15th Nov 2006 07:02
Inmarsat PLC15 November 2006 Inmarsat Holdings Limited Reports Third Quarter 2006 Results London, UK: November 15, 2006. Inmarsat Holdings Limited, a wholly-ownedsubsidiary of Inmarsat plc (LSE: ISAT), the leading provider of global mobilesatellite communications services, today reported consolidated financial resultsfor the 3 months ended September 30, 2006. • Third quarter total revenue $129.2 million up 8% year over year • Mobile satellites services revenue up 10% year over year • EBITDA $89.4 million up 20% year over year • Strong performance across all business sectors • BGAN revenue $5.3 million year to date, 5,547 subscribers • BGAN take-up strong in new markets • ACeS integration on track, first revenues from hand-held services • SwiftBroadband demonstrated, on track to support in-flight mobile trials Andrew Sukawaty, Inmarsat's Chairman and Chief Executive Officer said, "Acrossthe board it was a strong revenue and EBITDA performance for the third quarter.We recorded significant year over year and sequential quarterly revenue growthin all our reporting sectors. We are pleased with the contribution from our newBGAN service during the third quarter and in the continued interest this isgenerating among new and existing customers. Taking into account the expectedimpact of volume discounts in the fourth quarter, we are now well positioned todeliver results in line with market expectations for the full year." Mobile Satellite Services The maritime sector revenue performance was driven by the combination ofcontinued growth in maritime data revenue and further stabilization in maritimevoice revenue. The main driver of maritime data growth continues to be thetake-up and higher average usage of our Fleet service terminals. Activations ofFleet terminals continued during the quarter in line with earlier quarters thisyear. Maritime voice revenue for the quarter was stable on higher trafficvolumes, including a small contribution from new terminals as a result of thecollaboration with ACeS. Improved land sector revenue year over year was driven by increased demand forland data services offsetting lower demand for voice services. Higher demand forland data services was driven by the continued growth in demand for our R-BGANservice and a contribution of $3.2 million during the third quarter from our newBGAN service, offset in part by lower GAN traffic. Land voice revenue during thequarter continued to be impacted by price declines and to some degree bycompetition. In September, Inmarsat announced a collaboration with ACeSInternational to introduce a hand-held and other satellite voice servicesdesigned to compete directly for the first time with the services of other MSSoperators. This new service, available initially in the Asian region,contributed a small amount of revenue during the quarter and we expect this togrow when geographical coverage of the service is expanded during 2007 to beavailable in key markets where Inmarsat has lost share in voice services in thepast. BGAN revenue was $3.2 million for the quarter and $5.3 million for the firstnine months of the year. At the end of the quarter there were 5,547 active BGANsubscribers registered on our network. While BGAN has been readily taken up by anumber of heavy users of our services, particularly the media agencies, overallthe pattern of take-up indicates that we are generating demand from newcustomers and from existing customers using new applications. These newcustomers have used the service in a number of countries where the penetrationof our established services, such as GAN, has historically been limited.Furthermore, we have not detected any significant migration to BGAN from ourestablished services. The reception of BGAN from both end customers anddistributors continues to be very positive and encouraging for its continuedgrowth. Revenue from the aeronautical sector continued the strong growth seen over thepast several quarters as a result of increased demand for Inmarsat's Swift 64service. The increase in active Swift 64 terminals recorded during the quarterslightly exceeded the record number of new active terminals reported in thesecond quarter. During October, Inmarsat announced the first tests of theSwiftBroadband service that is expected to be commercially available during 2007and is the service that will be used by a number of airlines to trial in-flightmobile passenger services. Leasing revenue for the quarter was boosted by new business signed at the end ofthe second quarter and which contributed a full quarter of revenue during thethird quarter. Impact of volume discounts The volume discounts we offer to our distributors have an increasing impact onour margins as the year progresses. As our distributors reach certain volumetargets we reduce our wholesale prices and this process reduces our marginsuntil the end of the calendar year when our rates are then reset to theirpre-discount level. Volume discounts have their greatest impact on our wholesaleprices during the fourth quarter. As a result and consistent with prior years,revenue for the fourth quarter 2006 is expected to be lower than revenuereported for the third quarter 2006. Liquidity At the end of the third quarter we had net external debt of $821.1 million madeup of cash of $49.0 million and total external debt of $870.1 million. Inaddition to our cash resources, we had a revolving credit facility with anamount available but undrawn at the end of the first quarter of $300 million.Cash used to fund capital expenditure during the quarter was $31.7 million.After the end of the third quarter, on the October 29, 2006, Inmarsat usedapproximately $48.5 million of cash to pay the Inmarsat plc 2006 interimdividend. We are also announcing today that Michael Butler will become President ofInmarsat plc, in addition to his current position of Chief OperatingOfficer, reflecting his central role in the core business and his involvement inthe development of the broader business. Our full financial report for the third quarter can be accessed via our websiteat www.inmarsat.com/investor_relations/. Copies of the financial reports willalso be filed with the SEC later today on form 6-K. Inmarsat plc Inmarsat Holdings Limited, through its subsidiary Inmarsat Finance II plc, isthe issuer of $450 million of 10.375% Senior Discount Notes due 2012. InmarsatGroup Limited, through its subsidiary Inmarsat Finance plc, is the issuer of$310.4 million of 7.625% Senior Notes due 2012. Both Inmarsat Holdings Limitedand Inmarsat Group Limited are required by the terms of the Notes outstanding toreport quarterly financial results. Inmarsat plc is the ultimate parent companyof the Inmarsat group and its next results will be preliminary results for theyear 2006 and are expected to be reported in March 2007. Other Information Inmarsat management will discuss the third quarter results and other financialand business information in a conference call on Wednesday, November 15, at 3:00p.m. London time (GMT), (United States, 10:00 a.m. EST). To access the callplease dial +44 (0)1452 542 300. The conference code is 9859780. The call willalso be recorded and available for one week after the event. To access therecording please dial +44 (0)1452 550 000 and enter the conference code 9859780. Forward-looking Statements Certain statements in this announcement constitute "forward-looking statements"within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.These forward-looking statements involve risks, uncertainties and other factorsthat may cause our actual results, performance or achievements, or industryresults, to be materially different from those projected in the forward-lookingstatements. These factors include: general economic and business conditions;changes in technology; timing or delay in signing, commencement, implementationand performance of programmes, or the delivery of products or services underthem; structural change in the satellite industry; relationships with customers;competition; and ability to attract personnel. You are cautioned not to rely onthese forward-looking statements, which speak only as of the date of thisannouncement. We undertake no obligation to update or revise any forward-lookingstatement to reflect any change in our expectations or any change in events,conditions or circumstances. Inmarsat Holdings Limited Third quarter endedRevenue Breakdown September 30, -------- --------- 2006 2005 -------- ---------Revenues (US$ in millions)----------Maritime sector:voice services 25.5 24.6data services 47.1 42.5 -------- ---------Total maritime sector 72.6 67.1Land sector:voice services 4.6 5.6data services 25.8 23.3 -------- ---------Total land sector 30.4 28.9Aeronautical sector 8.0 5.7Leasing (incl. navigation) 16.3 14.1 -------- ---------Total mobile satellite communications services 127.3 115.8Subsidiary revenues - 3.0Other income 1.9 1.2 -------- ---------Total Revenues 129.2 120.0 ======== ========= Active Terminal Data As at September 30, -------- -------- 2006 2005 -------- --------Active terminals (1)(2) (000's)Maritime 137.3 120.6Land 82.1 76.2Aeronautical 7.4 6.6 -------- --------Total active terminals 226.8 203.4 ======== ======== (1) Active terminals are the number of subscribers (BGAN and R-BGAN) orterminals that have been used to access services at any time during thepreceding twelve-month period (other services except hand-held) registered atSeptember 30. Active hand-held terminals are the average number of terminalsactive on a daily basis during the period. (2) Active terminals as at September 30, 2006 include 10,388 ACeSterminals and 5,547 BGAN subscribers (as at September 30, 2005: nil and nil,respectively). The average daily active number of hand-held SIM cards was14,274. Inmarsat Holdings Limited Third quarter ended Third quarter endedConsolidated Profit and Loss Account September 30, September 30, ---------- ---------- 2006 2005 ---------- ---------- (US$ in millions) Revenue 129.2 120.0Employee benefit costs (21.2) (24.0)Network and satellite operationscosts (8.0) (7.8)Other operating costs (13.1) (16.8)Work performed by the Group andcapitalized 2.5 6.1Losses on termination ofsubsidiary undertakings - (2.8) ---------- ----------EBITDA 89.4 74.7Depreciation and amortization (44.0) (29.0) ---------- ----------Operating profit 45.4 45.7Interest receivable and similarincome 2.0 1.8Interest payable and similarcharges (20.5) (39.4) ---------- ----------Net interest payable (18.5) (37.6) ---------- ----------Profit before income tax 26.9 8.1Income tax expense (15.8) (4.7) ---------- ----------Profit for the period 11.1 3.4 ========== ========== Inmarsat Holdings Limited As at As atConsolidated Balance sheet September 30, December 31, ---------- ---------- 2006 2005 ---------- ---------- (US$ in millions) Non-current assets 1,794.3 1,843.6Current assetsInventories 0.3 0.3Trade and other receivables 185.7 150.1Cash and cash equivalents 49.0 35.3 ---------- ----------Total current assets 235.0 185.7 ---------- ----------Total assets 2,029.3 2,029.3 ---------- ----------Current liabilitiesOther payables and provisions (219.7) (197.0)Loans and other borrowings (36.7) (11.3)Non-current liabilitiesOther payables and provisions (253.7) (229.3)Loans and other borrowings (878.5) (908.9) ---------- ----------Total liabilities (1,388.6) (1,346.5) ---------- ----------Net assets and shareholders' funds 640.7 682.8 ========== ========== Contact:Inmarsat, London, UK Investor Enquiries Media EnquiriesSimon Ailes, +44 20 7728 1518 Christopher McLaughlin, +44 20 7728 [email protected] [email protected] - ends - INMARSAT HOLDINGS LIMITED CONDENSED CONSOLIDATED FINANCIAL RESULTS For the three and nine months ended September 30, 2006 (unaudited) Forward-Looking Statements This document contains forward-looking statements. These forward-lookingstatements include all matters that are not historical facts. Statementscontaining the words "believe", "expect", "intend", "may", "estimate" or, ineach case, their negative and words of similar meaning are forward-looking. By their nature, forward-looking statements involve risks and uncertaintiesbecause they relate to events that may or may not occur in the future. Wecaution you that forward-looking statements are not guarantees of futureperformance and that the Group's actual financial condition, results ofoperations and cash flows, and the development of the industry in which weoperate, may differ materially from those made in or suggested by theforward-looking statements contained in this document. In addition, even if theGroup's financial condition, results of operations and cash flows, and thedevelopment of the industry in which we operate, are consistent with theforward-looking statements in this document, those results or developments maynot be indicative of results or developments in subsequent periods. Importantfacts that could cause the Group's actual results of operations, financialcondition or cash flows, or the development of the industry in which we operate,to differ from current expectations include those risk factors disclosed in theGroup's Form 20-F Annual Report for the year ended December 31, 2005 as filedwith the Securities and Exchange Commission (SEC) on April 28, 2006. As set outin note 7, we anticipate filing a Form 20-F/A shortly in relation to this AnnualReport. As a consequence, the Group's current plans, anticipated actions and futurefinancial condition, results of operations and cash flows, as well as theanticipated development of the industry in which we operate, may differ fromthose expressed in any forward-looking statements made by us or on the Group'sbehalf. Non-GAAP Measures We use a number of non-GAAP measures in addition to GAAP measures in order toprovide readers with a better understanding of the underlying performance of ourbusiness, and to improve comparability of our results for the periods concerned.Where such non-GAAP measures are given, this is clearly indicated and thecomparable GAAP measure is also given. Net Borrowings Net Borrowings is defined as total borrowings less cash at bank and in hand lessshort term deposits with an original maturity of less than three months. We useNet Borrowings as a part of our internal debt analysis. We believe that NetBorrowings is a useful measure as it indicates the level of borrowings aftertaking account of the financial assets within our business that could beutilized to pay down the outstanding borrowings. In addition the Net Borrowingsbalance provides an indication of the Net Borrowings on which we are required topay interest. EBITDA and adjusted EBITDA We define EBITDA as profit before interest, taxation, depreciation andamortization. Other companies may define EBITDA differently and, as a result,our measure of EBITDA may not be directly comparable to the EBITDA of othercompanies. We define adjusted EBITDA as EBITDA adjusted for losses on termination ofsubsidiary undertakings. EBITDA, adjusted EBITDA and the related ratios are supplemental measures of ourperformance and liquidity under IFRS that are not required by, or presented inaccordance with, IFRS or, US GAAP. Furthermore, EBITDA and adjusted EBITDA arenot measurements of our financial performance under US GAAP and should not beconsidered as an alternative to net income, operating income or any otherperformance measures derived in accordance with IFRS or US GAAP. We believe EBITDA and adjusted EBITDA facilitate operating performancecomparisons from period to period and company to company by eliminatingpotential differences caused by variations in capital structures (affectinginterest expense), tax positions (such as the impact on periods or companies ofchanges in effective tax rates or net operating losses) and the age and bookdepreciation of tangible assets (affecting relative depreciation expense). Wealso present EBITDA and adjusted EBITDA because we believe they are frequentlyused by securities analysts, investors and other interested parties inevaluating similar issuers, the vast majority of which present EBITDA whenreporting their results. TABLE OF CONTENTS Page -------- Business and Financial Review 1-------------------------------Condensed Consolidated Income Statement for the three and nine monthsended September 30, 2006 9 Condensed Consolidated Statement of Recognized Income and Expense forthe three and nine months ended September 30, 2006 9 Condensed Consolidated Balance Sheet as at September 30, 2006 10 Condensed Consolidated Cash Flow Statement for the three and ninemonths ended September 30, 2006 11 Notes to the Condensed Consolidated Financial Statements 12 Business and Financial Review The following is a discussion of the unaudited consolidated results ofoperations and financial condition of Inmarsat Holdings Limited (the "Company"or together with its subsidiaries, the "Group") for the three and nine monthsended September 30, 2006. You should read the following discussion together withthe whole of this document including the historical consolidated financialresults and the notes. The consolidated financial results were prepared inaccordance with International Financial Reporting Standards (IFRS) as adopted bythe European Union (EU) and IFRIC interpretations issued and effective at thetime of this report. There are no material differences for the Group betweenIFRS and IFRS as adopted for use in the EU. Overview Inmarsat is the leading provider of global mobile satellite communicationsservices, providing data and voice connectivity to end-users worldwide.Headquartered in London, Inmarsat has more than twenty-seven years of experiencein designing, launching and operating its satellite-based network. With a fleetof ten owned and operated geostationary satellites, the Group provides a widerange of data and voice services, including telephony, fax, video, email andhigh-speed intranet and internet access. The Group's revenues, operating profitand adjusted EBITDA under IFRS for the three months ended September 30, 2006were US$129.2 million, US$45.4 million and US$89.4 million, respectively(September 30, 2005: US$120.0 million, US$45.7 million, US$77.5 millionrespectively). The results of the Group's operations are reported in US dollars as the majorityof revenues and borrowings are denominated in US dollars. Key Operational Developments On September 4, 2006, Inmarsat and ACeS International Limited ("ACeS") announcedthe signing and completion of collaboration arrangements to offer low-costhand-held and fixed voice services, initially in the Asian market with extendedcoverage expected subsequently using the Inmarsat-4 satellites. Under thecollaboration arrangements, Inmarsat will assume responsibility for satelliteand network operations, wholesale service provision, as well as product andservice development. ACeS will focus on distribution of MSS products in theimportant Asian land and maritime markets and will become a distributor ofInmarsat's BGAN services. As a result of these arrangements, Inmarsat took over the active base ofapproximately 10,000 terminals operated by ACeS, and 53 employees located atACeS' operational centre in Batam, Indonesia. Inmarsat will pay ACeS a total ofUS$15.0 million over five years, of which an initial payment of US$4.0 millionwas made on completion. The arrangements taken together constitute a businesscombination under IFRS 3, 'Business Combinations', and further appropriatedisclosure will be made in the Group's Annual Report on Form 20-F for the yearending December 31, 2006. Revenues in the land voice and maritime voicesegments, as disclosed below, each contain an immaterial amount of revenueearned since completion. To enable expanded hand-held coverage using the existing Inmarsat-4 satellites,Inmarsat will undertake a process of network upgrades and an acceleratedmodernization of the ACeS R190 hand-held satellite phone. This is expected tocost in the region of US$40 million to US$45 million over approximately the nexttwo years. Launch of third Inmarsat-4 satellite Also on September 4, 2006, Inmarsat announced its intention to launch the thirdInmarsat-4 satellite, targeting a launch date in late 2007. This satellite isalready fully-built and tested and is currently in storage. Inmarsat expectsthat the cost of launching the third satellite will be in the region of US$130million to US$150 million, primarily made up of the launch vehicle, launchinsurance and the cost of an additional satellite access station to be locatedin the United States. Inmarsat believes the launch of the third satellite willbe important to the success of a global hand-held service, but further believesthat global Inmarsat-4 coverage will enhance the BGAN service and provideincremental opportunities for new broadband maritime and aeronautical servicesto be launched on the Inmarsat-4 satellites. Interim dividends On September 29, 2006 the Board declared and recorded an interim dividend ofUS$48.5 million to Inmarsat plc (the ultimate parent company). Inmarsat plc paidan interim dividend to its shareholders on October 27, 2006. Restructuring programme In January 2006 the Group announced its intention to restructure theorganization to reflect the fact that the Inmarsat-4 programme was nearingcompletion. The principal action in the restructuring plan involved a redundancyprogramme. This involved 44 employees, the majority of whom had been involved inprocuring, designing and supporting the manufacture of the Inmarsat-4 satellitesand related ground infrastructure. Costs of US$6.8 million were recognized as anexpense for the three months ended March 31, 2006 in respect of redundancy andother restructuring costs. The bulk of the restructuring costs have now beenpaid with a provision of US$1.4 million remaining on the balance sheet atSeptember 30, 2006. Restatement of 2005 results The results for 2005 have been restated in accordance with IFRS as adopted foruse in the EU following the Group's adoption of IFRS in reporting its annualresults for the year ended December 31, 2005. See note 6 for discussion ofdifferences. Additionally, the reconciliations of net equity and net income to US GAAP forDecember 31, 2005 and the year ended at that date, as set out in note 7, havebeen restated to reflect an error identified in the calculation of thereconciling items relating to deferred taxation. This error resulted in anoverstatement of the US GAAP deferred taxation charge for the year endedDecember 31, 2005 of US$9.0 million and an understatement of US GAAP net equityof US$16.6 million. A Form 20-F/A reflecting this restatement will be filed withthe SEC shortly. Revenues Revenues for the three months ended September 30, 2006 were US$129.2 million, anincrease of US$9.2 million, or 7.7%, compared with the three months endedSeptember 30, 2005. Revenues excluding subsidiaries disposed of during 2005increased by 10.4%, from US$117.0 million to US$129.2 million. The table belowsets out the components of the Group's total revenue for each of the periodsunder review: ------------------------- ----------- ------------(US$ in millions) Three months Nine months ended ended September 30, September 30, 2006 2005 2006 2005------------------------- ------ ------- ------- -------RevenuesMaritime sector:Voice services 25.5 24.6 75.7 76.5Data services 47.1 42.5 138.0 124.7------------------------- ------ ------- ------- -------Total maritime sector 72.6 67.1 213.7 201.2Land sector:Voice services 4.6 5.6 15.3 18.0Data services 25.8 23.3 74.7 76.7------------------------- ------ ------- ------- -------Total land sector 30.4 28.9 90.0 94.7Aeronautical sector 8.0 5.7 22.4 16.3Leasing (incl.navigation) 16.3 14.1 43.6 45.1------------------------- ------ ------- ------- -------Total mobile satellitecommunication services 127.3 115.8 369.7 357.3------------------------- ------ ------- ------- -------Subsidiary revenues - 3.0 - 11.8Other income 1.9 1.2 5.4 4.5------------------------- ------ ------- ------- -------Total revenue 129.2 120.0 375.1 373.6------------------------- ------ ------- ------- ------- ---------------------------------- ------------(000's) As at September 30, 2006 2005---------------------------------- ------- -------Active terminals(1)(2)Maritime 137.3 120.6Land 82.1 76.2Aeronautical 7.4 6.6---------------------------------- ------- -------Total active terminals 226.8 203.4---------------------------------- ------- -------____________________ (1) Active terminals are the number of subscribers (BGAN and R-BGAN) orterminals that have been used to access services at any time during thepreceding twelve-month period (other services except hand-held) registered as atSeptember 30. Active hand-held terminals are the average number of terminalsactive on a daily basis during the period. (2) Active terminals as at September 30, 2006 include 10,388 ACeS terminals and5,547 BGAN subscribers (as at September 30, 2005: nil and nil, respectively).The average daily active number of hand-held SIM cards was 14,274. During the three months ended September 30, 2006, revenues from mobile satellitecommunication services were US$127.3 million, an increase of US$11.5 million, or10%, compared with the three months ended September 30, 2005. Growth has beenstrong in all sectors as a result of continued success in the newer servicessuch as Fleet and Swift 64 and following the launch of BGAN in December 2005.The maritime, land, aeronautical and leasing sectors accounted for 57%, 24%, 6%and 13% of total revenues from mobile satellite communication servicesrespectively during the three months ended September 30, 2006. Active terminalnumbers have increased by 12% between September 30, 2005 and September 30, 2006through growth in the maritime and aeronautical sectors plus the addition ofACeS hand-held terminals in September 2006. Maritime Sector. During the three months ended September 30, 2006, revenues fromthe maritime sector were US$72.6 million, an increase of US$5.5 million, or 8%,compared with the three months ended September 30, 2005. This principallyreflects an increase in data revenues. Revenues from data services in the maritime sector during the three months endedSeptember 30, 2006 were US$47.1 million, an increase of US$4.6 million, or 11%,compared with the three months ended September 30, 2005. The increase inrevenues from data services reflects greater demand, as a result of thecontinued take-up and strong usage of our Fleet services. Demand for Fleetterminals has also been driven by growth in the global shipping fleet new-buildmarket. Revenues from voice services in the maritime sector during the three monthsended September 30, 2006 were US$25.5 million, an increase of US$0.9 million or4% compared with the three months ended September 30, 2005. Historically ourvoice revenues for the maritime sector have been affected by the migration ofusers from our higher-priced analogue service to our lower-priced digitalservices and to a lesser extent by competition. This has been more than offsetby growth in both our newer Fleet service and various promotions we haveinitiated to respond to increased competition in certain of our establishedservices. Land Sector. In the three months ended September 30, 2006, revenues from theland sector were US$30.4 million, an increase of US$1.5 million, or 5%, comparedwith the three months ended September 30, 2005. Revenues from data services in the land sector during the six months endedSeptember 30, 2006 were US$25.8 million, an increase of US$2.5 million, or 11%,compared with the three months ended September 30, 2005. The increase is aresult of the strong demand and usage of R-BGAN across the Inmarsat-4 F1 and F2satellite footprints and by growing traffic from the new BGAN service. This waspartially offset by the decline in GAN high-speed data traffic following areduction in traffic in the Middle East and competition from VSAT. Revenues from voice services in the land sector during the three months endedSeptember 30, 2006 were US$4.6 million, a decrease of US$1.0 million, or 18%,compared with the three months ended September 30, 2005. This continues thetrend seen over the last few years of declining traffic volumes resulting fromcompetition, principally for the mini-M and large antenna mini-M services, fromoperators of hand-held satellite telephones who offer lower-priced voiceservices. Revenues from BGAN services during the nine months ended September 30, 2006 areset out in the table below. These figures include voice, data and subscriptionrevenues. As at September 30, 2006 there were 5,547 active BGAN subscribers. BGAN Services Three months Nine months--------------- ended ended--------------- --------- -------- -------- ----------- March 31, 2006 June 30, 2006 September 30, September 30, 2006 2006--------------- --------- -------- -------- -----------Revenues (US$in millions) 0.5 1.6 3.2 5.3Activesubscribers 2,113 3,367 5,547 5,547--------------- --------- -------- -------- -------------------------- --------- -------- -------- ----------- Aeronautical Sector. During the three months ended September 30, 2006, revenuesfrom the aeronautical sector were US$8.0 million, an increase of US$2.3 million,or 40%, compared with the three months ended September 30, 2005. The increasecontinues to be attributed primarily to the Swift 64 high-speed data service,which targets the government aircraft and business jet markets as well as beingused by commercial airlines. In addition revenues for low-speed data servicesbenefited from increased industry demand. Leasing. During the three months ended September 30, 2006, revenues from leasingwere US$16.3 million, an increase of US$2.2 million, or 16%, compared with thethree months ended September 30, 2005 as a result of a new aeronautical Swift 64lease. Subsidiary revenues. Following the disposal of Invsat Limited and the businessand assets of Rydex Corporation Limited in September 2005 and October 2005respectively, subsidiary revenues were US$nil for the three months endedSeptember 30, 2006, compared to US$3.0 million in the three months endedSeptember 30, 2005. Other income. Other income was US$1.9 million for the three months endedSeptember 30, 2006, an increase of US$0.7 million, or 58%, compared with thethree months ended September 30, 2005 as a result of the provision of additionalin-orbit support services. Other income consists primarily of income from theprovision of conference facilities, renting surplus office space, fees forin-orbit support services and revenue from sales of R-BGAN end user terminals. Seasonality. Revenues are impacted by volume discounts that increase over thecourse of the financial year. There are lower discount levels in early quartersrepresenting the minimum annual discount and higher discount levels in laterquarters, as distribution partners meet specific volume thresholds, resulting inlower prices beyond the level of the minimum annual discount. Additionally, in2006 and future years, the total amount of volume discounts will be affected bythe merger of Xantic B.V. with Stratos Global Corporation which serves toincrease the amount of revenues attributed to a single distribution partner. Net operating costs Net operating costs in the three months ended September 30, 2006 were US$39.8million, a decrease of US$2.7 million or 6.4% compared to the three months endedSeptember 30, 2005. The table below sets out the components of the Group's netoperating costs for each of the periods under review: ----------------------- ------------- ------------(US$ in millions) Three months Nine months ended ended September 30, September 30,----------------------- -------- ------- ------- ------- 2006 2005 2006 2005----------------------- -------- ------- ------- -------Employee benefits costs (21.2) (24.0) (62.6) (68.4)Restructuring costs includingtermination benefits - - (6.8) -Network and satellite operationscosts (8.0) (7.8) (23.0) (31.8)Other operating costs (13.1) (16.8) (39.7) (44.8)Work performed by the Group andcapitalized 2.5 6.1 9.3 20.1----------------------- -------- ------- ------- -------Total net operating costs (39.8) (42.5) (122.8) (124.9)----------------------- -------- ------- ------- ------- Employee benefits costs Employee benefits costs during the three months ended September 30, 2006 wereUS$21.2 million, a decrease of US$2.8 million, or 11.7% compared with the threemonths ended September 30, 2005. This is partly the result of a reduction insubsidiary employee benefits costs of US$1.3 million following the disposal ofInvsat Limited and the business and assets of Rydex Corporation Limited inSeptember 2005 and October 2005 respectively. The remainder of the decrease canprimarily be attributed to the headcount reduction arising from therestructuring process announced in January 2006. Total full-time equivalentheadcount at September 30, 2006 was 436, compared to 412 (excludingsubsidiaries) at September 30, 2005. Headcount at September 30, 2006 included 53staff whose employment was assumed by the Group as a result of the ACeScollaboration arrangements. Network and satellite operations costs Network and satellite operations costs during the three months ended September30, 2006 were US$8.0 million compared to US$7.8 million during the three monthsended September 30, 2005. Other operating costs Other operating costs during the three months ended September 30, 2006 wereUS$13.1 million, a decrease of US$3.7 million, or 22.0%, compared with the threemonths ended September 30, 2005. In the three months ended September 30, 2005, the Group incurred subsidiaryoperating costs of US$2.0 million. Following the disposal of these operations inthe second half of 2005, no such costs were incurred in the three months endedSeptember 30, 2006. Additionally, in the three months ended September 30, 2005,the Group recorded an exchange loss of US$0.6 million included within otheroperating costs (2006: US$0.3 million). Work performed by the Group and capitalized Own work capitalized during the three months ended September 30, 2006 wasUS$2.5 million, a decrease of US$3.6 million, or 59.0%, compared with the threemonths ended September 30, 2005. Capitalizable expenditure has decreasedfollowing the successful launches of the two Inmarsat-4 satellites, andcommencement of the BGAN services. EBITDA and adjusted EBITDA As a result of the factors discussed above, adjusted EBITDA for the three monthsended September 30, 2006 was US$89.4 million, an increase of US$11.9 million, or15.4%, compared with the three months ended September 30, 2005. Adjusted EBITDAmargin has increased to 69.2% for the three months ended September 30, 2006compared to 64.6% for the three months ended September 30, 2005. Set forth below is a reconciliation of profit for the period to EBITDA andadjusted EBITDA for each of the periods indicated: ----------------------- ------------- ------------(US$ in millions) Three months Nine months ended ended September 30, September 30,----------------------- -------- ------- ------- ------- 2006 2005 2006 2005----------------------- -------- ------- ------- -------Profit for the period 11.1 3.4 42.5 45.9Add back:Income tax expense 15.8 4.7 32.0 27.1Net interest payable 18.5 37.6 58.5 94.2Depreciation and amortization 44.0 29.0 119.3 78.7----------------------- -------- ------- ------- -------EBITDA 89.4 74.7 252.3 245.9----------------------- -------- ------- ------- -------Losses on termination of subsidiaryundertakings - 2.8 - 2.8----------------------- -------- ------- ------- -------Adjusted EBITDA 89.4 77.5 252.3 248.7----------------------- -------- ------- ------- ------- Impact of disposal of subsidiaries In September 2005 and October 2005 the Group disposed of its interests in InvsatLimited and Rydex Corporation Limited respectively. These businesses contributedthe following amounts to the results for the three and nine months endedSeptember 30, 2006 and 2005: ------------------------- ------------ -----------(US$ in millions) Three months Nine months ended ended September 30, September 30,------------------------- ------- ------- ------ ------- 2006 2005 2006 2005------------------------- ------- ------- ------ -------Revenue - 3.0 - 11.8Employee benefits costs - (1.3) - (4.4)Other operating costs - (2.0) - (7.7)------------------------- ------- ------- ------ -------EBITDA - (0.3) - (0.3)------------------------- ------- ------- ------ ------- Depreciation and amortization During the three months ended September 30, 2006, depreciation and amortizationwas US$44.0 million, an increase of US$15.0 million, or 51.7%, compared with thethree months ended September 30, 2005. The increase relates principally to theadditional depreciation on the second Inmarsat-4 satellite followingcommencement of commercial service in February 2006, in addition to variouselements of the Inmarsat-4 and BGAN ground infrastructure which are also nowbeing depreciated. Furthermore, the three months ended September 30, 2006 alsoincludes accelerated depreciation of US$2.9 million to reflect the plannedclosure of the Land Earth Station at Goonhilly (previously operated by StratosGlobal Corporation, and following the merger of that company with Xantic B.V.). Operating profit As a result of the factors discussed above, operating profit during the threemonths ended September 30, 2006 was US$45.4 million, a decrease of US$0.3million, or 0.7%, compared with the three months ended September 30, 2005accounted for by increased revenues and decreased operating costs offset by thehigher depreciation charge. Net interest payable Interest payable for the three months ended September 30, 2006 was US$20.5million, a decrease of US$18.9 million compared with the three months endedSeptember 30, 2005. Following the listing of Inmarsat plc's shares on the LondonStock Exchange in June 2005, the Group restructured its debt facilities and madesignificant debt repayments. Interest payable in the three months endedSeptember 30, 2005 included a write-off of deferred financing costs of US$6.1million and a redemption premium of US$12.7 million in connection with therepayment of 35% of the aggregate principal amount of the 7 5/8% Senior Notesdue 2012 following the IPO of Inmarsat plc in June 2005. Interest receivable for the three months ended September 30, 2006 was US$2.0million, an increase of US$0.2 million compared with the three months endedSeptember 30, 2005. Profit before tax During the three months ended September 30, 2006, profit before tax was US$26.9million, an increase of US$18.8 million compared with the three months endedSeptember 30, 2005 with higher depreciation charges offset in part by lower netinterest costs following the favorable restructuring of the Group's debtportfolio. Income tax expense The tax charge for the three months ended September 30, 2006 wasUS$15.8 million, compared to US$4.7 million for the three months ended September30, 2005. The tax charge for the three months ended September 30, 2006 includesa charge of US$5.6 million made following a review of certain historic taxprovisioning positions. The remainder of the increase in the tax charge islargely driven by an increase in profit. The almost unchanged effective tax rate reflects significant disallowableexpenses having been incurred during the three months ended September 30, 2005,offset by the effect of the charge relating to historic positions discussedabove. Liquidity and capital resources The Group had net borrowings at September 30, 2006 of US$885.6 million primarilycomprising Senior Credit Facility drawings of US$250.0 million, Senior Notes ofUS$256.8 million (net of US$53.6 million Senior Notes held by the Group, being17% of the aggregate principal amount outstanding), Senior Discount Notes ofUS$349.5 million and deferred satellite payments of US$63.3 million, net of cashand cash equivalents and short-term deposits of US$49.0 million. See note 5. Thetotal borrowings figures given in note 5 can be reconciled to the net borrowingsfigure above as follows: ------------------------------- -------- --------(US$ in millions) As at As at September 30, December 31,------------------------------- -------- -------- 2006 2005------------------------------- -------- --------Total Borrowings 934.6 941.8Cash and cash equivalents (49.0) (35.3)------------------------------- -------- --------Net Borrowings 885.6 906.5------------------------------- -------- -------- Net cash from operating activities during the three months ended September 30,2006 was US$85.5 million compared to US$100.0 million during the three monthsended September 30, 2005. The decrease primarily relates to working capitalmovements. Net cash used in investing activities during the three months ended September30, 2006 was US$35.7 million compared with US$49.9 million for the three monthsended September 30, 2005, reflecting the Group's continued capital expenditurefor the construction of the Group's Inmarsat-4 satellites and associated groundinfrastructure. Included in cash used in investing activities during the threemonths ended September 30, 2006 was an initial payment of US$4.0 million oncompletion of the ACeS collaboration arrangements. Net cash used in financing activities during the three months ended September30, 2006 was US$15.2 million compared to US$224.7 million during the threemonths ended September 30, 2005. During the three months ended September 30,2006 the Group paid US$15.2 million of interest costs on Senior Notes andFacilities, a decrease of US$17.0 million on 2005 as a result of the redemptionpremium recorded in the three months ended September 30, 2005 as discussedabove. Net cash used in financing activities during the three months endedSeptember 30, 2005 included US$167.1 million in connection with the partialredemption of Senior Notes due 2012. The Group continually evaluates sources of capital and may repurchase,refinance, exchange or retire current or future borrowings and/or debtsecurities from time to time in private or open-market transactions, or by anyother means permitted by the terms and conditions of borrowing facilities anddebt securities. Recent Events In April 2006, three existing distribution partners commenced an arbitrationproceeding contending that the Group's appointment of a new distribution partnerbreached the terms of the commercial agreements between the Group and itsexisting distribution partners. The arbitration proceeding was held during thelast week of September, 2006. The decision of the arbitrator is expected in thefourth quarter of 2006. On October 26, 2006 Apax Partners France ("Apax") announced that it had enteredinto a definitive agreement with Telenor ASA for the acquisition of TelenorSatellite Services ("TSS"), an Inmarsat LESO and BGAN Distribution Partner, bycertain funds under its management. The transaction is subject to approval fromthe regulatory authorities. On July 24, 2006 Apax had announced an agreementwhereby its funds would acquire France Telecom Mobile Satellite CommunicationsSA ("FTMSC"), also an Inmarsat LESO and BGAN Distribution Partner, from FranceTelecom. The completion of this latter transaction was announced on November 6,2006. Completion of a merger between TSS and FTMSC would mean the Groupproviding a higher level of discount under the volume discount scheme because ofthe higher total traffic volumes of the consolidated partners. Subsequent to September 30, 2006 there have been no other material events whichwould affect the information reflected in the condensed consolidated financialresults of the Group. INMARSAT HOLDINGS LIMITED CONDENSED CONSOLIDATED INCOME STATEMENT (unaudited) ----------------------- ------------ ------------(US$ in millions) Three months Nine months ended ended September 30, September 30,----------------------- -------- ------ ------- ------- 2006 2005 2006 2005----------------------- -------- ------ ------- -------Revenue 129.2 120.0 375.1 373.6Employee benefits costs (21.2) (24.0) (62.6) (68.4)Restructuring costs includingtermination benefits - - (6.8) -Network and satellite operationscosts (8.0) (7.8) (23.0) (31.8)Other operating costs (13.1) (16.8) (39.7) (44.8)Work performed by the Group andcapitalized 2.5 6.1 9.3 20.1Losses on termination of subsidiaryundertakings - (2.8) - (2.8)Depreciation and amortization (44.0) (29.0) (119.3) (78.7)----------------------- -------- ------ ------- -------Operating profit 45.4 45.7 133.0 167.2Interest receivable and similarincome 2.0 1.8 6.5 49.6Interest payable and similar charges (20.5) (39.4) (65.0) (143.8)----------------------- -------- ------ ------- -------Net interest payable (18.5) (37.6) (58.5) (94.2)----------------------- -------- ------ ------- -------Profit before income tax 26.9 8.1 74.5 73.0Income tax expense (15.8) (4.7) (32.0) (27.1)----------------------- -------- ------ ------- -------Profit for the period 11.1 3.4 42.5 45.9----------------------- -------- ------ ------- ------- CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (unaudited) ----------------------- ------------ ------------(US$ in millions) Three months Nine months ended ended September 30, September 30,----------------------- -------- ------ ------- ------- 2006 2005 2006 2005----------------------- -------- ------ ------- -------Profit for the period 11.1 3.4 42.5 45.9Gains/(losses) on cash flow hedges (1.8) 1.5 5.6 (8.5)Movement in cumulative translationreserve - 0.3 - -Actuarial gains/(losses) from pensionand post-retirement healthcarebenefits - - 7.1 (0.6)Tax credited directly to equity 0.6 1.2 0.3 3.2----------------------- -------- ------ ------- -------Total recognized income for theperiod 9.9 6.4 55.5 40.0----------------------- -------- ------ ------- ------- INMARSAT HOLDINGS LIMITED CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) ------------------------------ -------- --------(US$ in millions) As at As at September 30, December 31, 2006 2005------------------------------ -------- --------AssetsNon-current assetsProperty, plant and equipment 1,263.0 1,319.1Intangible assets 530.3 524.5Derivative financial instruments 1.0 ------------------------------- -------- -------- 1,794.3 1,843.6------------------------------ -------- --------Current assetsCash and cash equivalents 49.0 35.3Trade and other receivables 180.3 147.8Inventories 0.3 0.3Derivative financial instruments 5.4 2.3------------------------------ -------- -------- 235.0 185.7------------------------------ -------- --------Total assets 2,029.3 2,029.3------------------------------ -------- -------------------------------------- -------- --------LiabilitiesCurrent liabilitiesTrade and other payables 208.3 170.0Borrowings 36.7 11.3Provisions 1.8 0.4Current income tax liabilities 9.1 23.0Derivative financial instruments 0.5 3.6------------------------------ -------- -------- 256.4 208.3------------------------------ -------- --------Non-current liabilitiesOther payables 13.3 33.8Borrowings 878.5 908.9Provisions 36.1 37.6Deferred income tax liabilities 204.2 157.6Derivative financial instruments 0.1 0.3------------------------------ -------- -------- 1,132.2 1,138.2------------------------------ -------- --------Total liabilities 1,388.6 1,346.5------------------------------ -------- --------Net assets 640.7 682.8------------------------------ -------- -------- Shareholders' equityOrdinary shares 0.4 0.4Share premium 346.1 346.1Other reserves 347.6 341.4Accumulated losses (53.4) (5.1)------------------------------ -------- --------Total shareholders' equity 640.7 682.8------------------------------ -------- -------- INMARSAT HOLDINGS LIMITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT (unaudited) --------------------- ------------- -------------(US$ in millions) Three months Nine months ended ended September 30, September 30,--------------------- -------- -------- -------- -------- 2006 2005 2006 2005--------------------- -------- -------- -------- --------Cash flow from operating activitiesCash generated from operations 82.9 99.8 216.6 242.3Interest received 2.7 0.8 4.1 9.8Income taxes paid (0.1) (0.6) (0.5) (0.7)--------------------- -------- -------- -------- --------Net cash inflow from operatingactivities 85.5 100.0 220.2 251.4--------------------- -------- -------- -------- --------Cash flow from investing activitiesPurchase of property, plant andequipment (31.7) (57.3) (72.3) (145.0)Payment under ACeS collaborationarrangements (4.0) - (4.0) -Disposal of subsidiary (net oftransaction costs) - 6.7 - 6.7Short-term deposits - 0.7 - 151.7--------------------- -------- -------- -------- --------Net cash (used in)/provided byinvesting activities (35.7) (49.9) (76.3) 13.4--------------------- -------- -------- -------- --------Cash flow from financing activitiesDividends paid - (24.7) (49.8) (24.7)Purchase of Senior Notes - - (43.6) -Interest paid on Senior Notes andFacilities (15.2) (32.2) (35.6) (73.4)Repayments of previous Senior CreditFacility - - - (737.5)Repayments of Senior Notes - (167.1) - (167.1)Repayment of Subordinated PreferenceCertificates - (0.2) - (334.8)Capital contribution from Inmarsat plc - - - 330.0Net proceeds from issue of ordinaryshares - - - 311.9Net proceeds from new Senior CreditFacility - (0.4) - 244.4Arrangement costs of Senior Notes - - - (0.8)Principal payments under finance leases - (0.1) - (0.1)Finance lease interest paid - - - (0.1)--------------------- -------- -------- -------- --------Net cash used in financing activities (15.2) (224.7) (129.0) (452.2)--------------------- -------- -------- -------- --------Foreign exchange adjustment (0.4) (0.4) (0.4) (0.2)--------------------- -------- -------- -------- --------Net increase/(decrease) in cash andcash equivalents 34.2 (175.0) 14.5 (187.6)--------------------- -------- -------- -------- -------- Movement in cash and cash equivalentsAt beginning of period 14.7 219.0 34.4 231.6Net increase/(decrease) in cash andcash equivalents 34.2 (175.0) 14.5 (187.6)--------------------- -------- -------- -------- --------As reported on balance sheet (net ofbank overdrafts) 48.9 44.0 48.9 44.0--------------------- -------- -------- -------- --------At end of period, comprisingCash at bank and in hand 4.1 2.8 4.1 2.8Short-term deposits with originalmaturity of less than 3 months 44.9 41.8 44.9 41.8Bank overdrafts (0.1) (0.6) (0.1) (0.6)--------------------- -------- -------- -------- -------- 48.9 44.0 48.9 44.0--------------------- -------- -------- -------- -------- Notes to the Condensed Consolidated Financial Statements 1. General information The principal activity of Inmarsat Holdings Limited and its subsidiaries (the"Group") is the provision of global mobile satellite communication services. These unaudited condensed consolidated financial results were approved for issueby the Board of Directors on November 14, 2006. 2. Principal accounting policies Basis of preparation These financial statements have been prepared in accordance with IFRS and IFRICinterpretations applicable to companies reporting under IFRS as adopted for usein the EU. There are no material differences for the Group between IFRS and IFRSas adopted for use in the EU. The unaudited Group results for the three and nine months ended September 30,2006 have been prepared on a basis consistent with the IFRS accounting policiesas set out on pages F1-F54 of the Consolidated Financial Statements for the yearto December 31, 2005 as filed with the SEC on Form 20-F on April 28, 2006. The unaudited condensed consolidated interim financial statements are based uponaccounting policies and methods consistent with those used and described in theannual financial statements prepared under IFRS, save as disclosed in note 7.These interim financial statements should be read in conjunction with the mostrecent annual financial statements. In the opinion of management all adjustmentsof a normally recurring nature considered necessary for a fair presentation havebeen included. Operating results for the three and nine month periods endedSeptember 30, 2006 are not necessarily indicative of the results that may beexpected for the year ending December 31, 2006. The consolidated balance sheetas at December 31, 2005, has been derived from the audited consolidatedfinancial statements at that date but does not include all of the informationand footnotes required by IFRS for complete financial statements. Basis of accounting The preparation of the condensed consolidated financial statements in conformitywith IFRS requires management to make certain estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the Balance Sheet dates and the reportedamounts of revenue and expenses during the reported period. Although these estimates are based on management's best estimate of the amount,event or actions, these results ultimately may differ from those estimates. Accounting policies adopted in preparing these condensed consolidated financialstatements have been selected in accordance with IFRS. During the three months ended June 30, 2006, the Group amended the accountingtreatment for lease payments on its headquarters building to show these on astraight-line basis rather than as incurred. The income statement for the ninemonths ended September 30, 2006 therefore includes a non-recurring and non-cashcharge of US$2.1 million to reflect the costs of this change for the full year2005. This amount is not considered material for restatement of 2005 figures.3. Segmental information The Group operates in one business segment being the supply of mobile satellitecommunications services. 'Other' in the three and nine months ended September 30, 2006 principallycomprises income from the provision of conference facilities and leasing surplusoffice space to external organizations. 'Other' in the three and nine months ended September 30, 2005 principallycomprises the results of the subsidiaries, Invsat and Rydex, which were disposedof in the second half of 2005 in addition to income from the provision ofconference facilities and leasing surplus office space to externalorganizations. Primary reporting format - business segments (US$ in millions) Three months ended September 30, 2006 Three months ended September 30, 2005 (unaudited) (unaudited)--------------- ------ ------ ------- ------ ------ ------ ------- ------- ------- MSS Other Unallocated Total MSS Other Unallocated Elimination Total--------------- ------ ------ ------- ------ ------ ------ ------- ------- ------- Revenue 127.6 1.6 - 129.2 116.9 3.1 - - 120.0 Segment result 48.0 (2.6) - 45.4 49.8 (4.1) - - 45.7(operating profit) Net interestcharged to theincomestatement - - (18.5) (18.5) - - (37.6) - (37.6) Profit beforeincome tax 26.9 8.1Income taxexpense (15.8) (4.7) Profit for theperiod 11.1 3.4 Segment assets 1,980.3 - 49.0 2,029.3 1,962.3 0.6 44.9 2.4 2,010.2Segmentliabilities (260.1) - (1,128.5) (1,388.6) (227.4) (0.7) (1,111.7) (0.7) (1,340.5)Capitalexpenditure (7.9) - - (7.9) (92.2) - - - (92.2)Depreciation (40.8) - - (40.8) (25.8) (0.2) - - (26.0)Amortizationof intangibleassets (3.2) - - (3.2) (3.0) - - - (3.0)--------------- ------ ------ ------- ------ ------ ------ ------- ------- ------- (US$ in millions) Nine months ended September 30, 2006 Nine months ended September 30, 2005 (unaudited) (unaudited)-------------- ------ ------ ------- ------ ------ ------ ------- ------- ------- MSS Other Unallocated Total MSS Other Unallocated Elimination Total-------------- ------ ------ ------- ------ ------ ------ ------- ------- ------- Revenue 370.7 4.4 - 375.1 358.4 15.2 - - 373.6 Segment result 134.3 (1.3) - 133.0 170.1 (2.9) - - 167.2(operating profit) Net interestcharged to theincomestatement - (58.5) (58.5) - - (94.2) - (94.2) Profit beforeincome tax 74.5 73.0Income taxexpense (32.0) (27.1) Profit for theperiod 42.5 45.9 Segment assets 1,980.3 - 49.0 2,029.3 1,962.3 0.6 44.9 2.4 2,010.2Segmentliabilities (260.1) - (1,128.5) (1,388.6) (227.4) (0.7) (1,111.7) (0.7) (1,340.5)Capitalexpenditure (54.7) - - (54.7) (233.0) - - - (233.0)Depreciation (106.0) - - (106.0) (69.4) (0.7) - - (70.1)Amortizationof intangibleassets (13.3) - - (13.3) (8.6) - - - (8.6)-------------- ------ ------ ------- ------ ------ ------ ------- ------- ------- 4. Net interest payable ----------------------- ------------- ------------(US$ in millions) Three months Nine months ended ended September 30, September 30,----------------------- -------- ------- ------- ------- 2006 2005 2006 2005----------------------- -------- ------- ------- -------Interest on Senior Notes and SeniorCredit Facilities (9.1) (10.2) (29.0) (49.5)Accretion of principal on the SeniorDiscount Notes (9.0) (8.2) (26.5) (24.0)Pension and post retirement liabilityfinance costs (0.6) - (4.0) -Unwinding of discount on deferredsatellite liabilities (0.8) (0.9) (2.8) (2.0)Amortization of debt issue costs (0.9) (0.9) (2.4) (7.4)Interest and facility fees payable onbank loans, overdrafts and financeleases (0.1) (0.4) (0.3) (1.0)Previous Senior Credit Facilitydeferred debt issue costs written off - - - (19.9)Accretion of principal on theSubordinated Preference Certificates - - - (19.6)Deferred debt issue costs written offand redemption premium paid onrepayment of 35% of the Senior Notesdue 2012 - (18.8) - (18.8)Interest rate swap - - (1.4)Other interest - - - (0.2)----------------------- -------- ------- ------- -------Total interest payable and similarcharges (20.5) (39.4) (65.0) (143.8)----------------------- -------- ------- ------- -------Bank interest receivable and otherinterest 1.2 0.8 4.5 5.9Interest rate swap 0.8 - 2.0 -Currency revaluation of SubordinatedPreference Certificates - - - 39.3Senior Notes premium written off - 1.0 1.0Realized gain on amendment tointerest rate swap - - - 3.4----------------------- -------- ------- ------- -------Total interest receivable and similarincome 2.0 1.8 6.5 49.6----------------------- -------- ------- ------- -------Net interest payable (18.5) (37.6) (58.5) (94.2)----------------------- -------- ------- ------- ------- 5. Borrowings Borrowings are shown net of unamortized deferred finance costs, which have beenallocated as follows: --------------- --------------- ------------------(US$ in millions) As at September 30, 2006 As at December 31, 2005--------------- ------- ------ ------ -------- ------ ------- Deferred Deferred finance finance Amount costs Net balance Amount costs Net balance--------------- ------- ------ ------ -------- ------ -------Senior CreditFacility 250.0 (1.8) 248.2 250.0 (2.3) 247.7Senior DiscountNotes 349.5 (8.3) 341.2 332.2 (8.7) 323.5- Accretion ofprincipal 13.7 - 13.7 4.4 - 4.4Senior Notes 256.8 (9.3) 247.5 300.4 (10.6) 289.8Premium onSenior Notes 1.2 - 1.2 1.3 - 1.3Deferredsatellitepayments 63.3 - 63.3 52.6 - 52.6Bank overdrafts 0.1 - 0.1 0.9 - 0.9--------------- ------- ------ ------ -------- ------ -------Total Borrowings 934.6 (19.4) 915.2 941.8 (21.6) 920.2--------------- ------- ------ ------ -------- ------ ------- 6. Reconciliation of (loss)/profit previously reported under UK GAAP to profitunder IFRS for the three and nine months ended September 30, 2005 Reconciliation of (loss)/profit under UK GAAP to profit under IFRS for the threeand nine months ended September 30, 2005: (US$ in millions) Three months ended September 30, 2005-------------------------- -------- --------- ------- Effect of transition UK GAAP to IFRS IFRS-------------------------- -------- --------- -------Revenue 120.0 - 120.0Employee benefits costs (24.0) - (24.0)Network and satellite operations costs (7.8) - (7.8)Other operating costs (16.7) (0.1) (a) (16.8)Work performed by the Group andcapitalized 6.1 - 6.1Loss on termination of subsidiaryundertaking (2.8) - (2.8)Depreciation and amortization (33.9) 4.9(b) (29.0)-------------------------- -------- --------- -------Operating profit 40.9 4.8 45.7Interest receivable 1.8 - 1.8Interest payable and similar charges (39.4) - (39.4)-------------------------- -------- --------- -------Net interest payable (37.6) - (37.6)-------------------------- -------- --------- -------Profit before income tax 3.3 4.8 8.1Income tax expense (5.6) 0.9(a),(c) (4.7)-------------------------- -------- --------- -------(Loss)/profit for the period (2.3) 5.7 3.4-------------------------- -------- --------- ------- (US$ in millions) Nine months ended September 30, 2005-------------------------- -------- --------- ------- Effect of transition UK GAAP to IFRS IFRS-------------------------- -------- --------- -------Revenue 373.6 - 373.6Employee benefits costs (68.4) - (68.4)Network and satellite operations costs (31.8) - (31.8)Other operating costs (43.7) (1.1)(a) (44.8)Work performed by the Group andcapitalized 20.1 - 20.1Loss on termination of subsidiaryundertaking (2.8) - (2.8)Depreciation and amortization (93.8) 15.1(b) (78.7)-------------------------- -------- --------- -------Operating profit 153.2 14.0 167.2Interest receivable 49.6 - 49.6Interest payable and similar charges (143.8) - (143.8)-------------------------- -------- --------- -------Net interest payable (94.2) - (94.2)-------------------------- -------- --------- -------Profit before income tax 59.0 14.0 73.0Income tax expense (30.0) 2.9(a),(c) (27.1)-------------------------- -------- --------- -------Profit for the period 29.0 16.9 45.9-------------------------- -------- --------- ------- (a) Foreign currency translation In applying IAS 39, 'Financial Instruments: Recognition and Measurement' theGroup is required to recognize on the balance sheet all cash flow and fair valuehedges previously not recognized under UK GAAP. The movements in fair value ofineffective hedges are taken through the income statement. (b) Intangible assets In adopting IAS 38, 'Intangible assets' the Group does not amortize goodwill,instead it is subject to an annual impairment review. Under UK GAAP goodwill wasamortized over 20 years. (c) Deferred income tax The scope of IAS 12, 'Income taxes' is wider than the corresponding UK GAAPstandard, and requires deferred tax to be provided on all temporary differencesrather than just timing differences under UK GAAP. As a result, the Group's IFRSopening Balance Sheet at January 1, 2004 included additional deferred taxliabilities in respect of differences between the carrying value and tax writtendown value of the Group's assets. These are being unwound over six years, beingthe estimated average remaining useful life of these assets at that time. 7. Summary of differences between IFRS and United States GAAP The condensed consolidated financial statements have been prepared in accordancewith accounting principles under IFRS, which differ in certain material respectsfrom generally accepted accounting principles in the United States ("US GAAP").Such differences involve methods for measuring the amounts shown in thecondensed consolidated financial statements, as well as different disclosuresrequired by US GAAP. Further details on these differences between IFRS andUS GAAP are set forth in Note 34 of our consolidated financial statements forthe year ended December 31, 2005 as filed with the SEC on Form 20-F. As notedbelow, a Form 20-F/A will shortly be filed with the SEC. The following table contains a summary of the adjustments to profit for thefinancial year/period between IFRS and US GAAP: (US$ in millions) Three months Nine months Year ended---------------------- ended September 30, ended September 30, December 31, 2006 2005 2006 2005 2005---------------------- ------ ------- ------ ------- -------- (as restated) (as restated) (as restated)---------------------- ------ ------- ------ ------- --------Profit for thefinancialperiod asreported underIFRS 11.1 3.4 42.5 45.9 64.3US GAAP adjustments:Pension plans 0.1 (0.2) 1.2 (0.7) (5.0)Financialinstruments 0.1 0.4 0.5 4.6 4.8Deferredtaxation 7.9 (0.3) (2.0) (9.8) (15.7)Facility fees - (10.8) (2.5) (8.7) 2.5Developmentcosts (0.3) (3.1) (1.5) (5.7) (18.5)Amortizationon developmentcosts 0.3 0.3 0.8 0.9 1.6Depreciationon tangiblefixed assets (0.3) (0.4) (1.0) (1.0) (1.0)UK NationalInsurance onstock options 0.2 - 0.7 - 2.2Capitalizedinterest 5.9 17.1 20.8 55.0 75.0Deferredincome on saleof tangibleassets 0.8 (0.2) 4.3 0.6 0.8Network andsatellitecosts andamortization 0.1 2.0 0.4 2.0 (8.7)Amortizationof otherintangibles (0.4) (0.4) (1.1) (1.1) (1.5)Cumulativetranslationadjustmentupon disposalof subsidiary - 1.7 - 1.7 1.7---------------------- ------ ------- ------ ------- --------Total US GAAPadjustments 14.4 6.1 20.6 37.8 38.2---------------------- ------ ------- ------ ------- --------Net incomeunder US GAAP 25.5 9.5 63.1 83.7 102.5---------------------- ------ ------- ------ ------- -------- The following table contains a summary of the adjustments to shareholders' fundsbetween IFRS and US GAAP: -------------------------------- --------- --------- As at As at September 30, December 31,-------------------------------- --------- ---------(US$ in millions) 2006 2005 (as restated)-------------------------------- --------- ---------Total shareholders' funds as reported underIFRS 640.7 682.8US GAAP adjustments:Pension plans 16.6 15.8Deferred taxation (52.2) (44.0)Facility fees - 2.5Development costs (61.7) (61.1)Tangible assets 3.7 4.7Goodwill (155.2) (155.2)UK National Insurance on stock options 2.9 2.2Network and satellite costs (8.0) (8.4)Deferred income on sale of tangible assets (53.0) (57.3)Capitalized interest 163.3 142.5Other intangible assets 72.2 73.3-------------------------------- --------- ---------Total US GAAP adjustments (71.4) (85.0)-------------------------------- --------- ---------Shareholders' equity under US GAAP 569.3 597.8-------------------------------- --------- --------- The reconciliations of net income above for the three and nine months endedSeptember 30, 2005, the year ended December 31, 2005 (as restated) and thereconciliation of net equity as at December 31, 2005 (as restated) reflect thecorrection of an error in the calculation of the US GAAP deferred taxationbalances for these periods. This error resulted in an overstatement of the USGAAP deferred tax charge for the year ended December 31, 2005 of US$9.0 million,and an understatement of net equity as at December 31, 2005 of US$16.6 million.A Form 20-F/A correcting these errors will be filed with the SEC shortly. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Inmarsat