agreement (the “Second Jackson
Credit Agreement Amendment”), which further amended the Intelsat Jackson Secured Credit Agreement. The Second Jackson
Credit Agreement Amendment reduced interest rates for borrowings under the term loan facility and extended the maturity of
the term loan facility. In addition, it reduced the interest rate applicable to $450 million of the $500 million total revolving
credit facility and extended the maturity of such portion. As a result of the Second Jackson Credit Agreement Amendment,
interest rates for borrowings under the term loan facility and the new tranche of the revolving credit facility were (i) LIBOR
plus 2.75%, or (ii) the ABR plus 1.75%. The LIBOR and the ABR, plus applicable margins, related to the term loan facility and
the new tranche of the revolving credit facility were determined as specified in the Intelsat Jackson Secured Credit Agreement,
as amended by the Second Jackson Credit Agreement Amendment, and the LIBOR was not to be less than 1.00% per annum.
The maturity date of the term loan facility was extended from April 2, 2018 to June 30, 2019 and the maturity of the new $450
million tranche of the revolving credit facility was extended from January 12, 2016 to July 12, 2017. The interest rates and
maturity date applicable to the $50 million tranche of the revolving credit facility that was not amended did not change. The
Second Jackson Credit Agreement Amendment further removed the requirement for regularly scheduled quarterly principal
payments under the term loan facility.
In June 2017, Intelsat Jackson terminated all remaining commitments under its revolving credit facility.
On November 27, 2017, Intelsat Jackson entered into a Third Amendment and Joinder Agreement (the “Third Jackson
Credit Agreement Amendment”), which further amended the Intelsat Jackson Secured Credit Agreement. The Third Jackson
Credit Agreement Amendment extended the maturity date of $2.0 billion of the existing floating rate B-2 Tranche of term loans
(the “B-3 Tranche Term Loans”), to November 27, 2023, subject to springing maturity in the event that certain series of Intelsat
Jackson’s senior notes are not refinanced prior to the dates specified in the Third Jackson Credit Agreement Amendment. The
B-3 Tranche Term Loans have an applicable interest rate margin of 3.75% for LIBOR loans and 2.75% for base rate loans (at
Intelsat Jackson’s election as applicable).
The B-3 Tranche Term Loans were subject to a prepayment premium of 1.00% of the principal amount for any
voluntary prepayment of, or amendment or modification in respect of, the B-3 Tranche Term Loans prior to November 27, 2018
in connection with prepayments, amendments or modifications that have the effect of reducing the applicable interest rate
margin on the B-3 Tranche Term Loans, subject to certain exceptions. The Third Jackson Credit Agreement Amendment also
(i) added a provision requiring that, beginning with the fiscal year ending December 31, 2018, Intelsat Jackson to apply a
certain percentage of its Excess Cash Flow (as defined in the Third Jackson Credit Agreement Amendment), if any, after
operational needs for each fiscal year towards the repayment of outstanding term loans, subject to certain deductions,
(ii) amended the most-favored nation provision with respect to the incurrence of certain indebtedness by Intelsat Jackson and
its restricted subsidiaries, and (iii) amended the covenant limiting the ability of Intelsat Jackson to make certain dividends,
distributions and other restricted payments to its shareholders based on its leverage level at that time.
On December 12, 2017, Intelsat Jackson further amended the Intelsat Jackson Secured Credit Agreement by entering into
a Fourth Amendment and Joinder Agreement (the “Fourth Jackson Credit Agreement Amendment”), which, among other
things, (i) permitted Intelsat Jackson to establish one or more series of additional incremental term loan tranches if the proceeds
thereof are used to refinance an existing tranche of term loans, and (ii) added a most-favored nation provision applicable to the
B-3 Tranche Term Loans for further extensions of the existing floating rate B-2 Tranche Term Loans under certain
circumstances.
On January 2, 2018, Intelsat Jackson entered into a Fifth Amendment and Joinder Agreement (the “Fifth Jackson Credit
Agreement Amendment”), which further amended the Intelsat Jackson Secured Credit Agreement. The Fifth Jackson Credit
Agreement Amendment refinanced the remaining $1.095 billion B-2 Tranche Term Loans, through the creation of (i) a new
incremental floating rate tranche of term loans with a principal amount of $395.0 million (the “B-4 Tranche Term Loans”), and
(ii) a new incremental fixed rate tranche of term loans with a principal amount of $700.0 million (the “B-5 Tranche Term
Loans”). The maturity date of both the B-4 Tranche Term Loans and the B-5 Tranche Term Loans is January 2, 2024, subject to
springing maturity in the event that certain series of Intelsat Jackson’s senior notes are not refinanced or repaid prior to the
dates specified in the Fifth Jackson Credit Agreement Amendment. The B-4 Tranche Term Loans have an applicable interest
rate margin of 4.50% per annum for LIBOR loans and 3.50% per annum for base rate loans (at Intelsat Jackson’s election as
applicable). We entered into interest rate cap contracts in December 2017 and amended them in May 2018 to mitigate the risk
of interest rate increases on the B-4 Tranche Term Loans. The B-5 Tranche Term Loans have an interest rate of 6.625% per
annum. The Fifth Jackson Credit Agreement Amendment also specified make-whole and prepayment premiums applicable to
the B-4 Tranche Term Loans and the B-5 Tranche Term Loans at various dates.
Intelsat Jackson’s obligations under the Intelsat Jackson Secured Credit Agreement are guaranteed by ICF and certain of
Intelsat Jackson’s subsidiaries. Intelsat Jackson’s obligations under the Intelsat Jackson Secured Credit Agreement are secured
F- 43
by a first priority security interest in substantially all of the assets of Intelsat Jackson and the guarantors party thereto, to the
extent legally permissible and subject to certain agreed exceptions, and by a pledge of the equity interests of the subsidiary
guarantors and the direct subsidiaries of each guarantor, subject to certain exceptions, including exceptions for equity interests
in certain non-U.S. subsidiaries, existing contractual prohibitions and prohibitions under other legal requirements.
The Intelsat Jackson Secured Credit Agreement following a further amendment in November 2018 includes one financial
covenant: Intelsat Jackson must maintain a consolidated secured debt to consolidated EBITDA ratio equal to or less than 3.50
to 1.00 at the end of each fiscal quarter as such financial measure is defined in the Intelsat Jackson Secured Credit Agreement.
Intelsat Jackson was in compliance with this financial maintenance covenant ratio with a consolidated secured debt to
consolidated EBITDA ratio of 2.94 to 1.00 as of December 31, 2018.
Note 13 Derivative Instruments and Hedging Activities
Undesignated Interest Rate Cap Contracts
During 2017, we entered into interest rate cap contracts, and amended them in May 2018, to mitigate the risk of interest
rate increases on the floating rate portion of our senior secured credit facilities with a notional value of $2.4 billion. The fair
value of the derivative included in “Other assets” on the consolidated balance sheet as of December 31, 2017 and 2018 was
$22.3 million and $33.1 million, respectively.
Preferred Stock Warrant
During 2017, we were issued a warrant to purchase preferred shares of one of our investments. We concluded that the
warrant is a free standing derivative in accordance with FASB ASC 815. The fair value of the derivative, included in “Other
assets” on the consolidated balance sheet as of December 31, 2017 and 2018 was $4.1 million.
The following table sets forth the fair value of our derivatives by category (in thousands):
Derivatives not designated as
hedging instruments
Undesignated interest rate cap
Preferred stock warrant
Total derivatives
Balance Sheet
Location
December 31,
2017
December 31,
2018
Other assets
Other assets
$
$
22,336
4,100
26,436
$
$
33,086
4,100
37,186
The following table sets forth the effect of the derivative instruments in our consolidated statements of operations (in
thousands):
Derivatives not designated as
hedging instruments
Undesignated interest rate cap
Preferred stock warrant
Total loss (gain) on derivative
financial instruments
Presentation in Statement of
Operations
Included in interest expense, net
Included in other expense, net
Year Ended
December 31,
2016
Year Ended
December 31,
2017
Year Ended
December 31,
2018
$
$
— $
—
— $
$
1,006
—
(14,435)
—
1,006
$
(14,435)
Note 14 Income Taxes
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory, which is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other
than inventory. The amendments in ASU 2016-16 eliminate the current requirement to defer the recognition of current and
deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. ASU 2016-16 is
effective for interim and annual periods beginning after December 15, 2017 for public business entities, on a modified
retrospective basis. Early adoption is permitted as of the beginning of an annual reporting period for which interim or annual
financial statements have not been issued. We adopted the amendments in the first quarter of 2018 and this resulted in
approximately a $170 million benefit to accumulated deficit. The benefit relates to certain deferred intercompany gains/losses,
F- 44
mostly in connection with a series of intercompany transactions in 2011 and 2017 and related steps that reorganized the
ownership of our assets among our subsidiaries.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act includes a number of
provisions, including the lowering of the U.S. corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. The
Act limits our U.S. interest expense deductions to approximately 30 percent of EBITDA through December 31, 2021 and
approximately 30 percent of earnings before net interest and taxes thereafter. The Act also introduced a new minimum tax, the
Base Erosion Anti-Abuse Tax (“BEAT”). We are treating the BEAT as a period cost.
The Company recognized the income tax effects of The Act in its 2017 financial statements in accordance with Staff
Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the
reporting period in which The Act was signed into law.
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the
temporary differences are expected to be recovered or paid. Accordingly, the company’s U.S. deferred tax assets and liabilities
were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent, resulting in a
$28.0 million decrease in net deferred tax liabilities as of December 31, 2017.
On July 2, 2018, we implemented a series of internal transactions and related steps that reorganized the ownership of
certain of our assets among our subsidiaries in order to enhance our ability to efficiently transact business (the “2018 Internal
Reorganization”). The 2018 Internal Reorganization resulted in the majority of our operations being owned by a U.S.
partnership, with our wholly owned Luxembourg and U.S. subsidiaries as partners. Our tax expense recorded in the year ended
December 31, 2018 was largely attributable to the 2018 Internal Reorganization, during which we recorded a deferred tax
liability associated with the partners’ outside basis in the partnership.
The following table summarizes our total income (loss) before income taxes (in thousands):
Domestic income (loss) before income taxes
Foreign income (loss) before income taxes
Total income (loss) before income taxes
Year Ended
December 31,
2016
Year Ended
December 31,
2017
Year Ended
December 31,
2018
$
$
938,156
71,942
1,010,098
$
$
(18,149) $
(85,535)
(103,684) $
(424,590)
(41,031)
(465,621)
The primary reason for the variance in domestic income before income tax was that our Luxembourg entities recorded a
net gain on the extinguishment of debt in 2016. No comparable amount was recorded in 2017 or 2018.
The provision for (benefit from) income taxes consisted of the following (in thousands):
Current income tax provision (benefit)
Domestic
Foreign
Total
Deferred income tax provision (benefit):
Domestic
Foreign
Total
Total income tax provision:
Year Ended
December 31,
2016
Year Ended
December 31,
2017
Year Ended
December 31,
2018
$
$
(35) $
(125) $
25,721
25,686
(80)
(9,620)
(9,700)
27,309
27,184
72
43,874
43,946
15,986
$
71,130
$
792
50,117
50,909
—
79,160
79,160
130,069
The income tax provision (benefit) was different from the amount computed using the Luxembourg statutory income tax
rate of 26.01% for the reasons set forth in the following table (in thousands):
F- 45
Expected tax provision (benefit) at Luxembourg statutory income tax rate
$
295,150
$
(28,078) $
(121,108)
Year Ended
December 31,
2016
Year Ended
December 31,
2017
Year Ended
December 31,
2018
Foreign income tax differential
Lux Financing Activities
Tax deductible impairment charges in Luxembourg subsidiaries
Change in tax rate
Changes in unrecognized tax benefits
Changes in valuation allowance
Tax effect of 2011 Intercompany Sale
Foreign tax credits
Research and development tax credits
2018 Internal Reorganization
Other
Total income tax provision
51,787
(8,279)
(1,280,759)
416,156
(1,629)
554,479
(6,701)
(5,480)
(3,275)
—
4,537
66,242
30,232
—
(28,250)
(79)
40,853
(6,073)
(3,107)
(2,786)
—
2,176
$
15,986
$
71,130
$
2,216
51,250
—
(684)
(2,205)
746,905
1,655
138
—
(549,382)
1,284
130,069
The majority of our operations are located in Luxembourg, the United States and the United Kingdom. Our Luxembourg
companies that file tax returns as a consolidated group generated taxable income for the year ended December 31, 2018, largely
due to the 2018 Internal Reorganization. The taxable income generated by our Luxembourg group was offset by available net
operating loss carryforwards. Due to the inherent uncertainty associated with the realization of 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 reported in the 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 Brazil, and for
2018, the impacts of the 2018 Internal Reorganization.
The following table details the composition of the net deferred tax balances as of December 31, 2017 and 2018 (in
thousands):
Long-term deferred taxes, net
Other assets
Net deferred taxes
As of
December 31,
2017
As of
December 31,
2018
$
$
(48,434) $
14,583
(33,851) $
(82,488)
20,969
(61,519)
The components of the net deferred tax liability were as follows (in thousands):
F- 46
Deferred tax assets:
Accruals and advances
Amortizable intangible assets
Non-Amortizable intangible assets
Performance incentives
Customer deposits
Bad debt reserve
Accrued retirement benefits
Disallowed interest expense carryforward
Net operating loss carryforward
Tax credits
Tax basis differences in investments and affiliates
Other
Total deferred tax assets
Deferred tax liabilities:
Satellites and other property and equipment
Amortizable intangible assets
Non-amortizable intangible assets
Tax basis differences in investments and affiliates
Other
Total deferred tax liabilities
Valuation allowance
Total net deferred tax liabilities
As of
December 31,
2017
As of
December 31,
2018
$
17,169
$
13,421
147,332
7,289
16,064
2,033
43,592
75,546
3,840,759
11,335
—
8,418
6,001
1,133,702
42,265
—
3,404
1,350
—
74,825
2,964,634
12,235
78,950
2,346
4,182,958
4,319,712
(266,330)
(366,777)
(103,730)
(6,753)
(16,875)
(760,465)
(3,456,344)
$
(33,851) $
(80,376)
(8,948)
(31,359)
(51,645)
(5,654)
(177,982)
(4,203,249)
(61,519)
As of December 31, 2017 and 2018, our consolidated balance sheets included a deferred tax asset in the amount of $3.8
billion and $3.0 billion, respectively, attributable to the future benefit from the utilization of certain net operating loss
carryforwards. In addition, our balance sheets as of December 31, 2017 and December 31, 2018 included $15.4 million and
$12.2 million of deferred tax assets, respectively, attributable to the future benefit from the utilization of tax credit
carryforwards. As of December 31, 2018, we had tax-effected U.S. federal, state and other foreign tax net operating loss
carryforwards of $64.7 million expiring, for the most part, between 2023 and 2037, and tax effected Luxembourg net operating
loss carryforwards of $2.9 billion without expiration. These Luxembourg net operating loss carryforwards were caused
primarily by our interest expense, satellite depreciation and amortization and impairment charges related to investments in
subsidiaries, goodwill and other intangible assets. Our research and development credit of $0.07 million may be carried
forward to 2037. Our foreign tax credit of $12.1 million may be carried forward to 2026.
Our valuation allowance as of December 31, 2017 and 2018 was $3.5 billion and $4.2 billion, respectively. Almost all of
the valuation allowance relates to Luxembourg net operating loss carryforwards and deferred tax assets created by differences
between the U.S. GAAP and the Luxembourg tax basis in our assets. Certain operations of our subsidiaries are controlled by
various intercompany agreements which provide these subsidiaries with predictable operating profits. Other subsidiaries,
principally Luxembourg and U.S. subsidiaries, are subject to the risks of our overall business conditions which make their
earnings less predictable. Our valuation allowance as of December 31, 2018 also relates to certain deferred tax assets in our
U.S. subsidiaries, including foreign tax credit carryforward and disallowed interest expense carryforward.
The following table summarizes the activity related to our unrecognized tax benefits (in thousands):
Balance at January 1
Increases related to current year tax positions
Increases related to prior year tax positions
Decreases related to prior year tax positions
Expiration of statute of limitations for the assessment of taxes
Balance at December 31
2017
2018
36,167
$
31,380
2,193
304
(3)
(7,281)
31,380
$
928
234
(81)
(3,317)
29,144
$
$
F- 47
As of December 31, 2017 and December 31, 2018 our gross unrecognized tax benefits were $31.4 million and $29.1
million, respectively (including interest and penalties), of which $27.8 million and $25.6 million, respectively, if recognized,
would affect our effective tax rate. As of December 31, 2017 and 2018, we had recorded reserves for interest and penalties in
the amount of $0.6 million. 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, 2018, the change in the balance of unrecognized tax
benefits consisted of an increase of $0.9 million related to current tax positions, an increase of $0.1 million related to prior tax
positions, and a decrease of $3.3 million due to the expiration of statute of limitations for the assessment of 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, the United Kingdom and Brazil to be our significant tax
jurisdictions. Our Luxembourg, U.S., United Kingdom and Brazilian subsidiaries are subject to income tax examination for
periods after December 31, 2012. 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.
Certain of our UK and U.S. subsidiaries have been in a dispute with the Indian tax administration over withholding taxes.
This dispute stretches over many tax years, some as early as 2001. The assessments we have received for those years are in
various stages of appeal, some in the Indian court system. So far, the Indian courts have ruled in our favor. We have been
informed that certain lower court decisions are likely to be reviewed by the Indian Supreme Court in the near future. We
believe it to be more likely than not that the Indian Supreme Court will rule in our favor. We do not expect even an unfavorable
ruling to have any material effect on our results of operations, financial position or cash flows, because most of the disputed
withholding taxes relate to customer contracts under which our customers indemnified us for such taxes.
On March 29, 2017, the UK Government gave formal notice of its intention to leave the European Union (“EU”). This
notice started the two-year negotiation period to establish the withdrawal terms. Once the UK ultimately withdraws from the
EU, existing tax reliefs and exemptions on intra-European transactions will likely cease to apply to transactions between UK
entities and EU entities. In addition, transactions with non-EU countries, such as the U.S., may also be affected. As of
December 31, 2018, all relevant tax laws and treaties remain unchanged and the tax consequences are unknown. Therefore, we
have not recognized any impacts of the withdrawal in the income tax provision as of December 31, 2018. We will recognize
any impacts to the tax provision when enacted changes in tax laws or treaties between the UK and the EU or individual EU
member states occur, but no later than the date of the withdrawal.
On December 13, 2018, the Internal Revenue Service and the Department of the Treasury released proposed regulations
with respect to the BEAT. The BEAT is a minimum tax established by the Act that excludes certain payments made by U.S.
corporations or subsidiaries to foreign related parties from the determination of taxable income. The proposed regulations
clarify which taxpayers are subject to the BEAT and how the BEAT rules apply to certain payments and transactions. The
proposed regulations, if adopted, would be effective for the Company for its 2018 tax year. The proposed regulations could
result in additional payments and transactions of the Company being subject to the BEAT which could increase the Company’s
tax expense and cash taxes. It is unclear when the proposed regulations will be adopted, whether they will be adopted in their
current form or whether they will be adopted at all. The Company is currently evaluating the impact that the proposed
regulations could have on its future tax expense. The Company has not included any impacts from the proposed regulations in
its tax provision as of and for the year ended December 31, 2018.
Note 15 Contractual Commitments
In the further development and operation of our commercial global communications satellite system, significant
additional expenditures are anticipated. In connection with these and other expenditures, we have a significant amount of long-
term debt, as described in “Note 12—Long-Term Debt.” In addition to these debt and related interest obligations, we have
expenditures represented by other contractual commitments. The additional expenditures as of December 31, 2018 and the
expected year of payment are as follows (in thousands):
F- 48
Satellite
Construction
and Launch
Obligations
Satellite
Performance
Incentive
Obligations
Horizons-3
Satellite LLC
Contribution
Obligations (1)
Operating
Leases
Sublease
Rental Income
Customer and
Vendor
Contracts
Total
$
273,875
$
59,783
$
4,500
$
20,065
$
(826) $
140,577
$ 497,974
216,615
133,890
11,842
10,232
47,915
50,021
49,220
38,503
27,053
131,136
11,700
13,300
15,700
15,300
43,600
18,730
14,832
13,979
13,600
80,216
(745)
(535)
(372)
(78)
(150)
37,492
29,658
26,510
25,581
41,505
333,813
240,365
106,162
91,688
344,222
$
694,369
$
355,716
$
104,100
$
161,422
$
(2,706) $
301,323
$1,614,224
2019
2020
2021
2022
2023
2024 and thereafter
Total contractual
commitments
(1) See Note 10(b)—Investments—Horizons-3 Satellite LLC.
(a) Satellite Construction and Launch Obligations
As of December 31, 2018, we had approximately $694.4 million of expenditures remaining under our existing satellite
construction and launch contracts. Satellite launch and in-orbit insurance contracts related to future satellites to be launched are
cancelable up to thirty days prior to the satellite’s launch. As of December 31, 2018, we did not have any non-cancelable
commitments related to existing launch insurance or in-orbit insurance contracts for satellites to be launched.
The satellite construction contracts typically require that we make progress payments during the period of the satellites’
construction. The satellite construction contracts contain provisions that allow us to terminate the contracts with or without
cause. If terminated without cause, we would forfeit the progress payments and be subject to termination payments that escalate
with the passage of time. If terminated for cause, we would be entitled to recover any payments we made under the contracts
and certain liquidated damages as specified in the contracts.
(b) Satellite Performance Incentive Obligations
Satellite construction contracts also typically require that we make orbital incentive payments (plus interest as defined in
each agreement with the satellite manufacturer) over the orbital life of the satellite. The incentive obligations may be subject to
reduction or refund if the satellite fails to meet specific technical operating standards. As of December 31, 2018, we had $355.7
million of satellite performance incentive obligations, including future interest payments.
(c) Operating Leases
We have commitments for operating leases primarily relating to equipment and office facilities, including our U.S.
Administrative Headquarters in McLean, Virginia. As of December 31, 2018, the total obligation related to operating leases, net
of sublease income on leased facilities and rental income, was $158.7 million. Rental income and sublease income are included
in other expense, net in the accompanying consolidated statements of operations.
Total rent expense for the years ended December 31, 2016, 2017 and 2018, was $14.0 million, $14.8 million and $14.0
million, respectively.
(d) Customer and Vendor Contracts
We have contracts with certain customers that require us to provide equipment, services and other support during the term
of the related contracts. We also have long-term contractual obligations with service providers primarily for the operation of
certain of our satellites. As of December 31, 2018, we had commitments under these customer and vendor contracts which
totaled approximately $301.3 million related to the provision of equipment, services and other support.
Note 16 Contingencies
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.
F- 49
Note 17 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. Our revenues are disaggregated by billing region, service type and customer set. 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.
The following table disaggregates revenue by billing region (in thousands, except percentages):
North America
Europe
Latin America and
Caribbean
Africa and Middle East
Asia-Pacific
Total
Year Ended
December 31, 2016
$
1,077,886
300,003
49% $
14%
Year Ended
December 31, 2017
1,080,736
272,039
50% $
13%
Year Ended
December 31, 2018
1,112,774
257,747
51%
12%
325,933
286,258
197,967
2,188,047
$
15%
13%
9%
100% $
304,379
292,505
198,953
2,148,612
14%
14%
9%
100% $
284,948
274,853
230,868
2,161,190
13%
13%
11%
100%
Approximately 8%, 9% and 11% of our revenue was derived from our largest customer during each of the years ended
December 31, 2016, 2017 and 2018, respectively. Our ten largest customers accounted for approximately 31%, 34% and 37%
of our revenue for the years ended December 31, 2016, 2017 and 2018, respectively.
We earn revenue primarily by providing services to our customers using our satellite transponder capacity. Our customers
generally obtain satellite capacity from us by placing an order pursuant to one of several master customer service agreements.
On-network services are comprised primarily of services delivered on our owned network infrastructure, as well as
commitments for third-party capacity, generally long-term in nature, that we integrate and market as part of our owned
infrastructure. In the case of third-party services in support of government applications, the commitments for third-party
capacity are shorter and matched to the government contracting period, and thus remain classified as off-network services. Off-
network services can include transponder services and other satellite-based transmission services, such as mobile satellite
services (“MSS”), which are sourced from other operators, often in frequencies not available on our network. Under the
category Off-Network and Other Revenues, we also include revenues from consulting and other services.
The following table disaggregates revenue by type of service (in thousands, except percentages):
On-Network Revenues
Transponder services
Managed services
Channel
Total on-network revenues
Off-Network and Other Revenues
Transponder, MSS and other off-network
services
Satellite-related services
Total off-network and other revenues
Total
Year Ended
December 31, 2016
Year Ended
December 31, 2017
Year Ended
December 31, 2018
$ 1,561,108
414,758
9,134
1,985,000
157,212
45,835
203,047
$ 2,188,047
72% $ 1,543,384
412,147
19%
5,405
—%
91% 1,960,936
72% $ 1,570,278
393,264
19%
4,250
—%
91% 1,967,792
7%
2%
9%
141,845
45,831
187,676
100% $ 2,148,612
7%
2%
9%
150,186
43,212
193,398
100% $ 2,161,190
73%
18%
—%
91%
7%
2%
9%
100%
Our revenues for media, network services, government and satellite-related services were as follows: $937.7 million,
$798.1 million, $392.0 million, and $33.4 million, respectively for the year ended December 31, 2018; $910.1 million, $851.6
million, $352.6 million, and $34.3 million, respectively for the year ended December 31, 2017; and $868.1 million, $900.3
million, $387.1 million, and $32.5 million, respectively for the year ended December 31, 2016.
F- 50
Note 18 Related Party Transactions
(a) Shareholders’ Agreements
Certain shareholders of Intelsat Global S.A. entered into shareholders’ agreements on February 4, 2008. The
shareholders’ agreements were assigned to Intelsat S.A. by amendments effective as of March 30, 2012 in connection with our
initial public offering in April 2013, and then terminated in December 2018 and replaced by a new agreement. The shareholders
agreement provides, among other things, specific rights to and limitations upon the holders of Intelsat S.A.’s share capital with
respect to shares held by such holders.
(b) Governance Agreement
Prior to the consummation of the IPO, we entered into a governance agreement with our shareholder affiliated with BC
Partners (the “BC Shareholder”), our shareholder affiliated with Silver Lake (the “Silver Lake Shareholder”) and David
McGlade, our Non-Executive Chairman. This agreement was terminated in December 2018 and replaced with a new agreement
between the BC Shareholder and the Company, containing provisions relating to the composition of our board of directors and
certain other matters.
(c) Indemnification Agreements
We have entered into agreements with our executive officers and directors to provide contractual indemnification in
addition to the indemnification provided for in our articles of incorporation.
(d) Horizons Holdings
We have a 50% ownership interest in Horizons Holdings as a result of a joint venture with JSAT (see Note 10(a)—
Investments—Horizons Holdings).
(e) Horizons 3 Satellite LLC
We have a 50% ownership interest in Horizons 3 as a result of a joint venture with JSAT (see Note 10(b)—Investments—
Horizons-3 Satellite LLC).
(f) Additional BC Shareholder Share Purchase in June 2018
In connection with an offering of common shares by the Company completed in June 2018, the BC Shareholder
purchased an additional 2,021,563 shares of Intelsat S.A. at the public offering price of $14.84 per share for approximately
$30.0 million in the aggregate.
F- 51
Note 19 Quarterly Results of Operations (in thousands, unaudited)
Quarter Ended
March 31
June 30
533,229
228,245 (3)
(22,800)
(23,795)
September 30
538,759
$
233,165 (3)
(29,416) (4)
(30,412) (4)
December 31
$
538,140
232,944 (3)
(88,956)
(89,951)
2017
Revenue (1)
Income from operations (1)
Net loss
Net loss attributable to Intelsat S.A.
Net loss per share attributable to Intelsat S.A.:
Basic (2)
Diluted (2)
2018
Revenue (1)
Income from operations (1)
Net loss
Net loss attributable to Intelsat S.A.
Net loss per share attributable to Intelsat S.A.:
Basic (2)
Diluted (2)
$
$
$
$
538,484
216,727 (3)
(33,642) (4)
(34,570) (4)
(0.29)
(0.29)
March 31
543,782
234,472
(65,849)
(66,801)
(0.56)
(0.56)
$
$
$
$
(0.20)
(0.20)
$
(0.26)
(0.26)
$
(0.75)
(0.75)
Quarter Ended
June 30
537,714
237,755
(45,840) (5)
(46,828) (5)
September 30
$
536,922
237,269
(373,642) (5)
(374,631) (5)
December 31
542,771
$
232,374
(110,359) (5)
(111,346) (5)
(0.38)
(0.38)
$
(2.74)
(2.74)
$
(0.81)
(0.81)
(1) Our quarterly revenue and operating income (loss) are generally not impacted by seasonality, as customer contracts for
satellite utilization are generally long-term. Revenue increases are attributable to ASC 606 adjustments. Excluding the
impact of ASC 606 adjustments, revenue declines were primarily due to a decrease in revenue from our network
services customers, mainly due to declines for enterprise services, wireless infrastructure and point-to-point trunking
applications, as well as a decrease in revenue from media customers. These declines were partially offset by an increase
in revenue from our network services customers for maritime and mobility applications and an increase in revenue from
off-network and third party applications.
(2) Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum
of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.
(3) As a result of our adoption of ASU 2017-07 on January 1, 2018, the Company reclassified a net credit for pension and
postretirement benefits from operating expenses to other income for the quarters within 2017 to conform to the current
year quarters' presentation. See Note 7—Retirement Plan and Other Retiree Benefits for additional details on the impact
of the adoption of ASU 2017-07.
(4) The quarter ended March 31, 2017 includes a $0.5 million gain on early extinguishment of debt related to the Second
2018 Luxembourg Exchange described above. The quarter ended September 30, 2017 includes a $4.6 million loss on
early extinguishment of debt related to the July 2017 Intelsat Jackson Senior Notes Refinancing described above.
(5) The quarter ended June 30, 2018 includes a $22.1 million gain on early extinguishment of debt related to the repurchase
of the 2021 Luxembourg Notes. The quarter ended September 30, 2018 includes a $204.1 million loss on early
extinguishment of debt related to the 2023 ICF Notes and the 2024 Jackson Senior Unsecured Notes. The quarter ended
December 31, 2018 includes a $17.8 million loss on early extinguishment of debt related to the repurchase of the 2024
Jackson Senior Unsecured Notes and the redemption of 2021 Jackson Notes (see Note 12—Long-Term Debt).
F- 52
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Description
Year ended December 31, 2016:
Allowance for doubtful accounts
Year ended December 31, 2017:
Allowance for doubtful accounts
Year ended December 31, 2018:
Allowance for doubtful accounts
Balance at
Beginning
of
Period
Charged to
Costs and
Expenses
Deductions
Balance at
End of
Period
(in thousands)
$
$
$
37,178
54,744
29,669
$
$
$
24,591
$
(7,025) $
54,744
(4,094) $
(20,981) $
29,669
(836) $
(291) $
28,542
See accompanying notes to consolidated financial statements.
F- 53