Intelsat reports year-end 2003, fourth quarter results

Intelsat, Ltd, a global satellite communications leader providing services in over 200 countries and territories, today reported results for the three months and 12 months ended 31 December 2003.

Intelsat reported revenue of $952.8 million and net income of $181.1 million for the year ended 31 December 2003. The company also reported EBITDA, as adjusted, or earnings before interest, other income (expense), taxes and depreciation and amortisation, of $687.6 million, or 72% of revenue, for the year.

Free cash flow from operations for the year was $382.1 million, calculated as net cash provided by operating activities of $604.6 million less payments for satellites and other property, plant and equipment and associated capitalised interest of $222.5 million. A reconciliation of all non-GAAP measures discussed in this news release to the most directly comparable GAAP measures is included in the financial statements attached to this news release.

For the fourth quarter of 2003, Intelsat reported revenue of $232.2 million and net income of $26.1 million. EBITDA, as adjusted, for the three-month period was $158.9 million, or 68% of revenue.

"Intelsat performed in line with guidance for the year, our 30th consecutive year of profitability, and we produced over $382 million in free cash flow from operations. Further, Intelsat executed on its strategic objectives in 2003, of which the most notable example is our agreement to acquire Loral`s North American satellite assets," said Conny Kullman, Intelsat CEO.

"While we continue to manage our profitable but challenging carrier business, we intend to use Intelsat`s geographic reach, technical leadership and global customer base to pursue market segments that we believe have higher growth potential, including video and government/military customer segments. In addition, we were early to recognise a growing requirement for services that integrate satellite and terrestrial facilities into end-to-end solutions. In 2002, we introduced our GlobalConnex Solutions and other hybrid connectivity services. Our revenue from these services grew 329% in 2003, further diversifying Intelsat`s revenue mix and expanding our customer base."

Kullman added: "In an environment of industry consolidation, we believe we are well-positioned to further enhance our service application mix and geographic reach while leveraging the economies of scale enabled by our global network and centralized operations, creating further value for our shareholders."

* Intelsat continued its tradition of solid financial performance, reporting net income of $181.1 million for 2003. Backlog, representing cash paid or to be paid by customers under contract for future revenue, was approximately $3.6 billion at 31 December 2003, compared to approximately $3.7 billion at 30 September 2003. Free cash flow from operations in 2003 was higher than anticipated at $382.1 million, reflecting, among other things, the deferral of launch and other costs for the Intelsat 10-02 satellite that were expected to be recognized in 2003 but now will be recognised in 2004.

* Intelsat took key steps in its strategy to further diversify its revenue mix and to increase its revenue from video services. In the fourth quarter, the sale to the company of five North American satellites and related assets was approved by the bankruptcy court overseeing Loral`s Chapter 11 filing. The acquisition, pending satisfaction of certain conditions to closing, will provide Intelsat entry into the North American corporate networking and video distribution market and add six of the nation`s top 10 media and entertainment companies to Intelsat`s global customer base.

* Intelsat`s Media and Entertainment unit was established in early 2003 as part of Intelsat`s strategy to expand its presence in the video market. Intelsat entered into an agreement with Level 3 Communications, Inc that is expected to expand Intelsat`s video distribution network, and also formed a business alliance with TVNZ Satellite Services Ltd to enhance Intelsat`s presence in the video contribution market segment. Intelsat continued to build new video communities at key orbital locations serving Latin America and Africa, and signed significant new long-term contracts with African broadcasters Communications Trends Network Limited and DAAR Communications Limited for Nigerian domestic and international distribution services. Intelsat was also successful in attracting new sportscasters, with global distribution of National Basketball Association programming in the fourth quarter of 2003 joining Major League Baseball programming on the Intelsat system.

* Intelsat`s Government Solutions business unit was established in early 2003 as part of the company`s strategy to build upon its industry-leading position in the growing government/military customer segment. The Government Solutions business unit booked strong contract renewals in the second half of 2003, as well as new contract wins with key contractors such as Bechtel and ITT Systems related to conflict and reconstruction efforts in the Middle East.

* Intelsat sought to address new markets and to introduce new service offerings as part of its strategy to sustain its core voice and data business. Intelsat`s managed services initiatives, comprised of satellite and terrestrial services such as Intelsat`s GlobalConnex Solutions and satellite-based broadband services, grew to over $34 million in 2003 from approximately $8 million in 2002. The services are provided via the Intelsat global network, consisting of capacity on 25 satellites in orbit, five teleport stations and leased fibre capacity. Broadband services grew from Intelsat`s conducting two network trials in late 2002 to the company`s supporting 11 service providers in operation at year-end 2003. Providing further momentum to broadband revenue, Intelsat is providing the broadband service platform for Orbit Data Systems Limited, which is expected to launch commercial service in the Middle East in the next few months.

* Intelsat continued its operational excellence, including the successful completion of the Intelsat IX series satellite program when Intelsat 907 went into service in March 2003. Further, with nearly 7.6 million hours of activated transponders in service in 2003, Intelsat`s satellite network availability averaged 99.997%.

* Revenue of $952.8 million for the full year 2003 decreased $39.2 million, or 4%, from $992 million for the full year 2002. For the year ended 31 December 2003, lease service revenue declined 7% to $596.3 million, primarily attributable to a decrease in the volume of capacity sold as a result of service portfolio optimisation by a number of customers. Channel and carrier service revenue declined 10% to $302.3 million, primarily attributable to the migration of point-to-point traffic to terrestrial fibre alternatives. Managed services revenue of $34.6 million represented a 329% increase over the same period in 2002.

* Revenue for the three months ended 31 December 2003 decreased $7.9 million, or 3%, to $232.2 million from $240.1 million for the three months ended 31 December 2002. The decline was primarily attributable to lower renewals, price pressure in the Asian and Latin American markets and a decrease in the volume of capacity sold as a result of service portfolio optimisation by a number of customers.

* Total operating expenses of $668.4 million for the full year 2003 increased $28.7 million as compared to the same period in 2002. Contributing significantly to the increase in operating expenses in 2003 were increases in depreciation and amortisation, which were due largely to depreciation recorded on the Intelsat IX series satellites that were not fully in service in 2002. Direct costs of revenue increased to $136.2 million for the full year 2003 from $117.4 million for the same period in 2002, due to increased expenses related to the expansion of Intelsat`s terrestrial infrastructure and the provisioning of its hybrid and managed service offerings. Selling, general and administrative costs also increased by $11.7 million for the year, due primarily to staff additions as Intelsat grew its regional sales and marketing presence and also due to a $4.4 million increase in our provision for uncollectible accounts. Total operating expenses during the three months ended 31 December 2003 of $176.2 million represented a decrease of $22.9 million as compared to the same period in 2002. Operating expenses in the fourth quarter of 2002 included a charge of $34.4 million related to the cancellation of Intelsat`s order for a satellite. Had this charge not occurred, total operating expenses for the three months ended 31 December 2003 would have increased as compared to the same period in 2002, and the increase in total operating expenses for the year ended 31 December 2003 would have been greater as compared to the same period in 2002.

* Other income for the full year 2003 reflects a $10.7 million increase as compared to the same period in 2002, due principally to an increase of $13.7 million of other income in connection with a reduction in an obligation payable by Intelsat under a share purchase agreement with Teleglobe Inc.

* Net income for the year ended 31 December 2003 was $181.1 million, a decrease of $93 million as compared with $274.1 million in 2002. The decrease in net income during the year was due to reduced revenue and higher operating expenses, as described above. Also contributing to the decline in net income for the year was an increase in net interest expense, which was $97.8 million for the full year 2003 as compared to $55.1 million in 2002. The increase in net interest expense was principally due to a decrease in interest capitalised during the year attributable to lower construction-in-progress balances in 2003 and increased interest expense from the $1.1 billion in senior notes issued in November 2003 in connection with the Loral transaction. Net income for the fourth quarter of 2003 was $26.1 million, compared with $31.5 million for the fourth quarter in the prior year.

* EBITDA, as adjusted, was $687.6 million, or 72% of revenue, down from $713.6 million, or 72% of revenue, for the same period in 2002. The decrease was primarily due to higher total operating expenses, excluding depreciation and amortisation, and lower revenue during the period in 2003 as compared to the same period in 2002. EBITDA, as adjusted, for the fourth quarter of 2003 was $158.9 million, or 68% of revenue, as compared to $136.0 million, or 57% of revenue, for the same period in 2002. Excluding the effect of the charge in the fourth quarter of 2002 relating to the satellite order cancellation described above, EBITDA, as adjusted, for the fourth quarter of 2003 would have decreased as compared to the fourth quarter in the prior year.

Intelsat announced that it has named William Atkins to the senior management of the company. Atkins will assume the role of Executive Vice-President and Chief Financial Officer from Joseph Corbett, who will be resigning from this position within the next two months. Corbett has agreed to remain in the CFO position through the filing of Intelsat`s 2003 annual report with the Securities and Exchange Commission. Following the filing, Corbett has agreed to remain with Intelsat for an interim period as senior adviser to assist in the transition of duties to Atkins.

Conny Kullman said: "We expect that 2004 will include several milestone events for Intelsat. Atkins, a former investment banker with over 20 years of experience, most recently with Morgan Stanley, will bring valuable skills and financial markets perspective to our executive team. We thank Joe Corbett for playing a key role in the company over the past eight years and wish him every success in the future."

Intelsat management will host a conference call with investors and analysts at 11am ET on 2 March 2004 to discuss the company`s year-end and fourth quarter 2003 financial results. Access to the live conference call will be available via the Internet at Intelsat`s Web site: www.intelsat.com. A telephone bridge has also been established to accommodate Intelsat`s global shareholders and the investment community. US-based participants should call (800) 901 5217. Non-US participants should call +1 (617) 786 2964. The conference call participant pass code is 21259267. Participants will have access to a replay of the conference call through 12 March 2004. The replay number for US-based participants is (888) 286 8010 and for non-US participants is +1 (617) 801 6888, pass code 39346285.