Intelsat reports year-end 2002 results

Intelsat, Ltd, a global satellite communications leader providing services in over 200 countries and territories, today reported results for the fourth quarter and full-year ended 31 December 2002.

For the year ended 31 December 2002, Intelsat reported revenues of $992 million, and net income of $274.1 million. The company reported EBITDA as adjusted, or earnings before interest, other income, taxes, depreciation and amortisation (EBITDA) of $713.6 million or 72% of revenue. Excluding $34.4 million in contract termination expenses, EBITDA was $748.0 million or 75% of revenue.

Given the difficult telecommunications environment that persisted throughout the year, full-year 2002 financial results declined as compared to full-year 2001. During the year, management substantially completed its transition to a fully privatised entity by executing on a business plan that built additional service capabilities and enhanced Intelsat`s competitive position. Specific achievements include:

* Taking advantage of distressed telecom asset values, built a global network of teleports, points-of-presence, and fibre connections that complements Intelsat`s global satellite system, and introduced GlobalConnex(SM) Solutions services on this hybrid infrastructure

* Established direct US sales to end users through the November 2002 acquisition of COMSAT Corporation`s World Systems business unit, increasing Intelsat`s customer base to over 500 customers;

* Completed the build out of a global sales and marketing organisation, now comprising offices in 13 key markets around the world, and added key resources to increase focus on the broadcasting market segment;

* Concluded its first SEC registered debt offering, and secured $600 million in long-term financing, further bolstering the company`s strong balance sheet and financial position;

* Completed a reduction in force of 12 percent of staff, to streamline operations in response to market and industry conditions; and

* Successfully placed the Intelsat 903, 904, 905, and 906 satellites into orbit, followed by the successful launch of the Intelsat 907 satellite on 15 February 2003, completing the Intelsat IX series launch program, and continuing Intelsat`s legacy of engineering and operational excellence.

"In 2002, Intelsat confronted significant marketplace obstacles. This posed a challenge to meeting our financial goals, but the company still delivered its 29th consecutive year of profitability," said Conny Kullman, chief executive officer of Intelsat.

"Our three-year, $2.3 billion satellite fleet renewal program is nearing its end, and our global satellite fleet now enjoys an average remaining life of 11 years--one of the youngest and most technically advanced in the industry. With reduced capital expense requirements going forward, we enter 2003 with a $4 billion backlog, and a truly global platform in terms of customer base, network reach and breadth of services. While near-term market conditions are expected to remain difficult, Intelsat maintains a strong balance sheet and a highly profitable business model that enable the company to execute fully on its business strategies and position it to generate growth as market conditions improve."

Intelsat is pursuing a four-part strategy designed to build on the company`s global satellite services leadership and to position the company for future growth and profitability:

* Sustain its leading position in the core voice and data business by leveraging Intelsat`s new global hybrid infrastructure to meet the emerging needs of existing customers and to address requirements in new market segments, including wireless and emerging carriers;

* Focus resources and technology to capture market share in the video and government customer segments;

* Invest selectively in related segments of the satellite industry that are expected to experience high growth over the long-term, such as broadband access and direct-to-home (DTH) television platforms; and

* Seek strategic transactions that would enhance Intelsat`s service mix or geographic coverage.

Intelsat continued to sustain its core voice and data business in 2002. An example of this strategy is Intelsat`s previously announced agreement to provide Vodacom International with transmission services linking more than 20 base stations in Africa to enable Vodacom to expand its mobile services in the region.

In focusing its resources to capture market share in the video segment, the company looks to build upon its growing base including the eight DTH platforms and 350 channels broadcast by the Intelsat system today. Intelsat recently announced Occasional Video Solutions, state-of-the-art network facilities that combine sophisticated value-added video services with Intelsat`s hybrid ground and satellite system, targeting broadcasters who require local connectivity on a global scale.

In discussion of the other elements of Intelsat`s strategy, Kullman commented: "Our recently announced planned investments in North American broadband services company WildBlue Communications, Inc, and DTH television provider Galaxy Satellite Broadcasting Limited in Hong Kong, are examples of our strategy to make modest investments in fixed satellite services-related businesses that we believe represent the best growth opportunities in the industry. We see these investments, which may also include organic growth initiatives, as keeping Intelsat at the forefront of important innovations that will drive demand for satellite services in the future.

"Lastly, we continue to believe that consolidation is inevitable in our industry. As one of the largest and most financially sound satellite services providers, Intelsat has the size, scale and resources to evaluate and pursue the opportunities that make optimal strategic and financial sense."

Telecommunications revenue decreased $92 million, or 8%, to $992 million for the year ended 31 December 2002 from $1 084 million for the year ended 31 December 2001. The decline was primarily attributable to lower revenue from channel and carrier based services, reflecting the continued migration of point-to-point satellite traffic to fibre optic cables across transoceanic routes, a reduction in the capacity requirements of our customers due to the general economic downturn and the optimisation of their own networks, and a reduction in the amount of capacity held in inventory by distributors for future sale.

Contributing to the overall decline in revenue was a decrease in revenue from lease services, due to the non-renewal of several video services leases and a reduction in the level of services provided to Teleglobe Inc and WorldCom.

From a geographic perspective, the percentage of revenue recognised from each of the regions served by Intelsat was relatively consistent in 2002 as compared to revenue recognised in these regions in 2001.

Intelsat`s on-going operating expenses include, among others, direct costs of revenue and selling, general and administrative expenses. These operating expenses have increased substantially in recent years. The increases reflect the change in operating and legal structure from an intergovernmental organisation with certain privileges and immunities to a private company with expanded market opportunities and new tax and other obligations. For example, Intelsat has been required to develop staff capabilities in areas such as sales and marketing, legal, and tax and has had increased payroll taxes as a result of its change in status. Another example would be in-orbit insurance, which we did not purchase prior to our privatisation. Period to period comparisons of operating expenses in 2002 to 2001 reflect increased expenses as a result of the privatisation, which occurred in July 2001.

Total operating expenses increased $60.8 million, or 10%, to $639.7 million for the year ended 31 December 2002, from $578.9 million for the year ended 31 December 2001. This was principally due to an increase in selling, general and administrative expenses of $25.5 million, resulting primarily from increases in the provision for uncollectable accounts, professional fees, and marketing and promotional activities; an increase in depreciation and amortization of $20.9 million, due largely to depreciation associated with the Intelsat IX series spacecraft launched in 2002; and an increase in direct costs of revenue of $15.4 million that was largely attributable to an increase in in-orbit insurance expense.

EBITDA, as adjusted, decreased $131.9 million, or 16%, to $713.6 million for the year ended 31 December 2002 from $845.5 million for the same period in 2001. This decrease is due to lower revenue coupled with higher operating expenses, as discussed above.

Net income decreased $224.8 million, or 45%, to $274.1 million for the year ended 31 December 2002 from $499 million for the year ended 31 December 2001. The reduction in net income during the period was due principally to lower revenue and higher total operating expenses recorded, as compared to the same period in 2001, as described above. Also contributing to the decrease during the period was an increase in interest expense of $42 million and an increase in the provision for taxes of $27.7 million, as compared to the same period in 2001. Net cash provided by operating activities less payments for satellites and other property and equipment and associated capitalised interest, or free cash flow, for the year ended 31 December 2002 was $41.2 million.

Total company backlog was $4 billion at 31 December 2002, reflecting approximately $500 million in downward adjustments due to the acquisition of COMSAT World Systems, the termination of certain service orders by Teleglobe Inc, and the elimination of backlog associated with services from a Brazilian customer experiencing financial difficulties.

Intelsat chief financial officer Joseph Corbett commented: "In 2002, Intelsat was able to further solidify its capital structure, completing a successful 10-year, $600 million debt offering and putting into place a three-year, $500 million revolving credit facility. Intelsat is positioned to generate strong cash flows in 2003 and beyond, which should provide the company with good liquidity and further strengthen our financial position, qualities which we believe are important to our shareholders and the financial markets."

A full copy of the detailed financial results can be found at www.intelsat.com.

For further information, please contact Brian Gibson at telephone 011 880 1510; mobile 083 253 5988; fax 011 880 1392; e-mail Gibson@icon.co.za