INTELSAT S.A. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and their notes included in Item 1-Financial Statements in this Quarterly Report, and with our audited consolidated financial statements and their notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 (the "2020 Annual Report"). In addition, see "Forward-Looking Statements" for a discussion of factors that could cause our future financial condition and results of operations to be materially different from those discussed below. Overview We operate one of the world's largest satellite services businesses, providing a critical layer in the global communications infrastructure. We provide diversified communications services to the world's leading media companies, fixed and wireless telecommunications operators, data networking service providers for enterprise and mobile applications in the air and on the seas, multinational corporations and Internet Service Providers. We are also the leading provider of commercial satellite capacity to theU.S. government and other select military organizations and their contractors. Our customers use our global network for a broad range of applications, from global distribution of content for media companies to providing the transmission layer for commercial aeronautical consumer broadband connectivity, to enabling essential network backbones for telecommunications providers in high-growth emerging regions. Our network solutions are a critical component of our customers' infrastructures and business models. Generally, our customers need the specialized connectivity that satellites provide so long as they are in business or pursuing their mission. In recent years, mobility services providers have contracted for services on our fleet that support broadband connections for passengers on commercial flights and cruise ships, connectivity that in some cases is only available through our network. In addition, our satellite neighborhoods provide our media customers with efficient and reliable broadcast distribution that maximizes audience reach, a technical and economic benefit that is difficult for terrestrial services to match. In developing regions, our satellite solutions often provide higher reliability than is available from local terrestrial telecommunications services and allow our customers to reach geographies that they would otherwise be unable to serve. Through our recent acquisition of Gogo Inc.'s ("Gogo") commercial aviation business ("Intelsat CA"), we became the global leader in providing in-flight connectivity ("IFC") and wireless in-flight entertainment ("IFE") solutions to the commercial aviation industry. Services provided by our Intelsat CA business include passenger connectivity, which allows passengers to connect to the Internet from their personal Wi-Fi-enabled devices; passenger entertainment, which offers passengers the opportunity to enjoy a broad selection of IFE options on their laptops and personal Wi-Fi enabled devices; and Connected Aircraft Services ("CAS"), which offer airlines connectivity for various operations and currently include, among others, real-time credit card transaction processing, electronic flight bags and real-time weather information. Recent Developments Voluntary Reorganization under Chapter 11 OnMay 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 theUnited 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 theU.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 novel coronavirus ("COVID-19") pandemic. OnAugust 14, 2020 , the Company filed its C-band spectrum transition plan with theFCC . TheFCC Final Order provides for monetary enticements for fixed satellite services ("FSS") providers to clear a portion of the C-band spectrum on an accelerated basis (the "Acceleration Payments"). OnSeptember 17, 2020 , the Company announced that it finalized materially all of its required contracts with satellite manufacturers and launch-vehicle providers to move forward and meet the accelerated C-band spectrum clearing timelines established by theFCC . Under theFCC Final Order, the Company is eligible to receive Acceleration Payments of approximately$1.2 billion and$3.7 billion based on the milestone clearing certification dates ofDecember 5, 2021 andDecember 5, 2023 , with the respective payments expected to be received in the first half of each successive year, respectively, subject to the satisfaction of certain deadlines and other conditions set forth therein. The Chapter 11 process can be unpredictable and involves significant risks and uncertainties. As a result of these risks and uncertainties, the amount and composition of the Company's assets, liabilities, officers and/or directors could be significantly different 35 -------------------------------------------------------------------------------- following the outcome of the Chapter 11 Cases, and the description of the Company's operations, properties and liquidity and capital resources included in this Quarterly Report may not accurately reflect its operations, properties and liquidity and capital resources following the Chapter 11 process. Pursuant to various orders from theBankruptcy Court , the Debtors have received approval from theBankruptcy Court to generally maintain their ordinary course operations and uphold certain commitments to their stakeholders, including employees, customers, and vendors during the restructuring process, subject to the jurisdiction of theBankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. 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 interest payments on a monthly basis to holders of their senior secured debt instruments. The contractual interest expense pursuant to our unsecured debt instruments that was not recognized in our condensed consolidated statement of operations was$102.5 million and$192.3 million for the three months endedJune 30, 2020 and 2021, respectively, and$102.5 million and$384.5 million for the six months endedJune 30, 2020 and 2021, respectively. 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 andIntelsat Jackson . For additional discussion regarding the impact of the Chapter 11 Cases on our debt obligations, see Item 1, Note 12-Debt. OnJune 9, 2020 ,Intelsat Jackson received approval from theBankruptcy 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 onJune 17, 2020 ,Intelsat Jackson and certain of its subsidiaries as guarantors (together withIntelsat Jackson , the "DIP Debtors") entered into the DIP Credit Agreement with the DIP Lenders, as amended by an amendment ("DIP Amendment No. 1") to the DIP Credit Agreement, dated as ofAugust 24, 2020 , a second amendment ("DIP Amendment No. 2"), dated as ofNovember 25, 2020 , and a third amendment ("DIP Amendment No. 3"), dated as ofJuly 13, 2021 . For additional information regarding the DIP Facility, DIP Credit Agreement, DIP Amendment No. 1, DIP Amendment No. 2 and DIP Amendment No. 3, see Liquidity and Capital Resources-Debt below. OnJuly 11, 2020 , the Debtors filed with theBankruptcy 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. OnFebruary 11, 2021 , the Debtors entered into a plan support agreement (together with all exhibits and schedules thereto, the "PSA") with certain of the Debtors' prepetition secured and unsecured creditors (the "Consenting Creditors" and together with the Debtors, the "PSA Parties"). The PSA contains certain covenants on the part of the PSA Parties, including but not limited to the Consenting Creditors voting in favor of the Joint Chapter 11 Plan of Reorganization of Intelsat S.A. and Its Debtor Affiliates (as proposed, the "Plan"), and provides that the Debtors shall achieve certain milestones (unless extended or waived in writing). In connection with the PSA, onFebruary 12, 2021 , the Debtors filed the Plan and the Disclosure Statement for the Joint Chapter 11 Plan of Reorganization of Intelsat S.A. and Its Debtor Affiliates (the "Disclosure Statement"), which describes a variety of topics related to the Chapter 11 Cases, including (i) events leading to the Chapter 11 Cases; (ii) significant events that took place during the Chapter 11 Cases; (iii) certain terms of the Plan; and (iv) certain anticipated risk factors associated with, and anticipated consequences of the Plan.The Bankruptcy Court is currently scheduled to determine the adequacy of the Disclosure Statement in the third quarter of 2021. Update on the Impact of COVID-19 on the Company 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 and our Intelsat CA business. We continue to closely monitor the ongoing impact on our employees, customers, business and results of operations. Gogo Transaction OnAugust 31, 2020 , following approval from theBankruptcy Court ,Intelsat Jackson and Gogo entered into a purchase and sale agreement (the "Purchase and Sale Agreement") with respect to Gogo's commercial aviation business for$400.0 million in cash, subject to customary adjustments (the "Purchase Price"). The transaction further propels the Company's efforts in the growing commercial IFC market, pairing our high-capacity global satellite and ground network with Gogo's installed base of more than 3,000 commercial aircraft to redefine the connectivity experience. In connection with the transactions contemplated by the Purchase and Sale Agreement, the DIP Debtors and DIP Lenders entered into DIP Amendment No. 1 and DIP Amendment No. 2 to our DIP Credit Agreement (see -Voluntary Reorganization under Chapter 11 above). OnDecember 1, 2020 , we completed the transaction (the "Gogo Transaction") and funded the Purchase Price with proceeds from our existing DIP Facility and cash on hand. 36 -------------------------------------------------------------------------------- A. Results of Operations Three Months EndedJune 30, 2020 and 2021 The following table sets forth our comparative statements of operations for the periods shown with the increase (decrease) and percentage changes, except those deemed not meaningful ("NM"), between the periods presented (in thousands, except percentages): Three Months Three Months Ended Ended Dollar Percentage June 30, 2020 June 30, 2021 Change Change Revenue$ 482,034 $ 507,862 $ 25,828 5% Operating expenses: Direct costs of revenue (excluding depreciation and amortization) 106,961 163,317 56,356 53% Selling, general and administrative 63,863 100,161 36,298 57% Depreciation and amortization 162,614 168,259 5,645 3% Impairment of non-amortizable intangible and NM other assets 34,043 - (34,043) Other operating expense-C-band - 64,638 64,638 NM Total operating expenses 367,481 496,375 128,894 35% Income from operations 114,553 11,487 (103,066) (90%) Interest expense, net (222,533) (129,893) 92,640 (42%) Other income, net 2,762 20,218 17,456 NM Reorganization items (298,691) (49,591) 249,100 (83%) Loss before income taxes (403,909) (147,779) 256,130 (63%) Income tax expense (818) (3,923) (3,105) NM Net loss (404,727) (151,702) 253,025 (63%) Net income attributable to noncontrolling interest (628) (604) 24 (4%)
Net loss attributable to Intelsat S.A.
(62%)
Revenue
We earn revenue primarily by providing services over satellite transponder
capacity to our customers. Our customers generally obtain satellite capacity
from us by placing an order pursuant to one of several master customer service
agreements. The master customer agreements and related service orders under
which we sell services specify, among other things, the amount of satellite
capacity to be provided, whether service will be non-preemptible or preemptible
and the service term. Most services are full time in nature, with service terms
ranging from one year to as long as 16 years. Occasional use services used for
video applications can be for much shorter periods, including increments of one
hour. Our master customer service agreements offer different service types,
including transponder services, managed services, and channel, which are all
services that are provided on, or used to provide access to, our global network.
We refer to these services as on-network services. Our customer agreements also
cover services that we procure from third parties and resell, which we refer to
as off-network services. These services can include transponder services and
other satellite-based transmission services sourced from other operators, often
in frequencies not available on our network, and other operational fees related
to satellite operations provided on behalf of third-party satellites.
Our Intelsat CA business generates two types of revenue: service revenue and
equipment revenue. Service revenue is primarily derived from connectivity
services and, to a lesser extent, from entertainment services, CAS and
maintenance services. Connectivity is provided to our customers using both
air-to-ground ("ATG") and satellite technologies. Service revenue is earned by
services paid for by passengers, airlines and third parties. Equipment revenue
primarily consists of the sale of ATG and satellite connectivity equipment and
the sale of entertainment equipment. Equipment revenue also includes revenue
generated by our installation of connectivity or entertainment equipment on
commercial aircraft.
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--------------------------------------------------------------------------------The following table sets forth our comparative revenue by service type, for the periods below (in thousands, except percentages):
Three Months Three Months
Ended Ended Increase Percentage
June 30, 2020 June 30, 2021 (Decrease) Change
On-Network Revenues
Transponder services $ 343,599 $ 324,053 $ (19,546) (6%)
Managed services 85,050 70,228 (14,822) (17%)
Channel 391 186 (205) (52%)
Total on-network revenues 429,040 394,467 (34,573) (8%)
Off-Network and Other Revenues
Transponder, MSS and other off-network services 43,617 39,708 (3,909) (9%)
Satellite-related services 9,377 9,487 110 1%
Total off-network and other revenues 52,994 49,195 (3,799) (7%)
In-flight Services Revenues
Services - 57,296 57,296 NM
Equipment - 6,904 6,904 NM
Total in-flight services revenue - 64,200 64,200 NM
Total $ 482,034 $ 507,862 $ 25,828 5%
Total revenue for the three months ended June 30, 2021 increased by $25.8
million , or 5%, as compared to the three months ended June 30, 2020 . By service
type, our revenues increased or decreased due to the following:
On-Network Revenues:
•Transponder services-an aggregate decrease of $19.5 million , primarily due to a
$19.2 million net decrease in revenue from media customers and a $1.6 million
net decrease from network services customers. The decrease in revenue from media
customers was driven by non-renewals, renewals at lower prices, service
contractions, and service terminations relating to distribution and
direct-to-home ("DTH") solution application customers. The decline in revenues
from network services customers was primarily due to non-renewals, pricing
decreases, service contractions, and a service contract termination. These
decreased revenues were partially offset by increased revenues from network
services customers, primarily due to a renegotiated contract with a maritime
mobility customer for a different service mix of revenues previously classified
as managed services, and new business and pricing capacity increases for an
enterprise networks customer.
•Managed services-an aggregate decrease of $14.8 million , primarily due to a
$16.7 million decrease in revenue from network services customers, partially
offset by a $1.1 million increase in revenues from government customers. The
decline in revenues from network services customers was primarily driven by a
renegotiated contract with a maritime mobility customer for a different service
mix of revenues previously classified as managed services, partially offset by
increased revenues from new flex maritime services. The increase in revenues
from government customers was primarily attributable to new flex services and
the entry into service of Galaxy 30, partially offset by non-renewals.
In-flight Services Revenues:
•Services and equipment-an aggregate increase of $64.2 million attributable to
our Intelsat CA business.
Operating Expenses
Direct Costs of Revenue (Excluding Depreciation and Amortization)
Direct costs of revenue increased by $56.4 million , or 53%, to $163.3 million
for the three months ended June 30, 2021 , as compared to the three months ended
June 30, 2020 . The increase was primarily due to $61.2 million in costs
attributable to our Intelsat CA business, acquired in December 2020 .
Selling, General and Administrative
Selling, general and administrative expenses increased by $36.3 million , or 57%,
to $100.2 million for the three months ended June 30, 2021 , as compared to the
three months ended June 30, 2020 . The increase was primarily due to $30.6
million in costs attributable to our Intelsat CA business, a $4.0 million
increase in staff-related expenses largely relating to our employee retention
incentive plans, and a $3.6 million increase in professional fees.
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Depreciation and Amortization
Depreciation and amortization expense increased by $5.6 million , or 3%, to
$168.3 million for the three months ended June 30, 2021 , as compared to the
three months ended June 30, 2020 . Significant items impacting depreciation and
amortization included:
•an increase of $7.4 million in depreciation and amortization expense
attributable to our Intelsat CA business; and
•an increase of $3.1 million in depreciation expense resulting from the impact
of a satellite placed into service; partially offset by
•a decrease of $5.4 million in depreciation expense due to the timing of certain
satellites becoming fully depreciated.
Impairment of Non-Amortizable Intangible Assets
We recognized an impairment charge of $34.0 million for the three months ended
June 30, 2020 relating to certain satellite and launch vehicle deposits, with no
comparable amounts for the three months ended June 30, 2021 . See Item 1, Note
9-Satellites and Other Property and Equipment for further discussion.
Other Operating Expense-C-band
Other operating expense-C-band consists of reimbursable and non-reimbursable
costs associated with our C-band spectrum relocation efforts. We incurred $64.6
million of reimbursable and non-reimbursable C-band clearing related expenses
for the three months ended June 30, 2021 , with no comparable amounts for the
three months ended June 30, 2020 .
Interest Expense, Net
Interest expense, net consists of gross interest expense incurred together with
gains and losses on interest rate cap contracts (which reflect the changes in
their fair values), offset by interest income earned and interest capitalized
related to assets under construction. As of December 31, 2020 , we held interest
rate cap contracts with an aggregate notional amount of $2.4 billion that
matured in February 2021 . These interest rate cap contracts were held to
mitigate the risk of interest rate increases on the floating-rate term loans
under our senior secured credit facilities. The contracts were not designated as
hedges for accounting purposes. Interest expense, net decreased by $92.6
million , or 42%, to $129.9 million for the three months ended June 30, 2021 , as
compared to the three months ended June 30, 2020 , primarily due to the
following:
•a decrease of $76.4 million in interest expense primarily resulting from
Chapter 11 restructuring activities, partially offset by an increase in interest
expense recognized on our senior secured credit facilities; and
•a decrease of $13.1 million due to higher capitalized interest primarily
resulting from increased levels of satellites and related assets under
construction.
The non-cash portion of total interest expense, net was $26.6 million for the
three months ended June 30, 2021 , primarily consisting of interest expense
related to the significant financing component identified in customer contracts,
amortization and accretion of discounts and premiums and amortization of
deferred financing fees.
Other Income, Net
Other income, net was $20.2 million for the three months ended June 30, 2021 , as
compared to $2.8 million for the three months ended June 30, 2020 . The net
increase in other income was primarily driven by a $7.7 million gain due to a
change in value of an investment in a third party and a $5.3 million gain on the
sale of one of our investments, both of which occurred during the three months
ended June 30, 2021 , with no similar activity for the three months ended June
30, 2020 . In addition, we had foreign currency gains in 2021 as compared to
losses in 2020, with a net positive impact of $3.3 million for the three months
ended June 30, 2021 as compared to the three months ended June 30, 2020 .
Reorganization Items
Reorganization items reflect direct costs incurred in connection with our
Chapter 11 restructuring activities. We recorded reorganization items of $298.7
million and $49.6 million for the three months ended June 30, 2020 and 2021,
respectively. Reorganization items for the three months ended June 30, 2020
primarily consisted of $197.0 million related to the write-off of debt discount,
premium and issuance costs, $52.2 million of financing fees related to the DIP
Facility and $49.0 million in professional fees. Reorganization items for the
three months ended June 30, 2021 consisted of professional fees.
39
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Income Tax Expense
Income tax expense increased by $3.1 million to $3.9 million for the three
months ended June 30, 2021 , as compared to the three months ended June 30, 2020 .
The increase was principally attributable to higher income from our U.S.
subsidiaries for the three months ended June 30, 2021 , withholding taxes on
revenue earned in some of the foreign markets in which we operate, benefits
recorded in 2020 from impacts of the Coronavirus Aid, Relief, and Economic
Security Act (the "CARES Act"), and a tax reserve established on certain tax
benefits taken on the Base Erosion Anti-Abuse Tax ("BEAT"), partially offset by
a tax benefit resulting from changes in the UK deferred tax rate.
Cash paid for income taxes, net of refunds, totaled $1.7 million and $2.1
million for the three months ended June 30, 2020 and 2021, respectively.
Net Loss Attributable to Intelsat S.A.
Net loss attributable to Intelsat S.A. was $152.3 million for the three months
ended June 30, 2021 , as compared to net loss attributable to Intelsat S.A. of
$405.4 million for the three months ended June 30, 2020 . The change reflects the
various items discussed above.
Six Months Ended June 30, 2020 and 2021
The following table sets forth our comparative statements of operations for the
periods shown with the increase (decrease) and percentage changes, except those
deemed not meaningful ("NM"), between the periods presented (in thousands,
except percentages):
Six Months
Ended Six Months Ended Dollar Percentage
June 30, 2020 June 30, 2021 Change Change
Revenue $ 940,854 $ 1,010,625 $ 69,771 7%
Operating expenses:
Direct costs of revenue (excluding
depreciation and amortization) 212,046 328,549 116,503 55%
Selling, general and administrative 144,829 202,777 57,948 40%
Depreciation and amortization 325,662 333,499 7,837 2%
Impairment of non-amortizable intangible and
other assets 46,243 - (46,243) NM
Other operating expense-C-band - 122,994 122,994 NM
Total operating expenses 728,780 987,819 259,039 36%
Income from operations 212,074 22,806 (189,268) (89%)
Interest expense, net (540,862) (262,236) 278,626 (52%)
Other income, net 5,496 29,937 24,441 NM
Reorganization items (298,691) (105,403) 193,288 (65%)
Loss before income taxes (621,983) (314,896) 307,087 (49%)
Income tax expense (959) (11,112) (10,153) NM
Net loss (622,942) (326,008) 296,934 (48%)
Net income attributable to noncontrolling
interest (1,184) (1,174) 10 (1%)
Net loss attributable to Intelsat S.A.
(48%)
40
--------------------------------------------------------------------------------Revenue
The following table sets forth our comparative revenue by service type, with
Off-Network and Other Revenues shown separately from On-Network Revenues, for
the periods shown (in thousands, except percentages):
Six Months
Ended Six Months Ended Increase Percentage
June 30, 2020 June 30, 2021 (Decrease) ChangeOn-Network Revenues Transponder services$ 674,934 $ 649,163$ (25,771) (4%) Managed services 157,311 139,854 (17,457) (11%) Channel 816 381 (435) (53%) Total on-network revenues 833,061 789,398 (43,663) (5%) Off-Network and Other Revenues Transponder, MSS and other off-network services 87,305 82,303 (5,002) (6%) Satellite-related services 20,488 18,493 (1,995) (10%) Total off-network and other revenues 107,793 100,796 (6,997) (6%) In-flight Services Revenues Services - 102,007 102,007 NM Equipment - 18,424 18,424 NM Total in-flight services revenue - 120,431 120,431 NM Total$ 940,854 $ 1,010,625 $ 69,771 7% Total revenue for the six months endedJune 30, 2021 increased by$69.8 million , or 7%, as compared to the six months endedJune 30, 2020 . By service type, our revenues increased or decreased due to the following: On-Network Revenues: •Transponder services-an aggregate decrease of$25.8 million , primarily due to a$38.1 million net decrease in revenue from media customers, partially offset by a$9.7 million net increase from network services customers. The decrease in revenue from media customers was primarily due to non-renewals, renewals at lower prices, and service contractions relating to distribution and DTH solution application customers, partially offset by new business from a contribution and distribution solution application customer in theAmericas and renegotiated contracts and new business from a DTH solution application customer inEurope . The increase in revenue from network services customers was primarily due to a renegotiated contract with a maritime mobility customer for a different service mix of revenues previously classified as managed services, new business and pricing and capacity increases for an enterprise networks customer, and a service transfer from managed services to transponder services for a cellular backhaul customer. These increased revenues were partially offset by non-renewals, pricing decreases, service contractions, and a service contract termination. •Managed services-an aggregate decrease of$17.5 million , primarily due to a$19.2 million decrease in revenue from network services customers, partially offset by a$2.9 million increase in revenue from government customers. The decline in revenues from network services customers was primarily driven by a renegotiated contract with a maritime mobility customer for a different service mix of revenues previously classified as managed services, a service transfer from managed services to transponder services for a cellular backhaul customer, and non-renewals, partially offset by increased revenues from new flex maritime services. The increase in revenues from government customers was primarily attributable to new flex services and the entry into service of Galaxy 30, partially offset by non-renewals. In-flight Services Revenues: •Services and equipment-an aggregate increase of$120.4 million attributable to our Intelsat CA business. Operating Expenses Direct Costs of Revenue (Excluding Depreciation and Amortization) Direct costs of revenue increased by$116.5 million , or 55%, to$328.5 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . The increase was primarily due to$122.4 million in costs attributable to our Intelsat CA business, acquired inDecember 2020 . 41 -------------------------------------------------------------------------------- Selling, General and Administrative Selling, general and administrative expenses increased by$57.9 million , or 40%, to$202.8 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . The increase was primarily due to the following: •$59.4 million in costs attributable to our Intelsat CA business; •an$11.2 million increase in staff-related expenses largely relating to our employee retention incentive plans; and •a$4.2 million increase in professional fees; partially offset by •a$15.6 million decrease in bad debt expense due to higher bad debt expense for the six months endedJune 30, 2020 , largely relating to a certain customer that filed for Chapter 11 bankruptcy protection in 2020. Depreciation and Amortization Depreciation and amortization expense increased by$7.8 million , or 2%, to$333.5 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . Significant items impacting depreciation and amortization included: •an increase of$14.2 million in depreciation and amortization expense attributable to our Intelsat CA business; and •an increase of$4.1 million in depreciation expense resulting from the impact of a satellite placed into service; partially offset by •a decrease of$10.9 million in depreciation expense due to the timing of certain satellites becoming fully depreciated. Impairment of Non-Amortizable Intangible and Other Assets We recognized impairment charges of$34.0 million and$12.2 million for the six months endedJune 30, 2020 relating to certain satellite and launch vehicle deposits and the Intelsat trade name intangible asset, respectively. No comparable amounts were recognized for the six months endedJune 30, 2021 . See Item 1, Note 9-Satellites and Other Property and Equipment and Item 1, Note 11-Goodwill and Other Intangible Assets for further discussion. Other Operating Expense-C-band Other operating expense-C-band consists of reimbursable and non-reimbursable costs associated with our C-band spectrum relocation efforts. We incurred$123.0 million of reimbursable and non-reimbursable C-band clearing related expenses for the six months endedJune 30, 2021 , with no comparable amounts for the six months endedJune 30, 2020 . Interest Expense, Net Interest expense, net decreased by$278.6 million , or 52%, to$262.2 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 , primarily due to the following: •a decrease of$247.8 million in interest expense primarily resulting from Chapter 11 restructuring activities, partially offset by an increase in interest expense recognized on our senior secured credit facilities; and •a decrease of$25.1 million due to a higher capitalized interest primarily resulting from increased levels of satellites and related assets under construction. The non-cash portion of total interest expense, net was$53.3 million for the six months endedJune 30, 2021 , primarily consisting of interest expense related to the significant financing component identified in customer contracts, amortization and accretion of discounts and premiums and amortization of deferred financing fees. Other Income, Net Other income, net was$29.9 million for the six months endedJune 30, 2021 , as compared to$5.5 million for the six months endedJune 30, 2020 . The net increase in other income was primarily driven by a$7.7 million gain due to a change in value of an investment in a third party, a$5.5 million gain due to a change in value of stock warrants we hold, and a$5.3 million gain on the sale of one of our investments, all of which occurred during the six months endedJune 30, 2021 , with no similar activity for the six months endedJune 30, 2020 . In addition, we had foreign currency gains in 2021 as compared to losses in 2020, with a net positive impact of$6.0 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . 42 -------------------------------------------------------------------------------- Reorganization Items Reorganization items reflect direct costs incurred in connection with our Chapter 11 restructuring activities. We recorded reorganization items of$298.7 million and$105.4 million for the six months endedJune 30, 2020 and 2021, respectively. Reorganization items for the six months endedJune 30, 2020 primarily consisted of$197.0 million related to the write-off of debt discount, premium and issuance costs,$52.2 million of financing fees related to the DIP Facility and$49.0 million in professional fees. Reorganization items for the six months endedJune 30, 2021 primarily consisted of professional fees. Income Tax Expense Income tax expense increased by$10.2 million to$11.1 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . The increase was principally attributable to higher income from ourU.S. subsidiaries for the six months endedJune 30, 2021 , withholding taxes on revenue earned in certain non-U.S. jurisdictions in which we operate, benefits recorded in 2020 from impacts of the CARES Act, and a tax reserve established on certain tax benefits taken on the BEAT, partially offset by a tax benefit resulting from changes in theUK deferred tax rate. Cash paid for income taxes, net of refunds, totaled$2.6 million and$2.5 million for the six months endedJune 30, 2020 and 2021, respectively. Net Loss Attributable to Intelsat S.A. Net loss attributable to Intelsat S.A. was$327.2 million for the six months endedJune 30, 2021 , as compared to net loss attributable to Intelsat S.A. of$624.1 million for the six months endedJune 30, 2020 . The change reflects the various items discussed above. EBITDA EBITDA consists of earnings before net interest, loss (gain) on early extinguishment of debt, taxes and depreciation and amortization. Given our high level of leverage, refinancing activities are a frequent part of our efforts to manage our costs of borrowing. Accordingly, we consider loss (gain) on early extinguishment of debt an element of interest expense. EBITDA is a measure commonly used in the FSS sector, and we present EBITDA to enhance the understanding of our operating performance. We use EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. However, EBITDA is not a measure of financial performance underU.S. GAAP, and our EBITDA may not be comparable to similarly titled measures of other companies. EBITDA should not be considered as an alternative to operating income (loss) or net income (loss) determined in accordance withU.S. GAAP, as an indicator of our operating performance, or as an alternative to cash flows from operating activities determined in accordance withU.S. GAAP, as an indicator of cash flows, or as a measure of liquidity. A reconciliation of net loss to EBITDA for the periods shown is as follows (in thousands): Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, 2020 June 30, 2021 June 30, 2020 June 30, 2021 Net loss$ (404,727) $ (151,702) $ (622,942) $ (326,008) Add: Interest expense, net 222,533 129,893 540,862 262,236 Income tax expense 818 3,923 959 11,112 Depreciation and amortization 162,614 168,259 325,662 333,499 EBITDA$ (18,762) $ 150,373 $ 244,541 $ 280,839 Adjusted EBITDA In addition to EBITDA, we calculate a measure called Adjusted EBITDA to assess the operating performance of Intelsat S.A. Adjusted EBITDA consists of EBITDA of Intelsat S.A. as adjusted to exclude or include certain unusual items, certain other operating expense items and certain other adjustments as described in the table and related footnotes below. Our management believes that the presentation of Adjusted EBITDA provides useful information to investors, lenders and financial analysts regarding our financial condition and results of operations because it permits clearer comparability of our operating performance between periods. By excluding the potential volatility related to the timing and extent of non-operating activities, such as impairments of asset value and other non-recurring items, our management believes that Adjusted EBITDA provides a useful means of evaluating the success of our operating activities. We also use Adjusted EBITDA, together with other appropriate metrics, to set goals for and measure the operating performance of our business, and it is one of the principal measures we use to evaluate our management's performance in determining 43 -------------------------------------------------------------------------------- compensation under our incentive compensation plans. Adjusted EBITDA measures have been used historically by investors, lenders and financial analysts to estimate the value of a company, to make informed investment decisions and to evaluate performance. Our management believes that the inclusion of Adjusted EBITDA facilitates comparison of our results with those of companies having different capital structures. Adjusted EBITDA is not a measure of financial performance underU.S. GAAP and may not be comparable to similarly titled measures of other companies. Adjusted EBITDA should not be considered as an alternative to operating income (loss) or net income (loss) determined in accordance withU.S. GAAP, as an indicator of our operating performance, as an alternative to cash flows from operating activities determined in accordance withU.S. GAAP, as an indicator of cash flows, or as a measure of liquidity. A reconciliation of net loss to EBITDA and EBITDA to Adjusted EBITDA is as follows (in thousands): Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, 2020 June 30, 2021 June 30, 2020 June 30, 2021 Net loss$ (404,727) $ (151,702) $ (622,942) $ (326,008) Add: Interest expense, net 222,533 129,893 540,862 262,236 Income tax expense 818 3,923 959 11,112 Depreciation and amortization 162,614 168,259 325,662 333,499 EBITDA (18,762) 150,373 244,541 280,839
Add:
Compensation and benefits(1) 20,149 21,561 23,855 41,834 Non-recurring and non-cash items(2) 4,431 58,870 15,329 123,828 Impairment of non-amortizable intangible and other assets(3) 34,043 - 46,243 - Reorganization items(4) 298,691 49,591 298,691 105,403 Proportionate share from unconsolidated joint venture(5): Interest expense, net 1,045 609 2,125 1,242 Depreciation and amortization 2,814 2,814 5,629 5,629 Adjusted EBITDA(6)(7)$ 342,411 $ 283,818 $ 636,413 $ 558,775 (1)Reflects non-cash expenses incurred relating to our equity compensation plans and expenses incurred relating to our employee retention incentive plans in connection with our Chapter 11 proceedings. (2)Reflects certain non-recurring expenses, gains and losses and non-cash items, including the following: costs associated with our C-band spectrum relocation efforts; professional fees related to our liability management initiatives; merger and acquisition costs; certain research and development costs; amortization of supplemental type certificates; severance, retention and relocation payments; changes in fair value and gains on sales of certain investments; certain foreign exchange gains and losses; and other various non-recurring expenses. (3)Reflects a non-cash impairment charge recorded in connection with the write-off of certain satellite and launch vehicle deposits for the three and six months endedJune 30, 2020 , and a trade name impairment (see Item 1, Note 11-Goodwill and Other Intangible Assets) for the six months endedJune 30, 2020 . (4)Reflects direct costs incurred in connection with our Chapter 11 restructuring activities. See Item 1, Note 2-Chapter 11 Proceedings, Ability to Continue as a Going Concern and Other Related Matters. (5)Reflects adjustments related to our interest inHorizons-3 Satellite LLC ("Horizons 3"). See Item 1, Note 10(b)-Investments-Horizons-3 Satellite LLC . (6)Adjusted EBITDA included$26.4 million and$26.7 million for the three months endedJune 30, 2020 and 2021, respectively, and$52.5 million and$53.2 million for the six months endedJune 30, 2020 and 2021, respectively, of revenue relating to the significant financing component identified in customer contracts in accordance with the adoption of ASC 606, Revenue from Contracts with Customers. (7)Intelsat S.A. Adjusted EBITDA reflected$5.1 million and$4.7 million for the three months endedJune 30, 2020 and 2021, respectively, and$9.8 million and$8.7 million for the six months endedJune 30, 2020 and 2021, respectively, of Adjusted EBITDA attributable toIntelsat Horizons-3 LLC , its subsidiaries and its proportionate share of Horizons 3. These entities are considered to be unrestricted subsidiaries under the definitions set forth in our applicable debt agreements. 44 -------------------------------------------------------------------------------- B. Liquidity and Capital Resources Overview We are a highly leveraged company and our contractual obligations, commitments and debt service requirements over the next several years are significant. AtJune 30, 2021 , the aggregate principal amount of our debt outstanding not held by affiliates was$15.7 billion . Our interest expense, net for the three and six months endedJune 30, 2021 was$129.9 million and$262.2 million , respectively, which included$26.6 million and$53.3 million of non-cash interest expense, respectively. AtJune 30, 2021 , cash, cash equivalents and restricted cash were approximately$658.9 million . The commencement of the Chapter 11 Cases accelerated 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. During the pendency of the Chapter 11 Cases, as discussed above in -Recent Developments, Voluntary Reorganization under Chapter 11, the Debtors do not anticipate making interest payments due under their respective unsecured debt instruments. In past years, our cash flows from operations and cash on hand have been sufficient to fund interest obligations ($1.1 billion and$634.7 million for the years endedDecember 31, 2019 and 2020, respectively), and significant capital expenditures ($229.8 million and$606.8 million for the years endedDecember 31, 2019 and 2020, respectively). However, as discussed above in -Recent Developments, Voluntary Reorganization under Chapter 11, our ability to fund operating expenses is now, to some extent, subject to obtaining certain approvals from theBankruptcy Court in connection with our Chapter 11 proceedings. A significant factor driving the Company's decision to file for Chapter 11 protection was the Company's desire to participate in theFCC 's process for accelerated clearing of the C-band spectrum, for which we need to incur significant upfront expenses for clearing activities well in advance of receiving reimbursement payments. OnAugust 14, 2020 , the Company filed its C-band spectrum transition plan with theFCC . In addition to the significant capital expenditures we expect to make in 2021 and beyond, we expect total clearing costs will be approximately$1.3 billion over the next three years. Our primary source of liquidity is and will continue to be cash generated from operations, as well as existing cash. We currently expect to use cash on hand and cash flows from operations to fund our most significant cash outlays, including debt service requirements and capital expenditures, in the next twelve months and beyond. We also expect to receive reimbursement payments for certain upfront C-band spectrum clearing expenses incurred, and under theFCC Final Order, the Company is eligible to receive Acceleration Payments of approximately$1.2 billion and$3.7 billion based on the milestone clearing certification dates ofDecember 5, 2021 andDecember 5, 2023 , respectively, with the respective payments expected to be received in the first half of each successive year, subject to the satisfaction of certain deadlines and other conditions set forth therein. Cash Flow Items Our cash flows consisted of the following for the periods shown (in thousands): Six Months Ended Six Months Ended June 30, 2020 June 30, 2021 Net cash provided by operating activities $ 54,494 $ 38,360 Net cash used in investing activities (197,385) (455,913) Net cash provided by (used in) financing activities 426,744 (9,774)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(3,732) (1,294)
Net change in cash, cash equivalents and restricted cash $ 280,121
Net Cash Provided by Operating Activities Net cash provided by operating activities decreased by$16.1 million to$38.4 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . The decrease was due to a$28.7 million decrease in net loss and changes in non-cash items, partially offset by a$12.6 million increase from changes in operating assets and liabilities. The increase from changes in operating assets and liabilities was primarily due to lower outflows related to the amount and timing of accounts receivable, prepaid expenses, and contract and other assets, partially offset by higher outflows related to interest payments and contract liabilities.Net Cash Used in Investing Activities Net cash used in investing activities increased by$258.5 million to$455.9 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 , primarily due to increased capital expenditures, partially offset by$15.0 million of proceeds from the sale of an investment. 45 -------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities Net cash provided by financing activities decreased by$436.5 million to cash used of$9.8 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 , primarily due to net proceeds of$447.8 million resulting from our DIP financings completed during the six months endedJune 30, 2020 , partially offset by lower principal payments on deferred performance incentives. Restricted Cash As ofJune 30, 2021 ,$27.1 million of cash was legally restricted, being held as a compensating balance for certain outstanding letters of credit. Debt 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 andIntelsat Jackson . 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. 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. Intelsat Jackson Superpriority Secured Debtor-in-Possession Term Loan Facility OnJune 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-Recent Developments-Voluntary Reorganization under Chapter 11 above).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.Intelsat Jackson made two additional draws of$250.0 million each onNovember 27, 2020 andDecember 14, 2020 , bringing the total aggregate principal amount outstanding under the DIP Facility to$1.0 billion as of bothDecember 31, 2020 andJune 30, 2021 . Drawn amounts under the DIP Facility bear interest at either (i) 4.5% per annum plus a base rate of the highest of (a) the Federal Funds Effective Rate plus ½ of 1.0%, (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 1.0%, or (ii) 5.5% 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, as amended by DIP Amendment No. 3 discussed below, isJuly 13, 2022 , subject to certain extensions pursuant to the terms of the DIP Credit Agreement. The DIP Credit Agreement includes 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 theBankruptcy 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. 46 -------------------------------------------------------------------------------- OnAugust 24, 2020 , the DIP Debtors and DIP Lenders entered into DIP Amendment No. 1 to the DIP Credit Agreement, and onNovember 25, 2020 , entered into DIP Amendment No. 2, each in connection with the Gogo Transaction (see Item 1, Note 2-Chapter 11 Proceedings, Ability to Continue as a Going Concern and Other Related Matters for additional information). OnJuly 13, 2021 , the DIP Debtors and DIP Lenders entered into DIP Amendment No. 3 whereby, among other things, the parties agreed to certain technical modifications to the DIP Credit Agreement that provided for the extension of the initial scheduled maturity date ofJuly 13, 2021 , and the Debtors agreed to waive certain conditions under the PSA. In connection with DIP Amendment No. 3, the DIP Debtors elected to extend the initial scheduled maturity date for one year toJuly 13, 2022 and paid 1.0% of the aggregate principal amount in extension fees. The foregoing descriptions of the DIP Credit Agreement, DIP Amendment No. 1, DIP Amendment No. 2 and DIP Amendment No. 3 do not purport to be complete and are qualified in their entirety by reference to the full text of the DIP Credit Agreement, DIP Amendment No. 1, DIP Amendment No. 2 and DIP Amendment No. 3, as applicable. Contracted Backlog We benefit from strong visibility of our future revenues. Our contracted backlog is our expected future revenue under existing customer contracts and includes both cancelable and non-cancelable contracts. As ofJune 30, 2021 , our contracted backlog was approximately$6.0 billion . The amount included in backlog represents the full service charge for the duration of the contract and does not include termination fees. The amount of the termination fees is generally calculated as a percentage of the remaining backlog associated with the contract. In certain cases of breach for non-payment or customer bankruptcy, we may not be able to recover the full value of certain contracts or termination fees. Our contracted backlog includes 100% of the backlog of our consolidated ownership interests, which is consistent with the accounting for our ownership interests in these entities. We believe this backlog and the resulting predictable cash flows in the FSS sector make our results less volatile than that of typical companies outside our industry. Capital Expenditures Our capital expenditures depend on our business strategies and reflect our commercial responses to opportunities and trends in our industry. Our actual capital expenditures may differ from our expected capital expenditures if, among other things, we enter into any currently unplanned strategic transactions. Levels of capital spending from one year to the next are also influenced by the nature of the satellite life cycle and by the capital-intensive nature of the satellite industry. For example, we incur significant capital expenditures during the years in which satellites are under construction. We typically procure a new satellite within a timeframe that would allow the satellite to be deployed at least one year prior to the end of the service life of the satellite to be replaced. As a result, we frequently experience significant variances in our capital expenditures from year to year. Further, following the Company's filing of its C-band spectrum transition plan with theFCC onAugust 14, 2020 , we expect total clearing costs will be approximately$1.3 billion over the next three years, of which approximately$900.0 million is expected to be incurred in 2021. Payments for satellites and other property and equipment during the six months endedJune 30, 2021 were$469.0 million . However, subject to the satisfaction of certain deadlines and other conditions set forth in theFCC Final Order, the Company is eligible to receive Acceleration Payments in an aggregate total amount of approximately$4.9 billion over the next 2 years. We intend to fund our capital expenditure requirements from cash on hand and cash provided from operating activities; however, our ability to fund capital expenditures in the ordinary course is, to some extent, subject to obtaining certain approvals from theBankruptcy Court in connection with our Chapter 11 proceedings. Off-Balance Sheet Arrangements We have revenue sharing agreements withJSAT International, Inc. ("JSAT") related to services sold on the Horizons 1, Horizons 2 and Horizons 3 satellites. We are responsible for billing and collection for such services and we remit 50% of the revenue, less applicable fees and commissions, to JSAT. Refer to Item 1, Note 10-Investments for disclosures relating to the revenue sharing agreements with JSAT. Contractual Obligations Other than as disclosed elsewhere in this report with respect to the filing of the Chapter 11 Cases and the acceleration of substantially all of our debt as a result, there have been no material changes outside the ordinary course of business to the information provided with respect to our contractual obligations as disclosed in our 2020 Annual Report. 47 -------------------------------------------------------------------------------- Critical Accounting Policies and Estimates The preparation of these condensed consolidated financial statements in conformity withU.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. The Company's significant accounting policies are described in Note 1-Background and Summary of Significant Accounting Policies in our 2020 Annual Report. The Company's critical accounting estimates are described in Part II-Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report and are further described below. 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 Item 1, Note 2-Chapter 11 Proceedings, Ability to Continue as a Going Concern and Other Related Matters). Recently Issued Accounting Pronouncements For disclosures related to recently issued accounting pronouncements, see Item 1, Note 1-General-Recently Issued Accounting Pronouncements. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the Company's disclosures about market risk made in Part II-Item 7A-Quantitative and Qualitative Disclosures about Market Risk of the Company's 2020 Annual Report. Item 4. Controls and Procedures Disclosure Controls and Procedures We have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the quarter endedJune 30, 2021 . Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as ofJune 30, 2021 . Changes in Internal Control over Financial Reporting Except as described below, there were no other changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(f) of the Exchange Act during the quarter endedJune 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. OnDecember 1, 2020 , we completed our acquisition of Intelsat CA. As part of our ongoing integration of the Intelsat CA business, we are currently integrating policies, processes, people, technology and operations for the combined Company. Management will continue to evaluate the Company's internal control over financial reporting as it continues to integrate the Intelsat CA business. 48
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