NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2020
Note 1 General
Basis of Presentation
The accompanying condensed consolidated financial statements of Intelsat S.A. and its subsidiaries (“Intelsat S.A.,” “we,” “us,” “our” or the “Company”) have not been audited, but are prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. References to U.S. GAAP issued by the Financial Accounting Standards Board (“FASB”) in these footnotes are to the FASB Accounting Standards Codification (“ASC”). The unaudited condensed consolidated financial statements include all adjustments (consisting only of normal and recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of these financial statements. The results of operations for the periods presented are not necessarily indicative of operating results for the full year or for any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, on file with the U.S. Securities and Exchange Commission ("SEC").
Use of Estimates
The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of these condensed consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods, and the disclosures of contingent liabilities. Accordingly, ultimate results could differ from those estimates.
Bankruptcy Accounting
Our condensed consolidated financial statements included herein have been prepared as if we are a going concern and reflect the application of ASC 852, Reorganizations (“ASC 852”). ASC 852 requires the financial statements, for periods subsequent to the commencement of the Chapter 11 proceedings, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, we classify liabilities and obligations whose treatment and satisfaction are dependent on the outcome of the reorganization under the Chapter 11 proceedings as liabilities subject to compromise on our condensed consolidated balance sheets. In addition, we classify all income, expenses, gains or losses that are incurred or realized as a result of the Chapter 11 proceedings as reorganization items in our condensed consolidated statements of operations. See Note 2—Chapter 11 Proceedings, Ability to Continue as a Going Concern and Other Related Matters.
Impact of COVID-19 on the Company
As a result of the novel coronavirus (“COVID-19”) pandemic, in the first and second quarters of 2020, in an effort to safeguard public health, governments around the world, including United States (“U.S.”) federal, state and local governments, implemented a number of orders and restrictions on travel and businesses, among other things. Some of these measures remain in effect and have negatively impacted the U.S. and other economies around the world in the short-term, while the long-term economic impact of COVID-19 remains unknown.
The COVID-19 pandemic has had an adverse impact on our business, results of operations and financial condition, a trend we expect to continue. Among the impacts of the COVID-19 pandemic were a reduction of revenue and a decreased likelihood of collection from certain mobility customers. We continue to closely monitor the ongoing impact on our employees, customers, business and results of operations.
Cash and Cash Equivalents and Restricted Cash
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. Restricted cash represents legally restricted amounts being held as a compensating balance for certain outstanding letters of credit.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our condensed consolidated balance sheets to the total sum of these amounts reported in our condensed consolidated statements of cash flows (in thousands):
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|
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|
|
|
|
As of
December 31, 2019
|
|
As of
June 30, 2020
|
|
Cash and cash equivalents
|
|
$
|
810,626
|
|
|
$
|
1,091,758
|
|
|
Restricted cash
|
|
20,238
|
|
|
19,227
|
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
830,864
|
|
|
$
|
1,110,985
|
|
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), 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. We adopted ASU 2016-13 and its amendments in the first quarter of 2020, on a modified retrospective basis. The adoption of ASU 2016-13 and its amendments increased our reserve for credit losses by $0.9 million as of January 1, 2020.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), 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. We adopted ASU 2017-04 in the first quarter of 2020, on a prospective basis. As a result, we will measure impairment using the difference between the carrying amount and the fair value of the reporting unit, if required. In the first quarter of 2020, we conducted a goodwill impairment analysis and determined the fair value of our reporting unit to be greater than its carrying value, resulting in no impairment of goodwill. See Note 10—Goodwill and Other Intangible Assets for further information.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), as part of its disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements. 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 were applied prospectively for only the most recent interim period presented. All other amendments were applied retrospectively for all periods presented. ASU 2018-13 and its amendments were adopted by the Company in the first quarter of 2020.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)—Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”), 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. ASU 2018-14 will be effective for the Company for annual periods in fiscal years ending after December 15, 2020, on a retrospective basis to all periods presented. We are in the process of evaluating the impact that ASU 2018-14 will have on our condensed consolidated financial statements and associated disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting For Income Taxes (“ASU 2019-12”). The standard removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 will be effective for the Company for annual periods in fiscal years ending after December 15, 2020. We are in the process of evaluating the impact that ASU 2019-12 will have on our condensed consolidated financial statements and associated disclosures.
Note 2 Chapter 11 Proceedings, Ability to Continue as a Going Concern and Other Related Matters
Voluntary Reorganization under Chapter 11
On May 13, 2020, Intelsat S.A. and certain of its subsidiaries (each, a “Debtor” and collectively, the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) under title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”). Primary factors causing us to file for Chapter 11 protection included the Company’s intention to participate in the accelerated clearing process of C-band spectrum set forth in the U.S. Federal Communications Commission’s (“FCC”) March 3, 2020 final order (the “FCC Final Order”), requiring the Company to incur significant costs related to clearing activities well in advance of receiving reimbursement for such costs and the need for additional financing to fund the C-band clearing process, service our current debt obligations, and meet our operating requirements, as well as the economic slowdown impacting the Company and several of its end markets due to the COVID-19 pandemic. On May 26, 2020, the Company filed a written commitment with the FCC to accelerate clearing of the C-band spectrum in the U.S., and on June 19, 2020, the Company filed its initial C-band spectrum transition plan with the FCC.
The Chapter 11 process can be unpredictable and involves significant risks and uncertainties. Pursuant to various orders from the Bankruptcy Court, the Debtors have received approval from the Bankruptcy Court to generally maintain their ordinary operations and uphold certain commitments to their stakeholders, including employees, customers, and vendors, during the restructuring process, subject to the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. Our ability to fund operating expenses may be subject to obtaining further approvals from the Bankruptcy Court in connection with the Chapter 11 Cases.
On June 9, 2020, Intelsat Jackson received approval from the Bankruptcy Court (the “DIP Order”) to enter into a non-amortizing multiple draw superpriority secured debtor-in-possession term loan facility (the “DIP Facility”), in an aggregate principal amount of $1.0 billion on the terms and conditions as set forth in the DIP Facility credit agreement (the “DIP Credit Agreement”) with certain of the Debtors’ prepetition secured parties (the “DIP Lenders”), and on June 17, 2020, Intelsat Jackson and certain of its subsidiaries as guarantors (together with Intelsat Jackson, the “DIP Debtors”) entered into the DIP Credit Agreement with the DIP Lenders. For additional information regarding the DIP Facility and DIP Credit Agreement, see Note 11—Debt.
On July 11, 2020, the Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith. These schedules and statements may be subject to further amendment or modification after filing.
The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our obligations under the documents governing the prepetition existing indebtedness of Intelsat S.A., Intelsat Luxembourg, Intelsat Connect and Intelsat Jackson. For additional discussion regarding the impact of the Chapter 11 Cases on our debt obligations, see Note 11—Debt.
While the Chapter 11 Cases are pending, the Debtors do not anticipate making interest payments due under their respective unsecured debt instruments; however, the Debtors expect to make monthly interest payments on their senior secured debt instruments pursuant to the adequate protection requirements under the DIP Order. For each of the three and six months ended June 30, 2020, the contractual interest expense pursuant to our unsecured debt instruments that was not recognized in our condensed consolidated statements of operations was $102.5 million.
In order for the Debtors to emerge successfully from Chapter 11, the Debtors must obtain the required votes of creditors accepting a plan of reorganization as well as the Bankruptcy Court’s confirmation of such plan. A reorganization plan determines the rights and satisfaction of claims of various creditors and security holders and is subject to the ultimate outcome of negotiations and Bankruptcy Court decisions ongoing through the date on which it is confirmed.
Notice of Delisting
On May 20, 2020, the New York Stock Exchange (“NYSE”) filed a Form 25 with the SEC to delist the Company’s common shares, $0.01 par value from the NYSE. The delisting became effective 10 days after the Form 25 was filed. The deregistration of the common shares under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) will become effective 90 days after the filing date of the Form 25, at which point the common shares will be deemed registered under Section 12(g) of the Exchange Act. The Company’s common shares began trading on the OTC Pink Marketplace on May 19, 2020 under the symbol “INTEQ.”
Liabilities Subject to Compromise
Prepetition unsecured liabilities of the Debtors subject to compromise under the Chapter 11 proceedings have been distinguished from secured liabilities that are not expected to be compromised and post-petition liabilities in our condensed consolidated balance sheets. Liabilities subject to compromise have been recorded at the amounts expected to be allowed by the Bankruptcy Court. The ultimate settlement amounts of these liabilities remain at the discretion of the Bankruptcy Court and may vary from the expected allowed amounts.
Liabilities subject to compromise consisted of the following (in thousands):
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|
|
As of
June 30, 2020
|
|
Accounts payable
|
$
|
10,876
|
|
|
Debt subject to comprise
|
9,782,161
|
|
|
Accrued interest on debt subject to compromise
|
341,676
|
|
|
Other long-term liabilities subject to compromise
|
38,133
|
|
|
Total liabilities subject to compromise
|
$
|
10,172,846
|
|
Reorganization Items
The income, expenses, gains and losses directly and incrementally resulting from the Chapter 11 Cases are separately reported as reorganization items in our condensed consolidated statements of operations.
Reorganization items consisted of the following (in thousands):
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|
|
|
|
Three Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2020
|
|
Adjustment of debt discount, premium and issuance costs
|
$
|
196,974
|
|
|
$
|
196,974
|
|
|
Debtor-in-possession financing fees
|
52,182
|
|
|
52,182
|
|
|
Professional fees
|
48,971
|
|
|
48,971
|
|
|
Other reorganization costs
|
564
|
|
|
564
|
|
|
Total reorganization items
|
$
|
298,691
|
|
|
$
|
298,691
|
|
Going Concern
Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the normal course of business. In connection with the preparation of our condensed consolidated financial statements, we conducted an evaluation as to whether there were conditions and events, considered in the aggregate, that raised substantial doubt as to the Company’s ability to continue as a going concern. As reflected in our condensed consolidated financial statements, the Company had cash and cash equivalents of $1.1 billion and an accumulated deficit of $8.1 billion as of June 30, 2020. The Company generated income from operations of $212.1 million and a net loss of $622.9 million for the six months ended June 30, 2020.
In light of the Company’s Chapter 11 proceedings, our ability to continue as a going concern is contingent upon, among other things, our ability to, subject to the Bankruptcy Court’s approval, implement a business plan of reorganization, emerge from the Chapter 11 proceedings and generate sufficient liquidity following the reorganization to meet our contractual obligations and operating needs. As a result of risks and uncertainties related to, among other things, (i) the Company’s ability to obtain requisite support for the business plan of reorganization from various stakeholders, and (ii) the disruptive effects of the Chapter 11 proceedings on our business making it potentially more difficult to maintain business, financing and operational relationships, substantial doubt exists regarding our ability to continue as a going concern.
The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our obligations under the documents governing the prepetition existing indebtedness of Intelsat S.A., Intelsat Luxembourg, Intelsat Connect and Intelsat Jackson. As such, we have reclassified all such debt obligations, other than debt subject to compromise, to current portion of long-term debt on our condensed consolidated balance sheet as of June 30, 2020. For additional discussion regarding the impact of the Chapter 11 Cases on our debt obligations, see Note 11—Debt.
Our condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Note 3 Share Capital
Under our Articles of Incorporation, we have an authorized share capital of $10.0 million, represented by 1.0 billion shares of any class with a nominal value of $0.01 per share. At June 30, 2020, there were approximately 142.1 million common shares issued and outstanding.
Note 4 Revenue
(a) Revenue Recognition
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.
For each service type, the price per unit in our contracts is generally fixed for each defined time period. While the number of units or price per unit in our multi-year contracts may be different by year or another time period, the number of units and price per unit are fixed for each defined time period and the total contract price is fixed. 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 service period, the Company provides services that are able to be used continuously, and the customer simultaneously receives and consumes the benefits provided by the Company. We believe that, given that our services are stand-ready obligations that are available continuously, the passage of time most faithfully reflects our satisfaction of the performance obligation. We also have certain obligations, including providing spare or substitute capacity if available, in the event of satellite service failure under certain long-term agreements. While we are generally not obligated to refund satellite utilization payments previously made, credits may be granted for sustained service outages in certain limited circumstances.
Similar to satellite utilization charges, we have determined that the customer simultaneously receives and consumes benefits provided by the Company for satellite related consulting and technical services, tracking, telemetry and commanding services (“TT&C”) and in-orbit backup services, as detailed below. Therefore, similar to satellite utilization charges, we believe that the passage of time most faithfully reflects our satisfaction of the performance obligation for these services:
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.
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 backup 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 of time 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 fifteen 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 three months ended June 30, 2019 and 2020, we recognized revenue of $55.3 million and $51.6 million, respectively, and for the six months ended June 30, 2019 and 2020, we recognized revenue of $145.5 million and $137.7 million, respectively, that were included in the contract liability balances as of January 1, 2019 and 2020, respectively. In addition, the total amount of consideration included in contract assets as of January 1, 2019 and 2020 that became unconditional for the six months ended June 30, 2019 and 2020 was $9.1 million and $15.1 million, respectively.
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 $2.0 million and $1.3 million for our sales incentive program and amortized $1.7 million and $1.1 million for the three months ended June 30, 2019 and 2020, respectively, and we capitalized $4.0 million and $2.4 million for our sales incentive program and amortized $3.5 million and $2.7 million for the six months ended June 30, 2019 and 2020, respectively. As of December 31, 2019 and June 30, 2020, capitalized costs relating to our sales incentive program were $9.4 million and $9.1 million, respectively, which were included within other assets in our condensed consolidated balance sheets.
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 (such as the 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.
While most satellite utilization contracts contain multiple performance obligations for each transponder service on different satellites, the service period for the different satellite utilization performance obligations is generally the same time period. In the event that the time period for multiple performance obligations is not the same, 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. These arrangements include instances where we procure equipment from vendors and sell to third-party customers, when we enter into revenue sharing arrangements with other parties and when we purchase 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. Our third-party capacity arrangements (off-network) are more significant and, in determining whether we are the principal or the agent in these arrangements, we consider whether or not we control the service before it is transferred to the customer. In this determination, we consider the definition of control as set forth in ASC 606, Revenue from Contracts with Customers (“ASC 606”), in ASC 606-10-25-25. When we purchase satellite transponder capacity from a third party, we have the ability to direct the use of and obtain substantially all of the remaining benefits from the purchased capacity. We obtain the right to the service to be performed by the third party, which gives the Company the ability to direct that party to provide the service to the customer on the Company’s behalf. No other third party can direct the use of or obtain any benefits from the capacity.
We also considered the factors in ASC 606-10-55-39 in the Company’s determination of control. In the vast majority of cases, when we resell capacity to third party customers, we are primarily responsible for the fulfillment of the services and acceptability of the service. Additionally, the Company has full discretion in establishing the pricing for transponder services with the customer and assumes the credit risk associated with capacity purchased from the third party. In the event the service is not acceptable to the customer, we are required to identify an alternative solution. Based on these considerations, we have concluded that we are the principal in the transaction for these arrangements. When these factors are not met, the Company recognizes revenue for third-party capacity arrangements on a net basis.
Judgment is required in determining whether we are the principal or the agent in transactions involving third parties.
Remaining Performance Obligations
Our remaining performance obligation is our expected future revenue under our existing customer contracts and includes both cancelable and non-cancelable contracts. Our remaining performance obligation was approximately $6.3 billion as of June 30, 2020, approximately 92% of which related to contracts that were non-cancelable and approximately 8% of which 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 June 30, 2020, the weighted average remaining customer contract life was approximately 4.1 years. Approximately 32%, 26%, and 42% of our total remaining performance obligation as of June 30, 2020 is expected to be recognized as revenue during 2020 and 2021, 2022 and 2023, and 2024 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.
(b) 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 U.S.
The following table disaggregates revenue by billing region (in thousands, except percentages):
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Three Months Ended
June 30, 2019
|
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|
|
Three Months Ended
June 30, 2020
|
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|
Six Months Ended
June 30, 2019
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|
Six Months Ended
June 30, 2020
|
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|
North America
|
$
|
264,643
|
|
|
52
|
%
|
|
$
|
257,479
|
|
|
53
|
%
|
|
$
|
533,013
|
|
|
51
|
%
|
|
$
|
492,483
|
|
|
52
|
%
|
|
Europe
|
64,513
|
|
|
13
|
%
|
|
52,846
|
|
|
11
|
%
|
|
125,789
|
|
|
12
|
%
|
|
106,784
|
|
|
11
|
%
|
|
Latin America and Caribbean
|
60,866
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|
|
12
|
%
|
|
54,007
|
|
|
11
|
%
|
|
126,343
|
|
|
12
|
%
|
|
105,482
|
|
|
11
|
%
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|
Africa and Middle East
|
61,686
|
|
|
12
|
%
|
|
58,900
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|
|
12
|
%
|
|
124,106
|
|
|
12
|
%
|
|
120,803
|
|
|
13
|
%
|
|
Asia-Pacific
|
57,699
|
|
|
11
|
%
|
|
58,802
|
|
|
12
|
%
|
|
128,605
|
|
|
12
|
%
|
|
115,302
|
|
|
12
|
%
|
|
Total
|
$
|
509,407
|
|
|
|
|
$
|
482,034
|
|
|
|
|
$
|
1,037,856
|
|
|
|
|
$
|
940,854
|
|
|
|
The following table disaggregates revenue by type of service (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
|
|
Three Months Ended
June 30, 2020
|
|
|
|
Six Months Ended
June 30, 2019
|
|
|
|
Six Months Ended
June 30, 2020
|
|
|
|
On-Network Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transponder services
|
$
|
369,586
|
|
|
73
|
%
|
|
$
|
343,599
|
|
|
71
|
%
|
|
$
|
746,870
|
|
|
72
|
%
|
|
$
|
674,934
|
|
|
72
|
%
|
|
Managed services
|
91,335
|
|
|
18
|
%
|
|
85,050
|
|
|
18
|
%
|
|
184,536
|
|
|
18
|
%
|
|
157,311
|
|
|
17
|
%
|
|
Channel
|
585
|
|
|
—
|
%
|
|
391
|
|
|
—
|
%
|
|
1,276
|
|
|
—
|
%
|
|
816
|
|
|
—
|
%
|
|
Total on-network revenues
|
461,506
|
|
|
91
|
%
|
|
429,040
|
|
|
89
|
%
|
|
932,682
|
|
|
90
|
%
|
|
833,061
|
|
|
89
|
%
|
|
Off-Network and Other Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transponder, MSS and other off-network services
|
37,717
|
|
|
7
|
%
|
|
43,617
|
|
|
9
|
%
|
|
87,575
|
|
|
8
|
%
|
|
87,305
|
|
|
9
|
%
|
|
Satellite-related services
|
10,184
|
|
|
2
|
%
|
|
9,377
|
|
|
2
|
%
|
|
17,599
|
|
|
2
|
%
|
|
20,488
|
|
|
2
|
%
|
|
Total off-network and other revenues
|
47,901
|
|
|
9
|
%
|
|
52,994
|
|
|
11
|
%
|
|
105,174
|
|
|
10
|
%
|
|
107,793
|
|
|
11
|
%
|
|
Total
|
$
|
509,407
|
|
|
|
|
$
|
482,034
|
|
|
|
|
$
|
1,037,856
|
|
|
|
|
$
|
940,854
|
|
|
|
By customer application, our revenues from network services, media, government and satellite-related services were $185.2 million, $223.5 million, $93.3 million and $7.5 million, respectively, for the three months ended June 30, 2019, as compared to $176.7 million, $202.5 million, $96.1 million and $6.7 million, respectively, for the three months ended June 30, 2020. Revenues from network services, media, government and satellite-related services were $389.4 million, $449.5 million, $186.5 million and $12.4 million, respectively, for the six months ended June 30, 2019, as compared to $326.1 million, $408.4 million, $191.9 million and $14.5 million, respectively, for the six months ended June 30, 2020.
Our largest customer accounted for approximately 14% of our revenue during each of the three months ended June 30, 2019 and 2020, and 14% and 15% during the six months ended June 30, 2019 and 2020, respectively. Our ten largest customers accounted for approximately 40% and 42% of our revenue during the three months ended June 30, 2019 and 2020, respectively, and 40% during each of the six months ended June 30, 2019 and 2020.
Note 5 Net Loss per Share
Basic net loss per common share attributable to Intelsat S.A. (“EPS”) is computed by dividing net loss attributable to Intelsat S.A.’s common shareholders by the weighted average number of common shares outstanding during the periods. Diluted EPS assumes the issuance of common shares pursuant to share-based compensation plans and conversion of the Intelsat S.A. 4.5% Convertible Senior Notes due 2025 (the "2025 Convertible Notes"), unless the effect of such issuances would be anti-dilutive.
The following table sets forth the computation of basic and diluted EPS (in thousands, except per share data or where otherwise noted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
Three Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss attributable to Intelsat S.A.
|
$
|
(529,722)
|
|
|
$
|
(405,355)
|
|
|
$
|
(650,344)
|
|
|
$
|
(624,126)
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding (in millions)
|
140.7
|
|
|
142.1
|
|
|
139.8
|
|
|
141.8
|
|
|
Diluted weighted average shares outstanding (in millions):
|
140.7
|
|
|
142.1
|
|
|
139.8
|
|
|
141.8
|
|
|
Basic EPS
|
$
|
(3.76)
|
|
|
$
|
(2.85)
|
|
|
$
|
(4.65)
|
|
|
$
|
(4.40)
|
|
|
Diluted EPS
|
$
|
(3.76)
|
|
|
$
|
(2.85)
|
|
|
$
|
(4.65)
|
|
|
$
|
(4.40)
|
|
In June 2018, Intelsat S.A. completed an offering of $402.5 million aggregate principal amount of its 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 EPS, if applicable. Under the indenture governing the 2025 Convertible Notes (the “2025 Indenture”), 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 indenture until December 15, 2024, and thereafter without regard to any conditions. The commencement of the Chapter 11 Cases constituted an event of default under the 2025 Indenture. See Note 11—Debt for additional information on the impact of the Chapter 11 Cases on our debt obligations.
Due to a net loss for each of the three and six months ended June 30, 2019 and 2020, there were no dilutive securities, and therefore, basic and diluted EPS were the same. The weighted average number of common shares that could potentially dilute basic EPS in the future was 27.2 million and 22.1 million for the three months ended June 30, 2019 and 2020, respectively, and 26.9 million and 22.3 million for the six months ended June 30, 2019 and 2020, respectively, primarily consisting of the 2025 Convertible Notes.
Note 6 Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosure ("ASC 820") defines fair value, establishes a market-based framework or hierarchy for measuring fair value and provides for certain required disclosures about fair value measurements. The guidance is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value but does not require any new fair value measurements.
The fair value hierarchy prioritizes the inputs used in valuation techniques into three levels as follows:
•Level 1—unadjusted quoted prices for identical assets or liabilities in active markets;
•Level 2—quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable or that can be corroborated by observable market data by correlation; and
•Level 3—unobservable inputs based upon the reporting entity’s internally developed assumptions which market participants would use in pricing the asset or liability.
Recurring Fair Value Measurements
The tables below present assets measured and recorded at fair value in our condensed consolidated balance sheets on a recurring basis and their corresponding level within the fair value hierarchy (in thousands). No transfers between Level 1, Level 2 and Level 3 fair value measurements occurred for the six months ended June 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2019
|
|
|
|
|
|
Description
|
As of December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Marketable securities(1)
|
$
|
5,145
|
|
|
$
|
5,145
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Undesignated interest rate cap contracts(2)
|
372
|
|
|
—
|
|
372
|
|
|
—
|
|
Common stock warrant(3)
|
3,239
|
|
|
—
|
|
—
|
|
3,239
|
|
|
Total assets
|
$
|
8,756
|
|
|
$
|
5,145
|
|
|
$
|
372
|
|
|
$
|
3,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2020
|
|
|
|
|
|
Description
|
As of June 30, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Marketable securities(1)
|
$
|
4,682
|
|
|
$
|
4,682
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Undesignated interest rate cap contracts(2)
|
23
|
|
|
—
|
|
23
|
|
|
—
|
|
Common stock warrant(3)
|
3,239
|
|
|
—
|
|
|
—
|
|
|
3,239
|
|
|
Total assets
|
$
|
7,944
|
|
|
$
|
4,682
|
|
|
$
|
23
|
|
|
$
|
3,239
|
|
|
|
|
|
|
|
|
|
|
(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 $4.3 million and $4.0 million as of December 31, 2019 and June 30, 2020, respectively. We sold marketable securities with a cost basis of $0.1 million resulting in a nominal gain during each of the three months ended June 30, 2019 and 2020. We sold marketable securities with a cost basis of $0.4 million and $0.3 million resulting in a nominal gain during each of the six months ended June 30, 2019 and 2020, respectively. These amounts are included in other income (expense), net in our condensed consolidated statements 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 rate volatility and current creditworthiness of the counterparties. As a result, we have determined that the valuation in its entirety is classified as Level 2 within the fair value hierarchy.
(3)We valued the common stock warrant using a valuation technique that reflects the risk-free interest 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 is classified as Level 3 within the fair value hierarchy.
The following table presents a reconciliation of the preferred and common stock warrants which are measured and recorded at fair value on a recurring basis using Level 3 inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
Three Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2020
|
|
Balance as of beginning of period
|
$
|
3,192
|
|
|
$
|
3,239
|
|
|
$
|
4,100
|
|
|
$
|
3,239
|
|
|
Unrealized loss included in other income (expense), net
|
(2,945)
|
|
|
—
|
|
|
(3,853)
|
|
|
—
|
|
|
Balance as of end of period
|
$
|
247
|
|
|
$
|
3,239
|
|
|
$
|
247
|
|
|
$
|
3,239
|
|
Nonrecurring Fair Value Measurements
The carrying values of certain assets may be adjusted to fair value in subsequent periods on a nonrecurring basis if an event occurs or circumstances change that indicate that the asset is impaired or, for investments in equity securities without readily determinable fair values, observable transactions for identical or similar investments of the same issuer support a change in the investment fair value. During the first quarter of 2020, as a result of our interim impairment assessments, we recognized an impairment of non-amortizable intangible assets of $12.2 million. This fair value measurement is classified as Level 3 within the fair value hierarchy due to the use of significant unobservable inputs. See Note 10—Goodwill and Other Intangible Assets for additional information.
Other Fair Value Disclosures
See Note 9—Investments, Note 10—Goodwill and Other Intangible Assets and Note 11—Debt for fair value disclosures related to our loan receivables, impairment analysis and debt, respectively. The carrying amounts of the Company's other financial instruments are reasonable estimates of their related fair values due to their short-term nature.
Note 7 Retirement Plans and Other Retiree Benefits
(a) Pension and Other Postretirement Benefits
We maintain a noncontributory defined benefit retirement plan covering substantially all of our employees hired prior to July 19, 2001. The cost of providing benefits to eligible participants under the defined benefit retirement plan is calculated using the plan’s benefit formulas, which take into account the participants’ remuneration, dates of hire, years of eligible service and certain actuarial assumptions. In addition, as part of the overall medical plan, we provide postretirement medical benefits to certain current retirees who meet the criteria under the medical plan for postretirement benefit eligibility. In 2015, we amended the defined benefit retirement plan to end the accrual of additional benefits for the remaining active participants. We have received authorization from the Bankruptcy Court to continue making contributions in the ordinary course during our Chapter 11 Cases.
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. For the six months ended June 30, 2020, we made cash contributions to the defined benefit retirement plan of $2.2 million. We anticipate that our remaining contributions to the defined benefit retirement plan in 2020 will be approximately $1.8 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 2020 will be approximately $2.9 million.
Included in accumulated other comprehensive loss at June 30, 2020 was $95.0 million ($63.7 million, net of tax) that has not yet been recognized in net periodic benefit cost.
The tables below show the components of net periodic benefit cost (income) for the three and six months ended June 30, 2019 and 2020 (in thousands). These amounts are recognized in other income (expense), net in the condensed consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
Three Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2020
|
|
Interest cost
|
$
|
3,848
|
|
|
$
|
2,962
|
|
|
$
|
7,695
|
|
|
$
|
5,925
|
|
|
Expected return on plan assets
|
(5,873)
|
|
|
(5,810)
|
|
|
(11,745)
|
|
|
(11,621)
|
|
|
Amortization of unrecognized net loss
|
1,055
|
|
|
1,600
|
|
|
2,111
|
|
|
3,200
|
|
|
Net periodic benefit income
|
$
|
(970)
|
|
|
$
|
(1,248)
|
|
|
$
|
(1,939)
|
|
|
$
|
(2,496)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2019
|
|
Three Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2020
|
|
Interest cost
|
$
|
383
|
|
|
$
|
266
|
|
|
$
|
766
|
|
|
$
|
532
|
|
|
Amortization of unrecognized prior service credits
|
(636)
|
|
|
(636)
|
|
|
(1,272)
|
|
|
(1,272)
|
|
|
Amortization of unrecognized net gain
|
(307)
|
|
|
(305)
|
|
|
(615)
|
|
|
(610)
|
|
|
Net periodic benefit income
|
$
|
(560)
|
|
|
$
|
(675)
|
|
|
$
|
(1,121)
|
|
|
$
|
(1,350)
|
|
(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 have received authorization from the Bankruptcy Court to continue making our contributions in the ordinary course during our Chapter 11 Cases. We recognized compensation expense for this plan of $2.2 million for each of the three months ended June 30, 2019 and 2020, and $4.3 million and $4.5 million for the six months ended June 30, 2019 and 2020, 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 Satellites and Other Property and Equipment
(a) Satellites and Other Property and Equipment, net
Satellites and other property and equipment, net were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2019
|
|
As of
June 30, 2020
|
|
Satellites and launch vehicles
|
$
|
10,407,690
|
|
|
$
|
10,178,297
|
|
|
Information systems and ground segment
|
968,482
|
|
|
1,002,143
|
|
|
Buildings and other
|
280,109
|
|
|
282,395
|
|
|
Total cost
|
11,656,281
|
|
|
11,462,835
|
|
|
Less: accumulated depreciation
|
(6,954,218)
|
|
|
(6,819,112)
|
|
|
Total
|
$
|
4,702,063
|
|
|
$
|
4,643,723
|
|
Satellites and other property and equipment are stated at historical cost, except for satellites that have been impaired. Satellites and other property and equipment acquired as part of an acquisition are stated based on their fair value at the date of acquisition.
During the first quarter of 2020, the price of our common shares and trading values of our debt securities experienced sustained reductions. We also witnessed certain declines in financial performance as compared to previously prepared internal budget and forecast projections. Among the impacts of the COVID-19 pandemic were a reduction of revenue and a decreased likelihood of collection from certain mobility customers. Based on our examination of these and other qualitative factors, we concluded that further testing of satellites and other property and equipment was required.
The Company evaluated the assets for potential impairment using internal projections of undiscounted cash flows expected to result from the use and eventual disposal of the assets. If the carrying amount of the assets exceeds the undiscounted cash flows expected to result from its use, an impairment expense is recognized for the amount by which the carrying amount of the asset group exceeds its fair value. The impairment expense cannot exceed the carrying amount of the long-lived assets (unless the carrying amount is not being reduced below fair value for any individual long-lived asset that is determinable without undue cost and effort).
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 estimated future cash flows or other assumptions could change our estimated fair values and result in future impairments. The conclusion of our analysis was that the undiscounted cash flows of the asset group were greater than its carrying value, resulting in no impairment.
Satellites and other property and equipment, net included construction-in-progress of $191.5 million and $420.4 million as of December 31, 2019 and June 30, 2020, respectively. These amounts relate primarily to satellites under construction and related launch services. As of June 30, 2020, we incurred C-band clearing related costs and expenses of $130.8 million, of which $130.5 million is capitalized and expected to be reimbursable under the FCC Final Order. Of this capitalized amount, $128.7 million, $1.4 million, and $0.4 million is capitalized as satellites and other property and equipment, net, prepaid expenses and other current assets, and other assets, respectively, in the condensed consolidated balance sheets.
Interest costs of $8.8 million and $6.2 million were capitalized for the three months ended June 30, 2019 and 2020, respectively, and $17.1 million and $10.2 million were capitalized for the six months ended June 30, 2019 and 2020, respectively. Additionally, depreciation expense was $155.2 million and $154.5 million for the three months ended June 30, 2019 and 2020, respectively, and $317.7 million and $308.9 million for the six months ended June 30, 2019 and 2020, respectively.
We have entered into launch contracts for the launch of both specified and unspecified future satellites. Each of these launch contracts may be terminated at our option, subject to payment of a termination fee that increases as the applicable launch date approaches. In addition, in the event of a failure of any launch, we may exercise our right to obtain a replacement launch within a specified period following our request for re-launch.
(b) Satellite Launches
Intelsat 39 was successfully launched on August 6, 2019. Intelsat 39 replaced Intelsat 902 at the 62ºE location and delivers connectivity services in both the C- and Ku-bands to mobile network operators, enterprises and government customers, as well as aeronautical and maritime mobility service providers operating in the Europe, Africa, Middle East and Asia-Pacific regions. Intelsat 39 entered into service in October 2019.
(c) Significant Anomalies
In April 2019, the Intelsat 29e satellite (in service since 2016) experienced an anomaly that resulted in a total loss of the satellite. In accordance with our existing satellite anomaly contingency plans, we restored service for most Intelsat 29e customers on other satellites in our network, as well as on third-party satellites. We recorded a non-cash impairment charge of $381.6 million in the second quarter of 2019, of which $377.9 million related to the write off of the carrying value of the satellite and associated deferred performance incentive obligations and $3.7 million related to prepaid regulatory fees.
A Failure Review Board comprised of the satellite’s manufacturer, Boeing Satellite Systems, Inc., the Company and external independent experts was convened to complete a comprehensive analysis of the cause of the anomaly. The board concluded that the anomaly was caused by either a harness flaw in conjunction with an electrostatic discharge event related to solar weather activity or the impact of a micrometeoroid.
During the second quarter of 2020, the Company determined it unlikely that it will be able to utilize certain satellite and launch vehicle deposits prior to their respective expiration dates. As a result, the Company recorded a non-cash impairment charge of $34.0 million related to the impairment of the carrying values of the deposits, which is included within impairment of non-amortizable intangible and other assets in the condensed consolidated statements of operations.
Note 9 Investments
We have an ownership interest in two entities that meet the criteria of a variable interest entity (“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 ASC 810, Consolidation (“ASC 810”). We also own noncontrolling investments in equity securities and loan receivables as discussed further below.
(a) Horizons Holdings
Horizons Holdings is a joint venture with JSAT International, Inc. (“JSAT”) that consists of two investments: Horizons-1 Satellite LLC and Horizons-2 Satellite LLC. 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 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 ASC 810, as the primary beneficiary, we consolidate Horizons Holdings within our condensed consolidated financial statements. Total assets of Horizons Holdings were $22.2 million and $20.8 million as of December 31, 2019 and June 30, 2020, respectively. Total liabilities were nominal as of both December 31, 2019 and June 30, 2020.
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 $1.6 million and $2.6 million as of December 31, 2019 and June 30, 2020, respectively.
(b) Horizons-3 Satellite LLC
On November 4, 2015, we entered into an additional joint venture agreement with JSAT. The joint venture, 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 joint sharing 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 3e 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. Amounts payable to JSAT related to the revenue sharing agreement, net of applicable fees and commissions, from the Horizons 3e satellite were $3.3 million and $4.5 million as of December 31, 2019 and June 30, 2020, respectively.
We have determined that this joint venture meets the criteria of a VIE under 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 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 condensed consolidated balance sheets, is accounted for using the equity method of accounting. The investment balance, which is equivalent to our maximum exposure to loss, was $110.2 million and $103.8 million as of December 31, 2019 and June 30,
2020, respectively. The investment balance exceeded our equity in the net assets of Horizons 3 by $11.6 million and $11.2 million as of December 31, 2019 and June 30, 2020, respectively. This basis difference represents the capitalized interest that we incurred in relation to financing our investment and we recognize it as a reduction of our equity in earnings of Horizons 3 on a straight-line basis over the life of the satellite. We recognized a nominal amount of equity in earnings of Horizons 3 in other income (expense), net for each of the three and six months ended June 30, 2019 and 2020.
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 amounts due thereunder in order to maintain our 50% interest in the joint venture. Pursuant to this agreement, we made contributions of $5.0 million for the year ended December 31, 2019 and $2.7 million during the six months ended June 30, 2020. We received distributions of $5.0 million for the year ended December 31, 2019 and $9.0 million for the six months ended June 30, 2020. The Company utilizes the cumulative earnings approach to determine whether distributions received from equity method investees are returns on investment or returns of investment. 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 interest 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 holds the FCC license required for the joint venture’s operations.
The Horizons 3e satellite entered into service in January 2019. The Company purchases satellite capacity and related services from the Horizons 3 joint venture, and then sells that capacity to its customers. We incurred direct costs of revenue related to these purchases of $5.6 million and $5.0 million for the three months ended June 30, 2019 and 2020, respectively, and $9.2 million and $10.0 million during the six months ended June 30, 2019 and 2020, respectively. The Company also sells managed ground network services to the Horizons 3 joint venture and provides program management services for a fee. We recorded an offset to direct costs of revenue related to the provision of these services of $1.8 million during each of the three months ended June 30, 2019 and 2020, and $2.1 million and $3.5 million during the six months ended June 30, 2019 and 2020, respectively. On the condensed consolidated balance sheets as of both December 31, 2019 and June 30, 2020, $0.5 million due from Horizons 3 was included in receivables and $1.7 million due to Horizons 3 was included in accounts payable and accrued liabilities, respectively.
(c) Investments in Equity Securities
The Company holds noncontrolling equity investments in seven separate privately held companies, including investments in equity securities without readily determinable fair values and common stock warrants.
In accordance with ASC 321, Investments—Equity Securities, we use the measurement alternative to measure the fair value of our investments in equity securities without readily determinable fair values. Accordingly, these investments are measured at cost, less any impairment, and are adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the same issuer. We recorded impairment charges of $29.0 million during each of the three and six months ended June 30, 2019 and $0.1 million during each of the three and six months ended June 30, 2020. These investments are recorded in other assets in our condensed consolidated balance sheets and had a total carrying value of $27.2 million and $31.9 million as of December 31, 2019 and June 30, 2020, respectively.
We measure our stock warrants at fair value (see Note 6—Fair Value Measurements and Note 12—Derivative Instruments and Hedging Activities for additional information). The warrants are recorded in other assets in our condensed consolidated balance sheets and had a cumulative fair value of $3.2 million as of both December 31, 2019 and June 30, 2020.
(d) Loan Receivables
The Company has loan receivables from five privately held companies that it is holding for long-term investment. These loan receivables are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the outstanding principal, adjusted for unamortized discounts and deferred transaction costs. The Company recognizes interest income on loan receivables using the effective-interest method applied on a loan-by-loan basis. Direct costs associated with originating loans are offset against any related fees received and the balance, along with any premium or discount, is deferred and amortized as an adjustment to interest income over the term of the related loan receivable using the effective interest method.
Loan receivables are recorded in other assets in our condensed consolidated balance sheets at an amortized cost basis, net of allowance for credit losses, of $70.4 million and $67.6 million as of December 31, 2019 and June 30, 2020, respectively. These amounts were net of an allowance for credit losses of $4.6 million, unamortized discount of $3.0 million and $1.8 million, and unamortized deferred transaction costs of $1.0 million and $0.6 million as of the respective periods. As of December 31, 2019 and June 30, 2020, respectively, $1.5 million and $2.0 million of accrued interest related to our loan receivables was recorded in prepaid expenses and other current assets in our condensed consolidated balance sheets. We recognized interest income related to our loan receivables of $1.0 million and $1.9 million for the three and six months ended June 30, 2020, respectively, with no comparative amounts for the three and six months ended June 30, 2019.
A loan is determined to be impaired and placed on non-accrual status when, in management’s judgment based on current information and events, it is probable that the Company will be unable to collect all amounts due under the contractual terms of the applicable loan agreement. We recognized impairment losses of $0.6 million related to loan receivables during the three and six months ended June 30, 2020, with no comparable amounts for the three and six months ended June 30, 2019.
The fair value of loan receivables is evaluated on a loan-by-loan basis, and is determined based on assessments of discounted cash flows that are considered probable of collection. We consider these inputs to be Level 3 within the fair value hierarchy under ASC 820. The cumulative fair value of our loan receivables as of December 31, 2019 and June 30, 2020 was $69.3 million and $68.9 million, respectively.
Note 10 Goodwill and Other Intangible Assets
We account for goodwill and other non-amortizable intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other, and have deemed these assets to have indefinite lives. Therefore, these assets are not amortized but are tested on an annual basis for impairment during the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.
During the first quarter of 2020, the price of our common shares and trading values of our debt securities experienced sustained reductions. We also witnessed certain declines in financial performance as compared to previously prepared internal budget and forecast projections. Among the impacts of the COVID-19 pandemic were a reduction of revenue and a decreased likelihood of collection from certain mobility customers. Based on our examination of these and other qualitative factors, we concluded that further testing of goodwill and other non-amortizable and amortizable intangible assets was required.
Determining the fair value of a reporting unit and other intangible assets often involves the use of estimates and assumptions that require significant judgment, and that could have a substantial impact on whether or not an impairment charge is recognized and the magnitude of any such charge. Estimates of fair value are primarily determined using discounted cash flows and market transactions. These estimates involve making significant estimates and assumptions, including projected future cash flows (including timing), discount rates reflecting the risks inherent in future cash flows, perpetual growth rates, and the determination of appropriate market comparisons.
(a) Goodwill
For the analysis of goodwill in the first quarter of 2020, we applied ASU 2017-04, which is further described in Note 1—General. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. After recognizing the impairment loss, the loss establishes a new corresponding basis in the goodwill. Subsequent reversals of goodwill impairment losses are not permitted under applicable accounting standards.
Intelsat has only one reporting unit for purposes of the analysis of goodwill, and accordingly, the analysis is undertaken at the enterprise level. We determined the estimated fair value of our reporting unit using a discounted cash flow analysis, along with independent source data related to comparative market multiples and, when available, recent transactions, each of which is considered a Level 3 input within the fair value hierarchy under 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, along with the C-band accelerated clearing incentive payments expected to be received subject to the achievement of certain milestones and the discount rate applied to those cash flows. A change in estimated future cash flows or other assumptions could change our estimated fair values and result in future impairments. The conclusion of our analysis was that the fair value of our reporting unit was greater than its carrying value, resulting in no impairment of goodwill.
The carrying amounts of goodwill consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2019
|
|
As of
June 30, 2020
|
|
Goodwill
|
$
|
6,780,827
|
|
|
$
|
6,780,827
|
|
|
Accumulated impairment losses
|
(4,160,200)
|
|
|
(4,160,200)
|
|
|
Net carrying amount
|
$
|
2,620,627
|
|
|
$
|
2,620,627
|
|
(b) Orbital Locations, Trade Name and Other Intangible Assets
Orbital Locations. 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 International Telecommunication Union, 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.
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.
We determined the estimated fair value of our rights to operate at orbital locations by using the build-up method to determine cash flows for the income approach, with the resulting projected cash flows discounted at an appropriate weighted average cost of capital. Under the build-up approach, the amount a reasonable investor would be willing to pay for the right to operate a satellite business using orbital locations is calculated by first estimating the cash flows that typical market participants might assume could be available from the right to operate satellites using the subject location in a similar market. It is assumed that rather than acquiring such a business as a going concern, the buyer would hypothetically start with the right to operate satellites at orbital locations and build a new business with similar attributes from the beginning. Thus, the buyer is assumed to incur the start-up costs and losses typically associated with the going concern value and pay for all other tangible and intangible assets.
The key assumptions used in estimating the fair values of our rights to operate at our orbital locations included the following: (i) market penetration leading to revenue growth, (ii) profit margin, (iii) duration and profile of the build-up period, (iv) estimated start-up costs and losses incurred during the build-up period and (v) weighted average cost of capital.
We completed our analysis of the estimated fair value of our rights to operate at certain orbital locations in connection with the analysis of goodwill described above in the first quarter of 2020 and concluded that the fair value was greater than the carrying value, resulting in no impairment.
Trade Name. We have implemented the relief from royalty method to determine the estimated fair value of the Intelsat trade name. The relief from royalty analysis is comprised of two major steps: (i) a determination of the hypothetical royalty rate, and (ii) the subsequent application of the royalty rate to projected revenue. In determining the hypothetical royalty rate utilized in the relief from royalty approach, we considered comparable license agreements, an excess earnings analysis to determine aggregate intangible asset earnings, and other qualitative factors, each of which is considered a Level 3 input within the fair value hierarchy under ASC 820.
The key assumptions used in our model to estimate the fair value of the Intelsat trade name included forecasted revenues, the royalty rate, the tax rate and the discount rate. We completed our analysis of the estimated fair value of the Intelsat trade name in connection with the analysis of goodwill described above in the first quarter of 2020 and it resulted in an impairment of our trade name intangible asset of $12.2 million, which is included within impairment of non-amortizable intangible and other assets in the condensed consolidated statements of operations.
The carrying amounts of acquired intangible assets not subject to amortization consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2019
|
|
As of
June 30, 2020
|
|
Orbital locations
|
$
|
2,387,700
|
|
|
$
|
2,387,700
|
|
|
Trade name
|
65,200
|
|
|
53,000
|
|
|
Total non-amortizable intangible assets
|
$
|
2,452,900
|
|
|
$
|
2,440,700
|
|
Other Intangible Assets. The Company evaluated acquired intangible assets subject to amortization for potential impairment using internal projections of undiscounted cash flows expected to result from the use and eventual disposal of the assets. 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 estimated future cash flows or other assumptions could change our estimated fair values and result in future impairments. The conclusion of our analysis was that the undiscounted cash flows of the asset group were greater than its carrying value, resulting in no impairment.
The carrying amounts and accumulated amortization of acquired intangible assets subject to amortization consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
As of June 30, 2020
|
|
|
|
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
Backlog and other
|
$
|
743,760
|
|
|
$
|
(713,205)
|
|
|
$
|
30,555
|
|
|
$
|
743,760
|
|
|
$
|
(717,930)
|
|
|
$
|
25,830
|
|
|
Customer relationships
|
534,030
|
|
|
(287,833)
|
|
|
246,197
|
|
|
534,030
|
|
|
(298,660)
|
|
|
235,370
|
|
|
Total
|
$
|
1,277,790
|
|
|
$
|
(1,001,038)
|
|
|
$
|
276,752
|
|
|
$
|
1,277,790
|
|
|
$
|
(1,016,590)
|
|
|
$
|
261,200
|
|
Intangible assets are amortized based on the expected pattern of consumption. Amortization expense was $8.6 million and $7.8 million for the three months ended June 30, 2019 and 2020, respectively, and $17.2 million and $15.6 million for the six months ended June 30, 2019 and 2020, respectively.
Note 11 Debt
As discussed in Note 2—Chapter 11 Proceedings, Ability to Continue as a Going Concern and Other Related Matters, the filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our obligations under the documents governing the prepetition existing indebtedness of Intelsat S.A., Intelsat Luxembourg, Intelsat Connect and Intelsat Jackson. As such, we have reclassified all such debt obligations, other than debt subject to compromise, to current portion of long-term debt on our condensed consolidated balance sheet as of June 30, 2020. While the Chapter 11 Cases are pending, the Debtors do not anticipate making interest payments due under their respective unsecured debt instruments; however, the Debtors expect to make monthly interest payments on their senior secured debt instruments pursuant to the adequate protection requirements under the DIP Order.
The carrying values and fair values of our notes payable and debt were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
As of June 30, 2020
|
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Intelsat S.A.:
|
|
|
|
|
|
|
|
|
4.5% Convertible Senior Notes due June 2025 (1)
|
$
|
402,500
|
|
|
$
|
265,231
|
|
|
$
|
402,500
|
|
|
$
|
146,913
|
|
|
Unamortized prepaid debt issuance costs and discount on 4.5% Convertible Senior Notes
|
(133,310)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total Intelsat S.A. obligations
|
269,190
|
|
|
265,231
|
|
|
402,500
|
|
|
146,913
|
|
|
Intelsat Luxembourg:
|
|
|
|
|
|
|
|
|
7.75% Senior Notes due June 2021 (1)
|
421,219
|
|
|
336,975
|
|
|
421,219
|
|
|
16,849
|
|
|
Unamortized prepaid debt issuance costs on 7.75% Senior Notes
|
(1,257)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8.125% Senior Notes due June 2023 (1)
|
1,000,000
|
|
|
590,000
|
|
|
1,000,000
|
|
|
45,000
|
|
|
Unamortized prepaid debt issuance costs on 8.125% Senior Notes
|
(5,838)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12.5% Senior Notes due November 2024 (1)
|
403,350
|
|
|
277,152
|
|
|
403,350
|
|
|
49,046
|
|
|
Unamortized prepaid debt issuance costs and discount on 12.5% Senior Notes
|
(184,344)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total Intelsat Luxembourg obligations
|
1,633,130
|
|
|
1,204,127
|
|
|
1,824,569
|
|
|
110,895
|
|
|
Intelsat Connect Finance:
|
|
|
|
|
|
|
|
|
9.5% Senior Notes due February 2023 (1)
|
1,250,000
|
|
|
865,625
|
|
|
1,250,000
|
|
|
293,750
|
|
|
Unamortized prepaid debt issuance costs and discount on 9.5% Senior Notes
|
(27,741)
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Total Intelsat Connect Finance obligations
|
1,222,259
|
|
|
865,625
|
|
|
1,250,000
|
|
|
293,750
|
|
|
Intelsat Jackson:
|
|
|
|
|
|
|
|
|
9.5% Senior Secured Notes due September 2022
|
490,000
|
|
|
562,275
|
|
|
490,000
|
|
|
541,450
|
|
|
Unamortized prepaid debt issuance costs and discount on 9.5% Senior Secured Notes
|
(11,204)
|
|
|
—
|
|
(9,398)
|
|
|
—
|
|
|
8% Senior Secured Notes due February 2024
|
1,349,678
|
|
|
1,380,046
|
|
|
1,349,678
|
|
|
1,366,548
|
|
|
Unamortized prepaid debt issuance costs and premium on 8% Senior Secured Notes
|
(3,903)
|
|
|
—
|
|
(3,496)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
As of June 30, 2020
|
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
5.5% Senior Notes due August 2023 (1)
|
1,985,000
|
|
|
1,687,250
|
|
|
1,985,000
|
|
|
1,121,525
|
|
|
Unamortized prepaid debt issuance costs on 5.5% Senior Notes
|
(8,723)
|
|
|
—
|
|
—
|
|
|
—
|
|
|
9.75% Senior Notes due July 2025 (1)
|
1,885,000
|
|
|
1,729,488
|
|
|
1,885,000
|
|
|
1,140,425
|
|
|
Unamortized prepaid debt issuance costs on 9.75% Senior Notes
|
(20,487)
|
|
|
—
|
|
—
|
|
|
—
|
|
|
8.5% Senior Notes due October 2024 (1)
|
2,950,000
|
|
|
2,669,750
|
|
|
2,950,000
|
|
|
1,755,250
|
|
|
Unamortized prepaid debt issuance costs and premium on 8.5% Senior Notes
|
(12,916)
|
|
|
—
|
|
—
|
|
|
—
|
|
|
Senior Secured Credit Facilities due November 2023
|
2,000,000
|
|
|
1,985,000
|
|
|
2,000,000
|
|
|
1,990,000
|
|
|
Unamortized prepaid debt issuance costs and discount on Senior Secured Credit Facilities
|
(22,149)
|
|
|
—
|
|
(19,605)
|
|
|
—
|
|
|
Senior Secured Credit Facilities due January 2024
|
395,000
|
|
|
398,950
|
|
|
395,000
|
|
|
395,000
|
|
|
Unamortized prepaid debt issuance costs and discount on Senior Secured Credit Facilities
|
(1,600)
|
|
|
—
|
|
(1,423)
|
|
|
—
|
|
|
6.625% Senior Secured Credit Facilities due January 2024
|
700,000
|
|
|
712,250
|
|
|
700,000
|
|
|
703,500
|
|
|
Unamortized prepaid debt issuance costs and discount on Senior Secured Credit Facilities
|
(2,832)
|
|
|
—
|
|
(2,520)
|
|
|
—
|
|
|
Superpriority Secured DIP Credit Facilities due July 2021
|
—
|
|
|
—
|
|
|
500,000
|
|
|
506,250
|
|
|
Total Intelsat Jackson obligations
|
11,670,864
|
|
|
11,125,009
|
|
|
12,218,236
|
|
|
9,519,948
|
|
|
Eliminations:
|
|
|
|
|
|
|
|
|
8.125% Senior Notes of Intelsat Luxembourg due June 2023 owned by Intelsat Jackson (1)
|
(111,663)
|
|
|
(65,881)
|
|
|
(111,663)
|
|
|
(5,025)
|
|
|
Unamortized prepaid debt issuance costs on 8.125% Senior Notes
|
652
|
|
|
—
|
|
—
|
|
|
—
|
|
|
12.5% Senior Notes of Intelsat Luxembourg due November 2024 owned by Intelsat Connect, Intelsat Jackson and Intelsat Envision (1)
|
(403,245)
|
|
|
(277,080)
|
|
|
(403,245)
|
|
|
(49,033)
|
|
|
Unamortized prepaid debt issuance costs and discount on 12.5% Senior Notes
|
184,296
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total eliminations:
|
(329,960)
|
|
|
(342,961)
|
|
|
(514,908)
|
|
|
(54,058)
|
|
|
Total Intelsat S.A. debt
|
14,465,483
|
|
|
13,117,031
|
|
|
15,180,397
|
|
|
10,017,448
|
|
|
Less: current portion of long-term debt
|
—
|
|
|
—
|
|
|
5,398,236
|
|
|
5,502,748
|
|
|
Less: liabilities subject to compromise
|
—
|
|
|
—
|
|
|
9,782,161
|
|
|
4,514,700
|
|
|
Total Intelsat S.A. long-term debt
|
$
|
14,465,483
|
|
|
$
|
13,117,031
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)In connection with the Chapter 11 Cases, these balances have been reclassified as liabilities subject to compromise in our condensed consolidated balance sheet as of June 30, 2020. As of April 15, 2020, the Company ceased making principal and interest payments, and as of May 13, 2020 ceased accruing interest expense in relation to this long-term debt that was reclassified as liabilities subject to compromise. Further, $197.0 million of debt discount, premium and issuance costs related to these notes was included within reorganization items in the condensed consolidated statements of operations for both of the three and six months ended June 30, 2020.
The fair value for publicly traded instruments is determined using quoted market prices, and the fair value for non-publicly traded instruments 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 under ASC 820, except for our senior secured credit facilities and our 2025 Convertible Notes, the inputs for which are classified as Level 2.
Intelsat Jackson Superpriority Secured Debtor-in-Possession Term Loan Facility
On June 17, 2020 (the “Closing Date”), the DIP Debtors and DIP Lenders entered into the DIP Credit Agreement, a non-amortizing multiple draw superpriority secured debtor-in-possession term loan facility, in an aggregate principal amount of $1.0 billion, on the terms and conditions set forth therein. See Note 2—Chapter 11 Proceedings, Ability to Continue as a Going Concern and Other Related Matters.
Intelsat Jackson borrowed $500.0 million of term loans under the DIP Facility on the Closing Date. Under the DIP Facility, Intelsat Jackson may, at its sole discretion, make incremental draws of the lesser of $250.0 million and the remaining available commitments of the DIP Lenders. Drawn amounts under the DIP Facility bear interest at either (i) 4.50% per annum plus a base rate of the highest of (a) the Federal Funds Effective Rate plus ½ of 1.00%, (b) the Prime Rate as in effect on such day and (c) the London Inter-Bank Offered Rate (“LIBOR Rate”) for a one-month interest period on such day (or if such day is not a business day, the immediately preceding business day) plus 1.00% or (ii) 5.50% plus the LIBOR Rate. For purposes of the DIP Facility, the LIBOR Rate has an effective floor rate of 1.0%. Undrawn amounts under the DIP Facility shall be subject to a ticking fee of 3.6% of the amount of commitments of the DIP Lenders from the entry of the DIP Order until such commitments terminate, which ticking fee shall be payable on the last day of each fiscal quarter prior to the date such commitments terminate and on the date of such termination. If an event of default under the DIP Facility occurs, the overdue amounts under the DIP Facility would bear interest at an additional 2.0% per annum above the interest rate otherwise applicable.
The proceeds of the DIP Facility may be used, among other things, to pay for (i) working capital needs of the DIP Debtors in the ordinary course of business, (ii) potential C-band relocation costs, (iii) investment and other general corporate purposes, and (iv) the costs and expenses of administering the Chapter 11 Cases. The maturity date of the DIP Facility is July 13, 2021, subject to certain extensions pursuant to the terms of the DIP Credit Agreement.
The DIP Credit Agreement includes usual and customary negative covenants for debtor-in-possession loan agreements of this type, including covenants limiting the Company’s and its subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and acquisitions, pay dividends and distributions and make payments in respect of junior or prepetition indebtedness, in each case subject to customary exceptions for debtor-in-possession loan agreements of this type.
The DIP Credit Agreement also includes certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, certain events under the Employee Retirement Income Security Act of 1974, as amended, and change of control. Certain bankruptcy-related events are also events of default, including, but not limited to, the dismissal by the Bankruptcy Court of any of the Chapter 11 Cases, the conversion of any of the Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code and certain other events related to the impairment of the DIP Lenders’ rights or liens granted under the DIP Credit Agreement.
The foregoing description of the DIP Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the DIP Credit Agreement.
Intelsat Jackson Senior Secured Credit Agreement and the Company and Certain of its Subsidiaries' Indentures
The commencement of the Chapter 11 Cases constituted an immediate event of default under Intelsat Jackson’s secured credit agreement, dated as of January 12, 2011 (as amended, the “Intelsat Jackson Secured Credit Agreement”), as well as under the indentures governing certain of the Company and its subsidiaries’ senior secured notes and senior notes, resulting in the automatic and immediate acceleration of substantially all of our outstanding debt. Any efforts to enforce payment obligations related to the acceleration of our debt have been automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code.
In addition, on April 27, 2020, our LIBOR loans under the Intelsat Jackson Secured Credit Agreement were converted to Alternate Base Rate (“ABR”) loans. We expect to pay interest on the floating rate term loans under the Intelsat Jackson Secured Credit Agreement at the rate applicable to ABR loans.
Note 12 Derivative Instruments and Hedging Activities
Interest Rate Cap Contracts
As of December 31, 2019 and June 30, 2020, we held interest rate cap contracts with an aggregate notional value of $2.4 billion that mature in February 2021. These interest rate cap contracts, which were entered into in 2017 and amended in 2018, are designed to mitigate our risk of interest rate increases on the floating rate portion of our senior secured credit facilities (see Note 11—Debt). The contracts have not been designated for hedge accounting treatment in accordance with ASC 815, Derivatives and Hedging (“ASC 815”), and the changes in fair value of these instruments, net of payments received, are recognized in the condensed consolidated statements of operations during the period of change. We received $7.2 million in settlement payments related to the interest rate cap contracts for the six months ended June 30, 2019 with no comparable amounts for the six months ended June 30, 2020.
Preferred Stock Warrant and Common 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 ASC 815. As of December 31, 2019 and June 30, 2020, the fair value of the preferred stock warrant was zero. During 2019, we were issued a warrant to purchase common shares of a separate investment. We concluded that the warrant is a free-standing derivative in accordance with ASC 815.
The following table sets forth the fair value of our derivatives by category (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments
|
|
Classification
|
|
As of
December 31, 2019
|
|
As of
June 30, 2020
|
|
Common stock warrant
|
|
Other assets
|
|
$
|
3,239
|
|
|
$
|
3,239
|
|
|
Interest rate cap contracts
|
|
Other assets
|
|
372
|
|
|
23
|
|
|
Total derivatives
|
|
|
|
$
|
3,611
|
|
|
$
|
3,262
|
|
The following table sets forth the effect of the derivative instruments in our condensed consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments
|
|
Classification
|
|
Three Months Ended
June 30, 2019
|
|
Three Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2020
|
|
Interest rate cap contracts
|
|
Loss included in interest expense, net
|
|
$
|
(10,861)
|
|
|
$
|
(14)
|
|
|
$
|
(19,479)
|
|
|
$
|
(349)
|
|
|
Preferred stock warrant
|
|
Loss included in other income (expense), net
|
|
(2,945)
|
|
|
—
|
|
|
(3,853)
|
|
|
—
|
|
|
Total loss on derivative financial instruments
|
|
|
|
$
|
(13,806)
|
|
|
$
|
(14)
|
|
|
$
|
(23,332)
|
|
|
$
|
(349)
|
|
Note 13 Income Taxes
In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220)—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which allows for an optional reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (the "Act"), which was signed into law on December 22, 2017. Consequently, the amendments eliminated the stranded tax effects resulting from the Act for those entities that elect the optional reclassification. ASU 2018-02 is effective for all entities for interim and annual periods beginning after December 15, 2018. We adopted ASU 2018-02 in the first quarter of 2019, which resulted in a reclassification of stranded tax effects of $16.2 million from accumulated other comprehensive loss to accumulated deficit.
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.
Effective January 1, 2019, the Luxembourg corporate tax rate decreased from 26.01% to 24.94%. This resulted in a decrease in deferred tax assets and corresponding valuation allowance.
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.
On July 2, 2018, we implemented a series of internal transactions and related steps that reorganized the ownership of certain assets among our subsidiaries (the “2018 Internal Reorganization”). The 2018 Internal Reorganization resulted in the majority of our operations being owned by a U.S.-based partnership, with certain of our wholly-owned Luxembourg and U.S. subsidiaries as partners.
In response to the COVID-19 pandemic, on March 18, 2020, the Families First Coronavirus Response Act (the “FFCR Act”) was enacted, and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The FFCR Act and the CARES Act contain numerous income tax provisions, such as increasing the 30 percent adjusted taxable income threshold to 50 percent for taxable years beginning in 2019 and 2020 for purposes of determining allowable business interest expense deductions. The CARES Act repeals the 80 percent limitation for taxable years beginning before January 1, 2021 (enacted by the Act), and it further specifies that net operating losses arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, are allowed as a carryback to each of the five taxable years preceding the taxable year of such losses. Modifications to the tax rules for the carryback of net operating losses and business interest limitations resulted in a federal tax refund of approximately $7.4 million and $15.5 million for the three and six months ended June 30, 2020, respectively. In addition, the CARES Act includes
refundable payroll tax credits and deferral of employment side social security payments. As of June 30, 2020, Intelsat’s payroll deferral was approximately $2.3 million.
The majority of our operations are located in taxable jurisdictions, including Luxembourg, the U.S. and the United Kingdom (“UK”). Due to our cumulative losses in recent years, and the inherent uncertainty associated with the realization of taxable income in the foreseeable future, we recorded a full valuation allowance against the cumulative net operating losses generated in Luxembourg. The difference between tax expense (benefit) reported in the condensed consolidated statements of operations and tax computed at statutory rates is attributable to the valuation allowance on losses generated in Luxembourg, the provision for foreign taxes, which were principally in the U.S. as a result of the final BEAT regulations and the UK, as well as withholding taxes on revenue earned in some of the foreign markets in which we operate, offset by the tax benefit resulting from the impacts of the CARES Act.
Our gross unrecognized tax benefits were $25.0 million and $25.1 million (including interest and penalties), of which $21.5 million and $21.2 million as of December 31, 2019 and June 30, 2020, respectively, if recognized, would affect our effective tax rate. As of December 31, 2019 and June 30, 2020, we had recorded reserves for interest and penalties in the amount of $0.6 million and $0.7 million, respectively. We continue to recognize interest and, to the extent applicable, penalties with respect to the unrecognized tax benefits as income tax expense. Since December 31, 2019, the change in the balance of unrecognized tax benefits has consisted of an increase of $0.1 million related to current tax positions and a nominal increase related to prior tax positions.
We operate in various taxable jurisdictions throughout the world, and our tax returns are subject to audit and review from time to time. We consider Luxembourg, the U.S., the UK and Brazil to be our significant tax jurisdictions. Our Luxembourg, U.S., UK and Brazilian subsidiaries are subject to income tax examination for periods after December 31, 2014. 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.
During 2019, the Company made payments to the government of India in the amount of $7.0 million with respect to ongoing administrative proceedings. We believe it is more likely than not that the positions which we have presented in these matters will result in a favorable outcome for the Company. As a result, the payments have been recorded in taxes receivable.
Effective January 31, 2020, the UK formally exited the European Union ("EU"). As a result of the withdrawal, 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 June 30, 2020, all relevant tax laws and treaties remained unchanged and the tax consequences were unknown. Therefore, we have not recognized any impacts of the withdrawal in the income tax provision as of June 30, 2020. We will recognize any impacts to the tax provision when changes in tax laws or treaties between the UK and the EU or individual EU member states are enacted.
On December 2, 2019, the U.S. Department of Treasury and the U.S. Internal Revenue Service released final regulations with respect to BEAT as enacted by the 2017 Tax Reform Act. These regulations represent the final version of proposed regulations which were released in December 2018. The BEAT is a minimum tax established by the Act that subjects certain payments made by U.S. corporations or subsidiaries to foreign related parties to a secondary federal income tax regime in the U.S. The final regulations clarify which taxpayers are subject to the BEAT and how the BEAT rules apply to certain payments and transactions. We have adopted the final BEAT regulations as of the release date. These regulations are effective for the Company as of its tax year ended December 31, 2018. The Company included the impact of BEAT tax expense for the final regulations related to both the 2018 and 2019 tax years in the fourth quarter of 2019.
Note 14 Commitments and Contingencies
On May 13, 2020, Intelsat S.A. and certain of its subsidiaries filed voluntary petitions for relief under title 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of such bankruptcy filings, substantially all proceedings pending against the Debtors have been stayed and prepetition liabilities are subject to compromise. See Note 2—Chapter 11 Proceedings, Ability to Continue as a Going Concern and Other Related Matters.
In the absence of the automatic stay due to the Chapter 11 Cases, we are subject to litigation in the ordinary course of business. Other than as disclosed below, management does not believe that the resolution of any of those pending proceedings would have a material adverse effect on our financial position or results of operations.
SES Claim
On July 14, 2020, SES Americom, Inc. (“SES”) filed a proof of claim in the amount of $1.8 billion against each of the Debtors. SES asserts that the Debtors owe money (or will owe money) to SES pursuant to certain contractual and fiduciary obligations made in the context of the consortium agreement between Debtor Intelsat US LLC, SES, and other satellite operators (the “Consortium Agreement”). SES believes it is entitled to 50% of the combined payments that may eventually be payable to the Debtors and SES pursuant to the FCC Final Order, which provides for Acceleration Payments subject to the satisfaction of certain deadlines and other conditions set forth therein. SES’s proof of claim alleges that the Debtors breached the Consortium Agreement by taking the position
that the Debtors are not required to split Acceleration Payments with SES and the other members of the consortium. The proof of claim also alleges breach of fiduciary duties and unjust enrichment, and seeks monetary and punitive damages. We dispute the allegations in the proof of claim and intend to object to and vigorously litigate the claim. While the ultimate resolution of the claim is not currently predictable, if there is an adverse ruling, the ruling could constitute a material adverse outcome on our future consolidated financial condition.
Note 15 Related Party Transactions
(a) Shareholders’ Agreements
Certain shareholders of Intelsat S.A. entered into a shareholders’ agreement in December 2018, which 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
In December 2018, the Company entered into a governance agreement with its shareholder affiliated with Serafina S.A. The agreement contains provisions relating to the composition of the Company’s 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 9(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 9(b)—Investments—Horizons-3 Satellite LLC).
Note 16 Condensed Combined Debtors' Financial Information
The following presents our Debtors' condensed combined balance sheet as of June 30, 2020, statements of operations for the three and six months ended June 30, 2020 and statement of cash flows for the six months ended June 30, 2020. Consolidating adjustments include eliminations of the following:
•investments in subsidiaries;
•intercompany accounts;
•intercompany sales and expenses; and
•intercompany equity balances.
Intercompany balances with non-Debtor affiliates have not been eliminated. On the Debtors’ condensed combined balance sheet, these primarily consist of net intercompany trade receivables generated under our Master Intercompany Service Agreement (“MISA”) and funding for the operations of non-Debtor affiliates. On the Debtors’ condensed combined statements of operations, total reported revenue includes intercompany revenue of $63.0 million and $122.5 million for the three and six months ended June 30, 2020, respectively, primarily consisting of satellite capacity charges. Cost from affiliates primarily relates to sales and technical support services provided to Debtors as specified under the MISA. Investments in non-Debtor affiliates are presented under the equity method of accounting in the condensed combined financial statements set forth below.
DEBTORS' UNAUDITED CONDENSED COMBINED BALANCE SHEET
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
ASSETS
|
|
|
Current assets:
|
|
|
Cash and cash equivalents
|
$
|
940,366
|
|
|
Restricted cash
|
18,977
|
|
|
Receivables, net of allowance of $22,093
|
165,159
|
|
|
Contract assets
|
23,902
|
|
|
Prepaid expenses and other current assets
|
73,486
|
|
|
Intercompany receivables
|
153,535
|
|
|
Total current assets
|
1,375,425
|
|
|
Satellites and other property and equipment, net
|
4,575,364
|
|
|
Goodwill
|
2,620,627
|
|
|
Non-amortizable intangible assets
|
2,440,700
|
|
|
Amortizable intangible assets, net
|
261,200
|
|
|
Contract assets, net of current portion
|
41,405
|
|
|
Investment in affiliates
|
219,162
|
|
|
Other assets
|
408,294
|
|
|
Total assets
|
$
|
11,942,177
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
|
Current liabilities:
|
|
|
Accounts payable and accrued liabilities
|
$
|
125,414
|
|
|
Taxes payable
|
15,210
|
|
|
Employee related liabilities
|
27,448
|
|
|
Accrued interest payable
|
13,861
|
|
|
Current portion of long-term debt
|
5,398,236
|
|
|
Contract liabilities
|
127,996
|
|
|
Deferred satellite performance incentives
|
36,002
|
|
|
Other current liabilities
|
53,105
|
|
|
Total current liabilities
|
5,797,272
|
|
|
Contract liabilities, net of current portion
|
1,067,562
|
|
|
Deferred satellite performance incentives, net of current portion
|
158,937
|
|
|
Deferred income taxes
|
75,246
|
|
|
Accrued retirement benefits, net of current portion
|
117,244
|
|
|
Other long-term liabilities
|
172,956
|
|
|
Liabilities subject to compromise
|
10,172,846
|
|
|
Shareholders’ deficit:
|
|
|
Common shares, nominal value $0.01 per share
|
1,421
|
|
|
Paid-in capital
|
2,569,404
|
|
|
Accumulated deficit
|
(8,128,872)
|
|
|
Accumulated other comprehensive loss
|
(61,839)
|
|
|
Total shareholders’ deficit
|
(5,619,886)
|
|
|
Total liabilities and shareholders’ deficit
|
$
|
11,942,177
|
|
DEBTORS' UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2020
|
|
Revenue
|
$
|
431,334
|
|
|
$
|
840,751
|
|
|
Operating expenses:
|
|
|
|
|
Direct costs of revenue (excluding depreciation and amortization)
|
66,765
|
|
|
131,891
|
|
|
Selling, general and administrative
|
53,958
|
|
|
124,544
|
|
|
Cost from affiliates
|
9,786
|
|
|
21,448
|
|
|
Depreciation and amortization
|
157,392
|
|
|
315,168
|
|
|
Impairment of non-amortizable intangible and other assets
|
34,043
|
|
|
46,243
|
|
|
Total operating expenses
|
321,944
|
|
|
639,294
|
|
|
Income from operations
|
109,390
|
|
|
201,457
|
|
|
Interest expense, net
|
221,934
|
|
|
539,681
|
|
|
Equity in income of affiliates
|
3,267
|
|
|
1,712
|
|
|
Other income, net
|
3,432
|
|
|
12,034
|
|
|
Reorganization items
|
(298,691)
|
|
|
(298,691)
|
|
|
Loss before income taxes
|
(404,536)
|
|
|
(623,169)
|
|
|
Provision for income taxes
|
818
|
|
|
957
|
|
|
Net loss
|
$
|
(405,354)
|
|
|
$
|
(624,126)
|
|
DEBTORS' UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2020
|
|
Cash flows from operating activities:
|
|
|
Net loss
|
$
|
(624,126)
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
Depreciation and amortization
|
315,168
|
|
|
Provision for doubtful accounts
|
28,325
|
|
|
Foreign currency transaction gain
|
(719)
|
|
|
Impairment of non-amortizable intangible and other assets
|
46,243
|
|
|
Share-based compensation
|
6,234
|
|
|
Deferred income taxes
|
5,631
|
|
|
Amortization of discount, premium, issuance costs and related costs
|
17,277
|
|
|
Non-cash reorganization items
|
196,974
|
|
|
Debtor-in-possession financing fees
|
52,182
|
|
|
Amortization of actuarial loss and prior service credits for retirement benefits
|
1,317
|
|
|
Unrealized losses on derivative financial instruments
|
349
|
|
|
Unrealized losses on investments and loans held-for-investment
|
721
|
|
|
Equity in income of affiliates
|
(1,712)
|
|
|
Other non-cash items
|
92
|
|
|
Changes in operating assets and liabilities:
|
|
|
Receivables
|
(79)
|
|
|
Intercompany receivables
|
(70,970)
|
|
|
Prepaid expenses, contract and other assets
|
(34,700)
|
|
|
Accounts payable and accrued liabilities
|
23,791
|
|
|
Accrued interest payable
|
48,775
|
|
|
Contract liabilities
|
(38,951)
|
|
|
Accrued retirement benefits
|
(8,267)
|
|
|
Other long-term liabilities
|
(11,013)
|
|
|
Net cash used in operating activities
|
(47,458)
|
|
|
Cash flows from investing activities:
|
|
|
Payments for satellites and other property and equipment (including capitalized interest)
|
(196,043)
|
|
|
Dividends from affiliates
|
20,878
|
|
|
Proceeds from loans held-for-investment
|
724
|
|
|
Capital contribution to affiliates
|
(9,005)
|
|
|
Other proceeds from satellites
|
5,625
|
|
|
Net cash used in investing activities
|
(177,821)
|
|
|
Cash flows from financing activities:
|
|
|
Proceeds from debtor-in-possession financing
|
500,000
|
|
|
Debtor-in-possession financing fees
|
(52,182)
|
|
|
Principal payments on deferred satellite performance incentives
|
(19,195)
|
|
|
Net cash provided by financing activities
|
428,623
|
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
686
|
|
|
Net change in cash, cash equivalents and restricted cash
|
204,030
|
|
|
Cash, cash equivalents, and restricted cash, beginning of period
|
755,313
|
|
|
Cash, cash equivalents, and restricted cash, end of period
|
$
|
959,343
|
|
|
|
|
|
Reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated Debtors' balance sheet to the total sum of these same amounts shown on the condensed consolidated Debtors' statement of cash flows:
|
|
|
Cash and cash equivalents
|
$
|
940,366
|
|
|
Restricted cash
|
18,977
|
|
|
Total cash, cash equivalents and restricted cash reported in the condensed consolidated Debtors' statement of cash flows
|
$
|
959,343
|
|