INTELSAT, LTD. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands) Predecessor Successor Entity Entity --------------- -------------- Three Months Three Months Ended Ended September 30, September 30, 2004 2005 --------------- -------------- Revenue $ 266,247 293,599 Operating expenses: Direct costs of revenue (exclusive of depreciation and amortization shown separately below) 34,563 60,445 Selling, general and administrative 47,496 34,832 Depreciation and amortization 116,973 147,285 Restructuring costs 2,605 - --------------- -------------- Total operating expenses 201,637 242,562 --------------- -------------- Operating income from continuing operations 64,610 51,037 Interest expense 37,824 102,897 Interest income 894 2,853 Other income (expense), net (911) (3,098) --------------- -------------- Income (loss) from continuing operations before income taxes 26,769 (52,105) Provision for income taxes 16,055 2,405 --------------- -------------- Income (loss) from continuing operations 10,714 (54,510) Loss from discontinued operations, net of minority interest (27,794) - --------------- -------------- Net loss $ (17,080) $ (54,510) =============== ============== INTELSAT, LTD. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RECONCILIATION TO COMBINED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands) Successor Predecessor Entity Entity Combined ---------------------- ---------- ----------- Nine Period Period Nine Months January 1 February 1 Months Ended to to Ended September January 31, September September 30, 2004 2005 30, 2005 30, 2005 ---------- ---------- ---------- ----------- Revenue $ 760,538 $ 97,917 $ 778,680 876,597 Operating expenses: Direct costs of revenue (exclusive of depreciation and amortization shown separately below) 114,237 26,939 164,280 191,219 Selling, general and administrative 112,759 55,443 96,395 151,838 Depreciation and amortization 336,256 39,184 387,082 426,266 Impairment of asset value - 69,227 - 69,227 Restructuring costs 5,002 263 - 263 ---------- ---------- ---------- ----------- Total operating expenses 568,254 191,056 647,757 838,813 ---------- ---------- ---------- ----------- Operating (loss) income from continuing operations 192,284 (93,139) 130,923 37,784 Interest expense 111,476 13,241 270,335 283,576 Interest income 4,177 191 6,160 6,351 Other income (expense), net (1,886) 863 (3,775) (2,912) ---------- ---------- ---------- ----------- Income (loss) from continuing operations before income taxes 83,099 (105,326) (137,027) (242,353) Provision for income taxes 27,111 4,400 12,817 17,217 ---------- ---------- ---------- ----------- Income (loss) from continuing operations 55,988 (109,726) (149,844) (259,570) Loss from discontinued operations, net of minority interest (37,809) - - - ---------- ---------- ---------- ----------- Net income (loss) $ 18,179 $ (109,726) $ (149,844) $ (259,570) ========== ========== ========== =========== INTELSAT, LTD. RECONCILIATION OF NET INCOME (LOSS) TO EBITDA (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 2004 2005 2004 2005 ---------- ---------- ---------- ---------- Net income (loss) $ (17,080) $ (54,510) $ 18,179 $ (259,570) Add: Interest expense 37,824 102,897 111,476 283,576 Provision for income taxes 16,055 2,405 27,111 17,217 Depreciation and amortization 116,973 147,285 336,256 426,266 Subtract: Interest income 894 2,853 4,177 6,351 ---------- ---------- ---------- ---------- EBITDA $ 152,878 $ 195,224 $ 488,845 $ 461,138 ========== ========== ========== ========== EBITDA margin 57.4% 66.5% 64.3% 52.6% Note: EBITDA consists of earnings before interest, taxes and depreciation and amortization. EBITDA is a measure commonly used in the fixed satellite services sector, and Intelsat presents EBITDA to enhance your understanding of its operating performance. EBITDA margin is defined as EBITDA divided by total revenues. Intelsat uses EBITDA as one criterion for evaluating its performance relative to that of its peers. Intelsat believes 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 GAAP, and our EBITDA may not be comparable to similarly titled measures of other companies. You should not consider EBITDA or EBITDA margin as an alternative to operating or net income or operating or net income margin, determined in accordance with GAAP, as an indicator of Intelsat's operating performance, or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows, or as a measure of liquidity. INTELSAT, LTD. RECONCILIATION OF EBITDA TO COVENANT EBITDA (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 2004 2005 2004 2005 ---------- ---------- ---------- ---------- EBITDA $ 152,878 $ 195,224 $ 488,845 $ 461,138 Add (Subtract): Satellite Impairment - - - 69,227 Intelsat Americas pro forma - - 22,027 - COMSAT General pro forma 6,150 - 18,450 - Compensation & benefits adjustments 8,270 2,939 12,608 17,643 Restructuring costs 2,605 - 5,002 263 Transaction - related expenses 4,181 3,407 4,181 55,836 Equity investment losses 1,169 3,606 2,987 7,526 Loss from discontinued operations 27,794 - 37,809 - Non-recurring and unusual gains/losses 4,150 2,009 12,198 7,578 Non-cash income - (861) - (2,296) ---------- ---------- ---------- ---------- Covenant EBITDA $ 207,197 $ 206,324 $ 604,107 $ 616,915 ========== ========== ========== ========== Note: Intelsat calculates a measure of EBITDA, called "covenant EBITDA," based on the term Consolidated EBITDA, as defined in its credit agreement dated January 28, 2005. Covenant EBITDA consists of EBITDA as adjusted to exclude certain unusual items, certain other operating expense items and other adjustments permitted in calculating covenant compliance under our credit agreement. Covenant EBITDA is presented on a pro forma basis, as if the Company's March 2004 acquisition of the Intelsat Americas assets and October 2004 acquisition of the COMSAT General business had occurred as of January 1, 2004. Covenant EBITDA as presented above is calculated for Intelsat, Ltd. and its subsidiaries. Consolidated EBITDA is a material component of certain covenant ratios in our credit agreement that apply to Intelsat Subsidiary Holding Company Ltd. ("Intelsat Sub Holdco") and its subsidiaries, such as the consolidated interest coverage ratio, senior secured leverage ratio and total leverage ratio. For credit agreement purposes, consolidated EBITDA is calculated only with respect to Intelsat Sub Holdco and its subsidiaries. Covenant EBITDA as presented above includes employee expenses and benefits costs, office expenses, board of directors expenses, intercompany charges and other administrative expenses incurred by Intelsat, Ltd. and Intelsat (Bermuda), Ltd. ("Intelsat Bermuda"). These Intelsat Ltd. and Intelsat Bermuda expenses are not included in a calculation of consolidated EBITDA for Intelsat Sub Holdco and its subsidiaries. Similar measures to covenant EBITDA are also used to test the permissibility of transactions in the covenants related to our senior notes and senior discount notes. However, covenant EBITDA is not a measure of financial performance under GAAP, and our covenant EBITDA may not be comparable to similarly titled measures of other companies. You should not consider covenant EBITDA as an alternative to operating or net income, determined in accordance with GAAP, as an indicator of Intelsat's operating performance, or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows, or as a measure of liquidity. INTELSAT, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS ($ in thousands, except share and per share amounts) Predecessor Successor Entity Entity ----------- ----------- As of As of December September 31, 2004 30, 2005 ---------- ---------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 141,320 $ 407,644 Receivables, net of allowance of $35,343 and $26,624, respectively 228,294 233,620 Insurance receivable 58,320 - Deferred income taxes 12,854 10,656 ---------- ---------- Total current assets 440,788 651,920 Satellites and other property and equipment, net 3,637,357 3,453,048 Amortizable intangible assets, net 104,612 512,788 Non-amortizable intangibles assets 255,002 560,000 Goodwill 130,829 122,653 Investment in affiliate 52,246 44,720 Other assets 173,422 174,694 ---------- ---------- Total assets $4,794,256 $5,519,823 ========== ========== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Current portion of long-term debt $ 200,000 3,500 Accounts payable and accrued liabilities 246,474 315,131 Deferred satellite performance incentives 7,968 7,336 Deferred revenue 39,566 28,255 Capital lease obligations 5,569 5,741 ---------- ---------- Total current liabilities 499,577 359,963 Long-term debt, net of current portion 1,742,566 4,777,939 Deferred satellite performance incentives, net of current portion 48,806 41,441 Deferred revenue, net of current portion 123,992 158,118 Accrued retirement benefits 56,016 108,459 Other long-term liabilities 17,478 15,972 ---------- ---------- Total long-term liabilities 2,488,435 5,461,892 ---------- ---------- Commitments and contingencies Shareholder's equity Preference shares, $3.00 par value, 2,500,000 shares authorized, no shares issued or outstanding - - Ordinary shares, $3.00 par value, 216,666,666 2/3 shares authorized, 167,261,024 shares issued and 160,382,120 shares outstanding as of December 31, 2004 500,000 - Common stock, $1.00 par value, 12,000 shares authorized, issued and outstanding - 12 Contributed capital - 207,833 Paid-in capital 1,301,886 - Retained earnings (deficit) 610,520 (149,844) Accumulated other comprehensive (loss) income: Minimum pension liability, net of tax (1,367) - Unrealized gain (loss) on available- for-sale securities, net of tax 1,600 (70) Ordinary shares purchased by subsidiary, 6,284,635 shares (106,818) - ---------- ---------- Total shareholders' equity 2,305,821 57,931 ---------- ---------- Total liabilities and shareholders' equity $4,794,256 $5,519,823 ========== ========== INTELSAT, LTD. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND RECONCILIATION TO COMBINED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands) Predecessor Successor Entity Entity ----------- ----------- Three Three Months Months Ended Ended September September 30, 2004 30, 2005 ---------- ---------- Cash flows from operating activities: Net income (loss) $ (17,080) $ (54,510) Loss from discontinued operations, net of minority interest 27,794 - ---------- ---------- Income from continuing operations $ 10,714 $ (54,510) Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 116,973 147,284 Impairment charge for IS-804 satellite - - Provision for doubtful accounts 2,651 1,091 Foreign currency transaction loss (157) (124) Deferred income taxes - - Amortization of bond discount and issuance costs 572 16,782 Equity in losses of affiliate 1,169 3,606 Net gain from curtailment of benefit plans - - Changes in operating assets and liabilities, net of effects of acquisitions: Receivables (6,166) (8,707) Other assets 5,512 (4,663) Accounts payable and accrued liabilities 36,979 (13,004) Deferred revenue 78,364 (2,832) Accrued retirement benefits 2,050 634 Other long-term liabilities - (517) ---------- ---------- Net cash provided by operating activities 248,661 85,040 ---------- ---------- Cash flows from investing activities: Payments for satellites and other property and equipment (30,661) (31,817) Payment for rights to orbital location - - Proceeds from insurance receivable - - Payments for asset acquisitions - - Other - - ---------- ---------- Net cash used in investing activities (30,661) (31,817) ---------- ---------- Cash flows from financing activities: Repayment of long-term debt (200,000) (875) Principal payments on deferred satellite performance incentives (2,002) (1,376) Principal payments on capital lease obligations (130) (3,626) Dividend to shareholder - - ---------- ---------- Net cash provided by (used in) financing activities (202,132) (5,877) ---------- ---------- Effect of exchange rate changes on cash 157 124 Effect of discontinued operations on cash 1,287 - ---------- ---------- Net change in cash and cash equivalents 17,312 47,470 Cash and cash equivalents, beginning of period 379,440 360,174 ---------- ---------- Cash and cash equivalents, end of period $ 396,752 $ 407,644 ---------- ---------- INTELSAT, LTD. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND RECONCILIATION TO COMBINED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands) Successor Predecessor Entity Entity Combined ---------------------- ---------- ----------- Nine Period Nine Months Period February 1 Months Ended January 1 to Ended September to January September September 30, 2004 31, 2005 30, 2005 30, 2005 ---------- ---------- ---------- ---------- Cash flows from operating activities: Net income (loss) $ 18,179 $ (109,726) $ (149,844) $ (259,570) Loss from discontinued operations, net of minority interest 37,809 - - - ---------- ---------- ---------- ---------- Income from continuing operations $ 55,988 $ (109,726) $ (149,844) $ (259,570) Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 336,256 39,184 387,082 426,266 Impairment charge for IS-804 satellite - 69,227 - 69,227 Provision for doubtful accounts 8,517 (5,799) (676) (6,475) Foreign currency transaction loss 612 75 (565) (490) Deferred income taxes - 2,375 (134) 2,241 Amortization of bond discount and issuance costs 3,336 430 42,848 43,278 Equity in losses of affiliate 2,987 402 7,124 7,526 Net gain from curtailment of benefit plans - - - - Changes in operating assets and liabilities, net of effects of acquisitions: - - Receivables (12,484) (32,168) 22,806 (9,362) Other assets 6,802 3,194 (7,474) (4,280) Accounts payable and accrued liabilities 53,280 49,932 44,275 94,207 Deferred revenue 70,077 (2,388) (25,009) (27,397) Accrued retirement benefits 5,702 (27) 3,045 3,018 Other long-term liabilities - (3,327) (3,179) (6,506) ---------- ---------- ---------- ---------- Net cash provided by operating activities 531,073 11,384 320,299 331,683 ---------- ---------- ---------- ---------- Cash flows from investing activities: Payments for satellites and other property and equipment (264,473) (953) (115,594) (116,547) Payments for future satellite (50,000) - - - Payment for rights to orbital location (32,000) - - - Increase in restricted cash 700,000 - - - Proceeds from insurance receivable 141,000 38,561 19,759 58,320 Payments for asset acquisitions (965,063) - - - Other (8,166) - - - ---------- ---------- ---------- ---------- Net cash used in investing activities (478,702) 37,608 (95,835) (58,227) ---------- ---------- ---------- ---------- Cash flows from financing activities: Repayment of long-term debt (400,000) - (202,625) (202,625) Proceeds (repayment of) from bond issuance, net - - 305,348 305,348 Proceeds from credit facility borrowings 200,000 - 200,000 200,000 Debt issuance costs (4,000) - - - Principal payments on deferred satellite performance incentives (4,152) (475) (3,384) (3,859) Principal payments on capital lease obligations (3,251) - (5,493) (5,493) Dividend to shareholder - - (305,913) (305,913) ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities (211,403) (475) (12,067) (12,542) ---------- ---------- ---------- ---------- Effect of exchange rate changes on cash (612) (75) 565 490 Effect of discontinued operations on cash (20,397) - - - ---------- ---------- ---------- ---------- Net change in cash and cash equivalents (180,041) 48,442 212,962 $ 261,404 Cash and cash equivalents, beginning of period 576,793 141,320 189,762 141,320 Cash contribution from Intelsat Holdings, Ltd - - 4,920 4,920 ---------- ---------- ---------- ---------- Cash and cash equivalents, end of period $ 396,752 $ 189,762 $ 407,644 $ 407,644 ---------- ---------- ---------- ---------- Note: The increase in cash between the predecessor entity ending balance and the successor entity opening balance is due to the retention by Intelsat, Ltd. of approximately $5 million in acquisition financing proceeds. INTELSAT, LTD. AND SUBSIDIARIES RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW FROM OPERATIONS Nine Months Ended Three Months Ended September 30, September 30, ---------------------- ----------------------- 2004 2005 2004 2005 ($ in thousands) ($ in thousands) Net cash provided by operating activities $ 531,073 $ 331,683 $ 248,661 $ 85,040 Payments for satellites and other property and equipment (264,473) (116,547) (30,661) (31,817) Payment for deposit on future satellite (50,000) - - - ---------- ---------- ---------- ---------- Free cash flow from operations $ 216,600 $ 215,136 $ 218,000 $ 53,223 ========== ========== ========== ========== Note: Free cash flow from operations consists of net cash provided by operating activities, less payments for satellites and other property and equipment and payment for deposit on future satellite. Free cash flow from operations is not a measure of cash flow under GAAP. Intelsat believes free cash flow from operations is a useful measure of financial performance that shows a company's ability to fund its operations. Free cash flow from operations is used by Intelsat in comparing its performance to that of its peers and is commonly used by analysts, investors and other readers of financial information in assessing performance. Free cash flow from operations does not give effect to cash used in connection with investing activities, cash used for debt service requirements or other uses of cash in respect of financing activities, and thus does not reflect funds available for investment or other discretionary uses. Free cash flow from operations as presented herein may not be comparable to similarly titled measures of other companies.